The price of lithium-ion batteries surged to a record high in 2022, leading to higher prices in electricity-starved markets like Nigeria.
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 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. Generally, solar systems do not require batteries. This is because solar panels generate energy that an inverter can convert into AC power that a home can use to meet or supplement its energy consumption. However, adding batteries provides storage for the excess energy created by solar panels.
Installing a solar system without panels means that once night comes, the home loses power. Also, when the weather is bad – as often happens during the long rainy seasons – the solar panels might struggle to produce electricity. A solar battery setup helps to power the home through emergencies.
Nonetheless, batteries are considered the most expensive component of the solar energy system. After years of steady decline, the price of batteries has started to climb. Demand for lithium ore, a mineral used in producing the batteries to power electric vehicles, smartphones, laptops, and all sorts of gadgets is reportedly ramping up as the push for green future increases. BloombergNEF, which has been tracking the battery market since 2010, says 2022 was the first time price has risen on an annual basis. After a decade of deflation, the volume-weighted average price of lithium-ion battery packs across all industries increased to $151 per kilowatt-hour in 2022, a 7 percent increase from 2021. BloombergNEF predicts prices would also rise in 2023.
Nigeria, whose power generation currently hovers around 4,000 megawatts (MW) to 4,500MW, is looking to leverage renewable energy sources to boost its power supply.
According to an operator who pleaded anonymity, a good 5.4kWh lithium-ion battery that can power primary appliances will cost between N2 million-N2.2 million. Adding import tariffs with other clearing costs will most likely push the landing cost to N2.6 million-N2.7 million. There are other costs like demurrage (mainly due to port congestion and/or inability of the customs officials to check the arrived goods on time, etc.), and haulage cost to warehouse/assembling locations which has risen by about 300-350 percent in recent times.
The initial cost of importing the batteries is in dollars, which is a problem for importers due to the foreign exchange scarcity Nigeria is facing.
Rotimi Babs, CEO of Bainsbridge Energy Limited, breaks the cost of solar equipment down. “If you take the lower band ($=N750), that’s N2,025,000 per battery. When you add the 27.5 percent for customs and VAT, it comes to N2,581,000, excluding shipping fees. The same battery will sell in Nigeria for N3 million, N3.2 million, or even N3.5 million.”
The high cost of batteries affects the volume that retailers import into the country and the size of the market in Nigeria. Nigeria is considered one of the lowest consumers of solar energy in the world, despite having the lowest access to electricity globally with about 92 million persons out of the country’s 200 million population lacking access to power, according to the Energy Progress Report 2022 released by Tracking SDG 7.
“Affordability is the issue. The lead-acid equivalent of 48v 200A (9.6kWh) is about N1 million. Whereas lithium battery for that same energy storage from a Nigerian distributor is between N1.5 million and N3.5 million, depending on the brand you’re looking at. No retailer wants to tie down $$$ for long,” Babs said.
Energy operators in the country had in 2017 protested the imposition of the 20 percent duty on batteries, saying it would impact consumers and derail the federal government’s plans to provide electricity for all Nigerians.
Read also: Solar investments can earn Nigeria double-digit profits – Report
In 2020, the federal government launched ‘Solar Power Naija’, a 5 million solar connection programme to 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.
Some experts said the tariffs do not encourage investors, especially large distributors, to come into the country. Many countries are wooing battery manufacturers to set up plants with tax and import duty reliefs, among other incentives, as they push toward a green future, they said.
“I have interacted with sellers of raw cells in China, particularly the popular Prismatic cells, our volumes are not enough to warrant setting up a warehouse in Nigeria like they do in the US. What we have is tier 2 and 3 providers like Felicity and the likes,” a solar consultant who identifies himself as Othell Yarwyck told BusinessDay.
BusinessDay gathered that the business environment has also created an excuse for some players to divert their attention to only high-net-worth individuals who can afford any price tag given to them, leaving the smaller players stuck in between. It is the smaller players that All-On has made efforts to provide funding but it is not enough.
Babs sees a need for the operators to come together and perhaps sponsor bills or try to recommend policy changes to the authorities.
Some operators recommend encouraging local companies that have the capacity to build and explore Nigeria’s mineral resources for building batteries. The country has lithium ore deposits found in states like Kogi, Kwara, Ekiti, and Cross River. Other critical minerals like tantalite, tin, and nickel, which may be used in the process, are found in Jos, Nasarawa, Kogi, and several other states.
In August 2022, the federal government gave an indication that it was willing to encourage local manufacturing of batteries in Nigeria when it rejected an offer from Tesla to purchase saw lithium from the country. The government said it is no longer allowing foreign companies to mine the nation’s mineral resources, and ship them out without the addition of local value.
However, this would require access to large finance. According to an operator who did not want to be identified, there is a need for deliberate and intentional financing arrangements via developmental banks as the Bank of Industry did in 2015, within the renewable energy sector.
“State and federal renewable energy credit should be given to residential homes and businesses adopting renewable energy products. This can be tied to the carbon trade market with IoT monitoring technologies,” the operator said. “Technical schools, polytechnics, and specialised schools should develop the next technical business talents for the sector.”
