Nigeria mini-grid investment report

Aug 31, 2018

Source/author : The Nigerian Economic Summit Group (NESG)

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Executive Summary

This report is intended to illuminate the current state of the Nigerian minigrid market and the opportunity for investment. It offers an in-depth look at current minigrid projects throughout the country and provides perspectives on the current opportunities and challenges to scaling the market. The report represents the outcome of a collaborative process through which information on the minigrid sector was collected and synthesised. Data and perspectives pertaining to the current state of the market and the potential for scaling were collected from a vast array of sources—including minigrid developers, customers, investors, and policymakers. This report is intended for a wide range of readers who may have an interest in minigrids and energy access issues in Nigeria. Nigeria continues to focus on electrifying rural areas of the country, where as much as 55% of the population remains without electricity access. Recently, the emergence of minigrids as a cost-effective option for electricity provision has created an exciting opportunity to rapidly increase electrification. For policymakers, minigrids fill an important gap between expensive grid extension projects and low-power solutions like solar home systems, and can help provide power to millions of people. For commercial investors, Nigeria’s large population and strong economy make it an attractive place to build the sector; the vast but underdeveloped minigrid market offers revenue potential of ₦2.8 trillion (US$8 billion) annually in Nigeria alone.

The Nigerian minigrid market today has reached an inflection point - costs are competitive with alternatives like diesel and petrol generators, and projects are moving away from grant funding to commercial investment. At the same time, minigrid costs can be reduced by more than 50% over the next three years, unlocking market scale to tens of thousands of sites within Nigeria alone.

The market for minigrids in Nigeria is strong, and clear best practices are emerging NESG and RMI audited a representative set of ten commercial minigrids in Nigeria—those developed with a significant amount of private equity or debt finance—to build a snapshot of the currentmarket(Figure ES-1).This audit,whichincludedsite visits, interviews with minigrid customers, and developer interviews, provides a clear picture of existing isolated, rural, commercial minigrids, which are the focus of this report. Interconnected minigrids—developed in collaboration with distribution companies—are another promising market segment, but remain a relatively unexplored option in Nigeria. As Table ES-1 shows, minigrid costs are higher than the main grid but lower than small generators, which typically cost upward of ₦250 (US$0.70) per kilowatt-hour. Customer satisfaction is very high across most sites and collection rates are near 100%. Most developers have used an owner-operator business model funded through a 70:30 mix of debt and equity supplemented with grant funding.

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