As you may well know, the President Muhammadu Buhari administration recently announced that it plans to remove fuel subsidies by the second quarter of 2023 because the burden has become too much to handle.
Given this development, Nairametrics spoke to the CEO of Greenage Technologies, Aaron Esumeh, to understand the impacts this could have, especially concerning the demand for alternative energy.
According to him, the renewable energy industry will indeed experience massive growth if the subsidy is removed. However, Nigeria will need to address some pain points before the renewable industry can grow.
Enjoy the conversation.
NAIRAMETRICS: What happens if the fuel subsidy is removed in Q2 2023?
Aaron Esumeh: If the subsidy is removed, the renewable energy industry will grow as stakeholders will have no option but to see solar and wind as business opportunities and seek to maximize them.
However, there is a catch. If the upstream sector of the renewable energy industry is not developed, China and India who are foreign manufacturers of solar equipment will benefit more than Nigeria, because downstream sector players are middlemen. So, we need to develop our upstream sector so Nigeria can manufacture equipment and this equipment can be sold and the money stays in the country.
The fuel subsidy removal will be an opportunity to spike Nigeria’s renewable energy revolution with growth in the upstream sector. In the era of Covid-19 lockdowns when no product was coming in from China and India, our production spiked and we made more money then.
Our contribution to the active health sector which was catering to Covid-19 patients also contributed to our growth at the time. We also experienced increased sales when diesel was deregulated because many businesses were spending as much as N1.5 million on diesel per month and that was not sustainable for them as a business.
When diesel was deregulated, many business owners had to migrate to solar energy systems as an alternative to diesel-powered generators. The same thing will happen when the fuel subsidy is finally removed. – Also, electricity subsidies have to be looked at as well. This will help us get rid of corruption in the system and help the energy market thrive so investors can invest in the sector. If the government tries to meddle in too many things like power, and foreign exchange, it will lose track of its duties as a government.
NAIRAMETRICS: How would you describe Nigeria’s renewable energy industry in terms of sub-sectors and market demand?
Aaron Esumeh: In the renewable energy sector, we have the upstream and downstream sub-sectors. The downstream players are those who set up mini-grids and pay-as-you-go systems for customers, they interface directly with the customers and deliver power to them. Meanwhile, the upstream sub-sector players are those who manufacture the equipment.
At Greenage, we work in the upstream sub-sector. We manufacture solar inverter systems and charge controllers and we plan to expand into lithium-ion batteries and solar panels soon. For now, we produce 2.5 KVA to 30 KVA solar inverters. For the charge controllers, we manufacture 30 amps, and 60 amps and they have automatic voltage rates.
We have over 90 million people without electricity access in Nigeria, so the market demand is high, so, the question for manufacturers is what section of the market can they serve. For now, we have a production capacity of 24 inverters per month, our installed capacity is higher.
The value Greenage offers is we evaluate the failure rate and work towards offering our customers the best service when it comes to failures. Unlike imported products which prove to be more expensive and difficult to fix when they fail.
Our customers know that we can fix their products whenever it fails because we are the manufacturers of the products. We also offer warranty services to our customers and this makes them trust our brands. They do not have to wait for weeks and months for installers to find parts made by foreigners.
NAIRAMETRICS:What would you say is the level of investments in the Nigerian renewable energy sector?
Aaron Esumeh: There are a lot of investments in the downstream sector because we know that there is an inadequate power supply in the country, so there is a direct market to supply for both institutional and independent investors.
However, investments in the upstream sector are scarce because the Nigerian economy has little or no infrastructure set in place for manufacturing. Also, investors make projections based on available data, so, when there is no data, it makes it difficult for them to make up their minds to invest They will often say they do not understand the sector enough to put their money into it.
Some concerns they usually have included power supply issues, insecurity issues, logistics challenges, unavailability of forex, fluctuations in policy implementation, and multiple taxation systems. In the case of Greenage Tech, our investors invested in the people, not necessarily the business because of our passion, and we have grown with that passion. So far, we have had a total investment worth $680,000 from 2019 to the present, and we hope to get more.
NAIRAMETRICS: Can we anticipate massive growth in Nigeria’s renewable sector in the coming years?
Aaron Esumeh: Over 90 million Nigerians have no access to electricity and this is affecting households and businesses as well as jobs and the country’s gross domestic product (GDP). When policies are implemented and investments are flowing, the sector will grow. The market is already there, the demand is already there, and we only need investments and business-friendly policies.
At Greenage Tech, we plan to serve the unserved markets in Africa as a whole. It is cheaper and faster to purchase renewable energy equipment from the African continent as opposed to getting it from China or other countries outside Africa. In Nigeria, we are expanding our capacity to accommodate the unserved market in the short to medium term.
When our central production factory expansion is completed, we will be making 50 inverters per day, and 25 charge controllers per day. We are also looking at setting up our lithium-ion battery assembly and producing 1000 lithium-ion batteries per month by 2025. For our expansion, we have set goals based on the long and short term. For the long term, we have a target of $7.3 million and for the short term, we have set a target of $2.1 million, of which we have raised $500,000.
NAIRAMETRICS: Can you walk us through the current costs of solar inverters and charge controllers?
Aaron Esumeh: Greenage products are not sold directly to end consumers but to developers and installers. However, I can provide an estimate of what it may cost end consumers who buy directly from installers and developers. The market price for a 3.5 KVA (48 volts) solar inverter costs N250,000 to N280,000 but is sold for N200,000 at Greenage.
Also, the market price for a 5 KVA (48 volts) solar inverter costs N450,000 to N500,000, however, Greenage sells for N395,000.
Meanwhile, the market price for a 10 KVA solar inverter costs N800,000 to N900,000 but at Greenage, it is sold for N700,000. The market price for a 30 KVA solar inverter is N3 million and at Greenage, it costs N2 million.
NAIRAMETRICS: Could you give an instance of the importance of sustainability in Nigeria’s renewable energy industry?
Aaron Esumeh: Sustainability is an important aspect of renewable energy, especially in the upstream sector. From our experience at Greenage, we gathered that Nigerians are not used to warranty services. We provide an 18-month warranty for our solar inverters and a 24-month warranty for our charge controllers. When the business started at first, it was the provision of warranty services that enabled faster growth, as customers developed confidence in our product delivery and services. It is tasking it is to repair diesel or PMS generators in Nigeria because they are imported. This is unlike Greenage equipment which is locally made and parts are easy to get when repairs are needed.
NAIRAMETRICS: What is a critical issue that needs addressing in this sector?
Aaron Esumeh: All stakeholders must work to develop both the upstream and downstream sectors to ensure growth in the renewable energy industry. It is instructive to note that most of the investments in the downstream sector go to other countries for equipment purchases. 90% of the funds invested in downstream businesses go to China.
If for instance, $1 million is invested in a startup in the sector, most of that money is used for equipment purchases from other countries. Aside from wires, and aluminium, which are bought in Nigeria, everything else comes from China and the United States. At the end of the day, the funds are still going back to foreign countries.