Rising Interest in Nigeriaâ€™s off-grid Solar Market
Chineme Okafor writes on the increasing acceptance of solar photovoltaic as a dependable electricity source in Nigeria
Solar power may become the most preferred alternative electricity source to Nigerians, judging by recent developments. Despite the economic barriers to its growth, Nigeriaâ€™s solar power market has moved with great impression on electricity consumers who are fast embracing it to overcome the poor supply from the national electricity grid.
Nigeria, with a population of about 180 million people, has been unable to provide power to more than 80 million of its people. Even those connected to the national grid are mostly undersupplied, necessitating their recourse to alternative means, which include expensive fossil fuel generating sets.
Manufacturers in the country said in February that their peak electricity demand had gone up to 14,882 megawatts (MW). But the national grid is only able to generate and supply about 4500MW at the most. Even at that, the manufacturers do not get a good amount the meagre 4500MW from the grid, so they rely on self-generated electricity to power their operations.
Beyond the manufacturers, power from the grid is also never enough to satisfy the demands of domestic electricity consumers. Electricity consumers now have a choice of pivoting to solar power, which is sourced from the sun and converted directly through photovoltaic (PV) or indirectly using concentrated solar power, or even a combination of both.
To underscore Nigeriaâ€™s losses to the abysmal power supply, a 2017 study on the nexus between energy access and poverty alleviation, done by Patrick Osakwe of the United Nations Conference on Trade and Development (UNCTAD), stated that Nigeriaâ€™s desire for industrialisation depended heavily on the extent its government could effectively deal with the energy challenge.
Osakwe had stated, â€œThere are at least three principal channels through which the poor access, unstable supply, and the high cost of electricity in Nigeria has had a deleterious impact on industrialisation. This includes: low manufacturing capacity utilisation rates, low competitiveness of manufacturing firms, and lack of firm growth, particularly for small and medium enterprises (SMEs).
â€œOne of the main effects of lack of access to stable and affordable power supply in Nigeria is its impact on the ability for firms to operate at full capacity. It also results in underinvestment in the sector, thereby, limiting the ability of domestic firms to expand capacity when need arises in the future.Â Low rate of capacity utilisation has been a major feature of manufacturing in Nigeria despite the high demand for manufactured goods in the country.â€
He noted that a World Bank survey in 2016 indicated that 71 per cent of Nigerian firms used generators, and that generator fuel alone accounted for about 23 per cent of the total costs of intermediate inputs used in manufacturing between 2010 and 2012.
Solar to the Rescue
Driven by basic economic assumptions that increased demand would always be a coefficient in increased supply of goods and services, business people and operators in solar power technology have taken advantage of Nigeriaâ€™s low access to power to step up their commitments to solar energy. THISDAY observed that Nigeriaâ€™s solar power market had within the last two years gained significant traction. It is a burgeoning market that could electrify millions of homes in the country.
At the moment, the financial value of the countryâ€™s off-grid power market, which is driven by solar, is about $9.2 billion, according to the Rural Electrification Agency (REA). Operators and investors are beginning to change the initial negative stories associated with solar power in Nigeria with sagacious investments and reliable projects.
Two indigenous operators â€“ Asteven Group and Blue Camel Energy Limited â€“ recently set up two multimillion dollars training, research and development facilities in Ogun and Kaduna states.First to launch its facility in February was Asteven Group, which said its Ogun State-based renewable energy academy would train Nigerians to become vendors, developers, installers, technicians and service providers in renewable energy technologies. Astevenâ€™s academy came in as Nigeriaâ€™s first renewable energy academy, and its chairman, Dr. Sunny Akpoyibo, explained it would help expand Nigeriaâ€™s renewable energy footprints even into the West African region.
Following Asteven was Blue Camel, which launched its Kaduna training facility and solar components assembly plant in April. At the launch of the facility, which cost about $1 million to build under eight months, Blue Camelâ€™s managing director, Mr. Yusuf Suleiman, noted that up to 3, 000 young people would gain direct and indirect jobs immediately after the facilityâ€™s take-off. Yusuf also explained that the next phase of the facility would include the construction of a battery recycling and electric car assembly plants to make it a comprehensive facility.
Operators have continued to grow the share of solar in the Nigerian electricity market.
In February, All On, an independent impact investing company that was seeded with funding from oil giant Shell, disclosed it reached financial closure with three renewable energy firms to quicken access to affordable and viable energy sources in Nigeria. All On stated it would provide equity and debt funding to Port Harcourt-based Green Village Electricity (GVE), which is reputed as Nigeriaâ€™s leading mini-grid player. It said it would also provide equity investment in Lumos Global BV, in the form of a debt facility to facilitate a quick rollout of its Solar Home Systems (SHS) in the country.
The firm also provided a convertible debt facility to another indigenous clean energy service provider, ColdHubs, to enable it expand its solar-powered marketplace cold storage business to new markets in the country. These, All On noted, would improve the offerings of solar to Nigerian power consumers.
GVE has initiated and executed solar power mini grid projects in states like Plateau, Niger, Gombe, and Akwa Ibom. Other indigenous operators, such as Lagos-based Anergy and Rensource, as well as Kaduna-based Sosai Energy, have continued to increase their market footprints with defining solar power projects and products for commercial and domestic consumers.
Partnering with the Rural Electrification Agency (REA), Rensource Energy recently initiated and built a solar power mini grid to supply solar-based electricity to over 10,000 shops in the popular and expansive Sabon Gari Market in Kano State.
Based on existing offerings, billionaire business magnate, investor and founder of the Virgin Group, Richard Branson, in December 2017, gave a bullish review about Nigeriaâ€™s off-grid power sector, which is driven by solar. Bransonâ€™s rare business review came shortly after the REA held an international seminar to highlight the market potentials in Nigeriaâ€™s mini grid power market. The summit was organised in partnership with the World Bank.
Branson in his review highlighted the huge opportunities that global investors could take advantage of in Nigeriaâ€™s renewed efforts to connect over 80 million of its citizens currently without any form of electricity. He wrote on his personal blog that Nigeriaâ€™s mini grid electricity sector could yield profits in excess of about $9.2 billion to investors. Describing the development as encouraging, Branson who did not state if he would be making any investments in the sector, suggested to investors in mini grid power systems to head to Nigeria in 2018 if they were interested in taking from the $9.2 billion potential profit it offered.
â€œEnergy access in Africa is close to my heart,â€ Branson stated. â€œBringing clean, renewable power to people instead of building coal-fired power stations is absolutely essential if we are going to tackle climate change.â€
He explained, â€œDeveloping off-grid alternatives to complement the grid could create a $9.2B/year market opportunity for mini-grids and solar home systems that will save $4.4B/year for Nigerian homes and businesses. And there is large potential for scaling â€“ installing 10,000 mini-grids of 100kw each can occur for 10 years and only meet 30 per cent of anticipated demand.
â€œThe combination of large revenue opportunity (USD $9.2 billion per year), a supportive government, and a dynamic entrepreneurial environment unite to make Nigeria the ideal location. If you are an impact investor that wants to make a difference in energy access next year, Iâ€™d suggest a trip to Nigeria.â€
Branson explained that even though investors have viewed the market for mini-grids as being too risky, making gaining access to project financing rare, and market rate debt expensive, he was, â€œreally thrilled to hear that the Rocky Mountain Institute may have cracked the problem with their partners, the Nigerian Rural Electrification Agency and the World Bank.â€
According to him, the organisations released an independent investment brief that advertises Nigeria as the nation which can now unlock the nascent mini-grid market in Africa in 2018.
Branson added, â€œNigeria is the biggest and most attractive off-grid opportunity in Africa. It has the largest economy in Sub-Saharan Africa (GDP of $405 billion), a population of 180 million people, and flourishing growth (15 per cent a year since 2000).
â€œA significant amount of the economy is already powered largely by small-scale generators (10â€“15 GW) and almost 50 per cent of the population have limited or no access to the grid. As a result, Nigerians and their businesses spend almost $14 billion annually on inefficient, polluting and noisy generation that is expensive, and suffers from poor quality.â€
Even with the huge business potentials of the market, as well as its rising footprints, operators recently raised the alarm over a government trade policy that could derail the progress of the solar market.
Speaking in Lagos recently, REAN disclosed that an arbitrary customs duty levied on imported solar power components by the Nigerian Customs Services would likely thwart the growth path the market had taken.
REAN president, Mr. Segun Adaju, said at the Lagos briefing that the Customs had indiscriminately decided to use a classification code, 85013300 which is actually meant for Direct Current (DC) generators with movable parts that are imported into the country, to place very high import levies on imported solar components. Adaju explained that instead of the normal 85414000 classification code used for solar panels and which attracts zero duty, the Customs chose to use the other, thus placing import levies as much as 10 per cent on solar components. He noted that indigenous solar power operators and firms had been unable to clear their goods from the ports, saying the development would heavily affect the final cost of solar power procurements by consumers in the country.
Adaju said, â€œThis new import duty on solar panels may lead to hike in cost, derailing FGâ€™s renewable energy plans. Consequently, discharge of goods from the ports has been slowed down immensely and demurrage charges have risen for our members since the start of the year.
â€œThe imposition of arbitrary port charges will accelerate value destruction in this industry and will cause prices to rise to uncompetitive levels. All over the world, the cost of solar panels is falling, hence increased adoption of renewables.
â€œThis new tariff will increase acquisition cost of solar panels in Nigeria, which are currently heavily deployed in rural areas where purchasing power is low. Even though under the CET code 8541.4010.00 – a classification for import duty tariff â€“ import duty on solar panels should be 0%.â€