Minigrids, maximum impact

As published in PV Magazine, November 2024

Everoze Partner Abdul Sotayo examines policy changes for solar minigrids and their adoption within the broader macroeconomic context. What opportunities do such systems present?

Minigrids represent a significant market opportunity in Nigeria due to an aging, unreliable grid. While grid upgrades must take place, the immediate priority is to decarbonize energy and provide electricity to Africa’s most populous nation. Minigrids can achieve those aims and fit into wider, long-term grid reinforcement.

This hasn’t gone unnoticed by Nigerian policymakers, who have seen minigrids as a viable means of addressing the nation’s energy poverty. This awareness was show- cased in the Electricity Act of 2023, which further decentralized energy generation, transmission, and distribution by permitting Nigerian states, companies, and individuals to perform those activities.

Individual states are now able to issue licenses that extend to all aspects of the electricity value chain, making it possible for trading and system operations, and private investors to operate minigrids in said states. This big change is expected to drive the much-needed innovative thinking that usually results from healthy competition.

The initiative has already proved successful. Since the signing of the Electricity Act, a number of minigrid and off-grid solar projects have sprung up across the nation, most between 1 MW and 5 MW in scale.

Macro matters

The use of minigrids also represents the best solution for consumers who currently rely on diesel generators to mitigate grid unreliability or the complete absence of grid power in some places. Recent changes, such as the government of Nigeria removing a subsidy on fuel in May 2023, and the Nigerian naira devaluing against the US dollar, led to an increase in the price of fuel by more than 300%. As a result, some businesses have had to move their operations out of the country due to the high costs of “keeping the lights on.” Let’s not forget, too, the awful impact those diesel generators have on the environment and on quality of life, especially for the most vulnerable communities without grid access. Nigeria has an estimated 40 GW of diesel genset capacity. There is no better time to adopt solar minigrids, as they offer a much cheaper alternative, overcome grid power unavailability, and move the country closer to its clean energy goals. Minigrids are a clear win-win.

Unique opportunities

Grid issues are not unique to Nigeria – they represent a global problem. Most grids were not designed to accommodate the generation capacity of renewable energy projects that are now being connected in the rush to decarbonize energy. Every country must tailor its emissions-reduction solutions to the unique characteristics of its situation. There is no “one-size-fits-all” approach.

A minigrid business model could potentially solve energy access problems in Nigeria. This could work if minigrids are designed to be integrated into the national grid at some point, or if minigrid developers use existing capacity on unreliable spots on the grid, reducing grid connection costs and creating new sources of revenue for grid operators. The added advantage here is that grid operators could then concentrate their resources to better serve other customers and communities.

The business case for minigrid developers is strong, as there are an estimated 40 million rural residents who are getting abysmal service from the Nigerian grid, and that is without factoring in those without any grid access at all. There is an argument to be made that consumers would be willing to pay for reliable, efficient, and cost-friendly energy, especially when compared with an alternative based on self-generation using petrol- or diesel-powered gensets with prohibitively high fuel costs.

There are more financing options for solar minigrid projects now than there are for grid-connected PV projects. An example is the $60 million investment made into solar minigrids by Engie Energy, CrossBoundary, and the World Bank in 2022. There is also an initiative by the African Development Bank (AfDB) to replace 280,000 gensets with renewables. Minigrids are not affected by the unavailability of a main grid. They offer a perfect solution.

Flexible approach

Minigrids appear to be the key to solving energy poverty in Nigeria. They can exist as an isolated power-producing entity outside of the grid providing stable, reliable energy to people in all kinds of communities. They can also complement the provision of energy when the central grid is too weak or by selling over-production to the central grid.

Providing reliable and sustainable energy is crucial to ensuring energy access in Nigeria. Solar powered minigrids may bring the flexibility required to address two challenges: the provision of access to cheap and reliable energy to remote areas and achieving a net-zero power system.