ABSTRACT

This research investigates the causal relationship among electricity consumption, fuel price and economic growth in Nigeria, using time series techniques covering the period of 1970-2012. The results of our estimation show that real gross domestic product, electricity consumption and fuel price are co-integrated. Showing a positive relationship of electricity consumption and real GDP and shows a negative relation between fuel price and real GDP. It also finds the presence of unidirectional causality from real gross domestic product to electricity consumption without any feedback effect. This shows that an improvement in economic growth in Nigeria will improve electricity consumption. And shows that fuel price granger cause consumption, which shows the impact of fuel price on electricity consumption.

To cope with the increasing electricity demand and to overcome the shortage of electricity, it is imminent that investments be encourage in the electricity supply sectors to ensure an efficiency in distribution and transmission of electricity on a large scale to bridge the gap between supply and demand of electricity in Nigeria. 

LIST OF ABBREVIATIONS

ADF     

 Augmented Dickey-Fuller

CBN  

Central Bank of Nigeria

ECM  

 Error Correction Mechanism

ECN  

Energy Commission of Nigeria

ECons 

Electricity consumption           

EG        

Electricity Generation 

FP         

Fuel Price

GDP  

Gross Domestic Product

GHG  

Green House Gas

IEA      

International Energy Association

kWh     

Kilowatt hour

MESSAGE 

Model for Energy Supply Strategy Alternative and General 

Environment

MW  

Megawatt

NDA  

Niger Dams Authority

NEPP  

National Electric Power Policy

NESCO 

Nigeria Electric Supply Company

NERC 

Nigerian Electricity Regulatory Commission

PHCN 

Power Holding Company of Nigeria

PP         

Phillips Perron

VEC     

VectorErrorCorrection

Chapter1

1INTRODUCTION

1.1 Backgroundof Study

Nigeria is blessed with abundant resources which if tapped and harnessed are capable of placing the country at the fore of developed countries of the world. Despite the exploitative shipment of Nigeria’s resources for the development of the west (Europe) through colonization and activities of multinationals, there still remain more than adequate resources in Nigeria, waiting for exploitation and utilization. According to Anyanwuocha(1993), resources are the means or basic instruments with which human wants can be met. They include land, labour, capital, entrepreneur, time and money, all of which are used for producing goods and services. They also include commodities, services, or other assets used to produce goods and services that meet human needs and wants. Typically, resources are material or assets that are transformed to produce benefit and in the process may be consumed or made unavailable (McConnell, et. al, 2011).

The resources of a country are simply all the things the country has and can use for her peaceful economic development (Sinclair, 1992). They are the diverse natural and human factors endowments of a country, which are exploited and converted into valuable components for economic development. Natural resources are what nature has provided and can make use of such as fertile soil, rivers, lakes and mineral.

Human resources on the other hand are the skills and potentials (mental and physical abilities) embedded in man and discharged in the form of unskilled, semiskilled and skilled labour.

The available natural resources include the area of useable land, resources on the land surface, the atmosphere as well as those under the ground. Land surface resources include all sources of natural water, forest and soil. Atmospheric resources include climate, environmental conditions, wind and solar resources. Energy is an important resource for socio-economic growth in Nigeria. Energy exists in different systems like, mechanical, electrical, heat, light etc. The country has large and qualitative resources and has much growth and development potentials than countries lacking natural resources.

Nigeria is richly blessed with raw energy resources and is also blessed with the world’s tenth largest reserves of crude oil. Nigeria has many natural resources which can be used for electricity generation. Nigeria’s coal production of about 95 percent is consumed locally, for railway transportation, electricity supply, and in cement production used in the industry for heating. The Power Holding Company of Nigeria (PHCN) consumed the larger share of natural gas in Nigeria, used about 70percent for electricity-generating gas plants in the country. Nigerian consumption rate of petroleum product has seriously increased with motor gasoline and diesel oil taking a significant lead.

The available natural resources in Nigeria include the area of useable land, resources on the land surface, the atmosphere as well as those under the ground. Land surface resources include all sources of natural water forest and soil. Atmospheric resources include climate, environmental conditions, wind and solar resources. Underground natural resources on the other hand include solid and liquid minerals. Nigeria is blessed with large and qualitative resources and has much growth and development potentials than countries lacking natural resources.The level of sunshine hours in the country is estimated to about 6.5 h. which can be used as solar energy to generate electricity for various consumptions. Energy sectors have to be encouraged with energy resources to supply electricity through the use of solar energy in Nigeria.

All these resources to a great extent are energy potentials to Nigeria and can be broadly categorized into renewable and non renewable energy sources. While the renewable energy resources include hydro-power, solar, biomass and wind energy, the non-renewable energy sources comprise crude oil, natural gas, fuel wood, coal, tar sands and uranium (Ajayi, et.al, 2003). These resources have turned the fortune of Nigeria. The discovery and exploitation of crude petroleum on commercial basis alone enhanced Nigeria’s GDP growth rate averaging 6 percent per annum between 1958 and 1967 (Ahmad and Raju, 2003).

Since 1958, energy has steadily grown to become the mainstay of Nigeria’s economy, playing a significant role in the growth and development of the country. Energy has continued to serve as the major tradable commodity for generating the national income and as a key tool of international diplomacy for the country. Energy is presently the springboard for production in all the sectors of the Nigeria’s economy (industry, transport, agriculture, health, education, politics and security). In fact, any change in the energy sector could lead to over a 100 percent effect in the entire economy of not just Nigeria, but alongside her many trading partners. But despite the great importance and role of the large quantum of energy resources in

Nigeria, the inadequate development and inefficient management of these potentials have led to a continuous widening supply-demand gap in the energy sector, and this has had adverse effect on the economic development of the country.

In the past numerous studies, they conducted to examine the relationship between electricity consumption and economic growth. The most of the findings support the evidence that there is a bi-directional causality between electricity consumption and economic growth, and some from economic growth to electricity consumption. However, the causality relationship between electricity consumption, fuel price and economic growth has been rarely investigated in the literature. The relationship may very run from electricity consumption to economic growth, and/or from economic growth to electricity consumption. These causality issues, therefore, suggest the need to carry out a more in-depth investigation which aims to be the main objective of this study.

1.2 Statement of the Problem

The importance of energy in economic development of any country, developed or developing cannot be emphasized. Energy demand and economic development can be said as the two sides of a coin; the absence of one inadvertently queries any claim in the true existence of the other. With the abundant energy resources, over half-acentury of independence and exploitation of energy resources in Nigeria, the country is supposed to be among the economically independent developed countries of the world, but the reserve is the case. Though we have celebrated the 53rd independence anniversary, Nigeria is still grossly underdeveloped; groping the path for energy supply to meet up with its energy demand. This has not only led to the slow pace of full-fledged large scale industrial (manufacturing) take-off in the country, but has led to crushing penury and much impoverishment of Nigerians. This is made manifest in the high cost of living, inadequate supply of finished products, dependence on imported finished goods, gross contraction in the industrial and agricultural sectors because of high cost of production, increasing environmental pollution due to much usage of generators, unpleasant social cost of living due to erratic and incessant power supply. In Nigeria electricity has contributed to the total gross domestic product but still the country is facing several problems of electricity supply. The electricity subsector has not been able to meet the demand for electricity in the country and this has caused many problems which if affecting the economic growth. The Central Bank of Nigeria has identified problems associated with PHCN: maintenance of facilities, subsequent breakdowns, technical problems, vandalization of power equipment. Most of the existing plants in Nigeria are notutilized properly or they are not functioning at all. The inefficiency to boost electricity supply causes the gap between the demand and supply of power due to the poor maintenance of hydro plants, and the loss of power in transmission. On the basis of comparing Japan and Nigeria, it is observed that while Japan had a population of about 160 million people, zero natural resources, high power generation capacity of 124Giga Watts, 100% grid access, 5% carbon emission rate and 100% energy conservation compliance, Nigeria on the other hand, have a population of 170 million people, abundant natural resources (coal, petroleum & gas, bitumen, gold, diamond, etc), low power generation capacity of 0.54 Giga Watts, less than 40% grid access, 60% carbon emission rate and 2% energy conservation compliance.

The energy situation in Nigeria has not been able to produced and managed in a way to ensure sustainable energy development. Nigeria has limited technological capacity but it should be able to manage the scarce energy resources efficiently. The aforementioned problems caused by the low consumption of energy in the midst of abundant energy resources are the basis of the study. Although corruption, incessant changes in government and poor national orientation have been seen as reasons that deprive Nigeria of the expected development in the energy sector, the study sought to find out the factors responsible for these and to develop strategies that can stem the deteriorating performance of the sector for an enhanced economic growth and development.

1.3 Research Questions

This will give the empirical analysis of the study to arrive at a logical conclusion. Econometrics methods will be use in analysing the empirical data to demonstrate the causal relationship between energy consumption and economic growth in Nigeria. In view of this, gross domestic product will be regress against the energy consumption and fuel price in Nigeria to find;

1.if there is any causal relationshipbetween energy consumption on economic growth in Nigeria,

2.if there is any long-run co-integration between domestic output and power sector development in Nigeria.

1.4Objectives of the Study

The main objective of this research is to establish, both theoretically and empirically, the impact of energy consumption on sustainable economic growth.

The other objectives of the study are to:

Examine the concept of energy demand,

Ascertain relationship between energy consumption and economic growth,

Analyze the impact of widened energy demand-supply gap on the welfare of the

users,

Make policy recommendations on sustainable energy supply in Nigeria,

Suggestions will be noted base on the results obtained from the analysis, for efficient management and control of Nigeria’s electricity supply.

1.5 Structure of the Study

The thesis is structured into five chapters. Chapter one involve the background of the research, statement of problem, research questions, objectives of study.

Chapter two analyses the review of relevant empirical literature, the

conceptualization and theoretical review.

Chapter three will give the overview of energy position in Nigeria, the projected energy demand and supply, sources and factors influencing growth of energy supply in Nigeria.

 Chapter four explains the methodologies that will be used in the course of the study, and the result of the analysis. It will provide econometric analyses of energy consumption in Nigeria. Using numerical values of the parameter estimates and testing the hypotheses.

Chapter 5 is the conclusion and recommendation which will help further researchers, policy makers, institutions and companies that are interested in the growth of energy supply in Nigeria.