Nigeria has an acute electricity supply problem. Domestic households and entire industries suffer from an inadequate power supply, usually characterized by frequent power outages. This is in spite of Nigeria having some of the world’s largest deposits of coal, oil and gas and being Africa’s largest oil producer. Current Access Rate is about 45% (Rural: 36% Urban: 55%), with 20 million households without power. Best-case-scenario, the average daily power supply is estimated at four hours, although several days can pass without any power supply at all. It is so bad that the country’s erratic power supply has been identified by businesses as the second biggest obstacle to doing business in the country, after a lack of access to finance.
The inefficient power supply has stuttering effects on the agricultural, healthcare, industrial and mining sectors and obstructs Nigeria’s overall economic development. Additionally, it costs the country enormous amounts. According to the International Monetary Fund (IMF), a lack of access to reliable electricity costs Nigeria an estimated $29 billion a year. The power situation also places a financial strain on businesses and households who are constrained to run one or more diesel/petrol-fueled generators, as well as makeshift and localized power solutions to supplement the inconsistent supply. Studies support this notion as approximately $14 billion per year is spent by Nigerians on private power.
In a bid to solve the poor electricity crisis, experts have proposed exploring renewable energy. Segments of the populace who currently lack access to electricity, may not have to sit tight for expansive grid extensions to their communities as new technological possibilities in renewable energy may present an interesting opportunity. It has different applications in basic lighting needs (power bulbs and fans), water pumps, and vaccine storage, all critical use cases for essential services, under-served segments and rural populations. Estimates suggest it could increase the availability of electricity to almost 80 million people currently without it. This potential is based on the fact that renewable energy-based generation capacity can be built up far quicker than conventional power plants. It can also be built to scale, starting small and adding on the capacity over the long term.
Renewable energy can be either connected to a country’s electricity grid or off it. This makes it a viable alternative for improving access to power across Nigeria. The cost of solar energy technology has also dropped significantly, prompting its rise as an alternative power source for viewing centres, hotels, residential lighting and other electrical fittings. With this in mind, the government should concentrate its efforts on substantially improving its solar infrastructure. Expansive off-grid solar projects, can take advantage of Nigeria’s abundant sunlight, and sidestep the defective grid infrastructure that has hindered energy consumption for as long as we can remember.
Providers are proactively reacting to the new opportunities and accompanying demand levels in the renewable energy market. On the household front, one of such initiatives is Lumos, which provides customers with a mini solar kit to power critical loads in the home. Another firm creating value in this space is Nigerian startup Resource Energy which raised a $20 million Series A round co-led by CRE Venture Capital and the Omidyar Network in December 2019. The renewable energy company builds and operates solar-powered micro-utilities that provide electricity to commercial community structures, such as open-air trading bazaars. Oolu Solar, with $3.2m in Series A funding in 2017 is also in the Nigerian market. NGOs like Rees Africa and Solar Sisters are also in on this trend, both of which focus on rural and less-developed parts of the country.
However, despite this progress in the renewable energy industry, it is still not yet optimised to the scale of potential demand. Affordability and consequently, access are major constraints. One way these firms have tried to tackle this problem has been to provide their products and services on a pay-as-you-go basis (i.e. instalments), to reduce the upfront cost of acquiring a solar home system. Although solar systems cost 15-20x more than gasoline generators due to upfront investments in solar panels and batteries, they provide cost savings in the long term. However, by some estimates, it takes more than 8 years for the cost savings to exceed the initial investment. Most Nigerians either do not have the money for the upfront investment or cannot afford to wait that long for the cost-savings. As a result, most solar product providers added a credit element, where they finance the initial investment in equipment and collect smaller payments from the consumer over a longer period of time. This allows providers to enlarge the pool of customers beyond those that can afford expensive solar systems- giving them the ability to pay in instalments.
For such a credit-driven business model to thrive, it requires the support of a robust credit underwriting system and risk assessment framework that seamlessly assesses the risk profiles of potential customers to aid providers inefficient decision making. Automating this process makes it even more efficient and scalable. Obviously, sound risk assessment requires adequate data: market knowledge, deep understanding of the customer, and robust systems to detect fraud. Herein lies a significant problem in the Nigerian context.
Risk assessment is made difficult for renewable energy providers due to various data collection challenges ranging from low coverage of the formal financial sector and the formal credit registries. The high operating costs and non-scalability associated with manual risk assessment is a present-day challenge. Added to this is the poor customer experience with manual risk assessment, given that a significant number of customers are in the informal economy. However, these challenges can be easily mitigated as alternative data can improve visibility of customers’ financial profile for an efficient credit-driven business model.
Alternative data refers to information that enables comprehensive risk assessment which is not a part of conventional credit bureau data. They include; mobile phone data, customer financial transaction data, social media data and geo-location data. They give an indication of the customer’s financial behaviours, attitudes and preferences. Alternative data can be obtained from multiple sources, where the customer leaves behind a digital footprint. And with 112 million mobile internet users in Nigeria, there has been a steep rise in customer’s digital footprint in the country, which in itself is a rich source of alternative data. These data sources provide valuable insights about the customer which could greatly enhance existing credit frameworks.
A good example will be customer transaction data on utility payments. If a customer shows a consistent record of utility payments over a period of time, it gives an indication of the customer’s financial profile. Each transaction contributes to the pool of information that provides micro-insights into a customer’s risk profile. The micro-insights will enable credit-driven renewable energy providers to develop a more comprehensive customer profile for risk assessment. A model like this is able to help energy providers scale their value propositions with a sound risk management system.
To create value from alternative data sources, renewable energy providers will need to build big data capabilities or partner with existing firms that already have such capabilities as building one is not typically their core competence. This will better inform their credit decision processes. This will have the knock-on effect of reducing the barriers to renewable energy access, as providers continue in their quest to eradicate Nigeria’s access to electricity problems.
KliQr has built big data computing capabilities that can process alternative data to build customer profiles that are critical for credit decision making. You can speak to us for more information on how we can support your growth ambitions.
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