The supply and demand for electricity have outpaced available infrastructure in Nigeria. With the abundant energy resources-hydro, fuel and renewable-huge infrastructural gap exist in the electricity market, evident in the margins between generating capacity and actual demand. The provision of infrastructure engenders shift from low growth equilibrium to a high growth steady state (Calderon & Serven, 2010; Agenor & Neanidis, 2015). In developed economies, the provision of infrastructure provides a variety of critical services that help determine economy’s production and consumption possibilities (Aschauer, 1998; Mentolio et. al., 2008; Sole-Olle, 2009; Palei, 2015). Adequate and efficient infrastructure also serves as a conduit for capital inflows, which equally impact on economic growth and development (Snieska & Draksaite, 2007; Martinkus & Lukasevicius, 2008 Calderon & Serven, 2014). In Nigeria’s context, the huge investment gap in electricity infrastructure will continue to inhibit wider access and growth opportunities.
Development in electricity generation infrastructure dates back to 1886 when two generating sets were installed (NESI, 2019). Much investment has not been realised in the electricity generation value chain decades after. Available installed electricity generation capacity stands at about 12,500 Megawatts (MW), amounting to about 532 percent in 1980 to 2017. At this rate, electricity generation cannot match Africa’s most populous country electricity demand. It was estimated that about 28,000MW, 51,000MW, and 77,000MW will be required to engender a 7 percent economic growth in 2015, 2020, and 2025 respectively (Sambo, 2008). At present, the total installed capacity of existing electricity generating plants in Nigeria, at about 12,500MW, lags behind the projection for 2015, and three times lower than the 2020 requirement.
The various power sector reforms have not brought many improvements in the development of power sector infrastructure in the country. An example is the recent power sector privatisation of 2013 that has not yielded much success different from when the sector was under state control. Pre the power sector privatisation era, 2012, the total electricity generation installed capacity was 5603MW. This increase to about 12,500MW in the post-privatisation period. This situation has grave implication in ensuring universal access to electricity, one of the focal point of Sustainable Development Goals (SDG-7). Of the over 180 million population, about 42 percent lack electricity access in 2016 with a difference across urban and rural locations (World Development Indicators, 2017). The urban access to electricity (78.4%) exceeds what obtains in the rural area (39.3%). These scenarios if not matched with the required infrastructural investment will continue to stifle growth and development.
In the modern-day societies, sustain efforts towards economic, social, and institutional factors bolster electricity infrastructural development. The case tends to be different in developing countries, like Nigeria, if one considers the performance of the macroeconomy that is largely characterised by frequent instability. The literature identifies macroeconomic aggregates like per capita GDP, interest rate, inflation rate, debt, fiscal expenditure, resource endowment, tax rate/incentives, among others, as factors affecting general investment decision even on infrastructure (Nwanwko, 2006, Akinlo et.al. 2013, Agénor, et al., 2015, Cerra, et.al, 2016). Unfortunately, the macroeconomic environment has kept at bay the needed infrastructural development. In the period 1980 to 2017, the inflation rate was at double-digit reaching as much as 17.3 percent, the interest rate was about 19.1percent, while financial credit to the private sector as a share of GDP was around 15 percent. In addition, the average GDP per capita in the referenced period at about US$1748 shows a low level of development, which is postulated to have a direct relationship with the quality of infrastructure (Goes, 2016). Apparently, the harsh investment climate, institutional inefficiencies, lack of political will, amongst others, attributed to the country’s lack of investment in electricity infrastructure.
To proactively cope with the increasing electricity demand that will drive economic growth, it is important to examine the determinants of generation infrastructure. Close to this study in the literature are the studies that focused on the growth effect of infrastructural development. For instance, Peprah (2015), examined the determinants of electricity generation in 25 sub-Saharan African countries. Privatisation, labour, and GDP per capita exert a positive effect on electricity generation. However, regulatory quality has an insignificant effect on electricity generation. Considering the relationship between infrastructure and economic growth in sub-Sahara Africa, Kondogo & Ojah (2016) found that spending on infrastructure and increments in the access to infrastructure influence economic growth and development in Sub-Saharan Africa. Other strands of literature investigated the determinants of electricity supply in Nigeria, (Ubi et. al., 2012,). The instances above do not consider the need for expanding the existing electricity supply capacity which is the crux of this study.
The growing dynamics in the country, in terms of population growth and the need for urgent development, makes it germane to accelerate infrastructural expansion in the electricity generation value chain. Also, access to energy is one of the central objectives of the sustainable development goals, which could be facilitated with an increase in electricity generation capacity. The emphasis in this paper is to identify those economic factors that require urgent attention in boosting the optimal performance of the electricity generation value chain for enhance electricity access, ultimately economic growth and development. In assessing the determinants of electricity generation infrastructure, the linear Autoregressive Distributed Lag (ARDL) model is employed since it provides a means of examining short and long-run scenarios. Annual data from 1980 to 2017 is employed. The outcome from the study was utilised to derive policy prescriptions towards increasing electricity access for sustainable development.
The remainder of the paper is structured as follows: section two, an overview of electricity infrastructure in Nigeria. Section three dwells on the review of relevant literature. Section four provides detail on the methodology and data used, Section five presents and discuss the empirical results, while the last section concludes with some recommendation.