Why off-grid operators are attracting serious investors

Deep knowledge of the local market, institutionalising corporate governance even when only at start-up phase, competent management, efficient customer service and convenient payment systems are key reasons local off-grid operators are attracting the biggest chunks of equity investments in Nigeria.

 

During a press briefing to announce over $9 million in equity funding to off-grid start-up Arnergy, in Lagos, recently, the investors said they were principally driven by the technical competence of the company’s management and their strong knowledge of the local market.

Within the past three years alone, off-grid operators have seen saw over $1 billion in new investments. These investments have often been backed by technical and governance support.

The mini grid space has attracted the most investment in the sector due to the high cost of building a minigrid. For example, the 85kw solar hybrid mini-grid mini grid at Gbamu-Gbamu village, in Ijebu-East Central Local Council of Ogun state was built with a 500 million euros financing from GIZ, a German development agency.

Besides providing funds, GIZ provided technical support by re-skilling its grantee on deploying a mini-grid. The company also provided technical support having experts monitor the process. GIZ has expanded the training opportunity to include local installers.

The World Bank too has provided the Nigerian government, a $350 million loan for the development of rural electrification projects in the country and is partnering a Federal Government agency disbursing the fund on strategies to make the investment deliver value.

Local off-grid operators have been able to build knowledge of the local market by deepening engagement with the communities they serve. ColdHubs for example, began by offering local farmers knowledge on the latest trends in farming and preserving produce without a fee before it began offering cold storage services. This helped to build trust and reduce the cost of marketing.

Some mini grid operators carry out extensive scoping exercises in various rural communities to determine that there will be a few local businesses that will take up the energy they produce for productive purposes. They also determine how they can assist the communities develop new businesses like viewing centres, grocery shops where cold drinks are sold. Sometimes they offer soft loans to these residents who invest in small businesses from which they develop the ability to pay for the energy they use.

Solar home system operators in rural communities where there are no banking institutions have developed smart pay solutions that allow users vend energy units as they would a mobile phone recharge card. They train the community people to man these shops and hire some to serve as their technical assistants.

This way they are able to operate in remote communities and have gradually began to scale, opening up more opportunities for bigger investments as they meet obligations from previous investments.