mini-grids in africa: how to prepare for the nigerian ... · mini-grid regulation 2017 • designed...

Mini-Grids in Africa: How to prepare for the Nigerian Revolution

Ify Malo

CEO , Clean Technology Hub

Nigeria Campaign Director, Power for All

Chibuikem Agbaegbu

Co-Founder, Beckaphyll

Nigeria Lead - Market Access, Power For All

Content

• Nigeria’s Electricity Predicament.

• DRE Market Potential.

• Electrification Economics.

• Nigerian Mini-Grids. – Drivers – Trend – Status – Policy – Finance – Challenges – Opportunities – Stakeholders

© 2017 Power For All. All rights reserved.

• 75 million Nigerians un-electrified.

• 55% of population is energy poor.

• 70% of energy poor live in rural areas.

• 45% grid-connected population suffer from unreliable grid power supply.

• Un-electrified population has grown from 44

million in 1990 – an increase of 70%.

Nigeria’s Electricity Predicament


Lighting Global 2018 Market Trend Report

DRE Market Potential

Reference: Lighting Global (2018) The 2018 Global Off-grid Solar Market Trends Report. Available from: https://www.lightingglobal.org/2018-global-off-grid-solar-market-trends-report/

Least Cost Energy Solutions

Right Mix Results in:

• Lowest capital to achieve access.

• Fastest electricity connection time.

Most Cost-Effective Electrification Approach:

Mix of solutions: grid, mini-grid, stand-alone systems

Tailored to needs of each location and type of user

Best technology that fits the location: solar, mini-hydro, wind, etc

Electrification Economics

Least Cost Energy Solutions


Reference: EUEI-PDF, Mini-Grid Policy Toolkit, 2014

Technology & Cost of Grid Extension Over the Years:

• Things that matter most to the cost of rural electrification – transformers, wires, poles etc haven’t changed much.

Technology & Cost of Decentralized Renewable Energy:

• Solar panels, LED lighting - 90% cost decline over the past 10 years.

• Battery life and power density massive gains.

Least Cost Energy Solutions – Rural Electrification


Speed • Median time to complete a World Bank electricity

project: 9 years.*

• Average new transmission & distribution project: 3-5 years.

• Average new grid extension project: Unpredictable. • Average Mini-Grid deployment: Months (9 – 18

months).

Cost Private Sector & Government

• Technology, Capital, Expertise.

Additional Advantages of Mini-Grids


* Reference: Power for All (2016) Energy Access & the Multilateral Development Banks (MDBs). https://www.powerforall.org/resources/fact-sheets/power-all-perspective-energy-access-and-mdbs

Key Takeaways:

• Off-grid areas very diverse and dynamic.

• Every un-electrified area has a unique profile - least cost, fastest access is ideal.

• Rural households can be unprofitable to service with traditional grid.

• Decentralized Renewable Energy (DRE) technologies and cost are improving rapidly; while grid power is not.

• Today’s least-cost mix might not be tomorrow’s.



Climate Goals Electricity Access Rural Development

Economic Empowerment Global Shift towards DRE Energy Security

Nigerian Mini-Grids: Drivers

Reference: 1. https://theconversation.com/millions-of-urban-africans-still-dont-have-electricity-heres-what-can-be-done-92211 2. https://climate.nasa.gov/system/content_pages/main_images/1321_cc-vs-gw-vs-wx-768px.jpg 3. https://www.phbdevelopment.com/wp-content/uploads/2017/04/gh-blog2.jpg 4. https://thenationalpilot.ng/investment-opportunity-in-kwara-state-8/ 5. https://popularresistance.org/newsletter-shake-off-hypnosis-see-root-causes-of-crises/ 6. https://www.smithsonianmag.com/science-nature/us-could-switch-mostly-renewable-energy-no-batteries-needed-180957925/


• 2009 to Date Development of mini-grids (Gradual transition from pilot to commercial mini-grids).

Technical Support and Finance from Development and Donor organizations.

• 2016 Rural Electrification Strategy and Implementation Plan (RESIP).

• 2017 Mini-Grid Regulation (MGR). Rural Electrification Fund Operational Guideline (REFOG).

• 2017 World Bank $350 million rural electrification facility.

• 2018 Launch of Nigerian Chapter of the Africa Mini-Grid Developers Association (AMDA).

• 2018 Launch of Mini-Grid Investment Report (MIR) – NiReR/NESG/RMI - Assessment of 10 commercial mini-grids (99% collection rate)*.

• 2019 First beneficiaries of the REF 1 Fund (12 developers).

Nigerian Mini-Grids: Trend

Reference: RESIP http://rea.gov.ng/download/rural-electrification-strategy-implementation-plan-resip/ MGR http://www.nercng.org/index.php/library/documents/Regulations/NERC-Mini-Grid-Regulation/ REFOG http://rea.gov.ng/inc/uploads/2017/11/Approved-Operational-Guidelines-for-the-REF-2017-v3.pdf MIR https://www.rmi.org/wp-content/uploads/2018/08/RMI_Nigeria_Minigrid_Investment_Report_2018.pdf


• Nigerian Electricity Regulatory Commission (NERC), defines mini-grids as an integrated local generation and distribution system with installed capacity below 1MW.

• Mini-grids are capable of serving numerous end‐users independent of the national grid and may be ‘isolated’ or ‘interconnected’ with the main grid.

• Ideal for increasing energy access and reducing grid dependence.

• GIZ estimates that over 26 million Nigerians can be most effectively provided with electricity via nearly 8,000 isolated mini-grid systems providing 4.4 GWh per year and investment of $4 billion.*

Nigerian Mini-Grids: Status

Reference: Cader, C. and Moller, J. 2015. Preliminary modelling of off-grid PV capacities for the whole of Nigeria. GIZ.

• Growing mini-grid local expertise - the Nigerian chapter of the Africa Mini-Grid Developers Association (AMDA).

• Mini-grid tariff are cost-reflective – typically near N200/kWh (US$0.57/kWh), which is cheaper than powering a small diesel or petrol generator.*

• Most current mini-grids are situated in densely populated agrarian communities, typically with a population of around 2,500 distributed among 300–500 households.*

Nigerian Mini-Grids: Status

* Reference: Mini-Grid Investment Report (2018) https://www.rmi.org/wp-content/uploads/2018/08/RMI_Nigeria_Minigrid_Investment_Report_2018.pdf

Mini-Grids: Policy

Reference : Mini-Grid Investment Report (2018) https://www.rmi.org/wp-content/uploads/2018/08/RMI_Nigeria_Minigrid_Investment_Report_2018.pdf


Mini-Grid Regulation 2017

• Designed to accelerate the electrification of un-served and under-served areas especially rural and peri-urban communities.

• Incentivise and minimize major risks associated with mini-grid investments.

• Simplify the process for private sector participation in the mini-grid sector of the Nigerian electricity market.

• Grid extension, increase profitability of loss making areas and wider coverage of paying customers.

Mini-Grids: Policy


• Covers mini-grid capacity of 100kW and below, and between 100kW to 1MW for isolated and interconnected mini-grids.

• Covers license/permit application, tariff structure, relationship and obligations between developer and DisCo, operating structure/arrangement and commercial arrangement.

• Encourages the use of renewables on a small scale (particularly small hydro and solar).

• Regulates installation & maintenance, quality of service, safety & environmental protection, dispute resolution.

• 12-month (extendable) exclusivity period for mini-grid project development – addressing risk of unanticipated competition.

Nigerian Mini-Grids: Policy



Isolated Mini-Grid Development Process

Reference: Detail Solicitors (2017) Presentation made during the Seminar On Solar Pv Development In Nigeria organized by the Delegation Of Germany Industry And Commerce


Mini-Grid Operations

Permit Requirements

• Duly completed application form.

• Agreement between the community and mini-grid developer.

• NERC Evaluation.

• Written consent of the DisCo of the intended area (where the proposed area is within its five year expansion plan).

• Proof that location is un-served and currently un-assigned.

• Proof of land acquisition and assets.

• Proof of any other necessary permits.

• Tariff evaluation based on the MYTO methodology.

• Health and Safety assessment.

• For isolated mini-grids up to 100kW, a Permit is optional. The mini-grid developer may only choose to register with NERC.



Mini-Grid Operations Nigerian Mini-Grids: Policy

Interconnected Mini-Grid Development Process

Reference: Detail Solicitors (2017) Presentation made during the Seminar On Solar Pv Development In Nigeria organized by the Delegation Of Germany Industry And Commerce



Permit Requirement

• Duly completed application to NERC.

• Proposed retail tariff calculated using the MYTO methodology and agreed by the mini-grid developer, the distribution licensee and connected community, and approved by the commission.

• Execution of a tripartite contract between the mini-grid developer, the distribution licensee, and the connected community.




Tariff Payments

• For Permit holders, tariff is calculated based on the MYTO methodology for mini-grids provided in the regulations.

• Tariffs are to be subject to technical and non-technical losses of a maximum of 10% each.

• Tariffs for permit holders can be subject to review based on an application by a Permit holder or an inspection of accounts by an authorised person.

• Registered operators have two options (1) tariff based on the MYTO methodology or (2) an agreed tariff between the operator and at least 60% of the community.

• Agreed tariff may be subject to intervention by NERC where the operator’s rate of return exceeds typical non recourse commercial local currency debt by 6%.




Network Usage Charge

• The Network Usage Charge is a charge agreed between the mini-grid operator and the DisCo subject to NERC’s approval.

• Where the parties are unable to agree on the value of the Network Usage Charge, the regulation provides guidelines to aid parties in reaching a fair and mutually acceptable charge.




Other Provisions

• Mini-grid Developer Compensation by DisCo.

• Compliance Requirements.

• Accounting Requirements.

• Environmental Protection Requirements.

• Health and Safety Requirements.

• Insurance Requirements.

• Reporting Requirements.

• Technical Requirements.




Challenges

• Limitations as to generation capacity.

• Uncertainty as to the DisCo expansion plans and grid extension.

• Adequacy of compensation mechanism.

• Permit requirement to obtain land.

• The EIA ambiguity and generality of environmental protection provisions.

• The regulation technical requirements vs Nigerian Electricity Management Services Agency (NEMSA) guidelines.




• 70:30 mix of debt and equity supplemented with grant funding.

• Several finance sources - Rural Electrification Fund (REF), Multilateral Finance Institutions, Climate Funds, Private Impact Investments, Commercial Banks, Crowdfunding, Government Allocation etc.

• REF provides capital subsidies through grants, and technical assistance to supplement private investment.

• Innovative finance models such as the split-asset model.

• Commercial debt obtained mainly through concessional loans and impact investment. Mini-grid developers report 15-20% return on successful projects.*

Nigerian Mini-Grids: Finance

* Reference: Mini-Grid Investment Report (2018) https://www.rmi.org/wp-content/uploads/2018/08/RMI_Nigeria_Minigrid_Investment_Report_2018.pdf



• 350 million World Bank investment leveraging an expected $1 billion in investment

o 150 million for mini-grids with private sector opportunity of $300 million.

$70 Million: Competitive bidding for portfolios of mini grid sites. Already 100 pre-selected sites up for auction with an additional 70+ in high risk environments.

$80 Million: Connecting new customers. $300+ for each new connection to a mini grid, 100% payment made after connection.

First-mover potential in the next 5 years: 300,000 households and 30,000 SMEs served by 1,000 mini grids.

Nigerian Mini-Grids: Finance

Reference: REA (2018) Nigeria’s Off Grid Renewable Energy Opportunities


Opportunities Arising

Developers

• Limited track record and experience of mini-grid developers.

• High capital requirement.

• Unfamiliarity of banks with sector and collateral requirements.

• Limited credit history of enterprises.

• Minimal experience. Gradual transition towards commercial projects.

Nigerian Mini-Grids: Challenges



• Proven commercial viable market with annual market revenue potential of ₦2.8 trillion ($8 billion).

• Government target of 10,000 mini-grids by 2023.

• Growing inflow of foreign and local finance.

• Scaling the mini-grid market to 10,000 mini-grids of100 kW capacity by 2023 would power 14% of the population and create a ₦7 trillion ($20 billion) investment opportunity generating over ₦1.05 trillion (US$3 billion) in annual revenue.

• Cost-competitive tariff.

• With or without a key anchor client, mini-grids capable of achieving operating margins as much as 30% of revenues.

Nigerian Mini-Grids: Opportunities

Reference: Mini-Grid Investment Report (2018) https://www.rmi.org/wp-content/uploads/2018/08/RMI_Nigeria_Minigrid_Investment_Report_2018.pdf REA (2018) Nigeria’s Off Grid Renewable Energy Opportunities



Key Stakeholders

• Rural Electrification Agency. • Nigerian Electricity Regulatory Commission. • USAID, Power Africa – Nigeria Power Support Programme. • GIZ - Nigerian Energy Support Programme (NESP). • United Nations Development Programme. • Bank of Industry, Nigeria. • Institute of Electrical and Electronics Engineers. • Federal Ministry of Power. • Africa Mini-grid Developers Association. • Power For All. • Nigerian Renewable Energy Roundtable / Nigerian Economic

Summit Group. • Rocky Mountain Institute.

Nigerian Mini-Grids: Stakeholders


Ify Malo: [email protected]

Chibuikem Agbaegbu: [email protected]

Contact

mailto:[email protected]

mailto:[email protected]

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