Nigeria to build 23 solar mini-grids in rural areas

From the newsletter

The Nigerian Rural Electrification Agency has awarded $5.91 million in grants to 18 renewable energy companies to develop 23 mini-grids in two years. This funding is part of the African Mini-Grids Programme (AMP), an impact-focused initiative active in 21 African countries, launched in 2022 to catalyse renewable energy investments.

• The project will target six geographically diverse zones in Nigeria with significant agricultural activity. These zones have been selected as the pilot phase of the AMP, with mini-grid capacities ranging from 30 kWp to 200 kWp.  It is expected to connect over 70,000 Nigerians and enable more than 600 productive use connections, primarily within the agricultural sector.

• It is funded by the Global Environment Facility (GEF) and implemented by UNDP in partnership with Rocky Mountain Institute (RMI ) and the African Development Bank (AfDB).

More details

• The AMP aims to increase the financial viability and promote scaled-up commercial investment in renewable energy mini-grids, focusing on cost-reduction levers and innovative business models. It targets some of the most unelectrified countries, including the Democratic Republic of Congo, Nigeria, Burundi, Ethiopia, Niger, Sudan, Zambia, Djibouti, and Chad.

• Household grid electrification in Nigeria has primarily focused on urban areas, with little attention paid to rural communities due to the high cost of building transmission and distribution lines. Mini-grids, particularly solar-powered ones, are best suited for developing decentralised energy systems at a lower cost.

• Nigeria's Rural Electrification Authority, tasked with connecting the rural population, is exploring various solutions with different partners. However, the challenge of securing capital to scale up operations remains a significant hindrance. Assuring investors that they can recoup their investments when establishing mini-grids in rural areas, which typically have low electricity consumption, is a major problem. Therefore, the authority is targeting areas with agricultural activities, aiming to establish agro-processing industries that can act as anchor customers and encourage increased consumption.

• About 70% of Nigerians work in agriculture. This equates to approximately 34.5 million people, representing a large portion of the country's labour force. However, the sector remains unmechanised, with farmers lacking access to electricity. This impacts the agricultural sector, which loses approximately 40% of annual food production, in part due to poor storage resulting from the lack of electricity.

• Successful mini-grid projects have shown that bundling mini-grids with appliances based on community activities, including agriculture, can increase electricity consumption. However, this necessitates financing for appliances that align with local agricultural activities. For example, a 2023 research by CrossBoundary Energy on mini-grids demonstrated that customers with appliances had an Average Consumption Per User (ACPU) that was 48% higher on sites where appliance financing was offered.

Our take

• Low-cost financing is crucial for overcoming the financial barriers to rural electrification.  Traditional financing models often struggle to accommodate the unique circumstances of rural projects, which may have higher upfront costs and longer payback periods.  Concessional loans, grants, and other forms of subsidised financing are essential to make these projects economically feasible. Blended finance approaches, combining public and private capital, can also play a key role in mobilising the necessary investment. 

• Rural electrification projects will only succeed if energy consumption follows. Simply providing access to electricity is not enough; productive uses of energy must be developed and encouraged to stimulate economic activity. This requires a focus on promoting income-generating activities that rely on electricity, such as small businesses, agricultural processing, and cottage industries.

• Appliance financing is needed to ensure connected customers can use the electricity productively. This way they can boost their productivity and quality, and access better markets. For example, farmers can refrigerate their milk, aggregate it, and take it to milk cooperatives where they stand to get better and more stable prices.