Mini-grids, a component of off-grid solutions, are providing developing countries an opportunity to attain universal energy access at the least-cost and Nigeria’s investor-friendly regulations are some of the best in Africa.
This is largely due to the efforts at developing a legal and institutional framework for mini-grids by the Nigerian Electricity Regulatory Commission (NERC) and the Rural Electrification Agency. In 2017, the NERC adopted the Regulations for Mini-Grids (‘the Regulations’).
According to energypedia.info, a mini-grid, also sometimes referred to as a micro-grid or isolated grid, can be defined as a set of electricity generators and possibly energy storage systems interconnected to a distribution network that supplies electricity to a localised group of customers. They involve small-scale electricity generation, 10 kilowatts (kW) to 10 megawatts (MW), which serves a limited number of consumers via a distribution grid that can operate in isolation from the national electricity transmission networks.
Studies show a fundamental interconnection between concessional funding, private investment, political environments, and the deployment of connections. These different pieces of the enabling environment feed off one another to build the trust, confidence, and experience necessary to see increased delivery of energy access. Nigeria has most of these elements in place.
A recent report ‘Benchmarking Africa’s Minigrids’ published by the African Minigrid Developers Association’s (AMDA) and Economic Consulting Associates (ECA) has presented an analysis of a one-of-a-kind dataset collected from nearly all established market leaders across Africa as well as a significant sample of smaller, newer companies that together represent the vast majority of private sector mini-grid companies on the continent.
According to the report, the timelines for approval processes and licensing for mini-grid projects differ across countries but remain consistently higher for Western and Central African countries, with the exception of Nigeria. Some East African markets got an early start though.
Light-handed approaches to licensing procedures and streamlined timelines reduce red tape and regulatory burdens on both mini-grid developers and regulators, decreasing the time and effort required to construct sites and expand access to rural communities.
“Across Africa, Nigeria’s mini-grids regulation is undeniably one of the best. The reason I say so is that I had the opportunity to work on that regulation,” Dolapo Kukoyi, partner at Detail Commercial Solicitors, told BusinessDay in a WhatsApp voice note. “We have one of the most flexible and adaptable regulations that allow people to actually come and invest in the off-grid space.”
This is why Nigeria’s progressive, investor-friendly mini-grids regulation has received attention from people familiar with the matter. The energy provided by stand-alone renewable technology and mini-grids offers a least-cost pathway to universal energy access. Investors across the globe flock to Nigeria because of the investor-friendly nature of the country’s mini-grids regulations.
The regulation is a work in progress, Kukoyi said. Uganda for instance has studied Nigeria’s mini-grids regulations to help them improve on theirs.
Two-thirds of the world’s population will remain without electricity by 2030, which is the target year to achieve the newly agreed post-2015 UN Sustainable Development Goal of universal access to energy.
For the millions of people who do not currently have access to electricity in Nigeria, the old assumption that they will have to wait for the grid extensions is being turned on its head by new technological possibilities, mini-grids.
A hundred and eleven million households (~47%) can be served by mini-grids in sub-Saharan Africa, Asia, and Island nations. Total capital expenditure of $128 billion is required to install these solar hybrid mini-grids to achieve universal access by 2030, a report by BloombergNEF stated.
It is estimated that some 83 million Nigerians do not have access to modern electricity, with millions more suffering from chronic undersupply resulting from frequent load shedding and power outages. In response to this challenge, the mini-grids market has taken hold.
The lack of access to energy directly affects livelihoods, lowers the quality of life, and hinders social and economic development.
Manoj Sinha, founder/CEO, Husk Power Systems, an Indian company that converts rice husks into electricity, says Nigeria has a clear-cut mini-grids policy. It took India eight years to formulate and implement a mini-grids policy in two states of the 1.40 billion people strong south Asian country. This was in 2016. Nigeria adopted quite a bit of that policy framework which was in 2016 or early 2017.
“What is really great is that Nigeria is already working on inter-connected mini-grids. This is a unique and very forward-looking policy. The rest of the world including India can take this great innovation that Nigeria is making to accelerate their mini-grids,” Sinha notes.
Signs that investors are taking position in Nigeria’s mini-grids space as a result of the forward-looking and progressive mini-grids regulations could be seen in some of the recent deals and new entrants in the country.
For example, Havenhill Synergy Limited has secured Nigeria’s first long-term private capital fund deployed to the development of mini-grids electricity solutions for rural areas.
Denominated in naira, the N1.89 billion, eight-year tenure infrastructure financing has come with a successful financial close with Chapel Hill Denham Nigeria Infrastructure Debt Fund (NIDF), the first listed infrastructure debt fund in Africa’s most populous country. This is meant for the construction of 22 mini-grids that Havenhill Synergy has undertaken under Nigeria Electrification Project.
Olusegun Odunaiya, CEO at Havenhill Synergy Limited, in an exclusive interview with BusinessDay, said naira-denominated credit facility gives the sector a better financial outlook and returns on investments.
Odunaiya estimates that in the next five to 10 years Nigeria would be home to between 2,000 and 3,000 mini-grids servicing rural communities. There are less than 50 currently.
Nevertheless, operators in Nigeria’s mini-grids space have also highlighted some challenges with the regulations. For instance, the cap on mini-grids is 1 megawatt.
Projects below this threshold require a permit not licence. People familiar with the matter argue that when that regulation was written there were no megawatts scale mini-grids projects in Nigeria. Currently, there are mini-grids projects of 700 kilowatts, 1MW and 2MW.
“That cap needs to be increased to maybe 5MW. Some small factories use 1MW. If you have to go to NERC to get licence for 1.50MW projects the process becomes cumbersome,” Odunaiya said.
The mini-grids space is one sector in which Nigeria is receiving accolades from investors but hurdles remain.
