African PAYG solar companies have hogged 72% of sector’s investment


The latest biennial report into the global off-grid solar industry points to a post-pandemic recovery in sales of home solar systems, but also highlighted the stranglehold the seven biggest Africa-facing pay-as-you-go (PAYG) companies have on the sector.

The Off-Grid Solar Market Trends Report 2022: State of the Sector document was published this week by the World Bank, Netherlands-based industry trade body Gogla, US membership group the Efficiency for Access Coalition, and Nairobi-based financial company Open Capital Advisors.

The report stated sales of, typically single-panel solar home systems (SHS') rose 10% last year from Covid-induced lows in 2020 to contribute $2.1 billion to a world market worth $2.8 billion in 2021 when the $700 million solar-powered appliance trade is included. Appliance sales – mainly of TVs in Africa and fans in South Asia – have yet to rebound from the pandemic, according to the study.

In funding terms, some 72% of the total backing secured to date for the “affiliate” off-grid solar businesses which submit their numbers to Gogla went to just seven companies, the report stated, with 26% shared between another 150 businesses.

The fact the big seven “seem to have overcome the pandemic,” according to the report's authors, is likely to unlock access to even wider equity backing and will see them drive a round of consolidation in the industry, after the acquisitions made by conventional big energy companies going into the Covid slump.

As an example, San Francisco-based d.light has secured $365 million to expand operations since the last off-grid solar report, in February 2020, via a special purpose vehicle from which investors will bank returns from the company's PAYG receipts. Chicago-based Sun King – formerly Greenlight Planet – this year landed a $260 million series D funding round led by the climate investment arm of New York private equity firm General Atlantic.

The other members of the big seven identified in the report are London-based Bboxx, France's Engie Energy Access, Dutch business Lumos, Nairobi-based M-Kopa, and Amsterdam's Zola Electric.

Those businesses garnered $243 million in loan backing last year, according to the study, and $70 million from share sales while the other 150 businesses in the Gogla database took out $52 million worth of loans between them, attracted $50 million in equity investment, and $9 million in non-repayable grants.

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Most investment is still flowing into the more mature East African off-grid market, via the big seven although a bigger number of businesses were active in West Africa, albeit attracting less backing. The off-grid solar report – which this year will be split in two with a forward-looking outlook to be published later in October – said less data was available from South Asia because a prevalence of cash purchases there meant less outside investment was required, and because more companies were present which do not report their figures to Gogla.

The document highlighted industry developments such as the need to regulate the PAYG market and for companies to have e-waste disposal and recycling policies in place, notably after recent waste-related legislative changes in Kenya, Ghana, Tanzania, and Nigeria. On that issue, the study highlighted the work of a company called Solaris which is giving spent automotive battery cells a second life in power packs for SHS'.

Overambitious sales plans

The Gogla-World Bank study also shed light on the problems caused by fast-expanding PAYG giants having been over-optimistic about their market reach and the ability of their lowest-income customers to keep up with payment plans. For instance, the authors said, the government of Rwanda is considering scaling back its aim of using off-grid solar to provide electricity access to 48% of its population by 2024, to 30%. Kigali could reportedly raise the ambition of using its conventional power grid to compensate, from 52% to 70% of the population by the same deadline.

The study hinted the phrase “off-grid solar” may soon become obsolete, with rising numbers of urban customers using solar-powered devices and power systems to compensate for grid deficiencies, opening up a huge new market for African solar companies.

And the 160-page publication also highlighted, again, how far the world remains from the goal of universal access to electricity this decade, with 90 million Nigerians lacking power, along with 72 million people in the Democratic Republic of the Congo, and 56 million Ethiopians.

With electricity access failing to keep pace with rising population numbers and an estimated 128 million people and 3.1 million businesses having missed out on solar power due to Covid, the report also skewered the claim made by Bangladeshi head of state Sheikh Hasina in March that her country had achieved universal access to electricity.

According to the World Bank, Gogla, Efficiency for Access, and Open Capital, only 96% of Bangladeshis had access to power when the first installment of the report was finalized, in August, leaving six million people without.

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