Financial Energy Review
Nigeria is the largest off-grid energy market in the world, with 80 million people waiting to be connected to reliable energy. It comes as no surprise that everybody is watching Nigeria, eagerly anticipating a massive leap towards eradicating global energy poverty.
Currently there are more than 100 private energy development companies in Nigeria who are addressing the market by deploying standalone solar home systems (SHS), mini-grids and more recently, mesh-grids.
Mesh-grid technology, regarded as the most scalable solution for last-mile energy access, combines the flexibility of SHS with the power reliability of mini-grids. However, when compared with mini-grids, Mesh-grids– the proprietary technology of Okra Solar– significantly reduces the capital and operational costs of last-mile energy access by up to 60%.
A quick recap of Nigeria’s off-grid energy regulations
Nigeria’s regulatory environment is highly conducive to a vision of global energy access because it’s set up to reduce friction, wherever possible, for private developers who are supplying energy systems to off-takers (households and businesses).
Nigeria allows developers to offer flexible tariff structures, such as a “cost-reflective” tariff, which can be adjusted on a project-by-project basis according to variance in community size, location and off-taker load profiles, amongst other factors. This “cost-reflective” tariff allows developers to compete with each other and serve communities in areas that were previously unfeasible.
This effectively means Developers can charge what they need in order to run a sustainable business.
The subsidies in Nigeria
In March of 2020, the Rural Electrification Agency (REA), in collaboration with the African Development Bank (AfDB) and the World Bank (WB), launched the $550 million Nigeria Electrification Program (NEP). This program provides subsidies for developers who are deploying solar mini-grids, SHS and energising educational institutes.
This spurred growth in the sector and encouraged ambitious entrepreneurs to enter the space with innovative solutions.
There are two key components of the NEP: The Performance-Based Grant (PBG), and the Output-Based Fund (OBF).
The PBG provides a $600 per connection subsidy for solar mini-grids and interconnected mini-grids. This is attractive for developers who are targeting sites containing 1,000 households or more, with high household density and large commercial loads. That being said, it’s claimed that meeting the stringent requirements for the PBG can take anywhere from 6 – 18 months.
The OBF, on the other hand, subsidises SHS and more recently mesh-grids as well – an innovative technology that allows high-power solar home systems to interconnect and form modular power-sharing networks; thereby combining the speed and flexibility of SHS with the reliability and energy abundance of mini-grids.
The OBF subsidy ranges from $55.20/connection for tier 1 systems, all the way to $1,945.60/connection for tier 5 systems. Tiers refer to the World Banks Multi-Tier Framework for energy access, Tier 1 systems supply a minimum of 3W power and Tier 5 offer 2kW and above of power. Mesh-grids which are currently being deployed fall under tiers 3 and 4, which receive a $346.50/connection and a $1,0003.50/connection subsidy respectively.
Which component of the NEP is right for the Nigerian developers?
In most cases, it is the OBF. This is because the majority of unenergized Nigerians live in last-mile rural communities that are characterised by low household density. Whereas conventional mini-grids struggle to service sparsely populated communities due to high distribution costs, mesh-grids thrive here as they can be configured into small modular clusters whilst still providing productive power – hence why the OBF is a game-changer.
