Nigeria secures a $329m deal for power line upgrade

From the newsletter

The populous West African country has taken a significant step in its power sector by signing a $329 million agreement with China Machinery Engineering Corporation (CMEC). This deal will see CMEC rehabilitate and construct 544 km of transmission lines under Phase 1, with a load capacity of 7,140 MW. Phase 3 targets a 25,000 MW load capacity.

• Nigeria's grid is among the worst in Africa, losing almost half of the power it generates due to ageing infrastructure, illegal connections, and vandalism. The national power utility is struggling with losses and lacks the capital to reinvest in upgrading costly power infrastructure.

• The country's energy sector needs about $31 billion between now and 2030 to meet its growth target. The transmission and distribution lines will need more than a third of this.

More details

• The project is part of the Presidential Power Initiative (PPI), which established a special purpose vehicle, the FGN Power Company, to oversee energy investments with the goal of lifting Nigeria out of perennial grid collapse. The funding will rehabilitate and construct transmission lines of 330 kV and 132 kV.

• Progress has already been made under the PPI with the deployment of ten power transformers and ten mobile substations by Siemens Energy, adding over 700 MW to the transmission capacity. This transmission and distribution upgrade is necessary to ensure all generated power is evacuated to consumers. Speaking at the signing of the agreement, the Minister of Power, Chief Adebayo Adelabu (pictured left), stated, “By focusing on upgrading and expanding our transmission network, we are directly addressing a key bottleneck in the power value chain.”

• The grid challenge is a problem affecting many countries in Africa. Some networks were built long ago with old technology and low efficiency. The network coverage is also insufficient to support demand, leading to frequent grid collapses. For instance, Nigerian households experience an average of about 7 electricity blackouts weekly, with each outage lasting 12 hours, according to the National Bureau of Statistics (NBS).

• The adoption of renewable energy is increasing, and most projects are located far from the available grid. Even where grid access exists, the infrastructure is often not designed to handle the fluctuating output of wind and solar power and requires upgrades to accommodate the new technology. Building these lines also takes time due to land permitting issues. Consequently, many projects are awaiting transmission line connections. Globally, over 3,000 GW of renewable energy projects are awaiting grid connection.

• The cost of not evacuating power in time is substantial for governments, as some Power Purchase Agreements (PPAs) stipulate that payments commence immediately upon completion of the generation plant. Kenya, for example, paid a significant amount for delayed power evacuation from its largest wind project. Consumers suffer most as they bear these costs through tariffs.

• Nigeria's energy compact plans to formulate policies to allow private sector investment in transmission and distribution lines. This is a costly undertaking that the government cannot manage alone. Similar initiatives are underway in other countries like South Africa and Kenya, which are all rolling out transmission infrastructure investment through Public-Private Partnership (PPP) frameworks.

• Nigeria stands to lose significantly if it does not accelerate its investments in building a reliable grid. Its main revenue sources, primarily industrial and commercial customers, might disconnect from the grid if improvements are not made soon. Already, solar installations for self-consumption by these customers reached over 200 MW in 2024

Our take

• It will be far more costly for the Nigerian government to lose its anchor customers, who are the primary drivers of demand. The government needs to fast-track policies and private sector investments in the sector to build a stable and reliable grid.

• The Nigerian government and other African projects often face challenges related to corruption and funds embezzlement. While establishing a special purpose vehicle to oversee energy sector investments is a positive step, it requires stringent supervision to ensure its success. Without this, it risks suffering the same fate as other government-led initiatives that have failed to progress due to political interests and interference.

• Although the capital injection from CMEC represents only a fraction of the amount needed for grid infrastructure, it is a crucial first step towards the goal of grid upgrade. Nigeria could explore partnerships with Chinese companies, who are now focusing on Africa with increased attention following the imposition of tariffs in Europe and the US.