Nigeria’s government-owned energy purchasing company, Nigerian Bulk Electricity Trading, has signed its first-ever power purchase agreements with the developers of 12 solar projects in Nigeria totaling 975 megawatts in what stakeholders describe as a utility-scale solar revolution. A solar power purchase agreement is a financial agreement where a developer arranges for the design, permitting, financing and installation of a solar energy system on a customer’s property at little to no cost, according to Washington, D.C.-based Solar Energy Industries Association.
The developer sells the power generated to the host customer at a fixed rate that is typically lower than the local utility’s retail rate. This lower electricity price serves to offset the customer’s purchase of electricity from the grid while the developer receives the income from these sales of electricity as well as any tax credits and other incentives generated from the system. The first of the 12 projects signed by the government-owned Nigerian Bulk Electricity Trading is for a 75-megawatt solar plant in Katsina state, to be developed by Pan Africa Solar, PV Magazine reported. The project is worth $146 million, and the power will be sold under a power purchase agreement of 11.5 cents per kilowatt hour.
Canadian Private Equity firm JCM Capital is partnering with Pan Africa Solar on the project, and forecasts construction to begin in late 2016. “This is the start of a solar revolution in Nigeria,” said Justin Woodward of JCM Capital, This Day reported. Other supporters of the Pan Africa Solar project include the African Finance Corporation, World Bank, Power Africa and Multilateral Investment Guarantee Agency, an international financial institution which offers political risk insurance and credit enhancement guarantees.
Some of the benefits of power purchase agreements for solar customers include no or low upfront capital costs; reduced energy costs; and limited risk, according to the Solar Energy Industries Association. The developer handles the upfront costs of sizing, procuring and installing the solar PV system. Without upfront investment, the host customer can adopt solar and begin saving money as soon as the system is operational.
Solar power purchase agreements provide a fixed, predictable cost of electricity for the duration of the agreement, meaning the price the customer pays rises at a predetermined rate. The developer is responsible for system performance and operating risk.
Developers have 12 months to get their financing in order after the projects are cleared by the local regulator, the Nigerian Electricity Regulatory Commission, Daily Trust reports. Construction work will be completed within 12 to 18 months following financial close.