Solar: Affordable Power in Nigeria and Africa:The Solar Market, Mini-Grid Value chain and Business Model-Part 5
The Solar Market
Rural areas in Africa are often viewed as places of poverty, but I believe with access to electricity they can be transformed into ‘Rural Industrial Centers’ by supporting economic activities.
These can include grain milling, welding, carpentry, irrigation, and small retail shops. This will enable rural areas pay for their electricity, which will make them more productive.
“Developing off-grid alternatives to complement the grid creates a $9.2bn/yr. (N3.2tn/yr.) market opportunity for Mini-Grids and Solar Home Systems that will save $4.4bn/yr. (N1.5tn/yr.) for Nigerian homes and businesses.
There is a large potential for scaling — installing 10,000 Mini- Grids of 100 kW each, can occur by 2023 and only meet 30% of anticipated demand.”
- The Rural Electrification Agency (REA)
A 50kW mini-grid can meet the electricity needs of up to 100 households in a rural community.
Solar Mini-grids show the greatest promise to solve the power deficiency in Nigeria and Africa. They are cost competitive and can easily scale across underserved communities in sub-Saharan Africa. They can be combined with other power generating sources to form a hybrid Mini-Grid.
Combining the Solar Home System and Solar Mini-Grid with a Pay As You Go (PAYG) model has created a bankable opportunity to increase electricity access across sub-Saharan Africa.
Electricity from Mini-grids can serve an estimated 140 million rural Africans by 2040 if 100,000–200,000 Mini-Grids are built. The levelised cost of electricity (LCOE) of a Mini-Grid is $0.57/kWh, which is cheaper than diesel generators at $0.71kWh.
DON’T FORGET: Mini-Grids are community-based grids that generate and distribute power at the point of power use. Their capacities could range from 50kW up to 10MW. (The components of a solar mini-grid include the solar modules, inverter, smart meters, battery bank, distribution pole/wires.)
The REA Off Grid Strategy: four key programmes
I. Solar Home Systems for remote customers with low load and low ability to pay
II. Mini-Grids for communities with load less than 1MW
III. Energizing Education for providing electricity to 37 federal universities, 7 teaching hospitals, and the surrounding communities
IV. Energizing Economies for areas with high commercial activity and high growth impact on the economy e.g. Marketplace
Mini-Grids: How much does it cost?
Mini-grids have a high capital cost and very low operating cost. The REA Nigeria Mini-Grid Investment Brief highlights four case studies and their capital cost:
1. Small Off-Grid Site (Obot Ekpene) — $130,000
16kW peak load, 200kWh consumption/day
Consumer: 30 homes(3kW), Commercial(15kW)
Solution: Mini grid with 34.5kW solar, 48kWh battery, and 18kW diesel backup
2. Medium Off-Grid Site (Onyen-Okpon) — $1.1m
200kW peak load, 2500kWh consumption/day
Consumer: 300 homes(30kW), Commercial(170kW)
Solution: Mini-Grid with 470kW solar, 668kWh battery, and 220kW diesel backup
3. Medium underserved Peri-urban site (Mokoloko) — $600k
85kW peak load, 13000kWh consumption/day
Consumer: 300 homes (50kW), Commercial (70kW)
Solution: Mini-Grid with 156 kW solar, 212 kWh battery, and 140 kW diesel backup
4. Large underserved Peri-urban site (Okun-Owa) — $9.7m
1.8MW Peak load, 27,000 kWh consumption/day
Consumer: 100 homes (45kW), Commercial (250kW), Factories (1500kW)
Solution: Mini-Grid with 4 MW solar, 3.6 MWh LA battery, and 2 MW diesel backup
According to the analysis by REA, each of these Mini-Grid investments can yield 15% IRR over a payback period just under 3 years.
THE MINI-GRID VALUE CHAIN
The Mini-Grid value chain includes three primary phases: project development, construction and operation.
Mini-Grid Business Model
According to the Mini-grid Investment Report 2018, most commercial Mini-Grids use an ‘owner-operator’ business model.
Financing is by a mix of debt, equity, and grant funding. The most common debt to equity ratio is 70:30.
Of the 10 Mini-Grid projects audited in this report, a return of 15–20% was achieved.
Most projects opted for a flat tariff structure (single fixed price per unit of electricity) and some a dual tariff structure for residential and commercial users.
Mini-Grids in Africa
Tanzania has been the leader in Africa in developing Mini-Grids with an installed capacity of over 150MW serving over 180,000 customers. This is huge when compared to Tanzania’s grid supply of about 1,500MW.
Now that we have a deeper understanding of the Solar Market and Solar Mini-Grid, we will next explore 2 case studies of a PAYG Solar Home System and a Mini-Grid project in Nigeria.
Thank you for reading,
Nero
