Polycentric Institutions Governing the Mini-Grid Electricity Delivery Model in Nigeria

Despite the loopholes in Nigeria’s current energy governance structures, a polycentric system delivers and ensures the best means of resource management. 

‘…most (infrastructural) failures happen at delivery…a strong anti-corruption law that changes little in actual practice, is a delivery failure…investment in primary education but still can’t get all its children in school: that’s a delivery failure, too…’

— World Bank Group President Jim Yong Kim, 2012.

The above captures the essence of the thinking around sustainability and energy provision for the rural communities that are currently unserved in sub-Saharan Africa. Globally, there are more than 1.3 billion people (20 per cent of the world’s population) without access to modern and affordable energy sources to meet their domestic and commercial needs. The majority of these people are in the rural areas of developing or least-developed countries. Of the 1.3 billion people, 1.1 billion are without access to modern electricity supply. Access to modern energy sources has been shown to have a direct correlation on the human development index and, it is an enabler for alleviating poverty, social progress, gender equality and environmental resilience within the rural areas of developing countries. This implies a lack of modern energy services has influenced living long and healthy lives, achieving an acceptable standard of education and knowledge as well as a decent standard of living within these countries. In sub-Saharan African countries, the rural access gap is widening and the provision of modern energy services is seen as an all-inclusive panacea to alleviating poverty and delivering developmental goals in rural areas. Recognizing the importance of energy access as key to economic growth and environmental sustainability has put its provision at the heart of international development initiatives. 

One of the most ambitious and widely accepted initiative has been the sustainable development goals (SDGs). Set by the world leaders and the international community during the Rio+20 summit in 2012, the SDGs include a range of targets which are to be achieved in order to drive equitable and sustained development globally. Ensuring access to affordable, reliable, sustainable, and modern energy for all was agreed upon as the seventh SDG (Goal 7), it had three objectives with targets set for 2030: ensure universal access to affordable, reliable and modern energy services; increase substantially the share of renewable energy in the global energy mix; and double the global rate of improvement in energy efficiency. 

Using new technology to achieve 100 per cent energy access for more than a billion people will come with specific delivery challenges. Any energy delivery model involves the harvesting and extraction of an energy source up till the final energy end use. The phases between these will include some form of technology design and installation, processing, marketing and distribution.

Within sub-Saharan Africa, the delivery of energy to rural areas is characterized by smaller community sizes, isolated physical locations and lower electrical loads. These attributes imply that extending access to energy through traditional grid extension will incur very high marginal costs when compared to dense urban areas. Ironically within these regions, most of the utilities heavily subsidize tariffs which create artificially low revenue and high technical or generation costs, thus there are no incentives to deliver electricity to low load consumers from the rural areas. These technical and financial challenges to grid-based electricity delivery has rendered traditional utilities unable to attract investment for rural electrification in meeting the SDG goals.

In the alternative, decentralized off-grid delivery models (low-voltage isolated distribution grids supplied with electricity from one or more small generators) have been touted as having the potential at fulfilling the SDG goals. This is due to their ability to overcome the economic and environmental extremities of traditional grid based energy provision methods.

The isolated mini-grid is a type of off-grid energy delivery model that ensure the regular supply of energy to off-grid rural areas, where demand for electricity is high but supply is limited. Mini-grids involve small-scale electricity generation (10 kW to 10MW) which serves a limited number of consumers via a distribution grid that can operate in isolation from national electricity transmission networks. Understanding its sustainability, based on the interactions between the providers of the mini-grid and the consumers, is the focus of this article. 

Mini-Grids as the Optimum Sustainable Energy Delivery Model

Since the launch of the SDG goals, there has been a surge in investments in mini-grids and a global recognition of mini-grids as an important pillar for electrification, especially for off-grid locations where communities are clustered in close proximities. This is due to the ease of deployment and reliability of the electricity produced, which means the mini-grid can fulfil the needs of customers who want electricity sooner rather than later. Secondly, to customers for whom affordability is the key issue, the mini-grid delivery model of providing electricity access is the most suitable in terms of cost per kilowatt/hour, when compared to standalone systems or grid extension at the rural level. Their relative ease of deployment and cost effectiveness (when compared to other solutions) have made the mini-grid delivery model the optimal solution to the electricity access problems.

That said, despite these benefits, the mini-grid delivery model can face complex organizational and community-specific challenges. For example, charges for electricity supply costs in village grids are too high for available subsidies. Therefore, economies of scale for renewable energy supply technologies tend to favour national grids. There is also the issue of local power structures and their needs. For instance, there might be cultural restrictions on the use of sites or local issues with clearing down trees to build distribution lines. These factors can create uncertainty for project planners and system designers. 

Other institutional challenges also result from the inability to assess electricity delivery beyond the scope of energy access. A major reason for this limited scope is that mini-grid systems often generate low margins of return, which makes it challenging to recover investments especially with low-paying customers in the rural areas. As such, mini-grids are still perceived as a high-risk and low-return investment. 

Hence, development lenders (like the Bank of Industry or the World Bank) prefer to judge the viability of energy projects using the cost per unit of power delivered. When lenders use this metric, they tend to choose the least-cost technology. However, the cheapest technology might not bring the greatest value. At least cost, energy access projects are typically designed to supply only household-level power and not, for instance, the level of power needed to serve grinders and millers—commercial users. An alternative and potentially more value-creating way of judging the viability of projects would be based on what mix of different service levels the project can provide. Otherwise, energy projects will continue to prioritize low costs, overlooking potential value-creation.

Therefore, for a mini-grid model to become scalable for off-grid rural areas and people living in poverty, it must go beyond just providing energy access at the household level. To achieve scale, there needs to be greater compatibility between the technology and the institutions in charge of delivering the mini-grids. This compatibility will require a solution that embraces the potential of energy stakeholders, which include the mini-grid customer, the public/private providers, to act in the benefit of the success of the mini-grid. Especially in Nigeria, where the history behind the design of the current electricity provision, is one that assumes electricity to be a public, not private good. In the short- and medium-term, rural electrification investments cannot only rely on revenues from users but needs subsidies from the private and/or public sector.

Finding the right way to address local power structures, attract financing to scale beyond energy access, subsidize tariffs and leverage stakeholders will require a combination of innovative thinking and context-specific solutions.

Traditional Institutional Configurations for Electricity Delivery

The principal role of institutions is to structure incentives in human exchange, whether political, social or economic towards achieving a goal. Therefore, the debate has always been paramount on whether public officials (government) or private entities are the ‘best-placed’ central authorities to structure these human incentives. As defined by Elinor Ostrom, the issues with proscribing public or private institutions as the only way coordinate energy varies across such institutions. Information is a major issue for public institutions. Without valid information, a central authority can make errors ranging from setting the carrying capacity too high or too low (as seen in the estimates from electrification plans).

With private external organizations, the challenge is in establishing clear proprietary rights. This is because in most cases, the resources are not homogenously distributed over time and space (i.e. there are differing levels of benefit to the users) this can make it difficult to determine who gets electricity. In addition, some of the energy resources exhibit indivisibility and it will be difficult to exhibit individual boundaries for example in the case of communal use such as schools or streetlights. This can lead to free-riding issues.

These issues apply to what is happening within the mini-grid space in Nigeria. There is a lack of coordination between multiplicity of actors solving the electricity access problem. This lack of harmony on programme guidelines means it is difficult to track the economic or administrative effects of not meeting Nigeria’s electrification targets.

What these issues show is that the ‘best-placed’ central authority to manage the mini-grid space in Nigeria is neither private nor public. This is because having a central authority is only optimal if total and complete information is available to the central authority. This is not the case for Nigeria. Therefore, the thinking needs to move away from finding the right governmental authority or private consortium to manage the mini-grid space to maximizing the levels of power that mini-grids generate. 

Instead of being stuck trying to choose between the government and the private sector, Elinor Ostrom suggests that, by looking at individual cases of where mini-grids have been deployed, we’re likely to find mixtures of public-private configurations that have been successful without having a central authority.

This is where the relevance of polycentrism comes in. Polycentric governance connotes multiple centres of decision making authorities that are independent and make rules within their specific domain, but interact productively. Hence, polycentrism is useful for analyzing how state and market mechanisms have failed in resource management. Polycentrism can also build on the adaptability and flexibility of local power structures in managing large scale projects like mini-grids.

Regarding mini-grids, the major factors that hinder achieving development outcomes can be grouped into three: the market, the state (government) and the general public. The market refers to who provides the goods i.e. who designs and finances the mini-grid infrastructure. The public in this case refers to the perception of the goods i.e. whether the electricity provided is a public or private good. Lastly, the state refers to the level of clarity on the roles of formal government agencies in the finance, operation and maintenance of the mini-grid infrastructure. 

The interrelationship between the market, the public and the state effectively shape how the management of mini-grids plays out and whether this management is efficient (optimal) or not.

Polycentrism for Governing Rural Electrification: A Panacea?

Although there is a strong sense of multiple actor engagements in the delivery of decentralized rural electrification solutions in rural areas, the policies and the approach of the government of the country is still very single-actor-oriented. Hence, the strategies and projects are more closely aligned to monocentric and technocratic governance structures. These are incompatible with the high institutional and geographical diversity of the varying rural communities within the country. As a result, there is the risk that the current governance processes are being driven by the political economy of global initiatives such as SE4ALL (interactions between the market and the state) that drive only the politically connected to inform government policy. 

Polycentrism can be a possible panacea to the classic monocentric governance approach that is currently creating a governance deficit in the management of mini-grids. It should be noted that the concept of polycentricism is not new to Nigeria; in the late 70s, there were concerted efforts to formalize or institutionalize polycentric arrangements, as evidenced in the creation of local governments as the lowest tier of government with the polycentric principles discussed above. Unfortunately over the years, these local governments have duplicated the inefficiencies of the central governments in the policy making and regulatory processes and have not risen up to the governance challenge that will ensure the sustainability of rural infrastructure. However, what is relevant is that those self-organizing properties of rural communities still exist in various forms although they have not been mainstreamed to their full potential within the current local government structures across the country. 

We can, therefore, study the current forms in which they exist and propose how they will fit within a polycentric model, and give indication to how the central governance model can merge with decentralized self-governing systems to provide a nested polycentric approach that will ensure the sustainability of mini-grids. This proposed institutional model will have to address the challenges of maintaining the coherence of the rule of law, development of a competent administration and the rational assignment of service responsibilities, to minimize conflicts of interest with the law and, most importantly, achieve the intended socio-economic benefits. The models must also accede and recognize the inefficiency that may arise if substantial benefits of services provided by the infrastructure is enjoyed by people outside the governance jurisdiction. An example given was in the management of streams, if the upstream dwellers dump sewage in a polycentric managed downstream, they still bear the cost of treating the water and accommodating this spatial externality within their remit.

A Field of Options

In this article, I have shared the importance of informal efforts of the public in the governance of the mini-grids as a way to accommodate for the shortfalls of the centralized approach to rural electrification, in bringing about the anticipated socio-economic benefits. 

Polycentrism presents a field of options that Nigeria can explore to sustainably deliver electricity to off-grid and rural areas. For success, noting a few things will be important. Firstly, a polycentric approach will involve state, market and civil society actors. And these actors may need to operate independent of each other. 

At the same time, however, governance won’t be enough to guarantee sustainability. People will need to pay their fair share and consumers should expect that their increased participation comes with bigger responsibility. Despite the loopholes in Nigeria’s current energy governance structures, a polycentric system is the model that delivers and ensures the best means of resource management. 

The time is now, for an institutional process that not only adequately incentivizes energy stakeholders but also appropriately sanctions them. All public policy efforts must, therefore, be aimed at designing institutions that adapt local experiences and harness the existing self-organization and self-governing processes of the energy transitions, to motivate all the actors involved in the development of Nigeria’s energy infrastructure to strive towards transforming electricity delivery

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