- Nigeria has failed to solve its energy crisis despite the power sector’s privatisation in 2013
- We highlight 9 companies that are now rising to the challenge and providing unique solutions across the value chain
- With more capital investment, these companies could reshape Nigeria's power sector
As we highlighted previously, power remains a major pain point in Nigeria with various challenges across the energy value chain. These include inadequate power generation, loss of power generated, poor electricity distribution, debt-laden distribution companies, poor populace that cannot afford to pay the cost reflective tariff and a serious pollution problem from the millions of off-grid generator sets.
Although Nigeria has failed to solve its energy crisis (despite the power sector’s privatisation in 2013), various companies are now rising to the challenge providing unique solutions across the value chain. From generation (Rensource, Lumos Nigeria, GVE), supporting other industries (Arnergy Solar, Daystar Solar) and manufacturing (Auxano Solar) to smart meters (Mojec Power, Momas Electricity Meters) and tech solutions to manage energy consumption and utilisation (Auxano Solar).
In this report, we highlight nine companies that are reshaping the Nigerian power sector, what they are doing, the challenges they face and how they have been able to fund these solutions.
The future of power in Nigeria is decentralised. While attention remains on scaling up the capacity and the efficiency of the national grid, Nigeria’s off-grid capacity continues to grow and service the excluded and underserved majority. Just as the world is shifting towards renewable energy, the fast-growing adoption of solar energy in Nigeria points to a future of less pollution and better access to power across the board.
Nigeria received US$203.3mn (according to the International Renewable Energy Agency) in the last decade for off-grid solutions and has been the largest recipient of off-grid investment in Sub-Saharan Africa in recent years. Although we have seen more investment flow, we note that there is still a huge financing gap for off-grid solutions and Nigeria needs billions of dollars more in investment.
Generation: Augmenting the national grid with clean energy
The Nigerian electricity grid has a total installed generation capacity of about 10,500MW but less than 4,000MW is eventually distributed. Individuals and businesses must rely on costly, noisy petrol- or diesel-powered generator sets that are extremely bad for the environment.
To address this challenge, solar companies are taking advantage of the high solar radiation in the country to offer cleaner alternatives to household and businesses across the country. We highlight three companies — Rensource, Lumos Nigeria and Green Village Electricity (GVE) Projects Limited — under this segment.
Rensource is a solar off-grid energy company powering markets across Nigeria. It is currently active in 10 markets across six states with plans to set up operations in 100 markets across all 36 states in the country. The company provides power as a service and requires customers to pay just a monthly fee to stay connected. Rensource raised US$20mn in Series A round led by CRE Venture Capital in 2019 to expand its operations across the country.
2. Lumos Nigeria
Lumos Nigeria is a subsidiary of Lumos Global. The company recently launched two solar energy solutions (Lumos Prime and Lumos Eco) in partnership with MTN to supply medium-sized households and business solar systems. Lumos kits are made up of solar panels and batteries that can store enough power to charge small everyday appliances like lamps and laptops. The unique selling point is clean and affordable energy. Recently, the solar company secured a US$35mn funding from the US International Development Finance Corporation (DFC). Lumos Nigeria also receives support from the Rural Electrification Agency (REA) and funding from the Nigeria Electrification Project (NEP) to electrify one million households in Nigeria by 2025.
3. Green Village Electricity (GVE) Projects Limited
GVE provides energy to underserved and off-grid rural communities, which suffer more from the inadequate power supply in Nigeria because the investment case for connecting the communities to the grid is usually not strong enough. GVE is addressing this by providing mini-grid solutions to rural communities across seven states and intends to reach 500 communities by 2022. The business model requires customers to pay a one-time connection fee and a fixed monthly charge to have access to 24/7 electricity. The company has so far received funding from All On (funded by Royal Dutch Shell), REPP Energy (funded by the UK's Department for Business, Energy and Industrial Strategy), Bank of Industry (Nigeria's DFI) and ElectriFI (EU-funded impact investment facility).
Challenges: The major challenge within this segment of the market is the route to profitability. The huge initial capital outlay as well as scale of adoption are the barriers to achieving profitability now. Most of the funding (thus far) has come from impact investors that are interested in Nigeria’s renewable energy potential.
Businesses and industries are not excluded from Nigeria's power sector rot — it is one of the major operational challenges. While most manufacturers rely on diesel generators and some have special arrangements with independent power producers (IPPs), the listed companies below have started embracing solar solutions to make it easier to service businesses and industries.
4. Arnergy Solar
Arnergy is an off-grid energy provider in Nigeria with an installed capacity of over 2.5MW and a storage capacity of over 7.5MWh. Their target market includes (but not limited to) healthcare, education, hospitality, agribusiness and micro businesses. The company raised US$9mn in 2019 to fund its solar mini-grid project.
5. Daystar Solar
Daystar provides solar-as-a-service (Saas) and power-as-a-service (Paas) to commercial customers in Nigeria and Ghana with a current capacity of 23MW. The unique selling point of the services provided is that clients do not need to incur any capital expenditure and the power supplied is more reliable that the national grid. So far, the company has set up over 200 solar systems and recently secured a US$38mn Series B funding to grow its capacity to 100MW and expand operations to French West Africa (Ivory Coast, Senegal and Togo).
Challenges: The identifiable challenge in this segment is the infrastructure and capacity to service large industries at scale — there needs to be more capital investment. A partnership with local solar PV assembler could be beneficial in ramping up capacity.
The shift to renewable energy: Solar PV manufacturers
As more businesses and households adopt off-grid solar solutions to supplement the inadequate supply from the grid, the demand for solar photovoltaic (PV) panels, inverters and batteries has increased substantially. A majority of the solar panels in Nigeria are imported, and this comes with its own challenges. We highlight below Auxano Solar, a company that is attempting to fill in the supply gap by assembling solar panels in Nigeria.
6. Auxano Solar
Auxano is the first privately-owned solar PV assembler in Nigeria and recently signed US$1.5mn investment deal with All On (funded by Royal Dutch Shell). The company has an annual production capacity of 10MW and intends to add 50% more capacity with All On's investment. The funding will also accelerate distribution of its products across Nigeria.
Challenges: Solar panel assemblers also face the typical challenges of manufacturing in Nigeria such as logistics problem, sourcing for materials and insecurity (extra security cost to safeguard properties). Despite the levy imposed on the import of solar panels, solar PV assemblers still struggle to remain price competitive — this can be resolved with more funding and capacity expansion. There is still room for more local players in the market as the demand for solar PVs far outstrips supply.
Taking on the notorious metering problem
One of the major challenges hampering effective electricity distribution in the country is the low meter penetration. Only 38% of 10.4 million registered customers have electricity meters.
In a bid to solve this challenge, the Federal Government launched the National Mass Metering Programme (NMMP) and the Nigerian Electricity Regulatory Commission (NERC) introduced a Meter Asset Provider (MAP) scheme. The NERC has approved about 22 companies to undertake the meter distribution exercise across the country. Of the 22, the two companies we highlight below not just distribute meters but also assemble them in the country.
7. Mojec Power
A subsidiary of Mojec International Limited, Mojec is one of the first companies to introduce smart meters and prepaid meters in Nigeria. The company built a meter assembly plant with an annual production capacity of 1.2mn meters in 2013, the largest at the time. Currently, Mojec is an approved Meter Asset Provider (MAP) for 7 out of the 10 distribution companies (DISCOs) in the country and has the largest installation fleet in the country. Apart from the assembling capacity and first-mover advantage, Mojec has strengthened its place as the market leader through a tailored financial solution to promote metering across the country. By partnering with 8 banks, customers can now get a loan to purchase Mojec meters.
8. Momas Electricity Meters
Incorporated in 2011, Momas produces single- and three-phase STS modular meters and prides itself in using more than 50% local content in production. The company is an approved Meter Asset provider for 2 (Ibadan and Kano discos) out of the 10 DISCOs.
Challenges: Despite the unified effort by the government, NERC, DISCOs as well as the metering companies, the rate of installing meters remains low. Local meter assembly companies also face challenges such as price competition from cheaper imported brands. The federal government had initially placed a 35% levy on imported meters, but this was recently suspended in a bid to hasten meter distribution across the country. In addition to the challenging competitive terrain, recent FX liquidity issue has made material imports difficult and expensive — another setback for these companies.
Tech solutions to manage energy consumption and utilisation
Most households and businesses in Nigeria rely on at least one additional power source to augment the national grid, and distributed resources are already larger than grid capacity. In the process of managing two or more energy sources, energy as well as funds can easily be wasted. Here, companies like Shyft power are providing tech-based solutions to combat the challenge.
9. Shyft Power
Shyft provides technology that enables power consumers to track energy use across grid-edge, mini-grid and off-grid systems. The solution makes it possible for individuals to track energy use by source and the cost of electricity consumed, thereby promoting decentralised and distributed energy consumption. Shyft Power was a beneficiary of SoftBank’s Emerge accelerator and has since raised over US$1mn from various sources, Japanese-VC Kepple Africa Ventures being the most recent. The start-up actively promotes digitisation of solar assets to promote shared economy for energy resources.
Challenges: The major challenge here is adoption across the board. Although the value proposition is great, adoption is generally low and there is still a long way to go in getting households and companies to embrace tech solutions to cost saving and energy management.
Related reading: Nigeria's power sector crisis in six charts
- 1 Strategy Note/Global 6 best emerging market companies to play the blockchain theme
- 2 Strategy Note/Global How profitable are emerging market fintechs?
- 3 Strategy Note/Brazil Petrobras-induced sell-off makes Brazil valuations appealing
- 4 Quantitative Analysis/United States of America US Treasury yields heading higher; target 2%
- 5 Flash Report/Nigeria Nigeria's surprise exit from recession doesn't mean its problems are over