Market Study on Scaling Up Off-Grid Solar in Benin, Burkina Faso, Côte d’Ivoire, Ghana, Senegal, and Togo  © 2024 International Bank for Reconstruction and Development/The World Bank 1818 H Street NW Washington DC 20433 Telephone: 202-473-1000 Internet: www.worldbank.org The findings, interpretations, and conclusions expressed in this work do not necessarily reflect the views of The World Bank, its Board of Executive Directors, or the governments they represent. The World Bank does not guarantee the accuracy, completeness, or currency of the data included in this work. It does not assume responsibility for any errors, omissions, or discrepancies in the information, or liability concerning the use of or failure to use the information, methods, processes, or conclusions set forth. 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Any queries on rights and licenses, including subsidiary rights, should be addressed to World Bank Publications, The World Bank Group, 1818 H Street NW, Washington, DC 20433, USA; fax: 202-522-2625; e-mail: pubrights@worldbank.org. Report design: Simpelplus.de Market Study on Scaling Up Off-Grid Solar - in Benin, Burkina Faso, Côte d’Ivoire, Ghana, Senegal, and Togo ii Acknowledgments This market study was prepared for the World Bank’s Compact with Africa Green Business Fund. Its preparation was overseen by Samuel Jovan Okullo and Richard Claudet with support and guidance from several World Bank colleagues, including Laurent Granier, Elisa Portale, Raihan Elahi, Jan Friedrich Kappen, Yuri Lima Handem, and Yanchao Li. Umberto Trivella, Energy Finance Program Manager, and Paul Picot, Ecosystems Platform Director at CIDR Pamiga, led the preparation of the report. The report benefited from inputs and reviews by Sylla Elhadji (ECREEE), Attikou Diawara (BOAD), Patrick Doyle (IFC), Nana Asamoah-Manu (IFC), Oliver Reynolds (GOGLA), and Iñigo Ibiricu Anguera (WB). Several experts were involved in conducting the study in each of the target countries, including Cyrille Hounsou (Benin), Georges Somda (Burkina Faso), Frédéric Viho Kolor (Côte d’Ivoire), William Addo (Ghana), Mansa Oualy (Senegal), and Kodjovi Sogan (Togo). Appreciation also goes to several interviewees who participated in the stakeholder meetings conducted within the framework of the study. Contents Key definitions Synthesis Chapter 1 2 3 4 5 6 Acknowledgments Table of contents Acknowledgments ii Acronyms v Key definitions xi Synthesis xv 1. Introduction 1 2. Policy, regulatory, and enabling environment for OGS 3 2.1. Key strategies and policies at the regional and international levels 5 2.2. Key strategies and policies at the country level 9 2.3. Impact of COVID-19 and evolution in the post-pandemic context 15 2.4. Main challenges related to the policies, strategies, and regulatory environment 16 2.5. Potential and needs to strengthen the sector 17 3. Initiatives for OGS development 21 3.1. Main initiatives at regional level 22 3.2. Main initiatives at the country level 28 3.3. Main challenges faced for the development of the OGS sector 36 3.4. Potential and needs to strengthen the sector 38 4. OGS equipment distribution landscape 39 4.1. Overview of interviewed solar companies 41 4.2. Impact of COVID-19 and evolution in the post-pandemic context 43 4.3. Solar equipment distributed 44 4.4. Current access to finance of solar companies 48 4.5. Potential and needs to strengthen the distribution of equipment 49 5. OGS financing landscape 53 5.1. Financial institutions 54 5.2. Institutions managing financial instruments 74 6. Conclusions and recommendations 85 6.1. Proposed RSF to enhance solar financing 87 6.2. Proposed capacity-building and training measures for OGS stakeholders 97 Annex 1: List of stakeholders interviewed 101 Bibliography 107 Market Study on Scaling Up Off-Grid Solar - in Benin, Burkina Faso, Côte d’Ivoire, Ghana, Senegal, and Togo iv List of Tables Table 1 Access to electricity in the six target countries (% of the population) 4 Table 2 Key policy/regulatory challenges and recommendations per target country 14 Table 3 Solar energy kits sales volumes in targeted countries in 2022 32 Table 4 Key solar appliances sales volumes in targeted countries in 2022 32 Table 5 Main information on interviewed solar companies 33 Table 6 Main types of solar equipment distributed 35 Table 7 Most common payment plans offered to end users 36 Table 8 Solar companies’ desired/preferred financing terms 40 Table 9 Number of FIs interviewed by category and country 43 Table 10 Key information on interviewed FIs 43 Table 11 Experience of interviewed FIs in financing OGS 46 Table 12 Financial products currently available to finance solar companies 47 Table 13 Financial products currently available to finance solar equipment for end users 48 Table 14 Use of credit lines by the interviewed FIs 51 Table 15 Main features of credit lines received by commercial banks and MFIs 53 Table 16 Use of RSFs by interviewed FIs 54 Table 17 Main features of RSFs used by commercial banks and MFIs 54 Table 18 Financial instruments offered by interviewed institutions 59 Table 19 Current debt instruments offered by interviewed institutions 60 Table 20 RSFs offered by national and regional funds 61 Table 21 RSFs offered by Proparco, AGF, and IFC 61 Table 22 Proposed terms for an RSF to enhance solar financing 69 Table 23 Tentative training curriculum per stakeholder type 77 List of Figures Figure 1 Illustration of RSF first loss only cover functioning (option 1) 91 Figure 2 Illustration of RSF pari passu only cover functioning (option 2) 92 Figure 3 Illustration of RSF combined first loss-pari passu cover functioning (option 3) 93 Figure 4 Illustration of RSF’s guarantee process 95 Contents Key definitions Synthesis Chapter 1 2 3 4 5 6 Acronyms Acronyms ABER Burkinabe Agency for Rural Electrification (Agence Burkinabe de l’Electrification Rurale) ABERME Beninese Agency for Rural Electrification and Energy Management (Agence Béninoise d'Electrification Rurale et de Maitrise d'Energie) ABNORM Burkinabe Standardization Agency (Agence Burkinabé de Normalisation de la Métrologie et de la Qualité) ACP-EU African, Caribbean, and Pacific - EU ADB Agricultural Development Bank (Ghana) ADF African Development Fund (AfDB Group) ADFD Abu Dhabi Fund for Development AECF Africa Enterprise Challenge Fund AEME Agency for the Economy and Energy Management (Agence pour l’Économie et la Maitrise De l’Énergie) (Senegal) AFD French Agency for Development (Agence Française De Development) AfDB African Development Bank AFGC Africaine des Garanties et du Cautionnement AGF African Guarantee Fund AGSI Association of Ghana Solar Industries ANARE-CI National Regulatory Authority for the Electricity Sector (Autorité Nationale de Régulation du Secteur de l’Electricité de Côte d’Ivoire) ANER National Renewable Energies Agency (Agence Nationale pour les Énergies Renouvelables) (Senegal) ANEREE National Agency for Renewable Energies and Energy Efficiency (Agence Nationale des Energies Renouvelables et de l’Efficacité Energétique) (Burkina Faso) ANM National Standardization Agency (Agence Nationale de Normalisation, de Métrologie et du contrôle Qualité) (Benin) ARB Apex of the Rural Banks ARE Electricity Regulatory Authority (Autorité de Régulation de l’Electricité) (Benin) AREF Africa Renewable Energy Fund ARIZ Appui au Risque de financement de l'Investissement privé en Zone d'intervention de l'AFD ARSE Energy Sector Regulatory Authority (Autorité de Régulation du Secteur de l’Electricité) (Burkina Faso) ASER Senegalese Rural Electrification Agency (Agence Sénégalaise d’Electrification Rurale) AT2ER Togolese Agency for Rural Electrification and Renewable Energies (Agence Togolaise d’Electrification Rurale et des Energies Renouvelables) BCEAO Central Bank of West African States (Banque Centrale des Etats d’Afrique de l’Ouest) BDS Business Development Service BGFA Beyond the Grid Fund for Africa BICICI Banque internationale pour le commerce et l'industrie de la Côte d'Ivoire Market Study on Scaling Up Off-Grid Solar - in Benin, Burkina Faso, Côte d’Ivoire, Ghana, Senegal, and Togo vi BIDC ECOWAS Bank for Investment and Development (Banque d’Investissement et de Développement de la CEDEAO) BMZ Federal Ministry of Economic Cooperation and Development (Germany) BNDA Banque Nationale de Développement Agricole BNDE Banque Nationale de Développement Economique (Senegal) BOAD West African Development Bank (Banque Oust Africaine de Développement) C&I Commercial and Industrial CEB Communauté Electrique du Benin CEP Common Energy Policy CESCA Caisse d’Epargne, de Solidarité et de Crédit Autogérée (Benin) CET Common External Tariff CIE Compagine Ivoirienne d’Electricité CIF Climate Investment Fund COOPEL Electricity Cooperative (Coopérative d'électricité) (Burkina Faso) CRSE Electricity Sector Regulatory Commission (Commission de Régulation du Secteur de l'Electricité) (Senegal) CTF Clean Technology Fund CwA Compact with Africa DANIDA Danish International Development Agency DC Direct Current DCA Development Credit Authority DDEP Domestic Debt Exchange Program (Ghana) DFC US International Development Finance Corporation DFI Development Finance Institution DFID Department for International Development (UK) DGE Directorate General of Energy (Direction Générale de l’Energie) DGECH Direction Générale de l'Electricité Conventionnelle et des Hydrocarbures (Burkina Faso) DGGF Dutch Good Growth Fund DGRE Directorate General of Energy Resources (Direction Générale des Ressources Énergétiques) (Benin) DGTE Direction Générale de la Transition Energétique (Burkina Faso) EBRD European Bank for Reconstruction and Development EC Energy Commission (Ghana) ECG Electric Company of Ghana Ltd. ECOWAS/ Economic Community of West African States (Communauté économique des États d'Afrique de CEDEAO l'Ouest) ECREEE ECOWAS Regional Centre for Renewable Energy and Energy Efficiency ECT Energy Charter Treaty EEEP ECOWAS Energy Efficiency Policy EHR Regulatory Framework for Off-Grid Electrification (Electrification Hors Réseau) EIB European Investment Bank EnDev Energizing Development Contents Key definitions Synthesis Chapter 1 2 3 4 5 6 Acronyms EPA Environment Protection Agency (Ghana) EPC Engineering, Procurement, and Construction EREP ECOWAS Renewable Energy Policy ESG Environmental, Social, and Governance EU European Union EUEI-PDF EU Energy Initiative-Partnership Dialogue Facility EURIZ FADSR Rural Sector Development Support Fund (Fonds d'Appui au Développement du Secteur Rural) (Senegal) FAGACE Fonds Africain de Garantie et de Cooperation Economique FBDES Fonds Burkinabé de Développement Economique et Social FDE Energy Development Fund (Fond de Développement de l’Electrification) (Togo) FEI Facility for Energy Inclusion FI Financial Institution FNDA Fonds National de Développement Agricole (Benin) FNM Fonds National de la Microfinance (Benin) FONAFI Fonds National de la Finance Inclusive (Burkina Faso) FONAGA National Fund for SME Guarantee and Assistance (Fonds National de Garantie et d'Assistance aux Petites et Moyennes Entreprises) (Benin) FONDEM Fondation Energies Pour Le Monde FONGIP Fonds de garantie d'investissement prioritaires (Senegal) FONSIS Fonds Souverain d'Investissements Stratégiques (Senegal) FSA Fonds de Solidarité Africain FUCEC Faîtière des Unités Coopératives d'Epargne et de Crédit du Togo TOGO GADI Global Arch Development Initiative (Ghana) GBE Green People’s Energy (Grüne Bürgerenergie) GBF Green Business Fund GCB Ghana Commercial Bank GCF Green Climate Fund GEF-SPWA Global Environment Facility - Strategic Program for West Africa GIDA Ghana Irrigation Development Authority GIPC Ghana Investment Promotion Council GIRSAL Ghana Incentive-Based Risk-Sharing System for Agricultural Lending GIZ German Agency for International Cooperation (Deutsche Gesellschaft fur Internationale Zusammenarbeit) GoG Government of Ghana GOGLA Global Off-Grid Lighting Association GRA Ghana Revenue Authority GRR Ghana Reference Rate GSA Ghana Standards Authority Market Study on Scaling Up Off-Grid Solar - in Benin, Burkina Faso, Côte d’Ivoire, Ghana, Senegal, and Togo viii GVCT Ghana Venture Capital Trust Fund HTC Hatoum Trading Company (Ghana) ICRC International Committee of the Red Cross IDB Islamic Development Bank IEA International Energy Agency IEC TS International Electrotechnical Commission - Technical Specification IFAD-ENR Alternance Training Institute for Renewable Energy Development (Institut de Formation en Alternance pour le Développement - Energies Renouvelables) (Togo) IFC International Finance Corporation IPP Independent Power Producer IRENA International Renewable Energy Agency ISA International Solar Alliance ISO International Organization for Standardization KfW German Development Bank KPI Key Performance Indicator LBA La Banque Agricole (Senegal) LEAF Leveraging Energy Access Finance LoC Letter of Credit MCA Millenium Challenge Account MFI Microfinance Institution MFPAI Ministry of Vocational Training, Apprenticeship and Integration (Ministère de la Formation professionnelle, de l'Apprentissage et de l'Insertion) MNO Mobile Network Operator MoE Ministry of Energy MPEER Ministry of Petroleum, Energy, and Renewable Energy (Ministère du Pétrole de l‘Energie et des Energies Renouvelables) (Côte d’Ivoire) MPR Monetary Policy Rate MSMEs Micro, Small, and Medium Enterprises NDF Nordic Development Fund NEDCO Northern Electricity Company Limited (Ghana) NGO Nongovernmental Organization NORAD Norwegian Agency for Development Cooperation NREAP National Renewable Energy Action Plan O&M Operations and Maintenance OCEF Off-Grid Clean Energy Facility OGEF Off-Grid Energy Access Fund OGS Off-Grid Solar PACEV Support Program for the Creation of Green Job Opportunities in Senegal (Program d’Appui à la Création d’Opportunités d’Emplois Verts) (Senegal) PANEE Energy Efficiency Action Plan (Plan d'Action National d'Efficacité Energétique) (Burkina Faso) PANER Renewable Energies Action Plan (Plan d’Action National des Energies Renouvelables) (Burkina Faso) Contents Key definitions Synthesis Chapter 1 2 3 4 5 6 Acronyms PASEL Projet d'Appui au Secteur de l'Electricité (Burkina Faso) PAYGO Pay-As-You-Go PCG Partial Credit Guarantee PDCEJ Skills Development and Youth Employment Project in Growth Sectors (Projet de Développement des Compétences et Emploi des Jeunes) (Senegal) PDEHR Off-Grid Electrification Master Plan (Plan Directeur d’Electrification Hors Réseau) (Benin) PERU Rural Electrification Project (Projet d’Electrification Rurale) (Benin) PESOP Promotion des Equipements Solaires Productifs (Togo) PFI Partner/Participant Financial Institution PMIF Partnership for Market Implementation Facility PNER National Rural Electrification Plan (Plan National d’Electrification Rurale) (Senegal) PONADER National Renewable Energy Development Policy (Politique nationale de développement des énergies renouvelables) (Benin) PPA Power Purchasing Agreement PPP Public-Private Partnership PRG Partial Risk Guarantee PRODERE Regional Program for the Development of Renewable Energy and Energy Efficiency (Program Régional de Développement des Energies Renouvelables et de l'Efficacité Energétique) (Benin) ProFERE Project for vocational training in the fields of renewable energy and energy efficiency (Projet Formation professionnelle dans les domaines des énergies renouvelables et de l'efficacité énergétique) (Côte d’Ivoire) PSE Emerging Senegal Plan (Plan Senegal Emergent) PURC Public Utility and Regulatory Commission (Ghana) PV Photovoltaic RBF Results-Based Financing RCPB Réseau des Caisses Populaires du Burkina Faso RDF Rural Development Fund (Ghana) REACT Renewable Energy and Adaptation to Climate Technologies REAG Renewable Energy Association of Ghana REDAP Renewable Energy Development and Acceleration Project REMP Renewable Energy Master Plan RENACA Réseau National des Caisses villageoises d'Epargne et de Crédit Autogérées (Benin) ROGEAP Regional Off-Grid Electricity Access Project RSF Risk-Sharing Facility SAED Société d'Aménagement et d'Exploitation des Terres du Delta du Fleuve Sénégal SAER Synergy of Renewable Energy Actors (Synergie des Acteurs de l’Energie Renouvelable) (Togo) SAS Stand-Alone System SBEE Beninese Electric Power Company (Société Béninoise d'Energie Electrique) SECO Swiss State Secretariat for Economic Affairs SEFA Sustainable Energy Fund for Africa SENELEC Société nationale d'électricité du Sénégal Market Study on Scaling Up Off-Grid Solar - in Benin, Burkina Faso, Côte d’Ivoire, Ghana, Senegal, and Togo x SETF Solar Energy Transformation Fund SFD Decentralized Financial System (Système Financier Decentralisé) SHS Solar Home System SIDA Swedish International Development Agency SLGP Small Loans Guarantee Program (IFC) SMEs Small and Medium Enterprises SNV Netherlands Development Organization SOFIGIB Société Financière de Garantie Interbancaire du Burkina SOFR Secured Overnight Financing Rate SONABEL National Electricity Company (Société Nationale d'Electricité du Burkina) SPUE Solar Productive Use of Energy SREP Scaling-Up Renewable Energy Program (Ghana) SUNREF Sustainable Use of Natural Resources and Energy Finance TA Technical Assistance TADB Tanzania Agricultural Development Bank ToT Training of Trainers UIMCEC Union des Institutions Mutualistes Communautaire d'Epargne et de Crédit (Senegal) UNDP United Nations Development Program UNFCCC United Nations Framework Convention on Climate Change UNICEF United Nations Children's Fund UNIDO United Nations Industrial Development Organization USAID United States Agency for International Development UTB Union Togolaise de Banque VAT Value Added Tax VSE Very Small Enterprise VSLA Village Savings and Loan Association WAEMU West African Economic and Monetary Union WAPP West African Power Pool WASH Water, Sanitation and Hygiene WFP World Food Program Currencies: FCFA 1 = CFA Franc (WAEMU currency) GHS 2 = Ghanaian Cedi 1 USD 1 = FCFA 590 as of July 23, 2023. 2 USD 1 = GHG 11.4 as of June 30, 2023. Contents Key definitions Synthesis Chapter 1 2 3 4 5 6 Key definitions Key definitions Risk-sharing facilities The terms risk-sharing facility (RSF), guarantee By sharing losses on a predetermined portfolio of instrument, guarantee line, and guarantee fund are used eligible assets, RSFs support institutions (for example, interchangeably throughout the report. banks) in taking additional risks that the latter would unlikely take in circumstances where little or no data An RSF is a loss-sharing scheme or agreement between are available to estimate potential losses, such as the a guarantor (that is, the institution providing the facility) introduction of a new product and/or the targeting of a and a beneficiary of the guarantee (for example, a new consumer or business segment. financial institution) in which the guarantor reimburses the beneficiary for a portion of principal losses incurred RSFs can have a variety of features. The definitions of an on a portfolio of eligible assets (for example, a loan RSF’s main features, which are referred to throughout disbursed to small and medium enterprises [SMEs]). the report, are provided in the following table. Table KD.1: RSF key definitions RSF characteristic Definition Observations • Generally used for loans to companies/ Individual guarantee: Covers a loan granted SMEs of large amounts to a single borrower, whose identity is known • Requires the guarantor’s prior approval for each loan to be disbursed Type of guarantee • Suitable for multiple loans of smaller (individual versus portfolio) Portfolio guarantee: Covers a portfolio amount of loans granted to eligible borrowers for • Does not require the guarantor’s prior which given parameters have been defined, approval for each loan to be disbursed without prior knowledge of their identity under the guarantee (borrower eligibility is checked ex post on a sample basis) Pari passu: The guarantor assumes a fixed share of the loss according to the agreed- Generally considered to promote more upon coverage rate, while the remaining ownership/accountability on the part of losses are covered by the beneficiary. the beneficiary, as the loss is always shared Total amounts covered by the guarantee between the two parties. may be capped and/or limited in time. Risk-sharing arrangement (pari passu versus first loss) • Sometimes considered as representing First loss: Losses are fully covered by the a potential moral hazard risk, as the guarantor up to a predetermined amount beneficiary bears no loss within the or percentage of the total assets covered predetermined amount by the guarantee, beyond which it has no • May however be useful to stimulate further obligation lending in sectors perceived as highly risky Market Study on Scaling Up Off-Grid Solar - in Benin, Burkina Faso, Côte d’Ivoire, Ghana, Senegal, and Togo xii RSF characteristic Definition Observations Setting the right coverage rate is a delicate In a pari passu guarantee, the share of balancing act: A low coverage rate (for losses to be covered by the guarantor is example, below 50%) may reduce the within the defined guarantee limits (for Coverage rate beneficiary’s incentive to participate in example, a 50% coverage rate means that the RSF, whereas a high rate (for example, both the guarantor and beneficiary bear above 80%) may increase moral hazard 50% of losses each). risks. • Preferred option for beneficiaries as they Funded or cash guarantee: The guarantor are sure that funds are available to cover deposits funds for meeting obligations guarantee claims in a dedicated/escrow account at the • Rarely offered by guarantors as it beneficiary or other local FI. obliges them to immobilize funds at the Funding arrangement originator or other local FI (funded versus unfunded) • Guarantee claims are paid on a case- Unfunded, non-cash, paper, or institutional by-case basis, once they have been guarantee: The guarantor does not deposit approved funds for meeting obligations in the account of the beneficiary or other local FI. • Only possible for guarantors with high credibility/credit rating Silent guarantee: End clients (for example, Generally considered a better option to SMEs) are not informed of the existence of avoid moral hazard risks on the part of end the guarantee. clients Guarantee disclosure (silent versus non-silent) Can occur, for example, when an SME Non-silent guarantee: End clients are contacts the RSF directly to request a informed of the existence of the guarantee. guarantee on a bank loan • Front-end fee/processing fee: Initial fee charged by the guarantor; may be expressed as a percentage of the total portfolio/loan amount covered by the guarantee or as a fixed amount • Guarantee fee: Fee charged by the guarantor according to the utilization of the Guarantee costs guarantee, normally expressed as a percentage of the actual portfolio/outstanding loan amount covered by the guarantee, usually annually • Commitment fee: Fee charged by the guarantor on unutilized guarantee amounts, to compensate it for setting aside funds which have not been used and hence have not generated revenue for the RSF Contents Key definitions Synthesis Chapter 1 2 3 4 5 6 Key definitions Off-grid solar Throughout the report, the term off-grid solar (OGS) is This report focuses largely on stand-alone systems, used to refer to photovoltaic (PV) energy produced by which comprise mainly the following key solutions: all kinds of systems and/or equipment not connected to a country’s main grid. OGS includes two main kinds of systems: • Pico-PV/solar lanterns: Single light systems with an embedded solar panel, which can also include a USB port for mobile phone charging (typically 1–10 Wp) • Solar home systems (SHSs): Small-solar systems • Stand-alone systems: Autonomous solar energy solutions providing electricity to single households (DC), including multiple lighting points (bulbs, lamps, torches) and eventual accessories/appliances (USB or businesses port, radio, TV, fan), often sold as plug-and-play kits (typically 10–100 Wp) • Mini-grids: Small-solar grid systems consisting of— often hybrid—generation unit(s) and distribution lines that provide electricity to a small community, • Customized solar systems: Medium and large solar systems for residential and commercial purposes that is, a number of households and/or businesses. (AC), including different components, of which at least one or more solar panels, a battery, and a small or large inverter to convert DC energy produced by the panels and power AC appliances inside a home/ workplace (typically above 100 Wp) • Solar Productive Use of Energy (SPUE) appliances: Solar-powered equipment supporting a wide range of productive use applications, such as water pumping, cooling, and agricultural processing. Market Study on Scaling Up Off-Grid Solar - in Benin, Burkina Faso, Côte d’Ivoire, Ghana, Senegal, and Togo xiv Synthesis Synthesis Policy, regulatory, and enabling environment for OGS The rate of access to electricity is highly uneven among share of renewable energy production in the energy the countries covered by the study, ranging from 19 mix by 2030 as well as the share of off-grid population percent in Burkina Faso to 86 percent in Ghana in 2021. served by mini-grids and stand-alone solar systems; There are also great disparities between urban and rural (ii) create a region-wide regulatory framework with areas: the access rate in rural areas ranges between 4.7 common tax policies, quality, and efficiency standards; percent in Burkina Faso and 74 percent in Ghana, with (iii) develop technological knowledge and build an average of 35 percent for the six countries (versus capacity; and (iv) promote a regional market. Moreover, 85 percent for urban areas). to introduce common OGS product quality standards, in March 2023, ECOWAS countries adopted six regional Given the challenges linked to extending the national standards on stand-alone solar systems and solar PV electricity grid to rural areas (long distances, low mini-grids. This willingness to harmonize policies and population density, poverty, and so on), OGS energy strategies at the regional level is also manifest in the is increasingly considered a key strategy to achieve establishment of the West African Power Pool (WAPP), universal electrification goals set in all countries. a specialized ECOWAS agency which brings together According to Global Off-Grid Lighting Association 14 countries (including the six studied countries) and (GOGLA),3 the potential market for OGS technologies 27 national electricity companies to create a unified in West Africa is equal to 307 million people, of which regional electricity market. 213 million are not connected to the grid and 94 million have erratic access due to the unreliability of the grid. At the national level, all six countries covered by However, the study also notes that countries where the study have developed strategies, policies, and the electricity grid network already covers most of regulatory frameworks to promote renewable energies the territory or where there is excess thermal capacity including OGS, as a means to reach their universal (for example, Côte d’Ivoire and Ghana) are less keen to electricity access objectives by 2030 at the latest. promote the development of off-grid electrification. These strategies and policies aim at creating a favorable environment for private sector engagement, including At the Economic Community of West African States fiscal incentives and Public-Private Partnerships (PPPs). (ECOWAS) level, the key renewable energy policies are However, there is usually no specific strategy or policy the ECOWAS Renewable Energy Policy (EREP) and the for the OGS sector, which is addressed as a subsector ECOWAS Energy Efficiency Policy (EEEP), adopted in of the electrification or renewable energy strategy. July 2013, which aim to, among others, (i) increase the 3 GOGLA Solar Market Trends Report 2022. Market Study on Scaling Up Off-Grid Solar - in Benin, Burkina Faso, Côte d’Ivoire, Ghana, Senegal, and Togo xvi A number of challenges at the level of strategy, policy, The interviewed actors mentioned needs for technical and regulatory environment affect the growth and and financial support in various areas, including to (i) stability of the sector and attractiveness for the private better understand the sector and market and barriers sector and end users. These include, to different to its scale-up; (ii) improve or update sector strategies, extents according to the countries, (i) slow entry into policies, regulatory, and standards frameworks based force of regulatory texts and incomplete regulatory on challenges and gaps identified, aligning them with frameworks; (ii) gaps in policies and weak enforcement best practices in the region and outside; (iii) harmonize of these; (iii) insufficient control of quality standards of and rationalize regulatory frameworks at the ECOWAS equipment; (iv) limited, unclear, and/or cumbersome level; (iv) receive technical training on the efficiency tax and financial incentives; (v) insufficient reliability of of the various OGS technologies, including SPUE government electrification plans; (vi) unconducive PPP appliances; (v) strengthen training institutions and policies and rules; and (vii) lack of clear and transparent e-learning platforms; and (vi) benefit from institutional strategy based on economic rationale for extension of and financial support for the effective implementation access to electricity. of OGS projects by state agencies and for the strengthening of PPPs. In terms of the potential of the OGS sector, all actors interviewed see it as high, albeit to different extents depending on the country context. OGS can contribute significantly to governments’ goals of achieving universal access to electricity using renewable energies, and there is high potential for OGS electrification, especially in the countries where access to the grid is lowest. In addition to the electrical consumption needs Initiatives for OGS development for households, commercial and industrial (C&I), and public and community services, there is high potential There are numerous government- and development for solar productive use of energy (SPUE) equipment, partner-led initiatives to support the development of especially for the agricultural sector. The high costs of the OGS sector, both at regional and country levels. grid electricity and fuel make stand-alone solar systems These comprise a wide range of interventions on a cheaper alternative, but this opportunity should be the policy and regulatory side, on the demand side backed by adapted financial solutions considering the (end users), and on the supply side (solar companies, high initial investment costs of solar equipment. There financial institutions (FIs), education and training is also a need to raise awareness and understanding of institutions, and so on). Initiatives include both end users on the better return on investment of solar technical and financial support, with various modalities solutions. of interventions, and target different OGS solutions (pico-solar and SHS, mini-grids, SPUE appliances, and so on). Contents Key definitions Synthesis Chapter 1 2 3 4 5 6 Synthesis As the OGS sector is still relatively recent, various Interviewed institutional actors see potential for the innovative approaches are developed especially in development of the OGS sector to different extents terms of financing modalities and facilities, to enhance depending on the specific country contexts. One the uptake of solar equipment by end users, promote recommendation is to conduct or update specific access to finance for sector stakeholders including studies to better understand the potential of the solar companies, and raise the appetite of the financial different solar solutions depending on the geographies, sector. grid coverage, and needs and capacities of the different categories of users and stakeholders. The main challenges to the development of the OGS sector that the various initiatives are trying to address Regarding support required to leverage this potential, are as follows: (i) at the level of end users, high cost of institutional actors interviewed mentioned the solar equipment in a context of low purchasing power following main needs: (i) capacity building and of the large majority of the target users and lack of Technical Assistance (TA) to solar companies on adapted financial solutions; lack of awareness and new technologies, business models, business knowledge on solar equipment and its advantages in planning, financial management, development of terms of return on investment; and low quality of the payment solutions for their clients, identification of equipment in some cases, affecting the confidence of financing opportunities, and development of funding the population; (ii) at the level of solar companies, gaps proposals (this support should be customized for in technical capacities, management, and business the different categories of solar companies and their models; low quality of ancillary services (installation, level of maturity); (ii) capacity building and TA to after-sales services) and lack of rural distribution FIs to develop adapted and risk-mitigated financial networks; lack of access to adapted and affordable products and delivery channels for end users and solar financing; and demanding/stringent conditions of companies; (iii) establishment or adaptation of financial eligibility for tenders favoring international companies instruments to incentivize the FIs to finance the sector at the expense of national solar companies; (iii) at the (concessional credit lines, risk-sharing mechanisms, level of FIs, lack of expertise and appetite to finance result-based financing schemes, grants, and so on); (iv) the OGS sector, resulting in lack of adapted products, support to enhance the coordination between various especially for solar companies; and (iv) more in general, initiatives to promote the OGS sector; (v) support to lack of coordination between the different stakeholders organize forums between stakeholders to connect FIs, promoting the OGS sector, particularly in terms of solar companies, and representatives of end users, to financial support and incentives for solar equipment increase understanding and trust between these actors end users. and contribute to the development of customer-centric financial services; and (vi) support for public awareness campaigns on the opportunities and advantages of solar solutions. Stakeholders interviewed also emphasized that new projects and initiatives should leverage the numerous existing initiatives to avoid duplication of efforts. Market Study on Scaling Up Off-Grid Solar - in Benin, Burkina Faso, Côte d’Ivoire, Ghana, Senegal, and Togo xviii OGS distribution Of the companies interviewed, 63 percent provide landscape some sort of payment plan to their customers, of which 43 percent use the pay-as-you-go (PAYGO) technology A total of 42 solar companies were interviewed across and 19 percent use other arrangements, such as the six countries in the framework of the study out of standard credit sales and leasing plans. Only 20 percent more than 500 companies estimated to be operational of companies interviewed have formal agreements with in the area. Of the solar companies interviewed during FIs, largely microfinance institutions (MFIs), to finance the study, 72 percent fall under tier 2 in terms of the purchase of their solar equipment by end users. annual revenues (between USD 100,000 and USD 3 million), hence qualifying as early-stage companies Solar companies across the six countries face a number as per the ECOWAS Regional Center for Renewable of common challenges to the development of their Energy and Energy Efficiency (ECREEE) solar company activities, including (i) lack of access to finance for classification. This suggests that companies across the their working capital needs; (ii) weak financial capacity six countries are also likely to be in their early stages of targeted clients, coupled with the high cost of solar (tier 2), compared to larger, more mature companies equipment; (iii) insufficient government support to the (tier 3). OGS sector, particularly in terms of fiscal incentives for solar equipment; (iv) insufficient number of adequately According to GOGLA data from its affiliates, in the trained technicians to provide pre- and post-sales six countries, sales volumes decreased by 10 percent services (installation, after-sales, and so on); (v) influx for solar lighting kits and by 23 percent for solar of substandard quality/uncertified solar equipment; appliances (comprising TVs, fans, water pumps, (vi) insufficient awareness of targeted populations on and coolers) compared to pre-COVID levels, with solar product quality and usage; (vii) high cost of solar substantial variations between countries. Indeed, company operations in remote areas, often with limited interviewed solar companies affirm they were severely access routes and unreliable mobile network coverage; affected by the pandemic, with the main impacts and (viii) highly demanding requirements of calls for being (i) a sharp increase in prices of solar equipment tenders in the OGS sector, with minimum requirements due to the rising costs of product components and in terms of financial capacity and references often international transport, (ii) substantial delays in product beyond the capacities of early-stage, locally based importation due to supply chain disruptions, and (iii) companies (tier 2). reduced opportunities to deliver pre- and post-sales services to clients due to lockdown measures and According to GOGLA’s Investment Database, in travel restrictions. Despite the ongoing recovery, the 2021, 72 percent of total investments in the sector current economic context—increasing inflation and (debt, equity, and grants) were received by only the Ukrainian crisis—continues to negatively affect seven companies in the scale-up phase, whereas the the OGS sector, with most companies having to adjust remaining 28 percent were received by the other 150 upward solar equipment prices. companies in the seed or start-up phase. This trend seems to be confirmed by interviewed solar companies Among the different solar equipment offered by in the six countries, most of which are early-stage interviewed companies, the most distributed products companies (tier 2 as per ECREEE’s classification), remain pico-solar products (lanterns and multi-light compared to mature companies (tier 3). To date, out of kits) and small (DC) SHSs, followed by solar water two-thirds of interviewed solar companies which have pumps, which have overtaken customized medium and applied for financing, only 43 percent have managed to large solar (AC) systems in the targeted countries, the secure some form of funding, mainly cash advances/ latter now ranking as the third most distributed product. factoring instruments, letters of credit, and inventory- Solar coolers and streetlights follow suit, whereas other financing loans from commercial banks and, in some kinds of SPUE appliances, such as solar cold rooms, cases, leasing companies. In addition to commercial solar mills, solar dryers, and egg incubators, are still banks, interviewed tier 3 companies have also received being explored or at most piloted by a few companies, funding from international facilities such as the African often with donor funding. Development Bank (AfDB) Facility for Energy Inclusion Contents Key definitions Synthesis Chapter 1 2 3 4 5 6 Synthesis Off-Grid Energy Fund (FEI OGEF) and investment Regardless of the financing amount needed, companies funds. would need the following loan terms for their OGS operations: (i) medium- to long-term tenors (up to five Unsuccessful financing requests from interviewed to seven years or rolling facilities for credit lines) to companies have mainly been due to (i) requests being bridge the gap between procurement and repayment rejected by banks because of insufficient collateral or of products sold on credit; (ii) grace periods of up to 36 securities or (ii) companies themselves turning down months, to allow enough time between the placement banks’ offers due to non-adapted loan terms or high of an order and initial product sales that generate costs. According to interviewed companies, commercial revenues to make the first loan repayments; (iii) annual banks generally do not understand the business cycle interest rates of 3–8 percent in West African Economic of a solar company, which needs working capital to and Monetary Union (WAEMU) countries and below bridge the 24–36-month gap between the placement 20 percent in Ghana; and (iv) guarantee funds and of an order from a foreign-based manufacturer and provision of fixed assets (property/land) or non-fixed the repayment of solar products sold on credit by end assets (inventory/receivables) up to 50 percent clients. maximum of the loan amount as collateral for the loan. Such loan terms, however, are substantially different All solar companies interviewed believe there is a from the ones currently offered by FIs. strong opportunity to strengthen the financing and distribution of solar equipment, for both domestic All interviewed solar companies are also interested in (solar kits and small/medium systems) and productive benefiting from capacity-building support, including (SPUE appliances, large solar systems) purposes. To (i) training for solar company staff, sales agents, and seize such market opportunities, solar companies will technicians; (ii) consulting services to conduct market mainly require working capital facilities (loans and credit studies on new solar products, develop or strengthen lines) to finance day-to-day operations, inventory, end user financing models (PAYGO, leasing, and and receivables. This is especially the case for smaller, fee-for-service), and enhance equipment distribution early-stage companies (tier 2). In addition to working models and channels, especially for SPUE appliances; capital finance, larger, more mature companies (tier 3) (iii) facilitation of contacts with FIs committed to also require debt and equity/quasi-equity financing for finance the OGS sector to negotiate funding for their investment purposes (for example, to open new points companies and set up end user financing partnerships; of service and set up/strengthen local solar product (iv) study tours/visits to share experiences and best assembly units). practices with solar companies in other countries; (v) grant funding for marketing and sensitization of targeted populations; (vi) development of vocational schools/training centers to train young electricians/ technicians to provide solar product ancillary services across the country. Specific to training, companies would like to be trained in three key areas: (i) business management; (ii) technical aspects, including training of trainers (ToT) to train solar technicians and training on technical specifications and business models of new and emerging SPUE technologies; and (iii) fundraising. Market Study on Scaling Up Off-Grid Solar - in Benin, Burkina Faso, Côte d’Ivoire, Ghana, Senegal, and Togo xx OGS financing of the OGS sector, quality standards, and functioning landscape - FIs of solar companies, insufficient mid- and long-term financial resources, and lack of information on existing A total of 50 FIs were interviewed in the six countries dedicated lines of credit and risk-sharing facilities covered by the study, out of close to 1,500 licensed FIs (RSFs). In particular, it was noted that the Regional in the WAEMU zone and Ghana. Overall, 80 percent of Off-Grid Electricity Access Project (ROGEAP) credit interviewed FIs do have some experience in financing line managed by the West African Development Bank the OGS sector (solar companies and/or end users), but (Banque Oust Africaine de Développement, BOAD) is such experience is limited in scope. not known to the large majority of the FIs. Solar companies are mostly financed by banks, Regarding interviewed FIs’ experience with financial investment funds, and leasing companies, as MFIs instruments, 66 percent have experience in managing usually cannot provide the loan amounts (due to credit lines and 81 percent have experience with RSFs, regulatory limits) and tenors requested by most of from a diversity of financial instruments managers, with the companies. Banks, investment funds, and leasing an overall good level of satisfaction on the features companies do not have specific products for the OGS and conditions offered. Banks have credit lines from sector and use their existing products (mainly working the group (Ecobank, Société Générale) or from capital loans) to finance solar companies and ordinary Development Finance Institutions (DFIs) (BIDC,4 BOAD, consumption loans to finance end users. Typical Green Climate Fund (GCF)), whereas MFIs have credit terms of a bank working capital loan include a tenor of lines from national development funds (Fonds Natio- 18–24 months, a three-month grace period, an annual nal de la Microfinance (FNM) in Benin, FNFI in Togo, interest rate of 8–14 percent in WAEMU countries and FADSR5 in Senegal), microfinance/impact investors 30–40 percent in Ghana, and the collateralization of (Grameen-Credit Agricole, Bamboo Capital), and local land assets and/or property for up to 120 percent of commercial banks. the borrowed loan amount. Moreover, banks usually do not specifically track lending to the OGS sector, As for RSFs, banks have access to regional or which remains marginal in terms of percentage of the international facilities for SME lending (AGF, ARIZ/ loan portfolio, and do not have specialized units or EURIZ, IFC SLGP), whereas MFIs have access to departments for renewable energy or OGS, nor specific government or project-related facilities (Fonds Natio- strategies. nal de Développement de l’Agriculture (FNDA), FNM in Benin, ANPGF, PSAEG in Togo) for specific un(der) End users are mainly financed by MFIs, which may have banked client segments (farmers, youth, women). developed specific products in partnership with solar companies and development partners to finance the Almost all the interviewed FIs see potential and purchase of lighting products (pico-solar and SHS) opportunities for OGS financing, with commercial banks and SPUE equipment (such as solar pumps and solar mostly focusing on the financing of solar companies fridges). and MFIs on the financing of solar equipment end users. Almost all FIs would be interested in benefiting from a Interviewed FIs highlighted many challenges in OGS dedicated RSF and credit line for the OGS sector, if the financing that explain the current overall low appetite conditions are attractive and bring value to the existing to finance the sector, including (i) at the level of solar instruments. Attractive RSF conditions for FIs would companies, weak business and financial management include a high coverage rate (above 50 percent), low skills, lack of adequate collateral to secure loans, commissions (below 2 percent), as well as fast and clear and lack of business plans and adequate financial procedures to access the facility and manage claims. statements and (ii) at the level of FIs, lack of knowledge 4 BIDC = ECOWAS Bank for Investment and Development (Banque d’Investissement et de Développement de la CEDEAO). 5 FADSR = Rural Sector Development Support Fund (Fonds d'Appui au Développement du Secteur Rural). Contents Key definitions Synthesis Chapter 1 2 3 4 5 6 Synthesis Almost all FIs would also be interested to benefit from rate 30 percent to 70 percent), silent and non-silent, TA to support the development of an OGS portfolio, predominantly unfunded. Similar to debt instruments, including, but not limited to, training on existing solar the price of guarantees is highly concessional or even equipment on the market (potential/demand, quality, free of charge for national development funds, whereas and so on) and on the characteristics and functioning of commissions range from 1.0 to 2.5 percent of the a solar company (business models and cycle, financing guaranteed amount for specialized guarantee funds (for needs). This TA would be an additional incentive for the example, Fonds Africain de Garantie et de Cooperation FIs to mobilize the proposed financial instruments. Economique (FAGACE) and Africaine des Garanties et du Cautionnement (AFGC) in Benin, Société Finan- cière de Garantie Interbancaire du Burkina (SOFIGIB) in Burkina Faso). OGS financing landscape - Financial instrument In addition to national and regional funds, three of the largest RSFs on the West African market are those managers offered by Proparco of the French Development Sixteen institutions managing financial instruments Agency (Agence Française De Development, AFD) were interviewed in the framework of the study, (short-term guarantee, ARIZ, and EURIZ), African including bilateral, multilateral, and regional DFIs; Guarantee Fund (AGF), and IFC (Small Loans Guarantee national development funds; and national/regional Program (SLGP)). RSFs offered by all three institutions guarantee funds. Among the four key financial aim to increase access to finance for SMEs by instruments offered by interviewed institutions, providing individual and portfolio guarantees coupled RSFs are the most common instrument offered (89 with TA to commercial banks for SME lending. These percent of total interviewees), followed by credit lines RSFs also specifically wish to encourage lending to (68 percent), direct loans (53 percent), and equity SMEs in underserved and/or high-impact sectors investments (26 percent). (youth, women, environment, agriculture, and so on). Guarantees are provided on a pari passu, unfunded With regard to debt financing instruments (credit basis, with a coverage rate of 50 percent, which is lines and direct loans), agriculture and energy are increased to 70–75 percent for loans to SMEs in high- priority targets for both national development funds impact sectors for Proparco and AGF. The maximum and regional DFIs, although financing terms vary size of guaranteed loans is USD 1 million with a 5-year substantially. Maximum amounts for national funds tenor for AGF and SLGP, whereas the loan size is are in the range of USD 500,000 to USD 1.5 million, smaller for Proparco’s portfolio guarantee loans (USD compared to USD 20–30 million for regional DFIs. 330,000) but with a longer tenor (7 years for ARIZ, 12 Tenors (maximum 5 years) and grace periods (6–18 years for EURIZ). Guarantee costs for all RSFs include a months) are also considerably shorter for national front-end fee ranging from 0.50 to 1.25 percent of the funds than regional DFIs (tenors of maximum 12 years maximum guaranteed portfolio and an annual guarantee and grace periods of 12–36 months). Lastly, annual fee ranging from 1.5 to 2.5 percent of the outstanding interest rates for national funds (2–5 percent) are guaranteed portfolio. more concessional than those of regional DFIs (4.5–7.5 percent). Despite the emphasis placed on energy by several interviewed institutions, their experience in providing With regard to RSFs, interviewed national and regional financial instruments to the OGS sector and solar funds provide individual and portfolio guarantees to companies remains limited. Nonetheless, some specific commercial banks and MFIs for direct loans to micro, instruments for the OGS sector do exist, mainly due to small, and medium enterprises (MSMEs) as well as to the initiative of multilateral DFIs. banks for refinancing facilities granted to MFIs, with the following main conditions: pari passu (coverage Market Study on Scaling Up Off-Grid Solar - in Benin, Burkina Faso, Côte d’Ivoire, Ghana, Senegal, and Togo xxii Existing OGS debt financing instruments identified by the study include the following: (i) Proparco’s SUNREF program, which provides credit lines and TA to partner banks for on-lending to SMEs in the renewable energy sector. Among the six countries targeted by the study, SUNREF is currently operational in Ghana (deals with CAL Bank and GCB for a total of EUR 32 million) and Côte d’Ivoire (deals with Société Générale and NSIA Banque for a total of EUR 17.5 million). (ii) AfDB-sponsored FEI OGEF, a local currency debt fund targeting OGS companies in Africa. To date, OGEF has financed 11 solar companies in Sub-Saharan Africa, including Bboxx in Togo (USD 12.1 million), Baobab+ in Senegal (USD 2.2 million), and Qotto in Benin and Burkina (USD 2.2 million). (iii) The ROGEAP credit line, managed by BOAD, which provides local currency refinancing to FIs for on-lending to companies involved in the distribution or installation of solar systems up to 350 kW. To date, two MFIs and one bank have been financed with the ROGEAP credit line: COFINA in Côte d'Ivoire (USD 830,000), KAFO JIGINEW (USD 5.8 million) and Banque Nationale de Développe- ment Agricole (BNDA) (USD 8.3 million) in Mali. Existing RSFs with a focus on the OGS sector identified by the study are as follows: (i) The AfDB and GCF-funded LEAF Program. It aims to unlock local currency debt financing for the OGS sector by providing FIs with unfunded individual and portfolio guarantees, including both first loss and pari passu coverage, priced on a concessional basis. Among the study’s target countries, only Ghana is covered by LEAF; no deals have been signed yet as its implementation period has just begun. (ii) The ROGEAP Clean Technology Fund (CTF), also managed by BOAD. It covers loans disbursed by partner FIs to solar companies which default because of a technological failure in solar equipment distributed. At present, BOAD has not yet used the instrument. The main challenges mentioned by interviewed All interviewed institutions agree there is an institutions in financing the OGS sector include (i) poor opportunity to scale up financing to the OGS sector. structuring and weak capitalization of SMEs in general More specifically, there is a need to crowd in locally and solar SMEs in particular; (ii) weak capacity of FIs based banks and other FIs in financing the OGS sector and financial instrument managers alike to assess OGS and increase lending particularly to early-stage, locally sector transactions; (iii) insufficient number of local owned solar companies (tier 2). To do so, concessional currency debt instruments to encourage solar SME credit lines for FIs to increase lending to solar lending, coupled with the lack of awareness of existing companies and guarantee instruments to de-risk such instruments (for example, the ROGEAP credit line); (iv) loans are necessary. Risk capital instruments would also lack of equity instruments available to solar companies; be needed to strengthen solar companies’ equity and and (v) market distortion created by subsidized funding, increase their leverage capacity. which has encouraged tier 3 solar companies to raise concessional funding on the international markets and hindered locally based private FIs from fully entering the market. Contents Key definitions Synthesis Chapter 1 2 3 4 5 6 Synthesis Of the interviewed institutions already providing RSFs, dedicated to OGS and SPUE sector financing; (ii) offer 71 percent expressed an interest in managing a new, flexible and attractive terms, including a commitment dedicated RSF for solar financing. Such a facility should and a guarantee fee to promote utilization and offer silent, individual, and portfolio guarantees with sustainability of the facility; (iii) encourage FIs to offer a high coverage rate (up to 80 percent) and specific loan terms more suited to the needs of solar companies; conditions for beneficiary FIs (for example, on the (iv) be performance based; and (v) be combined with a terms of loans covered by the guarantee). Guarantee TA facility. commissions should also be attractive (0.7 percent to 1.5 percent per year maximum of the guaranteed The RSF would offer individual and portfolio guarantees portfolio). to all kinds of FIs operating in its target countries, with the exclusive objective of increasing access to finance Of the interviewed institutions offering credit lines, 46 for solar MSMEs. In terms of targeted MSMEs, the RSF percent also expressed interest in managing a dedicated would support access to finance for all bankable solar credit line/refinancing facility for OGS lending by FIs companies, with a higher coverage provided as an (mainly national development funds). Desired terms for incentive to serve smaller, locally owned, early-stage most interviewees would be a credit line of USD 10–30 companies (tier 2). million, with a 5–10-year tenor, annual repayments, and an interest rate between 0.5 and 5 percent per year. In terms of targeted OGS product segments, the RSF would support companies selling all kinds of solar On TA, interviewed institutions mentioned the following equipment, with the option of a higher coverage for needs: (i) ToT sessions on relevant OGS issues for loans to companies selling exclusively SPUE appliances. those institutions already providing TA to their partner In either case, OGS equipment sold by companies FIs (for example, AGF), for them to be able to train supported by the RSF should be tested and/or certified their beneficiaries; (ii) exchange visits/knowledge- according to internationally recognized standards. sharing sessions with other, more experienced financial instrument managers; and (iii) support in the Depending on the RSF’s initial capitalization, portfolio accreditation process to the GCF. guarantees could, for example, cover OGS loans up to USD 500,000 per borrower, with a maximum guaranteed amount of USD 2 million (portfolio guarantee limit). Individual guarantees would need to Conclusions and be requested for OGS loans above USD 500,000, with recommendations a maximum guaranteed amount of USD 1 million per borrower (individual guarantee limit). Considering the challenges identified among sector stakeholders, two interventions to scale up the OGS The proposed RSF would offer a flexible cover approach, sector appear key: (i) the setup of a dedicated RSF to which would represent its key innovation to attract de-risk financing provided by banks and other FIs to FIs to enter the OGS lending space. Partner Financial solar companies and (ii) the development of adapted Institutions (PFIs) would have the option of choosing capacity-building and training plans targeting all main between three different risk coverage options, with stakeholders in the OGS sector, especially FIs and variable pricing based on the level of cover: solar companies. The development of new OGS debt financing instruments appears less of a priority because (i) many FIs in the region, particularly banks, already have the needed liquidity and (ii) several dedicated debt instruments already exist, including the ROGEAP credit line. If anything, the challenge is related to the lack of awareness of such instruments, not to their absence. A proposed RSF to enhance solar financing should (i) be Market Study on Scaling Up Off-Grid Solar - in Benin, Burkina Faso, Côte d’Ivoire, Ghana, Senegal, and Togo xxiv 1. 2. Option 1 Option 2 First loss only with a 10–20 percent cover. The RSF Pari passu only with a 50–80 percent cover. The RSF would cover all loan principal losses up to a minimum would cover a minimum of 50 percent and a maximum of 10 percent and a maximum of 20 percent of the PFI’s of 80 percent of loan principal losses up to the total OGS loan portfolio covered by the guarantee. To individual or portfolio guarantee limits. Again, only encourage lending to early-stage solar companies and loans to tier 2 companies would be covered up to 80 considering their higher perceived risk, only loans to percent of loan principal losses, whereas loans to tier tier 2 companies would be covered up to 20 percent 3 companies would be covered up to 70 percent of the FI’s OGS portfolio, whereas loans to mature maximum. The same could apply for loans to companies companies (tier 3) would be covered up to 10 percent selling exclusively SPUE equipment. The interest of this maximum. The same approach could be applied for option for FIs would be its higher-than-usual coverage loans to SPUE appliance-focused companies. The rate (up to 80 percent), compared to most RSFs on innovation of this option would be the introduction of a the market (50–70 percent). The annual guarantee fee first loss guarantee in a market where these are virtually for this option would be equal to 0.75 percent on the nonexistent, due to their perceived riskier nature and/ outstanding guaranteed portfolio. or RSF managers’ lack of experience with this type of cover. The annual guarantee fee for such cover would be equal to 1.5 percent on the outstanding guaranteed 3. portfolio. Option 3 Combined first loss cover of 5–10 percent and pari passu cover of 50–60 percent. The RSF would first cover all losses up to 5 or 10 percent of the PFI’s total OGS loan portfolio covered by the guarantee. Once the 5 or 10 percent liability limit of the FI’s total OGS portfolio has been reached, the RSF would then cover 50–60 percent of remaining losses on a pari passu basis. As in the other options, only loans to tier 2 solar companies would be eligible for the 10 percent first loss and 60 percent pari passu cover, whereas loans to tier 3 companies would only be eligible for the 5 percent first loss and 50 percent pari passu cover. The same could be applied to solar companies distributing only SPUE appliances. The innovation of this option would be the combination of the first loss and pari passu guarantee. The annual guarantee fee would be equal to 1 percent on the outstanding guaranteed portfolio. Figure ES.1 illustrates the functioning of this third option with some examples. Contents Key definitions Synthesis Chapter 1 2 3 4 5 6 Synthesis Figure ES.1: Illustration of RSF combined first loss-pari passu cover functioning (option 3) Partner FI’s OGS portfolio – Solar MSMEs (1) RSF takes all losses and end-users up to 10% of FI’s total (3) Partner FI OGS portfolio covered RSF RISK 1 takes remaining Diagram by guarantee Up to 10% first loss losses after RSF first loss and (2) Upon reaching 10% pari passu cover limit of FI’s total OGS portfolio, RSF takes PARTNER FI RISK 60% of remaining losses RSF RISK 2 Remaining losses - pari on pari passu Up to 60% pari passu passu 2) USD 2 million FI OGS portfolio: 3) USD 2 million FI OGS portfolio: combined 10 percent first loss combined 10 percent first loss 1) USD 2 million FI OGS portfolio: and 60 percent pari passu, USD and 60 percent pari passu, USD 1 combined 10 percent first loss 500,000 loss post recoveries million loss post recoveries and 60 percent pari passu, USD Examples 200,000 loss post recoveries • RSF first loss: USD 200,000 • RSF first loss: USD 200,000 • RSF first loss: USD 200,000 (2 • RSF pari passu loss: USD • RSF pari passu loss: USD million * 10 percent) 180,000 (500,000 − 200,000 * 480,000 (1 million − 200,000 * 60 percent) 60 percent) • RSF pari passu loss: USD 0 • FI loss: USD 120,000 (500,000 • FI loss: USD 320,000 (1 million • FI loss: USD 0 − 200,000 − 180,000) = 24 − 200,000 − 480,000) = 32 percent of losses percent of losses In addition to the innovative flexible cover options The RSF would also set Key Performance Indicators described above, the RSF would allow PFIs to claim the (KPIs) to measure the PFIs’ performance in using the guarantee quarterly, provided the PFI has initiated all portfolio guarantee provided to lend to solar companies, relevant loan collection procedures, rather than having such as a minimum of three loans/transactions to wait until the loan has been called into default. This disbursed or a value of loans disbursed equal to at would be another distinctive feature compared to most least 50 percent of the total portfolio covered by the existing RSFs on the market. More specifically, the claim guarantee in a six-month period. The performance- process would be as follows: based nature of the proposed RSF would be reflected in the pricing, with a commitment fee of 2 percent • After all or a portion of the loan is past due by at least 90 days, the PFI would be able to claim the of the unused guarantee amount being charged if less than 50 percent of the total guarantee amount guarantee on all past due amounts/loan arrears, has been deployed after six months. Contrary to the according to the selected guarantee cover option. concessional front-end and variable guarantee fees, the commitment fee would be priced at a relatively • After all or a portion of the loan is past due by at least 180 days, the loan would need to be called high level, with the aim of encouraging PFIs to actively deploy the guarantee. into default and the PFI would be able to claim the guarantee on all outstanding loan amounts, minus what has eventually already been paid by the RSF. Market Study on Scaling Up Off-Grid Solar - in Benin, Burkina Faso, Côte d’Ivoire, Ghana, Senegal, and Togo xxvi Finally, the proposed RSF would aim to encourage PFIs Priority FIs to target could include FIs already benefiting to offer loan products and forms of collateral more from the ROGEAP credit line, hence complementing suited to solar companies’ needs, such as receivables the liquidity instrument already received with a financing for companies selling products on credit/ guarantee instrument, or banking groups operating PAYGO. in one or more of the targeted countries, all of which expressed interest in a dedicated RSF during the study. Two financial instrument managers interviewed in the Agreements with FIs targeting the so-called ‘meso- framework of the study seem best placed to manage finance’ market should also be considered, given their the proposed RSF. declared, specific focus on MSME lending. • BOAD. As a ROGEAP project partner, BOAD is already managing the ROGEAP credit line and Combined with the proposed RSF, the following capacity-building and technical support activities are CTF. In this case, the proposed RSF could back the recommended to strengthen the OGS sector: ROGEAP credit line and be offered as a bundled financial instrument, allowing FIs to benefit from both a liquidity instrument and a risk cover for their • Market and feasibility studies to deepen under­ standing of the OGS market loans to solar companies and end users. In non- WAEMU countries where BOAD cannot operate, it could outsource the management of the RSF to • Policies nization and regulations improvement and harmo­ other institutions capable of operating across West Africa, such as AGF West Africa • Exchange visits and knowledge-sharing workshops between countries • AGF West Africa. As a pan-African guarantee fund, AGF West Africa is specialized in providing individual and portfolio guarantees to SMEs across the • Contact holders facilitation forums between sector stake­ continent. Moreover, as BOAD is AGF West Africa’s sole shareholder, entrusting it with the management of the RSF would also allow maintaining close links • Development of vocational schools/training centers with the existing ROGEAP structure and partners. • Development of dedicated renewable energy/OGS financing departments and tools for FIs As far as the initial allocation of the proposed RSF is concerned, it may be crucial to carefully select the countries and/or FIs to prioritize, to get proof of • Grants and subsidies for marketing and sensitization of end users concept for the RSF and then be able to raise additional funds for its scale-up. Priority countries to target among the six covered by the study could include those • Technical and financial support for product testing and/or certification with the highest OGS product sales, such as Benin and Togo (cf. section 4), where customer demand can be assumed to be stronger and solar companies more • Development stakeholders of a training curriculum for OGS articulated around the following active, as well as Senegal, where the government’s modules: (i) OGS sector and technologies, (ii) support for the OGS sector is relatively strong. technical training/ToT on OGS pre- and post-sales services, (iii) solar business management, (iv) selling solar equipment on credit, (v) fundraising, (vi) solar company financing, and (vii) best practices in OGS policies and regulations. Contents Key definitions Synthesis Chapter 1 2 3 4 5 6 1 Introduction The study was carried out within the framework of two key energy programs implemented by the World Bank: • The Regional Off-Grid Electricity Access Project • The Compact with Africa (CwA) Green Business (ROGEAP), which aims to increase electricity access for households, businesses, and public institutions using modern stand-alone solar systems through a harmonized regional approach. ROGEAP targets 19 West African countries, including the 15 countries Fund (GBF), which aims to accelerate low-carbon development efforts in Africa by strengthening the sustainability of local green Small and Medium Enterprises (SMEs) through capacity building and innovative climate finance instruments. Part of the in the Economic Community of West African States World Bank’s Partnership for Market Implementation (Communauté économique des États d'Afrique de Facility (PMIF), the GBF targets countries that have l'Ouest, ECOWAS/CEDEAO) plus Cameroon, the joined the G-20 CwA initiative (which includes Central African Republic, Chad, and Mauritania. the six West African countries covered by the assignment). 2 In the context of the post-COVID-19 pandemic for both domestic (lighting and entertainment) and environment and rising interest rates due to inflation, productive purposes (for example, irrigation, cooling), ROGEAP and CwA, together with their regional (iii) FIs, comprising commercial banks, MicroFinance partners ECOWAS and the West African Development Institutions (MFIs), investment funds, and leasing Bank (Banque Oust Africaine de Développement, companies, and (iv) institutions managing financial BOAD), wanted to obtain an updated understanding instruments (direct loans, credit lines, guarantee lines, of the off-grid solar (OGS) and Solar Productive Use of and so on6), comprising international and regional DFIs, Energy (SPUE) markets and their potential for scale-up national development funds, and national/regional in six West African countries: Benin, Burkina Faso, Côte guarantee funds. The complete list of stakeholders d’Ivoire, Ghana, Togo, and Senegal. To do so, the market interviewed can be found in Annex 1. study set out to The report is organized as follows: section 2 describes 1. Assess the current policy, regulatory, and the existing policy and regulatory environment of enabling environment for OGS in the aftermath the OGS sector at the regional level and specifically of the pandemic in targeted countries and make in the six countries covered by the study; section 3 recommendations for its improvement; describes the main initiatives, programs, and projects to develop the OGS sector implemented at the regional 2. Gauge capacity-building and training needs for and national levels; section 4 describes the current stakeholders in the OGS demand and supply chain, distribution landscape for OGS and SPUE products namely for solar companies, financial institutions in the six countries; section 5 describes the current (FIs), and institutional actors (ministries, donors, OGS financing landscape in the six countries, both at and Non-Governmental Organizations (NGOs)); the FI (section 5.1) and financial instrument manager levels (section 5.2). Finally, section 6 summarizes the 3. Scope the potential for, and design of, a proposed key conclusions and provides recommendations for Risk-Sharing Facility (RSF)/guarantee instrument technical and financial support measures to strengthen aimed at incentivizing local FIs to increase loan the sector, with a specific focus on a proposed RSF for financing for solar companies; OGS sector financing. 4. Evaluate the capacity and willingness of national To avoid duplication with previous reports, the present and regional development finance institutions report builds upon the findings of the ROGEAP market (DFIs) and/or banks to manage both the RSF and assessments conducted in 2019,7 aiming to complement potential loan financing to local FIs in the target and integrate these with specific regard to the technical countries. and financial needs of OGS stakeholders—particularly solar companies—and the financial instruments and The present report is based on data collected capacity-building activities required to respond to such through an in-depth literature review on the six needs and scale up the OGS and SPUE sectors. targeted countries as well as individual interviews with a total of 147 key OGS stakeholders across these countries, including (i) institutional players, comprising government and regulatory bodies, bilateral and multilateral donors, and NGOs, (ii) solar companies, that is, importers, manufacturers, and distributors of solar equipment on cash and/or credit, 6 Institutions under this category may also be managing other types of financial instruments, such as direct loans and equity investments, but the report focuses on the instruments targeted by the study, namely credit lines and guarantee facilities. 7 ECREEE-ROGEAP, Off-Grid Solar Market Assessment & Private Sector Support Facility Design, Regional and Country Report, July 2019. Contents Key definitions Synthesis Chapter 1 2 3 4 5 6 2 Policy, regulatory, and enabling environment for OGS 4 The average electricity access rate for the six countries Extending the grid in rural areas is challenging due targeted by the study was 57 percent in 2021 to the long distances, low population density, and (compared to 50.6 percent for Sub-Saharan Africa8), rural poverty, which increase the cost and reduce the with significant disparities between countries, ranging profitability of the investment, the latter being a key from 19 percent in Burkina Faso to 86.3 percent in attractive factor for the private sector. Ghana. There are also great disparities between the electricity access rate in urban and rural areas: the access rate in rural areas ranged from 4.7 percent in Burkina Faso to 74.0 percent in Ghana, with an average of 35.0 percent for the six countries, compared to 85.8 percent for urban areas. Table 1: Access to electricity in the six target countries (% of the population) Stakeholder Burkina Côte Average 6 Average Benin Ghana Senegal Togo type Faso d'Ivoire countries SSA Total 42.0 19.0 71.1 86.3 68.0 55.7 57.0 50.6 population Rural 18.0 4.7 45.2 74.0 43.4 24.7 35.0 30.4 population Urban 67.0 67.6 94.9 95.2 93.9 96.3 85.8 — population Source: World Bank Data 2021 (except 2014 for rural rate for Burkina Faso). Note: SSA = Sub-Saharan Africa. Burkina Faso has by far the lowest rate of access to On the contrary, for countries with the highest rates electricity. According to the Burkinabe Agency for of access like Ghana and Côte d’Ivoire, the potential Rural Electrification (Agence Burkinabe de l’Electrifi- for off-grid access to electricity is much lower. For cation Rurale, ABER), out of 10,000 localities planned instance, in Côte d’Ivoire, one of the interviewed to be electrified, only 1,600 have been electrified and development partners stated that the government connected to the national electricity company (Société promotes the extension of the electricity grid Nationale d'Electricité du Burkina, SONABEL) network throughout the territory and only a few very remote to date. Currently, the latter has reached its technical areas will not be connected to the grid. In this context, connection limit, and as a result, all the remaining it appears that the government is not ‘pushing for’ off- territory should be covered by off-grid units (with a grid investments, which are rather promoted by donors potential market of 3 million individual solar kits and at while the government favors other sources such as least 5,000 mini-grids). thermal. The issue with solar is that it is an intermittent 8 Three of the countries in this sample are among the highest in Africa (Ghana, Côte d’Ivoire, and Senegal), which explains the higher average than for the whole Sub-Saharan Africa. Contents Key definitions Synthesis Chapter 1 2 3 4 5 6 2.  Policy, regulatory, and enabling environment for OGS source of energy and the maintenance of a solar through decentralized systems (mini-grids and stand- network is complex. In addition, in Ghana, there is an alone solar systems), with solar technologies accounting excess of on-grid thermal capacity, and an actor stated for almost 60 percent of these connections. According that government is not in favor of new off-grid projects. to GOGLA, the potential market for OGS technologies in West Africa is equal to 307 million people, of which Nonetheless, the use of OGS energy is overall gradually 213 million are not connected to the grid and 94 million gaining traction as a key strategy to achieve universal have erratic access due to the unreliability of the grid.9 electrification goals set in all countries. According to the International Energy Agency (IEA), more than half of new electricity access connections in Sub-Saharan Africa between 2017 and 2030 will have to be made 2.1. Key strategies and policies at the regional and international levels The two main regional blocs in West Africa, ECOWAS/ CEDEAO and the West African Economic and Monetary • The EREP provides for the development of National Renewable Energy Action Plans (NREAPs) by the Union (WAEMU/UEMOA), have their set of strategies 15 ECOWAS member states by the end of 2014. and policies related to the energy sector. At the The NREAPs, which will be implemented every ECOWAS level, there are three main renewable energy five years, will contribute to the achievement of policies and strategies in place: the targets set by the regional EREP for 2020 and 2030. The NREAPs are established by ECOWAS • The ECOWAS Renewable Energy Policy (EREP) and the ECOWAS Energy Efficiency Policy (EEEP), member states, in accordance with the model developed by ECREEE. The NREAP contains basic adopted by ECOWAS member states in October data on the status quo of national policies in terms 2012 and by ECOWAS Heads of State on July 18, of renewable energy development and proposes 2013. The guidance documents were prepared with achievable objectives and targets, some indicators the technical support of the ECOWAS Regional of which are disaggregated by gender and based on Center for Renewable Energy and Energy Efficiency national potentials and socioeconomic assessments. (ECREEE) and a wide range of international partners In addition, an outline of the concrete laws, (UNIDO, EU Energy Initiative-Partnership Dialogue incentives, and measures that will be implemented Facility [EUEI-PDF], GEF-SPWA, Austria, and Spain). by countries to achieve the targets is included. The policies include minimum targets/objectives and The objectives are, among others, (i) to increase scenarios for renewable energy and energy efficiency the share of renewable energy production in the as well as measures, standards, and incentives to energy mix by 2030 as well as the share of off-grid be implemented at the regional and national levels. population served by mini-grids and autonomous systems, (ii) to create a harmonized regulatory framework with common tax policies and standards, (iii) to develop technological knowledge and build capacity, and (iv) to promote a regional market. 9 GOGLA Solar Market Trends Report 2022. Market Study on Scaling Up Off-Grid Solar - in Benin, Burkina Faso, Côte d’Ivoire, Ghana, Senegal, and Togo 6 • The six regional standards on stand-alone solar • Regional Initiative for Sustainable Energy (IRED). systems and solar PV mini-grids, adopted by the To better deal with the recurring energy crises in ECOWAS industry ministers in March 2023.10 These several WAEMU member states, in January 2008, standards aim to provide high-quality solar PV the Conference of Heads of State and Government equipment and installations in ECOWAS member decided to set up a commission to propose a states. The process of developing these standards strategy entitled ‘Regional Initiative for Sustainable was led by ECREEE and the Industry Directorate Energy’. IRED aims to reach a 100 percent rate of of the ECOWAS Commission with the support access to electricity in the zone by 2030, at low of the World Bank (ROGEAP Project) and GIZ11 prices and within the framework of a vast integrated (AGoSEREE-AO Project12). electrical energy exchange market harmonized across West Africa. This regional market would At the WAEMU level, the following energy policies and be based on a dynamic public-private partnership frameworks are in place: (PPP). IRED also targets an increase in the proportion of renewable and sustainable energies in the • Common Energy Policy (CEP). In 2001, WAEMU adopted a CEP with the specific objectives WAEMU electricity production fleet to 82 percent by 2030. The institutional and financial system for of promoting renewable energies and energy implementing IRED notably includes an Energy efficiency and contributing to the preservation Development Fund (Fond de Développement de of the environment. For its operationalization, the l’Electrification, FDE), of a concessional nature, and policy is structured around programs including the an investment fund, the Infrastructure Fund, for the establishment of an integrated energy planning private sector. system, the promotion of renewable energies, the rationalization of the use of wood fuels, the diversification of energy resources and the rational use of energy. 10 The six standards are ECOSTAND IEC TS 62257-9-8:2020: Renewable energy and hybrid systems for rural electrification-Part 9-8: Integrated Systems; ECOSTAND IEC TS 62257-9-5:2018: Recommendations for Renewable energy and hybrid systems for rural electrification-Part 9-5; ECOSTAND 109.2022: Guidelines for installing Mini-grid Solar PV Systems; ECOSTAND 110:2022: Minimum technical requirements for installing Mini-grid Solar PV Systems; ECOSTAND 111:2022: Minimum technical requirements for installing Mini-grid Solar PV Systems; and ECOSTAND 112:2022: Minimum performance standard for Mini-Grid Inverters and the ECOWAS Revised Harmonization Model (ECOSHAM) set by the TMC. 11 German Agency for International Cooperation (Deutsche Gesellschaft für Internationale Zusammenarbeit). 12 Improving the governance of the renewable energy and energy efficiency sector in West Africa. Contents Key definitions Synthesis Chapter 1 2 3 4 5 6 2.  Policy, regulatory, and enabling environment for OGS • Directive No. 02/2022/CM/UEMOA, relating to the promotion and development of renewable and inputs; (iv) 20 percent - finished goods; and (v) 35 percent - specific goods for economic development. energies in WAEMU member states. This directive Fossil fuel alternatives such as the importation of solar aims to establish a harmonized institutional and panels or complete sets of solar kits in one consignment legal environment favorable to public and private are classified as essential social goods with zero-rated investments in the field of renewable energies in duty. However, solar products imported with separate member states. components are subjected to full duty. • Directive No. 05/2020/CM/UEMOA, setting energy efficiency measures in the construction of At the international level, several key legal instruments and mechanisms relevant to international renewable buildings in WAEMU member states. This directive energy regulation play an important role in governing sets out provisions aimed at improving the energy unified action and enhancing collaboration and performance of buildings in WAEMU member states. information sharing on effective policies and It applies to new buildings and existing buildings investment frameworks aimed at reducing barriers and subject to major renovation in the residential, public, risks to investments in renewable energy. These include and commercial sectors with a minimum useful the International Renewable Energy Agency (IRENA) surface area of ​​ 100 m2 for residential and 500 m2 for Statute, the United Nations Framework Convention other sectors. on Climate Change (UNFCCC), the Kyoto Protocol and related international climate change negotiations Regarding the tariff/customs framework in West Africa, and declarations, the Energy Charter Treaty (ECT), in 2013 ECOWAS established the common external tariff and various sector-specific treaties. Some primary (CET) to protect goods produced in member states, international organizations that influence present and which was modeled after a similar scheme previously future directions in international renewable energy developed by WAEMU. The CET is based on a five-tariff policy are the Nairobi Program of Action for the band structure: (i) zero rated - essential social goods; Development and Utilization of New and Renewable (ii) 5 percent - goods of primary necessity, raw goods, Sources of Energy, the IEA, development banks, and the and capital goods; (iii) 10 percent - intermediate goods Renewable Energy and Energy Efficiency Partnership.13 13 See https://academic.oup.com/edited-volume/42605/chapter/357547322. Market Study on Scaling Up Off-Grid Solar - in Benin, Burkina Faso, Côte d’Ivoire, Ghana, Senegal, and Togo 8 2.  Policy, regulatory, and enabling environment for OGS 2.2. Key strategies and policies at the country level This section presents the key strategies and policies related to the development of the OGS sector for each • The Off-Grid Electrification Master Plan (Plan Directeur d’Electrification Hors Réseau, PDEHR) country, including the key public actors involved in their 2018–2035. One of the objectives is to create definition and implementation. Overall, it was observed an attractive environment for the private sector that strategies and policies related to the energy and/ to invest in the sector, particularly in terms of a or renewable energy sectors have been developed in conducive legal, regulatory, fiscal, and pricing all countries, but there is usually no specific strategy framework, and mobilization of public and or policy for the OGS sector, which is addressed as a development partners’ finance. subsector of the electrification or renewable energy strategy. • The Regulatory Framework for Off-Grid Electrification (Electrification Hors Réseau, EHR) 2018. It specifies in particular the categorization of off-grid electricity by capacity (less or above 500 kVA), legal regimes and regulatory instruments, and 2.2.1. Benin technical and safety standards. The vision of the Beninese government is that, by The key actors involved in the definition, implementation, 2026, 70 percent of households will have access to and enforcement of the mentioned strategies, policies, quality electric energy at an affordable price. The goal and laws are (i) the Ministry in charge of electrical is universal access by 2030. The main government energy; (ii) the Electricity Regulatory Authority (Auto- policies and strategies are as follows: rité de Régulation de l’Electricité, ARE); (iii) the Directorate General of Energy Resources (Direction • The National Renewable Energy Development Policy (Politique nationale de développement des Générale des Ressources Énergétiques, DGRE); (iv) the Beninese Agency for Rural Electrification and Energy énergies renouvelables, PONADER) 2020. The key Management (Agence Béninoise d'Electrification objective is to “Contribute to the sustainable energy Rurale et de Maitrise d'Energie, ABERME); and (v) the development of the country through the supply National Standardization Agency (Agence Nationale of energy services based on renewable energies de Normalisation, de Métrologie et du contrôle Qualité, and accessible to the greatest number of the ANM). population at the lowest cost while promoting the socioeconomic activities of the rural world through The Millennium Challenge Account Benin II (MCA-Benin modern energy.” II) through the Off-Grid Clean Energy Facility (OCEF) has supported the Beninese government in setting up • The National Electrification Strategy (SNE) 2021– 2026. It integrates the grid and off-grid energy its regulatory framework for the development of OGS electrification. national development policy with an institutional and legal framework for implementation. The Off- Grid Electrification Program is expected to enable the construction of 822 mini-grids for access to electricity for 267,305 households (3 percent of households with access to electricity) and the distribution of 817,895 solar kits for a total amount estimated at USD 420 million by 2030. One of the objectives is also to develop appropriate funding mechanisms. Market Study on Scaling Up Off-Grid Solar - in Benin, Burkina Faso, Côte d’Ivoire, Ghana, Senegal, and Togo 10 2.2.2. Burkina Faso Off-grid electrification is a political In terms of financial incentives and fiscal policies, the priority of the government, which is committed to government has supported the OGS sector through (i) achieving a national electrification rate of 65 exemption from customs duties and value added tax percent by 2030, hence the deployment of efforts to (VAT) on imports and domestic distribution of solar make the policy and regulatory framework conducive to equipment (since 2013) and (ii) the ‘electrification OGS development. The main government policies and development tax’ (in the amount of FCFA 2 per kWh), strategies are as follows: which is used to finance electrical infrastructure in rural areas. • The ‘Energy Sector Policy’ (POSEN) (2014–2025), developed in harmony with the renewable energy The 2017 regulatory reform has established a more objectives set by the United Nations Secretary favorable licensing and concessions framework for rural General’s Initiative ‘Sustainable Energy for All’ electrification, as it allows licensing of off-grid projects (SE4All). This initiative plans to bring (i) the share of to both private developers and electricity cooperatives renewable energies in the energy mix to 50 percent (Coopérative d'électricité, COOPELs)15 in rural localities. by 2025 and (ii) the national electrification rate to 60 percent of the population by 2025, from 19 The key actors involved in the definition, percent in 2021 (World Bank data). implementation, and enforcement of the strategies, policies, and laws are (i) the Ministry in charge of Energy • The ‘Renewable Energies Action Plan’ (Plan d’Action National des Energies Renouvelables, (through the DGTE and the DGECH);16 (ii) the Energy Sector Regulatory Authority (Autorité de Régulation PANER) (2015–2020/2030). du Secteur de l’Electricité, ARSE); (iii) ABER; (iv) the Burkinabe Standardization Agency (Agence Burkinabé • The ‘Energy Efficiency Action Plan’ (Plan d'Action National d'Efficacité Energétique, PANEE). de Normalisation de la Métrologie et de la Qualité, ABNORM); and (v) the National Agency for Renewable Energies and Energy Efficiency (Agence Nationale des The legal and regulatory framework mainly consists of Energies Renouvelables et de l’Efficacité Energétique, ‘arrêtés’ (bylaws) and decrees.14 ANEREE). 14 Some of them being (i) setting of technical rules for the production of electrical energy (2019); (ii) terms of access for self-producers of renewable energies to the electricity grid and conditions for buying back their excess energy; (iii) setting of energy efficiency standards and requirements applying to appliances and equipment as well as their implementation methods (2017); (iv) adoption of specifications applicable to electricity producers in Burkina Faso (2017); (v) terms and conditions for granting licenses or authorizations for the production of electrical energy (2017); (vi) public service obligations, their conditions of application, and exemptions in the electricity subsector in Burkina Faso (2014); and (vii) conditions of eligibility and terms of enjoyment of the exemption from VAT on imports and sale of solar equipment (2020). 15 COOPELs are an offshoot of the Electrification Development Fund (FDE). Local electricity production and distribution units are at the forefront of its ‘Electricity for all’ program. 16 DGECH = Direction Générale de l'Electricité Conventionnelle et des Hydrocarbures; DGTE = Direction Générale de la Transition Energétique. The Directorate General of Energy (Direction Générale de l’Energie, DGE) had been split into two General Directorates and then reconstituted in March 2023. Contents Key definitions Synthesis Chapter 1 2 3 4 5 6 2.  Policy, regulatory, and enabling environment for OGS 2.2.3. Côte d’Ivoire The objective of the government is to The key actors involved in the definition, connect all the population to the national grid implementation, and enforcement of the policy are b y 2030 using a diversified energy mix, including (i) the Ministry of Petroleum, Energy, and Renewable wind, biomass, and solar PV which complement energy Energy (Ministère du Pétrole de l‘Energie et des Ener- from hydroelectric and fossil fuel sources. The strategy gies Renouvelables, MPEER), through its DGE; (ii) the is to adopt low-carbon technologies by integrating National Regulatory Authority for the Electricity Sector renewable energies in its energy mix (the target being (Autorité Nationale de Régulation du Secteur de 42 percent coming from renewable energies in the l’Electricité de Côte d’Ivoire, ANARE-CI); and (iii) Côte energy mix by 2030). d’Ivoire Energies (CI-Energies). The main government policies and strategies related to As stated by CI-Energies, one of whose missions is to energy are as follows: plan for electrical energy supply and demand, there is no specific regulation for OGS since most installations, • The National Program for (PRONER) (2014) and the Rural Electrification Rural Electrification and future projects are to be connected to the country's electricity grid. Master Plan (PDER) which aim to increase the penetration and coverage rate of electricity to all settlements with more than 500 inhabitants by 2020 and the entire population by 2025. They foresee a combination of grid extension for larger 2.2.4. Ghana settlements (more than 500 households) and off- grid solutions for smaller communities across the Ghana is reported to be one of the most country. Out of a total of 8,523 settlements in electrified countries in Sub-Saharan Africa. the country, the overwhelming majority would be The country’s remarkable achievement can be electrified by extending the network, with less than attributed to the strong participation and support by 100 areas identified as eligible for hybrid mini-grid both public and private players in Ghana’s energy sector solutions. following the power sector reforms by the Government of Ghana (GoG). These reforms were initiated by the • The National Renewable Energy Action Plan (PANER) (2016–2020/2030), which specifies that GoG in 1994, with the aim of de-regulating Ghana’s power market to allow competition and access to the development of the renewable energy sector transmission lines and distribution by private sector in Côte d'Ivoire for the consumption of electrical players, contributing to private sector investment in the energy is based on three separate sources: (i) sector. exploitation of the significant hydroelectric potential, estimated at 1,680 MW; (ii) use of the Ghana has several policies and strategies for the national biomass potential, estimated at more than energy sector, including OGS, which forms part of the 12,000,000 tons per year; and (iii) development of country’s agenda of meeting the renewable energy mix the country's solar PV potential, with an average in achieving the universal electrification goal: annual insolation on a horizontal plane with a potential of 5.25 kWh per m2 per day. • The Renewable Energy Master Plan (REMP), which outlines (i) the country’s roadmap for the long-term development of off-grid energy resources in the country, aiming to increase renewable generation capacity to about 1,360 MW by 2030; (ii) a USD 5.6 billion investment plan, with targets of 1 million solar lanterns, 46,150 solar irrigation systems, 700 solar dryers, and 135,000 solar heaters to support Market Study on Scaling Up Off-Grid Solar - in Benin, Burkina Faso, Côte d’Ivoire, Ghana, Senegal, and Togo 12 the achievement of universal energy access by 2030; and (iii) the objective to secure local solar • The Strategic National Energy Plan (2006–2020), which emphasizes standards and labeling programs, manufacturing and assembling through phasing out for example, enforcing standards for all electronic off-grid systems import exemptions and phasing in equipment and ensuring energy management exemptions for components to be used in assembly practices, building codes, energy audits, and load as part of the National Rural Electrification Strategy management programs • The Renewable Energy Act 2011 - Renewable • The Policy on Tax, which establishes tax waivers for Energy (Amendment) Bill, 2020, which (i) provides the importation of complete solar systems. 19 guidance on the development, management, utilization, sustainability, and adequate supply of In November 2022, the Energy Commission (EC) renewable energy; (ii) outlines a number of GoG passed a number of legislative instruments targeting support, financial incentives, feed-in tariffs, capital the technical operations of service providers in the subsidies, production-based subsidies, and equity renewable energy sector, namely on standards and participation for SAS companies; and (iii) creates labeling of solar panels, batteries, and inverters. Solar a competitive procurement scheme and net systems of 100 W and below are exempted from metering17 the legislative instruments. It is not clear how this will work with the regional standard for OGS below • The Energy Sector Strategy and Development Plan, 2010, which encourages the development of 350 W, recently approved by ECOWAS. Also, the EC has developed a Metering Sub-Code for connecting renewable energy technologies through provision renewable energy-generating systems to the of tax incentives on the importation of renewable distribution system. energy devices and promotes off-grid and mini- grids electrification projects, solar streetlighting, The key actors involved in the definition, implementation, solar lantern projects, and clean cooking solutions and enforcement of the strategies, policies, and laws are (i) the Ministry of Energy (MoE), (ii) the EC, (iii) the • The National Energy Policy, 2010, whose objectives are to increase the proportion of renewable energy in Public Utilities Regulatory Commission (PURC), (iv) the Ghana Standards Authority (GSA), (v) the Ghana the total national energy mix by 10 percent by 2030 Investment Promotion Council (GIPC),20 and (vi) the and promote energy efficiency and conservation Ghana Irrigation Development Authority (GIDA).21 (in 2021, renewable energy accounted for 31.7 percent of the electricity capacity in Ghana18) 17 Net Metering allows electricity producers to ‘export’ surplus to the national grid and use the ‘exported’ electricity to balance out the deficit, allowing households/organizations to meet their own electricity demand with their own production. The implementation of the Net Metering code has been slow with some challenges during its piloted phase. According to MoE, all issues have however been resolved and concluded with key relevant stakeholders, and the process of deploying reversible meters for the upscale of Net Meters is now ongoing. 18 https://www.statista.com/ 19 The consignment must come complete with all components. Importation of separate components attracts full tax since some components could be used for other purposes. 20 Which provides tax incentives to foreign companies investing in local projects and duty exemption for equipment used in those projects, including off-grid renewable energy. 21 Which is piloting solar water pumping irrigation projects, in partnership with various development partners (such as GIZ, UNDP, SNV, China, and Korean cooperations), to address the issue of high cost of fuel and electricity. Contents Key definitions Synthesis Chapter 1 2 3 4 5 6 2.  Policy, regulatory, and enabling environment for OGS 2.2.5. Senegal The main development benchmark for the country is the Emerging Senegal Plan • The Renewable Energy Law, which was the country's first renewable energy policy framework. (Plan Sénégal Emergent, PSE) 2014–2023, which The two most important decrees of the law were highlights the important role of energy access in published in 2011, stipulating the conditions achieving the country's long-term development goals. for the purchase of electricity, establishing the This benchmark has prioritized access to affordable and remuneration for electricity produced from sustainable electricity services in all strategic sectors renewable energy, introducing detailed conditions (education, health, industry, agriculture, and water) and concerning the connection of renewable energy aims to achieve universal access by 2025. power plants to the network, and defining the electricity purchase obligations and feed-in tariffs The other key relevant strategies and policies are as for each renewable energy source. follows: The key actors involved in the definition, • The Letter of Policy for the Development of the Energy Sector (2019–2023), whose guiding implementation, and enforcement of the strategies, policies, and laws are (i) the Ministry of Petroleum principle is the need to "reinforce access for all to and Energy, (ii) the Ministry of Environment,22 (iii) the energy in sufficient quality and quantity at a lower Electricity Sector Regulatory Commission (Commission cost, sustainably and in respect of the environment.” de Régulation du Secteur de l'Electricité, CRSE), (iv) the Senegalese Rural Electrification Agency (Agence • The Consultation Framework for Off-Grid Electrification, established in 2018 by MoE to Sénégalaise d’Electrification Rurale, ASER), (v) the National Renewable Energies Agency (Agence Natio- promote the dissemination of OGS technologies. nale pour les Énergies Renouvelables, ANER), and (vi) This framework includes activities aimed at the Agency for the Economy and Energy Management facilitating communication, coordination, and (Agence pour l’Économie et la Maitrise De l’Énergie, synergies between initiatives. It is also working on AEME). the establishment of an institutional and regulatory framework favorable to the development of this market and conducive to the mobilization of financing. • The National Rural Electrification Plan (Plan National d’Electrification Rurale, PNER), which aims to mobilize the necessary funds to achieve universal access by 2025. • The Electricity Law (1998), which initiated the liberalization of the energy sector and allowed the participation of the private sector in the production of electricity. In 2002, the law was amended to facilitate a more transparent procedure for private sector tenders. 22 Which is promoting a new program on ecological transition with solar companies. Market Study on Scaling Up Off-Grid Solar - in Benin, Burkina Faso, Côte d’Ivoire, Ghana, Senegal, and Togo 14 2.2.6. Togo According to the country's electrification strategy for all by 2030, the electrification rate is targeted to • Law 2000-012, which governs the electricity sector and specifies the provisions to liberalize be 75 percent by the end of 2025 and 100 percent the production segment. These provisions also by the end of 2030 (electrification rate was 55.7 provide for the promotion of the liberalization of the percent in 2021: World Bank source). The key relevant transmission and distribution segments. strategies and policies are as follows: • Law 2012-001 on the investment code in Togo, • The NREAP (2015–2030), which focuses on PPPs driven by electrification based on off-grid renewable which specifies the regulatory framework for investments in all public and private sectors, energy sources. By 2030, 550,000 households will including that of renewable energy. It promotes be electrified by autonomous solar kits through the the facilitation and protection of sustainable and CIZO program (which means ‘light up’), including responsible investments in the country. 300,000 by the end of 2022; 317 rural localities will be supplied by mini-grids solar panels; 50,000 The electricity strategy in Togo is the responsibility of new solar streetlights will be installed; and 960 new the Ministry of Energy and Mines, which reports directly localities will be covered by the extension of the to the President of the Republic, through its DGE. electricity network. The implementation of these initiatives should bring the rural electrification rate The requirements in terms of standards for solar to 40 percent in 2022 against 8 percent in 2017. products are VeraSol for DC products and ISO and IEC for AC products. Quality standards are defined • The National Electrification Strategy (2018– 2022). This strategy, which envisages 100 percent by the National Authority for Standardization. The application of these provisions is under the tri-authority electrification of the country by 2030, was drawn of the ministry responsible for renewable energies, from the NREAP. the ministry responsible for industry, and the ministry responsible for trade. • Law 2018-010 on the promotion of electricity production from renewable energy sources. Three Other key actors involved in the definition, legal regimes are available to professionals in the implementation, and enforcement of the strategies, renewable energy sector depending on the power policies and laws are (i) ARSE and (ii) the Togolese produced: (i) freedom regime for any equipment Agency for Rural Electrification and Renewable under 32 kW, free of charge and without declaration; Energies (Agence Togolaise d’Electrification Rurale et (ii) declaration system for all equipment between des Energies Renouvelables, AT2ER).23 32 and 100 kW, subject to prior declaration; and (iii) authorization system for installations of more than 100 kW, requiring prior approval. The law also provides for exemptions or attractive customs and tax relief for concession or license holders in the sector. These exemptions have a minimum duration of 10 years. To date, only companies in the CIZO program are eligible because they hold a license for 15 years. 23 Which manages the technical and financial partnerships for the development of solar energy. Contents Key definitions Synthesis Chapter 1 2 3 4 5 6 2.  Policy, regulatory, and enabling environment for OGS 2.3. Impact of COVID-19 and evolution in the post-pandemic context According to the institutional actors interviewed, the The actors noted a gradual resumption of activities main impacts of the pandemic on the OGS sector after the end of the pandemic and a gradual return to and evolution in the post-pandemic context were the normal conditions, although prices remain high due to following: high inflation caused mainly by the Russian Federation’s war in Ukraine. For instance, in Togo, the inflation rate • Delays in the implementation of projects due to a general slowdown in activities, disruptions in the at the end of March 2023 was 7.1 percent, compared to 0.5 percent in January 2020. supply chains, reallocation of resources for the implementation of anti-COVID response measures, Ghana is a specific case since it is undergoing a serious and strategic reorientation of certain investors and debt and financial crisis, attributed to the ongoing donors war in Ukraine, as well as to poor fiscal management. With inflation at 45.1 percent as of March 2023, • Increase in the prices of imported equipment and operational costs for the solar companies, as well as the government has put in place a number of fiscal and monetary measures by introducing new taxes, a decrease in demand and an increase in payments increasing VAT from 4 percent to 21 percent, and in arrears by the customers, affecting their sales and increasing the monetary policy rate (MPR) to 29.5 profitability percent. This has particularly affected FIs’ lending appetite. FIs are of the view that the borrowers are • Increase in payments in arrears for the FIs, including for their solar portfolio likely to default due to current high interest rates and uncertainty on the economic recovery. As a result, businesses are adjusting to get alternative forms of • Increase in the volumes of unpaid bills for the electricity companies. cheaper funds. Some governments put in place interventions to support the population. In Ghana, for instance, the government provided subsidies for lifeline and other categories of consumers of electricity. According to the PURC, it cost the government USD 21.8 million per month to provide free energy to all Ghanaians from March to June 2020 and USD 1.8 million per month for lifeline users, contributing to an increase in Ghana’s energy debt with significant impact on the country’s revenue targets. Market Study on Scaling Up Off-Grid Solar - in Benin, Burkina Faso, Côte d’Ivoire, Ghana, Senegal, and Togo 16 Specific studies and/or evaluations on the implementation and impact of the various policies and • In Côte d’Ivoire, policies and regulations are overall not conducive to the growth of the OGS regulations in the target countries are rare, noting that sector, because the government's programs and it may also be too early to assess the impact of recent vision are directed toward total coverage of the policies and regulations. However, interactions with electricity network. The environment for OGS sector interviewed stakeholders suggest the following: development remains weak and does not have an appropriate regulatory framework. • the In Benin, Burkina Faso, Ghana, Senegal, and Togo, 24 policies and regulations related to the energy sector are overall deemed to have had a positive or neutral effect on the renewable energy sector, including the OGS sector, although there are often issues of delays in actual implementation or incomplete implementation. 2.4. Main challenges related to the policies, strategies, and regulatory environment According to the institutional actors interviewed in the six countries, the main challenges are as follows: • Gaps in policies. For instance, in Ghana, current legislative instruments are targeted at standards and labeling of solar panels, batteries, and inverters • Slow entry into force of regulatory texts due to long legislative processes. Some regulatory frameworks but do not include smaller solar systems, such as solar lanterns and plug-and-play solar kits, hence are still incomplete, with decrees and other contributing to the influx of substandard products in ministerial orders yet to be taken. the market. • Low enforcement of policies. For instance, in • Lack of reliability of the government electrification Ghana, implementation of the Net Metering plans beyond the grid. This makes private investment code developed in 2015 has been slow, which has risky, since communities can be connected to the affected investment appetite by potential investors. grid years before initially planned.25 Payment and licensing of service providers are not rigorously enforced. Solar companies find it challenging to obtain tax refunds on the importation • Lack of financial incentives for OGS development in very remote off-grid areas, where poor households of solar panels, even though the tax exemption is in cannot afford stand-alone solar kits and there are place. not enough economic activities to make mini-grids profitable either, while the governments generally have a policy of uniform pricing all over the country. 24 According to the report of the ‘Workshop to capitalize on the Off-Network regulatory framework and its implementation with the support of MCA Benin II’ (MCA II, August 2023), the regulatory framework is ‘heavy’ but contributes to securing the sector. The consultation approach used to establish the regulatory framework and its application tools was appreciated. 25 For off-grid solutions like mini-grids, grid integration plans (what happens to investments when the grid reaches an off-grid area) such as those in Nigeria are a prerequisite for successful off-grid deployment. Contents Key definitions Synthesis Chapter 1 2 3 4 5 6 2.  Policy, regulatory, and enabling environment for OGS This would justify demand- and supply-side financial incentives to make the investment attractive for • Unfavorable, insufficient, or unequal tax and financial incentive environment. Although there are fiscal developers and investors. incentives and exemptions for solar equipment, new taxes may counterbalance the positive effect • Difficulties of the concerned agencies to enforce implementation of the various regulations, for of these measures. There are overall limited tax incentives, grants, subsidies, and investments in example, of tax exemptions at border/port. This is place to spur the growth of the OGS sector. Private due to a lack of human and financial resources, legal players involved in the sector may be constrained tools, technical knowledge, or equipment. with all forms of nuisance taxes, making the sector unattractive for investments. In Togo, there are no • Lack of use of new technologies that could provide more rapid and effective results for testing the solar equipment tax exemptions for companies outside the CIZO program, which makes their quality and efficiency of various solar products. products more expensive and less competitive.PPP policies and rules are not sufficiently attractive for • Insufficiency in the control of standards on the quality of equipment, which causes an abundance long-term investments by the private sector. on the market of equipment of dubious origin or of low quality. This situation leads to the decline • Lack of a clear and transparent strategy based on economic rationale for extension of access to of public confidence in solar equipment and slows electricity, depending on the context. market penetration by solar companies and the implementation of government strategies. • Some government policies may affect the development of the OGS sector. This is the case, for instance, of fuel subsidies (for instance in Benin) which render investment in solar solutions less profitable. 2.5. Potential and needs to strengthen the sector The institutional actors interviewed in the six countries have expressed the following views on the • There is (through high potential for OGS electrification mini-grids or stand-alone systems), opportunities for developing/strengthening access to especially in countries where access to the grid and use of OGS energy: network is lowest. For instance, out of the 10,000 planned localities in Burkina Faso, only 1,600 • The OGS sector can contribute significantly to governments’ goals of achieving universal access to localities are electrified and connected to the SONABEL network, which has reached its technical electricity through the use of renewable energies. connection limit. The sector therefore benefits from the support of public authorities, although to varying extents, and from overall clear strategies, policies, and a • In addition to the electrical consumption needs for households, commercial and industrial (C&I), conducive environment. and public and community services like such as and education facilities, in rural as well as urban areas, there is high potential for SPUE, especially for the agricultural sector (solar pumps, mills, dryers, coolers, and so on). The high cost of Market Study on Scaling Up Off-Grid Solar - in Benin, Burkina Faso, Côte d’Ivoire, Ghana, Senegal, and Togo 18 network electricity and fuel makes stand-alone solar equipment an attractive alternative, but this • Technical support for the mapping of the potential for the different solutions and key barriers for their opportunity needs to be backed by adapted end scaling up to clearly define the types of support to user financing solutions (for example, PAYGO, loans, be provided (technical and financial) or leasing), considering the high initial investment costs of solar equipment. There is also a need to raise awareness and understanding among end • Technical support to improve strategies, policies, regulatory, or update the and standards users about the return on investment of solar frameworks based on challenges identified in each solutions, as well as to provide a road to market for country the customer's activity. • Technical support to harmonize and rationalize the • The governments are promoting private sector engagement in the OGS sector, including through interventions at the ECOWAS level, with the aim of favoring large-scale projects and economies of tax exemptions and other fiscal incentives and scale26 development of PPPs. This should contribute to a fast and efficient growth of the sector, all the more so if identified challenges are properly addressed. • Technical support for the implementation of exhaustive surveys of the OGS sector: installed There is, however, a need to improve PPP policies capacity, mapping of sector players, monitoring of and rules to ensure that the investment is attractive international commitments of the governments, and in the long run for the private sector. so on) • There is a need to have a clear and transparent • Training on the efficiency of the various SPUE/SHS strategy based on economic rationale for extension technologies and new technologies, market trends, of access to electricity, depending on the context, opportunities, adapted financing and distribution for instance, (i) connection to the network in models, and so on the case of the existence of a nearby electrical substation, (ii) installation of mini-grids or mini solar power plants in remote localities but with a high • Technical support for the strengthening of PPPs population density, and (iii) stand-alone solar kits with scalable options for remote locations with low • Technical and financial support to strengthen the training institutions and e-learning platforms 27 population density. providing specialized training on solar energy Regarding technical and financial support required by institutional players and/or other sector stakeholders • Financial support for the promotion of OGS through subsidies and lines of credit lodged with FIs to enhance access to and use of solar equipment, interviewees mentioned the following main needs: • Institutional and financial support for the effective implementation of projects by the state agencies. Table 2 summarizes the key specific constraints/ challenges related to policies and regulations per country and recommendations to address them. 26 This is one of the objectives of the West African Power Pool (WAPP) which brings together 14 countries (including the six studied countries) and 27 national electricity companies which work together to create a unified regional electricity market. This common policy is expected to ensure the physical interconnection necessary for electricity exchanges between countries with cheap, clean, and abundant energy resources to countries without them. 27 For instance, www.aalam-bi.com. Contents Key definitions Synthesis Chapter 1 2 3 4 5 6 2.  Policy, regulatory, and enabling environment for OGS Table 2: Key policy/regulatory challenges and recommendations per target country Country Constraints/challenges Recommendations Establish a quality control laboratory for solar Lack of mechanisms for verifying the quality of solar equipment and installations or strengthen the equipment and the low quality of ancillary services capacities of the National Metrology Agency in the (installation and after-sales services) due to the low field of quality control and standards relating to solar Benin technical capacity of solar players energy. Publicize political-strategic, legal, and regulatory Low visibility of public and private initiatives in the instruments, standards, as well as initiatives in terms solar sector of incentives, exemptions, and support for OGS. The legal framework requires additional texts to cover all matters subject to regulation, although Issue decrees and other ministerial orders that are the Government of Burkina Faso has invested missing or overdue for signature, to ensure the great efforts in developing the various legal and fullness of the legal framework for the solar energy regulatory texts and in taking into account policies sector, particularly in its OGS portion. and regulations of UEMOA and ECOWAS. This will facilitate its application and the effectiveness of sanctions for offenders. Absence of legal texts to secure the investments of private off-grid energy producers, in terms of recovery times of invested capital and fixed prices Resolve the problem of discriminatory treatment of kWh guaranteed to consumers, as is the case for between users of electricity in SONABEL zones and SONABEL and COOPEL which benefit from state users of electricity produced and sold by COOPEL subsidies and independent private producers, through Discriminatory electricity sales price practices: harmonization of sales prices to consumers and the SONABEL prices are subsidized at around FCFA 109 electricity service throughout the territory of Burkina Burkina per kW for the consumer while COOPEL, which do Faso. Faso not benefit from a subsidy, charge full price (FCFA 200 per kW) Absence of rules and procedures for retrocession Support the government to develop these rules and of concessional financial resources obtained by the procedures. state to solar companies Provide ANERE with the missing legal and technical Insufficient operationality of ANERE and ABER, tools to increase its capacity to control equipment, due to the insufficiency, or even lack, of certain systems, and installations and increase the financial technical tools and human resources resources allocated to ABER. Lack of awareness by solar companies of customs Initiate information and communication actions and tax exemptions for solar equipment on the scope of application of customs and tax exemptions. Train/raise awareness among customs control agents Flooding of the market by poor quality counterfeit on the quality criteria of solar products and ensure products which enter it through fraud they are more rigorous in their interventions. OGS is not a priority sector for the government Support organization of stakeholder workshops to Côte whose primary objective is to quickly expand the assess how OGS could contribute to the government d’Ivoire electricity grid across the country objective of universal electrification. Market Study on Scaling Up Off-Grid Solar - in Benin, Burkina Faso, Côte d’Ivoire, Ghana, Senegal, and Togo 20 Country Constraints/challenges Recommendations Provide support to the government to improve its Lack of targeted government support policies and processes to make the OGS sector more attractive for solar companies and investors. Provide support to the government to review the High cost of certification and licensing processes cost of certification and licensing through a broader for solar companies stakeholder engagement. Support the government on legislative instrument Weak regulation on smaller solar systems regarding the importation and production of small systems. Ghana Support the government and other stakeholders for Lack of awareness by the population on the benefits continuous awareness on the benefits of using solar and advantages of solar as part of the national energy transition program. Support the government to develop national policy or strategic document to provide a clear Grid expansion plans and transparent strategy on the government’s grid expansion plans. Support the government to improve its policies and Non-conducive policy on mini-grids transparence on its PPA on the mini-grid sector to be more attractive for solar companies and investors. Questionable quality of the material which often does not meet the requirements of cutting-edge technology Improve supervision of the importation of equipment and improve the certification system for solar Strong competition from products imported by Senegal equipment. non-specialists who are most often simple import- export traders with no skills or experience in the sector Long procedures for obtaining tax exemption, long Strengthen advocacy by Conseil Patronal des delays in state payment for contracts Énergies renouvelables du Sénégal (COPERES). Absence of exemption/tax reduction on the importation and/or customs clearance of solar Extend tax and customs exemptions to all solar equipment for companies outside the CIZO companies to promote fair competition and the program, which makes the latter's products more development of the sector. expensive and less competitive Tender eligibility conditions in terms of quality standards requirements, minimum lot costs, and Relax the eligibility conditions for public calls for others favoring international companies over Togo tenders to give more opportunities to national domestic solar companies, which limits their growth. companies with a view to promoting growth and Domestic companies often rely on subcontracting financial empowerment. from foreign companies due to their limited financial capacity. Strengthen the system for controlling the standards Insufficient control of equipment quality standards, and quality of solar equipment to establish the which results in an abundance of equipment of confidence of the target population with a view to dubious origin or low quality on the market protecting the OGS sector. Contents Key definitions Synthesis Chapter 1 2 3 4 5 6 3 Initiatives for OGS development 22 This section describes the main energy sector levels (for example, electrification agencies, donors, development initiatives and projects carried out by NGOs, and so on), with a focus on the OGS sector. public and private actors at the regional and country 3.1. Main initiatives at regional level A number of key initiatives at the regional level (covering several of the studied countries) were identified during • Component 2 provides a guarantees through BOAD line of credit and and commercial FIs the study. focused on facilitating access to finance for stand- alone solar system businesses. Subcomponent Regional Off-Grid Electricity Access 2A is a credit line for stand-alone solar businesses Project through BOAD for the eight WAEMU countries; Subcomponent 2B is a Contingent Grant Facility: ROGEAP is a regional project funded by the World Clean Technology Fund (CTF) to provide Technology Bank covering 19 West African countries, including the Risk Cover for FIs (in 11 CTF eligible countries28); 15 countries in ECOWAS, plus Cameroon, the Central Subcomponent 2C (new) is the CwA Guarantee African Republic, Chad, and Mauritania. The main with the aim of providing a commercial risk cover for objective of ROGEAP is to increase electricity access FIs in six countries.29 of households, businesses, and public institutions to modern stand-alone solar systems through a ROGEAP already offers the CTF scheme which covers harmonized regional approach. ROGEAP aims to technology-related risks (cf. section 5.2). The CwA provide electricity access to unelectrified households, guarantee scheme under preparation—the scoping commercial enterprises, and public institutions and design of which is one of the key objectives of the through OGS PV mechanisms. ROGEAP has two main present study—should cover nontechnological risks components: and hence be complementary to CTF. CTF has allocated USD 67.2 million in cover for ROGEAP, whereas CwA • Component 1 provides grants through a Project Fund Manager to help develop a regional market intends to allocate USD 6 million. by establishing an enabling business environment and providing technical and financial capacity- building support to solar entrepreneurs in the 19 project countries. Subcomponent 1A is about Enabling Environment; Subcomponent 1B about Entrepreneurship Technical Support; Subcomponent 1C about Entrepreneurship Financial Support, and Subcomponent 1D about Barrier Removal for Challenging Markets (Market Entry Grants and RBF). 28 Benin, Burkina Faso, Côte d’Ivoire, Mali, Niger, Ghana, The Gambia, Liberia, Nigeria, Sierra Leone, and Cameroon. 29 Benin, Burkina Faso, Côte d’Ivoire, Senegal, Togo, and Ghana. Contents Key definitions Synthesis Chapter 1 2 3 4 5 6 3.  Initiatives for OGS development Sustainable Use of Natural Resources SUNREF West Africa I has been ongoing since 2014 in and Energy Finance (SUNREF) Senegal, Côte d’Ivoire, Togo, Benin, and Burkina Faso. SUNREF West Africa II is targeting Ghana and Nigeria. SUNREF is the French Agency for Development (Agence As per information collected during the study, SUNREF Française De Development (AFD) Green Finance Label, is currently operational in Ghana and Côte d’Ivoire managed by Proparco, the private sector arm of the among the six countries targeted by the study, with Group. It helps economic actors in developing and two partner commercial banks in each country. TA is emerging countries seize the opportunities offered by provided by contracted specialized service providers in energy and environmental transitions and encourages each country.30 The country programs also partner with local FIs to finance them. The program combines a public institutions, for instance, the EC in Ghana.31 financial approach and a technical approach to meet the demand of partner banks and project initiators, Further information on the partnerships developed with including SMEs: the financial approach provides local commercial banks in Côte d’Ivoire and Ghana and the partner banks with long-term green credit lines and status of financing is available in other sections of the can be allocated on favorable terms, and the technical report.32 approach supports and boosts the finance market for green investments. It helps banks evaluate and finance Energizing Development (EnDev) projects and builds the capacities of companies to implement strategies for an optimized use of energy EnDev is a strategic partnership of like-minded donors and natural resources. and partners to support access to modern energy, working in more than 20 countries around the globe. SUNREF covers three investment sectors: energy EnDev’s involvement focuses on providing access to efficiency, renewable energies including photovoltaic affordable, reliable, sustainable, and modern energy as systems, and the environment. In some countries, a means to deliver social, economic, and environmental SUNREF benefits from the participation of the European change. Union (EU) and/or the support of international partners like European Investment Bank (EIB), European Bank for The driving force behind EnDev is a partnership Reconstruction and Development (EBRD), Swiss State between Germany, the Netherlands, Norway, and Secretariat for Economic Affairs (SECO), and DFID. Switzerland.33 GIZ and the Netherlands Enterprise Agency (RVO) coordinate the program. EnDev combines flexibility with a bottom-up approach in its country projects to contribute to achieving universal energy access. Governments, private sector partners, and civil society have direct contact with EnDev country teams to tailor the right approach and consider country-specific situations. 30 IED and Burgeap in Côte d’Ivoire, Econoler in Ghana. 31 The Energy Commission is hosting the Project Coordinator and the technical service provider, provides technical support, chairs the Steering Committee, and receives grants from the program to conduct studies and organize events (for instance, a study on electric vehicles and organization of a renewable energy fair) 32 We were also informed by the AFD office in Ghana that KfW is about to launch a program similar to SUNREF with the same TA provider. 33 Further financial contributions to EnDev have been provided by the Australian Department of Foreign Affairs and Trade, the EU, Icelandic International Development Agency, IKEA Foundation, Irish Aid, Korea Foundation for International Healthcare, Rijksdienst voor Ondernemend Nederland, Swedish International Development Cooperation Agency, UK Foreign, Commonwealth and Development Office, and the United States Agency for International Development. Market Study on Scaling Up Off-Grid Solar - in Benin, Burkina Faso, Côte d’Ivoire, Ghana, Senegal, and Togo 24 EnDev’s support takes the form of an integrated set Green People’s Energy of support tools targeted at transforming markets for (Grüne Bürgerenergie, GBE) energy access: (i) supporting the supply side to deliver high-quality products and services—even in remote The GBE initiative for Africa of the German Federal rural areas; (ii) creating demand for modern energy Ministry for Economic Cooperation and Development services, ranging from awareness raising to financial (BMZ) was launched in 2017 and aims to facilitate, schemes to support uptake; and (iii) improving the expand, and secure the supply of sustainable energy enabling environment for energy access, including in rural Africa. It relies on the broad participation of regulations to support a resilient business sector and SMEs, municipalities, cooperatives, public associations, markets for modern energy. and citizens. The initiative is jointly implemented by GIZ and KfW Development Bank and focuses on Projects implemented by EnDev in the studied countries nine countries in Sub-Saharan Africa, including Benin, are as follows: Côte d’Ivoire, Ghana, and Senegal among the studied countries. In addition to country-specific measures, • In Benin, EnDev supports the government in promoting OGS photovoltaic and clean cooking the initiative promotes renewable energy projects of common benefit across countries and strengthens technologies for households, social institutions, and partnerships between actors in Europe and Africa. productive use. The program is co-financed by the For faster results, the initiative cooperates with the EU to support promotion of these technologies and country-specific strategies of the EnDev program and sustainability of EnDev actions in Benin. other GIZ projects. • In Burkina Faso, EnDev helps develop and strengthen demand, supply, and the enabling environment to The GBE initiative offers innovative technical and financial support schemes (including the results-based create sustainable biodigester markets. financing [RBF] approach) to use solar energy in rural areas to improve populations’ livelihoods and incomes. • In Senegal, EnDev supports the country by helping to establish a commercial supply chain for It is also promoting the use of solar technologies for agriculture and for the electrification of social improved cookstoves and facilitating access to institutions in rural areas. electricity in rural areas. It thereby also enhances the electrification of social institutions, as well as GBE interventions in the studied countries are the productive use of clean energy. EnDev also supports following: the promotion of climate-friendly cooking. • In Benin, GBE (i) assists people in improving their income-generating activities through the use of renewable energy technologies; (ii) encourages companies and private entrepreneurs to improve the quality of their services and products, (iii) supports social institutions in acquiring decentralized renewable energy systems, (iv) supports training institutions in the field of renewable energies to expand their training courses in line with market demand to strengthen the local value chain, and (v) advises political decision-makers on how to improve the framework conditions for decentralized renewable energies. GBE has also established a fund for small projects of nonprofit actors (up to EUR 200,000). GBE activities combine technical Contents Key definitions Synthesis Chapter 1 2 3 4 5 6 3.  Initiatives for OGS development assistance (TA) with financial assistance, most authority on the licensing of companies that install commonly in the form of RBF mechanisms. The solar irrigation systems. project has established one RBF scheme for suppliers of solar equipment for productive use,34 one RBF scheme for Fis,35 and one RBF scheme for • In Senegal, GBE strengthens, through training and coaching, the business management skills the electrification of social infrastructure.36 of players who are either island network users or have themselves invested in OGS systems. Pay- • In Côte d’Ivoire, GBE encourages access to energy for agricultural populations in rural areas as-you-go (PAYGO) companies and cooperatives planning projects in the field of productive use are and offers them the opportunity to purchase and/ also supported in the development of projects and or use renewable energy systems. The initiative in the preparation of the necessary documents (i) offers advisory services to stakeholders of for loan applications. Measures are also taken to the renewable energy and agricultural sector to associate the concerned actors to improve the promote productive use technologies to the Ivorian framework conditions for the productive use market, (ii) creates RBF mechanisms to support of decentralized renewable energy. The project local companies in introducing productive use operates in the milk, banana, market gardening, and technologies which are powered by renewable cereals (rice, millet, maize) sectors and promotes energies,37 (iii) provides training to local businesses the following equipment: solar pumps, solar fridges, and FIs to enable them to build their capacity to solar sewing machines, shellers, solar dryers, improve the decentralization of the energy supply,38 and solar milk tanks. In terms of financing, two and (iv) advises policy makers on how to improve the approaches are implemented: (i) RBF, supporting framework conditions for decentralized renewable equipment suppliers to go to rural areas through the energy. promotion of tripartite agreements between end users, distributors, and MFIs, and (ii) a 100 percent • In Ghana, GBE (i) offers education and training in solar technology, especially for solar pumping subsidy for cooperatives and NGOs for various solar equipment. The project has conducted awareness- and irrigation systems, and OGS power systems; raising with the financial sector and is partnering (ii) supports training institutes in expanding and with about 15 FIs (MFIs, banks) for the financing professionalizing their training programs; (iii) of solar solutions. Discussions are also under way supports financially farmers, cooperatives, and small with La Banque Agricole (LBA) to support the bank entrepreneurs, as well as schools and health stations to develop projects to be financed by the Green in the acquisition of quality solar equipment, with Climate Fund (GCF). incentives of up to 40 percent; (iv) supports companies in the development of their projects and in mobilizing financing from banks and crowdfunding companies; and (v) advises the technical regulatory 34 Which provides for the payment of financial incentives to partner suppliers for each distributed equipment (managed by ABERME—for eight partner suppliers to date). 35 Which provides for the payment of financial incentives to FIs for each loan granted to finance the purchase of SPUE (managed by CIDR Pamiga with four participating FIs to date: PEBCo-BETHESDA, Réseau National des Caisses villageoises d'Epargne et de Crédit Autogérées [RENACA], Caisse d’Epargne, de Solidarité et de Crédit Autogérée [CESCA], and SIA N'SON). 36 Which provides fixed financial incentives to a supplier (ARESS) for the installation and maintenance of solar systems on a five-year lease for the benefit of 20 selected health centers and schools—also managed by CIDR Pamiga. 37 Participating companies receive financial incentives for each eligible piece of productive use equipment (solar pump, solar refrigerator or freezer, solar mill, and so on) sold and installed to end customers on a commercial basis. Incentives are paid after sales are reported and verified. 38 In partnership with the GIZ project for vocational training in the fields of renewable energy and energy efficiency (Projet Formation professionnelle dans les domaines des énergies renouvelables et de l'efficacité énergétique, ProFERE). Market Study on Scaling Up Off-Grid Solar - in Benin, Burkina Faso, Côte d’Ivoire, Ghana, Senegal, and Togo 26 Sustainable Energy Fund for Africa According to the AfDB website,42 SEFA has (SEFA) spearheaded AfDB’s engagement in green mini-grids, through the Market Development Program and country- SEFA is a multi-donor special fund managed by the focused support to create an enabling investment African Development Bank (AfDB). It provides catalytic environment. Through these initiatives, SEFA has paved finance to unlock private sector investments in the way for AfDB to finance its first two scale-up renewable energy and energy efficiency. SEFA offers green energy programs in the Democratic Republic of TA and concessional finance instruments to remove Congo and Burkina Faso. SEFA also develops flagship market barriers, build a more robust pipeline of projects, blended-finance initiatives in the sector. It played a and improve the risk-return profile of individual catalytic role in the preparation and financial close of investments. SEFA’s overarching goal is to contribute the Africa Renewable Energy Fund (AREF), one of the to universal access to affordable, reliable, sustainable, first pan-African equity funds in the market,43 as well and modern energy services throughout Africa, in line as in establishment of the Facility for Energy Inclusion with the New Deal on Energy for Africa and Sustainable (FEI) (see below). Development Goal 7. Regional Program for the Development Established in 2011 in partnership with the government of Renewable Energy and Energy of Denmark, SEFA has since received contributions Efficiency (Program Régional from the Governments of the United States, United de Développement des Energies Kingdom, Italy, Norway, Spain, and Germany and also from the Nordic Development Fund and the Global Renouvelables et de l'Efficacité Energy Alliance from the People and Planet. Energétique, PRODERE) Financed by WAEMU, Component 2 of the program SEFA supports interventions across three strategic (2021–2025) aims to build mini solar power plants with priorities: (i) green baseload,39 (ii) green mini-grids,40 a low-voltage electricity network to improve population and (iii) energy efficiency.41 access to green energy, install solar streetlights as part of the improvement of public lighting, and replace SEFA’s funding instruments are (i) TA support through public lighting lamps with low-consumption LED grants with a strong focus on activities that will directly lamps.44 unlock investments (TA grants are available to public and private sector entities) and (ii) concessional investment support through RBF, loans, and equity instruments, often blended with AfDB investments to close viability gaps. 39 Increasing the penetration of renewable energy in power systems, with a strong focus on power system stability, and delivering alternatives to fossil fuel baseload generation options. 40 Accelerating electricity access to underserved populations through clean energy mini-grid solutions. 41 Improving the efficiency of energy services delivered through a variety of technologies and business models, also including clean cooking and pico-solar technologies. 42 https://www.afdb.org/en/topics-and-sectors/initiatives-partnerships/sustainable-energy-fund-for-africa 43 AREF is a USD 200.1 million fund which invests in small hydro, wind, geothermal, solar, stranded gas, and biomass projects across Sub- Saharan Africa (excluding South Africa). 44 In Senegal, for example, the project enabled the installation of four mini-power stations without self-consumption storage in four regional hospitals and the electrification of public and community structures (cost of 2.25 billion FCFA). Source: ANER. In Burkina Faso, phase 2 of the project (2021–2025) provides for the installation of 3 mini photovoltaic solar power plants for the connection of at least 780 households, the installation of 29 productive solar systems, the rehabilitation of the park of 1,200 solar streetlights deployed in phase 1, and the installation of 825 solar streetlights (at the cost of FCFA 2.4 billion). Source: ABER. Contents Key definitions Synthesis Chapter 1 2 3 4 5 6 3.  Initiatives for OGS development FEI Power Africa Off-Grid Project FEI is a debt financing facility for small-scale energy It is a four-year project funded by the United States access projects—OGS, small independent power Agency for International Development (USAID), in producers (IPPs), captive installations, and mini-grids. its final year covering 16 countries including Ghana, FEI is a USD 500 million initiative capitalized by AfDB, Burkina Faso, Côte d’Ivoire, Senegal, and Togo among other DFIs, and commercial investors.45 FEI structures the studied countries. The project provides support transactions, engages local capital markets, finances to solar companies commercializing mini-grids and projects and companies, and accelerates access to stand-alone solar equipment and on the policy side. For clean energy across Africa. instance, in Ghana, 10 companies are supported, with the main areas of support being business and capacity Access to debt financing was identified as one of the development (sales, training, marketing, and so on), major barriers to implementation and expansions in the market intelligence (policy changes, new technologies, off-grid, small-scale renewable energy, and mini-grids and so on), and access to finance from FIs, impact segments of the energy markets. FEI was established investors, and grants. The project is also linking FIs with to provide debt financing through two windows: (i) credit lines and guarantees provided by various actors Facility for Energy Inclusion Off-Grid Energy Access like African Guarantee Fund (AGF), Proparco, Better Fund (FEI OGEF), a USD 100 million fund providing invest, and USAID/DCA. On the policy side, in Ghana consumer and corporate financing solutions to solar the project has been supporting the review of the off-grid companies and the related ecosystem, and (ii) mini-grid policy and a mini-grid feasibility study for the FEI On-Grid, a USD 400 million fund offering flexible private sector (submitted to the MoE). It is also working project and corporate finance solutions to renewable with the Association of Ghana Solar Industry on solar energy projects of less than 25 MW and mini-grids. fiscal incentives. Eligible investees for OGEF include SHS providers and operators, energy equipment manufacturers and equivalent, MFIs offering energy credit products, and other companies operating in the sector with a clear link to credit/energy access. 45 FEI’s development was supported by the AFDB’s Sustainable Energy Fund for Africa and the Nordic Development Fund and refined in collaboration with a range of donors, DFIs, and private investors, notably the Global Environment Facility, All On, Calvert Impact Capital, DFID, USAID, and the Shell Foundation. Market Study on Scaling Up Off-Grid Solar - in Benin, Burkina Faso, Côte d’Ivoire, Ghana, Senegal, and Togo 28 3.2. Main initiatives at the country level This section describes selected initiatives at the country level for the six countries covered by the study, • Construction of four photovoltaic power plants with the Green Yellow/Egnon consortium. As part except for the ones already described in the previous of the implementation of PONADER, an agreement section on regional initiatives. It does not aim to provide was signed in July 2022 to construct four solar a comprehensive picture of OGS-related initiatives. power plants of 50 MW each by the consortium Green Yellow/Egnon consulting. 3.2.1. Benin • Interventions by ABERME. Most public initiatives related to OGS are led by ABERME, which deals The Government of Benin is promoting and with rural electrification and the OGS development implementing a number of projects aiming at enhancing in Benin in accordance with Decree No. 2022-474 access to solar electrification, with support from regulating off-grid electrification. With regard to various donors (USAID, AFD, EU, BIDC,46 and so on). stand-alone solar equipment, ABERME has been They include the following: managing an RBF fund for solar kits and SHS for five years in partnership with GIZ's EnDev program, • Projet ‘Lumiere du Benin’ (Light of Benin Project). This project consists in providing all 77 municipalities which provides a subsidy of 40–60 percent of the price of the equipment to partner solar companies of Benin with the latest generation of solar street for each product sold. ABERME also manages the lamps across more than 1,500 km of roads, hence solar system electrification project for 750 social directly affecting 6 million people. infrastructures (health centers, police stations, schools, and so on), financed by BIDC and Exim • Distribution Projet ‘Distribution d’électricité’ (Electricity Project), including (i) the construction Bank (India). Finally, it has been involved in the implementation of Component 2 of the Regional of four solar power plants for a capacity of 50 MW, Program for the Development of Renewable Energy (ii) the installation of 205 transformers, (iii) the and Energy Efficiency (PRODERE 2) and the Rural construction and rehabilitation of 19 substations Electrification Project (Projet d’Electrification Ru- and 878 km of lines, and (iv) the construction of a rale, PERU), whose objective was to increase the national electricity distribution control center. rate of access to electricity in rural areas to 13.78 percent in 2022. • DEFFISOL project. The project provides for the construction of a 25 MW peak solar power plant on the Onigbolo site in southeastern Benin. With 40 ha of PV panels across a total area of 100 ha, this installation will be one of the largest in the country and will supply electricity to 350,000 Beninese. It is managed by the Beninese Electric Power Company (Société Béninoise d'Energie Electrique, SBEE) 46 BIDC = ECOWAS Bank for Investment and Development (Banque d’Investissement et de Développement de la CEDEAO). Contents Key definitions Synthesis Chapter 1 2 3 4 5 6 3.  Initiatives for OGS development Selected initiatives by nongovernment actors are as 3.2.2. Burkina Faso follows: Regarding the implementation of specific OGS • The OCEF of MCA-Benin II. The second compact of the Millennium Challenge Account (MCA-Benin electrification projects and programs, four electrification projects initiated by the government, II), deployed over 2017–2023, focused on electrical 11 projects implemented by bilateral and multilateral energy, including renewable energy. It is structured agencies, and seven projects by various national around four projects related to (i) reforms of the and international development partners have been electricity sector as a whole, which led to the identified. Selected recent initiatives are presented establishment of EHR in Benin; (ii) generation below. of electricity; (iii) distribution of electricity; and (iv) implementation of off-grid electricity access The main government-led initiatives are as follows: actions, which includes OCEF. OCEF supports off- grid initiatives through four funding windows: (i) micro plants for public services (water pumping • Structural reform and investment plan of the ‘National Program for Economic and Social stations, schools, health centers, and so on); Development’ (PNDES) 2016–2020. This included (ii) mini-grids; (iii) solar kit distribution; and (iv) the electrification of 300 localities by photovoltaic implementation of energy efficiency measures. or hybrid solar systems and the development of two Stand-alone solar equipment—namely solar lighting solar equipment assembly plants. kits and SHS—is therefore targeted mainly by window 3. SPUE appliances are marginally covered under window 1 (for example, solar water pumps • Electrification project by solar systems of health and school infrastructure in rural areas and control for schools and/or solar refrigerators for health of electrical energy demand in the urban centers centers). Among others, OCEF has co-financed ‘Les of Ouagadougou and Bobo-Dioulasso. The project Soleils du Benin’, a company established in 2022 by concerns 225 centers, but at present, only 11 centers NEoT Offgrid Africa, GDS International, and ARESS, have received funding with activities yet to start. to operate a portfolio of mini-grids in Benin. The project aims to electrify 12 localities, installing 1.7 MW of photovoltaic capacity and 3 MWh of battery • Special operation to support domestic electrification for the benefit of households using capacity, to supply more than 5,000 homes and solar energy, with a view to reducing the impact of businesses. load shedding on populations, reducing electricity consumption bills, and helping to relieve pressure on • AFD interventions. AFD’s interventions focus largely on extension of the grid network rather than OGS SONABEL's—the national electricity distributor— supply. Funding is yet to be mobilized. development. The agency did not consider it a priority to work on the OGS sector because of other interventions like OCEF. AFD supports electrification through various projects including (i) the construction of solar power plants connected to the grid (for a total of 50 MW), (ii) the extension of the electricity network (modernization, densification, reduction of losses), and (iii) household access to the network (purchase of connection kits). Market Study on Scaling Up Off-Grid Solar - in Benin, Burkina Faso, Côte d’Ivoire, Ghana, Senegal, and Togo 30 Selected other initiatives from nongovernment actors are the following: • The ACP-EU Energy Facility I and II (2009–2016). 47 facility supported 10 rural electrification projects in Burkina Faso, including (i) electrification • AfDB. AfDB has contributed to the development of the OGS sector in Burkina Faso through various of 28 villages in the Sahel; (ii) electrification of 10 villages in Yatenga and Zondoma with solar kits; initiatives: (iii) electrification by solar PV of 10 municipalities in the province of Zoundwéogo; (iv) distribution of (i) Pilot project for the development of 100 mini- 4,000 solar kits; (v) microcredits for the purchase grids, to which 3,300 companies should be of individual solar kits for 1,000 families and connected for productive uses, and 100,000 entrepreneurs; (vi) 3,000 SHSs according to the solar lighting kits for the benefit of rural fee-for-service principle; and (vii) development of a households. This project, which is in progress, 30 kW hybrid mini-grid. is piloted by ABER and ANEREE. (ii) Funding of EUR 2.8 million for AGF to de- • African Enterprise Challenge Fund (AECF) - REACT/SSA. The REACT/SSA program aims to risk SPUE loans granted by local FIs. MFIs will bring the benefits of clean energy to off-grid, low- be selected to finance the 3,300 companies income households. By de-risking unique business mentioned above with the guarantee of AGF. models, it supports the private sector to innovate and invest in diverse technologies. The program (iii) Participation in the implementation of a solar supports investees in Burkina Faso, Ethiopia, electrification strategy common to the five Kenya, Liberia, Mali, Mozambique, Zimbabwe, and G5 Sahel countries (Burkina Faso, Mali, Niger, Somalia. Technologies funded are, among others, (i) Chad, and Mauritania) entitled ‘Desert Power small, household-level solar home systems (SHSs), Initiative’. This project will focus on solar for comprising basic lighting, phone-charging systems, productive uses. and radios, made available to large numbers of households via PAYGO; (ii) large solar power stand- (iv) Co-financing of the YELLEN Program, which alone systems for productive use, comprising comprises a ‘Solar Power Plant component’ phone-charging systems, radio, and so on; and (iii) and a ‘Rural Electrification’ component. larger, centralized renewable power systems (mini- grids/micro grids) and utility models. • Electricity Sector Support Program (PASEL) 2017–2023. USD 1.5 million from the Lighting Africa program is dedicated to decentralized access to • Beyond the Grid Fund for Africa (BGFA). Implemented in Burkina Faso, Liberia, Mozambique, energy within the framework of the World Bank's Uganda, and Zambia, BGFA aims to bring access to electricity sector support project. In 2019, a total clean and affordable off-grid energy to at least 6 of 239 schools benefited from this initiative in eight million people by 2025. To do so, it helps businesses regions. The program also includes a consumer overcome challenges in accessing finance to scale education campaign focusing on energy efficiency up their operations, with the goal of contributing and solar lights meeting Lighting Global standards. to inclusive and sustainable development in its focus countries. The first project was contracted • Rural Electrification Project (IRENA/ADFD) 2016– 2020. The project covers both on-grid and off-grid in Burkina Faso in 2022 with ARESS Burkina Faso, aiming to scale the latter’s current business solar energy. The objective is to develop a 3.6 MW activities in Burkina Faso using a PAYGO business solar photovoltaic mini-grid as well as SHSs for 42 approach over a four-year period. The company municipalities (12,000 households) in the Haut- plans to establish over 20,000 new energy service Bassins and Boucle du Mouhoun regions. subscriptions, including both residential energy 47 ACP-EU = African, Caribbean, and Pacific - EU. Contents Key definitions Synthesis Chapter 1 2 3 4 5 6 3.  Initiatives for OGS development needs, such as lighting, mobile phone charging, managed by CIE. It is moreover included in the off- TV, and fridges, and customized solar systems for grid electrification action plan to electrify 70,000 business and institutional uses. The project will camps (‘campements’) not taken into account for provide clean energy and lighting to up to 19,000 the on-grid network coverage, with three categories new households and 2,000 businesses. of camps: less than 50 households, between 50 and 100 households, and more than 100 households. • MICRESOL Project. Implemented by Fondation Énergie pour le monde (FONDEM) since 2011, in partnership with the Burkinabe supplier K&K • More in general, the Government of Côte d’Ivoire encourages PPPs in the renewable energy sector International and the Réseau des Caisses Populaires and invests in technical and professional training to du Burkina (RCPB), an MFI, the project has been develop a skilled workforce in the renewable energy offering microloans for households, health centers, sector. and micro-entrepreneurs. In five years, (i) more than 900 solar kits have been distributed to 10,000 users, (ii) solar lamps have been placed in different • The ECLER IVOIRE project, funded by the EU and implemented by Expertise France (technical schools, and (iii) solar kits have been delivered to cooperation agency of the AFD Group), aims to 160 families. improve access to electricity for rural people in Côte d'Ivoire through solar energy and reduce energy • SEMAFO Foundation. Since its creation in 2012, the initiative has provided more than 7,000 solar lamps consumption in public buildings. As part of its solar energy component, in partnership with CI-Energies, to schools in Burkina Faso and has also connected the project is facilitating the construction of 16 27 health centers to solar energy. hybrid mini-grids with a total capacity of 792 kWp in 17 municipalities of the country, representing a total • Yellen Project. Implemented by the Netherlands Development Organization (SNV), it aims to population of about 10,000 people. distribute 25,000 Lighting Africa certified solar lamps to 400 primary schools and libraries, affecting • Among the NGOs, CARE is establishing a program to support women organized in cooperatives more than 100,000 people. to access solar fridges for income-generating activities. Moreover, following the COVID-19 outbreak, Women for Africa launched in 2020 3.2.3. Côte Ivoire a project called Solar Energy for Education and Health, with the support of EDF Groupe foundation, In Côte d’Ivoire, the priority of the government is to through which solar kits are delivered to schools and extend electrification through the electricity company’s proximity health structures. network (Compagnie Ivoirienne d’Electricite, CIE). Hence, the number of government and other initiatives to promote the OGS sector compared to other studied countries is reportedly more limited. They include the following: • DGE under the Ministry of Mines, Petrol, and Energy is monitoring the construction of three solar power plants with the respective capacity of 37.5, 25, and 66 MW, with the financial support of several donors. DGE also promotes the installation of mini- grids connected to the national grid, which are Market Study on Scaling Up Off-Grid Solar - in Benin, Burkina Faso, Côte d’Ivoire, Ghana, Senegal, and Togo 32 3.2.4. Ghana • The Renewable Energy Development Acceleration Project (REDAP). This is a and joint The OGS sector is spearheaded by government- initiative between SNV, the Rural Development led contracts informed by policies and strategies, Fund (RDF), and other FIs aimed at facilitating the as outlined by the REMP. In addition, over the years, growth of micro, small, and medium enterprises the sector has received significant support from (MSMEs) involved in the renewable energy sector, various NGOs, development partners’ initiatives, and including solar companies. The project provides foreign investments providing technical support, business development services (BDS) at an access to finance, training, and development of policy affordable cost to 10 SMEs to become investment frameworks, among others, for the growth of the sector. ready for debt financing (target is a 17 percent Key sector development partners are GIZ, SNV, SECO, annual interest rate while the market rate is currently Norwegian Agency for Development Cooperation more than 30 percent). Financing needs are mostly (NORAD), USAID, AfDB, AFD/Proparco, UNDP, and for certification and registration, quality testing, and KfW. purchase of equipment and machinery. Some ongoing initiatives to promote the development of the OGS sector in Ghana are as follows: • SNV Green Project. The objective is to support the local economy to transition to greener energy and job employment. The project provides 80 percent • Scaling-Up Renewable Energy Program (SREP). This is a four-year project with a total cost of USD 85 matching grants, including to SMEs supported by REDAP, to reduce dependence on mainstream million financed by the African Development Fund energy and reduce energy costs. (ADF), the Climate Investment Fund (CIF), SECO, and the GoG. The project’s purpose is to support the GoG in meeting its universal electrification goal, as 3.2.5. Senegal well as its 10 percent renewable energy mix target by 2030 through the implementation of renewable Government agencies, NGOs, and donors have energy investments. This includes the development implemented various initiatives for the development of 35 mini-grids in the Volta Lake Region and the of the OGS sector in Senegal. The main ones are the deployment of 12,000 rooftop net-metered solar following: PV systems for government institutions, SMEs, and selected households within the Electricity Company of Ghana (ECG) and Northern Electricity Distribution • Projects initiated by ANER. One of the mandates of ANER is to promote innovative solutions and Company (NEDCO) networks. The project will also approaches, with the objective of demonstrating deploy 11,000 SHSs within the lakeside and island the benefits of solar solutions. Some of the pilot communities of Ghana to support Ghana in the projects initiated and supported by ANER are (i) the electrification of island communities that account solar pumping project in the Niayes area with groups for the remaining 15 percent in achieving universal of market gardeners and the solar company E3C; access to electricity by 2030. market gardeners were financed by LBA with a 70 percent guarantee from Fonds de garantie d'inves- tissement prioritaires (FONGIP); (ii) the project of multifunctional solar platforms financed by WAEMU where the platforms are managed by women's groups and where production or processing equipment (millet mills, freezers, oil presses, and so on) can be connected to the platform; (iii) the project of two cold rooms with a capacity of 30 tons each with the company Valorem for the fisheries Contents Key definitions Synthesis Chapter 1 2 3 4 5 6 3.  Initiatives for OGS development sector; (iv) the project of cold rooms for market gardening with the company Ecoforce, funded by • The Skills Development and Youth Employment Project in Growth Sectors (Projet de Développe- International Solar Alliance (ISA) for a total cost of ment des Compétences et Emploi des Jeunes dans USD 50,000; (v) solar irrigation projects for banana les secteurs porteurs, PDCEJ), financed by AfDB plantations; (vi) the partnership with GIZ for the and implemented by the Ministry of Vocational installation of three pumps of 3 kW each for market Training, Apprenticeship and Integration (Ministère gardening with an objective of scaling up to 100 de la Formation professionnelle, de l'Apprentis- pumps with the financial support of the LBA; and sage et de l'Insertion, MFPAI) over 2019–2023. The (vi) the project implemented jointly with the LBA project targets four sectors: agro-industry, hides and Société d'Aménagement et d'Exploitation des and skins, oil and gas, and solar energy. For the Terres du Delta du Fleuve Sénégal (SAED) for the solar sector, a training and coaching program has installation of mini solar power plants to supply the been developed with the solar company Nadji.Bi, pumping stations of irrigated perimeters. with the objective of creating a network of young independent entrepreneurs for the promotion, • Support Program for the Creation of Green Job Opportunities in Senegal (Program d’Appui à la installation, servicing, and maintenance of solar projects/equipment, especially in rural areas. Out Création d’Opportunités d’Emplois Verts au Séné- of a target of 350 young people, 100 trainees have gal, PACEV) (2015–2020) promoted by the Ministry been trained to date. of Environment. The overall objective of this program is to promote the creation of green jobs to contribute to the fight against poverty and the • Mercy Corps interventions. Mercy Corps’ main objective is to work with the private sector to sustainable management of the environment. Based facilitate access to solar solutions. As part of a on the green job niches identified in key sectors of collaboration with ASER with World Bank funding, the national economy, the creation of 10,000 green Mercy Corps has (i) supported 15 companies in jobs is planned, including 4,000 direct and 6,000 the milk, agroforestry, market gardening, and indirect, mainly through the entrepreneurship of other sectors and (ii) managed a grant for the young people and women. The program has been implementation of solar technologies (milk tank, an opportunity to experiment with the following pasteurizer, pumps, mini-drilling, and so on). Mercy innovations: (i) production of solar household Corps is moreover in discussion with the Rural kits with artisanal ovens and fridges that are used Sector Development Support Fund (Fonds d'Appui for catering and processing, (ii) design of a solar au Développement du Secteur Rural, FADSR) for cafeteria prototype, and (iii) integrated aquaculture the establishment of a window for the financing of farm with mini solar pump to supply aquaculture productive use solar equipment. and market gardening ponds. To capitalize on the achievements of this program, a new program is being formulated and will include financial support to solar companies and groups: 70 percent subsidies for equipment/investments, while working capital needs for women's groups will be covered by funds lodged with MFIs at preferential rates to be negotiated. Market Study on Scaling Up Off-Grid Solar - in Benin, Burkina Faso, Côte d’Ivoire, Ghana, Senegal, and Togo 34 • AFD does not have direct interventions to support the OGS sector in Senegal. SUNREF is not operational kit distributed on credit over a period of 36 months. This subsidy allows a reduction in the purchase price in the country because the Ministry of Equipment for the end users. Four solar companies have been was unable to provide the required studies/pipeline licensed under the CIZO program: Bboxx, Soleva- and types of equipment to be financed in time. AFD Sunking, Solergie, and Moon. These companies is however one of the funding partners of the new also benefit from tax and customs exemptions for a rural electrification project that will be financed minimum period of 10 years.48 by the EU/EIB for the off-grid component with GIZ participation, while AFD will finance the on- grid component. In addition, AFD is financing two • The project to install solar mini-grids in 317 localities. It aims to co-finance the construction, NGO-led projects promoting the OGS sector: (i) operation, maintenance, and marketing of solar a project led by FONDEM which aims, through the mini-grids in 317 rural localities and is in the use of renewable energies (including installation contracting phase with three companies retained of solar kits in villages in Casamance) and support for implementation. This project is co-financed by for the productive uses of electricity, to provide the Electrification Development Fund (FDE), BOAD, access to sustainable energy as well as job creation the Islamic Development Bank (IDB), and other and (ii) a project led by the NGO Le Partenariat to private funds. improve access to renewable energies, through the improvement of the coordination and management of sectoral public policies on renewable energies, • PRAVOST project (Projet d'Appui au Volet Social du program CIZO). A support project to the social the structuring of civil society and private sector component of the CIZO program, it aims to build 10 organizations for the supply of renewable energy mini-grids in 10 rural localities (Component 1). The services for the benefit of the territories of the selection process is under way with funding from northern zone, and the dissemination of innovative AfDB and other private funds. The project also aims solutions and technologies from renewable sources to electrify 314 health centers with photovoltaic in off-grid areas in the departments of Saint-Louis solar systems, equip 122 health centers with solar and Matam. water heaters, install 600 solar pumps for crop irrigation, install water supply in 400 localities, and acquire a national PAYGO platform (Component 2). 3.2.6. Togo The project, which is in the implementation phase, is financed by AfDB and the EU. Government agencies, NGOs, and donors have implemented various initiatives for the development of the OGS sector in Togo. • Energy Autonomous Villages Initiative Project, funded by GIZ, aims to build and operate mini- grids in two rural localities. The project is in the Several initiatives have been launched by the contracting phase. government as part of its policy to promote the solar energy sector and are implemented by the Togolese Agency for Rural Electrification and Renewable • Electrification project of 350 localities by photovoltaic solar systems, which aims to electrify Energy (AT2ER). These include the following: schools and install drinking water supply. The project is in the contract phase and financed by Exim Bank • The ‘CIZO’ program. Launched in 2017, it plans to distribute 550,000 solar kits by 2030. To do so, the (India). program provides partner solar companies with a subsidy of FCFA 72,000 (USD 120) for each solar 48 A total of 115,000 solar kits were distributed at the end of February 2023, that is, 38.3 percent of the expected result at the end of December 2022. Contents Key definitions Synthesis Chapter 1 2 3 4 5 6 3.  Initiatives for OGS development • Project for the supply, installation and maintenance • Sun4Water (Water and Energy for Food) program, of 50,000 solar streetlights (CIZO-EP Project), implemented by GIZ. The objective is to develop which aims to deploy 50,000 solar streetlights in the capacities of educational institutions on solar- the country with funding from the French Treasury.49 powered irrigation systems in West and East Africa (Mali, Niger, Togo, Ethiopia, Kenya, and Malawi). Initiatives by other actors are as follows: The target is to build capacity and support 15 educational institutions through the training of 500 • ProEnergie Togo Project by GIZ, launched in 2017 with an extension in 2020 for a phase II (2020–2024). teachers and freelancers in the development and delivery of economically viable training programs. The project’s objective is the energy empowerment of villages through decentralized energy supply. It aims to strengthen the AT2ER and support the • The Synergy of Renewable Energy Actors (Sy- nergie des Acteurs de l’Energie Renouvelable, financing of companies supplying solar equipment SAER50) contributed to the creation of the and improved cookstoves. Among others, the Alternance Training Institute for Renewable Energy project also implements an RBF mechanism (Promo- Development (Institut de Formation en Alternance tion des Equipements Solaires Productifs [PESOP]), pour le Développement-Energies Renouvelables, which provides for the payment of financial IFAD-ENR), which includes an alternate education incentives to partner distributors for the sale of solar training program with the view to strengthening the equipment for productive uses (mainly solar pumps). technicians in the field. This project reached 67,000 people in rural areas at the end of 2020, with solar pumps distributed by 8 suppliers out of 17 selected partners. In addition to the pumps, GIZ also plans to experiment with some partners with solar cold rooms. 49 A total of 14,000 streetlights out of the 50,000 planned were installed at the end of March 2023. 50 Association under Togolese law created in 2021, with 29 solar companies’ members at the end of February 2023, including four associations. It plays the role of representing its members and advocacy and lobbying with the government. Market Study on Scaling Up Off-Grid Solar - in Benin, Burkina Faso, Côte d’Ivoire, Ghana, Senegal, and Togo 36 3.3. Main challenges faced for the development of the OGS sector According to the institutional actors interviewed in the six countries, the main challenges to the development • Low quality of the equipment in some cases, affecting the confidence of the population in the of the OGS sector that the various initiatives are trying solar equipment. to address are described below (in addition to the challenges mentioned in section 2). At the level of solar companies At the level of end users • Gaps in technical business models. capacities, management, and • High cost of the solar equipment, accentuated by the fact that the equipment is not produced locally and is overwhelmingly imported. Assuming that • Low quality of ancillary services (installation, after- sales services) offered by solar companies and lack locally produced equipment would be cheaper (to of rural distribution networks. be verified), supporting the few existing assembling/ manufacturing companies could be an opportunity to address this issue. • Lack of access to adapted and affordable financing for solar companies, due to the lack of guarantees and the inadequacy of the financial products on • Low purchasing power of the population, especially in rural areas, which limits their access to solar offer.51 Although a number of initiatives are seeking to tackle this challenge (for example, securitization solutions. Some actors highlighted the need deals with OGS companies, solar manufacturers to subsidize solar equipment to make it more providing credit to their distributors), most of affordable for the hardest-to-reach customers, who these tend to concern a limited number of mature will not indeed be reached with commercial prices. companies at the expense of smaller, early-stage Subsidies, concessional finance, and RBF schemes ones (cf. section 4). are hence needed, together with PAYGO and energy-as-a-service business models. • Demanding/stringent conditions of eligibility for tenders in terms of quality standards requirements, • Lack of adapted financing solutions for the end users. PAYGO is an effective model but financing minimum costs of batches, and others, favoring international companies at the expense of national solutions to backstop such facilities—such as solar companies, which limits their growth. National receivables financing—are limited. companies are often content with subcontracting from foreign companies because of their limited • Lack of awareness and knowledge by end users on solar equipment and their advantages in terms of financial capacity. return on investment in a context of high electricity and fuel costs, affecting the take-up of solar equipment. 51 AFD mentioned that one of the challenges for SUNREF was the lack of guarantees from the promoters of the projects, for instance, the ones retained by OCEF in Benin, which means that despite the line of credit, the banks did not finance them. Contents Key definitions Synthesis Chapter 1 2 3 4 5 6 3.  Initiatives for OGS development At the level of FIs At the level of coordination between the various initiatives • Lack of expertise and appetite of FIs to finance the OGS sector, resulting in a lack of adapted products, especially for solar companies. Some actors • There is lack of coordination between the different stakeholders promoting the OGS sector, particularly mentioned that commercial banks are too risk averse in terms of financial support and incentives for the and there might be better financing opportunities end users of the solar equipment, while at the same from publicly owned banks with a development time leaving the room open for innovations. focus, investment funds, or international markets. Others mentioned the need to develop adapted risk-sharing mechanisms and provide TA to the FIs to develop and deliver customer-centric financial products to raise their appetite. • In Ghana, the current economic and financial environment is not conducive for lending, which is affecting the take-up of credit lines like SUNREF by the commercial banks. Market Study on Scaling Up Off-Grid Solar - in Benin, Burkina Faso, Côte d’Ivoire, Ghana, Senegal, and Togo 38 3.4. Potential and needs to strengthen the sector As already mentioned in the previous section, interviewed institutional actors see potential for the • Establishment or adaptation of financial instruments to incentivize the FIs to finance the sector development of the OGS sector to different extents (concessional credit lines, risk-sharing mechanisms, depending on the specific country contexts. One grants, and so on) recommendation in this regard would be to conduct specific studies or map/update existing ones to better understand the potential of the different solar solutions • Support to enhance the coordination between various initiatives to promote the OGS sector (mini-grids, SPUE appliances) depending on the geographies, coverage of the grid network, and needs and capacities of the different categories of users and • Support to organize forums between stakeholders to connect FIs, solar companies, and representatives stakeholders. of end users, to increase understanding and trust between these actors and contribute to the Most of the stakeholders mentioned the high potential development of customer-centric financial services to develop SPUE, especially in rural areas, for various types of equipment and usage, especially solar pumping for smallholder farmers, cooling, drying, and processing • Support for public awareness campaigns on the opportunities and advantages of solar solutions. systems for the agriculture sector, and other equipment for various small businesses (solar coolers, welding and Stakeholders interviewed highlighted that there are sewing machines, multifunctional platforms, and so on). already numerous initiatives to provide these various There is also a high potential for electric vehicles. supports as described above and they should be leveraged to avoid duplication of efforts. Regarding support required to be able to leverage this potential, institutional actors met mentioned the following main needs, in addition to the ones listed in section 2: • Capacity building and TA to the solar companies on new technologies, business models, business planning, financial management, development of payment solutions for their clients, identification of financing opportunities, and development of funding proposals. This support should be customized for the different categories of solar companies and their level of maturity • Capacity building and TA to FIs to develop adapted and risk-mitigated financial products and delivery channels for end users and solar companies Contents Key definitions Synthesis Chapter 1 2 3 4 5 6 4 OGS equipment distribution landscape 40 It is challenging to assess the size of the current OGS In the six countries covered by the study, a total of market in the six countries covered by the study due 273,207 solar lighting kits were sold in 2022, with Benin, to the lack of reliable statistical data. Based on data Togo, and Côte d’Ivoire accounting for 76 percent collected by GOGLA from its affiliates, which, however, of total sales. Although this represents on average represent a relatively small share of solar companies only a slight decrease in sales volumes compared active in the area, the OGS market in West Africa is to pre-pandemic levels (−10 percent versus 2019), driven by Nigeria, which alone accounts for 76 percent changes in sales volumes vary substantially from one of the total 1,559,861 solar lighting kits sold and 72 country to the other, with Benin and Togo reporting percent of the 385,801 key solar appliances52 sold in the strongest increases (+85 percent and +23 percent 2022 in the region.53 respectively) and Burkina Faso and Senegal the most significant decreases (−47 percent and −51 percent respectively). Table 3 provides a breakdown of sales volumes per country. Table 3: Solar energy kits sales volumes in targeted countries in 2022 Burkina Côte Benin Ghana Senegal Togo TOTAL Faso d’Ivoire No. of solar energy kits sold 98.539 27.357 47.141 10.788 26.959 62.423 273.207 % of total solar energy kits sold 36 10 17 4 10 23 100 % change versus 2019 85 −47 −25 −65 −51 23 −10 (pre-COVID) Source: GOGLA. Total sales of solar appliances for the three countries These figures vary considerably between countries, (Benin, Côte d’Ivoire, and Senegal), among the six however, with Benin reporting an increase of 183 targeted by the study which reported sufficient data, percent and Côte d’Ivoire a decrease of 57 percent, as amounted to 62,652 units in 2022 representing an shown in Table 4. average of a 23 percent decrease compared to 2019. 52 In GOGLA’s definition of solar products, solar lighting kits comprise solar lanterns and multi-light systems (1–10 Wp) and SHSs (> 10 Wp), whereas key solar appliances include TVs, fans, solar water pumps, and refrigeration units. This is slightly different from the classification used in this report, which considers SPUE appliances as a distinct category (cf. key definitions at the beginning of the report). 53 GOGLA Global Off-Grid Solar Market Report, Semi-Annual Sales and Impact Data (2021 and 2022). Contents Key definitions Synthesis Chapter 1 2 3 4 5 6 4.  OGS equipment distribution landscape Table 4: Key solar appliances sales volumes in targeted countries in 2022 Benin Côte d’Ivoire Senegal TOTAL No. of solar appliances sold 25.247 21.149 16.256 62.652 % of total solar appliances 40 34 26 100 sold % change versus 2019 (pre- 183 −57 −28 −23 COVID) Source: GOGLA. These data suggest that the OGS sector in the six in the meantime, growing strongly in some countries targeted countries is still not back to pre-pandemic since 2019 (Benin and Togo) and shrinking substantially sales volumes and may have also changed significantly in others (Burkina Faso, Côte d’Ivoire, Senegal). 4.1. Overview of interviewed solar companies Although there is no official database for solar In the framework of the study, a total of 42 solar companies, the number of companies operational in the companies were interviewed across the six countries. six countries covered by the study can be estimated Table 5 provides some basic information on the to be more than 500.54 Solar companies include interviewed solar companies, with reference to manufacturers, importers, distributors, retailers, and ECREEE's classification of solar companies in tiers.55 installers of solar equipment at the national or regional level. 54 Go Africa Online, Répertoire des acteurs de l’énergie renouvelable au Togo, interviews with country solar associations. 55 ECREEE Solar company classification: Tier 1 - Start-up companies: <3 full-time employees, <300 SHSs or 1,500 lanterns sold, 25 full-time employees, >30,000 SHSs or 50,000 lanterns sold, >USD 3 million annual revenues. Market Study on Scaling Up Off-Grid Solar - in Benin, Burkina Faso, Côte d’Ivoire, Ghana, Senegal, and Togo 42 Table 5: Main information on interviewed solar companies56 Burkina Côte Benin Ghana Senegal Togo TOTAL Faso d’Ivoire No. of companies interviewed 7 6 6 9 3 11 42 ECREEE classification based on annual revenues Tier 1 (USD 3 million) 1 2 2 2 7 ECREEE classification based on no. of full-time employees Tier 1 (<3) 2 2 Tier 2 (3–25) 4 4 2 3 2 3 18 Tier 3 (>25) 3 1 4 6 1 6 21 Source: Stakeholder interviews. Most of the solar companies interviewed (72 percent) fall under tier 2 in terms of annual revenues (between USD 100,000 and USD 3 million) and between tier 3 considered as mature companies), with most of these (more than 25 employees—51 percent of interviewees) being foreign owned (for example, ZECI and Schneider and tier 2 (between 3 and 25 employees—43 percent Electric in Côte d’Ivoire, Bboxx in Ghana and Togo, of interviewees) based on the number of full-time Soleva-Sun King in Togo). This is consistent with the employees. This underscores that, according to findings of the 2019 ROGEAP market assessment, ECREEE’s solar company classification, interviewees which found that the majority of companies in the West are still largely early-stage companies. Less than 20 Africa and Sahel regions are primarily tier 1 and tier 2 percent of solar companies interviewed fall under tier companies, with relatively few tier 3 companies.57 3 in terms of annual turnover (more than USD 3 million, 56 Figures for companies’ classification in tiers do not always add up to the total number of companies interviewed as not all of the latter provided figures during interviews. 57 ROGEAP Off-Grid Solar Market Assessment & Private Sector Support Facility Design – Regional Report, GreenMax Capital Advisors and African Solar Designs, July 2019. Contents Key definitions Synthesis Chapter 1 2 3 4 5 6 4.  OGS equipment distribution landscape Regarding their solar offer, interviewed solar companies across the six countries provide mainly the following • Solar street lamps, to light public and private spaces in urban and rural areas products and services: • Construction of hybrid micro or mini-grids and • Pico-solar lanterns and small SHSs, mostly sold as plug-and-play kits solar plants, capable of powering a community/ village or larger area based on their size • Customized medium and large solar systems for • Other types of solar products, residential and commercial purposes, including heaters and air conditioners including water multiple components from often different suppliers/ manufacturers • All pre- and post-sales services related to the solar equipment sold (installation, maintenance, after- • A range of SPUE appliances, predominantly solar water pumps and coolers (refrigerators, freezers), sales, and so on). and other equipment to a lesser extent (mills, egg incubators, barber kits, multi-service kiosks and charging stations, cold rooms) 4.2. Impact of COVID-19 and evolution in the post-pandemic context Solar companies interviewed affirm they were severely affected by the COVID-19 pandemic in several ways. • Reduced opportunities to deliver pre- and post- sales services to clients due to lockdown measures The main impacts are as follows: and travel restrictions, contributing to (i) a decrease in marketing and sensitization efforts and (ii) • A sharp increase in prices of solar equipment due to the rising costs of product components reduced after-sales, monitoring, and follow-up of existing clients. Interestingly enough, those and international transport, leading to (i) reduced companies already using PAYGO and remote sales among new clients, (ii) increased repayment monitoring platforms reported to have been less difficulties and defaults among existing clients affected owing to such technologies. financed on PAYGO, and (iii) decreased margins for those companies which strived to maintain the Despite the ongoing recovery in the pandemic’s same prices to not lose their clients. aftermath, the current economic context, namely with increasing inflation and the Ukrainian crisis, continues • Substantial delays in product importation (from 45 days to more than 60 according to a solar to negatively affect the OGS sector. Ghana, the only non-WAEMU country targeted by the study (hence company in Togo) due to supply chain disruptions, not adopting the CFA franc) seems to be particularly leading to (i) product stockouts and unavailability affected, as the inflation is coupled with a devaluation of spare parts for product repair and maintenance of the local currency (GHS), an increased cost of credit, and (ii) delays in implementation of existing private and a hike in VAT. As a result, one of the leading solar and public contracts, with cancellation of some companies in the country reported a loss of about USD contracts and application of penalties on others. 3 million in 2022. Market Study on Scaling Up Off-Grid Solar - in Benin, Burkina Faso, Côte d’Ivoire, Ghana, Senegal, and Togo 44 In such a context, interviewed solar companies have remote monitoring platform and a scale-up of their mainly reacted by adjusting solar equipment prices solar kit assembly unit, to ensure better continuity in upward. Those companies which have an opportunity product availability and client monitoring during future to do so (for example, Alioth System in Burkina Faso) disruptions. have decided to invest in the deployment of a PAYGO/ 4.3. Solar equipment distributed Table 6 provides a snapshot of four main types of solar equipment distributed by interviewed companies in the six countries. Table 6: Main types of solar equipment distributed Customized Solar Characteristics Pico-PV and SHS SPUE appliances solar systems streetlights Surface and submersible Medium and large, irrigation pumps Solar lanterns with component-based Refrigerators/freezers radio and USB port solar systems Solar (AC and DC) from 50 L Small SHSs/kits with for residential streetlamps Description to 500 L multiple lights and or commercial from 60 Wp to Multi-service kiosks accessories (radio, TV, purposes, generally 600 Wp (lighting, phone fan, decoder) 600–1,000 Wp charging, radio, GSM upward services) Panels: Sultech, Pumps: Grundfos, BR Solar, Lagazel, Sun King, Sunrise, Peimar, Lorentz, Solartech, Ragni Lighting, Coolergie, Qotto, JA Solar, Longi, Ennos, Simuusolar, Novea MySol/Engie, Spark, Yandalux Futurepump, Sunculture, Energies, Main brands téréBox, Baobab+, Batteries: Victron, BR Solar Outdo, Suka, Zola, Schneider, Deng, Rolls, Monbat, Fridges: Roch, Haier, Spark, Huawei, MPower, Omnivoltaic, Winbright SolarRun, UNOCOOL, Sunna Design/ Bboxx Inverters: Goodwe, MySol/Engie, Baobab+ Moon Schneider, Steca Solar kiosks: Qotto, KYA Retail price Pumps: 600 to 8,000 (equipment and 10 to 1,500 From 1,000 Fridges: 750 to 4,000 500 to 5,000 panels) (USD) Solar kiosks: from 150 Interviewed Pumps: 64 companies 67 57 Fridges: 31 29 offering product Solar kiosks: 5 (%) Source: Desk review and stakeholder interviews. The most distributed equipment remains solar overtaken customized solar (AC) systems in the terns and SHSs, with 67 percent of interviewed lan­ targeted countries, with 64 percent of companies companies selling such products. However, SPUE distributing pumps compared to 57 percent selling and appliances, notably solar irrigation pumps, have installing solar systems. Solar coolers and streetlights Contents Key definitions Synthesis Chapter 1 2 3 4 5 6 4.  OGS equipment distribution landscape follow suit with approximately one-third of companies distributing them. Other kinds of SPUE products, such • Customized medium and large solar systems. These generally target wealthier customers for as solar multi-service kiosks, are only offered by a few domestic use or enterprises in both off-grid and companies (for example, Qotto in Benin and KYA-Group grid-connected areas. As with smaller systems, the in Togo), whereas solar cold rooms, solar mills, solar prospect of reducing electricity bills through grid- dryers, and egg incubators are largely still being tied PV systems (allowing the combination of grid explored or at most piloted by a few companies, often electricity with solar power) offers an increasing with donor funding (for example, TMSU in Togo, Flex opportunity for such systems in areas covered NRJ in Senegal). It is also interesting to note that solar by the grid as well. The electrification of social companies are increasingly diversifying their offer infrastructure in off-grid areas (health centers, to include SPUE appliances in addition to the more primary schools, and so on) is also an emerging traditional solar lighting products. In fact, 67 percent market for a number of companies, with various of interviewed companies distribute both solar lighting donor-funded initiatives supporting community solutions (pico, SHSs, and/or customized systems) and institutions to access such systems, for example, SPUE equipment. the micro-leasing model to enable the electrification of social infrastructure implemented by GIZ’s GBE Typical clients of the different types of solar equipment project in Benin. distributed include the following: • SPUE appliances. Key clients for solar pumps are • Solar lamps and SHSs. The main target for pico- lanterns and small DC solar kits, predominantly used individual entrepreneurs, MSMEs, women groups, and farmer associations/cooperatives involved in for domestic purposes, remain customers in off-grid horticulture, plant nursing, livestock breeding, or areas, most of whom are in rural areas and employed fish farming, as well as traders selling drinking water. in agriculture. Nevertheless, some companies (for In addition, a use case for domestic water supply example, in Ghana) report an increasing opportunity is reported by interviewed companies. Typical use for such equipment also in grid-connected urban cases of solar cooling include trading activities and peri-urban areas, as a result of increasing (restaurants, bars, fish markets), domestic purposes, electricity prices from the utility company. In and health-related uses (pharmacies, local health addition, government or donor-funded programs centers). Government bodies (for example, Global also remain key clients, for example, the World Food Arch Development Initiative [GADI] in Ghana, MoE Program (WFP), United Nations Children's Fund in Togo), donors, and NGOs (for example, GIZ, (UNICEF), and International Committee of the Red WFP, UNDP) are also important clients for SPUE, Cross (ICRC) in Burkina Faso. not limited to pumps and coolers but also to some of the more innovative equipment being explored (mills, egg incubators, multi-service agri-platforms). In terms of end user finance, 63 percent of companies interviewed provide some sort of payment plan to their customers, of which 43 percent use PAYGO technology and 19 percent use other arrangements, such as standard credit sales and leasing plans. Table 7 provides a summary of the most common payment plan conditions offered by interviewees. Market Study on Scaling Up Off-Grid Solar - in Benin, Burkina Faso, Côte d’Ivoire, Ghana, Senegal, and Togo 46 Table 7: Most common payment plans offered to end users Characteristics PAYGO Sale on credit Leasing plan Estimated variation compared 10–30% higher Same as cash price 20–40% higher58 to cash price Duration (min-max) 12–36 months 6–24 months 12–120 months 20–50% of the total Downpayment (min-max) 10–50% of total amount 30–50% of total amount amount Monthly payments (USD) 7–100 50–5,000 Repayment frequency Daily, weekly, or monthly Monthly, quarterly Monthly Estimated annual 10–20% interest rate59 Remote deactivation Pledge of equipment sold Collateral/ Reservation of ownership through PAYGO on credit securitization until complete repayment technology Moral guarantee Source: Desk review and stakeholder interviews. Payment plans based on PAYGO and credit sales are generally used to finance the purchase of solar lamps/kits and SPUE appliances. Although ‘traditional’ credit sales often do not charge interest, shorter maturities and higher downpayments tend to make them less convenient than PAYGO plans. As for leasing plans, these are used mainly to finance medium and large solar systems, particularly in Ghana. In terms of partnerships with FIs, only 20 percent of companies interviewed currently have formal agreements with FIs, largely MFIs, to finance the purchase of their solar equipment by end users. The majority of these are in Benin, where solar companies have partnered with MFIs to finance the acquisition of solar water pumps and solar coolers in the framework of an RBF scheme set up by GIZ’s GBE program, also supported by CIDR Pamiga.60 Interviewed solar companies across the six countries face a number of common challenges to the development of their activities. • First and foremost, a lack of access to finance for their working capital needs, namely the purchase and importation of solar equipment on a large scale (inventory) and the distribution of equipment on credit to end 58 This information was provided only for Togo, so it may not be valid in other countries targeted by the study. 59 Estimates for interest rates provided by interviewee or computed by CIDR Pamiga based on difference between cash price and PAYGO price. 60 From 2020 to 2023, CIDR Pamiga supported the GBE Program in Benin in setting up and managing an RBF scheme for FIs offering end user finance for SPUE appliances. The RBF provided variable incentives (15–33 percent of the loan amount) for each loan disbursed by participating FIs to finance the purchase of a solar water pump or refrigerator/freezer. Four MFIs participated in the RBF: CESCA, PEBCo- BETHESDA, RENACA, and SIA N’SON. Contents Key definitions Synthesis Chapter 1 2 3 4 5 6 4.  OGS equipment distribution landscape clients (receivables). Access to finance is difficult despite the quality norms in place in a number of due to (i) the inadequacy of loan terms offered by countries. This undermines the reputation of solar banks (short maturities and grace periods) to the products and companies in general, affecting both business cycle of solar companies, (ii) the inability of market demand and repayment of already-sold companies to meet the high collateral requirements products. of FIs (ranging from 100 percent to 150 percent of the loan amount), and (iii) the high cost of credit (annual interest rates charged by banks of 8–14 • The insufficient awareness of (often illiterate) targeted populations on solar product quality percent in WAEMU countries and 35–40 percent in and usage. Coupled with the abovementioned Ghana). circulation of low-quality products, this leads to (i) the purchase of substandard equipment and (ii) • The weak financial capacity of targeted clients, coupled with the high cost of solar equipment the inadequate maintenance of purchased solar products (for example, solar panel cleaning), often (particularly SPUE), which makes it difficult for shortening the lifespan of high-quality products as solar companies to sell products without end user well. finance. This is exacerbated by the abovementioned lack of access to finance to fund credit sales. • A certain degree of client delinquency and defaults on products sold on credit/PAYGO (default rate • The insufficient government support provided to the OGS sector, namely in terms of fiscal incentives of 10–15 percent according to some interviewees). This may be linked to un-adapted payment plan (for example, VAT and custom tax exemptions) terms and/or insufficient credit management/risk for solar equipment. For instance, in Ghana and assessment capacity of solar companies, which Senegal exemptions are provided only on solar often lack adequate expertise and understanding of panels or units sold as a kit, not on the other product the target market. Also, some credit decisions have components imported separately (for example, also been driven by the need to report high-impact inverters, batteries, and so on), whereas in Togo numbers, hence relaxing risk assessment processes. only companies retained under the CIZO program are entitled to full exemptions. On the other hand, in countries where exemptions are already in place, • The high cost of solar company operations in remote areas, often with limited access routes and companies claim that procedures to obtain the unreliable mobile network coverage. Together with same are often cumbersome or unclear, making the general high cost of doing business in countries the process time-consuming (for example, in like Ghana, where energy costs for electricity and Benin). In addition, companies in countries with gas increased by 21 percent in February 2023 and strong electricity grid extension agendas (for VAT was recently brought from 4 percent to 21 example, Ghana, Côte d’Ivoire) complain about percent, this contributed to a further increase in interferences between their activities and the grid solar product retail prices, making them even less extension in areas previously not included—at least affordable for targeted populations. not for a number of years—in the government’s electrification plans. • The highly demanding requirements of calls for tenders in the OGS sector, often requiring minimum • The insufficient number of adequately trained technicians to provide installation, maintenance, and financial performance indicators and number of references which are way beyond the capacities repair services for solar equipment deployed across of most early-stage, locally based solar companies the country, especially in more remote areas. Some (tier 2). In the case of Togo, for example, according companies affirm they currently need to outsource to interviewees, this has resulted in only foreign- such services to the equipment manufacturers. owned, more mature solar companies (tier 3) being retained under the government’s CIZO solar subsidy • The influx of substandard quality/uncertified solar equipment, due to weak/inefficient border controls program (cf. chapter 1). Market Study on Scaling Up Off-Grid Solar - in Benin, Burkina Faso, Côte d’Ivoire, Ghana, Senegal, and Togo 48 4.4. Current access to finance of solar companies According to GOGLA’s Investment Database, which tracks investment trends in the OGS sector mainly • Working capital facilities/inventory-financing loans to purchase solar equipment, for example, Flex from its affiliates, the sector raised USD 457 million NRJ in Senegal for a USD 330,000 facility in local in debt, equity, and grants in 2021, marking a record currency from a leasing company in terms of investment volumes. However, 72 percent of this was received by only seven companies in the scale-up phase—'The Big 7’ 61—whereas the remaining • Letters of credit provided by the bank for the importation of solar equipment, for example, HTC in 28 percent was received by the other 150 companies in Ghana. the database in the seed or start-up phase.62 • In addition to commercial banks, Tier 3 companies The limited investment available to younger, mostly have also received funding from locally owned, growth-stage solar companies appears to be confirmed by interviewed solar companies in the six countries targeted by the study, most of which fall • International facilities, such as AfDB’s FEI OGEF, for example, (i) Qotto in Benin and Burkina Faso, which under tier 2 (early-stage companies), as opposed to received a USD 2 million loan from the fund, and tier 3 (mature companies; cf. section 4.1). Indeed, out (ii) Bboxx in Togo, which received a USD 11 million of two-thirds (67 percent) of interviewed companies credit line with a five-year tenure, and which have applied for financing, to date less than half (43 percent) have managed to secure some form of funding. • Investment funds, such as (i) Triodos, which provided a USD 1 million quasi-equity investment with a three-year tenure to ARESS in Benin and (ii) Tier 2 companies have mainly been served by com- Wangara Green Ventures, which provided a USD mercial banks and, in a few cases, by leasing companies, ­ 500,000 working capital facility with a five-year through the following products: tenure to Northlite Solar in Ghana. • Cash advances/factoring instruments for up to 70– 80 percent of the value of secured contracts with Indeed, tier 3 companies affirmed to prefer raising funds from international sources, which they believe to the government or donors, for example, (i) ISMAST be less costly (interest rates of 6–7 percent as opposed in Benin for financing amounts ranging from USD to 11–12 percent from banks in WAEMU countries) and 150,000 to USD 250,000 with two commercial more flexible in adapting to their needs. banks, both of which were guaranteed by the National Fund for SME Guarantee and Assistance Unsuccessful financing requests from interviewed (Fonds National de Garantie et d'Assistance companies have mainly been so because (i) requests aux Petites et Moyennes Entreprises, FONAGA), have been rejected by banks due to insufficient which in turn required a mortgage guarantee from collateral or securities or (ii) companies themselves ISMAST) and (ii) Energie Stable in Togo, for an have turned down the bank’s offers due to non-adapted amount of USD 500,000 from a commercial bank, loan terms (duration, grace period) or high costs with a 12-month tenure (based on the duration of (interest rates deemed too high). These companies the contract held by the company) and an interest have hence had to finance their needs through their rate of 11–12 percent own funds or supplier’s credit arrangements with their manufacturers. 61 The Big 7 are BBOXX, d.light, Engie Energy Access, Sun King, Lumos, M-KOPA, and ZOLA. 62 GOGLA Solar Market Trends Report 2022. Contents Key definitions Synthesis Chapter 1 2 3 4 5 6 4.  OGS equipment distribution landscape According to several companies, commercial banks manufacture/prepare order after placement, one to simply do not understand the business cycle of a solar two months for tests and transportation, one month company, which needs working capital to bridge the for customs clearance), meaning the solar company is up to 24–36-month gap between the placement of unlikely to have any receipts at all to repay bank loans an order from foreign-based manufacturers to the before six months or more. The existing conditions of repayment of solar products sold on credit by end working capital facilities offered by banks (tenor, grace clients. The importation of solar equipment alone can period) usually do not match these specific needs. take up to four to six months (one to two months to 4.5. Potential and needs to strengthen the distribution of equipment All solar companies interviewed believe there is a solar systems in peri-urban/urban areas, especially strong opportunity to strengthen the financing and for middle-income households; distribution of solar equipment, particularly for the following reasons: • For productive uses: in addition to medium and large solar systems for powering enterprises, stand-alone • Despite official electrification commitments from governments, more or less vast areas of the SPUE equipment in general has substantial potential as, contrary to domestic use equipment, it allows countries will likely remain off-grid for yet a number for revenue generation to repay equipment sold on of years (due to delays in grid extension programs), credit. In particular, companies believe solar pumps hence requiring energy from other sources (solar). and coolers have the highest potential currently, but other kinds of emerging equipment (for example, • Even in electrified areas, frequent power cuts and increasing costs of electricity bills from utility solar mills, dryers, cold rooms, and egg incubators) also represent a key opportunity for the near future. companies will encourage people to diversify their energy sources through stand-alone equipment or To seize such market opportunities, solar companies— backup/grid-connected solar systems. particularly tier 2 ones—affirm they will need financing to import large quantities of solar equipment stock • People are increasingly aware of the benefits of solar energy and thus more likely to adopt solar solutions (hence reducing unit costs) and create ‘local solar champions’ to compete with foreign-owned tier 3 compared to the past. companies. According to interviewed companies, solar products All companies interviewed are interested in receiving with the highest potential are the following: financing for their businesses. The most recurrent type of financing required (71 percent of interviewees) • For domestic uses: solar lanterns/kits and small- solar systems/SHSs in rural, off-grid areas, as is working capital facilities (loans and credit lines63) to finance day-to-day operations, inventory, and these are better adapted to the income streams of receivables. This is especially the case for smaller, early- populations in these areas, and medium-to-large stage companies. In addition to working capital finance, 63 Line of credit: Rolling credit facility extended to a borrower that can be drawn upon at any time within a predetermined limit (credit limit) and period. Unlike a loan, the borrower is not obliged to use the entire credit line and only owes interest on the amount drawn upon, not on the entire credit line. Market Study on Scaling Up Off-Grid Solar - in Benin, Burkina Faso, Côte d’Ivoire, Ghana, Senegal, and Togo 50 one-third of interviewed companies (29 percent), solar product assembly units, enlarge their transport mainly the larger, more mature ones, also require debt fleet) and, to a lesser extent, equity/quasi-equity financing for investment (for example, to open new financing from investment funds, which normally points of service/warehouse, set up/strengthen local comes with TA support as well. Table 8: Solar companies’ desired/preferred financing terms Smaller, early-stage companies Larger, mature companies Characteristics (tier 2)64 (tier 3) • Loans • Loans Type of financing • Lines of credit • Lines of credit • Equity/quasi-equity • Working capital Intended use Working capital • Investments • Project financing Amount65 (USD) 50,000–500,000 1–6 million • WAEMU countries: largely local currency • WAEMU countries: local (FCFA) and hard (FCFA) Currency currency • Ghana: local (GHS) and hard currency • Ghana: mainly hard currency (USD/EUR) (USD/EUR) Maturity (years) 1–5 1–7 Grace period (months) 6–9 6–36 • Quarterly • Monthly Repayment frequency • Biannual • Quarterly • Annual • WAEMU countries: 4–8% • WAEMU countries: 3–6% Annual interest rate • Ghana: <20% local currency, 10–12% • Ghana: <20% local currency, 8–10% USD/ USD/EUR EUR • Guarantee funds • Guarantee funds • Mortgage guarantees of maximum 50% • Mother company guarantee Collateral to be provided of loan amount • Mortgage guarantees • Collateralization of inventories/ • Collateralization of inventories/ equipment equipment Source: Stakeholder interviews. 64 To emphasize the differences in financing needs of smaller, early-stage solar companies compared to larger, more mature ones, we have adopted a slightly more flexible classification of solar companies than the one proposed by ECREEE, hence including in tier 3 companies with an annual turnover of close to and above USD 1 million and some 10 years or so of existence. All other companies have been included in tier 2. 65 A few outlier amounts, for example, tier 2 companies requesting for several million US dollars and tier 3 requesting for USD 500 million, were excluded to identify an average/trend in the requested amounts. Contents Key definitions Synthesis Chapter 1 2 3 4 5 6 4.  OGS equipment distribution landscape Given the different levels of maturity and size of the On the whole, financing terms needed/required by business, desired financing amounts vary considerably solar companies are substantially different from the between smaller, early-stage companies (USD 50,000 financing terms currently offered by FIs, particularly to 500,000) and larger, more consolidated ones (USD for working capital, as discussed in section 5 (cf. 5.1.3). 1 to 6 million). However, all companies would require medium- to long-term facilities (one to seven years or All the interviewed solar companies are also interested rolling facilities for credit lines) to bridge the working in benefiting from capacity-building support. The main capital gap between the procurement and repayment types of technical and financial assistance advocated of products sold on credit, which is in contrast with by companies are the following: the tenors normally proposed by most FIs for working capital facilities (usually less than 24 months). Similarly, grace periods of at least six months are also requested • Training for solar company staff, sales agents, and technicians by small and large companies alike, as this is normally the time frame between the placement of an order (manufacturing, shipment, customs clearance) and • Consulting services to (i) conduct market studies on new solar products or technologies (for example, initial product sales that generate revenues to make the cold rooms, mills); (ii) develop or strengthen end first loan repayments. user financing models, particularly PAYGO, leasing, and fee-for-service (for example, processes and In terms of collateral that solar companies would procedures for credit appraisal/scoring, credit be willing to provide to secure financing received, portfolio management, IT platform selection guarantee funds are among the preferred options and management); and (iii) enhance equipment proposed, with the expectation that these would distribution models and channels (namely for allow to ease asset-backed collateral requests and, SPUE equipment, which requires different models hopefully, interest rates as well. However, according to compared to solar lamps and SHS) the experience with guarantee instruments of a number of interviewed companies, this has not been the case, as the risk coverage provided by the guarantee did • Facilitation of contacts with (i) FIs committed to finance the OGS sector, both to negotiate funding not have any impact on the loan terms proposed by for their companies and set up third-party end participating banks (that is, collateral requirements and user financing partnerships and (ii) mobile network interest rates did not change, despite the guarantee). To operators (MNOs) to negotiate agreements for a lesser extent, interviewed companies are also ready to repayment of products sold on credit via mobile provide some marketable property and/or land assets money to secure loans but not to the level normally requested by banks (maximum 50 percent of loan amount as opposed to the 100–150 percent required by banks). As one of the companies affirmed, “We cannot invest funds in building or purchasing property to secure the loans we take, it is against our business model!” Lastly, companies would be willing to provide non-fixed assets such as inventories (solar equipment) and receivables as collateral, but banks rarely accept these. Market Study on Scaling Up Off-Grid Solar - in Benin, Burkina Faso, Côte d’Ivoire, Ghana, Senegal, and Togo 52 • Study tours/visits to share experiences and best practices with solar companies in other countries Companies would like to be trained in three key areas: • Business management, for example, marketing and • Grant funding for marketing and sensitization of targeted populations (promotional tools, awareness- sales techniques, stock and cash management, accounting and financial management, importation raising campaigns, road shows, and so on) and custom clearance procedures, credit operations • Development of vocational schools/training • Technical aspects, namely (i) training of trainers centers to train young electricians/technicians to (ToT) to train solar technicians (this is linked to the provide solar product pre- and post-sales services point on the training center mentioned above) and (installation, after-sales) across the country. (ii) training on technical specifications and business models of new and emerging SPUE technologies (for example, cold rooms) • Fundraising, namely development of business plans and financial models, drafting of funding applications and investment pitches, approaching of funders and investors, and so on. Contents Key definitions Synthesis Chapter 1 2 3 4 5 6 5 OGS financing landscape 54 5.1. Financial institutions 5.1.1. Overview of interviewed FIs A total of 50 FIs were interviewed during the study, including 23 commercial banks, 22 MFIs, two leasing companies, and three investment funds. Table 9: Number of FIs interviewed by category and country Burkina Côte Category Benin Ghana Senegal Togo Total Faso d’Ivoire Commercial 5 4 3 4 4 3 23 banks MFIs 5 4 4 1 3 5 22 Investment funds — 1 — 2 — — 3 Leasing — — — — 1 1 2 companies Total 10 9 7 7 8 9 50 Benin, Burkina Faso, Côte d’Ivoire, Senegal, and Togo In Ghana, the study interviewed the Apex of the Rural are in the WAEMU zone, where FIs are regulated by Banks (ARB Apex Bank), representing 37 rural banks, the Central Bank of West African States (Banque which are the main institutions providing microfinance Centrale des Etats d’Afrique de l’Ouest, BCEAO).66 In services in Ghana. Some of the interviewed MFIs also the WAEMU zone, MFIs are also called Decentralized target the so-called ‘meso-finance’ market (focusing Financial Systems (Système Financier Decentralisé, more on MSME financing).67 SFD). FIs in Ghana are regulated by the Bank of Ghana. 66 As of December 31, 2022, the banking sector in WAEMU comprised a total of 158 regulated financial institutions, 155 of which are active, including 132 banks and 23 nonbank FIs. WAEMU also comprised 498 decentralized financial systems (or MFIs), with 4,556 points of service (source: BCEAO). The Ghanaian financial sector currently comprises a total of 845 licensed institutions, including 23 banks, 26 savings and loan companies, the apex of rural banks, 147 rural and community banks, 135 deposit-taking MFIs, 12 financial NGOs, 29 microcredit institutions, two leasing companies, three finance and leasing companies, one development finance institution, and others like foreign exchange bureaus and payment service providers (source: Bank of Ghana). 67 The meso-finance market is represented by those companies considered too big to be served by MFIs and too small to be served by banks (also referred to as the missing middle). It is generally formed mainly by SMEs. Contents Key definitions Synthesis Chapter 1 2 3 4 5 6 5.  OGS financing landscape Table 10: Key information on interviewed FIs Commercial Leasing MFIs Investment funds banks companies No. of branches 2–186 2–218 1–25 (countries) 1–5 Number of depositors 287 million 1,000–860,000 59 600 Number of borrowers 54 million 339–600,000 6–59 748 Total deposits (USD, millions) 98–2,933 2.6–213 — 167 Total loans (USD, millions) 71–2,000 2.6–200 2.74 58 Source: Desk review of Fis’ websites and stakeholder interviews. The main financial products and services offered by Banks offer short-, mid-, and long-term loans up to 15 interviewed FIs are described below. years, with loan amounts up to millions of US dollars, to finance working capital and investment needs, as well as short-term advances like letters of credit (LoCs) and factoring instruments. Annual interest rates are between Commercial banks 8 and 14 percent in the WAEMU zone depending on the products and clients. They are currently much higher in Commercial banks, as ‘universal’ banks, usually offer Ghana (around 35–40 percent) due to the ongoing debt a wide range of services (savings, loans, insurance, and financial crisis. This situation has led the banks to wealth and treasury management, card services, bank restrict their lending due to low demand and high risk of guarantees, and so on) to all customer segments default. In terms of collateral, banks are subject to the (large corporations, SMEs, public and nonprofit private central banks’ regulations that stipulate that the banks institutions, and individual customers) in various must cover a minimum percentage (above 100 percent) economic sectors, with the exception of low-income of the loan amount with ‘hard’ collateral approved by clients or micro-enterprises generally targeted by MFIs, the central banks. which cannot generally comply with banks’ conditions, especially in terms of collateral (noting however that some banks, like GCB in Ghana, have established a microfinance department to serve this segment). MFIs Banks are usually organized in corporate, SME, and retail departments with dedicated products to deal MFIs target the low-income segment and finance with the various categories of customers with different mostly informal micro and small enterprises, except for needs and risk profiles. Some banks have a specific some MFIs that focus on the meso-finance segment focus on agriculture financing and have developed and can finance medium-size enterprises (for example, specific products (like LBA and Banque Nationale COFINA in Côte d’Ivoire, SOGEMEF in Togo). MFIs de Développement Economique [BNDE] in Senegal may also provide consumption and/or social loans, and Agricultural Development Bank [ADB] in Ghana) like school fee loans. Some MFIs focus on the women to finance the different segments of the agricultural segment (like CAURIE MFI in Senegal) and usually value chains. In addition to their branch networks, the have a strong presence in rural areas, including remote strategy of the banks to expand their clientele and areas. MFIs generally provide savings and loan services, geographical coverage is increasingly through digital their range of services being less developed than services/mobile banking and agency banking. the commercial banks. They mostly offer short-term Market Study on Scaling Up Off-Grid Solar - in Benin, Burkina Faso, Côte d’Ivoire, Ghana, Senegal, and Togo 56 loans of less than 24 months and may offer midterm Investment funds loans, usually less than five years. Loan amounts range between a few hundred to a few hundred thousand US The study was not able to do a comprehensive review dollars for SMEs (their maximum loan amount being of all investment funds targeting the OGS sector in limited by their core capital). the studied countries. Based on our knowledge of the numerous impact investment funds operating in MFI interest rates are higher than the banks, between Sub-Saharan Africa, most target investments in SMEs 12 and 26 percent in the WAEMU zone with an average in various sectors, including renewable energies, and around 15–17 percent. In Ghana, Rural Banks’ interest do not specialize in a specific sector or subsector (like rates are in the same range as the commercial banks. OGS) which would restrict their scope of investment MFI collateral requirements are much more flexible and would not allow adequate risk mitigation through than for the banks. They usually use a combination of diversification of the portfolio. cash collateral and group guarantees for the small loan amounts but use ‘hard collateral’ for larger, individual The two interviewed investment funds in Ghana loans. Like banks, MFIs are increasingly relying on digital (Wangara and Sunfunder) are specialized in investing and mobile banking solutions to deliver and expand in companies in renewable energy and contribute to their services. They also usually provide nonfinancial addressing climate change and energy access issues. services to their clients, especially on financial literacy. They usually invest through patient convertible loans or term loans with ticket sizes ranging from USD 50,000 to several millions, with maturities up to 10 years, pricing in USD between 7 and 12 percent, and more Leasing companies flexible collateral requirements than banks. The two leasing companies interviewed in Senegal The investment fund interviewed in Burkina Faso (Locafrique) and Togo (African Lease) offer both (Sinergi) is dedicated to financing and supporting consumer and commercial leasing products, up to five start-ups and SMEs in Sub-Saharan Africa in various years. Consumer leasing is intended for individuals economic sectors, including OGS. The fund can invest (employees, civil servants) for acquiring movable in equity for four to seven years with amounts between property (vehicles, household equipment, and so on) EUR 30,000 and EUR 300,000 and may also provide or real estate. As for commercial leasing loans, they are ‘start-up’ loans between EUR 3,000 and EUR 60,000 intended for the investment needs of companies. without interest and collateral. Locafrique also offers short-term loan facilities, The funds may also provide management and TA to midterm loans for investments (up to five years), and a their investees based on identified needs, as well as leaseback product.68 African Lease also offers factoring networking services. products which are intended to finance advances on SME tender markets. 68 The leaseback product is intended for companies with recent assets that need cash to finance their operating cycle or an investment. The leaseback is an operation over a maximum period of 60 months by which the client sells recently purchased assets. In return, Locafrique rents these goods out so that the customer retains use and enjoyment of them. At the end of the contract, the customer has the option of regaining ownership after payment of the residual value initially agreed. Contents Key definitions Synthesis Chapter 1 2 3 4 5 6 5.  OGS financing landscape 5.1.2. Impact of COVID-19 and • In Ghana, the current economic and financial climate evolution in the post-pandemic has exacerbated the issues, with several FIs caught up in the government’s Domestic Debt Exchange context Program (DDEP), where bondholders are expected According to the FIs interviewed, the main impacts of to swap maturing bonds with newly negotiated the COVID-19 pandemic on their activities were the government bonds, allowing the government to following: reduce its debt obligations and risk of default. This affects the liquidity and profitability of the FIs. As • FIs had to limit the number of customers at banking halls to protect staff and customers alike, leading to part of GoG fiscal measures to control inflation, the MPR, as well as the bank reference rate, was long queues at the banking premises. increased (29.6 percent as of May 2023). This has contributed to very high interest rates on the market • Decrease in lending activities due to a decrease in economic activities resulting in lower demand and and led most FIs to slow down on lending until the situation normalizes. This particularly affects the travel restrictions for the FIs staff.69 sectors deemed riskier by the FIs. • Impact on the quality of the loan portfolio varied depending on the FI, but many FIs witnessed 5.1.3. FIs’ experience significant increases in the amount of loans in arrears in OGS financing affecting their income statement through increased provisions.70 FIs had to restructure/reschedule their Overall, interviewed FIs’ experience in financing the loans as instructed by BCEAO,71 which affected their OGS sector, both solar companies and end users, is incomes. limited in scope. However, out of the 50 FIs interviewed, 40 (80 percent of the total number) have some limited • In the post-pandemic context characterized by high inflation and the Ukrainian crisis, BCEAO increased experience in financing the OGS sector, as specified in Table 11. the policy rate (from 2 percent before COVID to 5 percent after), which reduces the profit margin of FIs, since they have not been able to increase interest rates on customer loans at the risk of discouraging demand. 69 For instance, for CAURIE MFI, out of FCFA 23 billion in loans planned for 2020, only FCFA 20 billion have been disbursed. Union des Institutions Mutualistes Communautaire d'Epargne et de Crédit (UIMCEC) remained six months without granting credit, resulting in a drop of FCFA 2 billion in its outstanding credit in 2020. 70 For instance, for CAURIE MFI, the portfolio at risk (PAR 30 days) increased from 3 percent before COVID-19 to 7.5 percent during the pandemic. 71 Extension of loan maturities, for three months, renewable once, without interest charges, fees, or late payment penalties. Market Study on Scaling Up Off-Grid Solar - in Benin, Burkina Faso, Côte d’Ivoire, Ghana, Senegal, and Togo 58 Table 11: Experience of interviewed FIs in financing OGS72 Commercial Investment Leasing % MFIs (22) % % % banks (23) funds (3) companies (2) No experience 6 26 4 18 — — — — Financing of solar 16 70 6 27 3 100 2 100 companies Financing of end users 5 22 13 59 — — — — (consumption) Financing of SPUE 4 17 7 32 — — 2 100 appliances Source: Desk review and stakeholder interviews. Among the FIs that have not declared any experience, and end users on a case-by-case basis, depending on some were approached by solar companies for the client’s credit history and financing proposal. financing, but the loans were not disbursed for different reasons, including lack of guarantees, disagreement on Banks usually do not specifically track their lending the repayment modalities, or the inability of the FI to to the OGS sector, which remains marginal in terms offer a loan matching the demand in terms of maturity of percentage of the loan portfolio, and do not have and amount.73 specialized units or departments for renewable energy or OGS and usually no specific strategies.75 Some banks, Solar companies are mostly financed by banks, like BNDE in Senegal, however, envisage establishing investment funds, and leasing companies, as MFIs such a unit, considering the potential of the market usually cannot provide the loan amounts and tenors and in line with their access to funding for renewable requested by most companies. Banks, investment energies from specialized funds that are available in funds, and leasing companies do not have specific the market (like AFD/SUNREF, GCF, BOAD/ROGEAP, products for the OGS sector and use their existing and others). Access to these dedicated credit lines products to finance solar companies and ordinary may trigger the design of specific products, especially consumption loans to finance end users.74 Banks, when TA is provided by the institutions managing these however, try to meet the demand from solar companies funds.76 72 The total percentages may be above 100 percent since some FIs may finance more than one category of clients. 73 ADB in Ghana collaborated with GIDA to finance solar water pumps for irrigation to a group of 71 farmers. However, the bank could not close the transaction as a result of the high cost of the system, with farmers not willing to commit to the cost. 74 However, Ecobank Ghana stated that it is customizing loan products and appraising loan applications based on energy savings generated by the solar equipment. Ecobank has 28 branches operating on solar. The bank has estimated that this generates 50 percent cost savings. This experience has been transposed for the design of its product for its clients (maturity, installment amounts, and so on); CB, for instance, has an Easy Pick product under its consumer loans to finance short-term (maximum 12 months) receivables/stocks such as pico systems, SPUE appliances, and so on. 75 Société Générale claimed it is introducing strategies for loans to high-impact sectors (including renewable energy) at the group level. These strategies have, however, not yet translated into actual disbursements. 76 It was the case recently for CAL Bank in Ghana which is financing the production of 2,000 electric motorbikes with funding and technical assistance from AFD/SUNREF. Contents Key definitions Synthesis Chapter 1 2 3 4 5 6 5.  OGS financing landscape The preferred modality of financing solar companies for Regarding the investment funds, Wangara and the banks is when the financing is backed by a contract Sunfunder in Ghana have had experiences in between the company and its client77 (for delivery financing the OGS sector. Wangara has invested in and installation of equipment like solar streetlights, a solar company to finance two commercial off-grid solar installations for residential and C&I markets, installations and supported another solar company mini solar power plants, and so on), which secures with an indirect investment through a crowdfunding the loan repayment. The banks are usually averse to platform to finance commercial and residential mini- financing inventories when there is no known and grids. Other experiences include investment in an formalized market. One of the banks (Société Générale agribusiness company for the financing of solar Burkina Faso) has also provided a guarantee for a solar threshing of bamboo. Sunfunder has invested in a few company, whereas a meso-finance institution in Togo companies, SHSs, and C&I: engineering, procurement, (SOGEMEF) has provided a guarantee for an advance and construction (EPC) companies and developers.79 In payment to a solar company under a contract with a Burkina Faso, Sinergi has financed a solar company and Ministry. was considering a loan for a solar company distributing solar cold rooms.80 MFIs focus more on financing end users for small- solar systems (pico-solar and small SHSs) and SPUE As pertains to leasing companies, Locafrique in appliances (like solar pumps and solar fridges), for Senegal has financed three major players in renewable which they may have developed specific products energies, for solar kits for homes, solar equipment in partnership with solar equipment suppliers and for productive use in the horticultural sector, and development partners.78 ARB Apex Bank in Ghana solar pumps for boreholes. African Lease in Togo has mentioned a bad experience (2009–2014) of managing financed solar companies holding contracts with the a credit line for 10 of its rural bank members to finance government (AT2ER in particular) and NGOs for the solar pumps and SHSs with bad repayment due to poor purchase of equipment (batteries, panels, solar kits, quality of equipment and lack of warranty. pumps, streetlamps) or installation of mini-grids. It has also financed agricultural groups of the Agricultural Financing Incentive Mechanism (MIFA) for the purchase of solar pumps. Tables 12 and 13 summarize the main characteristics of the financial products currently available to finance solar companies and solar equipment end users. 77 Public institutions, NGOs, projects, and so on. 78 For example, the GBE programme in Benin supported the provision of technical assistance to MFIs and solar companies to set up partnerships to facilitate end user financing for the acquisition of SPUE appliances (water pumps and coolers). In addition, the program also developed an RBF scheme to provide financial incentives to MFIs for the disbursement of end user loans for SPUE appliances. Both initiatives were supported by CIDR Pamiga. 79 Developers develop the project and set up a company to own the project and contract an EPC firm for installation at the client. The EPC firm may also develop the project itself. 80 The deal did not go through due to disagreements on the company strategy between the promoter and SINERGI. Market Study on Scaling Up Off-Grid Solar - in Benin, Burkina Faso, Côte d’Ivoire, Ghana, Senegal, and Togo 60 Table 12: Financial products currently available to finance solar companies81 Leasing Characteristics Commercial banks MFIs Investment funds companies • Short-, medium- and long-term loans • Leasing • SME loans • Patient • Leaseback Short- and convertible loans • Very short-term cash • Short- and Name/type of loan medium-term advances • Term loans medium-term loans • LoCs • Start-up loans loans • Guarantees (commitment • Factoring by signature and so on) Target clients SMEs SMEs SMEs SMEs • ~165,000 for • 30,000 to 25 Locafrique Loan amount in USD million 10,000 to 5 million 10,000–160 000 • 300,000– (min-max) • 3,000–65,000 800,000 for for start-up loans Africa lease • 3–10 Maturity in years 1–15 1–5 • 1–2 for start-up 1–5 (min-max) loans Grace period Up to 6 months Up to 6 months Up to 3 years Up to 6 months Repayments Flexible, cash flow Flexible, cash flow Flexible, cash flow Flexible, cash flow based modalities based based based • Burkina Faso: 8% (0% for start-up • 12–26% in the • 8–14% in the WAEMU zone loans) WAEMU zone • 35–40% in Ghana in GHS • Ghana: 7–12% 11–12% in the Annual interest rate • 35–40% in (with current Ghana in USD, 38% in WAEMU zone Ghana in GHS reference rate) GHS (slightly (Rural banks) below market rate) • Mortgage guarantee, pledge of stock, equipment • Pledge of or materials, personal • Flexible, the financed guarantee with declaration • Various assets, Collateral required depending on equipment of assets, cash collateral, cash collateral and so on the risk • 20% cash collateral • Must cover 120% of the loan value Source: Stakeholder interviews. 81 Solar companies may include a distributor, manufacturer, importer, EPC company, project developer, and so on Contents Key definitions Synthesis Chapter 1 2 3 4 5 6 5.  OGS financing landscape Table 13: Financial products currently available to finance solar equipment for end users Characteristics Commercial banks MFIs Leasing companies • Consumer and equipment • Consumer and equipment loans loans Name/type of loan Consumer leasing • Short- and medium-term • Short- and medium-term loans loans Employees, civil servants, Employees, civil servants, Micro and small enterprises, Target clients enterprises, cooperatives, and enterprises, cooperatives, cooperatives, and so on so on and so on Individual Loan methodology Individual Individual Group based • 50–100 000 50–30 000 Loan amount in USD • Max: 40–60% of monthly Max: 40–60% of monthly — (min-max) income. Number of months income Number of months of of repayment repayment Maturity in years Up to 15 Up to 7 Up to 5 (min-max) • 8–14% in the WAEMU zone • 12–26% in the WAEMU zone • 35–40% in Ghana in GHS 11–12% in the WAEMU Annual interest rate • 35–40% in Ghana in GHS (with current Ghana zone (Rural banks) Reference rate) • Various assets • Pledge of the financed • Assets Collateral required • Group guarantee equipment • Salary domiciliation • Cash collateral • 20% cash collateral Source: Stakeholder interviews. Although some banks have declared offering loan tenors The same can be said regarding interest rates: even up to 15 years and some MFIs and leasing companies up though banks affirm to have room for negotiation with to 5 years, the typical terms of a bank working capital companies based on their risk profile, annual interest loan include a tenor of maximum 18–24 months with rates actually vary from 8–14 percent in WAEMU a three to six-month grace period. Such terms do not countries and up to 30–40 percent in Ghana, way meet the needs of solar companies (cf. section 4.5). above what solar companies would be ready to pay. Market Study on Scaling Up Off-Grid Solar - in Benin, Burkina Faso, Côte d’Ivoire, Ghana, Senegal, and Togo 62 A key challenge is also the collateral requirements of Challenges at solar companies’ level banks, generally demanding land assets and/or property for up to 120 percent of the borrowed loan amount, something which most solar companies cannot provide. • Lack of collateral: individuals, businesses, and solar companies seeking financing mostly do not have Moreover, contracts are not accepted as collateral by the needed collateral to back loan requests. the central banks, although they reduce the lending risk and are a key element of the loan appraisal. • Lack of equity to comply with Fis’ requirements. Concerning the partnerships between FIs and solar companies for the financing of solar equipment to end • Weak governance structure and financial records of the companies. Companies’ ownership is users, only eight of the FIs interviewed (seven MFIs mostly around single individuals or families, which and one bank) stated having developed some form is deemed riskier by the FIs. Also, some solar of partnership to facilitate the distribution of solar companies have gaps in their financials. equipment to their clients, in some cases with the support of development partners.82 • Poor quality of the business plans not allowing the FIs to properly analyze the financial needs and risks. In Togo, Faîtière des Unités Coopératives d'Epargne et de Crédit du Togo (FUCEC TOGO) had concluded a partnership agreement with a solar company in 2021 • Low capacity to assess creditworthiness of their customers. Solar companies are not able to conduct to facilitate the distribution of kits to end users. This proper due diligence on their target market/end contract is, however, no longer operational due to users (on the ability of the client to pay, historical difficulties related to the after-sales service. CAURIE payments of electric bills). MFI in Senegal also mentioned maintenance issues with one solar company, which led the MFI to develop a network of local solar technicians (called energy • Lack of track record in managing credit. entrepreneurs) to provide these maintenance services. • Insufficient staff capacity. Solar technology is a relatively new and evolving technology, and In Ghana, to ensure that quality equipment is financed, companies’ staff lack sufficient knowledge to fully banks are collaborating with the EC that provides a assess the risk and opportunities within the sector. list of eligible vendors, and clients must select their supplier from this list, with the banks paying directly the suppliers. • Poor after-sales services. The main challenges/risks mentioned by the FIs in • Low quality of some products. financing the OGS sector can be subdivided into the following three categories. • Poor communication, marketing and actions to promote the solar products. visibility • Low geographic coverage or penetration (especially in rural areas). • Long waiting times for the delivery of products/ shortage of stocks. 82 For instance, CAURIE MFI in Senegal with Bonergie and Nadji.Bi, PEBCo-BETHESDA and RENACA in Benin with ARESS, BAHAUU, and Jesuton. All of these were supported by CIDR Pamiga in the framework of donor-funded projects. Contents Key definitions Synthesis Chapter 1 2 3 4 5 6 5.  OGS financing landscape Challenges at end users’ level Challenges at FIs’ level • High cost of equipment. Solar equipment remains • Lack of knowledge and understanding of the expensive for end users, most of them being in rural sector. FIs lack information and understanding of and poor communities with low and unsecured the trends and opportunities in the sector, especially incomes. for SPUE, and on the business models of the solar companies, making it very difficult to assess market • Influx of substandard solar equipment. The market is flooded with substandard quality solar equipment. potential and risks. Such products may lack warrantees and after-sales services. • Lack of financial resources to fit the needs of the solar companies, especially mid- to long-term resources. • Knowledge gaps. Most end users of solar equipment, especially farmers, lack knowledge on the prospects/opportunities of using solar • Lack of knowledge of the legal and institutional framework governing the OGS energy sector. technologies. They tend to focus more on the cost rather than the quality of the products. They also lack skills in the proper use and maintenance of solar • Lack of technical knowledge on solar equipment, especially in terms of quality and compliance with equipment. standards. • Difficulty for the FIs to track/assess equipment quality and monitor assets financed in the absence of operations and maintenance (O&M) track record. • Lack of information on existing dedicated lines of credit and guarantee facilities. Market Study on Scaling Up Off-Grid Solar - in Benin, Burkina Faso, Côte d’Ivoire, Ghana, Senegal, and Togo 64 5.1.4. FIs’ experience with financial instruments Experience with credit lines Two-thirds of interviewed FIs (66 percent) have some development banks and investment funds, national experience in managing credit lines from a wide range funds and projects, local bank refinancing), as specified of international and national sources (DFIs, regional in Table 14. Table 14: Use of credit lines by the interviewed FIs Sources of credit lines Number having experience Category of FI in managing credit lines International Local National partners banks funds 1183 Commercial banks (23) 11 — 1 (48 percent of the commercial banks) 1884 MFIs (22) 14 4 9 (82 percent of the MFIs) 3 Investment funds (3) 3 1 (100 percent of the investment funds) 1 Leasing companies (2) 1 (50 percent of the leasing companies) Source: Stakeholder interviews. Commercial banks are mostly accessing credit lines from international DFIs (like AFD, Proparco, AfDB, • CAL Bank and GCB in Ghana manage a credit line (respectively EUR 19 million and EUR 13 million) BOAD, International Finance Corporation (IFC), BIDC, from AFD/Proparco’s SUNREF Program, to support KfW, GCF, and so on). Some credit lines target specific green projects in the country, including solar. CAL end clients or sectors, like SMEs, women, youth, Bank has started using these resources to provide agriculture, green loans, and COVID-19 recovery. a USD 2 million loan to finance 2,000 electric motorbikes and two solar installation projects. GCB Regarding OGS financing, a few banks have accessed is still building its pipeline but is reluctant to lend in credit lines dedicated to renewable energy financing, the current high-interest rate context. including OGS. These are, for instance, as follows: 83 Ecobank Togo approached some DFIs and development banks but found the interest rate too high (5.5 percent). Out of the 12 banks that are not managing credit lines, 6 are getting financial resources from their group (Ecobank Benin and Ghana, Banque internationale pour le commerce et l'industrie de la Côte d'Ivoire [BICICI] Côte Ivoire, Banque Atlantique Côte Ivoire, UBA Côte Ivoire, and Societe Generale Togo). 84 FUCEC Togo approached IFC but found the proposed interest rate too high (7 percent). Contents Key definitions Synthesis Chapter 1 2 3 4 5 6 5.  OGS financing landscape • IFC has granted CAL Bank a USD 12.5 million facility for the financing of renewable energy and energy It was also mentioned that the Ecobank Group has raised USD 350 million on the bond market for use efficiency for individuals and businesses. by its national subsidiaries for green financing, but no detailed information was made available. • Ecobank Ghana has recently been accredited by the GCF and also manages a green credit line from KfW. Several funders back the credit lines with TA, which is The bank is still building its pipeline for the GCF appreciated by the banks especially for new sectors like funds, with some proposals focused on financing renewable energies/OGS. This is, for instance, the case climate-resilient solar equipment for women in for SUNREF and GCF. agriculture (total USD 25 million, including USD 5 million from Ecobank) and solar systems for SMEs According to AFD in Côte d’Ivoire, there is however a and domestic consumption (total of USD 30 million). low appetite among commercial banks for the SUNREF The KfW Green credit line amount is USD 9 million instrument. The reasons are not clear but are probably and targets financing energy-efficient appliances related to the banks’ lack of knowledge of the renewable for consumption (LED lights, efficient refrigerators, energy sector and high perceived risk. and so on). In Ghana, some stakeholders mentioned that (i) • BNDE in Senegal has recently signed with AFD for the management of a EUR 15 million credit line. although banks can access various concessional lines of credit targeting the renewable energy sector, interest Part of the resources must be allocated to the rates to end users remain too high because such below- renewable energies sector, meaning any renewable market interest rates are not passed on to end users, energy project in the industrial and tertiary sector resulting in underutilized funds and (ii) the banks tend (notably photovoltaic connected to the network to target large investments and therefore do not cover or not, solar water heater, wind power, and so on) all the needs in the market. whose installed capacity is lower than 10 MW,85 with maximum funding of EUR 500,000 per project. A large majority of MFIs get resources from a wide range of international partners to finance their activities • LBA in Senegal has recently signed a contract with AFD for the management of an FCFA 20 billion (including impact investment funds), with most of these partners engaging with MFIs because of their facility (EUR 30 million) with an FCFA 5 billion EU impact on low-income and underserved segments of subsidy whose purpose is to finance projects related the population. MFIs are also the key beneficiaries of to mitigation and adaptation and the monitoring and the funding from the various national funds established measurement of the impacts of its loans on climate by the governments, for the same reason. Many credit change, the preservation of biodiversity and the lines target specific end clients or sectors such as well-being of beneficiaries. agriculture, women, youth, digital credit, arts and crafts, and renewable energy. Some MFIs also mobilize • In Côte d’Ivoire, Société Générale and NSIA have recently signed with SUNREF for a credit line of EUR refinancing resources from local commercial banks. 10 million and EUR 7.5 million, respectively, for the financing of renewable energy (including solar) and energy efficiency (businesses and consumption) projects. 85 Complying with IUCN recommendations for taking into account the impacts on biodiversity associated with the development of solar and wind energy. Market Study on Scaling Up Off-Grid Solar - in Benin, Burkina Faso, Côte d’Ivoire, Ghana, Senegal, and Togo 66 COFINA in Côte d’Ivoire is using an FCFA 500 million Investment funds interviewed finance their operations (USD 830,000) credit line from BOAD/ROGEAP to through funding from specialized funds and other finance the off-grid sector. However, the MFI stated investors. Sunfunder is funded through a USD 75 million that although the conditions of the line are good, they Solar Energy Transformation Fund (SETF) and a USD have difficulties mobilizing it because they have no 500 million Gigaton Empowerment Fund. Wangara risk-sharing instruments, nor any TA, both of which Green Ventures is funded by the World Bank, Ghana in their view are required for the financing of a new Venture Capital Trust Fund, and Dutch Good Growth sector. They also highlighted the need for specific and Fund (DGGF). Sinergi is funded by AFD. appropriate key performance indicators (KPIs) (number of customers, loans outstanding) to encourage the Regarding leasing companies, Locafrique in Senegal institution and its staff members to deploy the credit draws its resources mainly from commercial bank line.86 refinancing. The largest financing obtained of USD 25 million was from an international bank. The other identified case of a credit line partially dedicated to solar financing is CAURIE MFI in Senegal, which manages funds from Pamiga Finance to finance solar kits. As with the banks, several funders back the credit lines with TA. 86 COFINA also mentioned the case of Fin’ELLE, another FI of the COFINA Group in Côte d'Ivoire, that is managing a credit line from Electrify with technical assistance, which enabled them to use the funds as planned. Contents Key definitions Synthesis Chapter 1 2 3 4 5 6 5.  OGS financing landscape Table 15: Main features of credit lines received by commercial banks and MFIs Characteristics Commercial banks MFIs • A wide range of international partners (including impact investment funds) Name/type of Mostly international DFIs (AFD, Proparco, • Various national funds established by the lenders AfDB, BOAD, IFC, BIDC, KfW, GCF, and so on) governments • Refinancing from commercial banks Open or targeting specific clients and sectors Open or targeting agriculture, women, youth, Purpose of the (SMEs, women, youth, agriculture, green loans, digital credit, arts and crafts, renewable credit lines COVID-19 recovery, and so on) energy, and so on Amount in USD 370,000 to 35 million87 330,000 to 8.3 million (min-max) Currency Local currency/USD/EUR Local currency/USD/EUR Maturity in years 1–10 1–7 (min-max) Grace period — — (min-max) Repayment — — frequency Annual interest • 3–6 in the WAEMU zone 2–8.5 in the WAEMU zone rate (%) • 9–10 in USD in Ghana88 Collateral required Usually pledge of the loan portfolio Compliance with regulatory ratios, financial Eligibility criteria status, policies and strategies to finance the targets, capacity to report, and so on Source: Stakeholder interviews. 87 Ecobank Group has mobilized a USD 350 million 88 SOFR (Secured overnight Financing Rate) + 2.65 percent for GCB. Market Study on Scaling Up Off-Grid Solar - in Benin, Burkina Faso, Côte d’Ivoire, Ghana, Senegal, and Togo 68 No clear information was collected during the study Some FIs in the WAEMU zone mentioned issues in on any condition related to the final interest rate to be managing foreign currency risks in US dollars. With the applied by the FIs for their clients. It seems that in most FCFA being pegged to the euro, there is a preference for cases, funders do not set any conditions.89 euro-denominated credit lines. In Ghana, interviewed FIs were not explicit on this issue but generally, foreign- Overall, the FIs are satisfied with the conditions exchange risks are managed through hedging based offered by the various funders and the partnerships. on the FIs’ internal policies. Some FIs with US dollar- or The key features assessed by the FIs are the interest euro-denominated facilities would require repayment rate, maturity, grace period and repayment schedules, of interest and principal in US dollar equivalent based and the duration and complexity of the procedures on the prevailing rates. and processes to get the funds. Some FIs, however, mentioned the need to back the credit line with RSFs and TA for new sectors, including OGS financing. Experience with RSFs Out of the 48 interviewed FIs, 39 for which information experience with RSFs, both international and national, was available (81 percent of the total) have some as specified in Table 16. Table 16: Use of RSFs by interviewed FIs Category of guarantee facility Number having experience in using Category of FI guarantee facility International National Commercial banks (2290) 21 (95%) 15 12 MFIs (2191) 15 (71%) 5 13 Investment funds (3) 2 (66%) 1 1 Leasing companies (2) 1 (50%) 1 Source: Stakeholder interviews. 89 For instance, AFD let the banks set their own conditions when using the SUNREF line of credit, just ‘advising’ them to provide concessional loans. 90 No information was made available by Societe Generale Burkina Faso. 91 No clear information available from one MFI in Benin Contents Key definitions Synthesis Chapter 1 2 3 4 5 6 5.  OGS financing landscape All but one of the commercial banks interviewed use Some MFIs also use international facilities such as FSA, guarantee facilities, both international (the main ones AfDB (Aderi), ARIZ, FOGA, BOAD, DFC, with overall being AGF, Proparco/ARIZ, IFC, FSA, FAGACE, USAID/ similar conditions to the ones used by the commercial DFC,92 and EIB) and national (for instance, Fonds Natio- banks. Some MFIs do not see the use for guarantees nal de Développement de l’Agriculture [FNDA] and because they have a good portfolio quality and do not FONAGA in Benin, Société Financière de Garantie have to comply with collateral regulations set by the Interbancaire du Burkina [SOFIGIB] in Burkina Faso, central bank like commercial banks. As with the banks, Incentive-Based Risk-Sharing System for Agricultural most of the facilities target specific end clients or Lending (GIRSAL) in Ghana, FONGIP and Fonds Souve- sectors such as SMEs, women, youth, agriculture, water rain d'Investissements Stratégiques [FONSIS] in and sanitation, COVID-19 recovery, and so on. Senegal). All these guarantees cover the risk of loan default, with a wide range of features. Most of these Among the three investment funds interviewed, two use facilities target specific end clients or sectors, such as a guarantee facility (Sunfunder a Swedish International SMEs, women, youth, agriculture, and energy and may Development Agency [SIDA] facility and Sinergi a local provide higher coverage rates for specific categories project facility). (such as women and youth and smallholder farmers). Of the two leasing companies interviewed, only Of the MFIs interviewed, 71 percent use guarantee Locafrique uses a guarantee facility (DFC). facilities, mostly from national facilities and projects. 92 DFC = US International Development Finance Corporation (formerly USAID/DCA); FAGACE = Fonds Africain de Garantie et de Cooperation Economique; FSA = Fonds de Solidarité Africain. Market Study on Scaling Up Off-Grid Solar - in Benin, Burkina Faso, Côte d’Ivoire, Ghana, Senegal, and Togo 70 Table 17: Main features of RSFs used by commercial banks and MFIs Characteristics Commercial banks MFIs • Mostly local guarantee facilities (Fonds National • Mostly international facilities (AGF, Proparco/ de la Microfinance [FNM] and FNDA in Benin, ARIZ, IFC, FSA, FAGACE, USAID/DFC, and EIB) SOFIGIB and Fonds National de la Finance Guarantee • Local guarantee facilities (FNDA and FONAGA Inclusive [FONAFI] in Burkina Faso, GIRSAL providers in Benin, SOFIGIB in Burkina Faso, GIRSAL in in Ghana, FONGIP and DER/FJ in Senegal, Ghana, FONGIP and FONSIS in Senegal, and ANPGF, PSAEG, and PARTAM in Togo) so on) • International guarantee facilities (FSA, AfDB (Aderi), BOAD, ARIZ, USAID/DFC) Purpose of • De-risking SME loans • De-risking SME/agricultural loans guarantees • Unfunded guarantee (mostly for international • Unfunded guarantee (mostly for international facilities) or cash funded facilities) or cash funded Nature of • Pari passu • Pari passu guarantees93 • Portfolio guarantee mostly, individual guarantee • Portfolio guarantee mostly, individual guarantee for larger loan amounts94 for larger loan amounts • Mostly silent guarantee • Mostly silent guarantee • 50–80% • 25–80% Coverage rate • Some facilities cover higher percentages for • Some facilities cover higher percentages for high-impact clients (women, green finance, and high-impact clients (women, green finance, and so on) so on) • 0.5–2.5% of loan amount guaranteed (annual) • 0.5–3% of loan amount guaranteed (annual) • Some facilities do not charge commissions95 • Some facilities charge appraisal or eligibility Cost of the • Some facilities charge appraisal or eligibility guarantee fees (fixed amounts or in percentage of the amount to be guaranteed at the inception of fees (fixed amounts or in percentage of the the partnership or annually) amount to be guaranteed at the inception of the partnership or annually) Source: Stakeholder interviews. 93 See key definitions at the beginning of the report. 94 For instance, above USD 270,000 for AGF. 95 For instance, FNM and FNDA in Benin, Contents Key definitions Synthesis Chapter 1 2 3 4 5 6 5.  OGS financing landscape The study found no evidence of the impact of existing 5.1.5. RSFs on FIs’ lending terms (especially reduction of Potential and needs to interest rates), except for rare examples (for instance, FNDA in Benin sets the maximum interest rate for strengthen OGS financing guaranteed loans at 12 percent96). In fact, FIs usually Almost all the interviewed FIs see an opportunity for add the cost of the guarantee to the loan and thus pass OGS financing, with commercial banks and ‘meso- it on to the borrower. However, some FIs have stated finance’ MFIs mostly interested in financing solar that they would be willing to reduce their interest rate companies and MFIs mostly interested in financing if the loan is backed by an adequate guarantee facility. solar equipment for end users (although the distinction is not always clear-cut). The following main reasons Overall, FIs are satisfied with the conditions of and are given for the perceived OGS potential, to different partnerships with the guarantee facilities. However, a extents, depending on the countries: few FIs highlighted the following issues: • The governments promote the development of the • Long and cumbersome processes for the facility to be granted and for the payment of claims, sector and with overall adequate strategies, policies, and regulatory frameworks. sometimes without clear explanations from the facility or understanding by the FIs (one case stated by a facility is when the FI has not implemented all • Many development partners and financing facilities target the sector, providing a lot of funding available the recovery processes as contracted, which may for the FIs. be challenged by the FI) • OGS can fill a gap in access to electricity in areas • Un-adapted terms of sub-borrower loans covered by the facility (for example, facilities covering only not covered by the grids, especially rural areas. loans with maturities over 12 months while the FI working capital loans are below 12 months97) • There is potential for different segments of the OGS market (mini-grids, residential and C&I solar installations, stand-alone systems, and SPUE, • Un-adapted terms of facilities themselves (for example, facilities offering non-silent guarantees, especially for the agricultural sector), in a context where financing is needed to leverage these which are considered riskier as they may create a opportunities at both the solar companies and end moral hazard from borrowers). users’ levels. The high costs of other energy sources (grid electricity, fuel, and so on) make investment in It was also noted that some facilities (like AGF) provide solar technologies competitive, as long as adapted training to the FIs, which is well appreciated by the FIs financial solutions are available considering the high (for instance on SME financing). initial investment cost. • Developing OGS financing would contribute to the FIs objectives to increase their involvement in sustainable development. 96 Another example is the Smallholder Credit Guarantee Scheme managed by the Tanzania Agricultural Development Bank (TADB), where access to cash funded guarantees is conditioned by a reduction of interest rates to end borrowers. 97 This is the case of ARIZ, but Proparco has since then designed a facility covering short-term loans below 12 months. Market Study on Scaling Up Off-Grid Solar - in Benin, Burkina Faso, Côte d’Ivoire, Ghana, Senegal, and Togo 72 Regarding FIs’ interest in benefiting from a dedicated Regarding the interest of the FIs to benefit from a RSF to de-risk lending to the OGS sector, especially credit line to finance the OGS sector, especially the to solar companies, only two FIs stated they are not solar companies, eight interviewed FIs have stated not interested in the short term because their current being interested currently: three banks because they strategy is not to develop this sector. Guarantees would already have enough liquidity, one bank and one MFI indeed be key to tackling the lack of collateral of most because they do not have a strategy to develop the potential clients (especially for the commercial banks OGS sector, one MFI because it is already managing the which need to comply with central bank regulations) BOAD/ROGEAP credit line with difficulties deploying it, and mitigating the lending risk for this sector, which is and two investment funds because they do not need perceived as highly risky. additional funding. Their assessment of the features of the guarantee For the interested FIs, as with the guarantee facility, facility would, however, obviously determine their their assessment of the features of the credit line interest in using it, considering that most of them are would, however, obviously determine their interest already partnering with other guarantee facilities, to in using it, considering that most of them are already their overall satisfaction. In this regard, desired terms partnering with other credit line providers, to their and conditions for a dedicated guarantee facility would overall satisfaction. In this regard, desired terms and be as follows: conditions for a dedicated credit line would be (these are indicative and would need to be further discussed • Preference for a cash-backed/funded facility, since it increases the confidence of the FIs that funds with the FIs, which stated that they are ready to analyze and negotiate any offer in comparison with the credit are available to cover the claims quickly and it also lines that they already know): provides some liquidity. However, an unfunded guarantee would also be acceptable, as long as they can get agreement from the central bank. • Loan amount between USD 800,000 and USD 20 million, with higher amounts being requested by commercial banks. • Preference for a loan portfolio guarantee, easier to manage • Preference for credit lines in local currency or euros in the WAEMU zone. In Ghana, some banks prefer • Risk coverage of at least 50 percent, but higher coverage would be appreciated considering the loans in US dollars or euros, while others are open to both local and hard currency. high perceived risk of the sector • Maturity between 2 and 15 years, noting that long- • Annual commissions below 2 percent but with lower fees term resources are requested by the commercial banks to be able to fit the financing needs of the solar companies • Procedures to access the facility and for claim management that are not too long and cumbersome • Interest rate ideally between 2 percent for the banks and 5 percent for the MFIs for the WAEMU zone; • A guarantee facility backed by TA based on the demand by the FI, especially to understand the 5–10 percent in hard currency and 10–15 percent in local currency in Ghana market, develop products, and secure its lending. • Attractive conditions for grace period and repayment schedule to be offered compared to practices of other funders • Procedures to access the credit line that are not too long and cumbersome Contents Key definitions Synthesis Chapter 1 2 3 4 5 6 5.  OGS financing landscape • A credit line backed by TA based on the demand by • Support for the development of environmental, the FI, especially to understand the market, develop social, and governance (ESG) framework and policy products, and secure its lending. to enable in particular FIs to be more attractive to financial partners. Regarding the interest of the FIs to benefit from TA to build their capacity on OGS financing, especially for the financing of the solar companies, only one bank • Support to understand carbon finance opportunities and how to materialize them. declared it would not need it (because of the cost involved) and one investment fund (which stated that It was observed that FIs are already benefiting or could TA is mostly needed for its investees). The main areas of benefit from existing TA and capacity building from TA mentioned by the FIs are as follows: various partners or initiatives (for instance, from the GCF, SUNREF project, and AGF). TA to be provided • Studies to improve knowledge and understanding of the OGS market, its opportunities, and risks for the should therefore leverage and complement these existing opportunities. different categories of clients and financial needs. This should include understanding of the policy and regulatory framework for the renewable energy sectors and the roles of public actors. • Technical training of the FI staff on solar technologies (range of available equipment and equipment quality standards, after-sales service, and warranty offerings) to develop minimal in-house expertise. • Development of OGS financing strategy (as part of an overall renewable energies financing strategy). • Support to establish dedicated renewable energies department or unit, including OGS. • Understanding of the solar companies’ different business models and financing needs. • Support to develop adapted financial products for the different segments of the OGS market, including operational, internal control, human resources, risk management, monitoring and evaluation, and marketing and communication policies and procedures for the different categories of FI staff involved. • Exchange visits and workshops to learn best practices for OGS financing in similar contexts. • Support to be accredited by global finance facilities like the GCF. Market Study on Scaling Up Off-Grid Solar - in Benin, Burkina Faso, Côte d’Ivoire, Ghana, Senegal, and Togo 74 5.2. Institutions managing financial instruments 5.2.1. Overview of institutions • AFD. Headquartered in France, AFD is a public managing financial instruments establishment and DFI which contributes to the implementation of France's policy in terms of A total of 19 interviews with 16 institutions managing development and international solidarity. The AFD financial instruments were conducted in the framework Group is made up of (i) AFD, in charge of financing of the study, including bilateral, multilateral, and regional the public sector and NGOs, research, and training on DFIs, national development funds, and national/regional sustainable development; (ii) Proparco, a subsidiary guarantee funds. dedicated to financing the private sector; and (iii) Expertise France, a technical cooperation agency. In More specifically, the following five DFIs were 2021, the group invested more than EUR 12 billion interviewed: in 115 countries and French overseas territories. AFD finances the public sector (including development • AfDB. Headquartered in Abidjan, Côte d’Ivoire, AfDB is a multilateral DFI with the mission to promote banks) in the form of concessional loans and NGO projects through grants. Proparco invests in private sustainable economic growth and reduce poverty FIs and companies in the form of loans, credit lines, in Africa. Its shareholders are 54 African countries equity participations, and guarantees such as ARIZ/ (regional member countries) and 27 non-African EURIZ, at market conditions, in euros, US dollars, or countries (nonregional member countries). As of local currency. December 2021, AfDB had approved a total of 196 operations across its member countries for a total of USD 6.1 billion. AfDB mainly provides the • IFC. Headquartered in Washington, DC, IFC is the private sector arm of the World Bank Group. following financial instruments: (i) direct loans to It is owned by its 186 member countries and regional member countries and public and private offers an array of investment, advisory, and asset sector enterprises (sovereign and non-sovereign management services to encourage private sector guaranteed loans), (ii) lines of credit to FIs for on- development in less developed countries. In 2011, lending to their customers, (iii) equity and quasi- IFC’s total investments amounted to USD 18.6 billion. equity investments to business enterprises or Among other financial instruments, IFC provides investment vehicles, (iv) guarantee products to debt and equity investments and guarantee protect beneficiaries (that is, lenders) against products to private sector companies and financial nonpayment of debt obligations (partial credit intermediaries. guarantee [PCG]) or against political risks emanating from the government or its sub-entities (partial risk guarantee [PRG]), and (v) TA grants and co- • BOAD. Headquartered in Lomé, Togo, BOAD is the DFI of the WAEMU/UEMOA region. It aims to foster financing vehicles to projects and NGOs. economic integration in West Africa and, more specifically, promote the development of its eight member countries, namely Benin, Burkina Faso, Côte d’Ivoire, Guinea-Bissau, Mali, Niger, Senegal, and Togo. As of 2017, BOAD’s total disbursements were equal to USD 5 billion. Among its services, BOAD provides debt and equity investments, guarantee products, and TA to public and private sector players. Contents Key definitions Synthesis Chapter 1 2 3 4 5 6 5.  OGS financing landscape • BIDC. Also headquartered in Lomé, BIDC is the DFI • FAGACE. Based in Cotonou, Benin, FAGACE is of the ECOWAS/CEDEAO region. Its objective is to a public establishment and regional FI with the contribute to an integrated, inclusive, sustainable, mission of contributing to the economic and social and resilient sub-region through the financing development of its member states by facilitating of national and regional development projects access to finance for SMEs, mainly through risk- and programs in its 15 member countries (Benin, sharing mechanisms. It provides individual and Burkina Faso, Cabo Verde, Côte d’Ivoire, Gambia, portfolio guarantees to local private and mixed Ghana, Guinea, Guinea-Bissau, Liberia, Mali, Niger, (public-private) enterprises, FIs, and regional bodies Nigeria, Senegal, Sierra Leone, and Togo). To do in its 14 member states (Benin, Burkina Faso, the so, it provides direct loans, credit lines, equity Central African Republic, Côte d’Ivoire, Mali, Niger, participations, and grants through two main Rwanda, Senegal, Togo, Guinea-Bissau, Cameroon, funding windows, one for the public and one for the Mauritania, Congo, and Chad). As of December private sector. As of December 2022, BIDC’s net 2021, FAGACE’s cumulative gross guarantees were commitments were equal to USD 2.7 billion in 172 equal to USD 791 million across 329 projects. projects. Finally, nine national development and guarantee In addition to the abovementioned DFIs, two regional funds were interviewed: guarantee funds were interviewed: • Six national development funds: FNDA and FNM • AGF West Africa. Situated in Lomé, Togo, AGF West Africa is the local subsidiary of the Kenyan-based in Benin, Fonds Burkinabé de Développement Economique et Social (FBDES) and FONAFI in AGF, established in 2011 by the Government of Burkina Faso, RDF in Ghana, Fonds d’Appui au Denmark (represented by DANIDA), the Government Développement du Secteur Rural (FADSR) in of Spain (represented by the Spanish Agency for Senegal International Development (AECID)), and AfDB. AGF is a pan-African Non-Banking Financial Institution with the mandate of facilitating access to finance • Three guarantee funds: Africaine des Garanties et du Cautionnement (AFGC) in Benin, SOFIGIB in for SMEs to enable them to fully play their role of Burkina Faso, and GIRSAL in Ghana. driving the growth of African economies. It does so by offering an array of guarantee products, such as For the study, four kinds of financial instruments were the individual guarantee, portfolio guarantee, bank specifically considered: direct loans, credit lines/ fundraising guarantee, and equity guarantee, all of refinancing facilities, equity investments, and guarantee which are coupled with capacity building. By the instruments/RSFs. Table 18 provides the breakdown end of 2021, AGF had cumulatively issued USD 1.56 of the offer of such instruments among interviewed billion of guarantees to 181 FIs in 40 countries in institutions. Africa. As a subsidiary of AGF with its own board of directors, AGF West Africa is in charge of activities in the region. Its sole shareholder is BOAD. Market Study on Scaling Up Off-Grid Solar - in Benin, Burkina Faso, Côte d’Ivoire, Ghana, Senegal, and Togo 76 Table 18: Financial instruments offered by interviewed institutions Burkina Côte Benin Ghana Senegal Togo Total Faso d’Ivoire No. of interviews 4 5 2 3 2 3 19 conducted98 Financial instruments provided (% of total99) Direct loans — 16 11 11 5 11 53 Credit lines 11 16 11 11 11 11 68 Equity investments — 5 5 5 5 5 26 Guarantee instruments 21 21 11 16 11 11 89 Source: Stakeholder interviews. Guarantee instruments/RSFs are the most common Table 19 provides an overview of the two main debt type of financial instrument offered (89 percent of financing instruments (that is, direct loans and interviewees), followed by credit lines (68 percent) credit lines) currently offered by interviewed national and direct loans (53 percent). Only one-quarter of development funds on one side and regional DFIs on the interviewed institutions provide equity investments other. Given the diversity and complexity of multilateral (26 percent), suggesting a potential lack of such DFIs’ numerous debt instruments (making it virtually instruments in the targeted countries. impossible to summarize in a table), only specific OGS financing instruments are analyzed in section 5.2.2. 98 Some institutions, such as AfDB and AFD, were interviewed in more than one country, resulting in a discrepancy between the number of institutions interviewed (16) and the number of interviews conducted (19). 99 Percentages do not add up to 100 as interviewees generally offer more than one kind of financial instrument. Contents Key definitions Synthesis Chapter 1 2 3 4 5 6 5.  OGS financing landscape Table 19: Current debt instruments offered by interviewed institutions Characteristics National development funds Regional DFIs • Direct loans: FBDES (Burkina Faso), RDF (Ghana) Interviewees offering • Direct loans and credit lines: BOAD, instrument • Credit lines: FNDA, FNM (Benin), BIDC (Togo) FONAFI (Burkina Faso), RDF (Ghana), FADSR (Senegal) • Direct loans: MSMEs, including start-ups and youth-led enterprises, and savings and credit associations • Direct loans: SMEs and large Direct beneficiary (VSLAs) enterprises • Credit lines: Commercial banks, MFIs, • Credit lines: Commercial banks and rural and community banks (Ghana only) • Agriculture • Renewable energy • Agro-industry Targeted sectors • Specific government-related project • Energy target groups (youth, artisans, low- • Mining income people) • Direct loans: 8,000–450,000 • Direct loans: 1.6–60 million Amount in USD (min-max) • Credit lines: 150,000 to 1.5 million • Credit lines: 2.5–30 million Currency Local currency Local currency Maturity in years (min-max) 1–5 3–12 (7–8 on average) Grace period in months 6–18 12–36 Repayment frequency Monthly, quarterly, biannual, or annual Biannual Annual interest rate (%) 2–5 4.5–7.5 • Direct loans: Tangible assets, mortgage guarantees, inventories Personal and bank guarantees, tangible Collateral required • Credit lines: tangible assets, mortgage assets, mortgage guarantees, pledge of guarantee, pledge of loan portfolio, stock/loan portfolio personal guarantees of board members Source: Stakeholder interviews and desk review. Among interviewed national funds, only two provide indirectly by refinanced banks). Agriculture and energy direct loans to MSMEs, whereas the others focus are a priority investment target for both national funds predominantly on credit lines to FIs and MFIs. On and regional DFIs (along with government-related the other side, interviewed regional DFIs offer both project targets for microfinance funds), but investment instruments but focus more on small, medium, and large terms vary substantially. Maximum amounts for national enterprises (excluding very small ones) and commercial funds are in the range of USD 500,000 for direct banks (excluding MFIs, which may however be served loans and USD 1.5 million for credit lines, as opposed Market Study on Scaling Up Off-Grid Solar - in Benin, Burkina Faso, Côte d’Ivoire, Ghana, Senegal, and Togo 78 to dozens of millions of USD for regional DFIs for with a combination of both individual and portfolio, both direct loans and credit lines (USD 20–30 million). silent, and non-silent guarantees, but all are offered on Tenors (maximum five years) and grace periods (6–18 a pari passu basis (coverage rate of 30 percent to 70 months) are also considerably shorter for national percent) and are predominantly unfunded, with a few funds than regional DFIs (tenors of maximum 12 years exceptions (for example, FNM in Benin and GIRSAL in and grace periods of 12–36 months). Lastly, annual Ghana provide funded/cash-based guarantees). Like interest rates for national funds (2–5 percent) seem debt instruments, the price of guarantees is mostly more concessional than those of regional DFIs (4.5–7.5 concessional or even free of charge for national percent). development funds, whereas commissions range from 1 to 2.5 percent of the guaranteed amount for specialized Regarding RSFs, interviewed national and regional guarantee funds (for example, FAGACE and AFGC in funds generally provide guarantees to commercial Benin, SOFIGIB in Burkina Faso). Table 20 summarizes banks and MFIs for direct loans to MSMEs as well as the main conditions of RSFs offered by national and to banks for refinancing facilities granted to MFIs. The regional funds. conditions of guarantees provided vary considerably, Table 20: RSFs offered by national and regional funds Characteristics Proposed terms • FAGACE, AFGC, FNDA, FNM (Benin) Interviewees offering • SOFIGIB, FONAFI (Burkina Faso) instrument • RDF, GIRSAL (Ghana) • FADSR (Senegal) • Risk coverage of short-, medium-, and long-term bank and MFI financing to MSMEs Purpose/target • Risk coverage of bank credit lines to MFIs of guarantees • Specific focus on agriculture and renewable energy in some cases (GIRSAL and RDF in Ghana, FNDA in Benin) • Individual and portfolio pari passu guarantees Nature of guarantees 100 • Mostly unfunded (paper) with a few funded (cash) ones (FNM in Benin, GIRSAL in Ghana) • Silent and non-silent Coverage rate (%) 30–70 • Maximum tenor of guaranteed loans of 5 years Other conditions • Maximum amount of guaranteed loans of USD 450,000 (RDF in Ghana) • Specialized guarantee funds (FAGACE, AFGC, SOGIFIB, GIRSAL): 1–2.5% annually of Cost of the guarantee guaranteed portfolio • Development funds (for example, FNDA, FNM): No commissions Reporting obligations Quarterly reporting Source: Stakeholder interviews and desk review. 100 See key definitions at the beginning of the report. Contents Key definitions Synthesis Chapter 1 2 3 4 5 6 5.  OGS financing landscape Specific attention should be given to three of the largest RSFs active on the West African market, specifically those offered by AFD’s Proparco (short-term guarantee, ARIZ, and EURIZ), AGF, and IFC (Small Loans Guarantee Program (SLGP)), the conditions of which are summarized below. More details on the terms of RSFs interviewed in the framework of the study are provided as an annex to th report and available on request. Table 21: RSFs offered by Proparco, AGF, and IFC Characteristics Proposed terms • Proparco: short-term guarantee, ARIZ, and EURIZ Name of instrument • AGF: n.a. • IFC: SLGP • Risk coverage of loans by commercial banks to MSMEs in all sectors Purpose/target of guarantees • Emphasis/higher-risk coverage for underserved or high-impact SMEs (women, youth, environment, agriculture, and so on) • Individual and portfolio guarantee • Pari passu Nature of guarantees • Unfunded (non-cash) • Guarantee coupled with TA • 50% for SMEs in all sectors Coverage rate • Up to 70–75% for SMEs in high-impact sectors (green energy, women, and so on) • Maximum amount of guaranteed loans: » IFC and AGF: USD 1 million » Proparco: USD 330,000 for portfolio guarantee, USD 2.2 million for individual guarantee Other conditions • Maximum tenor of guaranteed loans: » IFC and AGF: 5 years » Proparco: 7 years (ARIZ), 12 years (EURIZ) • Front-end fee: 0.5–1% on the maximum portfolio guaranteed • Guarantee fee: 1.5–2.5% per year of the outstanding guaranteed amount Cost of the guarantee • Commitment fee: 1–2% of unutilized guarantee amount if RSF utilization is below a certain threshold (for example, <75% used after 180 days) Reporting obligations Quarterly, biannual, and/or annual reporting Source: Stakeholder interviews and desk review. Market Study on Scaling Up Off-Grid Solar - in Benin, Burkina Faso, Côte d’Ivoire, Ghana, Senegal, and Togo 80 RSFs offered by all three institutions aim to increase access to finance for SMEs by providing individual and • FBDES, which provided direct loans to five solar distributors in Burkina Faso for the purchase portfolio guarantees coupled with TA to commercial and installation of solar equipment (solar kits, banks for SME lending. Although guarantees provided streetlights, cold rooms, and so on) in the framework essentially target SMEs in all sectors, the facilities of the Start-Up Project also specifically wish to encourage lending to SMEs in underserved and/or high-impact sectors (youth, women, environment, agriculture, and so on). • SOFIGIB, which guaranteed loans to large solar system installation companies in Burkina Faso for a Guarantees are provided on a pari passu, unfunded total of USD 1.9 million basis with a coverage rate of 50 percent, a rate which is increased to 70–75 percent for loans to SMEs in high- impact sectors for Proparco and AGF. The maximum • AGF, which provided an individual loan guarantee to Union Togolaise des Banques (UTB) for a USD 3.25 size of guaranteed loans is USD 1 million with a five- million loan to Bboxx in Togo year tenor for AGF and SLGP, whereas the loan size is smaller for Proparco’s portfolio guarantee loans (USD 330,000) but with a longer tenor (7 years for ARIZ, 12 • FNDA, which guaranteed a USD 100,000 loan granted by NSIA Banque to ASAFMA in Benin years for EURIZ). Guarantee costs for all RSFs include to manufacture solar-powered agricultural a front-end fee ranging from 0.5 to 1.25 percent of the transformation equipment (mills and other maximum guaranteed portfolio and an annual guarantee equipment). fee ranging from 1.5 to 2.5 percent of the outstanding guaranteed portfolio. Unlike Proparco, AGF and SLGP Some national development funds affirm they may have also charge commitment fees on unutilized guarantee indirectly supported the OGS sector through the credit amounts in case of low RSF utilization. lines they granted to FIs (for example, MFIs providing end user finance for solar equipment purchases) but do not have specific information on such initiatives. 5.2.2. Financial instrument managers’ Apart from these few, and rather one-off, experiences, some specific financial instruments for the OGS sector experience in the OGS sector do exist, mainly due to the initiative of multilateral DFIs. Despite the emphasis placed on energy and renewable Regarding OGS debt financing instruments, at least energy by several interviewed financial instrument the following three instruments should be mentioned. managers (for example, regional DFIs, national development funds), their experience in providing financial instruments to the OGS sector and solar companies remains limited. The few institutions which mentioned OGS sector transactions are the following: • FAGACE, which guaranteed loans to energy distribution companies (Société nationale d'électri- cité du Sénégal (SENELEC) in Senegal and Commu- nauté Electrique du Benin (CEB) in Togo) for solar power plant projects Contents Key definitions Synthesis Chapter 1 2 3 4 5 6 5.  OGS financing landscape SUNREF Program FEI OGEF Managed by Proparco, the SUNREF program promotes Sponsored by AfDB and the Global Environment Facility private sector investments in Africa in renewable (GEF) and now supported by a few other investors energy (including OGS) and energy efficiency and the (EU, KfW, NDF, Calvert Impact Capital, and so on), FEI sustainable management of natural resources, through OGEF is a debt fund targeting companies providing credit lines granted to partner banks, coupled with solar energy to off-grid communities in Africa. OGEF TA. Credit lines are in hard currency (euros), with a provides local currency loans ranging from USD 2 maximum maturity of 10 years. The interest rate for the million to USD 10 million with tenors of one to five years end users is at the discretion of the bank, but Proparco and concessional interest rates. can advise on the rate based on the proposal. Maturity for end beneficiaries is up to five years. The maximum To date, OGEF has provided debt financing to 11 solar individual loan amount is EUR 8 million, noting that the companies in Sub-Saharan Africa, of which 3 in West bank can co-finance for bigger projects. The funds Africa: are eligible for any types of clients (SMEs, retailers, individuals, and so on). Projects over USD 200,000 need individual permission by SUNREF. • Bbox in Togo, supported with a USD 12.1 million loan in November 2022 Among the six countries targeted by the study, SUNREF is currently operational in Ghana and Côte d’Ivoire: • Baobab+ in Senegal, supported with a USD 2.2 million debt investment in March 2021 • In Ghana, credit agreements have been signed with • Qotto for Benin and Burkina, supported with a USD CAL Bank (EUR 19 million) and Ghana Commercial 2.2 million debt investment in February 2021. Bank (GCB; EUR 13 million). All funds have been disbursed to CAL Bank, whereas GCB, which signed in 2022, is still working on the pipeline but seems reluctant to lend considering the current high ROGEAP credit line interest rates. Developed by the World Bank and its partners in the • In Côte d’Ivoire, credit agreements have been signed with Société Générale (EUR 10 million) and framework of ROGEAP and managed by BOAD, the ROGEAP credit line provides local currency refinancing NSIA Banque (EUR 7.5 million), both of which are to FIs for on-lending to companies involved in the currently building their pipelines. distribution of solar products or in the installation of solar systems up to 350 kWp, particularly for social infrastructure (for example, schools, health centers, and so on). The main terms of the credit line are the following: • Amounts (FCFA) up to USD 16.6 million in local currency • Maturity up to 10 years, with a maximum two-year grace period • Biannual repayment frequency • Annual interest rate of 3.25–3.50 percent Market Study on Scaling Up Off-Grid Solar - in Benin, Burkina Faso, Côte d’Ivoire, Ghana, Senegal, and Togo 82 • Collateral required includes intangible assets and/or Leveraging Energy Access Finance pledge of receivables or securities Framework (LEAF) Program • No conditions imposed for loans to end clients, apart from the (non-mandatory) invitation to beneficiary Funded by AfDB and the GCF, LEAF aims to (i) unlock local currency debt financing for the OGS sector FIs to pass on the concessional interest rate of the (including stand-alone solar systems, mini-grids, and line to companies financed. captive power) by de-risking it through guarantees and subordinated debt and (ii) create capacity within local To date, BOAD has financed two MFIs and one banks and FIs to engage with and finance businesses in commercial bank with the ROGEAP credit line: the OGS space. To do so, among other activities, LEAF provides FIs with unfunded individual and portfolio • COFINA in Côte d'Ivoire, for an amount of USD 830,000 with a 7-year maturity, a 2-year grace guarantees, including both first loss and pari passu coverage, priced on a concessional basis. period, and an annual interest rate of 3.5 percent LEAF is currently active in six countries (Nigeria, Kenya, • KAFO JIGINEW in Mali, for an amount of USD 5.8 million with a 7-year maturity, a 2-year grace period, Ghana, Tunisia, Ethiopia, and Guinea), of which only Ghana is among the study’s targeted countries. As its and an annual interest rate of 3.5 percent implementation period has recently started, no deals have been signed yet. The program reportedly plans to • Banque Nationale de Développement Agricole (BNDA) in Mali, for an amount of USD 8.3 million work with AGF to develop a specific guarantee window for OGS financing. with a 7-year maturity and a 2-year grace period. BOAD believes that the credit line has attractive conditions, something which has also been confirmed ROGEAP CTF by one of the interviewed MFIs currently benefiting from it (COFINA in Côte d’Ivoire). However, despite Also developed by the World Bank and its partners its attractiveness, according to BOAD, the credit line’s as part of ROGEAP and managed by BOAD, the CTF deployment remains low because the FIs do not have aims to cover technological failure risks related to the technical and organizational capacity to finance OGS financing by guaranteeing loans disbursed by solar companies. partner FIs to companies which default as a result of a technological failure in solar equipment distributed. As far as dedicated RSFs for the OGS sector are Technology failure risk is defined by the fund as concerned, the following two instruments have been “Non-performance or underperformance of any identified in the framework of the study. equipment, component or system that comprises part or all of the project financed by the guaranteed sub-loan.” The CTF offers an unfunded, pari passu guarantee, with a coverage rate of 50–80 percent of the loan principal amount granted by the partner FI. At present, BOAD has not yet used the instrument. The DFI is doubtful about the fund’s potential for actual use, as it believes the definition and verification of a technological failure is complex and likely to discourage FIs, particularly given their lack of expertise in OGS financing. Contents Key definitions Synthesis Chapter 1 2 3 4 5 6 5.  OGS financing landscape The main challenges mentioned by interviewed financing instrument managers in financing the OGS • Lack of equity instruments for solar companies on the market, which would allow them to increase sector are the following: their financial solidity (equity), hence strengthening their capacity to raise debt funding. • Poor structuring and organization of SMEs in general and solar SMEs in particular, coupled with their weak capitalization, which makes it difficult for • Market distortion created by subsidized funding. According to one of the interviewed DFIs, although FIs to finance them without specific instruments to concessional and grant funding from DFIs and de-risk OGS sector loans, especially in the absence impact investors has filled a financing gap especially of adequate collateral. for the more mature, often internationally owned, solar companies (tier 3), it has also contributed to • Weak capacity of FIs and financial instrument managers alike (especially national players) to creating a market distortion in the medium term. On one side, it has encouraged tier 3 companies to conduct financial and technical due diligence for predominantly raise concessional funding on the OGS sector transactions, including assessing solar international markets; on the other, it has prevented companies’ businesses and equipment quality. As locally based, private FIs from fully entering the a result, despite the declared interest in the sector, market and addressing these needs. There is hence a most FIs have been reluctant to lend to it. need to involve local FIs to take on the responsibility of financing solar companies. • Insufficient number of concessional local currency debt instruments to encourage solar SME lending, especially through FIs, together with the lack of awareness of existing instruments by both solar companies and FIs (for example, the ROGEAP credit line). 5.2.3. Potential and needs for strengthening financial instruments for the OGS sector Overall, all interviewed institutions managing financial solar companies’ equity and increase their leverage instruments agree that there is an opportunity to capacity. finance or scale up financing to the OGS sector. For this reason, several of them have included green energy On the other hand, AFD/Proparco affirms that its OGS and climate finance in their strategies or financial offers refinancing program, SUNREF, has not been successful (for example, AFD/Proparco and AfDB’s dedicated because banks have not shown much interest and, instruments, AGF increasing coverage rate for energy- specifically in Ghana, GCB, one of the two partner related loans, FNM in Benin, and RDF in Ghana including banks, is reluctant to disburse the fund because of the sector in their strategic targets). the unconducive conditions for lending (high interest rate). Causes for this lack of interest were not clearly More specifically, AfDB believes there is a need to understood, but it may be linked to the lack of strategy crowd in locally based banks and other FIs in financing and expertise of the banks in the sector (according the OGS sector and increase lending particularly to to AFD Ghana, GCB requested training) and, as the more early-stage, locally owned solar companies stakeholder interviews conducted by the team suggest, (tier 2). To do so, concessional credit lines for FIs to to the fact that the instrument may not have been increase lending to solar companies and guarantee sufficiently adapted to the needs of OGS stakeholders instruments to de-risk such loans are necessary. Risk (for example, terms proposed for credit lines to capital instruments would also be needed to strengthen targeted FIs and loans to final beneficiaries). Market Study on Scaling Up Off-Grid Solar - in Benin, Burkina Faso, Côte d’Ivoire, Ghana, Senegal, and Togo 84 Regarding the management of new financial Slightly less than half (46 percent) of interviewed instruments for the OGS sector, more than two-thirds institutions offering credit lines also expressed (71 percent) of interviewed institutions already interest in managing a dedicated credit line/ providing RSFs expressed an interest in managing refinancing facility for OGS lending by FIs. These are a dedicated RSF for solar financing. This is basically mainly national development fund refinancing MFIs (for equal to all interviewees except for multilateral DFIs example, FONAFI in Burkina Faso, FNM in Benin) or the already offering large and/or dedicated facilities (AFD/ agricultural sector (for example, FNDA in Benin, FADSR Proparco, IFC, AfDB) and funds without an RE/OGS in Senegal). Desired terms for most interviewees would mandate (for example, GIRSAL in Ghana, whose focus be a credit line of between USD 10 million and USD 30 is uniquely on agriculture). million, with a 5- to 10-year tenor, annual repayments, and an interest rate between 0.5 and 5 percent per year. According to interviewees, such a facility should offer a silent portfolio and individual guarantee (beyond a given Finally, on TA, all interviewed institutions agree on loan amount) with pari passu terms, a high coverage the need to deliver specific training on OGS sector- rate (up to 80 percent), and specific conditions for related topics to the main players involved, that is, beneficiary FIs (for example, on the terms of loans FIs and solar companies. Therefore, those institutions covered by the guarantee). Guarantee commissions which also provide capacity building to their partner FIs should also be attractive (0.7 percent to 1.5 percent (for example, AGF in Togo, RDF in Ghana) would want per year maximum of the guaranteed portfolio). Most to benefit from ToT sessions for their staff on relevant interviewees would be comfortable with an unfunded OGS issues (solar equipment quality, solar company guarantee. For BOAD, which is already managing the financing, and so on), to then be able to train their ROGEAP credit line and CTF, the possibility of backing beneficiaries. the existing credit line with the new, dedicated RSF (and possibly the CTF) should be explored, to allow FIs In addition, interviewees expressed interest in the to benefit from both a liquidity instrument and a risk following: cover for their OGS sector loans. • Exchange visits/knowledge-sharing sessions with other, more experienced financial instrument managers (for example, AFD, and BOAD) • Support in the accreditation process to the GCF. Contents Key definitions Synthesis Chapter 1 2 3 4 5 6 6 Conclusions and recommendations 86 As a reminder, some of the most critical constraints to scale up the OGS sector identified in the framework of • The low quality of pre- and post-sales services (installation, end user training, after-sales services) the study are the following: offered by solar companies, due to the insufficient number of adequately trained technicians, especially • The lack of access to finance for solar companies, due to (i) the high risks perceived by FIs in in the more remote rural areas. financing companies, which—like most SMEs— are characterized by insufficient business and • The weak awareness and knowledge of populations on solar equipment and their advantages, resulting financial management skills, weak governance, in (i) low take-up of solutions; (ii) the purchase of and capitalization and are mostly early stage and substandard equipment; and (iii) the inadequate operate in a market FIs are not familiar with and (ii) maintenance of purchased solar products (for the inadequacy of the existing financial offer to the example, solar panel cleaning), often shortening the needs of solar companies, with un-adapted loan lifespan of high-quality products as well. terms (tenors, grace periods, and so on), collateral requirements they cannot meet, and high interest Considering these constraints, two interventions rates. This particularly affects smaller, locally owned, appear particularly key to address them: (i) the setup growth-stage solar companies (tier 2), as opposed of a dedicated RSF to de-risk financing provided by to larger and more mature companies (tier 3; cf. banks and other FIs to solar companies and (ii) the section 4.4). Also, the challenge is mainly due to the development of adapted capacity building and training risk perceptions of FIs in financing the OGS sector plans targeting all main stakeholders in the OGS sector, rather than the lack of funding, given that a few especially FIs and solar companies. debt financing instruments are already available and FIs in the targeted countries are mostly liquid (cf. Recommendations for these two key interventions are section 5.1). discussed in the following subsections. In addition, further recommendations to tackle the abovementioned • The insufficient government support to the sector, mainly because of (i) gaps in and/or challenges are also provided. slow enforcement of OGS policies (licensing of The development of new OGS sector debt financing companies, quality standard controls, and so on); (ii) instruments appears less of a priority because (i) an insufficiently favorable tax and financial incentive many FIs in the region, particularly banks, already have environment (limited grants/exemptions, unclear/ the needed liquidity and (ii) several dedicated debt cumbersome tax refund procedures); and (iii) instruments already exist, including the ROGEAP credit nontransparent grid extension plans. line. If anything, the challenge is related to the lack of awareness of such instruments, not to their absence • The proliferation of substandard quality solar equipment, due to the abovementioned gaps/weak (cf. section 6.3). enforcement of OGS policies on quality standards, which undermines the population’s confidence in such products. Contents Key definitions Synthesis Chapter 1 2 3 4 5 6 6.  Conclusions and recommendations 6.1. Proposed RSF to enhance solar financing An RSF to enhance solar financing should have the (that is, increased OGS lending). In addition, the following features: RSF due diligence, contracting, claim payment, and reporting policies and processes should be designed • Be dedicated to OGS and SPUE sector financing. Despite the existence of a few RSFs specifically to ensure quick and un-burdensome processes for the FIs. targeting SMEs, including SMEs in high-impact sectors such as green energy (for example, Proparco’s ARIZ/EURIZ, AGF, and IFC’s SLGP), • Encourage FIs to offer loan terms more suited to the needs of final beneficiaries (that is, solar stakeholder interviews highlighted that FIs are companies). Interviews with solar companies have reluctant to use such facilities to venture into what shown that standard loan terms offered by banks, are perceived as even riskier types of SMEs. As one particularly for working capital loans, are not adapted of the interviewed FIs put it, “Why should we use to their needs. Therefore, a dedicated RSF should a guarantee line provided for SME lending to take aim to encourage banks to offer loan products and even greater risks than those already represented forms of collateral more suited to solar companies’ by ordinary SMEs, by lending to SMEs in sectors needs, including, for example, receivables financing we are completely unfamiliar with?” At the same for companies selling products on credit/PAYGO. time, little evidence was found of the existence of RSFs dedicated to OGS financing, let alone SPUE financing, in West Africa: the recently launched • Be performance based. Interviews conducted with FIs within and outside West Africa hinted at the AfDB- and GCF-funded LEAF framework’s facility is importance of linking financial instruments with active only in two West African countries, whereas specific KPIs. For example, Equity Group Foundation ROGEAP’s CTF covers only technological failure in Kenya mentioned how it sets internal KPIs related risks related to solar lending. to the different financial instruments it benefits from (credit lines, guarantee funds), to ensure that these • Offer attractive and flexible terms. Given FIs’ lack of experience in the sector and the substantial risks are effectively deployed by the institution, hence justifying the costs incurred for such instruments perceived in solar financing, a dedicated RSF should (interest rates, commitment fees, and so on). Based seek to offer more attractive terms than other RSFs, on this, it would be relevant for a dedicated RSF such as a higher coverage rate, lower fees, and/or to have specific KPIs attached to it (for example, potentially some first loss cover, compared to the in terms of number or value of OGS sector loans pari passu cover provided by the large majority covered) as well as a commitment fee paid in the of existing RSFs. In this sense, even though most event of nonattainment of KPIs or weak utilization interviewed FIs are not even familiar with the of the instrument, to incentivize FIs to use it. Such meaning of first loss cover, which underscores KPIs and/or commitment fee would be justified by how uncommon this type of cover is, they tend to the attractive and flexible terms offered by the RSF. consider it relevant once explained. This implies that providing at least some first loss cover could indeed represent an important distinctive feature • to encourage FI solar lending. Even better, the RSF should allow FIs to decide how much first loss and/ or pari passu cover they would like, hence ensuring a flexible approach to respond to their specific needs and risk perceptions to achieve its ultimate goal Market Study on Scaling Up Off-Grid Solar - in Benin, Burkina Faso, Côte d’Ivoire, Ghana, Senegal, and Togo 88 • Be combined with a TA facility to support FIs to develop and deliver adapted products and address of the TA being a good loan repayment performance. FIs would be expected to contribute 10–20 percent other relevant TA needs based on FIs’ demand and a of the cost of the TA. list of eligible areas of TA. The RSF would therefore offer a package comprising a guarantee coupled In light of the above, the following are the proposed with TA, which would make the offer more attractive terms for a dedicated, performance-based, to the FIs and at the same time contribute to secure concessional, and highly flexible RSF, offering a first and sustain the RSF, one of the expected outcomes loss and/or a pari passu cover. Table 22: Proposed terms for an RSF to enhance solar financing Characteristics Description Objective Increase access to finance for MSMEs in the OGS/SPUE sectors • Commercial banks • MFIs Target clients • Leasing companies • Investment funds MSMEs manufacturing, installing, and/or distributing stand-alone solar equipment in general Target final (pico-PV, SHS, customized solar systems) and/or SPUE appliances specifically beneficiaries • Higher coverage provided for early-stage companies (tier 2), as per the ECREEE solar company classification • Portfolio guarantee for loan amounts up to USD 500,000 – portfolio guarantee limit of USD 2 million • Individual guarantee for loan amounts from USD 500,000 to 1 million –individual guarantee limit Nature of guarantee of USD 1 million • Flexible first loss and/or pari passu cover • Unfunded (non-cash) • Guarantee coupled with TA Currency of Local currency (FCFA or GHS) guarantee • Option 1: First loss only with 10–20% cover: RSF bears 100% of unpaid loan principal up to 10–20% of total guaranteed portfolio amount • Option 2: Pari passu only with 50–80% cover: RSF bears up to 50–80% of unpaid loan principal Coverage • Option 3: Combined first loss cover of 5–10% and pari passu cover of 50–60%: RSF bears 100% of unpaid loan principal up to 5–10% of total guaranteed loan/portfolio amount and 50–60% of remaining unpaid loan principal upon reaching 5–10% first loss limit Contents Key definitions Synthesis Chapter 1 2 3 4 5 6 6.  Conclusions and recommendations Characteristics Description • At least 3 loans/transactions covered by guarantee within 180 days or Guarantee KPIs • Total loan/transaction amount disbursed equivalent to at least 50% of total guaranteed portfolio after 180 days • Front-end fee: 0.5% on the total portfolio amount covered by guarantee. • Guarantee fee, paid annually: » Option 1: First loss only: 1.5% on outstanding guaranteed amount Cost of the guarantee » Option 2: Pari passu only: 0.75% on outstanding guaranteed amount » Option 3: Combined first loss and pari passu: 1% on outstanding guaranteed amount • Commitment fee: 2% of unutilized guarantee amount if less than 50% used after 180 days. Guarantee can be called quarterly based on number of days of loan repayments being past due, provided the partner FI has initiated all relevant collection procedures: • After any loan repayment is at least 90 days late, guarantee can be claimed on all past due amounts/loan arrears. » If loan is brought back into performance, the partner FI should refund RSF for the amount of Claim conditions the guarantee called. • After any loan repayment is at least 180 days late, loan must be called into default and guarantee can be claimed on outstanding loan amount, minus what has eventually already been paid by the RSF. » Eventual recoveries by the partner FI on defaulted loans where a guarantee has been paid are shared pro-rata with the RSF, up to the amount paid by RSF • Must be a private sector institution registered and operating in the country of incorporation of the FI • Must have annual revenues and/or total assets of not more than USD 15 million Eligibility criteria for target MSMEs • Must have less than 300 full-time employees • In the case of a company manufacturing, installing, and/or distributing stand-alone solar equipment, such equipment should be tested and/or certified according to international quality standards (VeraSol). Conditions for loans/ • Must be structured as a term loan or credit line/overdraft facility facilities to target MSMEs • Must be for working capital and/or investment A monitoring and evaluation framework should be developed to track key performance and impact indicators such as number and value of the loans, characteristics of the borrowers, loan repayment performance, number of solar equipment delivered, characteristics of the users of Monitoring and the equipment, effective use and impact of the equipment on incomes and climate change evaluation mitigation, and so on. Part of the data should be collected by the FIs in alignment with what their management information system can provide and part through sample surveys to be conducted and financed by the facility. Market Study on Scaling Up Off-Grid Solar - in Benin, Burkina Faso, Côte d’Ivoire, Ghana, Senegal, and Togo 90 The proposed RSF would offer individual and portfolio Despite FIs’ preferences for funded guarantees, the guarantees to all kinds of FIs operating in its target proposed RSF would be unfunded, hence avoiding the countries (at least the six countries covered by the need for it to immobilize funds at partner FIs. Moreover, study), with the objective of increasing access to interviewed FIs have affirmed that an unfunded finance for solar MSMEs. In terms of targeted MSMEs, guarantee would also be acceptable to them if offered the RSF would support access to finance for all by a credible/reputed, investment-grade institution (cf. bankable solar companies, with a higher coverage section 5.1.5). provided as an incentive to serve smaller, locally owned, early-stage companies (tier 2), given the latter’s weaker On the other hand, this would be compensated by access to credit as opposed to more mature companies the flexible cover approach offered by the RSF, which (tier 3; cf. section 4.4). would represent its key innovation to attract FIs to enter the OGS lending space. FIs would have the In terms of targeted OGS product segments, the possibility of choosing between three different risk RSF would have the option of supporting companies coverage options, with variable pricing based on the selling all kinds of solar equipment, including SPUE level of cover, as detailed below. appliances, as well as companies selling exclusively SPUE appliances. Like what is proposed for tier 2 solar companies, the RSF could provide a higher coverage for loans to companies selling exclusively SPUE appliances as an incentive for such kind of equipment. In either case, OGS equipment sold by companies supported by the RSF should be tested and/or certified according to internationally recognized standards (VeraSol) to ensure product quality. Portfolio guarantees would cover OGS loans up to USD 500,000 per borrower, with a maximum guaranteed amount of USD 2 million (portfolio guarantee limit). Individual guarantees would need to be requested for OGS loans above USD 500,000, with a maximum guaranteed amount of USD 1 million per borrower (individual guarantee limit). These loan amount thresholds would be in line with loan amount preferences expressed by interviewed solar companies, especially tier 2 ones. The individual and portfolio guarantee limits are determined by the relatively small intended initial allocation of USD 6 million envisaged for the RSF and could be increased once additional funds are made available to the facility. Contents Key definitions Synthesis Chapter 1 2 3 4 5 6 6.  Conclusions and recommendations Option 1 1. First loss only with a 10–20 percent cover In this option, the RSF would cover all loan principal be covered up to 20 percent of the FI’s OGS portfolio, losses up to a minimum of 10 percent and a maximum whereas loans to mature companies (tier 3) would of 20 percent of the partner FI’s total OGS loan portfolio be covered up to 10 percent maximum. If deemed covered by the guarantee. To encourage lending to relevant, the same approach could be applied for loans early-stage solar companies and in light of their higher to SPUE appliance-focused companies, as opposed to perceived risk, only loans to tier 2 companies would companies selling all kinds of OGS equipment. Figure 1: Illustration of RSF first loss only cover functioning (option 1) Partner FI’s OGS portfolio – (1) RSF takes all losses Solar MSMEs and end-users up to 20% of FI’s total OGS portfolio covered RSF RISK Diagram by guarantee Up to 20% first loss cover (2) Upon reaching 20% Guarantee limit limit of FI’s total OGS portfolio, FI takes all remaining losses PARTNER FI RISK Remaining losses 1) USD 2 million FI OGS portfolio, 2) USD 2 million FI OGS portfolio, 3) USD 2 million FI OGS portfolio, 20% first loss cover (USD 20% first loss cover, USD 20% first loss cover, USD 1 million Examples 400,000 = USD 2 million * 20%), 500,000 loss post recoveries loss post recoveries USD 200,000 loss post recoveries • RSF first loss: USD 400,000 • RSF first loss: USD 400,000 • RSF first loss: USD 200,000 • FI loss: USD 100,000 (500,000 I loss: USD 600,000 (1 million − • F • FI loss: USD 0 − 400,000) = 20% of losses 400,000) = 60% of losses As shown in example 2, in the case of a PFI having a USD virtually nonexistent, due to their perceived riskier 2 million OGS portfolio with a 20 percent first loss only nature by RSF managers (for example, moral hazard) cover and a loss of USD 500,000, the RSF would cover and/or their lack of experience with such type of all losses up to USD 400,000 (that is, USD 2 million coverage. In light of this, the annual guarantee fee for OGS portfolio multiplied by 20 percent). The remaining such cover would be slightly higher than other coverage loss, equal to USD 100,000 (USD 500,000 total loss options offered by the RSF, although still concessional: minus RSF loss of USD 400,000) or a 20 percent loss, 1.5 percent on the outstanding guaranteed portfolio. would be covered by the PFI. Other fees (front-end and commitment fees) would be the same as for other options. The innovation of this option would be the introduction of a first loss guarantee in a market where these are Market Study on Scaling Up Off-Grid Solar - in Benin, Burkina Faso, Côte d’Ivoire, Ghana, Senegal, and Togo 92 Option 2 2. Pari passu only with a 50–80 percent cover In this option, the RSF would cover a minimum of 50 be covered up to 80 percent of loan principal losses, percent and a maximum of 80 percent of loan principal whereas loans to tier 3 companies would be covered up losses up to the individual or portfolio guarantee to 70 percent maximum. The same could apply for loans limits. Again, to encourage lending to early-stage to companies selling exclusively SPUE equipment. solar companies, only loans to tier 2 companies would Figure 2: Illustration of RSF pari passu only cover functioning (option 2) Partner FI’s OGS loan/portfolio – Solar MSMEs and end-users Diagram (1) RSF takes up to (2) Partner FI 80% of losses on pari PARTNER FI RISK takes passu RSF RISK remaining Remaining losses Up to 80% pari passu losses (20%) 1) 2) 3) USD 2 million FI OGS USD 2 million FI OGS portfolio, USD 2 million FI OGS portfolio, portfolio, 80% pari passu 80% pari passu cover, USD 80% pari passu cover, USD 1 Examples cover, USD 200,000 loss 500,000 loss post recoveries million loss post recoveries post recoveries • RSF pari passu loss: USD • RSF pari passu loss: USD • RSF pari passu loss: USD 400,000 (500,000 * 80%) 800,000 (1 million*80%) 160,000 (200,000 * 80%) • FI loss: USD 100,000 (500,000 • FI loss: USD 200,000 (1 million − • FI loss: USD 40,000 (200,000 − 400,000) = 20% of losses 800,000) = 20% of losses −160,000) = 20% of losses As shown in example 2, in the event of a USD 2 million to 70 percent). The annual guarantee fee would also OGS portfolio with a pari passu cover of 80 percent be concessional compared to existing facilities on the and a loss of USD 500,000, the RSF would cover up to market (1.0–2.5 percent of guaranteed loan amount) USD 400,000 (USD 500,000 total loss multiplied by and lower than for other options proposed by the RSF 80 percent), whereas the remaining 20 percent loss, because such type of guarantee is the most widespread equal to USD 100,000 (USD 500,000 total loss minus and known on the market and hence potentially with a USD 400,000 RSF loss) would be covered by the PFI. lower risk: 0.75 percent on the outstanding guaranteed portfolio. The interest of this option for FIs would be represented by its higher-than-usual coverage rate (up to 80 percent), as opposed to most RSFs on the market (50 Contents Key definitions Synthesis Chapter 1 2 3 4 5 6 6.  Conclusions and recommendations Option 3 3. Combined first loss cover of 5–10 percent and pari passu cover of 50–60 percent In this last option, the proposed RSF would offer a As in the other options, only loans to tier 2 solar combination of a first loss and a pari passu cover. companies would be eligible for the 10 percent first loss It would first cover all loan principal losses up to 5 or and 60 percent pari passu cover, whereas loans to tier 10 percent of the partner FI’s total OGS loan portfolio 3 companies would only be eligible for the 5 percent amount covered by the guarantee. Then, once the 5 first loss and 50 percent pari passu cover. Once again, or 10 percent liability limit of the FI’s total OGS loan the same approach could be applied to solar companies portfolio has been reached, the RSF would cover 50–60 distributing only SPUE appliances. percent of remaining losses on a pari passu basis. Figure 3: Illustration of RSF combined first loss-pari passu cover functioning (option 3) Partner FI’s OGS portfolio – (1) RSF takes all losses Solar MSMEs and end-users up to 10% of FI’s total (3) Partner FI OGS portfolio covered RSF RISK 1 takes remaining Diagram by guarantee Up to 10% first loss losses after RSF first loss and (2) Upon reaching 10% pari passu limit of FI’s total OGS cover portfolio, RSF takes PARTNER FI RISK 60% of remaining losses RSF RISK 2 Remaining losses - on pari passu Up to 60% pari passu pari passu 2) USD 2 million FI OGS 3) USD 2 million FI OGS 1) USD 2 million FI OGS portfolio: combined 10% first portfolio, combined 10% first portfolio, combined 10% loss-60% pari passu, USD loss-60% pari passu, USD 1 first loss-60% pari passu, 500,000 loss post recoveries million loss post recoveries Examples USD 200,000 loss post • RSF first loss: USD 200,000 • RSF first loss: USD 200,000 recoveries • RSF pari passu loss: USD • RSF pari passu loss: USD • RSF first loss: USD 200,000 (2 180,000 (500,000 − 200,000 480,000 (1 million − 200,000 * million * 10%) * 60%) 60%) • RSF pari passu loss: USD 0 • FI loss: USD 120,000 • FI loss: USD 320,000 (1 million • FI loss: USD 0 (500,000 − 200,000−180,000) − 200,000 − 480,000) = 32% = 24% of losses of losses Market Study on Scaling Up Off-Grid Solar - in Benin, Burkina Faso, Côte d’Ivoire, Ghana, Senegal, and Togo 94 As shown in example 2, in the case of a USD 2 million More specifically, the claim process would be as OGS portfolio with a combined 10 percent first loss follows: and 60 percent pari passu cover and a loss of USD 500,000, the RSF’s first loss cover would be equal to USD 200,000 (USD 2 million OGS portfolio multiplied • After all or a portion of the loan is past due by at least 90 days, the PFI would be able to claim the by 10 percent). Once the 10 percent liability limit has guarantee on all past due amounts/loan arrears, been reached, the RSF would cover 60 percent of according to the selected guarantee cover option remaining losses on a pari passu basis, equal to USD (for example, in the case of a USD 250,000 loan 180,000 (total loss of USD 500,000 minus first loss with an 80 percent pari passu only guarantee and cover of USD 200,000 multiplied by 60 percent). The USD 60,000 of loan arrears of which at least part is losses remaining after the RSF’s first loss and pari passu 90 days past due, the RSF would pay 80 percent of cover have been claimed would be covered by the PFI, all loan arrears, that is, USD 48,000). equal to USD 120,000 or a 24 percent loss (total loss of USD 500,000 minus first loss cover of USD 200,000 minus pari passu cover of USD 180,000). • After all or a portion of the loan is past due by at least 180 days, the loan would need to be called into default and the PFI would be able to claim the The innovation of this third option would be the guarantee on all outstanding loan amounts, minus combination of the first loss and pari passu cover. The what has eventually already been paid by the RSF pricing would be in between the prices of the other two (for example, in the case of a USD 250,000 loan options, with an annual guarantee fee of 1 percent on with an 80 percent pari passu only guarantee and the outstanding guarantee amount. Once again, other an outstanding balance of USD 100,000 of which at fees would remain the same. least part is 180 days past due, the RSF would pay 80 percent of the outstanding balance minus what In addition to the innovative flexible cover options has already been claimed when the loan was 90 described above, the RSF would allow partner financial days late, that is, USD 80,000 minus USD 48,000 institutions (PFIs) to claim the guarantee quarterly, equals USD 32,000). provided the PFI has initiated all relevant loan collection procedures rather than having to wait until the loan The RSF would also set KPIs to measure the partner has been called into default and all debt recovery FIs’ performance in using the portfolio guarantee proceedings have taken place. This would be another provided to lend to solar companies. Proposed KPIs are distinctive feature compared to most existing RSFs on a minimum of three loans/transactions disbursed or a the market. value of loans disbursed equal to at least 50 percent of the total portfolio covered by the guarantee in a six-month period. The performance-based nature of the proposed RSF would also be reflected in the pricing, with a commitment fee of 2 percent of the unused guarantee amount being charged if less than 50 percent of the total guarantee amount has been deployed after six months (for instance, in the case of a USD 2 million portfolio guarantee, if less than USD 1 million of loans has been disbursed in six months, for example, USD 500,000, the PFI would need to pay 2 percent of the value of the unused guarantee, that is, 2 percent of USD 1.5 million). Contrary to the concessional front- end and variable guarantee fees, the commitment fee would be priced at a relatively high level, with the aim of encouraging PFIs to actively deploy the guarantee. Contents Key definitions Synthesis Chapter 1 2 3 4 5 6 6.  Conclusions and recommendations Figure 4: Illustration of RSF’s guarantee process Provision of TA on arolling basis 1. Risk-sharing 2. Loan 3. OGS product distribution agreement signature disbursement on cash & credit/PAYGO Solar equipment RSF manager PFI Solar Companies end-users Guarantee call for loans Loan repayment OGS product 5. 4. 6. past due by at least 90 arrears/default repayment arrears/default days Quarterly payment of 7. approved guarantee claims as per agreement Two financial instrument managers interviewed in the framework of the study seem best placed to manage • AGF West Africa. As a pan-African guarantee fund, AGF West Africa is specialized in providing individual the proposed RSF. and portfolio guarantees to SMEs across the continent. Moreover, as BOAD is AGF West Africa’s • BOAD. As a ROGEAP project partner, BOAD is already managing the ROGEAP credit line and CTF. In sole shareholder, entrusting it with the management of the RSF would also allow maintaining close this case, the proposed RSF could back the ROGEAP links with the existing ROGEAP structure and credit line and be offered as a bundled financial partners (characterized by an active involvement instrument, allowing FIs to benefit from both a of regional partners in the project, namely BOAD liquidity instrument and a risk cover for their loans to and ECOWAS). This arrangement would allow each solar companies and end users. BOAD however can party to focus on its key area of expertise (credit line only operate in WAEMU countries, meaning it would management for BOAD, RSF management for AGF) not be able to provide the RSF (or the credit line) in while at the same time working together to offer the Ghana, one of the six target countries not a member two instruments as a package. of the monetary union. Nevertheless, to address this problem, BOAD could potentially (i) negotiate Last but not least, with regard to the initial allocation agreements under the RSF with financial institutions of the proposed RSF, the amount envisaged by CwA (for example, banking groups) based in the WAEMU is equal to USD 6 million. This amount, which appears zone, but with subsidiaries or operations outside low for a guarantee facility, especially compared to the the zone, and (ii) outsource the management of the CTF’s USD 67.2 million allocation, would require careful RSF to other FIs capable of operating across West selection of the countries and/or FIs to prioritize, to get Africa, such as AGF West Africa, with offices in Togo proof of concept for the RSF and then be able to raise but active throughout the region (see the following additional funds for its scale-up. point). Market Study on Scaling Up Off-Grid Solar - in Benin, Burkina Faso, Côte d’Ivoire, Ghana, Senegal, and Togo 96 Priority countries to target among the six covered Priority FIs to target could include FIs which are already by the study—which are the same ones covered by benefiting from the ROGEAP credit line (for example, CwA—could include those with the highest OGS COFINA in Côte d’Ivoire), hence complementing the product sales, such as Benin and Togo (cf. section liquidity instrument already received with a guarantee 4), where customer demand can be assumed to be instrument and equipping them with a complete stronger and solar companies more active, as well as package of financial instruments for OGS lending. In Senegal, where the government’s support for the OGS addition, as mentioned earlier, with regard to solar sector is relatively strong. On the other hand, countries company financing, risk-sharing arrangements could like Burkina Faso, with the current political and security be negotiated with banking groups operating in one or situation, and Ghana, where currency volatility would more of the targeted countries (for example, EcoBank, require substantial hedging resources for the RSF BOA, Société Générale, CORIS Bank, ORA Bank), all of to operate in local currency, are likely to be less of a which expressed interest in a dedicated RSF during priority in this phase. The same can be said about Côte the study. Agreements with FIs targeting the so-called d’Ivoire, given the country’s more limited support for ‘meso-finance’ market (for example, FINANCIA in Benin, OGS energy in favor of grid extension activities. SOGEMEF in Togo) should also be considered, given their declared, specific focus on MSME lending. Contents Key definitions Synthesis Chapter 1 2 3 4 5 6 6.  Conclusions and recommendations 6.2. Proposed capacity-building and training measures for OGS stakeholders 6.2.1. Proposed capacity- Policies and regulations improvement building activities and harmonization Based on study findings, the proposed capacity- Government bodies have expressed the need for building and technical support activities can be technical support to improve or update OGS strategies, articulated around the following areas. policies, regulatory, and standards frameworks based on challenges identified in each country and best practices from other countries as well as to harmonize them at the regional/ECOWAS level. Market and feasibility studies to deepen understanding of the OGS Technical support initiatives from projects like ROGEAP, market for example, the one that recently led to the adoption of ECOWAS Regional Standards on stand-alone solar Interviewed stakeholders have expressed the need for systems and solar PV mini-grids, should be continued. a better understanding of the sector and market as well as the barriers to its scale-up. • Institutional players would require comprehensive Exchange visits and knowledge- surveys of the OGS sector in their country, covering sharing workshops between countries installed capacity, mapping of sector players, monitoring of international commitments of the Stakeholders emphasized the need to share experiences government, and so on. and best practices with players in other countries through exchange visits/study tours and knowledge- • Solar companies would require the business case for new solar studies on products or sharing workshops. In particular, technologies, especially SPUE appliances (for example, cold rooms, mills), to understand whether • Solar companies would want to share experiences on credit sales (PAYGO) and distribution models, to venture into such products. • FIs would want to share experiences on financing of • FIs would require studies to assess the potential market for solar financing as well as the financing solar companies and end users, and needs of various sector stakeholders (solar companies, equipment end users, and so on). • FI managers would want to learn from more experienced players in managing credit lines and especially guarantee funds. Financing market research firms and consultants to conduct studies on the most pressing issues would The funding and facilitation of study tours and in-person therefore be recommended. or virtual workshops to share knowledge among sector stakeholders would therefore be highly relevant. Market Study on Scaling Up Off-Grid Solar - in Benin, Burkina Faso, Côte d’Ivoire, Ghana, Senegal, and Togo 98 Contact facilitation between sector • The development/adaptation of financial products stakeholders for the different OGS market segments (solar companies, equipment end users); and Interviewees, particularly FIs and solar companies, requested for opportunities/forums to contact each other to negotiate loan facilities and/or set up end user • The formalization of relevant operational, internal control, human resources, risk management, financing partnerships. In addition, solar companies monitoring and evaluation, and marketing and requested for contact facilitation with MNOs to communication policies and procedures for the negotiate agreements for repayment of products sold different categories of FI staff involved. on PAYGO via mobile money. The procurement and funding of such advisory services Considering this, the organization of meetings, by donors and funders are hence recommended. workshops, forums, and so on among sector stakeholders to facilitate networking and business opportunities is also recommended. Marketing and sensitization of end users Development of vocational schools/ Grant funding for marketing and sensitization of training centers targeted populations (promotional tools, awareness- raising campaigns, road shows, and so on). Stakeholders have advocated for the development and strengthening of training centers, vocational schools, and/or e-learning platforms on solar energy. Among others, the objective of these would be to train young Support for product testing and/or electricians/technicians to provide good quality pre- certification and post-sales services (installation, end user training, after-sales) on solar products across the countries, Product quality assurance has been confirmed to be a especially in rural areas. recurrent challenge for OGS stakeholders. As a result, if financial instruments such as the above-described The provision of technical and financial support to set RSF should aim to support companies distributing up or improve the quality of such training facilities is tested and/or certified solar products on one side, on therefore crucial. the other side it would be important to also support solar companies to certify their products. In this sense, providing technical and financial support for product testing and/or certification under VeraSol standards Development of dedicated RE/OGS would be critical. This could include financing departments and tools FIs have expressed the need for advisory services • Providing training (cf. section 6.6.2) and coaching to solar companies on the VeraSol standards to establish dedicated renewable energy financing and procedures for solar product testing and departments or units, covering also solar energy. certification and Among others, this would entail • Providing performance-based or matching-grant • The development/refinement of RE/OGS financing strategies; funding to solar companies to access relevant testing and/or certification procedures under approved laboratories. Contents Key definitions Synthesis Chapter 1 2 3 4 5 6 6.  Conclusions and recommendations 6.2.2. Proposed training curriculum Among the various capacity-building needs, most interviewed institutions expressed a desire to receive training on the OGS sector. Table 23 presents a proposed training curriculum for the different stakeholder categories. Table 23: Tentative training curriculum per stakeholder type101 Training modules IP SC FI FIM OGS sector and technologies • OGS market and regulatory framework • Key specifications of main existing solar products (pico, SHS, SPUE, and so on) X X X X • Key specifications of new and emerging solar products (cold rooms, mills, and so on) • Quality standards and certifications • Use cases/business models Technical training/ToT on OGS pre- and post-sales services • Installation X • End user training • After-sales services (maintenance, repairs, replacements, and so on) Solar business management • Importation and customs clearance (procedures, exemption requests, and so on) • Marketing and sales techniques • Stock and cash management X • Accounting and financial management • Upgrade/customization of IT systems for business and monitoring and evaluation needs, including on receivables Selling solar equipment on credit • End user financing models (PAYGO, fee-for-service, leasing, and so on) X • Credit operations (appraisal/scoring, client monitoring, repayment collection, delinquency management) Fundraising • Development of business plans and financial models X X • Drafting of funding/guarantee applications and investment pitches • Prospection of and reporting to funders and investors 101 Initials stand for the four types of stakeholders interviewed during the study: institutional players (IPs), solar companies (SCs), financial institutions (FIs), and financial instrument managers (FIMs). Market Study on Scaling Up Off-Grid Solar - in Benin, Burkina Faso, Côte d’Ivoire, Ghana, Senegal, and Togo 100 Training modules IP SC FI FIM Solar company financing • Solar company business models and operating cycles • Specific financing needs X X • Financing a solar company (appraisal/due diligence, loan monitoring and recovery, risk management, and so on) Best practices in OGS policies and regulations • Key success factors of an enabling regulatory OGS environment X • Regulatory frameworks in selected countries (West Africa, East Africa, other countries) Contents Key definitions Synthesis Chapter 1 2 3 4 5 6 6.  Conclusions and recommendations Annex 1 List of stakeholders interviewed Below is a list of stakeholders interviewed across the six target countries within the framework of the study. In addition to the country-level stakeholders listed below, four non-country stakeholders were also interviewed: Aptech (Uganda), Equity Group Foundation (Kenya), Proparco (France), and GOGLA (Netherlands). Benin • Ecobank Benin • PRECIS Services • PEBCo-BETHESDA • ARESS-BENIN • RENACA • JESUTON • ACFB • BAHAAU Technologie consulting • PADME • ISMAST ENERGIE SARL • FINANCIA Microfinance SA • Qotto • BOA Benin • MYSOL (ENGIE ENERGY ACCESS • Société Général Bénin (SGB) BENIN) • NSIA BANK • CORIS BANK INTERNATIONAL BENIN • DGRE • FAGACE • ABERME • FNDA • Agence Française de • FNM Développement • AFGC • OCEF/MCA 2 • GIZ Benin Financial Solar Institutional Institutions managing institutions companies actors financial instruments Market Study on Scaling Up Off-Grid Solar - in Benin, Burkina Faso, Côte d’Ivoire, Ghana, Senegal, and Togo 102 Burkina Faso • ORABANK • SUN HARI • CORIS Bank International • HASCO ENERGIE • ECOBANK • BETA • Société Générale • C.B ENERGIE • Safine SA • BTI • FINEC -Burkina • ALIOTH SYSTEM • Faîtière des Caisses Populaires du Burkina Faso • CODEC-OUAGA • SINERGI Burkina • DGTE • Banque Africaine de Développement • ABER (BAD) • ANEREE • IFC • SONABEL • FBDES • ARSE • SOFIGIB • SNV Burkina • FONAFI Côte d’Ivoire • BICICI • GREENO • UNACOOPEC CI • AD SOLAR • BAOBAB • ZECI • ADVANS CÔTE D’IVOIRE • SCHNEIDER ELECTRIC • BANQUE ATLANTIQUE • ENGIE • COFINA CI • BAOBAB+ • UBA CÔTE D’IVOIREt • GIZ • AFD • CÔTE D’IVOIRE ENERGIE • AfDB • DIRECTION GENERALE DE L’ENERGIE Contents Key definitions Synthesis Chapter 1 2 3 4 5 6 6.  Conclusions and recommendations Ghana • Ecobank Ghana • Northlite Solar Limited • CAL Bank • Bbox/formerly PEG Africa • GCB • Pumptech Ghana Ltd • ADB • Suka Wind and Solar Energy Ghana Ltd • Wangara Green Ventures • Strategic Power Solution • Mirova SunFunder • Deng Limited • ARB Apex Bank • HTC-Hatoum Trading Company • SkyFox Ltd • Tino Solution • USAID Power Africa Off-grid • AfDB • SNV Energy Project • AFD • GIZ GBE Project • RDF • EC • GIRSAL • MoE • Association of Ghana Solar Industries (AGSI) • GIDA • Ghana Renewable Energy Association of Ghana (REAG) • GSA Market Study on Scaling Up Off-Grid Solar - in Benin, Burkina Faso, Côte d’Ivoire, Ghana, Senegal, and Togo 104 Senegal • BNDE • BONERGIE • LBA • SATECH • ORABANK • FLEX NRJ • CORIS BANK • CAURIE MF • UIMCEC • Credit Mutuel du Senegal (CMS) • LOCAFRIQUE • Ministere de l’Environnement • AFD • ANER • FADSR • Centre d’Education et de Formation Environnementale (CEFE) • Bureau de Mise à Niveau (BMN) • MERCY CORPS • Projet de Développent des Compétences et Emploi des Jeunes dans les secteurs porteurs (PDCEJ) (BAD) • START • COPERES • GIZ/GBE (Green People‘s Energy) Contents Key definitions Synthesis Chapter 1 2 3 4 5 6 6.  Conclusions and recommendations Togo • CORIS BANK INTERNATIONAL TOGO • ECO-ENERGY TOGO • SOCIETE GENERALE - TOGO • PES-TOGO • ECOBANK TOGO • TMSU-INTERNATIONAL • SOGEMEF • ENERGIE STABLE TOGO • WAGES • TECHNOSOL • FUCEC TOGO • MIVO ENERGIE • COOPEC-AD • KYA-GROUP INTERNATIONAL • COFINA TOGO • Bboxx-EDF TOGO • AFRICAN LEASE TOGO • SOLEVA-SUN KING TOGO • CH2000 • MOON • SABER-ABREC • AGF • SAER • BIDC • AT2ER/DGE • BOAD • AFD • GIZ Market Study on Scaling Up Off-Grid Solar - in Benin, Burkina Faso, Côte d’Ivoire, Ghana, Senegal, and Togo 106 Bibliography Africa Clean Energy Technical Assistance Facility (ACE ECREEE-ROGEP, Off-Grid Solar Market Assessment & TAF), Stand Alone Solar (SAS), Market Update Ghana, Private Sector Support Facility Design – Senegal Report, February 2021. 2019. 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Sawadogo Abdou Nassirou, Rapport de l’étude sur l’état des lieux relatif à l’appui à la création d’une interprofession solaire au Burkina Faso, May 2021. SE4All-Climate Policy Initiative, Energizing Finance: Understanding the Landscape, 2021. SOFRECO, Réalisation d’une étude de la segmentation du marché de l’électricité au Burkina Faso et de l’élaboration de contrats types et de cahiers de charges types au profit de l’ARSE, December 2013. Contents Key definitions Synthesis Chapter 1 2 3 4 5 6 The ‘Market study on scaling up off-grid solar in Benin, Burkina Faso, Côte d'Ivoire, Ghana, Togo, and Senegal’ was conducted for the World Bank’s Compact with Africa Green Business Fund (CwA-GBF) in the framework of its support to Small and Medium Enterprises (SMEs). The report was written between January and December 2023, with fieldwork carried out between March and July of that year. The objectives of the market study were to (i) assess the policy, regulatory, and enabling environment for Off-Grid Solar (OGS) energy in the post-COVID context in the six countries; (ii) gauge capacity-building and training needs for key stakeholders in the OGS and Solar Productive Use of Energy (SPUE) sectors; (iii) scope the potential for and propose a risk-sharing facility (RSF) aimed at incentivizing local financial institutions (FIs) to increase lending to solar companies; and (iv) evaluate the capacity and willingness of national and regional financial intermediaries to manage the proposed RSF and other potential financial instruments for local FIs in the target countries. This report is based on primary and secondary data collected through an in-depth literature review on the six targeted countries as well as individual interviews with a total of 147 OGS stakeholders across those countries, including institutional players (government and regulatory bodies, bilateral and multilateral donors, and NGOs), solar companies (importers, manufacturers, and distributors of solar equipment), FIs (commercial banks, MFIs, investment funds, and leasing companies), and institutions managing financial instruments, such as direct loans, credit lines, and guarantee facilities (bilateral, multilateral, and regional development finance institutions, national development funds, and national/regional guarantee funds). To avoid duplication with previous reports, the present report builds upon the findings of the ROGEAP market assessments conducted in 2019, aiming to complement and integrate these with specific regard to the financial instruments and capacity-building activities required to scale up the OGS and SPUE sectors.