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A new approach aims to reconnect commercial and industrial (C&I) energy users to the grid, supplying daytime power from solar and batteries through grid infrastructure funded by PV installers, with diesel as a backup when needed.
As renewables represent a larger share in a region’s energy mix, managing the grid can become a challenge. With the right approach, though, solar and batteries can actually serve to support resilient electricity networks. That is the premise of a project led by US-based think tank the Rocky Mountain Institute (RMI).
With utilities in many sub-Saharan African nations crippled by debt and unable to fund vital infrastructure upgrades, conventional wisdom has it that cheap, on-site solar energy will sound the death knell for the big, centralized, often state-owned model of electricity generation and distribution.
The RMI and Lagos, Nigeria-based C&I solar installer Daystar Power, however, have formulated an approach they say can enable solar and electric companies to work together to deploy more PV while upgrading electricity networks.
The idea is solar installers, including Daystar pay for modest grid upgrades to bring C&I energy users onto the network and to benefit from more reliable electricity supply.
The soaring cost of diesel in Nigeria, where the project is being piloted, will enable utilities to charge a sufficient premium to fund repayment of the solar company for those grid upgrades while still offering savings – and much more reliable supply – to customers. Solar energy will be generated and consumed by C&I clients on site, with the grid stepping in as supplier outside of solar generating hours, backed up by battery storage and diesel.
Big ambition
In March 2024, Daystar and the RMI said they had identified 20 companies who could benefit, the first of which could have clean power in 2024, while a program rollout across Nigeria could see 3.3 GW of new solar capacity deployed by 2030.
pv magazine spoke to Daystar Power and a representative of one of the three utilities that are on board to ask if the proposed “win-win-win” approach could offer hope for struggling electric companies.
On the question of how much new diesel generation capacity is envisaged under the scheme, the press release issued by Daystar and the RMI talked of “transitioning from diesel-fired generators to utility-enabled solar systems with backup battery storage,” with only a brief mention at the end that backup diesel generators would continue to be used.
The full, 157-page study prepared by the RMI – and funded by the US Trade and Development Agency (USTDA), which promotes US business interests abroad – spells out just how much diesel capacity will be required to ensure sufficient electricity supply during non-solar-generation hours.
The first 20 companies targeted by the program would receive 14 MW of diesel generator capacity, with all but one of them deploying new equipment, perhaps from US-based Caterpillar and Cummins. That compares with 27.2 MW new solar and 20.2 MWh of lead-acid battery systems.
Scale that up to the suggested 3.3 GW of new solar the RMI envisages being installed by 2030 and the utility-led approach could involve 1.7 GW of, mostly new diesel genset capacity.
Diesel dependency
“In Nigeria – I won’t speak for [all of] Africa – we are very reliant on diesel,” said Victor Ezenwoko, Daystar country head for Nigeria and Ghana. “The size of the generator needs to be big enough to step in if everything else fails. That doesn’t necessarily mean you’re always going to use it, versus solar which is going to be used every day as much as possible. For example, some businesses [under the new system] might use the generator six hours, or even two hours per day instead of 24 hours at the moment.”
With Daystar acquired by oil major Shell in 2022, it’s easy to be cynical about diesel’s role in the proposed hybrid generation systems – especially since Shell refines its offshore crude oil into diesel in Nigeria, while trying to sell its onshore operations to local buyers, in a deal that could reach an estimated $2.4 billion.
Omosede Imohe, lead for distributed energy resources at Abuja Electricity Distribution Co. (AEDC), backed up Ezenwoko’s point by stating that the ratio of solar to battery storage to diesel envisaged is typical for fossil fuel-dependent Nigeria.
Diesel, she said, is “so expensive now that operators don’t even want to turn [generators] on … The grid is too unstable not to have something [as backup]. If all goes well, that diesel generator should only come on for a few hours per month. The only reason there’s so much diesel in our project is because the grid is so unstable.”
Suggesting people without access to reliable electricity should not continue to suffer because of concern about the genset element of the initiative, Imohe said, “With time, that diesel element of the project should be much less.”
Key concerns
With Shell having had a long history of involvement as a major player in Nigeria’s oil industry, Imohe – whose role is part-funded by the RMI – was quick to point out the utility-led approach to C&I solar deployment would not solely benefit Daystar and that several smaller developers were also involved.
“It’s just an innovative way of funding [our operations],” she said. “The grid has been underinvested for decades, in part because the government did not want electricity tariffs to reflect market costs. Since privatization [of electric utilities], tariffs have not been cost-reflective.”
Allaying concerns about the influence such a collaborative approach could give private companies over previously state-run utilities – the government still holds a 40% stake in AEDC – Daystar’s Ezenwoko said, “The key is advancing development. The grid companies want to expand and to raise their revenues and this partnership helps us get there. Because we are providing a service with one tariff to the customer, repayment becomes much more straightforward.”
The RMI study estimated that 17 of the first 20 C&I customers targeted by the program could save an average 26% on their energy bills under the hybrid generation approach, even though the cost of energy would come at a premium to current grid costs. While many of the figures in the report are redacted, there is mention of a suggested blended tariff of NGN 169 ($0.11)/kWh.
The project is open about the fact that premium was required to bring utilities on board and to incentivize them to prioritize C&I customers benefiting from hybrid generation. With grids such as AEDC’s network already struggling, it may seem that customers outside the RMI plan could suffer even more but, as Imohe explained, Daystar-funded refurbishment of electricity lines will benefit all grid-connected clients.
Reliable supply
Imohe said the utility could have funded operations such as replacing parts on poles, cutting back brush, and replacing customer transformers itself. “The regulator requires us to invest in infrastructure every year,” she added. The AEDC representative said the attraction of the RMI’s approach was not the grid infrastructure investment but the more reliable nature of supply offered by the solar and storage systems.
“We are happy to do it for the generation assets and the promise of 24/7 electricity which is not [currently] possible in Nigeria,” she said.
Businesses such as Abuja-based furniture-maker The Wood Factory – the first client to sign up for the RMI project – have heard promises about improved electricity supply in the past. The difference this time is that if the electric company fails to deliver the non-solar hours it pledges, the trilateral contract signed with Daystar and the utility will revert to a deal between installer and customer – with AEDC and its peers having to repay any outstanding money owed for grid work.
Asked whether the program could effectively see cash-strapped utilities left in the cold, Imohe said the project offered the opportunity for AEDC to recover dissatisfied customers, including The Wood Factory, who had gone off-grid in favor of diesel. She added, “We’re not going to do this for all of our C&I customers, only for those that have particular electricity requirements.”
Ezenwoko said, “Without wanting to sound too competitive, Daystar has been doing our business for seven years. We can do this on our own … The point with this is to see how we can work together, rather than seeing us as an adversary. The common enemy is the diesel generator, right?” The trilateral-to-bilateral contract clause, he added, “is meant to keep everyone on their toes.”
Forex risk
The elephant in the room from the RMI study is the seemingly ever-present specter, in Africa, of political instability. After being elected president of Nigeria in May 2023, Bola Tinubu took away the central bank’s power to set the exchange rate for domestic currency the naira, in favor of a market-based rate.
If Daystar’s solar equipment comes from the United States – as USTDA envisages – that change could add 40% to the installer’s grid upgrade costs and could raise the cost of electricity generated for C&I customers by 27%.
The energy supplied will nevertheless be competitive against diesel generated power, said Ezenwoko.
“It’s the reality of the environment we work and live in,” he said. “The way to look at it is, what is the alternative? Diesel has a direct relation to the exchange rate and most gas contracts are predicated on US dollars. No matter how much power you use, you’re going to be exposed to forex, foreign exchange, risk. There’s always a risk of the difference [in currency values] going up and the project becoming more expensive. Overall, this will still be cheaper than the other power sources.”
Connection of the first 20 customers is now likely to be completed during 2025. However, one of the three utilities initially signed up by the RMI is seemingly no longer interested, and the lengthy report allocated just two pages to the project’s environmental and social impacts. There are clearly still challenges ahead for a plan intended to bring traditional utilities – and diesel – on board with Africa’s energy transition. |
