The Central Bank of Nigeria (CBN) on Monday introduced the Solar Connection Intervention Facility to complement the Federal government’s effort of providing affordable electricity to rural dwellers through the provision of long term low interest credit facilities to the Nigeria Electrification Project (NEP) pre-qualified home solar value chain players that include manufacturers and assemblers of solar components and off-grid energy retailers in the country.
Consequently, the CBN on Monday released the guidelines, which is sub-divided into two sections including upstream participants and downstream participants.
The pathways to energy access, financial inclusion and poverty reduction are closely linked and requires rapid scale of pay-as-you-go (PAYG) off-grid technologies that will create a $2 billion (~N7.5 trillion) annual market opportunity as penetration today is less than 5% of total market potential. To support the economic recovery in response to the COVID-19 pandemic, the Federal Government of Nigeria (FGN) has launched an initiative as part of the Economic Sustainability Plan (ESP) to achieve the roll out of 5 million new solar-based connections in communities that are not grid connected. This program is expected to generate an additional N7 billion increase in tax revenues per annum and $10 million in annual import substitution. The solar connection Scheme is a Federal government initiative whose objectives are to expanding energy access to 25 million individuals (5 million new connections) through the provision of solar home systems (SHS) or connection to a mini grid; increasing local content in the off-grid solar value chain and facilitating the growth of the local manufacturing industry; and incentivizing the creation of 250,000 new jobs in the energy sector.
For the upstream participants, the guidelines states that the facility shall not be used to finance the importation of fully assembled solar components and balance of system.
Funding shall not exceed 70 percent of the total cost of the project and the facilities granted shall have a maximum tenor of up to 10 years as determined by the project’s cash flow profile but not exceeding 31st December 2030.
Working capital facility shall be for one year with provision for roll-over not more than twice (i.e maximum tenor of 3 years).
The facility shall be administered at an “all-in” interest rate of not more than 9 per cent per annum. However, as part of the Bank’s Covid-19 relief package, the interest rate to be charged up to 28th February, 2021 shall not exceed 5 per cent per annum. Interest shall be payable by the loan beneficiaries in accordance with the approved repayment schedule outlined in the Transaction Documents The “all-in” interest rate of 9% to be shared as follows: a) Participating Financial Institution 6% b) Sponsor (CBN) 3% PFIs are to remit the interest due to the CBN on quarterly basis not later than 10 days after the end of the quarter.
According to the guidelines, a downstream participant is any company or body corporate involved in: distribution and after-sales support of solar home systems (SHS), mini grid project development activities including site identification and assessment, design and planning and customer acquisition.
Activities that shall not be financed by this Facility include: Sales or deployment of fully (100%) imported solar home systems components with no proof of existing local content or credible plan for near-term integration of local content, and deployment of mini grid projects with 100% imported components solar PV and Balance of System with no proof of existing local content or credible plan for near-term integration of local content.
The working capital for this category is to be determined as a percentage of the average of 3 year adjusted projected cash flows subject to the maximum of limit of N500 million. Tenor is put at 12 months subject to roll-over not more than twice (i. e. maximum tenor of 3 years) (depending on the nature and cash flow stream), and the interest Rate is 10 percent.
