insight nigeria series the potentials of captive renewable ... · electricity access and...

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The potentials of captive renewable energy power generation in Nigeria

Insight Nigeria Series

Godwin Aigbokhan, June 9th

About us…

Delegation of German Industry and Commerce in Nigeria (AHK Nigeria)

2

2Agribusiness

1 CC Business Development

4 CC Skills Development

3CC Energy &Environment

6MarketingFinance &Administration5

CC Innovation & Start-ups

The Association of German Chambers of Commerce andIndustry (Deutscher Industrie- und Handelskammertag,DIHK) is the central organisation for German Chambersof Commerce Abroad (AHKs) and has representativeoffices at 140 locations in 92 countries worldwide. Thus,the DIHK represent the interests of millions ofbusinesses around the globe.

The Delegation of German Industry and Commerce inNigeria (AHK Nigeria) together with its commercialaffiliate DGIC International Business Services Ltd.support German and Nigerian companies in fosteringtheir business relations through their extensive networkand expertise.

We have our offices in Lagos and Abuja.

Competence Centres & departments:


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General market information

Address and partner search

Business partner search

Match making & B2B Market surveyIndividual/ Group Fact Finding Mission

Event & trade fair service

Verification serviceLegal, financial & tax services

Recruitment service Visa invitation

AHK Nigeria offers various services through its service unit DGIC International Business Services Ltd.

Services

4

New Virtual Services


Virtual Dragon’s Den

Present your innovative ideas to a pool of investors and secure funding/investment

Partnerships

Upgraded partnership and advertising bundles

Live Webinars and

web conferencing

Providing timely expert advice

Online skills development

Online trainings and certification for technical and vocational skills

Digital Business

Development

Market research, business partner search, virtual B2B meetings

Remote Business Representation

Market entry support during lockdown and travel restrictions

Remote Trade Fair Representation

Representation at local trade fairs during lockdown and travel restrictions

DGIC Business Portal

An online platform connecting foreign companies to local partners and customers

Please contact us for your tailor made services RE Training Webinars

Reach new customers through free training based on your product offerings

• Main exports: Crude oil (76%), Nat Gas (14%)

• Oil deposits: 36.9 bn BOE (2.2% of global total)

• Gas deposits: 5.2 Trillion m3 (2.75% of global total)

• Land area: 923,768 km2

• GDP/Capita: $ 2,028 (Constant prices, WB, 2018 est)

• WB EODB: Ranked 131 in 2019 report

Base rate

55 - 60%

Access rate

Electrification

2.3%

(2019 est)

2.6%

Avg. age; 18.113.5%

Since July 2016

GDP Growth Pop. Growth

Facts about the Nigerian Electricity Supply Industry (NESI)

• Installed on-grid generation capacity ≈ 13 GW

• 85% Thermal (Gas); 15% Hydro

• 151 kWh/Capita per annum (GER: 7,000 kW/Capita)

• 60 Million Nigerians rely on Generators; 8 - 15GW TICa (est)

• 20 million small generators (less than 3kW)*

• 25% of generators in sub-Saharan Africa, (WEO, 2019)

Urban

87%

Access rate

Rural

22.6%

Access rate

TICa (Total Installed Capacity)

201 million (2019 est)

General facts about NigeriaDelegation of German Industry and Commerce in Nigeria (AHK Nigeria)

* Dahlberg, Access to Energy Institute Study (2018)

Electricity access and electrification targets

% of households with

Electricity

≤40

40-60

60-80

>80

• Unelectrified population > 90 million people

• The 2016 RESIPb targets 90% rural electricity

access by 2030, requiring;

• 1.1 million new household connections annually

• 6,000MW in capacity addition

• Investment size: US$9 billion

Source: Nigerian Energy Support Programme – preliminary modelling of off-grid PV capacitiesRESIPb (Rural Electrification Strategy and Implementation Plan)


Nigerian Electricity Supply Industry (NESI)

2005

NESI – Pre-reform (1960 – 2005)

• Single, vertically integrated, State-run utility company

• Zero private sector investment

• Major investment between mid 1970s to mid- 1980s

• Low investment between mid 1980s to 2005

• Poor public sector investment for 20 years

• Gross mismanagement and corruption

NESI – Post-reform (2005 - date)

• Passage of EPSRAc law; New agencies created

• Unbundling of state utility

• 6 GenCos; 11 DisCos; 1 TransCo (TCN)

• $5 bn NIPPd state investment

• Private acquisition of some GenCos, DisCos & NIPP assets

• 461 MW Azura Edo IPP (2019)

• Liquidity shortages

EPSRAc: Electricity Power Sector Reform Act NIPPd: National Integrated Power Project

2004 | ≈ 6.1 GW 2019 | ≈ 13 GW


NESI - Post reform agencies and interactions

• Nigerian Electricity Regulatory

Commission (NERC)

• Nigerian Bulk Electricity Trader (NBET)

• Rural Electrification Agency (REA)

• Transmission Company of Nigeria

(TCN)

• Niger Delta Power Holding Company

(NDPHC)

State Agencies created by EPSRA

Private Investment in DisCos,

GenCos & Gas suppliers


Challenges on the NESI value chain

Under

payment

through the

value chain

Low installed

capacity

utilization

Zero

redundancy

on critical

lines

High ATC & C

losses

Poor metering

coverage

Unreflective

end-user

tariffs

Limited and

antiquated

Infrastructure

Losses,

Frequent grid

collapses

Frequent

power

outages

Gas outages

Generation Transmission DistributionGas Supply

Frequent

supply

disruptions

Inadequate

gas

infrastructure

Liquidity

shortagesGas flaring

(ca. 11%)

Absence of

SCADA

system


Outages in Sub-Saharan Africa

Less than 2 times/m

2 – 5 times/m

5 – 12 times/m

More than 12 times/m

Avg. outage > 8 hours

$ > 8% annual loss

$

$

$

$$

$ 60 – 80% of companies have access to (or

significantly rely on) generators

Avg. gen use (firms): > 12 power outages/month

lasting over 8 hours

Avg gen use (HHs & SMEs): 8 hours/day for 25

days/month

< 20% of companies have access to (or significantly

rely on) generators

Sources: Bloomberg New Energy Finance, World Bank, National Bureau of StatisticsIMF Country report, 2019

$29 Billion in economic losses due to poor power

supply (2019)


Addressing the challenges on the value chainG

ovt in

terv

en

tio

ns

So

me k

ey P

layers

Generation Transmission DistributionGas Supply

• Exit of cash calls in E&P

JVs to drive investment in

gas infrastructure

• Nigeria Gas Flare

commercialization

programme

• Engagements to stop

vandalism

• Eligible customer

regulation (2017)

• PSRPe sets 4GWh as

minimum generation to

ensure grid stability

• NGN 710 bn guaranteed

payment facility for

Gencos and gas suppliers

• Transmission

Rehabilitation and

Expansion Programme

(TREP)

• Grid expansion

• $ 2Bn

• Donor-funded

• Meter Asset Provider

Regulation

• MYTOf review; end-user

tariffs expected to rise

between 59.7% to 77.6%

across all categories

Nigeria Electrification RoadmapPSRPe: Power Sector Recovery PlanMYTOf: Multi Year Tariff Order


Power Generation & Evacuation options

Captive Generation• Generation > 1 MW

• Entirely for self-consumption

• End-user could be isolated

from DisCo or connected

Independent Electricity

Distribution Network

• Generation up to 20 MW

• Evacuation through a

private network

• Tariffs are not regulated

On-grid

Generation• Generation > 20MW

• Evacuation through national grid

• Tariffs are regulated.

Embedded Generation• DisCo driven

• Generation between 1 – 20 MW

• Evacuation through a DisCo

network

• Tariffs are regulated

End UserOff-grid (IPP)

• Evacuation to a user(s)

within clusters isolated

from a DisCo network

and/or the national grid

• Tariffs are not regulated


Captive Power Generation• Self-supply of electricity in Nigeria is permissible by law under the NERC’s Captive Power

Generation Regulation, 2008. Least regulated evacuation option

• Market size is estimated to be between 8 and 14 GW. It describes the generation of electricity for

self-use (i.e. consumption by the generator).

• Applies mainly to commercial and industrial consumers generating electricity for own use.

Households and companies commonly oversize their generators (i.e. installed capacity compared

to actual demand) Most users buy generators off-the-shelf as required

• A Permit is required for generation of electricity exceeding 1MW. But none is, if the generated

electricity is less than 1 MW.


Captive Power Generation• Sale of surplus power not exceeding 1MW requires the regulator’s written consent. However if this

exceeds 1MW, a generation license will be required.

• Generators are commonly fossil-based (Diesel, petrol, natural gas, LPFOg). Usually more

expensive than grid supply. Average cost of captive generation ≈ $0.30/kWh

• Self-generation with RE is an emerging option for end-users mainly due to constant power outages

and generation costs. Solar PV is the most common RE option in self- generation configurations

• Most configurations with RE are hybridized (RE + Batteries + Grid + Generator). Systems could be

configured for single or multiple users

LPFOg: Low Pour Fuel OilSource: IMF Country report 2019


Captive and off-grid RE technology solutionsSolution User configuration Indication of market sizeTypical capacity per unit Notable market actors

Pico Solar products Single user; rural

and peri-urban

< 10 Wp1 – 3 million units

distributed (2014 -17)

SHS: Solar Home SystemsSources: Global Off-grid trends report, 2018; Dalberg advisors, GOGLA, Lighting Global

Solar for businesses in sub-Saharan Africa, 2019; Bloomberg New Energy Finance, responsAbility

Plug & Play/

Pay-as-you-go (PAYGO) SHS Single user; rural

and peri-urban

100 - 500 WpGlobal annual revenue of

$ 6-7 bn by 2022

Captive roof top Single user; urban 1 – 50 kWp ca. 30 MW (2015)

C & I Solar20MW (2018 est.),

55 MW (2019 projection)Single user; urban,

rural

1 – 3 MW


Captive and off-grid RE technology solutionsSolution User configuration Indication of market sizeTypical capacity per unit Notable market actors

Energy kiosks Multi; rural and peri-

urban< 1 kWp N/A

Source: Rural Electrification Agency website (Accessed March 2020)

RE enabled services for

SMEs

Single- and Multi-;

rural and peri-urban1 – 3 kWp Solar kiosks, Solar cold

rooms

Mini-grids Multi; rural 16 - 100 kWp < 1.5 MW installed

(2019 est.)

Micro-utilities 340 economic clusters

(mainly markets) identified;

3-4 GW

Multi; urban 1 – 3 MW


Captive and off-grid market opportunities• SHSs and mini-grids have the potential to create a $9.2 billion/annum market that will save

Nigerians $4.4 billion/annum in energy costs.

• According to Bloomberg New Energy Finance (BNEF, 2019), the market for C&I solar in Nigeria is

the largest in sub-Saharan Africa outside South Africa. The cost for C&I solar with 2 hour battery

storage is $0.19/kWh today, but BNEF projects that this to decline to $0.10/kWh by 2030.

• 20 MW of installed C&I solar (2018) in Nigeria, with sites less than 30kW adding up to 8.9 MW.

Capex costs fall between $1.10/W to $1.60/W (but can reach $3.00/W with Lithium-Ion Batteries)

• ≈ 28,000 telecoms towers spend $2.5bn annually on power (52% rely on standalone off-grid power,

44% rely on a weak grid and only 2% have a reliable grid)

• > 10,000 bank ATMs in operation

• 28 industrial clusters for mini-grid modular plants ranging from 5 to 50 MW in Ogun and Lagos.

2,700 community clusters for micro/mini grid solar potential development


Notable captive RE (C&I) projectsProject owner Project partners LocationInstalled capacity

Tulip Cocoa Solarcentury; Alfen

B.V., Solarmate

2.5 MWp South Western Nigeria

Rite Foods Total; Soventix

GmbH

1 MWp

Jabi Lake Mall Cross-boundary;

Soventix GmbH650 kWp Northern Nigeria

REA projects Across NigeriaVarious EPC

contractors

1 – 3 MW

South Western Nigeria


Schneider ElectricMain One Data

Center700 kWp South Western Nigeria

Potential lighthouses for Captive REEnergizing Economies

Initiative (EEI)

500,000 SMEs

Energizing Education

Programme (EEP)

37 Universities

89.7 MW

Nigeria Electrification

Project (NEP)

WB: $350m

AfDB: $250m


SWOT Analysis of NESI

Strengths• Size of the economy

• Population

• RE potentials

• Huge electricity demand

• Urbanization/industrialization S

W

T

OOpportunities

• Rising electricity tariffs from April 20*

• Self-generation appetite

• Low electrification rate

Weaknesses• Liquidity shortfall in NESI

• Subsidies (electricity & petrol)

• Lack of mobile money.

• Lack of on-grid SCADA

Threats• Exchange rates volatility

• Non-cost reflective tariffs

• Inconsistency in application

of import duties and VAT


* May be delayed because of COVID-19

Market Entry RecommendationsS

TA

RT 01

Market research

02Local advisors

03Stakeholder engagement

04Financial viability

Rec. 2Appoint local advisors

with good market

knowledge.

(AHK Nigeria)

Rec. 4Ensure projects are

financially viable with

credit-worth off takers if

required.

Rec. 1A deep dive into

attractive segment.

Unearth project

opportunities.

(AHK Nigeria)

Rec. 3This is usually difficult

and time-consuming.

Sometimes, in-person

meetings are usually

more effective


What local banks would like to see•Strong Offtaker

◼ Financial viability of the project depends heavily on the availability of end users

and their willingness to pay for the product/electricity supply. Hence, clear and

realistic projections for end users are very critical in the project development.

Several developers mitigate the offtake risk by signing different forms of

agreements, often times with SOEs or the Government.

•Tariff Designs

◼ The proposed electricity tariffs which considers the projected demand and end

users must cover the costs of off grid project with a healthy margin. The project

costs could be fixed and/or variable depending on the type of project. The

projected demand or end users must be considered in deciding the tariffs. The

local market conditions are considered as well. Underpriced tariffs can kill the

financial viability of the project.

•Revenue Collection

◼ An important metric, as it determines the expected cash flow and repayment

schedule for credit obligations. Other important considerations include; theft or

meter bypass mitigants, cash or electronic based collections strategy, and

metering technology to be employed.

•Strong Sponsor/ Equity

◼ Commercial institutions also consider the other sources of finance for the

project, the nature of which will affect the willingness to give funds. The cost

and nature of equity investment are considered to be very important.

•The currency of the investments are important as well considering the foreign

exchange risk that off grid projects face.

•Guarantees

◼ Considering the risk averse nature of commercial banks, guarantees would

likely be needed for successful financing of off grid projects. The guarantees

help decide the credit worthiness of the project.

•Track Record

◼ Banks observe trends and the track record of executed projects and the

developers. They also consider the historical performance of assets and

revenues. Records of performance in other jurisdictions provides serves a

glimpse into the viability of developers’ business model

•End User Finance

◼ This addresses plans if any to finance the initial costs of installation or

purchase for end users and how it will be done. This could be done directly by

the developers or through financial institutions

• The Bank of Industry is the only institution capable of lending significant sums in local currency for Captive RE projects

• NGN 6 billion ($ 16 million); up to $ 0.96 per customer; 9% nominal rate; up to 5 years


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