Solar power offers grid alternative in Nigeria

Energy Economist, Issue 417 | July 2016

Solar PV and storage is being sold into Nigeria as a replacement for diesel generation and kerosene lamps. Lumos, the company responsible, has married technology, finance and marketing to create a package that is affordable for the millions of ordinary Nigerians without access to reliable electricity supply. Although micro-scale, solar power is coming to Nigeria far quicker than the grid, suggesting the beginnings of a new model of electrification.

The cost of solar power has been on a rapid downward trend for the last decade. In India, solar PV projects have been bid into government auctions at prices competitive with some coal plant. However, these are utility-scale projects that benefit from the advantages of being located in solar parks that have road access and transmission links. In Europe, residential solar is close in some markets to retail prices for grid electricity, but generally still depends on Feed-in Tariffs to make it economically viable.

Despite advances in efficiency and manufacturing, solar PV is still a relatively expensive form of electricity generation and, if combined with home storage, it becomes more so, owing to the additional cost of the battery. It would seem that it is a rich man’s game, or, for the most part, a luxury affordable only for developed economies.

However, Lumos, a company incorporated in the Netherlands, is demonstrating that solar plus storage can be deployed in a low-income developing economy, delivering profits to the company and savings to customers, and it does so in a way that has major positive social and health impacts for users.

Nigeria would not be every company’s target market, but this is where Lumos has launched its product. In a couple of years it has sold 20,000 units and by 2017 envisages sales heading towards 300-400,000. Particularly encouraging has been the extraordinary geographic spread of the units across the country, despite current sales outlets numbering just 80, all concentrated around the northern city of Kano. The spread of units has been almost viral. Lumos knows where the units are because two-way communication with them is an integral part of the product’s design and operation.

Smart combination

The technology in energy terms is pretty simple: an 80-watt solar panel, roof mounting, a cable and an interface unit, which contains a lithium-ion battery. In addition, two LEDs are supplied. It is the overall package, the integration of different technologies and their intelligent application to the right context that make it work.

Nigeria is a low-income country, but by sub-Saharan standards it is better classed as mid-income. The cost of hardware similar to that provided by Lumos would come in at around $500-$600, according to company founder Nir Marom, too much for the average user. Lumos instead asks for a $75 commitment fee and then leases the equipment to the customer on a lease-to-own basis, which includes a five-year warranty.

In addition to the lease-to-own agreement, there are a number of other ways Lumos is keeping costs down.

First, this is plug-and-play solar. The customer installs it. For a larger PV array in Europe, installation is too technical for the average customer and represents a significant part of the overall cost; here that cost is eradicated. It also means that the customer can be up and running within hours. Second is an agreement with Nigeria’s dominant mobile phone network operator MTN. The equipment is sold through MTM’s sales network, dispensing with the need for Lumos to build its own marketing and sales operations in the country. MTM’s retailers also provide the point of customer sales support.

Mobile telephony

However, the mobile phone company link-up runs deeper than just sales. Mobile telephony has been hugely successful in sub-Saharan Africa, overtaking the need for and expense of constructing land telephone lines. Mobile phones also create the need for electricity, even if in very small amounts.

It is familiar technology and it is via the mobile phone that Lumos customers buy their electricity packages by sending a text message. An automated system makes a charge to the customers’ phone bill and then links back to the interface and turns the system on. The battery and interface unit itself shows mobile phone style bars to indicate how much power remains. Payments are solely through the mobile phone bill rather than using mobile phone banking, penetration of which is very low in Nigeria.

The customer doesn’t buy kWh, they buy access time to their home system on a pay-as-you go basis. For example, they might buy a three-day package, which gives them three days’ access to the electricity generated by the solar panel and stored in the battery. Another critical component is getting the customer to use the system intelligently. It generates DC power, which removes the need for and cost of an inverter, but limits the devices that can be used to 12V DC electronic appliances.

This includes LED lights, mobile phones, small TVs, radios, PCs and laptops.

The provision of two LEDs ensures that the customer is not wasting precious watts on inefficient light bulbs. And the system’s interface tells the customer whether they are using the system correctly. If the battery is not charging as it should, the customer will be automatically prompted to check the panel is optimally installed or wipe it free of dust. With such small generating capacity, efficient usage is essential.

Viable replacement

Lumos’ target market is the millions of Nigerians that have no grid access. Grid access in Nigerian is not just a question of remote location. For a country with a population somewhere in the region of 175 million, the national grid has generating capacity of only about 4-5 GW and even this operates poorly.

By contrast, South Africa, with a population of 53 million, has about 34 GW of installed generating capacity and still struggles to keep the lights on. South African state utility Eskom believes it will need 80 GW of installed generating capacity in coming decades.

In short, Nigeria has huge unmet electricity demand, and is reputed to have more private generating sets than any country in the world. Grid power is seen as stand-by power for use only when available. Although reliable estimates are hard to make, the amount spent annually by businesses and residential users on private generation is thought to be somewhere in the region of Naira 800 billion ($2.86 billion).

As a result, tens of millions of Nigerians are dependent on diesel for electricity generation and kerosene for lighting, and it is this with which Lumos’s solar package competes. Buying kerosene or diesel in small amounts is expensive. Marom says the cost of kerosene lighting for a small Nigerian dwelling is about 50 US cts a day, while running a diesel generator for a few hours in the evening would be even more. Mobile phone charging stalls cost 20-30 cts per charge. Lumos’s solar package will run two lights, charge mobiles and keep a small TV on for less than 40 cts a day, and it does so cleanly.

In this case ‘clean’ has little to do with climate change. Kerosene lamps in confined quarters are a serious health hazard in terms of lung damage and fire. In addition, to avoid theft, diesel generators in Nigeria are typically run indoors, creating noise and pollution in the home. Whether for small dwellings or small businesses, removing that pollution and keeping the lights on beyond sundown is a major bonus.

Grid development

Arguably, Lumos’ solar package has a temporary window of opportunity. As Nigerian electrification rates improve, Lumos’ market will shrink. But the unfortunate fact is that even with a new government in power, Nigerians have little reason to expect that the grid will improve. Successive governments have made and broken promises in this regard. Nigerian governments have shown a fairly consistent desire to maximize oil and gas exports rather than improve domestic electricity supply.

Moreover, violence this year in the Niger Delta has slashed Nigerian oil output, and combined with the country’s seemingly hopelessly inefficient refining sector, diesel and kerosene are almost certain to remain scarce and expensive, while state revenues, already low, owing to weak oil prices, have been slashed further (see Nigerian security concerns extend beyond Delta, Energy Economist, this edition).

As Nigerians find new solutions themselves, there will be even less incentive for the government to spend money expanding the grid or national generating capacity. Marom, for one, believes that it will be solar technology not the grid that eventually electrifies Nigeria and other countries in sub-Saharan Africa (See Solar kiosks bring power to Africa, Energy Economist 404, June 2015).

This suggests that, as with mobile versus land telephony, electricity supply will follow a new model in Nigeria, one based on personal ownership and control of generating capacity, rather than an external grid and large generating plants and companies. It will also be based on DC rather than AC power.

For the moment this is happening on a micro-scale, but such as the pent up demand for electricity in the country, there is likely to be substantial demand for larger PV systems. With the cost of both solar PV panels and batteries still on a downward curve, and with the right financial packages, solar plus storage looks likely to remain competitive in low-income developing economies when set against oil products even at today’s relatively low crude oil prices.