With approximately 55 percent of Nigeria’s population lacking access to electricity, a rate that has not improved over the last five years, there is a huge opportunity for the country’s policy maker to unlock a N2.8 trillion ($8 billion) annual revenue opportunity which will also have a spill over effect on policymakers, business community, investors, and development partners.
This was disclosed in a report by Nigeria’s Mini Grid Investment report 2018, which revealed that there are vast but underdeveloped mini-grid market potentials in Nigeria due to its large population and strong economy making it an attractive place to build the mini-grid sector.
“Scaling the Nigerian mini-grid market to ten thousand 100 kW sites by 2023 would power 14percent of the population with capacity up to 3,000 MW and create a N7 trillion (US$20 billion) investment opportunity generating over N1.05 trillion (US$3 billion) in annual revenue,” the report said.
Authored and published by the Nigerian Economic Summit Group (NESG) and Rocky Mountain Institute (RMI), the report admitted in total, the mini-grid market in Nigeria offers potential annual revenue of N2.8 trillion (US$8 billion). However, “in order to realize this potential for market growth and investment; government, development partners, and the private sector must work together to accelerate mini-grid development.”
“The business community can play a crucial role in achieving cost reductions throughout the mini-grid value chain, particularly during procurement, installation, and system maintenance,” NESG and RMI said.
The report noted that the business community can create a mini-grid business community consortium made up of experts with an interest in participating in the mini-grid value chain, including manufacturers, hardware suppliers, vendors, and developers, can work collaboratively to accomplish bulk procurement and lower overall mini-grid costs.
“The business community can also design standardized, modular mini-grid systems as hardware manufacturers can work with developers to design modular mini-grid systems that are adaptable to demand growth which will decrease the need for developers to initially oversize systems, lowering up-front costs and increasing capacity utilization,” the report noted.
Additionally, Nigeria’s Mini Grid Investment report noted that if telecom companies are able to develop Telco-led business models that allow customer payment through mobile platforms, mini-grid developers can partner with them to implement mobile payments for electricity service.
For investors and development partners, the report added that the unavailability of affordable project financing is a significant barrier to accelerating mini-grid deployment in Nigeria today. “Local Nigerian financial institutions are reluctant to invest in mini-grids. When they do invest, they often offer loans at high interest rates to match the perceived market risk of mini-grid projects.”
“Developers need access to affordable debt as well as equity to be able to scale-up their operations. Facilities are now available through DFI support from Sterling Bank, Access Bank, and United Bank for Africa (UBA), as well as through the African Development Bank’s Facility for Energy Inclusion (FEI) that mini-grid developers will be able to tap for affordable financing.”
Nigeria’s Mini Grid Investment report acknowledged that investors and development partners can advance investments by creating a finance consortium in which different investors are responsible for funding specific project stages in the mini-grid value chain. “A consortium could provide funding access to developers in the form of grants, subsidies, technical assistance, or concessional loans throughout the project life cycle.”
Also, due to the need to coordinate cross- sectoral implementation demand, development partners, along with NGOs and government, can coordinate efforts with related sectors while developers should continue to hone their business models and take advantage of cost-reduction opportunities to make mini-grid systems viable in rural communities.
In terms of implementing cost-reduction strategies, developers can implement site clustering, demand stimulation, and the education or financing of energy-efficient appliances to lower costs and improve capacity utilization.
The report published by NESG and RMI explained that policymakers are vital to the mini-grid scaling process, as they are responsible for making and enforcing regulations that enable market growth by allowing tax and duty exemptions and reduce import delays, clarify current regulations and implement additional enabling policies and also increase state and local government Involvement.
The report noted that Nigeria’s Power Sector Recovery Programme (PSRP) estimated that the erratic supply of power results in an annual economic loss in excess of $25 billion as unreliable power supply creates social challenges such as lack of access to food, potable water, lighting, healthcare, education, information, and other basic amenities.
However, the Mini Grid Investment report 2018 recommended Mini-grids offer as an alternative to costly grid extension and an emerging solution to rural electrification challenges in Nigeria that can rapidly become cost-effective, presenting an opportune for investment and economic development.
The report noted that Nigeria’s Power Sector Recovery Programme (PSRP) estimated that the erratic supply of power results in an annual economic loss in excess of $25 billion as unreliable power supply creates social challenges such as lack of access to food, potable water, lighting, healthcare, education, information, and other basic amenities.
“One GIZ assessment of the mini-grid opportunity suggests 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,” the report said.
The report explained that Mini-grids are often deployed in remote rural areas as a more cost-effective means of electrification than traditional extension of the main grid as they offer more reliable power than the main grid in many settings, including much of rural Nigeria.
DIPO OLADEHINDE
