Is access to a steady and reliable electricity supply important for economic growth?
The short answer is yes.
To a large extent, stable and reliable electricity supply can aid economic growth and development. Electricity supports industrialization, which contributes significantly to development, but while the availability of electricity is a good sign of economic growth, a country’s electricity consumption pattern can also provide valuable information.
The five (5) countries with the highest gross domestic product (GDP) recorded in 2021: China, the United Kingdom, the United States, Japan, and Germany – all have one thing in common; their commercial and industrial sectors account for the most energy consumed. Over 60% of the distributed electricity in developing countries like India and Trinidad and Tobago is consumed by the industrial and commercial sectors, and an increase in electricity consumption was a key factor in South Korea’s economic growth. These countries illustrate the relationship between electricity consumption patterns and economic development.
In Nigeria, however, the consumption pattern differs widely. Available data shows that 66% of all available electricity in the country is consumed by residential customers. Though the grid capacity has increased over the years, the energy offtake of industrial and commercial customers has remained minimal. This is not just bad for the economy, it’s bad for the electricity sector.
For GDP growth to occur, electricity consumption must be increased, and since industrial and commercial entities typically consume more power than households and require reliable electricity to manufacture and run their businesses efficiently, they are best suited to increase consumption. So, when residential customers consume the most electricity or have better access, the result is an unproductive use of the energy consumed, as this energy goes to household utility usage rather than the production of goods or services. In addition, a higher percentage of the Nigerian population lives below the poverty line, and their struggle to pay for electricity affects revenue earned in the Nigerian electricity value chain, and ultimately the economy.
Conclusively, industrial, and commercial customers are well positioned to offtake electricity in large quantities from the grid. They are also more capable of paying for the electricity they receive, which will bring profit to the sector and ultimately stimulate the country’s development. However, Nigeria’s large poor population – coupled with a lack of access to funding and difficulty in doing business- does not encourage investment or entrepreneurial interest in the industrial sector, and even if these issues did not exist, Nigeria’s current generation capacity is insufficient to meet current demand.
Electricity Consumption by Customer Group (%)
A symbiotic relationship
As much as the electricity sector is vital to economic growth, economic growth is also necessary for the electricity sector. Nigeria’s current installed generation capacity is 13,014MW with a peak generation of 5801MW, and the country hopes to achieve 42000MW generating capacity by 2030 under the just-released Energy Transition Plan (ETP). What happens to the current electricity consumption pattern in Nigeria under the ETP? If we don’t change the pattern, we might not see improved economic growth even if the ETP succeeds by 2030.
Furthermore, many commercial and industrial entities that operate in Nigeria today developed much faster than the electricity supply industry. Eventually, structural inefficiencies that resulted in an unstable power supply led these entities to set up self-generation mechanisms that utilise fossil fuels/renewable energy sources. Improving grid infrastructure may encourage them to reconnect to the grid for power supply and help Nigeria achieve its goal of eliminating the use of generators by 2030 under the ETP.
As the electricity supply industry advances, other industries need to grow alongside it and vice versa. Making policies that tackle the barriers to industrial growth in the country and improving grid infrastructure are sound ways to start addressing this issue.