Impact Investing: Nigeria, renewable energy and the journey thus far
It has been established that Nigeria is among the countries in Africa with the lowest electricity consumption rates per capita. According to the United Nations, Nigeria has a population of approximately 195 million people with a population growth rate of 2.6 per cent. The World Bank estimates Nigeria’s installed electricity generation capacity from both hydro and thermal sources at 12,522 Megawatts.
This implies a per capita electricity generation capacity of 64.22 Watts. This compares with South Africa that has a per capita electricity generation capacity of 839.29 Watts. South Africa’s population is projected at close to 56 million and the country has a power generation capacity of 47 thousand Megawatts.
Worse still, the electricity generation sources are operating at 55 per cent capacity utilisation as millions of Nigerians are left yearning daily for electricity to power their lives in various ways. Given that electricity is at the heart of almost all the economic activities in the country, this means that Nigeria’s output (GDP) growth will be curtailed.
Source: Nigerian Power Baseline 2015, World Bank, Ministry of Power
According to the Chairman of the Nigeria National Committee of the World Energy Council, planning experts estimate that the Nigerian economy needs to grow at close to 10 per cent per annum in order to sustain the population. Hence, the country’s electricity generation capacity must reach 30,000 MW by 2020, and 78,000 MW by 2030.
Given that impact investing aims to create measurable benefits in the community through investments in sustainable social projects, renewable energy is a vital area that Nigerian impact investing gladiators should channel their investment arsenal to.
Source: World Bank (2014), BRIU
As the Nigerian Electricity Regulation Commission targets to generate a minimum of 2,000MW of electricity from renewable sources in 2020, several impact investments have been made in the sector by different investors as described below.
Nigerian National Petroleum Corporation (NNPC): Renewable Energy Division (RED)
RED was established in 2005 to develop solar and other renewable energy sources as well as to pioneer and coordinate the Automotive Biofuels Industry development in Nigeria by engaging in commercial production of Biofuels, exploiting other renewable energy sources and earn carbon credits from Clean Development Mechanism (CDM) projects.
Rabiu Suleiman, Group General Manager of the Corporation’s Renewable Energy Division, said that the corporation has acquired 20,000 hectares of land in Benue State to establish a $400 million dollar project for the cultivation of sugarcane and other agro-products to generate ethanol, as a renewable energy source.
Rensource
Rensource, Nigeria’s fastest growing provider of off-grid power, raised $3.5 million from a syndicate of energy investors for investment in a clean energy project. The company, provides clean and reliable power to consumers, small businesses and industrial clients. It has a subscription-based Power-as-a-Service (PaaS) model that used solar-hybrid systems installed on the user’s premises, through which it delivers clean energy to consumers.It is anticipated that upon completion of the project, the 1.3MW of standalone solar system will generate clean and sustainable energy to over 12,000 SMEs.
All-On
All-On is an impact investing company that works with partners to increase access to commercial energy products and services for underserved and unserved markets in Nigeria. With a start-up capital of $3 million partnership with the U.S Africa Development Foundation (USDAF), All-On seeks both financial returns and social impact to provide or improve access-to-energy for millions of households and SMEs.
The company has provided a debt facility to Lumos Global BV to facilitate a quick roll-out of its Solar Home Systems (SHS) in the Niger Delta, and also provided a convertible debt facility to ColdHubs, another indigenous clean energy service provider, to enable it expand its solar-powered marketplace cold storage business to new markets in the same region.
Nigerian Solar Capital Partners (NSCP)
In September 2016, NSCP entered into a joint development agreement with Globeleq Advisors Limited and the ARM-Harith Infrastructure Fund to finance and co-develop a 100MW solar PV project in Bauchi State, Nigeria. The project has a signed 20-year Power Purchase Agreement (PPA) with the Nigerian Bulk Electricity Trading PLC.
NSCP chose to develop this project in northern Nigeria to bridge the region’s yawning power gap. Northern Nigeria has the largest power deficit and highest costs of electricity in the country.
Clean Technology Fund (CTF)
In 2010, the CTF Trust Fund Committee validated a $250 million Clean Technology Fund Investment Plan for Nigeria for various projects such as Bus Rapid Transit Lagos (LUTP2), bus-based mass transport support for Abuja, Kano and Lagos (NUTP), Financial Intermediation for clean energy/energy efficiency, Utility-scale solar PV (World Bank), Utility-scale Solar PV (AfDB). Also, some impact investments are carried out on hybrid energy projects.
AIIM and Helios
African Infrastructure Investment Managers (AIIM) and Helios Investment Partners have invested $30 million in StarSight Power Utility, a Nigeria-based energy company providing solar-diesel-battery hybrid and efficient cooling and lighting solutions to commercial and industrial clients. StarSight is currently planning to offer its services to a number of core clients in the financial services and energy sectors, focusing on a target pipeline of over 1,000 sites.
Prospective Impact Investment Areas in Nigeria
Nigeria presents the biggest and most attractive off-grid investment opportunity in Africa. With a population of 195 million people, GDP of $405 billion that continues to grow at close to 3 per cent each year, it is the largest economy in Sub-Saharan Africa. A significant amount of the country’s economy is already powered largely by small-scale generators (10–15 GW) and almost 50 per cent of the population have limited or no access to the national grid.
As a result, Nigerians and their businesses spend almost $14 billion annually on expensive, inefficient, polluting, poor quality electricity sources. Developing off-grid alternatives to complement the grid could create a $9.2 billion market opportunity each year for mini-grids and solar home systems, saving Nigerian homes and businesses up to $4.4billion every year.
Furthermore, there is large potential for scaling as 10,000 mini-grids of 100 kW each could be installed in the next 10 years to meet 30 per cent of anticipated demand. The combination of large revenue opportunity (USD $9.2 billion per year), a supportive government, and a dynamic entrepreneurial environment make Nigeria the ideal location for impact investing in renewable energy.