The Winning Business Model for Solar Business in Nigeria, Africa

We have many solar entrepreneurs right now across Africa. They are innovating and indeed making progress. The future of electricity generation and supply, for Africa, is solar. But for us to make that happen, our business model must evolve on how we help families electrify their homes. We need to find ways to deliver our solutions in ways that our customers can afford them.

What We Do Today

• 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)

In these four models, one problem is that customers are putting money in the solar equipment. That deviates from what they already do from the national grid where they pay for electricity consumed with no acquisition of electricity assets.

The experiences of early adopters of solar which went really bad owing to poor solutions from China, many years ago, have poisoned the minds of many customers to invest and own solar products. They know that the initial payment is just a down payment as more money will be needed to support the solutions.  There is a likelihood that the battery may not last long before another big investment is required. That creates a major problem.

A Winning Business Model

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.

I expect customers to respond and sign-up under this model. However, for the entrepreneur, it requires a deep pocket to execute since you are looking at multi-year period for break-even. For example, it may take 5 years to break-even with a customer with all the risks pilled against the entrepreneur.

This is a potential scalable model, especially in the major cities where risks of riots may be limited. A big estate will be the most optimal ecosystem to execute this model. It provides security to the equipment.

All Together

Finding the right business model in Africa will unlock more value in the solar electricity business. One option is to find a way to bill customers for the electricity consumed without them having to invest in the equipment. They are used to a model where they pay for electricity consumed, not owing pricey equipment tools. The solar entrepreneurs must respect that, and find a way to allow customers pay for electricity consumed.  That is a model that will scale immensely and unleash true solar business innovation in Africa’s economy.

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