Green growth: powering Nigeria’s future
By Frederik Veldman
Regional governments and the international community have identified that improved access to and delivery of electricity creates jobs and improves health and educational outcomes – particularly among the most vulnerable.
The Nigerian Infrastructure Advisory Facility, a DFID-funded programme implemented by Adam Smith International, has provided critical support to President Jonathan’s privatisation of the power sector in Nigeria. The president handed over the share certificates and licenses for 14 of the successor generation and distribution companies in September 2013, a major step forward as the government attempts to improve supply and reliability. In the post-privatisation era, however, there is a need recognised within both NIAF and the federal government that reform of the bulk power sector can provide only part of the solution in improving access to electricity.
Adam Smith International, through NIAF, is driving initiatives that address many of the issues raised in April’s article on solar power in Africa, and has designed a programme aimed at developing both public and private markets for solar in Lagos and northern Nigeria. Funded by the International Climate Fund (ICF) and DFID, the SolarNigeria Programme will facilitate the sustainable delivery of public services through solar (health clinics and school electrification) and a private sector component to expand the commercial market for solar.
Solar photovoltaics (PV) are well suited to the challenges of rural electrification in Africa. PV equipment is modular, providing a good fit for low-density populations. It can be located near the point of demand thereby minimising the amount of electricity lost in transmission. On top of this, rural populations currently pay high costs for light and power using kerosene, petrol and diesel. Add to this that costs of PV panels have fallen by 80% since 2008 and the savings are further enhanced. In addition, advances in LED lighting mean applications now require just one third of the power required by CFL lighting that has dominated the market over the last decade. Large parts of Africa, particularly northern Nigeria, receive very high solar radiation, producing power outputs through PV that are double that of Germany. All of these factors combine to create a compelling commercial proposition for PV market development.
The SolarNigeria programme is designed to address the key barriers to scaling the commercial solar market in rural Africa. A key challenge to market growth is that while solar can provide cheaper power than diesel, most of the cost must be paid at the outset. Overcoming the capital cost requires financing terms that are simply not available to most users. Access to finance has been a key factor in all solar markets that have scaled. By providing a partial risk guarantee mechanism, finance institutions and solar developers will be encouraged to enter the market and provide finance on commercial terms to meet latent demand.
This serves a dual purpose by also establishing a wider spread of solar technical skills that can be available to provide on-going maintenance. The reason why solar systems in remote institutions often fail is an absence of maintenance. This is driven by lack of demand (the institution has no money to pay for maintenance). It is exacerbated by the absence of skilled solar maintenance providers near many of the remote facilities. In order to be present, the solar technicians require a critical mass of business in order to be viable. The programme addresses this by scaling the private solar market in the cities, towns and villages near the remote schools and clinics. To scale those markets the programme will – in addition to the credit guarantees – provide small output-based aid grants to those financiers and solar vendors willing to develop the private market. At the end of the programme life cycle, a fully developed commercial market will be able to function sustainably.
Instances of solar markets that have launched and scaled successfully in Africa are rare. But SolarNigeria addresses all of the principal causes of failure: high cost of entry for users and providers, underdeveloped supply chains and a lack of incentives to undertake maintenance and operation contracts. The value proposition enabled by the programme is extremely strong: some users of solar would be cash flow positive immediately using finance on full commercial terms.
Using ICF funding of £37m, SolarNigeria has negotiated Lagos State co-funding of £15m, and expects private sector funding of £90m. This would make this the one of the largest off-grid solar PV programmes of its kind in sub-Saharan Africa. More importantly, the expected outcomes are more than 40MW of installed PV capacity, 3m tonnes of CO2 abatement, 2.8 million people using solar in the home, 11 flagship rural health centres benefitting from improved services, and more than 3000 jobs established in the supply chain.
The programme will demonstrate convincingly the enormous potential of solar PV to address the energy access challenges in rural Africa, and show what governments can do to create the right incentives for commercial market development and the impact that DFID is having in this critically important sector.