Low-cost, reliable electricity for Nigerian businesses

Mohammed Akar is the general manager of The Wood Factory, a leading manufacturer of high-end furniture, doors, and home and office interiors, based in Nigeria’s capital, Abuja. In his 16 years of working at The Wood Factory, Mr. Akar’s biggest challenge has been accessing reliable, cost-effective power.

Three years ago, The Wood Factory was forced to switch from the national electricity grid to using diesel generators exclusively for power when voltage and frequency spikes from the grid damaged some of the sensitive motor-driven equipment in the factory. “It is a costly solution, but so is paying for technicians from the OEMs (original equipment manufacturers) to travel to Nigeria and fix our machines each time there was a fault caused by a surge from the grid” says Akar. “We also wanted to avoid the production downtime and associated costs of these repairs,” he adds. With the ever-increasing diesel prices, Akar has recently cut the number of production shifts in half, to only one daytime shift, to reduce costs.

Across Nigeria, commercial and industrial (C&I) companies face similar challenges. The Nigerian national grid meets only about 20 per cent of nationwide energy demand, with an average of 4 GW delivered in 2023. High and volatile fossil fuel costs for backup power supply means Nigerian manufacturers spend up to 40 per cent of their costs on energy.

Companies must purchase, operate, and maintain multiple power generation assets to provide backup or even replace the unreliable and poor electricity from the grid.
The first tripartite hybrid solar project for a C&I customer in Nigeria

Luckily for Akar, his energy supply concerns will soon be resolved. The Wood Factory is set to revamp its energy experience starting this summer with the first utility-enabled distributed energy resource (DER) solution for a C&I customer in Nigeria. The facility will reduce its energy costs by 44 per cent by utilising a combination of solar PV and battery storage, along with an enhanced grid supply that will guarantee 95 per cent uptime. Daystar Power, the developer, will take advantage of cheap renewable solar power available during the day by installing a 600 kW solar array on The Wood Factory’s rooftop. Additionally, the facility will benefit from improved night-time supply from the utility grid run by Abuja Electricity Distribution Company (AEDC).

This collaborative business model results in a win-win-win scenario. The Wood Factory receives cheaper and more reliable electricity, Daystar Power leverages the existing distribution network to lower the project’s cost, and AEDC’s revenue increases by bringing a customer back on the grid and selling electricity to them. Other key features of this business model include:

No up-front cost for the customer: The developer will finance all the equipment costs for the project, eliminating the need for large power infrastructure investments by the customer.

Single power vendor: The developer will act as the customer’s sole electricity provider, reducing the operational burden of running multiple power generation assets and engaging with various vendors.

Project-financed distribution network upgrades: The DisCo will upgrade the customer’s grid connection to improve reliability and guarantee an agreed-upon supply. The developer will finance the upgrades, which will speed up deployment by removing the need for investment by the DisCo.

Long-term contract with blended tariffs: The tripartite contract between the customer, developer, and DisCo allows for contract periods of 10 to 20 years, ensuring an affordable tariff and reducing the impact of volatile fossil fuel costs.

Misconceptions hinder the adoption of utility-enabled hybrid solar systems for other C&I customers

Many C&I companies have the opportunity to save on their energy expenditure, enhance operational efficiency, and improve reliability through this business model. However, some customers perceive limitations to this solution.

Misconception 1: Solar solutions are not suitable for large facilities
A common belief among C&I companies is that hybrid solar power systems may be suitable for households and SMEs, but they often fall short of meeting the power demand, reliability, and quality required at larger facilities. There is a concern about the weather and what happens when there is limited sunlight, as well as the durability of solar and battery systems. As a result, customers often view gas as the only viable alternative to expensive diesel backup generation.

In reality, there are many successful examples of large-scale commercial and industrial hybrid solar DER solutions across different industries in Nigeria. Some examples are a 0.6 MW project at a food processing plant, a 4 MW project at a major brewery, and a 0.7 MW project at a poultry farm. These solutions generate solar power on-site and meet a significant portion of the facilities’ energy needs. This business model involves pairing appropriate long-life solar PV and lithium-ion battery storage systems that have a lifespan of more than 10 years.

Misconception 2: Solar solutions are complex
Additionally, many C&I customers expect plug-and-play solutions akin to traditional gas and diesel-powered alternatives and may not be familiar with the intricacies of designing hybrid solar-powered systems. A 500 kVA diesel generator and a 500 kW solar system are not direct substitutes and can lead to some confusion.

However, with this business model, the customer relies on the developer to design the optimal power generation system mix that includes solar PV panels, batteries, and backup fossil fuel generation. The customer only pays a monthly power bill for electricity consumed.

Misconception 3: DisCos are not reliable partners
Finally, due to years of poor performance by DisCos, C&I customers have lost trust in their ability to provide reliable power. To address this issue, this business model includes power availability and reliability guarantees to protect the customer. Unlike traditional customer contracts with DisCos, in this model the DisCo is obligated to pay a fine if it fails to deliver reliable power.

Many DisCos have realised that relying on the national grid is not enough and are committed to deploying the right DER solution with partners to improve power supply for their customers and increase their revenues as they did with the Toto and Mokoloki minigrids.

Scaling up this model will require more proof points to build stakeholder confidence
RMI, with funding from USTDA, has successfully completed feasibility studies and project preparation for 20 Nigerian C&I customers in different sectors, including hospitals, schools, manufacturers, and publishing houses, to deploy this business model. These projects are expected to deliver considerable savings and value for the customers.

Over the next six months, Daystar Power will procure the battery system, work with AEDC to carry out upgrades to the distribution network, and construct the hybrid system for The Wood Factory. In addition, it will continue to work on the prepared projects in the pipeline to help these companies reduce costs by a combined ₦750 million and contribute to their sustainability goals by reducing emissions by 20,000 MTCO2 equivalent, providing more evidence of the model’s viability. Victor Ezenwoko, Nigeria country head at Daystar Power is optimistic about the potential of these projects. “We are excited about serving additional C&I customers with this business model and providing affordable, reliable, and clean power to businesses across Nigeria.”

Aminu, Senior Associate with RMI’s Africa Energy Programme Africa.