N2.8trn market beckons in Nigeria’s fledgling mini grid electricity

With a revenue potential of N2.8 trillion ($8 billion) annually, Nigeria has barely begun to scratch the surface of mini grids development. However, this doesn’t mean that the country is not making some efforts in scaling up its electricity access through mini grids, but it is still lagging behind.

Nigeria, according data from the World Bank and USAID, has one of the lowest electricity access rate of 45 percent in comparison with other economies, (South Africa, 86 percent; Ghana, 82.5 percent; India, 84.5 percent) despite the immense availability of natural resources used to generate power. The country has natural gas reserves of 180 trillion standard cubic feet, an annual average daily solar radiation of about 5.25 kilowatt hours per square meter per day (kWh/m²/day), and generates 40,000 tonnes of waste annually.

Yet, its citizens still spend trillions of naira on alternatives to power their businesses and homes. The inefficiency of the main grid cannot be exaggerated as it is almost singlehandedly responsible for holding down the Nigerian economy. The impact has been recorded in all sectors of the economy, from manufacturing to service industry; information technology (IT) to small and medium scale enterprises where a lack of power has held down progress; yet it is well understood that electricity is the backbone of any economy.

According to a recent report released on minigrid investment in Nigeria by the Nigerian Economic Summit Group, in collaboration with Rocky Mountain Institute, Nigerians spend N4.9 trillion yearly, (an average of N13.4 million daily) on diesel and petrol generating sets to generate 14 gigawatts(GW).

Also, the main grid is bedeviled by a plethora of issues, the major ones include low investment, lack of a cost reflective tariff, defunct and redundant infrastructure, and low installed power capacity, amongst others. As a result, over 80 percent of Nigerian business owners cite lack of adequate electricity supply as the most significant obstacle to doing business, as they experience an average monthly power outage of 239 hours, the report said.

Minigrids provide a way out to solving this pervasive challenge, and the industry stakeholders agree is the most cost effective option. The reasons for this, industry stakeholders weighing in on the matter, have said that minigrids do not just act as complement to the main grid but can be standalone options or alternatives to connecting to the main grid.

According to the country’s electricity regulatory agency, Nigerian Electricity Regulatory Commission (NERC), minigrids are stand-alone power generation systems of up to one megawatts (MW) capacity that provide power to consumers through a distribution network. They are also financed through two major ways, private equity and debt funding.

As an alternative, minigrids cost less than main grid extension and it is also an emerging solution to rural and urban electrification challenges.

Solar energy is the most popular form of powering minigrids, and it has been reiterated by industry experts that the minigrid market in Nigeria is ripe for increased investment given the fact that it is becoming increasingly competitive in terms of pricing and cost in comparison with other sources of energy, and its future is promising.

Also, consumers don’t seem to be averse to paying higher energy tariffs, as long as there is a steady supply of power. Various studies have been carried out and they have all shown that the minigrid tariffs are higher than tariffs charged for connecting to the main grid, but consumers are still willing to pay.

A more recent example is the survey by Rocky Mountain Institute of 10 mini grids projects, with the tariff ranging between N120-N300 kilowatts per hour, and the minigrids projects recorded collection rates of 98-100 percent while the main grid with a N38 kilowatts per hour average tariff records a collection rate of less than 40 percent.

The report also noted that customer satisfaction is very high across most mini grid sites and collection rates are near 100 percent, however, NERC in its report said electricity consumers lodged 109,048 complaints in just three months. This means that at least 1,211 complaints were lodged daily, with billing and metering making up the bulk of the complaints.

Also, the main grid is responsible for huge losses recorded in the industry. According to Nigeria’s Power Sector Recovery Programme (PSRP), erratic power supply cost the Nigerian economy a staggering loss in excess of $25 billion.