3 key takeaways from the Off-Grid Solar Market Trends Report: State of the Sector
Despite the challenges of COVID-19, the off-grid solar industry has enabled an additional 70 million people to access clean, reliable light and power over the last two years. The majority of these customers live in rural areas, on less than $3.10 a day. They are the people the grid has not yet been able to connect. And those the off-grid solar industry is determined to reach.
The services powered by off-grid solar have also been steadily expanding. Over the last 5 years, sales of productive use appliances, such as solar water pumps and cooling systems, have also hit a significant scale, allowing small holder farmers to boost their crop yields, entrepreneurs to power their businesses and health centres to store vaccines through a reliable cold-chain.
Yet despite these advances, restrictions on movement, supply chain issues, economic challenges and a slow down in investment resulting from the pandemic led to 120 million fewer people accessing off-grid solutions than projected, and caused repayment issues for some pay-as-you-go (PAYGo) customers. A lack of equity funding further impacted the pace of expansion into new countries. While many off-grid companies demonstrated impressive resilience by streamlining operations, diversifying product lines and expanding their urban customer base, the industry did not escape unscathed and the post COVID economic environment has made millions of people even harder to reach. To ensure the poorest are not left behind, action is needed in 3 key areas:
Action 1: Address the growing affordability gap
Today, 733 million people are still living without any access to electricity, and the number expected to remain without access in 2030 has grown due to declining incomes, global inflation, and other macroeconomic issues. Off-grid solar is the most cost-effective way to electrify more than half of this number. However, even with consumer finance such as PAYGo, 177 to 277 million currently unconnected people are still unable to afford even a basic solar energy kit. Without PAYGo, affordability levels drop further, and for larger, productive use technologies, the challenge is even greater. “Appliances such as solar water pumps and refrigerators are increasing food security, income and productivity, but the majority of people that need them most are simply unable to afford them. This must change.” explains Makena Ireri, Research Lead at Efficiency for Access.
Action 2: Support off-grid solar in nascent and emerging markets
Almost 300 million people currently without electricity access live in countries where there is little commercial off-grid solar activity. These countries are often characterized by a degree of fragility, conflict, and violence. Serving them will require additional effort and focus. “More concerted action is needed to unlock electricity access in difficult market settings.” said Dana Rysankova, World Bank Lead Energy Specialist, “Access to solar solutions is critical to ensure that hundreds of millions of people can lift themselves out of energy poverty.”
Action 3: Increase finance for seed and start-up companies
Investments into the off-grid industry have continued to grow since 2012, reaching over $2.3 billion cumulatively. While this is a great achievement for any early-stage industry, it still falls far short of the amount needed to reach global access goals. The financing gap further divides the sector into two categories: 1) a small group of companies who can operate at scale — absorbing the vast majority of investment, 2) the majority of companies who remain in their seed and start-up phase.
“Companies need seed funding to bridge the ‘pioneer gap’ between small and large scale. We see a lot of potential in early-stage enterprises and those operating in new and challenging markets,” said Bill Gallery of the International Finance Corporation. “We need to find ways to unlock investment through alternative financing approaches, for example bringing local banks into the sector or working through the other financial intermediaries. Expanding the universe of successful off-grid companies is crucial to allowing the sector to meet the needs of SDG7,” he continued.
Insights on these topics and other key industry trends can be found in Part 1 of the Off-Grid Solar Market Trends Report: State of the Sector released today. ‘Gamechangers’ to address these issues will be explored in Part 2 of the report: Outlook. The Outlook report will be launched on the 18th October at the Global Off-Grid Solar Forum & Expo in Kigali, Rwanda. Join us in learning about, discussing and debating how we meet today’s electrification challenges head on, so that we can still achieve universal access by 2030.
Authors: This article was co-written by: Makena Ireri, Efficiency for Access; Patrick Tonui, GOGLA; Bill Gallery, International Finance Corporation; Dana Rysankova, World Bank and Harry Masters and Duda Slawek, Open Capital Advisors