Peju Adebajo, CEO of Lumos Nigeria in this interview with BusinessDay’s Frank Eleanya shares about the journey of bringing solar home systems into millions of Nigerian households and businesses. She also examines the impact of the partnership with MTN as an entry strategy.
You are one of the few companies who got into the retail solar market early, how has it been?
There are 85 million Nigerians without access to electricity which gives us an electrification rate of about 57 percent. This has an impact on the quality of life for individuals and small businesses, like barbers, tailors, shopkeepers etc., that need electricity for a better quality of life and to improve productivity. The installed capacity of the National grid is about 12.5 Gigawatts with a distributed capacity of far less than that. The government understands that renewable energy is one of the best ways to quickly increase those electrification rates with a combination of the national grid, mini-grids, and solar home systems. What makes the most sense depends on a combination of factors including population density and distance. For Lumos, solar is the way forward to increase electrification rates and jump-start economic recovery.
During the pandemic, a catalyst for recovery was needed. The Federal Government came up with the Economic Sustainability Plan which included what is now called the Solar Naija Project, a N140 bn plan to distribute 5 million solar-home systems aimed at impacting 25 million people and creating 250,000 jobs by 2023. It shows the government recognizes solar as extremely important in the energy road map to increase electrification rates.
Lumos entered the market in 2014. The learning curve has been steep, but we have drawn on these experiences to become the market leader with over 50% market share.
Some will say your launch with MTN as a partner gave you a market advantage. How is that relationship going now?
With MTN’s nationwide presence and strong brand recognition, it enabled us to quickly deploy our systems across Nigeria. Most people had not used solar before and are what we call early adopters. Our association with MTN increased awareness and understanding amongst Nigerians that the Lumos Yellow Box is a high-quality product available in nearby MTN stores.
In addition, through MTN, our customers could pay with airtime which is a familiar payment method, this also meant that payments were easily facilitated. We also have our direct-to-market channel which enables rural penetration where MTN may not have a presence.
The market entry strategy through MTN was extremely important and mutually beneficial for both. Now we are proud to say we are in every state in Nigeria. Lumos is lighting up the whole map of Nigeria. Not only in MTN’s urban locations but also semi-urban and rural locations.
When you got into the market, many said there was going to be a solar revolution. What has happened to that revolution? Is it still alive?
Nigeria has had many different policies over the years to improve the electrification rate in the country, for example, the National Renewable and Energy Efficiency Policy, the NERC’s mini-grid regulations, and the National Content Development for the Power Sector.
However, two recent programs have accelerated growth in the sector. First, is the Nigeria Electrification Project to increase electricity access to 250,000 MSMEs and 1 million households. The second is the Economic Sustainability Plan, launched by the Federal Government in 2020 – a component of which is the Solar Power Naija project to deploy 5m to create energy access for 25 million people and create 250,000 jobs.
These are two closely coordinated policies, for example, to be able to participate in the Solar Power Naija project, you must be NEP qualified. In the rollout of these projects, one can very clearly see the coordination between the Federal Government; the Executive- the Ministry of Power, REA, and the private sector. This is an example of the right policies delivered and coordinated in the right way and I strongly believe they will both be successfully implemented.
Government support in this area is extremely important. We are a first mover in this sector, and it is difficult for one private sector player to bear all of the cost of educating and developing an industry sector all by itself. With the federal government’s support, I believe this is the time for the solar revolution and even before 2023, there will be a significant increase in the uptake of solar power systems.
The price of batteries is coming down; however, the income of the average Nigerian still can’t afford it regularly. How are you dealing with issues around affordability in meeting new markets? What is happening to the battery market in Nigeria?
The cost of many components such as batteries is reducing internationally. However, in Nigeria, many of these components are still imported. Unfortunately, with devaluation and importation issues such as customs duties and delays, the landed cost of our components is not decreasing. While the government has been working hard with PEBEC and the Ease of Doing Business initiatives to improve the situation at the ports, there is still some way to go. The VAT rate has also gone up, so whilst costs are coming down globally, a combination of other factors mean local costs may not come down as fast as expected.
Lumos has been in the market since 2014 and we have learned since then that the best customer experience comes when the customer can comfortably afford the monthly payment. We have two systems on offer to suit different budgets.
Our core system is the Eco. The customer pays a N22,000 down payment and then N6,000 per month for a period of 48 months. We have a long payment period to ensure affordability for the customer. We are the only Solar Home System company that allows a payment period of 48 months because we know paying in small instalments is critical for customers to not just make the first payment but to pay regularly and continuously over a period of time.
As simple as this proposition is, it is enabled by a very sophisticated technology that allows us to know where the boxes and systems are at any point in time, and in the case of default we can switch off the box remotely. We offer high quality customer service with installers and agents all over Nigeria. Our technology and systems allow us to diagnose and fix problems remotely, without sending anybody out unnecessarily. It is only when we cannot fix something remotely that we send field service agents. This enables us to keep our costs low.
At the end of 48 months, the customers own their system completely. They also have a four-year warranty during the 48 months, so customers know they have a reliable partner who will ensure a good customer experience.
What would work better; enforce localization by restricting imports of components or a healthy balance of imports and localization?
It will be a mixture of the two. It is possible to do more assembly in Nigeria and I believe there is a migration path. It may start with panels, as batteries may take a bit more time.
A lot depends on the policies as well as the consistency of implementation over a period. The partnership the private sector has with government is important. You must have players who know what they are doing and are committed to that long-term goal, which Lumos is. We have been in the market for six years and have paid the price of educating the market. There is no one-size-fits-all answer, but what is important is the commitment to some measure of localization given the potential size of the market in Nigeria.
How much of a challenge is not having the right policy against demand and the cost of components?
We believe that the government is getting it right with its two flagship programs in this area the Nigeria Electrification Project and the Solar Power Naija Project. We can see coordination between the different stakeholders, i.e., the Federal government, the Ministry of Power, and REA. We can also see engagement. There is an ongoing discussion with the private sector to understand if there are aspects of the program that need to be improved.
The key one is foreign exchange. We all know there is some current unavailability of foreign exchange. If you are forced to purchase components at the black-market rates, as opposed to the official market rates, that could be as much as a 20 percent premium. This has an impact on our cost and the price that we need to charge the customer.
You may have a very good foreign exchange policy, but it will need to be accompanied by access to foreign exchange at the official rate, so that we are not incurring these additional costs. It will also need to be accompanied by zero-percent duties in tariffs for those people who are assembling locally.
But one needs to be careful to ensure that this is not abused. Policies are good but consistency, coordination and implementation are critical.