Mini-grids provide N2.8trillion yearly investment opportunities in rural Nigeria

Mini-grids in rural Nigeria can provide business opportunities worth over to N2.8 trillion per year in providing rural electrification projects for communities who are living in areas Nigeria’s national grid does not cover as well as providing a cost-effective solution to power challenges according to a report by …

“The Nigerian mini-grid space is ready to take off, and there is a huge opportunity for investment to scale the market,” said Sachi Graber, an associate at Rocky Mountain Institute and co-author of the study.

“These mini-grids could drive a significant economic change in rural Nigeria,” Graber added.

The Nigerian minigrid market today has reached an inflection point – costs are competitive with alternatives like diesel and petrol generators, and projects are moving away from grant funding to commercial investment, says the report. Yet at the e same time, minigrid costs can be reduced by more than 50% over the next three years, unlocking market scale to tens of thousands of sites within Nigeria alone.

The 40- page document seen by BusinessDay found that that acelerating development of this market will require building on the foundation in place and addressing key challenges that may slow progress.

In the last few years, the Federal Government of Nigeria has created policy to enable minigrid and off-grid development in the country. Beginning with the National Electric Power Policy of 2001, and including more recent policies like the Nigerian Electricity Regulatory Commission’s Mini Grid Regulation of 2017, “the government has increasingly committed to off-grid development and electrification. This commitment has ranged from enabling regulation and policy to direct investment through budgeted funds and facilitating development partner loans and grants,” the report said.

It however recommended that, “there is a need to provide more clarity on policy by addressing overlapping mandates and competing frameworks, as well as to more consistently enforce existing regulation. The government can also continue to improve the ease of doing business, considering customs issues and supporting finance development in particular.

On Tariff

The report also said that the costs are becoming affordable. “Tariff rates vary from site to site, but a flat tariff structure (a single fixed price per unit of electricity) for all customers was implemented in nine of ten sites. At the last site, residential and commercial users were charged using different tariffs. For most projects, tariffs were developed in agreement with the host community. In each community, the majority of residents report spending less on electricity from the minigrid now than they did on energy alternatives before the minigrid’s installation.

“Today’s cost-reflective minigrid tariffs are typically near N200/kWh (US$0.57/kWh), which is less expensive than the cost to run a small diesel or petrol generator set. Although this cost reflects the small scale and risk of a nascent market, minigrid tariffs are expected to continue falling and can be reduced by 60% by 2020.

In comparison to diesel, the report said that “the levelised cost of electricity (LCOE) from a small diesel generator is at least N250/kWh (US$0.71/kWh).

The report said that implementation of the commercial minigrids detailed in this report provides a proof point for how projects can be successfully installed and operated. These projects also provide clear best practices that developers, investors, and other stakeholders can learn from as the next generation of minigrids are installed.

it also said that, “At the same time, their experience highlights opportunities to significantly reduce cost through a variety of measures. Similarly, continued improvement of the business and policy environment will enhance project bankability and sustainability and unlock investment needed to reach greater scale. This report presents a set of key recommendations for how policymakers, the business community, investors and development partners, and minigrid developers can address these challenges and help to realise this enormous opportunity.”

According to the report, as the minigrid sector in Nigeria grows, it offers both meaningful impact and exciting investment opportunities. “In a matter of 12–24 months the number of commercial minigrid systems is expected to increase by a factor of ten, while project costs are falling and best practices are being implemented across the sector,” says the report.

This progress can be further accelerated as new investors enter the market and stakeholders address opportunities for enabling growth. As the Nigerian market scales, it can be a vanguard for expanded minigrid development across subSaharan Africa, where investors and developers can transfer the experiences and lessons learned in Nigeria to other countries with similar energy landscapes. Taken as a whole, the future is bright for the minigrid industry and the electrification of rural Nigeria

The report also provides recommended best practices for the mini-grid sector, based on current operating mini-grid projects, which can ensure success from both a business and development perspective.

ISAAC ANYAOGU