• Wednesday, February 28, 2024
businessday logo


Sustainable solar energy financing can transform Nigeria’s rural economy

Sustainable solar energy financing can transform Nigeria’s rural economy

The off-grid space in Africa’s biggest economy has become too important to rely on handouts as a financing strategy. For over a decade now, the chief source of financing has come from donor agencies through performance-based grants and subsidies, while commercial banks have watched with disciplined detachment.

More than half of Nigeria’s 200 million people are not connected to the country’s creaking grid. A 2018 World Bank study shows Nigeria as having the world’s second-largest deficit in access to electricity, that is, after India. The Bank’s Sustainable Energy for All (SE4ALL) database shows only 54.4 percent of Nigeria’s population had access to electricity in 2017.

Even in urban areas where electricity access supposedly exists, perennial problems in power supply include gas supply shortages, limited distribution networks, limited transmission capacity, electricity theft, a large metering deficit, and high technical and commercial losses resulting in hours of blackouts daily.

Apart from the huge financial cost of over $14 billion spent annually on generators, there is air and noise pollution the generators constitute, increasing the carbon footprint of the country and posing major health risks to people. The lack of adequate power supply results in over $25 billion in annual losses to the economy (6 percent of GDP).

Read also: Nigeria’s Energy Transition Plan and the Oil & Gas Sector

Solar Market Opportunity

Nigeria is far from achieving Sustainable Development Goal 7, which seeks universal access to affordable, reliable, sustainable, and modern energy by 2030.

Experts say that based on the sustainability objectives of access, affordability, and elimination of CO2 emissions, solar is the most appropriate means of providing regular, cleaner, and cheaper electricity for rural communities in Nigeria.

“Solar energy in Nigeria holds the key to inclusive economic development. It is not just about harnessing the renewable energy from the sun; it is also about contributing to access to energy for every Nigerian,” said Michel Deelen, Consul General of the Kingdom of the Netherlands in Lagos.

Economic development in rural areas is the basis upon which existing solar projects are developed. The economies of most rural areas are based on subsistence farming, and these farmers require reliable and affordable energy to power their activities. Off-grid solar companies can provide them with energy solutions that are cost-effective and reliable.

Already some companies are innovating on the concept of energy for productive purposes. ColdHubs, founded by Nnaemeka Ikegwuonu, deploys a “plug and play” modular, solar-powered walk-in cold room, for 24/7 off-grid storage and preservation of perishable foods.

Opportunities abound in the solar energy market in Nigeria. The Federal Government seeks to expand electricity access by 90 percent, with 30 percent of total energy coming from renewable sources by 2030.

Read also: Fighting Nigeria’s climate change with solar energy solutions

Deelen said there is growing international interest in investing in solar opportunities in Nigeria. “That is why the Netherlands is prioritizing business development, innovation, and investments in solar energy with national and international stakeholders.

“But in order to reach the full economic potential for Nigerian and international companies, bottlenecks and challenges in the market need to be addressed. This means tackling issues like infrastructure, regulatory barriers, and affordability head-on.”

Fixing financing issues

Anayo Okenwa, a solar energy expert, said the place to start is fixing issues related to financing.

“Commercial banks in Nigeria are not optimised to lending renewable energy infrastructure, they are more adept at lending trading where they can repatriate capital in three months,” said Okenwa.

Commercial banks demand stringent collateral and often do not accept the equipment as collateral. There is a capital mismatch, with commercial banks offering short-term financing for projects whose gestation period is between 15 and 20 years.

Okenwa proposed that sovereign guarantees by the federal government would have been helpful, but as the government is reluctant to offer that, institutional support through an infrastructural bank like InfraCredit with dedicated financing for off-grid projects would suffice. In exchange for a single-digit interest rate and a longer repayment period, the government can take an equity stake in the project.