Solar gains momentum as Nigerians ditch the grid

From the newsletter

Nigerian consumers are struggling with rising grid tariffs and are turning to self-generation through solar. A recent study by the Nigerian Institute of Social and Economic Research found that firms now spend 82% of their monthly turnover on production costs, largely due to higher electricity tariffs, and residential consumers' monthly bills have doubled.

• Nigeria's solar demand has risen, resulting in more imports from China. The latest data from Ember shows it imported 1,063 MW in the past seven months, placing it ahead of Egypt and Morocco, which have been dominating the solar space.

• This rising demand has attracted several solar manufacturing companies to set up base and has even led the country to contemplate banning solar imports to capitalise on the demand and build domestic manufacturing capacity.

More details

• The findings by the Nigerian Institute of Social and Economic Research (NISER) further revealed that despite the recent tariff increase, there has been no improvement in service delivery. Customers in Band A households receive an average of just 10 hours of electricity daily, far below the 20-hour benchmark, while their monthly grid electricity expenditure has increased by 98%.

• For businesses, the situation is equally challenging. Grid electricity costs rose by 92% following the hike, with 68% of firms reporting the expenses as unaffordable. While older firms have shown more resilience, large-scale and high-input-cost firms are struggling the most. With energy costs already accounting for up to 40% of operational expenses in energy-intensive industries such as mining, the tariff hike could push costs even higher. To reduce the cost burden, firms are adopting self-generation from renewables, implementing energy management and efficiency measures. Last year, there were at least 63 MW of installed solar in the commercial and industrial sector.

• Households are also seeking alternatives. Some have turned to solar and energy-efficient appliances, but many cannot afford these options. Solar financing through pay-as-you-go remains limited, as most companies struggle to meet financing demand. Even where access is available, costs remain high because providers calculate revenues in local currency and pass the impact of currency depreciation on to customers to repay their foreign currency-denominated loans.

• Sun King, a solar home systems provider which operates directly in at least 11 African countries, recently secured an $80 million local currency debt facility in May to expand its pay-as-you-go solar energy services in Nigeria. This is expected to allow them to finance solar products at low interest rates as they avoid the foreign currency depreciation costs. The company also got $156 million in July for its expansion in Kenya.

• Our renewables funding project database has captured at least $3.8 billion in energy sector funding for Nigeria since the start of the year. Solar project funding alone accounts for more than 50%, with grid infrastructure funding also getting attention with recent pledges of $428 million from the Japanese government. It also secured $750 million in funding from the World Bank to support off-grid solar electrification efforts.

• With the passage of the Electricity Act 2023, commercial and industrial customers can now procure power directly from independent power producers (IPPs). While still early in its implementation, the law is expected to attract many large consumers to shift off-grid. This could help reduce pressure on the national grid, but it also poses a risk to the utility, which may lose its highest-paying customers, suffer revenue declines, and become trapped in a cycle of customer losses driven by poor service delivery.

Our take

• With grid tariffs rising and reliability falling, more households and businesses will continue shifting toward solar solutions. This trend could mirror Kenya's PAYG solar boom, but on a larger scale, given Nigeria's population.

• Nigeria’s solar demand presents an opportunity that the government should focus on exploring by attracting the private sector, which can partner with Chinese manufacturers. This will catalyse industrial growth and create jobs. However, implementing it requires strong policy and political will.

• Solar adoption will not stand alone. Expect to see growth in hybrid systems, solar plus batteries, and efficiency technologies as consumers seek to cut costs further. This will open up opportunities for energy service companies.