The weekend read: Expand and connect

Share

From pv magazine 07/2020

Ahmad Salihijo Ahmad, MD/CEO of Nigeria’s Rural Electrification Agency. The organization, which was set up in 2005, aims to expand energy access in unserved and underserved rural communities.

Photo: REA Nigeria

How is rural electrification progressing in Nigeria? I see REA published a target to reach 60% rural electrification and connect 1.1 million households annually by 2020 – do you expect to achieve this?

REA has installed significant grid infrastructure to support licensed distribution companies in meeting their expansion plans in rural communities. To supplement the grid expansion projects, REA, through its Rural Electrification Fund and the Nigeria Electrification Project, has secured investment funds and partnered with the private sector toward rapidly connecting millions of households and businesses through the development of minigrids, power plants, and the deployment of standalone systems.

REA has achieved significant progress in providing rural electrification, with 103,500 connections as of December 2019. Reaching the 60% rural electrification target however, has been prevented by a number of factors, including the Covid-19 pandemic, access to sufficient funds, and the need to adhere to due process – like obtaining essential regulatory approvals. With new management on board and a new line up of impactful projects in the pipeline, REA now expects to exceed the goals previously set.

How does rural electrification fit in with Nigeria’s broader energy strategy?

Only 58% of Nigerians have access to electricity, with 78% access in urban areas and 39% in rural areas. Furthermore, an estimated 80% of those with access also use an alternative source of electricity supply, mostly diesel generators, due to reliability concerns. Nigeria currently has available grid power hovering around 4,000 MW for over 190 million people. It is estimated that the Nigerian economy loses $29.3 billion annually due to a lack of adequate power supply, and is estimated to have lost $470 billion in GDP since 2000 due to under-investment in power infrastructure. Rural electrification forms an essential part of Nigeria’s energy strategy, which will not only bridge the energy gap across the country, but will also contribute towards providing access to quality education, health care, and economic opportunities, to name a few areas/sectors which rely on power supply to produce effective outcomes.

What are the biggest challenges to increasing electrification and energy access in Nigeria’s rural regions?

The major challenge seems to be capital intensity. The average rural dweller in Nigeria engaged in subsistence farming cannot afford the cost of acquiring the components needed to generate electricity that can power as little as a 500 W system. This is largely due to the high cost of deep-cycle batteries, which are necessary for an offgrid solution. REA has secured loan facilities, grants and allocations from the national budget, towards attracting private sector investment for development of rural electrification projects. Another challenge is the lack of adequate skilled labor. In addition to the FGN, some companies have identified this problem and established renewable energy training academies across Nigeria.

Lack of good access roads hinders developers from visiting multiple communities at a time, to conduct studies that will assist them in making decisions towards electrifying these communities. Also, private sector developers find it challenging funding electrification projects, thereby causing a viability gap. These developers usually require support from financial institutions, government agencies and donor agencies. The REA is trying to mitigate this challenge faced by private developers through funding interventions.

Initially, the lack of robust electrification data in Nigeria was a major challenge, but this has been overcome by the development of village identification and geospatial enumeration of communities provided by the REA.

What is the role of solar in REA’s strategy? What other technologies are important?

With a focus on solar, Nigeria can achieve 50% of power generation from renewables in the shortest possible time. Also, smart grids powered by solar can be set up quickly – they can create millions of jobs, and reduce the pressure on the existing grid while meeting the needs of unserved and underserved rural communities.

Before now renewable energy utilization was limited to large hydropower, which contributes about 20% of Nigeria’s electricity mix. Other important renewable energy technologies to be leveraged are wind, small hydro and biomass. The total share of these in the electricity mix is still very low, but is expected to increase as the gains from the recent power market reforms trickle in.

What type of financing/business models do you see as most effective?

We explore innovative blended finance instruments and long-term debt, soft loans and equity for working capital, project expansion, or Greenfield projects.

Other innovative financing options are securitization of pay-as-you-go (PAYG) receivables, block chain technology and crowd-funding platforms. Analogous to this are diaspora remittances and how these can be innovatively deployed for the sector. One low hanging fruit lies in unlocking mobile money to drive revenue for companies and increase decentralized renewable energy (DRE) penetration to help companies scale quickly. For the growing Nigerian minigrid market we consider the split-asset model where generation and distribution components are separated to spread risks and accelerate scalability.

Can you tell me a bit more about Nigeria’s rural tariff model? What factors go in to deciding local tariff rates?

The Mini Grid Regulation 2016 requires all minigrids to either be registered or secure full permits. For minigrids with permits, tariffs are calculated based on a Multi Year Tariff Order (MYTO) methodology, and subject to approval by the regulator, Nigerian Electricity Regulatory Commission (NERC).

For registered minigrid operators, developers are allowed to set their tariffs either using the MYTO calculation tool; or by an agreement between the minigrid operator and the community (being a minimum of electricity customers representing 60% of the electricity output of that same community).

What role can solar home systems companies play in Nigeria’s drive for electrification?

Solar home system (SHS) companies have a key role to play in achieving universal electrification in Nigeria. Apart from providing people with a cheaper and cleaner alternative to the traditional services that are offered in Nigeria, the SHS industry has had several domino effect consequences.

Gaining access to clean and affordable energy saves consumers money, reduces exposure to toxic materials released when burning kerosene, and cuts greenhouse gas emissions. In addition, money and time that is freed up can be redirected towards work or education. And further, replacing kerosene reduces fire risks and may even improve the comfort of families and entire communities. These indirect benefits tend to be more difficult to quantify, but it is generally agreed that they are likely to occur. Over 85 million Nigerians live in areas that are unserved by electricity infrastructure, and will benefit from the services being offered by SHS companies.