Electricity tariff between N4 and N50 per kWh not cost reflective – report

With approximately 55 percent of Nigeria’s population lacking access to electricity, the country’s current electricity tariff of between N4 and N50 per kWh is neither cost-reflective nor sustainable, Nigeria’s Mini Grid Investment report 2018, has disclosed.

Authored and published by the Nigerian Economic Summit Group (NESG) and Rocky Mountain Institute (RMI), the report explained the current electricity tariff is not cost reflective which has led to inadequate supply of electricity to both domestic and commercial consumers who spend an estimated N4.9 trillion ($14 billion) annually to power 14 GW of small –scale diesel and petrol generating sets.

“Rural electrification is especially complicated; only 36 percent of the population has access to electricity because rural communities have lower economic activity and energy demand compared to their urban counterparts as grid extension to rural areas is problematic due to the generation shortfall, the non-commercial viability of many rural grids, and high technical and non-technical losses; so rural communities experience limited economic growth,” the report noted.

The report published by NESG and RMI admitted that despite the challenges with grid extension, off-grid alternatives such as mini-grids and solar home systems have not fully penetrated the rural market.

“Today’s cost-reflective mini grid tariffs are typically near N200 per kWh ($0.57/kWh), which is less expensive than the cost to run a small diesel or petrol generator set.

The report admitted that although this cost reflects the small scale and risk of a nascent market, mini grid tariffs are expected to continue falling and can be reduced by 60 percent by 2020.

“The insufficiency of grid-supplied power hinders business productivity, profitability, and growth throughout Nigeria particularly for small and medium-scale enterprises as over 80 percent of Nigerian business owners cites electrification challenges as the most significant obstacle to doing business, as they experience an average monthly power outage of 239 hours,” the report said.

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.

“Scaling the Nigerian mini-grid market to ten thousand 100 kW sites by 2023 would power 14 percent of the population with capacity up to 3,000 MW and create a N7 trillion ($20 billion) investment opportunity generating over N1.05 trillion ($3 billion) in annual revenue.

“In total, the mini-grid market in Nigeria offers potential annual revenue of N2.8 trillion ($8 billion). 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 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.

“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 minigrid systems providing 4.4 GWh per year.”

The report however outlined what needed to be done by the various stakeholders in the mini grid sector.

It stated for instance that policymakers should allow tax and duty exemptions and reduce import delays; clarify current regulations and implement additional enabling policies; increase state and local government involvement; as well as review the ESIA process.

For the business community, it noted that they could create a mini grid business community consortium; design standardized, modular mini grid systems; and improve telecom service reliability.

Investors and development partners in the mix, it added can support efforts to increase affordability and availability of finance; provide partial grants and operational subsidies; create a mini grid finance consortium; and create cross-sectoral implementation.

Similarly, the report requested mini grid developers to improve customer engagement strategies; implement cost-reduction strategies; and develop a data-sharing platform.

DIPO OLADEHINDE