NIGERIA MINIGRID INVESTMENT BRIEF

1 NIGERIA MINIGRID INVESTMENT BRIEFD ecember 20173 EXECUTIVE SUMMARY: THE OPPORTUNITYN igeria is the biggest and most attractive off-grid opportunity in Africa, and one of the best locations in the world for minigridsand solar home systems NIGERIA has the largest economy in Sub-Saharan Africa (GDP of $405 billion), has 180 million people, and a flourishing economy (CAGR of 15% since 2000). A significant amount of the economy is is powered largely by small-scale generators (10 15 GW) and almost 50% of the population have limited or no access to the grid. As a result Nigerians and their businesses spend almost $14B USD annually on inefficient generationthat is expensiv e ($ or more), poor quality, noisy, and polluting. Dev eloping off-grid alternativ es to complement the grid creates a $10B/year market opportunity for minigrids and solar home systems that will save $6B/yearfor Nigerian homes and businesses.

2 There is a large potential for scaling installing 10,000 minigrids of 100 kW each can occur for 10 years and only meet 30% of anticipated demand. Getting off-grid solutions to scale and commercial v iability in NIGERIA will unlock an enormous market opportunity in Sub-Saharan Africa across 350 million people in countries with smaller demand and/or less-robust economies. The Rural Electrification Agency (REA) tasked with dev eloping the Nigerian off-grid power market has create the Off Grid Electrification Strategywhich is part of the Power Sector Recovery Programme(PSRP). 4 EXECUTIVE SUMMARY: BUSINESS CASEE valuation of specific sites shows a strong MINIGRID business case for typical locations in NIGERIA and indicates there are thousands of high potential sites Unlike many regions in Africa, NIGERIA s economy and strong entrepreneurism mean that millions of commercially-v iable businesses are powered with expensiv e and/or unreliable power.

3 Consequently, there are high densities of power use, large latent demand, and a strong willingness to switch to more effective alternatives. Recent efforts by REA have identified hundreds of high potential sites for inv estment and demonstrated potential for commercial v iability. Deep dive analyses in Ogunand Cross Riv er states show numerous sites that are ready for large-, medium-, and small-scale minigrids, and a significant opportunity to meet more remedial needs with solar home systems. For example, a medium-scale system ( , 200 kW) can make commercial returns while cov ering its cost of capital, creating a return on INVESTMENT of 3 years this is a situation not currently found elsewhere in Sub-Saharan Africa. Many rural households spend more than $6/month on kerosene or battery powered torches, making a compelling case for solar home (REA),TheWorldbank(Energyteam)andRockyMo untainInstitute(RMI).

4 5 EXECUTIVE SUMMARY: PARTNERSHIPS Strong donor support and the establishment of Rural Electrification fund for Off Grid Development sruralelectrificationstrategyoutlinedint heRuralElectrificationStrategyandImpleme ntationPlan(RESIP),theRuralElectrificati onAgency(REA)hasbeenauthorizedtoestablis haRuralElectrificationFund(REF) fastandcost-effectiv eexpansionofelectricityaccessinun-electr ifiedruralareasevenlyacrossthedifferentg eopoliticalzonesinNigeria throughbothoff-gridandon-gridelectrifica tionsolutions. ernmentofNigeriatodev elopanewfive-yearproject:NigeriaElectrif icationProject(NEP).ItisexpectedthatNEPw illbefinallyapprov TheWorldBank scontributionforNEPisexpectedtobe$350mil lion,ofwhichabout$ elopedunderNEPareexpectedtoserve200,000h ouseholdsand50, ,withearlyactiv itiesexpectedinNiger,Plateau,Kaduna,Soko toandRiv erstates.

5 Elopminigrids, ,200minigridswillbedev SUMMARY: ENABLING ENVIRONMENTG overnment, donor partners, and the private sector are actively working together in NIGERIA to create enabling conditions for successful MINIGRID development Nigeriaisprov idinganenablingenvironmentforoff-gridmar ketgrowth,including: DeveloperprotectionthroughtheNERCM inigridRegulations. Aninnovativeandbestpracticesite-selectio nprocesstode-riskprojectshasalreadyident ifiedov er250promisingsites. Theselectionprocesshasalsoscreenedforbas eloaddemand( ,schools),population/energydensityandpro ductiveuse. PartneringwithWorldBanktolineupfinance,s treamlinecompetitivetendering,andtoprov idetechnicalassistance. Thegovernmentanddevelopmentpartnersarein vitingtheprivatesectortoworkwiththemtoca pturethisopportunity,whilesav ingNigeriansmoneyandpoweringeconomicdev elopmenttofurtherexpandthemarket.

6 Withanenablingenv ironment,continuedcostreductions,andtarg etedfinance,theNigerianminigridmarketcan scalerapidlytoov er10,000sitesby2023,powering14%ofthepopu lationwithcapacityupto3,000 MWandcreatinganinvestmentpotentialofnear ly$20billionandannualrev enueopportunityexceeding$ OFF-GRID opportunity IN NIGERIA2 CASE STUDIES: POTENTIAL MINIGRID SITES3 ENABLING CONDITIONS FOR MINIGRID DEV ELOPMENT4 BRINGING THE MINIGRID MARKET TO SCALE5 MOV ING FORWARDINTRODUCTION2 TheNigerianRuralElect rificat ionAgency(REA)hasdevelopedt iveistoincreaseelect ricit yaccesstoruralandunderservedclust ers. Partofthisstrat egyistofastt rackdevelopmentinit iat ivest owardsachievingt heoverallobject iveoftheFGNE conomicandRecoveryGrowt hPlan(ERGP)andt hePowerSect orRecoveryProgramme(PSRP).INTRODUCTIONTh ePowerSect orRecoveryProgramme( PSRP )isaseriesofpolicyact ions,operat ional,governanceandfinancialint erventionstobeimplement edbyFederalGovernmentofNigeriaovert henextfive(5)yearstorest oret hefinancialviabilit yofNigeria spowersect or,improvetransparencyandservicedelivery ,resolveconsumercomplaint s,reducelossesandenergyt heftandRESETt heNigerianElect ricit ySupplyI ndust ryforfut uregrowt hePSRP incollaborat ionwit ht ically,t heobject ivesofthePowerSect orRecoveryProgrammearetoi)Restorethesect or'sfinancialviability;ii)Improvepowersu pplyreliabilitytomeetgrowingdemand;iii)S trengthenthesector'sin stitu tionalframeworkandincreasetransparency;i v)Implementclearpoliciesthatpromoteanden courageinvestorconfidenceinthesector.

7 Andv) SECTOR RECOVERY PROGRAMME7 SUSTAINABLE OFF GRID POWER SOLUTIONS CAN ACCELERATE ECONOMIC GROWTHS ource:RMI analysisNigeria offers the best off-grid market opportunity in Africa there is relatively high economic activity, latent demand, and ability to pay in rural areas: NIGERIA has t he largest population and GDPin Africa wit h significant rural economic act ivit y 14 GW served by small petrol and diesel gen-sets Nigerians already spend $14B annually on off-grid power from small self generat ors There are 85 million people underservedand/or unconnect ed t o t he grid, which is an enormous invest ment opport unity On-gridcost s are nearly $3B annuallyAnnual on-and off-grid electricity expenditures in NIGERIA , 2016$ $ $ 04812162024 Billion USDB attery-powered torches and other energy substitutes: 85M Nigerians spend ~$ on mobile phone charging, t orches, keroseneSmall-scale self generation: est imat ed 14 GW at $ on averageOn-grid power.

8 Generat ion, T&D, and lossesTHERE IS A $10B/YR MARKET opportunity TODAYFOR MINIGRIDS AND SOLAR HOME SYSTEMS THAT WILL SAVE NIGERIANS $6B/YR8 $10 billion annual market opportunity t o supply off-grid and underserved cust omers wit h minigrids and solar home syst ems* Wit h 8% economic growt h t hrough 2030 t here is an additional $670 billionvalue proposit ion This est imat e is based on current expendit ures, but cust omers may pay more for superior service This shift from expensive generat ing set s would save Nigerians customers $6B/yrover current energy cost sToday s off-grid and underserved annual market size in NIGERIA , by off-grid technology*Current RevenueRevenue With Off-GridAlternativesSource:RMI analysis* Assumes 50% adoption of solar home systems by torches and other substitutes, and 75% adoption of minigrids by small-scale self generation; conservatively does not assume grow th in electricity use9 MINIGRIDS ARE A CRITICAL COMPONENT OF REA S PROGRAMMES TO SUPPORT ECONOMIC DEVELOPMENT AND ENERGY ACCESSS ource:REA strategy presentationStand-Alone SystemsMinigridsEnergizing EducationEnergizing EconomiesREA programmesCrosscutting energy database online v isualization of resources for energy dev elopmentWho will be served?

9 Remotecustomers with low load or low ability to payCommunities with load less than 1 MW37 univ ersities, 7 teaching hospitals, and the surrounding communitiesEconomic clusters: areas with high commercial activ ity and high growthimpact on the economyWhat is REA s role?Promote dev elopment and roll-outPromote community, priv ate dev elopmentDev elop independent power plants to serv eInterv ene to prov ide power under eligible customer policy directiveBenefits to communityProv ide critical basic serv ices; cheaper than kerosene or other energy alternatives; create jobsPromotes economic activ ity; interconnection potentialProv ide nearly 100 MW generation across 6 geo-political zones; improv e educational qualityReplace costly, inefficient,polluting diesel with centralized power source; promote MSME growthBenefitsto developerS upportive regulatory env ironment, coordination around market expansion,education and awareness10,000+potential sites offerhigh customer density, clustering.

10 Access and scaling in Africa s largest marketS olar hybrid and gas engine plantgeneration opportunitiesHigh loadand customer concentration; clear v alue proposition to customersCONTENTS101 THE OFF-GRID opportunity IN NIGERIA2 CASE STUDIES: POTENTIAL MINIGRID SITES3 ENABLING CONDITIONS FOR MINIGRID DEV ELOPMENT4 BRINGING THE MINIGRID MARKET TO SCALE5 MOV ING FORWARDTHE NIGERIAN MINIGRID MARKET IS UNDERPINNED BY THE MOST APPEALING MINIGRID SITES IN AFRICACase Study SummaryCaseStudy #1: Small Off-GridObotEkpene, Cross River Case Study #2: Medium Off-GridOnyen-Okpon, Cross RiverCase Study #3:Medium Underserved Peri-urbanMokoloki, OgunCase Study #4:Large Underserved Peri-urbanOkun-Owa, OgunPeak Load16 kW200 kW85 MWCurrent Cost,Diesel Generation*$ h$ h$ h$ (industrial)Estimated Tariff Today (15% IRR)**$ $ $ $ Savings$ h$ h -$ h-$ hIRR if Tariff Matches Current Cost26%22%13%6%Capital Cost$130,000$ M$600,000$ MConsumption per Day200 kW h2,500 kW h1,300 kW h27,000 kW hThe pages that follow contain a detailed exploration of each case studyKEY TAKEAWAYS Off-grid sit es show opport unit ies t odayfor significant customer savings while providingdeveloper returns Minigridscan provide reliable electricity t o underserved peri-urban sit es at or below current cost s These economics do not account for additional MINIGRID benefits, such as increased reliabilit y and reduced environment al pollut ion11 Source.