What is the Cost of Reliable Electricity?

Today, many Nigerians lack access to safe and cheap power. The electricity situation in Nigeria, especially in rural regions, stifles growth from industries to classrooms. The new report, Minigrid Investment Report: Scaling the Nigerian Market, by the Nigerian Economic Summit Group and RMI, discusses the potential for mini-grid systems to address rural electrification needs. Minigrid systems are stand-alone power generation and distribution systems that provide electricity to multiple customers. Mini-Grids can help firms produce, students learn, and the Nigerian economy achieve its full potential by providing reliable and inexpensive energy.

An Essential Solution

Today 65 percent of the population in Nigeria — more than 100 million people lack dependable access to power. Rural regions are in much worse shape, with only 36% of residents having access to a centralized power supply. Despite the rising demand for rural electrification, distribution firms cannot meet this demand due to insufficient generating capacity and undeveloped transmission and distribution networks. Rural electrification is ripe for the taking, and mini-grids provide a cost-effective way to accomplish so.

Mini-Grids are a novel yet a realistic answer to rural power issues. They can avoid many issues associated with energy from a centralized system while also offering cost-effective power. Mini-Grids can now service tens of thousands of villages in Nigeria’s rural regions at a low cost while also providing investors with a decent return on investment.

In Nigeria, What is a Minigrid?

The Nigerian Mini-Grid Regulation defines mini-grids as stand-alone power production systems with a capacity of up to 1 MW that distribute electricity to many users via a distribution network.

Nigerian customers are also plainly capable of paying for electricity. Alternative energy sources, including small-scale diesel/petrol production, now cost a minimum of $0.71/kWh in rural areas and sometimes much more. According to RMI, current mini-grid prices are estimated to be between $0.60 and $1.00 per kWh. Collection rates are high with prepay models, and the collection process is straightforward. We anticipate that by 2022, expenses may be cut by up to 60%, allowing the market to be further unlocked.

Nigeria, Africa’s most populous country with 186 million inhabitants, is ideally positioned to sustain a thriving mini-grid sector because of its dynamic economy and strong power consumption. In Nigeria, mini-grid systems may readily attain loads of several hundred kW, a more enticing size than many mini-grids now in use elsewhere in Sub-Saharan Africa. Higher daytime power consumption, which leads to increased system capacity utilization, is one sign of Nigeria’s robust economy, and it suggests that the Nigerian environment can sustain economically viable mini-grid systems.

Support for mini-grid growth from the federal government is essential in a country with great political clout. The Nigerian Ministry of Power is working to electrify rural areas and promote mini-grids across the country. Minigrid developers will benefit from a robust Rural Electrification Agency and mini-grid regulation, which will help them create financially sustainable systems and safeguard them against bigger utilities.

Although mini-grids are already being implemented effectively in rural communities, taking advantage of a few critical possibilities will boost the industry and allow faster expansion.

Roadblocks such as trouble obtaining reasonable financing and unpredictably high import taxes, for example, can substantially impact the ease of doing business and the long-term viability of mini-grid systems. We emphasize important proposals for market development that various stakeholders may implement.

The following are some key guidelines for investors and donor partners:

i. Encourage efforts to make finance more affordable and viable.

ii. To accelerate market expansion, provide partial grants and operational subsidies while keeping developer control of systems.

iii. To diversify the risk of mini-grid investment, form a mini-grid financial consortium.

iv. Agricultural and other development projects should be used to coordinate cross-sector demand stimulation.

Nigeria is quickly becoming a worldwide hotspot for mini-grid development, with innovative mini-grid models already being tested and a solid economic case already shown. The mini-grid community can work together to fine-tune the business case and expand the market by acting today. Early market development supporters would enjoy a competitive advantage in an industry predicted to electrify tens of thousands of villages, hundreds of thousands of small companies, and millions of people in Nigeria alone.

How Government Can Aid in the Development and Implementation of Renewable Energy Technologies?

National development policies influence the composition of national energy mixes and how they vary over time. For example, there has been a massive movement in China away from “biofuels” (cooking on open fires fueled by agricultural waste) and toward hydroelectric electricity and photovoltaics. Successful and influential policies for supporting renewable technology do not focus just on R&D but rather include the entire innovation system, encourage market development, and aim to maintain iterative feedback.

These techniques should be inclusive of the entire ecosystem of competing products, services, business models, and subsidies and should transcend national boundaries (for example, Chinese PV panels can be purchased in Germany). We must also emphasize the critical significance of international technical cooperation in the development of innovation and economic planning capacities and the interconnection of regional grids to reduce costs and increase resilience.

Off-grid power system investment is increasing, but component underperformance or failure due to bad manufacturing, lack of quality supervision, human error, and lack of community ownership reduce electricity utility and faith in off-grid technology. Proper planning, appropriate designs, and the utilization of high-quality components and installations are essential to delivering dependable and cost-effective service. Also, we should consider the provision of maintenance and spare parts, enforceable guarantees, customer education regarding competing components, and, at the very least, proper collection of monies to pay for recurrent expenditures.

Author: Yetunde Oyelami

Photo: da.org.za

Join this space as REES Advocates keep you up to date with the impact we make in combating energy poverty and promoting environmental sustainability in Africa.