Why renewable energy companies rely on debt financing
For service businesses in Nigeria, Nigeria’s population of 200 million is an advantage.
But this 200 million should come with an asterisk at the end because it doesn’t exactly translate to a thriving consumer base.
It’s easy for companies that provide off-grid energy services to get lost in the sauce. Over 40% of Nigeria’s 200 million population live without access to the grid. In addition, electricity supply to those that have access isn’t great, thanks to the shabby state of the grid. So, it’s easy to assume that providing alternative energy sources to Nigerians would be a sure winner. But not quite.
Some takeaways:
-
Renewable energy startups raise more financing through debt than startups in other sectors. One major reason is that renewable energy solutions are capital intensive and high-risk.
-
When we look at who is funding renewable energy startups, whether, through equity or debt, we see that a lot of funding either comes from or is supported by development finance institutions (DFIs), existing companies in the energy sector and peer-to-peer lending platforms.
-
But renewable energy startups in Africa have fewer funding options than those in developed countries. While DFI support is essential for attracting more private sector financing, it’s important to reduce the risks associated with financing African renewable energy startups.
The major problem is that Nigerians are poor and those without access to the grid live in the poorest parts of the country, which are mostly rural areas. For people who live in urban areas, renewable energy providers have to compete with generators for commercial and industrial consumers and the low incomes of retail consumers. This causes a big problem for renewable energy companies—slow-growing revenue when their capital is tied up in receivables. It also doesn’t help that renewable energy solutions are capital intensive, especially in the short run.
The road to entrepreneurial success in Nigeria is bumpy, and renewable energy companies are not exempt. This is especially true
Invest with Confidence, Operate with Precision.
Access economic and industry data & insight for global organisations.
Trusted by leading global organisations
