Threatening Rise of Energy Costs on Businesses and Sustainable Solutions

Nigeria, Africa's economic powerhouse, is facing a critical challenge – a dramatic rise in energy costs, particularly diesel. This surge threatens to cripple businesses across all sectors, potentially stalling economic growth and pushing some companies to the brink of closure. Diesel prices have skyrocketed from N312 per litre in January 2022 to N1,700 in March 2024, a staggering 400% increase. This rise is squeezing profit margins and forcing difficult decisions on businesses of all sizes.

The impact is widespread. Haulage business are severely affected as deliveries have plummeted and are becoming less profitable. Printing business echoes this sentiment also. The rising diesel costs have eroded margins, forcing delivery cutbacks and even layoffs just to stay afloat.

This scenario is far from isolated. From construction firms and agricultural giants to manufacturers and delivery services, businesses reliant on diesel are feeling the pinch. The unreliable national grid compels them to depend heavily on diesel-powered generators, significantly more expensive than grid electricity. This not only eats into profits but also disrupts operations and hinders production.

The Manufacturers Association of Nigeria (MAN) identifies the high cost of energy as the top challenge facing the sector. This burden compounds existing issues like high credit costs, limited loan availability, multiple taxes, and raw material shortages.

A BusinessDay analysis revealed a significant increase in energy expenditure for several listed companies in 2023. The combined cost reached N275.41 billion, a sharp rise from N216.77 billion in 2022. The cement industry has been particularly affected. BUA Cement saw a staggering 86.5% increase in energy costs, while Dangote Cement faced a 49.8% rise. Lafarge Africa wasn't spared either, experiencing a 21.62% jump.

This dependence on a volatile fuel source leaves business vulnerable to price fluctuations. The consequences extend beyond businesses. Higher energy costs translate into increased transportation and production expenses, ultimately leading to higher prices for consumers. This creates a "vicious cycle" as rising consumer spending power weakens, further impacting demand and economic growth.

Nigeria's current power woes stem from reduced gas output by suppliers. This, in turn, results in decreased supply to power-generating companies due to outstanding debts owed by these companies. The production cost has increased for industries because of rising diesel prices. Small-scale producers, heavily reliant on diesel generators, are severely impacted. Combining this with existing challenges, the outlook for the manufacturing sector is worrisome.

While addressing the national grid's issues is crucial, businesses can explore alternative energy sources to weather the current storm and build long-term resilience. A shift towards alternative energy sources to break free from the stranglehold of rising diesel costs is, therefore, a necessity.

Conducting energy audit to identify level of consumption and areas where load can be shed to cut cost is important. The cost of energy-saving strategies for businesses varies greatly. Low-cost options like behavioural changes and switching to energy-efficient appliances offer significant savings with minimal investment. 

For instance, simply encouraging employees to turn off lights and electronics when not in use can make a big difference. Businesses can also implement energy-saving measures like upgrading equipment to more efficient models, utilising LED lighting, and optimising production processes. Reducing overall energy consumption can lead to significant cost savings.

For businesses looking for more substantial savings, there are medium and high-cost options. Installing power management systems allows for better monitoring and control of energy use, leading to optimised consumption.  Solar power offers significant long-term savings but requires a substantial upfront investment.

Nigeria boasts abundant sunshine, making solar energy a viable alternative. Solar panels can be installed on rooftops to generate electricity for businesses, reducing dependence on the grid and diesel generators. The initial investment cost is higher, but long-term savings and environmental benefits make it a worthwhile option.

Also, organic waste can be converted into biogas through anaerobic digestion. This renewable fuel source can be used to power generators, offering a sustainable solution for businesses generating organic waste.

The current crisis necessitates a call for collaborative effort from various stakeholders. Investing in grid infrastructure, promoting renewable energy adoption through subsidies and tax breaks, and addressing the gas supply issues plaguing power generation companies are crucial.

Providing affordable loan options for businesses to invest in renewable energy solutions can accelerate the transition away from expensive diesel. Embracing a long-term perspective, businesses should invest in energy audits and explore alternative energy solutions to achieve long-term cost savings and environmental sustainability.

The rise in energy costs presents a significant challenge for businesses. However, it also presents an opportunity for innovation and transformation. Embracing renewable energy solutions and implementing energy-efficient practices, can enable businesses to become more resilient, sustainable, and ultimately contribute to a greener future for the economy.

Research & Advocacy Department,

Chartered Institute of Directors (CIoD), Nigeria

28, Cameron Road, Ikoyi, Lagos.

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