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Home Solar Energy

In Nigeria, customer default could send PayGo solar energy companies packing

by Ayobami Adedinni
May 3, 2021
in Solar Energy
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In Nigeria, customer default could send PayGo solar energy companies packing
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Through a variety of Pay-as-you-go (PAYGO) approaches, the solar energy sector has become very dynamic in recent years: Companies sell solar services or solar products through a pre-paid model (in small instalments) to customers that can afford these services and become potential or actual customers.

It is a pioneering, game-changing credit system that removes the initial financial barrier to solar energy access by allowing consumers to make a series of modest payments to purchase time units for using solar electricity instead of paying upfront for the entire solar lighting system.

A solar-powered kit including the panel, battery, two or three lights, and a phone charger – and sometimes other appliances – is bought by the customer in installments, rather than a one-off lump sum. Depending on the scheme, the customer may have options to expand their mini-grid with further PV panels, charging points,and appliances.

This support of power demands over a customer’s lifetime can help to open many doors: efficient cooking stoves to help daily life, smartphones to aid connectivity and business opportunities.

PayGo is a form of asset financing. In asset finance, the main collateral on a lease or loan is the asset being financed. In the case of PAYGo solar, this is the solar home system, which can be remotely deactivated and (if necessary) repossessed.

According to UNEP DTU Partnership, PAYGO offers the possibility that the private sector can take over to supply even the poorest in the most remote areas.

Despite this, a number of factors are not favorable to PayGo solar companies in Nigeria, Africa’s largest economy.

A senior executive at a leading multinational renewable energy company in Nigeria who pleaded anonymity disclosed that nonpayment is higher than predicted and customers are more willing to forgo electricity.

“Most of the customers buying these products at the entry level are at the bottom of the pyramid. They are economically disadvantaged. And as long as you have volatility in the economy, they are usually the worst hit. They are in the extractive phase. They are smallholder farmers. They sell them raw not processed which means if they can’t sell, these things go bad. So, most of the time they are forced to have to sell it at any price rather than it going bad.

Since Covid hit, you find these people defaulting in meeting their weekly or monthly commitments on solar home systems (SHS). In the industry, it used to be around 3 per cent but it has now skyrocketed to 10 per cent.

The civil unrest in October last year also contributed to it because some people lost livelihood and now light is no longer a priority to them.

There was also flooding in a lot of places last year which is also predicted for this year. And because most of them are in the extractive phase, it affected them.

Another major factor is the lack of available and verifiable data. You can only take people by what they tell you and the most accessible means of identification is the voters’ card which we know is not reliable as pertains to Nigeria.

So when people give you that information, you find out that they can disappear with your product and you will not be able to trace them.

For instance, it is cheaper to thrash your sim card and get a new one. For people like that, it is no big deal even if they lose their sim , the process of retrieving it is cumbersome that you will rather go and get another sim. You find out that people can disappear because there is no national database. For every customer that disappears, that will probably erode the profits on 10 other customers. This happens a lot. Those are the two big issues that are affecting the industry,” they said.

According to the source, the “same way banks collapse when they have so much bad debt, that is the same way solar energy companies offering paygo services can also collapse.”

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The lack of a strong data culture is not only a Nigerian problem.

An African Governance Report (PDF) in 2019 revealed that the capacity for statistical data is still a challenge in Africa. This is mainly because the process seems cumbersome and costly.

It is common for different government arms to collect certain personal information such as name, gender, address, place of birth, and so on at one time or the other.

Tags: charging pointscustomer defaultPay-as-you-go approachesPAYGOPaygo solar in NigeriaPrepaid modelPV panelsSolarPochaUNEP DTU Partnership
Ayobami Adedinni

Ayobami Adedinni

Ayobami founded The Energy Intelligence in 2017. He is an experienced energy journalist having previously worked for two national dailies. At The Energy Intelligence, Ayobami provides market intelligence to leaders in the African clean energy space. When he's not writing, he's busy daydreaming.

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