In Nigeria, a Template for Solar-Powered Minigrids Emerges

Powering a better life

It’s hard to over emphasise what a change this newly installed minigrid represents to a rural village in Nigeria. Access to power is one of Nigeria’s most common and challenging chasms, a dividing line that determines a community’s quality of life and prospects.

But by embracing a solar-powered minigrid, Gbamu Gbamu is set to vault past much larger grid-connected urban areas in terms of reliable access to electricity. “This fills an enormous unmet need in Nigeria. Half of the country is not on the electrification network. The half that is connected receives very little electricity, usually just a few hours' [worth] each day. And the other half may not be connected for a decade, if ever,” says James Lykos, deputy director of the Office of Economic Growth and Environment at the U.S. Agency for International Development’s Nigeria mission, which has supported the development of Gbamu Gbamu’s minigrid.

“When you have electricity, you can engage in better economic opportunities, and it helps resolve poverty. This can have a transformative impact on rural communities, and indeed, the country as a whole,” says Lykos.

Developing minigrids throughout Nigeria, including the one at Gbamu Gbamu, is one of the main components of the Nigerian Energy Support Program (NESP), which is co-funded by the European Union and the German government and is being implemented by GIZ, the technical arm of the German Federal Ministry for Economic Cooperation and Development. In addition to Gbamu Gbamu, five other minigrids have been developed during the first phase of NESP. USAID partnered with GIZ to support two of the minigrids, including the one in Gbamu Gbamu.

A minigrid model for Nigeria

In a country with an estimated population of 186 million, a single solar-powered minigrid that is transforming a few thousand rural lives could understandably be ignored as a happy novelty. But there’s something more profound taking shape.

The innovation, collaboration and persistence required to develop and construct these minigrids have established a template that Nigeria can follow to deliver the benefits of electrification to millions of people around the country.

Enthusiasm for minigrids is simply an acknowledgement of the economic and logistical realities of Nigeria’s power grid.

“Extending the grid is very expensive. There are many communities -- most, actually -- where extending the grid is a net present value-losing proposition. You will never get enough money out of these communities to justify doing this,” says Javier Betancourt, the chief of party for the USAID-funded Renewable Energy and Energy Efficiency Project (REEEP) in Nigeria, which is being implemented by the U.S.-based NGO Winrock International.

“You can’t electrify everybody using the grid or large-scale generation. The best solutions are minigrids. This is the future. But there needs to be a template in Nigeria for how this is going to evolve,” says Betancourt.

Devising and implementing a replicable template has been the core mission of REEEP since its launch in 2013. The challenges and roadblocks have been daunting.

While minigrids may be the best and only solution for electrifying Nigeria, their development has been stunted for a host of reasons, including the lack of technically competent minigrid designers and solar installers.

“There’s a very large problem in Nigeria with faulty installations that have created this perception problem,” says Betancourt. “There are all these dead solar systems all over the place that have given people the impression that solar doesn’t work, and it’s usually due to shoddy installation work.”

To address this immediate problem and build a skilled workforce, REEEP and GIZ worked with dozens of international experts to develop a rigorous and standardized curriculum that is now used at 13 training institutions across Nigeria.

Alabi Abiodun of Rubitec Solar shows off the batteries powering the Gbamu Gbamu minigrid. Photo credit: Winrock International/Bobby Neptune.

Budding Nigerian minigrid developers and investors also needed assistance figuring out which communities could feasibly support a minigrid. In part, that meant finding villages that were far enough away from the power grid that there was no chance that it would be extended anytime in the near future. More importantly, developers and investors needed to know which villages had sufficient population and economic activity to make the investment required to build a minigrid worthwhile.

“Are there productive activities going on to show that they have the capacity to pay for the cost of electricity?” says Anayo Okenwa Nas, the CEO of Nayo Tropical Technology Ltd., a developer of minigrids in Nigeria. “Is it a fishing community? A timber community? An agrarian processing community?”

To help developers focus their attention and resources on viable sites, GIZ performed geographic information system data analysis in five Nigerian states to locate which villages had sufficient load to justify a minigrid. This work has resulted in a tool that will soon be launched by the Nigerian Ministry of Power that developers and investors can use to streamline their efforts. “If I want to set up a project in Nigeria, I can quickly see whether it makes sense to invest and where,” says Ina Hommers, who heads up NESP for GIZ. “This is something we want to expand because no investor has time or money to do this from scratch.”

The biggest hurdle of all: Money

Of all the obstacles standing in the way of solar-powered minigrids delivering the benefits of electricity to millions more Nigerians, none has been as complicated and challenging to address as financing. Anyone considering building a minigrid would have to find money to pay for both the solar panels and batteries required to generate and store electricity as well as the poles, wires and meters necessary to distribute it to homes and businesses.

These combined costs make it impossible for minigrid developers to attract investors. But it’s also not a financial burden that generation companies around the world are typically expected to cover. “They never pay for their own distribution,” says Betancourt. “If you think about it fairly, nobody in any country has ever paid for their own grid. Generation companies get the grid through a subsidy or the government, or someone comes in with a grant and gives the thing away.”

To address this challenge, REEEP and GIZ devised what Betancourt describes as the “split asset model.” Instead of trying to convince banks and other financial institutions to invest in a minigrid project as a whole, REEEP separated the distribution and generation components. For the first five minigrid projects in Nigeria, including in Gbamu Gbamu, GIZ provided a grant to cover the distribution costs, which account for roughly half of the total project expenses.

REEEP and GIZ initially turned to Nigeria’s central bank and commercial banks to provide funding that developers needed for the solar panels, batteries and other generation components required for the minigrids. Because renewable energy is a nascent industry in Nigeria, this first meant educating bankers about how to evaluate potential minigrid projects.

“We provided training with banks on small renewable energy projects. Banks don’t usually understand the rationale of such projects,” says GIZ’s Hommers. “You can’t really count on the experience of other projects because the sector is so young. To banks, that is very high risk.”

Though there’s optimism that the extensive outreach and education REEEP and GIZ provided to Nigerian banks and other investors will facilitate project financing in the future, an economic collapse and devaluation of the country’s currency in 2015 quickly halted all the progress that had been made. “Everything came crashing down exactly when we were going to get our first minigrid financed,” says Betancourt. “For two years, we were stumped on how to get them financed.”

Crowdfunding to the rescue

But that all changed when Betancourt met a representative of the German crowdfunding platform Bettervest at an event in Lagos. Bettervest allows individuals to invest and earn a return on renewable energy and energy efficiency projects around the world. The crowdfunding platform was exploring an entry into the Nigerian market and had formed a partnership with GIZ to help it understand the unique dynamics at play in the country. “Bettervest had a very strong interest to pilot two projects before deciding if they wanted to enter the Nigerian market for other activities,” says Hommers.

Though GIZ was eager to find financing for the pilot minigrids, it was also reluctant to expose Bettervest’s investors to any unnecessary risk. “We lack the financial ability to say this is safe and sound,” says Hommers. Instead, GIZ relied on the financial expertise of REEEP’s Betancourt. Betancourt had worked previously as an investment banker, a financial regulator for the Mexican government and for NGOs like Winrock, where one of his specialties over the past decade has been improving access to finance in the developing world.

Betancourt applied all of that experience to help Bettervest lower (though not eliminate completely) the risk faced by its investors. “I do the financial due diligence for them here. I provide Bettervest the credit reports, the tax clearances, the reputational checks and the document verification,” he says. “GIZ helped them with lawyers to get contracts and together we lowered their entry costs. That is how we got them to finance our minigrid projects.” Once actually posted to the Bettervest website, it took 106 days for investors to pony up the 224,100 euros (around $260,000) required for Rubitec to build the generation component of the project. Bettervest investors are expecting a 10 percent return on their investment in Gbamu Gbamu.

A sustainable model for the future?

Though the pilot minigrid projects GIZ and REEEP have helped shepherd into existence will clearly have a big impact on the communities where they are located, the obvious question is whether this development approach can be scaled up. Though REEEP is coming to an end in early 2018, GIZ has already committed to provide grants that will cover the distribution costs of 20 more minigrids.

Obviously, GIZ and other donors can’t supply grants for the thousands of minigrids Nigeria will need to bring clean and reliable electricity to all of its citizens. Betancourt has been working with both the Nigerian Rural Electrification Agency as well as individual state governments to explore ways to take funds typically devoted to extending the central grid and use it instead for minigrids.

“Each state government gets a grid extension budget from the federal government each year to extend the grid,” Betancourt says. “What they can do now is use that budget to give grants to the project developers for the distribution and the metering and the Nigerian minigrid developers do the rest on a purely commercial basis.”

In other words, it’s a way to utilize the so-called “split asset model” to develop the minigrid in Gbamu Gbamu over and over again. “We believe these minigrids strongly prove there is private-sector interest. This is a bit of a game-changer in sub-Saharan Africa,” says Hommers.

There are certainly challenges ahead. The risk of devaluation of the Nigerian currency, the naira, is always a worry for investors. Corruption also remains a major problem. Training legions of skilled solar installers and minigrid designers will be of little use if there aren’t projects for them to work on. “A lot of this will atrophy if the people who were trained don’t get to utilize their skills and work and bring renewable energy projects to completion,” says USAID’s Lykos.

The new distribution system in Gbamu Gbamu. Photo credit: Winrock International/Bobby Neptune.

In many ways, though, the future of solar-powered minigrids in Nigeria will depend on the success of people like Bolade Soremekun. Soremekun is the CEO of Rubitec Solar, the company that built the Gbamu Gbamu minigrid. Soremekun earned an MBA at New York University and spent years working for big multinational corporations like Johnson & Johnson and GlaxoSmithKline. But he always wanted to come home to Nigeria. “I wanted to achieve and do things in Nigeria,” he says.

For years, working in solar meant organizing conferences, an admittedly time-consuming and money-losing hobby compared to Soremekun’s successful pharmacy business. “My pharmacy staff once called a meeting and said, 'Stop this crazy thing you are doing about organizing conferences,'” he says. “'You are promoting solar, good, but you are not making money.'”

Lately, though, solar and minigrids are looking more and more attractive. It used to be that meetings with banks would frustrate Soremekun because they would either not offer financing at all, or would only offer it at exorbitant interest rates. That has already started to change. Soremekun believes it will change faster once bankers see the reliable cash flow that will be generated when customers in Gbamu Gbamu prepay their electricity bills using mobile money accounts.

“I think if the pilots go well, and I hope they do, they are going to start a momentum towards minigrids,” he says. “I think financing will be easier. The banks are going to see the cash flow right there in front of them, and they’ll say, 'OK, we want to do the next minigrid and then the next minigrid.'”

Rubitec already has plans to construct between five and 10 minigrids over the next two years, with 100 other potential sites already pinpointed. With more and more projects, Soremekun believes minigrids will become easier to develop and implement. “What attracts investors to minigrids is scale. They don’t want one minigrid; they want hundreds of them. Then it becomes a good business,” he says. “Solar is the best space to be in right now in terms of business, I think. There are so many huge opportunities.”

Minigrids have allowed Soremekun to make the kind of difference that compelled him to return to Nigeria. At first, people in Gbamu Gbamu didn’t really believe the minigrid would actually be built. “There are too many promises that are not fulfilled,” he says. “They have just accepted their fate, to live their lives as best they can. This changes that. Their lives could be better. That’s why I get up every morning excited.”

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Chris Warren is a freelance writer based in Arkansas. The reporting trip to Nigeria was funded by Winrock International.