The global solar industry is basking in the sun as prices of lithium batteries – crucial components in solar battery production – have dropped by 85 percent in one year, igniting a worldwide rush for clean energy solutions.
However, Nigeria, a country with immense solar potential, finds itself on the sidelines as a weaker naira and rising inflation cast shadows on this potential boom.
The price of lithium has tumbled by 85 percent in the past year to $11,930 per ton, its lowest level since 2020 after a market glut, according to data from CME Group Inc., a global financial services company.
“We’re going through a period where too many new projects came online in too short a time,” said William Adams, head of commodity markets research at Fastmarkets, a price reporting agency. “We’ve just started to see the pullback.”
Chinese companies’ construction of US solar-manufacturing plants is surging, putting China in a position to dominate the nascent industry, as other American factories struggle to compete despite federal subsidies.
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Goldman Sachs estimates a surplus of 200,000 tons of lithium carbonate equivalent, or 17 percent of global demand this year, which will require ‘substantial supply cuts’ to balance the market.
Ezzat Sankari, channels business director for Sungrow Middle East and Africa, one of the largest solar power system solution suppliers in the world, explained: “We are seeing that PV panel prices are drastically falling. In our opinion, this is due to the fact that demand across the world is now maintaining a certain slower capacity, while the manufacturing capacity is still going probably two to three times beyond the demand.
“Let me also highlight that we’re seeing that lithium iron phosphate battery technology is crashing in prices. We typically like to see these kinds of trends because the more the prices of PV panels and batteries drop, the greater the demand is. Battery is the most expensive component of any solar system,” Sankari said.
BusinessDay’s findings showed the UK’s market for used electric vehicles is booming after a collapse in prices has left them as affordable as traditional petrol cars.
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According to data from Auto Trader, a UK classified advertising website, level pricing is pushing more consumers to battery-run cars, driving secondhand EV sales up 63 percent in the first half of 2024 compared with the previous year.
“We have reached that price parity point that bridges the affordability gap for the consumer,” said Ian Plummer, commercial director at Auto Trader.
“Once prices are the same, the consumer perception is that the vehicle choice is a very rational one and no longer dependent on the feeling of doing the right thing,” Plummer said.
Data from the Society of Motor Manufacturers and Traders (SMMT) shows a similar trend to that found by Auto Trader, with EV sales across all dealerships and sales platforms in the UK soaring 71 percent in the first quarter.
“This is definitely a market that is growing fast,” Plummer noted.
The cheaper costs of running EVs compared with petrol cars are also helping the popularity of used vehicles, he added.
Gregor Kuepper, managing director of SolarWorld Africa, pointed out that the lower solar price is likely to remain for the next few years.
“Last year, the PV industry in South Africa experienced a massive uptake in new installations in combination with battery storage solutions,” he added.
For Nigeria, plagued by frequent power outages, solar power has long been touted as a viable solution.
Despite the global solar and electric vehicles boom after a collapse in prices, Nigeria’s economic situation is casting a shadow.
The depreciation of the Naira, Nigeria’s currency, has inflated the cost of imported solar panels and batteries, leading to higher prices in electricity-starved markets like Nigeria.
The naira has been relatively stable, hovering around N1, 500/$ at the official market. The most volatile period was on February 20, 2024, when it was over N1,800/$ and headed for N2,000/$, according to data compiled from the FMDQ Securities Exchange Limited.
Operators say it would have been easier on consumers and boosted investors’ confidence if the government considers reducing or removing the 20 percent duty on batteries.
The duty on the battery is not the only cost that solar operators are faced with. From a zero percent duty in 2018, the Nigerian Customs Service (NCS) imposed a 5 percent duty and a 5 percent value added tax (VAT) on solar panels coming into the country.
The 20 percent duty is however the highest and most impactful, giving the importance of batteries to a sustainable solar energy market.
BusinessDay’s findings showed a 5.4kWh lithium-ion battery cost between N3 million and N3.5 million now, compared with the previous price of N2 million-N2.2 million in May 2023.
“The recent fluctuations in the exchange rate have made it more expensive to import solar panels, a major hurdle for wider adoption in Nigeria,” Chinedu Ogbeide, a solar energy distributor with Gerland Holdings.
He added, “A combination of a weaker naira and rising inflation creates a double whammy for solar adoption in Nigeria, slowing down what could be a game-changer for the country’s energy sector.”
Michael Ekeh, chief executive officer of El-solar Energy, a renewable energy firm focused on solar system design, said the hefty upfront cost of installing rooftop solar panels and limited access to credit facilities are major roadblocks to solar energy adoption.
“The upfront cost of installing a rooftop solar system can be exorbitant for many middle-income and low-income citizens. Furthermore, lack of access to financing options and limited awareness about the benefits of solar energy could also contribute to the slow adoption,” he explained.
In 2020, the Federal Government launched ‘Solar Power Naija’, a 5 million solar connection programme for off-grid communities.
Only about 500,000 Nigerian households, representing 1.25 percent of total households, presently use solar energy, a study conducted by Boston Consulting Group and Shell-funded impact investment company, All-On, shows.
