Learnings from Nigeria

Nigeria shows what happens when mini-grids move from pilot projects to infrastructure policy. With over 200 million people and a vast rural electrification gap, the country has built one of the most mature regulatory and financing ecosystems for decentralized power in Africa—and a living laboratory of what works and what breaks at scale.

In this episode, Nico is joined by Joanis Holzigel (COO, INENSUS) and Hannah Kabir (CEO, Creeds Energy) to unpack the success factors and challenges the Nigerian mini-grid sector faced on its path to scale. 

Clear rules enabled investment: standardized permitting, protection against grid arrival, and portfolio-level approvals allowed financiers to underwrite pipelines instead of single sites. Performance-based grants proved more effective than centrally selected tenders, letting developers choose commercially viable communities and scale faster. Local companies grew alongside international players, while interconnected mini-grids opened collaboration with utilities rather than competition.

But scale exposed pressure points. Political expectations capped tariffs below cost, inflation and currency depreciation eroded revenues, and higher prices reduced consumption instead of improving profitability. The sector responded with local-currency financing, updated regulations, and decentralization to state governments—steps aimed at restoring bankability and speeding deployment.

The key outcome: mini-grid roll-out in competitive markets succeeds when regulation is predictable, grants reward performance, and developers retain site selection freedom. Long-term sustainability, however, depends on realistic tariffs, FX-resilient finance, and integrating productive use and rural industry from the start. Nigeria’s experience turns mini-grids from a technical solution into an economic system—and offers a replicable roadmap, with clear cautions, for other countries.

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Transcript

Why Mini-Grids Matter In Nigeria

SPEAKER_00 0:14

We will do when many grid regulations established, when financial transactions explode, is the new technology to fly, when companies fail. This is where we tell the stories. This is where we discuss the future. The many grid business.

SPEAKER_01 0:36

Hello, this is Nico. Welcome to our episode Learnings from Nigeria. I'm here with my colleague Janet Holt Siegel and our long-standing partner in consultancy assignments from Nigeria, Hannah Kabir. Janis Holt Siegel is Chief Operating Officer of Inensos, overseeing operational strategy and delivery of advisory services, including many Innensus consultancy assignments in Nigeria. He previously held management roles at B-Box and at a mini-grid developer. Hanna is Chief Executive Officer of Creets Energy in Nigeria, leading rural electrification with solar power while drawing on long track records advising minigrid developers and public sector institutions on strategy and operations. A warm welcome to both of you.

SPEAKER_02 1:27

Hi Nico.

SPEAKER_01 1:28

Hi Nico. Hannah, we are talking about learnings from Nigeria, and Nigeria has a long track record, right? And mini-grids, but let's start with something that is more fundamental. Why do mini-grids have a role to play in Nigeria?

SPEAKER_03 1:44

So I will put this in context to start with. And if we look at the access to electricity nationally, Nigeria has between 55 to 62 percent electricity access. Nigeria is also the largest country in terms of population in sub-Saharan Africa with over 200 million people. Now, if we dive deeper and look at the urban rural split, urban areas have about eighty percent electrification compared to about twenty percent in rural communities. In addition to this, Nigeria has targets to electrify the country by 2030 to achieve the universal access by 2030. So it would take a lot of different approaches and technologies in the energy mix to achieve these goals.

SPEAKER_01 3:03

Yeah, initially Discos were mandated to accelerate distribution network rollouts in rural areas. This is actually not happening. Do you know why, or can you just quickly explain to our listeners why this is not happening and why now mini-grids need to fill that gap?

Early Pilots And Policy Foundations

SPEAKER_03 3:23

Sure. So with the distribution companies in Nigeria, there are two categories of distribution companies. You have the 11 discos that were the successors from the unbundling and privatization of the power holding company. And then you have the independent electricity distribution networks that are also licensed to distribute electricity. However, when you consider that most of the legacy discos are burdened by infrastructure that is failing, and we are having a lot of grid collapses, it becomes very difficult for them to invest in new connectivity, especially in the rural areas where the economics of it does not make sense to them. Extending grid to areas with less than 10,000 inhabitants, for instance, would typically fall under social tariff and will not be cost reflective compared to the cost of deploying the distribution network into rural communities.

SPEAKER_01 4:46

This is where now the market for mini-grids opens up, and this is where mini-grid companies are now invited to fill the gap, right? And let's go through the history of mini-grids in Nigeria, and through that we can then also highlight those aspects where we can derive learnings from Nigeria and that can be transferred to other countries. Yannis, do you want to take us through the early steps of mini-grids in Nigeria?

SPEAKER_02 5:22

Sure, I can do that, Nico. So really it all started all the way back in 2005, I believe, when the then so-called EBSRA created the modern legal base for the sector, which established first of all NERC as the electricity regulator, including licensing and tariff oversight, and which also established the rural electrification agency REA, which is effectively mandated to look after both rural electrification funds and then also oversee rural electrification as a whole. And then through the early to mid-2010, this is when the first mini-grids started in Nigeria, but at that time of course they existed largely as donor organized or donor instituted mini-grids and developer pilots and so-called uh special projects that really don't have much to do with today's large scale scale-up of mini-grids in Nigeria. Really they were individual projects that were on the one hand instituted by by individuals, by small organizations that were aiming to pilot a new approach in Nigeria, but at the same time they were hampered at that time by still very unclear processes for permitting in tariffs. Of course, at the time there was not yet any mini-grid uh regulations. At the same time they were facing risks from discourse that also wanted to go into the rural areas, of course. And then there was also no significant financing at that time for especially rural-based mini grids. So again, I think that these early minigrids, while they perhaps on individual levels demonstrated that the rollout of minigrids would be feasible in Nigeria, they did not have much to do with really the types of minigrids that we're seeing today.

SPEAKER_01 7:32

But but what they did is they attracted attention of policymakers for mini-grids and they showcased that mini-grids not connected to the main grid can be a reliable electricity source for villages, for productive users, even for larger consumers, and not only for lighting of small like houses and so on. I think they set the expectation right, even though they were not at the same level technologically and also organizationally as those mini-grids that we're seeing today. That's that's right.

Breakthrough NERC 2016 Regulation

SPEAKER_02 8:08

And of course, then after that, we had seen more interest in in mini-grids, and especially an interest in developing policies and regulations that would then favor mini-grids and would actually allow the large-scale uh rollout of mini-grids. This was established through the NERC minigrid regulations that were developed in 2016 and then initially published in 2017. And there, of course, as in Enzo, we played a significant role under the Nigerian Energy Support Program, which on the one hand established some of those first pilots, but then also supported NERG in uh developing that initial mini-grid regulation.

SPEAKER_01 8:58

Yeah, and there were some very innovative uh parts in this regulation that the sector has not seen before, and that is on the one hand, the way multiple mini-grids could be handled by a regulator. Regulators are traditionally just used to look at one project at once and then go to the next project, large projects with very comprehensive procedures. And now they are facing multiple projects that they need to handle at the same time. So basically, a structured, streamlined process for evaluating licensed applications and providing feedback and finally registrations or permits as required. And then there was a tariff setting approach based on the cost of service model that was kind of using the logic of the national mito and therefore was easily accepted because the methodology was already well known. And the most important part, I believe, of this regulation is the protection of mini-grids from financial losses in case of main grid encroachment. At that time, in 2016, or even before 2015, 2014, 2015, 2016, when the regulation was developed, there was nothing similar other than in Tanzania the regulation for small power projects, SPP rules. But what was new here in this Nigerian regulation was that the negotiation power was shifted from the connecting main grid utility to more like a balanced approach between the utility and the mini-grid operator. So in the past, the utility could have said, Yeah, we're now connecting you. I know you have the right to get some kind of compensation. We know you have the right to connect to our grid and sell electricity, but no one says that this needs to be commercially viable for you. So we make only offers that are not commercially viable. So that loophole was closed in the Nigerian regulation so that finally mini-grid companies could really trust in compensation and asset transfer concepts in Nigeria in case of main grid connection.

SPEAKER_02 11:32

Do either of you know, Nico, whether that compensation has ever been paid to any developer in Nigeria?

SPEAKER_01 11:39

I'm not aware of any case, Hana, are you?

SPEAKER_03 11:42

No, I think it's yet to be tested.

SPEAKER_01 11:44

Yeah. But I think the the sheer, let's say, concept of it builds a lot of trust for the investors into the sector. And of course, the Nigerian special conditions that Hana uh introduced earlier may not allow easy main grid extensions. So therefore, there is a double layer of protection, so to say, for mini-grid investments in Nigeria.

SPEAKER_02 12:11

Of course, Nico, but that's also one of the areas that I think minigrid developers used to struggle with, especially in Nigeria, is that when they would apply for a permit, they would also need to request the disco to provide a letter to them that effectively states that within the area where they want to build a minigrid, that the disco is not going to get there within a specific time frame. I believe that that issue was only really taken care of in the later update of the regulations, which I guess we will get to later. But that's something that's even as the regulation was established, minigrid developers then struggled with, unfortunately.

Interconnected Mini-Grids With Discos

SPEAKER_01 12:56

And another important aspect of the NURC Mini-grid regulations 2016 was the interconnected mini-grids. In Nigeria, and Hannah, maybe you can allude to that better than I can. There are a lot of poorly operated parts of the main grid distribution networks that now mini-grid operators can take over, collaborate with the disco in charge, with the license holder for that area, and then make sure that electricity supply is more reliable. Hannah do you want to come in on this? Like, why is this acceptable from a disco's perspective? And why would mini-grid companies come in here? Sure.

SPEAKER_03 13:44

For the disco's, I think where Johannes was referring to that they the developers had to get a clearance from the disco was related to their five-year plans for expansions. And if the private developer wasn't encroaching on any of those areas, then they usually get permits to develop. In terms of the interconnected mini-grids, so electricity supply is also a problem in the urban areas, and this is where you have a lot of productive users and high-energy users as well. So when you look at the least cost electrification plan of the country as a whole, there is a space for Discourse and private developers to collaborate and develop interconnected mini-grids in such areas where it would be more suitable for a private sector developer to develop and manage. In that case, the disco receives distribution use of asset, use of systems, a dual tariff from that tripartite type agreement. So it's a win-win in that sense, and it creates a more robust energy mix. And where there's no disco available on the off-grid side, the isolated mini-grids makes more sense for developers to be the ones, private developers to be the ones to push for electrification in those areas.

SPEAKER_01 15:30

Exactly. And I would even call it a win-win-win situation because it's a tripartite agreement with three parties. The first, the mini-grid company, which gains some business, of course, through tapping into an area with high productive use potential with high average revenue per user potential. The disco can gain revenues from an asset that is underutilized, potentially an asset that will be upgraded by the mini-grid company and after the expiration of the tripartite agreement would potentially then receive an upgraded system that will be very profitable for them in the long run. And then last but not least, the community that gets access to reliable electricity, of course, they will not be able or will not be allowed to pay these low tariffs that they would usually pay in the national grid. But with the agreement, the tripartite agreement, they confirm that they are willing to pay higher tariffs for more reliability of electricity supply. And yeah, so everyone benefits reliable electricity at a decently higher tariff that can pay the mini-grid company as well as the disco for their effort and cost. And yeah, I think that's a model that has taken some time to be picked up, but I think now we see certain pilots or even beyond some mini-grids that are being rolled out in Nigeria. Hanna, Janis, do you want to hint to some of those success cases that we're seeing?

SPEAKER_03 17:16

I can only remember one such interconnected mini-grids. I think it's it was the Mokoloki project, because I think it took quite a long time to actually figure out the frameworks of how that would come into play in implementation, and also to get a disco that was willing to go through the motions of it. But I think in the coming future we would see a lot more interconnected projects, especially at state level and subnational levels, where some states have taken up the responsibility and the drive to push for independent power generation and distribution.

Digital Permitting And Tariff Realities

SPEAKER_01 18:05

All right. And we should also mention the role that the Nigerian Energy Support Program played in all of what we just introduced. NESP, the Nigerian Energy Support Program, is a GIZ program funded by various European partners, and they supported the government as well as the early stakeholders, the early mini-grid developers and the financiers in implementing the first mini-grids, including the regulation. And also NEMSA, which created inspection rules for minigrids that now make sure that mini-grids before they get commissioned are inspected and show that they can actually operate safely and reliably.

SPEAKER_02 19:13

Again, Inensus helped out with that. And the other thing perhaps I I did want to mention still on regulation is that there was another innovation which was not so much the regulation itself, but how it was implemented. Because I believe that Nigeria was the first country that had an online mini-grid application portal developed where mini-grid developers could effectively upload all the documents that were required for permit applications on a website. And yeah, they effectively wouldn't need to submit any documents in person, but rather could do everything digitally. And again, I think this is an innovation that we first seen in Nigeria. I'm not sure, in fact, whether it has been adopted anywhere else at this point in time. I know that the Ethiopian PAA at some point also worked on having such a portal, but hopefully we'll be seeing adoption somewhere else. At least some figures, some graphs that I remember about minigrid regulation, I think this was in the Amda benchmarking report 2022. Nigeria as a whole had a much shorter time to get a permit than other countries in Sub-Saharan Africa. And I believe that this digital tool was one of the reasons for that.

SPEAKER_01 20:45

Alright. So what we can say to summarize this part of the journey is that, well, this regulation effectively productized mini-grid development, right? Standardizing the legal steps, disco interface, tariff pathway, so that financiers could underwrite portfolios rather than one-off pilots, right? So that was the kickoff, so to say, of the rollout. But now before we move into the next parts of the journey, let's quickly look into tariffs. There is a special way Nigeria handles tariffs in practice, which deviates slightly from what is written in the regulation, after all. The regulation foresees full cost recovery, so to say, basically cost of service way of calculating the tariffs and mini-grids. But what we see in real life is that there is still a lot of political expectation of certain tariff levels, that state governments play their role in pushing into a certain direction. And that after all triggers certain responses from the mini-grid developers and operators side. To this tariff pressure from the political side by trying to stay below 100 kilowatt of distributed power per site, because if they stay in this lower range, they can go for a registration, which does not need tariff approval, not in the first place. But still, like if there are complaints, then of course, even these small systems need to go through tariff inspections and then tariff regulation. But this is one way of kind of bypassing immediate tariff regulation, at least.

NEP Funding And Local Developers

SPEAKER_02 22:37

Of course, another method that well, I'm not sure that we can officially say whether it has been used or not, but another method that I'm aware of that can be used is that the values that you put into the tariff tool are simply those values that you would like to put so that you get out the right tariff at the end of the day rather than the other way around, which is to put the actual cost of assets and cost of financing to get an actual cost reflective tariff. But I believe there may have been instances where values were put into the tool to get this lower tariff that Nico had mentioned. So that's uh again, everyone is happy with the outcome. So the community is is able and and willing to pay the tariff, uh the regulator is okay with the costs proposed, and then ultimately the minigod developer can actually build the mini good.

SPEAKER_03 23:39

I think it's a two-way thing, Janice. It's either you have the cost reflective tariff regime based on the mito calculation, or you have that um agreement with about 60% consent from the community, a willing buyer, willing seller kind of agreement. In terms of how that plays out in reality, I think it's also affected by what kind of programs the mini-grid developers are applying to. In instances where they need to show commercial viability, then they would need to show a tariff that would, you know, cover their costs and generate some sort of revenue.

SPEAKER_01 24:25

Yeah, but in the early days of mini-grids, I am aware of some cases where mini-grid operators, on purpose, did not apply the higher tariff that they could calculate with the cost of service model that the regulator would approve, but went for lower tariffs that they negotiated with the community because they were afraid of the community leveraging state-level political power against them or even federal level political power against them. So, yeah, tariffs are a political game. And what I see at the moment is that in some cases the regulation is not powerful enough to overcome these political background noises, I would say, that currently well retard rollout through low profitability due to tariff levels that are not sustainable.

SPEAKER_03 25:22

Precisely the sustainability case, also, Nico, because we've seen over the years from the progression of mini-grids during the NESP, which we supported on, up to the monitoring and evaluation levels where we're seeing cases where the mini-grids cannot operate because of you know some components that need to be changed and haven't been changed because of this kind of situation.

SPEAKER_01 25:52

All right, so I think that is a point we need to consider when we summarize our findings at the end, learnings from Nigeria. But now let's step forward and look at what happens next. And that was basically the implementation of the Nigeria Electrification Project NEP. That was around the 2017-2018, uh, up to the early 2020s. The NEP is basically a project that was funded by the government of Nigeria through a loan, an IDA loan they received from the World Bank. And it was significant money. I think after all, it was something like$170 million or so at that time. One of the largest, if not the largest, mini-grid program in Africa. And yeah, and then AFDB came and added additional funding to it. And yeah, that finally kicked off larger scale rollouts of mini-grids in Nigeria and also attracted international players into the Nigerian market. Like up to that point in time, the Nigerian mini-grid market was dominated by domestic players and domestic mini-grid developers and mini-grid operators. And when the Nigeria electrification project started, then also international, larger international players were attracted.

PBGs vs MSTs And Scale

SPEAKER_02 27:27

But at the same time, Nico, I would uh argue that even the NEP uh still helped uh local mini-grid developers to to rise and to scale up. In fact, uh if you compare Nigeria to many of the other markets in sub-Saharan Africa, I would argue that we have a lot more local developers in Nigeria, successful local developers that also have more than 20, 30 minigids in operation at the same time, which have been, of course, helped through the initial pilots that were carried out by NESP and other programs, but they were still able to apply for the NEP funds. So again, I think Nigeria, compared to other markets, at least did not crowd out the local developers because what happens in some other markets is that as soon as there's international developers coming in, the local developers are being crowded out. But I would say that this is definitely not the case in Nigeria.

SPEAKER_01 28:30

Now, why is that? Now, why were the local developers so persistent in Nigeria, more persistent than in other countries?

SPEAKER_03 28:39

I think the local developers have been at play from the beginning, and most of the pilots were done and executed by the local developers in Nigeria. What the NAP did was to strengthen what they have learned from the early pilots and also to consolidate on those learnings to increase their portfolios and scale up in the sense that having already gone through operations of some of the pilot mini grids, they were able to make a better case and build bankable projects that were attracting blended financing from different areas in country and outside of the country. And I think majority of the almost 200 mini-grids built under the NEP were executed by the local developers. So it was also a combination of both the implementation side and the capacity building side, I believe, that were executed back to back. A lot of the technical assistance that was provided at that time.

SPEAKER_01 29:54

Yeah, and I believe that this is a big advantage for Nigeria as a country to have domestic local mini-grid developers and operators. As we as INENSUS we're already foreseeing kind of conflicts in other countries where international players take over basically critical infrastructure for electricity supply. And in Nigeria, it's basically the Nigerian companies. So governments would trust them maybe even more to also take the benefits of their people, like the Nigerians, into consideration. So I think it's a great approach of the NEP to continue supporting Nigerian developers and operators while opening the market for international companies. Now, after all, international companies, of course, bring in international finance. They usually have better access to finance, and that may accelerate international companies' mini-grid rollouts in the next phase, whereas Nigerian companies may move well as they can afford financially, right?

SPEAKER_03 31:11

That's correct. One thing with the international organizations and developers is that access to finance for them in terms of commercial capital is cheaper than what it is in country in Nigeria. So I guess that makes it easier to develop quicker. However, Nigeria, as you said, is a big country and even just the last mile electrification, Nigeria is looking to mobilize more than 15 billion in private investment. So I think this would be one where we would have to leverage on our different strengths. The local developers know the problem, they know the country, they know how to do the business in the country, while the international developers can support or bring to bear the financing that is required to move at scale.

SPEAKER_01 32:16

And I think then the NEP came along with another success factor. Like initially, the NEP was structured into two components: the minimum subsidy tenders and the performance-based grants. The minimum subsidy tender basically never made it to implementation really, but the performance-based grants were really picked up very well. And uh, Yanis, do you want to explain the difference between those two?

Inflation, FX Shock And Tariffs

SPEAKER_02 32:42

Sure. For a minimum subsidy tender, what happens is that the government effectively picks the sites that are to be developed, and then minigoute developers apply to receive a subsidy for developing those sites, and they effectively compete with one another to develop the same sites. Whereas for performance-based grant, what happens is that the minigut developer themselves picks the sites, chooses any sites that they would like to develop within the country. So these in this includes sites that are not pre-selected, and then they receive a set subsidy for developing that site. For example, a subsidy per connection.

SPEAKER_01 33:31

Yeah, exactly. Cluster building and selection of sites according to certain value chains and types of electricity customers and so is much easier under PBGs, performance-based grants, compared to MSTs. Because in MSTs, the government selects the sites, and there the government basically mixes large and small sites, different types of systems need to be deployed for different sites, economies of scale are more difficult to achieve, and so on. That is different in PBGs. So, and that is also what then this NEP plus the NURC regulation they together achieved. Basically, predictable regulation, predictable grant support, repeatable mini-grid transactions. And after all, that was the big promise of the market. Until the NEP came to its end, and suddenly the grant support stopped. And it took quite some time until the successor program was fully commissioned. That was in 23-24. And the successor program is called DARIS. And this DARIS program is building on the NEP with certain adjustments. It focuses on performance-based grants rather than MSTs, because PBGs have been much more successful in the NEP, and comes with a much larger financial volume to further accelerate mini-grid rollouts in Nigeria.

SPEAKER_02 35:10

And then I believe, I mean, one of the other key differences is that the subsidy levels that have been created under the DAES program vary by community or they vary by village. So under the NEP, there was a set subsidy for that you would receive for every connection. And I think that the DAES program has at least three different levels, depending on whether the community is large or small, depending on the type of density of the village, depending on whether there are several villages within the same uh vicinity, and also to a certain extent the economic capability of the region. And all of that is being considered together to again have different subsidy levels that apply for for different sites, where of course the the mini-grid sites that are less favorable they would receive a higher subsidy. And I think this is to again encourage mini-grid developers to actually develop the more rural sites and not just focus on a metro grid or large mini-grid strategy.

SPEAKER_01 36:22

Yeah, do we have any indication on whether this is actually having any impact on the site selection by mini-grid companies? I'm not sure.

SPEAKER_03 36:33

So most of the sites are just starting off. Most of the development is just starting off after the pre-qualification. And it's an ongoing on a rolling basis qualification of companies. So it's still early days to look at the data, but I understand that developers would be looking to have a mix of areas where they're developing in order to be able to take advantage of the grants that are available.

Local Currency Finance Via InfraCredit

SPEAKER_01 37:09

Yeah, my understanding is that even though there are higher grants for smaller and more rural mini-grids, most of the developers would still be looking at the larger sites, rather. The metro grid approach that some of the developers introduced some years back is now being picked up by various other companies. And you can even prove that this MetroGrid strategy can be quite a successful one by playing electrify the mini-grid game using Nigerian data and Nigerian conditions, so to say, market conditions. And you see that you can be most successful in the Nigerian mini-grid sector as a mini-grid company if you go for the larger sites, even though the grant levels are rather lower than in the smaller sites. All right, so now we were already talking about the years 2023 and 2024. But in the meantime, in parallel to that development of the Darius project or the Darius program, there was some macroeconomic headwinds that mini-grid companies were facing, especially due to heavy inflation and drastic decline of the currency value. The Naira dropped against the dollar drastically and lost a lot of values, which caused significant issues for those companies which had to repay loans in hard currency, in US dollar or euros. Those companies that had local finance were better off. And at the same time, of course, there was some tariff stress. Basically, what companies do if the cost increased, for example, through these macroeconomic effects, is they increase tariffs, right? But these tariffs are regulated, and that is again where what we discussed earlier, the political influence on tariff levels was applied, and tariff thresholds were not officially but unofficially introduced. What is the expectation of a high tariff? What is the expectation of a low tariff? Like what could a high tariff be? And what threshold should it not surpass? So that was the discussion on the political level, also on the village level, that influenced the profitability of mini-grid companies in Nigeria heavily.

SPEAKER_02 39:55

And at the same time, of course, Nico, what we know is that I mean higher tariffs don't necessarily translate into higher revenue, right? Especially for the uh households. Effectively, what they will simply do is they will reduce the amount of electricity that they will consume so that at the end of the day, probably if they had, let's say, four to five dollars of budget for electricity per month. If they that was the budget before the tariff increase, then that budget probably remains the same after the tariff increase, and so they will simply consume less. So again, it's not always the best strategy to increase tariffs. But of course, as you have said, the developers they did feel uh stress, and that's one of the ways they responded.

SPEAKER_03 40:47

Nico, I wish there was a gain for this one because we actually felt the real hit of the exchange rates. So it's one where we had to do a restructuring of the debt essentially to keep afloat and be able to, you know, ride the wins until a more stable economic situation was reached. And I believe it was a sector-wide challenge for a lot of companies and even investments stopped at some time just to see how it would play out.

SPEAKER_01 41:25

Yeah, and uh the game that we just mentioned, the electrify game, actually takes that into consideration, like the price elasticity effects that Janice just mentioned, the conditions under which you can acquire funding, uh, equity and debt funding are considered here. The foreign exchange is considered, the exchange rate against the dollar is considered. And what we could now do is simulate a stress scenario with that software. So it's basically just a parameterization that we could do, and there you have it. You can then run through these scenarios and see what happens.

SPEAKER_02 42:05

And hopefully find solutions.

2023 Electricity Act And New Rules

SPEAKER_01 42:08

Yeah, I'm not sure if that will be the case, but let's see. But there were also answers to this challenge of instable Naira values, and that was local currency financing. And in the past, NESP and others have tried a lot to motivate Nigerian banks to lend in Naira. But the refinancing of these banks was usually in hard currency, and only government programs, after all, were able to trigger local currency financing for mini-grids, but only in small amounts. The few hundred thousand of dollars in local currency instead of millions of dollars that would have been required to further scale the sector. And that is then the gap that infracred stepped into with their approach to attract funding from insurance funds and pension funds through the provision of certain guarantees that were then provided and supported by international funders. And that really unlocked or is still unlocking a relatively large pot of local currency funding to the sector, which is great. And it even comes at reasonable interest rates and long tenors, and that is exactly what the sector needs.

SPEAKER_03 43:42

Precisely. I think over 23 companies have been able to secure investments and potential pipelines through the local currency financing from infracred, as opposed to a handful from the commercial bank. Banks mainly because of the interest rates. The commercial banks are still not able, I would say, to lend at single digits or levels that would be catalytic for mini-grid projects where we're looking at tenors of about 20 years.

SPEAKER_01 44:21

What we're seeing at the moment, Infracred is doing a great job, but at the moment they are the only player on that market, so they have a kind of monopoly. It would be very useful to have several players in the sector doing similar things or basically replicating the approach so that a clear like competition also on that end can be established. So now, what else happened in the meantime was that the regulatory and policy framework for electricity in Nigeria was changed in 2023. It got a refresh. The old EBSTRA was decommissioned and replaced by an Electricity Act 2023, together with NOC Mini-Grid Regulations 2023, which were building on the 2016 earlier version, but with some important changes. And Janis, do you want to come in and quickly talk about these changes?

State-Level Innovation And Risks

SPEAKER_02 45:26

Yeah, sure. I mean the minigrid regulations 2023 effectively address especially some of the developer pain points. So previously, developers would have had to apply for each and every site individually. But these new regulations that were published enabled portfolio level applications. Essentially, you would have to fill out all the documents for your permits only once for an entire portfolio of projects instead of on an individual level. And at the same time, the reporting was shifted to a portfolio level reporting. And then the regulation further streamlined some interaction steps with the discourse that were especially uh significant to further enable interconnected mini-grids. But I believe that in the mid to well, really in the long term, mid to long term, in fact the Electricity Act 2023 that you have mentioned will have a much greater impact on mini-grids in the country than the updated mini-grid regulations. Because of course, what that updated electricity act allows is for states to develop their own regulations, also for mini-grids. And we have indeed already seen the first of these states develop their own minigut regulation, which is ABIA state. So this was published, in fact, last year in 2025. And of course, now opens the door for other states to also uh develop their own mini-good regulations. And I believe all in all we have to be, of course, a bit careful that we don't end up with 36 different minigut regulations in Nigeria because this can again be difficult to navigate for minigut developers. But I believe that Habia state at least has taken a step in the right direction. So again, they were the first state to publish mini-good regulations. They have also increased the generation capacities to three megawatt for isolated minigrids, and they even allow portfolio applications of minigids up to 50 megawatts. And that same regulation also allows minigrid permit holders to engage in rural industrialization activities, such as agro processing or other non-electricity related businesses. So again, I think there are some innovations that have come in or have been enabled by allowing states to develop their own minigrid regulations.

SPEAKER_01 48:12

Yeah, but there is also a downside of what we saw in Abby State compared to the earlier NERG regulations. So Abia State actually limited the license duration to 10 years. After that, basically all the rights of main grid encroachment, protection, and your tariff calculation and everything just expires after 10 years. And then after 10 years, when the main grid comes, well, you don't get anything.

SPEAKER_02 48:41

Well, of course, the the hope is that this will not limit developers from applying because it is uh renewable. So it's 10 years renewable, and should the framework remain the same, I believe that they will, because of the at least at at the moment, because of the political interest to have MiniWitz developed, they will renew those permits after 10 years.

SPEAKER_01 49:06

And what is the likeliness of other states picking up the good example that Abias State now put into practice?

SPEAKER_02 49:14

Well, on my side, I do hope that other uh states pick up on it. I think it's almost a case of either you pick up on it or else you get left behind. Because I think that many good developers will value being able to interact directly at the state level when it comes to permitting because also the portfolios that they do develop typically within one or two states. And so, of course, if you're anyway already on the ground and developing your sites there, you may as well interact with the local state level. And again, I think all in all, it leads to a situation where minigrids are in fact easier to scale up. So instead of all the developers having to apply through a central institution, central organization, which is NOC, and then NOC having to handle hundreds of applications at the same time. Now all these applications are being processed in different places, which may help with speeding up some of the approvals.

DAERS Subsidies And Site Strategy

SPEAKER_01 50:18

Yeah, I fully agree. There are some specific advantages here of decentralizing the regulation for mini-grids and of course the electricity sector as a whole. But specifically for mini-grids, as the states have always been involved, even in the past, they have been involved in mini-grid development. So they have been the entities providing the right of way or land rights and these kinds of things. So what mini-grid developers had to go through is basically a dual or a parallel approval process. Like they go to the states and then they need to go to the federal level to get it all approved. And now it's basically a one-stop shop. Abyest state, in this case, is not only in charge of the land rights and the rights of waste, but also the tariff and the license and everything. And at the same time, ABIS State also oversees rural industrial development in their state. And that can now be linked with electrification. So, therefore, sector coupling is much easier, and rural industrialization can be much easier under the Electricity Act 2023, with the states in charge of their own electricity sector. All right, and then one aspect that I'm not that much aware of is the interconnected mini-grids, the commercial rules of 2025-2026. So this is currently ongoing. So that is again on the federal level, where NURC issued interconnected mini-grid commercial frameworks to further provide rules and guidelines to reduce investor risk and improve the disco developer interface, especially relevant for underserved grid adjacent areas.

SPEAKER_02 52:19

Yeah, I believe, Nico, that this basically just formalizes some of the aspects that have probably already taken place, let's say informally, through negotiations between developers and discos. So for example, one of the features introduced is a two-part pricing mechanism where minigut operators pay discos both a fixed, let's say, rental fee for the use of their assets, so lines, transformers, and other assets, and then also a variable cost of energy. Something like this had already been introduced, I would say, informally previously, even by NERC that had uh published a tool to calculate the use of service, the duo's tool. But again, I think now it has basically just been formalized.

SPEAKER_01 53:12

And we're seeing Daris coming with the 750 million US dollars in IDA funding to the Nigerian government and the Nigerian government using that money to grant fund companies that electrify villages with mini-grids and solar standalone systems. And the expectation definitely is that large private capital is being mobilized, and it looks like this is happening, Hannah. What do you think? Is it happening?

SPEAKER_03 53:46

Yes, I think uh previously we've seen some private equity from the likes of Cross Boundary and Angie, where they dedicated, I think it was about sixty million dollars to mini-grid development. And in recent times, also the Wheelite funding that I guess it's more of multilaterals, they're backed by multilaterals in making accessible these these funding for mini-grid developments within Nigeria.

SPEAKER_01 54:21

All right. Yeah, and I think this is all going into a good direction. Now let's summarize. What made Nigeria so successful in mini-grid rollouts? What were the key components that other countries could now look at and potentially replicate? And what are the conditions under which those components and mechanisms may work or may not work?

SPEAKER_03 54:45

I would start with the demand. The population is huge, the market is huge, in addition to the robust policy and regulatory frameworks which mostly have been tested to some extent. And also the appetite for risk, I guess, by the developers.

Diesel Subsidy Removal And Competitiveness

SPEAKER_02 55:07

Of course, the the size of the market is something that I think unfortunately other countries will not be able to replicate because simply you know the the the population levels and the the size of the country again. If if you're another country, you can't get to where Nigeria is. But certainly on the regulation side, this is something that other markets uh could pick up. Indeed, AFUR, the Africa Forum for Utility Regulators, has published mini-grid regulation tool, which enables any country to very quickly come to a good basic regulation without having to do too much work. But then, of course, this needs to then be customized for that specific country's laws and other policies. And I believe that the tariff tool that has been published by Afur as part of this mini-grid regulation tool has indeed also been picked up by Nigeria itself. So Nigeria itself is now utilizing a tariff tool that was developed by Afur for the mini-bits. And yeah, there are many parts also within that tool where I think learnings have been derived from Nigeria, including cost of service tariffs, including what happens when the main grid arrives. And then also I think some other aspects really can be learned from Nigeria when it comes to regulation, which is to allow interconnected minigrids. I'm very sure that even other countries can have similar challenges to what the discos are facing in Nigeria, where uh supply particularly to rural areas is difficult and where perhaps the national utility could connect with minigrid developers to create interconnected minigrids.

SPEAKER_01 56:55

Yeah, and I think the performance-based grants is one of the big success factors in Nigeria, and it's still to be seen if the tariff differentiation between large and small rural and more urban villages will eventually make a difference in the allocation of funding from the private sector side under the PPG frameworks, where they can select the sites themselves. But one message, I guess, that we can send out to other African countries is well, if you want to move fast, don't drive mini-grid companies into areas that don't make commercial sense. Let them select the sites themselves, because they will select sites where they can be profitable. If they are profitable, they will have soon more funding available to go also to smaller sites. If governments drive companies into smaller sites in the first place, then the opposite happens. Mini-grid companies fail commercially, mini-grids will not be expanded, will not be rolled out, and the whole mini-grid movement in wave stops. And that of course only works if, as you just said, Yanis, a solid regulation, a reliable regulation, and a reliable policy framework and legal framework can be used as a foundation for investments. But I would also like to highlight quickly, Hannah, you said that the size of the market was an important factor. But I would also like to highlight that the market was not an easy one. In Nigeria, for a long time, you had significant subsidies for petrol and diesel. And the competition of the diesel and petrol generators for the mini-grids were for a very long time the determining factor. And still mini-grids made it, right? There were some compromises on the tariff side. And probably in the early days, minigrids were not very profitable. But even under these conditions, mini-grids can actually be a big factor in electrifying rural villages.

SPEAKER_03 59:01

That's correct, Nicole. One thing we've seen in recent years is that the fuel subsidies have gone. So that has in a way leveled the costs or the prices for fuel with that of generating using a mini-grid, because typically one of the challenges that was faced by mini-grid developers was the tariffs being in the range of the 200 naira compared to when the grid or the diesel generator was about less than 100 naira. But we've seen two things happen where the price of fuel and diesel has have increased in recent years because of the removal of the subsidy, but also that the electricity prices have also increased because of the bans that are now applicable, where it's trying to reflect a service reflective tariff, where if you get 20 or more hours of electricity, you're charged more. And as it is now, that is beyond the 200 Naira mark. So we're seeing the market level up in terms of the tariffs and the competitiveness of the costing.

Productive Use And Rural Industry

SPEAKER_01 1:00:26

So now we summarized solid regulation, bankability of projects, performance-based grants, interconnected mini-grids are those success factors. What we're not seeing yet, but what we are promoting as INENSUS a lot is rural industrialization. Hannah, rural industrialization or the keymaker model has been picked up by various mini-grid companies in Nigeria, but can we say it's successful?

SPEAKER_03 1:00:53

We've mostly looked at it in terms of productive use of energy in Nigeria. And it's one where the attention given to that is usually as an afterthought after developing the mini-grid and you're trying to increase capacity utilization, then you look at, okay, let's go and see how to stimulate the demand from the productive users. I believe that now there's more focus on integrating productive use into mini-grid programs. Even the DARES program is doing so. And that would help from the onset to look at anchor loads and potential for really bringing the benefits of rural industrialization to communities, not just providing electricity for households and minimal use cases.

SPEAKER_02 1:01:56

I think if rural industrialization is looked at from the start, Nico, those smaller sites that you have mentioned that may be unattractive to developers at the moment, they may indeed become attractive because even though those smaller sites may not have a large number of customers, there may be agricultural activities around that site that would enable, for example, the pre-processing of some products within the site, within the community, that could then be sold on a national or even international uh market. And so that could enable some of these smaller sites to in fact be considered from the outset.

SPEAKER_01 1:02:40

Yeah, or artisanal mining activities, or forest with timber harvest, and these kinds of things, right? Doesn't necessarily need to be agriculture. Yeah, but I also strongly believe that considering rural industrialization or productive use right from the start of a mini-grid development makes a lot of sense. And of course, by doing so, also the commercial relationships with the off-takers and so on need to be taken into consideration.

SPEAKER_03 1:03:08

Another angle, Nico, is that most mini-grid developers tend to focus on their core business of trying to do the mini-grid business well. So when you add the burden of looking into productive use, I think some of the cases we've seen is that it becomes too much for them to manage. So perhaps other models of operation could be implemented within these settings.

SPEAKER_01 1:03:37

All right. Good. And last but not least, I would like to say as one of the key factors for success is streamlined application and approval processes. And here we see the example of the Electricity Act 2023 decentralizing decision making to the state governments, which then reduces one approval level or one approval step, hopefully further accelerating mini-grid rollouts. And I think with that we can conclude. Thank you, Janis. Thank you, Hannah, for your contributions. And uh talk to you again soon.

SPEAKER_03 1:04:16

Thank you, Fanny.

Key Success Factors And Wrap-Up

SPEAKER_00 1:04:17

Thank you, Nico. This episode of the Mini Grid Business has been brought to you by AninTest, your one-star job for sustainable mini grids. For more information on how to make mini grids work, visit our website to inntex.com to the contact test linked to the show notes.