With over 100 million Nigerians without access to the national electricity grid, solar mini-grids are becoming the alternative for powering communities, even in rural Nigeria. However, the average mini-grid capacity utilisation in 2021 was 42.5 per cent, which threatens the country’s profitability, sustainability, and scalability of off-grid solutions. In collaboration with Rocky Mountain Institute, Nigeria’s Rural Electrification Agency (REA) proposed that improving productive energy use will improve capacity utilisation of the mini-grids and increase economic activities in those communities. Both organisations launched the “Energising Agriculture Programme” to finance the acquisition of productive use equipment and appliances in such communities.
Industry studies show that productive use equipment financing schemes have improved energy use in off-grid communities. On Wednesday, April 27, 2022, The Electricity Hub, an electricity-focused media organisation, hosted its 68th monthly Power Dialogue to discuss the various Productive Use Appliances and Equipment (PUE) Financing programmes that REA is currently implementing. The panel discussants included Suleiman Babamanu, Nigeria Country Director, Rocky Mountain Institute (RMI); Temitope George, Component Lead, Mini-Grids & Productive Use Appliances and Equipment at Nigeria Electrification Project (NEP); Onyinye Anene-Nzelu, Head of Mini-Grids at ENGIE Energy Access; and Salamatu Baba Tunzwang, Executive Secretary at the Renewable Energy Association of Nigeria.
The panellists agreed that electrification must extend beyond providing energy to ensure that the communities can utilise it to spur economic development. While the communities understand this point, they typically lack the high upfront acquisition costs for productive use equipment and appliances. Hence the need for specialised financing programmes. Mr Babamanu noted that the Energising Agricultural Programme (EAP) is a 3-year facility jointly developed by REA and RMI and funded by the Global Energy Alliance for People and Planet (GEAPP). The programme is a market-led solution that increases off-grid electrification while driving agricultural development.
Ms Temitope George noted that the NEP’s productive use equipment financing component is a $19 million facility that aims to provide 24,500 micro, small and medium-sized enterprises (MSMEs) with productive use systems. Mini-grid developers in communities with productive use capacity can access between 30 and 60 per cent of their PUE costs. So far, the programme has selected five mini-grid sites and is open to other qualified developers. Ms George noted that the facility is not restricted to agricultural equipment financing. There are over 200 economic activities that can benefit from the programme.
Applicants for the PUE facility must ensure adequate minimum energy demand in mini-grid communities to ensure profitability, sustainability, and scalability. Ms Anene-Nzelu of ENGIE Energy Access noted that the lack of data presents a challenge in assessing potential energy demand resulting in the underutilisation of mini-grid systems. She noted that providing customers access to the PUE facility should increase productive equipment acquisition and mini-grid capacity utilisation.
The NEP is currently implementing a ‘Lease to Own’ financing model where customers in the community can lease productive use equipment from the mini-grid developer and eventually own the equipment after the requisite repayments. The panellists noted that a critical challenge with this solution is that mini-grid developers often want to supply only energy and not PUEs. NEP is exploring an ‘operator model’ option where a third party supplies the equipment in partnership with the mini-grid developer.
An option is to partner with microfinance institutions to deploy the PUE facility. The panellists agreed that a significant challenge is the lack of credit assessment for these rural customers. Risk assessors must assess businesses’ entire value chains to understand the customers’ risk profile better. This lack of formal financial inclusion makes appliance financing for rural customers difficult. Resolving this challenge requires the adoption of a creative customer creditworthiness assessment. For instance, microfinance institutions can evaluate creditworthiness using electricity payment history rather than conventional credit risk assessment methods.
RMI is exploring other creative, Nigeria-specific models that address the dual goal of increasing mini-grid capacity utilisation and increased economic activities in the communities. The Electricity Hub will continue to collaborate with RMI to facilitate engagements with all stakeholders – operators, developers, financiers, donors, civil society groups, the government customers – to understand the peculiar challenges and identify the best models to deploy.
While the benefits of PUE are evident, the lack of market maturity and paucity of data on the best PUE financing models are critical challenges in Nigeria’s electricity supply industry. The panellists agreed that no single model could fully integrate productive energy use and mitigate developers’ challenges. However, there is a need for increased collaboration and partnerships between the government, mini-grid developers, consumers, and financiers to ensure constant learning, unlearning, and evolution in PUE provision. Finding that holy grail on how to increase mini-grid capacity utilisation will bring Nigeria closer to a sustainable power supply for its people.