[Communiqué] August 2016 Nextier Power Dialogue: Implementing Off-Grid Technologies in a Nascent Electricity Market

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PREAMBLE

1.  On Wednesday, August 24, 2016, Nextier Power, through its initiative, Nigeria Electricity Hub, organised an event to discuss implementing off-grid technologies in a nascent electricity market. The discourse was held at the Thought Pyramid Art Centre in Wuse 2, Abuja.

2.  The guest speakers included Tinyan Ogiehor (Technical Lead, SOLAR Nigeria), Dr. Haliru Dikko (Deputy General Manager, Renewables, Research and Development at Nigerian Electricity Regulatory Commission) and Yesufu Alonge (Head, Power Procurement and Power Contract Management at Nigerian Bulk Electricity Trading Plc.). Patrick O. Okigbo III (Principal Partner, Nextier Advisory) moderated the discourse.

OBJECTIVES

3  This event, which was the second instalment 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 articulated in a policy brief that will be shared with the Honourable Minister of Power and other sector leaders to help shape government’s policy responses.

4 It is designed that at the end of each Dialogue, government and private sector stakeholders in the power sector would have gained a deeper understanding of the issues discussed and, in turn, equipped to seek pragmatic ways to achieve sustainable development of Nigeria’s electricity market.

OPENING REMARKS

5  Tinyan Ogiehor, in his opening address titled, “Strategies for implementing Off-Grid Technologies” defined the term, “off-grid”, as living without reliance on the public utility or grid electricity. He also classified off-grid systems into two sets: traditional centralised grid systems, and stand-alone systems or mini-grids.

6  Mr Ogiehor articulated that Nigeria has significant opportunities for off-grid solutions in agriculture and agro processing sector, small and medium scale enterprises, and residential homes. However, he outlined the challenges with developing the off-grid electricity market to include:

  • Access to finance for project developers and off takers,
  • Influx of substandard products due to poor inspection at the ports of entry and poor certification of products,
  • Low technical know-how for after-sales support and innovation,
  • Low market acceptability and lack of confidence in the technology, and
  • High upfront acquisition costs.

7   In order to improve the current state of the off-grid market, government of Nigeria is invited to consider the following policies:

  • Develop a National Energy Access Plan to include an off-grid map to enable potential investors in the market to identify the areas with the highest potential,
  • Create enabling policy environment for off-grid initiatives by providing facilities that grant tax credits or breaks to off-grid project developers,
  • Improve the growth of mobile payment infrastructure and platforms in order to make monetary exchanges seamless between the project developer and consumer using different payment platforms,
  • Establish a unified off-grid innovation fund to alleviate the issues of access to finance. International standards for such loans are single digits interest rates. In Nigeria, the interest rate is currently at greater than 20 percent, which makes entry into the market extremely difficult, and
  • Designate an institution that will be the key driver for the change required in the off-grid market.

8  Yesufu Alonge, in his opening remarks titled “Investment Opportunities in Nigeria’s Renewable Energy Market”, emphasised that off-grid power could provide the solution for the over 60 percent of Nigerians who are not currently connected to the national electricity grid.

9  Furthermore, he presented renewable energy as a potential solution for the lack of investment required to expand and upgrade the national grid and the complimenting power infrastructure. This includes limited investment in gas infrastructure for power generation resulting in unreliable gas supply for power generation; low power generation capacity due to challenges of gas supply and infrastructure caused by disruption of exploration activities by militants in the Niger Delta Region, and coal mines which have so far remained untapped for power generation.

10  Mr. Alonge explained that the renewable energy market present significant advantages over traditional electricity supply. Nigeria has high solar radiation especially in the northern region of Nigeria. The systems require little to no maintenance and can be deployed at a faster rate than the conventional electricity systems. Furthermore, the system does not require fuel infrastructure such as wells, pipes, mines, etc. It can also put unused land to productive use without adverse environmental impacts.

11  The renewable energy market in Nigeria presents significant investment opportunities. There are many small hydro-dams that were completed by the government but have not been put to any use. These abandoned dams can be converted to small hydroelectric power stations to provide captive power to congruent communities or factories. These projects will be attractive to the financial sector because of the guaranteed offtaker. The financial sector is more creative with risks associated with renewable energy, as some are willing to share the risk with the project sponsors/contractors in exchange for premiums and fees. The government has set up vehicles and incentives that have streamlined the investment process in the sector. The Nigerian Bulk Electricity Trading Plc. (NBET) recently signed Power Purchase Agreements with fifteen independent power plants (IPP) that will add over 1,225 megawatts to the grid. In the same light, Nigerian Electricity Regulatory Commission is developing a mini-grid structure that will give project developers an opportunity to invest in localised transmission networks for distribution between power producers in rural areas and their off-takers.

12 However, there are still some challenges with developing bankable renewable energy projects including:

  • High local interest rates which adversely affects small and medium scale project developers,
  • High capital cost and higher tariffs particularly for lead projects,
  • Pricing of the power equipment in foreign currencies, and
  • Uncertainty in the regulatory environment.

13  Dr. Haliru Dikko, Deputy General Manager of Renewables, Research and Development at Nigerian Electricity Regulatory Commission, represented Dr. Tony Akah – the Acting Chairman of the Commission. Dr Dikko’s presentation outlined the potential in the renewable energy market in Nigeria. He used his opening remarks to discuss the National Policy on Renewable Energy, current energy mix in Nigeria, 2018 targets for grid connected renewable energy, feed-in tariffs for renewable energy, regulatory framework, and penalties for noncompliance.  Dr. Dikko stressed that the renewable energy market in Nigeria is virtually untapped especially in the small hydro projects and in solar power.

14  Dr. Dikko outlined that the 2015 Renewable Energy Policy set out a framework for access to modern and clean energy resources. It also set national targets for achievements for renewables addition by 2020 and beyond, and aims to facilitate the establishment of framework for sustainable financing of renewables.

15  The current energy mix in Nigeria is made up of 17 percent hydro and 83 percent thermal which totals up to about 7,282 Megawatts generation capacity. NERC is targeting renewable technology to generate an additional 1,000 MW (Solar: 380 MW, Small Hydro Projects: 370 MW, Biomass: 150, and Wind: 100 MW).

16 The 2005 Electric Power Sector Reform Act (ESPRA) established NERC with the power to regulate all parts of the electricity market with powers to commission licenses for anyone generating over 1 MW or transmitting above 132KV and distributing above 100 KW and/or selling to a third party. NERC also has the right to set tariffs for any of activities where a license is required. NERC has implemented a feed-in tariff to encourage developments in the renewable energy market where excess power can be sold back to the grid at a higher price than other fuel sources. The Renewable Energy Feed In Tariff (REFIT) is denominated in applicable foreign currency; however, payments will be done in Naira. The REFIT applicable at the time a PPA is signed is the fixed value that will apply over the 20-year life of the PPA.

MODERATED DISCUSSION

17  Viability of the off-grid solar systems: Tinyan Ogiehor used the Solar Nigeria Programme to explain the practicality and viability of off-grid solar systems in Nigeria. The programme has used these systems to provide 24-hour solar electric power to select off-grid communities in Lagos State including 172 schools and 11 clinics in these communities.

18  Business Modelling: The panellist agreed that the inability to develop viable business proposals by the project developers and off-takers will restrict cash flow and in turn make investments in the off-grid market difficult. Project developers were advised to evaluate business models that are currently being implemented in other parts of Africa to find how to apply them. While these may not apply directly to Nigeria in their current forms, they can be leveraged and modified to fit the Nigeria market.

19  Regulatory Framework: Dr. Dikko (NERC) explained that obtaining a license for generating solar power was a relatively simple process. He informed project developers that they did not require any third parties to obtain the licenses. He further explained that the Nigerian Electricity Regulatory Commission has set up micro-grid and mini-grid policies to regulate pricing agreement between the service providers and the customers.

20  Opportunities: It was established that there are opportunities to develop the off-grid market in Nigeria especially the Pay-As-You-Go solution. These solutions have worked in Kenya (M-KOPA) and Senegal (Akon LightUp Africa Project). While the panel concurred that there may still be some challenges with mobile money and payment infrastructure in Nigeria, they proposed that there are opportunities to create work-around solutions.

21  Pragmatic solutions: Participants in the Nextier Power Dialogue agreed that there is need to facilitate closer interaction between all stakeholders in the renewable energy market: on-grid and off-grid. This interaction between the public sector, private sector, and civil society would help transition all the proposed solutions to bankable actions.

22  Tariff equality: Dr Sanusi Ohiare, a member of the renewable team at GIZ stated that the tariff cost for rural communities on mini-grid is four times higher than rates in the major cities. He urged NERC to correct these differences in tariff structure. Dr. Dikko responded by assuring the audience that NERC is about to publish the new framework for the micro-grids and mini-grids. The framework is expected to address the issues of tariff differentials.

CONCLUSION

23  The August 2016 Nextier Power Dialogue agreed that there are off-grid and on-grid renewable energy solutions that have been successful in parts of Africa. It encouraged the government, policy analysts, and potential investors to evaluate these solutions for implementation in Nigeria. While there is value in innovation, there is also need to address the current overwhelming demand in the market.

24  The September 2016 Nextier Power Dialogue is scheduled for Wednesday, September 21, 2016 and the topic of discussion will be focused on the benefits of mini-grids and standalone solar solutions as compared to conventional grid power. The September event will be the last of the three-part series on renewable energy. Following that session, Nextier will work with a select team of sector experts to develop a position paper that will be shared with the government of Nigeria and widely circulated for investors interested in the sector.

 

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