REA’s Off-Grid Solutions Transforming MSMEs In Nigeria

The Energizing Economies Initiative (EEI), launched by federal government as part of its wider Micro, Small, Medium Enterprise (MSMEs) programme, appear to have started yielding the desired results in few clusters where the Off-Grid Solutions are operational, CHIKA IZUORA writes.

It is no longer in doubt that boosting Small and Medium Enterprises, SMEs enhances employment opportunities more than large firm growth because SMEs are more labour intensive thereby subsidizing SMEs may represent poverty alleviation tools. By promoting SMEs, Nigeria can make progress towards the main goal of halving poverty level by year 2020 which implies reducing poverty by half and becoming among 20 largest World Economies, going by her Vision 20:2020.

Entrepreneurial development is therefore important in Nigeria’s economy which is characterized by heavy dependence on oil, low agricultural production, high unemployment, low utilization of industrial capacity, high inflation rate, and lack of industrial infrastructural base. These constraints limit the rate of growth of entrepreneurial activities in Nigeria. The role of SMEs, in the national economy cannot be underestimated as their impact is felt in greater utilisation of local raw materials,employment generation, encouragement of rural development, development of entrepreneurship, mobilisation of local savings, linkages with bigger industries, provision of regional balance by spreading investments more evenly, provision of avenue for self employment and provision of opportunity for training managers and semi-skilled workers. The vast majority of developed and developing countries rely on dynamism, resourcefulness and risk tasking of small and medium enterprises to trigger and sustain process of economic growth.

Unfortunately, electricity which is the driver of any meaningful economic activities, has eluded the country as Nigeria has over the years suffered inadequate supply of power and this has hampered the growth potential of businesses in the country.  A recent research report by IProject, indicates that the current electricity crises in the country were costing the SMEs over US $686.4 million of annual sales. The SMEs continued to record a huge loss day by day as a result of poor electricity supply. These have been partly blamed on market and state failures, which have led to the poor electricity supply.

In the interim, a lot has equally been said with regards to the appalling state of Nigeria’s epileptic power sector. Energy consumers do not get electricity supplied to them because the local utility companies do not get power transmitted to them from the electric grid. The managers of electric transmission are quick to accuse the generating stations of insufficient generating capacity.

The report believes that modern energy services can impact on the development of SMEs to a great extent, beside other factors that has negatively affected the sector which include gross undercapitalization, decrepit infrastructural services, high start-up costs, corruption, and government indifference.

A particular finding revealed the high cost of providing back-up energy (partly infrastructural) for SMEs which sometimes is as critical as three times the cost of publicly supplied electricity.  In Nigeria and perhaps generally, SMEs classification have been done on the basis of capital investment and employed labour force while other criteria could be the annual turnover or gross output and until very recently, energy was rarely cited as one of the problems militating against the performance of SMEs in Nigeria and elsewhere.

Several policies have been formulated by government at all levels (Federal, States and local government), to enhance growth and development of the SMEs as they contribute significantly to the Gross Domestic Product, GDP of the nation.  These policies and objectives can only be realized when there is adequate power supply to the small business. Currently in Nigeria, managers of small business spend huge sums in procuring generating sets, fuel and the maintenance of the generators to operate their business successfully. This has however skyrocketed the operational cost and reduced their performance.

Energizing Economies Initiative
Therefore, the launch of Energizing Economies Initiative (EEI) which targets micro, small and medium enterprises (MSMEs), has come as a major relief to that business segment.  The aim of the EEI is to increase energy access and economic growth by assisting private sector developers provide clean, reliable and affordable power to economic clusters across Nigeria; such as markets, shopping complexes and agricultural/industrial clusters. The Rural Electrification Agency (REA) is tasked with assisting private sector developers implement sustainable off grid power solutions for economic clusters across the country. Speaking recently during the inspection of the Iponri Market Solar Electrification Project, under the EEI platform in Lagos, Mrs. Damilola Ogunbiyi, Managing Director of the Nigerian Rural Electrification Agency, REA, explained that the primary objective of agency is to increase electricity access to rural and underserved clusters across the country.

To achieve this objective, the REA has developed the off-grid electrification strategy, focusing on decentralised off-grid solutions and captures various elements, like Solar Stand-alone Systems. LEADERSHIP Sunday recalls that in 2017, the Nigerian Electricity Regulatory Commission (NERC) adopted the Regulations for Mini Grids, which provide a comprehensive setting for mini grids. The regulations provide three thresholds for authorization ranging from mini grids below 100kilowatts, KW, which does not require a permit, or between 100kW to less than 1 Mega Watt, MW which requires a permit and above 1 MW requiring a permit. The regulation is believed to have created comfort for private sector.

These systems are designed to provide critical services for hardest-to-reach customers in the most remote and rural communities in the country and it promotes the development and rollout of solar stand-alone systems to remote off grid customers with low load demand or low ability to pay, low population and provides critical basic services, cheaper than kerosene, petrol generators and other alternatives.

In addition, the systems are easily deployable and offers a pay as you go billing system for customers thereby creating opportunity for job creation within the communities. Another component of the initiative which is the Solar Mini Grids, provides electricity access to off grid communities across the country. According to Ogunbiyi, Nigeria has the biggest and most attractive off-grid opportunity in Africa, and one of the best locations in the world for minigrid, but she stated that due to the country’s’ strong entrepreneurism, millions of commercially viable businesses are powered with expensive and/or unreliable power.

“Consequently, there are high densities of power use, large latent demand, and a strong willingness to switch to more effective alternatives. These communities are usually selected based on population, number of households, commercial activities and productive uses in order to promote economic activities and interconnection potential. Typically, a mini grid under this programme will have a capacity of less than 1 megawatt,” she said.

One of the key elements of the Nigerian off grid electrification strategy is the use of data to develop projects. The REA has generously created an energy database which is a dynamic tool for future growth.

In addition, the Energizing Education Programme, EEP, another module of the programme would help developing off grid independent power plant (IPP) projects for thirty 37 federal universities and seven university teaching hospitals across the country.

LEADERSHIP Sunday gathered that the socio-economic benefits of the project include, Enhancement of education and systems at tertiary level, Access to electric power in rural communities- Promotion of a decentralised, multi-demographic approach to infrastructure delivery and Development of Renewable Energy Projects.

The objective is to improve educational quality in the country through Solar hybrid and gas power generation opportunities. The programme also projects street lighting for security, upgrade of distribution network and the training centre for renewable energy ate each university.

The EEI constituent, majorly have its focus on clusters of high economic activity and potential for growth such as: Markets, Shopping, Plazas/Complexes and Industrial Clusters. The EEI programme also aims to shift to a decentralized approach to electrification that is economically viable, demand–driven, market–oriented and Private sector focused. The Initiative is focused on providing efficient, clean and sustainable power tor catchment areas that have high growth impact on the economy.

It is projected under the EEI to assist over 80,000 shops within a year, empower over 340,000 micro, small and medium size enterprises, create over 2,500 jobs with the initial 16 economic clusters while serving over 18 million Nigerians. This initiative is already transforming businesses across the country with the steady power supply increasing economic activity, spurring business growth, fostering job creation and enhancing the business experience. Another benefit of the initiative is that it is expected to reduce carbon emissions worth 25,000 metric tonnes annually from the use of clean power supplies by the beneficiary economic clusters.

In his testimony during his inspection of the Iponri Market Solar Electrification Project Minister of Power, Works & Housing, His Excellency, Babatunde Raji Fashola, said, “The people that drive our economy deserve reliable electricity. They are in markets, they are in shopping malls, they are in corners, they are in small shops. They constitute the best in any economy. This administration understands energy is an important component of their business. Now the solution that has been deployed has reduced the cost they incure to run their businesses.

“We are now also implementing, a policy that no government before us committed to, developing energy through mini grids. Iponri market is now being powered by solar. This solution is also in Sabon Gari market, Kano state and it is coming up in many other market”.

Before the Iponri project, REA has inaugurated the first phase of the EEI in Sabon Gari Market, Kano, where solar powered systems were used to provide electricity for Over 500 shops in the market. Other markets to be captured in the scheme as the Ariaria Market in Aba, Abia State, Somolu Printing Community and Sura Shopping Complex, both in Lagos. Sabon Gari Market was one of the pioneer markets under the EEI, because of its size over 12,000 shops, out of which 500 had been electrified using solar energy.

REA in partnership with Sabon Gari Energy Solutions Limited, a private sector power company, and Rensource Energy, have successfully connected 500 shops in the market as part of the first phase of deployment. These shops are already benefiting from stable, affordable and reliable power during market opening hours. The decentralised solar system is equipped with remote monitoring capability, smart meters as well as durable and long-lasting lithium phosphate batteries to support night time load.”

Developing the first and largest virtual power plant in Africa is extremely exciting; when the project is completed, the 1.3 megawatts standalone solar system project will generate clean and sustainable energy to over 12,000 SMEs. The payment platform and collections were facilitated by Paga, through its local Kano-based agents as well as its digital platform to enable mobile payments. In Sura market Lagos, REA, in partnership with Solad Power Holdings, is drawing power from Island Power Plant, according to Omotunde Hassan, who is a project developer at Solad.

Currently, power is supplied to shop owners in the market for 24 hours, under a tariff of N50 per kilowatt hour as agreed through a seamless payment plan.
“It is essentially 1.5MW operating from the Island Power where we have taken bulk power supply. Every shop owner has an individual meter to track their usage. Power to the shop owners is 24 hour every day and our return is over 20 years while shop owners are charged N50 per kilowatt hour,” said Hassan.

He further stated: “Island Power Plant has excess power and we are able to off take from them to Sura. If the market does expand, we can increase the capacity. So far, we’ve had only 12 hours of outage in the last two months and that was during the test-run of the systems. “Payment is prepaid and there are no issues because it is transparent and seamless to recharge meters. The shop owners have control over the power they use.”

In her testimony, Mrs Bunmi Ajayi, Chairperson, Sura Market Shop Owners Association, said that the initiative was timely for the survival of Small Micro and Medium Enterprises (SMME’s) in Nigeria. “Before the company came in here to tell us about the tariff and other plans, we have been grappling with darkness and inefficient billing system.

“We have been looking for a way out trying, as small scale businesses, on what we can do to salvage the situation. This is killing our businesses. Until, we got a call about government initiative. I didn’t believe it at first so I requested for a letter. Until an official letter to that effect was brought and we started the journey together,” she said.

She said that before the EEI project, there was noise and air pollution as everyone in Sura market was using generators. “In my company, we had two generators but they are down now and we are looking for buyers for them. This is just too good to believe. It is a dream come true,” she added.

Ajayi said that the tariff under the new IPP management as a private sector driven project was commendable and preferable than Disco tariff. She said: “If you look at the tariff by taking into consideration, generator repairs, fuelling of generators and getting security officials to ensure your diesel is not stolen, you will be talking of a tariff of N120/kw.” The chairperson said that within a two months period of the pilot scheme, businesses have grown tremendously due to uninterrupted power supply.

“Before, I had about 30 staff members, but now we are close to 50 employees. The only constraint now is space but if we have enough space, we will employ more hands. We are now allowed to do what we know how to do best which is job creation and wealth creation,” she said.

Like every other venture, promoting the mini-grids initiative is coming with some challenges. There are quite a number of challenges facing the promotion and scaling up of mini grids in the country, which according to REA, managing director, include funding constraints.

Access to finance and funding for projects remains a challenge for off grid private sector developers around the world, she said, adding that in most cases the projects have a viability gap that requires support from financial institutions, government agencies, state governments and donor agencies.
“We are addressing the challenge through a number of interventions, the Rural Electrification fund, Nigerian Electrification Project, NEP, with the World Bank and also working with the AFDB”, she said.

LEADERSHIP Sunday gathered that the World Bank has approved the sum of $350 million for increasing electricity access in Nigeria, and the Banks’ Investment in Nigeria’s Off-Grid Electricity Market Is One of the Largest Ever. The NEP has a variety of funding windows, providing $150 Million for mini grids, $75 Million for SHS and $105 Million for University & Hospital Power Systems across the country.

Ogunbiyi said that within the next five (5) years, the REA is targeting 300,000 households and 30,000 SMEs served by 1000 mini grids across the country in collaboration with the private sector. While on the SHS, the REA is targeting 1.5 million households and micro-enterprises in the next five years.

She said that reliable data and analysis is crucial to the success of Off grid projects, saying that apart from having a dedicated team for collecting energy usage and baseline data, REA is working with Odyssey to provide an online platform for developers to capture data and also model demand, technology and so on.

Leave a Reply