White Paper - Solar Impact Cases

Thumbnail.png

Nigeria: Solar Impact Cases

Nigeria, the most populous country in Africa, has the second-largest off-grid energy market in the world, trailing only behind India. According to the International Energy Agency, around 77 million Nigerians are either underserved by, or completely lack access to, the national electricity grid. The purpose of this report is to present three different cases in which solar power has caused a positive impact in the lives of those unelectrified communities and individuals in Nigeria. The report will highlight three companies - Havenhill, Sosai and Auxano Energy - that made it their priority to bring safe, clean and reliable electricity to all Nigerians in need. Each case focuses on a different type of impact, ranging from economic development to educational benefits.

Fill in this form to download

Webinar - Power and Solar as Services

webinar.png

Webinar

Power and Solar as Services:
How to continue Nigeria’s development?

Wednesday, October 23, 16:00 CEST

Solar utilization in Nigeria has made strides over the last 5 years, but still remains very low despite the enormous solar potential the country has. This Webinar will provide you with the opportunity to learn about the experience of a local team, rich of 100+ installed systems, and how they tackled the common challenges the solar industry faces in Nigeria.

  • What barriers and obstacles did we have to tackle to install those systems? Which market changes do we still require to be more efficient?

  • How do flexible financing solutions contribute in the realization of solar projects in Nigeria?

  • How will the Nigerian market evolve in the next 5 years?

Access webinar recordings:

  • Victor Ezenwoko
  • Group Head Business Development
  • Victor Ezenwoko
  • Group Head Business Development
  • Daystar Power
Victor Ezenwoko is a member of the management board of Daystar Power Group, leading the business development and defining new business opportunities, supervising and executing projects and expansion across Africa.Daystar Power provides power solutions for commercial and industrial customers with a focus on hybrid solar power systems. Daystar Power serves a wide range of industries, including agricultural, manufacturing, and banking industries.Daystar Power has three objectives: reducing energy cost by 25%, providing stable power at 99% uptime and reducing pollution by cutting diesel consumption. Daystar Power is headquartered in Nigeria, with operations in other African countries such as Ghana and other West African geographies.Victor is an electrical engineer and business developer with his experience covering power engineering projects, sustainability, business strategy, and advisory services across Africa and North America. Before joining Daystar Power, he worked with Pricewaterhouse Coopers (PwC) and Great Lakes Controls and Engineering, Michigan.Victor holds a Bachelor’s degree in Electrical Engineering from Michigan State University and a Master’s degree in Electrical Engineering from the University of Maryland, College Park.

Minigrids Are the Cheapest Way

Minigrids Are the Cheapest Way

by Matthew Tilleard, Gabriel Davies and Lucy Shaw - CrossBoundary


Minigrids Are the Cheapest Way to Bring Electricity to 100 Million Africans Today

By all measures, Africa is currently losing the battle to end energy poverty by 2030.

U.N. Sustainable Development Goals commit the global community to delivering accessto affordable, reliable, sustainable and modern energy for allOne barrier to success is the ongoing political debate about how best to provide power to the more than 600 million people in Africa without access to electricity. Vested interests, inertia, aversion to change — all traits of the energy sector — do not lend themselves to speed, nor to innovation.

The debate has huge financial, economic and social implications. To solve it, empirical questions on technical feasibility and cost must be solved. At the same time, tough judgments about what quality of power people should receive, how much they should pay for it, and the role of the private sector vs. the public sector must also be addressed. 

Three main ways exist for providing electricity access: 1) extension of the existing electricity infrastructure (i.e., “main grid extension”); 2) minigrids; and 3) standalonesolarhome systems (i.e., residential solar). All three have a role to play.

Minigrids are self-sufficient electricity grids with their own power generation, storage and transmission capacities. They can serve households and businesses isolated from or integrated with the main grid.

The potential for minigrids to play a role in universal electrification in Africa has been well recognized. Beyond their ability to integrate with the main grid, they are also the least-cost option for many people in rural Africa. The International Energy Agency in 2014 estimated that minigrids could serve 140 million people by 2030. In an updated projection last year, it put that number at 290 million, or more than double the original estimate.

However, actual minigrid deployment is still extremely limited. As such, justifiable skepticism exists on whether this potential can be fulfilled.

In an effort to put that skepticism to rest, CrossBoundary developed a new analysis to calculate the minimum number of people in Africa who can be most cheaply connected by minigrids today, compared to the two other options.

Why is this important? Because when governments, donors and investors do reach consensus, they mobilize billions of dollars to support millions of connections. The pay-as-you-go solar home system sector in Africa — comprising systems serving single households — raised over $750 million from 2012 to 2017. This is dwarfed by the investments that single countries are making on expanding their existing grid infrastructure. For instance, the Kenyan government is investing $1.4 billion, supported by $675 million from the World Bank, African Development Bank and other development funders to build generation capacity, transmission lines and distribution networks.

In comparison to those sectors, the top five minigrid developers in Africa have raised less than $100 million over the last five years.

To help establish this "minimum role," CrossBoundary has undertaken a least-cost analysis (based on “like-for-like” connections — average 100 watts per household) in order to estimate the number of people for whom minigrids are the cheapest way to connect today. We took the most conservative view possible. No projections on population growth, no future cost reductions on minigrids, and no assumptions beyond minimum quality of power required. We used the costs now, for the people who live off-grid now. 

What is the minimum number of people in Africa for whom minigrids are the most cost-effective option?

As the chart below shows, of the three paths, no single means of electrification is always the cheapest. Main grid extension is generally the least-cost option for people who already live close to the grid (such as urban and peri-urban populations). Minigrids are usually least-cost for people who live so far from the main grid that extension costs are higher than installing local generation and storage capacity, but in a location densely populated enough to support the fixed costs of building the minigrid infrastructure. Solar home systems are the least cost for everyone else -– those living in sparsely populated areas, where running poles and wires from even a local minigrid becomes expensive.

Range of Connections Benchmarked Across Africa for Main Grid Extensions, Minigrids and Standalone Systems

How did we develop our minimum answer?

CrossBoundary started by combining the data on existing and planned high-voltage transmission lines from the World Bank with data on the population density of Africa by square kilometer from WorldPop. This allowed us to map out where each square kilometer of population is relative to the high-voltage grid. These data sets paint a clear picture of the challenges for electrifying rural Africa. First, Africa in parts is sparsely populated: Over 350 million people live in square kilometers that contain fewer than 100 people, equivalent to a family of five living on 10 football fields of land. Second, people often live remote from infrastructure: 135 million people live more than 100 kilometers from existing and planned high-voltage lines.

Next, we built up cost estimates to arrive at the tipping points between main grid extension, minigrids and solar home systems, allowing us to segment every square kilometer into its least-cost option. We did this by considering the costs of minigrids against the cost of main grid extension or solar home systems, assuming similar average electricity consumption. Our tipping points ultimately identify an average break-even distance from high-voltage lines where localized solutions become cheaper than main grid extension, and a break-even population density where minigrids are cheaper than solar home systems. 

To establish the costs for minigrids today we have benchmarked costs for existing projects from 15 minigrid developers across East, South, and West Africa. To make sure we hit the rock-bottom of our estimate for the role of minigrids, we also made two generous assumptions for the existing grid and home solar:

  1. Power from the existing grid is free. The only additional cost is extending it.

  2. A reduction in home solar costs by 40 percent by 2030, with replacement twice in 20 years.

On these assumptions, minigrids are cheaper than grid extensions at an average tipping point of 25 kilometers from the high-voltage grids, and cheaper than home solar at an average tipping point of 400 people per square kilometer.

Minigrids are the least-cost option for electrifying at least 100 million people in Africa

Running this analysis allows us to identify the least-cost option for electrifying the roughly 600 million people the World Bank estimates live in unelectrified areas. For 2018, we estimate that 210 million people are most cheaply served by grid extension (green), 100 million by minigrids (blue), and the remaining 310 million people by solar home systems (gray).

African Off-Grid and On-Grid Populations by Source

 

So, returning to the original question: Should minigrids have a role in delivering universal access in Africa?

Yes, because they are the cheapest way to deliver power for at least 100 million people.

Our minimum analysis approach compares well with more complex and optimistic models. Other published estimates have more complex methodology and also projections on minigrid cost reductions and population growth. We are right at the lower end of estimates made by UN-DESA and IEA, both using the KTH Royal Institute of Technology model. The striking increase in IEA’s estimate from 140 million in 2014 to 290 million in 2017 is driven by falling costs of solar, better information on population densities, and rollout plans of the existing grid. Our analysis establishes a minimum number that the most hardened skeptic can accept. These models establish more realistic estimates for those who already see the potential of mini-grids.

Number of People Minigrids Can Serve as a Least-Cost Option

Looking ahead

There are still many questions that need to be answered on the best way to achieve affordable, reliable, sustainable electricity access in Africa. For example, how much subsidy will be required to achieve this goal? What mix of public- and private-sector interventions are required? Should Africa build a grid that resembles the legacy grid of developed countries or start building toward a more distributed grid of the future?  

This analysis shows there is an immediate role for minigrids in reaching universal electricity access in Africa. Our analysis shows that the minimum number of people most cheaply electrified by minigrids today is at least 100 million. We estimate the investment required to connect those 100 million people by minigrids is $11 billion.

That number of people, and that amount of capital, is enough for donors and governments to allocate far greater levels of funding to minigrids today if we truly want to make sustainable energy access a reality.


Matthew Tilleard, Gabriel Davies and Lucy Shaw are with CrossBoundary Group.

Off Grid Solar in Nigeria

Off Grid Solar in Nigeria

Nigeria as a country is more populous than the entire economic bloc of East African Community – EAC. (180 million & 169 million respectively). Relatedly, Nigeria’s GDP is 250% of EAC’s GDP (405 USD & 159 USD [2016 values]). This data paints a nice portrait of the sheer size of the Nigerian market from a sector-agnostic perspective. 

But there is a consensus that Nigeria’s major hurdle to economic development is its very poor level of energy access. Nigeria was recently ranked as one of the countries with the worst electricity supply in the world, according to a 2017 report by Spectator Index. These statistics clearly outline the enormous potential and necessity of the energy investment opportunities in Nigeria. Especially off grid solar investment which has proved to be relatively easy, affordable and efficiently scalable. Consequently, Nigeria’s promising off grid solar market has attracted - and continues to attract - investments, although real hurdles remain. Macroeconomic problems, regulatory constraints and the typical challenges of a nascent market are still visible. However, in spite of the hurdles, market players are making significant progress. 

Off grid solar developments will be one of the highlighted topics in this year's edition of The Solar Future Nigeria, the largest solar PV focused industry event in Nigeria, which is hosted by global PV knowledge platform Solarplaza in Abuja on the 15th and 16th of May.

Around the world, the off grid solar space is continuously being buoyed by adjacent developments in technology and consumer preferences. From the role of innovative Fintech solutions, to the progress witnessed in mobile penetration; market enablers are emerging in Nigeria, which continuously redefines its frontiers. 

Quote 03.png

“Nigeria is a ready market for solar energy. On-grid energy by itself cannot produce and is not robust enough to support the population growth”. 

One of the most bullish off grid solar brands in the Nigerian market is Azuri Technologies. Their market footprint perfectly juxtaposes the opportunities and challenges inherent in the Nigerian off grid solar market. Vera Nwanze, General Manager Azuri Technologies West Africa says that “Nigeria is a ready market for solar energy. On-grid energy by itself cannot produce and is not robust enough to support the population growth”. 

Vera Nwanze - General Manager Azuri Technologies West Africa

Vera Nwanze - General Manager Azuri Technologies West Africa

Nigeria’s population is projected to reach 400 million by 2050 which directly increases the potential size of the market. Vera explains that “Government focus is to improve grid capacity, while supporting off-grid energy initiatives.With a population of about 180 million and over 50% living without electricity, Nigeria is the biggest market in Africa for off-grid solutions. As a result, the renewable energy policy was drafted with an emphasis on diversifying the energy mix. This has seen increased interest in the sector, thereby precipitating increased investment and interest”

With evident enablers and numerous risks as well, how are market players and current investors navigating the path towards profitability? Nigeria as a country is somewhat remarkable with policy ambivalence and even insensitivity in some cases. Some economic and non-economic incentives that off grid investors vie for (and which are already given in other African markets) appear elusive. For example, market operators are presently confronting the Nigerian authorities on a recent increase in import duty and Value Added Tax (VAT) on imported solar components and accessories. Proponents of the new policy argue that it is geared towards encouraging local manufacturing of solar equipment while investors believe it’s a major distortion to current market prices and existing cost structures; given the heavy reliance on imported components by most off grid solar companies. 

Quote 03.png

"Since solar off grid operators began to leverage Fintech for reaching previously inaccessible communities – mainly rural – a new category of customers has opened up."

On the key challenges in the Nigerian market, Azuri technologies listed “Mobile money challenges (as payment option); Lack of financial support from the banks; Lack of awareness; Non-clarity on duty charges and poor ease of doing business” as operator constraints. This is apparent. Since solar off grid operators began to leverage Fintech for reaching previously inaccessible communities – mainly rural – a new category of customers has opened up. But, in spite of the inherent promise of technologies such as mobile money, Nigeria is yet to attain universal access to mobile money and its usefulness is further constrained by limited user awareness, which in turn lowers their relevance and utility for scaling off grid solar operations. 

Innovation seems to be the key answer, and companies like Azuri are moving forward with that. The company says it’s addressing constraints “with an innovative product, [such as] an individual solar home plant via PayGo as an “instant relief”, with no need for infrastructure or centralised planning” Rightly said: a growing mobile penetration, aided by Fintech and Pay As You Go solutions, typically combine to solve major challenges for operators. Specifically problems of revenue collection and the operator’s ability to better structure payments (that are related to acquisition/usage of solar products). 

Proud of their footprints in Nigeria, Vera says “With about one year in Nigeria, in a strategic partnership with REA/NDPHC and ASPNL as our distributor, we can proudly say that we have recorded a transformative presence in 12 Nigerian states, with deployment of 20,000 individual solar home systems and entrenching PayGo as an alternative which has impacted about 100,000 people and created over 500 job opportunities, especially in the rural communities.”

On the medium term Azuri hopes to leverage market enablers “to reach over 1 million households that the grid can not, or will not, reach and as such compliment the grid gaps” and “On the long term; have a local presence in Nigeria with a manufacturing plant for export into the other West Africa countries.”

"With more than 80 million Nigerians living without electricity, according to a World Bank report, the opportunity for off grid solar investment is great."

With more than 80 million Nigerians living without electricity, according to a World Bank report, the opportunity for off grid solar investment is great. The market will surely gain greater traction if the government strives to improve the overall market conditions. It’s imperative that the progress made so far will be sustained through more friendly regulations that increase the ease of doing solar business in Nigeria. It’s also evident that consumer awareness will continue to expand as operators consistently apply innovative solutions for transforming market hurdles to key enablers. 
 

Nigeria's Energy Landscape

Thumbnail.png

Do you need a compact update on where the Nigerian solar PV market stands? Download the white paper now and get the latest insights in this dynamic and altering market.

Fill in this form to download

On-Grid Solar in Nigeria

On-Grid Solar in Nigeria

by Chijioke MAMA

In 2016, Nigeria caught the attention of the global solar industry, following serious efforts by the Nigerian government and the private sector to promote on-grid solar power development and to ameliorate the country’s severe and now worsening power crises. Since then, performance - in terms of real progress in project development - appears to be falling below expectations. However, Nigeria arguably remains one of the top potential destinations for solar investment in Africa.

For decades, power generation has relied almost exclusively on hydro and gas-based generation systems. But the widespread global advancements in solar technology and the regional solar power awakening in Africa have inspired sincere efforts on the government’s side and massive interest from local and international investors. Relatedly, Nigeria has one of the highest levels of solar irradiance in the West African region, as well as massive power supply deficits. Both those conditions combined make a strong case for affordable and sustainable power generation from alternative energy sources, such as solar. This context inspired several regulatory and policy changes in Nigeria in the last few years and culminated in the signing of 14 on grid solar Power Purchase Agreements (PPAs) in 2016, between the Nigerian government and several private investors. 

Beyond PPAs

This major milestone was greatly cheered by stakeholders and observers, but it’s been over 18 months since the PPAs where signed and some stakeholders believe that on-grid solar power development has not progressed as expected in Nigeria. As of yet, none of the 14 proposed projects has reached Financial Close (FC), which is largely due to delays on NBET’s part, revolving around providing a framework that satisfies the needs of banks and Institutional investors. Since Nigeria plans to generate about 10,000 MW from renewable sources by 2020, the success or failure of the fourteen PPAs (which would add a still relatively meager 1,200MW) could be symbolic for future on-grid investments. Should they all become successful, Nigeria could earn itself a great reputation as a top investment destination for solar power developers and financiers. Such a reputation will prove to be critical for attaining the country’s 10,000MW ambition and essential for attaining overall sufficiency in the power supply. 

Consequently, what are the core attractions of the Nigerian market for a solar on-grid investor? What are the main constraints for current on-grid solar developers? And how will the attractions and the constraints help to shape future solar investments in Nigeria?
Martin Haupts is the CEO of Phanes Group, an international solar energy developer, investment firm and asset manager headquartered in Dubai, UAE, with a local footprint in sub-Saharan Africa through its office in Nigeria. With respect to the major issues within the Nigerian solar space and how the country compares within Africa, Martin says that a successful pilot on-grid solar project would benefit and encourage investment. According to him, “If you consider that regional counterparts such as Ghana, Mali, Senegal and Burkina Faso have passed the ‘proof of concept stage’, then a pilot, on-grid solar project in Nigeria - a country of 180 million people - is desirable.”

Quote 03.png

“Even though the pace of activity within the on-grid solar space in Nigeria since the 2016 PPAs has been slow, there is capacity and capability on the part of the regulators. In spite of the excellent structure on paper - which is bankable - there are still a few questions to be answered within the sector.”

In 2017, the Nigerian government adopted a World Bank supported power sector development framework called the ‘Power Sector Recovery and Implementation Plan’ (PSRIP), which includes strategies for attracting solar investments and expanding on grid solar power capacity in Nigeria. But in essence, the current state of the market highlights a conspicuous disconnect between the all-important “core project execution” and the trio of; (a) good intent from the government; (b) excellent development framework/plan and (c) the world class PPAs/terms. 

Martin says “Even though the pace of activity within the on-grid solar space in Nigeria since the 2016 PPAs has been slow, there is capacity and capability on the part of the regulators. In spite of the excellent structure on paper - which is bankable - there are still a few questions to be answered within the sector.”

The Hurdles

The delays - and almost failure in some cases - of the 14 PPA can be traced back to a variety of challenges, from technical concerns to country-specific fiscal challenges that limit the ability of a certain class of developers to successfully close financing deals. Constraints also include investors’ questions relating to the governance of the Nigerian Electricity Supply Industry (NESI). With respect to governance and administration within NESI, Martin says that “there is still a lot to be done in terms of the structure and functioning of the Nigerian Bulk Electricity Trader (NBET) and the distribution companies.”

Rightly, the state of infrastructure and the financial status of most of the Distribution Companies (Discos) is a major clog in the wheel of the Nigerian electricity value chain. Which introduces a number of risks, including the so called “liquidity challenges” that ultimately affect generation companies in the upstream sector. Discos’ inability to meet their financial obligations exacerbated by poor metering systems and power theft constraints NBET in a number of ways. 

Quote 03.png

"In January 2018, Nigeria announced a World Bank-financed 20 year transmission infrastructure development plan which will hopefully remove some of the barriers in that part of the value chain."

Also, the poor state of the transmission infrastructure for example has been a source of concern for many developers. This has led to situation where a good portion of the generated power is simply not being transmitted and utilized –eventually - due to poor wheeling capacity. While these are legitimate present day concerns, they are poised to get better in the short to medium term, should the Nigerian government and power sector leaders match recent words/plans with action. In January 2018, Nigeria announced a World Bank-financed 20 year transmission infrastructure development plan which will hopefully remove some of the barriers in that part of the value chain. The plan hopes to enhance the transmission infrastructure’s wheeling capacity from its present capacity of 7,125MW to 10,000MW by the year 2020 and on to 28,000MW by 2035.

Nigeria apparently needs to do more work to remain an attractive destination for solar investment. The country’s ability or inability to provide the needed support for the successful completion of the 14 proposed on-grid solar projects will be a crucial test for its future solar development plans and ambitions. If efforts, policies and contracts do not ultimately transform into tangible and well executed projects, investor interest and enthusiasm could wane, the country’s immense solar potential will be greatly underutilized and geometrically growing need for energy access would only get worse in the coming years.


Learn more about Nigeria’s extreme solar potential, realistic business opportunities and honest assessments of the challenges and hurdles to this dynamic market at ‘The Solar Future Nigeria’, the second edition of the high-level, solar PV focused local business event.
 

Establishing foothold in the Nigerian solar PV market

Establishing foothold in the Nigerian solar PV market

by Marco Dorothal, Solarplaza

On the 1st of February, Solarplaza hosted a webinar on the different characteristics and latest data regarding the solar PV market in Nigeria, named ‘Establishing foothold in the Nigerian solar PV market - Navigating challenges and opportunities with Nigerian finance specialists.’ It was organized in the run-up to the 2-day ‘The Solar Future Nigeria’ conference in Abuja, that will take place on the 15th and 16th of May 2018. Lydia van Os, project manager at Solarplaza, was joined by Abiodun Oni of Stanbic IBTC Bank and Chinua Azubike of Infracredit to give an overview on how to attract investments, gain access to local currency and what the role can be of blended finance, innovative finance instruments and business models, as well as how to mitigate risks. The entire video recording of the webinar and the speakers’ slides can be freely accessed here


Background on the Nigerian Power Sector

Abiodun Oni, Head of Power and Infrastructure at Stanbic IBTC Bank, started the webinar by giving some background information on the current energy situation in Nigeria. He began by discussing the details related to the history and privatization of the Nigerian power sector. For 50 years, there had existed a monopoly in the Nigerian power sector that was primarily controlled by the Power Holding Company of Nigeria (PHCN). However, in 2005, the Nigerian government enacted the Electric Power Sector Reform Act of 2005, aimed at unbundling the national power utility company into a series of successor companies. 

In August 2010, a ‘roadmap’ was launched, helping to set new standards for the Nigerian power sector, as well as giving official business guidelines to the investment world. In 2011, a number of key events took place, such as the establishment of a bulk trader to engage in the purchase and resale of electricity. After more or less a year, a new framework for a long term tariff model was established, namely, the Multi-Year Tariff Order (MYTO). This was supposed to capture cost based commercial tariff models planned for over a 15 year period. 

After 2013, the PHCN was successfully decoupled into multiple independent entities: 11  distribution companies, 7 generation companies and only one single transmission infrastructure company that was 100% state-owned. The generation assets were privatized 100%, except for the two hydro assets in the country that were concessionned for 30 years.  In the case of the distribution assets, only 60% was privatized to the private sector, while 40% was retained by the government, which was essentially done in order to keep the possibility of being listed on the Nigerian capital market in the future. 

Fast forward to 2017: the market had gone through a number of challenges, mainly because tariffs were not completely established, as well as various political reasons. Illiquidity had also proven to be a big challenge, accumulating to almost 3 trillion naira since 2013, which translates to around 2.7 billion USD. However, in 2016, the federal government decided to let the World Bank step in to initiate the “Power Sector Recovery Plan” in order to help Nigeria’s privatised electricity market get out of its current difficulties. 


Electricity inefficiencies 

Nigeria currently faces a drastic difference between the installed capacity of the country’s grid and the actual electricity that is provided to the end-consumers. According to Oni, the inefficiencies in the power market in Nigeria are the main reason for the gap between electricity generated and electricity distributed. The current installed capacity of the grid is estimated at around 12GW, but the consumers are barely able to get 25% of that. The transmission system itself is significantly weak. However, in the last 12 months lots of investments have been made in the transmission grid and it has now actually surpassed the capacity of the generation and distribution system, exceeding expectations that were previously present in the industry. 

 
Source: Nigeria Energy Power Report 2016

Source: Nigeria Energy Power Report 2016

 

Overall, this does not change the fact that the end users are only able to get roughly 4000 MW of load, which translates to huge losses in the market that are not being recovered, especially since the tariff has technically not yet been approved. A way to combat these losses would be with the use of renewables. However, when the law of privatization was passed, almost no input for renewables was seriously factored into the plan. That only evolved as the challenges of the country’s dependence on gas as a primary source of energy became prevalent. Only then did the government feel the need to include regulation on renewables as a way to diversify its sources of energy.

 
Source: Business Monitor International 2017

Source: Business Monitor International 2017

 

Investors perspective

The eligibility of an asset depends significantly on the scalability of the product or project. Usually off-grid solar PV projects are developed on a small scale, but it’s important to know to which degree. Chinua Azubike, CEO of Infracredit, believes that when it comes to financing, size matters, in terms of liquidity and attractiveness to institutional investors. 

Besides the scale of a project, the next thing to focus on, when assessing the eligibility of an asset, would be the cash flow/product design and the type of payment structure. Azubike stated that, in order for an asset to grow, investors want to see a homogenous cash flow, where there is certainty of a long term, predictable cash flow in terms of payments. Some households/offtakers tend to have short-term offtake contracts, making it even more of a priority for investors to focus on the consistency and stability of those cash flows.
Performance data was also found to be a key factor when assessing an asset, according to Azubike. Given how new this market is, investors want to see the history of how the households and offtakers have consistently been able to make the payments, to allow investors to gauge the level of affordability. There is still some uncertainty regarding the amount of historical data needed in the market to create a high enough comfort level, allowing long term financing to be provided for projects.


Market Opportunity

Besides all of those challenges, the Nigerian market offers significant opportunities for off-grid and mini-grid power, as there is a relatively high level of economic activity, latent demand, and the ability to pay in both rural and urban areas.

Source: Rural Electricity Agency (REA)

Source: Rural Electricity Agency (REA)

The Rocky Mountain Institute, in conjunction with the World Bank, released a report in December 2017 on the Nigerian energy sector, showing that the country consumes over 9 billion USD a year in inefficient fuel, used to power homes and businesses. The report also showed that, with the use of renewables, the country would be able to save around 4.4 billion USD per year, which makes it a huge opportunity for market investors.

The biggest area of interest in the Nigerian solar energy sector so far has been the off-grid market. Considering the growth of the solar energy market, it will be interesting to see whether or not this will be mainly driven by corporate offtakers that provide counterparty risks acceptable to financiers, or from a big pool of individual homeowners that may not be able to enter into long term contracts. Oni points out that Commercial and Industrial (C&I) scale projects in Nigeria are the best choice for investors looking for a natural fit for projects that they would like to take to the bond market in the near future.

Key considerations to have with regards to the opportunities in the Nigerian off-grid market involve different elements. One of them is the 15GW of sub generation energy capacity in Nigeria. The bulk of that energy is coming from C&I entities that use diesel generators as primary source of fuel, which is extremely expensive from the operational expenditure side and results in a very limited useful lifespan of the assets. This makes it a compelling opportunity for developers to work on creating structures for future offgrid solar solutions.
When it comes to bankability, the growing pool of local & international developers has made the credibility of developers and the quality of off takers very crucial for establishing successful projects . For the first time in Nigeria, there is access to local currency for long-term funding. Before that, renewables were not competitive because of their high capital expenditure and because project owners could not spread the funding of the asset over the useful life of that asset. Now, it is possible to sign 10 to 25 year deals of long term local currency funding via Debt Capital Markets. Experts believe that, by doing so, it could result in a competitive tariff model for investors. 

One of the key questions right now is: Has any of the 14 PPAs (signed in 2016) reached financial close? The answer to that is unfortunately no, and there are a number of reasons for that. The most critical one is the fact that the market currently has excess energy capacity that is not getting to the end customers, resulting in the bulk trader not being incentivized to close these types of projects. There are also issues with the securitization of the PPAs, which has technically been resolved. However, because of the rise in costs, the regulators have tried to reprice the tariffs, going from 11.25 cents to 7.5 cents, which has been creating quite a challenge for developers. 

When it comes to on-grid PV projects, while the political rationale for it is quite compellent, there are many difficult challenges within the sector, especially with the fact that there is excess load on the market today that is going to waste. When it comes to C&I and off-grid projects, the situation is looking brighter. Rooftop and mini grid projects are being developed at a relatively higher pace, allowing for more stable and predictable costs in the future for end-consumers without having to be subject to market fluctuations. As more companies continue to deliver successful PV projects, solar energy is increasingly becoming more viable in Nigeria. Nonetheless, it still needs to be seen how the Nigerian solar PV market will react to future regulatory changes, and how the decreasing costs of solar and energy storage will affect the economic proposition for solar PV in Nigeria.


Learn more about the challenges & realistic opportunities in the immediate future of solar PV for Nigeria at The Solar Future Nigeria (15-16 May 2018, Abuja). Join 250+ high level executives at the region’s leading solar event to discuss Nigeria’s On-grid & Distributed Solar Power developments.


 Sources

New Recovery Plan to Rescue the Electricity Market
https://www.thisdaylive.com/index.php/2017/12/05/new-recovery-plan-to-rescue-the-electricity-market/

Feasibility of the Power Sector Recovery Plan – II
http://www.nigeriaelectricityhub.com/2017/12/12/feasibility-of-the-power-sector-recovery-plan-ii/

Power Sector Recovery Implementation Program
http://www.pwh.gov.ng/download/14991674947496.pdf


 

Commercial banks accused of suppressing Nigerian solar market

Commercial banks accused of suppressing Nigerian solar market

Nigerian solar energy expert, Ademola Fadunsi, has questioned the financial industry for its slow pace of solar energy investments, saying the inability of local commercial banks to grant loans to investors in the sector has impeded market growth.

USADF, All On opens 2018 offgrid $100,000 energy challenge

USADF, All On opens 2018 offgrid $100,000 energy challenge

The U.S. African Development Foundation (USADF) and All On have officially opened the application period for the 2018 Nigeria Off-Grid Energy Challenge, which will provide $100,000 per enterprise for successful applications, following the announcement last month of a $3 million public-private partnership between the two organizations.

All On to move energy sector partnerships and investments forward in Nigeria

All On to move energy sector partnerships and investments forward in Nigeria

Nigeria’s industrialization ambition is caught up in a complex web. At the center of the numerous challenges that stall economic growth and development in Nigeria is the extremely poor level of energy access. The energy needed to support quality health care delivery, improved education and better farming practices is simply absent. With millions of households and businesses getting less than 4 hours of electricity per day, Nigeria is in urgent need of every help it can summon.

The up-and-coming African solar: Top 50 announced African solar PV projects

The up-and-coming African solar: Top 50 announced African solar PV projects

Our list of Top 50 projects under development comes in preparation for the two-day event in Nigeria during the 25-26 of April. The Solar Future Nigeria concentrates all major stakeholders in the country and addresses all forms of solar applications ranging from utility scale to pico solar.

Currency Risk in Nigeria: Hedge Now, Save Later

Currency Risk in Nigeria: Hedge Now, Save Later

On 15th March 2017, Solarplaza organized the webinar “Currency Risk and Convertibility Issues for Nigerian Solar/RE Projects”. The entire video recording of the webinar and the speakers’ slides can be freely accessed here.

The regulatory ecosystem around on grid solar contracts in Nigeria

The regulatory ecosystem around on grid solar contracts in Nigeria

On-grid solar will take off on great scale in Nigeria due to the failure of legacy fossil energy sources. 14 Solar Power Purchase Agreements (PPAs) have been signed recently, being the first set of many more to come, and there’s a good chance of a solar power auction to follow.

GreenWish to Invest $280 Million in Nigeria Solar Plants

GreenWish to Invest $280 Million in Nigeria Solar Plants

BLOOMBERG - GreenWish Partners, a Paris-based independent power producer, will invest $280 million to build solar-power plants in Nigeria that are expected to start producing electricity in the first quarter of next year.