Hybrid mini grids
Hybrid mini grids
Business Model Description
Install and operate hybrid mini grids to generate electricity and sell energy to consumers or off takers.
Expected Impact
Help transition to a cleaner energy source for electricity, reduce power disruptions and ensure equal access to electricity.
How is this information gathered?
Investment opportunities with potential to contribute to sustainable development are based on country-level SDG Investor Maps.
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Case Studies
Country & Regions
- Nigeria: North Central (Middle Belt)
- Nigeria: North West
- Nigeria: South West
- Nigeria: South South (Niger Delta)
Sector Classification
Renewable Resources and Alternative Energy
Development need
Sustainable Development Report shows progress towards SDG 7 (Affordable and Clean Energy) appears to have stagnated (with an overall index score of 37.1), particularly for indicators measuring Access to Electricity (59.3%) and Access to Clean Fuels (4.9%).(1)
Policy priority
Nigeria's Economic Recovery and Growth Plan highlights the government’s interest in improving energy efficiency and diversifying energy mix through greater use of renewable energy. The government has also prioritized rural electrification using off-grid renewable solutions to address the energy gap currently ravaging the country.(2)
Gender inequalities and marginalization issues
Women are the ones most likely to walk long distances to collect fuel wood, and ingest harmful air pollution from kerosene and wood fires as they cook, care and provide for their families.(16)
Investment opportunities introduction
High political momentum creates an opportunity for new and enhanced investment in renewable and alternative energy in off-grid and on-grid solutions.
Key bottlenecks introduction
Significant challenges in the energy sector are continually crippling industries, agricultural sector, mining sector, etc., further impeding economic development.
Alternative Energy
Development need
A significant number of Nigerians receive power from small-scale generators (10-15 GW) and almost 50% of the population has limited access to the national power grid.(3)
Gender inequalities and marginalization issues
Electricity for lighting and cleaner cooking technologies are still a luxury for many rural women and men, and modern energy services are far from being accessible. While this is true for both the formal and informal sectors, this problem is more pronounced in the informal sector, where solid fuels and traditional biomass are the main source of fuel and poor women tend to be more involved in this sector.(17)
Nigeria's renewable energy sector, still in an early stage of development, faces challenges such as
high initial capital investment; inadequate human capacity in renewable energy; absence of local manufacturing capacity for renewable energy components and systems; insufficient public awareness and participation.
Solar Technology and Project Developers
Pipeline Opportunity
Hybrid mini grids
Install and operate hybrid mini grids to generate electricity and sell energy to consumers or off takers.
Business Case
Market Size and Environment
> USD 1 billion
Developing off-grid alternatives to complement the grid creates a USD 9.2 billion/year (NGN 3.2 trillion/year) market opportunity for mini grids and solar home systems. These alternatives will save Nigerian homes and businesses USD 4.4 billion/year (NGN 1.5 trillion/year).(3)
There is also the advantage of high density population for power use, with high demand and willingness to pay for the switch to renewable power.
Indicative Return
10% - 15%
The Rural Electrification Agency (REA) estimates an internal rate of return (IRR) of 15% for standalone small or medium off-grid projects.(4)
Investment Timeframe
Medium Term (5–10 years)
The investment timeframe depends on the quantity and size of the solutions deployed.(4) For independent power producers (IPPs), cash flow is expected within 10-15 years; cash flow for commercial solutions is expected within 6-8 years.(5)
Ticket Size
USD 1 million - USD 10 million
Market Risks & Scale Obstacles
Capital - CapEx Intensive
Capital - Limited Investor Interest
Impact Case
Sustainable Development Need
Nigeria's energy demand is continually rising along with increasing population growth and economic development. Total energy demand is estimated to be increasing at an average of 8.3% since 2005.(2)
A significant number of Nigerians receive power from small-scale generators (10-15 GW) and almost 50% of the population has limited access to the national power grid.(3)
Nigeria's nascent renewable energy sector faces challenges such as: high initial capital investment; inadequate human capacity in renewable energy; absence of local manufacturing capacity for renewable energy components and systems; insufficient public awareness and participation.
Gender & Marginalisation
Women are the ones most likely to walk long distances to collect fuel wood, and ingest harmful air pollution from kerosene and wood fires as they cook, care and provide for their families.(16)
Expected Development Outcome
Investments could help improve access to electricity for households and industries, and decrease incidence of electricity gaps.
Investments could increase efficiency, improve productivity and reduce carbon emissions.
Investments could create employment opportunities for many unemployed/underemployed youth and increase household incomes.
Gender & Marginalisation
Promoting renewable and clean energy sources can help reduce air pollution, particularly in rural areas where fossil fuels are used for energy and heating. This change will particularly benefit women, who largely perform unpaid domestic work.
Primary SDGs addressed
7.1.1 Proportion of population with access to electricity
7.1.2 Proportion of population with primary reliance on clean fuels and technology
7.2.1 Renewable energy share in the total final energy consumption
59.3%. (12)
28.2% in 2015. (12)
N/A
100% (13)
Nigeria is committed to implementing its Natural Gas Expansion Programme within 12 months through its Inter-Ministerial Committee on liquified petroleum gas (LPG). This programme will support the creation of 1 million jobs by converting 30 million homes from dirty fuels (kerosene, charcoal and diesel) to LPG.(14)
Federal Ministry of Power together with Rural Electrification Agency and Niger Delta Power Holding Company is committed to provide solar power to 5 million households by 2023 while creating 250,000 jobs in the energy sector.(15)
Secondary SDGs addressed
Directly impacted stakeholders
People
Planet
Outcome Risks
Lack of adherence to environmental standards can cause significant environmental degradation.
Land use issues and challenges to wildlife and habitat may arise.
Impact Risks
Evidence risk given there is very limited data about investment intelligence for this IOA.
Efficiency risk given public engagement in renewable energy projects is very high.
Unexpected impact risk given land use issues may become prominent.
Impact Classification
What
Investments in renewable energy will create positive outcomes by increasing access to clean and affordable energy for all.
Who
Energy consumers (households, business owners, governments, financial institutions, etc.).
Risk
Health and safety risks during installation and maintenance and high installation costs should be considered.
Impact Thesis
Help transition to a cleaner energy source for electricity, reduce power disruptions and ensure equal access to electricity.
Enabling Environment
Policy Environment
Nigeria is providing an enabling environment for off-grid market growth, protecting developers via detailed site pre-feasibility evaluations.
An innovative and best practice site selection process to de-risk projects has already identified over 200 promising sites. The selection process has also screened for baseload demand (e.g. schools).(3)
Financial Environment
USD 150 million in funds is available for mini grids, comprising two funding windows: i. A minimum subsidy tender is available to electrify communities with economic growth potential. The grant amount is determined competitively. ii. A performance-based grant is available to develop mini grids. Grants are worth USD 350 per connection.(9)
Fiscal incentives: Tax incentives (tariff flexibility) are also available for investments in renewable energy.(4)
Financing for bankable renewable energy projects is available from domestic financial institutions such as the Central Bank of Nigeria, the Bank of Industry, and the Development Bank of Nigeria.(10) The Bank of Industry provides financing for renewable projects. Nigeria has a favorable environment for green bonds.
Regulatory Environment
The Electric Power Sector Reform Act: This Act licenses private sector actors providing renewable energy, specifically for any electricity generation of 1 MW and above.(6)
The Environmental Impact Assessment (EIA) Act: This Act makes it mandatory for an EIA to be conducted on projects that are likely to have significant effect on the environment, including renewable energy projects.(7)
The Regulations on Feed-In Tariff for Renewable Energy Sourced Electricity in Nigeria (REFIT) provides the tariff framework for renewables (specifically, wind, hydro, biomass and solar photovoltaic (PV) with a capacity of between 1 MW and 30 MW).
Mini Grid Regulations (2016) aim to accelerate electrification in served and unserved areas. The regulations are limited to distributed power of less than 100 kW up to 1 MW.(8)
Marketplace Participants
Private Sector
Standard Chartered, Cambridge Energy Partners, Shell, Agip, Cross Boundary Energy, Day Star, Topec, Green Village Electricity, Nayo Tropical Technology, Blue Camel, Asteven, Solonic, Haven Hill, Green Light Planet, Solar Sisters, Nesco
Government
Bank of Nigeria, Bank of Industry, and Development Bank of Nigeria
Multilaterals
African Development Bank, World Bank, EU (European Union), EIB (European Investment Bank), German government, UNIDO (United Nations Industrial Development Organization)
Target Locations
Nigeria: North Central (Middle Belt)
Nigeria: North West
Nigeria: South West
Nigeria: South South (Niger Delta)
References
- (1) Sachs, J., Schmidt-Traub, G., Kroll, C., Lafortune, G., Fuller, G. (2019). Sustainable Development Report 2019. New York: Bertelsmann Stiftung and Sustainable Development Solutions Network (SDSN).
- (2) Federal Republic of Nigeria (2017). Economic Recovery and Growth Plan 2017 - 2020. Abuja: Ministry of Budget and National Planning.
- (3) The Rural Electrification Agency. Opportunities for Investment in Nigeria's Power Sector for Minigrids/Renewable Energy.
- (4) Rural Electrification Agency (2018). Presentation on Nigeria's off-grid renewable energy market and investment potentials. https://www.german-energy-solutions.de/GES/Redaktion/DE/Publikationen/Praesentationen/2018/181120-iv-nigeria-ohiahre-rea.pdf?__blob=publicationFile&v=3
- (5) PwC / UNDP Consultations (2020).
- (6) Electric Power Sector Reform Act (2005).
- (7) Environmental Impact Assessment Act (1992).
- (8) Nigerian Electricity Regulatory Commission. Regulation for Mini grids 2016.
- (9) Rural Electrification Agency (2020). Solar hybrid mini grids. https://rea.gov.ng/minigrids/
- (10) Climate Finance Advisory (2020). $100 million Green Energy Fund Programme. https://climatefinanceadvisory.com/green-energy-fund
- (11) Rubitec Solar (2020). Make your world eco friendly. https://www.rubitecsolar.com/
- (12) Federal Republic of Nigeria (2017). Implementation of the SDGs: a national voluntary review. https://sustainabledevelopment.un.org/content/documents/16029Nigeria.pdf
- (13) Sachs, J., Schmidt-Traub, G., Kroll, C., Lafortune, G., Fuller, G., Woelm, F (2020). The Sustainable Development Goals and COVID-19. Sustainable Development Report 2020. Cambridge: Cambridge University Press.Sustainable Development Report, 2020. https://dashboards.sdgindex.org/profiles/NGA
- (14) Federal Republic of Nigeria (2020). Nigeria Economic Sustainability Plan. https://media.premiumtimesng.com/wp-content/files/2020/06/ESC-Plan-compressed-1.pdf
- (15) Federal Republic of Nigeria (2020). Integration of the SDGs into National Development Planning: A Second Voluntary National Review (2020). https://sustainabledevelopment.un.org/content/documents/26309VNR_2020_Nigeria_Report.pdf
- (16) IRENA (2018). Empowering Women in Nigeria with Solar Energy. https://www.irena.org/newsroom/articles/2018/Feb/Empowering-Women-in-Nigeria-with-Solar-Energy
- (17) UNDP (2012). Gender and Energy. https://www.undp.org/content/dam/undp/library/gender/Gender%20and%20Environment/TM3-Africa_Gender-and-Energy.pdf