#1Africa Clean Energy Catalysing Africa's Solar Markets Tt TETRA TECH International Development Ukaid from the British people January 2021 Stand-Alone Off-Grid Solar NIGERIA teri WORLD GOGLA SOLAR SISTER The Energy and Resources Institute RESOURCES INSTITUTE OPEN CAPITAL ADVISORS#2Africa Clean Energy Catalysing Africa's Solar Markets Tt TETRA TECH International Development CONTENTS 1.0 INTRODUCTION Nigeria OGS Market Overview Study Objective, Scope and Methodology 2.0 KEY FINDINGS / INSIGHT Distribution Channels Consumer Product Preferences Quality Standards Financing After-Sales Services Gender And Social Inclusion 3.0 RECOMMENDATIONS 4.0 SUMMARY OF STATE-BY-STATE INSIGHTS Ukaid from the British people#3Africa Clean Energy Catalysing Africa's Solar Markets Nigeria OGS Opportunity Tt TETRA TECH International Development Ukaid from the British people New connections by 2030 On-grid Mini-grids Stand-alone systems Transmission lines (>69 kV) -Existing ---Planned By 77 Million are unelectrified. 2030, the national grid will be unable to reach all Nigerians. Source: International Energy Agency-Nigeria Energy Outlook 0 4 The government plans to achieve 100% electrification by 2040, with 5% via stand-alone solar (SAS). The SAS sector has witnessed significant growth- 324,000 SAS units sold in 2019, up from negligible sales five years earlier. $ The OGS market opportunity is estimated at USD 9.2 billion per year,#4Africa Clean Energy Catalysing Africa's Solar Markets Tt TETRA TECH International Development Introduction Objective and Methodology Objective This research provides industry stakeholders with an insightful and up to date overview on the development of the SAS market with specific consideration for if, and how, communities have gained access. Methodology Quantitative and qualitative data collection in rural, peri-urban, and urban areas across 10 states – Oyo, Ekiti, Abia, Ebonyi, Edo, Plateau, Cross River, Kogi, Bauchi, and Kano Quantitative Census of all trade outlets within mapped out areas, followed by 'deep dives' of sampled SAS-dealing outlets, specialised technician shops, and consumers (households and MSMEs). Qualitative In-depth interviews with SAS traders, solar companies, MFIS, local cooperatives, NGOs, and government. Ukaid from the British people 0 1 2 Q1 1st Qtr 58% 02#5Africa Clean Energy Catalysing Africa's Solar Markets Tt TETRA TECH International Development Introduction Objective and Methodology SAS Products Evaluated Solar Lanterns: Single-piece solar lantern with an integrated solar panel or connected solar panel. Typically with capacity of 10W or less. Solar Home System: A complete integrated unit including a solar panel, multiple lighting points, control unit, and associated DC appliances. Typically, between 10W - 350W. Solar Panels: A solar panel that is independently sourced and coupled with other components such as batteries, charge controllers, inverters, and wiring into a solar power solution. Capacity varies with design. Ukaid from the British people#6Africa Clean Energy Catalysing Africa's Solar Markets Tt TETRA TECH International Development Key Findings SAS Distribution Channels Trade Vs Non-trade 8....8 Trade channels - trader shops, electronic stores, and general stores that stock solar products - and non-trade channels - solar companies, SAS brand representatives/agents, last mile distributors, alternative channels such as MFIs - are largely parallel markets. Just 13.6% of potential trade outlets for SAS products are actually stocking SAS, pointing to an 86.4% opportunity to expand the SAS market. Trade channels seem to be the main source of SAS distribution, however non-trade channels are increasing penetration particularly through agent networks. Solar lanterns have higher sales in trade channels than SHS and panels. The SHS market remains largely untapped. Ukaid from the British people#7Africa Clean Energy Catalysing Africa's Solar Markets Tt TETRA TECH International Development Key Findings SAS Distribution Channels Product Penetration VoVo High SAS penetration tends to correlate with low grid connection rates, but not always. SAS use is higher in peri-urban areas. (72%) than rural areas (22%) by both households and MSMEs despite more demand in the latter. Imbalanced access means the rural poor pay more to access SAS products and after-sales services. 27% of households use SAS products. Nearly a third of them also have generators, and others use kerosene lamps, candles, or firewood for lighting. Solar is playing a backup role for households. Consumer Preference 66% of consumers surveyed have multiple uses of SAS mainly phone charging, lighting, and powering television and radio. Affordability, safety, trust, availability, and quality drive consumer product choice. Consumers rely on trader recommendations as well. Trader's choice of SAS products to stock are driven by customer preference, profit margin, and supplier recommendation. Ukaid from the British people#8Africa Clean Energy Catalysing Africa's Solar Markets Tt TETRA TECH International Development Key Findings Product Characteristics Product Penetration Most traders believe there is moderate to high presence of SAS product counterfeits, mainly in urban areas. Ukaid from the British people Less than 50% of traders can identify a quality product, with 44% of traders having no knowledge of any solar product quality standards. Traders judge quality by assessing certain product features including the availability of a warranty, or performance. Consumers are largely unable to identify a quality product. Those that did judged a product's quality product by the presence of a warranty. Quality and pricing vary widely presenting a confusing market for customers. Major price discrepancies for what appears to be the same product point to the prevalence of counterfeits. Lack of quality verification can either mean a product is poor quality or has not (yet) been tested. The popularity of some non-quality verified brands may warrant the need for quality testing.#9Africa Clean Energy Catalysing Africa's Solar Markets Tt TETRA TECH International Development Key Findings Financing the SAS Trade Supply Financing Financing within the trade supply chain is available at low levels. Just 17% of traders have received supply credit and only 4% have secured any form of financing - mainly from MFIs and commercial banks. Most traders are not aware of financial institutions that offer financing. Loan amounts vary between 50,000 - 1,000,000 Naira (GBP 87 -1,757) with short repayment periods. Traders tend to use their land title deed or product stock as collateral. Consumer Financing B Ukaid from the British people SAS sales are almost exclusively in cash, not credit, with the full cost paid upfront in most cases. Where credit or consumer finance is available, repayment periods vary dependent on the source - If credit from traders, typically 1 month. If from MFIs, typically 6, 9, or 12-month period with average monthly interest of 3.2% plus a 10% processing fee. In instances of default, traders cited loss of income as the primary reason. Other reasons include competing priorities (37%), poor product performance (24%), and interest rate (16%). PAYG is gaining traction for consumer financing of SHS products.#10Africa Clean Energy Catalysing Africa's Solar Markets Tt TETRA TECH International Development Key Findings Financing the SAS Trade After-Sale Service | Technical Support / Repairs After-sales service for SAS is low which could potentially be impacting the perception of their value. Consumers rely on independent technicians for installation and repairs. Most technicians that offer solar services are self-taught or have learned through apprenticeship. There are few specialised solar technicians. E-Waste | E-Waste G Few consumers have an e-waste disposal plan for their end-of-life products - pointing to a possible glut of e- waste. Nearly half of all traders have experienced faulty products. Disposal plans include return to supplier, sale as scrap, or disposal as general waste. Ukaid from the British people#11Africa Clean Energy Catalysing Africa's Solar Markets Tt TETRA TECH International Development Key Findings Gender and Social Inclusion Ukaid from the British people SAS products are not reaching the most vulnerable – the rural poor, women and persons with disabilities (PWDs) - at scale. It remains a largely middle-class product with higher rates of usage among the youth, showing nascent opportunity for PAYG. Both the trade and consumer side of the SAS market are male-dominated. Women and PWDs constitute just 30% of SAS consumers. In the trade, women account for only 4% of SAS traders and 20% of trade employees surveyed. PWDs are severely underrepresented. There is preference in giving credit to male consumers (22%) versus female (5%) consumers by traders.#12Africa Clean Energy Catalysing Africa's Solar Markets TE TETRA TECH πt International Development Ukaid from the British people General Recommendations Government: Collaborate with both trade and non-trade businesses to reach rural areas, Provide end user subsidies or tax waivers to incentivise quality SAS products particularly in rural areas. Develop localised policies and strategies that promote SAS electrification. Enforce quality standards for solar products at the point of import and in the market. Public awareness and education on electrification through SAS and its socio-economic benefits. X Improve SAS affordability through, Allocate subsidies and fiscal privileges for SAS as with the grid and fossil-fuel sectors including import tariff waivers. Improve PAYG and alternative consumer finance models, and scale Payment Service Banks which benefit SAS. Provide soft low-interest loans to traders and end users for SAS. Facilitate workforce development particularly in the trade, through, Allocate subsidies and fiscal privileges for SAS as with the grid and fossil-fuel sectors including import tariff waivers. Improve PAYG and alternative consumer finance models, and scale Payment Service Banks which benefit SAS. Provide soft low-interest loans to traders and end users for SAS.#13Ukaid from the British people Africa Clean Energy Catalysing Africa's Solar Markets General Recommendations Private Sector 6d TE TETRA TECH International Development There is substantial untapped market opportunity for SAS companies to distribute through mainstream trade channels as these offer an under-utilised, high-potential opportunity for the private sector coupled with latent demand in rural areas. Exploring opportunities with trade channels can increase SAS delivery, and presence of quality products in the trade channels. The industry association, the Renewable Energy Association of Nigeria (REAN), can facilitate engagements with trade associations across the country. Market development organisations and geospatial data providers can provide granular trade data to help solar companies identify potential expansion opportunities. Donor partners and multilateral finance institutions should design results-based financing (RBF) or other grant funding tools that specifically incentivises development of trade relationships alongside targeted technical assistance programmes to improve awareness of quality or investor readiness support.#14Africa Clean Energy Catalysing Africa's Solar Markets Stakeholder Action Tt TETRA TECH International Development Ukaid from the British people The following are areas for action and support, and the actors who could lead such efforts, to build the SAS market and improve the value and experience of solar for vulnerable populations: 1 A multi-faceted effort to boost the prevalence and awareness of quality products: Technical Support/ Repairs Area Action Enforce quality standards at points of import and the retail chain Quality standards Capacity building Consumer awareness GESI Expand quality testing to popular non-LG QV products to access quality and potentially certify them for the market Training and guidance to traders alongside product demonstration to build capacity on identifying quality, financing, consumer education and providing after-sales service Provide ongoing vocational training as well as free remote modules, possibly through e-learning or other media, to disseminate brand-agnostic guidance Consumer awareness campaigns to sensitise on the benefits of SAS products including identifying quality products, financing options, productive uses, e-waste management, and other benefits Target women, youth and vulnerable groups to sensitise on SAS products, encourage utilisation, and highlight empowerment opportunities Led by Standards Organisation of Nigeria; Nigeria Customs Service Standards Organisation of Nigeria Standards Organisation of Nigeria Standards Organisation of Nigeria, Vocational training centres, Industry Association; Donor/ Development Partners Donor/Development partners; Rural Electrification Agency; Federal and state government MDAs on gender and social inclusion Secondary Support Rural Electrification Agency; Industry association VeraSol; Donor / Development partners VeraSol, development partners, industry association Development partners, industry association, NGOs VeraSol; Rural Electrification Agency; Consumer Protection Council Industry Association; relevant NGOs#15Africa Clean Energy Catalysing Africa's Solar Markets Stakeholder Action Tt TETRA TECH International Development Ukaid from the British people 2 Recognition of the important role of both trade and non-trade distribution channels in reaching the last mile / under-served populations, and the various pros and cons of each vis-à-vis consumer trust, financing, and after-sales services: Area Led by Secondary Support Retail Penetration Supply chain & consumer financing Policy & regulatory reform Action Facilitate partnerships between solar companies, brand owners, and traders (distributors and retailers) to increase delivery of SAS products particularly in rural communities, as well as the inflow of quality products in the trade channel. Build out non-trade distribution options - such as MFIS, cooperatives and social groups - that have closer access to rural communities. They can be explored as partners / representatives / franchises for solar companies and brand owners Facilitate partnerships between investors, financiers, and MFIS to increase supply finance for traders and consumer finance for consumers in order to scale delivery and improve affordability Provide incentives, such as results-based financing, end-user subsidy, or tax waivers, to encourage solar companies, brand owners, and traders expand to rural and more vulnerable areas Improve digital payment solutions such as PAYG, for SAS products, and alternative consumer financing models Donor/Development Industry association Partners Industry association Donor/Development Partners Industry association Rural Electrification Agency, relevant federal and state government MDAs Central Bank of Nigeria, Rural Electrification Agency VeraSol, development partners, industry association Donor/Development partners; Industry Association Donor/Development partners, Industry association#16Africa Clean Energy Catalysing Africa's Solar Markets Impact of Covid-19 On SAS Trade Tt TETRA TECH International Development Most traders (87%) were negatively impacted by the covid-19 pandemic between March and May 2020. Impact included the higher cost of stock (52%), business closure due to curfew and lockdowns (46%), reduced patronage (41%), reduced training hours (38%), and challenges in restocking (38%). Similarly on the consumer side, 72% of households and 58% of MSMEs reported a "slight to significantly worse" impact of covid-19 on energy costs and access to SAS products. Ukaid from the British people#17Ukaid from the British people Africa Clean Energy Catalysing Africa's Solar Markets Supply Penetration Tt TETRA TECH International Development Geographic Trends Opportunity to expand the SAS market across the country such as Oyo, Cross River., Bauchi and Plateau Zone State Trade outlets counted Solar penetration Grid Population estimate Oyo 2,973 5.7% 67% 7,840,864 SW Kano 17% Ekiti 887 13.0% 93% 3,270,798 Bauchi Abia 1,015 32.3% 82% 3,727,347 20% SE Ebonyi 925 12.1% 39% 2,880,383 Plateau 14% Edo 1,267 11.8% 82% 4,235,595 Oyo SS 6% Kogi 13% Plateau 19% 1,254 13.9% 36% 4,200,442 Edo 12% Cross River 1,004 4.9% 57% 3,866,269 12% NC Cross Kogi 820 19.4% 63% 4,473,490 River 5% Powered by Bing NW Kano 2,429 17.3% 52% 13,076,892 GeoNames, Microsoft, TomTom NE Bauchi 661 19.7% 29% 6,537,314 SAS Penetration (%) TOTAL 13,235 13.6% 5% 40% State by state comparison of SAS penetration, grid electricity and population estimates#18Africa Clean Energy Catalysing Africa's Solar Markets Tt TETRA TECH International Development Ukaid from the British people Summary Methodology Trade Census, Product Deep- dive & Consumer Survey TRADE CENSUS n=2,429 North West North East n=661 n=2,074 South West North Central n=3,860 South South East n=1,940 South n=2,271 N=13,235 DEEP DIVE CONSUMER SEGMENT Consumer MSME n=191 North West Total 665 222 North East n=66 Oyo 97 19 Ekiti 64 34 Abia 47 20 uja n=194 Ebonyi 71 21 South North Central Edo 38 20 West Plateau 73 21 n=242 Cross River 73 18 South South n=158 Kogi 90 26 East South N=1014 Kano 65 23 n=163 Bauchi 47 20 Market potential Solar penetration Product incidence Product offering and source Brand penetration Product/brand usage Usage experience User profiles