7m ready households for solar energy show growing market

There are 7 million households ready for immediate deployment of solar home systems across the six geographical zones of Nigeria, according to a study, pointing to a growing off-take market for off-grid connections.

The study for which Sustainable Energy for All partnered Shell-seeded off-grid energy impact investor All On, focused on how to achieve economies of scale in the Nigerian solar value chain.

According to the report, these 7 million households can pay at least N5,250 per month, assuming they can transfer 50 percent of discretionary spending to cover monthly payments. This indicates the existence of an off-take market that can catalyse new investments.

These households were measured by their ability to pay, their residence in un-electrified communities, and living in communities with good credit potential.

Read Also: How large scale projects are vital to localising Nigeria’s solar value chain

The data showed that the south-south region leads with 2.1 million of such households, next is the north-west with 1.54 million, south-west with 1.11 million, south-east with 750,000, north-central with 650,000 and northeast with 640,000 households.

Nigeria’s troubled electricity sector provides opportunities for discerning investors. With an electrification rate of 57 percent it is estimated that between 85 and 100 million Nigerians without access to electricity, mostly in rural areas, need solar energy.

This study, which now shows that about a quarter of these people are willing and able to pay for energy, opens up a new avenue for those willing to invest in the sector.

To court investors, the Federal Government has put in place some initiatives that offer financing at a single interest rate, priority access to evacuate imports of renewable energy components, and duty waivers to support investors.

The report agrees that access to finance will make an impact. It found that single-digit local currency financing and access to foreign exchange at the Central Bank of Nigeria’s (CBN) rate are required urgently to scale the market.

It called for reserved access to foreign exchange at CBN rate to companies deploying solar solutions to address some of the cost challenges due to increasing material costs as a result of the naira devaluation.

The study noted that access to low-cost naira financing was needed due to the high cost of capital and limited availability of capital, which is stifling the industry growth.

Access to grants and subsidies, the study found, will improve customers’ ability to pay in rural households, which are said to diminish for PAYGO systems after the first six months and will alleviate some of the revenue challenges.

According to Damilola Ogunbiyi, a stakeholder in the solar energy ecosystem, this is required because the cost of renewable energy is not dropping in Nigeria at the same rate it is happening in other parts of the world.

“What needs to happen is for operators to come together and scale,” Ogunibiyi said, arguing that if a group can show it can provide energy access for 1 million people, this will encourage the team at the Rural Electrification Agency to present a strong case for action easing access to financing.

“The cumulative effect of the identified enablers on the local assembly of key solar system components will make Nigerian pricing competitive, increase its export potential, and have positive effects for the ECOWAS region,” the report said.

In response to the industry’s concern, the Federal Government has created the Solar Power Naija programme as part of the Economic Sustainability Plan (ESP) to achieve the roll-out of 5 million new solar-based connections in off-grid communities.

The Solar Connection Intervention Facility seeks to provide affordable electricity through the provision of long-term low-interest credit facilities to the Nigeria Electrification Project (NEP) pre-qualified home solar value chain players.

It also seeks to expand energy access to 25 million individuals (5m new connections) through the provision of solar home systems (SHS) or connection to a mini-grid, increase local content in the off-grid solar value chain and facilitating the growth of the local manufacturing industry and incentivise the creation of 250,000 new jobs in the energy sector.