What’s Next For Nigeria’s Off-grid Solar Sector?
Nigeria is the country with the largest number of unelectrified people in the world, with only 36% of the country’s 100 million rural inhabitants having access to electricity. Millions more urban and peri-urban Nigerians face challenges in accessing a reliable electricity supply. Not surprisingly, the situation has attracted a lot of attention — from a government that is pro-private sector, investors looking to make an impact, and from companies looking to do well by doing good. Over the past 5 years, significant progress has been made in addressing energy poverty, with distributed solar playing a leading role in allowing millions of households to make the digital leapfrog into the connected world. But much remains to be done.
Recent estimates show that standalone solar home systems and mini-grids could provide modern energy access to over 88 million Nigerians by 2030. This would help to avoid $14 billion annual spending on generators sets in a country with 23 million small gasoline generators, which together have a capacity 8x larger than the national power grid.
So what’s needed over the next 5 years to make this a reality? And what innovations are required to capitalize on a relatively high level of economic activity, latent demand, and strong government support, as demonstrated by the recent Federal Government initiative to connect 5m households to solar power?
The convergence of solar home system (SHS) markets with technological advancements in mobile payments and consumer financing models has changed the way off-grid energy products can be offered. This has allowed off-grid solar (OGS) companies to better serve their customers, especially those operating at the base of the pyramid.
As Nigeria’s distributed renewable energy (DRE) sector evolves, key trends are emerging that demonstrate the potential for OGS companies, expanding their reach while delivering more value for their customers by opening up opportunities for income generation, education, access to information, communication, financial inclusion, and family entertainment.
Diversifying delivery partners
New partnerships and adaptations are emerging at each link of the value chain allowing companies to focus on their core businesses to bolster profitability. In Nigeria, telecom firms can bring robust operational support infrastructure, mass-market mobile payment capabilities, and significant reach. MTN, for example, provides access to new OGS customers from its 60+ million subscriber base through its retail infrastructure. Partnership strategies are evolving with other distribution partners to reach rural and peri-urban customers, and with digital payment companies, credit assessment platforms, and microfinance institutions that enable power to become available and affordable to those that need it the most. Equally importantly, these telecoms and other partners stand to benefit from increased uptake of OGS both through having better-powered customers for their own businesses as well as by driving new revenue streams from existing infrastructure.
Pivoting from product to consumer
While most companies were initially focused more on product development and scaling sales, they’re now learning to pay greater attention to managing their customer’s experience. Power is addictive and as customers demand increasing capacity, one size no longer fits all. This has led many companies to provide an ever-growing range of differently sized and priced solar home systems and solar products. As more products become available in the market increased regulatory oversight, or self-regulation is necessary to ensure quality standards are maintained so that the industry is not damaged by substandard products.
OGS companies will need data-driven decisions in order to optimize their operations for their local market conditions. Instead of investing in an expensive on-the-ground maintenance team, companies with connected SHS can, and should, remotely diagnose and address user error issues on products embedded with monitoring technology.
Local currency financing
The rapid growth trajectory of OGS will be choked without access to debt financing, leaving companies that are designed on the assumption of rapid growth stranded. Through government-backed initiatives, local-currency debt financing is an effective way to overcome working capital constraints that OGS providers face including high collateral requirements and foreign currency conversion.
The perception of solar as desirable and reliable will substantially reduce the cost of sales. It makes the sales process not only cheaper but also easier, attracting more distributors and sales agents. This in turn leads to more competition and lower prices. Solar fairs are also emerging as a key platform for awareness-raising and consumer education on solar for off-grid communities and for solar distributors to create business linkages with farmers. Based on the local context, successful consumer awareness-building activities will range from village demonstrations to creating advertising on radio and TV as well as public education campaigns about a product or technology.
More Nigerians will gain access to energy through off-grid solar as companies continue to pilot innovative ways to reach underserved communities. According to Kleos Advisory, the grid won’t connect Africa, but solar can. The combination of solar and fintech will continue driving an economic transformation in Africa, making the ‘unbankable’ bankable and embedding empowered consumers in the digital economy.
By Alistair Gordon
Mr. Gordon is the Group CEO of Lumos Global.