All small businesses in Nigeria with exception to none own a generator of at least a 1.5KVA which uses petrol (AGO) as its fuel. The very big corporations and companies run Generators of 500KVA up to a 2,500KVA. This is because without power their business activities and operations will instantly be ground to a halt. Many of these businesses own at least two generators of close capacity to mitigate against power outage in the event of breakdown from their primary generator.
What this also means is that a huge budget is created to cater for fuel (diesel or petrol as the case may be) and also for servicing and maintenance of generators. In this blog post, we will be looking at the financial analysis of going Solar using a Petrol station as our case study.
Typically, most petrol stations resume their business activities from 5 AM in the morning to cater for early vehicular traffic created by travelers and transport companies till sometime between 9 PM in the evening when they close for the day. This 16-hour operation is often alternated by staff who work in shifts to meet the objective of their management. However, there are peak hours that must not be joked with if good sales are to be made every day and this period ranges from 6 AM to 9 AM in the mornings and from 5 PM to 8 PM in the evenings.
The importance of electricity cannot be overemphasized as there has to be power (either from the Grid or from their Generators) at all times during their 16-hour operation. Knowing the case in Nigeria, their generator has to be to keep the pumps and nozzles powered in the event of a sale. What this also means is that their Generators MUST be switched on at all times whether there is a customer to sell to or not. The average petrol station in Nigeria has 4 Pumps for Petrol, 1 pump for diesel and 1 Pump for Kerosene and uses between a 25KVA to a 50KVA generator to power the 6 Pumps together with the office attached to the petrol station.
The average 25KVA diesel generator consumes 3 liters of diesel per hour at 50% load, while the average 50KVA diesel generator consumes 4.3 liters of diesel at 50% load. In this our analysis, we’ll use an average diesel consumption rate of 3.5 liters per hour.
The current price of diesel hovers between N200 per liter and N210 per liter and in the event of absolutely no power from the grid as is most often the case many times in Nigeria, these petrol stations must spend the following:
COST OF DIESEL FOR 16 HR OPERATION – 3.5 Liters per hour X 16 hours of operation = 56 Liters Per day (At N200 per liter of diesel) the daily cost of power stands at- 56 Liters per day X N200 per Liter = N11,200.
This brings the cost per kWh of electricity from their diesel generators to- N11,200 /16 Hrs = N700 At a daily cost of power for N11,200 daily or N280,000 monthly (assuming the petrol station runs its Generators for 25 days) or N700 per KWh.
It is outrageous to know that this has been going on for decades even though the price of diesel at some point reduced to as low as N160 per liter since the market is fully deregulated. Factoring in a monthly servicing & maintenance cost of 15% brings the total generator expenditure from N280,000 to N322,000. A filling station located in Gwagwalada – Abuja, spending an average of N345,000 monthly for their 40KVA generator procured a 20KWp solar solution at N10m in 2014.
They paid a deposit of 30% with an agreement to spread the balance over 36 months. This 20KW solar system completely replaced the need for their generators and has a lifespan of 25 years. Immediately the solar system was installed, their monthly bill for power crashed from N345,000 down to N194,000-instantly saving them N151,000 in the process. In 3 years’ time, they stopped all payments and completely own the solar system.
The most important part was that their budget for power went from N345,000 monthly to zero after month 36. Now they can enjoy the next 22 years free from any cost of power to run their business. In conclusion, power is a cost all businesses must incur. The wise Nigerian business must immediately think ahead on how to bring down this cost in a clean, smart and sustainable way to create more cash flow to grow the business.