AMG-CoP bilateral exchange visit, Nigeria
The bilateral exchange visit between the Governments of Ethiopia and Nigeria took place in Abuja on 29 May-01 June 2019. The idea of the exchange visit was conceived at the African Mini-Grid Community of Practice (AMG-CoP) meeting in November 2018 in Abuja, Nigeria. The Ethiopian delegation consisting of a representative from the Ministry of Water Irrigation and Energy (MoWIE), the Ethiopian Electric Utility (EEU), and the Country Programme Lead of the IKI Mobilising Investment Programme who is also an AMG-CoP member, was hosted by the Nigerian Rural Electrification Agency (REA).
The aim of the bilateral exchange visit was for the Government of Nigeria to share its experience on planning and deploying mini-grids. REA has a mandate to deliver 8,000-10,000 mini-grids by 2023. Acknowledging that there is a role for the private sector to play in growing this sector to unlock the potential of millions through access to clean and reliable energy, the Government of Nigeria has leveraged the experience of the private sector and works in close collaboration to deliver on energy access. As Nigeria is an early-mover country in the mini-grids sector, there was a great deal of learning that was harnessed during the course of the exchange visit.
Having interrogated the policy and regulatory framework, the tariffing structure, the subsidy model, the importance of productive use, community engagement strategy, and incentive schemes – from the public and private sector’s experience – the key message is that the private sector can play an instrumental role in achieving electrification targets and most importantly to unlock the socio-economic potential of millions through a stimulated local economy. The reluctance – linked partly to the uncertainty – to privatising Distribution Companies (DisCos) was allayed during the exchange visit through the privatisation model implemented, which has proved to be effective in Nigeria in attracting the private sector into being an instrumental part in delivering energy access.
During the exchange visit, the officials discussed the Results-Based Financing (RBF) mechanism used in Nigeria, which is an efficient form of capex subsidy for energy access delivery through mini-grids. Under the Rural Electrification Fund, REA currently provides a capex subsidy of $350 upon connection, which has proved to be an efficient de-risking and subsidy mechanism and consequently attracted significant private sector interest in developing and deploying mini-grids systems in Nigeria. Over and above the capex subsidy, there is an opex susbidy that is provided by REA at certain key points during the lifespan of the energy system. Cognisant of the need for a subsidy mechanism, the officials from the Government of Ethiopia presented the version of the RBF structure that they are exploring; one that is solely focused on capex subsidy. This is mainly to encourage innovation and efficiency from the private sector so as to decrease their opex cost, and thus increase their profit.
One of the stark differences in the mini-grid systems implemented in the two countries relates largely to the size of the systems. The mini-grid systems that are designed and implemented in Nigeria are generally under 100 kW of generation power. The regulatory framework in Nigeria is such that systems of upto 100 kW require no permit, whilst those between 100 kW and 1 MW do require one, whilst any system above the 1MW threshold requires a license.
The mini-grids systems being piloted in Ethiopia range from 200 kW to 750 kW with most operating at an average installed capacity of 500 kW per site. The officials from Ethiopia reported that the rationale for having a higher generation capacity per site stems from the fact that off-grid smaller-scale system have a high cost variance as compared to the larger systems and are thus more viable. The relaxed licensing requirements in Nigeria have made it attractive for the private sector to develop small-scale systems, which will inform the development of the regulatory framework in Ethiopia.
During the site visits to communities where mini-grid systems were in the process of being commissioned, it became apparent that without anchor tenants through productive use of energy (PUE), developers run the risk of only 10% of the generation power being used during the day time – as was the case at one of the sites. This highlights the need to engage with the local community to stimulate demand through PUE. Relying on the bulk of the load being used at night significantly increases the capex cost of the system due to the need to deploy increased numbers of storage batteries. Informed planning, community engagement, and the use of modular systems increase the likelihood of financially viable business models. At one of the other sites visited where a 30 kW system was installed, there is an anchor tenant that will be connected – a cereal grinding mill – consuming over 50% of the daytime load. In addition to providing a clean source of energy, the weekly costs of the milling business is forecasted to decrease from $116 – which is exclusive of transporting the diesel to the site – to $96. PUE through the milling business improves the financial viability of the energy system.
The officials also shared information on innovative ways of changing the behaviour of the community, which included encouraging them to use more energy during the daytime and decrease the load during the night. This could be done through decreasing the tariff rate for daytime users and increasing the rate for night-time users. The change in community behaviour to lower the load during the night will decrease the need for battery storage systems, thus directly decreasing the capex cost and increasing viability of the system.
The lessons from this bilateral exchange visit have contributed to raising awareness about the role of the private sector and provided a model by which it works in Nigeria. The emerging information will contribute to identifying unforeseen risks and outline appropriate mitigation plans and tools to grow the mini-grids sector in Ethiopia.
This exchange visit was financed by the BMU under the IKI Mobilising Investment Programme and supported by the Africa LEDS Partnership’s African Mini-Grids Community of Practice.