• Saturday, July 13, 2024
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Even you can afford renewable energy solution

Even you can afford renewable energy solution

With over one billion people worldwide living without access to electricity and a further billion with erratic supply, it is critical now as never before to find a solution to improving electricity access globally. In Nigeria, over 45 percent of the current population of 200 million lives in total darkness, and this total population is expected to double by 2050. Without access to power, the nation is missing a significant step in achieving sustainable development.

To address energy poverty, the government has identified that supporting off-grid renewable energy solutions will be a key driver, and is introducing policies to encourage the sector’s growth. These policies have paved the way for the entrance of renewable energy solutions such as solar lanterns, solar home systems and rural mini-grids to somewhat flourish in several communities across the country. Few examples of cases where renewable solutions have helped small scale commerce include;

1. a small kiosk owner in rural Katsina now being able to open for longer hours because of his 10 watt solar home system powering several bulbs
2. a canteen owner in per-urban Lagos who now offers solar TV services to her customers
3. members of Wudil community, Kano who can now charge their mobile phones without having to walk for hours.

By opening up the renewable energy space through appropriate policies, the government seeks to attract entrepreneurship and innovation. A more enabling business environment will increase commercial opportunities by encouraging more investment, making finance more readily available.

Since there is an identified need, there must be a way of ensuring that those who need electricity the most can access it. Those with the most urgent need living in remote off-grid locations usually have limited finance or savings access. Therefore, to ensure the accessibility of these off-grid electricity solutions, the renewable energy value chain must include affordable and scalable financing models for the different classes of end-users. End users range from the domestic looking to charge a phone or power a small fan to the small business owner such as seen at Ariaria international market, Abia State, or even larger industrial users who need to power factory machinery or infrastructure.

Read Also: Solar energy demand to rise 30% in 2021 – study

Accessing financing options for renewable energy end-users has posed a challenge thus far. Traditional financial instruments favour the already-banked urban customer. Such a customer may be employed in a white-collar job, earn a regular income, and contribute some equity. This end-user would have more likelihood of securing a loan. However, the rural end-user is not typically attractive for a consumer loan as they cannot afford the relatively high upfront investment required to own such solutions. They also tend not to have a credit history, automatically meaning that lending to them is potentially high-risk. Their remote location even further increases transaction costs. The end-users themselves view financial institutions with scepticism.
Addressing Energy lending to households – Innovative Financing to unlock industry potential.
Without accessible and affordable financing options for the end-user, access to clean energy will remain limited. Those in the business of energy provision will find it difficult to scale up substantially. Any lending solution needs to be affordable for the consumer and attractive to the lender. These conditions mean energy providers must be innovative with payment plans to meet electrification needs. Since many consumers already spend a proportion of their income on providing their energy solutions, e.g. kerosene, they also need to see the value in using the same funds on a clean energy option.

Energy Loans and Microfinance
One way to improve consumer access to finance is by directly linking energy to microfinance. Microfinance is not a new phenomenon, and the model has proven successful in some developing economies such as Bangladesh, while energy loans have been used in Cameroon and Tanzania. The difference between microfinancing and energy loan is specificity. Energy loans are carefully-designed in partnership with energy companies, while microfinance applies to other purposes. Energy loans can be an innovative way to address the inadequacies in traditional lending, specifically. Developers or financiers will offer micro credits for such energy loans only to acquire renewable energy products. Advantages of using energy loans include shared risk between the microfinance institution (MFI) and the energy company, the potential for the rapid scaling of operations for the energy company, and increased client base for the MFI.

Cooperatives
Using the cooperative model, communities self-fund projects through regular contributions to a common pool. Such a model can support in increasing access to finance, especially to the traditionally unbanked. This method can be applied to finance off-grid projects in communities, especially when those projects are for a collective benefit. The cooperative model has the advantage of reducing administrative costs associated with know-your-customer (KYC), as cooperatives employ a rigorous selection process, and are also self-regulating. Examples of where cooperatives have worked include

1. Umunna in Aba for commercial lending. Umunna has enabled the locals to start micro-enterprises.
2. Barbers cooperative in Lagos. A barbers’ cooperative has seen the deployment of standalone to reduce barber’ spending on generators, thereby making them more profitable.

PayGo Solar
Another way of reducing the energy poverty trap is gaining acceptability and success. The PayGo system uses innovative financing models to reach previously unreachable customers. At the point of sale, the solar home or commercial system comes with a financing plan for the end-user, who looks forward to owning an asset and pays conveniently within the cycles of their household earning. Previous barriers to extending credit to the unserved end-user have been cleared as follows:

1. Consumer confidence in solar products – most PayGo solar companies offer a warranty.
2. Reaching the remote, off-grid customer– mobile money collection via mobile app.
3. Defaulting consumer – The service provider can switch off PayGo solar products when the end-user fails to make a payment.
Innovation plays a large part in the success of the solar PayGo market. The advent of mobile money successfully deployed in parts of East Africa means that mobile money apps can perform functions such as know-your-customer (KYC), credit risk assessment and cash collection.
Advantages

1. End-user financing made available to rural, unserved and underserved consumers
2. Rapid deployment of solar solutions to off-grid areas
3. Energy escalator pathway as a benefit of paying off – customers automatically qualify for a larger product.
4. Building a credit history for the remote customer
5. Improving financial inclusion

Conclusion

Plugging the gaps in end-user financing is key to increasing access to clean energy, which is critical to Nigeria’s sustainable development. It does not have to be an impossible task. Government and the private sector need to work together to create the optimum business environment for energy providers, who need to be open to embracing innovative financial solutions to meet the growing demand.