Opportunities for local players in Nigeria

Nigeria

Tola Talabi, CEO of Elektron Energy, talks to The Energy Year about the current state of the Nigerian energy sector and Elektron Energy’s current and future projects. Elektron Energy primarily engages in developing, acquiring and operating prime energy infrastructure projects in Nigeria and across West Africa.

How would you assess the competitiveness of the Nigerian energy sector?
Nigeria has one of the largest economies in Africa, and most of the actual economic activity might not be captured in official statistics. Nonetheless, international investors are turning away from Nigeria due to some rather valid concerns regarding security, pollution, the currency and the general business environment. However, I want to challenge these concerns: we have a significant addressable market here, and some other African economies are only a fraction of the size of the Lagos economy.
As domestic actors, we have a competitive advantage because we understand the market dynamics and the environment, and we are in a better position to collaborate with various industry participants.

How is Elektron Energy planning to take advantage of divestments by internationals?
Some of the international oil companies such as Shell and ENI own power and gas infrastructure assets. As they look to divest, we can evaluate those assets, particularly when we believe, as project developers, we can further optimise such assets.
We have various ways of looking at and utilising subsidised lending to hedge foreign exchange rates because we develop structures that allow us to ideally bridge that gap while also potentially being able to capture more value for our investors. Divestment has also created an opportunity for funds that are led by domestic actors to raise capital from development financial institutions and much larger funders.

Can you give us an overview of Elektron Energy?
Elektron Energy is mainly focused on delivering prime energy infrastructure, which we believe is key to the economy. We are focusing on power, gas-to-power and related infrastructure, and we are entering the renewables sphere. We are looking at hybrid projects that, for example, use both gas-to-power and solar energy.
We have changed focus over the years and have moved away from carbon-intense projects, such as modular refineries, even though we have significantly invested in this area. We had major concerns regarding the impact that the Dangote Refinery would have on the viability of modular refineries, at least specifically the refinery that we were developing. A modular refinery may not be able to compete due to economies of scale. Another reason for moving away from such projects is that our investment partners were increasingly becoming uncomfortable with them due to environmental concerns.
We are also actively exploring how to enhance some of our power projects with carbon credits and other financial and structural strategies to make the projects more bankable while keeping them sustainable.

What is the current status of the Alausa power plant?
The Alausa power plant is currently undergoing an expansion from 10 MW to 30 MW of total capacity, and construction is expected to start in March. We have already signed power purchase agreements (PPAs) with some customers, and we have also extended the PPAs with the anchor customer, the Lagos State government, by an additional 10 years, along with other customers, including a large mall in Nigeria. This project has been upgraded from a captive IPP [independent power plant] to an embedded IPP, and it has its own independent electricity distribution network licence.

Which projects is Elektron Energy currently developing?
In conjunction with the Eko Electric Distribution Company (EKEDC), we are developing a 30-MW power plant that will provide uninterrupted power to most of Victoria Island. It is a revolutionary embedded power project because the project represents the first time that a private project developer and a local DisCo [distribution company] will be in an embedded power arrangement in Nigeria. It will be located in Nepa Close, Victoria Island, where the DisCo has its substation.
We have already signed the PPA and other relevant agreements for the project, and we are now going through the funding and disbursement process. The project is worth USD 45 million, utilises 3-TW Wärtsilä engines and has the potential to expand.
We are partnering with the DisCo to enhance the distribution network and to assist the DisCo in the operation and maintenance of uninterrupted power supply to customers. The network is already live, and some corporate customers are already receiving power from the grid through it. Right now, we are pioneering this model, but we believe that other developers and DisCos will replicate it.
The projected impact is great. Victoria Island is one of the most viable power markets in Nigeria because most of the large international and domestic companies are headquartered there. The plant will be completed in less than 18 months.

Which hybrid projects is Elektron Energy currently developing?
We are building an 11-MW hybrid power plant in Ibadan, Oyo State. Ibadan is the second-largest city in the southwest and one of the largest cities in Nigeria. Therefore, the opportunities are significant. We are replicating the Alausa power plant structure, but this plant will include 10 MW of gas and 1 MW of solar. The strategy is to expand this plant to a capacity of 30 MW.
We are applying for an independent electricity distribution and network licence to connect Oyo State’s judiciary buildings, hospitals and streetlights within a 10-kilometre radius. It is very exciting for us because it is our first hybrid project and the first hybrid project of its kind in Nigeria. We’ve also received a concession to take over the state government campus to develop additional solar power.

How important are partnerships for Elektron Energy?
Partnerships are the lifeblood of what we do. We partner with industry participants along the value chain including: gas-producing E&P, pipeline and gas marketing companies. We are partnering with EKEDC and other DisCo’s in their respective franchise areas. We work with them to develop projects that are mutually beneficial to avoid disputes on access to customers. If our value proposition is aligned with their interests, they are willing to work with us.
Financially, we partner with banks and private-equity funds that work specifically on energy infrastructure.
On the government and regulatory side, both the Oyo and Lagos state governments are our key partners. They are very forward-thinking with respect to how they actively look to improve the power situation in their states. The current commissioner in Lagos is someone from the industry, and that is very helpful.

Where do you see Elektron Energy in the next five years?
We expect to have around 300 MW in our portfolio because we are scaling up the size and number of our projects. Our vision is to diversify our portfolio to incorporate more sustainable power, such as solar and hydro. We are quite interested in growing our solar footprint by incorporating solar into the IPP services we develop. In the near future, we expect to develop solar and hydro projects just as we have developed gas-to-power projects.
We believe that the business models we are promoting will generate returns for our investors. Elektron Energy will continue to execute and do the good work to improve the power sector, which is the catalyst for any kind of industrialisation that will happen in a country such as Nigeria. Without industrialisation, there are no jobs. Without jobs, there is no security and economic growth. We see ourselves playing a vital role, and we expect to continue to play that role five years from now.

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