With Nigeria’s low crude oil refining capacity and a troubled supply chain for the import of petroleum products, the strong and habitual dependence of businesses and households on diesel and petrol-fired captive generators is clearly becoming unsustainable. However, up until now this has been the only viable option for power access in a country with terribly outdated grid infrastructure.
by Chijioke Mama
Fortunately, solar PV’s recent gains in cost competitiveness are now questioning the status quo. With an estimated 60 million generators in Nigeria, the market for solar rooftops and hybrid solar systems is unarguably huge. This makes a dramatic generator-to-solar transition the desire of many market players in Nigeria. However, just being an alternative source of power or a capable replacement for generators may not be sufficient for solar to gain the desired ubiquity. Solar solutions must prove beyond any doubt that it offers a better alternative to the old generator culture. So the ultimate question is: how (in real terms) do solar rooftops and hybrid systems compare with generators in Nigeria and how can solar market players leverage the relationship to penetrate and conquer the market?
"If competitiveness is based on pricing, the solar rooftop is highly competitive at 15.5 Naira/kWh as opposed to Diesel generator which is 98 Naira/KWh and Petrol generator at 118 Naira/KWh."
Oneal Lajuwomi is the Chief Executive Officer (CEO) of Wavelength Power Systems, based in Lagos, Nigeria. He says, concerning the competitiveness of solar rooftops to fueled generators in Nigeria: “If competitiveness is based on pricing, the solar rooftop is highly competitive at 15.5 Naira/kWh as opposed to Diesel generator which is 98 Naira/KWh and Petrol generator at 118 Naira/KWh. However, due to the initial high capital costs of installing solar rooftops, customers are yet to come to terms with the long-term cost benefits of either standalone or hybrid solar power systems. So, it's a bit of a hard sell for now”
This implies that helping customers overcome the initial high investment cost of solar installations, which does not compare favorably with the initial cost of similarly-rated generators, seems to be the major challenge for players in markets such as Nigeria. Middle and low income earners often find it more appealing to begin with a moderately low initial expenditure (knowing it will demand future recurrent expenses) than a high initial expenditure with zero future (recurrent) expenditure.
Comparing the Data
Market study carried out for this report reveals that, for low capacity (0.9kVA) petrol powered generators, as used by most households in Nigeria, an initial expenditure of between N30.000 and N40.000 (about USD100) is sufficient for acquiring the generator, while a daily expenditure of about N500 – N1000 is normally incurred on fueling the plants (depending on usage pattern). In total this could amount to N182.500 - N365.000 of costs in a single year. Add to this an average generator maintenance cost of about N30.000 - N40.000 per annum (about USD100) and the utility bills which most generator users also incur by virtue of their grid connections. With these expenditures the minimum annual cost of running small fueled generators sums up to about N250.000 per annum in Nigeria (about USD 800).
The solar power proposition stands in stark contrast to that. Although an initial one-off expenditure of between N350.000 ((about USD 1100) for a 400W solar system) and N850.000 ((about USD 2500 for 1.4KVA solar system) would be required to procure the system, this is followed by (in most cases) zero future expenditure can be expected for up to 2 -5 years - until battery components become aged, according to Oneal. He says “lead acid batteries last 2 years on the average while OPz batteries last between 5-7 years” The other components of the system such as solar panels, inverters and cables last much longer.
"The way forward – as many solar service providers are now discovering- is to offer solar panels, batteries and accessories to consumers through a procurement model that mimics a fueled generator’s initial procurement and expenditure pattern."
The way forward – as many solar service providers are now discovering- is to offer solar panels, batteries and accessories to consumers through a procurement model that mimics a fueled generator’s initial procurement and expenditure pattern. That is, a relatively small initial capital outlay followed by recurrent monthly expenditures that ultimately lead to full ownership or a long term lease relationship. While outright purchase of solar power equipment is possible for only a small category of consumers (the high income earners), the “Lease to Own” model seems to be the choice option for majority of consumers. As an example: Wavelengths Power System’s offer “an outright package of a 1.4kVA solar system aimed at the average customer in Nigeria, which is priced at 861.473.00 Naira (USD 2,733) excluding VAT. This fee consists of 5 units of Multipower 24volts 250w polycrystalline module, 2 (Deep Cycle 12Vollts 200Ah) Vented Lead Acid Battery and other accessories.
While this offering will invariably receive some patronage, it is hardly appealing for an average Nigerian whose entire annual earning may not support such a budget. Therefore, for solar to stay competitive, it must appeal to the majority of low income power consumers; which in turn requires a reworking of the commercial offering and pricing packages. For smaller businesses that do not necessarily require capacities up to 1.4KVA, lower capacities that halve the price could still be considered too expensive for outright procurement. That becomes even less appealing if you compare it with the initial cost structure (procurement and use) for similarly-rated generators.
According to a recent off grid solar study by Arinze Ndukaogu of NASENI solar plant in Nigeria,, the predominant kind of fuel generator (the smallest capacity in the Nigerian market) is presently priced at about N35.000 and will require a daily expenditure of either 6 liters of petrol/day for business use at N145/Liter (N870 per day) or 3 liters per day for households users at N145/liter (N430 per day). This reinforces the point that, in spite of solar power’s near-zero recurrent costs going forward, the system is still less appealing to most small businesses and households due to its payment structure. Here lies the major hurdle for service providers in Nigeria.
"With solar inherently but latently more competitive than generators, it’s imperative that models such as PAYG should be promoted to inspire the desired monumental movement towards solar. "
An innovative strategy for financing is therefore needed to overcome some degree of consumer resistance. Such strategies and models are already in place within the market in the form of Pay-As-You-Go (PAYG) solar solutions. PAYG adopters simplify solar power financing by enabling consumers to deposit a relatively small amount of the total value of a system and subsequently work towards eventual acquisition through periodic deposits that mimic and often trumps the attractive generator-fueling expenditure. PAYG is therefore helping several solar companies in Nigeria gain competitive advantage and also compare - directly - better with the strong generator-use culture. With solar inherently but latently more competitive than generators, it’s imperative that models such as PAYG should be promoted to inspire the desired monumental movement towards solar. Therefore, the ease of operation and the long term financial/environmental benefits evident in solar may be tough to communicate to consumers until the initial bias on solar procurement and expenditure pattern is properly addressed through better purchasing mechanisms such as PAYG.
Learn more about the Nigerian solar market at the conference The Solar Future Nigeria, which will take place on 25 and 26 April in Lagos. This must-attend networking and knowledge sharing event will attract 200+ high level executives, who will discuss the challenges and opportunities that lie in the immediate future for Nigeria’s On-Grid and Distributed Solar Power Market.