Solar Hybrid Mini Grids for Rural Economic Development

June 2019 Solar Hybrid Mini Grids for Rural Economic Development

CONTENTS • Introduction • Introduction to REA and the Off Grid Sector • REA Programmes • Solar Hybrid Mini Grids Project status

THE MARKET OPPORTUNITY • Nigeria has the largest economy in Sub-Saharan Africa (~ 190 million people), and a flourishing economy (currently growing at 1.9%). • At an annual population rate of 2.6% by 2030, and a growth of about 263 million people. Yet a significant amount of the economy is powered largely by small-scale generators (10–15 GW). • Businesses spend almost $14 billion (₦ 5 trillion) annually on inefficient power generation. It is expensive ($0.40/kWh), unreliable electricity, noisy, and polluting. • Almost US$9.2 Billion market opportunity for minigrids and solar home systems • Mini grid capacity of up to 3,000MW • There is a large potential for scaling—installing 10,000 minigrids of 100 kW each can occur by 2023.

INTRODUCTION • The Rural Electrification Strategy and Implementation Plan aims to achieve about One Million New Connections every year until 2025. • The goal is 75% by 2025 with at least 25 MW of additional capacity. • The Federal government of Nigeria has made considerable progress in rural electrification over the past fewyears, though vast differences between urban and rural areas. • Power supply using decentralized solar hybrid mini-grids appears to be an economical option for providing electricity in remote rural areas.

ABOUT REA The Nigerian Rural Electrification Agency (REA) is the Implementing Agency of the Federal Government of Nigeria tasked with electrification of rural and unserved communities MISSION MANDATE REA Achievementsover the last 20 months To provide access to reliable electric power supply for rural dwellers irrespective of where they live and what they do, in a way that would allow for reasonable return on investment through appropriate tariff that is economically responsive and supportive of the average rural customer • Promote Rural Electrification in the Country • Co-ordinate Rural Electrification Programs in the country • Administer the Rural Electrification Fund (REF) to promote, support and provide rural electrification through Public and Private Sector Participation

APPROACH FOR PRIVATE SECTOR-LED ELECTRIFICATION GENDER INCLUSION Support FGN’s goal of increasing electricity access Support data driven private sector-led mini grid and off grid models Utilize funding from NEP as a catalyst to scale up rapid implementation of mini grid and off- grid solutions across Nigeria Contribute to Sustainable Development Goal 7 (SDG7), Sustainable Energy for All (SEfor4ALL), the World Bank’s Energy Sector Directions Paper (ESDP), and is aligned with the Multi-Tier Framework for Energy Access (MTF) Increase gender Inclusion in the Nigerian power sector Increase economic growth in critical sectors e.g. Agriculture

NIGERIAN UNVERSIAL ACCESS ELECTRIFICATION MODEL A geospatial model was developed to determine the least-cost electrification mix to electrify Nigeria’s unelectrified population SOURCE: Rural Electrification Agency

NIGERIAN UNVERSIAL ACCESS ELECTRIFICATION MODEL Mini Grids are estimated to be the least-cost electrification method for approx. 15.3 million people SOURCE: Rural Electrification Agency

FAVORABLE ECONOMICS, POLICIES, AND PROGRAMS THAT INCENTIVIZE PRIVATE CAPITAL DEPLOYMENT Attractive project economics from dense and vibrant communities Established regulations and policies de-risk mini-grid investments Support from an array of programs from regulators, donors, and advisors Population density People / sq.km Permitting Exempt <100kW Primary Implementing Agency Tariff Income level GDP per capita, USD Cost reflective Primary sources of grant funding for the respective programs Grid Integration Outlined and costed Supporting REA in implementation

NEP: THE WORLD BANK’S INVESTMENT IN NIGERIA’S OFF-GRID ELECTRICITY MARKET $350 Million World Bank Investment Leveraging an Expected $1 Billion in Investment WB: $20 Million for Technical Assistance WB: $150 Million for Mini-Grids (85MW) • $70 Million: Minimum subsidy tender • $80 Million: Performance-based grant on rolling-basis • Mini grids built to grid code standard • First-mover potential in the next 5 years: 300,000 households and 30,000 SMEs served by 1000 mini grids • Institutional support for REA • Investment pipeline development • Financing needs assessment WB: $75 Million for SHS • Regulatory support • $15 Million: “Accelerator” grants to high-potential importer- distributors • $60 Million: Output-based grants • Business model neutral • First-mover potential in the next 5 years: 1.5 million households and micro-enterprises. • Pre-investment support to mini grid developers • Ecosystem development for SHS • Environmental & Social Safeguards WB: $105 Million for Universities and Hospital Systems

ENERGIZING ECONOMIES FOCUSES ON OFF-GRID ELECTRIFICATION OF ECONOMIC CLUSTERS IN NIGERIA Expected impact of the initiative Defining the Energizing Economies Initiative The Energizing Economies Initiative (EEI) will support the rapid deployment of off-grid electricity solutions that will provide clean and consistent power to economic clusters in Nigeria • This is a Federal Government of Nigeria initiative, being implemented by the Rural Electrification Agency (REA) • Key focus is clusters of economic activity: • Markets • Shopping Plazas/Complexes • Industrial Clusters EEI is about developing a nascent subsector • +300 off-grid projects over the next 3-5 years • Total upfront investment ~USD 1.8 – 2bn across all phases • 70% of projects will be based on renewable energy Key Messages • Total energy demand of 3-4GW for the economic clusters • Total revenue opportunity of between USD $5-8bn • Of the economic clusters, we identified ~340 (12-18% of total economic clusters) specific locations for further investigation 1 Required support differs based on technology selected SOURCE: Rural Electrification Agency

ENERGIZING ECONOMIES FOCUSES ON OFF-GRID ELECTRIFICATION OF ECONOMIC CLUSTERS IN NIGERIA ENERGIZING EDUCATION PROGRAMME (EEP) PROJECTED IMPACT Defining the Energizing Economies Initiative • 589,444 STUDENTS • 80,401 STAFF • CLINICS WILL BE POWERED • 10,451 STREETLIGHTS WILL BE ILLUMINATED • 860 GENERATORS WILL BE DECOMMISSIONED • 1,400 DOCTORS WILL HAVE ACCESS TO UNINTERRUPTED ELECTRICITY • VACCINE FRIDGES WILL BE POWERED • 5,500 MEDICAL PROFESSIONAL WILL HAVE ACCESS TO UNINTERRUPTED ELECTRICITY The Energizing Education Programme (EEP) A rural electrification initiative to develop off grid captive power plant projects (89.6MW) for 37 federal universities and 7 university teaching hospitals across the Federal Republic of Nigeria. • Universities in each phase are selected to cover the 6 geo-political zones in Nigeria, broken down into phases • Phase 1 is funded by the SGB/FGN • Phase 2 is funded by the World Bank • Phase 3 is funded by the AfDB SOURCE: Rural Electrification Agency

RURAL ELECTRIFICATION FUND Backed by the EPSRA 2005, it’s purpose is to promote, support and provide rural electrification and grid expansion through public and private sector participation. REF is funded by the FGN budget, grants, donors, DFiDs and NERC. REF CALL ONE • Awarded 2 Billion NGN to 12 Mini-Grids developers and 14 Solar Home Systems • Indigenous tender companies • BENEFITS: • Affordable and reliable electricity • Rural empowerment to over 20,000 households and businesses • Job creation, reduced carbon emissions (5,000Mt), economic growth MINI-GRID ACCELERATION SCHEME • Supported by the EU and German government with € 6 Million • A minimum of private investment of 50% total investment • 1 Million (max.) in-kind contribution per lot, a total of 6 lots in each geo-political zone • Deploy 20 - 40 Mini-Grids to 21,000 customers with 3,500 - 4,000 connections, in each lot INTERCONNECTED MINI-GRID ACCELERATION SCHEME • Supported by the EU and German government with € 3 Million per lot/DisCos Region • 10 DisCos Regions for 15,000 customers

CURRENT STATUS Mini-grid market is nascent but maturing fast with great potential Customers------------------------------- 6k mini-grids---------------------------------30* Installed cap.-----------------------------1MW Market value------------------------------EUR 6M *One mini-grid in Nigeria powered by biomass. All others are solar. Source: ECREE/ECOWREX and FMPWH

Grant 30%-75% Public sector MINI-GRID PROJECT FINANCING STRUCTURE Project IRR 15-20% Equity 10% Developer Grant agreement Debt 40%-60% Financier Loan agreement Could be (partly) replaced with 3rd party equity!!!

ACCESS TO FINANCE AS THE NEXT CHALLENGE • Access to long-term finance is one of the top market barriers for mini-grid deployment • Companies behind projects are SMEs which are not considered creditworthy • Financiers do not have experience with such projects (high perceived risks). • Limited risk mitigation mechanisms that address the needs of the financiers • As a result, mini-grids rely partly on public sector support

CHALLENGES IN IMPLEMENTING MINI-GRID PROJECTS • No standardisation for equipment and installation processes • Oversized systems as a result of unreliable demand assessment • Oversized systems lead to increased capital cost • Increased capital costs lead to higher unaffordable tariffs. End users, therefore reduce load demand in order to reduce energy costs • Operational issues with smart meters (e.g. time outs with no internet access) • Operational issues with smart meters lead to loss of revenue • Limited access for productive users to consumer financing • Difficulty in accessing affordable capital

June 2019 THANK YOU Dr. Sanusi Ohiare Executive DIrector, Rural ELectrification Fund RURAL ELECTRIFICATION AGENCY sanusi.ohiare@rea.gov.ng For further information please contact: Damilola Ogunbiyi Managing Director/ CEO RURAL ELECTRIFICATION AGENCY damilola.ogunbiyi@rea.gov.ng

Solar Hybrid Mini Grids for Rural Economic Development