Commercial and Industrial Systems

Lagos Tinubu Square

Off-Grid Solutions

Introduction
The scarcity of electricity due to the limited transmission capacity of the national grid is usually compensated by the integration of fossil-fuel generators, which lead to high energy costs and pollution.
A Commercial and Industrial system provides companies with a power supply that is more cost-effective, reliable and environmentally friendly than fossil-fuel alternatives such as diesel. Solar-hybrid technologies in combination with battery storage systems are widely used in these C&I systems due to the abundant availability of solar energy resources in the country.

A smart alternative for electricity from diesel generators

Nigeria has one of the largest manufacturing sectors in Africa. With a limited grid capacity of about 4.5 GW, companies in Nigeria's commercial and industrial sectors face high energy costs due to the use of diesel generators as an emergency power supply to compensate for supply shortages. 

It is estimated that 8 to 14 GW of decentralised diesel generators are currently installed in Nigeria. About 86% of companies operating in the country own or share a generator, thus covering almost half (about 48%) of their total electricity needs. 

Electricity from diesel generators is very expensive, pollutes the environment, and contributes to climate change. Off-grid renewable-energy technologies are a low-cost, clean alternative for the commercial and industrial sectors and therefore, a very interesting market segment for investors.

factsheet_1_figure_1

 

Market Potential 

Although the Nigerian government is making considerable effort to improve the electricity-supply industry, there is much to suggest that the country's C&I market has potential for development in the future. 

While the average power-generation capacity from the grid is around 4,000 MW, the current power demand of C&I customers in Nigeria is estimated to be between 8,000 and 14,000 MW. The highly decentralized structure makes local RE technologies generally useful. High energy costs and the decreasing price of solar systems have therefore made solar-hybrid systems the most popular renewable energy (RE) technology for C&I installations. Solar-hybrid systems consist of a solar PV system, a battery-storage system, and a diesel generator for emergency power generation.

Percentage of Power Consumption

Although the electricity-generation costs of C&I solar-hybrid systems are higher than the grid-electricity tariff (between ₦21.33 and 46.23/kWh), the high price of securing electricity generation in-house with a diesel-powered system makes solar-hybrid systems (solar + grid + battery storage) a more profitable option.

While the average power-generation capacity from the grid is around 4,000 MW, the current power demand of C&I customers in Nigeria is estimated to be between 8,000 and 14,000 MW. The highly decentralized structure makes local RE technologies generally useful. High energy costs and the decreasing price of solar systems have therefore made solar-hybrid systems the most popular renewable energy (RE) technology for C&I installations. Solar-hybrid systems consist of a solar PV system, a battery-storage system, and a diesel generator for emergency power generation.

Although the electricity-generation costs of C&I solar-hybrid systems are higher than the grid-electricity tariff which are typically between ₦21.33 (US$0.06) and ₦46.23 (US$0.13)/kWh, the high price of securing electricity generation in-house with a diesel-powered system makes solar-hybrid systems (solar + grid + battery storage) a more profitable option.

Commercial Sectors

Segment

Utility Tariff

Backup Generation Type Energy End Uses

Estimated Average Electricity Consumption Per Customer 

Small Businesses (E.G. Shops, Restaurants, Offices)

C1 Diesel

Lights and security lights, refrigerators, ACs, fans, water heater, other appliances (photocopiers, computers, kettles, phone chargers, microwave ovens or hot plates, vacuum cleaners)

2,000 kWh per month

Hotels C2 Diesel

As above (in larger quantities) plus: high-bay lamps; mini refrigerators, other appliances (e.g. CCTVs, steam irons, TVs, vacuum cleaners)

61,000 kWh per month

Shopping Malls, Hypermarkets

C3 Diesel

Lights, high-bay lamps, security lights, refrigerators (commercial and supermarket size), cold room, ACs, fans, water heaters, escalators, other appliances (photocopiers, kettles, computers, microwave ovens, hot plates, CCTVs, vacuum cleaners)

106,000 kWh per month

Industrial Sectors

Segment

Utility Tariff

Backup Generation Type

Energy End Uses

Estimated Average Electricity Consumption Per Customer 

Small Industry 

D1 Diesel

Machines (e.g. packaging, moulding, tempering), mixers, water pumps, lights, ACs

7,900 kWh per month

Medium-sized Industry

D2 Diesel

Air compressors, machines, furnaces, lights, ACs

23,000 kWh per month

Food Processing

D3 Natural Gas, Diesel

Motors, air compressors, lights, ACs, ventilation, cooling

1.34 GWh per month

Pharmaceuticals

D3 Diesel

Steam (boilers), machines, air compressors, chillers, dehumidifiers, dry-heat ovens, lights

657,000 kWh per month (electricity + thermal)

Steel, Cement

D3 Natural Gas, Diesel

Steam (boilers), motors, air compressors, lights, machines, cranes, pumps, ACs

6 GWh per month

 Source: GIZ RE & EE Report on Access to Finance

Legal Framework

The viability and positive cash flow attributed to commercial and industrial-system installations are mainly driving investment in this sector. However, there are legal and regulatory requirements that need to be met by project developers in this subsector. 

Legal frameworks are designed to ensure that high-quality equipment and personnel with the necessary expertise are used in the installation process. They also regulate the relationship between the grid and the power producer. 

No licenses or permits are required for systems smaller than 1 MW; for systems larger than 1 MW, a Captive Generation License issued by the Nigerian Electricity Regulatory Commission (NERC) is required. This license is valid for five years and is issued on behalf of the project host (the owner of the business where the installation is performed). The license also allows the sale of excess electricity if the surplus does not exceed 1 MW. When the surplus energy exceeds 1 MW, a Power Generation License must be applied for by the project host.

Investment Promotion

Although most of the solar installations done for C&I customers are primarily driven by economics, the government does provide some incentives for investors looking to invest in solar-energy systems for commercial and industrial customers. The Bank of Industry provides low-interest loans of up to 90% of the total cost for C&I businesses looking to invest in onsite solar installations. 

Government efforts to promote renewable energy technologies have led the Nigeria Customs Service to issue a new Harmonized System (HS) Code for solar panels that removes the 5% import duty usually levied on them. This serves as further incentive for developers importing solar panels by reducing the cost of the systems. 

A private partnership between Odyssey and Trine has led to the launch of a debt facility for commercial and industrial solar-electricity projects in Nigeria. This milestone is the result of the exciting investment opportunity presented by the C&I market in Nigeria. Nigerian project developers can apply for commercial financing of C&I projects directly from the Odyssey Platform.

Although most solar systems for C&I customers are initiated by businesses, the government offers some incentives for investors who want to invest in solar systems on behalf of their commercial and industrial customers. 

The Bank of Industry provides low-interest loans of up to 90% of the total investment for C&I companies that invest in solar systems. 

Business Models

There are two main models used by developers of commercial and industrial solar systems in Nigeria: an ownership model and a service model. 

Typical Lease Ownership Model

In a full ownership model, the project host is responsible for the entire cost of the system and would engage the services of a solar-system engineering and procurement company. The project host may request that the solar-system engineering company:

  1. Build and train an in-house team to operate and manage the system, or 
  2. Build and operate the system on their behalf for an agreed period of time. 

There are two types of service models, commonly employed by project developers: 

  1. Solar as a Service Model (SaaS): In this model, the project developer delivers reliable power from a solar system to the project host. Typically, electricity from the solar system is cheaper than the facility’s blended rate of electricity. Therefore, the project host integrates this into their electricity mix. This model is generally provided for large industrial facilities. 
  2. Power as a Service Model (PaaS): In this model, the developer takes over the electricity-supply service from the project host, guarantees the supply of electricity, and provides a discount on energy costs as compared to the facility’s baseline costs. Generally, this model may require the project developer to retrofit some of the building equipment with more energy-efficient technologies to improve the savings margin. This service model is more popular that the SaaS in Nigeria.

Payment and Financing

OSIP 2

With the ownership model, payment and financing are simple: The promoter must pay the entire cost (including installation and other costs) of the C&I solar system in advance, or make a series of payments over an agreed period of time, also known as a lease model. 

In service models, financing by the project developer is provided through equity, debt, or a mixture of both. The payment structures are based on PPAs signed by both parties. Payment can be on a per kWh basis in the case of a "Solar as a Service" model (usually with an agreed minimum energy fee), a monthly flat fee reflecting guaranteed-savings, or a dynamic monthly fee based on the joint-savings in the case of the "Power as a Service" model.

Key Performance Indicators

 

Indicator Range of Site Characteristics
Commercial Energy Use Lighting, HVACs, appliances such as computers, photocopiers, printers, etc
Industrial Energy Use Lighting, HVACs, electric motors, air compressors, pumps, etc
Local Cost of Diesel $0.46–$0.86 per litre
Local Cost of Natural Gas $0.22–$0.35
Grid Tariff Commercial Industrial
₦21.33—₦46.23 per kWh ₦24.00—₦46.23 per kWh
Typical Blended Cost of Energy (assuming 10 hours grid supply)  US$0.18 per kWh
Capex Range $1.10/Watt to $3.00/Watt
Average Energy Savings  30%—45%
Energy Export 16 kWh/day—300 kWh/day
Consumer Savings 10%—20%
CO2 Mitigation  30% to 40% reduction per site

 

Risks

Despite an improving landscape for C&l systems in Nigeria, there are some concerns that investors may have. 

Technical Development – The concept analysis of solar projects is critical for a detailed design and financial model. Risks associated with inaccurate data-gathering such as a facility’s energy baseline, rooftop condition, solar-resource availability, economics, etc., affects the detailed design as well as the financial viability of the project. A proper due diligence exercise must be conducted by qualified personnel to avoid this. 

Net Metering – Although net-metering plans have been proposed by the government, there are no provisions for it at the moment. This presents a restriction for developers selling any surplus power that may be generated by the system. To mitigate this risk, installations are designed in a manner that all electricity generated from the system is directly consumed by the project host. 

Project Timeline – Because solar-system components last for a long period (10 to 25 years), investors and project developers delivering service-based models prefer to provide PPAs for longer periods. However, project hosts may shy away from such long-term contracts due to reasons relating to guarantees. One such reason includes a facility’s lease period being shorter than the proposed term in the PPA. 

Performance Evaluation – For service models solely linked to performance such as guaranteed or shared savings, a proper Measurement and Verification Plan must be put in place to provide a standardized approach for evaluating the performance of the system.

Average C & I Capex

Success stories

Helios Investment

Startsight Power Limited, a solar-energy company focused on commercial and industrial solar system installations has installed 27 MW of generating capacity and 21 MWh of energy-storage capacity in…