Thursday, November 15,
2018 / 10:08 AM / FBNQuest Research
Today we turn our attention back to this year’s Nigerian Economic Summit held in Abuja, where we attended a session geared towards mini-grid expansion. Epileptic power supply continues to be a challenge in Nigeria. Industry sources suggest that 55% of Nigerians lack access to electricity.
We understand that businesses suffer an average monthly power outage of 239 hours. National energy demand is estimated at 23,000MW, of which about 25% is attainable and that only at peak generation levels. Energy diversification therefore has to be treated as priority.
Mini-grids provide electricity to multiple consumers through a distribution network with at least 1MW. The Nigerian mini-grid market offers a revenue potential of N2.8trn (US$9.1bn) annually. However, we note that energy supply via mini-grids costs more than main grid supply but is cheaper than the use of generator sets.
The cost-reflective mini-grid tariffs are typically N200/kWh. This may reflect the small scale and risk of a nascent market but the tariffs are expected to decline by as much as 60% over the next two years.
Grid expansion is somewhat difficult in rural areas due to non-commercial viability as well as high technical losses. This reality creates vast opportunities for off-grid alternatives to penetrate the rural economy.
The mini-grids installed so far across the country tend to be located in densely populated agrarian communities, typically with a population of about 2,500 distributed across 300–500 households. This has given a boost to agricultural activity as well as other commercial activities such as welding and cassava grinding.
We learnt that the Rural Electrification Agency (REA) secured N30bn (US$98m) from the 2017 capital budget provision last year. The REA used the funds to secure 386 rural electrification projects across the six geopolitical zones, with 329 projects fully completed and 57 still ongoing. Furthermore, these electrification projects resulted in the creation of 4,800 jobs.
The Kenya experience shows that the elimination of VAT, and import duties and tariffs significantly boosts the growth of the renewable energy market. Additionally, implementing a zero per cent corporate income tax rate for off-grid operations would have a sizeable impact. Stakeholders expressed their concerns over the FGN’s slow approach towards adopting this approach.
There have been laudable steps by the FGN to improve alternative energy supply in the country. A few policies like the Rural Electrification Strategy and Implementation Plan in 2016 and the Power Sector Recovery Programme in 2017 are proof of the willingness of the government. However, the impact on the real economy has been minimal.
There is a direct correlation between energy diversification and increased productivity. A better energy mix of non-renewable and green energy will accelerate the process of attaining power for all.