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Are Mini-grids in Nigeria Sustainable?


The most important factor in a country’s stability, prosperity, and eradication of poverty is its access to energy. Energy supply continuity is a crucial concern for all nations today. The long-term availability of energy from sources that are accessible, inexpensive, and ecologically friendly is vital for future economic growth. Energy is directly tied to security, climate change, and public health. Every area of any nation’s economy depends on the energy in some way. Energy usage per person can be directly correlated to a nation’s standard of living. Rapid population expansion, rise in global cultures’ living standards and the inability of the policymakers to incorporate mini-grids to provide sustainable energy are to blame for the current energy issue.

A mini-grid is a self-contained power system or an integrated local generating and distribution system with an installed capacity of less than 1MW that can serve multiple end customers while remaining independent of the national grid. A mini-grid can provide reliable and affordable electricity in remote areas where population density is insufficient to justify connecting the community to the national grid, and it represents a viable and cost-effective solution for electrifying African communities through a decentralized energy system.

For tackling severe electrification shortages in Africa, mini-grids have been suggested as a key platform. Renewable energy mini-grid technologies increase the availability of electricity for underserved populations. Beyond pilot projects, African governments struggling with acute shortages are concentrating on creating effective small-grid ecosystems, especially for their off-grid citizens. Several countries, including Tanzania, Kenya, Uganda, Nigeria, and Ghana, have policies and procedures in place to increase the number of people who have access to electricity through tiny grids. Mini-grids are receiving more financial support from foundations, philanthropists, and organizations as the deadline for achieving universal access to energy by 2030 draws near.

Around 7 million households lack reliable grid connectivity, therefore mini-grids could offer a cost-effective solution for supplying energy to them. The nation’s mini-grid development is reasonably advanced thanks to a functional regulatory environment and a comparatively high rural electricity demand. According to World Bank estimates, mini-grid investments might total more than $10 billion by 2030, but the national scale calls for steps to unlock loan financing, particularly in local currencies.

Most mini-grids have been planned in Africa. More than 4,000 mini-grids are now being planned, according to World Bank data. Around 2,000 of the 4,000 projected tiny grids in Africa are located in Senegal and Nigeria, the continent’s two largest markets for small grids. However, mini-grids may be able to provide electricity to a sizeable portion of Congo’s unconnected population, reaching approximately 8 million African households for a potential expenditure of $12.5 billion.

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Solar mini-grids have the potential to be a key component of achieving widespread access to electricity if given the right level of governmental support. Africa has to be revived. Mini-grids are essential for ensuring long-term, widespread access to power throughout Africa. Mini-Grids (MGs) serve communities that are densely populated enough to take advantage of power supply economies of scale in comparison to individual house systems but too far from the grid to be economically connected in the short to medium term. The most economical option, mini-grids have the capacity to supply up to 290 million people in Africa by 2030. An estimated 111 million homes will be connected to tiny grids, and 150,000 small grids will be needed for universal power access in Africa.

Distribution systems for mini-grids are usually more advanced than distribution systems for regular grids. Mini-networks can include bidirectional power flows and a variety of energy sources, in contrast to standard grids. Additional controls and software are required due to the operational complexity at this level. In hybrid systems, each power source needs its own controller, and the mini-grid needs a centralized management system to mix the different power sources. You will find it simpler because The Energy Project Africa (EPA) will walk you through the entire process. In Lagos, Nigeria, EPA is a prominent renewable energy company with experience in solar mini-grid projects, the procurement of energy equipment, energy audits, and feasibility analyses for projects to electrify and light up businesses and communities. It also helps stakeholders make data-driven decisions in the clean energy space via real-time quantitative research and feasibility studies.

EPA considers the end-user system, including meters, when building the distribution system. Tariff collection and the mini-grid project’s business aspects are the two most important factors to consider while choosing metering systems. The EPA selects the payment scheme at one of several design-related stages. The technical systems are typically designed by EPA before the metering and payment systems. The EPA makes sure that the end-user system can handle loads and tariffs while also taking the local cultural setting and user preferences into account. With high-level red tape likely to cause large-scale solar power projects to be delayed, soliciting the EPA’s assistance in establishing mini-grids for businesses and local communities is a practical answer.

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Electricity may be supplied to 102 million and 25 million households, respectively, by grid extensions and solar home systems. These numbers are based on a least-cost technique, which chooses technologies that provide end consumers with access to electricity at the lowest possible price. In rural areas and distant islands where grid extension is impractical, decentralized energy solutions, such as mini-grids and off-grid solar household systems, can be used to provide electricity to consumers faster and at a cheaper cost. In conclusion, mini-grids offer enormous potential for assisting the black continents in efficiently reaching Sustainable Development Goal 7 (SDG7) by 2030. The mini-grid sector has not yet reached a critical point where it can grow without financial assistance.

Nigeria’s economy is steadily rebounding despite a downturn between 2016 and 2017. According to the World Bank’s 2018 Doing Business report, Nigeria has significantly strengthened its economy and was named among the top 10 improvers for the first time in 2016–2017. Nigeria’s ease of doing business has improved in the following areas: starting a business, dealing with building permits, registering real estate, obtaining financing, and paying taxes. Since 1999, Nigeria has had four peaceful handovers of power between democratically elected executive presidents. Democratic government has improved on the effort to provide sustainable energy for Nigerians.

Despite this improvement, fewer than 15% of the population in most Nigerian states has access to the main grid and only a small number of those who do receive energy from the grid. The Rural Electrification Fund released its first request for expressions of interest for off-grid projects in 2017 to deliver electricity to Nigeria’s distant communities.

The Rural Electricity Fund was formed to increase on-grid and off-grid electrification in rural areas, including tiny grids, with financial and technical support from institutions including the World Bank and the Rocky Mountain Institute. The REF frequently provides capital grants and subsidies to close the viability gap in off-grid projects, enabling mini-grid developers to lower their tariffs and increase their customer base.

Customers and mini-grid developers stand to gain significantly from scaling the local market. If 10,000 sites with a 100 kW output were deployed by 2023, 14% of the population would have access to power. According to tariff forecasts, mini-grid developers might make $3 billion annually at that scale.

Obstacles to the Nigeria Sustainable Energy

The primary barriers to solving Nigeria’s and other sub-Saharan Africa’s energy issues are a power-producing infrastructure that is unable to satisfy demand and an inefficient tariff system that makes it challenging for companies involved in electricity distribution to turn a profit. The fact that more than 50% of Nigerians are not connected to the country’s energy grid also creates a significant infrastructure deficit. Rural areas of the nation have much-reduced electricity costs. Governments and mini-grid developers are aware that investors are seeking a more favourable business climate to enable the quick deployment of mini-grid installations at scale in nations all over Africa.

Permitting issues, dangers from integrating mini-grid systems and national networks, and a lack of long-term, low-rate local currency finance were the main issues cited by developers. Nigeria’s Rural Electrification Agency plans to work with the private sector to build 10,000 mini-grids by 2023 to service 14% of the country’s population. Governments and mini-grid developers are aware that investors are looking for a more favourable business environment to facilitate the rapid deployment of mini-grid installations at scale in countries throughout Africa. The main obstacles cited by developers included obtaining approvals, risks connected with the integration of mini-grid systems and national grids, and a lack of local currency funding at reasonable rates and long tenors. With private sector cooperation, Nigeria’s Rural Electrification Agency hopes to build 10,000 mini-grids by 2023 to service 14 per cent of the country’s population. It also manages the Nigeria Electrification Project, a $550 million World Bank-African Development Bank joint credit facility that offers developers with performance-based funds to build mini-grids and solar household systems.

Way Forward

Mini-grids bridge the gap between high-cost grid extension projects and low-power alternatives like solar home systems. Importantly, the market is shifting from viable commercial models to government-funded ventures. According to the group, mini-grids could offer a more affordable option for supplying energy to almost 7 million households in Nigeria. The nation’s mini-grid development is reasonably advanced thanks to a functional regulatory environment and a comparatively high rural electricity demand. The World Bank estimates that mini-grids will have an aggregate investment potential of over $10 billion by 2030; nevertheless, for the industry to expand nationally, efforts to unlock credit funds, particularly in local currencies, are necessary.

Need for regulations to protect mini-grid asset cash flows

Few governments in countries with a dire need for rural electrification have laws that specifically protect mini-grid owners. For instance, several countries lack legislation to safeguard lone mini-grids when the main grid arrives. Without such regulations, the state might take the assets of mini-grids for little to nothing, leaving the owners stuck. Mini-grid owners would be guaranteed that, in the ideal policy and regulatory context, they would have a range of options, including compensation and working alongside the primary grid, in the event of grid arrival.

Solving customers’ ability to pay

Second, rural mini-grid providers provide electricity to customers who are frequently low-income and have few resources. Because many of these customers make their living through agriculture, their demand for electricity may be limited and unpredictable. These clients’ ability to pay their bills is impacted by weather conditions, seasonality, and agricultural yields. These erratic income streams put revenue collection at risk. Solar hybrid mini-grids run more profitably when the profile of the power demand matches the PV generation curve. In order to encourage them to use more electricity, mini-grid developers are increasingly aiming for locations with “productive-use” customers (i.e., commercial and industrial).

Overcoming small project sizes

Typically, rural mini-grids are between 10 and 100 kW in capacity. Greater transactions enable private financiers to spread out transaction-related costs over greater capital quantities (and, in many cases, earn larger fees). Because of this, many people are hesitant to invest the time and energy necessary to finish due diligence and provide finance for projects that might only need USD 1 million or less. A deal to fund a portfolio of mini-grids in Tanzania with a combined capacity of 1MW was finalized in 2019. A portfolio strategy would distribute risks while also increasing the attraction of funding to commercial project finance investors.

Financing and Profitability

Finally, because building a tiny grid is expensive, payback periods in African environments where people and businesses have limited financial resources are likely to be protracted. The challenge of profitability is correlated with the commercial finance of every small grid endeavour. Low-profit margins and lengthy payback projects rarely pique the interest of banks.

Approximately 7 million households in Nigeria might receive energy through mini-grids at a reasonable cost, according to the organization. The nation has made reasonable progress toward the construction of mini-grids, with a functional regulatory environment and a relatively high rural electricity demand. Mini-grids have an estimated investment potential of over $10 billion by 2030, according to the World Bank, but for the industry to spread statewide, attempts to release loan funds, particularly in local currencies, are needed. The Democratic Republic of the Congo, too, has potential, according to the workshop attendees. There is a huge unconnected population in the country that might be supplied by mini-grids, resulting in a possible investment of $12.5 billion that could reach around 8 million households. However, the panellists agreed that a lack of safety, government capability, and financial tools must be addressed in order to encourage further private-sector participation.

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The Mini-Grid Sustainability Program’s goal is to help investors scale up their investments in commercially viable MG projects by implementing a variety of interventions to strengthen the enabling environment. The Energy Project Africa (EPA) aims to eliminate or minimize regional market obstacles and build the ecosystem for the creation of a viable MGs industry in Sub-Saharan Africa, contributing significantly to the goals of universal access to modern energy by 2030. With information on rules and regulations, we undertake country-specific mini-grid market opportunity analyses. We’re also putting together a pan-African mini-grid database containing MG market data.

EPA offers developers consulting and helps desk services. Our help desk offers an MGs toolkit procurement with a full selection of knowledge goods and tutorials for MGs developers. We have grown to include pages for individual nations, backlinks to affiliate sites, and technical support for public sector policymakers. A best-practice manual for encouraging beneficial use close to MGs is being created by the MGS MDP. The mini-grid industry in Nigeria is expanding quickly, and a number of companies are showing interest since it provides very good returns on investment. Any investor, however, should always arm themselves with appropriate competent guidance from a variety of professionals. This is why we have stepped into assisting communities and businesses build up a mini-grid for reliable electricity. Obtaining professional guidance from us on the feasibility assessment is therefore critical in this situation because mini-grid operations are now governed by a regulatory framework.

When constructing the distribution system, we take into account the end-user system, including meters. The key variables in choosing metering technologies are tariff collection and the business aspects of the mini-grid project. The payment system is chosen by the EPA during one of several stages of the design process. EPA normally designs metering and payment systems before the technical systems. We ensure that the end-user system can accommodate loads and tariffs while also taking into account the cultural context and user preferences in the area. With large-scale solar power projects likely to be delayed by high-level red tape, enlisting the help of the Environmental Protection Agency to establish mini-grids for businesses and local communities is a realistic solution.

E.P.A. (Energy Projects Africa) through her Solar Mini-Grids project, Energy audits and feasibility solution, helps stakeholders make data-driven decisions in the clean energy space via real-time quantitative research and feasibility studies. If you need a partner with hands-on local expertise in the renewable energy space or any of our bespoke solutions/services, kindly visit Mail to learn more.

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