Algeria, October 11, 2018

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Off-grid systems can save Nigeria businesses $6bn per year, study

The development potential of Nigerian mini-grids – generation and distribution systems capable of supplying up to 1 MW of capacity from renewable sources, independent of national transmission networks – is valued at up to $20bn, according to a report by private sector think tank Nigerian Economic Summit Group and the U.S.-based sustainability NGO, Rocky Mountain Institute.

The report, based on a study of 10 solar-powered mini-grids with a combined capacity of 364 KW, said that development of off-grid systems, including mini-grids and solar home systems, could save individuals and businesses $6bn per year.

In addition, by scaling up the mini-grid market to 10,000 sites, each with a 1-KW capacity, the sector can electrify an estimated 14 percent of the population and generate annual returns of $3bn for investors by 2023. At present, there are 30 solar-powered mini-grids in Nigeria serving around 6000 customers.

Rural communities, in particular, would benefit from development of the market. Just 36 percent of the rural population is estimated to have consistent access to a centralized power supply, and use diesel and oil generators, which cost around N0.70 ($0.0019) per KWh compared to N0.57 ($0.0016) for a mini-grid connection.

As the market expands, costs for consumers could fall even further – by as much as 60 percent by 2020, the report found.

In addition to providing communities with a cheaper, more reliable electricity supply, the expansion of off-grid systems could help the energy sector circumvent distribution shortfalls affecting the transmission network.

While the national grid’s capacity is steadily expanding – from 12,500 MW to 20,000 MW by 2021, according to forecasts from the state-owned Transmission Company of Nigeria (TCN) – the system’s maximum transmission capacity stands at just 7500 MW.

In order to fully leverage future generation capacity, the TCN estimates the network will require $4bn in private spending from local distribution companies (DisCos) by 2021.

DisCos have called TCN’s investment figure into question; however, industry stakeholders agree that improving access and efficiency will require reinforcements to the grid or supply alternatives. Nigeria’s transmission losses still far exceed the benchmarks for electricity systems in emerging markets, even though system outages have fallen significantly since 2010.

Recognizing the potential of off-grid systems, the government, with support from the World Bank, has launched a five-year, $350m Nigeria Electrification Project to help finance electrification solutions for rural populations.

The plan has allocated $150m to develop the mini-grid market and aims to incentivize private sector firms to build 1200 mini-grids nationwide, electrifying 200,000 households and 50,000 local businesses through subsidies and technical assistance.

In addition, the Nigerian Electricity Regulatory Commission has issued regulations to guide registration and licensing for mini-grid developers seeking to produce between 100 KW and 1 MW.

Such support measures have helped accelerate the development of the off-grid market, according to David Umezurike, CEO of renewable energy services supplier Solar Force.

“Mini-grid regulation, eligible customer regulation and rural grid regulations have emerged in the past few years that substantially increase opportunities for alternative off-grid energy solutions. Last year witnessed real uptake, and the sector has attracted both local and international companies,” he told OBG.

The development of the mini-grid market dovetails with Nigeria’s wider energy policy, which aims to source 30 percent of generation capacity from renewables by 2030. At present, only a marginal portion is sourced from renewables; the mix is instead dominated by gas, at around 85 percent.

In line with this, Nigeria’s Debt Management Office has announced its intention to issue as much as N208bn ($577.2m) worth of sovereign green bonds this year, the proceeds of which would be earmarked for renewable energy projects, afforestation and other environmental initiatives.

It piloted its first such bond, with a five-year tenor, late last year, making Nigeria the first country in Africa to issue this type of security. The N10.7bn ($29.6m) issuance quickly garnered interest from local investors, and domestic pension funds held N7bn ($19.3m) as of September, according to the National Pension Commission.

The bond was subsequently listed for secondary trading on the Nigerian Stock Exchange in July 2018.

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