Arnergy Secures $18M to Expand Solar Energy Access in Nigeria

Nigeria's Growing Solar Energy Market Fuels Arnergy's $18 Million Funding Round

The demand for solar energy in Nigeria, a nation frequently facing power shortages, has dramatically increased over the past ten years. This rise is attributable to the declining dependability of the national electricity grid and the escalating expenses of traditional fuels.

This growing need has attracted investment to Arnergy, a clean tech startup dedicated to addressing this energy gap. The company has recently secured a $15 million Series B extension, supplementing the $3 million B1 round completed last year.

Policy Shifts and Fuel Price Increases Drive Adoption

The increased adoption of solar systems coincides with substantial changes in government policy. Most notably, Nigeria eliminated its long-standing fuel subsidy in May 2023.

This decision, after years of debate, ended the practice of the government offsetting the difference between international and domestic fuel prices. Consequently, petrol prices have risen by almost 500%.

This price surge has made power generators – previously considered a more economical alternative to both the inconsistent grid and solar power, despite their environmental impact – significantly more expensive to operate.

Arnergy's Evolving Value Proposition

Arnergy’s core message to customers has evolved in response to these changes. Founder and CEO Femi Adeyemo explained to TechCrunch, “Initially, we marketed solar energy as a means of ensuring continuous power supply, without emphasizing cost savings.”

“However, that has shifted. We can now demonstrably illustrate to customers how our systems result in monthly savings compared to using petrol, diesel, or even relying on the grid.”

Company Overview and Sector Focus

Adeyemo established Arnergy in 2013 with the goal of providing solar solutions to both residential and commercial clients. The company serves a diverse range of sectors, including hospitality, education, finance, agriculture, and healthcare.

From Resilience to Cost Savings

What initially began as a strategy for energy resilience has transformed into a cost-reduction approach. This shift is altering the economic factors influencing the adoption of clean technology.

Arnergy is backed by Breakthrough Energy Ventures, founded by Bill Gates, which spearheaded the company’s $9 million Series A funding round in 2019. This demonstrates strong investor confidence in Arnergy’s potential.

The changing economics are making solar energy an increasingly attractive option for Nigerian consumers and businesses.

Growing Popularity of Lease-to-Own Options

The increasing acceptance of alternative energy solutions is particularly evident in the company's Z Lite lease-to-own offering. This product has become a central element of Arnergy’s strategy since securing the initial funding from its Series B round last year.

Direct purchases, which previously generated 60% to 70% of the company’s income in 2023, now represent only 25% of total sales. Conversely, the lease-to-own model, allowing customers to gain ownership after consistent monthly payments over a period of five to ten years, is experiencing significant growth.

Affordability Drives Adoption

A key factor in this shift is the improved cost-effectiveness compared to traditional electricity expenses. Previously, extended lease agreements were often perceived as more expensive than operating diesel or gasoline generators.

However, the substantial increase in diesel prices following subsidy removal, coupled with rising grid tariffs – particularly after a governmental policy change last April that tripled electricity costs for customers with reliable power supply – has made lease-to-own solar energy increasingly attractive, according to Adeyemo.

“Consider a monthly power bill of ₦200,000 (~$125). Our solution reduces this to ₦96,000 (~$60). The savings over a five-year period are substantial,” explained the CEO.

He further noted that a growing number of current customers are opting to expand their solar capacity or transition entirely to off-grid power as a direct result.

Significant Growth and Revenue Projections

Arnergy experienced a threefold increase in its lease customer base between 2023 and 2024. The company anticipates a further expansion of 4 to 5 times in the current year.

Consequently, Naira-denominated revenues are projected to quadruple by year-end. While dollar revenues have remained stable due to currency fluctuations, Adeyemo stated that the company is actively working to increase its foreign exchange earnings.

This is being achieved through dollar-based B2B2C collaborations and potential expansion into Francophone African markets.

• The company is focusing on partnerships to boost dollar revenue.
• Expansion into new markets is also being considered.

Growth Strategies in the Face of New Regulations

Arnergy has successfully implemented over 1,800 systems throughout 35 states in Nigeria, representing a total capacity of 9MWp in solar power and 23MWh of battery storage.

The company intends to utilize recently secured funding, spearheaded by CardinalStone Capital Advisers (CCA), a Nigerian private equity firm, to facilitate the installation of over 12,000 additional systems by the year 2029.

This expansion will be supported by investments from Breakthrough Energy Ventures, British International Investment, Norfund, EDFI MC, and All On.

Achieving this ambitious goal necessitates a change in strategy. For almost ten years, Arnergy managed its sales operations internally.

Now, a partnership-focused approach is being adopted, collaborating with business clients and establishing physical retail locations beyond Lagos to broaden its reach within Nigeria’s energy-deficient market.

Adeyemo, the company’s CEO, states that Arnergy is currently exploring options to secure further local debt financing from banks and Development Finance Institutions (DFIs) to support these initiatives.

These projects include the provision of energy-as-a-service (EaaS) solutions tailored for multinational corporations.

However, as Arnergy prepares for significant growth, a recently proposed government policy presents a potential obstacle.

Nigeria’s government announced last month its intention to prohibit the importation of solar panels, aiming to stimulate domestic manufacturing.

This decision has been met with criticism from industry stakeholders, who contend that the nation’s current manufacturing capabilities are insufficient to meet demand.

Adeyemo shares the objective of fostering local production but disagrees with the proposed method.

He cautioned that an untimely ban could impede the progress of an industry that is still in its nascent stages.

The CEO believes Nigeria must first establish a supportive ecosystem, encompassing robust infrastructure, consistent policy frameworks, and readily available capital.

This will enable local factories to increase production capacity over the next three to five years before considering a phased reduction in imports.

“We firmly support local manufacturing initiatives. However, capacity building must precede the restriction of imports.

Failing to do so risks causing more detriment than benefit, impacting both the industry and the millions of Nigerians who are increasingly dependent on solar energy as their primary power source,” Adeyemo explained.