Harnessing the potential of micro, small and medium scale energy projects

Governments at different levels do show more enthusiasm to “white-elephant” projects. There are many considerations for embarking on such projects by government. While economic benefits and national interest are expected to drive government actions, the obvious in most cases are political and selfish interests.
This explains why there are so many uncompleted power projects in Nigeria. Most of these projects, assuming they were completed, would have enhanced economic growth in the country.

While emphasis has always been on large scale energy projects that require very large amount of money, government need to think through on how to create enabling environment for micro, small and medium energy enterprises (MSMES) in Nigeria.
It has become imperative for governments at various levels to provide impetus for Energy MSMEs in Nigeria to enable them play a key role in solving the problem of energy deficit in the country.
Enhancing the capacity of energy MSMEs to meet energy demand at their levels will not only reduce stakeholders’ expectation from the generating companies and lessen the burden on the dilapidated national grid, but also help the Federal government achieve its objective of incremental power generation.

However, absence of access to affordable finance propagates energy poverty. It restricts both the supply and demand for energy products that improve people’s health, education, incomes and security.
When energy companies that try to bring energy solutions to consumers cannot get the capital to develop and commercialize new technologies or in-house credit facilities, innovation is stifled, then viable and bankable ideas evaporate.

There are several micro, small and medium scale energy projects that could have helped in ameliorating the problem of energy crisis in Nigeria. While there are always policies to get these projects on board, there hardly exist framework to make access to finance easy. Industry information shows that many of energy loan application by micro, small and medium size energy companies are unsuccessful.
This allude to the fact that eradicating energy poverty in Nigeria is not in sight. Among factors responsible for this high rate of unsuccessful energy loan application including lack of security. Commercial banks, given their nature, are also averse to financing energy start-ups due to high-risk profile of such projects. Collateral is a major obstacle to energy financing in Nigeria.
Energy projects require specialised equipment and are relatively capital intensive. Therefore, commercial banks find it difficult to create credit facility around specialised equipment since they are usually not liquid. Bear land are not also acceptable to Deposit Money Banks. Where real estate becomes acceptable, there is a minimum registration requirement of such properties with the government.
Proper registration of properties in places like Lagos, Abuja and Port-Harcourt is very expensive and sometimes higher than initial cost of small energy projects. All these constitute bottle-necks to the intervention fund being provided by government to support MSMEs in Nigeria. A Fixed Asset Coverage of 200 per cent (which must be landed property) required by some Development Finance Institution seems to negate the purpose of development finance. Since, many development finance institutions also abrogate their role to commercial banks, accessing development finance becomes more difficult.

If government wants to actually tackle the problem of energy crisis, practical steps must be taken to provide incentives for micro, small and medium scale energy developers in Nigeria to play a significant role.
This can be done by adopting “Modified Copy and Paste” Model. By this, we look at countries that have successfully created enabling environment for micro, small and medium enterprises, including energy business in the area of finance; copy the model, modify it and apply it in Nigeria.
For instance, The United State of America enacted a law they called Jumpstart Our Business Start-ups (JOBS) Acts in 2012 to create flexibility for MSMEs in accessing finance. This opened up substantial capital, formerly locked up, to small businesses in the US. In 2014, North America raised $9.46 billion in alternative funding as a result of the novel action. The point here is that micro, small and medium energy projects have the potentials to contribute significantly to solving energy crisis in Nigeria if finance constraints are relaxed.

Olumuyiwa Olanrewaju
Chief Executive Officer, Watershed Capital Limited.