Business Opportunities and Challenges for Solar in Nigeria 7 th March, 2017 Presented by: Godwin Aigbokhan Executive Secretary, REAN
About Us An Umbrella for the other associations of renewable energy sector in Nigeria. Providing a unified platform for all Renewable Energy Companies, practitioners, professionals and promoters to speak with one voice. Contribute to the development of (Private Sector friendly) policies. REAN will work to develop the market and improve the environment for its members. The Association was formally launched on November 24 th, 2016. Our Vision To promote strategies that will improve the contribution of renewable energy up to forty percent (40%) of the National Energy Mix by 2030.
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Nigeria Facts and Figures 6.50% 19.80% 63.60% 10.00% 0.10% 10.00% 0.10% 6.50% 63.60% Chart Title NOMINAL GDP SPLIT Q1, 2016 19.80% Source: National Bureau of Statistics Agriculture Services Mining National Electrification Rate : 55% (about 93 Million live off-grid) Manufacturing Oil and Gas Urban Electrification: 55% Rural Electrification: 35% Land Area : 923,768 km 2 Major Exports: Oil, Agric. Products GDP Per Capital: 3,005 USD (2013) GDP: $480Billion (2015) $950Billion (2030) Population: 180 Million (2015) 260 Million (2030) Middle Class Population: 46 Million Population relying on Generators 60 Million World Bank (WB) EODB (2016): 169th (Out of 190) WEF GCI (2016): 127th (Out of 138) Energy Shortages are common even though Nigeria is a major Oil and Gas Exporter
Nigeria - Power Sector Reform Electric Power Sector Reform Act 2005 State Utility unbundled to form 11 Distribution (DISCOs) and 7 Generation Companies (GENCOs). Nigerian Electricity Regulatory Commission (NERC) 2010 Road Map for Power Sector Reform Nigerian Bulk Electricity Trader (NBET) formed 2008 Nigerian Integrated Power Project (NIPP) $5 Billion State Investment. Solar IPPs 2016 2013 PPAs signed with 14 developers of 1.12GW Solar IPPs Privatization Sale of DISCOs, GENCOs and 7 NIPP Generation Companies
Nigeria Macro Analysis (Energy Situation) LOW INVESTMENT CORRUPTION POOR PLANNING & MAINTENANCE Uncompetitive Local Manufacturing Poor Macro Economic Resilience Electrification Rate Low Availability Self Generation Losses 151kWh/Capita 6.2 Hours (Average) 2013-2015 8-14 GW of Installed Captive (US$ 0.40 0.75/kWh) 25-30% of Installed Capacity (12GW) reaches end user Low Investment Unemployment 10.5 GW of installed On-Grid Capacity is Gas Fired and 1.9 GW of On-grid Capacity is Large Hydro
Nigeria Macro Analysis (Energy Situation) 19% Value chain (Total Transmission and Distribution) Losses due to outdated infrastructure Other Issues Include; Limited Grid Wheeling Capacity and Transmission Network (Covers only 40% of the country and mostly in the South) Disruption to Gas supplies Energy Theft Sources: PwC Report; Powering Nigeria for the Future, 2016
Price Cost of Generation (N/kWh) Nigeria Macro Analysis (Energy Costs) 250 200 150 Cost of Generation (Using 2016 Naira Prices) 140 120 100 80 60 40 20 0 Source: EnergyDatar Diesel, 98 Fuel Petrol, 118 Solar, 15.5 Petrol and Diesel Price: Nigeria 2005-2016 Grid Electricity moving towards cost reflective Tariffs (Ikeja DISCO) Tariff Class MYTO 2012 (N/kWh) Annual Total Spend on Fueling Generators (2012): 1.6 Trillion Naira ($5.2 Billion) MYTO 2015 (N/kWh) Residential R1 4 4 Residential R2 12.45 21.8 Residential R3 21.84 36.49 Residential R4 21.84 36.92 Commercial C1 16.56 28.42 Commercial C2 20.3 37.74 Commercial C3 20.3 38.14 Industrial D1 16.38 28.68 Industrial D2 + D3 21.28 38.85 100 50 Annual Total Spend on Fueling Generators (2015): 3.5 Trillion Naira ($11.5 Billion) 0 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Years Petrol Diesel Annual Total Spend on Fueling Generators (2016, projected): 5 Trillion Naira ($16.4 Billion)
Nigeria Micro Analysis (Household Energy Spend) Over 23 Million Households and 17 Million SMEs rely on Generators for an average of 8 hours/day for 25 days/month PETROL GENERATORS DIESEL GENERATORS Source: National Bureau of Statistics 0.5kW 2kW 5kW 20kW Average Monthly Fuel Spend: N 12,000 ($39) Average Monthly Fuel Spend: N 25,000 ($82) Average Monthly Fuel Spend: N55,000 ($180) Average Monthly Fuel Spend: N 300,000 ($ 984) According to the IEA, Nigeria accounts for 75% of back up power generation from diesel generators in Africa (with annual fuel costs of $2Billion in 2012). Although 20% occurred in Residential sector.
Power Sector Key Regulations A B C D E IPP Off-Grid Generation for Clusters Isolated from DISCO/Nat l Grid Pros : Cost reflective tariff (Subject to NERC) Cons : Separate Distribution (IEDN) SPV Req d Contracts: PPA (IPP & User/IEDN) Connection Agreement (IPP & IEDN) Independent Electricity Distribution Network Pros : No Transmission losses. Cons : CAPEX Costs, Highly regulated Req d Contracts: PPA (IPP & User/IEDN) Connection Agreement (IPP & IEDN) Resale Agreement Fuel Supply Captive Generation Generation for Self-Use <1MW: No Permit req d >1MW: Permit req d Sale>1MW: License Pros : Easier to procure permits Cons : Tariffs could be higher than Grid tariff Req d Contracts: PPAs are only required by the regulator when the Permit holder outsources power generation to an IPP or intends to sell generated power Mini-Grid (Draft) Isolated / Connected to DISCO Network 0-100kW: No Permit 100kW-1MW: Permit Pros : Cost reflective tariff (Subject to NERC) Cons : DISCOs not obligated to cooperate Req d Contracts: Fuel Supply (where applicable) Customer Contracts (Operator & User) MG Agreement (Operator, DISCO & Community) Embedded Generation Connected to & Evacuated through DISCO Network Pros : Distribution Infrastructure, Low losses Cons : 5 20 MW Limit, No Guarantees (DISCO) Req d Contracts: PPA (IPP & DISCO) Connection Agreement (IPP & DISCO) Fuel Supply Agreement
Power Sector Key Policies for RE Policies & regulations (completed and ongoing) lowering investment risks & improving market stability Rural Electrification Strategy & Implementation Plan 2015 Strategy targets 75% Electrification (National) by 2020, 90% by 2030 and 100% by 2040 Mini-grids and Standalone Systems are highlighted Makes provision for the establishment of the Rural Electrification Fund (REF) REF to subsidize $150Million cost of initial Phase of Implementation Plan which would focus on providing 128MW through 28 RE projects at tertiary institutions National Renewable Energy and Energy Efficiency Policy Renewable Energy Feed In Tariffs 2015 2015 2016 Consolidates the objectives of previous policies in the sector (between 2001-2012) Allows for project developers to apply for loans under REF. 5 year Tax holiday for RE equipment manufacture & dividend from RE Investment RE equipment for projects exempted from Custom duties for 2 years Govt to assist in Land allocation to equipment manufacturers & projects Provides a tariff structure for 1-30 MW Off-grid excluded 20 year PPAs. Payments are for energy delivered DISCOs & NBET are obligated to buy from RE IPP (Priority Access) FITs to be reviewed every 3 years Solar FIT: $0.177/kWh 14 Companies signed PPAs for Solar Projects in July 2016 for $0.115/kWh National Renewable Energy Action Plan Targets 30% of 30 GW on-grid capacity from RE by 2030 Lists specific measures for Ministries, Departments and Agencies Consolidates incentives from all prior policy documents and updates the FIT Policy
RE - Potential Enormous Potential Low Exploitation. Hydro Solar Wind Bioenergy Contributes 15% of On-grid Energy Mix No contribution to On-Grid Energy Mix No contribution to On-Grid Energy Mix No Contribution to On-Grid Energy Mix Potential: 14.75GW Current exploitation: <2GW (Small & Large) Largest Project: Kianji (0.8GW) Potential: 3.5 9kWh/m²/day Current Exploitation: 115 MW of off-grid PV (dispersed) Largest Project: New IPPs (Planned) Potential (mainland): 2 4m/s @ 10m height Current Exploitation: None (Electronic WIS Available) Largest Project: 10 MW (Planned) Potential: Agric Residue,MSW, Animal Residue, Current exploitation: Meso Scale Largest Project: PRESCO Biogas
Nigeria Solar Irradiation Nigeria could generate 207,000 GWh/annum with Polycrystalline Solar PV (Yield of 1,500Wh/Wp per year) from just 1% of its >920,000km 2 land area Irradiation ranges from 3.5 KWh/m2/day in coastal regions to about 9.0 KWh/m2/day in Northern borders
Market Segments $50 Million of Solar PV Modules Imported from China ; January 2015 to August 2016 Pico Solar Products Stand Alone SHS Urban Roof Top Mini-Grid Utility Scale Solar PV
Off-Grid Market Opportunities Mobile PAYG/ SHS Mobile Money Accounts: 8.9 Million (Dec. 2014) Over 130,000 Standalone SHS (2015) Pico Solar 300,000 Households using PSPs (2015). Rising Prices of Household Kerosene. Mini-Grids. Could electrify 14.3% of population. 6 projects financed by Bank of Industry Telecomms. >12,000 Off grid Towers and 10,000 Towers connected to unreliable Grid which could be anchor clients Sources: Bloomberg New Energy Finance; Solar Nigeria Programme, Mentis D. et al
Off-Grid Challenges Local Currency Volatility; FOREX Scarcity Bias from history of sub-standard products/ Poor awareness of Solar products/strong Generator use culture; No Industry standards; Grid code compliance for Mini-Grids Poor Local Financing Ecosystem; Lack of credit risk assessment for customers; No Consumer Finance Schemes Inconsistent HS Code Application by Customs and Port Authorities; 25% duty on Batteries (Accumulators) like Lead Acid, Lithium Ion etc. Absence of Aggregated Market Data for the sector
Off-Grid Market: Good News 1 2 Solar Nigeria Lagos Solar Project Nova Lumos 172 Secondary Schools and 11 Primary Health Centers ranging from 5kW to 25kW Raised $90million from OPIC for PAYG SHS. Alliance with MTN for distribution 3 BOI s Off Grid Solar Energy Fund 4 IFC/DFID Solar Nigeria Program 5 $28 Million appropriated for offgrid projects in 2017 Federal Budget $3.1 Million for off-grid project developers Over $40 Million available for rooftop PV between 100kWp to 3MWp for SMEs, Commercial and Industrial clients $10.6 Million for Colleges, Hospitals and Micor-grids $13.8 Million for Solar Boreholes and streetlights
On-Grid Market Opportunities On-grid Tender Presents an opportunity for fair market entry for interested investors Urban Rooftop. Growing demand from Schools, Hospitals, Petrol Stations, Private Homes
On-Grid Challenges Inadequate Transmission Infrastructure; No net metering Policy or Regulation; Liquidity Challenges in the Nigerian Electricity Supply Industry; FOREX Shortages; Financial viability of DISCOs; Government is yet to sign the Put Call Options Agreement with Solar IPPs Limited local O&M and Asset Management skills for Utility scale plants Insecurity and Poor infrastructure in remote areas; Expensive logistics for moving equipment in country (South to North) Government is targeting a tariff less than $0.10/kWh in Tender round in spite of high business costs
On-Grid Market: Good News 1 Expanding Transmission Capacity Grid wheeling capacity now 7GW, 10GW Targeted for 2019 2 NREAP 2016 Government is determined to diversify the Generation Mix by relying on regional advantages 3 Assurance Guarantee for GENCOs 4 Preferential Access to FOREX $2.2 Billion set aside to address liquidity challenges in NESI and pay GENCOs IPPs are guaranteed a preferential access to FOREX and fewer capital restrictions $10.6
The Chinese use two brush strokes to write the word 'crisis.' One brush stroke stands for danger; the other for opportunity. In a crisis, be aware of the (challenges) --but recognize the opportunity. JFK
Many thanks for your attention Suggestions and Feedback are always welcome Email: execsec@rean.com.ng; geaigbokhan@gmail.com Phone: +2347063141828