Solar Energy Business Tops My Nigeria Investment Note

Solar Energy Business Tops My Nigeria Investment Note

Mass-distributed solar energy business has a promising future in Nigeria. I want to let our readers understand that the MAP (Meter Asset Provider) policy of the Federal Government is a big deal in accelerating investment opportunities in that space. By allowing mini-entrepreneurs to have access to the metering component of energy distribution, government has fixed one of the biggest challenges in scaling solar business. Possibly, startups can power Nigeria in near future!

For many quarters, I have noted that agriculture is a very solid investment opportunity in Nigeria. It remains because our farming systems are still at infancy. I provided 30 solid business ideas to readers of my daily blog Tekedia here with a video that explained how they could unlock some of the opportunities. But agriculture needs a break even as we need more investments in that sector.

There are many opportunities in the Nigerian (and indeed African) agriculture sector for entrepreneurs to unlock, starting from the traditional agro-businesses to the evolving agricultural technology (agtech) businesses. We have listed some of the ideas in this piece where we noted that agriculture could be on its way to $1 trillion cumulative revenue in Africa within seven years. Agriculture employs more than 65% of Africa’s working population, making it a very important part of our economy. It presents immense opportunities because the sector is still at infancy, and can only grow looking at the renewed efforts by investors, entrepreneurs, farmers and governments to deepen African competitiveness through agricultural production and processing.

I have also noted that the biggest idea in telecom right now in Nigeria is pioneering contract-based billing at scale to deal with the challenges of revenue loss and erosion. It is going to be very hard in a country with limited data, but good for the telcos, they have the biometric records of mobile subscribers. Anyone that can create that system in the age of Skype, WhatsApp and Google Station will have a great business with many telecom companies across Africa.

In a piece yesterday, I wrote that Nigerian telcos should build contract- subscription-based billing system to overcome the challenges of WhatsApp and other OTT solutions. Simply, if the user had paid a fee, under a monthly plan, the telco would become ambivalent to whatever the user is doing with his or her phone. That way, the telco would preserve its ARPU (average revenue per user). This is the idea as noted, and I do think entrepreneurs can make it happen, not the telcos themselves.

Today, I am calling that solar energy, distributed for the mass market, is entering a new phase. The government has removed one of the biggest hurdles in the industry: metering paralysis. Yes, the installation of meters is no more the exclusivity of distribution companies (DISCOs). This means that any solar entrepreneur can power a village or community without having anything to do with DISCO. In the past, that was not possible because after the generation of power, the entrepreneur must still find a way to negotiate contract with the local DISCO. Of course no entrepreneur has any chance of coming out of that contract well because DISCOs know that they have all the aces. That has changed, for good.

The DISCOs are concerned because if these entrepreneurs have access to meters, DISCOs as we know them have been completely disintermediated. The reason DISCOs are relevant today in some places is because third parties cannot install meters. But with MAP, that has been fixed, making it easier that anyone can produce, transmit and distribute power in communities. And by the time the entrepreneurs are done, DISCOs will have no business.

The energy sector is a $6 trillion per year business. Over the last four decades, the cost of solar panel materials has dropped 250x as a result of innovations in materials science, according to Singularity University. Shell predicts that peak oil demand will arrive sometime between 2021 and 2029. Simply, we will still have fossil but photons and electrons will be the future of energy.

How You Can Build A Great Solar Energy Business in Nigeria
Solar installation

Current Solar Business Models

The following are the major models for solar power business which you can adopt. I have also provided practical cases if you click.

  • Sell solar product to customers: Here, the customers buy the products, and own them. This scares some customers because despite not having to find money to buy the solutions, they have to handle the maintenance element which includes seasonal change of batteries, solar panels etc. Owing to that decision inertia, many have not become solar believers. In this model, the customer is investing in the equipment. Two cost elements are noticeable
    • Initial equipment cost
    • Maintenance cost throughout product life
  • Hire purchase: In this model, customers receive the solar equipment with options to make payments via installment plan. At the end of the installment plan, the customer owns the solution. The entrepreneur may increase the product cost to cover the extended payment plan. One challenge with this model is that the customer is investing in the equipment and not just focusing on getting the electricity. Two cost elements are noticeable
    • Installment payment for equipment
    • Product maintenance cost post-payment (usually the maintenance happens after the payment plan has been completed)
  • Lease 1: Here, customers are never given the option to ever own the equipment. The solution is leased to them and the cost of the electricity consumed is also charged to them.
    • The customer pays for the equipment but with no intention of ever using it (this is similar to a U.S. home broadband company renting the modem which the customer pays monthly. But the day the service is cancelled, the customer must return the equipment to avoid being billed the product full price)
    • The cost of electricity consumed is charged to the customer.
  • Lease 2: Here, customers are never given the option to ever own the equipment. The solution is leased to them but no cost of the electricity consumed is charged to them. The cost of electricity is included in the equipment lease amount
    • The customer pays for the equipment but with no intention of ever using it (this is similar to a U.S. home broadband company renting the modem which the customer pays monthly. But the day the service is cancelled, the customer must return the equipment to avoid being billed the product full price)
  •  Energy-as-a-Service: A potential winning model that can scale massively could be delivering electricity to customers, with no requirements for them to buy equipment. They pay for what they have consumed and the company owns all its equipment. You may need to get a contract where the customer must commit to use the solution under defined Key Performance Indicators. Once the customer signs, you take your equipment and install in the customer residence, at no cost to the customer. You make money by billing for electricity consumed.  With this, the customer does not have to invest in any equipment. Also, risks move to the entrepreneur who is now incentivized to make sure the equipment works, as without it working, there will not be any electricity to bill the customer. Yes, all maintenance costs are not concerns of the customers.

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