nigeria power sector program

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.

ooshodi

Stamp

1

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.

2

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

3

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

4

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.

5

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

8

• 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.

10

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.

11

• 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.

12

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


administrative

• Delegation,

coordination


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


Energy Access

Pioneer Brands

International

Independents

Local

Start-Ups


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


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


• 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


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


Energy Access

Pioneer Brands

International

Independents

Local

Start-Ups


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



Consumer Finance

After Sales Support


Marketing


Opportunity for partnershipLower priority for current stage



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


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


• New partners

• Secured


• 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


Energy Access

Pioneer Brands

International

Independents

Local

Start-Ups


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


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



Consumer Finance

After Sales Support


Marketing

Opportunity for internal improvementOpportunity for partnership




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


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


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


Energy Access

Pioneer Brands

International

Independents

Local

Start-Ups


Ori

gin

Advance in

Business Life Cycle through Growth stage

42


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


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


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



Consumer Finance

After Sales Support


Marketing


Opportunity for partnership




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


• 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.


• 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


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


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

[email protected]

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

[email protected]

Nigeria

Electrification

Program

(NEP)

World Bank

ESMAP • The World Bank ESMAP program plans to provide a

US$ 350/connection rebate to mini-grid companies

[email protected]

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

[email protected]

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

[email protected]

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

[email protected]

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

[email protected]

[email protected]

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

[email protected]

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.

82

Website: https://greenminigrid.se4all-africa.org/

nigeria power sector program

Documents