A rational approach to Nigeria’s energy transition

March 26, 2025

Heine Melkevik, CEO of Carbon Limits Nigeria, talks to The Energy Year about how the narrative around the energy transition is changing in Nigeria, the trends shaping Africa’s carbon credit market and Nigeria’s efforts to diversify its energy mix. Carbon Limits Nigeria provides consulting on climate change and sustainable development.

To what extent is the narrative around the energy transition changing in Nigeria and Africa?
Nigeria is growing in terms of population, economic activity and access to energy. This might appear to conflict with reducing domestic carbon emissions, despite the country’s ambition and commitment under the Nationally Determined Contributions of the Paris Agreement to reduce national emissions and adapt to the impacts of climate change.
The opportunity here for investors is that the country has a very large growing market for activities revolving around renewables and promoting operations with a low environmental impact.
We need to look at the transition in a rational and realistic way, meaning that it is more important to look at it from the point of view of reducing the footprint per kilowatt, barrel and cubic foot than saying, “We cannot produce any more kilowatts, barrels or cubic feet.” That attitude would present a massive challenge in developing countries.
The narrative has changed significantly in recent years, with stakeholders and the public understanding that the energy transition has to be a just transition for Africa. Any solution must take into account the needs of its people and communities, including energy needs.

What trends do you see shaping the carbon credit market, and what advantages can Carbon Limits Nigeria bring to the table?
Firstly, I can tell you that the financial providers, that is, the banks, traders and large-scale institutions, see that they need to balance growth with emissions reductions. These providers are asking for our services in order to find out how to actually reduce their emissions per kilowatt while simultaneously providing capital to the operators. This is a growing trend and an overarching opportunity for us.
Secondly, there are markets that are willing to pay for receiving carbon credits, which incentivises operators to cut their emissions. Thirdly, we work with government institutions on the transition journey. We’re talking with the federal government, state governments and multilateral bodies because they have a policy they would like to implement, but they might not have the financial means for it.
Finally, we are seeing a growing trend where energy companies look to diversify their investments in ways to reduce their overall environmental impact in different ways, from rolling out more renewables, to recycling, to waste management and clean cooking.
We are consulting with all these market segments, and our strength is that we are practitioners on the ground in Nigeria and Africa, delivering tailormade solutions and addressing challenges not from the point of view of Washington DC or Brussels but from the viewpoint of Africa, all while bringing global standards into the regional picture.

How do you assess the country’s journey to diversify its energy mix?
The average Nigerian consumes one-third of the electricity that your household refrigerator uses per year, or in other words, three Nigerians’ power consumption equals the consumption of your house’s refrigerator. So, it is not about transitioning per se but about developing and having a higher degree of renewable power in the energy mix.
To do so, you need multiple sources. In a country where you have 50 million diesel generators, which account for three-quarters of the electricity pumped into the grid, you really need diversification. Renewables are not enough. Biomass, for instance, would be an interesting opportunity, but currently it is used inefficiently.
Then there is gas, which both Nigeria and the continent are rich in. An important part of our business is tackling methane leaks and gas flaring to prevent the burning of huge amounts of gas for no reason when it could be used to power households or be sold.
Moreover, CNG and mini-LNG for transport solutions are on the rise and will be very important, as will be e-mobility. Again, we need to address this in a pragmatic way: Currently, there is simply not sufficient electricity to cover basic needs for the more than 220 million people in Nigeria.
E-mobility might work in certain centres of the country, but we also need to keep in mind that electricity needs to come from renewables because, if it comes from coal or diesel generators, it is clearly better from a carbon-footprint point of view to use the primary fuel we are using today, which is diesel and gasoline.

 

What do you think are the most crucial aspects for facilitating the transition and green undertakings?
We could talk about aspects that could generate a more conducive environment for investment to support the transition, but in the end, what I have come to realise is that the most crucial aspects are the bankability and security of projects.
What does bankability practically mean? It means that you have a sufficient amount of guarantees surrounding a project, where the risk factors are being assessed and tackled, either by the government or by supporting institutions.
For example, people would argue that the currency is a risk. In fact, it is. It is extremely difficult to invest in a renewables project in Nigeria because, if you are selling what you have in naira, looking at that in a long-term NPV [net present value] analysis, there is no way you will be making that project look good because you are eroding what is dollar denominated, and then you are paying back on something that is on paper depreciating over time. I think guarantees addressing currency depreciation would make projects more bankable.
Another crucial aspect is the need for a structured approach for auctioning and delivering larger investment projects. Nigeria committed to reducing its emissions, but how can you incentivise that? You need to bring money to the table to make that happen. One example is to introduce a price for carbon-emissions reductions, paying people who have documented that they are cutting their emissions.

What are the major challenges in making projects more bankable?
80% of the emissions from oil and gas – methane leaks and flaring – can be solved at less than USD 20 per tonne emitted for solutions involving the commercialisation of gas. How one deals with the situation changes according to geography. The carbon price in Europe is not a carbon price. It is a carbon tax, which means that you need to pay a certain amount for the right to emit that tonne. If you do that in Africa, what you do is apply a new tax onto an already struggling business, and I doubt that would work.
In Nigeria’s oil and gas industry, there is a carbon tax, the country’s flare fine. That does incentivise limiting emissions, but there needs to be a widespread push for it to have a real impact. In Nigeria, the flare fine is actually quite high, at around USD 3.50 per 1,000 cubic feet [28.3 cubic metres], which is payable to the government.
There is the opportunity to sell that gas instead of flaring it for a fine. One needs to ask, how much do I pay for burning that gas, how much could I sell that gas for, and how much does it cost to sell that gas as opposed to flaring it? When we ask these questions, we go back to bankability.
Bankability is also about being ready to execute a project, and to get there, you need coordination between project developers and credit institutions, but banks are not very interested in embarking on small undertakings, and very often in developing countries, projects that address flaring are not big.
It becomes more complicated when you have to put together a small-to-medium size project with a company that banks have never heard of and that perhaps has a very shaky balance sheet operating in a country that does not have the world’s best credit rating.
Finally, when banks lend you money, they are concerned about how fast you are going to pay them back, and the way banks model that is based on how much oil you produce, so they prefer that you extract many barrels from the ground as fast as possible. Stopping flaring represents a cost that adds no barrels. Therefore, it is difficult to receive funding to implement a solution to stop it.

What is the appetite that players have for implementing carbon-reduction solutions, and how does Carbon Limits Nigeria fit into this still evolving landscape?
Nigeria is trying to step up its hydrocarbons production, and its potential to do so is incredible. There are many good local companies that are increasingly able to take on significant exposures in terms of development risks.
What they need is funds, and all of these institutions – from traders, to domestic and international financial houses, to multilateral development banks – do not lend to oil and gas companies anymore unless they have a carbon-footprint master plan. That is where Carbon Limits Nigeria comes in. We support companies in taking responsibility for their environmental actions to ensure that they have as low of a footprint as possible.
We are oil and gas people, that is our background. We understand the oilfield, and we partner with several local companies in Nigeria, working with them to find solutions to stop flaring and manage leaks and fugitive emissions from the field and storage tanks.
Then, we provide them with a management plan on how to reduce emissions in the field over time and a strategic outlook on where international trends are going and how they will impact them (e.g., how a potential EU methane-intensity requirement will affect their operations).
We provide them with insights and advisory, a bit like weather forecasters. So far, we have already done a number of projects on flaring and how to commercialise the gas instead. We’re looking to save more than 10 million tonnes of CO2e in Nigeria alone.

What is your message to oil and gas players regarding the relevance of reducing their carbon footprint?
The message is pretty clear and straightforward: emissions imply inefficiencies. There needs to be more awareness, appreciation and acceptance that emissions and operational excellence go hand in hand. The benefits of reducing emissions go beyond avoiding the additional costs.
It just makes pure operational and economic sense, and you can also make money in the process. If you have a field that does not have leaks, that field will simply be more efficient and safer, with time optimised because you do not have to halt operations to fix potentially hazardous issues.
To develop a carbon market, there have to be incentives, not taxes. With incentives you can actually unleash real economic power and obtain access to international funding.
We are on-the-ground practitioners that ensure that the full reduction of emissions per source is achieved. We will keep working closely with our partners in the oil and gas industry to ensure that the best environmental standards are reached.

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