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Nigeria attracts $29m in green equity finance

By Oluwatosin Adeshokan, in Lagos
Posted on Thursday, 9 January 2020 12:56

Solar companies are rushing to fill Nigeria's energy gap. REUTERS/Amr Abdallah Dalsh

Despite being Africa’s most populous country, Nigeria only has 12 gigawatts of installed grid capacity, with just one-in-four Nigerians connected to the national power grid.

In contrast, South Africa has 50 gigawatts. Nigeria’s unreliable electricity already costs its economy $29bn a year, according to the IMF.

Many families spend $50 a month or more on diesel fuel for generators – costing an estimated $14bn a year.

That is a big potential market.

The failure of Nigeria’s electricity, coupled with the continued improvements in the reliability and price of solar power, has created a gap for new green power operators.

One of these companies is Rensource Energy, which raised $20m in an equity financing round in December 2019.

  • The round was co-led by existing investors CRE Venture Capital and the Omidyar Network, with participation from Inspired Evolution, Proparco, EDPR, I&P, Sin Capital, and Yuzura Honda.
  • The funds are earmarked for expanding the company’s footprint of micro utilities across the country as well as to invest in new technology infrastructure.

Rensource’s funding round follows that of Nigerian power startup Arnergy Solar, which raised $9m for expansion in June of 2019.

Since its launch, Arnergy has delivered over 2MW of installed capacity and over 5MWh of storage capacity to business and residential clients across Nigeria.

This comes as private equity companies worldwide start to shift lending priorities to green energy.

Chinese investors are also entering the market. “Major projects involving Chinese contractors include: a 200MW solar farm that will be built by Sinohydro Group in Bui, Ghana; the 100MW Gwanda Solar Power Plant in Zimbabwe by CHINT Electrics; and the Benban solar farm in Egypt, the world’s largest solar park, which is expected to be fully operational by August 2019.”

The background

Prior to 2005, the generation and transmission of electricity to the homes of Nigerians was the sole responsibility of the Nigerian Federal Government. Today, Nigeria provides its energy through the four main sources: coal, hydro, oil and natural gas. According to the IMF, Nigeria currently generates 13,000MW of electricity, but can only transmit below 4,000MW/hour.

According to the International Renewable Energy Agency, costs from all commercially available renewable power generation technologies declined in 2018.

  • The global weighted-average cost of electricity declined 26% year-on-year for concentrated solar power (CSP), followed by bioenergy (-14%), solar photovoltaic (PV) and onshore wind (both -13%), hydropower (-12%), geothermal and offshore wind (both -1%), the report finds.

Today, many new energy production and distribution companies have emerged in Nigeria. It is virgin land for investors in the energy space as there is barely any regulation and legislation on the use of renewable energy.

Localised approach

Rensource currently operates in six states in Nigeria, building and operating solar hybrid micro utilities – a type of energy services provider that localises energy distribution, generation and customer service to each community it serves.

The company is active in marketplaces that serve over 30,000 small and medium-sized enterprises. It expects to expand into 100 markets in the country over the next three years.

Regulation-lite makes for attractive environment

The infant stage of the Nigerian renewable energy market makes it a haven for investors and new energy companies. The Nigerian government has not exactly set out new rules and regulations for what is attainable and the limits of the market.

There are no regulations or even taxes on renewable energy”

“This is the best time for Nigeria to solve its energy problems because there are no extra regulations or even taxes on setting up and using renewable energy,” Oluwatosin Ajani, a Lagos-based economist explains.

Anu Adasolum, the COO of Rensource, believes that the company’s ability to raise $20m is a testament to solar energy’s potential in Nigeria.

  • “It is a relatively new market that has the potential to change the world and make it better. We are looking to provide cleaner alternatives while providing service efficiency to SMEs in the country,” Adasolum says.

But even as solar and renewable energy are welcomed in Nigeria and across the world, there is still a major problem in its adoption – the initial cost. A few companies are leasing out equipment and having customers pay a monthly subscription for power, but these companies are far apart.

Bottom line:

A clear demand provoked by growing spending power, and a government unlikely to fix traditional power provision soon, makes Nigeria an attractive destination for green investment.

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