ColdHubs - Solar Cold Rooms in Nigeria
Solar Cold Hubs
The innovative technology Cold Hubs is a modular, solar-powered walk-in cold room, for 24/7 off-grid storage and preservation of perishable foods. The system is designed to address the problem of post-harvest losses in fruits, vegetables and other perishable foods. Cold Hubs can be installed in major food production and consumption centers such as food markets. This technology allows for farmers to extend the freshness of their harvest from approx. 2 days to 21 days. The foods are placed in clean plastic crates which are stacked inside the cold room for a daily fee.
The solar powered walk-in cold room is made of 120mm insulating cold room panels to retain the low temperature. Energy from solar panels mounted on the roof-top of the cold room are stored in high capacity batteries which feed an inverter which in turn feeds the refrigerating unit.
Food Security in Nigeria
Nigeria is the most populous country in Africa and the seventh most populous country in the world. The agricultural sector contributes to 40 percent of Nigeria´s GDP and employs approximately two-thirds of the country’s total labour force. However, there are many issues affecting the agricultural sector, leading to severe implications. Although 71 million hectares is estimated to be cultivable land, only half is currently used for farming. An additional issue is that merely 7 percent of irrigable land uses irrigation techniques: most of the small farms are depending on seasonal rainfall. These have however become more unreliable as climate change heavily affects the agricultural sector. Droughts are common in the north, while erosion and flooding are major problems in the south.  This increases the vulnerability of the population, particularly in rural areas.
In addition, lack of cold storage leads to enormous food losses in an already fragile situation. Although Nigeria produces 23 million tons of fresh fruit and vegetables each year, post-harvest losses reach up to 45 percent. This adds to the food insecurity in the country and leads to significant income losses for about 50 million smallholder farmers.
Poverty affects more than half the population with over 60 percent (around 110 million) living under the poverty line . The lack of job opportunities is at the core of high poverty levels, of regional inequality, and of social and political unrest in the country.
The 2018 Global Hunger Index ranks Nigeria 103rdout of 119 qualifying countries. With a score of 31.1, the severity in Nigeria is stated to be serious. As such, Nigeria is one of the world's most food-insecure countries. Population growth is further threatening the food production, as it demands more resources.
Eleven solar cold hubs have been installed in Nigeria, including three on markets in Owerri, Orlu and Obowo (all in Imo state), and two on cooperative level in the Kano region. The technology has been developed by the ILK Dresden and installed by the Smallholders Foundation. The Nigerian company ColdHubs supplies markets and cooperatives with the cold rooms. The pilot project has been implemented in the framework of the initiative “Powering Agriculture-An Energy Grand Challenge for Development” (PAEGC)
This summery represents the findings of an analysis of the financial viability of the solar cold room. It is crucial to access whether the implementation of Cold Hubs is financially profitable without external funding in order to ensure its upscaling potential. If so, it would be an important and sustainable innovation to minimize food waste, increase farmer incomes and reduce environmental impacts: being a sustainable solution for the future to come
Each Cold Hub has the capacity to store approximately 2 tons of perishable food (150 crates). The two Cold Hubs analysed exceeded the maximum storage capacity by 161 crates on average. This maximum capacity was in general filled by 3 to 4 customers. Most of the users used the rooms intermittently: The majority used the cold room once a month and less than 10 percent (4 out of 44) were storing products more than five times per month.
With roughly 429 markets in Nigeria, there is a large potential market. One of the analysed cold hubs in the Relief market indicated to have 45 monthly customers, of which 30 were regular. However, since the area hosts at least 100 fruit- and vegetable traders, the solar cold room would not have the capacity to accommodate them.
The current cooling fee of 100 N/crate (approx. 0, 27 USD) was seen as acceptable by the interviewees. The initial cost for installing a cold hub varies between $28,500 and $33,500, depending on what kind of financial model is used. In addition, a viable scenario analysis indicate that these cost may further decrease or increase depending on how the cooling fee, interest rate and equity financing is adjusted.
Business Model Analysis
In order to assess the financial profitability of Cold Hubs, three business models were evaluated (the current ownership model as well as a potential third-party/user- and a franchising model).
Status Quo: The Ownership Model
ColdHubs currently operates under an owner-ship based business, meaning the supplier ColdHub both owns and operates all facilities. In this business model, based on the key performance indicators, the initial investment of 28,500 USD is profitable (Table 1). The utilization rate of 110% reflects the high productivity, exceeding the theoretical full capacity of the Cold Hub. The financial model revealed that the investment would be profitable as long as the utilization rate is above 94%. The current high productivity only adds to the viability of the innovation.
At the moment, extensive use leads to a faster discharge of the batteries compared to the usual durability of six years. However, even when battery replacement is assumed after every three years, the Internal Rate of Return (IRR) still exceeds 40% which adds to the robustness of the business model and proves the profitability of the innovation.
|Internal Rate of Return (IRR) after 20 yrs.
|Debt Service Ratio (DSCR)
Alternative Business Models
Profitable but Investors Are Reluctant Due to Higher Risks
- World Food Programme, “Nigeria” Accessed Sep. 25, 2019 https://www.wfp.org/countries/nigeria
- Food Security Portal, “Nigeria”, Accessed Oct.10 2019 http://www.foodsecurityportal.org/nigeria/resources
- World bank, “The World Bank In Nigeria”, Last modified Apr 09, 2019, Accessed Sep. 25 2019 https://www.worldbank.org/en/country/nigeria/overview
- Higher numbers indicates severer hunger situations.
- ≤9.9=Low, 10.0–19.9=Moderate, 20.0–34.9=Serious, 35.0–49.9=Alarming, ≥ 50.0=extremely alarming
- Global Hunger Index, “Nigeria”, Last modified 2019, Assessed Oct. 10 2019 https://www.globalhungerindex.org/nigeria.html
- Famine Early Warning Systems Network, „Acute Food Insecurity: Near Term (August-September 2019) “, Accessed Sep.25 2019. http://fews.net/
- The IRR is used to estimate the profitability of potential investments. The internal rate of return is a discount rate that makes the net present value (NPV) of all cash flows from a particular project equal to zero.