Solar adoption: The difficult conversation

I was talking to someone recently who asked the usual “How is business?” question alluding to the fact that given recent macro events, the value proposition for solar has strengthened hence widening the demand-supply gap. My response was while I agreed with him, sometimes it feels like I am in a desert inhabited by thirsty people, I have water to offer but for some reason, I can’t get them to drink fast enough.

This article is not about water, a desert or thirsty people and please let’s not go into the debate on whether water should be commercialized or not. The focus of this article is on solar and the challenges that continue to inhibit adoption despite the palpable commercial sense it makes today given the “removal” of fuel subsidy, increase in Band A tariffs and sustained high diesel prices.

Disposable income

The reality is disposable income has suffered significantly, adversely impacted by inflation. A recent survey by Moniepoint indicated that only 6% of Nigerians earn above NGN 150,000 per month. From their limited income, Nigerians have to allocate between necessities such as food, clothing, and shelter while ensuring they can commute to and from work.

On the commercial front, businesses continue to grapple with the infrastructural deficit driving operational costs upwards while contending with the shrinking disposable income of the consumer market.

For operators like Arnergy, it means one of a combination of reactions, drive costs down while contending with the impact of fx (due to high import dependence of the industry), absorb the impact hence reducing margins (my investors will not like that), longer tenor financing and corollary credit risk that comes with it.

Charlatans at the gate

I used to be a bit coy about this point largely in the spirit of being seen as an ecosystem team player, however, I have become increasingly frustrated by the damage substandard products and Operators with unsustainable practices are doing to the industry.

On one hand, I get it or at least I think I do, the nascency of the space and the relative low barriers to entry means it is only natural that you see all sorts of Operators doing what they can to sell solar systems. All of these were “manageable” hitherto, but given where the market is now – on the cusp of scale, we cannot afford for substandard systems, and poor or unavailable customer service to define the next phase of growth meaning key stakeholders must speak up, hold themselves and others accountable given that the biggest sales channel continues to be word of mouth. To attempt to capture it succinctly, a satisfied customer will tell three friends, an angry customer will tell 3,000 – Anonymous.

Consumer education

This one is a bit hard for me because it is difficult not to sound condescending by insinuating, I know something you don’t (this is not the point!) but the reality is, very few people understand energy vis-a-vis consumption, generation and broader infrastructure etc. While understanding varies across the spectrum, you find that a lot of time and effort goes into getting customers to understand their energy needs which is critical in designing an optimal solar solution without giving in to the need to over-prioritise their budget. The pitfalls of letting the “budget” determine the solar solution can have significant consequences once the system is operational and not meeting the customer’s expectations.

The other issue from my standpoint is because we (Nigerians) have not exactly “paid” for power, there is still the disconnect between how we perceive power and what we should pay for it. While the unreliability of the grid has not helped, I believe there is a psychological hurdle we must cross to face our current reality, which is that the era of significantly subsidised power is long gone. Power is expensive anywhere in the world, someone has to pay for it, it does not look like our government can, given our economic health so it most likely will be the person you see in the mirror.

Self interest

By the time you are done reading this part, you will probably think what’s new. I know this is a prevalent problem probably being dealt with across corporate Nigeria but I believe it is worth mentioning as it continues to be a challenge where key decision-makers are clear on the need to make the transition to solar because it makes “sense” but someone within the organization currently benefiting from the status quo (frequent diesel procurement) is against it.

This subsequently leads to a frustrating unwinding process of trying to agree and implement a project. Decision makers are frustrated as to why progress is not being made unaware internal actors are sabotaging the process sometimes under the auspices of due process.

We need more decision-makers to be aware of this and be more active in discussions around their organizations making the clean energy transition given they are the key stakeholders. On our end as Operators, we will be better served speaking up where required as against the more politically correct diplomatic approach.

Finally! financial institutions

I have a healthy amount of respect for our banking institutions. Despite the amount of criticism they receive from different quarters, you don’t build enduring institutions across various administrations without knowing what you are doing, start-ups and scale-ups would be better served learning from corporations like GTB, Access, Zenith etc.

That being said, when it comes to supporting the renewable energy sector, it has been painful trying to partner with some of the Banks despite saying all the right things about climate financing to anyone who cares to listen. I honestly cannot tell if this is because it is what their Stakeholders want to hear or if they are dealing with challenges that come with a nascent sector like ours where there is little information to work off while also dealing with internal bureaucracies. Honestly, it might be a bit of both. Furthermore, macro issues like brain drain have not helped widening the knowledge gap.

From my standpoint, all I see are supposedly key stakeholders that could play a role in driving solar adoption not doing their part despite raising funding from the DFIs to do so. It then begs the question how the funds raised are being deployed.

The reality created by the above is why we at Arnergy have to finance our customers off our balance sheet to enable them to afford the cost of acquiring a solar system, it would be easier and more efficient if the banks did what they do best but they are not ready and we cannot wait, the future of Nigeria is at stake. When they are ready, we will be here, hopefully, it will not be too late.

Concluding thoughts

It is not all doom and gloom. At Arnergy, we are experiencing exponential driven by a mix of riding the macro wave but more importantly, management executing with a playbook that incorporates lessons amassed over the last 10 years. So, this is not a cry for help in any way, the point of this article is we can do a lot more, we would love to do a lot more and it would be great if some of these self-imposed bottlenecks by the ecosystem were resolved.

To people currently mulling over making the solar transition and what solution to go with, please think about the explicit and implicit choices you are making as they have both short- and long-term implications. There will always be cheaper alternatives, but when the system packs up in at best 24 months, will the contact number you were given by the company and/or the installer work? Will you go back to dirty fossil fuels or have to buy another solar system at a potentially higher price driven by naira depreciation? or will you have to dispose of the system hence creating more environmental waste and while dealing with all of these.

You can avoid these headaches down the road by patronizing one of the enduring businesses in the renewable energy sector, funded by reputable shareholders and which has raised over USD 15m in funding. An Indigenous business that boasts a clientele of over 1,500 customers and was here before it became “cool” to be a renewable energy business.