Husk Power secures first local currency funding

From the newsletter

Mini-grid company Husk Power Systems has secured a ₦5 billion ($3.2 million) revolving debt facility with the United Capital Infrastructure Fund in Nigeria, marking the largest-ever naira-denominated debt deal in Africa’s community solar mini-grid sector. This makes it easier for Husk to repay credit without worrying about exchange rate swings.

• The mini-grid sector, once touted as the silver bullet to solve Africa’s rural electrification challenges, has experienced a funding slowdown, with business models proving profitable for only a few players, including Husk Power.

• Key challenges have included the lack of long-term capital and low demand in rural areas, which makes it difficult for operators to generate sufficient revenue. However, efforts to stimulate demand through the productive use of energy show promise for the sector’s growth.

More details

• The facility will be a revolving structure that allows Husk to draw down capital at least twice over the 10-year tenor, bringing the potential total to ₦10 billion ($6.4 million). Proceeds will initially finance Husk’s pipeline of standalone mini-grids in Nigeria, before expanding to interconnected mini-grids and commercial and industrial (C&I) solar projects. Husk is the first minigrid developer in Nigeria to access this local currency facility from UCIF.

• Off-grid solar and mini-grids have been designed to target rural communities far from the main grid as the most cost-effective solution for electrification. While this is true, reaching potential customers—most of whom lack reliable incomes and formal credit histories—has proven to be a daunting task. The electricity demand exists, but trusting that customers will consistently repay is a major gamble that companies in the sector continue to face. This forces developers to structure their financing models carefully, taking into account not only distribution costs but also customer acquisition, after-sales service, and default risks.

• Adding to these challenges is the nature of financing. Most of the funding directed to these companies has been in foreign currency. With many African currencies steadily losing value, repayment becomes more expensive, and these costs are often passed on to consumers, making electricity less affordable. To make matters worse, much of this financing has been short-term, as investors seek quick returns. This has put additional pressure on the sector, slowing down its ability to scale.

• There is some hope with the growing push for local currency funding. In May this year, Sunking secured an $80 million fully naira-denominated loan facility to scale access to off-grid solar energy in Nigeria. Husk’s facility is the first revolving local-currency structure dedicated to community mini-grids.

• Despite these challenges, the sector’s prospects are not dead. Husk Power became the first mini-grid company to achieve profitability in 2022. In addition, there is a growing push for energy adoption in the agricultural sector. At the recently concluded Africa Food Systems Forum in Dakar, leading institutions such as GEAPP, GOGLA, the IKEA Foundation, and others teamed up to form an Agri-Energy Coalition to drive energy use in agriculture. This could be the linchpin to unlock demand and propel rural mini-grids towards profitability.

• Husk Power has set an ambitious goal of deploying 1,000 mini-grids in Nigeria, and this funding could mark an important step in achieving that vision. Manoj Sinha, Husk’s CEO and Co-Founder, called the deal a turning point for the industry: “Access to affordable, long-term naira capital has long been a critical bottleneck to scaling private-sector mini-grids in Nigeria. This facility marks a new era and provides strong momentum for Husk’s Africa Sunshot initiative, under which we aim to build, own, and operate 1,000 mini-grids in Nigeria.”

Our take

• The timing aligns with Africa’s renewed focus on energy for agriculture. If Husk can position mini-grids as the backbone of rural agribusiness, it could reshape investor perceptions and make the sector bankable at scale.

• Being the first local currency deal in the mini-grid sector, if successful, it could inspire similar facilities in countries like the DRC and Ethiopia, which have some of the largest rural populations without access to electricity. 

• Pension funds and other domestic institutional investors could take the opportunity to channel part of their long-term capital into the sector to diversify their portfolios.