Lenders shun Nigeria’s solar projects on lack of off-taker, poor tariff

The absence of an off-taker like the Nigerian Bulk Electricity Trader (NBET) who buys bulk grid electricity and resells, as well as the difficulty in agreeing to a feasible tariff, are some of the major challenges limiting access to funding for solar projects in Nigeria.

 Representatives of the African Finance Corporation (AFC) and African Development Bank (AfDB) at the Solar Future Conference organised by SolarPlaza, which held in Lagos from April 25 to 26 said these shortcomings constraint the sector which is looked upon to solve energy poverty for over 70 million Nigerians who lack access to on grid electricity.

 “Clearly, if we have a situation where an off-taker like NBET is available to buy the power produced, the AFC will be willing to invest in more solar projects,” said Eluma Obibuaku, vice president, power, at the AFC, during a panel session focusing on finance barriers to off-grid solar projects.

 Aside from the absence of an off-taker, participants say, the lack of consensus on tariff for solar projects is a major challenge. Last year, NBET approved 11.5 cents per kilowatt hours (kWh) as the entry price for the 14 pioneer solar power purchase agreements signed to generate 1,125 megawatts (MW) of electricity.

 However, the projects have not commenced to financial close, due to many factors, including foreign exchange fluctuations, funding constraints and absence of Put/Call Option Agreement (PCOA) which the Federal Government only secured recently.

 Paul van Aalst, team leader of the RECP Finance Catalyst programme, who is a professional in investing in emerging markets, primarily in renewable energy, sharing his experience with investing in other African countries, said that one way out, is to develop a system where operators can agree on market-based tariffs with their customers.

 In many rural communities in Nigeria, the ‘Pay As You Go’ model is fast becoming the norm and operators are looking to sustain the model.

 “With access to electric power though an innovative PayGo financing plan, families are able to join the knowledge economy for a better life. We are proud to seek sustainable solutions to the country’s energy challenges,” said Vera Nwanze, general manager for Nigeria and Ghana, Azuri Technologies, a provider of PayGo solar home systems to rural off-grid households.

 Nigeria’s draft mini grid regulations allow renewable energy investors to provide between 100kWh to 1 MW capacity without the obligation to obtain a permit, but are now required to charge tariff in line with the Multi Year Tariff Order, (MYTO).

 Dolapo Kukoyi, partner at Detail Commercial Solicitors, an energy law firm, said that while it is not required that mini grid operators doing less than 1MW register with the Nigerian Electricity Regulatory Commission (NERC), “registering offers you protection when grid extension reaches your area of investment.”

 Currently, many solar projects are sited in rural areas which are currently underserved, with many lacking grid connectivity.

 However, the areas have been apportioned to the electricity distribution companies (DisCos) who got franchise states covering vast geographical areas where there are no power lines.

 Operators say a further challenge is when they try to invest in solar projects in some of these areas; the DisCos claim ownership of the territory even when they have no plans to invest in expanding distribution infrastructure there.

 “There’s no reason, why the mini grid operators and the DisCos can’t work together, and the draft mini grid regulation anticipates such a situation and provides ways to reach a settlement,” says Kukoyi.