Renewable energy technologies have grown from a niche industry to an essential solution for the provision of electricity to millions of unconnected people across the globe. This growth has been led by advances in technology, the need for cleaner energy generation sources, and the ease of deployment. Solar photovoltaic panels increasingly power mini-grids (localised distribution electricity systems) and provide electricity access to previously unconnected communities.
These developments are not without challenges. Advancement in technology has led to a decrease in the price of solar components globally, but for consumers, in Nigeria, the cost of solar solutions remains relatively high.
Financing Challenges Faced by Developers and Consumers
Despite the recent surge in the adoption of off-grid solar solutions across the country, the lack of institutional financing for developments, especially for newer industry players, has stalled growth. Financing has largely been via grants, convertible debts, and equity from largely foreign investors. These options are often not available for smaller and newer developers. They do not have access to the collateral needed or can afford commercial lenders’ high–interest rates. These smaller players also often do not qualify for grants and equity debts as they are excluded from the investment portfolio of foreign financiers. This creates high entry barriers for new developers and raises the prices of solar solutions for consumers.
Off-grid solutions are often quite expensive as they demand upfront costs that very few consumers can afford. With no financing scheme or payment plans for consumers, many are forced to buy fossil fuel generators to meet their energy demands.
Solving the financing challenge requires sector-wide cooperation. The government needs to implement policies that reduce the cost of solar components. Tax reliefs, import duties, and subsidies are ways the government can help reduce the cost of obtaining components for consumers.
Financial institutions can adopt flexible models to finance not only developers but also consumers’ renewable energy purchases. Developers can adopt innovative deployment models with tailored consumer payment plans to ensure affordability. In communities with low energy demands, end-use demand stimulation via low-interest loans for appliances and necessary equipment is necessary for economic development and increased capacity utilisation of mini-grids.
Financing is critical to the development of the renewable energy sector. This will, in turn, accelerate electrification across the country and aid in economic development.