Arnergy raises $18m to scale solar solutions in Nigeria

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Nigerian renewable energy startup Arnergy has raised $18 million in a Series B funding round. The company has so far delivered 1,800 solar systems and plans to roll out 12,000 by 2029 with a lease-to-own business model. The funding comes as the push for renewable energy adoption gains momentum in oil-rich but energy-starved Nigeria.

• Demand for solar in Nigeria has soared in the last two years due to the removal of a decades-old fuel subsidy, which has more than doubled fuel prices. Many consumers are opting for solar for both residential and commercial use.

• Renewable energy companies across Africa have seen an increase in funding, which is facilitating the rollout of mega-projects led by the private sector. Governments are also enacting policies that support renewables, such as a recent bill in Kenya, which prioritises renewables.

More details

• The funding round was spearheaded by Nigerian private equity firm CardinalStone Capital Advisers (CCA), with participation from Breakthrough Energy Ventures, British International Investment, Norfund, EDFI MC, and All On.

• Arnergy's journey began in 2013 with the aim of supplying solar power systems to a diverse range of clients, from homes to businesses in sectors such as hospitality, education, finance, agriculture, and healthcare. Initially, the focus was on providing a reliable, uninterrupted power source. However, the narrative has evolved, particularly following the removal of fuel subsidies, and the emphasis has shifted to the significant monthly cost savings that solar power now offers customers.

• A key aspect of the company's current strategy is its lease-to-own model. This allows customers to pay fixed monthly instalments over a period of five to ten years, after which they gain ownership of the solar system. This approach is increasingly favoured over outright purchases due to its long-term affordability when compared to grid electricity tariffs. The rise in electricity prices in April 2024, which saw higher-tier consumers contributing to subsidise lifeline users, has further incentivised many to seek independent power generation as a means of reducing expenses.

• This shift in economic viability has translated into substantial growth for Arnergy. The company tripled its lease customer base between 2023 and 2024 and anticipates a four to fivefold increase in the current year. This surge in customers has directly driven a corresponding rise in Naira revenues, which are projected to quadruple by the end of the year. Despite this strong local currency performance, dollar revenues have remained flat due to currency devaluation.

• To mitigate the impact of currency devaluation on dollar revenues, Arnergy is strategically pursuing foreign exchange revenue generation through partnerships priced in dollars. Additionally, the company is exploring potential expansion into Francophone African markets as another avenue for dollar-denominated earnings.

• Looking ahead, Arnergy aims to extend its reach beyond Lagos and tap into Nigeria's wider power-starved market by adopting a partnership-driven model. This involves collaborating with business clients and establishing physical retail outlets in underserved regions. To support these expansion efforts and various projects, including the provision of energy-as-a-service (EaaS) solutions for multinational corporations, Arnergy is also actively seeking additional local debt financing from banks and development finance institutions.

Our take

• However, a recent proposal by the Nigerian government to ban solar imports poses a considerable threat. If implemented hastily, this policy could significantly slow the current positive momentum and deter potential investors.

• The government, which is currently implementing several initiatives to support off-grid solar solutions, needs to strengthen its regulations and oversight. This is crucial to ensure that allocated funds are used for their intended purpose and to prevent the kind of corruption witnessed with fuel subsidies, which could undermine the programme's success.

• To fully capitalise on the increasing demand, Arnergy and other energy providers should tailor their business models to serve diverse markets. This includes developing energy-as-a-service options that enable even low-income individuals to access and pay for electricity at no upfront cost.