Note: This article first appeared on USAID’s Facebook Page, and is also available at RMI.org.
A 2020 Power Africa study found immediate opportunity to initiate and scale the productive use of energy from Nigerian minigrids by electrifying three prevalent agricultural processing activities: rice milling, grain flour milling, and cassava grating.
Andrew Allee, James Sherwood, Falaq Tidjani, Ayodeji Ojo
For the hundreds of millions of people living without electricity access or poor grid supply, the ultimate goal of electrification is seamless integration of reliable power and income-generating activities that propel communities forward. Solar hybrid minigrids can provide cost-competitive and reliable service with plenty of power to run productivity-enhancing machinery to do just that.
In theory, these “productive use” activities can ensure steady sales for the minigrid company, allowing them to pay off their investment and then reinvest in bringing power to still more customers. In practice, most electrification efforts have focused on ensuring electricity supply, leaving electricity demand to grow organically. Today, minigrid loads throughout sub-Saharan Africa remain low, challenging companies, consumers, and development partners to stimulate the productive use of electricity.
In Nigeria, agriculture is the bedrock of the non-oil economy, employing two-thirds of workers and accounting for nearly a quarter of national GDP. While a sizeable portion of economic activity, agriculture contributed to just 2.4 percent of Nigeria’s total foreign earnings in 2019. Strengthening agricultural exports could pay macroeconomic dividends by reducing Nigerian dependence on foreign exchange from exporting oil to fickle international markets. But energy poverty applies friction across the entire agricultural value chain, increasing costs and decreasing quality of agricultural products and hampering export potential.
Overcoming Agricultural Energy Challenges
In our experiences with small- and medium-sized agribusinesses, the lack of consistent electricity is cited as one of the foremost challenges to smooth business operations. The World Bank reports that getting access to electricity ranks as one of the major constraints for the private sector in Nigeria. Innovation to increase energy efficiency, supply reliable power, and maximize income is required to improve the livelihoods of agribusiness entrepreneurs.
For Habibu Lawal, a rice miller in Kaduna State, the status quo is costly. He spends $12/day on diesel alone to operate his old, inefficient rice mill. He estimates that the aging motor takes another $12/month to service and repair. Worse still, the outdated one-stage mill shatters a significant portion of the rice grains as the bran and husk are removed, reducing the amount of salable milled rice for every kilogram of raw paddy rice he feeds into the machine.
A new two-stage electric rice mill could cut operating costs by roughly 10% at a $0.60/kWh tariff while increasing the yield of milled rice by 20%–30% and improving the quality of his final product. But without access to financing or reliable electricity in his community, the noisy, unreliable, and expensive diesel-powered machine is Mr. Lawal’s only option.
Despite the clear opportunity, rural electrification and agricultural activities are not tightly integrated. Why? One reason is that agricultural value chains are complex, and there are myriad ways that electricity can be used in them. Should minigrid electricity heat dryers or turn flour mills or chill freezers? Which of these options is the best place to start?
A new study by the USAID Power Africa Nigeria Power Sector Program, led by RMI and conducted in partnership with Sahel Consulting, answers these questions by identifying:
- the most promising agricultural productive uses to electrify,
- how these opportunities can be sustained through commercial business models, and
- the strategies stakeholders can use to overcome barriers to deployment.
The Most Promising Agricultural Productive Uses to Electrify
We analyzed 12 crop value chains across Nigeria’s Kaduna and Cross River states, using more than 250 field interviews with farmers, processors, and traders in over 40 rural communities. We also conducted an extensive literature review and discussions with sector experts. Activities with the most potential for immediate electrification demonstrated local capacity to conduct the processing, existing markets for the product, availability of electric processing equipment in Nigeria, and scalability. Considering these factors, prospective activities were classified into three tiers:
- Tier 1, immediately ready for deployment
- Tier 2, strong medium-term potential with support to overcome one or more barriers
- Tier 3, longer-term potential if additional barriers are addressed
The figure below rates each activity on each criterion, summarizing detailed analysis of each value chain and evaluating the viability of electrifying processing activities from farm gate to final consumer.
Cassava grating, grain flour milling, and rice milling are three clear Tier 1 activities primed for immediate electrification and deployment in Nigerian minigrids. Each of these can be electrified at scale in existing minigrids today, with little to no market development support. For example, most minigrid-suitable communities in rural Nigeria already host small grain flour millers who convert maize, sorghum, cowpea, soybean, and other local crops into flours and meals used to make staple foods. These mills are fossil-fuel powered, typically utilizing antiquated combustion engines as the prime mover. For example, multi-crop electric flour mills could be operated using the skills that local millers already have, to serve a preexisting local offtake market, using domestically manufactured electrical appliances, at countrywide scale.
The Business Case for Investment
Further, there is a clear business case for investment by processors in electric equipment for Tier 1 activities, all of which can be paid back within two years. Our analysis shows that these productive loads also significantly improve minigrid economics by consuming surplus solar power during Nigeria’s sunny afternoon hours. In the scenario with the most productive use adoption (nine cassava graters, 12 flour mills, and five rice mills), the increased electricity sales volume decreased the electricity price required to recoup the minigrid investment by 19%.
Synchronizing agricultural processing with minigrid electricity can improve livelihoods, enhance the financial viability of rural electrification, and reduce electricity prices for consumers. And these opportunities are not limited to Nigeria, as RMI’s ongoing work in Ethiopia, A2EI’s recent research in Tanzania, and Power For All‘ s #PoweringAg campaign clearly show. But breaking the status quo of asynchronous agricultural development and electrification will require significant changes.
Strategies for Stakeholders
First, cross-sectoral collaboration between agriculture and energy stakeholders will be indispensable. Today, there is little coordination between actors and projects, leaving most minigrid developers to figure out agricultural productive use on their own, with very little connection to the experts leading the agricultural development efforts occurring in parallel throughout Nigeria. Collaboration can scale and deepen impact. For instance, livestock nutrition programs that increase cow milk productivity will be more successful if paired with cold chain infrastructure that ensures excess dairy makes it to market. This collaboration can be expanded across national borders to replicate best practices.
Second, commercial business models must connect the appliance buyer to affordable credit and reliable power. Our report proposes three different business models that can be used to deploy and scale Tier 1 and Tier 2 productive use activities by addressing financing gaps.
Third, we must learn by doing, and by listening. The history of development spending is rife with well-intentioned interventions that failed to benefit the people they aimed to serve. Pilot projects in advance of widespread deployment can test whether electrical appliances are functional and meet processor and customer needs. Pilots can also provide data on the compatibility of equipment with minigrid hardware, and on the electricity consumption patterns of productive use customers. This data can further demonstrate the financial viability of these investments to inform prospective lenders’ risk perception.
Nigeria’s federal government understands this need. The Rural Electrification Agency is now launching productive use pilots through the Nigerian Electrification Project with the African Development Bank and World Bank. Further, as SEforALL advocates, there is an opportunity to incorporate direct links between electrification and small-holder agriculture in COVID-19 recovery efforts.
The opportunities for electrification in Nigeria have never been brighter. Energy access technologies are poised to deploy at breakneck speed with dramatic cost reductions in sight, and are receiving attention from government, development partners, and the private sector. However, it is essential that distributed energy resources are coupled with business models that boost local livelihoods by using electricity to address pressing unmet needs in agricultural value chains. Pairing productive use and rural electrification with an effective deployment strategy will unlock local economic development and can serve as a springboard toward realizing the mission of rural electrification.