Solar Power Surges In Nigeria Thanks To Arnergy

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Over the past several decades, Nigeria has relinquished many of its precious natural resources — especially oil — to support the wealthy nations of the world. Whether it received fair value for those resources is a question whose answer likely depends on who is asking it.

Last month, US energy secretary Chris Wright met with several representatives of African nations, including Nigeria, to browbeat them into making new investments in coal-fired thermal generating stations. The one thing Wright overlooked is that Africa lacks a fully integrated electrical grid except in its larger cities. Many of its citizens who live in rural areas have never had access to electricity on a reliable and cost effective basis. Building an electrical grid to serve those areas would take a decade or more and when it was complete, the people it is intended to serve would likely to be unable to afford the cost.

But there is a solution. Many parts of Africa have never had a telephone system that depends on poles and wires. Instead, the cell phone allowed people in Africa to skip right over the analog phone network and go straight to digital communications. And what is the energy equivalent of the cell phone? The solar panel!

Demand for solar energy in Nigeria has soared in the last decade thanks to worsening grid reliability and rising fuel costs, according to TechCrunch. That demand has attracted interest from Arnergy, a clean tech startup whose mission is to provide clean, zero emission energy to customers all around the world. Arnergy raised $3 billion in a funding round last year and has just completed $15 million Series B extension, making the total of the funds it has raised $18 million.

One reason for the surge in demand is that in May, 2023, Nigeria ended all subsidies for fossil fuels. Although the country has abundant oil reserves, it has no oil refineries and so it needed to import diesel and gasoline at prices higher than its citizens could afford. To offset those high prices, the government provided generous subsidies to lower the cost to consumers.

Think about that for a minute. The oil companies ripped Nigerians off for decades, making enormous profits in the process, but jacked up the prices for gasoline and diesel so much that the government had to pay most of the cost of the refined products. When Nigeria’s new president, Bola Tinubu, took office in May of 2023, the first thing he did was scrap those subsidies. “The fuel subsidy is gone,” he declared during his 30-minute inauguration speech,

Since then, the price of gasoline has risen by 500%. When the subsidies were in place, gasoline-powered generators were the preferred source of electricity in many areas where the electrical grid was nonexistent or unreliable, but without them, they are much too expensive to be affordable for most of Nigeria’s citizens. That is where Arnergy comes in. “When we started the business, we used to position solar as a way to get uninterrupted power, not necessarily to save money. It wasn’t part of a commercial conversation,” founder and CEO Femi Adeyemo told TechCrunch. “Now it is, because we can clearly show customers how our systems save them monthly whether using petrol, diesel, or even the grid.”

Bringing Solar To Nigeria Since 2013

Adeyemo launched Arnergy in 2013 to provide solar systems to homes and businesses across sectors like hospitality, education, finance, agriculture, and healthcare. In 2019, the company raised $9 million in a Series A funding round led by Bill Gates’s Breakthrough Energy Ventures. The company has two primary solar programs — outright purchase and lease to own. While outright purchases accounted for about two-thirds of revenue in 2023, they accounted for just a quarter of sales last year. The lease to own option — in which customers pay fixed monthly fees for up to 10 years before owning their solar systems — has increased in popularity recently.

When the subsidies were in effect, long term leases cost more than running diesel or petrol generators. But with diesel prices soaring after those subsidies were canceled and after a new policy a year ago tripled the cost of electricity for some, the lease to own option became the most popular choice for customers. “Imagine paying ₦200,000 ($125) every month for power. With our product, that drops to ₦96,000 ($60). Over five years, it’s a no-brainer what you’ll save,” he said. Now many existing customers are doubling their solar capacity or going completely off-grid as a result. Arnergy has tripled the number of customers who lease since two years ago and expects its leasing business to increase five-fold this year.

Arnergy has deployed over 1,800 systems across 35 Nigerian states with a total of 9 MW of solar and 23 MWh of battery storage. It expects to use its new funding to install more than 12,000 systems by 2029. Expanding its business will require it to rethink its approach to sales, however. Since it started more than  a decade ago, it has handled sales in-house. Now, it is transitioning to a partnership driven model with business clients and physical retail outlets outside Lagos to reach more customers in Nigeria. It has also initiated talks with local banks and private lenders  who may be interested in supporting a new energy as a service (EaaS) business model, according to Adeyemo.

Clouds On The Horizon

Just as policy changes on fossil fuel subsidies provided a boost to Arnergy’s business in the past two years, other regulatory changes may constrain is expansion plans. Last month, the Nigerian government announced plans to ban solar panel imports as a way of boosting local manufacturing. The problem is, there are few solar panel manufacturers in the country which could supply companies like Arnergy if imported solar panels are no longer available. Adeyemo agrees with the goal, but not the approach. He warned that a premature ban could stall an industry that’s only just getting off the ground.

He believes Nigeria needs to create an environment with the right infrastructure, policy stability, and access to capital so that local factories can ramp up over the next three to five years. Only after that should the country start thinking about phasing out imports. “We’re advocates for local manufacturing. But let’s build capacity before shutting the door on imports. Otherwise, we risk doing more harm than good, both to the industry and to the millions of Nigerians who now rely on solar as their primary energy source,” he said.