The REA’s Output Based Funding Program is Subsidising Mesh-grids, and Developers are Getting On-board

By Afnan Hannan
March 07, 2022

Nigeria is the largest off-grid energy market in the world, with 80 million people waiting to be connected to reliable energy.

Drone shot of a last-mile village in Kaduna, Nigeria, that’s about to be energized via an Okra mesh-grid

If you’re short of time, you can skim through by reading the bolded text only – it will give you the general gist of this blog. Otherwise, read in full to get all the juicy details 😉

The Nigerian Off-Grid Energy Market

It comes as no surprise that everybody is watching Nigeria – eagerly anticipating a massive leap towards eradicating global energy poverty.

In a recent survey, we found that more than 100 private Nigerian energy development companies are deploying standalone solar home systems (SHS) and mini-grids. We’ve partnered with some of the most innovative players – SAO Cap, Creeds Energy, Konexa, First Electric and Emone – in launching Okra Mesh-Grid (OMGs 😂) pilots in hard-to-reach areas.

Throughout this process, we’ve unearthed some interesting information that we’d like to share with you.

What we know about off-grid energy regulations in Nigeria

Not only is Nigeria the biggest untapped off-grid energy market, its regulatory environment is set up to reduce friction, wherever possible, for private developers who are supplying energy systems to off-takers (households and businesses).

This regulatory environment is highly conducive to Okra Solar’s vision of global energy access – and it’s why we believe Nigeria is primed for rapid deployment of scalable technologies like OMGs.

Nigeria is one of the only markets in the world where developers can charge off-takers with an array of business models and tariff structures, including but not limited to:

In addition to flexible tariff structures, Nigerian developers are also free to charge a “cost-reflective” tariff that can be adjusted on a project-by-project basis according to their costs – which vary for a number of reasons including community size, location and diverse off-taker load profiles – amongst others.

 

Basically this means:

Developers can charge what they need in order to run a sustainable business.

This may (sound) spook(y) (for) off-takers, but this has ultimately stimulated competitiveness by enabling developers to provide a high-quality service to even the most remote areas in Nigeria.

In order for developers to run a sustainable last-mile electrification business, tariffs often need to be iterated and optimised to ensure sufficient returns – this has traditionally been a large technical and communications challenge. We recommend using the Harvest platform, connected to OMGs, which makes custom configuration of energy tariffs easy for every community. Once tariffs are updated on Harvest, households automatically receives an SMS of the updated package, and the Pod billing screen reflects the changes immediately.

Custom energy tariffs can be configured easily in Okra’s Harvest platform

Custom energy tariffs can be configured easily in Okra’s Harvest platform

A particular tariff structure that we’ve seen deveopers succed with on Harvest is:

Daily consumption cap (kWh/day consumption limit) + premium rate for excess consumption (additional kWh after limit)

After collecting about 2 months worth of revenue data and analysing the forecasted project IRRs, we recommend that developers use the Harvest platform to optimise tariffs appropriately, to give end customers the best value for money and to optimise energy availability vs. consumption.

What we know about the subsidies in Nigeria

In March of 2020, the Rural Electrification Agency (REA), in collaboration with the African Development Bank (AfDB) and the World Bank (WB), launched the $550 million Nigeria Electrification Program (NEP).

This program provides subsidies for developers who are deploying:

  • Solar mini-grids,
  • SHS,
  • Energising educational institutes.

This spurred growth in the sector and encouraged ambitious entrepreneurs to enter the space with innovative solutions. Okra Solar’s CFO, Kisa, wrote about this in another blog: 2021 Market Entry Analysis.

Many energy developers have asked us which subsidies apply to Mesh-grids.

To provide some background, the NEP has two components of interest for off-grid renewable energy developers.

1. The Performance-Based Grant (PBG)

This component provides a $600 per connection subsidy for solar mini-grids and interconnected mini-grids. It is a substantial subsidy amount that is attractive for developers.

That being said the requirements for receiving subsidy include:

  • An exclusivity arrangement with the community
  • Land acquisition & permits
  • An operating permit with NERC
  • Installation and commissioning of the full mini-grid
  • An assessment of installation

Developers have told us that this process can last anywhere from 6 – 18 months.

The PBG is ideal for sites of 1,000 households or more, with high household density and large commercial loads. In other words, the PBG is suited for populous peri-urban settlements with large infrastructure and high load profiles – an ecosystem that requires administrative approvals.

2. The Output-Based Fund (OBF)

The OBF subsidy, launched in 2019 under the NEP, offers support for SHS and analogous systems. In October last year, citing a need for faster electrification of highly remote communities, the REA revised the OBF to incentivize developers to offer higher-tiered energy systems.

We’re excited to share that:

Even though the average load in OMGs across the world is greater than 350Wh/day (higher than most mini-grids), and Okra kits can provide up to 1.2kW AC of reliable power for productive use, they are being treated as large solar home systems from the persepctive of the OBF subsidy.
Below are the per connection economics for OMG kits under the OBF subsidy, and what it means for developers – keeping in mind that each of these kits can be interconnected to form plug & play OMGs.

S Kit

XL Kit

S Kit

Panel size

200 Wp

Battery

12V 50Ah LFP

Inverter

600W PSW

Suitable for

Lighting, phone charging, TVs, water pumps & other small productive appliances

Price (Kit + BOS)

$639.60

Subsity from REA

$346.50

Price (Kit + BOS) after subsidy

$293.10

XL Kit

Panel size

2 × 450 Wp

Battery

24V 100Ah LFP

Inverter

1200W PSW

Suitable for

S Kit + large fridges/freezers, power tools, agro-tech machinery & other productive appliances for households

Price (Kit + BOS)

$1,320.89

Subsity from REA

$1,003.50

Price (Kit + BOS) after subsidy

$317.39

Panel size

200 Wp

2 × 450 Wp

Battery

12V 50Ah LFP

24V 100Ah LFP

Inverter

600W PSW

1200W PSW

Suitable for

Lighting, phone charging, TVs, water pumps & other small productive appliances

S Kit + large fridges/freezers, power tools, agro-tech machinery & other productive appliances for households

Price (Kit + BOS)

$639.60

$1,320.89

Subsidy from REA

$346.50

$1,003.50

Price (Kit + BOS) after subsidy

$293.10

$317.39

The fastest path to 100% electrification in Nigeria

So which component of the NEP is right for the Nigerian developers? The answer is: in most cases the OBF – but it depends.

We think the OBF subsidy is a game-changer due to the fact that the majority of unenergised Nigerians live in sparsely populated rural communities which can not be efficiently serviced by conventional mini-grid systems, and therefore can not benefit from the PBG subsidy.

But Okra’s OBF approved OMGs thrive in these areas; for less than $350/connection, developers can energize households with enough power to run refrigerators, freezers, water pumps, e-cooking and other productive appliances simulatneously.

OBF subsidy okra mesh grid kits

Mesh-grid overlay of a village in Kaduna that will be electrified via an Okra Mesh-grid in the coming months

Conversely, if developers are looking to energise peri-urban communities with a large number of densely packed households, then the PBG subsidy will probably be of more interest.

Nigeria demand data 7 seven 5000 five thousand people

Available sites with 1 – 1000 households (data from Electrifynow)

Available sites with 1000 – 5000 households (data from Electrifynow)

How can developers be approved for deploying energy access with the OBF subsidy?

Here we’ll run through the qualification process for the OBF subsidy and how long it takes, based on our experience working with developers who have applied for the OBF subsidy, and information we’ve received from the REA directly.

steps OBF subsidy

From Registration to Disbursement, recieving the OBF subsidy can take<2 months

Registration and pre-approval are the most laborious steps of the process, but once equipment has been deployed and data is streaming in, the whole process can be completed in one month.

This is one of the reasons the OBF component of the NEP has disbursed more than $6.1 million since its commencement (approximately 5× the amount that’s been disbursed by the PBG component so far). The REA wants to see a high volume of households being energised – that’s why they’re interested in developers who can install 100+ systems a month, and are backed by a strong project pipeline.

That being said, as mesh-grids are providing high power capacity, the REA has informed us that energy developers who are deploying larger OMG kits will meet this requirement with a lower number of monthly connections to begin with.

Here’s the link to the OBF application

And that’s it!

In <2 months, developers deploying OBF approved technology can receive monthly subsidies that will accelerate their portfolio growth in Nigeria.

The #GiantofAfrica is well on the path to becoming the most successful off-grid energy market in the world, and we hope it sets a precedent for other markets to look up to. We believe now is an opportunity for developers to expand faster than ever before, and we’re here to support them with mesh-grid technology that has backing from the AfDB, World Bank and the REA.

If you have any questions around the OBF subsidy for mesh-grids in Nigeria or require support in setting up your first mesh-grid project reach out to us.

#PowerToThePeople

Use Okra

Book a demo

Affy has a simple vision: to get energy access to everyone in the world as fast as possible. After working in the tech industry in Australia, he saw an opportunity to break down the technological barriers to global energy access by leveraging IoT and A.I. He’s since been named Forbes 30 Under 30 Asia and won multiple other awards for catalysing disruptive social impact with Okra.

#PowerToThePeople