demand stimulation approach for mini-grids...mini-grid project 500k eur loan agreement ppp agreement...

European Union

Nigerian Energy Support Programme 11/19/2019

Demand Stimulation Approach for Mini-Grids

(Strategies to scaling Mini-Grids to Profitability)

European Union


Content• About NESP II

• NESP I Approach and Success Story

• Mini-Grids: Benefits and Potential

• NESP M & E efforts on existing Mini-Grids

• Demand Stimulation Approach

• Barriers and Challenges

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About NESP II• Technical cooperation programme.

• Funded by European Union and German Federal Ministry for Economic Cooperation and Development (BMZ).

• Implemented by Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ) in collaboration with Federal Min. of Power (FMP).

• Aim: Enabling and fostering investments in renewable energy (RE) and energy efficiency (EE) (incl. clean cookstoves).

• Budget: EUR 33M – EUR 20 M (EU) and EUR 13M (BMZ).

• Implementation period: 2018 – 2020.

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Advice to public sectorFederal & States

Advice to Developers & Investors

Establishing an enabling framework for private investment

Establishing an enabling framework for private investment

FRAMEWORK

• Strategies• Regulation• Grant schemes

PLANNING• Data management• Electrification plans

PROJECTS

• Scalability• Monitoring & Evaluation • Investment • Access to Finance

Promoting expansion of Mini-Grids Projects

NESP Approach

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NESP 1 Success Stories

• Supported the development of six (6) pilot commercial mini-grids (using PPP approach) and provision of TA for developers

• Supported development and adoption of Mini-Grid Regulations

• Supported Private Developers on Access to Finance through Bettervest

• Supported Electrification Planning and Central Data Management System (CDMS)

• Support on institutionalize cook-stoves

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Mini-grid PPP model

Grant 50% NESP

Equity 10% Developer

Debt 40% Bettervest

Mini-grid project

500k EUR

Loan agreement

Loan agreement

PPPagreement

PPPagreement

Developer does O&M, retailingFee for service (~150 NGN/kWh)

Tariff covers (re-)investment costs

Developer does O&M, retailingFee for service (~150 NGN/kWh)

Tariff covers (re-)investment costs

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Scope of technical assistance to developers

Site Identification

Resource Assessment

Resource Assessment

Demand Assessment

Demand Assessment

Agreement with villageAgreement with village

System DesignSystem Design

Business PlanBusiness Plan LicensingLicensing

Source Finance

Installation and O&M

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What is a Mini-Grid?

• A mini-grid is an integrated local generation and distribution system with installed capacity below 1MW, capable of serving numerous end users ‐independent of the national grid.

• It may be ‘isolated’ with no link to ‘interconnected’ any other network or ‘with the main grid such that energy exchange is possible between them.

NERC Mini-Grid Regulations, 2016NERC Mini-Grid Regulations, 2016

A 100 kW Mini-Grid in Tungan-Jika community in Niger State is expected to provide electricity to 765 households and about 100 businesses. (Source: Nayo Technologies Ltd.)

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Mini-Grid Benefits

• Most reliable solution (24/7) for large off-grid (~3,000 population) areas far from main grid, and clusters with economic potentials

• Can be isolated (off-grid) or interconnected (for areas that under-served)

• Can support productive, commercial, institutional and residential users

• Can operate with smart metering and remote technologies

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Source: NESP, “Preliminary analysis for off-grid PV capacities for the whole of Nigeria”, 2015

RESULTS OF PRE-MODELLING FOR NIGERIA

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Off-grid PV mini-grid potential in Nigeria

• Huge potential… ~26M potential users ~8000 viable sites ~3.5 GW of PV ~4 billion USD

• … requiring local and foreign investment.

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Monitoring & Evaluation efforts for Mini-Grids

• Ensure continual existence, reliability and sustainability (with designed M&E KPIs) of the mini-grids

• Ascertain the extent capacity utilization (project vs reality) of installed Mini-Grids

• Determine strategies and approach for Demand Stimulation

• Lessons learnt can be channeled to improve existing and new project developments and sector wide frameworks.

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Key performance indicators (KPIs) for M&E

GenerationPVBatteryDiesel generatorPowerhouse

DistributionFeeders and grid linesConsumptionPower quality

TechnicalKPIs

RevenuesNo. of connectionsTariffSales

CostsCAPEXOPEXReinvestmentsFinancing costs

FinancialKPIs

DirectAccess to energyConsumer satisfactionUsage timesProductive use

IndirectEducationEmploymentEconomic uplift

SocialKPIs

EnvironmentalEIA/ESIARecycling and disposal

LegalContractsGrant agreements

Otherreporting

SafetyStandards and codes

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Mini-Grid Users: Expected Vs. Reality

User Category Expected Utilization

Productive/Anchor Load Up to 60%

Commercial 20-30%

Residential (HH) 10 – 20%

• The Productive Users are critical to scalability and profitability of the Mini-Grid.

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Problems with some existing Mini-Grids

• Wrong Village Selection (may be due to political reason)

• Poor Demand Survey

• Oversized systems

• Poor Community Engagement

• Low revenue - inadequate economic activities and productive users (anchor loads)

• Huge Capex Investment

Impacts the revenue streams and profitability of Mini-Grids

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Need for demand stimulation efforts in Mini-Grids• Increase capacity utilization (consumption of electricity) by improving existing

productive use and small business activities within the community

• Increase connections by identifying and capturing potential customers and businesses who are currently not connected

• Identify and plan for interventions that may be required to compliment and boost consumption

• Identify potential for scale up (additional generation capacities, additional customers to reach, etc.)

Demand stimulation efforts improve revenue generation, support achieving commercial viability and sustainability of Mini-Grids

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Need for demand stimulation: Case Study

1 2 3 4 5

150250

800600

216122 119

502290

143

PotentialConnected

1 2 3 4 5

50 50

85101

508 7 23 15

7

InstalledPeak

No. of actual connections are at times significantly lower than registered no. of customers (who showed interest in connecting)

Low connection rates

Demand uptake is at times significantly below forecasted levels. Peak loads are much lower than installed capacities showing lack of productive users

Low capacity utilization factors

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Introduce equipment and appliances for Productive and Commercial Users (e.g. mills and motors)

• Identified suppliers of more efficient grinding mills and electric motors

• Operators could provide the equipment to the customer for a testing period to compare with existing equipment e.g. Hammer mills tested for 2 weeks by milling business

• Operators provided customers with electric motors, fans, clippers, fridges, blenders, washing machines, sewing machines on a payment plan

Approach to Improving Demand – I (New equipment)

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Increasing number of connections and promoting local activities

• Enumerating customers not connected, their power and equipment needs

• Providing meters to connect the customers

• Offering tariff plans to ease customers into using and paying for electricity

Approach to Improving Demand – II (Increase connections)

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Encouraging new, anchor businesses e.g. ice block making, cold rooms, telcos, pure water business, palm processing to connect to mini-grid electricity

Approach to Improving Demand – III (Find anchor loads)

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Demand stimulation

Achievements Ongoing/Upcoming Activities

• Developed initial strategy for stimulation of demand at one NESP I supported site

• Support in installation of electrical appliances to stimulate demand

• Support to operators in increasing connections on site via provision of meters

• Consolidation of interventions and analysis

• Replication of strategy on other sites

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The KeyMaker Model enhances a mini-grid company to expand from generating and offering one service - electricity- together with another complementary manufactured good In two different markets.

The Mini-grid firm:

1. Operates, distributes and retails reliable electricity

2. Employs small local farmers/manufacturers/fishermen

3. Further manufactures the good (to a certain optimal stage) using own electricity-reliant machines.

4. Transports the manufactured goods from rural area to whole-sale urban market.

Key Maker Model: Social Entrepreneurship Opportunity

Source: KMM Fundamentals

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Benefits of KMM

Enables rural manufacture

Encourages the processing of indigenous raw materials.

Creates additional employment opportunities in the village.

Creates immediate and steady revenue to some local families.

Promotes the growth of small-scale industries in rural areas.

Lowers the spread of the informal sector in the rural areas.

Fosters national industry with small-scale rural manufactured goods.

Promotes traditional arts and crafts and thus preserves rural culture.

The KeyMaker Model is an approach to electrify rural areas while enabling rural manufacturing and successful trading of goods from deep rural areas of developing countries into competitive national and international markets.

$ Y+1

$ X+1

Price stability ensured for farmers The mini-grid developer becomes an off-taker of the local farmers’

produce and purchases the crops at more competitive rates

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Mini-Grids starts scaling in Nigeria

~30

100

2501,000+

As at 2018

(Beyond 2020)New projects are shaping discussions…time to drill down to profitability through demand increase.

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Barriers/Issues/Challenges• Access to Finance for Scaling: Profitability is in economy of scale. Grants,

Low Concesssional Loan, other financial instruments

• Balance between tariff adjustments, revenue generation and financing repayments to sustain customer base and ensure long term sustainability

• Equipment Financing for productive and commercial users: Who finances/purchase and sells equipment and appliances to stimulate demand within the community e.g. refrigerators, motors, milling machines?

• Low awareness on the benefit of the Mini-Grid solution and benefits on a National Scale

European Union


Thank you

Olumide FatokiSenior Advisor, Sustainable Energy Access (Off-Grid)

Nigerian Energy Support Programme (NESP)[email protected]

@[email protected]

mailto:[email protected]

Slide 1ContentAbout NESP IINESP ApproachNESP 1 Success StoriesMini-grid PPP modelScope of technical assistance to developersWhat is a Mini-Grid?Mini-Grid BenefitsRESULTS OF PRE-MODELLING FOR NIGERIAOff-grid PV mini-grid potential in NigeriaMonitoring & Evaluation efforts for Mini-GridsKey performance indicators (KPIs) for M&EMini-Grid Users: Expected Vs. RealityProblems with some existing Mini-GridsNeed for demand stimulation efforts in Mini-GridsNeed for demand stimulation: Case StudyApproach to Improving Demand – I (New equipment)Approach to Improving Demand – II (Increase connections)Approach to Improving Demand – III (Find anchor loads)Demand stimulationSlide 22Benefits of KMMMini-Grids starts scaling in NigeriaBarriers/Issues/ChallengesThank you

demand stimulation approach for mini-grids...mini-grid project 500k eur loan agreement ppp agreement...

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