Sun King raises $80m for Nigeria off-grid solar

From the newsletter

Solar energy company Sun King has secured a naira-denominated loan equivalent to $80 million to support the expansion of off-grid solar in Nigeria. The IFC and Stanbic IBTC Bank jointly arranged the financing, with the IFC contributing $50 million. This financing will help low-income earners and small businesses gain access through a pay-as-you-go system.

• Nigeria has the largest population in Africa without access to electricity. Demand for affordable solar solutions is rapidly increasing, but most people cannot afford the upfront cost of a solar system.

• Even when financing is available, it can be expensive due to calculations that often factor in currency depreciation. Sun King's local currency financing will help reduce exposure to foreign exchange risks.

More details

• Sun King operates in over 40 countries in Africa with a network of more than 29,500 agents. It has sold over 27 million solar products, with solar home systems being its main offering. All of this is facilitated through pay-as-you-go systems with repayment periods ranging from 12 to 24 months. Repayments can be as low as $0.21 a day. There are also other options for weekly and monthly.

• The company earlier this month rolled out more than 25 television advertisements as it prepares for an expansion drive in Nigeria. There were also adverts in South Africa, Zambia, Malawi, and Cameroon, clearly indicating the company's expansion plans.

• The IFC financing package will include a $25 million senior concessional loan from the Canada-IFC Africa Renewable Energy Program, which helps spur private sector financing for climate change solutions. The government is also leading efforts through the Distributed Access through Renewable Energy Scale-up (DARES) program, which will help reduce costs for off-grid solar users through results-based subsidies, complementing this private-sector-led effort.

• Nigeria is part of the Mission 300 for Climate and Development initiative led by the World Bank and AfDB. The solar market is seeing increased investments from the private sector. Last month, energy company Arnergy raised $18 million to support its solar home systems through pay-as-you-go. Husk Power, focusing on mini-grids, received $5 million, and BBOXX was granted access to benefit from the $300 million fund supported by the World Bank under the Nigeria Electrification Project.

• Despite the many solar companies operating in Nigeria, financing remains a hindrance for many rural households who cannot afford it. Businesses also shy away from investing because high initial costs are prohibitive. This is mainly due to the structuring of financing facilities, which have always been denominated in foreign currency. With Nigeria and many other African countries facing currency volatility issues, these become expensive to repay and slow down progress.

• The Nigerian government is subsidising solar home systems with the aim of closing the affordability gap. However, the pace of government action is slow and needs private sector support. The current investment climate signals that things are changing, with the private sector leading the way. But they need more affordable loans to scale and achieve greater electrification success.

Our take

• Competition in the market, especially for the private sector, will push many companies to diversify and look for affordable financing options. Local currency financing is a welcome opportunity that will de-risk investments from foreign exchange fluctuations and spur more sales.

• This financing is a vote of confidence in Nigeria's economy and currency stability, especially after enduring a tumultuous period last year. This will catalyse more private sector investments.

• Nigeria needs to focus on streamlining its policy space and tightening oversight to ensure its subsidy program doesn't fail like previous programs in fuels, where massive corruption jeopardised the whole initiative to the suffering of consumers.