Energy-Cost Crisis: Manufacturers spend N1.34trn on energy as....

Nigeria’s manufacturing sector is facing a growing energy-cost crisis, with industrial firms spending N1.34 trillion on energy over a two-year period as unreliable grid supply, rising fuel costs and repeated tariff pressures squeeze factory margins and weaken competitiveness.

Data from the Manufacturers Association of Nigeria (MAN), cited in an industry analysis, showed that manufacturers’ energy expenditure rose 71.4 per cent over the period, forcing more factories to depend heavily on self-generation to keep production lines running.

The burden extends beyond conventional electricity bills. Manufacturers are increasingly operating a parallel “shadow grid” powered by diesel generators and other private energy sources, exposing production costs to the volatility of petroleum prices.

The National Midstream and Downstream Petroleum Regulatory Authority (NMDPRA) has also reported estimated diesel spending of N1.83 trillion by manufacturers in March and April alone, highlighting the scale of the cost being transferred from the power sector to industrial balance sheets.

For factories, the problem is particularly damaging because energy is a direct component of the cost of producing virtually every unit of goods. When electricity and fuel costs rise sharply, manufacturers are forced either to absorb the increase and suffer weaker margins or pass it to consumers through higher prices.

That creates a wider economic problem as Nigerian households already face weak purchasing power and imported products become more competitive against locally manufactured goods.

The pressure is encouraging manufacturers to look beyond diesel and conventional grid supply towards hybrid energy systems combining solar, batteries, gas and the national grid.

The emerging model is Power-as-a-Service, under which energy companies finance, install and operate the equipment while manufacturers pay for the electricity consumed under contractual arrangements.

The attraction is not simply cleaner energy. It is cost predictability.

Factories operating mainly during daylight hours can use solar power for a significant part of their production cycle, reducing dependence on diesel generation and expensive peak electricity. A predictable energy tariff also allows manufacturers to forecast production costs more accurately and make longer-term pricing and investment decisions.

That has become increasingly important because access to conventional bank financing remains expensive. Prime lending rates average about 24.4 per cent, according to the industry analysis, while maximum lending rates exceed 33 per cent.

For manufacturers, borrowing heavily to finance their own solar installations can therefore tie up capital that would otherwise be deployed to buy raw materials, expand production, upgrade machinery or increase inventory.

Energy-as-a-service arrangements shift the capital burden to specialised providers through power purchase agreements and other financing structures, allowing factories to preserve their working capital while securing a more stable energy supply.

The economic argument is becoming stronger as factory capacity utilisation comes under pressure. The industry source puts average utilisation below 60 per cent, with rising energy costs contributing to the difficulty manufacturers face in keeping plants operating at full capacity.

The implication is significant for the wider economy. Lower and more predictable energy costs could improve factory utilisation, reduce production costs, protect jobs and make locally produced goods more competitive against imports.

Nigeria’s energy challenge is therefore increasingly becoming a question of industrial survival rather than simply electricity supply.

As manufacturers search for ways to defend margins, the next phase of the sector’s energy transition may be driven less by environmental considerations than by a hard commercial calculation: companies that can secure cheaper, more predictable electricity will have a better chance of keeping factories open, prices competitive and production growing.