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Nigeria’s Ardova seeks debt and equity finance to up clean energy

Nigerian downstream petroleum company Ardova plans to raise debt and equity financing as it seeks to reorientate its business model towards clean energy, CEO Olumide Adeosun tells The Africa Report.

The company aims to complete a capital raising in the fourth quarter of 2020 or the first quarter of 2021, Adeosun said in an interview. He declined to say how much he will be seeking. Ardova plans to appoint an international bank to find the debt and will seek to raise the equity itself, says Adeosun.

The proceeds will be used to scale up the clean energy business, which currently makes a minimal contribution to the top line. Ardova is aiming for 20% of revenue to come from clean energy by 2024. This will be divided between liquefied petroleum gas (LPG) for cooking, solar power and waste to energy conversion.

The COVID-19 pandemic has given fresh urgency to Ardova’s plans. Lockdowns showed that “it’s possible not to sell petrol in this country for a month and the world goes on,” says Adeosun. The company’s aviation fuels business “fell apart” as demand slumped.

  • The biggest share of clean energy revenue is likely to come from LPG, notes Adeosun, adding that clean cooking fuel is one area where the demand curve is not affected by recession.  “It’s an area of focus for the government and for us.”
  • Ardova is also in talks with prospective partners in solar and waste to energy conversion.
  • Adeosun expects the share of clean energy to continue to increase its share of company revenue beyond 2024, driven by strong demand for electric motorcycles and bikes.

Solar Grid Access

Nigerian billionaire Femi Otedola sold his 75% stake in Forte Oil to local oil trader Prudent Energy in 2019. The company, which trades on the Nigerian stock market, was then renamed Ardova Plc in January.

The company’s diversification strategy was in place before COVID-19, and the pandemic did not trigger any need for fundraising, says Adeosun. “The rationale was always about diversifying. We know how to distribute fuels,” and this knowledge can also be used for clean energy, he adds.

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Ardova is interested across the spectrum of solar power services as 77% of addressable Nigerian users have no grid access, says Adeosun.

  • Even those who are on the grid often have less than four hours of access per day, he adds.
  • That creates scope for the company to use its “pay as you go” model for petrol sales to new products, says Adeosun.
  • Ardova will offer solar batteries which once charged up can give power for a day or longer.
  • Adeosun’s plan is to implement a “pay as you go renewables” model which uses a digital payments platform while remaining open to traditional payment methods.

Containing costs while executing the strategic shift will be a challenge.

  • A note from Meristem Securities in Lagos on June 29 says that Ardova’s cost-to-sales ratio in the first quarter rose to 94.64%, versus 92.80% a year earlier.
  • That compares unfavourably with rivals such as Total on 88.96% and Eterna on 92.71%, says Meristem.
  • The “cost brakes” have been put on some capital expenditure plans as a result of COVID-19, notes Adeosun.

A high cost base and a poor economic outlook means that Ardova will need to find investors who have what microfinance practitioners call a “double bottom line”. Such investors aim to make a social impact through innovations such as clean cooking and renewable energy, as well as getting a financial return.

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Supporting small scale farmers to adopt solar energy

The World Bank Group in its report of 2018 estimates that nearly 600 million people in Sub-Saharan Africa are not connected to national grid electricity and hundreds of millions more live with unreliable connections, plagued by frequent blackouts.The majority of off-grid households are rural small scale farmers who depend on agricultural activities for sustenance and income. With so many unable to power or afford appliances, a full 65 per cent of land in Sub-Saharan Africa is tilled, ploughed, and weeded manually, resulting in globally low farm yields – while over a quarter of the adult population in the region suffers from food insecurity.The report also reveals that electrical appliances, such as irrigation systems and refrigeration, could increase food production and reduce post-harvest losses – but without electricity and adequate financing options, these solutions remain out of reach.

Diesel-powered applications are used by some mid-sized and larger off-grid farms, but these appliances are typically not sized for small-scale farmers and have other drawbacks including high pollution levels and high recurring costs.But with renewable energy that comes from the natural ecosystem, rural small scale farmers can fully benefit from it.
In Kenya, the use of solar energy to generate power by small scale farmers is growing gradually. While it has been widely criticised for being expensive or inefficient, solar energy has now proved to be extremely beneficial to smallholder farmers. Solar energy is being used to pump water from rivers, boreholes, and other water sources.According to the Kenya National Bureau of Statistics survey report of 2019 only 6 per cent  of farmland in Kenya is irrigated, this is partly due to poor access to affordable energy services on farms.The use of solar energy could help small scale farmers harness water for irrigation and domestic uses. Many small scale farmers use solar energy to dry farm produce to achieve the desired moisture content.

There are improved solar drying technologies readily available in Kenya to help small scale farmers effectively and efficiently attain the desired farm to produce moisture content at affordable costs.However, there is limited use of solar energy among small scale farmers in lighting houses at night and powering farm machines.Small scale farmers need to exploit the full potential of solar energy given its advantages over some of the more exploited energy sources. Despite the high initial costs of installation and power storage, solar energy has low maintenance costs and for small scale farmers it turns out to be cheaper in the long term.As a country, we are blessed with adequate sunshine throughout the year to generate enough power that would satisfy power demand for all small scale farmers. Harnessing this power by installing solar panels can make a significant difference in the cost of energy by small scale farmers thus helping them to make more positive net incomes.The various stakeholders who support small scale farmers should help them embrace and invest in solar energy.

The government should put in place appropriate policies to promote investment in renewable energy sources like solar power.Various incentives could be entrenched in such policies to encourage small scale farmers. Financial support mechanisms to support small scale farmers who are investing in renewable energy sources should be developed and implemented.Some of these would include low-interest credit facilities to small scale farmers who are putting an initial investment in solar energy.It is also prudent that the National Government, County Governments, non-governmental organizations, and other players create adequate awareness and knowledge on solar energy and particularly targeting the small scale farmers.On the other hand, small scale farmers at the community level should form co-operatives and community-based organizations to enable them to consolidate funds to invest in solar energy.

A Commitment to Reduce Carbon Emissions

IRecco has received inquiries seeking clarification of job offers received in unsolicited fashion. These job offers appear to come from organisations falsely pretending to recruit on behalf, or by people…