NIGERIA POWER SECTOR PROGRAM: STRATEGIES FOR EXPANSION OF THE OFF-GRID SECTOR
January 25, 2019
DISCLAIMER: This publication was prepared for review by the United States Agency for International Development. The author’s views expressed
in this publication do not necessarily reflect the views of the United States Agency for International Development or the United States
Government.
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NIGERIA POWER SECTOR PROGRAM:
STRATEGIES FOR EXPANSION OF THE OFF-GRID
SECTOR IDIQ Contract No. 720-674-18-D-00003 Power Africa Extension (PAE)
Task Order No. 720-674-18-F-00003 Nigeria Power Sector Program (NPSP)
USAID | Southern Africa
Contracting Officer’s Representative: John Garrison
Submitted: December 14, 2018
Resubmitted: January 25, 2019
ACKNOWLEDGEMENT:
This document was produced for review by the United States Agency for International Development. It was prepared
under Task Order No. 01: The Nigeria Power Sector Reform Program (the “Task Order”) of the Power Africa
Indefinite Delivery, Indefinite Quantity (“IDIQ”) Contract No. 720-674-18-D-00003 implemented by Deloitte
Consulting LLP.
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TABLE OF CONTENTS
1. INTRODUCTION ....................................................................................................................................... 4
2. CUSTOMER ANALYSIS .............................................................................................................................. 5
2.1. Customer needs ......................................................................................................................... 5
2.2. Addressing customer needs ...................................................................................................... 8
3. STRATEGIES FOR EXPANSION ............................................................................................................. 15
3.1. Company group types introduction ........................................................................................ 15
3.2. Local Start-Ups ........................................................................................................................ 19
3.3. Emerging Household Names .................................................................................................. 26
3.4. Energy Access Pioneers ........................................................................................................... 32
3.5. International Independents ..................................................................................................... 40
3.6. Business model strategies specific to mini-grid developers .................................................. 45
4. STAKEHOLDER ENGAGEMENT ............................................................................................................. 48
4.1. Investors.................................................................................................................................... 48
4.2. International Donors ............................................................................................................... 66
4.3. Other Market Enablers ............................................................................................................ 73
4.4. Nigerian Government .............................................................................................................. 76
4.5. Community ............................................................................................................................... 78
5. ADDITIONAL RESOURCES ..................................................................................................................... 80
5.1. General off-grid energy resources .......................................................................................... 80
5.2. Solar Home System companies (and other standalone systems) specific resources ......... 81
5.3. Mini-grid specific resources ..................................................................................................... 81
LIST OF ACRONYMS
AECF – Africa Enterprise Challenge Fund
AFD – (Agence Française de Développement) French development agency
AfDB – African Development Bank
ALSF – Africa Legal Support Facility
BOI – Bank of Industry
CAPEX – Capital Expenditure
DCA – USAID Development Credit Authority
DFI – Development Finance Institution
DFID – Department for International Development (UK development agency)
DFS – Digital Finance Solutions
DisCo – Distribution Company
EBITDA – Earnings Before Interest, Tax, Depreciation, and Amortization
ESMAP – Energy Sector Management Assistance Program
EU – European Union
FEI – Facility for Energy Inclusion
FGN – Federal Government of Nigeria
FMCG – Fast Moving Consumer Goods
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GIZ – Deutsche Gesellschaft für Internationale Zusammenarbeit (German development agency)
GMG – Green Mini-Grid
GoN – Government of Nigeria
ICT – Information and Communication Technologies
IFC – International Finance Corporation
kWh – Kilowatt Hours
LCA – Lead Contractor Agreements
MSME – Micro, Small, and Medium Enterprises
MYTO – Multi-Year Tariff Order
NED – Nigerian Energy Database
NEP – Nigeria Electrification Program
NERC – Nigerian Electricity Regulatory Commission
NESP – Nigeria Electricity Support Program
NCIC – Nigeria Climate Innovation Center
NGN – Nigerian Naira
NGO – Non-Governmental Organization
NiRER – Nigeria Renewable Energy Roundtable
NOMAP – Nigeria Off-grid Market Acceleration Program
NPSP – Nigeria Power Sector Program
O&M – Operations and Maintenance
OEM – Original Equipment Manufacturer
OGEAF – Off-Grid Energy Access Fund
PAE – Power Africa Extension
PAYG – Pay As You Go
PSA – Pooling and Servicing Agreement
PV – Photovoltaic
R&D – Research & Design
REA – Rural Electrification Agency
RMI – Rocky Mountain Institute
SEED – Sustainable Energy for Economic Development
SEFA – Sustainable Energy Fund for Africa
SHS – Solar Home Systems
SME – Small and Medium Enterprises
SOGE – Scaling Off-Grid Energy
SUNREF – Sustainable Use of Natural Resources and Energy Finance
TA – Technical Assistance
UNDP – United Nation Development Programme
USADF – United States African Development Foundation
USAID – United States Agency for International Development
USTDA – United States Trade and Development Agency
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1. INTRODUCTION
This document is intended as a companion document to the NPSP Baseline Study and the NPSP
Capital Map and Donor Gap Analysis. This document provides an overview of successful
approaches to engaging in the off-grid energy market in Nigeria. Companies expanding in or
entering the Nigerian off-grid energy market can use this guide to refine their own strategies,
adapting from lessons learned and using an understanding of market needs to best fill the major
gaps.
The document has been developed in coordination with the NPSP Baseline Study through a process
involving direct interviews and secondary research. NPSP interviewed 29 SHS and mini-grid
companies, reviewed 21 select research materials and publications, 50 SHS and mini-grid company
websites and 10 websites for off-grid associations, conferences and initiatives. Additionally, NPSP
engaged SHS and mini-grid customers as well as non-users for whom off-grid solutions may be
appropriate to ascertain needs gaps and to validate (and challenge) perceptions of customer needs
held by leading off-grid companies. Finally, NPSP interviewed numerous market enablers such as
digital financial services providers for next generation business models and approaches.
Although this document is not intended as immediately actionable advice applicable to every
company in or entering the market, interested firms can reach out to the NPSP team (NPSP Chief
of Party, Mary Worzala, [email protected]) to learn more about how the information in this
document can be tailored to specific needs.
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2. OFF-GRID COMPANIES CAN ADOPT NEW STRATEGIES TO
BETTER ADDRESS CUSTOMER NEEDS
This section leverages the NPSP Baseline Study, and some content of this section appears as written
therein. More details on the baseline for off-grid activities in Nigeria can be found in the NPSP Baseline
Study.
2.1. Customer Analysis – Who are the key customers and what are their
needs?
While the Nigerian off-grid energy market represents a large and diverse set of customers, the
major customer groups that are currently underserved by off-grid (and under-grid) energy
solutions can be categorized by proximity to the city, state of grid connection, use of energy, and
the likely best means of providing the most cost effective off-grid solutions. These customer
archetypes are not comprehensive but, rather, represent the major groups that can be well
served by existing off-grid technologies in Nigeria. Additionally, there are some customers that
fall within these categories but would not necessarily be good fits for any off-grid solutions for a
variety of reasons such as an inability to pay or geographical inaccessibility.
Table 2.1 Characteristics of customer segments in the Nigerian market
1 Image from Azuri Technologies, https://www.azuri-technologies.com/news/azuri-partners-with-ndphc-to-launch-paygo-solar-in-nigeria 2 Image from The Daily Post, http://dailypost.ng/2017/09/29/caleb-adebayo-climate-change-hit-makoko-lagos-slum/ 3 Image from TechNext, https://technext.ng/2018/10/23/energizing-economies-initiative-providing-sustainable-power-to-markets-and-business-places-across-nigeria/ 4 Assumes urban residential includes middle class and upper class; Image from geoview.info, http://ng.geoview.info/goshen_beach_estate_lekki_lagos,15276080p 5 Image from http://venturesafrica.com/bonds-of-steel-kam-industries-a-new-mega-factory-for-nigeria/ 6 Ministry of Industry, Trade and Investment (2017) 7 Nigeria Stock Exchange (NSE), 2017
Rural residential1 Peri-urban
residential2 MSMEs3 Urban residential4 Commercial5
Sparsely populated,
under-developed
villages and towns
with limited
infrastructure.
Demographic
usually consists of
farmers, petty
traders, teachers,
and artisans
Consists of small &
medium-sized
villages / towns
drawn into
expanding cities.
Demographic
consists of artisans,
traders, drivers,
civil servants
MSMEs account for
more than 84%6
jobs in the country.
They usually have
fewer than 200
employees and
include traders,
artisans, small-scale
businesses
Densely populated
settlement areas
with infrastructure
of built
environment
Large-scale
businesses in key
sectors such as
Agriculture, FMCG,
Finance, ICT, Oil &
Gas and Healthcare
with over 200
employees located
in commercial hubs
including Lagos,
Abuja, Kano, Port
Harcourt and Aba7
Ch
arac
teri
stic
s
6
8 Based on National Bureau of Statistics’ General Household Survey 2015-16 – Estimated rural household size of 5.9 people 9 World Bank Group (2016) 10 Assumes peri-urban includes lower class population of urban residential (~34%) 11 Based on National Bureau of Statistics’ General Household Survey 2015-16 – Estimated urban household size of 4.9 people 12 Based on Renaissance Capital (2011) – Estimated middle class household size of 3.7 people 13 World Bank Group (2016) 14 National Bureau of Statistics (2016) 15 EFInA, Understanding the Low-Income Population in Nigeria (2011) 16 Excludes urban poor (estimated urban poverty rate of 34%); Includes middle class, upper-middle class and upper class - Middle class is ~ 23% (AfDB, 2010) of total national population, primarily based in urban centres (equivalent of ~47% of total urban population); Upper-middle class is ~15% with income level US$ 480 - US$ 1,300/month; Upper-middle class is ~15% with income level US$ 1,300 - US$ 2,300/month; Upper class ~4% with income level US$ 1,300 - US$ 4,500/month; Upper-upper class ~1% with income level >US$ 4,500/month (Estimated from National Budget, 2014) 17 CrossBoundary Energy Access (2018) research; ESMAP, “Benchmarking Study of Solar PV Mini-Grids Investment Costs: Preliminary Results,” 2017. (MSME consumption primarily from CrossBoundary Energy Access research. All other levels are directly from the ESMAP report.) 18 Based on median energy use for middle class 19 REA (2016) 20 NOIPolls (2016) 21 Oyerinde, Spatial Distribution of Household Energy Wellbeing in Ibadan Region in Nigeria (2016) – In general, most houses sspende between 5-10% of their household income on energy 22 EFInA, Access to Financial Services in Nigeria Survey (2016) (all in row with data) 23 World Bank Group (2016)
Rural residential Peri-urban residential
MSMEs Urban residential Commercial
~90m people
(~16m
households)8 with a
1% annual growth
rate9
~30m10 people (6m
households)11 with
growth in line with
urban growth
~37m micro-, small
and medium size
business
~60m people
(~16m
households)12 with
a 4% annual growth
rate13
More research
required to
determine size and
growth potential of
Nigerian
commercial
enterprises
< US$ 100 /
month14
up to ~ US$ 200 /
month15
Variable US$ 480+ /
month16
Variable
<8 kWh / month17
<20 kWh / month 20 – 110kWh /
month
~50 kWh / month18 >110 kWh / month
~US$ 619-10/ month
~US$ 20 / month US$ 27-55 /
month20
~US$ 48+ /
month21
N/A
34.7% adults22 N/A N/A 71.3% adults N/A
1%23 mobile money penetration on a national level. Penetration is significantly lower in rural areas.
Fin
anci
al
Incl
usi
on
Si
ze &
Gro
wth
In
com
e
Mo
nth
ly
Co
nsu
mp
tio
n
Mo
bile
Mo
ney
M
on
thly
Ener
gy S
pen
d
7
Numerous companies (as detailed in the Baseline Study) are already providing energy solutions
across these five customer groups. However, significant opportunities remain for additional off-
grid companies to enter Nigeria and offer energy services. An influx of new international entrants
over the past year is a strong indicator for the variety of opportunities in the market.
To gain consumer feedback on where energy needs were and were not being met by existing
solutions, to determine the major barriers to increasing use of off-grid products, and to ascertain
consumer perceptions (and misperceptions) about off-grid energy solutions, NPSP conducted
interviews with Nigerian consumers across groups of off-grid solution users and non-users. Refer
to the Appendix (also in NPSP Baseline Study Section 2.1 Demand Side Overview and Section
2.3 Addressable Market) for a high-level overview of off-grid demand and gaps in Nigeria.
“Current status” classification of customers is defined by whether they currently use any kind of modular solar solutions. “Consumption potential” classification of customers is as follows:
• Low use: rural residential, peri-urban residential, MSMEs, urban residential (middle class)
• Medium / high use: commercial, urban residential (~5%: upper class and upper-upper class
may also be included)
Key themes emerge by customer group:
Table 2.2 Themes and challenges by customer group
Consumption potential
Low
(<50kWh/month)
Medium / high
(>50kWh/month)
Curr
ent
statu
s
Use
r
Common themes:
• Choice to start using solar is
almost entirely price driven
• Sales driven by word-of-mouth or
door-to-door
• Relationship between
customer and agent is critical to
continued payment - mentioned
agents being part of their
community / friends - creates an
accountability measure
Common challenges:
• Batteries stop holding charge after
just 4 months
• Dust accumulates on panels after 6
months, making them notably less
effective
Common themes:
• Sales driven by word-of-mouth
or door-to-door
• Relationship directly with
company owner (or associate)
is key to building trust around
maintenance and customer
service
• Payment plans often
negotiated directly with company
based on personal relationships
Common challenges:
• Batteries failed and needed to
be replaced
• Dust accumulates on panels after
6 months, making them notably
less effective
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• Low response rate on customer
service
No
n-u
ser
Common themes:
• General excitement about
growth in availability of solar
• Strong awareness of at least one
friend, family member, or neighbor
using SHS
Reasons for non-use:
• Never exposed to sales agents or
marketing material in general
• Perception of solar as an
expensive option
• Able to find lower cost (or no cost)
alternatives for low energy use needs
Common themes:
• Interest in renewable energy for
social and environmental
reasons
• High value placed on
reliability
Reasons for non-use:
• Concern about battery life –
high cost of battery replacement
• Sunk cost fallacy – recent
purchase of generator prevents
transition
• Minimal exposure to sales agents or marketing material in
general
2.2. Off-grid companies can implement strategies to overcome the challenges identified
by customers and potential customers regarding off-grid energy solutions
Insights from customer and potential customer feedback can help off-grid companies adjust their
approaches along the value chain – from marketing modifications to after sales customer
education improvements. The section below highlights the key customer-centric challenges
identified through customer interviews and proposes strategies for overcoming these challenges.
The challenges and strategic approaches to overcoming challenges in this section are broadly
applicable to different off-grid company types.
Customer experience with SHS sales and marketing:
• Customers across energy use categories rely largely on peer recommendations for
information about off-grid energy solutions. This trend is particularly true for niche players
but also remains a
challenge for the
companies already
operating at scale.
Customers note that
while they have family or
peers they know to be
using solar solutions,
they lack knowledge
about acquiring such
services.
I would love to try solar. I have heard that it is clean and cheap and not noisy, but I have never seen it for sale in the market. It is easy to find
what I need for my generator - Hospitality industry employee, peri-urban
Lagos
“
”
9
Some non-users remark that while they would like to use solar solutions and have heard
positive reviews, they find it far easier to access the fuel and parts they need for
maintenance for generators.
• The limiting factor for growth of solar sales in some market segments may simply be a
result of the relatively small amount companies that are currently investing in Marketing
and Sales. For example, one leading SHS company in Nigeria has largely relied on a passive
sales strategy for most of its growth through 2018. The company, Lumos, partnered with
a major telecommunications company, MTN, and, until recently, relied almost entirely on
agents in the telecommunications company’s store fronts to drive sales of its systems.
While this passive approach was an excellent way to increase sales while expending
relatively little on marketing and sales efforts, it is seriously limited by the number of
customers already visiting the telecom storefronts. Since many of these customers have
already been exposed to SHS solutions, new customers will need to be gained through
more active sales strategies (and potentially at higher costs).
In addition to active sales and marketing strategies, off-grid companies can formalize
‘word-of-mouth’ marketing by incorporating referral program incentives such as
discounts, credits, or prizes. Through incentive programs, the companies can nurture
customers while minimizing advertising spend. Referral strategies tend to be the most
effective in ethnically defined and close-knit family neighborhoods, where outsiders such as external salespeople are often viewed with skepticism. Since the benefits of solar are
Companies entering or growing in the off-grid energy market in Nigeria can
consider sales strategies that mirror the sales of generator fuel and parts. To
reach scale, companies will need to change customer behavior around the purchase of
energy solutions, moving their point of purchase from markets to the preferred solar
solution sales location (such as locations well synced with partnerships strategies: mobile
service provider stores, FMCG stores, etc.). Alternatively, they can adapt to existing
consumer behavior by meeting them at their current location of energy purchase (such as
where they currently buy petroleum, diesel, and generators or generator parts).
Nigerian SHS companies can look to East African SHS companies, many of
whom have actively courted customers through mobile sales units, to develop
their own active sales strategies. Greater proliferation of active sales units could help
companies access larger numbers of customers that are eager to explore solar solutions.
Mobile sales units include door-to-door sales as well as mobile kiosks. SHS companies in
East Africa have experienced significant success in sales and marketing through engagement
of agent networks to bring product demonstrations to the doors of residences in target
markets. Nigerian SHS companies, some of whom have relied on more passive sales
strategies dependent on strategic partnerships, can emulate this model.
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often best validated by satisfied users, referrals remain the most cost-effective way to
acquire new customers.
• Finally, there is already significant misinformation about solar solutions among non-users
in the lower energy potential consumer segment. Many believe SHS are far more
expensive than traditional sources of power.
Customer experience and perception regarding batteries:
Poor performance of batteries and concerns about the high replacement cost for batteries
remains an issue among customers across all use levels. Non-users remark that when
evaluating solar options as replacements for current energy sources, they have significant
concerns about the longevity of batteries.
Off-grid companies may be able to capture market share by incorporating high performing
batteries with performance guarantees. Medium to high energy users have also expressed
a willingness to pay more for guaranteed battery performance.
Poor performance of batteries may also be a result of misuse or poor load management.
Some batteries, for example, lose capacity to hold charge significantly faster if they are
frequently fully charged and fully discharged.
A successful sales and marketing strategy will need an educational component
to clarify the economics of SHS, demonstrating cost effectiveness for lower
energy use customers in particular.
Incorporating performance guarantees for batteries may enable off-grid
companies to charge a premium while assuring customers of performance over the long-term.
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• Whatever the case, existing off-grid companies need to improve their ability to address poor battery performance. Each case of poor battery performance (or poor performance
of any solar component) damages the overall reputation of solar as a viable energy
replacement.
While there is not yet a universal product certification label for high quality SHS
components, including batteries, the World Bank Group through Lighting Global has
developed a quality assurance process and reports on its website all products that meet
these standards. Currently, companies whose products meet Lighting Global quality
standards can use specific pre-approved phrases in their marketing, but there is not yet a
label for this certification.24 Pre-approved phrases include: (a) “Meets/Passed Lighting
Global Quality Standards,” (b) “This product meets/has passed the Lighting Global Quality
Standards,” or (c) “Third-party test results verification for product are available at
www.lightingglobal.org/products/product-name/.” Off-grid companies in Nigeria could
collaborate with each other and with Lighting Global to develop a widely recognizable
certification label – demonstrating when a product is Lighting Global certified – to help
customers understand when they are purchasing sub-standard products, thus protecting
the reputation of high-quality products. A physical label could help customers (both in
Nigeria and elsewhere) unable to research which products are Lighting Global certified
online. It would also help popularize the Lighting Global certification, compounding its
positive quality assurance effects.
24 Lighting Global, “Communications and Branding Guidelines,” 2014.
Better education about load management and battery use specific to each system’s battery may help reduce customer misuse, thereby reducing reputational damage and/or the need for costly replacements. It is important for SHS companies to educate customers, most of whom are new to the technology, on how to optimize performance of a solar home system. The customer education must be appropriately tailored to each demographic, finding the right balance between simplicity and comprehensiveness. When designing educational programming around product use, companies can better adapt to local needs by engaging local representatives, such as community leaders or agents. For example, customer education on product use can better account for regional language barriers. Companies serving rural areas where English is not the primary language of commerce (or where literacy is particularly low) can adapt educational materials to local languages.
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Customer experience regarding dust:
• Customers across use levels, particularly those in Abuja and other parts of Northern
Nigeria, remark that accumulation of dust has a significant impact on the effectiveness of
their SHS. They also note that they are not educated on means of quickly remedying this
challenge
25
Finally, SHS companies should take into consideration the locations of
customers when allocating resources to management of dust. Customers at
street level along dirt roads in the dry season will likely have far greater needs than
customers mounting SHS on the 2nd or 3rd floor of buildings along asphalt roads, for example. Additionally, communities with limited access to water may be more
dramatically impacted by the accumulation of dust. Companies can differentiate
themselves through superior customer care in recognizing the unique circumstances of
each installation.
25 Duke University, "Large reductions in solar energy production due to dust and particulate air pollution," Mike Bergin, Chinmay
Ghoroi, Deepa Dixit, Jamie Schauer, Drew Shindell. Environmental Science & Technology Letters, June 26, 2017.
In the meantime, companies can work with Lighting Global to ensure their own products
meet Lighting Global standards. Additionally, in their customer education efforts,
companies can reference the Lighting Global standards to demonstrate the
quality of their own products while dissuading use of substandard products.
Two strategies are needed to address customer concerns regarding aggregation of dust:
First, customers need to be educated on the real impact of dust accumulation.
Although significant losses can be associated with large amounts of airborne
particles (as much as 35% in regions with substantial migratory dust), PV panels
remain largely effective with minor dust accumulation. Customers may see dust
and consequently believe they are getting less energy from their SHS, even if this is not
entirely true. Education at point of sale can help customers understand to what degree this
is true and how or if they should intervene. Proper instructions for panel cleaning (and
effects of dust accumulation) can be included in the initial instructional materials.
Second, customers should be given adequate tools and instructions to clean
panels without causing them damage. Some customers interviewed noted that they
reached out to their SHS company when dust aggregated. This burdens a SHS company’s
customer service and can be more cost-effectively handled through customer self-care.
13
Customer experience regarding customer service:
• Long-term customer satisfaction with customer service is driven largely by the
relationship between customers and their agents or primary points of contact with their
off-grid energy service provider. Customers appreciate when agents (or primary points
of contact with companies) are individuals from their own communities. Building this trust
helps customers tolerate maintenance issues or challenges with performance. The
relationship gives them
the assurance that an
individual they know
personally can help them
address any issues. As
companies work to scale
their customer service,
they can continue
gaining these benefits by
recruiting agents from
local communities.
• Some customers of smaller off-grid companies have reported having difficulty contacting
their customer service representatives, noting that these individuals won’t answer phone
calls for extended periods. New entrants can consider differentiating themselves through
superior infrastructure for customer service and maintenance.
Existing players who do not yet have adequate resources or infrastructure to address
customer concerns quickly should consider the impact that failure to respond may have
on the reputation of their companies as well as on off-grid solutions as a whole. There
may be long-term damage to sales.
As off-grid companies scale their operations in Nigeria, it is essential that their service
retain a human face by sourcing sales agents from the communities where services are
being provided.
When our agent comes, he really listens to our concerns
- Owner of small gambling / betting business in Abuja
“
”
14
There are two important aspects of customer service that will significantly improve
interactions with customer:
- Quick and efficient response: To deliver prompt service, off-grid companies need
to have call centers and dedicated agents able to access customers in remote areas.
Off-grid companies need to build the internal capacity to be able to deploy agents
quickly and effectively to avoid losing customer trust. In areas with lower mobile
penetration, companies can ensure agents are well-prepared to address common
customer service challenges and that they are incentivized to address customer
problems quickly
- Proactive outreach: Off-grid companies need to be able to quickly identify unsatisfied
customers through a combination of proactive outreach and customer data
management. It is particularly crucial for lower income customers that may not have
airtime for calls. These companies can use agents to consistently collect customer data
and track metrics in order to identify triggers of poor functionality or dissatisfaction.
The service teams will need to quickly intervene once alerted.
15
3. STRATEGIES IN THE OFF-GRID SECTOR CAN BE CUSTOMIZED
TO THE SPECIFIC CHARACTERISTICS OF EACH COMPANY
This section leverages the NPSP Baseline Study, and some content of this section appears as written
therein. More details on the baseline for off-grid activities in Nigeria can be found in this document.
3.1. Off-grid companies in Nigeria can be categorized into four groups by their
key characteristics Key company characteristics among off-grid companies in Nigeria are determined largely by two
factors: the company’s business life cycle stage and whether the company is local or international.
• Business needs can vary significantly depending on a company’s current business
life cycle stage. To meet these needs, firms at different stages in their business life cycle
must adopt different strategies. Also, business life cycle stage progression is generally gradual,
so needs may need to be met incrementally – for example, it may not benefit a Seed stage
company to begin implementing strategies specifically applicable to Growth stage companies.
Seed stage companies need to prove their models, so the strategies associated are largely
about accelerating that process. Meanwhile, strategies for Growth stage companies largely
involve upscaling operations and management, which would be less impactful on a Seed stage
company. Gradual advancement is also critical for the fundraising process. As businesses
mature, they typically gain access to lower cost capital
• Company origin (international versus local) matters because international
companies often have far greater access to international funding sources, from
foundation grants to Silicon Valley venture capital to Private Equity. While local companies
may also gain access to such funding, it is typically far more accessible for international
companies due to improved access to networks and a greater familiarity with the fundraising
landscape. Local companies, however, have local knowledge and expertise that international
companies are less able to access except through partnerships and targeted hiring of local
staff into key positions. Because partnerships come with costs, and talent is often scarce,
there is a clear advantage to having in-house access to deep knowledge of local markets
Using these characteristics, companies in the off-grid space can be roughly categorized into four
groups in the figure below.
16
Figure 3.1 Nigerian off-grid company categories
Local Start-Ups
The vast majority of homegrown small and medium enterprises (SMEs) in the off-grid solar market
fall into this category. These are usually in seed or start-up stages with limited funding; they typically assemble products from low-tech, locally adapted, or open-source designs or source
customer-ready products entirely from other companies. Most are still in a ‘proof-of-concept’
phase and require business model refinement such as attracting and optimizing funding, product
selection and sourcing, and/or effective marketing and distribution strategies to capture market
share. Examples of Local Start-Ups in Nigeria include: Solarpawa, Folub, and Solar Kobo.
Emerging Household Names
Emerging Household Names are home-grown companies that have strong local capabilities and a
distribution network to go with their scale. Often, they are able to vertically integrate their value
chain due to their technological advancement and/or core competencies. They have an
understanding of the technical fundamentals such as product design, installations, distribution, and
after-sales services (though may still have substantial room for improvement in one or more of
these areas). Arnergy is one of the emerging SHS players with an installed capacity of over
Seed Expansion
Loca
l
Low-to
-High In
tegra
tion fr
om R
&D to D
istrib
ution
Start-Up Growth
Inte
rnat
ion
al
Emerging
‘Household Names’
Energy Access
Pioneer Brands
International
Independents
Local
Start-Ups
Business Life Cycle Stage
Ori
gin
17
1.5MW. They have products tailored to various market segments but have now shifted focus to
urban and commercial consumers. Sales, installation, and distribution are carried out by a
combination of a dedicated in-house team and directly recruited and trained agent network. End-
user support is provided by specialized trained agents, and payments and collections are carried
out through an online payment portal. The company has a strong technological focus using
algorithms to manage credit risk and optimize customer experience. This business model has
seen Arnergy steadily increase market share.
Energy Access Pioneer Brands
These are primarily expanding international firms that are buoyed by success in the East African
off-grid market. They typically focus on building distribution partnerships with strong local players
to sell their energy access technologies. Within the last two years, nearly 10 companies, including
leading East African players such as Greenlight Planet, d.light, Off-Grid Electric (operating as Zola
Electric), Fenix International, and BBOXX, have entered the Nigerian market. Greenlight Planet has two distinct business models for products sales. These are direct sales to end-users and
distribution partnerships through microfinance institutions like LAPO Microfinance Bank and
some FMCG companies. Lumos formed a partnership with Nigeria’s largest mobile network
operator, MTN, to provide low-cost MTN Mobile Electricity or ‘MTN Yellow Box’, a pay-as-you-
go solar home system.26
International Independents
These are typically start-ups or smaller firms from more developed markets. Their primary focus
is designing and marketing a suitable single product for the Nigerian market. Manufacturing of
devices is usually outsourced to other companies, while they tend to form partnerships with
other providers for distribution. An example of an international independent is Oolu Solar, a
solar homes solutions company founded in 2015 that raised initial seed round funding through
Silicon Valley’s Y Combinator. Oolu Solar launched a pilot in Senegal and since then has expanded
into other West African countries including Nigeria. Oolu has received funding and significant
strategic support from international early stage investor Persistent Energy, which is a common
characteristic of International Independents. Oolu Solar started piloting its products in South-
West states including Oyo, Osun, and Ekiti. Oolu Solar is providing two sets of products that
match the income levels of rural and peri-urban Nigerian consumers. It is also offering flexible
payments options like annual and monthly payments in addition to outright purchase. This
provides more rural households an opportunity to afford its solar systems depending on their
income levels. As a start-up, Oolu has chosen to focus on specific aspects of the value chain such
as distribution and customer acquisition to keep costs low, and they are not involved in
manufacturing.27
Companies can use the check-list below to determine their current business life cycle stage.
26 CrossBoundary research 27 Oolu Solar (2018), https://oolusolar.com
18
Table 3.1 Business life cycle check-list
Seed stage/
Inception
Startup/ Survival Growth Expansion
Op
era
tio
ns
Single operating
unit with limited
distribution channels
Single operating
unit in a single market
with limited but
increasing sales and
channels
Functional
and centralized
operations
Single
market, multiple
channels
Decentralized
and sophisticated
management
New operating
unit, extending
product range,
increasing markets
and channels
Sale
s
Still in early stage
development or
procurement of
commercially
acceptable product
No established
sales or market
presence yet
Negative cash
generation
Piloting
commercially acceptable
product on the market
Few established
sales or limited market
presence yet
Negative cash
generation/break-even
Some sales in
few markets via
multiple channels
Positive cash
generation but
reinvested
Significant
number of total sales
Established brand
and market presence
in multiple markets
Positive cash
generation with high
retained earnings
Fin
an
cin
g
Owners, friends
and relatives, suppliers
leasing
Grant funding
from foundations and
DFIs
Owners, suppliers,
banks
Grant funding from
foundations and DFIs
Concessional loans
and equity from impact
investors and DFIs
Business
owners, suppliers
and banks
Concessional
loans and equity
from impact
investors and
DFIs
Retained
earnings, new
partners
Commercial debt
and equity from
market rate lenders
and commercial
equity investors
International Independents
Local Start-Ups
Energy Access Pioneers
Emerging Household Names
19
The strategies companies can adopt to succeed in the Nigerian off-grid market are determined
to a large degree by the company’s current group type because of each group’s competitive
advantages. Typically, international companies benefit from easier access to funding, and local
companies benefit from local knowledge and expertise. Additionally, later stage companies benefit
from significant operational experience.
The sections below describe for each major off-grid company group type, what resources give
them unique advantages in the Nigerian market, what unique challenges they face, how success
can be defined, and strategies for using their resources to succeed.
3.2. Local Start-Ups can leverage their local advantages to become Emerging
Household Names
3.2.1. Defining success in growth
Success for Local Start-Ups entails advancing through the business stage life cycle. Local Start-
Ups are either in their Seed or Start-Up stage, with the majority in Nigeria currently in their
Start-Up stage. Seed stage Local Start-Ups must advance to Start-Up/ Survival stage, and Start-
Up stage companies must advance to Growth stage. Operational, sales, and financing
improvements, as described in the table below, are the core characteristics of business stage
advancement.
Table 3.2 Defining growth for Local Start-Ups
Seed Start-up Growth
Key issues
Sales
• Obtaining
customers
Operations
• Economical
production
Sales
• Revenues
Operations
• Expenses
Sales/Operations
• Managed
growth
Financing
• Accessing
resources
OP
ER
AT
ION
S
Management
role and style
• Direct
supervision
• Entrepreneurial,
individualistic
• Supervised supervision
• Entrepreneurial,
administrative
• Delegation,
coordination
• Entrepreneurial,
coordinated
Organization
structure • Minimal or no
structure • Minimal structure
• Functional,
centralized
Product and
market
research • Minimal research • Some initial research
• Some new
product
development
Systems and
controls
• Simple
bookkeeping,
eyeball control
• Simple bookkeeping,
personal control
• Expense control
• Accounting
systems, simple
control reports
20
Seed Start-up Growth
FIN
AN
CIN
G Major source
of finance
• Owners, friends
and relatives,
suppliers leasing
• Owners, suppliers,
banks
• Banks, new
partners,
retained
earnings
Major
investment • Plant and
equipment • Working capital
• Working capital
• Expanding
manufacturing
capacity (if
applicable)
SA
LE
S
Cash
generation • Negative • Negative/breakeven
• Positive but
reinvested
Product-
market
• Single line and
limited channels
and markets
• Single line and market
but increasing scale and
channels
• Broadened but
limited lines
• Single market,
multiple
channels
Another way to define success for Local Start-Ups: they must become Emerging Household
Names.
21
Figure 3.2: Advancing in business life cycle, Local Start-Ups
3.2.2. Competitive advantages
The core advantage of a Local Start-Up is almost entirely its local expertise and access to local
knowledge. Local Start-Ups are better positioned to understand the unique logistical and
operational difficulties that must be overcome to operate in Nigeria. They also are better
connected to local business networks, which they can leverage for knowledge and/or advocacy
when problems arise.
Considering the key functions along the off-grid company value chain, this local expertise is most
valuable for two functions: (1) Sales & Distribution and (2) Payments and Collections. This is
largely why Local Start-Ups’ core strengths tend to be in these two functions.
Seed Expansion
Loca
l
Low-to
-High In
tegra
tion fr
om R
&D to D
istrib
ution
Start-Up Growth
Inte
rnat
ion
al
Emerging
‘Household Names’
Energy Access
Pioneer Brands
International
Independents
Local
Start-Ups
Business Life Cycle Stage
Ori
gin
Advance in Business
Life Cycle to compete with Emerging Household Names
22
Sales & Distribution in the off-grid sector in Nigeria remains largely dependent on word-of-
mouth and door-to-door sales. Local Start-Ups can engage their personal networks to build their
initial customer base, enabling the business to have a local human face. Indeed, many customers
of Local Start-Ups note that their first point of contact with the business was with a business
owner directly or with a friend (or friend of friend) of the owner or an employee. This
personalized approach to sales helps build trust between the customer and the business –
something much more difficult for an international player to do.
Payments & Collections in the off-grid sector in Nigeria are managed through mobile apps or
online web portals, cash collections through door-to-door agents or stationary kiosks, USSD
codes, and/or mobile money. Due to mobile money regulatory challenges and low mobile money
penetration (less than 2%) most off-grid companies in Nigeria still rely heavily on agent networks
for collection. Local Start-ups can leverage their knowledge of local communities and gain an
advantage with door-to-door agents and agents at kiosks who are well-connected within communities, helping ensure timely payments through social pressures while the company is still
refining other aspects of its business model. Strong agent networks will likely remain essential
even as regulations related to mobile money become less restrictive because of Nigeria’s low
mobile money penetration and challenges to internet reliability.
3.2.3. Challenges
To advance their companies along the business stage life cycle, Local Start-Ups can focus efforts
on overcoming core operational, sales, and financing challenges.
The greatest Operational and Sales challenges include:
• Low production volume makes Production & Assembly extremely costly per unit
• Word-of-mouth and door-to-do Sales & Distribution work well on a small scale but
are ineffective for reaching less accessible markets
• Because Local Start-Ups rely on lean teams, they often do not have the capacity to respond well in After Sales Support. Additionally, they lack the operational expertise
necessary to effectively deliver customer support
The greatest Financing challenges specific to Local Start-Ups include:
• Inability to demonstrate business success and potential due to poor bookkeeping or
inability to track key performance metrics
• Lack of familiarity with investor expectations, data needs, or manner of communicating
23
3.2.4. Strategies to grow
Figure 3.3: Strategic growth focus areas along value chain, Local Start-Ups
The competitive advantages and key challenges stated above are true for most Local Start-Ups in
the off-grid space in Nigeria. For earlier stage companies to compete with the most successful
Local Start-Ups, they usually must emulate their competitive advantages. Key strategies to
maximize potential for success include:
• While some Local Start-Ups choose to make direct purchases from international OEM
suppliers (such as from China), most are well-suited to partnerships with larger SHS
players for Production & Assembly, such as International Energy Access Pioneers. There
is a strategic advantage in using Energy Access Pioneers for Production &
Assembly partnerships in that they provide superior quality control and
reduce the risks of regularly sourcing good products by relying on existing
established supply chains. The alternatives for quality control, such as on-site
inspections at the point of production or post-delivery inspections are costly and time
consuming, rarely an effective use of energy for resource-constrained Local Start-Ups.
Early investment in quality control is essential to reducing After Sales Support costs and
to avoiding brand damage to help maintain sales growth.
Local Start-Up Solarpawa, for example, has opted to purchase its products from
International Energy Access Pioneer Fosera (Germany-based). This partnership allows
Solarpawa to focus on its Sales & Distribution with the guarantee of high-quality products with minimal investment of time and energy at this point in the value chain.
Note: when Local Start-Ups intend to use a partnerships approach for production and
assembly of systems that relies on an Energy Access Pioneer, they should be wary of the
potential for the Energy Access Pioneer to enter the market. Some Energy Access
Pioneers, such as d.light, have used local company partnerships in Nigeria before entering
the market themselves. Local Start-Ups can mitigate this risk by evaluating the market
entry strategy of their potential partner. If the partner has previously used local
partnerships to evaluate a market before entering, this may be a risky partnership. While
Research & Design
Sales & Distribution
Payments & Collections
Consumer Finance
After Sales Support
Production & Assembly
Marketing
Opportunity for internal improvement
Opportunity for partnership
Lower priority for current stage
Strategic focus areas
Currently a core strength (Note: for some areas that are already core strengths, companies can continue making strategic improvements)
24
it should not necessarily be a strategic priority at this stage in the business life cycle, Local
Start-Ups can also consider Marketing strategies that preemptively reduce the risk of
competition from a partner entering the market. For example, if the Local Start-Up brands
the products with its own product name, it may be able to retain its customers more
easily if the Energy Access Pioneer partner enters the market. Solarpawa has taken this
approach.
• Local Start-Ups can use their existing local advantages and can follow the
model of Emerging Household Names to increase control over and build up
their agent networks. Exercising control over agent networks is an efficient
means of improving three functions across the value chain that are essential
to Local Start-Up growth.
First, investment in agent network training and build-up has significant impact on
effectiveness of Sales & Distribution. Arnergy, a Local Household Name, for example, has
directly recruited and trained over 1,000 agents for sales and distribution and has built an
in-house team of 40 (as of Oct. 2018). Arnergy has avoided any major partnerships for
sales and distribution (contrary to the strategies of International Energy Access Pioneers)
in order to avoid loss of profits through such partnerships. Additionally, because Arnergy
has trained the agents themselves, they can more closely control the quality of the
customer experience. Local Household Names are best positioned to follow the approach
that Arnergy has taken. They benefit less from local sales & distribution partnerships than
an International Energy Access Pioneer might and also likely are better equipped to handle
gradual growth rather than accelerated growth associated with large telecom or FMCG
partnerships.
Second, the same agent network developed for Sales & Distribution can also be effectively
used for Payments & Collections. A number of Emerging Household Names, like ASolar,
operate as many as 24,000 units while still using cash payments through stationary and
mobile agents.
Note: While Local Start-Ups are well-positioned for cash collections through agent
networks at a small scale and even as they reach Growth stage, this approach becomes a major challenge as Local Emerging Household Names attempt to move into an Expansion
phase and/or to compete with International Energy Access Pioneer Brands, as will be
discussed in the section below.
Finally, Local Start-Ups can use the same agent networks required to scale their systems
for Sales & Distribution and Payments & Collections to scale After Sales Support.
Customers of Local Start-Ups often note some lack of satisfaction with their After Sales
Support, including lack of responsiveness, inability to quickly address issues, failure to
follow through on service requests, or lack of understanding of how to reach out for
support in the first place.
25
Local Start-Ups can differentiate themselves by offering superior customer support. A
strategic focus on After Sales Support will also have medium-term benefits for sales,
especially for Local Start-Ups, which rely so heavily on word-of-mouth for sales. Intensive
training of agents (or other in-house team members) can help reduce problems related
to After Sales Support.
3.2.5. Some Local Start-Ups have adopted alternative strategies to play niche roles in the market
Some Local Start-Ups have developed businesses to serve as niche providers at a single point in
the value chain rather than attempting to work toward vertical integration. By focusing on a
specific strategic point in the value chain, such as providing local Production and Assembly to
reduce cost of imports for other companies, Local Start-Ups can grow horizontally rather than
through vertical integration.
ESUSU AGENTS | Leveraging local thrift savings networks for affordability
The Esusu scheme is prevalent among many market women who contribute a daily portion
of their trading profit to a collective. This scheme becomes an informal savings and credit
system among many unbanked women in rural communities. There is an opportunity for
local start-ups to partner with these Esusu groups in various communities for sales and
distribution. The local companies can also look into consumer financing through Esusu
groups since these are established informal microfinance groups. Local Start-Ups can work
with Esusu groups to structure monthly repayment options for SHS. Over 50% of the
Nigerian population is unbanked and most of the micro-entrepreneurs largely rely on the
informal sector due to stringent conditions of formal financial institutions to practices like
granting of loans. Additionally, many commercial banks and even microfinance institutions
do not make funds available to reach lower income customers.
In Nigeria thrift collection known as
Esusu, Ajo, or Adashe, has been executed on a micro level. Members
of many communities save money in
small rotating contributory savings
schemes with trusted community
members. At the end of each month,
contributors collect the money they
have saved. These group savings serve
as a source of borrowing in
emergencies, a way to grow savings
or a means to achieve a communal
goal.
26
For example, Greenage Technologies is a Nigerian company founded in 2017 that produces
inverters locally. Greenage argues that local production helps with adaption to Nigerian use and
climate (such as “short-circuit detection, which is not common in foreign products”). They also
suggest that local production better enables them to keep costs low.28
Another example of a niche player, Blue Camel
Energy Limited is a Nigerian renewable energy
company that specializes in solar powered
outdoor lighting, such as street lights, solar
systems for high-use houses and office buildings,
and solar borehole and water reticulation systems.
Blue Camel is unique for having its own Production
Plant and Training Center in Kaduna State, giving it the advantages of local production.
There may be additional opportunities in the off-grid energy sector for local
production of SHS and mini-grid components that can benefit from savings from
import duties and from designs specific to unique Nigerian challenges and use
patterns. Similarly, there may be additional opportunities for Nigerian companies to
serve off-grid energy companies through provision of local sales and distribution
services and local installation and technical maintenance, which a November 2018
GOGLA brief suggests account for the majority of local jobs created in the off-grid
energy value chain.29
Engaging USAID Power Africa: NPSP can provide early stage fundraising support to Local
Start-Ups by reviewing the identified capital needs, advising on pros and cons of various funding
structures, and reviewing and providing recommendations on fundraising materials like
investment teasers. NPSP can connect Local Start-Ups to well-funded Energy Access Pioneers to
bridge the gap between local market knowledge and operational capabilities and funding.
3.3. Emerging Household Names can leverage their local advantages and in-
country operational experience to compete with Energy Access Pioneers
3.3.1. Defining success in growth Success for Emerging Household Names entails advancing through the business stage life cycle
from the Growth stage to the Expansion stage. Operational, sales, and financing improvements,
as described in the table below, are the core characteristics of business stage advancement. Some
Emerging Household Names could be considered to have already advanced to Expansion stage.
For these companies, success largely revolves around ability to increase market penetration and
enter new markets.
28 https://www.greenagetech.com/the-company/ 29 GOGLA, “Employment opportunities in an evolving market; Off grid solar: creating high-value employment in key markets,”
2018.
27
Table 3.3 Defining growth for Emerging Household Names
Growth Expansion
Key issues
Sales
• Managed growth
Operations
• Accessing resources
Financing
• Financing growth
Operations
• Maintaining control
OP
ER
AT
ION
S
Management
role and style
• Delegation, co-ordination
• Entrepreneurial,
coordinated
• Decentralized and
coordinated
• Professional
• Administrative
Organization
structure
• Functional, centralized • Functional, decentralized
and coordinated
Product and
market
research
• Some new product
development
• New product innovation
• Market research
Systems and
controls
• Accounting systems, simple
control reports
• Budgeting systems
• Monthly sales and
production reports
• Delegated control
FIN
AN
CIN
G
Major source
of finance
• Retained earnings
• New partners
• Banks30
• Retained earnings
• New partners
• Secured long-term debt
Major
investment
• Working capital
• Expanding manufacturing
capacity (if applicable)
• New operating units
SA
LE
S Cash
generation
• Positive but reinvested • Positive cash generation
• Smaller dividend
Product-
market
• Broadened but limited lines
• Single market, multiple
channels
• Extended range
• Increased markets and
channels
Another way to define success of Local Emerging Household Names: they must actively compete
with International Energy Access Pioneer Brands across all aspects of their business functions.
For the most part, International Energy Access Pioneer Brands in Nigeria have greater market
share than Local Emerging Household Names. To compete for some of this market share (and
to access markets that International Energy Access Pioneer Brands are not yet accessing) requires
Emerging Household Names to function as effectively across their operations, sales, and financing
as the leading International Energy Access Pioneer Brands.
30 While banks are not currently a major source of funding, companies are hopeful they can begin to access local debt financing
from commercial banks in the near future.
28
Figure 3.4: Advancing in business life cycle, Emerging Household Names
3.3.2. Competitive advantages
Emerging Household Names benefit from local expertise as well as from significant local
operational experience. These advantages have the greatest impact on the following functions
across the off-grid value chain: Research & Design, Production & Assembly, Marketing, Sales &
Distribution, Payments & Collections, and After Sales Support.
The impact of local expertise on Sales & Distribution and Payments & Collections is much the
same for Local Start-Ups above. However, there are additional benefits to each of these functions
in the value chain that Emerging Household Names gain from having significant local operational
experience:
• Sales & Distribution: having developed multiple channels for Sales & Distribution,
Emerging Household Names are prepared to begin increasing sales through this
infrastructure
• Payments & Collections: similarly, Emerging Household Names have multiple effective
means of collecting payments, some or all of which can function well at scale
Seed Expansion
Loca
l
Low-to
-High In
tegra
tion fr
om R
&D to D
istrib
ution
Start-Up Growth
Inte
rnat
ion
al
Emerging
‘Household Names’
Energy Access
Pioneer Brands
International
Independents
Local
Start-Ups
Business Life Cycle Stage
Ori
gin
Compete for
market share with Energy Access Pioneer Brands (Increase access to new markets and
penetration in existing markets)
Advance in Business
Life Cycle through Expansion stage
29
Additionally, local operational experience positions Emerging Household Names to succeed along
the following functions:
• Research & Design: having gained significant experience delivering products and gaining
user feedback, Emerging Household Names are well-positioned to incorporate this
feedback into design that best serves their individual customers. Depending on their
existing degree of integration and current level of engagement with R&D, Emerging
Household Names may be able incorporate this information into their own operations or
present this information to their selected product provider. Most companies will still use
an external product provider for R&D. Additionally, because Emerging Household Names
are focused only on the Nigerian market, they do not have to retain the adaptability of
their products that International companies may need and can focus all R&D efforts on
products for Nigerian customers. Examples of a Nigerian centric R&D approach may
include: using the number of light bulbs in kits that corresponds to the average number
of rooms in a given customer groups’ homes, accommodating the fact that one light bulb
is likely to be used outdoors for security purposes in some Nigerian markets, or including
multiple USB inputs depending on average number of mobile devices per family
• Production & Assembly: operational experience has enabled Emerging Household
Names to work on major problems related to Production & Assembly. Because of this competency, many Emerging Household Names are able to vertically integrate their value
chain to some degree
• Marketing: local knowledge combined with operational experience enables Emerging
Household Names to transform their local success stories into effective marketing
materials. Additionally, by stressing local nature of ownership and employees (with a track
record to prove their commitment to support of local communities), Emerging Household
Names can demonstrate a better alignment of interests than might be possible from
International companies
• After Sales Support: Emerging Household Names operate at sufficient scale that they
are able to provide meaningful After Sales Support. Because of significant experience
addressing customer issues, the cost of addressing each issue can be significantly reduced.
Also, the same systems developed for Sales & Distribution and Payments & Collections
can be used for After Sales Support
3.3.3. Challenges
The greatest Operational and Sales challenges include:
• Marketing remains largely inhibited by company’s own normal operating capacity and
lack of expertise in large-scale marketing campaigns. Restricted access to capital prevents
significant investment in external resources for such campaigns
• Companies remain largely dependent on agent networks for Sales & Distribution.
While such networks are effective for gradual growth, Emerging Household Names are
30
being outcompeted in Sales & Distribution by international companies that have elected
to use partnerships with telecommunications and FMCG companies for rapid Sales &
Distribution growth
• Similarly, companies remain dependent on agent networks for Payments &
Collections. When relying on agent networks, incentives to increase sales are not always
perfectly aligned, as agents are often focused on selling multiple products for multiple
companies (not just off-grid solar solutions)
• After Sales Support challenges for Emerging Household Names are caused by the same
agent network limitations noted above
The greatest financial challenges include:
• Consumer Finance: Most SHS companies in the market provide one or more of the
following three types of payment options for the consumers:
1. Outright purchase
2. Lease-to-own
3. Power-as-a-service
The vast majority of SHS companies prefer outright purchase due to the up-front
payment and reduced risk of payment defaults but most adopt the lease-to-own model
to help with affordability.
In the Nigerian market, only a few companies offer consumers credit and staggered
payment solutions to increase affordability. Some of these companies have high default
rates (or nonpayment rates in the case of PAYG systems). For example, one off-grid
company in Nigeria has noted that they consider payment rates over 75% to be
acceptable (at least as they focus on expansion of operations) and consider 50%
payment rates to be the threshold below which re-possession of off-grid assets must
be considered.31 By comparison, payment rates in East African SHS companies typically
range from 80% to 95%, where rates below 80% are considered poor performance.32
Some companies have developed mitigation measures to reduce the incidence of
customers defaulting on lease-to-own contracts. They have set weekly payments and
repossessions after 4 weeks of defaulting payments. Many developers in the market
are not willing to bear the credit risk so they seek to partner with microfinance
institutions and banks that are able to provide consumer financing to the target
segment. However, the major problem with consumer financing remains the extremely
high interest rates impacting affordability for lower income consumers.
Section 4 provides additional details on the financing landscape.
31 CrossBoundary Research (2018-2019): Interview with Fenix (2019) 32 CrossBoundary Research.
31
3.3.4. Strategies to grow Figure 3.5: Strategic growth focus areas along value chain, Emerging Household Names
• Emerging Household Names can invest in customer research to create a map of target
customers and develop Marketing approaches that are tailored specifically to each
customer archetype. Companies targeting affluent residential customers can use social
media and brand ambassadors, following the model used by many FMCG companies. An
example of this type of influencer marketing has been employed by a renewable energy
company called Reohob. Reohob engaged public figures from a national reality TV show,
Big Brother Nigeria, as brand ambassadors on Instagram
• While earlier stage companies can benefit from increased investment in exercising control
over agent networks through trainings, Emerging Household Names can significantly
improve Sales & Distribution and After Sales Support by recruiting agents as full-
time staff on a fixed salary with additional sales incentives. This approach helps address
mis-alignment of agent incentives. More mature companies are beginning to adopt this
approach, moving away from paying agents sales commission. This approach is also
intended to boost performance and ensure agent retention. Since most of these agents
are based within the communities, they are typically used for after-sales support and post-
installation maintenance. Some Emerging Household Names are providing ‘formalized’
comprehensive after-sales services for product differentiation. However, this service is
targeted at higher income customers who are able to pay additional fees for formal
services
• For transformative growth, Emerging Household Names must diversify channels for
Payments & Collections. Increasing the channels for Payments & Collections gives
companies access to more markets. Although companies eventually will need to move
toward greater use of mobile money and web-based payment systems as mobile penetration in Nigeria increases, given current levels of mobile penetration in Nigeria, no
single channel gives companies access to every potential customer. Mobile money systems
for payment remain a competitive advantage in terms of convenience and accessibility for
those with access, and cash collection through mobile or stationary agents remains critical
for customers without (or with unreliable) mobile access. Emerging Household Names
hoping to compete with mobile money enabled Energy Access Pioneer Brands will also
Research & Design
Sales & Distribution
Payments & Collections
Consumer Finance
After Sales Support
Production & Assembly
Marketing
Opportunity for internal improvement
Opportunity for partnershipLower priority for current stage
Strategic focus areas
Currently a core strength (Note: for some areas that are already core strengths, companies can continue making strategic improvements)
32
need to have multiple payment channels that optimize accessibility for all customer types
targeted
• Strategies for consumer finance are essential to improving customer ability to access
products. Such strategies are discussed in the Section 4 below
Engaging USAID Power Africa: As Emerging Household Names seek to expand, NPSP can
assist with fundraising and deal structuring by advising on approaches and methodologies for
structuring transactions, including selection of appropriate forms of capital (equity, debt or
hybrid) and risk allocation. NPSP can also connect the companies to the appropriate investors.
3.4. Energy Access Pioneers can leverage their access to funding and
operational experience to increase market share and enter new markets
3.4.1. Defining success in growth
Energy Access Pioneer Brands are primarily expanding international firms that are buoyed by
success in the East African off-grid market. Success for these companies involves moving into full
business maturity from the expansion stage.
Table 3.4 Defining growth for Energy Access Pioneers
Expansion Maturity
Key issues
Operations
• Maintaining control
• Financing growth
Sales
• Niche marketing if industry is
declining
Operations
• Expense control
• Productivity
OP
ER
AT
ION
S
Management
role and style
• Decentralization
• Professional
• Administrative
• Decentralization
• Remote monitoring
Organization
structure • Functional, decentralized
• Decentralized
functional/product
Product and
market
research
• New product innovation
• Market research • Production innovation
Systems and
controls
• Budgeting systems
• Monthly sales and production
reports
• Delegated control
• Formal control systems
• Management by objectives
FIN
AN
CIN
G
Major source
of finance
• Retained earnings
• New partners
• Secured
• Retained earnings
• Long-term debt
Major
investment • New operating units
• Maintenance of plant/market
position
33
Expansion Maturity S
AL
ES
Cash
generation
• Positive cash generation
• Smaller dividend
• Cash generator
• Higher dividend
Product-
market
• Extended range
• Increased markets and
channels
• Contained lines
• Multiple markets and
channels
Many of these brands are currently in the expansion stage where they are financing growth into
new markets with focus on market research, product innovation, and increasing markets and
access channels. Thus, success is measured by the ability of the companies to capture market
share and maintain market position in multiple markets through various channels. At this point,
the focus becomes expense control and process/production innovation to optimize operations
and profit. Figure 3.6: Advancing in business life cycle, Energy Access Pioneer Brands
At maturity, the product lines are contained and streamlined with sustained sales growth, while
operational costs are being optimized. As a result, the dividends are higher, and the major sources
Seed Expansion
Loca
l
Low-to
-High In
tegra
tion fr
om R
&D to D
istrib
ution
Start-Up Growth
Inte
rnat
ion
al
Emerging
‘Household Names’
Energy Access
Pioneer Brands
International
Independents
Local
Start-Ups
Business Life Cycle Stage
Ori
gin
Expand to new
markets and increase penetration in existing markets
34
of financing required will only be the retained earnings and long-term debt. As the market
eventually approaches maturity, Pioneer Brands that are performing well can transition from high
growth (high cash usage) and high market share (high cash generation) “Stars” into high market
share and low growth “Cash Cows.”
Figure 3.7: Growth and market share over time for Energy Access Pioneer Brands
3.4.2. Competitive advantages
The operational history and ownership structure of Pioneer Brands provide several competitive
advantages including sufficient low-cost funding, operational and technical capabilities and
technological edge. In terms of finance, many Pioneer Brands have been able to raise substantial
grant, equity, or low-cost debt funding to finance operations in expansion stage. These companies
have historically sought to raise US$10-20 million, often through a combination of equity and
debt. Pay-as-you-go operators M-Kopa, Zola Electric, d.light, BBOXX, Nova Lumos, Fenix
International and Mobisol had all announced at least one transaction larger than US$10 million
by 2016. In addition to funding, Pioneer Brands also have a good understanding of operations
across the value chain from their existing businesses in other countries. These advantages are particularly valuable across the entire off-grid value chain:
• Research & Design: Of all company types operating in Nigeria, Pioneer Brands have the
greatest R&D advantage. Having operated at scale in multiple markets, most Pioneer
Brands have sophisticated means of designing products that meet customer needs. Many
of these companies have used their technological edge to extend their product line and
reach lower income customers. They offer products tailored to lower income customers
including small pico systems like solar-powered LED torches, micro solar home systems
with portable solar panels, and batteries that power up to 4 lights, radio and phones or
solar home systems. In addition to technology, adequate funding allows these brands to
deploy large amounts of money to engage market research when expanding into new
locations
Relative Market Share (Cash Generation)
High Low
Mar
ket
Gro
wth
Rat
e
(Cas
h U
sage
)
Hig
h
Stars Question Marks
Low
Cash Cows Dogs
???
35
• Production & Assembly: Manufacturing and production are the major competitive
advantage of Pioneer Brands due to the combination of funding, operational and technical expertise as well as technological edge. Companies like GLP and d.light have operations
and offices in Shenzhen, China where they are able to hire teams of engineers and
management staff to ensure quality in product manufacturing
• Marketing: Many Pioneer Brands have the financing to fund large-scale and wide-reaching
marketing campaigns. As a result, they are able to leverage the financial backing of parent
companies to fund eye-catching marketing campaigns
• Sales & Distribution: Reaching low-income customers is a major challenge for all
players. With limited infrastructure and accessibility in these areas, many Pioneer Brands
have been able to use their parent companies’ capital and operational expertise to build
partnerships to grow distribution. For companies that are able to develop their own agent
network, they are able to offer attractive payment terms to stationary or door-to-door
agents
• Payments & Collections: Similar to sales and distribution, Pioneer Brands are able to
leverage their distributor partnerships and agent networks for collections. Since they are
able to offer attractive payment terms to door-to-door agents, most pioneer brands have
a significant advantage in the Nigerian markets where collections are concerned. This is
because mobile money penetration is still extremely low in Nigeria, and collections
through agents significantly increase the cost of this stage in the value chain. Pioneer
Brands are able to use their funds and operational expertise to scale sales, distribution,
payments, and collections through agent networks and distribution partners
• After Sales Support: After Sales Support is particularly important to lower income
customers since the purchase risk for new technology is so high. Offering customer
service for products, especially for low cost pico and SHS solutions, can be relatively high.
However, due to the funding advantage and operational history, Pioneer Brands offer after
sales support through local agents. Some of these companies provide a consumer hotline
for customer complaints with the promise to service or replace products. They are
increasingly investing in agent and distributor trainings for customer service
3.4.3. Challenges
The main challenges faced by Energy Access Pioneer Brands are primarily as a result of limited
local knowledge and expertise.
• Research & Design: Product design is often constrained since adaptability needs to be
retained for multiple markets, so there is a need to tailor the product to the Nigerian
market.
• Sales & Distribution: Since partnership is the core sales and distribution strategy for
most Pioneer Brands in new markets, finding the most suitable partners in Nigeria will be
36
crucial for success. Selecting the right partners are heavily dependent on understanding
the local context and market
• Marketing: Despite funding for marketing campaigns, local market knowledge and
context is crucial for effective marketing in the Nigerian market. Since the solar off-grid
market is very nascent in the country, there is very little brand awareness (even among
the international players) for lower income customers. Although Pioneer Brands have
the advantage in marketing, local players are more effective since they are able to leverage
local knowledge and networks to execute effective grassroots outreach and campaigns
3.4.4. Strategies to grow
Figure 3.8: Strategic growth focus areas along value chain, Energy Access Pioneer Brands
Although Pioneer Brands in the Nigerian market are at various stages of growth and expansion,
the competitive advantages and key challenges stated above are true for most of them. While
some companies have different advantages and face different challenges, most Pioneer Brands
need to start forming strategic partnerships and optimizing processes and operations to capture
and maintain market share as the market approaches maturity. Implementing the following
strategies will drive them into market leadership:
Growth by design
• Pioneer Brands need to be able to meet customer needs and gradually move the
customers along the energy ladder as energy demand grows. This involves having the in-
house research capabilities to provide products that will cater to consumers across
several income levels. In addition to this, adopting innovative consumer financing schemes
to strategically move consumers up the energy ladder e.g. from first pico or solar lamp
purchase to micro solar home systems or solar kits to larger systems. Energy Access
Pioneers can begin to invest in local communities more to boost the likelihood of
customers moving up the energy access ladder. They can promote and support productive use to increase demand for electricity. However, it is important to note that users should
be able to translate electricity use to higher profits through increased output, higher
Research & Design
Sales & Distribution
Payments & Collections
Consumer Finance
After Sales Support
Production & Assembly
Marketing
Opportunity for internal improvementOpportunity for partnership
Lower priority for current stage
Strategic focus areas
Currently a core strength (Note: for some areas that are already core strengths, companies can continue making strategic improvements)
37
quality or new products and services. If customers are able to grow their income, they
also will be able to increase their energy use. Below are a few activities and programs that
Energy Access Pioneers can use to promote productive use in a community:
Table 3.5 Productive use promotion activities33
Example program Potential areas of productive use promotion
Local economic
development
Analysis of local economic context to determine what
productive use ideas are most viable
Entrepreneurship
training
Training of MSME business owners to support uptake of
electricity use and enhance business management skills
Micro-finance programs Improving access to financing for MSMEs to invest in electrical
equipment e.g. providing equipment financing
Agricultural extension Promotion of irrigation and on-farm agro-processing
equipment
Mini-Grid developers like Nayo Technologies, which developed 100kW mini-grid in Niger
State, offered agro-processing businesses in the community milling machines on a lease-
to-own financing model. This scheme has helped the developer optimize daytime load and
capacity utilization. SHS companies, especially Energy Access Pioneers, can replicate this
model through financing equipment for productive use e.g. irons or sewing machines for
MSMEs
Forming strategic partnerships
• An important component of success is forming partnerships that can be leveraged
throughout the value chain to maintain light and scalable operations. This process involves
selecting the right local partners for effective marketing, sales, distribution, payments and
collections. There is a wide range of companies that have been able to build extensive
agent distribution networks for last-mile delivery. This includes Fast Moving Consumer
Good (FMCG), pharmaceuticals, beverages and telecommunications companies. In order to find synergies in operations across multiple stages in the value chain, the right partners
will need to have one or more of the following characteristics:
o Extensive local last mile distribution network
o Strong local brand awareness or long-standing reputation
o Integrated digital financial solution (DFS) or e-payment platforms
If a distribution partner has all three characteristics, the off-grid company is able to benefit
from local market expertise, reduce costs of marketing, sales and distribution as well as
cheaper payments and collections, where DFS is integrated. Typically, telecommunications
33 European Union Energy Initiative. Productive Use of Energy – PRODUSE (2011)
38
companies or DFS providers fit this profile and have proven to be suitable strategic
partners
Although PAYG solar models do not depend solely on e-payments, the efficiency,
profitability, and accountability of the business model are significantly improved when
customers pay electronically and remotely with no need to visit a shop or agent. The
Central Bank of Nigeria’s regulatory framework allows only two models of mobile
financial services, which are bank-led and non-bank-led. However, it specifically excludes
mobile network operators (MNOs) from providing mobile financial services directly to
their customer base. In order to drive financial inclusion through DFS, CBN, commercial
banks, licensed mobile money operators (MMOs) and super agents plan to establish a
500,000-strong agent network over the next few years to strengthen the current
fragmented market through the Shared Agent Network Expansion (SANEF) initiative.
According to the CBN, Nigeria had only 11,000 mobile money agents in 2017 in comparison to 140,000 in Ghana and 165,000 in Kenya. Pioneer Brands can seek to
partner with some of the pre-qualified CBN-licensed operators to tap into SANEF. These
companies include Capricorn Digital Limited, Cellulant Nigeria Limited, eTranzact
Limited, Innovectives Limited, Inlaks Limited, Interswitch Financial Inclusion Services
Limited, Paga Tech Limited and Unified Payments Nigeria Plc. Companies like Capricorn
Digital Limited (CDL) are an independent technologically driven, digital distribution
companies that provide aggregated payments and collections services to a broad array of
Digital Service Providers (DSPs) through a digital platform34
• Limits of partnerships: Lumos partnered with mobile network giant, MTN, to rapidly expand
access to a targeted 250,000 customers by the end of 2018. “Yellow boxes,” the SHS
product offered by Lumos in partnership with MTN, are available for sale in 300 MTN
stores across the country. This partnership enabled rapid growth through 2017; however,
Lumos saw stagnation in sales growth in early 2018. In response to this slowdown, Lumos
adopted a more actives sales strategy beginning March 2018, using rickshaws to market
and sell their products directly to customers across Nigeria as is done by SHS companies
across East African markets. Lumos has already seen success with this new strategy:
rickshaws currently outsell MTN locations (as of May 2018, sales rates are roughly 4 units
per day per rickshaw and 3 units per day per MTN store)
• Companies entering or growing in the Nigerian market should take note of Lumos’s
experience with both a passive partnership model and active direct to customer model
for marketing and sales. While partnerships may help companies reach scale quickly,
additional sales strategies are necessary for continued market penetration
• Similar to Lumos, Greenlight Planet partnered with the country’s largest microfinance bank, LAPO MFB, to increase market access. Greenlight Planet was founded in 2009
34 USAID. The Digital Financial Services Landscape in Nigeria: Enabling Market Conditions for PAYG Solar (2018)
39
originally with its main operations in India. It sells solar lanterns and SHS, and its most
popular product is a 6W SHS product
Optimizing operations
• Pioneer Brands can integrate technology into their operations to better manage agent
networks and to improve the effectiveness and reduce the cost of sales, reporting, data
collection, and data management. Off-grid companies entering or positioning themselves
for growth in Nigeria, especially those that have PAYG payment systems, may benefit
from use of pre-developed software to manage customer data collection, particularly
when they are not interested in developing their own systems for managing customer
data
Paygee (developed by Mobisol) is one example of an approach to managing quantitative
and qualitative data to help companies better respond to customer needs and unique
operational challenges. Paygee is a “hardware agnostic
software suite that allows for remote access and control
of PAYG products, minimizes operational costs and
empowers sales forces.”35 The Paygee software suite
includes applications for technicians, sales agents, and
customers and can be integrated with hardware
manufacturers, financial institutions, distributors, and
mobile money providers. Features of the Paygee systems
include customer relationship management, payment
management, workforce management, call center
management, product and service management, inventory
management, credit management, and business
intelligence. Users of Paygee with operations (or piloting operations) in Nigeria include
Greenlight Planet, Mobisol, and Rensource
• Engaging USAID Power Africa: International Independents require significant growth
in operational and market knowledge. NPSP can support them by undertaking tailored
market research or commercial feasibility studies. For example, NPSP has combined its
own market research with existing market research and can share these materials with
new entrants – helping them understand customer needs, how these needs are being met
by current companies, where there are major opportunities for additional services, and
expectations for market growth. International Independents may also benefit from NPSP
support in development of distribution strategies, where NPSP can provide an overview
of the various local players throughout the value chain, highlighting where partnerships
may be mutually beneficial. NPSP can advise International Independents on how they can
access general market opportunities. NPSP can also help International Independents
understand how to navigate Nigerian procurement regulations. As these players seek to
35 Paygee marketing materials.
40
raise more equity or debt funding, NPSP can provide support by facilitating connections
to capital providers.
3.5. International Independents can leverage their access to funding and
versatile structure to develop into Energy Access Pioneers
3.5.1. Defining success in growth
International Independents are well-funded international start-ups that are mainly focused on
designing and marketing a suitable single product to the Nigerian market. Manufacturing of devices
is usually outsourced to other companies, while they tend to form partnerships with other
providers for distribution. Although most have access to funding from international investors,
specifically seed accelerators and venture capital funds, success for these companies involves
moving into a growth stage where they start broadening product offerings and distribution
network through multiple channels. Table 3.6 Defining growth for International Independents
Start-Up Growth
Key issues
Sales
• Revenues
Operations
• Expenses
Sales
• Managed growth
Operations
• Ensuring resources
OP
ER
AT
ION
S
Management
role and style
• Supervised supervision
• Entrepreneurial,
administrative
• Delegation, co-ordination
• Entrepreneurial, coordinated
Organization
structure • Simple • Functional, centralized
Product and
market
research
• Little product development
and market research
• Some new product
development
Systems and
controls • Simple bookkeeping, personal
control
• Accounting systems, simple
control reports
FIN
AN
CIN
G
Major source
of finance • Owners, suppliers, banks
• Banks, new partners, retained
earnings
Major
investment • Working capital
• Working capital
• Expanding manufacturing
capacity (if applicable)
SA
LE
S
Cash
generation • Negative/breakeven • Positive but reinvested
41
Start-Up Growth
Product-
market • Single line and market but
increasing scale and channels
• Broadened but limited lines
• Single market, multiple
channels
As International Independents drive sales through increasing distribution channels and broadening product lines, they can transition into positive cash generation and start funding parts of the
business from retained earnings.
Figure 3.9: Advancing in business life cycle, International Independents
Seed Expansion
Loca
l
Low-to
-High In
tegra
tion fr
om R
&D to D
istrib
ution
Start-Up Growth
Inte
rnat
ion
al
Emerging
‘Household Names’
Energy Access
Pioneer Brands
International
Independents
Local
Start-Ups
Business Life Cycle Stage
Ori
gin
Advance in
Business Life Cycle through Growth stage
42
3.5.2. Competitive advantages
The primary competitive advantage of International Independents is their access to funding and
technological edge due to their ownership structure. International Independents have access to
funding primarily due to strategic relationships with early stage investors, particularly from the
tech sector. In terms of finance, many International Independents have been able to raise
substantial grant, equity, or low-cost debt funding to finance operations in start-up stage. An
example of an international independent is Oolu Solar, a solar homes solutions company founded
in 2015 that raised initial seed round funding through Silicon Valley’s Y Combinator. Oolu Solar
launched a pilot in Senegal and since then has expanded into other West African countries
including Nigeria. In addition to funding, International Independents also utilize the funding to
effectively leverage technology. These advantages are particularly valuable across the entire off-
grid value chain:
• Research & Design: For most International Independents, this part of the value chain
has a specific focus on providing affordable and tailored product offering to meet the
demand of lower income groups. Many International Independents have a user-centric
design approach using field research to understand customer needs, which can then
inform product design. A growing number of these companies are incorporating Pay-As-
You-Go (PAYG) technology into their products to allow them offer solar home systems
to their customers on flexible payment terms to increase affordability. Adequate seed
funding allows International Independents to provide the capital needed for up-front
financing for inventory
• Production & Assembly: Most Independents do not have the in-house capabilities for
manufacturing and production. Therefore, they outsource these stages in the value chain.
Many of these companies source their products from global manufacturers like Greenlight
Planet and import them through their local business operations
• Marketing: Due to the strong customer focus, many International Independents are able
to leverage the market research in the R&D stage to execute effective grassroots
outreach campaigns and strategies
• Sales & Distribution: Reaching low-income customers is a major challenge for all
players. International Independents typically partner with social sector players to build
out their distribution networks. Often they work with NGOs, community organizations,
or village entrepreneurs to get their product to the market
• Payments & Collections: Similar to sales and distribution, International Independents
leverage their distributor networks for collections. They often have the benefit of PAYG
technology to manage the terms of the credit payments, where the systems can be locked
or unlocked remotely
• After Sales Support: After sales support is particularly important for lower income
customers since the purchase risk for new technology is so high. Offering customer
43
service for products especially low cost pico and SHS solutions can be relatively high.
However, despite the funding advantage that comes with significant operational history,
Pioneer Brands offer After Sales Support through local agents. Some of these companies
provide a consumer hotline for customer complaints with the promise to service or
replace products. They are increasingly investing in agent and distributor trainings for
customer service
3.5.3. Challenges
The main challenges faced by International Independents are primarily as a result of limited
operational capabilities and lack of local market knowledge and expertise.
▪ Sales, Distribution, Payments & Collections: Since a smaller scale social sector
partnership is the core sales and distribution strategy for most international independents,
increasing the number of partners and finding the most suitable partners in Nigeria will
be crucial for success. Selecting the right partners is heavily dependent on understanding
the local context and market. For example, Capricorn Digital is a Nigerian company that
provides aggregated payments and collections services. International Independents can
partner with such local companies to minimize their own investment in Payments and
Collections infrastructure
• After Sales Support: After sales support is particularly important to lower income
customers since the purchase risk for new technology is so high. Offering customer
service for products, especially low cost pico and SHS solutions can be relatively
expensive. Many of the distributor partnerships formed by International Independents do
not have the funding or operational capabilities to provide after-sales support, so
developing a dedicated agent network is essential for wide-reaching technical support
• Consumer Financing: Since many International Independents partner with social sector
players or smaller scale distributors, they are unable to offer consumer financing for low
income consumer. This limits the product affordability. International Independents need
to lower the up-front product cost through credit or staggered payment solutions which
can be achieved through larger partnerships with microfinance institutions or sales
through direct agents
44
3.5.4. Strategies to grow Figure 3.10: Strategic growth focus areas along value chain, International Independents
Although there are only very few companies that are International Independents in the Nigerian
market, the competitive advantages and key challenges stated above generally apply. While certain
companies will have different advantages and face different challenges, most International
Independents will need to expand reach through increased product offerings, expanding
distributor networks, and ensuring affordability. Implementing the following strategies can help
International Independents compete with Pioneer Brands:
Expanding distribution network through strategic partnership and own-agent network. In order
to increase sales through multiple channels, Independents should grow their model of working
with social sector players such as local community members and NGOs into selecting strategic
distributor partners that can be leveraged across the entire value chain. They should also work
on building out their own agent network as they gain local experience to drive direct sales,
collections and after sales support. Strategically expanding the distribution network through
effective partnerships and direct agents are beneficial across several stages in the value chain:
• Marketing, Sales, Distribution, Payments and Collections: Partnerships with
larger institutions can help drive sales in new regions and new markets. International Independents are also able to leverage on trusted brands and reach of existing local
companies such as microfinance institutions, FMCG and telecommunication companies.
The agent networks of these companies can be used across the value chain for
marketing, sales, distribution and collections
• After-Sales Support and Consumer Financing: While building out an agent network
will also improve the aforementioned parts of the value chain, it will most importantly
impact after-sales support. Training the agents and providing a local customer service
hotline will be crucial to develop the trust of the low-income consumers. Additionally,
International Independents can focus on affordability by providing consumer finance
through the sales from the direct agents or partnering with larger distributors that are
able to do so. They also can adopt PAYG technology, so there is a turn-key solution for
tracking all the company’s assets, in terms of credit, and loans so that distributors and
agent can focus on sales and After Sales Support
Research & Design
Sales & Distribution
Payments & Collections
Consumer Finance
After Sales Support
Production & Assembly
Marketing
Opportunity for internal improvement
Opportunity for partnership
Lower priority for current stage
Strategic focus areas
Currently a core strength (Note: for some areas that are already core strengths, companies can continue making strategic improvements)
45
Engaging USAID Power Africa: Similar to International Independents, NPSP can support
Pioneer Brands by providing general market research for local marketing, distribution and
payment and collections options. Companies can also engage Power Africa for relevant analytical
studies including capital maps and financing guides and can participate in Power Africa supported
workshops across various subjects to help them quickly access local knowledge. NPSP can also
help these players understand how to navigate the Nigerian procurement regulation as well as
identify mutually beneficial partnerships across the value chain.
3.6. Mini-grid developers can focus on site selection and productive loads while
using the appropriate technical standards and operational structure to
succeed in Nigeria
Although primarily applicable to SHS companies, some of the strategies outlined above also apply
to mini-grid developers. However, there are some approaches that do not apply to SHS
companies but are unique to mini-grids.
Project permitting and registration
Mini-grids are classified as either isolated or interconnected grids. Isolated mini-grids are not
connected to a distribution network. Permitted isolated mini-grids are limited to “unserved
areas” defined by NERC as not assigned to another developer or part of a DisCo’s expansion
plan. Interconnected mini-grids are connected to an existing distribution licensee’s network and
are limited to “underserved areas” defined as areas within a Distribution Licensee’s Network
with an existing but poorly supplied or non-functional distribution system.
Each mini-grid category has a separate set of regulations. Regulations for isolated mini-grids are
further determined by the size of the mini-grid.36
Table 3.7 Nigerian mini-grid regulations overview
Type Isolated Interconnected
Size <100kW 100kW-1MW <1MW
Location Unserved (freely
choose)
Unserved
(confirmed against
DisCo plans)
Underserved
Permitting/registration Register only Permit required
Permit &
Interconnection
agreement
Tariff setting methodology Freely set Required to use
MYTO
Retail tariff
required to use
MYTO
36 Technically, an isolated mini-grid below 100kW can be subject to the same regulation as a mini-grid above 100kW if the
developer chooses to apply for a permit rather than register the project.
46
NERC tariff approval Not required Required Required
Isolated mini-grid developers can avoid the interconnection agreement costs and retail tariff
requirements by ensuring that total systems remain below 1MW.
Technical standards
Interconnected and isolated permitted mini-grids are bound to follow the Grid Code, the
Distribution Code and the Health and Safety Standards. Registered mini-grids are recommended,
but not required, to follow the Technical Guidelines provided in the NERC Mini-Grid Regulations.
Table 3.8 Nigerian mini-grid technical standards and classification
Type Isolated Interconnected
Size <100kW 100kW-1MW <1MW
Location Unserved (freely
choose)
Unserved (confirmed against
DisCo plans)
Underserved
Permitting/registration Register only Permit required
Permit &
Interconnection
agreement
Tariff setting methodology Freely set Required to use
MYTO
Retail tariff
required to use
MYTO
NERC tariff approval Not required Required Required
Technical Standard Guidelines Recommended to
follow Required to follow Required to follow
Grid arrival compensation None available
Choose between
(a) convert to
interconnected;
and (b) sell assets
NA
Mini-grid developers can ensure technical requirements are followed to avoid future costs that
may be associated with introduction of policy that changes guidelines into legally mandated
regulations.
47
Similarly, isolated mini-grids with production <100kW can follow Technical Standard Guidelines
to anticipate these guidelines becoming requirements.
Site selection:
Site selection can follow a regional approach, identifying regions with many high potential sites.
Installing and operating multiple projects in the same area reduces the overall Capex cost (scale
in procurement and logistics) and operating costs.
Mini-grid developers can reduce overall project costs by relying on government and donor
resources to fund feasibility studies for mini-grid site selection. Developer Rensource has used
this approach under the Nigerian Rural Electrification Agency’s Energizing Economies Initiative.
Productive loads, income generating industries:
The presence of income generating industry in an area is a strong indicator of ability to pay for electricity services. Rural communities operating markets, working in mining or other extractive,
cash crop farming, or fishing industries (near lakes or rivers) tend to hold high potential.
Ownership structures:
A ‘developer as a servicer’ model has proved to be most successful in mini-grid projects across
Sub-Saharan Africa – an ownership structure that can create incentive alignment for the
developer acting as a servicer can increase the likelihood of project success. Potential ownership
structures include providing minority ownership or a profit/revenue share to the developer.
This document primarily focuses on off-grid strategies other than those for mini-
grid developers; however, there are a number of resources with valuable
information for mini-grid developers considering market entry or expansion in
Nigeria, including:
o NiRER-RMI, Mini-Grid Investment Report – Scaling the Nigerian Market, 2018
o REA, Nigeria Mini-Grid Investment Brief, 2017
o ESMAP, Mini-Grids in Nigeria – A Case Study of a Promising Market, 2017
o BOI-UNDP, Solar Energy Programme – Market study, 2012
48
4. OFF-GRID COMPANIES CAN ENGAGE INVESTORS,
INTERNATIONAL DONORS, OTHER MARKET ENABLERS, AND
THE GOVERNMENT OF NIGERIA TO TAP INTO THE NIGERIAN
OFF-GRID MARKET
Apart from the companies themselves, the five categories below represent the major sets of
stakeholders for the off-grid energy space in Nigeria – Investors, Donors, Other Market Enablers,
Government agencies, and Local Communities. These are by no means exhaustive but, rather,
provide a high-level overview of the major entities with whom off-grid companies in Nigeria likely
need to engage to successfully operate in this market. This section is intended to provide an
overview of the stakeholders and recommended strategies for effectively engaging these
stakeholders to solve challenges specific to the Nigerian off-grid sector.
This section leverages the NPSP Capital Map and Donor Gap Analysis, and some content of this section
appears as written in therein. More details on the capital landscape can be found in the NPSP Capital
Map and Donor Gap Analysis .
4.1. Investors Off-grid companies are typically financed through a combination of debt, equity, hybrid, credit
enhancements, and grants.
• Concessional debt funding sourced from public finance institutions and development
finance institutions (“DFIs”)
• Debt capital provided by lenders such as commercial banks, DFIs, and multilateral
institutions
• Equity investment sourced from private equity investors, impact investors, and asset
managers
• Investment protection and credit enhancements including political risk insurance,
credit enhancements, credit guarantees, and other insurance solutions
• Grant funding provided by foundations and DFIs
The capital map below shows a non-exhaustive list of investors that provide these financial
instruments at different ticket sizes.
49
Figure 4.1: Capital map visual shows investors active in the off-grid sector in Nigeria and the
existing funding gaps
Companies can focus on engaging investor types that are well suited to their current capabilities
and current needs. In general, companies can attract different categories of investors depending
on their current business life cycle stage. The figure below provides an overview of when specific
types of funding are most appropriate.
50
Figure 4.2: Capital needs change throughout business lifecycle stages37
Below is a summary of the investment criteria of the different investor types.
Table 4.1: Investment criteria of different investors in the off-grid investor database38
DFIs Foundations Impact
Investors
Commercial
Equity
Investors39
Market Rate
Lenders
Type of
Investee
Companies
with a social
focus and the
ability to
expand rapidly
Flexible in
preference but
more social
focus than
DFIs
Market leading
companies
with
demonstrated
impact on
society
Venture
capital
Investors
typically target
early stage
companies
while private
equity and
strategic
investors
typically target
established
companies
Established
companies
with
predictable
cashflow
37 Note that this image first appears in the NPSP Capital Map and Donor Gap Analysis 38 Note that this table first appears in the NPSP Capital Map and Donor Gap Analysis 39 Private equity investors, venture capital investors or strategic investors
51
Ticket Size US$ 5-25
million for
debt
investments,
grant funding
can be lower
than US$ 1
million
US$ 25K -
US$ 1 million
US$ 2-5
million
although there
are some
investors that
invest <US$
1million
US$ 3-5
million for
early stage
investors
US$ 10-40
million for late
stage investors
US$ 100K –
US$ 1 million
for most
commercial
banks
Other lenders
(private debt
investors,
infrastructure
funds) typically
advance loans
between US$
3-25 million
Return
Profile
Concessionary
– DFIs such as
the Bank of
Industry
charge 9%
interest rates
Flexible return
profiles that
can range from
commercial
rates to
concessionary
rates
Can span from
purely
commercial to
highly
concessionary
Debt returns
in the mid-high
teens and
equity returns
a few points
above this
Most private
equity
investors
target IRRs
north of 25%
(US$)
Commercial
banks charge
interest rates
in the 22-28%
range over 3
to 4 years.
Some
infrastructure
funds price the
loan at 400bps
above the
equivalent
tenor FGN
bond
Conditions Standard
liquidity and
leverage ratios
for debt
funding
Standard
liquidity and
leverage ratios
for debt
investments
Few
conditions for
equity
investments
Standard
liquidity and
leverage ratios
for debt
investments
Revenue and
EBITDA
targets depend
on the type of
investor –
large private
equity
investors
might prefer
EBITDA
positive
companies
Some
investors
require a seat
on the board
Some lenders
require credit
enhancements
(guarantees
etc.)
Banks require
collateral often
120% of loan
value
Lenders often
require 30%
equity
contribution
Whether a company is international or local and a company’s business life cycle maturity will
predict the best options for funding. For example, a Seed stage local company with high potential
for social impact in need of US$ 50,000 may be well suited to seeking funding from a foundation
but would not be ready to seek funding form Commercial Equity Investors. Local Start-Ups and
International Independents may be best positioned to seek financing from Market Rate Lenders,
Foundations, and Impact Investors while Emerging Household, and Energy Access Pioneers may
52
be able to access funding from DFIs and Commercial Equity Investors. International Independents
may also be positioned to court Venture Capital.
When planning fundraising strategies, companies can focus on courting the best-fit investor type
and seeking an appropriate amount depending on their current business life cycle stage. By taking
a phased approach, companies can demonstrate the ability to generate value for investors and
thus access more favorable arrangements at greater values over time. The table below provides
a general overview of the investor type and investment values available to Nigerian off-grid
companies at each stage of the business life cycle.
Table 4.2: Funding available by business life cycle stage for Nigerian off-grid companies40
Seed / Start-Up Growth / Expansion Maturity
DFIs Grants under US$ 1
million
(best positioned for lower
end: US$ 25,000 (or
lower) to US$ 250,000)
Grants under US$ 1 million
(positioned for full range depending on
impact potential)
US$ 5-25 million for debt
US$ 5-25 million for debt
Foundations Grants from US$
25,000 to US$ 1 million
(best positioned for lower
end)
Grants from US$ 25,000 to US$ 1
million
(positioned for full range depending on
impact potential)
Grants from US$ 25,000 to
US$ 1 million
(positioned for full range
depending on impact potential)
Impact
Investors
Typically not an ideal
funding fit
US$ 2-5 million
(some invest below US$ 1 million)
US$ 2-5 million
(some invest below US$ 1
million)
Commercial
Equity
Investors
Typically not an ideal
funding fit
US$ 3-5 million US$ 10-40 million
Market Rate
Lenders
US$ 50,000-US$
500,000 for most
commercial banks
Local Commercial
banks may also be
involved in Consumer
Financing Activities
High rates make commercial banks
less ideal for companies able to
obtain loans from cheaper sources,
but in some circumstances, local
commercial loans may be a good fit:
US$ 50,000-US$ 500,000 for most
commercial banks
Other lenders (private debt
investors, infrastructure funds)
typically advance loans between
US$ 3-25 million
Local Commercial banks may also
be involved in Consumer Financing
Activities
High rates make commercial
banks less ideal for
companies able to obtain
loans from cheaper sources
Other lenders (private debt
investors, infrastructure
funds) typically advance
loans between US$ 3-25
million
Local Commercial banks
may also be involved in
Consumer Financing
Activities
40 Note that this table first appears in the NPSP Capital Map and Donor Gap Analysis
53
Off-grid companies can use Technical Assistance (such as through USAID’s Power Africa Nigeria
program) to help navigate the process of raising capital of any kind. More information on the
Technical Assistance available through Power Africa Nigeria is provided in the section 4.2.1
below.
4.1.1. Seeking debt
While the demand for debt needed to support the growth of the sector up to 2020 is estimated
to be in the US$ 1-1.5 billion range,41 there are only a few capital providers expected to provide
funding to meet this demand. Local market rate lenders include the following:
Table 4.3: Commercial banks lending in off-grid sector in Nigeria42
Bank Lending activities
Sterling Bank has a dedicated renewable energy practice that is
responsible for lending to off-grid companies providing renewable
energy solutions to households and businesses.
Sterling Bank has signed memoranda of understanding with a number of
Nigerian solar companies including Blue Carmel, Elec3city, and
Consistent Energy, among others for an arrangement whereby
residential users can acquire a loan of approximately 800,000 Naira,
which is then paid to the solar companies. The customers then repay
the loan over a 12-month period.
Ecobank lends to off-grid companies but typically does not fund project
development costs and the bank’s loan tenors (<4 years) are much
shorter than what mini-grid companies would need.
Standard Charted Bank is active in the off-grid sector and has previously
extended a US$ 5 million debt facility to Azuri Technologies in support
of its efforts to expand into Nigeria.
Access Bank is part of the SUNREF program that is targeting to provide
US$ 74 million financing to renewable energy companies in Nigeria. The
bank typically lends to companies that have been in operation for more
than 3 years.
Rand Merchant Bank (RMB) has been active in solar financing in South
Africa and is now looking to finance off-grid companies in Nigeria. RMB
can provide local currency funding (Naira debt) but tends to focus on
larger ticket sizes (>US$ 10 million). Ticket sizes: US$ 50-150m (on-
grid); US$ 5m / N1.5bn (off-grid). Can go as low as US$ 3m (N1bn) for
off-grid for the right project.
41 Estimated figures from LHGP Asset Management 42 Note that this table first appears in the NPSP Capital Map and Donor Gap Analysis
54
Each commercial lender has its own eligibility requirements, but some of Ecobank’s requirements
for accessing credit in the off-grid energy sector include:43
• Must have been in business for minimum of 3 years
• Accounts must have been satisfactorily operated for at least 6 months (typically uses cash
flows to assess qualification)
• Developer needs to be banking with EcoBank
• Verifiable office or factory address
• No existing bad credit
• Must demonstrate profitability
• Realistic, non-speculative business proposal
• Demonstrate ownership of company
• Details on key management background
• Information on all existing loans, if any
• Demonstrated industry knowledge
• Information provided on technical support
• Must use products that have been approved by developers and installers with Winrock
International certifications
Companies may also be able to seek debt from donor funded investment vehicles
that seek to crowd in local capital. The African Development Bank (AfDB)-funded Lions
Head Off-Grid Energy Access Fund is such a vehicle that aims to crowd in local financial
institutions in Nigeria as co-investors.
Figure 4.3: Donor-funded investment vehicles such as the OGEF can increase local debt lending44
43 Sourced from CrossBoundary interview with EcoBank and Ecobank Renewable Energy Financing presentation. 44 Note that this figure first appears in the NPSP Capital Map and Donor Gap Analysis
55
While mini-grid companies generally need 10-15 year lending periods, SHS companies can benefit
from investment vehicles like the Off-Grid Energy Access Debt Fund for working capital and
inventory needs.
Companies can also help satisfy their financing needs by partnering with
microfinance banks to provide financing to off-grid customers. Examples of such
microfinance partnerships are included below.
Table 4.4: Microfinance banks active in the off-grid sector45
Microfinance bank Lending activities
• LAPO microfinance bank has received technical assistance support
from the IFC’s Lighting Nigeria Program in order to increase lending to
off-grid customers
• The bank has partnered with d.light to provide financing to customers
to acquire d.light’s solar powered lanterns. Under this partnership, the
bank provides a NGN 6,200, 3-month loan to customers that have a
savings account at the bank
• LAPO has also partnered with Greenlight planet to provide financing
to customers buying Greenlight SHS units
• Mayfair microfinance bank has partnered with Blue Ocean Nigeria
(BBOXX distributor) to provide financing to customers to acquire
BBOXX SHS units
• The bank also provides funding to customers through its Lightup Naija
Solar funding program Source: Interviews, desk research
While microfinance may be a good option for companies without other options for debt,
companies may face similar challenges with high interest rates charged as they face with
commercial banks. Some microfinance banks charge 2-3% monthly interest rates while others charge up to 5% monthly interest rates.46 These interest rates reflect not only the
perceived riskiness of the customer (and the sector) but also the high costs that microfinance
banks incur in administering loans to rural customers.
Companies looking for significant sums of debt financing (above US$ 3 million) can also
look to DFIs. DFIs have been one of the biggest investors in the sector globally. According to
GOGLA, DFIs have provided 25% of the total funding in the sector since 2012. While grants
were initially the primary mode of funding, debt has now grown to become the greatest
component, with some equity investments also seen in 2015 and 2016.47 However, DFIs are
typically hesitant to take equity in companies as they do not want to be seen as “picking winners”
or as using their position as government backed institutions to exercise operational control on
foreign companies.
45 Note that this table first appears in the NPSP Capital Map and Donor Gap Analysis 46 Interview with microfinance expert 47 2018 Off-grid solar market trends (GOGLA)
56
While DFIs provide significant amounts of debt to SHS companies with proven business models,
similar level of investment into mini-grids, especially at the project level, have not yet been
realized. One reason for this is that most mini-grids’ cashflows are not predictable for project
finance, and the ticket sizes are too small to justify the high up-front cost of structuring and due
diligence. This results in a funding gap for mini-grid projects below US$3 million as this ticket size
is considered too small to justify the high fixed costs of investment.48
The Bank of Industry (BOI) is one of the few DFIs in Nigeria that serve the lower
segment of the market by offering loans below US$ 3 million. The BOI Solar Energy
Fund launched in 2017 provides financing to end users (commercial and industrial
customers) as well as off-grid companies at concessionary rates. Funds can be accessed
directly from the BOI at a 9% interest rate or through commercial banks at an average interest
rate of 18%. Commercial banks typically receive the funds from the BOI at a 12%49 interest rate
and then add a 6% margin when lending to off-grid companies and consumers. The average ticket
sizes vary depending on the borrower (off-grid company vs consumer) and can range between
US$ 13,000 to US$ 1 million. Despite the benefits of the inexpensive funding that the fund
provides, there are a few challenges that off-grid companies face in accessing this funding:
• The maximum tenor of the facility is five years, which includes a moratorium period of 6-
12 months for new businesses. Mini-grid companies typically require long-dated debt and
longer moratorium periods as they construct their projects
• High collateral requirements and the need for off-grid companies to secure a bank
guarantee to access the funding reduces the number of companies that can access the
funding
• Commercial banks are required to pledge T-bills as collateral to access the facility50. This
negatively affects the bank’s liquidity ratios and therefore most of them are reluctant to
partner with the BOI to lend to off-grid companies and customers
4.1.2. Seeking equity
Equity investors in the off-grid sector can be grouped into four categories: venture capital
investors, impact investors, commercial private equity investors, and strategic investors.
Commercial private equity investors tend to target more mature companies seeking growth
capital while venture capital and impact investors tend to invest in early-stage companies. One of
the main distinctions between impact funds and venture capital funds is the targeted returns.
While impact funds target portfolios that can generate positive impact alongside a healthy return,
venture capital funds primarily focus on investments that can generate above market returns.
48 The Green Mini-Grid Market Development Program estimates that a project finance loan below US$ 20 million might be too low to cover the high upfront costs of investing 49 BOI lends to banks at is 9% plus 1% appraisal fee, 1% commitment fee, and 0.25% monitoring fee paid quarterly 50 Interview with commercial bank
“Given the high upfront costs of evaluating and structuring a transaction, it would not make sense for us to
execute investments below US$ 3 million.”
-Lagos-based infrastructure fund
57
Impact funds integrate Environmental, Social and Governance (ESG) principles into their
investment theses and look at impact measures such as reduction in carbon emissions, energy
access to rural communities, increased economic activity, and other factors.
Impact investors whose investments are required to meet both financial and social hurdles have
been the most active equity players in the off-grid sector in Nigeria. This is because unlike in East
Africa where large private equity investors have started investing in SHS companies with proven
business models, most of the companies operating in Nigeria (with the exception of a few, such
as Lumos) are still in their start-up phases. These companies are still refining their business
models, so impact investors and venture capital firms have been valuable partners in providing
seed financing.
If able to prove operational capacity and refinement of business models, companies focused on
underserved markets, such as rural and peri-urban lower income customers, may in particular benefit from impact investor funding. Companies in the Start-Up or Growth stage may be well
suited to investment from impact investors. Companies in their Expansion or Maturity stage may
also be good candidates for equity investments by impact investors, but at Expansion or Maturity
stage, they may also gain access to commercial equity investors.
The increased focus on investing in companies with proven business models has often meant that
very few early stage companies have been able to secure equity funding from private equity
investors. According to Acumen, 67 percent of equity investments—or US$ 518 million of US$
733 million total equity invested in the solar home system sub-sector since 2012—has been
invested in just four companies.51 Mini-grid developers have also struggled to attract equity
investors and although investments in the mini-grid sector are increasing, the amount of capital
invested is still 40X less than what is needed to help these companies scale.52
Figure 4.4: Concentration of investment in a few companies with proven business models (US$
Millions)53
Source: GOGLA database
51 Accelerating the role of patient capital (Acumen 2018) 52 Accelerating the role of patient capital (Acumen 2018) 53 Note that this figure first appears in the NPSP Capital Map and Donor Gap Analysis
58
Early stage equity investors play a crucial role in helping off-grid companies unlock additional
capital from other investors. For example, commercial banks often require mini-grid companies
to secure equity commitments from equity investors (equity or mezzanine financing) equivalent
to 30-40 percent of the project cost before lending to them.54 Gaining access to equity investors
can eventually open doors to debt funding.
4.1.3. Seeking grants
There are a variety of organizations that provide grant funding to early stage off-grid
companies in Nigeria. The main grant providers in the sector are DFIs (USTDA, USAID,
AECF, DFID, World Bank), sector focused foundations (UN Foundation, Carbon Trust, Shell
Foundation), and family foundations (Gates Foundation, Schmidt Family Foundation, Rockefeller
Foundation, and Heinrich Boll Foundation).
Grant funding is available for market assessments, feasibility studies, pilot projects, CAPEX subsidy, tariff subsidy, transaction support, and product R&D. Grants could
also be used to fund operations although they do not have the same signaling effects as equity so
do not effectively position companies for subsequent equity raises.55
Grant funding has proven itself useful for mini-grid projects which typically rely on grants and
subsidies for at least 30 percent of investment costs.56 These grants are mainly used for pilot
projects or early stage development costs but could also be used for other expenses. For
example, for a mini-grid project in Gbamu Gbamu (Ogun State), GIZ provided grant funding to
cover the distribution costs – which cover roughly half of the project expenses – while
commercial banks and other financial institutions covered the rest of the expenses.57
Grants can also have the added benefit of crowding in commercial capital into the off-grid sector.
For example, the Nigeria Electrification Program is expected to attract $410 million in private
investment and create a vibrant market for off-grid energy solutions.58 The World Bank program
will provide performance-based grants to off-grid companies whereby the off-grid companies are
required to raise funds from investors to execute their business plan. Companies that meet the
performance metrics set by the program (number of connections) will then receive a $350 rebate
per connection.
54 Accelerating the role of patient capital (Acumen) 55 Accelerating the role of patient capital (Acumen) 56 https://www.energy4impact.org/file/1818/download?token=j67HKZEy 57 https://www.greentechmedia.com/articles/read/nigeria-solar-powered-minigrids#gs.P7vA5p4 58 https://www.worldbank.org/en/news/feature/2018/07/10/the-race-for-universal-energy-access-speeds-up
59
Figure 4.5: The USADF provides grants to entrepreneurs in the off-grid energy sector59
Companies may also pursue grants tied to commercial capital raises. The World Bank’s Nigeria
Electrification Project, for example, will provide performance-based grants to off-grid companies
whereby the off-grid companies are required to raise funds from investors to execute their
business plan. Companies that meet the performance metrics set by the program (number of
connections) will then receive a US$ 350 rebate per connection.
59 USADF website.
United States African Development Foundation (USADF) Off-Grid
Energy Challenge
The USADF in partnership with USAID Power Africa, All-On, and General Electric
supports entrepreneurs with to “develop, scale-up, or extend the use of proven
technologies for off-grid energy.
Overview:
• Grants of up to US$100,000 available per entrepreneur
• Focused on solutions tied to productive use, such as agriculture production
and processing, off-farm business, and commercial enterprises
• Active in 9 countries including Ethiopia, Ghana, Kenya, Liberia, Nigeria,
Tanzania, Rwanda, Uganda, and Zambia
• Has funded over 75 entrepreneurs (13 of whom were in Nigeria) with a
total of US$ 7 million
Nigerian recipients to date include: Afe Babolola University, Ajima
Farms and General Enterprises Nigeria Limited, Arnergy Solar Limited,
Ginphed Nigeria Limited, GoSolar Africa Limited, GVE Project Limited,
Havenhill Synergy Limited, Kunak Community Healthcare Foundation,
Quintas Renewable Energy Solutions, Sky Resources, Sosai Renewable
Energies Companies Limited, Topstep Nigeria, TransAfrica Gas and Electric
60
Figure 4.6: The Nigeria Electrification Project will be an important source of grant funding for
off-grid companies60
Source: REA, World Bank
The Rural Electrification Fund (REF), GIZ, and Solar Nigeria have provided capital grants to mini-grid companies to develop pilot projects. GIZ provides grant funding to mini-grid
companies using the “split asset model” which is designed to de-risk the project from
the point of view of the project sponsor by funding assets that can easily be
appropriated. Under the split asset model, the grant from GIZ is used to build the distribution
grid whose ownership is then transferred to the state. The state then leases the distribution grid
to the mini-grid company, and in some instances might require a return on the capital leased.61
The mini-grid company then finances and owns the generation assets which are easily removable
in case of expropriation. According to the World Bank’s Mini-Grids in Nigeria report, all Green
Village Electricity (GVE) mini-grids use the split asset model.
The Rural Electrification Fund’s grants are intended to fund mini-grid projects in
rural areas that demonstrate a clear impact on rural development and would not be
financially viable without REF’s support. The grants cover up to 75% of the capital costs of
the projects and are awarded based on the number of planned connections and the quality of
electricity that the mini-grid company intends to provide to the community. The REF uses the
Sustainable Energy for All (SE4ALL) multi-tier framework for measuring energy access to
determine the amount of grant funding awarded to mini-grid companies. The table below shows
60 Note that this figure first appears in the NPSP Capital Map and Donor Gap Analysis 61 http://documents.worldbank.org/curated/en/352561512394263590/pdf/ESM-dNigeriaMiniGridsCaseStudyConfEd-PUBLIC.pdf
World Bank’s Nigeria Electrification Project
(NEP)
Overview:
• World Bank has contributed US$ 350 million to NEP, with US$ 150 allocated to
mini-grids, US$ 75 million to SHS, US$ 105 million for universities and hospitals, and
US$ 20 million for TA
• NEP will be implemented under a market based approach where private
firms are expected to develop mini-grids, with subsidies from REA
• US$ 15 million of the SHS funding will be allocated to provide “accelerator”
grants to high potential importer distributors and US$ 60 million will be allocated
to output-based grants
World Bank funded program that aims to provide a pipeline of potential local
investments and financial incentives to catalyze the Nigerian off grid
market, through the provision of detailed Market Data, Grant Funding and Technical
Assistance.
61
the parameters used by SE4ALL to determine the tiers which mini-grid projects fall into. The REF
then uses these tiers to determine the grant per connection for various mini-grid projects.
Table 4.5: REF grant award criteria
Attributes Tier 2 Tier 3 Tier 4 Tier 5
Daily capacity per customer (kWh) >0.2 >1 >2 >4
Duration of service per day (hours) >=4 >=8 >=16 >=23
Main grid compatibility - Yes Yes Yes
Grant per connection US$ 25 US$ 300 US$ 500 US$ 600 Source: REF Operational Guidelines 2017
Companies can learn more about the eligibility requirements for REF funding, latest REF news,
and contact information through the REF pages of the REA website.
Companies can also access grants from the DFID funded Solar Nigeria program to scale up
operations. In addition to providing grants to off-grid companies, the Program has worked
together with the IFC and local banks to develop financial packages to address the energy gap in
the country. According to reports from the Program, over 200,000 solar systems have been
acquired by consumers as a result of the grant funding it has provided.62
4.1.4. Other local investors
Other potential equity investors in the sector are high net worth individuals, strategic investors,
and other institutional investors.
• High net worth individuals with high risk tolerance can invest as angel
investors in early stage off-grid companies. Angel investors tend to have shorter
due diligence timelines compared to most commercial investors and thus are an attractive
source of funding for companies that need to raise money quickly. Some mini-grid
developers that focus on providing electricity to mini-grid clusters under the REA’s
Energizing Economies Initiative (EEI) have been able to raise funds from angel investors.
Companies can access angel investors through Nigerian angel groups such as The Lagos
Angel Network, Kairos Angels, or Rising Tide Africa – contact information is available
through each of their websites
62 https://www.adamsmithinternational.com/explore-our-work/west-africa/nigeria/building-the-market-for-solar-power-in-nigeria
62
Table 4.6: Rising Tide Africa is an all-women angel investor group in Nigeria63
• Strategic investors such as corporates operating in adjacent sectors can be
potential investors in off-grid companies. The recent acquisition of Fenix
International by Engie, the French electric utility company, is evidence that the sector has
started attracting strategic investors’ interest. Companies such as Total that have
expressed interest in the renewable energy sector could be potential investors in off-grid
companies in Nigeria. Total has an ambitious goal of increasing its renewable energy
production capacity to 10GW by 2023. Total already uses its service stations to offer a
range of solar lamps and cell phone chargers through its “Awango by Total” product line.64
The added advantage of strategic investors is that they also represent a potential exit
route in the future.
• Pension funds and insurance funds could be potential investors in the sector
but their investment activity in the sector is limited by their mandate and
regulations. These funds have a lower risk appetite and typically target assets whose
expected return is enough to meet their guarantees to pensioners/policy holders. For
example, data from the Nigeria Pension Commission on pension fund asset allocation
63 ARM Group Website. The Rising Tide Africa website. 64 Total Nigeria Services Stations website.
Angel Investor highlight: Rising Tide Africa
Rising Tide Africa is a group of women angel investors in Nigeria interested in early
stage investment opportunities, particularly technology-enabled companies.
Overview:
• Investments of US$ 50,000 to US$ 500,000
• Launched with ARM Securities Ltd. and ARM Trustees Ltd, subsidiaries of
the largest non-bank financial services institution in Nigeria
• Promotes investment literacy among women in Africa
• Benefits of membership include (as described on Rising Tide Africa website):
o Cross border portfolio benchmarking, strategy tips, and tools
o Professional deal leadership and certification and compensation
program
o Cumulative knowledge sharing tools actively educating investors both
in learning environment and “on the job”
o Deal and transaction platform with syndication vehicles for small
investment tickets
Companies can find more information about engaging Rising Tide Africa through
their website, risingtideafrica.com.
63
shows that approximately 63% of pension fund assets are invested in Federal Government
of Nigeria (FGN) bonds, 23% in equities and about 15% in private equity.65 Although
Nigeria reformed its pension administration system in 2017 to allow pension funds to
invest in infrastructure projects, the high risk perception and small check size continues
to deter pension funds from playing a big role in the space.
4.1.5. Challenges and strategies for companies to secure funding
The following is a non-exhaustive list of challenges faced by companies in Nigeria and potential
strategies companies can take to address these challenges.
1. Availability of the right type of capital
Off-grid companies have different capital requirements at different stages of the company life
cycle. For example, mini-grid developers focusing on rural areas would require a mix of grant and
long-tenor debt funding to execute their projects. Solar Home Systems companies, on the other
hand, typically need debt funding to finance their working capital needs.
NPSP has observed that funding available in the market often does not match the funding needs
of these companies. For example, while there is significant grant funding available to mini-grid
developers, debt funding is not only scarce but also the terms are unfavorable. Loan tenors from
local lenders are usually short (less than 4 years) and the interest rates for local currency funding
are in the 22%-28% range. The high cost of funds reduces the profitability and returns from off-
grid companies thus deterring potential investors from the sector.
Potential intervention:
• To overcome this challenge, companies can seek out commercial banks that have
received funds from DFIs specifically earmarked for off-grid energy on-
lending. As discussed above, DFIs such as the Bank of Industry (BOI) provide on-lending
facilities that local commercial banks can access to lend to the off-grid sector. Commercial
banks access the BOI’s Power and Intervention Fund (PAIF) facility at a 1% interest rate
and are expected to charge not more than 7% interest rate on the loans extended to off-
grid companies. Low interest rates are crucial for off-grid companies, especially at the
start up stage, as most companies are usually cash-flow negative at this stage and require
affordable financing as they work on their business model.
• Companies can also work with NPSP transaction advisors to identify the
company’s capital needs and to provide guidance on appropriate sources of
funding.
2. High transaction costs in accessing funding
While off-grid companies may have the technical expertise to implement off-grid energy solutions,
they face significant informational and financial costs when raising capital to expand their
65 Nigeria Pension Commission
64
businesses. Informational costs come into play where the off-grid company does not have
knowledge of the various capital providers or does not have ability to examine the various legal
and investment terms presented by investors, among other things. In most cases these companies
are also in their nascent stages and hence face high financial costs in hiring third party advisors to
assist in capital raises. Transaction advisory fees vary depending on the type of firm offering
support, the amount and type of capital (debt or equity) the company wants to raise, and other
considerations such as the presence of incentive or retainer fees. The ‘all-in’ advisory fees for
fundraising support can range between 3-6% of the transaction value, an amount that most startup
companies can barely afford.66
Potential intervention:
• Companies can reduce high transaction costs by accessing donor funded
technical assistance facilities that build the capacity of management or provide
more information on the different sources of capital. Additionally, companies can
access NPSP transaction advisors that have the financial expertise in structuring
investments and preparing investor materials (pitch decks, financial models etc.) can
provide guidance on how to develop these documents and support off-grid companies in
their fundraising process. Companies may also benefit from accessing the resources
mentioned in section 5 below.
3. Lack of market information
Off-grid companies operating in Nigeria lack of statistical data that they can use to make decisions
on which regions or segments of the population to target. Mini-grid developers, for example,
have cited the lack of a comprehensive database of key parameters that they need to make
investment decisions. Some of these parameters include: average income of the residents, income
level, location of population from the grid, type of businesses in the area or predominant
economic activity etc.
Potential intervention:
• Geospatial efforts by GIZ and REA map out areas in the country and provide
some of this information. Companies engage with NPSP Transaction Advisors
to navigate accessing and using these materials when planning site selection
or focus markets. While these efforts are currently in their early stages and more
interventions are needed to build a robust database that can be useful to off-grid
companies, much can be gained from the existing research. Companies may also consider
engaging with innovative geospatial platforms with localized data, such as Fraym, to answer
geographically dependent business questions.
66 Interview with investment expert
65
4. Foreign exchange risk
Each depreciation event increases the Naira value of debt service for any hard currency
denominated debt. There are a number of possible FX risk mitigation strategies available to mini-
grid developers. Each strategy has limitations.
Table 4.7 Strategies for overcoming FX risk in the Nigerian mini-grid sector
Strategy Description Limitations
Local
currency
borrowing
Debt sourced in local currency
will not be directly affected by
exchange rate movements,
eliminating direct FX risk
(developer will still be exposed to
indirect FX risk such as increased
maintenance costs from
component price inflation).
Local funding sources are at the early
stages of lending to mini-grid projects.
Any potential local debt tends to be at
high rates and low tenors. Foreign
funders are generally unable to offer
locally denominated debt unless through
a hedging mechanism with the cost borne
by the borrower.
Currency
hedging
Allows investors to lend to a
mini-grid developer in local
currency by combining a hard
currency loan with a currency
derivative that absorbs the FX
risk. The most common
instruments are a cross currency
swap (swaps hard currency
liability for local currency liability)
or a forward contract (fixes a
future hard currency liability in
local currency).
Hedging products for Sub Saharan African
currencies (excluding South Africa) tend
to have both limited availability and high
premiums (large difference between the
hedging price and the differential between
treasury rates of both countries). The
August 2018 NGN:US$ 3 year forward
rate offered by MFX was 14% per annum
while the 6-month treasury bill
differential was 10%, suggesting a 4%
premium on the forward contract.
Hedging products tend to require
minimum transaction sizes of ~US$ 2m
and typically have tenor limits significantly
below mini-grid funding requirements.
Maximizing
local
currency
procurement
of materials
and labor
By reducing the value of goods
and services procured in hard
currency, a mini-grid developer
can minimize anticipated hard
currency liabilities. This can
happen through two mechanisms:
(i) Sourcing components locally
and accessing local NGN
denominated bank financing or
supplier payment terms. Local
working capital financing will also mitigate FX risk.
Any source of local debt requires local
financial institutions to be willing to
extend loans to mini-grid developers at a
rate and tenor that allows project
viability. Sourcing key components locally
often has limitations, including limited
product selection, potential issues with
quality, and less competitive pricing.
66
(i) Reducing potential FX risk by
identifying local suppliers of key
maintenance and replacement
items.
4.2. International Donors The off-grid sector in Nigeria has witnessed significant donor activity in recent years that is
intended to increase funding or build capacity of different players operating in the sector. For
example, multilateral institutions such as the AfDB, DFID and World Bank have committed
funds to support the power sector through various windows such as grants, loans, guarantees,
and technical assistance. Industry advocacy groups such as AMDA and Nigeria Renewable
Energy Roundtable (NiRER) have also played a role in bringing together all the stakeholders
in the sector and facilitating discussions on strategies needed to achieve universal access to
power.
Figure 4.7: The World Bank, USAID, GIZ and DFID are some of the most active donors in
the Nigerian off-grid sector67
Source: REA
67 Note that this figure first appears in the NPSP Capital Map and Donor Gap Analysis
USAID:
Power Africa
Scaling Off-Grid
Energy (SOGE)
Grants, enabling
environment, investment
Power Africa
Transactions and
Reforms Program
(PATRP)
Transaction support
USTDA
USAID Development
Credit Authority
(DCA)
Guarantees
DFID
Power for All
Advocacy
Solar Nigeria
TA, finance,
government support
GIZ
Energy Platform
Technical training,
information
Nigeria Energy Support
Program (NESP)
Regulatory reform, TA, finance,
technical training
World
BankClimate Innovation
Center
Incubation, acceleration,
finance
Lighting Nigeria
Finance, supply chain,
markets
Solar Market
Development and
Finance Program
Finance
Nigeria Electrification
Project (NEP)
Finance
EU: Renewable Energy
Cooperation Program
(RECP)
Policy advice, finance, private
sector cooperation
UNDP: Bank of
Industry Access to
RE Project
Finance
Heinrich Boll
Foundation
Markets, information
CBN: SME
Facility
Finance
AFD: SUNREF
Finance, technical
assistance
Rockefeller
Foundation
Advocacy, market
acceleration
Shell
Foundation: All
On
Finance
Other
donors
REEEP
USADF
67
Services provided by donors that can be best used by off-grid companies include the following
Power Africa Toolbox categories:
• Transaction support to off-grid companies to enable them secure financing from
various investors
• Financing in the form of grants, debt, equity and investment protection instruments
• Capacity building/technical assistance to increase the ability of investors to execute
transactions and to help entrepreneurs grow their businesses
• Convening which involves organizing conferences or events for various industry
stakeholders and providing relevant market information to investors and off-grid
companies
The figure below shows a grouping of the most prominent donor programs into the Power Africa
Toolbox categories.
Table 4.8: Gap analysis of donor activities in the off-grid sector in Nigeria [Illustrative]68
Transaction
support
Financing Regulatory
reform
Capacity
building
Legal
assistance
Convening
USAID Power
Africa, NPSP
USAID
Development
Credit
Authority
(DCA),
Development
Innovation
Ventures
(DIV)
Power Africa,
NPSP
Power Africa,
NPSP
Power
Africa,
NPSP
Power Africa,
NPSP, SOGE
Department
for
International
Development
(DFID)
Solar Nigeria
Program
Solar Nigeria
Program,
Power for
All, Green
Mini-Grid
(GMG)
Market
Development
Program69
Solar Nigeria
Program,
Energy Africa,
Energy Africa
campaign,
Green Mini-
Grid (GMG)
Market
Development
Program
Energy Africa
campaign,
Green Mini-
Grid (GMG)
Market
Development
Program,
SOGE
68 Note that this table originally appears in the NPSP Capital Map and Donor Gap Analysis 69 GMG Market Development Program is a multi-donor program that is supported by the AfDB, USAID (through SEFA) and DFID
68
Transaction
support
Financing Regulatory
reform
Capacity
building
Legal
assistance
Convening
African
Development
Bank (AfDB)
Africa Legal
Support
Facility
(ALSF)
Off-Grid
Energy
Access Fund
(OGEF),
Facility for
Energy
Inclusion
(FEI),
Sustainable
Energy Fund
for Africa
(SEFA)
Green Mini-
Grid (GMG)
Market
Development
Program
Green Mini-
Grid (GMG)
Market
Development
Program
Africa
Legal
Support
Facility
(ALSF)
Green Mini-
Grid (GMG)
Market
Development
Program,
SOGE
French
Development
Agency (AFD)
SUNREF SUNREF
European
Union (EU)
ElectriFi Nigeria
Electricity
Support
Program
(NESP)
Nigeria
Electricity
Support
Program
(NESP)
Nigeria
Electricity
Support
Program
(NESP)
World Bank Global facility
on Mini-grids
of ESMAP,
Nigeria
Electrificatio
n Program
(NEP)
Global facility
on Mini-grids
by ESMAP
Global facility
on Mini-grids
by ESMAP,
Nigeria
Electrification
Program
(NEP), Climate
Innovation
Center
Global facility
on Mini-grids
by ESMAP,
Climate
Innovation
Center
International
Finance
Corporation
(IFC)
Solar Market
Development
and Finance
Program
Lighting
Nigeria
Solar Market
Development
and Finance
Program
Lighting
Nigeria, Solar
Market
Development
and Finance
Program
Shell
Foundation
Direct grants Nigeria Off-
grid Market
Acceleration
Program
(NOMAP)
NOMAP
Gates
Foundation
GSMA: Mobile
for Utility
Development
Program
GSMA: Mobile
for Utility
Development
Program
Heinrich Boll
Foundation
Direct grants Nigeria
Renewable
Energy
Roundtable
(NiRER)
Nigeria
Renewable
Energy
Roundtable
(NiRER)
69
Transaction
support
Financing Regulatory
reform
Capacity
building
Legal
assistance
Convening
Rockefeller
Foundation
Direct grants CrossBoundar
y Mini-grid
Innovation Lab
Sustainable
Energy for
Economic
Development
(SEED)
Below are some examples of support that these donor programs have provided to off-grid
companies and investors in Nigeria, which companies may consider accessing as they work
toward growth in the market.
Table 4.9 Examples of support from Donors to off-grid companies in Nigeria
Donor
Program
Funder Description Contact
Solar Nigeria DFID • Solar Nigeria works with solar companies, local
banks, and investors to develop the solar sector in
Nigeria
• Provided support to over 20 SHS companies
• Total Installed capacity in excess of 8MWs across all
projects supported
[email protected] +234 (0) 9 4623100
Green Mini-
Grid (GMG)
Market
Development
Program
AfDB • Focused on provided market intelligence, business
development support, policy and regulatory support,
quality assurance, and support in access to finance to
mini-grid developers in Nigeria
• Manages an online Help Desk with news and useful
resources for mini-grid developers
• Currently providing technical assistance to 15 mini-
grid developers in Nigeria
https://greenminigrid.se4all-africa.org/country/nige
ria
Nigerian
Energy
Support
Program
(NESP)
Funded by
the European
Union and
implemented
by GIZ
• Focused on policy reform, energy efficiency, rural
electrification, energy access, and capacity
development and training for mini-grid developers
• Developing a geospatial tool that will be used by
developers to identify locations that are best served
by SHS, mini-grids and grid extension
• Has provided technical and fundraising support to
mini-grid developers in five states in Nigeria
Nigeria
Electrification
Program
(NEP)
World Bank
ESMAP • The World Bank ESMAP program plans to provide a
US$ 350/connection rebate to mini-grid companies
g
Lighting
Nigeria
IFC • Lighting Nigeria provides technical assistance to
microfinance banks to help them structure loans to
end consumers in rural areas.
• Microfinance banks such as LAPO that have received
support from the IFC have lent approximately US$
2.4 million to the sector
70
Donor
Program
Funder Description Contact
Nigeria
Renewable
Energy
Roundtable
(NiRER)
• NiRER has a finance working group that deals with
issues relating to access to finance for off-grid
investors, companies and consumers
• One of the contributors to the 2018 Mini-grid
investment report
[email protected] (+234) 1-2952-849
(or via online contact form: https://nesgroup.org/contact/)
Nigeria Off-
Grid Market
Accelerator
Program
(NOMAP)
Shell
Foundation • Works with stakeholders in the sector to identify
market barriers that it can address
• NOMAP has mapped the major off-grid companies in
Nigeria
Scaling Off-
Grid Energy
(SOGE)
USAID, Shell
Foundation,
DFID, AfDB
• SOGE has catalyzed investment into the sector. For
every dollar SOGE partners commit, the private
sector invests over US$ 870
• SOGE operates in 18 countries in Sub-Saharan Africa
and has supported over 50 companies and market
enablers
g
SUNREF AFD • Program was launched in July 2018 and plans to
support private investments into the off-grid sector
by directly financing off-grid companies and building
capacity at local banks
Sustainable
Energy for
Economic
Development
(SEED)
Rockefeller
Foundation/
RMI
• Provides technical, policy, and financial advice; works
with government, development partners, and private
sector for implementation based on
recommendations
• Development an investment brief for the Rural
Electrification Agency that highlighted the off-grid
opportunity in Nigeria
• Quantified the market size of the SHS and Mini-grid
investment opportunity for the REA
Although not explicitly sources of funding, donor-funded technical assistance facilities and
incubation centers are critical resources for off-grid companies. Technical assistance facilities are
not only used to develop off-grid companies’ ability to execute but also used to build capacity
among investors in order to increase availability of funding in the sector.
Investment vehicles such as the AfDB-funded Off-Grid Energy Access Fund have a grant-funded
technical assistance facility that is used to offset the high transaction costs incurred in evaluating
off-grid companies. This TA facility can be used to cover legal and financial transaction structuring
costs thus enabling the fund to invest in smaller tickets that would on average not cover these
costs. Other TA facilities such as the AFD-funded SUNREF program are meant to increase financing in the sector by addressing the knowledge gap in financing renewable energy projects
among commercial banks. In addition to capacity building, the SUNREF program aims to provide
70 SOGE Year in Review 2018
71
~US$ 74 million financing to a minimum of ten renewable energy projects with a capacity of 1 to
5MW over a 2 to 3-year period.71
Incubators such as the Nigeria Climate Innovation Center (NCIC) and the Clean Technology
Hub serve as start-up ecosystems for entrepreneurs that are focused on innovations in clean
energy. These incubators provide management training to the entrepreneurs and research and
development support that is useful for scaling the innovations to a commercial stage of
development.
4.2.1. Engaging USAID’s Power Africa program
SHS companies and mini-grid developers raising capital from institutional investors for the first
time have engaged USAID’s Power Africa program to assist with a variety of investor readiness
activities, from reviews of investor pitch decks to input on financial models. Using the free
resources of Power Africa funded by USAID (such as investment advisors with substantial
experience in the off-grid energy finance space), SHS companies and mini-grid developers have
substantially improved their readiness for capital raises.
Any SHS company or mini-grid developer in need of support as they prepare for
fundraising (whether they need help creating a more polished product or want
critical perspectives on operational models), identify local partners, and seek to
understand the latest policies and regulations, can contact Power Africa Nigeria to
initiate a rapid support approval process.
In addition to Transaction Advisory, SHS companies and mini-grid developers can engage with
USAID’s Power Africa program when seeking local partnerships across their value chains, when
navigating regulatory and policy environments, when considering expansion into new geographies
or product areas, and when seeking access to market research (from customer insights to
broader demographic data). Power Africa can help companies access the best available
information and can inform their strategic approach to some of the greatest challenges expanding
in or entering the Nigerian market.
The type of services that the Power Africa program can offer to off-grid companies include:
Table 4.10 Power Africa services for off-grid companies
Type of Advisory
Service
Description
Opportunity
Validation • Review identified capital needs, uses, and ideal terms
Market Intelligence • Share general market research and advise on commercial feasibility
studies
• Support understanding of Nigerian procurement regulations
71 https://www.sunref.org/en/afd-supports-the-nigerian-banking-sector-with-sunref/
72
Fundraising
Support • Provide suggestions for investment teasers
• Advising on development of information memorandum
• Review capital landscape and advise on pros and cons of various funding
structures
• Advise on pros and cons of various equity or debt sources for direct
investment
Due Diligence • Assist project developer in preparing for or responding to investor’s due
diligence requests
Financial Analysis • Review and providing commentary on financial and tariff models and
providing recommendations on select financial analyses
• Advise on approaches and methodologies that can be used in valuation of
operating businesses or assets
• Advise on approaches and methodologies that can be used for financial
forecasts
Deal Structuring • Advise on approaches and methodologies for structuring transactions,
including selection of appropriate form of capital (equity, debt or hybrid)
and risk allocation
• Advise on the pros and cons of the integration of various credit
enhancements including loan guarantees, political risk insurance, and
grants (especially from USG partners)
• Advise on high level environmental, social, and governance issues
Deal Negotiation • Provide access to materials on commercial negotiation support to either
transaction counterparty in the negotiation of key transaction
documents, such as share purchase agreements, term sheets, and PPAs
• Provide support for equity and/or debt investments including review of
existing investor materials and introduction to key equity and/or debt
players
Expansion Support • Provide access to materials on customer demographics in new
geographies within Nigeria for companies interested in expanding their
operations
• Develop road maps for accessing high potential distributors
• Identify effective payment and collections methods through mapping and
analysis of Digital Financial Services (DFS) landscape in Nigeria catered to
a company’s specific target markets
Market Entry
Support • Share general market research – including market sizing by specific
customer segments, customer perceptions of existing services available,
various mobile payment options, etc. – to facilitate market entry,
including provision of customer demographic information for specific
customer segments
• Provide assistance identifying strategic partners for local distribution,
sales, payments, data collection and monitoring, after sales support, and
other key components of the value chain
Policy and
Regulatory Support • Advise on navigating the policy and regulatory landscape in Nigeria
• Provide access to materials on key policy and regulatory constraints and
any anticipated changes to these constraints in the near and medium term
73
Through donor programs like USAID NPSP, companies can place themselves at a
strategic advantage through superior strategies, access to better market
information, lowering the cost of transactions, and ensuring they are investor-ready
at little (or no) cost to themselves.
4.3. Other Market Enablers
Incubators such as the Nigeria Climate Innovation Center (NCIC) and the Clean Technology
Hub serve as start-up ecosystems for entrepreneurs that are focused on innovations in clean
energy. These incubators provide management training to the entrepreneurs and research and
development support that is useful for scaling the innovations to a commercial stage of
development.
Figure 4.8: Donor funded technical assistance facilities and incubators72
The Technical Assistance (TA) provided by market enablers is particularly
important in reducing the high initial costs faced by mini-grid developers. Below are
the different categories of technical assistance provided to mini-grid developers:
• Legal and structuring support: involves providing guidance on the appropriate
corporate structure and support in developing and reviewing key documents such as Lead
Contractor Agreements (LCA) and Operations and Maintenance (O&M) Framework
Agreements
• Site identification and development support: this can include providing geospatial
tools that enable developers to identify sites that are best served by mini-grids
• Transaction advisory support: often involves fundraising support where transaction
advisors work with mini-grid companies to identify potential sources of funding and
72 Note that this figure first appears in the NPSP Capital Map and Donor Gap Analysis
74
provide guidance on preparing investment materials such as pitch decks and financial
models
• Policy and regulatory support: involves identifying, addressing, and helping firms
navigate gaps in the policy and regulatory framework, specifically issues related to
import duties, tariffs, licensing and the arrival of the national grid73
Before raising capital, developers should consider the corporate structure that will fit their
business model. Both theoretical and practical considerations should be taken into account,
including the optimum allocation of risk and the legal and administrative costs of setting up more
complex structures. Choosing between a single corporate entity structure or a split Development
and Asset Company structure is likely the most straightforward option for mini-grid developers.
A split structure is likely to reduce the overall cost of capital by allocating risk more efficiently
but comes at a high legal and administrative costs. Analysis by the CrossBoundary mini-grid lab
shows that the cost of setting up an Asset company to purchase projects from a Development company (with completed PSA, OSA, and senior debt agreements) is ~US$ 294,000. Legal and
structuring support provided by market enablers can be used to offset some of these costs.
Figure 4.9: Approximated set-up and on-going costs of forming an AssetCo
Source: CrossBoundary analysis
Identifying and assessing sites for mini-grids involves determining the geographic suitability of a
location and analyzing economic activity of the selected location. To determine the geographic
73 Green Mini-Grids Market Development Program
75
suitability of a location, a mini-grid company will look at the distance to/from the main grid and
the population density of a location. The mini-grid company can use geospatial analysis tools to
identify densely populated areas (at least 400 people/km2) that are located at least 25 kilometers
away from the main grid.74 After identifying a site that meets these criteria, the companies then
look at indicators of economic activity to estimate the viability of customers at prospective sites.
Site identification and development costs are estimated to account for approximately 10% of the
total project development. Organizations such as the REA and GIZ provide site identification
support to mini-grid companies by providing resources such as the Nigerian Energy Database
(NED) that aggregate community data and grid data. This helps in reducing the barriers to entry
in the mini-grid space enabling mini-grid companies to locate commercially viable sites at a lower
cost.
Figure 4.10: Illustration of project development costs incurred by mini-grid developers
Source: Interview with developers
Identifying and assessing sites for mini-grids involves determining the geographic suitability of a
location and analyzing economic activity of the selected location. To determine the geographic
suitability of a location, a mini-grid company will look at the distance to/from the main grid and
the population density of a location. The mini-grid company will use geospatial analysis tools to
identify densely populated areas (at least 400 people/km2) that are located at least 25 kilometers
away from the main grid.75 After identifying a site that meets these criteria, the companies then
74 CrossBoundary mini-grid lab 75 CrossBoundary mini-grid lab
76
look at indicators of economic activity to estimate the viability of customers at prospective sites.
Site identification and development costs are estimated to account for approximately 10% of the
total project development. Organizations such as the REA and GIZ provide site identification
support to mini-grid companies by providing resources such as the Nigerian Energy Database
(NED) that aggregate community data and grid data. This helps in reducing the barriers to entry
in the mini-grid space enabling mini-grid companies to locate commercially viable sites at a lower
cost.
4.4. Nigerian Government The Rural Electrification Agency (REA) is the primary Nigerian government stakeholder in
the off-grid energy sector. The Government of Nigeria (GoN) has a direct interest in improving
energy access across the country and implements its energy access policies through the REA.
There are numerous areas for private companies and the GoN to work in partnership through
specific existing programs, such the REA’s four economic development and energy access
programs:76
Figure 4.11: Priority REA programmes in the off-grid energy sector in Nigeria77
In addition to these four strategic projects, the REA serves a number of other functions to
76 REA Strategy Presentation 77 REA Strategy Presentation
77
catalyze electrification across Nigeria. Its objectives include (as expressed on the REA official
website):78
• To develop a data driven off grid model for Nigeria that will become an exemplar for Sub
Saharan Africa;
• To promote the use of decentralised energy solutions to power households, communities
& businesses;
• To develop 10,000 mini-grids by 2023 which will provide power to 14% of the population;
• To provide reliable power supply for 250,000 SMEs;
• To provide uninterrupted power supply in Federal Universities and University Teaching
Hospitals;
• To deploy 5 million solar standalone systems for residential and SMEs by 2023;
• To supports the FGN’s climate change obligations under the Paris Agreement, with
respect to promoting renewable and reducing carbon emissions.
Off-grid companies may find opportunities to collaborate with the REA on specific
projects where their goals are aligned with the objectives above.
78 http://rea.gov.ng/themasterplan/
78
Finally, the REA is responsible for
implementation of the Nigerian
Electrification Project, a US$ 350m
World Bank facility to increase SHS
and mini-grids in Nigeria.
The REA takes on a number of
functions in service of the activities
above: it serves as a data collector
and distributor, a convener, and
project manager, and an advocate
to the GoN for off-grid policy and
legal matters. For example, when
the Nigerian Customs Service began enforcing import duties on
solar components in early 2018, the
REA was able to immediately
engage the GoN at the highest level
to advocate for the industry’s
interests.
Off-grid companies should
work in partnership with the
REA for major policy and legal
concerns relevant to the off-
grid sector at large.
Additionally, local and state
government’s often have data
on energy access levels, population density, and other relevant off-grid energy
variables. Off-grid companies can work with local and state governments to access
this data to make more informed decisions about where to expend resources on
feasibility studies.
4.5. Community
Community engagement is crucial for the success of off-grid developers since communities
centered around geography, religion and ethnic groups are the primary building blocks of the
Nigerian society. These communities usually have an informal but solid leadership structure.
Often times, it is necessary to get leadership buy-in leadership to help bring a rural community
to action. Community engagement is extremely valuable to ensure that communities participate
in decisions that affect them and meet their expectations and requirements. It can also strengthen
and enhance the relationship between communities and private sector developers and encourage
increased uptake of services.
Case study for Public Private Partnerships: Virtus, a Joint Venture Between Rensource a mini-grid developer in Nigeria and Solad, has worked in partnership with the REA under the Energizing Economies Initiative to develop 13 mini-grids servicing markets (and other economic clusters, such a fish farms) for the first phase of the Initiative. By working in partnership with the REA, Rensource gains a number of strategic benefits:
1. Virtus saves on the cost of conducting initial feasibility studies for sites by receiving the pre-evaluated sites directly from the REA.
2. Virtus is able to quickly escalate challenges related to public officials, such as delays in processing of approvals.
3. Virtus gains credibility for its projects in its fundraising process by being associated with the REA
4. Virtus gains access to proprietary REA data collected at REA’s expense.
Mini-grid developers can gain many of these same benefits through collaborating with the REA under the Energizing Economies Initiative on upcoming projects in the next phase.
79
Figure 4.12: Key actors for community engagement
Early involvement of community leaders and local representatives are important performance
drivers as they allow the developer and SHS companies to build customer interest, collect
feedback, and maintain satisfaction. Consistent community leader engagement and stakeholder
management is required to attain community support. Companies like CESEL have a robust
community engagement plan with appointed community liaison officer. Their strategy for
engagement includes sensitization of the local community to the idea of a solar mini-grid system
through town hall meetings and engagement with leaders and government officials as well as
households through the community liaison officers. The EEI projects carried out by Rensource in various market cluster has required the engagement of numerous market associations and
community leaders for approval and the construction of customer service shop to ensure greater
customer satisfaction as well as community sensitization campaigns. Developers and SHS
companies should seek to identify and engage key community leaders on various levels. Active
involvement, collaboration and empowerment can be particularly impactful for driving SHS sales.
Figure 4.13: Indicative levels of community engagement79
79 USAID. Guide to community engagement for Power Projects in Kenya (2018)
ACTORS IN COMMUNITY ENGAGEMENT
Community Members Civil Society Partners Community & Grassroots
Leadership
• Traditional Rulers including ‘Obas’
• Market Association Leaders
• Religious Leaders like Imams and Pastors
• Local Trade Unions including Market Women’s Associations
• Religious organizations including churches and mosques
• Community Life Project
• Action Aid
• Habitat Care
• Proactive Gender Initiative
• Rural Youth Initiative
80
5. OFF-GRID COMPANIES CAN ACCESS THE KEY RESOURCES
BELOW FOR ADDITIONAL INFORMATION AND INSIGHTS
5.1. General off-grid energy resources
The Power Africa Partners Toolbox is an aggregator of resources from the US government, 16
international development partners, and other strategic advisors. Tools available in the toolbox
are across six categories: Transaction assistance, finance, policy / regulatory design and reform,
capacity building, legal assistance, and informational resources.
Website: https://www.usaid.gov/powerafrica/toolbox
81
The REA’s Nigerian Energy Database provides data on energy infrastructure and populations /
communities across Nigeria through a user-friendly geospatial tool. Data areas include: potential
mini-grids, potential solar home systems, distribution infrastructure, water access data, mines
data, road network, poverty rates, water access data, health care center locations, school
locations, gas lines, transmission lines, and power plants.
Website: http://database.rea.gov.ng/
The Solar Future Nigeria conference, organized by international organize Solar Plaza, is an
annual conference that brings together the leaders in the Nigerian off-grid energy space.
Additionally, Solar Future Nigeria aggregates relevant articles and analyses throughout the year
on their articles and content page.
Website: https://nigeria.thesolarfuture.com/articles-content/
The Nigeria Electricity Hub is an online platform for Nigerian off-grid energy news, data and
research, insights, information on companies and products, and other relevant off-grid energy
information.
Website: https://www.nigeriaelectricityhub.com/
5.2. Solar Home System companies (and other standalone systems) specific
resources
GOGLA Bridge is a database that includes information about grants, awards, competitions, and
information on financing institutions and crowdfunding.
Website: https://www.gogla.org/gogla-bridge
5.3. Mini-grid specific resources
The Green Mini-grid Help Desk, a project of Sustainable Energy for All (SE4All), provides
resources for mini-grid developers in the areas of business set-up, site selection, legal and
compliance, business models, technical system design, community and stakeholder engagement,
financing, procurement, installation, commissioning, and operations and maintenance.