Solar Firms Seek Funds as Demand Booms in Power-Deficit Nigeria

(Bloomberg) -- Solar providers in Nigeria are seeking to raise additional funds to expand as a surge in diesel prices to run generators prompts companies to switch to the renewable power source.

Solar energy providers are seeing increasing installations this year after diesel prices surged 181% in the West African country. Most companies in the continent’s biggest economy rely on private generators to run everything from factories to offices as the national grid is unable to supply enough electricity.

Demand for solar has “skyrocketed,” Prince Ojeabulu, chief operating officer for Lagos-based Rensource Energy, said in an interview. The company has installed over 6 megawatts of solar power so far this year, six times as much as it did in 2021. 

Power outages for more than 12 hours a day means companies in Nigeria have to fend for themselves. Poor maintenance and insufficient investment in the transmission network have resulted in only about a third of the country’s installed capacity being dispatched by the grid daily -- a fraction of what’s needed in a nation of more than 200 million people.

Rival Daystar Power Energy Solutions has seen similar installed capacity growth. It has set up over 5 megawatts so far this year from 1 megawatt last year. But chief executive officer Jasper Graf von Hardenberg said there was still plenty of room to grow due to higher diesel prices, which costs between 200 to 250 naira per kilowatt hour, compared with about 70 naira per kwh for solar.

“Hundreds of megawatts of solar can be installed in West Africa and the broader African region per year, without making a serious dent in demand,” said Hardenberg, whose company has installed solar power for some of Nigeria’s biggest companies including Nigerian Bottling Co. and Access Bank Plc.

Diesel prices have surged since Russia invaded Ukraine in February. Nigerian manufacturers warned in March that higher diesel costs will lead to output cuts and job losses as power accounts for as much as 40% of factories’ costs in the country. Companies across 10 manufacturing sectors spent 48 billion naira on diesel in 2021, according to the Manufacturers Association in Nigeria. That is likely to more than double this year. 

“Businesses, from the mid-level up to the multinationals are actively seeking how to manage their cost of energy, which is a huge part of their operating cost,” Ojeabulu said.  

Fresh Fundraising

Rensource plans to raise Series B funding to expand across the continent by early 2023, in a round larger than the $20 million it raised in 2020, Ojeabulu said. Daystar is in discussion with financiers to raise as much as $100 million by next year after it obtained $20 million from the World Bank’s International Finance Corp. in 2021, Hardenberg said.

Read: US Recession Fears Set to Close Funding Tap for African Startups

Both chief executives said they are attracting interest despite a broader venture capital slowdown.

“We have never had this much interest in providing finance,” Hardenberg said. 

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