With significant opportunities for off-grid and mini-grid power, thanks to relatively high level of economic activity, and latent demand a new study has explained why Nigeria’s Commercial and Industrial (C&I) solar power as at 2018 stood at 20MW.
According to the 2019 report by research company BloombergNEF (BNEF), Nigeria’s market is very distributed, with the majority of installations being smaller than 30kW while sites over 30kW are estimated to add up to just 8.9MW.
“Nigeria’s size and poor electricity supply suggest it is likely to remain one of the largest C&I solar markets in Sub-Saharan Africa (outside of South Africa). Some 77percent of the nation’s electricity demand is already met through self-generation, usually in the form of diesel or petrol generators,” BNEF report said.
BNEF report acknowledged that the government’s efforts to encourage local solar module assembly are not working as solar modules with bypass diodes must pay a 5 percent import duty plus 5percent VAT.
“There are also very high transaction costs for customs handling. Merchandise can often sit in the port for weeks, at a high cost to the importer. Developers also mentioned that there are often delays in evacuating merchandise from the port,” BNEF report said.
BNEF report admitted that most of the major barriers to more C&I solar in Nigeria are financial, from debt availability to credit risk and foreign exchange hedges. Many developers in Nigeria told BNEF they wish that import tariffs would be reduced.
Retail power tariffs have not been updated to their indexed formula since year-end 2014, leading to under-recovery of costs and an expectation that they are more likely to rise than to fall in coming years.
BNEF report said Commercial banks are largely absent from the C&I solar market, offering debt that developers consider too costly mostly over 25 percent and only for tenors up to two years.
“There is no project financing product available in Nigeria that lets vendors borrow against a cashflow stream. All local financing in Nigeria requires the developer to provide a physical asset as collateral. Lenders do not typically accept solar equipment as collateral and require borrowers to own real estate,” BNEF report said.
BNEF report said in the large and densely populated cities such as Lagos, rooftop space is scarce and usually not sufficient, while land for ground-mounted installations is often too expensive. Industrial off-takers are often preferred because they have plentiful land for on-site solar installations.
BNEF report noted that power outages are likely to remain a part of daily life in Nigeria for the foreseeable future even if new power generation capacity is added because transmission and distribution networks are too weak to deliver more electricity, and network reforms are even further behind than efforts to boost generation capacity.
Although, BNEF projects that cost of C&I solar will decline to $0.10/kWh by 2030, however it admitted that the cost today for C&I solar with battery storage is $0.19/kWh which is 67percent higher than the industrial grid tariffs and 63percent above the commercial rate, but lower than electricity from a diesel generator, which generally costs $0.28-0.32/kWh.
As of November 2018, the largest reported C&I solar project in Nigeria was 2.35MW Tulip Cocoa Processing Plant developed by Alfen BV, designed by Solarcentury, and built by Solarmate. Next is the 1.2MW Usuma Dam Solar Power Plant built by Japan International Cooperation Agency (JICA) in Abuja, followed by the 1MW project built by Enerwhere for Bayero University in Kano state.
In Nigeria, captive independent power producers with a generating capacity of over 1MW must hold a captive generation permit issued by the Nigerian Electricity Regulatory Commission (NERC). First-time offenders of this rule face a fine of N100, 000 ($275) or as much as one year in prison. The permit is valid for five years with an application fee of N50, 000 ($138), a permit fee of N200, 000 ($550) for projects between 1-10MWp, and a fee of N50, 000 naira for permit renewal.
The developers interviewed by BNEF agreed unanimously that they can only be in business today because of the poor state of the nation’s electricity grid not only in the most pronounced rural areas, but also in cities such as Lagos or Abuja as outages in Nigeria are unpredictable and range from four to 15 hours on average per day.
DIPO OLADEHINDE
