In my previous article , we looked at Top 8 solar energy based businesses that can be done in Nigeria. In this article, we will be looking at eight (8) major reasons for slow solar energy business penetration across the entire spectrum of the solar market covering Solar Home System (SHS), mini grids, off grid solutions and large scale utilities. Our focus will be the Nigerian market as a case study.
The Nigerian solar energy market potentials and experience are not far different from that of other major developing & under developed economies when we discuss “Solar Energy Business Penetration Challenges”.
Despite the great promises solar energy has to offer such as: reduced energy bills, reduction in personal carbon emissions, generation of cheap & free energy, and job creation. The solar energy market in Nigeria like every other solar market in the developing & under developed countries are faced with a slow rate of solar market penetrations.
In the last three years (3), Clean-tech is now one of the few well capitalized investment sectors in the country. A lot of investors are flowing into Nigeria with lots of cash investing in the clean tech business, capitalizing on this hot new market, however, there hopes are being dashed as getting new leads is often a difficult task, and closing them, even more so. The problem is further compounded by the fact that competition is becoming quite fierce between the big names in the industry and the local startups. All of these creates a puzzle
that solar energy companies doing business in Nigeria or plans to enter into the Nigerian market with the help of the government will need to re-engineer her business models and strategies so as to cash in.
Why are Nigerians not going Solar despite the opportunities it has to offer
- High up-front costs: An important constraint to the development of solar home systems (SHS) is high up-front costs. Solar energy companies will need to develop easy payment models that will be convenient for the customers to pay for this product such as daily or monthly micro-payments or a “pay as you go” technology.
- Another major barrier is lack of ‘trialability’a term fast gaining momentum amongst industry experts: Selling solar can be difficult because customers cannot try the product before buying. Unlike some other products where a potential customer can either test-drive, but in this case no test-driving, no 30-day money back guarantee and no free sample. The customer is forced to face an all-or-nothing proposition.
- Cultural and educational bias: In the rural communities where there is little access or no technology available, many simply follow traditional practice and continue to buy kerosene rather than buy products like Solar lanterns.
- Limitations on the grid:For grid tied investors, they will have to combat the fact that the current grid capacity of Nigeria cannot support a significant increase in generation and transmission.
- Installing many modules in a limited space:Rooftop space can be a big challenge for mini and off grid designs. Manufacturers of PV panels will need to come up with smaller sized panels in terms of dimensions that can offer a higher power yield.
- Lack of understanding of the solar financial numbers:Solar companies are not able to clearly demonstrate to customers how solar makes a financial sense. In my opinion, more and more people will turn to solar if companies are able to clearly demonstrate this to the customer.
- Unclear government feed-in tariffs:Currently, the Nigerian grid does not support residential sectors to generate their own solar electricity and then feed any excess back into the national grid thereby providing a valuable source of income. The government will need to provide adequate policies that will support feed-in tariffs both for the residential and commercial sector to generate their own solar electricity and then feed any excess back into the national grid thereby providing a valuable source of income.
- Lack of trust for solar technology:The market has been flooded with poor quality products that have affected consumer’s trust in solar technology, other small shops and local vendors have been selling cheap, but bad quality solar panels, as well as home systems and lanterns that are usually defunct within a year of purchase. This has caused general mistrust for the technology.
My submission however is, there are more opportunities for decentralized generations but, the industry will need to resolve some key challenges and re-engineer her strategies to adapt to new operational models. Solar mini-grids, off grid and other scaled solar projects will carry the promise to increase the rate of electrification in Nigeria.