How off-grid electricity is creating business opportunities
Muktar ( not real name) lives in a small village over a hundred kilometres from Kano City. He teaches in a primary school and among the privileged few who get a chance to travel to the city, sometimes on official assignments.
On one of such trips to the city, Muktar’s city-dwelling colleague told him about solar home systems (SHS) and how it could improve his living standard by helping him use a healthier energy source other than kerosene.
Doubtful though, he put together his savings and bought the first SHS for his home. However, neighbours started asking to charge their mobile phones. He worked out that the cost of a second SHS would be covered several times over by the phone charging fees from the neighbours desiring such services. Muktar placed an order for a second SHS and a new business emerged.
On a larger scale, solar energy startups have an opportunity here to provide people like Muktar with reliable, affordable and healthy electricity profitably.
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With 46 percent of the population of Nigeria not connected to grid electricity, families and businesses can be inhibited in their activities and earning potential. For the on-grid population, unreliable or inadequate services mean people have to find an alternative source of power.
However, the income levels of rural Nigerians are such that they can only spend little on energy. Their energy demand is also quite low. This is one of the reasons rural communities are typically not connected to the grid in the first place. Electricity companies do not find them as profitable.
Many rural households spend about $ 6/ month (N2,100/month) on kerosene or battery-powered torches according to the Rural Electrification Agency. The REA estimates that rural dwellers will save about $4.50/ month per household with solar home systems. One of the challenges is that clean energy products have largely been out of reach for these households. The approach of two startups to this situation has been quite innovative.
Oolu Solar provides two sets of products that match the income levels of rural Nigerian consumers. It also offers flexible payments options like annual and monthly payments in addition to outright purchase. This provides more rural households with an opportunity to afford its solar systems depending on their income levels.
Financing mechanisms such as Lumos’ lease-to-own model make modern energy access more affordable to families. But, like any credit system, there sometimes can be unintended consequences. Even if customer repayment rates are high, there may be customers who find it difficult to make repayments.
An important element of the pay-as-you-go (PAYG) model Oolu Solar, Lumos and other solar startups offer is mobile money. It enables them to easily collect payments from their consumers. Many of these consumers are typically unbanked.
In Kenya, mobile money has helped connect about 500,000 off-grid households with basic electricity. In some parts of West Africa, mobile money solutions are also now being used. Nigeria is one of those markets where it barely exists.
Renewable energy presents a reliable alternative, specifically solar home systems. They are not only clean and healthier, but they are also more cost-effective compared to available alternatives
There are questions about the profitability of solar home systems; however, this has not stopped the surge of investment into the sector.
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