•UUBO, IFC, Shell counsel developers on bankability, profitability of business

Peter Uzoho

The renewable energy sector in Nigeria, particularly solar, which is the most popular in the country, has been projected to witness a gale of mergers and acquisitions (M&A) in the coming years in order to consolidate and unlock the kind of financing required to scale their business, execute bigger projects, and increase their service offerings.

Solar developers have also praised the recent improvement in the macroeconomic environment in Nigeria, saying positive indicators such as the exchange rate stability has brought some comfort to the solar space, thus making solar cheaper than other sources of electricity.

However, energy finance and infrastructure specialists at the Udo Udoma & Bello Osagie (UUBO), the International Finance Corporation (IFC), and Shell Energy Nigeria, among others, have advised renewable energy developers and operators on the need to always structure their projects in a way that makes them more bankable and profitable to potential investors and financiers.

Moderating a panel at the UUBO Energy and Infrastructure Breakfast Session 2.0, held in Lagos, with the theme: “Powering Nigeria: Financing and Scaling Renewable Energy”, Senior Associate at UUBO, Chisom Okolie, stressed the need for solar companies to have an organised system within their organisation to make it easier for investors to believe in them as a serious-minded business.

Okolie, whose session was on “Unlocking Capital Flows: Innovative Structures for Renewable Energy Finance,” observed that one of the challenges within the renewable energy sector was the proliferation of companies that operate in small-scale silos.

She stated that this may lead to companies coming into partnerships through mergers and acquisitions for the consolidation of capital and expansion of business.

“One thing that I see is that we have a lot of renewable energy companies operating in small-scale silos. So, I think that in the future, what may happen is that there may be a lot of M&A activities, which is an acquisition of different companies, coming together to pull themselves together to become one big organisation.

“In that way, you would scale operations and also cover a lot of business. So, it’s something that I see waiting for us in the future and could happen,” she stated.

Okolie added that solar developers seeking external funding must simplify their  financial process such as being able to provide information regarding the flow of funds from generation to distribution and also endeavour to pay back their debts, noting that that is one of the key areas investors look out for in potential investors.

Contributing, Principal Investment Officer at IFC, Mr. Abiola Aina, revealed that banks have multiple layers of judging the viability of a project and its bankability.

He explained that the ability of the potential clients or customers to pay for the service being offered, readily tells the profitability of the project and gives investors the confidence to fund it.

According to him, simplifying the structure of a project, its financial flows, was key in attracting financing for projects.

“As long as there is enough money to pay for everyone in that chain, then a bank will look at that and say, look, I think I can finance this.

“But fundamentally, all we are trying to figure out is, if I invest money in this project, whether it is debt, whether it is equity, what is the probability that I will be able to pay it? That is it,” Aina said.

The Chief Financial Officer, Arnergy, James Fabola, who fielded questions on how solar firms should prepare their projects for investment readiness, observed that commercial viability used to be a major challenge facing the sector.

However, Fabola noted that recent improvements in Nigeria’s macroeconomic environment such as foreign exchange stability, has strengthened the value proposition for solar, pointing out that solar is now cheaper than some other energy sources.

“One thing the industry struggled with up until recently was the commercial viability. Obviously, recent macroeconomic events have strengthened the value proposition for solar.

“So solar is now cheaper than some other energy sources. I know that is debatable, but that’s our reality, and I’m sticking to that.

“But it’s clear that solar now makes sense a lot more than a few years ago, when it was either seen as a social good or for environmental benefits. So that helps greatly,” he stated.

Deal Delivery Lead at Shell Energy Nigeria, Mr. Afolabi Akinrogunde, advised renewable energy companies in Nigeria to strive to be an organised company with the right models, systems, and corporate governance structure.

He added that solar firms should be operating at a scale that enables them to secure financing as developers, pointing out that was also one challenge that exist in the renewable energy ecosystem.

Akinrogunde added that they must ensure they have their own personal funding to augment the one that is coming from external financing.

“There should be some level of skill in the game. So, you can’t be asking an investor to give you N10 billion when you don’t have one to N5 billion of your own money.

“That then gives the investor some level of certainty that you know what you’re doing,” he said.

Akinrogunde noted the existence of too many companies operating in the ecosystem, which makes it difficult to crowd finance into companies, saying there are different O&M systems, different OEMs, and different operating philosophies that make it difficult to operate at the level expected by financiers.

In her closing remarks, Partner at UUBO,

Ms. Adeola Sunmola, expressed confidence that the discussions and ideas generated at the session would inspire meaningful actions and collaborations that would help drive Nigeria’s transition to a more sustainable energy future.

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