The business model plays a crucial role in the wider expansion of mini-grid deployment, as an option for electrification in rural areas.
This was the challenge facing the Ibadan Electricity Distribution Company (IBEDC) and the Abuja based power solutions developer Nayo Tropical Technology when planning improvements to the electricity supply in Mokoloki, a rural community in Ogun State, about three hours by road north of Lagos.
Historically, Mokoloki was connected to Nigeria’s bulk electricity grid but the electricity supply was intermittent and unreliable, often limited to three hours or less of power per day. Consequently, businesses and other community members were forced to run expensive, noisy and polluting diesel and petrol gensets to supplement the grid supply.
This was hindering the day-to-day lives in the community and slowed economic growth due to the high cost of power. At the same time, the distribution company was experiencing high technical and commercial losses, up to 70%, in serving the community, resulting in a real loss for every kilowatt-hour supplied in Mokoloki.
The solution to overcoming these challenges was conceived with the US-based independent, non-profit organisation, Rocky Mountain Institute, and became known as an ‘undergrid mini-grid’. In this new business model, the mini-grid supplies reliable power directly to the community without using IBEDC’s medium voltage network. The third-party minigrid developer – in this case, Nayo Tech – takes over metering, billing and collections duties. Through an innovative tripartite agreement between the utility, the community and the developer, the model creates a ‘win-win-win’.
The mini-grid, comprising 100kW solar PV, 192kWh battery energy storage and 88kW diesel backup, came online in February 2020. IBEDC and Nayo are monitoring the project to collect lessons learned, and both companies are also exploring additional opportunities for scaling undergrid mini-grids across Nigeria.
Overall, the project took just over one year to reach completion from the initial meeting between IBEDC and Nayo Tech. While the construction of the mini-grid was brief, requiring only a few weeks to complete, because of the innovative nature of the contract structure there were numerous details to negotiate to develop an acceptable methodology. Therefore, future projects using this model should require much less time to execute. The project was funded through the developer equity with Nayo Tech purchasing the mini-grid generation assets, the customer meters and distribution upgrades to the existing poles and wires in the community.
In addition to the project developers – IBEDC as the initiator, Nayo Tech as the developer and ongoing owner/ operator, and Rocky Mountain Institute as project advisor – an essential element in its success was the Mokoloki community, which provided its support from the outset. Local leaders engaged community members for feedback and sensitisation on what the project would deliver and collaborated with each partner throughout. The Nigerian Rural Electrification Agency (REA) was an important contributor, providing policy guidance and support in navigating Nigeria’s regulatory environment.
Early highlights include the negotiation of a new type of contract. Nigeria’s mini-grid regulation provides a template for tripartite agreements but this provides a significant amount of flexibility for projects to define their terms.
For example, partners needed to determine a methodology for calculating the usage fee that IBEDC would be paid for operating in the community, as well as the terms of any grid interconnection.
Another outcome is the immediate creation of cost savings for IBEDC. The losses have been effectively reduced to zero, and replaced with a positive revenue from a monthly usage fee. Additionally, the project opened a new revenue stream and mini-grid market segment for Nayo Tech, which otherwise would have been unable to serve the Mokoloki community because of the utility’s franchise licence.
For end consumers their electricity costs have been reduced, enabling local economic development. New businesses have opened in the community since the minigrid came online. In the first weeks, four nearby businesses relocated to the community, while new local enterprises, including agricultural businesses and a soya drink factory, aspire to leverage increased agricultural activity to provide value-add processing, which will in turn keep more of the profits in Mokoloki.
In the first three months of operation, the project avoided an estimated 15,000kg of CO2 emissions.
With the project emerging at the time it did, the COVID-19 pandemic restricted travel just as the project was coming online, which made it challenging to monitor initial progress with the project in-person.
Looking ahead, the undergrid mini-grid approach is expected to be scalable to thousands of other communities across Nigeria and beyond. The model is inherently designed to be economically attractive to stakeholders in a variety of situations.
IBEDC and Nayo Tech are both eager to replicate this project’s success elsewhere, and with the complex contract negotiations would like to work toward a standard template and streamlined process. For its part, Rocky Mountain Institute is working elsewhere in Nigeria with Abuja Electricity Distribution Company to scale and develop new business models.
Other initiatives include the Rural Electrification Agency and the German development agency GIZ partnering on the Interconnected Minigrid Acceleration Scheme to expand undergrid model demonstrations. A new local business Konexa is working in northern Nigeria to test integrated franchise models and the Utility 2.0 programme by Umeme, Power For All and the Rockefeller Foundation in Uganda is exploring similar tripartite frameworks.
These efforts individually are enabling reliable, clean, and cost-effective energy to new communities says Rocky Mountain Institute. Together, they are developing new, sustainable and scalable power systems to expand across Africa.