Top ‘last mile’ funding flows into Nigeria’s off grid power market

Nigeria’s off grid electricity market is steadily becoming the darling of funders and investors, and this is despite its market entry challenges – FX instability, country’s insecurity, and customs levies.

While it is not clear if investors in the market enjoy any form of tax holidays as they come in, it is however certain that a lot has changed as recently highlighted by All On’s chief executive, Dr. Wiebe Boer, to enable these funders push through improved energy access to millions of Nigerians.

And, even though the World Bank had advised that the sector is a ‘not quick money’ one, funders appear to have listened to billionaire Richard Branson’s 2017 advise that, “the combination of large revenue opportunity (USD $9.2 billion per year), a supportive government, and a dynamic entrepreneurial environment unite to make Nigeria the ideal location. If you are an impact investor that wants to make a difference in energy access next year, I’d suggest a trip to Nigeria,” to look in deeply on the country.

OGN had in the last couple of months, followed trends and now writes on some of the funding flows into Nigeria’s off grid electricity market that could help reach the ‘last mile’ electricity consumers in the country.

AFD/SUNREF €74m package

When he last visited Nigeria, French President, Mr. Emmanuel Macron, witnessed the initialing of three separate financing agreements between the Agence Française de Développement (AFD); Access Bank; United Bank for Africa (UBA); and the Manufacturers Association of Nigeria (MAN), worth €74 million to be co-financed by AFD and the European Union (EU) on energy efficiency and renewable energy investments in Nigeria through SUNREF program.

The SUNREF Nigeria program which was subsequently launched, is meant to incentivize and support private companies and public enterprises into investing in renewable energy and energy efficiency projects in Nigeria.

According to available factsheets, SUNREF is one of the innovative tools developed by AFD to promote the emergence of green finance tailored to the needs of economic actors in countries in transition. It aims to allow local financial institutions to take action to fight against climate change.

In Nigeria, SUNREF will help develop the practices of three local partner banks via financial support and technical assistance to facilitate access to green energy and promote the sustainable management of natural resources.

What it wants to achieve:

It was gathered that with the fund, SUNREF will ensure the development of a low-carbon economy and allow economic actors adapt to such energy related transformation going on in the country. It will also support transformation of the partner banks’ practices to promote green finance models; improve the capacity of local banks to assess and finance green energy projects through long-term concessional resources as well as medium-term technical assistance.

The fund could equally support the emergence and maturation of a market for green investments in Nigeria by promoting technologies and services with a positive climate impact.

OGN also understands it would foster the interest of stakeholders – companies, banks, the federal government, and, in the long term, other investors and financiers, in developing and financing green projects.

With regards to impacts, it was gathered that SUNREF expects that by supporting private investments, it will reduce energy consumption; ensure the development of a low-carbon economy and allow economic actors adapt to the imminent energy transformation. Additionally, it expects its support for financial actors to promote the development of an innovative renewable energy and energy efficiency industry would become feasible through the program.

It also anticipates that the productive sector will benefit from these new investments through reduced energy bills and better secured energy supply. It aims to finance a minimum of 10 renewable energy sources combined projects with the installed capacity per project ranging between 1 and 10 megawatts (MW) over a period of two and three years.

ElectriFi unloads €30m funding cache

Funded by the EU, ElectriFI recently unpacked an energy access impact investment facility into the Nigerian off grid market with the inauguration of a €30 million financing line dedicated to the Nigerian renewable energy market.

Announcing the facility at the 2019 edition of the Nigeria Energy Forum, the EU Ambassador to Nigeria, Ketil Karlsen said: “With ElectriFI Nigeria, the European Union allocates €30 million of investment capacity to partner with Nigerian businesses and project developers working to increase energy access from sustainable energy sources.”

Further, Quentin Antoine, Senior Investment Manager for ElectriFI, described the ElectriFI Nigeria facility as a specialist equity and debt financing facility for off-grid renewable energy companies in Nigeria.

Accordingly, ElectriFI would target to finance projects that could lead to new and improved connections to electricity for populations living principally in rural, under-served or unreliably-served areas.

The investment strategy it was learnt, would focus on urban areas; captive power producers servicing commercial and industrial off-takers; as well as rural areas; solar home systems; and mini-grids developers and operators.

The €30 million facility has been described as one of ElectriFI’s largest for a country, as well as a great opportunity for business and project developers.

AfDB’s multimillion dollars footprints

The African Development Bank (AfDB) has remained huge in Nigeria’s off grid power market, with key investments and market enabling supports.

Recently, its board of directors approved a $150 million sovereign loan to Nigeria’s federal government to finance the Nigeria Electrification Project (NEP). The financing will support rural electrification efforts in Nigeria by facilitating private sector development and rollout of off-grid solutions, as well as the installation of dedicated power systems for federal universities.

Apart from the $150 million, the bank also communicated the approval of another $50 million loan to the government to co-finance the project through the Africa Growing Together Fund (AGTF) – a $2 billion facility sponsored by the People’s Bank of China and administered by the AfDB.

Similarly, there is another equity investment of up to $25 million in ARCH Africa Renewable Power Fund (ARPF) – $250 million private equity fund for renewable energy projects across Sub-Saharan Africa, which Nigeria can tap from the bank.

The AfDB explained that the ARPF will provide equity for the development and construction of 10 to 15 greenfield renewable energy projects in Sub-Saharan Africa, adding approximately 533megawatts (MW) of installed energy generation capacity from renewable sources in the region.

ARPF projects will focus on mature technologies including wind; solar photovoltaics (PV); small to medium hydro; geothermal; and biomass, and they would include grid-connected independent power producers (IPPs), as well as decentralized energy projects – commercial and industrial solar, mini-grids and solar home systems companies.

The fund’s strategy, OGN further gathered prioritizes projects with a clear timeline to financial close, with emphasis on de-risking early stage greenfield projects, and through the bank’s presence, other investors could commit a further $60 to 75 million equity from non-DFI sources.

The Bank would also ensure that the highest environmental and social standards, together with climate change and gender considerations, are applied to the ARPF’s projects.

“Energy investments in Africa are constrained by limited well-structured, bankable projects, as well as by unavailability of risk capital. Renewable technologies require additional support to be fully competitive over fossil fuel-based energy generation.

“ARPF will expand the pipeline of bankable energy projects in Africa, and complement and deepen the work of the Bank in this critical area. This is vital for economic growth, and to foster transition to low carbon across the continent,” ,” said Amadou Hott, AfDB’s Vice-President for power, energy, climate change and green growth, about the fund.

ARPF will also assist governments in meeting their renewable energy objectives through on-and off-grid renewable energy technologies. In addition to contribution to renewable energy, the project construction and operation will result in direct creation of at least 272 full time jobs and 5,320 part time jobs. The facility, it was gathered is however expected to reach first close in early 2019.

Hott, also said about the bank’s support for Nigeria’s NEP: “Given the limited amount of public financing available, projects that catalyze private sector investment are critical in enabling the Bank and its regional member countries meet their shared objective of electrifying the continent within the next decade.”

The AfDB hinted that the NEP was aligned with its ‘New Deal on Energy for Africa, the High 5 priorities’, and Climate Change Action Plan.

There is also an approval by the board of AfDB of $1.5 million grant from its Sustainable Energy Fund for Africa (SEFA) to support the government of Nigeria to undertake the first phase of the Jigawa 1-gigawatt (GW) Independent Power Producer (IPP) solar procurement program.

When it approved the fund, it said at full 1 GW capacity, the Jigawa project will assist Nigeria achieve its national goals of reaching 75 per cent electricity access by 2020, as well as electrifying unserved and underserved areas, particularly in northern Nigeria where access rates are lowest. It will also increase the share of renewable energy in the energy mix to 30 per cent by 2030.

The approved SEFA grant will support the completion of outstanding technical and feasibility studies and the design of a masterplan for the entire program site.

Subject to the outcome of the technical and feasibility studies, AfDB indicated it will provide additional support to the government in the form of funding of a transaction advisor to design and launch the competitive IPP procurement.

Hott, also said about this that: “It is important for us to deliver a seamless implementation and provide necessary support to the government to conduct an effective IPP procurement process.”

Launched in 2012, the SEFA which is hosted in the AfDB, is a $90-million multi-donor facility funded by the governments of Denmark; United Kingdom; United States; and Italy, to support sustainable energy agenda in Africa through grants to facilitate the preparation of medium-scale renewable energy generation and energy efficiency projects; equity investments to bridge the financing gap for small and medium-scale renewable energy generation projects; and support to the public sector to improve the enabling environment for private investments in sustainable energy.

World Bank shows its commitment in mega millions

Also committing to the off grid power market of Nigeria, the board of the World Bank Group approved $350 million to support the Nigerian Electrification Project (NEP). The NEP will leverage private sector investments in solar mini grids and standalone solar systems to provide electricity to 2.5 million people and 70,000 MSMEs, as well as publicly-funded reliable electricity to seven universities and two teaching hospitals.

The bank said the facility aims to increase access to electricity services for households, public educational institutions, and underserved micro, small, and medium enterprises (MSMEs) in Nigeria.

Activities in the NEP it added, comprised of solar hybrid mini grids for rural economic development implemented under a market-based private sector led approach to construct, operate, and maintain economically viable mini grids which would be supported by subsidies that reduce initial capital outlays.

Under this, there will be minimum subsidy tender for mini grids; and performance-based grants program.

The second aspect of NEP activities will include stand-alone solar systems for homes and MSMEs with the intention to significantly increase the market for stand-alone solar systems in Nigeria in order to provide access to electricity to more than one million Nigerian households and MSMEs at lower cost than their current means of service such as small diesel generating sets.

It has in its schedule market scale-up challenge grants and performance-based grants, while the third aspect of the NEP include the energizing education objective is to provide reliable, affordable, and sustainable power to public universities and associated teaching hospitals.

The fourth component of the NEP include technical assistance designed to build a framework for rural electrification upscaling, support project implementation as well as broad capacity building in key energy related government agencies in Nigeria.

Further on its supports, the bank on April 17, 2019, approved the Regional Off-Grid Electrification Project (ROGEP), which include a $150 million in the form of credit and grant from the International Development Association (IDA), and $74.7 million contingent recovery grant from the Clean Technology Fund to help the West African Development Bank and ECOWAS’ Center for Renewable Energy and Energy Efficiency expand off-grid access to electricity for populations in 19 countries in West Africa and the Sahel region.

Countries to benefit from this include Benin, Burkina Faso, Cabo Verde, Cameroon, Central African Republic, Chad, Cote d’Ivoire, The Gambia, Ghana, Guinea, Guinea-Bissau, Liberia, Mali, Mauritania, Niger, Nigeria, Senegal, Sierra Leone and Togo.

The overall objective of ROGEP is to increase electricity access of households, businesses, and public institutions using modern stand-alone solar systems through a harmonized regional approach.

The project is expected to benefit about 1.7 million people currently living without electricity connection or with unreliable supply, as well as businesses and public institutions who will use modern stand-alone solar systems to improve their living standards and economic activities.

“So far, only 3 per cent of households in West Africa and the Sahel are served by stand-alone solar home systems, and 208 million people in the sub-region do not have access to electricity. The project seeks to assist regional policy makers to address barriers to create a regional market for stand-alone solar systems, which is essential to reduce energy poverty in the region, and entrepreneurs to take opportunities in this market through development of scalable business solutions,” said Rachid Benmessaoud, the bank’s coordinating director for regional integration in West Africa.