1 On Wednesday, July 20, 2016, Nextier Power through its initiative, Nigeria Electricity Hub, organised an event to discuss achieving incremental and sustainable power supply in Nigeria through renewable energy. The discourse was held at the Thought Pyramid Art Centre in Wuse 2, Abuja.
2 The guest speakers included Alice Cowman (Commercial Lead, SOLAR NIGERIA), Simeon Atakulu (Senior Power Consultant, Nigeria Infrastructure Advisory Facility) and Erabor Okogun (Co-Founder/CEO Middle Band Solar One). Patrick O. Okigbo III (Principal Partner, Nextier Advisory) moderated the discourse.
3 This event, which is the inaugural edition of the Nextier Power Dialogue and scheduled to hold every third Wednesday of the month aims to share knowledge, explore investment opportunities and generate ideas for policy formulation in the power sector. The key policy issues discussed at the event will be shared with the Honourable Minister of Power and with key sector leaders to help shape government’s policy responses.
4 At the end of each dialogue, the Federal Government and the key stakeholders in the power sector would have gained a deeper understanding of the issues discussed and in turn equipped to seek pragmatic ways to resolve the issues for the sustainable development of Nigeria’s electricity market.
5 Alice Cowman, in her opening address titled, “Lesson Learnt: Up-scaling Nigeria’s Market for Off-Grid Power” classified off-grid solar technologies into two sets: (a) single consumer technologies or solar household systems ranging from small solar lanterns to systems that power an entire house including captive power technologies to replace diesel generators, and (b) multiple consumer technologies or micro-grids (especially for off-grid rural electrification) which range from 5KW to 1MW.
a Nigeria is a huge market for solar systems. Referencing Bloomberg New Energy, Ms. Cowman stated that over 89 million solar systems have been sold in Africa and Asia and about 130,000 systems were sold in Nigeria last year. These numbers indicate that Nigeria is moving into a stage of broader acceptability of solar technologies.
b Ms. Cowman articulated six lessons for policy formulation:
i) Create a plan with targets: The pre-requisites for private sector investment include access to data for planning purposes and also clearly articulated targets, by the government, for the sector. Private investors need both factors to dimension their interests in the sector. For instance, Egypt recently announced a 2GW target for solar market. Even without a lot of detail on how it intends to achieve this goal, it immediately attracted a lot of investments because it was a signal that the government is serious about developing the market.
ii) Avoid over-regulation: There is need to streamline the number of institutions regulating the renewables energy sector especially the micro-grids and mini-grids targeting rural, off-grid communities. The government, in line with the preferred light-touch regulations, must resist the urge to set tariffs even before the companies have determined the costs of providing the infrastructure and service.
iii) Introduce fiscal incentives: Fiscal incentives are very important especially at the nascent stage of the market. Given the pioneer nature of the investments in the sector, government should introduce well-considered fiscal incentives to encourage and attract investors especially in the off-grid market.
iv) Encourage consumer protection: The government should recognise and uphold internationally recognised market standards to help prevent the introduction of substandard products in the market. This is imperative to ensure the adoption of solar products and growth of the market.
v) Consumer awareness: Every country needs to stipulate product standards. Furthermore, there is need to educate consumers on what solar energy can and cannot do so as to better situate expectations. Consumers need to be educated that while the upfront acquisition cost of solar energy is high, it nets off over time and becomes cheaper than the alternatives including grid power.
vi) Increase access to finance: Advancements in mobile money enables consumers in unbanked and off-grid locations to pay for power; and increases the economic viability of this power solution. This has been one of the key factors for the success of off-grid solar solutions in East Africa. Furthermore, government should consider other forms of incentives, such as income tax rebates, to encourage financing of solar solutions and increase access to finance for the investors.
6 Simeon Atakulu used his opening address titled, “Off-Grid Electric Power Access: Challenges and Investment Opportunities”; to explain that off-grid supply from renewable energy sources is one of the fastest ways to bridge the demand gaps in power supply in Nigeria. Referencing the International Renewable Energy Agency, Mr. Atakulu stated that about 60 percent of additional power generation would come from off-grid renewable energy sources. Furthermore, renewable energy is one of the cheapest and most efficient way of providing off-grid power.
a Key Solution Components: Policy makers should focus on the following solution components to create sustainable renewable energy solutions:
i) Improve the policy and regulatory framework as prerequisite for development of off-grid solar solutions;
ii) Streamline the institutional framework to rationalise the multiple institutions with overlapping mandates thaT create policy and implementation challenges;
iii) Focus on the choice of technology because this impacts proper planning, programme design, operations, and maintenance of the solar systems;
iv) Innovative models for pricing solar energy supply in rural off-grid markets as prerequisites for sustainable financing of solar solutions;
v) Create capacity in local communities to operate and manage the solar systems through creation of local entrepreneurs to provide services within the solar energy value chain;
vi) Create advocacy to address the myth or perception that off-grid solar systems are expensive. While this may be true that upfront acquisition costs are high, price drops off significantly over the lifetime of the solution.
b Investment Opportunities: Mr. Atakulu explained that there are numerous investment opportunities in the solar power market. However, given the high initial acquisition costs, interested investors should create business plan that provide upfront capital loans to consumers in order to drive uptake of the household electricity solutions.
i) Asset Provision: The power demand deficit in Nigeria creates opportunities for investors to structure and finance solar projects.
ii) Financing Opportunities: There are opportunities for financial institutions and private investors to provide lease financing to consumers wishing to install solar solutions.
iii) Captive Generation: A number of governments across Nigeria are beginning to take public buildings off the national grid and install solar systems. This has been seen in universities, hospitals, and public administration buildings.
iv) Economic villages: There are opportunities to use solar systems to create commercial parks and other economic centres.
7 Erabor Okogun, Co-Founder and Chief Executive Officer of Middle Band Solar One Limited provided a general overview of the processes involved in closing a solar power deal in Nigeria.
a Solar yield, an important determinant of where to site a solar plant, is the total annual energy generated per installed kWp. It depends on a number of factors including total annual irradiation, performance of the photovoltaic module, light and temperature sensitivity, and system losses including inverter downtime. The best solar yields in Nigeria are around the Lake Chad area; however, given the perceived high security risk, it may be difficult to secure financing from international sources that may not understand the nuances of the area.
b Access to transmission grid is critical to the success of a solar power plant; therefore, it is important to locate the solar plant close to transmission infrastructure. The best transmission network in Nigeria is in the Middle Belt especially Niger state because of the hydro-plants that were built by the government.
c Land issues may be the major causes of delays to solar power projects. About 2-3 hectares of land are required for every 1MW of solar power. Most of the projects suffer delays in trying to secure land title, which is a prerequisite for securing financing.
d Security: Agreements with government for security is paramount for the sustainability of a solar project.
8 Pragmatic Solutions: Asked to envision themselves as the Honourable Minister of Power, the panellists suggested the following pragmatic decisions for immediate implementation to unlock the off-grid market for private sector investments:
a Create a Renewable Energy Act to provide guidance on sector activities;
b Redefine the roles and mandates of the various regulatory agencies in the off-grid market to ensure clarity of policies and institutional arrangement;
c Introduce fiscal incentives such as reduction in value added taxes on solar systems to encourage consumer adoption of the technology;
d Set targets and focus on the transmission grid sector.
9 Lessons Learnt: Using Middle Band Solar One Limited as a case study, Erabor Okogun articulate the most important lessons he has learnt as follows:
a Focus disproportionately on obtaining title to land as this causes the most delay to the process;
b Ensure the plant has access to a transmission network, logistics, and security;
c Engage the services of knowledgeable local lawyers as international lawyers can get very costly;
d Structure the transaction to be attractive to equity and debt investors with the right perspective on the potential returns from the investment.
10 Government’s Role: Participants in the dialogue agreed on the need to minimise government’s involvement in the development of the off-grid market while emphasizing the role of the private sector in financing the power projects. However, government should be encouraged to facilitate and shape policies that will enable the development the renewable energy markets.
11 Reliable Data: Lack of sector data impacts private investments in the sector. There is a business need for data on electrification needs in the off-grid communities. This presents an investment opportunity. The University of Columbia is currently mapping out the electricity needs in local government areas in Nigeria and could be the beginning of a robust database for the market.
12 Project Scale and Funding: The panellists explained that the time and effort it takes to develop a small project is similar to what is required to build a mid-scale project. Furthermore, most financiers are interested in projects that meet a minimum investment scale.
13 The Nextier Power Dialogue agreed that the government should clearly delineate roles to the various government agencies involved in shaping and formulating policies for the renewable energy sector. Furthermore, the government should institute policies that encourage private investments in the renewable energy markets to increase power supply in the country.
Photos from the July 2016 Nextier Power Dialogue on Renewable Energy
Panel of Discussants
Cross section of participants
Questions and contributions from sector leaders
Contributions from development agencies and investors in solar
Post-event networking and business linkages
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