Off-line grids and smaller systems targeted to boost reliability in the Nigerian power sector
Although Nigeria’s 2013 move to privatise the majority of its power sector assets has by many standards failed to create the level of returns hoped for, market participants still see the country’s electrification as an investment opportunity. However, there has been a shift in focus from the national system to smaller, local projects. The 2017 Power Sector Recovery Programme (PSRP) is unique in comparison to past master plans, as it moves beyond issues related to the nationwide supply chain and includes policy prescriptions for off-grid production, expanding the role of the Rural Electrification Authority (REA). Renewables-based mini-grids, in-home solar kits and a plan to give the capital city and its environs a full-service value chain have all become new aims in Abuja’s evolving priorities.
Defined as stand-alone generation-and-distribution systems with a capacity of up to 1 MW of generation capacity or 100 KW of distributed power, mini-grids allow investors the chance to avoid the Nigerian Electricity Regulatory Commission’s licensing process in favour of a simpler registration. As of October 2018, there were about 10 mini-grid pilot projects, including one to power 12,000 shops in a market district in the northern city of Kano called Sabon Gari, which is being built by local firm Rensource. The development is backed by foreign philanthropic organisations, such as the Omidyar Network, and by Amaya Capital, the investment vehicle behind the Azura-Edo Independent Power Producer, the first of its kind to produce electricity for the national grid.
According to the REA, the market could absorb 10,000 new mini-grids in the next 10 years. Assuming a capacity of 100 KW each, this would only meet 30% of demand. Moreover, a medium-sized system, with about 200 KW of capacity is estimated to provide commercial returns within three years. The agency has been working with the World Bank as well as the US-based Rocky Mountain Institute, an energy-sector non-profit profit backed by Virgin Group’s Richard Branson, to study and develop the mini-grids market. Of the 10,000 potential sites identified, 100 have been prioritised as promising.
Several companies, such as Lumos Global and Azuri Technologies, have begun selling small solar-power systems designed to provide a basic level of power to households that lack access to electricity. Such kits have become popular in Kenya, where they are typically purchased by individuals who have little credit, but are provided financing if they are able to supply the buying history of their mobile money transfer service M-Pesa. In Nigeria, mobile money platforms have yet to become popular on a large scale; however, Retailers in Nigeria, who are offering the kits for about $200 each, are confident in consumers’ ability to repay because they believe their systems lower the overall cost of energy for users, especially for cooking. The REA estimates that the country spends $14bn a year on diesel-fuelled power, which costs about $0.45 per KWh, far more than the renewable alternatives. Sellers also maintain control over the equipment and can turn it off remotely in case of non-payment.
Light up Lagos
The government also plans to spend $5bn on a state-sized energy network featuring 3000 MW of generation capacity. Lagos now consumes 27% of the country’s total power, but hopes to create a system independent from the national grid in hopes of providing power at a rate steady enough to attract industrial investment. It may choose to import liquefied natural gas and invest in an offshore regasification unit, which would be significantly more expensive than using domestic gas delivered through pipelines, but also more reliable, given past problems with the pipeline network. The state also plans to work with the two existing distributors that cover Lagos to install pre-paid meters and concession billing to private collection companies, which the government believes will boost compliance. The plan is part of a wider policy called Light Up Lagos, launched in 2016, which also emphasises developing street lighting and rural electrification within the state.