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Small Businesses Embrace Off-Grid Electricity

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Frustrated with the erratic power supply from the national grid and the strain caused by the use of generators every day, small business owners are shifting towards solar-powered energy systems, among others, ’FEMI ASU writes

A growing number of micro, small and medium enterprises across Nigeria are turning away from public power supply, in the latest sign that the nation’s electricity crisis has not abated.

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Without electricity, Mr Yusuf Funmilayo’s business is as good as dead. Over the past seven years of plying his trade in Lagos as a barber at Paul Odulaja Crescent, Ifako, Gbagada, he has struggled to keep his business alive — initially by relying mostly on petrol-powered generators.

Over the years, the lack of reliable power from the grid has continued to limit small businesses’ hours of operation and productivity, forcing them to rely on expensive, polluting alternative sources.

“I had two small generators, and spent at least N3,000 on petrol every week,” Funmilayo told our correspondent in his shop on December 14.

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But about three years ago, he was forced to look for an alternative to generators amid frustration over the scarcity of petrol in the country at that time and poor power supply from the national grid.

The nation experienced severe shortages of petrol in the most of the first half of 2016, with the Federal Government increasing the pump price of the product to N145 per litre from N87 on May 11 that year.

Irked by the daily struggle at filling stations to get petrol, Funmilayo had to buy a solar power system, comprising two panels, a battery, and an inverter.

He bought the system, which powers six bulbs, three clippers, a television and a fan, for N170, 000 but he was allowed to pay in three instalments.

“I was afraid to put down the money. But since I got the solar solution, there has been no problem using it. It brought a big relief to me. Some other barbers in my zone are also using solar power now,” he added.

After retiring from public service, Mr Alex Ogunnigbo decided to set up a poultry farm, named Mercy Drops Farm, in Iganke, a village located to the North-East of Lagos State and about 7km away from Agbowa on the Ikorodu-Itoikin Road.

The 62-year-old needs electricity for lighting and pumping of water from a borehole at the farm, which has a capacity to house 2,000 poultry birds.

He said because the power from the grid was erratic and, sometimes, of low-quality, “we were using generator every day, and we spent an average of N7,000 per week on petrol. The chickens, just like human beings, also drink water daily, and so we use the generator to pump water from our borehole.”

But the business, which he started in March 2017, took a beating as electricity cost was making a dent in his finances.

“By the time we took into cognisance the amount we were spending on fuelling, compared to what we realised from the sale of eggs, it was no longer cost-effective,” Ogunnigbo said.

At a point, the two generators he was using packed up “due to wear and tear and the bad handling by the generator repairer,” and he had to hurriedly buy a new generator.

Three months ago, Ogunnigbo stumbled on a television programme where solar power solutions were being discussed, and he decided to install a solar system on the farm.

“Right now, the farm is properly lit, and we have a regular supply of water. We can pump water any time as long as the solar power is on. But we back it up with a generator. Our energy cost has reduced. This is better because it gives me rest of mind.”

The sexagenarian, who currently has two people in his employ, told our correspondent that he was “not mindful of what he makes out of the poultry business.”

“My own satisfaction is that I am helping the economy by employing people,” he added.

In Niger State, Mr Abdullahi Hassan, who runs a rice milling business in Bisanti, Katcha Local Government, is one of the subscribers being supplied electricity from a solar mini-grid.

Funmilayo with his solar battery and inverter

“I have been in this business for eight years, and I was using diesel engine before the solar power was introduced. I was spending a lot on diesel because it is very costly here. I was using at least 25 litres of diesel in a week,” he told our correspondent.

He said since the inauguration of the solar project in October 2015 in the town, which is not connected to the national grid, there has been no blackout.

“The solar power makes milling faster than the diesel engine; it has helped to improve businesses in the community,” Hassan added.

The 37.8 kW solar mini-grid was constructed by GVE Projects Limited in collaboration with the Bank of Industry, United Nations Development Programme, and the Institute of Electrical Electronics Engineers.

Businesses spending N5tn on generators yearly

Nigeria, with a population of over 180 million, has been described as the biggest and most attractive off-grid opportunity in Africa, and one of the best locations in the world for mini-grids and solar home systems.

Nigerians and their businesses spend almost $14bn (N5tn) annually on an inefficient generation that is expensive (N140/kWh or more), of poor quality, noisy, and polluting, the Rural Electricity Agency said in a recent report, titled ‘The Off-grid Opportunity in Nigeria’.

Unable to continue to bear the cost of fuelling generators, Palm Laureate Academy, a nursery and primary school in Woji, Port Harcourt, Rivers State, had to resort to solar power about four years ago.

The husband of the owner, Mr Ajibola Somoye, told our correspondent that they usually put on their generator around 7 a.m till 4 p.m, adding, “It was consuming a lot of diesel and we use fans, computers, sound system, and other things. Then power from the grid was very abysmal.”

The school later got an inverter, which was being charged by the generator, but that only slightly reduced its energy cost.

“That was why we went for solar power, and the cost reduced by more than 70 per cent,” he added, saying “initially we were buying diesel of N50, 000 per month. Later, when we bought the inverter, we were spending between N40,000 to N45,000. But with the solar energy, we may not even use diesel at all in a month.”

In Odua International Model Plaza, Ojota, Lagos, 10 business owners have had to subscribe to power from a solar company in a bid to reduce the cost of fuelling generators.

The amount of electricity that can be supplied to them is pegged at 300 watts each as the provider currently has a 7.5kVA solar installation in place.

When our correspondent visited the plaza, it was gathered that there was no power supply from the grid to the plaza for most of 2016 following the issue of accumulated bills from Ikeja Electric Plc.

Mr Saheed Adelakun, an account and administration officer at a travel agency, Libragold Travels & Tours Limited, said the use of the solar power was preferable to generators.

He said, “There is a reduction in what we spend on power, and we have been using solar power for more than two years. But there is a limit to what we use in the office; we are not able to use our air-conditioners and we can’t use more than five laptops. We use our generator occasionally when we want to print documents.”

Shop owners jettison grid power for IPP

Five years after the nation’s power sector was privatised, available electricity generation continues to hover around 3,500 megawatts and 4,500MW.

Total power generation stood at 4,130MW as of 6.00 am on December 18, 2018, according to data obtained from the Ministry of Power, Works and Housing on Wednesday.

In July, this year, business owners under the aegis of Shop Owners Association in Sura Shopping Complex, Lagos Island, stormed the premises of the Eko Electricity Distribution Company in Marina to protest against poor power supply.

The aggrieved business owners, led by their Chairman, Mrs Bunmi Ajayi, said they had resolved to source electricity from an Independent Power Producer.

The Nigerian Electricity Regulatory Commission in 2016 introduced a regulation for mini-grids to accelerate electrification in areas without any existing distribution system and areas with an existing but poorly electrified or non-functional distribution system.

Mini-grid means any electricity supply system with its own power generation capacity, supplying electricity to more than one customer and which can operate in isolation from or be connected to a distribution licencee’s network.

Within the regulations, the term mini-grid is used for any isolated or interconnected mini-grid generating between zero kilowatts and one megawatt of generation capacity.

In October, an independent power plant, built by a private sector developer, Solad Power Holdings, under the Federal Government’s Energising Economies Initiative, was inaugurated at Sura Shopping Complex.

The initiative aims to support the rapid deployment of off-grid electricity solutions to micro, small and medium enterprises within economic clusters (such as markets, shopping complexes and agricultural/industrial clusters) through private sector developers.

The IPP takes excess capacity power from Lagos Island IPP and supplies electricity to Sura Shopping Complex.

Ajayi told our correspondent that many shop owners had had to leave the complex as they were grappling with blackout and the issue of estimated billing.

She said her business, Lusanno Apparels Limited, spent N555,000 in January on energy cost, including the cost of diesel, maintenance of generators, and power from the grid.

“When we resumed in January this year, the first thing we did was to work on our backup generator because we had two generators; we had to cough up N200,000 to do that,” she added.

Ajayi said the advent of the IPP had drastically reduced the firm’s energy cost.

She said “The impact is great. In the past, we would service our generators, change parts, buy diesel or petrol and ensure that they are safe where they were kept because the tendency of diesel being stolen was high. Now, we don’t have such headache anymore, and people have started disposing of their generators too.

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“Before now, there was noise pollution in the complex because all of us were using our individual generators.”

Tapping the huge off-grid power market

Many investors, both local and foreign, are stepping up to tap the Nigerian off-grid electricity market despite the challenges in that space.

According to the REA, developing off-grid alternatives to complement the grid creates a $9.2bn/year (N3.2tn/year) market opportunity for mini-grids and solar home systems that will save $4.4bn/year (N1.5tn/year) for Nigerian homes and businesses.

“Getting off-grid solutions to scale and commercial viability in Nigeria will unlock an enormous market opportunity in Sub-Saharan Africa across 350 million people in countries with smaller demand and/or less-robust economies,” it said.

The Chief Executive Officer, GVE Projects, Mr Ifeanyi Orajaka, noted that the Nigerian off-grid power market had been burgeoning for a long while, with generators of all shapes, capacities and sizes being used by businesses and households.

“The advent and increasing popularity of distributed renewable energy solutions and business models offer the opportunity for businesses and households to bridge the supply gap created by our public power supply without breaking the bank or facing the adverse effects of pollution and climate change,” he said in an emailed response to questions from our correspondent.

He said distributed renewable energy solutions and business models were causing positive disruptions for businesses, hence the increasing adoption of the technologies.

Orajaka said, “Businesses that hitherto spent about 60 per cent of their cost structure on petrol or diesel generators now have the opportunity of reducing this cost by as much as a factor of one-third, thereby increasing their profitability and productivity as well as ensuring enough disposable income for expansion.”

He disclosed that his company recently deployed a 100kW PV solar hybrid system for one of the offices of the Federal Inland Revenue Service in Lagos, adding, “This is saving them 500 litres of diesel daily as opposed to the earlier 2,000 litres daily consumption of diesel. These savings would amount to about N1bn over the life-cycle of the solar system.”

The Minister for Power, Works and Housing, Mr Babatunde Fashola, in a video posted on the ministry’s official Twitter handle on May 14, said, “My advice to all of the power developers is to focus more on the small solutions that are quickly deployable. We have issued a mini-grid regulation that allows anybody to deploy less than 1 MW and below without a license.”

Challenges facing the solar energy industry

Industry stakeholders have expressed worries over the influx of substandard solar energy products into the country as well as lack of adequate funding, saying these were among the major factors limiting the introduction and adoption of off-grid solar power solutions.

Orajaka said, “There is a lot of substandard equipment finding their way into the country with the attendant negative impact on the perception of the technologies. Equally, some of the players who are active in the space need some level of competency enhancement to avoid instances of failed projects.

“As an advisory board member of the Renewable Energy Society of Nigeria and interfacing with clients on a regular basis, one of the challenges being faced by REAN members as well as clients is the limited availability of friendly local currency financing, which will enable clients to acquire the systems on a flexible repayment basis without having to bother about the seemingly high upfront capital requirement of the systems.”

According to him, there is an urgent need for the Central Bank of Nigeria to create a revolving intervention fund for the sector as obtainable in other countries.

He said, “It is equally imperative to grant import duty waivers/concessions for DRE equipment at least in the short term to enhance its affordability.”

The Chief Operating Officer, AA&O Solutions Limited, Mr Gbenga Oderinde, said the solar power market in Nigeria was expanding, adding that the number of businesses being supplied power from the firm’s solar installation in Odua International Model Complex rose from three initially to 10.

He said, “There are quite a number of offices that have approached us but the problem is the cost. What the customer is going to pay at the initial stage is not going to be up to the kind of investment that we will need to make; it is a lot of money.

“Today, we are importing solar panels, batteries, and inverters. Our government needs to make these things affordable for people.”

Oderinde said removing the import duty on the items or creating a conducive environment for foreign investors to invest and start production of the items would make solar power systems affordable for more businesses and households, thus helping to reduce the pressure on the national grid.

“The issue of quality is still a problem in the industry; we have a lot of quacks. The level of quackery in the industry is leaving a bad impression in the minds of people who are interested in solar power. A major problem that we have is the quality of batteries in the market,” he added.

The Managing Director, ASB Valiant Company Limited, Mr Ayodele Ikumapayi, described what he called the off-grid phenomenon as a good omen for the power sector.

“The challenge that continues to be there is the issue of liquidity,” he said, adding, “As I speak to you now, we are developing an off-grid solution for Afe Babalola University, Ado Ekiti, Ekiti State.

“We think that the government can look at a bit of a concession in the pricing of the gas because it is very critical to whatever solutions we are putting in place. The price of natural gas in Nigeria is expensive.”

The Director-General, Lagos Chamber of Commerce and Industry, Mr Muda Yusuf, believes that one way to curb the importation of substandard solar equipment is to bring down the costs.

He said, “If, for instance, there is no tariff at all on solar panels and batteries, it will be cheaper for those who are importing to even import quality batteries and panels. But with heavy tariffs, people will be looking for cheap things to bring in.

“There’s no sector that doesn’t have quacks but if you create an environment for very decent, big credible players to come in, they will come in and competition will chase out all these quacks.”

Yusuf added that the relevant regulatory agencies should perform their functions, saying, “We have the Standards Organisation of Nigeria and others that are supposed to ensure that things that are substandard don’t come into the country.”

More businesses keen to go off-grid

Our correspondent gathered that many small businesses across the country are exploring various options to reduce their reliance on the national grid and generators.

The country has a total 37.06 million MSMEs (micro – 36.99 million; small – 68,168 and medium 4,670), according to a 2014 report by the Small and Medium Enterprises Development Agency of Nigeria and the National Bureau of Statistics.

With the recent rally in global crude oil prices, the price of diesel, which is used by many businesses to power generators, has risen to a high of N255 per litre.

The Vice-President, Industries, Association of Small Business Owners of Nigeria, Mr Kayode Okanrende, said the association had received some proposals for off-grid power, particularly solar.

“We have had some discussions but nothing yet has materialised. Our members are obviously interested,” he said, adding, “We are trying to work out a tripartite arrangement between us, banks and the supplier such that a bank finances upfront and then we work out the payment back overtime.

“The other one is such that we pay as we use. We are looking at the possibility of some solar finance company that will be supplying and we pay as we use. It is hopeful that something concrete will come up.”

Okanrende lamented that the government was not giving the real sector of the economy adequate attention.

“We need infrastructure support that will make us perform optimally. Most of our members are using between three kilowatts and 10kW, and that is what solar energy will conveniently supply,” he added.

The LCCI DG said the adoption of other alternative sources of electricity such as solar had been slow “because the initial cost is very high for many businesses.”

He said, “What I think the government should do is to provide incentives to bring down the costs of those alternative sources of energy provision.

“So, if the government removes the tariff completely, both on solar battery and solar panel, that will bring down the costs and make it more accessible to many SMEs and even households. It will bring a lot of relief to many SMEs because clearly, this national grid approach has not worked for us.”

According to Muda, the off-grid approach is a good way to quickly decentralise the generation and distribution of electricity.

He said, “You can have a small rural community, an estate or an industrial park, where investors can set up, say, 1MW plant, and supply households and businesses. It is better for the environment and cheaper than everybody just putting generators here and there.

“A lot of initiatives are already taking place along that line but the initiatives are happening in spite of government and the obstacles. So, we can have a lot more if the government removes all the obstacles.”

The Managing Director, Tellco Europe Nigeria, Mr Victor Fodeke, described the growth of MSMEs as critical to economic development in Nigeria.

He said the firm was established as a vehicle to providing off-grid solar power business solutions to MSMEs in Nigeria and solar homes systems to households.

In April this year, during the inauguration of off-grid solar power solutions for MSMEs, the firm said its parent company, TellCo Europe Switzerland, was already arranging funding support for 1,000,000 units of off-grid solar business solution for barbers in Nigeria.

It said a Memorandum of Agreement was signed with the National Association of Barbers and Salon Employers in Abuja, in 2016.

“Energy poverty is the bane of Africa’s development,” Fodeke told our correspondent, adding, “We have no excuse to have a power outage in Nigeria because the gas we are flaring in Niger Delta can power the whole of West Africa.”

He also stressed the need to maximise renewable energy resources, including hydro, wind, geothermal and biomass, to bridge the huge electricity deficit in the country.

Last month, Fashola, said the Federal Government was committed to diversifying the nation’s energy mix through renewable energy.

“Let me be clear and unequivocal by saying upfront that our commitment as a nation and government to pursue renewable and low carbon energy at low cost is clear, firm and unshaken. But this is not all. It is a commitment driven by necessity, contract, and policy.”

The minister said the government had matched its intent with actions such as the signing of 14 solar power purchase agreement with 14 developers with the potential to deliver over 1,000 megawatts of solar power.

Source: The Punch

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