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Fueled by unreliable grid infrastructure and escalating fuel expenses, the demand for solar energy solutions has witnessed a significant surge in Nigeria over the past decade. This escalating need has attracted considerable investor interest to Arnergy, a prominent cleantech startup addressing the nation’s pressing energy access challenges. Demonstrating strong market confidence, Arnergy recently secured a $15 million Series B extension, augmenting a prior $3 million B1 round from the previous year and bringing the total Series B funding to $18 million.
This amplified appetite for solar systems can be attributed to substantial policy adjustments, most notably the elimination of Nigeria’s long-standing fuel subsidy in May 2023. This governmental decision, subject to prolonged debate, concluded the practice of subsidizing the difference between international and domestic fuel prices.
Subsequently, petrol costs have increased by nearly 500%, substantially elevating the operational expenses of power generators. These generators, once considered a more economical alternative to inconsistent grid power and solar systems despite environmental concerns, have become considerably less affordable.
Arnergy’s value proposition has adapted to these evolving circumstances. “Initially, we positioned solar as a means to ensure continuous power supply, not primarily for cost reduction. It wasn’t initially a central aspect of commercial discussions,” explained founder and CEO Femi Adeyemo in an interview. “However, the narrative has shifted. We can now clearly demonstrate to customers the monthly cost savings achievable with our systems compared to petrol, diesel, or even grid power.”
Since establishing Arnergy in 2013, Adeyemo’s vision has been to deploy solar energy systems to residences and businesses across diverse sectors, including hospitality, education, finance, agriculture, and healthcare.
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What began as a resilience-focused approach has matured into a cost-efficiency strategy, reshaping the adoption economics for the cleantech venture supported by Bill Gates’s Breakthrough Energy Ventures, which spearheaded Arnergy’s $9 million Series A funding round in 2019.
Lease-to-Own Model Driving Increased Adoption
The escalating adoption rate is particularly evident in the company’s lease-to-own offering, Z Lite, which has become a primary strategic focus since Arnergy’s initial Series B funding tranche the previous year.
While outright purchases constituted 60% to 70% of revenue in 2023, they represented merely 25% of sales in the past year. Conversely, the lease-to-own model, where clients remit fixed monthly payments over a period of 5 to 10 years before gaining full ownership of the system, has garnered significant momentum.
This shift is partly attributable to affordability relative to conventional electricity tariffs. Until recently, many perceived long-term leases as more expensive than operating diesel or petrol generators. However, with the surge in diesel prices following subsidy removal, and rising grid tariffs – particularly after a recent governmental policy in April that tripled electricity expenses for high-consumption, stable-power customers – lease-to-own solar solutions are gaining traction among consumers, according to Adeyemo.
“Consider a scenario where you are spending ₦200,000 (approximately $125) monthly on power. Our product can reduce that expense to ₦96,000 (around $60). Over a five-year period, the savings become undeniably clear,” emphasized the CEO. He further noted that numerous existing customers are returning to expand their solar capacity or transition entirely to off-grid systems as a consequence.
Arnergy has tripled its lease customer base between 2023 and 2024 and anticipates a further 4–5x expansion this year. Correspondingly, Naira-denominated revenues have increased and are projected to quadruple by the year’s end.
Dollar revenues, however, have remained stable due to currency devaluation. Adeyemo indicated that the company is actively developing FX revenue streams through dollar-based B2B2C partnerships and potential market expansion into Francophone Africa.
Scaling Operations Amidst Evolving Government Policy
To date, Arnergy has successfully deployed over 1,800 solar systems across 35 Nigerian states, amassing a total capacity of 9MWp of solar and 23MWh of battery storage.
The newly secured funding, led by Nigerian private equity firm CardinalStone Capital Advisers (CCA), will enable Arnergy to install over 12,000 additional systems by 2029. The funding round also saw participation from Breakthrough Energy Ventures, British International Investment, Norfund, EDFI MC, and All On.
Achieving this ambitious objective necessitates a strategic realignment. For nearly a decade, Arnergy managed sales internally. The company is now transitioning towards a partnership-driven approach, collaborating with business clients and establishing physical retail locations outside Lagos to broaden its reach within Nigeria’s power-deficient market.
The Lagos-headquartered cleantech company is engaged in discussions to secure additional local debt financing from banks and DFIs to bolster these initiatives, including energy-as-a-service (EaaS) solutions for multinational corporations, according to Adeyemo.
However, as Arnergy prepares for expansion, a proposed policy shift could potentially impede its progress.
Just last month, the Nigerian government unveiled intentions to prohibit solar panel imports to stimulate domestic manufacturing. This proposition has encountered opposition from industry stakeholders who contend that local production capacity is not yet adequately developed.
Adeyemo concurs with the overarching objective of promoting local manufacturing but expresses reservations about the proposed strategy. He cautioned that an untimely import ban could hinder an industry that is currently in its nascent stages of development.
According to the CEO, Nigeria should prioritize creating a conducive environment characterized by appropriate infrastructure, policy predictability, and access to capital. This would enable local manufacturers to progressively increase production capacity over the next 3 to 5 years. Only after establishing sufficient domestic capacity should the nation consider gradually phasing out imports.
“We are proponents of local manufacturing. However, it is crucial to build domestic capacity before restricting imports. Prematurely closing borders risks causing more detriment than benefit, both to the industry and to the millions of Nigerians who are increasingly reliant on solar as their primary source of energy,” he asserted.