An Economic Evaluation of Electricity Generation Options in Nigeria

Over the past two decades, electricity prices have been highly subsidized for consumers in Nigeria. Because of this, investment in the power sector has not been competitive, leaving the economy with a capacity deficient power sector. The country loses approximately $13bn yearly on imported captive generating plants used for self-generation. This study aims at analyzing the various power generation options for Nigeria. The evaluation uses an economic cost-benefit analysis approach to estimate the cost of various options that can be explored in Nigeria, and computes the consumers’ willingness to pay for electricity (taking into account the high level of self-generation presently in the country). In this study, taking a series of hypothetical plant capacity as would be required to meet the current shortages; results show that the Nigerian economy could realize a net benefit of $4.9 billion, in present value terms, if the country embarks on hydro power investment as replacement for the current shortages. If solar PV is chosen, the economy could realize a net benefit of $21.1 billion in present value terms. If open cycle gas as replacement, the economy could benefit a net present value of $25.6 billion, and if the country goes for combined cycle gas plant, the economy could benefit $29.3 billion in net present value terms. These results are sensitized for different prices of fuel over the period of analysis covered in this study. Therefore, there is strong evidence that the country stands to benefit from any amount of electricity supplied through the national grid as a replacement for the self-generation. Keywords: Power Generation, Nigeria, Economic Analysis