Nigeria is struggling to produce enough electricity to power its growing urban and rural population. With fluctuations in power generation capacity over time, the highest power output the country could ever boast of is 4,000 Mega Watts (MW) of electricity.
In fact, at this rate, Singapore, a Southeast Asian nation, which Nigeria is more than 1280 times bigger than in size and 33 times bigger than in population, produces more than three times as much electricity as Nigeria. Indeed, Singapore is so self-sufficient in electricity generation that it once reached its peak demand in 2007, averaging only 7,000 MW that year that it left a spare capacity of electricity of 48 per cent in the system.
To understand the range of this absurdity, Lagos, Africa’s largest city and Nigeria’s smallest state by size is two times bigger than Singapore by size.
Back home in Africa, Nigeria, Africa’s largest economy, is 13 times behind South Africa in terms of total power generation capacity. As a matter of fact, the United States Agency for International Development (USAID) has noted that currently Nigeria already has the potential to generate 12,522 megawatts (MW) of electric power from existing plants, but is still hovering around 4,000 MW, which is insufficient.
Where Nigeria Ranks In Terms Of Power Generation In Africa
Although the biggest issues currently plaguing Nigeria ’s electricity sector revolve around lack of transparency by sector regulators, lack of creditworthy utilities and other macroeconomic forces, including the capital intensive nature of the electricity industry, there has been concerted participation by different players towards shifting the negative trends away. Startups are particularly becoming active players in this regard. Below we look at how startups are trying hard to change the narrative in the Nigerian electricity ecosystem.
Arnergy
‘‘When we started in 2014, the first community we provided electricity for was Sagbo Kodji Island in Lagos. They had been without electricity for 100 years and we went there and did a few pilot projects,’’ said Femi Adeyemo, CEO Anergy.
The last time we were there to check how the system was working, we met a young 15 year-old boy who started a business on the Lagos Island because of uninterrupted power supply. He makes up to N1000 a day charging mobile phones for people.
So if we did not provide that opportunity, the boy might just be there doing nothing. We derive a lot of joy when we go to these rural areas and see people starting such businesses. Africans are very smart; they just need the enabling environment.
Imagine if we do this across the country and we see our teenagers starting businesses; before you know it, we can put an end to poverty in Nigeria. This is part of our motivation.’’
Founded in 2014 by Femi Adeyemo and Kunle Odebunmi, Arnergy provides solar power systems to homes and businesses in Nigeria.
Arnergy builds, owns, maintains and supplies 24 hours electricity to residential estates, universities/campuses, telecom operators infrastructures,commercial and manufacturing firms using renewable energy predominantly solar energy with no initial cost requirement to the clients who only pay them by the month to enjoy uninterrupted power supply in their homes and businesses.
In the last half-a-decade, the startup claims to have installed over 2 MW of clean energy solutions for more than 2,000 clients. Arnergy’s 5KW modular systems also hopes to include small businesses, healthcare, hospitality, financial services, agribusiness and education.
Facing A Brick Wall Because of The Capital Intensive Nature Of Nigeria’s Electricity Industry
Indeed, even though Arnergy’s pilot off-grid projects started as far back as 2014 in villages Osun State, South-Western Nigeria, when the startup set out to connect over 1000 households to electricity, the founder, Femi Adeyemo, once admitted that:
‘‘If we are looking at people paying for the solar solution, obviously it will be more profitable in the immediate term if we supply the solution to the people in the city. But the module we run is a service module and that is why we call it a mini-utility. We just go into the village and deploy our solar solutions and they pay us for the energy they use by the day.’’
Although, Arnergy’s initial strategy was targeted mostly at rural dwellers, given that more than 60 per cent of Nigeria’s population who live in rural areas have no form of connection to the national grid, Arnergy was quick to re-strategize about its locations. Of course, rural areas would be considered but profitability needed to ensure that the startup continues to exist would first be guaranteed.
The startup was already under a loan agreement with Nigeria’s Bank of Industry at a single digit interest rate and more than 10 years to repay with a mandate to provide energy solutions at a very affordable rate to a minimum of 100,000 rural homes in the next five years.
Also faced with ‘‘lack of a cost-reflective tariff, policy back and forth, and over-regulation’’ in Nigeria’s electricity sector, the startup has since changed its business model to remain in business, extending its reach to cities and previously neglected territories.
Challenged by these, the Nigerian based solar energy distribution startup has recently raised 9 million (NGN3.2 billion) in Series A to fund its commercial growth with new business models, improve on partnership avenues, and expand its activities. The funding round was led by Breakthrough Energy Ventures, while Shell-funded All On Energy, the European Union-backed ElectriFI and the Norwegian Investment Fund for Developing Countries (Norfund) participated in the capital injection.
Despite all this, including the recent funding, Femi Adeyemo believes Nigeria’s power problem could be solved by startups like Arnergy if government is clear on regulations and policies.
‘‘Nigeria must be wary of over-regulating renewable energy technologies and applications,’’ he said. ‘‘Import duties are currently being charged on solar power balance of system components, and value added tax (VAT) is still being charged on sales of solar panels and accessories. Enacting a zero tax regime for all renewable energy components will fast-track private sector participation and consumer adoption of renewable technology, in particular solar.’’
The potential for the local manufacture and assembly of solar panels, batteries and inverters, as well as capacity expansion for existing cable manufacturers, is significant. As in other countries that have seen a huge uptake in solar power generation, the government has provided a very conducive environment for its implementation. Full-blown pioneer status, zero VAT and tax holidays could jump start the industry in the export of renewable energy products and diversify revenue streams away from oil-based income. This in turn would create employment opportunities for thousands of unemployed youths in Nigeria’s labour.”
Lumos
Unarguably, Arnergy is nowhere around Lumos, another Nigerian startup that is helping to solve Nigeria’s power sector problems, in terms of financing.
Launched in Nigeria in 2013, Lumos secured $90 million in fundraising, the Nigeria’s largest ever investment in the power industry in 2016. The investment included $50 million of debt funding from Overseas Private Investment Corporation (“OPIC”), the U.S. Government’s development finance institution and a total of $40 million of equity. The equity was raised from a consortium led by Pembani Remgro Infrastructure Fund (“PRIF”), the African infrastructure investor, and existing investors VLTCM and ICV.
Lumo enables people to replace hazardous and expensive kerosene generators and lanterns with modern solar electricity that can power lights, cellphones, fans, computers, TVs and other compatible small electronic devices. By offering Solar Power as a Service, Lumos offers homes and small businesses a simple and affordable way to pay for electricity in small installments using their mobile phones. Lumos targets off-grid residential and small businesses. Lumos reached its 500 system goal for the pilot in May 2015 and sold over 3,000 solar home systems in 2015.
‘‘The process your company goes through as it graduates from a start-up to a fully-fledged business is a much bigger challenge than I had anticipated,’’ Jumo co-founder and President Nir Marom said. ‘‘There is a very difficult skill set between getting a project and company off the ground — making an idea a reality — to running a growing business. It has many different demands, requires different skills and a very different management style.’’
Ultimately though, the biggest challenge I face is also why I started this company in the first place: how do you bring power to 1.3 billion of the world’s poorest people who don’t have access to electricity?
People left behind by the conventional grid tend to be tricky for businesses to reach, to communicate with, and to service.
We overcame this by partnering with other organisations, leveraging their strengths in respective areas. We know that MTN have better billing, payment and sales systems in Nigeria than we do — and they know that we make better solar systems. This is the future of business and its working for us right now. We just celebrated reaching our 200,000th customer in Nigeria.
In partnership with MTN, Nigeria’s leading mobile phone operator, Lumos Global today allows its customers to pay for the system as they go, obtaining electricity for less than 50 US cents a day, using mobile phone credit.
‘‘Our partnership with the biggest mobile provider in the Africa, MTN, might have seemed risky for a start-up, but it has made us what we are today. Partnerships are a key component of our expansion model,’’ Nir Marom said.
Rensource
Founded in 2015 with over 2000 customers, Rensource is rapidly disrupting Nigeria’s energy generation and distribution. Rensource partners with project sponsors to develop, fund and manage decentralized energy projects to address the energy drop in Nigeria — by providing reliable energy to consumers, growing businesses and industrial clients.
Rensource has raised a lot of funding from different venture capital firms as well as international organisations. Notable among them is the startup’s 2018 $3.5 million bridge financing to hire more personnel, expand operations into Kano and Abuja, and expand its product base.The round was led by Mauritius Amaya Capital Partners with participation from Omidyar Network and South Africa’s CRE Venture Capital.
The startup has also raised €500,000 in debt financing to contribute to solving Nigeria’s problem with electricity by helping small and medium-sized enterprises to replace the heavy usage of fossil fuel-powered generators with solar systems. The loan from investors on Trine would provide at least 4,000 shops in Nigeria access to electricity.
Rensource previously raised a US$1.1 million seed round, also funded by CRE Venture Capital, as well as Sissili Limited, among others.
The startup is also pushing for Nigeria’s power sector reform through major partnerships. In 2018, the startup signed a partnership deal with CARS45, Nigeria’s pioneer used-car buying service, which will see Rensource deploying renewable power solution infrastructure to over 100 Cars45 inspection centres across Nigeria.
On the greatest challenges facing the startup, Ademola “Demmy” Adesina, the founder and CEO of Rensource noted that:
‘‘We’re still in the early stages of growth, but I’m most proud of the team I’ve been able to assemble and the robustness of the various processes I see the team building and implementing. From two guys with an idea, we’ve come a long way in learning how to execute precisely.’’
Quaint Global Energy Solutions
The firm develops renewable power projects and provides solar energy solutions to rural Nigeria. The company has been given a grant by the United States Trade and Development Agency for a solar power project that they are developing in northern Nigeria. Quaint Global Energy Solutions is working with California-based Tetra Tech. On its completion, the project is expected to bring 50 megawatts of clean energy to Kaduna State and generate more than $160 million revenue.
Other notable Nigerian off-grid electricity generation startups include Solarcreed, OneWattSolar, GoSolar Africa, AllOn, among many others.
Charles Rapulu Udoh
Charles Rapulu Udoh is a Lagos-based Lawyer with special focus on Business Law, Intellectual Property Rights, Entertainment and Technology Law. He is also an award-winning writer. Working for notable organizations so far has exposed him to some of industry best practices in business, finance strategies, law, dispute resolution, and data analytics both in Nigeria and across the world.