Undergrid Mini-grids: A promising solution for powering underserved Nigerian power grids

Nigeria — A new report, funded by All On and produced by Rocky Mountain Institute (RMI), Clean Tech Hub and Energy Market and Rates Consultants (EMRC), titled: Electrifying the Underserved: Collaborative Business Models for Developing Minigrids Under the Grid, describes four business models as practical solutions to guide stakeholders through the process of implementing undergrid mini-grids in Nigeria today.

Communities under the grid are unserved or underserved by their electric utility, and are forced to supplement with expensive diesel or petrol gensets instead of grid power; undergrid mini-grids up to 1 megawatt (MW) in size can solve this challenge. The report addresses the complex decisions that make up undergrid mini-grid business models, with the goal of accelerating the market and enabling the many interested stakeholders to act.

In Nigeria alone, thousands of rural communities could be best served by undergrid mini-grids. Implementing 4,000 undergrid mini-grid projects has the potential to save Nigerian distribution companies $30–$60 million annually while offering mini-grid owners $1 billion in annual revenue and saving communities $170 million in yearly energy expenditures. The opportunity continues to scale to Nigerian peri-urban communities—where higher loads strengthen the business case for mini-grids—and underserved communities throughout sub-Saharan Africa and the world.

“The growth of the energy access sector in Nigeria is evident in the growing interest of distribution companies in increasingly exploring ways to grow their market base and meet underserved needs. This report will be a pivotal guide for minigrid developers, investors, and distribution companies in deciding the best business models for a ready market of energy-hungry consumers,” said Ifeoma Malo, CEO of Clean Technology Hub.

“Undergrid mini-grids are a promising and commercially viable solution that can deliver reliable electricity to hundreds of thousands of Nigerians today. The business models outlined in this report can kickstart the undergrid mini-grid industry in Nigeria by providing guidance on how to start projects, which will provide a precedent for private sector, community and utility collaboration that is applicable across many other countries in sub-Saharan Africa and around the world,” said James Sherwood, principal at RMI and co-author of the study.

According to Dr. Wiebe Boer, the CEO of All On, an off-grid energy investment company backed by Shell that funded the research, “the undergrid mini-grid business models introduced through this research provide a framework for mini-grid developers, distribution companies and communities to collaborate to provide reliable, affordable and sustainable power at scale to millions of underserved, low-income households and SME customers across Nigeria. We need collaborative approaches like these to address Nigeria’s energy access gap and improve livelihoods nationwide.”

The four business models that can be implemented under today’s social, political, and economic environment include a mini-grid operator-led approach, in which a private mini-grid operator leads development in consultation across the distribution company and community; a special purpose vehicle (SPV)-led model, wherein the SPV may include distribution company investors; a cooperative-led approach formed by the community to lead mini-grid development; and a collaborative SPV-led model wherein ownership and operation are shared among stakeholders. 

These business models were developed with extensive stakeholder consultation and consideration of commercial dynamics and regulatory frameworks in the Nigerian Electricity Supply Industry to ensure successful project implementation that meets the needs of all actors. The most critical aspect of each business model is the requirement for multiple project participants to work together toward a common outcome. Executed projects need to reflect real community needs while working within Nigerian regulation to support customer well-being and economic development.

“The four business models discussed in this report explore the possibility of developing an undergrid mini-grid in Nigeria which presents an opportunity for improved energy access to unserved and underserved communities, developers to make returns on their investment and existing electricity distribution companies to reduce losses,” said Oladiran Adesua, senior consultant at EMRC.