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How Solar Photovoltaic Hybrid Systems Can Bring Huge Returns on Investment for Nigerian Businesses
Study reveals that local businesses can enjoy return on investment of more than 100% while using solar photovoltaic technology.
It is well established that lack of both electric supply capacity and reliability weaken the Nigerian economy. A new study finds that solar energy can radically increase profits for Nigerian businesses while solving this problem.
The study found most sectors in Nigeria could enjoy a return on investment of more than 100% by investing in solar photovoltaic technology. The study was written by Dr. Adewale Adesanya and Electrical Engineering professor Joshua Pearce at Michigan Tech.
Recently, the staggering reduction in solar photovoltaic costs along with the technical potential to couple solar to hybrid battery and diesel generators provides Nigerian businesses with an opportunity to reduce operating costs while defecting from the grid. Specifically, the study investigated the potential of using off-grid hybrid energy systems for private industries within and near Lagos state currently with relatively high daily electricity demands that are met with supply through captive diesel generation.
Adensanya wrote: “The results based on simulations of six industry sector load profiles developed from surveys found solar PV and diesel hybrid energy systems are economically viable for a wide array of industries in the Nigerian private sector including real estate, education, banking, automobile, hospitality and production.”
Five of the six sectors had discounted payback times for the systems under a year and ROIs greater than 100% as can be seen in the table summary of results below.
The results established that the levelized cost of electricity is lower for every sector analyzed with inclusion of solar technology, lower still with coupling of batteries and more reliable than the current grid-provided electricity.
Moreover, Professor Pearce explains, “Nigeria as a whole will also benefit from widespread adoption of solar hybrid systems, as it will assist the balance of trade by reducing refined petroleum imports.”
Investment opportunity
For financing an attractive investment in an energy infrastructure project, return rate, payback period and capital availability are core parameters for consideration. Pearce explains, “The ROI and payback results obtained for all the subsectors in this study are indicator of high viability of solar PV investment in the Nigerian business sector.”
The simulation of economic metrics carried out for the six subsectors has shown that solar hybrid project with storage can have as much as 332% ROI and least being 42% ROI, which is still substantial. The discounted payback in all cases are less than a year, except for the automobile sector that is 2.3 years.
According to Adensanya, “these values are all promising and for businesses with solid credit, financing should not be an issue.”
There are many businesses, however, that could benefit from these solar hybrid systems that do not have well-enough established credit. This would be expected to hinder the deployment rate of PV in Nigeria. However, recently, there are several funding opportunities that could be available to help companies and other private organization offset the initial capital required for solar PV-hybrid system. Some of these are in the form of partnerships, which could serve as security for international investors.
A good example is Bettervest GmbH, a German crowdfunding organization used for renewable energy projects and partnerships with private companies. Sustainable Energy Fund for Africa (SEFA) also provides funds in the form of debt and equity contributions or capital for private SME renewable energy projects in Africa. SEFA also serves as a channel for African Development Bank (AfDB) financing of small and medium scale renewable energy projects in Africa.
A few Nigerian banks are also focusing on sustainable business development with fund provision for energy projects, like renewable energy. One such bank is Ecobank, a multinational bank in Nigeria with a renewable energy help desk. Furthermore, Winrock International provides financing and technical assistance to support renewable energy projects for hospitals, homes, shopping malls, estates and individuals. Winrock International has collaboration with Ecobank, Diamond Bank and Fortis Microfinance Bank. Companies whose potential cash flow will stabilize or increase with more reliable energy sources are given close consideration.
Pearce, concludes “The results of this study make it clear that every scale of Nigerian businesses could increase profitability with the use of solar hybrid systems. In addition, if you want solar for your business there are several opportunities for financing.”
The study is: Adewale A. Adesanya and Joshua M. Pearce. Economic viability of captive off-grid solar photovoltaic and diesel hybrid energy systems for the Nigerian private sector. Renewable and Sustainable Energy Reviews 114, 2019, 109348.
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