• Thursday, July 25, 2024
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Each Disco’s can reduce up to N2bn losses using minigrid solutions – report

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A report funded by Shell seeded investor; All On has stated that each electricity Distribution Companies (DisCos) can reduce their losses by N1 to 2 billion year by using under grid mini-grid solutions.

According to the report produced by Rocky Mountain Institute (RMI), Clean Tech Hub and Energy Market and Rates Consultants (EMRC), these Under grid mini-grid will leverage on existing distribution infrastructure to achieve lower system cost than isolated mini-grid while improving service reliability from the status quo.

“These systems can help DisCos reduce losses to serve these communities (by N1–2 billion per DisCo per year) and create a mini-grid market with N400 billion in annual revenue, all while saving customers ₦60 billion per year compared to what they spend today,” the report said.

The report noted that for undergrid communities served by the DisCo but held back by unreliable power, minigrids offer transformational access to reliable electricity that can enable local development by adding distributed energy resources at the community level.

“Low levels of reliability and planned investment, combined with attractive existing load profiles, make rural and peri-urban communities excellent candidates to begin developing commercial undergrid mini-grid projects,” the report said.

Nigerian Electricity Regulatory Commission (NERC) regulation defines mini-grids as self-contained electricity systems of less than one megawatt (MW) that include both generation and distribution. This regulation allows mini-grids to be installed under the grid—where the distribution company (DisCo) is currently undeserving communities—with the DisCo’s agreement.

The report acknowledged that the undergrid mini-grid opportunity is a new concept, and exploratory projects are needed to test and refine potential business models which begin with a set of critical decisions that form the building blocks of a business model.

“Undergrid minigrids are a promising and commercially viable solution that can deliver reliable electricity to hundreds of thousands of Nigerians today,” said James Sherwood, principal at RMI and co-author of the study.  

These include project development roles, including who invests in the project and who enrols customers; project ownership roles, including both generation and distribution assets; project operations roles, including who bills and collects from customers and who operates and maintains system assets; and commercial terms of operation, including the distribution usage fee calculations and contract term.

The report seen by BusinessDay, described the four business models that are practical solutions to guide stakeholders through the process of implementing under-grid mini-grids in Nigeria although it also acknowledged that each business model has strengths and weaknesses.

The first business model is a Minigrid operator-led model, where a private mini-grid operator leads development of the mini-grid with consultation across the DisCo and community while the second model is a Special Purpose Vehicle (SPV)–led, where development is led by an SPV, potentially formed by a DisCo’s investors, and certain functions are subcontracted to a mini-grid operator.

The third model is a Cooperative-led model, where a cooperative formed by the community leads mini-grid development while the fourth model is a Collaborative SPV-led, where ownership and operation functions are shared among the mini-grid operator, community cooperative, and DisCo investors.

“As undergrid mini-grid business models are tested, the approaches described in this report can quickly replicate at scale to improve service to 40 million rural residents across Nigeria and nearly 200 million undergrid households globally,” the report noted.