Nigeria’s rural communities ready to pay for electricity from mini grids – report

Villages in Nigeria that do not have electricity from the national grid but rely on alternative expensive power sources have been assessed and adjudged viable to sustain commercial investments in mini grid electricity systems, a new report from the Nigerian Economic Summit Group (NESG) and Rocky Mountain Institute (RMI) has disclosed.

The report – Mini grid Investment Report: Scaling the Nigerian Market – discussed the opportunity in mini grid systems – stand-alone power generation and distribution systems that provide electricity to multiple customers – to address rural electrification needs of Nigerian.

Obtained from the webpage of the RMI, it indicated that while vast majority of Nigerians in rural communities today lack access to reliable and affordable electricity, they however do not lack the purchasing power to ensure that investments in mini grid power systems turn in good profits for interested investors.

According to it, in only 10 years’ time, investors and other stakeholders could transform Nigeria’s rural areas by introducing clean and affordable mini grids to provide energy access.

“Our research finds that we can reach this potential by building on existing groundwork and taking just a few key actions across the value chain. The mini grid investment report discusses opportunities for growing the market and tapping into a revenue opportunity of up to US$8 billion per year,” said the report.

The numbers come right and healthy

The report highlighted that with her 186 million people, Nigeria looked well positioned to support a boisterous mini grid market due to its active economy and high demand for electricity.

It explained that 65 per cent of this population which according to it amounted to over 100 million people do not have access to reliable electricity, adding that only 36 per cent of rural communities’ inhabitants have access to a centralized power source.

“Mini grid systems in Nigeria can easily reach a load of several hundred kW, an appealing scale that is greater than many mini grids currently operating elsewhere in sub-Saharan Africa.

“Greater productive use of electricity – one indicator of Nigeria’s strong economy – also means that Nigerian communities can support commercially viable mini grid systems through high daytime power demand that leads to greater system capacity utilization.

“Customers in Nigeria are also clearly able to pay for power. Today, rural consumers pay a minimum of $0.71/kWh – and often much more – for alternative sources like small-scale diesel/petrol generation.

“RMI estimates current mini grid costs at a competitive $0.60-$1.00/kWh. With prepay models, collection rates are high and the collections process relatively simple. In addition, we believe costs can be reduced by up to 60 per cent by 2020, further unlocking market potential,” said the report.

A necessary solution

However, the report warned that there were still some necessary actions that should be taken to ensure this happened.

It noted that while demand for rural electrification was on the rise, power distribution companies are unable to provide sufficient power to rural areas due to low generation capacity and underdeveloped transmission and distribution networks.

The market, it added was ripe for rural electrification, and mini grids offered a cost-effective opportunity to do just that.

“Mini grids offer an innovative yet practical solution to rural electrification challenges. They can circumvent many of the problems with electricity from the centralized grid, while providing cost-effective power. Today, tens of thousands of communities in remote regions of Nigeria can be cost-effectively served by mini grids while providing investors a good return on investment,” it stated.

It further explained: “Although mini grids are already being successfully implemented in rural communities, acting on several key opportunities would strengthen the market and allow more rapid growth.”

For instance, the report suggested that roadblocks like difficulty accessing affordable finance and unpredictable import duties can have significant effects on the ease of doing business and sustainability of mini grid systems.

Highlighting the key recommendations through which different stakeholders can take action to promote market development, the report stated the need to support efforts to increase affordability and viability of finance; provide partial grants and operational subsidies to speed market growth while retaining developer ownership of systems; create a mini grid finance consortium to spread the risk of mini grid investment; and coordinate cross-sectoral demand stimulation through agricultural and other development programs.

Commercially viable market waiting to boom

The report also said that data collected and analysed by researchers from the NESG and RMI on 10 commercial mini grid projects showed strong business models; robust system technology; and strong customer buy-in.

It stated that throughout the country there were high potential for mini grid success, adding, “In a country with strong political influence, support for mini grid development from the federal government is a must.”

“The Nigerian ministry of power is committed to rural electrification and is promoting mini grids throughout the country. A strong Rural Electrification Agency and mini grid regulation further back mini grid developers in creating financially sustainable systems and protect them against larger utilities,” said the report which hinted the market was on the verge of a boom.

“Innovative mini grid models are already being tested today, and with a strong business case already demonstrated, Nigeria is rapidly becoming a global hub for mini grid development. By acting now, the mini grid community can work together to hone the business case and grow the market.

“Those supporting early market development will gain an early market share in an industry that is expected to electrify tens of thousands of communities, hundreds of thousands of small businesses, and millions of individuals in Nigeria alone,” the report indicated.