Nigeria Energy Programmatic ASA Lagos DPV Viability Assessment Oct 2021 © 2017 The World Bank 1818 H Street NW, Washington DC 20433 Telephone: 202-473-1000; Internet: www.worldbank.org Some rights reserved This work is a product of the staff of The World Bank. The findings, interpretations, and conclusions expressed in this work do not necessarily reflect the views of the Executive Directors of The World Bank or the governments they represent. The World Bank does not guarantee the accuracy of the data included in this work. The boundaries, colors, denominations, and other information shown on any map in this work do not imply any judgment on the part of The World Bank concerning the legal status of any territory or the endorsement or acceptance of such boundaries. Rights and Permissions The material in this work is subject to copyright. 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Overall project approach for Phase 1 1 week 3 weeks 5 weeks 3 weeks 1 3 Conduct baseline assessment of DPV landscape Finalize recommendations 2 Pre-kickoff Develop viable use cases / business models • Prepare kick-off • Conduct baseline analysis and • Define capabilities and key success factors • Gather and incorporate document stakeholder consultations across the 5 key strategic elements required stakeholder feedback and finalize deliverables • Launch data request • Synthesize findings and identify the • Develop use cases/business models for viable main issues and challenges DPV market • Facilitate final workshop to Activities • Schedule & begin present recommendations stakeholder interviews • Develop robust stakeholder • Build financial models to simulate the identified consultation plan use cases • Develop recommendations and detailed implementation roadmap • Project kick-off meeting • Stakeholder consultations • Stakeholder consultations (1:1 meetings, Focus • Workshop II (Draft recommendations) – 1:1 meetings groups etc.) – Focus groups • Workshop I (Draft recommendations) Meetings • Kick-off document • Approach Paper (10-15 pages) • Draft Report (10-15 pages) • Financial Model – Project timeline – DPV Market assessment – Success factors for a viable DPV market – Incl. use cases – Risk mgmt. plan – Challenges and barriers – Use cases/business models • Final Report (10-15 pages) Deliverables – Draft stakeholder – Stakeholder consultation plan – Draft recommendations and implementation engagement plan roadmap 1 Content Summary Context and approach 3 - 25 Viability assessment and business case 27 - 118 Lagos DPV Ambition 120 - 125 Recommendations to accelerate DPV in Lagos 127 - 150 Next steps 152 - 153 2 Unconstrained electricity demand in Lagos State is estimated to be ~30-40TWh (~3-5GW) per annum currently Commercial and industrial segment accounting for majority of Demand demand with ~65% (31% and 34%) of total demand Context: Most people Most of the population of Lagos (~95%+) are close to grid in Lagos are close to infrastructure with the exception of primarily low-population grid infrastructure, but areas of Epe and Badagry electricity supply from Of the population near grid infrastructure, ~30% (1.4 million the grid is insufficient households) are connected to the grid and only a small fraction (~10% or 0.6 million households) receive steady, to meet demand reliable supply (>8 hours per day) Supply Supply from the grid in 2020 amounted to ~7.5TWh (~20% of demand) by both IE and EKEDC Although most of the population of Lagos are close to grid infrastructure, demand-grid supply gap remain at 23 – 33 Demand- TWh grid supply 3 1 Determine current grid supply levels • Estimate the existing grid supply per customer segment • Data sources: EKEDC and IE performance improvement plans 2 Estimate unconstrained electricity demand • Leverage World Bank data to determine correlation between Approach to GDP and electricity consumption per capita for all countries • Determine GDP per capita for Lagos from state and other estimating the current public sources, then estimate unconstrained demand from established correlation demand-grid supply • Data sources: World Bank, Lagos Bureau of Statistics, IEA1 mismatch in Lagos 3 Segment demand into customer segments state • Leverage benchmark countries with similar economic activity as Lagos to estimate the demand split by customer segments – residential vs. commercial vs. industrial • Data sources: World Bank, IEA1 4 Determine the demand-grid supply mismatch • Consolidate the demand estimates and grid-supply data to determine the mismatch range 1. International Energy Agency World Energy Balances 4 Demand: We estimate that unconstrained electricity demand in Lagos State is currently ~30-40TWh (~3-5GW)1 of electricity annually Electricity use per capita, kWh 7,500 Trend line fitted for $2,000- $30,000 as relevant range Lagos est. 2020 6,500 for the range of incomes in demand: Lagos State and structural • 1,380 kWh 6,000 per capita Estimates Nigeria Lagos similarities in demand 5,500 patterns across these • 37TWh 5,000 countries (4GW) total Population 209 25 - 30 4,500 size 4,000 Nigeria estimated (million) 3,500 demand: Fitted 3,000 • 890kWh per regression Total GDP $1130 $250 capita 2,500 • 185TWh (21GW) line Y = 0.18X US$, PPP billion billion 2,000 total + 68 1,500 2 R = 0.82 1,000 GDP per $5,400 $8,200 500 capita, 0 US$, PPP 0 2,000 4,000 6,000 8,000 10,000 12,000 14,000 16,000 18,000 20,000 22,000 24,000 26,000 28,000 30,000 GDP per capita, US$, PPP Fitted line Estimated for Lagos in 2020 Estimated for Nigeria in 2020 1. Assuming conventional generation with a capacity factor of 100% (1 GW = 8760 GWh = 8.76 TWh); Note: Graph shows electricity use per capita against Gross Domestic Product (income) per capita, Purchasing Power Parity (current international dollars) for 138 countries in 2014 Source: Lagos Bureau of Statistics; World Bank World Development Indicators; International Energy Agency; Consultants; Consultant Analysis 5 We benchmarked countries with similar economic activity as Lagos to split the demand across Residential, Commercial & Industrial customer segments Lagos • GDP per capita, US$, PPP – ~$8,200 • GNI per Capita (NG) – $2,030 India Moldova Egypt Benchmarked countries ~$7,000 ~$8,000 ~$11,000 GDP per capita, PPP, $ GNI per capita ($) 2,000 4,580 2,690 Residential consumption per capita 250 560 680 (kWh) Proportion of non-Residential consumption • Industrial 50% 45% 49% • Commercial/Others 50% 55% 51% Geography South Asia Eastern Europe North Africa Note: GDP per capita, $, PPP of benchmark countries shown for 2014; GNI for Lagos not available for 2019, therefore Nigeria used as proxy Source: IEA World Energy Balances; World Bank Governance Indicators; The Economist 6 Assumptions for calculating unconstrained electricity demand split by sectors Residential Industrial Commercial Total residential demand (kWh) Total industrial demand Total commercial demand = (kWh) (kWh) Benchmark residential = = consumption/capita (kWh) Benchmark industrial Benchmark commercial x proportion of non-residential proportion of non-residential Population consumption consumption x x Non-residential demand (kWh) Non-residential demand (kWh) Note: Industrial, Special customers grouped as they tend to be Primary, Secondary industries, while Commercial is Tertiary. Method above assumes similar sectoral split and relative energy intensity across sectors in benchmark and LGA of corresponding income level Source: IEA World Energy Balances; The Economist 7 Backup Detail: Average of benchmarked countries used to calculate Lagos electricity demand for Residential, Commercial & Industrial customer segments Average of 3 country's figures used for Lagos state Population N/A N/A N/A 26,435,408 Lagos state total unconstrained demand (TWh) N/A N/A N/A 37 Proxy country used Residential consumption per capita based on 250 560 680 500 proxy (kWh) Residential consumption based on proxy (TWh) 6.6 14.8 18.0 13.2 Non-residential consumption split based on proxy • Industrial 50% 45% 49% 48% • Commercial/Others 50% 55% 51% 52% Industrial consumption (TWh) 18.6 13.0 12.6 11.4 Commercial/Others consumption (TWh) 18.6 15.9 13.1 12.4 Note: GDP per capita, $, PPP of benchmark countries shown for 2014 Source: IEA World Energy Balances; World Bank Governance Indicators; The Economist 8 Commercial and industrial segments account for majority of demand with ~70% of total demand Estimated annual electricity demand by sector in Lagos state in 2020 (TWh) 30 to 40 9-12 34% 9-13 31% 12-15 36% Residential Commercial Industrial Total demand Note: Industrial, Special customers grouped as they tend to be Primary, Secondary industries, while Commercial is Tertiary. Method above assumes similar sectoral split and relative energy intensity across sectors in 3 benchmark countries (India, Moldova and Mongolia) Source: IEA World Energy Balances; The Economist 9 We classified the population of Lagos state into four customer types using data from geospatial analysis and DisCos Off-grid On-grid (Well-served) On-grid (Underserved) Under-grid Definition Population with no grid Population connected to Population connected to Population in close infrastructure close them the grid and getting the grid and getting proximity to grid (>2km) and not connected electricity supply of greater electricity supply of less infrastructure (~<=2km), but to the grid than 8 hours in a day than or equal to 8 hours in not connected to the grid a day Source Derived from geospatial Derived from data shared Derived from data shared Derived from the difference analysis of population far by EKEDC and IE on by EKEDC and IE on between the total away from substations number of customers they number of customers they population and sum of on- have have grid & off-grid Note: All customers use generator sets to meet demand 10 Off-grid Most of the population of Lagos (est. 95%+) are close to grid infrastructure; gaps primarily in low-population areas of Epe and Badagry Electricity Sub Stations Industrial Power sub-stations and Commercial Open spaces distribution infrastructure Farmlands Residential concentrated in mainland Lagos Pop. ~ 0.4M (~2%) Pop. ~ 0.6M (~2%) State pop. ~ 26.4M Power infrastructure deficit in peripheral regions Source: BCG Gamma Geospatial Analysis, Transmission Company of Nigeria Distribution Map 11 Residential: ~4% of the population in Lagos is not connected to the grid, and ~60% are under-grid Preliminary Energy access in Lagos state split by households (Millions) Population (M) 3.8 4.7 16.9 1.1 26.4 4.4 0.2 4% 2.8 64% 0.8 18% 0.6 14% On-grid On-grid Under-grid Off-grid Total # of HH (Well served) (Underserved) Source: ESMAP, Based Lagos State energy survey of ~2000 respondents; EKEDC, IE, Consultant Analysis 12 On-grid The two power distribution companies operating in Lagos have ~1.7M registered customers, <40% of the 4.4M HHs in the state # of customers in each power distribution zone in Lagos state in 2019 Actual # of residential customers is greater than # of DisCo customers because some multi-family residential buildings are sometimes registered as single customers Customer class IE EKEDC Lagos state Residential 757,900 415,088 1,172,988 Commercial 226,641 84,972 311,433 Industrial 5,008 468 5,476 Special1 140,190 17,230 157,420 Street Lighting 15,883 434 16,317 Total # of customers 1,145,622 518,192 1,663,814 Total # of HHs in region 2,311,391 2,094,511 4,405,902 % of connected HHs 50% 25% 38% 1. MDAs and others Source: USAID Power Africa Nigeria Power Sector Program; Consultant Analysis 13 On-grid Calculation detail: Detailed calculation steps for real number of households that are DisCo customers Total # of households that are DisCo customers • Total # of single-residential HHs 1.14m = Total number of residential Disco customers A 1.17m x (1 - % of multi-residential HHs 3%1) • Total # of multi-family HHs 0.14m = Total number of residential Disco customers 1.17m x % B of multi-residential HHs 3%1 x # of HHs in multi-residential customer connections 4 HHs • Total # of households that are DisCo customers 1.28m = Total # of single-family HHs C 1.14m (A) + Total # of multi-family HHs 0.14m (B) 1. Based on World Bank ESMAP geospatial data Source: Lagos State Energy Consumer survey; ESMAP Geospatial analysis, Ikeja Distribution Company, Eko Distribution Company 14 On-grid Backup Calculation detail: Detailed calculation steps for real number of households that are DisCo customers split by on-grid and underserved Total # of households that are DisCo customers – on-grid: • Total # of households that are DisCo customers (on-grid – well served) 0.58m = Total # of D households that are DisCo customers 1.28m (C) x share of survey respondents reporting receiving >8 hours of electricity ~45% Total # of households that are DisCo customers – underserved: • Total # of households that are DisCo customers (on-grid - underserved) 0.70m = Total # of E households that are DisCo customers 1.28m (C) x share of survey respondents reporting receiving <=8 hours of electricity ~55% 1. Based on World Bank ESMAP geospatial data Source: Lagos State Energy Consumer survey; ESMAP Geospatial analysis, Ikeja Distribution Company, Eko Distribution Company 15 On-grid Actual: The two power distribution companies operating in Lagos have ~1.8M registered customers, ~40% of the 4.4M HHs in the state # of customers in each power distribution zone in Lagos state in 2019 Customer class IE EKEDC Lagos state Residential 826,111 452,446 1,278,557 Commercial 226,641 84,972 311,433 Industrial 5,008 468 5,476 Special1 140,190 17,230 157,420 Street Lighting 15,883 434 16,317 Total # of customers 1,213,833 555,550 1,769,203 Total # of HHs in region 2,311,391 2,094,511 4,405,902 % of connected HHs 53% 27% 40% 1. MDAs and others Source: USAID Power Africa Nigeria Power Sector Program; Consultant Analysis 16 On-grid Of electricity customers connected to the grid in Lagos, only a small fraction receive steady, reliable supply Survey question: For the grid, how many hours of reliable electricity do you receive per day? Percentage of non-residential customer respondents (%) Percentage of residential customer respondents (%) 40 21% of non-residential 17 % of residential 20 37% 32% 28% 22% 23% 20% 9% 9% 9% 6% 0 3% 2% 0-4 4-8 8-12 12-16 16-20 >20 0-4 4-8 8-12 12-16 16-20 >20 Number of hours of reliable electricity service received Number of hours of reliable electricity service received Source: Lagos State Government Residential and Non-residential Customer Electricity Survey of ~2000 respondents; June – July 2020; Ikeja DisCo interviews 17 Although most of the population of Lagos are close to grid infrastructure, electricity supply from the grid is insufficient to meet demand Estimated gap between unconstrained demand and grid supply in Lagos state - 2020 TWh 30 to 40 Significant share being met today by private generation (e.g., through generators) 29 79% 8 21% Grid supply Demand gap Total demand GW1 0.9 3 to 4 3 to 5 1. Gigawatt equivalent of electricity service assuming 100% capacity factor Source: Lagos State Ministry of Energy & Mineral Resources; Lagos Bureau of Statistics; Presidential Power Initiative; NERC; EKEDC Performance Improvement Plan; IKEDC Performance Improvement Plan; Power Africa Nigeria Power Sector Program; Consultant Analysis 18 Grid supply can be broken down by sector using the number of customers and average energy consumption per month Number of customers by sector Estimated annual grid supply by sector in Lagos state 1,500 (TWh/yr) 7.5 1,294k 10% 0.8 363k 0 6k Residential Industrial Commercial 48% 3.6 Average energy consumption per year (kWh) 115,000 9% 0.7 2.4 5,000 111,915 32% 6,579 2,798 0 Residential Industrial Commercial Total Grid Losses1 Residential Industry Commercial Supply 1. Distribution technical and commercial loss Note: Assumes Ikeja and Eko number of customers by sector are proportionally similar Source: Power Africa Nigeria Power Sector Program (PA-NPSP); Ikeja & Eko DisCo Performance Improvement Plans; NERC; Consultants 19 ~70% of HHs use generators that are <5 kVA, and ~90% of generators are used for less than 10 hrs daily LASG Household Survey 2016 questions (% of respondents) Size of generator used in HH (%) Hours of generator use daily in HH (%) # of days of generator use in month (%) Avg. – 12 kVA Avg. – 6 hours Avg. – 14 days 60 60 60 40 40 40 57% 20 42% 20 20 34% 24% 22% 20% 17% 19% 12% 14% 12% 14% 4% 6% 2% 0 1% 0 1% 0 1-5 6-10 11-15 16-20 21-25 26-31 <1 1-5 6-20 21-50 51- >100 1-5 6-10 11-15 16-20 21-24 100 Capacity of generator used (KVA) # of hours that generator is used daily # of days that generator is used in a month Source: Lagos State Government Household Survey 2016 20 44% of HHs in Lagos state use generators to meet ~40% of residential demand (~5TWh/yr) LASG Household Survey 2016 question: What alternative sources of electricity do you use? Number of HHs using alternative sources of electricity Demand-supply gap in residential customer segment (millions) (TWh) 4.4 13.2 32% 4.2 44% 1.9 3% 0.1 37% 4.9 4.1 50% 2.2 31% 0.1 3% Total # Generator Solar Local lamp1 Inverter Total Grid Supply Generator Demand Gap of HHs energy Residential Supply Demand Detail in 1. Local lamps including kerosene, battery and palm oil-powered lamps next slide Source: Lagos State Household Survey 2016; Lagos State Bureau of Statistics; Consultant Analysis 21 Backup Detail: Calculating the electricity supply from generators in the residential customer segment No. Value Data source 1 # of HHs in Lagos 4.4M LASG Bureau of Statistics 2 % of HHs with generators 44% LASG Household Survey 2016 3 # of HHs with generators 1.9M 1 2 4 Avg. capacity of generators 12 kVA LASG Household Survey 2016 5 Total capacity of generators 23,000 MVA 3 4 6 Total capacity of generators 18,000 MW MVA to MW conversion factor of 0.8 7 Avg. load factor of generators 37% A2EI Smart Metering Survey (22% for <5 kVA gensets); CK Power (65% for >5 kVA gensets) 8 Avg. # of hours of generator use 6 hrs/day LASG Household Survey 2016 9 # of days of generator use 350 Assuming 5% downtime for repairs, etc. 10 Total generation from generators 4.9 TWh/yr 6 7 8 9 1. Local lamps including kerosene, battery and palm oil-powered lamps Source: Lagos State Household Survey 2016; Lagos State Bureau of Statistics; Consultant Analysis 22 ~4000 MW of generators are needed to meet the demand shortfall from grid supply in the customer and industrial customer segments Demand-supply gap by customer segment in 2020 Estimated generator use by C&I customers in Lagos in (TWh/yr) 2020 20.7 TWh/yr deficit in C&I # Parameter Commercial Industrial -9.6 1 Demand-supply gap (TWh/yr) 10.0 10.7 -10.0 (-73%) -10.7 (-81%) 2 Demand-supply gap1 (MW) 1140 1220 (-94%) 13 3 Generator capacity factor2 50% 85% 12 11 Generator capacity (MW) 4 2 3 2280 1435 Total generator capacity 5 3715 (MW) 4 2 6 kW to KVA conversion 1.25 1 Generator capacity (MVA) 7 2850 1790 4 6 Residential Commercial Industrial Total generator capacity 8 4640 Unconstrained demand Grid supply (MVA) 1. Assuming 100% capacity factor, 1MW = 8760MWh = 0.00876TWh/yr 2. 50% caoacity factor means assuming generators are used only half of the time (12 hours/day) Source: Eko & Ikeja DisCo Performance Improvement Plans; Power Africa Nigeria Power Sector Program; Consultant Analysis 23 Interviews with genset distributors highlighted strong demand for gensets due to growing unmet electricity demand Market size and segments Competitive landscape Supply chain ~80% of diesel genset sales are Major players include Industry reliant on imported to C&I customers. Most of petrol PowerGen, Mikano, Caterpillar engines, with only assembly genset sales are to households (CAT), GMG, SDMO Cooler and and fabrication done locally Cummings Economics Growth Financing FX devaluation has led to price Despite falling purchasing High demand for consumer increases. Relative to 2019, power and FX devaluations, financing (~80% of customers). prices are 2-3x greater. Price sales have risen YoY by ~100% Some distributors partner with quotes updated every 2-5 in 3 years because of demand FIs including First Marina Trust, weeks currently shortfall from grid Pine Ale Leasing Company, Sterling Bank, Access Bank Source: Stakeholder Consultations with Stag Engineering and PowerGen 24 Manufacturing facilities require the highest quality of electricity service in the C&I customer segment Segment # of Avg power Reliability of supply Avg energy spend customers consumption (kW) needed (N/kWh) Microenterprises 3.2M 0.05-1 100 Market stalls/shops 89K 0.05-1 100 Public schools 1K 20-500 117 SMEs 12K 5-50 114 Public sector buildings 17K 10-100 112 Banks 1K 20-50 115 Manufacturing facilities 9K >100 115 Source: National Renewable Energy Laboratory (NREL); World Bank ESMAP Lagos Rooftop Geospatial Study; SMEDAN Survey (2013); Lagos State Waste 6 hours 24 hours Management Authority; BCG Lagos Residential Electricity Customer Survey (2020); Consultant Analysis 25 Content Summary Context and approach 3 - 25 Viability assessment and business case 27 - 118 Lagos DPV Ambition 120 - 125 Recommendations to accelerate DPV in Lagos 127 - 150 Next steps 152 - 153 26 Assessment focused on identifying the business case for DPV in Lagos and identifying the risks to be mitigated… Business Market potential Supply chain ecosystem Technical assessment case • Potential market size • Maturity of supply chain • Infrastructure readiness (e.g., DISCO capacity, 2-way • Use case viability • Competitive landscape metering, Panel Utilisation • Ability and willingness to pay • Business models Factor, etc.) Financial Commercial Operational Enabling environment Risk • Availability and • Demand aggregation • Importation • Quality standards factors accessibility of funds • Acquisition costs • Collections • Fiscal policy barriers • Local FI involvement • Consumer awareness • Skills availability • Stability and implementation 27 Review of existing industry reports and programs1 on 1 Distributed Solar PV in Lagos and Nigeria …and was conducted based on Engage with a broad set of stakeholders with expertise insights from three 2 across the ecosystem and environmental factors perspectives Quantitative analysis to size both the need and 3 potential impact of DPV 1. Solar Power Naija, NEP, NPSP, etc. 28 Various industry reports reviewed for baseline assessment… Non-exhaustive IRENA: Future Role of UKAid: Solar Investment Bloomberg: Solar for IFC: Harnessing Energy Signify Foundation: Distribution System Map, Nigeria 2021 Businesses in Sub-Saharan from the Sun, Empowering Mapping The Off-Grid Solar Operators, 2019 Africa, 2019 Rooftop Owners, 2015 Market in Nigeria, 2019 All-On: Achieving Business Day: Disruptors - Power Africa: Long-term ESMAP: Funding the sun, UKAid: Business Model Economies of Scale in the How off-grid energy Load Forecast – Lagos New Paradigms for Innovations Addressing Nigerian Solar Value Chain, companies are closing state, 2021 financing off-grid solar Environmental Sustainability 2021 Nigeria's energy access gap companies and Circularity: Case studies Source: Consultant Analysis 29 …and engagement with a broad set of stakeholders for an informed perspective Consumers DPV Supply Chain Players Enabling Agencies Government Association Bank Residential representatives Distribution Companies Presidency • Renewable • Grooming Centre • Magodo Resident Association • Eko Electricity Distribution Company • Power Sector Working Group Energy Assoc. of • NPF Microfinance • Omole Resident Association • Ikeja Electricity Distribution Company Ministry Nigeria Bank • Ikeja GRA Resident Association Companies in PV value chain • Federal Ministry of Power Commercial banks FinTechs C&I representatives • Lumos – Rural Electrification Agency • Zenith Bank • Lidya • Nestle • PAS Solar (Bboxx) • Federal Ministry of Finance • GTBank • Paga • Unilever • Arnergy Regulators • Access Bank • Paystack • Friesland-Campina • Auxano Solar • NERC • Sterling Bank • Opay access to finance - a key enabler for • Coca Cola • Cloud Energy LTD • NBET Critical stakeholders for improving • FCMB • Terrapay • Cadbury • Green Light Planet • Nigerian Electricity Management • UBA • Swifta Healthcare centres and hospital • Rensource Services Agency • Union bank (InfiBranches) • Lagoon Hospital • Starsight energy • Standards Organization of Nigeria Microfinance banks Donors: • Reddington Hospital • PowerGen • CBN • AB Microfinance • EU success Agriculture groups • Havenhill Synergy limited Lagos State Government Bank • GIZ • Olam • GVE Group • Lagos State Ministry of Energy and • LAPO • FCDO • Flour Mills • Total Nigeria Plc Mineral Resources Microfinance • USAID Others • Asteven – MEMR Commissioner working Bank Others • Lagos Chamber of Commerce & • Daystar group • Accion • All-On Industry (LCCI) • Engie-Fenix • Lagos State Electricity Board Microfinance • Bank of Industry • Manufacturers Association of Nigeria • SolarCentric Technologies • Lagos State Ministry of works and Bank • Development (MAN) • Cesel infrastructure • FBN Microfinance Bank of Nigeria • Nigeria Economic Summit Group • Prado Power Bank • Cross Boundary • Zola Electric • Fina Trust Energy • Nayo Tropical Tech. Limited Microfinance • WB India team • Rubitec Solar • A4&T Power Systems Note: Stakeholders were chosen based on ability to discuss the existing DPV market in Lagos and/or the challenges inhibiting adoption. Ecosystem can be addressed by consumers and supply chain players; enabling environment can be addressed by enabling agencies and government Note: 1st priority stakeholders; 2nd priority stakeholders 30 Assessment outcome: DPV market potential is significant in Lagos, but key risk factors would need to be addressed to enable rapid growth & penetration Business Market potential Supply chain ecosystem Technical assessment1 case • Potential market size • Maturity of supply chain • Infrastructure readiness (e.g., DISCO capacity, 2-way • Use case viability • Competitive landscape metering, Panel Utilisation • Ability and willingness to pay • Business models Factor, etc.) Financial Commercial Operational Enabling environment Risk • Availability and • Demand aggregation • Importation • Quality standards factors accessibility of funds • Acquisition costs • Collections • Fiscal policy barriers • Local FI involvement • Consumer awareness • Skills availability • Stability and implementation Favorability for market entry 1. Mainly relevant for Grid Tied PV Bad Good 31 Market potential: $1.5-3bn market opportunity for DPV with high ability and willingness to pay amongst customers 1 There is a ~$1.5-3 bn market opportunity (market potential × energy spend) for DPV and demand gap is growing • Geospatial analysis suggests potential for ~10-15 TWh/yr of electricity generation from DPV in Lagos (Year 2020) How big is the DPV (rooftop) market in • Average spend on electricity of $0.13 - $0.26/kWh amongst consumers in Lagos Lagos state? • Grid supply only meets~20% of demand resulting in an electricity demand gap of 30 TWh/yr • Demand gap growth of 7% expected by 2030 as grid supply increase insufficient to keep up with economic growth Four use cases have been identified as the most viable for DPV deployment in Lagos state assessment findings 2 • Residential (SHS): 0.6-1.2M lower-income households with total demand of 450-890MW Market Potential Are there sizable and attractive use • Residential (rooftops): 0.5-1M higher-income households with total demand of 500-1000MW cases? • Commercial & Industrial (SHS): 0.4-0.9M micro-enterprises and market stalls with total demand of 410-820MW • Commercial & Industrial (rooftops): 41K banks, SMEs, public sector buildings and industrial facilities with total demand of 250-510MW 3 Levelized cost of electricity (LCOE) model shows that there is a positive business case for DPV in Lagos • For standalone rooftop systems, DPV LCOE is 50-65% lower than the current customer spend on electricity (blended grid- On a levelized cost of electricity basis, is diesel tariff) DPV competitive? • For solar home systems, LCOE is higher than petrol generator tariff, but they are typically adopted where there is no energy access 4 High willingness to pay for DPV systems • NERC 'Willing Buyer, Willing Seller' policy that increases grid tariffs by up to 130% has been adopted across Lagos Are customers willing to pay for rooftop • Residential and non-residential electricity customer surveys reveal that customers are willing to pay ~50% more for reliable solar systems? supply • Initial investment required for DPV is 3-34x more expensive than that of diesel gensets Favorability for market entry Source: World Bank ESMAP Lagos Rooftop Geospatial Study; BCG Lagos Residential and Non-Residential Electricity Customer Surveys; LASG; LAWMA; SMEDAN data; Consultant Analysis Bad Good Consultant Confidence level 32 Market Potential 1 Estimate total rooftop area from satellite 1 imagery • Evaluate number of buildings in Lagos • Evaluate area of rooftop of individual buildings • Sum up area of all identified rooftops 2 Determine usable rooftop area • Evaluate unusable rooftop area (based on rooftop size, Geospatial analysis shading and obstruction) • Calculate unobstructed rooftop area that is irradiated used in sizing of the rooftop DPV potential in 3 Evaluate DPV generation potential of rooftop Lagos state • Calculate electricity generation potential of each rooftop based on characteristics (local irradiation level, roof tilt, roof area, DPV efficiency) • Calculate total electricity generation potential 4 Determine the market size • Estimate current energy spend from BCG survey data • Evaluate the market size for DPV (Annual DPV generation potential × Avg energy spend) 33 1 Geospatial shows potential for DPV in Lagos estimated to be ~12GW with residential segment accounting for ~72% of potential DPV installable capacity by building type in Lagos (GW) 11.6 72% 8.4 16% 1.8 1.4 13% DPV potential Residential Commercial Industrial Type of building Note: 1. Geospatial conducted by ESMAP team focused on 11 or 20 LGAs in Lagos – Total potential of Lagos scaled up to get range of 10-15Twh/Yrs. 2. Approach to geospatial assessment includes estimating total rooftop area from satellite imagery, classification of rooftops based on Google Map labels and estimating generation potential of rooftop based on roof tilt and local irradiation levels Source: World Bank ESMAP 34 Market Potential 1 Given potential, case exists to include DPV within power mix in Lagos Illustration showing DPV potential based on 2020 electricity demand (TWh) 30 to 40 -49% 8 29 14 15 Range of ~10–15 TWh Total Demand Grid Supply Demand - Grid DPV Potential Remaining Gap Supply Gap Source: Lagos State Ministry of Energy & Mineral Resources; Lagos Bureau of Statistics; Presidential Power Initiative; NERC; EKEDC Performance Improvement Plan; IKEDC Performance Improvement Plan; Power Africa Nigeria Power Sector Program; World Bank ESMAP Lagos Rooftop Geospatial Study; Consultant Analysis 35 1 Unconstrained demand should grow by ~50% (to 66TWh) over the next decade, should economy and population grow as forecasted Estimates 2025 2030 Assumptions Projected Electricity demand in Lagos State for Population 32 37 • Annual growth rate 2025, 2030 (TWh) size (million) = 3.2% (LBS1) Electricity demand (TWh) GDP per $8,572 $8,995 • Annual GDP growth ~50% capita, US$, rate= 4.2% (LBS1) 60 50 - 60 PPP • Nigeria 2020 PPP conversion factor = 144 (LCU2 per 40 - 50 international $; WB) 40 30 to 40 Electricity use 1,455 1,580 • Obtained from per capita regression trend (kWh) line 20 Total 46 57 • Total demand electricity = Population x demand Electricity use per (TWh) capita (kWh) 0 1. Lagos Bureau of Statistics, 2. Local Currency Unit 2020 2025f 2030f Source: Lagos Bureau of Statistics, World Bank, Consultants 36 Market Potential 1 We have observed 4 credible use cases in Lagos that have been proven and tested in Nigeria Residential Commercial & Industrial Small residential Large residential Small commercial Large commercial & customers customers customers industrial customers Indicative 0.05-0.5 kW >0.5-1 kW >1-10 kW >10-100 kW System size: • Off-grid HHs • Higher-income HHs • Market stalls • Public sector buildings • Lower-income HHs • Multi-family buildings • Micro-enterprises • Banks • SMEs • Industrial facilities Data sources for use case sizing: Power Africa 'Load Forecast – Lagos State' (2021); EKEDC and IKEDC Performance Improvement Plans (2019); Lagos State Waste Management Authority Markets Survey (2016); Small and Medium Enterprises Development Agency (SMEDAN) and National Bureau of Statistics Collaborative Survey (2013); BCG Lagos Residential Electricity Customer Survey (2020); BCG Lagos Non-Residential Electricity Customer Survey (2020) 37 Survey data suggests quality of grid supply varies between LGAs with Epe and Badagry being the worst served LGAs Average # of hours of grid supply received by residential customers in each LGA High Average Low (>10 hrs) (5-10 hrs) (<5 hrs) 10.3 9.8 9.2 8.2 8.2 7.5 7.5 7.5 7.3 7.2 7.2 7.1 6.6 6.2 5.8 5.6 5.5 4.5 4.3 4.1 Ikeja Kosofe Lagos Shomolu Ifako- Apapa Lagos Eti-Osa Surulere Oshodi- Mushin Agege AlimoshoAmuwo- Ojo Ajeromi- Ikorodu Ibeju- Badagry Epe Mainland Ijaiye Island Isolo Odofin Ifelodun Lekki Local Government Area (LGA) Source: Lagos State Residential Electricity Customer Survey; Consultant Analysis 38 Market Potential 2 1 Determine use case size for DPV in state • Determine # of viable use cases for DPV in Lagos • Estimate # of buildings/HHs/customers in each use case 2 Estimate potential DPV customers in each use case Determining the market • Estimate # of customers with unreliable grid supply potential for DPV in key • Estimate # of underserved customers that will consider DPV use cases in Lagos state 3 Calculate DPV demand of each use case • Estimate average electricity demand per customer in each use case • Calculate DPV demand for use case 4 Determine the market size • Estimate current energy spend from BCG survey data • Evaluate the market size for DPV (Annual DPV generation potential × Avg energy spend) 39 2 Four viable use cases identified for DPV in Lagos state with market potential of up to ~2,300MW Customer use case Small residential Large residential Small commercial Large C&I Indicative system size (kW) <1 1-10 <1 10-10K Total # of HHs • 2.9M lower-income • 1.5M higher-income • 3.2M micro-enterprises • 1K bank branches households households and multi- • 88K lock-up shops & • 11.6K SMEs family residential stalls in 284 markets • 18K public sector buildings buildings • 9.9K industrial facilities # of HHs for DPV (<8 hrs 1.5M 0.8M 1.6M 40.5 K supply daily) # of potential DPV 0.4-0.8M 0.2-0.4M 0.4-0.8M 10-20K customers (25-50% adoption) Total DPV demand (MW) 520-1040 450-900 410-820 250-510 Largest markets (LGAs) in • Alimosho • Eti-Osa • Eti-Osa • Eti-Osa Lagos • Surulere • Ikeja • Apapa • Surulere • Oshodi-Isolo • Lagos Island • Surulere • Ikorodu • Oshodi-Isolo • Alimosho • Oshodi-Isolo Preferred business models • Pay-as-you-go • Direct cash sales • Pay-as-you-go • Energy-as-a-service • Lease-to-own • Direct cash sales • Direct cash sales Source: Lagos State Residential and Non-Residential Electricity Customer Survey; World Bank ESMAP Lagos Rooftop Geospatial Study (2021); SMEDAN 2013 National Survey; LAWMA website; Consultant Analysis 40 Backup 2 Quality of electricity service delivered is classified according to the World Bank Multi-tier Framework for Measuring Access to Household Electricity Supply Tier of electricity service Tier 0 Tier 1 Tier 2 Tier 3 Tier 4 Tier 5 Min. peak capacity (W) 3 50 200 800 2,000 Min. daily consumption (Wh) 12 200 1,000 3,400 8,200 Annual consumption (kWh) 4.5 73 365 1,250 3,000 Appliances served Task lighting, Lighting, Tier 2 AND Tier 3 AND Tier 4 AND phone phone medium- any high- any very high- charging charging, fans power1 power2 powered3 AND small appliances appliances appliances TVs Availability (hours per day) 4 4 8 16 23 Evening availability (hours) 1 2 3 4 4 Reliability (# disruptions/week) 14 34 Quality (no voltage issues) N N N Y Y 1. Sewing machines, water pumps 2. Small refrigerators, air conditioners, etc. 3. Deep freezers, air conditioning, space heating, 4. Disruptions of a total duration of less than 2 hrs Source: World Bank ESMAP report 'Beyond Connections: Redefining Energy Access' (2015) 41 Market Potential 2 Small residential customers present 450-890MW opportunity for DPV adoption Typical system capacity 0.1-1 (kWp) Overview Typical customer needs Low-income households seeking Tier 2 to Tier 3 • General lighting and phone charging electricity service • Medium-powered appliances e.g., TVs, water pumps Typical 0.5kW system Recommended business models • 5x 100W panels • Pay-as-you-go • 1x 150Ah battery • Lease-to-own • 1x 500W inverter 450-890 Potential market size (MW) Largest markets in Lagos state Adoption driver • Alimosho • Get first-time energy access • Oshodi-Isolo • Improve reliability of electricity supply • Lagos Island • Mushin Examples projects Expected hours of supply Current energy spend 150 (Naira/kWh) • February 2017: 20K SHS provided to northern Nigerian homes through PayGo Day 5 Night 3 solar project 1. Assumption: 50% of residential customers have unreliable grid supply so will consider DPV Source: Azuri Technologies website; World Bank ESMAP; BCG Lagos Residential Electricity Customer Survey; Consultant Analysis 42 Market Potential 2 Large residential customers present 520-1,040MW opportunity for DPV adoption Typical system capacity 1-10 (kWp) Overview Typical customer needs Higher-income households or large multi-family • Large consumer electronics e.g., large TVs buildings such as estates seeking a minimum of • High and very high-powered appliances Tier 4 electricity service e.g., air conditioning, refrigerators, boreholes Typical 2kW system Recommended business models • 4x 300W panels • Direct cash sales • 2x 200Ah battery • 1x 2kW inverter 0.5-1K Potential market size (MW) Largest markets in Lagos state Adoption driver • Eti-Osa • Improve reliability of electricity supply • Ikeja • Reduce reliance or cost of diesel • Lagos Island generators • Alimosho Examples projects Expected hours of supply Current energy spend 100 (Naira/kWh) • December 2019: 2 kW single-family home installation by Solynta Energy in Ibeju Lekki, Day 12 Night 4 Lagos state 1. Assumption: 50% of residential customers have unreliable grid supply so will consider DPV Source: Solynta Energy website; World Bank ESMAP; BCG Lagos Residential Electricity Customer Survey (2020); Consultant Analysis 43 1 Determine the GDP of each LGA • Use share of IGR of each LGA as a proxy for share of GDP • Calculate GDP of each LGA based on relative share of GDP • Data sources: National Bureau of Statistics, Lagos Bureau of Statistics 2 Estimate residential demand of each LGA from share of GDP Approach to • Total residential demand estimated based on benchmark countries with similar economic activity (see slide 15) estimating the market • Segment residential demand by LGA based on share of GDP opportunity for SHS 3 Calculate effective demand for DPV based on availability of grid and Standalone supply and adoption level Rooftop in each LGA • Use survey data to estimate % of HHs with good grid supply (>8 hours) in Lagos state • Estimate % of HHs that will adopt DPV (max. assumed – 50%) • Data sources: Lagos State Residential Electricity Customer Survey (2020) 4 Split demand into SHS and Standalone Rooftop DPV based on income level and other qualitative factors • Based on income level (GDP per capita), estimate % of HHs that will require SHS vs % that will require standalone rooftops • Split demand based on relative shares • Data sources: Consultant Analysis 44 Backup 2 IGR can be used as a proxy for estimating LGA income levels; strong correlation observed at State level GDP vs IGR of States in Nigeria Est. GDP of LGAs based on weighted proportion of Lagos IGR GDP, $, PPP (Billion) Est. GDP, $, PPP (Billion) 300 40 Fitted regression GDP, $ PPP 34 Y = 0.55X+c LAGOS R2 =0.90 30 200 21 20 19 17 17 BORNO 100 9 9 9 10 10 11 12 10 8 8 5 5 6 6 2 3 BAYELSA 0 0 Badagry Lagos Island Ikorodu Kosofe Eti Osa Ifako Ijaiye Ajeromi/Ifelodun Shomolu Surulere Lagos Mainland Amuwo Odofin Ojo Oshodi Isolo Alimosho Mushin Ikeja Agege Apapa Epe Ibeju Lekki 0 50 400 States in Nigeria IGR in Billion Naira Source: National Bureau of Statistics, Lagos Bureau of Statistics, World Bank 45 1 2 3 0 4 Ibeju Lekki 0.1 Epe 0.5 Badagry 0.6 Apapa 0.8 Amuwo Odofin 0.8 Lagos Mainland 0.9 Ikeja 1.0 Ikorodu 1.0 Est. Population (Millions) population sizes Ifako Ijaiye 1.1 Lagos Island 1.3 Source: Lagos Bureau of Statistics, World Bank Kosofe 1.4 Ojo 1.4 Eti Osa 1.5 Population 2020 Oshodi Isolo 1.5 Population size of each LGA in 2020 Agege 1.6 Shomolu 1.7 Surulere 1.9 Mushin 2.0 Ajeromi/Ifelodun 2.2 Alimosho 3.1 Backup 0 5,000 10,000 20,000 25,000 15,000 Shomolu 3,447 Agege 3,494 Mushin 4,178 Ajeromi/Ifelodun 4,304 Ifako Ijaiye 5,624 Surulere 6,063 Epe 6,198 Alimosho 6,245 Est. GDP per capita, $, PPP Ojo 6,749 Kosofe 7,647 Lagos Mainland 8,333 Badagry 8,765 Ikorodu 9,863 Est. GDP per capita of LGAs in 2020 Oshodi Isolo 10,739 Amuwo Odofin 11,725 GDP per capita, $ PPP Apapa 12,037 Lagos Island 13,404 GDP per capita for each LGA can be obtained using the corresponding Ibeju Lekki 15,517 Ikeja 21,741 Eti Osa 22,939 2 46 Backup 2 Assumptions made in sizing the residential use cases in each LGA in Lagos state LGA LGAs included % SHS % Rooftops Rationale (GDP per capita, $ PPP) High Income • Eti-Osa 20% 80% • Highest GDP per capita levels in the state (>$15,000) • Ikeja • However, some substandard housing areas exist in low-income • Ibeju-Lekki neighborhoods such as Jakande, Ajah, Badore, etc. • Lagos Island • Island is densely-populated with some poorer neighborhoods • Ibeju has hamlets occupied by local settlers who are predominantly farmers Middle Income • Amuwo-Odofin 50% 50% • Roughly even split between large residential buildings (estates ($5,000-15,000) • Apapa and large single-family homes) and smaller housing units • Ikorodu • Lots of low-cost housing estates • Oshodi-Isolo • Many petty traders & porters that work in the major markets live • Alimosho here (Mile 2, Orile, Aswani etc) • Badagry • Epe • Ifako-Ijaiye • Kosofe • Lagos Mainland • Surulere Low Income • Agege 80% 20% • Lowest GDP per capita levels in the state (<$5,000) • Ajeromi-Ifelodun • Heavily populated urban area characterised by low-income • Mushin neighbourhoods with substandard housing • Shomolu Source: Lagos State Residential Electricity Customer Survey; Consultant Analysis 47 Backup 2 Assumptions made in residential use case sizing for each LGA in Lagos state # LGA # of HHs Effective DPV Demand (TWh/yr)1 % SHS % Rooftops SHS Demand (TWh/yr) Rooftop Demand (TWh/yr) 1 Eti-Osa 246,869 0.49 20% 80% 0.10 0.40 2 Ikeja 162,833 0.31 20% 80% 0.06 0.25 High-income 3 Ibeju-Lekki 24,985 0.03 20% 80% 0.01 0.03 4 Lagos Island 215,494 0.25 20% 80% 0.13 0.13 5 Amuwo-Odofin 131,771 0.14 50% 50% 0.07 0.07 6 Apapa 131,122 0.13 50% 50% 0.07 0.07 7 Ikorodu 172,955 0.16 50% 50% 0.08 0.08 8 Oshodi-Isolo 284,779 0.25 50% 50% 0.12 0.12 9 Alimosho 513,817 0.39 50% 50% 0.20 0.20 10 Badagry 95,488 0.07 50% 50% 0.03 0.03 Middle income 11 Epe 81,234 0.05 50% 50% 0.03 0.03 12 Ifako-Ijaiye 186,830 0.11 50% 50% 0.06 0.06 13 Kosofe 234,594 0.13 50% 50% 0.06 0.06 14 Lagos Mainland 158,001 0.09 50% 50% 0.04 0.04 15 Ojo 236,328 0.13 50% 50% 0.06 0.06 16 Surulere 319,873 0.16 50% 50% 0.08 0.08 17 Agege 259,306 0.10 80% 20% 0.08 0.02 18 Ajeromi-Ifelodun 360,268 0.13 80% 20% 0.11 0.03 Low income 19 Mushin 331,709 0.10 80% 20% 0.08 0.02 20 Shomolu 257,313 0.08 80% 20% 0.06 0.02 TOTAL 4,405,569 3.30 1.52 1.78 1. Effective DPV demand excludes ~50% of HHs which receive >8 hours of grid supply, and 50% of HHs who will choose not to adopt DPV Source: Lagos State Residential Electricity Customer Survey; Consultant Analysis 48 Backup 2 Eti-Osa presents the largest DPV market opportunity for standalone rooftop DPV (~0.4 TWh/yr), and Alimosho for SHS (~0.2 TWh/yr) DPV market opportunity by LGA in Lagos state (TWh/yr) 0.49 0.10 SHS Standalone Rooftops 0.39 0.31 0.20 0.06 0.25 0.25 0.40 0.13 0.16 0.12 0.16 0.14 0.13 0.13 0.13 0.13 0.25 0.08 0.11 0.08 0.10 0.10 0.07 0.07 0.20 0.07 0.06 0.09 0.08 0.03 0.05 0.06 0.06 0.11 0.01 0.13 0.12 0.03 0.04 0.08 0.08 0.07 0.08 0.03 0.08 0.06 0.07 0.06 0.06 0.04 0.06 0.03 0.03 0.03 0.02 0.03 0.02 0.02 Eti-Osa Ikeja Ibeju- Lagos Amuwo- Apapa Ikorodu Oshodi-AlimoshoBadagry Epe Ifako- Kosofe Lagos Ojo Surulere Agege Ajeromi- Mushin Shomolu Lekki Island Odofin Isolo Ijaiye Mainland Ifelodun High Middle Low Income Income Income Source: Lagos State Residential Electricity Customer Survey; Consultant Analysis 49 Backup 2 Eti-Osa presents the largest market opportunity for standalone rooftop DPV (~230MW), and Alimosho for SHS (~120MW) DPV market opportunity by LGA in Lagos state (MW) 291 58 SHS 231 Standalone Rooftops 182 116 36 148 144 233 74 95 72 92 81 79 75 74 77 146 48 65 46 57 60 41 39 116 41 38 50 37 46 32 32 62 20 74 72 20 25 46 48 41 48 16 46 36 4 39 32 38 25 37 16 20 16 11 15 12 9 Eti-Osa Ikeja Ibeju- Lagos Amuwo- Apapa Ikorodu Oshodi-AlimoshoBadagry Epe Ifako- Kosofe Lagos Ojo Surulere Agege Ajeromi- Mushin Shomolu Lekki Island Odofin Isolo Ijaiye Mainland Ifelodun High Middle Low Income Income Income Note: Capacity factor of 19.4% used to convert TWh to MW Source: WB ESMAP Lagos Rooftop Geospatial Study; Lagos State Residential Electricity Customer Survey; Consultant Analysis 50 2 Residential use cases contribute ~1,900MW of DPV market opportunity in Lagos state Estimated residential DPV demand in Lagos state (TWh/yr) DPV Capacity 7,720 3,860 1,930 890 1,040 (MW)1 13.2 50% 6.6 25% 3.3 12% 1.5 1.8 14% Total Residential Not considered for Will Not Adopt DPV Small Residential Large Residential Demand DPV (>8 hrs supply) 50% of customers have good supply & 50% will not adopt 1. Capacity factor of 19.4% used to convert TWh to MW Source: WB ESMAP, Lagos Rooftop Geospatial Study; Consultant Analysis 51 Market Potential 2 Small commercial customers present 410-820MW opportunity for DPV adoption Typical system capacity <1 (kWp) Overview Typical customer needs LGAs with highest number of commercial • General lighting and gadget charging customers seeking reliable electricity service • Medium-powered appliances e.g., fans, during business hours e.g., micro-enterprises TVs, sewing machines, small fridge, sound and market stalls system Typical 1kW system Recommended business models • 4x 250W panels • Pay-as-you-go • 2x 150Ah batteries • Direct cash sales • 1x 1kW inverter 410-820 Potential market size (MW) Largest markets in Lagos state Adoption driver • Eti-Osa • Get first-time energy access (small kiosks) • Apapa • Improve reliability of electricity service • Surulere • Reduce cost of diesel generators • Alimosho Examples projects Expected hours of supply Current energy spend 100 (Naira/kWh) • December 2019: 13,600 shops powered with 1.6MW solar in Sabon Gari market, Kano state Day 5 Night 3 1. Assumption: 50% of customers have unreliable grid supply so will consider DPV 2. Assumption: 25-50% adoption level in markets and micro-enterprises Source: SMEDAN Survey (2013); Lagos State Waste Management Authority; BCG Lagos Residential Electricity Customer Survey (2020); Consultant Analysis 52 Backup 2 Detail: Number of small C&I customers in each LGA in Lagos state Number of small C&I customers in each LGA in Lagos state (thousands) 855 Micro-enterprises Lock-up shops Open shops Kee Klamps 289 1 kW Avg. DPV demand per customer 251 169 168 175 153 153 154 158 100% 99% 132 135 97% 106 89 96% 99% 92% 94% 73 78 98% 70 99% 99% 92% 96% 54 97% 0% 2% 95% 93% 0% 0% 6 2% 0% 1% 0% 0% 0% 1% 90% 3%20 3% 0% 1% 2% 99% 0% 0% 2% 3% 1% 95% 2% 0% 0% 0% 0% 1% 0% 0% 1% 4% 3% 2% 91% 4% 0% 4% 1% 0% 0% 2% 1% 2% 4% 1% 0% 1% 0% 1% 98% 3% 1% 0% 0% 2% 5% 1% 3% 1% 3% 1% 2% Eti-Osa Ikeja Ibeju- Lagos Amuwo- Apapa Ikorodu Oshodi-Alimosho Badagary Epe Ifako- Kosofe Lagos Ojo Surulere Agege Ajeromi- Mushin Shomolu Lekki Island Odofin Isolo Ijaiye Mainland Ifelodun 2nd Highest Middle 2nd Lowest Lowest Highest Income Income Income Income Income Note: Average DPV demand per customer based on typical size of system used by customers in use case Source: Lagos State Residential Electricity Customer Survey; Consultant Analysis 53 Backup 2 Detail: DPV market opportunity in Small C&I customer use case in each LGA in Lagos state Total DPV demand in the small C&I use case by LGA (MW) 214 72 63 42 42 44 38 38 39 39 33 34 26 22 18 20 17 13 5 2 Eti-Osa Ikeja Ibeju- Lagos Amuwo- Apapa Ikorodu Oshodi-Alimosho Badagary Epe Ifako- Kosofe Lagos Ojo Surulere Agege Ajeromi- Mushin Shomolu Lekki Island Odofin Isolo Ijaiye Mainland Ifelodun 2nd Highest Middle 2nd Lowest Lowest Highest Income Income Income Income Income Note: Demand numbers shown are for peak generation capacity of DPV systems Source: Lagos State Residential Electricity Customer Survey; Consultant Analysis 54 Backup 2 Detail: DPV market opportunity in Small C&I customer use case in each LGA in Lagos state Total DPV demand in the small C&I use case by LGA (TWh/yr) 0.47 0.16 0.14 0.09 0.09 0.10 0.08 0.08 0.08 0.09 0.07 0.07 0.06 0.05 0.04 0.04 0.04 0.03 0.01 0.00 Eti-Osa Ikeja Ibeju- Lagos Amuwo- Apapa Ikorodu Oshodi-Alimosho Badagary Epe Ifako- Kosofe Lagos Ojo Surulere Agege Ajeromi- Mushin Shomolu Lekki Island Odofin Isolo Ijaiye Mainland Ifelodun 2nd Highest Middle 2nd Lowest Lowest Highest Income Income Income Income Income Note: It is assumed that Small C&I customers provide 6 hours of electricity daily from their DPV systems (~25%) Source: Lagos State Residential Electricity Customer Survey; Consultant Analysis 55 Market Potential 2 Large C&I customers present 250-510MW opportunity for DPV adoption 10- Typical system capacity Overview Typical customer needs 10K (kWp) LGAs with highest commercial and industrial • High and very high-powered appliances customers seeking constant electricity supply e.g., air conditioning, refrigerators during operation hours e.g., banks and factories • Heavy machinery or production lines Typical 50kW system Recommended business models • 130x 380W panels • Energy-as-a-service • 90x 200Ah batteries • Direct cash sales (for smaller facilities) • 1x 50kW inverter 250-510 Potential market size (MW) Largest markets in Lagos state Adoption driver • Eti-Osa • Improve reliability of electricity supply • Ikorodu • Reduce reliance or cost of diesel • Surulere generators • Oshodi-Isolo Examples projects Expected hours of supply Current energy spend 100 (Naira/kWh) • 2019: 25kW hybrid solar power for Access Bank branch in Ikeja by Daystar Power Day 12 Night 4 1. Assumption: 50% of commercial customers have unreliable supply so will consider DPV 2. Assumption: 25-50% adoption level by underserved Source: National Renewable Energy Laboratory (NREL); World Bank ESMAP Lagos Rooftop Geospatial Study; 2013 SMEDAN Survey; Nigerian Breweries website; Consultant Analysis 56 Backup 2 Detail: Number of large C&I customers in each LGA in Lagos state Number of large C&I customers in each LGA in Lagos state 6,600 Banks SMEs Public sector buildings1 Industrial 50 kW 4% Avg. DPV demand per customer 21% 4,517 12% 2% 3,717 15% 5% 1% 2,689 41% 6% 2% 2,081 63% 1,402 647 994 89% 22% 3% 1,593 546 9% 363 1,405 1,299 542 5% 10% 622 1,025 3% 1,118 7% 1,089 18% 4% 870 15% 18% 86% 28% 30% 16% 11% 4% 16% 2% 10% 48% 3% 42% 5% 2% 4% 2% 0% 18% 16% 4% 1% 27% 649 42% 43% 3% 53% 39% 51% 13% 20% 4% 93% 36% 94% 6% 34% 88% 98% 41% 28% 69% 7% 61% 37% 27% 75% 6% 83% 32% 43% 0% 5% 6% 1% 6% 0% 5% Eti-Osa Ikeja Ibeju- Lagos Amuwo- Apapa Ikorodu Oshodi-Alimosho Badagary Epe Ifako- Kosofe Lagos Ojo Surulere Agege Ajeromi- Mushin Shomolu Lekki Island Odofin Isolo Ijaiye Mainland Ifelodun 2nd Highest Middle 2nd Lowest Lowest Highest Income Income Income Income Income 1. Public sector buildings include public primary schools, libraries, community centers, places of worship, police stations, courts, hospitals, orphanages and old people homes Note: Average DPV demand per customer based on typical size of system used by customers in use case Source: Lagos State Residential Electricity Customer Survey; Consultant Analysis 57 Backup 2 Detail: DPV market opportunity in Large C&I customer use case in each LGA in Lagos state Total DPV demand in the large C&I use case by LGA (MW) 107 68 50 37 34 28 22 20 20 16 14 15 14 11 10 10 10 9 8 6 Eti-Osa Ikeja Ibeju- Lagos Amuwo- Apapa Ikorodu Oshodi-Alimosho Badagary Epe Ifako- Kosofe Lagos Ojo Surulere Agege Ajeromi- Mushin Shomolu Lekki Island Odofin Isolo Ijaiye Mainland Ifelodun 2nd Highest Middle 2nd Lowest Lowest Highest Income Income Income Income Income Note: Demand numbers shown are for peak generation capacity of DPV systems Source: Lagos State Residential Electricity Customer Survey; Consultant Analysis 58 Backup 2 Detail: DPV market opportunity in Large C&I customer use case in each LGA in Lagos state Total DPV demand in the large C&I use case by LGA (TWh/yr) 0.39 0.25 0.18 0.13 0.13 0.10 0.08 0.07 0.07 0.06 0.05 0.05 0.05 0.04 0.04 0.03 0.04 0.03 0.03 0.02 Eti-Osa Ikeja Ibeju- Lagos Amuwo- Apapa Ikorodu Oshodi-Alimosho Badagary Epe Ifako- Kosofe Lagos Ojo Surulere Agege Ajeromi- Mushin Shomolu Lekki Island Odofin Isolo Ijaiye Mainland Ifelodun 2nd Highest Middle 2nd Lowest Lowest Highest Income Income Income Income Income Note: It is assumed that Large C&I DPV systems provide provide 10 hours of electricity daily (CF=~42%) Source: Lagos State Residential Electricity Customer Survey; Consultant Analysis 59 2 Commercial and industrial use cases contribute ~1,300MW of DPV market opportunity in Lagos state Estimated residential DPV demand in Lagos state (TWh/yr) DPV Capacity1 11,360 6,040 2,660 1,330 820 510 (MW) 31 53% 16 24% 7 12% 4 2 6% 2 6% Total C&I Demand C&I customers Not considered Will Not Small C&I Large C&I not in use case for DPV (>8 Adopt DPV hrs supply) ~50% of customers 1. Average capacity factor of DPV installations is 31% Note: It is assumed that Small C&I customers require 6 hours of electricity daily from their DPV systems (capacity factor = 25%), and Large C&I require 10 hours of electricity daily (CF=42%) Source: WB ESMAP Lagos Rooftop Geospatial Study; Consultant Analysis 60 Market Potential 3 Existing research suggests DPV already viable in Nigeria; our goal with the financial model is to confirm its viability in Lagos state specifically Cost of electricity Naira per kWh Today 150 100 42% 57% 50 0 2017 2019 2021 2023 2025 Generators Solar + 2h storage IKEDC Tariff EKEDC Tariff Source: NERC; IRENA Planning and prospects for renewable power (2018), Consultant Analysis 61 Market Potential 3 Financial model assessed commercial viability …and 3 feed-in (LCOE) of 3 different DPV configurations… scenarios in Lagos Feed-none: Self consumption of all generation Feed-some: Some self-consumption and Solar home Standalone Solar rooftop selling excess systems rooftop solar hybrid systems generation to the grid (plug-and-play) system <1kW DPV module >1kW DPV module DPV module with batteries Feed-all: No self- with batteries and with batteries and back-up generator consumption, selling consumer electronics (diesel, natural gas or all electricity petrol) generated to the grid Compared with LCOE for Grid and Diesel generation 62 Backup 3 Financial model determined the LCOEs for a range of typical system sizes and electricity service delivery within 4 use cases Preset characteristics DPV Configurations System Hrs of service 1 Solar home 2 Standalone rooftop 3 Solar rooftop Use Case Size (kWp) required systems solar system hybrid systems 1 Small Residential 0.05 – 0.5 4–6 2 Small commercial >0.5 – 1 4–8 3 Large residential >1 – 10 6 – 12 4 Large commercial & >10 - 100 10 - 24 industrial Arrangement assessed: Feed-None, Feed-Some and Feed All 1. Feed-some: Some self-consumption and selling excess generation to the grid; Feed-all: No self-consumption, selling all electricity generated to the grid Note: Consumer appliances can be included in SHS module 63 Assessment of LCOE of DPV systems confirms existing research that DPV is quite a competitive alternative energy source in Lagos LCOE of DPV systems and alternative energy sources for viable use cases in Lagos (N/kWh) 205 196 176 169 162 156 162 150 138 136 131 128 126 75 Grid tariff 42-60 N/kWh n/a n/a n/a n/a n/a n/a n/a Small residential Small commercial Large residential Large commercial & industrial 0.5kWp system running for 1kWp system running for 8 10 kWp system running for 100kWp system running for 24 6 hrs daily hrs daily 12 hrs daily hrs daily (No battery storage) SHS Standalone Rooftop Solar-Diesel Hybrid Diesel Generator Petrol Generator Blended (Grid + Diesel Generator)1 Blended (Grid + Petrol Generator)1 1. Assuming 30% grid availability (~7 hours daily) Note: LCOE calculations not shown for systems unavailable at stated capacity size; Direct comparison of SHS to grid not relevant as often used by population with no energy access Source: Consultant Analysis 64 DPV is even more competitive when deployed on stand alone basis for day- time use only and without battery storage LCOE of DPV systems and alternative energy sources for viable use cases in Lagos (N/kWh) 221 219 176 176 176 167 166 138 136 136 136 Grid tariff 23 42-60 N/kWh 21 17 n/a n/a n/a n/a n/a n/a n/a Small residential Small commercial Large residential Large commercial & industrial 0.5kWp system running for 1kWp system running for 6 10 kWp system running for 100kWp system running 6 hrs daily hrs daily 6 hrs daily for 6 hrs daily SHS Standalone Rooftop Diesel Generator Petrol Generator Blended (Grid + Diesel Generator)1 Blended (Grid + Petrol Generator)1 Note: LCOE calculations not shown for systems unavailable at stated capacity size; Direct comparison of SHS to grid not relevant as often used by population with no energy access Source: Consultant Analysis 65 However initial investment cost is a major deterrent with DPV systems costing over 2-34x more than generators Initial investment for DPV systems and alternative energy sources for use cases in Lagos (N' millions) 12x 2x 34x 0.93 41.9 0.92 0.08 0.04 7x 18.0 10.9 1.6 0.8 Small residential Small commercial Large residential Large commercial & industrial 0.5kWp system running for 1kWp system running for 8 10 kWp system running for 100kWp system running 6 hrs daily hrs daily 12 hrs daily for 24 hrs daily SHS Standalone Rooftop Solar-Diesel Hybrid Diesel Generator Petrol Generator Source: Consultant Analysis 66 3 Although diesel generators have lower upfront costs, they pose several additional costs to society which must be considered when comparing with DPV Cost of air pollution Social cost of carbon Noise pollution Health cost of air pollutants due Expected economic damage from Long-term noise exposure to to illnesses & premature deaths carbon dioxide emissions linked to stress & illnesses1 • $2.1B losses (~2% GDP) • ~$10-50 per ton of CO2 • Average noise levels in • 11,400 premature deaths • Diesel gensets produce ~50 Lagos are ~55 decibels, million tons of CO2 in Lagos above WHO limits • $0.5-2.5B losses for state 1. Hearing loss, mental stress, anxiety, hypertension, sleep disturbance Note: Additional costs related to potential fire hazards posed by gensets Source: World Bank 'The Cost of Air Pollution in Lagos' (2019); Ricke et al., Nature Climate Change, 2018; Center for Global Development; National Institutes of Health; National Environmental Health Association (NEHA); World Health Organization; Consultant Analysis 67 4 Adoption of higher electricity tariffs under 'willing buyer, willing seller' policy by Lagos residents suggests high willingness to pay for reliable electricity Survey respondents willing to pay up to 165% higher Initiatives1 that increase tariffs by ~220% adopted than grid tariff for reliable1 electricity supply across Lagos indicate a strong willingness to pay % increase in grid electricity bill that survey respondents are Electricity tariffs paid in various areas across Lagos (N/kWh) willing pay for reliable electricity +218% 165% 68 70 150% 130% 127% 47 50 75% 22 11% Low- Middle- High- Micro- SMEs Large Grid Ikeja Magodo Ikoyi Lekki income income income Business enteprises Tariff2 Residential C&I Under 'Willing buyer, Willing Seller' policy1 1. 'Willing buyer, willing seller' initiatives 2. Grid tariff before willing buyer, willing seller initiative was enacted in 2015 Source: NERC; Magodo Residents' Association; Stakeholder interviews; BCG Lagos Residential and Non-Residential Electricity Customer Surveys (2020); Consultant Analysis 68 Supply Chain Ecosystem: Low-competition market with PV developers concentrated in middle of value chain and PAYG model most prevalent model 1 Players are most active in the EPC, retail and O&M segments of the value chain. There is limited manufacturing capability, so market is reliant on imports, and there is no recycling capability Do we have the right segments of the • Only 5 (out of 50+) integrated companies identified that assemble their own systems value chain in-country? • No capability to recycle used panels and batteries, so poor sustainability practices • Supply chain vulnerable to external shocks and fiscal policy (e.g., duties, COVID-19) due to high dependence on imports Supply Chain Ecosystem assessment findings While there are players in the market, the DPV total supply in the market is still significantly smaller than the demand, hence still 2 a low competition market with no one player having significant market share. • This lowers the barrier to entry into the market, creates opportunities for companies to differentiate themselves from What is the competitive landscape of the competitors, etc. DPV market ? Majority of the 'market leaders' constitute international players with continuous access to finance. • Lumos and Greenlight planet dominate the SHS market • Daystar Power and StarSight lead the rooftop solar market serving majorly C&I consumers • Schneider Electric and Arnergy currently dominate the Mini-grid market Four business models are available for residential customers 3 • One-time purchase of entire systems or appliances possible through direct cash sales • Payment in installments available via pay-as-you-go (PAYG) or lease-to-own (LTO) models, with opportunities for Has the market gained exposure to the customer ownership relevant business models? (for each • Solar electricity is also sold to customers via an energy-as-a-service (EAAS) model customer segment) Commercial and industrial customers have largely been served via an EAAS model • Long-term supply contracts (>7 years) to provide reliable electricity and carry out maintenance of DPV systems • Developer retains ownership of DPV systems Discos are also partnering with PV developers to offer solar electricity through off grid and grid connected DPV systems. Favorability for market entry Bad Good Consultant Confidence level 69 Quality of supply chain 1 Activity in Nigeria is primarily concentrated within middle of the value chain Value chain OEM Distribution EPC2 O&M End-of-life3 Example Manufacturing/ International & local Engineering, Repair, operations & Recycling & waste # of companies companies assembly distribution procurement & maintenance management of panels installation & batteries 5 1 4 9 2 2 # of players survey in segment 5 22 21 11 0 (out of 23) 1. Offer design and consulting services independently of installation. 2. Engineering, Procurement and Construction – includes design, energy audit and installation services. 3. Batteries contain toxic materials that need special handling Source: Company websites; Consultant Analysis 70 Quality of supply chain 1 Local distributed solar PV market …and does not meet life- vulnerable to external shocks… cycle sustainability standards Limited manufacturing & assembly capacity No recycling and decommissioning capacity • Reduces opportunity for local value addition • Generates excess material waste and job creation • Toxic materials (e.g., lead, sulphur) in batteries Effects • Supply chain reliant on imports and vulnerable contaminate landfill sites to external shocks (e.g., COVID-19) • Increased lifecycle emissions • Exposure to volatile FX regime Interventions • No local regulation for e-waste or hazardous • 20% import duty on solar components to material handling encourage local manufacturing • UN Basel Convention (1992)1 71 Quality of supply chain 2 PV Players SHS Rooftop1 Mini-grids A4&T Arnergy Asteven Engineering Auxano Solar Azuri Daystar Power Solution D. Light Limited Majority of solar Lumos players offer solar Oolu Solar rooftop solution Rensource Rubitec Solar Schnider Electric Smarter Grid International Solynta Energy Starsight energy Greenlight Planet (Sun King) Zola Electric 1. For Commercial and industrial - Government procurement for public institutions like schools, clinics etc. AND Residential: high-income households and SMEs; 72 Quality of supply chain 2 Market leaders constitute international players that have continuous access to finance Strictly for illustration purposes as ranking is based on level of activity based on stakeholders consulted and desktop research Solar Home Systems Rooftop Solar1 Mini-grids Lumos Daystar Power Schneider Electric Greenlight Planet Starsight Arnergy Azuri Rensource PowerGen Oolu Solar Rubitec Solar A4&T PAS SOLAR Solynta Energy Solarcentric Technologies D. Light Limited Sunhive Ltd. Mini-grids constructed outside of Lagos 1. Includes Standalone and Hybrid Source: Stakeholder consultation, Press search 73 Quality of supply chain 2 Daystar Power Energy Solutions Powering Africa with clean energy Daystar is an international company KEY TAKEAWAYS founded in 2017 with focus on • Customer Type: the company is focused on large commercial and industrial players e.g., large Company Overview supplying reliable and clean off-grid manufacturing plants power. The company was founded Business • Product offering: offers two services - power-as-a-service (provide continuous power using a after it was discovered that the main Model combination of technologies) and solar-as-a-service (provide clean reliable solar power) driver of inefficiencies for Nigerian • Distribution Network: proactive approach by listing out and engaging potential customers to businesses was erratic power explain the company's value proposition supply. They now have operations • Technology: Although the company's use of top-tier equipment (especially energy efficient in 3 more African countries – generators, inverters and batteries) requires a large initial capital, shelf life is longer, and reliable Ghana, Senegal and Ivory Coast electricity is guaranteed for their customers Operating • Process: majorly digitalized, this involves gathering of data points (knowledge of irradiation level, Model amount of diesel in tanks, etc) from all sites which helps in proper monitoring and optimization • People: comprises of a dedicated team devoted to each of the customers to ensure turnaround time to address any issues is shortened as much as possible Typical gross margins ($) > 25% • First mover advantage (particularly in the large C&I segment): this has given Daystar the ability Current no. of operating to tap into customers first and make a strong impression; it has also given them the advantage to 250 sites establish their technology as industry standard • Quick Facts Access to funding: ability to continuously secure adequate funding has significantly increased Current installed capacity Success market and overall growth of Daystar 25 Factors (MW) • Scale: the company has a large size, and as a result is able to benefit from economies of scale • Leveraging leadership's experience and relationship: company is sustainable because co- Average size per 50KW – 8 founders have extensive knowledge in structuring bankable projects from past experience and installation MW leverage existing relationships to build customer base No. of employees 110 • Installed over 25MW to 240 sites in Nigeria • Signed agreement to install solar solutions to Bank of Agriculture's 158 branches in Nigeria Key successes • Scheduled to install 2MW for major manufacturing plant in Nigeria Payment Model Eaas • Received over 80M USD in investments over the last 4 years Source: Stakeholder Consultations, Company Website 74 Quality of supply chain 3 Solar home companies in Nigeria typically adopt one or a combination of four business models Prevalent model Cash based Pay-as-you-go (PAYG) Lease-to-own Energy as a service Product/ Sale of entire generation Rental or sale of solar PV Sale of entire generation Electricity sales from stand- Service capacity - SHS, Solar systems1 - SHS, Solar Rooftop capacity - SHS, Solar alone solar system - Solar Rooftop systems systems Rooftop systems Rooftop systems Payment Direct cash sales One-time commitment fee then Small instalments over a Fee-for-service, similar to a method (upfront payment) prepaid electricity bundles through period of time (usually 1-3 utility model mobile payment systems years) Ownership Customer owns system Ownership transferred to customer Customer can purchase Customer never owns after repayments done system before lease ends system Companies Majority of companies 1. In cases of non-payment, the service provider can remotely disconnect the service Source: IRENA, Consultant Analysis 75 Quality of supply chain 3 PAYG & EaaS model most attractive to residential & C&I customers respectively Cash based Pay-as-you-go (PAYG) Lease-to-own (LTO) Energy as a service (Eaas) Customer All Residential All Commercial & Industrial segments Pros • Supplier: Balance • Consumer: Provides longer duration and big-ticket loans Supplier: Long term revenue sheet does not contain to consumers stream for consumers large number of Consumer • Supplier: Reduction in cost of • Consumer: High assets • More affordable payment collection i.e., consumer confidence in • Consumer: One-time • Burden of operation and mobile payments product due to supplier payment and maintenance of asset borne financing immediate ownership by supplier of the asset • No ownership of the solar asset required Cons Consumers • Consumer: Based on loan structure that local consumers Supplier • Large upfront capital generally avoid • Heavily dependent on ability and operational cost • Supplier: Balance sheet often congested due to number of of the supplier to provide incurred by consumers current assets in it uninterrupted power supply Source: IRENA, Consultant Analysis 76 Quality of supply chain 3 Models are typically operated in partnership with 3rd parties to increase penetration… Cash based Pay-as-you-go (PAYG) Lease-to-own Energy as a service Marketing/ • Physical stores • Telecommunication • Physical stores • Physical stores Distribution • Online market companies • Financial Institutions • Worker cooperatives Channels places (e.g. • Physical stores Jumia) • Financial Institutions Examples of • D.light • Lumos' partnership with MTN • Greenlight Planet's • Rensource energy's partnerships partnership partnership with Accion partnership with Sabon with Lapo Micro-Finance Bank Gari Market association Micro-Finance in Abuja • First Bank's partnership with Azuri Technologies to co-market Bank mobile payment and solar services • Konexa partnered with Kaduna & Kano Discos to provide power under a 1. In cases of non-payment, the service provider can remotely disconnect the service sub-franchise agreement Source: IRENA, Consultant Analysis 77 Quality of supply chain 3 …with some models more profitable than others; Eaas the most profitable Cash based Pay-as-you-go (PAYG) Lease-to-own Energy as a service Revenue One-time fee Upfront fee + payments in Upfront fee (% of total cost Fixed monthly payment + Model instalment which include cost of of asset) + payments in Variable payment based on asset and energy supplied by instalment electricity consumption asset Length of No contract; On a daily/monthly basis; 1 – 3 years 5 – 7 years contracts Guarantees asset disconnected if available for a daily/monthly payment is period of time not received Typical ~15% ~15% >15% 20 – 25 % gross margins 1Source: IRENA, Consultant Analysis 78 Quality of supply chain Backup 3 Konexa partners with utilities through its integrated distribution model to provide energy as a service to customers Company Overview Key Projects • Konexa is a British company founded in 2018 to transform energy systems 1. Electricity generation, storage and distribution in Kano: across Africa and provide reliable, affordable and sustainable energy for • Company signed an agreement with Kano Electricity Distribution all. Company (KEDCO) to deploy solar power, hydropower, and • The company aspires to own and operate on-grid and off-grid power biopower technologies to supply electricity to unserved communities assets across Africa by pioneering an integrated utility model that under KEDCO's jurisdiction accelerates access to reliable power for all • Konexa will invest 100M USD (backed by the Nigeria Sovereign Investment Authority) to provide top-tier technology in deploying renewable energy solutions and distribute 10MW to ~30K Business Model consumers • Konexa plans to extend KEDCO's network to 10MW by 2022 • Konexa operates an integrated distribution model where it partners with 2. Electricity generation, distribution and grid rehabilitation in Kaduna: existing utilities to supply power to a particular community/area under the utility's jurisdiction • Konexa signed a sub-concession agreement with Kaduna Electric Distribution Company (KAEDCO) to deploy off-grid solutions (such – Generation: the company constructs generation plants, most of which as mini grids and solar home systems) to service a given area within use renewable technology, for both the on-grid (i.e., embedded its service territory while creating embedded generation capacity generation assets) and off-grid (i.e., mini grids and solar home • Under this agreement, Konexa is exempt from existing regulated systems) population tariffs and will be allowed to charge negotiated service rates – Distribution: the company invests in grid network to upgrade existing • Konexa plans to construct a 2.5MW solar PV plant in Kaduna grid infrastructure and reduce T&C1 losses; company also deploys including a storage component smart metering technology For these two projects, Konexa received a grant from the US Trade and – Storage: the company constructs storage components to store Development Agency excess generation and supply power during non-peak times to maintain reliability 1. Technical and Commercial Losses. Source: Press Report, Company website 79 Technical Assessment: Lack of equipment standards and high proportion of unmetered customers hinder the success of DPV in Lagos 1 Some federal government regulation mandates minimum quality of DPV equipment in market • NERC mandates that mini grid configurations of DPV meet grid code requirements to allow for future integration • Standards Organization of Nigeria (SON) has implemented quality assurance standards for solar street lighting Technical assessment findings equipment Are there clear standards to ensure quality • Planned adoption of globally-accepted Lighting Global standards by SON of infrastructure? NERC has several metering mandates to ensure more accurate monitoring of the distribution network • National Mass Metering program aims to install 6.5M meters in 2-3 years • Meter Asset Provider (MAP) Regulation (2018) allows for third party financing of meters No specific building regulations to accommodate DPV installations and lack of enforcement of existing building standards nationwide 2 DisCos lack real-time monitoring and metering capabilities despite metering mandates Are the technical and infrastructural • 50% of customers are unmetered and only ~5000 have smart meters requirements for DPV present (across the • NERC metering mandates do not require installation of smart meters which are needed for grid-connected DPV different arrangements)? • Poor network infrastructure means integration risks remain • Only IKEDC has SCADA system for real-time load monitoring Favorability for market entry Bad Good Consultant Confidence level 80 Technical assessment 1 Three sets of technical standards are needed for the DPV industry Solar equipment standards Building standards Transmission network standards Standards relating to certification Standards relating to physical Standards that guarantee reliability and licensing of DPV equipment integrity of DPV installations of transmission network • Overvoltage protection • Building permits for DPV • Licenses for power generation requirements for installations installations • Permits and licensing for grid • Fire safety testing guidelines • Load-bearing capacity testing connections • Energy efficiency ratings for roofs • Frequency and voltage limits for • Wind resistance testing • Energy efficiency standards connected loads • Data monitoring and reporting • Equipment safety standards 81 Technical assessment 1 • SON1 solar street lighting standards • Adoption of IEC standard by SON • SON Conformity Assessment Programme (SONCAP) for imports Solar equipment • NEMSA testing and inspection of electrical equipment standards post-installation Nigeria has existing • National Building Code (2006): DPV should not affect fire standards being resistance of roof adopted in the DPV Building standards industry… • License for embedded generation > 1 MW • NERC grid code mandating voltage protection for all Transmission infrastructure and connected loads network standards 1. Standards Organization of Nigeria Source: SON, NERC, NEMSA, Desktop Research, Consultant Analysis 82 Technical assessment 1 …but global standards yet to be fully adopted Standards Example of best practices Nigeria Solar Standards Standards equipment Adoption of global IEC equipment standards SON1 solar street lighting standards standards Issuance of certificates of compliance with standards Adoption of IEC standard by SON SON Conformity Assessment Programme Safety (SONCAP) for imports Specific DPV installation worker licenses Legislation on physical battery storage and recycling Safety Inspection authority for electrical installations NEMSA testing and inspection of electrical Fire safety testing equipment post-installation Building DPV installation permit requirements National Building Code (2006): DPV should standards Working at Height training certification not affect fire resistance of roof Transmission Licensing and permits Licensing and permits network Registration for any >100 kW embedded generation License for embedded generation > 1 MW standards License for embedded generation > 1MW Safety Safety NERC grid code mandating voltage Grid code mandating earthing protection for protection for all infrastructure and infrastructure and connected loads connected loads 1. Standards Organization of Nigeria Source: SON, NERC, NEMSA, Desktop Research, Consultant Analysis Implementation level 83 Technical assessment 2 Technical requirements for grid-connected DPV currently lacking in Lagos state Battery (optional) Stores excess electricity from panel Needed for grid-connected system configuration – currently lacking Meter4 Local distribution network DC to AC inverter Allows for monitoring of loads Receives electricity from DPV systems Panels produce DC1 but domestic and metering of electricity Redistributes to demand centers loads and network use AC2 1 2 Solar panels Mounted on rooftop3 Home Local community 1. DC: direct current which cannot be transmitted by the distribution network 2. AC: Alternating current can be used in homes and distributed by DisCo 3. Structurally sound rooftops necessary to hold mounting structures of panels 4. Depending on feed-in arrangement, this can be a bidirectional meter (feed-some) or 2 one-way meters (feed-all) 84 Technical assessment 2 Recall: Lack of distribution network infrastructure outside mainland Lagos limits potential for grid-connected DPV Electricity Sub Stations Industrial Power sub-stations and Commercial Open spaces distribution infrastructure Farmlands Residential concentrated in mainland Lagos Pop. ~ 0.4M (~2%) Pop. ~ 0.6M (~2%) State pop. ~ 26.4M Power infrastructure deficit in peripheral regions Source: BCG Gamma Geospatial Analysis, Transmission Company of Nigeria Distribution Map 85 Technical assessment 2 Metering levels in Lagos state ('000s of customers) 4,186 Low metering levels 5 699 17% <1% 3,481 (~15%) hinders adoption of grid- connected solar PV systems 83% Unmetered and Metered Metered Total customers1 Unconnected (unidirectional) (bidirectional) 1. EKEDC installed smart bi-directional meters for 5000 customers in 2015 Source: Power Africa Nigeria Power Sector Program, EKEDC website, Consultant Analysis 86 Financial: Significant financing gaps, unfavorable terms and stringent requirements to access available financing (I/II) 1 The sector is estimated to need ~$3.1B in financing, of which ~$1.4B in funds are available and investments worth ~$227m1 Is there enough money coming into Access to finance assessment findings made between 2015 and 2020 by DFIs, Dev. Partners and FGN (~55% of total), commercial banks (<1%) and other investors, the space? and from several source? leaving a financing gap of ~$1.5B. Of the investments made, only ~7% were directed towards local SAS companies Investors: Limited knowledge of/exposure to the DPV market and its financing needs and are unable to access historical 2 consumer data in order to make informed investment decisions. Consumers: Low credit uptake because consumers not fully aware of the benefits of using credit to purchase solar products Is there enough information available to enable decision making and are Stringent eligibility criteria to access funds especially for local companies who are unable to meet the criteria or don't have the know-how to evaluate investment needs and prepare for a capital raise process. processes/criteria to access funds clearly • E.g., the NEP (exclusively focused on rural areas in Nigeria) have only been able to disburse ~$2m of the $500m available defined and achievable? in the last 18 months and this has gone mostly to International companies Slow fund deployment from government/dev. partners vs commercial investors, but commercial investors are out priced from the market (e.g., BOI pricing at 5-8% vs. commercial investor >9%) 3 Significant supplier financing exists in the DPV market, but there are issues with accessing current • Majority of companies (esp. local companies) are in the early stage of development (new entrants) and patient capital (grants and equity) is required to achieve scale • Most common type of financing offered by investors is debt (~55% of investments between 2020-25) Does the market have the right • Developers find it hard to access loans because of the high interest rates, short loan periods and high collateral financing models for its context? requirements etc. There are two prevalent types of financing models available to increase affordability for consumers • One Stop shop model: Supplier provides financing directly to consumers via lease-to-own structure • FI Partnership model: Supplier partners with Financial Institutions to provide loans to the consumers Favorability for market entry 1. 2015–2020 Source: Ace-Taf; Consultant Analysis Bad Good Consultant Confidence level 87 Financial: Significant financing gaps, unfavorable terms and stringent requirements to access available financing (II/II) 4 Four commercial banks (Sterling, FCMB, UBA and Access Bank) providing financing to DPV developers in Lagos Access to finance assessment findings • Sterling Bank and FCMB have introduced lending facilities accessible by PV developers, while UBA and Access Bank are provide funds to developers through on-lending via facilities provided by development partners There are only 5 MFIs providing consumer financing for DPV products in Lagos. • These are typically provided via partnerships in with Solar PV companies and development partners. There are no commercial banks currently providing consumer financing. Commercial Banks (such as Union Bank) have installed solar in 142 of 250 branches through a partnership with a PV How involved are the local financial developer – Reported energy savings of approximately ~20%. Other Banks (such as Sterling and FCMB) have indicated institutions in supporting the sector and immediate plans to install solar in several of their branches what are some of the challenges that There 3 main challenges that impede the involvement of commercial banks in the DPV market impede their involvement? • Concessional financing available but loan tenures are too short: Commercial banks typically give short term (<2 years) loans at high interests to maintain profit margins. Interest rates (>15%) are sometimes too high for DPV developers. • Limited commercial bank awareness on how to assess risks related DPV projects: Most commercial banks struggle to understand the structure and operating model of a solar PV investment • Lack of data transparency and availability: Commercial banks typically give loans to people who have assessable and available records. PV developers lack accurate and transparent records so fail to build trust with commercial banks for better loan application assessment Favorability for market entry 1. 2015–2020 Source: Ace-Taf; Consultant Analysis Bad Good Consultant Confidence level 88 Financial 1 In recent years, the total amount of investments into the Solar market is ~$227M mainly comprised of debt, with >50% contributed by DFIs & Govt… Sources of investment into the Nigerian PV sector (2015 -2020) USD, millions 60M USD Output based fund of the NEP All-On and GAIA Impact Fund provides grants to DPV Value chain players have deployed 26M USD 122 65 21 10 21 0% 5% 11% 24% 14% 12% 1% 50% 34% 67% 54 75% Grant 50% Mixed 42% Equity 14% Debt DFIs and Government Investors SDP Comm. Banks Strat. Corporates Crowd Note: SDP - Specialized Debt Providers , Note: NEP is exclusively focused on rural areas and improving energy access in off-grid communities across the country Funding Source: ACE-TAF Solar Investment map Nigeria study 2021, Consultant Analysis 89 Financial 1 …and ~$1.3B USD still available mainly through the CBN and World Bank contributing >700M USD Solar Power Millions (USD) Naija 1,364 Nigeria Electrification Project 2 360 Including USAID's Nigeria Energy Power Africa, Rural 350 Support Electrification Fund, Programme etc 150 92 81 288 36 7 1 Available Central Bank World Bank African FCDO1 SunRef GIZ Bank of All-On Others Funds of Nigeria Development Industry Bank 1. Foreign, Commonwealth and Development Office 2. NEP is exclusively focused on rural areas and improving energy access in off-grid communities across the country Source: ACE-TAF Solar Investment map Nigeria study 2021; Mapping the offgrid solar market in Nigeria by Signify foundation 90 Financial 1 However, there is still a significant financing gap of ~$1.5Bn to be addressed Financing gap in the DPV sector (USD, millions) 3,099 1,508 1,591 227 1,364 Total financing Gap Total funds needed (2015 – 2020) Source: ACE-TAF Solar Investment map Nigeria study 2021, OCA Consultations company websites, and other secondary sources; Sustainable Energy for All (2020), State of the global mini- grids market report; NIPC (2020), Nigerian Renewable Energy Investment Opportunities: Africa Investment Summit; REA (2019), Opportunities in the Off-Grid Sector in Nigeria: Focus on the Nigeria Electrification Project (NEP); Consultant Analysis 91 Financial 2 PV developers experience delays in approval and disbursement of the Nigeria Electrification Project fund Illustration of NEP approval and disbursement process Submission of Application review Feedback from NEP Application by NEP team team Up to 6 mnths Re-submission with feedback incorporated Disbursement of Review and approval funds of Application Up to 11 Up to 6 months mnths Note: NEP is exclusively focused on rural areas and improving energy access in off-grid communities across the country Source: Stakeholder consultations 92 Financial 2 Current funds supporting DPV projects have slow disbursement processes, paying <6% of funds annually Nigerian Electrification Program2 (by the SUNREF program (by AFD) has not Solar Power Naija (facilitated by CBN World Bank and AfDB) has disbursed disbursed any funds since Sept' 2020 and partner banks) disbursed 5% ~0.5% since 2018 since start of program in April 2020 500 81 140 <1% 2 Nil 5% 7 99% 498 100% 81 95% 133 Total Fund Disbursed Remaining Total Fund Disbursed Remaining Total Fund Disbursed Remaining Amount Amount Amount Amount Amount Amount1 Millions ($) Million ($) Billion (N) 1. 7 billion disbursed by partner commercial banks, not Central Bank of Nigeria 2. This is exclusively focused on rural areas Source: Stakeholder Consultations, SUNREF 93 Financial 3 The PV market has different mechanisms to fund suppliers and consumers Supplier financing: Three models exists Consumer financing: Two models exists 4 FI Partners with Enterprise 5 One Stop shop model Local (e.g. Lapo MFB and d.light, Accion (e.g Lumos, Solynta, 1 Financial MFB and Greenlight Planet) Arnergy etc.) Institutions Govt., DFIs, Development PV Microfinance PV PV Developer 2 Banks or Developers Partners, Developers (product finance) Investors NGOs Implement 3 ation Consumer Consumer Partners Financing Financing (Loan) (Loan) End User End User Source: Solar Investment map Nigeria study 2021 94 Financial 3 Challenges remain in accessing finance for both the supplier and consumer Supplier Consumer Challenges financing financing Benchmarks High interest rates: 20 - 25% for local banks, up to 15% HSBC offer loans with an interest rate as low interest for Int'l Financial Institution Loans Vietnam as 12% for rooftop solar as opposed to >20% Short loan periods (2 years) … and longer loan periods of up to 5 years Vietnam High collateral requirements (e.g., up to 150% of borrowed Bank monitors company revenue in a amount) separate account and uses that as collateral Rwanda Limited data availability: Market data to increase investor Availability of data for better understanding of confidence India the solar market and it's viability Local currency risks due to volatility EBRD and DEG provided loan in local Jordan currency to develop and operate solar projects Limited options provided and penetration by Financial Increased access rate by 56% in 10 years institutions (~60m Nigerians remain unbanked) Kenya through mobile based financial services 1. The Hongkong and Shanghai Banking Corporation Limited 2. European Bank for Reconstruction and Development 3. Deutsche Investitions- und Entwicklungsgesellschaft, a development finance institution Source: BNEF Study, Stakeholder Consultations, Consultant Analysis 95 Financial 3 Challenges remain in accessing finance for both the supplier and consumer Supplier Consumer Challenges financing financing Benchmarks Delays in accessing and disbursement of capital subsidies Prompt disbursement of funds leading to early and concessional financing achievement of target Bangladesh Lack of universal quality standards leading to an absence of Rwanda, Kenya and Tanzania have adopted standardized solutions Rwanda IEC standards for solar PV systems Tanzania's “Guidelines for Grid Tanzania Interconnection of Small Power Projects” Unprioritized consumer segments leading to inefficiencies in IDCOL prioritized offgrid communities during program Bangladesh the SHS program Lack of Standard Operating Procedures for financial 'Handbook on How to Access Green institutions to enable them access Solar PV projects Vietnam Financing in Vietnam' available to help properly developers understand standard procedure of programs such as Vietnam Environmental Protection Fund, Vietnam Development Bank, etc., Source: BNEF Study, Stakeholder Consultations, Consultant Analysis 96 Financial 4 Majority of PV developers in Nigeria today are in the early stage of growth and require more patient forms of funding Illustration of DPV financing instruments needed by companies at different stages of growth Seed Growth Expansion Scale-up Business Focus Proof of concept and commercial viability Commercial scale up Ideal Donors, foundations, Early-stage Late-stage investors Self-funding Commercial investors crowdfunding investors investors Financial Instruments deemed Instruments Grants Equity Debt necessary for scale-up Vol. of PV developers Large # PV Few PV No PV Developers Developers Developers Source: Company websites, and other secondary sources; Sustainable Energy for All (2020), State of the global mini-grids market report; NIPC (2020), Nigerian Renewable Energy Investment Opportunities: Africa Investment Summit; REA (2019), Opportunities in the Off-Grid Sector in Nigeria: Focus on the Nigeria Electrification Project (NEP) 97 Financial 4 Consumer financing: There are only a few MFIs providing loans to customers for the purchase of Solar products via partnerships Note: No commercial banks offering loans to customers Micro-Finance Bank Solar Loans Partnerships Individuals Businesses/SMEs LAPO Soft loan scheme for solar products in partnership with d.light Accion "Brighta solar loan" for solar products in partnership with Greenlight Planet Grooming Centre Loans Olive Offer solar product loans in partnership with IFC Lighting Africa Susu Source: 2021 ACE-TAF Stand-Alone Solar- SAS Market Update Nigeria; Mapping the offgrid solar market in Nigeria by Signify foundation 98 Financial 5 Local FI Involvement: Three key prerequisites will enable commercial banks invest more in the Solar PV market 1 2 3 Concessional Awareness and Data transparency and financing Sensitization Availability Commercial banks typically give Most commercial banks struggle to Commercial banks typically give short term (<2 years) loans at high understand the structure and operating loans to people who have interests to maintain profit margins model of a solar PV investment assessable and available records Concessional financing (through Most commercial banks also do not PV developers need to provide partnerships with the government see strategic value in investing in the accurate records and maintain and other DFIs) is a way commercial DPV market transparency in all their dealings to banks can offer loans to developers build trust with commercial banks at lower interests & longer tenures Educating commercial banks and local and for better assessment FIs on the high CAPEX-low OPEX This will help accelerate the nascent nature of the solar market will increase Sterling Bank is currently developing a DPV market, but should reduce as their interest and enable them develop framework that suits some of the data market matures to eliminate financing structures and schemes that constraints faced by PV developers distortion fit the industry Note: Few banks in Nigeria e.g., Sterling Bank accept DPV assets as a form of collateral for loans Source: Solar Investment Map, Stakeholder interviews 99 Commercial: Demand is highly fragmented with early-stage PV developers unable to offer more competitive prices, hence impacting affordability 1 There is limited consumer awareness regarding solar and its benefits, which results in PV developers Are consumers aware of distributed solar bearing the financial and operational burden of educating customers; this limits impact and attainment of Commercial assessment findings products and their benefits? scale in increased adoption of DPV products 2 The PV market has a highly fragmented demand, with a need for demand aggregation • Financiers find it difficult to invest in small, fragmented projects from individual customers Is demand fragmented? • Conversely, this makes it difficult for companies to benefit from economies of scale and lowers profit margins 3 Pricing pressures from high inflationary environment and high dependence on FX due to high importation levels impact affordability • Volatile foreign exchange regime (increased by ~110% over the last 5 years), How do pricing pressures and inflation • ~50% increase in Value Added Tax (from 5% to 7.5%) affect acquisition cost? • high import duties on solar components (ranging from 5% to 20% on various DPV system components) Current prices are not affordable for customers due to increase in prices as a result of increased acquisition cost for PV developers Favorability for market entry Bad Good Consultant Confidence level 10 Commercial 1/2 Limited customer awareness and lack of centralized aggregation resulting in fragmented demand and making DPV projects unattractive to investors PV Developer Investor There is a general lack of awareness of solar Most of the companies in this space are in across the state so we have to explain what early stage and are not large enough to solar is and the benefits of solar to our target attract investment market regularly Association Government Lack of awareness and education on solar Market is not ready to grow and scale; most power is multi-layered and cuts across market players are cash strapped and the different demographics supply chain is heavily fragmented Source: Stakeholder Consultations 10 Commercial 2 Unit Cost of Smart Meters reduced by 80% in 2 years after demand aggregation implemented In India, demand 140 -80.0% aggregation makes products more affordable with an 80% reduction in unit price 28 2019 2021 Unit Cost ($) Source: Energy Efficiency Services Ltd (EESL) Press Search, Consultant Analysis 10 Commercial 3 High volatility of foreign exchange regime, increase in VAT and high duty has increased acquisition costs and impacted affordability Official exchange rates USD to NGN from Jan Value Added Tax 2019 vs Duties on DPV system components 2015 to April 2021 2021 Non-Exhaustive +50.0% Exchange Rate Naira vs. USD 7.5% 20.5% 500 16.5% +110% 400 5.0% 12.5% 300 5.0% 200 100 Jan-16 Jan-18 Jan-20 2019 2021 Solar PV Batteries Charge DC Cables Controllers Source: Central Bank of Nigeria, Consultant Analysis 10 Commercial 3 Comparison of a typical 80W SHS at a standard unit price of $250 across both years Price (in thousands of Naira) Dependence on imported products is making solar products +16% 137.4 6.0 less affordable with a 117.4 2.1 9.0 2.4 100.8 5.1 16% increase in price 1.8 4.5 4.5 7.7 attributable to Naira devaluation and 102.5 120.0 Min. wage 90.0 45 increase in VAT 2019 2021 (Official rate) 2021 (Parallel rate) Other importation costs Import duty VAT Unit cost Assumes VAT for 2019 is 5% and 2021 VAT is 7.5%, Import duty remains the same at 5%, Other importation costs are 2%, FX rate for is 360, 410 and 480 for 2019, 2021(Official rate) and 2021(Parallel rate) respectively Source: Lumos website 10 Operational: Arduous importation process, low mobile money penetration and skill shortages across value chain cause inefficiencies in the DPV market 1 Unclear and cumbersome importation process in Nigeria causes delays in the business operations of PV developers: How has the current importation process • Long wait times (63% more time than SSA average) and high costs (68% more money spent in Nigeria than SSA average) affected the DPV market? • Inefficiency in customs administration e.g., lack of performance standards for customs officers • Lack of distinct and appropriate standards e.g., lack of coordination among customs officers, SON around HS assessment findings codes, exemptions and quality standards Skills shortages across value chain limit the ability of PV developers to scale and vertically integrate across value Operational 2 chain • Limited number of qualified installers in the market reduces efficiency of solar PV projects Are the relevant skills to support the DPV • Nigeria's low human capital index and low quality of education system contribute to the lack of relevant skills in market present? the market Development of training curriculums specific to DPV or incorporating DPV training into existing curriculum can address current problems 3 Given identity issues in-country, limited credit information and low penetration of mobile financing, collection is mostly manual and people intensive Does the current Lagos context support • PV developers say that their agents are sometimes unable to reach or identify customers to physically collect easy payments collection? cash • Although technology-based models eliminate the need for agent networks for payment collections, there is still low penetration of mobile money (15M mobile money accounts vs ~190M cell. Subscriptions) Favorability for market entry Bad Good Consultant Confidence level 10 Operational 1 Generally, importing into Nigeria is riddled with longer wait times and high costs, leading to higher prices for consumers 63% longer time1 spent on bringing imports into …and 68% more money spent on imports in Nigeria vs. Sub-Saharan Africa… Nigeria vs. Sub-Saharan Africa Average hours per container, 2019 Average cost per container, USD - 2019 +63% +68% 362 1,641 240 222 978 1,027 214 948 723 749 116 123 Ghana S. Egypt SSA Kenya Nigeria Egypt South Kenya SSA Ghana Nigeria Africa Africa 1. Time calculated as addition of time for border compliance and documentary compliance as defined by the World Bank Source: UNCTAD; World Bank Trading across Borders Index, Consultant Analysis 10 Operational 1 Solar importation is hampered by … and lack of distinct and inefficiency in customs administration… appropriate standards Inefficient customs administration Limited capacity in standards • Reports of illegal fees charged by customs (up • Identical goods reported to be often assigned to ~10% more for clearance) differing values/product codes depending on officer on site • ~65% of long import clearance times caused by • Lack of coordination and resulting deliberate man-made delays disagreement among customs officers, SON and traders around HS codes, exemptions and • No performance standards for customs officers quality standards (e.g., max. time for each procedure) Source: Global Alliance for Trade Facilitation Nigeria Country Brief; Lagos Chamber of Commerce and Industry; Stakeholder interviews, Press Research 10 Operational 1 Up to $0.7b in costs of Solar Power Naija could …and thus, utilized to provide be saved with improved importation process… more benefits to citizens Up to $0.7b savings in costs1 if Nigeria eliminates illegal fees and reaches TF roadmap goal of reducing avg. wait time by ~50% Note: Strong potential for savings to be higher as we have not considered trade more households without documentation fees and indirect costs of long wait-times at border on users and ~650k electricity could receive SHS Illustrative buildup of costs for 5M gov't officials/agencies via Solar Power Naija8 (50wp) SHS in Solar Power Naija ~$1.4b ~$5.1b (27%) (100%) OR ~$0.7b ~$0.4b ~$0.2b (13%) ~$2.5b (4%) lower average costs for SHS (7%) ~$0.5b (49%) ~$0.2b (Add. fee for ~13% per household via Solar Power (Fee for 15-day 30-day wait time Naija8 wait time) [Nigeria's avg]) Import price Import Illegal fees Demurrage Assembly Total for SHS tariff3 paid at ports4 fees5 costs6 (avg. cost Note: Better enforcement of quality standards components2 of one SHS through improved importation process could is ~$1.0k7) reduce # of poor quality SHS components in 2. Derived from SEA4All - $503 per SHS 3. Derived form SEA4All – avg. tariff of $74 per SHS 4. Illegal fees market, limiting risk of defective or shorter life- equals 50% of tariffs (LCCI study) 5. Derived from ACE – Fee for 15-30 days wait time 6. Derived from SEA4All - $273 per SHS 7. 1.0k derived as $5.1b/5M SHS 7. if the ~$0.7b savings costs is used to manufacture more SHS span parts to ensure consumer protection (if one household purchases one SHS) 8. if the ~$0.7b savings is used to subsidise SHS cost and if savings is transferred to SHS purchase price paid by households Source: ACE importation guide; SEA4All; LCCI; ESP; National Trade Facilitation Roadmap; Consultant analysis 10 Operational 2 Skills shortages across value chain limiting ability to scale and vertically integrate across value chain HCI1 27% lower in Nigeria vs Sub Saharan …and Quality of Education 25% lower in Nigeria vs average… Sub Saharan average Human Capital Index, 2019 Quality of Education System, 2017 0.55 4.52 +27% +25% 0.49 4.08 0.45 0.46 0.43 3.39 3.49 3.50 0.38 0.36 2.79 Nigeria Uganda S. Ghana SSA Egypt Kenya Nigeria Uganda Ethiopia SSA Ghana Kenya Africa 1. Human Capital Index e.g A child born in country today will be x percent as productive when she grows up as she could be if she enjoyed complete education and full health. Source: World Bank, World Economic Forum 10 Operational 2 Lack of relevant skills in the market reduces project efficiency and increases project time Investor PV Developer Due to absence of qualified installers, projects I have only 5 qualified installers so when I am take a longer time to complete at full capacity, I cannot take on more projects Consumer Financier I had to include detailed specification of We discovered there was an issue with components needed because installers I capacity in the DPV market, so we launched a found did not fully understand the solar skills development program called Solartrician project Source: Stakeholder Consultations 11 Operational 3 Collections: Low identification levels and low mobile money penetration limits the success of payment collections Number of residents registered with the Number of cellular connections and mobile money LASRRA1 (Millions) accounts in some African countries (Millions) Mobile cellular accounts 27 185 Mobile money accounts 23 4 15% 97 85% 67 55 41 34 42 15 Unregistered Registered Total Kenya Nigeria Ghana South Africa # of mobile money 5 17 7 5 service providers 1. Lagos State Residents Registration Agency; numbers are for 2018 Source: GSMA State of the Industry Report 2020, World Bank, Press search 11 Enabling Environment: Good regulatory framework in place but implementation challenges (bureaucratic processes) limiting impact 1 The Nigerian government has introduced several regulations that support the growth of the RE/DPV market… • Examples include: 5-year tax holiday for manufacturing companies in RE sector, 0% import duty on solar components; Regulatory environment assessment regulations for FIT for RE sourced electricity;, SONCAP standards to ensure customers have access to high quality products Do you have good regulations, incentives However, there are regulations that limit growth and there are regulatory gaps that need to be addressed: to support the growth of the DPV market? • Examples of regulation limiting growth: Increase in import duty on solar products (except panels) from 0% - 5%; increase in VAT (5% - 7.5%); High duty on batteries (~20%); Low licensing threshold (1MW) for power generation • Examples of gaps for which regulations need to be introduced: Lack of net and gross metering policies; No specific DPV regulatory framework that includes clearly defined guidelines to support growth of the market findings Insufficient enforcement, limited understanding of and clarity on regulations: 2 • E.g., Suppliers reporting the need to pay duty on solar components contrary to regulations that exempt them; Consumer complaint on low quality products sold in the marketplace, Poor implementation of existing quality standards for DPV Are the regulations, policies and incentives equipment, etc., effectively implemented? Lengthy review and approval times for regulations - E.g.,: • Metering programme since 2015 • FIT under review since 2016 Government regulations and actions are consistent with the ambition for increased share of solar in power generation mix. Over 3 the last 5 years, the government has introduced several policies and regulation to support activities and growth of the DPV market in Nigeria. Examples include: Are the regulations deemed consistent? • The National Renewable Energy And Energy Efficiency Policy (NREEEP) & National Renewable Energy Action Plan (NREAP 2015 – 2030) - Develops renewable energy and energy efficiency (RE & EE) targets and action plans • Power Sector Recovery Programme - Increases electricity access by implementing off-grid renewable solutions • NERC Minigrid Regulation - Provides definition, registration and grant of permit for minigrid systems Favorability for market entry Bad Good Consultant Confidence level 11 Enabling Environment 1 There are several policies around duties and licensing that limit the growth of DPV market… Nigeria Best practices 5% Import duty/tariffs still implemented despite duty exemption Zero import duty on solar panels and modules implemented • Increased acquisition cost of solar panels making it less – Import duty exemptions on specialized equipment for affordable for consumers the development of solar energy Kenya Increase in VAT from 5% to 7.5% Access to tax reliefs and exemptions • Reduction in profit margin of value chain players/solar – PV developers have benefited from availability and developers implementation of tax reliefs for solar projects Duties & • Increased cost for consumers Kenya Taxes Uncertainty in regulation regarding batteries Proper distinction of batteries used for solar in regulation • Because batteries have uses other than solar – Import duty exemption in Kenya also included "deep • Leading to high (20%) import duty cycle batteries which use or store solar powers" Kenya Lengthy application and approval process Streamlining of application and approval process • Businesses need to go through an arduous license – Simplified generation permit/license process with application process turnaround time of <2 months Kenya Licensing Low licensing threshold (1MW) for power generation Threshold of up to 10MW ` • Generation capacity of 1MW discourages C&I consumers – Licensing threshold for power generation to be from solar purchases increased to 10 MW for larger C&I consumers South Africa Source: ACE-TAF Kenya Study, Stakeholder Consultations, IFC 'Harnessing The Sun' Study 11 Enabling Environment 1 …and regulatory gaps that need to be addressed Nigeria Best practices Lack of net and gross metering policies Introduction of net or gross metering policy • Absence discourages consumer uptake of solar systems – Net/gross metering policy and implementation • Results in wastage of excess electricity generated by solar increases consumer uptake and supplies excess power system India to the grid Consumer No specific renewable energy framework Introduction of a specific regulatory framework for All • No set of guidelines to support the growth of Renewable Energy Dimensions Renewable Energy operations – Launched a Renewable Energy Act to serve as guideline for Renewable Energy operations specifically Ghana Source: ACE-TAF Kenya Study, Stakeholder Consultations, IFC 'Harnessing The Sun' Study 11 Enabling Environment 2 The impact of the regulations that improve the adoption of solar has been limited by implementation challenges Non-exhaustive Duty and tax Regulations introduced to support PV market Implementation challenges Import duty and VAT on solar module components to Insufficient coordination between MDAs 0% encourage local assembly of solar modules "Ministry of finance said I don't have to pay VAT; FIRS says I have to pay VAT" Introduction of SONCAP standards for solar products to Insufficient monitoring and porous borders ensure the solar products imported into the country are of the highest quality "There are still a lot of low-quality products being sold in the market" Introduction of regulations for Feed-In Tariff for renewable energy sourced electricity to encourage the use of and Delays in implementation due to lengthy review investment in renewable energy power supply process "The FIT regulation has been under review for a long time now… for a few years now" Note: SONCAP - Standards Organization of Nigeria Conformity Assessment Programme Source: BNEF Study, ACE-TAF Study, Stakeholder Interviews, Consultant Analysis 11 Enabling Environment 3 Government regulations and actions are consistent with the ambition for increased solar generation and uptake Non-exhaustive Regulations/policies introduced over the last 6 years 2015 2016 2017 2018 National Renewable National Energy Efficiency Power Sector Recovery Meter Asset Provider (MAP) Energy and Energy Action Plan (NEEAP) Programme Regulation Efficiency Policy (NREEEP) National Renewable Energy 5% import duty on Solar Feed-In Tariff Regulation Action Plan (NREAP) panels NERC Mini-grid Regulation Rural Electrification Strategy and Implementation (RESIP) Regulation under-review 11 Several challenges inhibiting DPV potential identified; interventions to be developed to address challenges A B C D Financing Commercial Operational Enabling environment • Quantity: Insufficient • Lack of centralized • Insufficient availability of • Insufficient enforcement availability of low-cost demand aggregation to skilled human resources – Quality standards financing create scale (to reduce and data resulting in presence of • Process: Difficulty in acquisition cost) for viable • Complex importation low-quality products in accessing and delays in use cases, and ownership process driving costs up the market to drive adoption disbursement of • Payment collection – Fiscal policies (e.g., concessional funds • Limited consumer inefficiencies duty and tax • Participation: Limited awareness on benefits/ exemptions) potential of solar products • Underdeveloped involvement of local FIs due segments of value chain to data availability & market (e.g., manufacturing, end of understanding issues life) Stakeholders needed for resolution Commercial Banks, LASG, Associations, DisCos, DFIs, Associations, LASG, DFIs, LASG, REAN, SON, DFIs LASG, Developers Financial Institutions1, DFIs Customs, Developers 1. Includes commercial banks, Micro-finance Banks, FinTechs; Source: Stakeholder consultations, Consultant Analysis 11 Content Summary Context and approach 3 - 25 Viability assessment and business case 27 - 118 Lagos DPV Ambition 120 - 125 Recommendations to accelerate DPV in Lagos 127 - 150 Next steps 152 - 153 11 Recall: Geospatial shows potential for DPV in Lagos estimated to be ~12GW DPV installable capacity by building type in Lagos (GW) 11.6 72% 8.4 16% 1.8 1.4 13% DPV potential Residential Commercial Industrial Type of building Note: 1. Geospatial conducted by ESMAP team focused on 11 or 20 LGAs in Lagos – Total potential of Lagos scaled up to get range of 10-15Twh/Yrs. 2. Approach to geospatial assessment includes estimating total rooftop area from satellite imagery, classification of rooftops based on Google Map labels and estimating generation potential of rooftop based on roof tilt and local irradiation levels Source: World Bank ESMAP 11 Recall: Assessment showed that business case exists for DPV in Lagos energy mix, though currently risky for investors Business Market potential Supply chain ecosystem Technical assessment1 case • Potential market size • Maturity of supply chain • Infrastructure readiness (e.g., DISCO capacity, 2-way • Use case viability • Competitive landscape metering, Panel Utilisation • Ability and willingness to pay • Business models Factor, etc.) Financial Commercial Operational Enabling environment Risk • Availability and • Demand aggregation • Importation • Quality standards factors accessibility of funds • Acquisition costs • Collections • Fiscal policy barriers • Local FI involvement • Consumer awareness • Skills availability • Stability and implementation Favorability for market entry 1. Mainly relevant for Grid Tied PV Bad Good 12 Crucial for Lagos to set a solar ambition to provide clarity for investors; benchmarks could be a good reference for what the size could be Proposed share of solar in electricity mix of benchmarks (%) 37% 35% 33% 30% 28% 23% 21% Copyright © 2021 by Boston Consulting Group. All rights reserved. 18% 13% Delhi Taipei Punjab Calgary Madrid Jakarta Rajasthan San Diego Cape Town 1. Assuming 20% capacity factor, GW to GWh conversion rate=8760, 1.5GW = 2.6TWh; 2. Per capita household consumption p.a = 3,000kWh; per capita SME consumption p.a = 6,000kWh, Electricity allocated based on generation potential of determined from the World Bank Geospatial Analysis (HH = 70%, SME = 15%); 3. Assuming 100GW to generate 1M FTE Jobs based on job multiplier effect of solar calculated by India's National Research Development Corporation Source: Renewables in Cities 2021 Global Status Report; The World’s Cities in 2018; “Smart Renewable Cities; The Global 100% Renewable Energy Platform, Climate Action Network; Sustainable Energy Transition Roadmap for Jakarta 2021; Solar Energy Policy in Delhi - C40 Cities 12 Lagos DPV potential ambition: To be the reference case for ~1GW 1 solar deployment in urban Solar PV generation environment in SSA by 2030 Note: 1. Average share of DPV in target electricity mix of benchmark cities (15%) multiplied by estimated unconstrained energy demand for the State by 2030. We estimate that unconstrained electricity demand in Lagos State is ~50-60TWh (~6.5GW) by 2030. Assuming conventional generation with a capacity factor of 100% (1 GW = 8760 GWh = 8.76 TWh); 12 Achieving this DPV ambition would create several socio-economic benefits 1.6M Households 175K SMEs 40K Jobs Supported Supported created Note: Assuming 20% capacity factor, GW to GWh conversion rate=8760, 1GW = 1.8TWh; Per capita household consumption p.a = 3,000kWh; per capita SME consumption p.a = 6,000kWh, Electricity allocated based on generation potential of determined from the World Bank Geospatial Analysis (HH = 70%, SME = 15%); Assuming 100GW to generate 1M FTE Jobs based on job multiplier effect of solar calculated by India's National Research Development Corporation Source: IRENA, Lagos Power Africa Report, World Bank Geospatial Analysis, BCG Analysis 12 Content Summary Context and approach 3 - 25 Viability assessment and business case 27 - 118 Lagos DPV Ambition 120 - 125 Recommendations to accelerate DPV in Lagos 127 - 150 Next steps 152 - 153 12 1 Two questions 2 to be answered to arrive at recommendations What are the right How should the interventions for the to address interventions be challenges identified? challenges implemented? 12 What are the right 1 interventions? Recommendations were developed based on contributions from a broad set of stakeholders… DPV Supply Chain Enabling Consumers Government Players Organizations C&I representatives Distribution Companies Association Presidency • Friesland-Campina • Eko Electricity Distribution • Renewable Energy • Power Sector Working Company Association of Nigeria Group Others • Ikeja Electricity Distribution • Manufacturers Association Commercial banks Ministry Company of Nigeria (MAN) • Access Bank • Rural Electrification Agency • Nigeria Economic Companies in PV value chain • Sterling Bank Regulators Summit Group • Lumos • FCMB • NERC • PAS Solar (Bboxx) • Access Bank • Green Light Planet Lagos State Government Microfinance banks • Daystar • Lagos State Ministry of • LAPO Microfinance Bank • Engie-Fenix Energy and Mineral • Grooming Centre • SolarCentric Technologies Resources • Rubitec Solar Donors: • Lagos State • EU Electricity Board • GIZ • FCDO • USAID Others • All-On • Cross Boundary Energy 12 What are the right 1 interventions? … and learnings from six benchmark countries selected based on predefined set of criteria Long list of countries Selection criteria Selected peers Kenya Vietnam Successful Emerging Energy solar Turkey Morocco Markets access focused challenges programs Bangladesh India Sri Lanka Jordan Source: BCG analysis 12 What are the right 1 interventions? Best practices observed in energy access leaders suggest four key factors drive successful identification of interventions to address challenges Key drivers of success 1) Clearly KSF1 defined strategy and targets for distributed solar generation in jurisdiction's energy mix – Clear owner responsible for accelerating the growth of distributed solar in state and actions to be taken Bangladesh Turkey Vietnam by government defined to show support, build credibility & demonstrate benefits of solar – Targets set for key customer segments and mechanisms introduced to ensure solar targets are met 2) Enforcement KSF2 of policies to streamline and facilitate processes regarding solar energy – Clear and harmonized policies that supports the adoption of distributed solar generation sources India Kenya Vietnam 3) Programs KSF3 customized / targeted at specific states/cities in the country – Target area specific lending, technical assistance, development policy financing programs for the distributed solar industry, through development partners Bangladesh India 4) Public Private Partnerships to implement cost reduction strategies and build skillset required for KSF4 distributed solar industry – Increased scale through demand aggregation to reduce acquisition cost and increase attractiveness – Capacity building must be introduced to improve project efficiency and time also leads to reduced cost Morocco Sri Lanka India Note: Countries taken as case studies and include detailed learnings for Lagos state Source: Consultant analysis 12 KSF1KSF2KSF3KSF4 Backup What are the right 1 interventions? IDCOL channelled public finance for off-grid renewable energy Bangladesh Context Key successes • IDCOL1 started the SHS program in January 2003 to fulfil • As of January 2019, ~4M SHSs had been installed under the basic electricity requirement of the off-grid rural people of program in the remote areas Bangladesh – Program helped supply solar electricity to 18 M people i.e., 12% • Program supplements government’s vision of ensuring of the country’s total population access to electricity for all citizens of Bangladesh by 2021 – Program has so far saved consumption of ~1M tonnes of kerosene worth ~$411M • 56 partner organizations benefitted from ~$700M in IDCOL loans/grants – ~75K people are directly or indirectly employed within the program What did the IDCOL do? Learnings for Lagos State IDCOL developed a credit scheme for households unable to pay with cash State should conduct cost–benefit analysis for pricing strategy • Households were required to pay only 10% of system price as down • IDCOL conducted survey to identify potential customers for SHSs of payment followed by 36 monthly instalments different sizes and their prevailing expenditure patterns IDCOL provides loans to partner organisations to supply solar products State should actively maintain consumer contact directly or • Enabled partners to extend microcredit to the households at a margin that through partners allows them to bear operational costs and make profit • Consumers are reluctant to invest due to the financial risk of unsatisfactory product, IDCOL maintained contact with consumers IDCOL generated campaign awareness in target communities through suppliers to ensure they had aftersales support • Used leaflets, billboards, commercials and unique street dramas to promote SHS technology and the credit scheme 1. Infrastructure Development Company Limited Source: IDCOL Website; Sagepub, Consultant Analysis 12 KSF1KSF2KSF3KSF4 Backup What are the right 1 interventions? The Indian Demand Aggregator Model and institutionalised supply accelerated the implementation of Smart meters in residential customers India Context Key successes so far • India has an electricity customer base of 250M with almost • Initially advocated for 100% of cost to pass through regulated no smart meters. It was mandated that ~100M smart tariff but it became self-sustainable as price declined from $140/unit meters be installed in 4 years to $28. • Objective was to bring down unit cost from $142 to <$20. • 3M meters already installed with secondary benefits being Aggregation was necessary for the following reasons: High materialized (power factor improvement, capex prioritization, per unit cost, utility's poor access to finance, fragmented increase in billing accuracy, peak load shaving etc. supply chain, no government subsidy and support, lack of • Accelerated “Make-in-India” on a long-term basis awareness, non-synergy of existing programs, etc. What did EESL3 do? Learnings for Lagos State • Created SPV1 called Intelismart with NIIF2 and EESL3 as • Acceleration is possible if there is a strong business case partners/investors – Business case can be made strong by creating scale, institutionalizing – NIIF consolidated funds from global PE investor, Govt. equity, etc. fragmented supply value chain and customer empowerment – EESL brought technical expertise-implemented similar model for LED • A new entity (with the right set of players, non-conflicting roles and lamps where prices were brought down from 4$ to 0.5$ responsibilities and chosen through transparent process) can be • Aggregated demand by talking to DisCos and involved other value chain established to drive this accelerated growth players through a transparent bidding process • Steering committee members (consisting of government, new entity, • Strengthened business case through increased scale, offtake customer representatives, regulators, manufacturing associations commitment/partial risk guarantee and equity/debt financing support. etc.) can be setup to ensure adequate monitoring of progress • Ran customer awareness programs through mass communication agency, • Synergy of this new business setup needs to be aligned with existing utility capacity building workshops and introduction of vocation courses. programs (and specific to Lagos state) so there is no duplication but • Implemented strong governance through identification and measurement of KPIs there is comprehensive coverage • Ensured technical standards were upheld to ensure quality compliance 1. Special Purpose Vehicle 2. National Investment and Infrastructure Fund 3. Energy Efficiency Services Limited Source: Desktop Search, Consultant Analysis 13 KSF1KSF2KSF3KSF4 Backup What are the right 1 interventions? Kenya has grown it’s solar PV market by implementing cost-reducing strategies, capacity building and awareness campaigns Kenya Context Key successes so far • Kenya has one of the most mature off-grid solar markets in • Priority country for solar investors in Africa Africa • As at 2019, 15MW installed and 26MW in the pipeline • It is estimated that every household in Kenya has owned • Has one of the highest market penetrations for off grid solar PV at least one solar PV product products in sub-Saharan Africa What did the Kenyan government do? Learnings for Lagos State In Kenya, five main policies helped to drive solar PV market growth • Sensitization of citizens on renewable power benefits is necessary to and sustainability increase uptake of solar PV systems • VAT and Import duty exemptions for solar modules and inverters to spur • Collaboration with training institutions is important to develop in- investments in small and large-scale renewables country courses for technicians • Training of technicians by partnering with Strathmore Energy Research • Implementing tax and duty exemptions will increase investment into centre and other training institutions the sector • Consumer awareness campaigns through engaging school children and parents, product demonstrations, etc., to expand the geographic scope of commercial markets • Adoption of IEC1 standards to protect consumers from poor-quality products and promote consumer confidence • Contractual agreements by government agencies and PV companies for e-waste disposal to encourage safe disposal of PV products and recycling 1. International Electrotechnical Commission Source: World Bank; GOGLA, Consultant Analysis 13 KSF1KSF2KSF3KSF4 Backup What are the right 1 interventions? Sri Lanka implemented centralised standards and agency-led capacity building for increased electrification Sri Lanka Context Key successes • Despite Sri Lanka’s electrification goals, prevailing • Through Solar Industry Ass. Initiatives, ~1K employees were trained technical and financial concerns had limited conventional to provide solar home system installation and maintenance services grid supply • ~130K solar home systems were installed over the course of • In 2002, government worked with World Bank for project the program (RERED1) to use on-grid/off-grid renewable technologies to address power needs and to meet World Bank’s green energy commitments What did the Sri Lankan government do? Learnings for Lagos State Government promoted capacity building efforts • State should ensure systems are long-lasting • The Solar Industry Association offered technical training for hundreds of – Developing configurations for customers based on their needs installers of solar systems, and supported formal training institutions with could ensure they do not attempt to interfere with systems and integration of curriculum in regular programs reduce lifespans – Ensuring after-sales support through approved suppliers Government centralised solar system standards, but flexibility remained ensures systems are repaired properly and are maintained for • Implementation standards lay with DFCC Bank (DFI) who provided long use predetermined system configurations with little to no customer input • Leveraging an agency or association for capacity building ensures • Because funders and installers did not assume responsibility for repairs or that enough focus can be provided for tools such as training maintenance, customers were left to tinker with systems which sometimes allowed them to derive their desired benefit at the expense of system longevity 1. Renewable Energy for Rural Economic Development Source: Science Direct; World Bank, Consultant Analysis 13 KSF1KSF2KSF3KSF4 Backup What are the right 1 interventions? The Indian solar PV market has benefitted from cost-absorbing strategies and the net-metering regulation India Context Key successes • India discovered that it has an abundance of solar • In Q3 2020, large-scale solar installations came to 283M, while resource as a result of India's geography or location. The rooftop installations accounted for 155MW year-round abundance makes it a viable source to meet • Cumulative solar installed capacity in India was 37.4GW at the end of the energy demands of the country. Q3 2020 • IHS Markit ranks India the third most attractive market for • Solar accounts for ~20% of total installed renewables solar PV investment and deployment behind United States and China What did the Indian government do? Learnings for Lagos State In India, various policies helped to drive solar PV market growth: • Due to the absence of a Renewable Purchase Obligation in the • Introduction of financial incentives to support the development of PV country, the state can purchase solar generated electricity in state technology to make it cost-effective owned buildings (i.e., MDAs, hospitals, libraries) to increase the • Net metering regulation: to provide further incentives for rooftop solar demand for solar electricity users allowing up to 100% of energy back into the grid • At the current stage of the solar market in Lagos, incentives such as • Renewable Purchase Obligation: mandates State and private distributors tax holidays, low-interest loans, results-based financing, carbon to purchase solar generated electricity credits, etc.) would be important to reduce the upfront cost barrier of • Feed-In-Tariff: Due to the high cost of solar systems at the time in India, solar systems benchmark tariff was issued by the Central Electricity Regulatory Commission for purchase of solar energy and other RE • Others include 10-year tax holidays for solar power projects, power purchase agreement with special tariff for up to 25 years, import duty exemptions Source: MNRE, India; Solar Power Europe, Consultant Analysis 13 KSF1KSF2KSF3KSF4 Backup What are the right 1 interventions? Morocco’s NOOR successful construction was enabled by community buy -in and localization of supply chain Morocco Context Key successes • Morocco is home to Africa’s biggest solar project, Noor The NOOR project provided an incentive for higher value-added manufacturing for the supply of parts • Morocco launched the Moroccan Solar Programme • Project sourced 30% of components locally, with the goal for NOOR (NOOR) in 2009, planning to source a minimum of 2,000 II, the second phase, to raise that figure to 35% megawatts from solar facilities by 2020 The Noor Solar Complex is a 500MW solar park which offers 2,635kWh/m² of sunlight a year and offsets 760Kt of CO2 emissions a year What did the Moroccan government do? Learnings for Lagos State Government partnered with DFIs and clean energy funds • Concessional financing can aide in the provision of resources to • MASEN1 partnered with the CIF2 and the WBG3 around the goal of launch Lagos states solar power market. supporting the installation of 1 GW of Concentrated Solar Power (CSP) • Placing a strong focus on localization during procurement and generation capacity in the region through the US$750M CTF4 MENA CSP recruitment of solar PV projects would encourage local stakeholder investment plan to launch project NOOR participation • Public-private partnership (PPP) allowed AfDB5 to also mobilize $285M to help finance the initial development phases of NOOR Government placed a strong focus on localization for the project • Labour was essentially recruited locally, and infrastructure constructed in Ouarzazate area for the accommodation of workers 1. Moroccan Agency for Solar Energy; 2. Climate Investment Funds; 3. World Bank Group; 4. Clean Technology Fund; 5. African Development Bank Source: World Bank, Consultant Analysis 13 KSF1KSF2KSF3KSF4 Backup What are the right 1 interventions? WB India rooftop solar program successful due to integrated design and managed implementation India Context Key successes • Rooftop solar PV systems had not yet become widespread • 575 MW installed capacity of grid-connected PV in 3 years of 5-year in India. due to the lack of adequate financing and 600MW target unfamiliar technology • 218MW rooftop solar installed in 3 years of 5-year 250MW target • The World Bank approved a $625 million loan to support • ~80% of facility disbursed in 3 years the Government of India’s program to generate electricity from rooftop solar PV installation What did the World Bank India team do? Learnings for Lagos State The World Bank India team worked with relevant stakeholders to • Increased financing and efficient disbursement can facilitate launch • Launch the rooftop solar PV program through State Bank of India (SBI) of Lagos state’s distributed solar market • Develop internal procedures to identify, assess risks etc • Clearly defined internal procedures for identification, risk • Implement technical assistance and capacity building programs for assessment, appraisal and approval of distributed solar projects will DisCos, State Nodal Agencies, State Electricity Regulatory Commission… improve efficiency of program • Aggregated demand, did site feasibility and selection • Providing technical assistance and capacity building programs to • Monitor amount of rooftop solar loans approved by SBI and amount of relevant key stakeholders (DisCos, financial institutions, State’s RE additional equity financing from private sources mobilized by SBI department, etc.) will enable them have better understanding of the • Real time Monitoring of rooftop solar installed and operations context and the specific role they play in the program • Ensure proper monitoring of compliance with MNRE's Quality Assurance • Ensuring good quality assurance framework is important to launch a and Control requirements as basic standards applicable to the market credible distributed solar market • Ensure sustainability of the GRPV program • Provide concessional loan/lower collateral for rural areas through MFI • Identify anchor loads for motivating consumers and giving confidence Source: World Bank, Consultant Analysis 13 KSF1KSF2KSF3KSF4 Backup What are the right 1 interventions? JICA funded IDCOL RESCO model for acceleration of Rooftop solar in Bangladesh Bangladesh Context Key successes • Issues were similar to Nigeria: fragmented approach, lack • Demand aggregation done and bid management started; however, of reliable electricity supply, gas monopoly, lack of halted due to COVID-19 alignment within supply chain actors, dependence on • Hassle free ownership: Consumers not worried about power as import from China, lack of credit worthiness, difficulty in provision of 24/7 electricity is developer's responsibility accessing finance, etc., • There was a need to de-risk business environment and ensure industrial consumer participation What did Government do? Learnings for Lagos State • Leveraged JICA credit line for CAPEX support and payment guarantee • Lagos has very similar conditions (C&I as priority use case however • Identified existing company (IDCOL1) as Aggregator for C&I load and not aggregated at one level; cost prohibitive, lack of skills, financing providing payment guarantee for the RESCO2 developers. and quality systems) • IDCOL facilitated (for nation-wide industrial customers) • This scheme can be replicated because of the similarity in conditions – Demand aggregation from C&I customers (~10MW after carrying out starting with Lagos state for C&I customers and then extending to feasibility study): Contact, selection and tripartite agreement between other segments / urban environments in the country consumer, IDCOL and potential RESCO developer – A similar program is possible with clear roles and – Bid management for selection of private sector RESCO developer(s) responsibilities – Interaction with regulator for approval on tripartite PPAs - 20 years, – Existing private sector players can take up role of aggregator deemed generation, LcoE for 20 years, penalty/reward for payments, as there is a viable business case for DPV uptake by C&I security deposit etc, customers as well credit guarantee – Public awareness, customer interaction and payment guarantee to developer • Convinced regulator to issue guidelines for above PPA terms Note: This was limited to only Industrial category customers and didn’t cover residential consumers. 1.Infrastructure Development Company Limited, 2. Renewable Energy Service Company Source: World Bank, Consultant Analysis 13 KSF1KSF2KSF3KSF4 Backup What are the right 1 interventions? Vietnam placed a strict deadline on the FIT to increase rooftop solar installations by ~2400% in one year Vietnam Context Key successes • Due to strong economic growth, electricity consumption more • In 2020, rooftop solar installations in Vietnam grew by 2,435% than trebled from 46 TWh in 2005 to 192 TWh in 2018 increasing from ~380MW in 2019 to 9.583GWp, spread across • Vietnam's energy demand keeps a steady annual growth rate >101,000 systems around 8.5% and is estimated to exceed supply in 2021 by • A total of 9.3GWp (7.4GW) of rooftop solar capacity has been 6.6TWh and 15TWh in 2023 connected to its national grid, according to EVN • This indicates that blackouts would become a frequent event • The industry has already surpassed the 12.5GW solar power target if effective measures were not taken for 2025 • The government set a solar power target of 12.5GW by 2025 What did Government do? Learnings for Lagos State Established a National Power Development Plan with a defined energy mix • Like Vietnam, Lagos has land availability constraints so there should (i.e., coal-fired power, gas-to-power, wind power, solar power, etc.) be a strong focus on solar rooftop installations and growth In 2017, the government announced a very competitive feed-in tariff equivalent • Due to a fixed deadline and an attractive feed-in tariff, PV developers to US$0.0935 per kWh for new solar projects that were commissioned by June and investors in Vietnam quickened their projects in order to qualify for the FIT2 2019. • In 2020, the long-awaited FIT2, a feed-in tariff paying a generous $0.0838 – Lagos DPV market will benefit from a generous feed-in tariff per kWh (estimated LCOE for solar PV is ~$0.066/kWh) with a with a deadline to increase the number of installations in a guaranteed long tenured offtake (by EVN) of 20 years for systems with a short period of time commercial operation date of 31 December 2020 EVN and Vietnam Government have a track record of successfully executing similar programs like BOT program for thermal generators 1. Vietnam Electricity. Note: Currently, due to pressure on grid, a lower FIT is under review for 2021 . Source: PV BOX, IEEFA, PV Magazine, ISEAS-Yusof Ishak Institute, Consultant Analysis 13 KSF1KSF2KSF3KSF4 Backup What are the right 1 interventions? Turkey introduced a monthly net metering scheme to increase rooftop solar adoption Turkey Context Key successes • In Turkey, rooftop solar sector is still at a nascent stage with • Turkish PV market is currently being driven by self-consumption and increasing support from the government to meet its targets net-metered rooftop PV • Before May 2019, rooftop solar in Turkey was supported • In the first four months of 2021, Turkey has reported 398MW of PV through a mechanism that placed net grid demand against systems connected to the grid with majority of capacity coming from solar energy exports on an hourly basis, this caused limited rooftop PV uptake from consumers as there was little to no benefit – This is a huge upgrade from the 200MW cumulative rooftop because consumers would use their own solar power and solar capacity installed in 2018 have little to send to the grid What did MENR1 do? Learnings for Lagos State • In 2020, MENR introduced a new monthly net metering scheme designed • A monthly net metering policy will encourage DPV adoption and to promote rooftop solar PV enable Lagos State residents sell excess electricity to the DisCos at a predefined rate – In this scheme, solar exports and grid demand are netted on a monthly basis, allowing consumers to use solar power generated – DisCos can perform a technical review to assess their grid during the day at night later in the month network to ensure it is good enough to accommodate DPV – Now customers can offset their solar exports against the grid's demand over a whole month, including during peaks that occur after sunset – DisCos compensate customers (because of excess generation is fed into the grid) at the energy rate relevant to their customer category 1. Ministry of Energy and Natural Resources, Source: IEEFA, World Bank, Press Reports, Consultant Analysis 13 KSF1KSF2KSF3KSF4 Backup What are the right 1 interventions? Jordan encouraged rooftop solar installations through duty exemptions and rebate programs Jordan Context Key successes • Jordan imports a large share of its energy needs, despite • Some large consumers typically paying higher electricity tariffs having average solar radiation between 4 and 8kWh/m2 and moved towards installing PV systems sunny days for >80% of the year • 360MW solar capacity installed under net metering by the end of • The Government of Jordan sought to address the December 2018 challenges in the energy sector to improve its energy security and reduce it's fossil fuel consumption and imports What did MEMR1 do? Learnings for Lagos State • In 2012, issued the REEEL2 13, that allows any electricity consumer to cover • The solar PV market in Lagos will benefit from a net metering policy 100% of their electricity needs by installing net-metering solar PV systems and grid connection of PV systems because it will encourage • In the REEEL 13, there is a custom duty exemption and sales tax exemption participation from all customer segments for renewable energy systems as incentive to investors • Tax and duty exemptions on renewable energy systems encourage • In the last few years, the government signed an agreement with banks such investors and other sector players move towards renewable energy as the Jordan Islamic Bank and the Housing Bank for Trade and Finance to installations facilitate a rebate program for residential PV systems • Providing incentives such as rebates for residential customers will – The banks finance 70% of residential PV projects through soft loans, encourage adoption of PV systems in that customer segment and customers receive a rebate of ~30% on the initial investment costs • Without awareness of available programs, there is reduced uptake, of residential PV systems; JREEF3 provides the fund for the rebates hence reaching out to citizens via credible associations is important – To increase awareness, JREEEF facilitated 188 local NGOs and civil to increase adoption society groups to reach out to citizens 1. Ministry of Energy and Mineral Resources, 2. The Renewable Energy and Energy Efficiency Law, 3. Jordan Renewable Energy and Energy Efficiency Fund Source: PV Magazine, Consultant Analysis 13 1 Leveraging KSFs and stakeholder consultations, we have identified specific interventions to the challenges • A1 Facilitate the development of DPV-focused financing programs to increase the availability of low-cost financing for PV developers in the DPV market • A2 Create a Green Fund (e.g. from levies on carbon intensive activities, direct budget allocation, etc.) to provide low cost financing for DPV-enabling activities • A3 Create a one stop shop to support PV developers in navigating issues around accessing current funds and provide training to them to meet the requirements of existing programs • A4 Work with existing DPV-focused financing programmes to refine funding application review and disbursement processes, thus reducing difficulty in accessing current funds • A5 Structure and channel donor-led naira denominated consumer debt financing through commercial banks to provide low cost financing and improve involvement of local financial institutions • B1 Set target for DPV in state energy mix, initiate by deploying DPV in anchor loads & introduce fiscal incentives to attract investment into the sector • B2 Partner with marketing companies, distribution companies, community leaders to raise consumer awareness on benefits of solar products • B3 Create a mechanism to aggregate demand from various customer segments to create scale, hence reducing acquisition cost of solar products • C1 Develop training curriculum & provide standardized training programs focused on key skills required across the value chain to increase availability of skilled human resources and increase participation in underdeveloped segments (i.e., manufacturing, end of life) of the DPV value chain • C2 Simplify importation process for DPV developers (e.g. create a help desk to provide clarity on custom duty exemptions, fast track importation process) to reduce importation costs • C3 Create a publicly available repository of reliable market data to increase the availability of data resources in the market • C4 Create partnerships with existing agent networks (e.g. financial services agents' network) to improve efficiency during payment collections • C5 Create partnerships to develop payment platforms to minimize overheads for collection and increase efficiency during payment collections • D1 Enforce IEC/Lighting Global quality standards and stricter monitoring of quality of solar products & introduce e-waste regulation on solar products to reduce the presence of low quality products in the market • D2 Launch state wide awareness campaigns targeted at informing customers on how to identify quality solar systems • D3 Introduce regulations to drive DPV demand (net metering, energy efficiency, appliance labelling, open access etc.) to contribute to solar DPV policy framework Financing Commercial Operational Enabling Environment Source: Consultant Analysis 14 Backup What are the right 1 interventions? Proposed interventions directly address challenges identified in the DPV market (I/III) Interventions Challenges A1 Facilitate the development of DPV-focused financing programs to enable development of DPV-focused • Quantity: Insufficient availability of low-cost ventures financing • Process: Difficulty in accessing and delays in disbursement of concessional funds A2 Create a Green Fund (e.g., from levies on carbon intensive activities, direct budget allocation, • Quantity: Insufficient availability of low-cost additional tax on diesel gensets) which can be used to support DPV enabling activities. (e.g., capex financing subsidy, collateral support, etc.) A3 Create a one stop shop to support PV developers in navigating issues around accessing current funds • Process: Difficulty in accessing and delays and provide training to them to meet the requirements of existing programs in disbursement of concessional funds A4 Work with existing programmes to refine funding application review and disbursement processes • Process: Difficulty in accessing and delays in disbursement of concessional funds A5 Structure and channel donor-led Naira-denominated consumer debt financing through commercial • Quantity: Insufficient availability of low-cost banks and provide technical assistance to banks to support establishment of DPV desks, financing prepare/assess transactions, etc. • Participation: Limited involvement of local FIs due to data availability and market understanding issues Source: Consultant Analysis Financing Commercial Operational Enabling Environment 14 Backup What are the right 1 interventions? Proposed interventions directly address challenges identified in the DPV market (II/III) Interventions Challenges B1 Set target for DPV in state energy mix, initiate by deploying DPV in anchor loads & introduce fiscal • Limited consumer awareness on incentives to attract investors benefits/potential of solar products B2 Partner with marketing/media companies, distribution companies, community/religious leaders etc. to • Limited consumer awareness on include DPV in awareness campaigns and mass communications benefits/potential of solar products B3 Create a mechanism to aggregate demand from various customer segments to reduce acquisition • Lack of centralized demand aggregation to costs create scale (to reduce acquisition cost) for viable use cases, and ownership to drive adoption C1 Develop training curriculum and provide standardized training programs focused on key skills required • Insufficient availability of skilled human across the value chain resources and data • Underdeveloped segments of value chain (e.g. manufacturing, end of life) C2 Simplify importation process for DPV developer (.e.g. create a help desk to provide clarity on custom • Insufficient enforcement of fiscal policies duty exemptions, fast track importation process) (e.g., duty and tax exemptions) • Complex importation process driving costs up Source: Consultant Analysis Financing Commercial Operational Enabling Environment 14 Backup What are the right 1 interventions? Proposed interventions directly address challenges identified in the DPV market (III/III) Interventions Challenges C3 Create a publicly available repository of reliable market data where developers/ investors can access • Insufficient availability of skilled human reliable, up to date data on viable customer segments and customers can find verified resources and data list of suppliers C4 Create partnerships with existing agent networks (e.g., financial services agents' network) to leverage • Payment collection inefficiencies existing agent-infrastructure for collections and minimize the need for overhead to support collections C5 Create partnerships between developers, commercial banks/fintechs to develop payment platforms to • Payment collection inefficiencies minimize overheads for collection D1 Enforce IEC/Lighting Global quality standards and stricter monitoring of quality of solar products & • Insufficient enforcement of quality standards introduce e-waste regulation on solar products resulting in presence of low-quality products in the market D2 Launch state-wide awareness campaigns targeted at informing customers on how to identify quality • Insufficient enforcement of quality standards solar systems resulting in presence of low-quality products in the market D3 Introduce regulations to drive DPV demand (net metering, energy efficiency, appliance labelling, open • Inadequate solar DPV policy framework access etc.) Source: Consultant Analysis Financing Commercial Operational Enabling Environment 14 1 Two questions 2 to be answered to arrive at recommendations What are the right How should the interventions for the to address interventions be challenges identified? challenges implemented? 14 How to implement 2 interventions? Given opportunity for synergies, programmatic implementation with multiple interventions executed simultaneously, favored Fragmented approach Programmatic approach Prioritized interventions are implemented individually, and Implementation of the prioritized intervention are organized into implementation of each intervention is owned by different programs with clear linkages and executed in a collective and organizations/implementation owners integrated approach with implementation partners collaborating to leverage synergies to achieve transformative impact • Clear focus on areas based on organization's strengths (e.g., • Allows for holistic approach and appropriate sequencing of Banks focused on providing financing, Media Associations interventions to minimize delays and maximize impact focused on awareness, Government focused on policy targets) • Some coordination efficiency as a portfolio of similar interventions are assigned to the most capable implementation partner • Significant alignment required from multiple organizations • Due to interdependencies in implementation of interventions, could increase implementation time and delay impact delays in implementation of one portfolio of interventions may • Due to interdependencies in implementation of interventions, impact the other implementation efforts delays in implementation of one may limit impact of other • Some coordination inefficiency since there will be need to interventions reach out for expertise and may need to outsource some • Inability to leverage synergies between interventions resulting activities in only incremental gains Recommended path to accelerate DPV in Lagos Legend: Pros Cons Source: Consultant Analysis 14 6 stakeholder groups identified to drive implementation of the interventions Stakeholder groups Participants Rationale for involvement Lagos State • Lagos State MEMR • Capacity to coordinate Lagos DPV program Government • Lagos State Ministry of Finance • Ability to influence LASG energy and fiscal polices • Federal Ministry of Finance • Standard Organisation of Nigeria • Ability to introduce enabling policies that are within the control of Federal agencies • Nigeria Customs Service Federal Government • Federal Inland Revenue • Significant expertise in power sector DPV supply chain • Electricity Distribution Companies • Sufficient resources to fund initiatives and credit worthiness for players • PV Developers access to finance • Integrated Energy Player • Access to customer base • Capacity to provide concessionary financing DFIs • World Bank • Strong relationship with Federal Government • Other DFIs • Active participation in Nigeria's energy sector • Presence of existing infrastructure to drive consumer lending Deposit Money Banks • Commercial banks program • Microfinance Institutions • Access to Lagos customer base • Existing relationships with industry stakeholders Industry groups • Renewable Energy Association of Nigeria • Leverage platform to galvanize industry players to pursue a common cause 14 Stakeholder groups Assigned intervention • Set target for DPV in state energy mix and introduce fiscal incentives Lagos State • Develop training curriculum & provide standardized training programs focused on key Government skills required across the value chain in conjunction with Lagos Energy Academy • Create Green Fund to support DPV industry in collaboration with financial investors • Simplify importation process for DPV developers Federal • Enforce lighting global quality standards & introduce e-waste regulation on solar products agencies • Introduce regulation to drive DPV demand • Create partnerships to develop payment platforms to minimize overheads for collection DPV supply Interventions chain players • Create a mechanism to aggregate demand from various customer segments • Create partnerships with existing agent networks for collections assigned to stakeholders’ • Structure and channel donor-led consumer debt financing through commercial banks DFIs • Work with existing DPV focused financing programmes to refine funding application groups based on review and disbursement processes execution capacity Deposit • Create a one stop shop to support PV developers in navigating funding issues money banks • Facilitate the development of DPV-focused financing programs for PV developers • Create a publicly available repository of reliable market data Industry • Partner with marketing companies, distribution companies, community leaders to raise groups awareness / Launch state wide awareness campaigns targeted at informing customers on how to identify quality solar systems Coordinates implementation of the DPV program in the State 14 The first step toward building the coalition to implement would be a set of conversations to test interest of each of you and agree on terms of participation 14 Content Summary Context and approach 3 - 25 Viability assessment and business case 27 - 118 Lagos DPV Ambition 120 - 125 Recommendations to accelerate DPV in Lagos 127 - 150 Next steps 152 - 153 14 How to implement 2 interventions? Engage LASG to set up a project management office to coordinate implementation of the identified interventions Align on engagement model with the potential implementation partners Potential path forward for World Bank to drive DPV Finalise terms of reference and incentive model for the potential implementation partners in Lagos Engage with potential partners on what they would need to participate in the programs and align on path forward Source: BCG Analysis 15 Thank You