Every industry requires electricity in one form or the other to thrive. Because of the unstable supply from the national grid, commercial and industrial outfits rely heavily on fossil-fueled generators, increasing their capital costs and carbon footprint. This inadequacy presents an opportunity for investment into renewable energy (RE), low carbon emission technologies and solutions. Energy-as-a-Service is a feasible model for powering commerce and industry in Nigeria.
Business Models for Lighting up Commerce and Industry
High costs are a popular barrier facing the adoption of renewable energy supply. However, energy access has also evolved through energy-efficient (EE) technologies, making financing models available to facilities depending on their energy needs.
Financing models are used when equating the finance available, what the energy capacity hopes to power and the level of commitment to facilities for investment in renewable energy sources for their companies; a few of these models are;
CAPEX Model: The capital expenditure (CAPEX) model involves the consumer buying out, owning, and operating the power solution from developers. Due to the high upfront capital investment required, it is more geared towards large scale users and manufacturers with high electricity demand who can cover the capital costs outright.
Credit Model: For this model, the customer leverages equity and creditworthiness to obtain loans from banks to finance their power solutions.
Energy-as-a-Service (EaaS): A subscription-based business model where the customers pay for an energy service without any (or little) upfront capital expenditure. The approach offers end-to-end management of a customer’s energy assets and services . It represents a shift from customer-owned equipment towards the provider maintaining ownership whilst the customer pays for the service based on realised energy savings . At the end of the contract period, the customer can choose to extend the contract, purchase the equipment to operate themselves or have them removed by the developers. Decommissioning costs are typically factored into the original agreement. In addition, third-party companies can be contracted for the disposal of batteries.
Is Energy-as-a-Service Feasible for Businesses and Industries?
The rise of Energy-as-a-Service across Nigeria has been slow but progressive. Since energy management is not a core competency of many organisations, customers adopting this model must be willing to outsource their entire energy provision to the solution provider, including owning, installing, and managing the assets. Facilities and buildings suitable for this model include high-powered usage, daytime operations (for adequate solar radiation), the business’s longevity due to the long-term nature of such contracts, affordability, and creditworthiness to guarantee developers’ returns on investment.
Although there have been increased investments in renewable energy technology, particularly solar, and the benefits provided by EaaS, adoption of this model is hindered by challenges unique to the enabling environment, such as the discrepancies in exchange rates. Moreover, most of the equipment required is imported. The fluctuating Naira value in the global market limits developers’ access to imported technology and capital investments that should ordinarily bear the risks of the foreign exchange market.
The availability of local financing and the economic will of Nigerian banking institutions to finance such projects depend on the parties involved in the agreement and the customers primarily, as the entire cash flow depends on the wiliness to make repayments. Therefore, the portfolio of the developers could be considered if they have actualised repayment history. In addition, banks would also consider the availability of collateral offered by the project.
To improve the buy-in of renewable energy projects for commercial and industrial purposes, commercial banks need to understand the business models that apply in the space. An approach could be through direct financing to the clients to gain knowledge about the service.
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Embedding Generation for Commerce and Industry
An opportunity for commercial and industrial (C&I) power consumers to control their energy supply and ensure stability lies in embedded power generation. Embedded power generation is directly connected and evacuated from a distribution system to the consumers rather than through the national transmission grid.
Currently, producers of above 1 megawatt (MW) of energy through embedded systems must obtain licensing from the Nigerian Electricity Regulatory Commission (NERC), and this requirement represents a barrier to private power generation.
In a move to reduce barriers to investment and boost the C&I sector, the South African government in June announced an increase of the embedded generation threshold from 1MW to 100MW. The reform aims to increase private infrastructure and foreign direct investment whilst reducing direct reliance on Eskom, the SA national electricity producer, and load-shedding. If Nigeria adopts a similar strategy, it would reduce production costs and boost economic growth within the C&I sector. First, however, policies would have to be adopted to make large scale embedded generation a reality. Measures include but are not limited to :
– Creation of a national framework on how electricity wheeling would be done
– A defined registration process and user system charges for grid use and
– Identification of standby capacity/backup to support activity and ensure a stable supply.
Technology gaps faced by RE/EE/Off-Grid developers
As more off-grid developers recognise the opportunities presented by the C&I sectors, there is more awareness of the barriers they face. These gaps include lack of data, design for sustainability and adequate understanding of solar PV systems such as batteries operating better in cool conditions.
Solar System Footprint: As commercial and industrial consumers are heavy electricity users, they require high solar capacity and systems requirements to meet demand. This means increased mounted solar panels to get more solar power or batteries for storage at large capacities. In addition, for EaaS to be fully actualised, developers have to ensure electricity generated is used efficiently and energy waste is reduced as much as possible. This, in turn, sets to increase energy savings.
Lack of data: There is a need for region-specific geospatial data when considering energy solutions to determine what solutions would be most feasible in an area, e.g., solar radiation in the south is not as high as that in the northern states; therefore, the adoption of hybrid measures might be required.
How can Stakeholders Maximise Power for Commerce and Industry?
For a long time, a barrier facing investment in off-grid solutions was the risk of lack of returns on investment. As a result, developers require different measures to ensure profitability. These include:
– Energy audits ensure suitable demand for the power and inform the solutions suitable for a client, e.g., standalone systems or mini-grid. It would help to understand the energy mix
– Identify a community with clusters that can off-take excess/bulk supply of Energy generated.
– Employing local collectors from within the communities.
– Ensuring energy tariff/ rates are suited to the actual
– Energy service providers need to increase awareness among customers regarding the latest energy management technologies and provide guidance to customers on choosing solutions that fit their needs
– Energy Service provides becoming more flexible with procuring market-based services.
– Introduce energy management software supported through artificial intelligence, e.g. smart metering systems etc
In conclusion, Nigeria is one of the biggest economic powerhouses, and energy is directly tied to economic growth. Energy-as-a-service assists commercial and industrial customers with limited capital achieve increased savings on Energy and manufacturing expenditure. Private investors, developers and the government have shown commitment towards accelerating infiltration of clean, Energy-efficient technologies to boost trade and Commerce across Nigeria. However, more awareness is needed on the options available for businesses to realise the full potential of and influence the deployment of Energy-as-a-Service.
