Arnergy, a Nigerian cleantech startup dealing with distributed renewable energy products and solutions, has raised $3 million in new funding. The bridge round was funded by All On, a Shell-backed off-grid energy impact investment firm.
The funding comes five years after Arnergy, a provider of solar energy systems for homes and businesses, raised a $9 million Series A round in 2019. All On, along with other companies including Bill's Breakthrough Energy Ventures Gates, ElectriFI and Norfund participated as investors in the round.
Founded in 2013 by Femi Adeyemo and Kunle Odebunmi, Arnergy launched as a sustainable energy service provider aimed at supplying clean and reliable energy for businesses or homes. The company's energy systems are designed to address intermittent and grid unreliability issues, enabling residential customers and businesses in hospitality, education, finance, agriculture and healthcare to access and install affordable distributed energy systems and reliable.
Prior to its Series A financing, Arnergy had installed more than 2MW of electricity for more than 2,000 customers. In addition to $4 million in debt financing raised in recent years from both local lenders, such as the Nigerian Bank of Industry, and foreign entities, the company's investments have led to the deployment of more than 7 MW of systems. solar photovoltaics and the installation of more than 20 MW of Lithium Battery Energy Storage Solutions (BESS).
Despite the progress made, important challenges persist in the sector. Nigeria has a grid capacity of 12 GW, and only a fraction of it is accessible to consumers, meaning many Nigerians still lack reliable access to electricity. Most rely on self-generated power through gasoline or diesel generators, which come primarily from fossil fuels, and that poses health and environmental risks. The recent removal of fuel subsidies, rising diesel prices and difficult macroeconomic conditions underline the urgent need for energy cost savings among retail and commercial customers. While solar systems are the most common alternative, there remains a gap between supply and demand that Arnergy aims to address, driven by the prevailing dynamics in the local energy sector.
“I think one of the things that has been very important for Arnergy has been capital efficiency. We didn’t want to raise money for the sake of raising money,” CEO Adeyemo said in an interview with TechCrunch. “We were waiting for some triggers such as removal of fuel subsidy, closeness to grid parity based on grid price and also diesel prices to come back into the market. So the combination of all that gave us more or less signals based on triggers that we established the last time we raised money.”
Adeyemo emphasizes that the Nigerian market has reached a stage where solar electricity is becoming cost-competitive compared to grid power. In 2019, many in Nigeria did not consider solar systems to be economically viable. However, current prices for gasoline, diesel and grid electricity are driving greater demand for solar systems. Despite the challenges posed by currency losses, there is a global decline in prices for solar panels and lithium batteries. Adeyemo notes that lithium prices would have been significantly lower in Nigeria without the impact of exchange rate fluctuations. He notes that the cost per kilowatt-hour of lithium batteries was around $400 in early 2023, up from $250 per kilowatt-hour today.
This change in market dynamics led Arnergy to raise new financing to expand its operations and change its sales approach. Since its inception, the company has derived 75% of its business from direct sales rather than leases. Adeyemo explains that many customers found long-term leases, where the price is amortized over a period, to be more expensive than gasoline or diesel generators. However, with diesel prices rising significantly, up to five times higher, long-term leases now make more economic sense than in the past.
“We are now optimistic about leasing as cost competitiveness now makes sense. We have tried and tested it, and the possibility of non-payment is now lower due to the monthly expense of gasoline or diesel. You can more or less trade that for solar power. “It wasn’t the case four years ago, where you would pay more even if you had a five-year lease to own solar.”
Arnergy intends to capitalize on this trend in the near future. Nigeria, its largest market, continues to face challenges in stable electricity, with significant improvements unlikely in the near term. Furthermore, it is worth noting that even in regions such as Europe, the US or Australia, where grid reliability is high, there is a growing trend towards the adoption of solar energy despite the elimination of rebates in certain cases.
To that end, the ten-year-old cleantech company, which has seen tenfold revenue growth over the past five years, plans to maintain its service delivery in the 36 states where it operates in Nigeria through developers of minigrids. In addition, Arnergy is preparing to raise its Series B round, which is scheduled to close this quarter. The next funding round aims to facilitate further expansion of its operations and accelerate the adoption of its renewable energy products and solutions within and outside Nigeria.
“We are proud of our partnership with Arnergy over the past few years. With this partnership, we have been able to achieve some of our goals of empowering communities and creating a cleaner future for Nigeria,” Caroline Eboumbou, CEO of All On, said in a statement. “Arnergy exemplifies the impact we strive to achieve at All On: innovative solutions, unwavering commitment to sustainability and a relentless focus on social impact. This investment reaffirms our confidence in their ability to scale their operations and accelerate the adoption of clean energy in Nigeria and beyond.”
