BusinessDay 06 April 2018

26 BUSINESS DAY C002D5556
Friday 06 April 2018
Policy Investments Market Insight Influencers
INSIGHT
Why Nigeria is a promising market for minigrid investments
ISAAC ANYAOGU
Participants at the
REA/ RMI Global
Minigrid Design
Charette focused
on reducing
minigrid development costs
for off grid Electrification
held in Lagos on March
9 highlighted key reasons
why Nigeria is a promising
market and a good test case
for developing a profitable
minigrid business model
that scales.
With over 180million
people, Nigeria has the largest
population in Africa and
about 85million of these are
without access to power. An
ineffectual national grid ensures
that less about 6,000MW
can be moved across the grid
however, the country struggles
to generate between 4000MW
and 5000MW of power on a
given day.
A GDP of over $400billion,
Africa’s highest, ensures
that significant economic
activity occurs even in rural
communities. Many of the
rural folks subsist on subsistence
farming and trading
activities. This guarantees an
ability to pay for solutions
that are designed to fit their
income levels.
The range of community
and economic structures
in Nigeria is very broad,
ranging from nomadic to
agricultural to large cities
near and far from the grid,
presenting both challenges
and opportunities.
Currently, Nigeria generates
over 14GW of power
by small petrol and diesel
generators used for residential
and commercial
applications. Experts say the
country spends $14billion
annually on off-grid power
from small generators alone.
This is a huge market for
mini grids.
There are 85million people
underserved or not connected
to the grid, which is
an enormous investment
opportunities. The market
is large – installing 1,000
minigrids each year for the
next 10 years would only
serve 20% of current off-grid
population, experts say.
Policy-wise, Nigeria has
made significant strides towards
increased adoption of
renewable energy. The 2016
minigrid policy allows for
operators to deplore 1MW
solutions after obtaining a license,
allowing them to also
charge market based tariff
to meet the cost of installing
solar infrastructure.
But recent moves to
charge import duties on solar
may yet rubbish this goal
unless quick action is taken
to rescind the tactless move.
Barriers
There are four categories of
barriers to profitable and
scalable minigrid business
models emphasised at the
Minigrid Design Charette.
Cost is high
Overall the cost of service is
determined by both upfront
and on-going cost, and can
be measured by calculating
the overall levelised cost
of electricity (LCOE). Upfront
cost includes hardware,
project development,
and construction. Ongoing
cost includes O&M, fuel,
customer engagement and
system losses. While policy
and finance also affect cost.
Capacity utilisation is poor
Cost of service increases
further for minigrids with
poor utilisation, including
systems that are oversized
with slow customer acquisition
and high peak loads in
the evening.
Financing is expensive or
unavailable
Increased access to finance
is required for scaling successful
business models, but
current rates are high and
increase further with foreign
exchange risk.
Policy is unpredictable or
unsupportive
Key considerations include
tariff setting, licensing, taxes,
import duties and delays,
subsidies and grid extension
INVESTMENT
South Africa signs $4.7 bln of
delayed renewable energy deals
South Africa signed
long-delayed renewable
energy
contracts worth
$4.7 billion with independent
power producers on
Wednesday, in the first major
investment deal under
President Cyril Ramaphosa
according to a report by
Reuters.
The signing of power
purchase agreements for
the 27 mostly solar and wind
projects was held up for
over two years under ousted
president Jacob Zuma, who
favoured a plan to build
additional nuclear power
plants.
It was also the subject
of a last-minute legal chal-
lenge by the NUMSA labour
union and Transform RSA
lobby group, but a court
rejected their application
for an urgent interdict last
week.
The signing represents
a victory for Ramaphosa,
who has promised to unlock
investment and kick-start
economic growth since replacing
scandal-plagued
Zuma in February.
“This will bring muchneeded
policy and regulatory
certainty and maintain
South Africa’s position as an
energy investment destination
of choice,” the energy
ministry said in a statement.
Ramaphosa, a wealthy
businessman, has priori-
tised revamping the economy
and turning around
struggling state-owned
enterprises like utility Eskom,
which will purchase
power from independent
producers as part of the
deals agreed on Wednesday.
Opponents of the renewable
contracts argued that
Eskom could not afford the
additional financial burden
and that they would lead to
job losses in the coal sector.
South Africa relies on
coal-fired plants for more
than 80 percent of its electricity
generation, while renewables
contribute around
7 percent.
Transform RSA, which
opposed Zuma’s removal as
head of state, said it would
continue to fight the renewable
deals and had appealed
last week’s court ruling dismissing
its application for
an interdict.
“Eskom simply does not
have the liquidity, cashflow
and strong balance sheet
to support this hideous
gamble on the fiscus and
state electricity supplier,”
Transform RSA president
Adil Nchabeleng said.
Blue Carmel Energy opens solar assembly
plant, training center in Kaduna
ISAAC ANYAOGU
Blue Carmel Energy,
one of the largest
solar energy operators
in the country
on April 4, opened a new
solar assembly and renewable
energy training center
in Kaduna.
“So, for a start, we just
discovered that there is a lot
of use for solar LED lighting
solutions across the country
and these LED solutions are
badly engineered. They are
mostly awarded by government
through its agencies,
and these products are not
properly designed and engineered
and the resultant
effect is massive failure,” Sulaiman
told Offgrid Nigeria.
Beyond just assembling
solar products, the company
plans to go into battery
recycling. “The amount of
batteries that we import into
this country on a daily basis
is scary and I don’t know
if you’ve ever imagined or
thought about what happens
to these batteries when
they are dead. There is a lot
of potential environmental
hazards that are waiting.
“We are probably consuming
not less than a couple
of thousands of batteries
on a daily basis. So, if
we don’t begin to look at
proper battery disposal and
recycling process, and the
recycling does not only have
to ensure that the (used)
batteries are properly discarded,
it also ensures that
the total quantity of batteries
that continues to come in (to
the country) is reduced because
we are recycling some
of the ones that are already in
the system.
Sulaiman also said solar
PV (Photovoltaic) production
is also in the works. “I do not
see that we can quickly compete
with the world price of
solar panels especially given
the fact that the Chinese have
done everything to crash the
prices to make sure that they
dominate that industry. But
we mustn’t wait, I think it
won’t be a bad idea if we are
able to do something like at
least get used to the technology
and perhaps someday we
may find the resources that
will put us in a competitive
position.
On the training aspect,
the company says it will focus
more on hands on field
practical experience, and is
in talks with the European
Energy Center and the Arizona
State University, on a
possible affiliation.
“We are working hand-inhand
with the GIZ and we are
also working with Winrock,
USAID. So, as much as possible
we have a number of
companies already lined up,
ready to partner with us in
terms of support and equipment
like General Electric,
ABB and quite a number
of other standard original
equipment manufacturers
(OEMs),” said Sulaiman.
Isaac Anyaogu, Email: isaac.anyaogu@businessdayonline.com, 07037817378, Graphics: Joel Samson