3 factors hindering solar mini-grid development in Nigeria —Report

July 21, 2020
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Import restrictions, financing and “time consuming approvals” are three factors hindering the development of solar mini-grid development in Nigeria.

This is according to a State of the Global Mini-grids Market Report 2020, published by Bloomberg (BNEF) and Sustainable Energy for All (SEforALL).

Damilola Ogunbiyi, CEO of Sustainable Energy for All (SEforALL), said the report, “This research offers critical insights for all mini-grids stakeholders that can help the market reach its full potential and deliver Sustainable Development Goal 7 progress.”

She said, “Now, more than ever, we need a thriving mini-grids sector that can power critical infrastructure and give access to the 789 million people worldwide who lack electricity.”

Commenting on import restrictions in Nigeria the report states that, “Nigeria offers tax exemptions on some clean energy equipment, but developers complain these are not being effectively implemented. They also cite regular issues with bringing imports entirely into the country.

“Under the rules, PV modules with bypass diodes must pay a 5 percent import duty plus 5 percent VAT while the import duty on solar cells without bypass diodesis 0 percent.

“This is because the government wants to encourage locally assembled PV modules. However, these efforts have largely failed; no developer the authors spoke to has used locally assembled PV modules.

“Batteries are taxed a total of 27.5 percent, broken up as 20 percent import duty and 7.5 percent VAT.

“There are also high transaction costs related to customs handling. Merchandise can often sit in port for weeks, at high cost to the importer. Developerscomplained about delays in removing merchandise from port after it arrives. Some developers reported they typically budget an additional 1–2 percentof the total value of imported goods as settlement fees to clear the goods quickly.”

On financing, SEforAll and BloombergNEF in the report noted that, “Commercial banks have thus far been largely absentfrom Nigeria’s mini-grid market. Developers regardcommercial bank debt as too costly and too inflexible, with interest rates offered of reportedly over 25percent and tenors lasting just two years, at best.

“There is no project financing product available inNigeria allowing vendors to borrow solely againstpredictable cash flows…

“Instead,local banks require developers to provide physicalassets as collateral. Even then, lenders tend not toaccept solar equipment as collateral but instead require that borrowers own real estate that can beused for that purpose.

“As a result of all of the above, developers have todate mostly financed projects off their own balancesheets, either in US dollars for multinational corporations or in Nigerian naira in the case of local developers. The Nigerian Bank of Industry (BOI) is the only institution able to provide naira-denominatedfinancing for mini-grid developers under its ‘6 billion naira’ solar fund.”

On the issue of approvals, the report further notes that “Nigeria’s failure to provide stable grid power has fertilized the ground for strong off-grid development. In 2017, the country introduced a mini-grid regulation managed by the Nigerian Electricity Regulatory Commission (NERC) supporting isolated and grid-connected mini-grids between 100kW and 1MW in size.

“To operate, these must obtain mini-grid permits from the NERC. Mini-grids below 100kW must register with the NERC, but obtaining the permit is optional.

“If Nigeria’s central grid is later extended to the site of the mini-grids, developers are to be paid for their depreciated assets plus any operating revenue generated over the prior 12 months.

“These regulations are regarded as robust and have signaled the government’s commitment to distributed energy systems.

“Developers have responded but most have pursued smaller projects because building projects above 1MW often requires time-consuming approvals,” such as a generating company licence.

The report includes case study analysis on six locations: the state of Bihar in India, Indonesia, Nigeria, the Philippines, Tanzania and Uganda.

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