How SMEs can overcome power challenges, boost growth

Amid persistent and unpredictable power outages coupled with the impending escalating electricity tariffs, DAMILOLA AINA, delves into viable and innovative alternative energy solutions specifically tailored for small businesses with an asset base of N5m, offering practical strategies to mitigate the detrimental impact of the power crisis on their operations and profitability

Small and medium-sized enterprises make up about 96 per cent of businesses in Nigeria and create about 84 per cent of employment in the private sector. These businesses therefore play a crucial role and are the engine of future economic growth as Nigeria strives to diversify and expand its economy.

In 2024, these businesses, majorly providing services, contributed 57.38 per cent to Nigeria’s GDP in the fourth quarter of 2024 and a 5.37 per cent growth rate. This was the highest contribution from any sector in the quarter, surpassing its growth record in 2023.

Despite the immense potential, SMEs in Nigeria are struggling to survive, with over 50 per cent failing within their first year of operation. More specifically, research indicates that more than 95 per cent of SMEs close their doors within the first five years. This alarming failure rate is largely attributed to several challenges unique to the Nigerian environment, with inadequate power supply standing out as one of the most significant. The erratic distribution of electricity and escalating costs make it incredibly difficult for small businesses to maintain consistent operations, thereby exacerbating their financial strain and limiting their growth prospects.

Power, in its erratic and inconsistent form, has become an anathema, impeding the growth of SMEs in Nigeria. The country’s inconsistent power supply and high electricity tariffs create significant hurdles for business owners, who rely on a steady and affordable energy source to maintain operations. The frequent power outages not only lead to lost productivity but also increase operational costs as businesses are forced to turn to alternative power sources, often at a premium. To survive and thrive, Nigerian SMEs must adopt strategies to resolve these power challenges and reduce their reliance on the national grid.

Nigeria’s national grid has long been plagued by underinvestment, poor infrastructure, and inefficient management. Despite several efforts to privatise the sector, power supply remains unreliable, with frequent outages and voltage fluctuations. Nigeria’s power sector has long been plagued by numerous challenges, creating a significant bottleneck to economic growth and industrialisation. Despite its vast energy resources, including abundant fossil fuels and renewable energy potential, the country struggles with unreliable electricity supply, leading to frequent blackouts and reliance on expensive alternative power sources, such as generators.

Many power plants, especially thermal stations, depend on gas, but the inadequate supply of this critical resource – caused by pipeline vandalism, non-payment issues, and regulatory bottlenecks – has often led to underperformance. Already, over 60 per cent of manufacturing firms have exited the national grid.

Besides, the Transmission Company of Nigeria, which oversees the national grid, has limited capacity to handle the generated power. In part, the grid infrastructure is generally outdated and fragile, frequently collapsing under stress and causing nationwide blackouts.

On the distribution side, power supply remains unreliable due to technical and commercial losses, estimated at over 40 per cent.

Additionally, the cost of electricity has been on the rise, with a pending increase for non-band-A consumers further straining the resources of SMEs. As a result, many businesses are forced to rely on expensive generators, which only add to their operational expenses and environmental footprint.

Fortunately, there are several alternative power solutions that SMEs in Nigeria can explore to alleviate the burden of unreliable power supply and high electricity tariffs.

Here are some practical alternatives:

Adopting alternative energy solutions SMEDAN, in recognition of this challenge, launched a 240KVA solar-powered mini-grid to enhance energy access for MSMEs. This initiative aims to provide uninterrupted, sustainable, and affordable power, addressing one of the most critical challenges faced by entrepreneurs and small businesses in the country. It was stated that at least 120 entrepreneurs would benefit from the facility daily.

The facility is powered by 254 locally manufactured solar panels, generating 240 kVA to ensure a sustainable and uninterrupted energy supply.

The Director-General of SMEDAN, Charles Odii, highlighted that the initiative is designed to alleviate these pressures by offering SMEs a cost-effective space to operate and scale their businesses.

The agency also noted recent interventions at the Idu Centre, such as the solarisation of the garment-making section with a 120 KVA Hybrid Mini-grid inverter system with a 240 KWH Lithium Battery, have significantly improved energy reliability, enabling the fashion hub to thrive. Access to renewable energy will enhance productivity while reducing costs, making it easier for fashion entrepreneurs to meet the rising demand for Nigerian-made products, both locally and across African markets under the African Continental Free Trade Agreement.

Providing further clarification, SMEDAN press director, Moshood Lawal, explained that small businesses benefit from the arrangement without the challenges of office space, power, modern equipment, logistics, and gaining access to global markets.

He said in an interview, “The solar power mini-grid is part of SMEDAN efforts to bring down production costs for MSMEs as well as stimulate interest in clean energy within the MSME ecosystem. We are currently solarising SMEDAN offices across selected states.

“The SMEs will benefit by extension of the improved business development services to be provided at SMEDAN state offices. Tailors and other entrepreneurs can now sew and do their business without the rigours of office space, power, modern equipment, reduction in logistics and access to global markets. We currently have similar facilities in Katsina and Osogbo, Osun State, and it will be extended to interested states.”

The initiative mirrors a pay-as-you-go solar option, offering a transformative solution that empowers both shop owners and business owners with a reliable, 24-hour uninterrupted power supply. This innovative approach not only ensures consistent energy access but also drives increased productivity, fostering a thriving environment for enterprises. In turn, this will significantly enhance the livelihoods of SME operators across Nigeria, elevating their living standards and contributing to long-term economic growth.

In addition to adopting alternative energy solutions, SMEs in Nigeria can implement the following strategies to optimise energy consumption and reduce costs:

Energy efficiency measures: SMEs can adopt energy-efficient technologies, such as LED lighting, energy-efficient appliances, and power-saving equipment. These can significantly reduce overall energy consumption and mitigate the impact of high electricity tariffs.

Peak load shifting: SMEs can adjust their operating hours to reduce electricity use during peak periods when tariffs are highest. This can help businesses save on electricity costs while contributing to the overall stability of the power grid.

Energy monitoring: Installing energy management systems allows SMEs to track their energy usage in real-time, helping them identify inefficiencies and areas for improvement. By using data-driven insights, businesses can make informed decisions to optimise energy use.

Collaborative power solutions: SMEs in close proximity can explore the possibility of sharing power through a mini-grid or collective energy system, reducing the individual cost burden of installing alternative power solutions.

Addressing the power challenges faced by SMEs in Nigeria requires a multi-faceted approach. By embracing alternative energy sources like solar, wind, and biogas, SMEs can not only reduce their dependence on the unreliable national grid but also lower operational costs, improve sustainability, and boost long-term profitability. Although the initial investment in these technologies can be high, the long-term benefits far outweigh the costs, making alternative power solutions a smart choice for Nigeria’s SMEs.

Adopting a combination of renewable energy sources and energy-saving strategies is the key to overcoming the ongoing power crisis and ensuring the growth and success of SMEs in Nigeria.