Off-Grid Solar Market Trends Report 2022: State of the Sector Copyright © 2022 October | 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 material in this work is subject to copyright. Because the World Bank encourages dissemination of its knowledge, this work may be reproduced, in whole or in part, for noncommercial purposes if full attribution to this work is given. Any queries on rights and licenses, including subsidiary rights, should be addressed to World Bank Publications, World Bank Group, 1818 H Street NW, Washington, DC 20433, USA; fax: +1-202-522-2625; e-mail: pubrights@worldbank.org. Lighting Global/ESMAP, GOGLA, Efficiency For Access, Open Capital Advisors (2022), Off-Grid Solar Market Trends Report 2022: State of the Sector. Washington, DC: World Bank. 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Production Credits Production Editor | GOGLA Designer | Future by Design (www.futurebydesign.studio) Images | Cover: Power Africa All images remain the sole property of their source and may not be used for any purpose without written permission from the source. This report is produced by Lighting Global/ESMAP, the International Finance Corporation, Efficiency for Access Coalition, GOGLA and Open Capital Advisors. Off-Grid Solar Market Trends Report 2022: State of the Sector 1 © Baobab+ Foreword The previous edition of our Off-Grid Solar Market Trends Report (MTR) was launched at the Global Off-Grid Solar Forum & Expo in Nairobi, Kenya in February 2020. The COVID-19 pandemic was declared only one month later, and within a few weeks, much of the world went into lockdown. Before the pandemic, the off-grid solar (OGS) industry was experiencing double-digit growth. Over a decade of innovation and investment has created a strong core of products that have reached maturity, from solar energy kits to productive use appliances. These technologies have been embraced globally as essential tools in the fight to eliminate energy poverty and achieve a faster, more equitable clean energy transition. Gabriela Elizondo Azuela However, the COVID-19 pandemic has presented major challenges for the industry and World Bank/ESMAP society as a whole. Millions of people were pushed, or pushed further, into poverty due to falling incomes, higher cost of living, and supply chain disruptions. Off-grid solar companies were confronted with price increases for raw materials and reduced incomes of their – often rural and relatively poor – customer base. Safety precautions made it difficult to connect with customers and partners, and investment was more difficult to access for many companies. The pandemic has had a considerable adverse impact on markets, but the industry has also shown resilience. Many governments declared off-grid solar an essential service, allowing companies to operate even during strict lockdowns. Despite hardship, many customers prioritized energy spending, demonstrating the importance of electricity access and the benefits that OGS products provide. Peter Cashion International Finance As the pandemic abates and lockdowns are mostly lifted, the industry is showing early signs Corporation of a recovery. Sales numbers are increasing again, companies are expanding their services beyond energy, and 2021 recorded an all-time high of $457 million investment, with 2022 set to be another record-breaking year. New technology segments are emerging that integrate low voltage power and appliances to strengthen the grid, and there is growing support from governments and donors to ensure that no one is left behind. After a period of unprecedented shocks, the 2022 MTR provides in-depth insight into the latest key market dynamics and trends. The report is, for the first time, split into two parts. This first report focuses on the current ‘State of the Sector’, while the second report, to be published in October 2022, will provide an ‘Outlook to 2030’. We hope that this will improve readability and make it easier and more rewarding for readers to engage with the content. The past few years have been extremely challenging. However, the vision and commitment Sam Grant of many has strengthened the off-grid solar industry and its foundations, shown innovation Efficiency for Access and entrepreneurship, and the sector has become further recognized for its vital role in achieving a cleaner and more equitable energy transition. Koen Peters GOGLA 3 Contents Foreword............................................................................................. 3 Acknowledgments................................................................................ 6 Abbreviations & key definitions............................................................ 7 Abbreviations....................................................................................... 7 Key definitions..................................................................................... 7 Figures................................................................................................. 9 Tables................................................................................................ 11 Boxes................................................................................................. 11 Headline Trends................................................................................. 12 1 Introduction....................................................................................... 14 Scope....................................................................................................................................................... 15 2 The Off-Grid Solar Energy Kit & Efficient Appliance Market................. 16 2.1 The Global Electrification Opportunity and Challenges................................................................. 17 2.2 Global OGS Market Trends................................................................................................................ 27 2.2.1 Global Solar Energy Kit Sales Volumes and Market Turnover................................................ 29 2.2.2 Global Appliance Sales Volume and Market Turnover........................................................... 31 2.3 Insights from the Affiliate OGS Market............................................................................................. 34 2.3.1 Solar Energy Kits Affiliate Market Trends................................................................................ 34 2.3.2 Appliance Affiliate Market Trends............................................................................................ 40 2.4 Global OGS Product Pricing Trends................................................................................................ 42 2.4.1 Global Solar Energy Kit Pricing Trends................................................................................... 42 2.4.2 Global Appliance Pricing Trends............................................................................................. 46 3 The Socioeconomic and Environmental Impact of the OGS Industry... 50 3.1 The Impact of OGS on Energy Access............................................................................................... 51 3.2 The Impact of OGS on the Sustainable Development Goals (SDGs).............................................. 55 3.2.1 Powering Healthcare............................................................................................................... 57 3.2.2 OGS, Food Security and the Ukraine Crisis............................................................................. 58 3.2.3 OGS and Climate Change: Mitigation, Adaptation and Resilience......................................... 58 3.2.4 Clean Energy Jobs, Enterprise and Income Generation......................................................... 61 4 Customer Profiles and Engagement Strategies................................... 62 4.1 The Off-Grid Solar Customer............................................................................................................ 63 4.2 Customer Segmentation and Targeting .......................................................................................... 65 4.3 Marketing and Customer Acquisition .............................................................................................. 67 4.4 The Role of Programs in Driving Customer Awareness and Impact............................................... 72 4 Off-Grid Solar Market Trends Report 2022: State of the Sector 5 Market Landscape.............................................................................. 74 5.1 Market Classification........................................................................................................................ 75 5.2. Market Competition ........................................................................................................................ 83 5.2.1: Solar Energy Kits Market Competition................................................................................... 83 5.2.2: PUE Appliances Market Competition..................................................................................... 86 5.3 Company Performance and Profitability ........................................................................................ 88 5.4 Key Trends and Innovations Affecting Competition in the Sector................................................. 96 6 Technological Innovations ............................................................... 102 6.1 Developments inthe Core OGS Technology.................................................................................. 103 6.2 Digital Innovations and the Rise of PAYGo Technology................................................................ 106 6.3 Off-grid Appliance and Productive Use Technology and Market Maturity .................................. 108 6.4 Distributed Solar and Storage Technologies with Efficient Appliances to Strengthen the Weak Grid.......................................................................................................... 113 7 Enabling Environment...................................................................... 118 7.1 OGS in the International Agenda................................................................................................... 119 7.2 Status of Integrated Electrification Plans...................................................................................... 120 7.3 Sector Development and Support Programs................................................................................ 124 7.4 Fiscal Incentives.............................................................................................................................. 126 7.5 Industry Regulations...................................................................................................................... 127 7.6 Quality Standards........................................................................................................................... 128 7.7 Supply Chain, Local Manufacturing and Assembly....................................................................... 130 8 Funding Flows.................................................................................. 132 8.1 Investment Flows............................................................................................................................ 133 8.2. Additional Revenue Streams ........................................................................................................ 139 8.2.1 Subsidies................................................................................................................................ 140 8.2.2 Climate Mitigation Financing ................................................................................................ 142 8.3 Sources of Capital .......................................................................................................................... 143 8.3.1 Capital Provider Trends......................................................................................................... 143 8.3.2 Investor Confidence............................................................................................................... 145 8.4 Regional Trends ............................................................................................................................. 146 9 Annexes............................................................................................ 148 Annex 1 - Definitions of Key Household Product Segments............................................................... 149 Annex 2 - Definitions of Key Household and Productive Use Appliance Segments.......................... 150 Annex 3 - Company Typology............................................................................................................... 152 Annex 4 - Affordability Methodology .................................................................................................. 153 Annex 5 - Methodology for Estimating Global OGS Market Value and Sales Volumes...................... 154 Annex 6 - Affiliate vs. Non-affiliate Live Products Distribution per Country...................................... 156 Annex 7 - Methodology for Estimating the PUE Demand Potential of Sub-Saharan Africa.............. 157 Annex 8 - Methodology for Estimating the PUE Demand Potential Of India..................................... 158 5 Acknowledgments The authors would like to thank those who generously contributed their time in the consultations that have informed this report. ESMAP/World Bank: Gabriela Azuela, Sameer Shukla, Dana Rysankova, Johanna Galan, Subrata Barman, Maria Arango, Thomas Flochel, Bonsuk Koo, Lucie Blyth, Jennifer Lynch, Raihan Elahi International Finance Corporation: Bill Gallery Efficiency for Access Coalition: Makena Ireri, Leo Blyth, Jenny Corry, Elisa Lai GOGLA: Susie Wheeldon, Sjef Ketelaars, Drew Corbyn, Laura Fortes, Oliver Reynolds, Collin Gumbu, Patrick Tonui, Rebecca Rhodes, Timona Chore, Koen Peters, Aletta D’cruz, Eva Roig Open Capital Advisors: Andreas Zeller, Duda Slawek, Harry Masters, Travis Kotecco, Hanna Dohrenbusch, Stephanie Onchwati, Charlene Njau, Linda Karimi Other contributors: Ed Day (Greencroft Economics), Sanjoy Sanyal (Regain Paradise) Lighting Global is the World Bank Group’s initiative to rapidly increase access to off-grid solar energy for the 733 million people living without electricity world-wide. Managed by the Energy Sector Management Assistance Program (ESMAP), we work with governments, the private sector, development partners, and end-users, continually innovating to unlock key market barriers and enable access and affordability to those that would otherwise be left behind. Our support has expanded to technologies that go far beyond lighting, including systems to power the needs of households, businesses, schools, and health centers. We operate with funding gratefully acknowledged from ESMAP and their donors. For more information, please visit www.lightingglobal.org IFC—a member of the World Bank Group—is the largest global development institution focused on the private sector in emerging markets. We work in more than 100 countries, using our capital, expertise, and influence to create markets and opportunities in developing countries. In fiscal year 2021, IFC committed a record $31.5 billion to private companies and financial institutions in developing countries, leveraging the power of the private sector to end extreme poverty and boost shared prosperity as economies grapple with the impacts of the COVID-19 pandemic. For more information, visit www.ifc.org Efficiency for Access is a global coalition promoting energy efficiency as a potent catalyst in clean energy access efforts. Since its founding in 2015, Efficiency for Access has grown from a year-long call to action and collaborative effort by Global LEAP and Sustainable Energy for All to a coalition of 20 donor organizations. Coalition programmes aim to scale up markets and reduce prices for super- efficient, off- and weak-grid appropriate products, support technological innovation, and improve sector coordination. Current Efficiency for Access Coalition members lead 12 programmes and initiatives spanning three continents, 62 countries, and 34 key technologies. For more information, please see www.efficiencyforaccess.org GOGLA is the global association for the off-grid solar energy industry. We are proud to champion one of the world’s most innovative and impactful sectors. Hundreds of millions of people already benefit from affordable, high-quality, clean off-grid solar products and services. With the right support, our pioneering industry will be able to scale up rapidly to improve the lives of 1 billion people by 2030. To help make this happen, we promote, safeguard, and convene the industry, advocating for enabling policies and increased investment as well as supporting our 200+ members with effective services. To find out more, visit www.gogla.org Open Capital Advisors is a management consulting and financial advisory firm that drives growth, enables investment, and builds markets across Africa. We help businesses, investors, development partners, and the public sector to identify opportunities and deliver unique, impactful solutions. Our mission is to advance African economies and build future generations of business leaders. Since 2010, we have completed over 1000 engagements across 25 countries in sub-Saharan Africa and raised over $1billion in capital for impactful businesses across the continent. Our locally based team of over 150 full-time staff brings experience from the world’s top consultancies, private equity firms, investment banks, and development organizations. For more information, please visit www.opencapital.com 6 Off-Grid Solar Market Trends Report 2022: State of the Sector Abbreviations & key definitions Abbreviations AC Alternate current OEM Original equipment manufacturer ATL Above the line OGS Off-grid solar B2B Business-to-business PAYGo Pay-as-you-go B2C Business-to-consumer PnP Plug and play BoP Bottom of the pyramid PUE Productive use of energy BTL Below the line PV Photovoltaic CAGR Compound annual growth rate QV Quality-verified CO2e Carbon dioxide equivalent RBF Results-based financing DC Direct current RU Refrigeration unit EUS End-user subsidy R&D Research and development FCV Fragility, conflict, and violence SDG7 Sustainable Development Goal 7 IEP Integrated electrification plan SEA Southeast Asia IoT Internet of things SEK Solar energy kit LVSP&A Low voltage smart power & appliances SHS Solar home system LMD Last mile distributor SSA Sub-Saharan Africa MFI Microfinance institution SWP Solar water pump MLS Multi-light system $ United States Dollars MSME Micro, small and medium enterprises VAT Value added tax MTF Multi-tier framework W Watt MTR Market trends report Wp Watt-peak Key definitions Terms Definitions Off-grid solar products Off-grid solar products include both solar energy kits and off-grid solar appliances and this term is used in the report to describe the breadth of technologies that it covers. See definitions below. Solar energy kits (SEKs) These include solar lanterns, multi-light kits and solar home systems (SHS). • Solar lanterns are typically packaged as a simple, one-light lantern with one LED light, an embedded 0.5–3.0 Watt-peak (Wp) solar panel, and an internal rechargeable lithium-ion (Li-ion) battery. Some models include USB charging for mobile phones. • Multi-light systems include up to three or four LED lights with a standalone solar panel rated up to 10 Wp and a rechargeable Li-ion battery with most models including USB charging for mobile phones. • Solar home systems (SHS) have a solar panel rated from 11 Wp to usually up to 350 Wp and provide multiple electricity functions, such as lighting and powering a wide range of appliances such as TVs and fans. SHS are offered plug-and-play (PnP) or based on open-market components. In this report, SHS refers to both plug-and-play and component-based systems unless specified. 7 Terms Definitions Off grid solar appliances These include solar-powered appliances which are energy-efficient and powered by direct current (DC), and include both household/small business appliances and productive use of energy (PUE) appliances • Household and small business appliances are typically used within a home and include televisions, fans, refrigerators and radios. In some cases these products are used in small businesses, such as refrigerators in a shop. Note: a significant majority of solar-powered TVs and a proportion of fans are typically sold bundled with SHS especially in sub-Saharan Africa. • Productive use of energy (PUE) appliances are appliances that leverage solar energy to enable improved or new income generating activities, often in agriculture. These products include solar water pumps, refrigerators/cold rooms or agro-processing equipment. Access to electricity: The MTF, developed by ESMAP, represents an effort to build global, aggregable metrics The Multi-Tier and a database for evaluating electricity access in a non-binary fashion, measuring the Framework (MTF) quality of access rather than merely access to any source of electricity. Developed in the context of the Sustainable Energy for All (SEforALL) initiative, the MTF is being used as a more nuanced measure of progress towards Sustainable Development Goal 7 (SDG7), complementary to the binary methodology captured in the Tracking SDG7 report written by major development stakeholders. The MTF redefines energy access to a multi-dimensional definition as ‘the ability to avail energy that is adequate, available when needed, reliable, of good quality, convenient, affordable, legal, healthy and safe for all required energy services.’ That is, having an electricity connection does not necessarily imply having access to electricity under the new definition, which considers additional aspects, such as reliability and affordability. Energy access is measured on a tiered spectrum, from Tier 0 (no access) to Tier 5 (the highest level of access). Rural Encompasses all population, housing, and territory not included within an urban area. Urban Encompasses all population, housing, and territory included within an urban area. Unconnected households Households that are not connected to national grids. ‘Under the grid’ households Households that are near to but not connected to national grids. Even where a grid connection is nearby and a connection would be technically realistic, households may choose not to connect because of affordability constraints (either high connection costs to the grid or high tariffs to consume from the grid, or both) and poor reliability of service. Households with These households face frequent or lengthy outages of grid electricity or experience voltage unreliable/weak grid fluctuations that can damage electrical appliances. Households connected to These households rarely or never face outages of grid electricity and do not experience reliable grid voltage fluctuations that could damage electrical appliances. Potential market The overall market of people (households and microenterprises) that either lack access to an electricity connection (off-grid) or have a poor-quality electricity connection (unreliable-grid), forming the total potential customer base for OGS devices. This estimate includes customers that currently use OGS devices, as they represent a continued market for additional sales, replacements, and upgrades. Addressable market The share of the potential market that can be addressed by current OGS business models. This report analyzes the affordability of devices against the potential market to arrive at an estimate for the addressable market. Pay-as-you-go (PAYGo) PAYGo business models allow users to pay for their products via technology-enabled, embedded consumer financing. A PAYGo company will typically offer a solar product (typically solar home systems and multi-light kits) for which a customer makes a down payment, followed by regular payments for a term ranging from six months to eight years. Payments are usually made via mobile money, though alternative methods include scratch cards, mobile airtime, and cash. 8 Off-Grid Solar Market Trends Report 2022: State of the Sector Terms Definitions Quality-Verified ‘Quality-Verified’ products meet VeraSol Quality Standards, which implement minimum requirements for off-grid lighting product quality, durability, truth-in-advertising, warranty, and lumen maintenance. VeraSol offers Quality Standards for both solar lanterns and multi-light systems and SHS up to 350 W, and compliance is required to participate in VeraSol support programs. Quality Standards are one component of the VeraSol Quality Assurance (QA) Program. The International Electrotechnical Commission (IEC) has adopted the VeraSol testing methods as Technical Specification 62257-9-5. For more information, please visit VeraSol.org Affiliate Affiliate companies are connected to any of the partner organizations involved in the semi- annual GOGLA sales data reporting process. This matrix of companies includes GOGLA members, companies selling products that meet VeraSol quality standards, and appliance companies that participated in the Global LEAP Awards or are engaging with the Low Energy Inclusive Appliances (LEIA) program. It is important to note that not all products produced by affiliate companies meet VeraSol quality standards, but stakeholders assume that all products affiliate companies produce are of reasonably decent quality. Non-affiliate Companies that are not within the matrix of affiliate companies are considered non- affiliate companies. Products distributed by non-affiliate companies are considered non- affiliate products. These companies do not report their sales to GOGLA, and much less is known about the quality and level of Tier access their products provide. Figures Figure 1: Tracking the electricity access gap over time............................................................................................................................p. 18 Figure 2: Electricity access deficit by country...........................................................................................................................................p. 19 Figure 3: Percentage point improvement in electricity access by country between 2015 and 2020......................................................p. 19 Figure 4: Estimated role of off-grid solar in least cost electrification.......................................................................................................p. 20 Figure 5: Affordability of off-grid solar technologies - ‘conservative’ for the bottom of the pyramid....................................................p. 21 Figure 6: Affordability of off-grid solar technologies - based on nationwide ability to pay profiles.......................................................p. 22 Figure 7: Change in proportion of households with electricity most/all of the time (2016-21)..............................................................p. 23 Figure 8: Potential market for OGS technologies as primary source of electricity or alongside a weak grid........................................p. 24 Figure 9: Of households using an OGS system, share using it as a secondary source of electricity alongside e.g. a grid connection..................................................................................................................................................................p. 25 Figure 10: Estimated total potential and addressable market for cold storage in millions of SHFs in SSA............................................p. 26 Figure 11: Estimated total potential and addressable market for cold storage in millions of SHFs in India..........................................p. 26 Figure 12: Estimated total potential and addressable market for solar water pumps in millions of SHFs in SSA.................................p. 27 Figure 13: Estimated total potential and addressable market for solar water pumps in millions of SHFs in Indiap............................p. 27 Figure 14: Estimated off-grid solar energy kit and appliance market turnover, annual (2021)..............................................................p. 28 Figure 15: Affiliate versus non-affiliate share of global sales volume & market turnover.......................................................................p. 29 Figure 16: Affiliate versus non-affiliate market share in Nigeria, Malawi, and Papua New Guinea........................................................p. 29 Figure 17: Global annual sales estimates of solar energy kits, including affiliate and non-affiliate sales (2010-2021).........................p. 30 Figure 18: Estimated solar energy kit annual market turnover (2018-2021)...........................................................................................p. 31 Figure 19: Estimated appliance annual sales volumes (2018-2021)........................................................................................................p. 32 Figure 20: Estimated appliance annual market turnover (2018-2021).....................................................................................................p. 32 Figure 21: Comparison of annual estimates of appliance market turnover (2018-2021)........................................................................p. 33 Figure 22: Global affiliate sales volumes of OGS products by category (2017-2021) (in thousands)......................................................p. 34 Figure 23: Share of PAYGo solar energy kits sales volumes as percent of total solar energy kit sales volumes 2018-2021..................p. 35 Figure 24: Evolution of regional market shares of total affiliate sales of solar energy kits (columns) and total units sold by affiliates in India, Kenya, Nigeria and Cameroon (lines) (2018-2021)...............................................................p. 36 Figure 25: Affiliates sales volumes of solar energy kits in South Asia (2018-2021)..................................................................................p. 37 9 Figure 26: Affiliates sales volumes of solar energy kits in East Africa (2018-2021)..................................................................................p. 38 Figure 27: Affiliates sales volumes of solar energy kits in West Africa (2018-2021).................................................................................p. 39 Figure 28: Affiliates sales volumes of solar energy kits in Central Africa (2018-2021).............................................................................p. 39 Figure 29: Affiliates sales volumes of TVs in East and West Africa (2019-2021) (thousands)..................................................................p. 40 Figure 30: Affiliates sales volumes of Fans in South Asia and West Africa (2019-2021) (thousands)......................................................p. 41 Figure 31: Global affiliates sales volumes of refrigeration units (2019-2021)..........................................................................................p. 42 Figure 32: Global affiliates sales volumes of solar water pumps (2019-2021).........................................................................................p. 42 Figure 33: Global indicative cash price ranges of solar lanterns and multi-light system products by wattage (2020 versus 2022) .....p. 43 Figure 34: Global indicative cash price ranges of SHS by wattage (2020 versus 2022)............................................................................p. 44 Figure 35: Regional indicative cash price ranges of solar lanterns and multi-light system products....................................................p. 45 Figure 36: Estimated PAYGo down payment of the total contract amount and average PAYGo price as a percentage of cash price for solar energy kit products.........................................................................................................p. 46 Figure 37: Global indicative cash price ranges for solar TVs and fans......................................................................................................p. 47 Figure 38: Estimated PAYGo down payment of the total contract amount for solar water pumps (left) and average PAYGo price as a percentage of cash price (right)....................................................................................................................p. 47 Figure 39: Estimated global cash price ranges of PUE appliances...........................................................................................................p. 48 Figure 40: People benefiting from access to electricity through solar energy kits (millions).................................................................p. 51 Figure 41: Location of customers using solar kit as a primary source of light/power in 8 countries with high electricity access deficits..........................................................................................................................................p. 52 Figure 42: Additional people with improved electricity access from off-grid solar kits, per year, alongside those who would have gained access had the sector remained on its pre-COVID growth trajectory.............................................p. 54 Figure 43: Examples of how OGS contributes to the SDGs.......................................................................................................................p. 55 Figure 44: Key impacts of OGS on climate adaptation and resilience......................................................................................................p. 59 Figure 45: SHS customers’ top five most wanted appliances and features, per region..........................................................................p. 65 Figure 46: Common OGS marketing channels amongst affiliate B2C companies...................................................................................p. 68 Figure 47: The rural OGS customer............................................................................................................................................................p. 68 Figure 48: The tech savvy urbanite............................................................................................................................................................p. 69 Figure 49: The smallholder farmer.............................................................................................................................................................p. 71 Figure 50: Electricity access deficit and OGS sales by market type.........................................................................................................p. 76 Figure 51: Market classification..................................................................................................................................................................p. 77 Figure 52: Key affiliate market competition statistics...............................................................................................................................p. 85 Figure 53: Number and market value of cash sales and paygo sales from affiliates...............................................................................p. 88 Figure 54: A histogram of the median portfolio quality results of PAYGo companies in 2021................................................................p. 90 Figure 55: Trends in non-weighted mean PAYGo Collection Rate and Write-Off Ratio + RAR 30............................................................p. 91 Figure 56: Consumer experience and satisfaction ratings for 15 PAYGo SHS companies.......................................................................p. 92 Figure 57: The number and type of quality-verified products listed by VeraSol...................................................................................p. 104 Figure 58: The Connect Initiative Universal Family of Connectors for 12V SHS Kits, lights, and appliances.......................................p. 105 Figure 59: Use case and product segmentation of off-grid solar cooling technology...........................................................................p. 110 Figure 60: World Bank funding for off-grid solar between July 2015 and June 2022............................................................................p. 124 Figure 61: Investment sources and revenue streams in the off-grid solar sector..................................................................................p. 133 Figure 62: Investment amount by investment type................................................................................................................................p. 134 Figure 63: The 7 scale-ups - historical investments (equity, debt and grant)........................................................................................p. 135 Figure 64: Investment trends in seed start-up and growth companies (equity, debt and grant).........................................................p. 137 Figure 65: Number of companies receiving equity per year (per ticket size).........................................................................................p. 137 Figure 66: Investor survey 2020 & 2021: How is your off-grid solar portfolio performing relative to your financial expectations?...............................................................................................................................................p. 145 Figure 67: Investor survey 2021: Relative to past years, how do you expect your off-grid solar activity to change in 2022 (in terms of total amount invested)?........................................................................................................P. 146 Figure 68: Investment amount by geographical focus of funds.............................................................................................................p. 147 10 Off-Grid Solar Market Trends Report 2022: State of the Sector Figure 69: Companies selling solar energy kits and services.................................................................................................................p. 152 Figure 70: Companies selling off-grid solar appliances..........................................................................................................................p. 152 Figure 71: Estimated non-affiliate market share per MTF country (2021).............................................................................................p. 156 Tables Table 1: Correlation between SHS sales and appliances / PUE sales.......................................................................................................p. 83 Table 2: Slower-growth and locally-owned LMDs have realized higher revenues per $ of capital raised than faster-growth and foreign-owned LMDs. Data from 15 LMDs selling off-grid solar products...........................................................................p. 93 Table 3: Technology and Market Maturity Map of solar appliance technologies for off-grid use cases...............................................p. 109 Table 4: Results Based Financing funds...................................................................................................................................................p. 141 Table 5: Indicative prices of off-grid solar products ($)...........................................................................................................................p. 153 Boxes Box 1: ‘Affiliate’ and ‘non-affiliate’ products..............................................................................................................................................p. 28 Box 2: The solar direct drive (SDD) refrigerator: A game-changer for vaccine storage............................................................................p. 57 Box 3: Easy Solar: A marketing journey.....................................................................................................................................................p. 66 Box 4: FuturePump: ‘Training the Trainers’ - making more, and appropriate, sales...............................................................................p. 72 Box 5: Lighting Global ‘Non-Stop Life’ India campaign: A hybrid approach............................................................................................p. 73 Box 6: Challenges and lessons learned in increasing electrification in Chad and Mozambique.............................................................p. 78 Box 7: OGS electrification projects and PAYGo development boosting electricity access in Nigeria.....................................................p. 80 Box 8: Support is still needed to incentivize OGS companies to reach unserved population targeted for OGS electrification in Rwanda...................................................................................................................................................p. 81 Box 9: Unreliable grid solutions and PUE appliances present new opportunities for OGS companies in India....................................p. 82 Box 10: PAYGo market data, a new era of transparency and insights......................................................................................................p. 89 Box 11: Two sides, one coin: credit risk management and consumer protection...................................................................................p. 91 Box 12: Pawame’s struggles through COVID..............................................................................................................................................p. 95 Box 13: Enhancing cold storage models to increase value to end-users and drive PUE demand..........................................................p. 98 Box 14: Rent-To-Rent; an innovative business model for BoP customers..............................................................................................p. 100 Box 15: The Connect Initiative..................................................................................................................................................................p. 105 Box 16: Second-life lithium batteries.......................................................................................................................................................p. 106 Box 17: Aeris IoT solution provider..........................................................................................................................................................p. 107 Box 18: SureChill’s phase change material and smart controller technology.......................................................................................p. 111 Box 19: Solar generators gather pace in Nigeria......................................................................................................................................p. 115 Box 20: SparkMeter...................................................................................................................................................................................p. 116 Box 21: Challenges faced and lessons learned from implementation of Kenya’s NEP..........................................................................p. 122 Box 22: The Community of Champions: A growing and evolving network............................................................................................p. 123 Box 23: VeraSol Quality Assurance program............................................................................................................................................p. 128 Box 24: The Benin Zawoue project: Solar energy kits made in Benin by LAGAZEL...............................................................................p. 131 Box 25: GOGLA Investments Database.....................................................................................................................................................p. 134 Box 26: Sun King raises $260 million in equity in 2022...........................................................................................................................p. 136 Box 27: Locally-owned and managed companies...................................................................................................................................p. 138 Box 28: Relief funding in the off-grid solar industry during COVID-19...................................................................................................p. 138 Box 29: Productive use of energy (PUE) focused companies capital raises in 2020 and 2021..............................................................p. 139 Box 30: Climate-aligned financing in off-grid solar.................................................................................................................................p. 142 Box 31: $500 million Gigaton Empowerment Fund by SunFunder.........................................................................................................p. 143 11 Headline Trends While many companies have struggled in the face of the COVID-19 pandemic, the sector has shown resilience. After a 22% decline in solar energy kit sales in 2020, the OGS sector recorded a 10% increase in sales in 2021, indicating a nascent recovery from the impacts of the The sector has proven more pandemic. The annual market for appliances is yet to recover from a sustained 19% decline resilient than many people since 2019. expected when the COVID-19 pandemic erupted In 2020, 733 million people were still living without access to electricity, of which 298 million people are in nascent OGS markets where there is little commercial OGS activity. Off-grid solar technologies are the key technology in most regions to advance progress towards SDG7 in the near term. On a trajectory to achieve universal access to electricity by Solar energy kits remain the most 2030, high-level analysis indicates off-grid solar technologies are expected to be the least-cost cost-effective solution to electrify solution for 41% of new household connections between 2020 and 2030. hundreds of millions of off-grid However, the affordability challenge was further exacerbated by declining income levels due to homes and businesses, but ability the pandemic. Assuming consumer finance is readily available, between 177 to 277 currently to pay is a continuing challenge unconnected people are still unable to afford a Tier 1 solar energy kit. In the absence of consumer financing options, such as PAYGo, affordability levels drop even further. The number of people accessing solar energy kits has grown from 420 million people in 2019 to over 490 million people by the end of 2021, with more people gaining higher ‘Tier 2’ levels of access. Despite the pressure the pandemic This is a result of continued sales, the longer lifespan of larger products and current customers has placed on supply chains and beginning to move up the ‘clean energy staircase’. This is where they have paid off, or made income levels, the number of people savings from their initial solar energy kit and are able to purchase a new, often larger product gaining electricity access from solar and additional service(s). energy kits has continued to grow 3.8 million customers have also gained access to solar TVs in 2020 and 2021, which were and has now reached 490 million particularly critical for accessing news, health information and educational programs during COVID-19 lockdowns. Between 2012 and 2021, the off-grid solar sector has raised $2.3 billion in capital through debt, Investments have continued to equity and grants. From 2016 to 2020, the industry saw yearly investment volumes plateauing grow since 2012, reaching over between $300 million and $350 million, before reaching $457 million in 2021. This year (2022) is set to be another record breaking year. $2.3 billion cumulatively. The sector is bifurcated into two The largest share of funding has been assigned to East Africa (49%), as larger, scale-up streams: 7 companies operating at companies are attracting debt in their most established markets. Companies that are in their scale that absorb the vast majority seed or start-up phases have attracted significantly less capital. of investments, and a large number of companies that are still in their seed and start-up phase Governments, investors and development partners are increasingly recognizing the potential of OGS solutions to power productive use of energy (PUE) appliances and healthcare. In 2021, $7.7 million of the total $10.2 million grant capital invested in the industry was Stronger focus by governments absorbed by PUE companies, while the World Bank, IKEA Foundation, EnDev, GIZ, UK Aid and and development partners on Power Africa all committed funding to support the electrification of healthcare facilities and/or productive use of energy and uptake of PUE appliances. powering healthcare 12 Off-Grid Solar Market Trends Report 2022: State of the Sector Solar water pumps (SWPs) and solar cooling, seen as ‘emerging’ technologies two years ago, are now classified as ‘near-to-market’. SWPs on the market today are more efficient, affordable, and impactful - they now typically feature brushless direct current motors, PAYGo capabilities (with firmware and GSM-enabled), and are IoT-enabled for enhanced monitoring, controls, and provision of information to the user. Solar cooling is considered ‘near-to-market’ following intensive research and development efforts due to the increased demand for vaccine storage and high potential for productive use. There have been rapid Attention has focused on the potential to reduce food loss and waste in various agricultural advancements in the maturity of value chains. Recent innovations in fridge insulation, efficient compressors, and better productive use technologies controllers are driving down costs, and improving efficiency and durability. Solar irrigation and cooling systems are proving to be a key resource for rural communities. They are contributing to increased crop yields and preserving produce. 700 million climate-vulnerable people live without electricity access, yet have also contributed the least to climate change. Off-grid solar solutions provide a fast and affordable way to provide basic electricity access from clean energy sources while rapidly reducing CO2e and building the adaptive capacity and resilience of climate-vulnerable people. Replacing kerosene lanterns with solar lighting has already avoided an estimated 190 million tonnes of CO2e, equivalent to taking 51 coal-fired power plants offline for a year, while replacing diesel generators also has clear emissions reduction benefits. Recent research conservatively estimates that diesel generators used to provide grid back-up emit more than 100 megatons of CO2 every year. In sub-Saharan Africa alone, replacing these generators with solar alternatives OGS products help achieve a faster would avoid as much CO2 as 20% of the region's vehicles being replaced with clean alternatives. and just clean energy transition Off-grid solar solutions also build the adaptive capacity and resilience of climate-vulnerable people. Contributors include better water supply, cooling and food security, improvements to health and health infrastructure, greater communications and connectivity, and increased savings and income. Over $211 million of public funding has been disbursed or is currently disbursing to the sector through Results-Based Financing since 2013, and more than $100 million came on stream in 2020 alone. There is growing recognition Whilst supply-side subsidies have been used as a tool to drive the uptake of OGS for a number of that more public funding will be years, a better understanding of the growing affordability gap has also led to increasing interest needed to reach remote and lower in and recognition for the need of end-user subsidies. income customers, and to bridge affordability gaps The majority of solar kit customers are rural, male and living under the poverty line of $3.10. However, an estimated 775 million people are connected to weak grids, undermining the potential social and economic development of access to electricity. While rural homes and businesses make up the clear majority of OGS New technology segments are emerging that integrate distributed solar and storage with weak customers, the COVID-19 pandemic grid to dramatically improve the quality and affordability of electricity access. The COVID-19 has accelerated a trend for pandemic has accelerated a trend for some companies to service urban and weak grid markets, companies to additionally service with these customers often buying larger solar kits and appliances. urban and weak grid markets The PAYGo technology that unlocked consumer financing for solar energy kits can be used with virtually any electronic device and is now being leveraged to offer consumer finance on smartphones, electric motorbikes, and many other devices, as well as offer digital financial services. Companies are now also commonly ‘cross-selling’ their existing customers' new products and ‘PAYGo everything’ is here services, using their own PAYGo data on customer payments and energy usage to help them move up the ‘clean energy staircase’ and/or to access ‘beyond energy’ products. 13 01 Introduction © Power Africa 14 Off-Grid Solar Market Trends Report 2022: State of the Sector Introduction For more than a decade, the biennial Off-Grid Solar (OGS) Finally, the off-grid solar industry consists of a wide variety Market Trends Report (MTR) has been the anchor of the of companies, including vertically integrated companies, World Bank Lighting Global/GOGLA franchise of reports. distributors and service providers. An overview of relevant They are the go-to source of OGS sector information for company typologies can be found in Annex 3. investors, industry members, policymakers, and other The remainder of this report is structured as follows: stakeholders. The series includes semi-annual reports that track sales and impact results by country, region, and • Chapter 2 - The Off-Grid Solar Energy Kit & Efficient worldwide for VeraSol Quality-Verified and other branded Appliance Market, sets out the global electrification solar devices sold by GOGLA affiliates.1 Each MTR offers a challenge and opportunities and the role of off-grid deep dive into trends in the sector, alongside new research solar. Additionally, it examines sales and turnover of the and data, to deepen understanding among market players off-grid solar sector, product types, and pricing. and illuminate the pathway forward. • Chapter 3 - The Socioeconomic and Environmental The off-grid solar sector is very diverse. Today, it includes Impact of the OGS Industry, provides insight into the an increasing number of stakeholders, markets, and socioeconomic and environmental impact of the sector. products across a multi-faceted, multi-layered industry. Capturing all developments within this fast-moving • Chapter 4 - Customer Profiles and Engagement sector in one report is a challenge. Evolving from previous Strategies, describes the OGS customer and how editions of the MTR, the 2022 report will not attempt to companies segment and engage with their customers. provide an all-encompassing overview. Instead, it distills • Chapter 5 - Market Landscape, provides insight into the main trends and insights and offers an in-depth different market types and market concentration, as analysis of developments likely to have the largest impact well as company performance and profitability. on the future of the off-grid market and its contribution to electricity access targets. • Chapter 6 - Technological Innovations, assesses the latest trends in technology and digital innovations. To further improve readability, the 2022 MTR is, for the first time, in two parts. This first report will focus on • Chapter 7 - Enabling Environment, analyzes the status the ‘State of the Sector’, while the second report, to be and implementation of integrated electrification plans, published in October 2022, will provide an ‘Outlook to and describes programs that are supporting OGS 2030’. The ‘State of the Sector’ report provides insights and policies and sector regulations required to drive into key trends in the off-grid solar sector over the past progress in electricity access. two years, including business models, technologies, competitive landscape and funding. The ‘Outlook to 2030’ • Chapter 8 - Funding Flows, describes the investment landscape, looking at sources of capital and recipients will profile the potential of the industry to help meet of investment, public funding including results-based development goals, and to explore trends and drivers financing, and broader financing trends. that must be enhanced and addressed to drive electricity access. Scope The product scope of the MTR has traditionally been solar energy kits, including household appliances. This time, it includes a substantive focus on productive use of energy (PUE), in partnership with the Efficiency for Access Coalition. Annex 1 and 2 give an overview of the products in this report, including product characteristics. © Sun King The market scope remains the same. The MTR covers all countries with an electrification deficit and humanitarian settings in which a sizable number of people are currently energy deprived. Consumers include households, micro enterprises, small enterprises, and smallholder farmers. 1 For more information, please see https://www.gogla.org/global-off-grid-solar-market-report. VeraSol is an evolution of the World Bank's Group Lighting Global quality verification and assurance program. For more information, please see https://verasol.org/ 15 02 The Off-Grid Solar Energy Kit & Efficient Appliance Market © Sun King 16 Off-Grid Solar Market Trends Report 2022: State of the Sector KEY MESSAGES Demand • 733 million people still lack access to clean modern and reliable electricity worldwide and solar energy kits are the best suited solution to electrify an estimated 55% of households in the next five years • Affordability is the key constraint to closing the electricity access gap • Many households in emerging markets are connected to weak grids. Off-grid solar can play an important role in improving the quality of electricity access here • There is also a sizeable additional market opportunity for solar appliances and for productive use of energy technologies particularly in the agriculture sector Sales • The total off-grid solar market is currently worth an estimated $2.8 billion annually (2021) • In 2020, sales volumes of solar energy kits declined 22% as a result of the COVID-19 pandemic; sales volumes then increased 10% in 2021, signaling the onset of a recovery • COVID-19 negatively affected the market for standalone household and productive use appliances, with sales not recovering to 2019 levels due to supply chain disruptions and lower customer ability to pay, particularly for larger productive use appliances • The pandemic has accelerated regional sales trends such as declining sales in South Asia, a slowdown in mature East African markets, and growth in key West and Central African markets Pricing • P . andemic-related supply chain disruptions have increased nominal prices for off-grid solar products, though increased competition has led to a wider range of products and price points • PAYGo financing continues to drive uptake of off-grid solar products by increasing affordability 2.1 The Global decade (Figure 1), the current rate of progress would still take at least 17 years to reach everyone with Tier 14, clean Electrification and modern electricity. Opportunity and Challenges The electricity access gap remains In 2020, 733 million people were still living without significant at over 730 million people, access to electricity, of which over 80% were in rural and progress towards universal access is areas.2,3 While this number has steadily fallen over the past lagging. 2 For consistency with the SDG7 tracking reports we report the same electricity access figures here which represent either: [1] where surveys based on the Multi-Tier Framework have been conducted, access to electricity service from Tier 1 to Tier 5 is considered; [2] elsewhere, electricity access is calculated by a binary measure of “connected” or “not connected” derived from existing household surveys, such as the Demograhpic and Health survey and the Living Standards Measurement study. 3 In each of the last three editions of the SDG7 Tracking estimates the share of the electricity gap in rural areas has been stable at around 84%. 4 The Tiers of energy access are described in the Multi-Tier Framework (MTF), developed by ESMAP. The MTF represents an effort to build global, aggregable metrics and a database for evaluating electricity access. Energy access is measured on a tiered spectrum, from Tier 0 (no access) to Tier 5 (the highest level of access). 17 Figure 1: Tracking the electricity access gap over time 300 1.2 250 1.0 Electricity access deficit New electricity access 200 0.8 (millions of people) (billions) 150 0.6 100 0.4 Closing the electricity access gap 50 0.2 Meeting population growth 0 0.0 Remaining electricity 2013 2014 2015 2016 2017 2018 2019 2020 access deficit Sub-Saharan Africa accounts for 77% of the current Around half of unconnected households live in fragile and electricity access gap.5,6 As shown in Figure 2, most conflict-affected countries.7 As discussed in Section 5.1, the countries in SSA still have an electricity access gap of at electricity access gap is concentrated in nascent markets least two million people, with Nigeria (90 million), the where OGS sales are not yet reaching high volumes. This Democratic Republic of Congo (DRC) (72 million), and poses additional challenges to deployment of off-grid solar Ethiopia (56 million) accounting for 30% of those without technologies, including raising the operational/logistics electricity access. costs, security risks that companies and investors may not be able to accept, and making it harder to offer end-user Electrification has expanded quickly in some South Asian finance to spread the cost of acquiring an OGS system, when countries, but many people remain without electricity creditworthiness and security is not certain. The challenges access. India’s rate of electrification rose from 88% in 2015 posed by fragility are worsening as climate and economic to 99% in 2020, although over 10 million people still lack pressures, and conflicts are increasing displacement of access. In Bangladesh, electrification rose from 75% to 96% people. The UNHCR reported over 80 million forcibly over the same period, leaving six million people without displaced persons worldwide in 2020, up from 70 million in Tier 1 electricity access. 2018.8 While some electricity access deficit countries are closing the gap quickly, others show slow progress. For example, while Ethiopia narrowed its electricity access gap from 71% in 2015 to 49% in 2020, around 56 million people remain without access. Progress has been much slower in DRC, with the deficit reducing only slightly from 84% to 81% over the same period, leaving around 72 million people without access. Meanwhile, Pakistan has also made only incremental progress in closing the gap from 29% in 2015 to 25% in 2020, leaving around 54 million people without access (Figure 3). © d.light 5 Open Capital Advisors analysis of SDG7 tracking data. 6 Open Capital Advisors analysis of SDG7 tracking data used for electricity access figures and trends throughout this section. 7 IEA (2021), Tracking SDG7: The Energy Progress Report 2021. 8 UNHCR (2021), Global Trends: Forced Displacement in 2020. 18 Off-Grid Solar Market Trends Report 2022: State of the Sector Figure 2: Electricity access deficit by country9 > 50 million people > 20 million people > 10 million people > 5 million people > 2 million people > 0.5 million people Figure 3: Percentage point improvement in electricity access by country between 2015 and 202010 > 20 percentage point > 10 percentage point > 5 percentage point > 1 percentage point 2025),11 as shown in the left panel of Figure 4, given that OGS technologies are able to expand faster than the main grid and mini-grids in the short term. By 2030, the share of Off-grid solar is estimated to be the most mini-grid and grid connections is expected to increase, but cost-effective, feasible solution to electrify OGS is still expected to account for 41% of all connections 55% of currently unconnected households realized, based on geospatial least-cost modeling of in the next five years. universal energy access scenarios. The ultimate share of grid, mini-grid and OGS technologies in the electrification mix of 2030, however, will depend not only on the Off-grid solar technologies are expected to be the least-cost pathway but also on the pace at which each dominant technology to unlock progress towards SDG7 technology is able to expand. in most regions in the near term, and will continue to As grid infrastructure expands, some of the households play an important role in the long term. On a trajectory initially using SEKs may partly transition to a grid or a to achieve universal access to electricity by 2030, mini-grid connection. OGS technologies can still play an OGS technologies are estimated to be the most cost important role as a secondary source of electricity. While, effective and feasible solution for 55% of new household in the medium term, OGS is expected to contribute 41% of connections in the next five years (estimates from 2020 to new connections, there will also be the need and market opportunity for solar energy kits - which include solar 9 Open Capital Advisors analysis of SDG7 tracking data and UN Population Division data. 10 Open Capital Advisors analysis of SDG7 tracking data. 11 Estimate based on analysis of the Global Electrification Platform, ‘Low Demand’ scenarios. 19 lanterns, multi-light systems and solar home systems - to as the grid and mini-grids are expected to expand more be deployed alongside the grid or mini-grids, in particular rapidly in the medium term, only 45% of new connections for new and existing grid connected households that face in Central Africa between 2020-30 are expected to come grid reliability challenges. from OGS technologies. In Southeast Asia the trend is reversed, where main grid and mini-grid connections In most regions, OGS technologies are expected to drive could reach a significant share of populations currently long-term electrification, and significantly contribute located near a regional grid, but OGS becomes more to universal energy access in the medium term. For important over time rising from 6% of new connections example, geospatial analysis suggests that in Central between 2020-25 up to 10% of new connections between Africa OGS is likely to be the least-cost solution for 81% of 2020-30. This is because, over time, increasingly remote new connections between 2020-25, as grid infrastructure and marginalized communities will make up a growing is currently underdeveloped and is unlikely to be able to proportion of those left unelectrified. scale up quickly enough in the next few years. However, Figure 4: Estimated role of off-grid solar in least cost electrification12 2020–2025 new connections 2020–2030 new connections Latin America Latin America 51% 49% 37% 63% South Asia South Asia 25% 75% 24% 76% Southeast Asia Southeast Asia 6% 94% 10% 90% Southern Africa Southern Africa 53% 47% 42% 58% West Africa West Africa 55% 45% 41% 59% East Africa East Africa 64% 36% 55% 45% Central Africa Central Africa 81% 19% 45% 55% Total Total 55% 45% 41% 59% 0 10 20 30 40 50 60 70 80 90 100 0 10 20 30 40 50 60 70 80 90 100 Share of new connections (2020–2025) Share of new connections (2020–2030) Off-grid solar Grid or mini-grid • Conservative demand curve - assumes that the unelectrified population is concentrated in the poorest strata of the population, as per the Energy Affordability is the key constraint to Access Diagnostic Multi-Tier Framework surveys closing the electricity access gap. where the electricity access deficit is highly concentrated in the lower income quintiles. • Nationwide demand curve - assumes that the Ability to pay for solar energy kits remains a challenge. unelectrified population is distributed across all To provide an indication of global demand for off-grid solar income strata as per the national income distribution solutions, this section describes two types of estimates in each country. This may also better represent the of ability to pay which represent two extreme ends of potential market for households already with some affordability (i.e. a minimum and a maximum):13 form of electricity access (i.e. upgrading existing SEKs or using SEKs alongside a weak grid connection). 12 Open Capital Advisors analysis of results from the Global Electrification Platform, ‘Low Demand’ Scenario. 13 A full methodology description is provided in Annex 4. 20 Off-Grid Solar Market Trends Report 2022: State of the Sector Ability to pay is compared to global average prices of although in practice PAYGo is not widely available for Tier SEKs, assuming PAYGo or other end-user finance is 1 multi-light systems, and conversely, some companies are available for multi-light higher capacity systems. This using PAYGo for smaller products (less than 3 Wp), but this provides a high-level estimate of what could be affordable, is not yet widespread. Ability to pay - conservative demand estimates Figure 5: Affordability of off-grid solar technologies - ‘conservative’ for the bottom of the pyramid14 Affordability (2019) Affordability (2021) Cash PAYGo Cash PAYGo 100 3% 100 2% 9% 30% 26% 80 40% 80 45% 55% 62% 60% 58% 58% 60 60% 60 95% 95% 97% 98% 40 40 58% 74% 59% 28% 39% 29% 55% 20 37% 20 34% 11% 4% 12% 5% 6% 4% 12% 4% 13% 0 0 Lantern (<1.5 Wp) Light & Charger (1.5-3Wp) Multi-Light & Charging (3-11Wp) SHS (11-21 Wp) SHS (21-50 Wp) SHS (50-100 Wp) SHS (100+ Wp) Lantern (<1.5 Wp) Light & Charger (1.5-3Wp) Multi-Light & Charging (3-11Wp) SHS (11-21 Wp) SHS (21-50 Wp) SHS (50-100 Wp) SHS (100+ Wp) Tier 0 Tier 1 ** Partial Tier 2 Tier 0 Tier 1 ** Partial Tier 2 Tier 2 Tier 2 unaffordable affordable at a stretch affordable In the last two years, affordability has decreased, in Among these bottom of the pyramid (BoP) customers, particular for larger capacity SHS. Ability to pay has the potential market is limited to entry-level SHS and declined as incomes have fallen. Product prices have also solar lanterns, and multi-light systems products. As increased, reversing a trend of consistent year-on-year shown in the right hand side of Figure 5, a 21-50 Wp improvements in both ability to pay, and falling off-grid SHS costing around $500 would be out of reach for all solar prices for the previous decade. households unless they allocate between 5% and 15% of their consumption expenditure to electricity access. The exception is for Tier 1 multi-light and charging This would mean significant trade-offs with other primary systems, where price reductions have slightly improved goods. Even small solar lanterns and multi-light systems affordability. Around 62% of households at the bottom of products - typically sold in cash over-the-counter would be the pyramid could afford a Tier 1 multi-light and charging unaffordable for 42% of these households, although with system, up from 58% two years ago. PAYGo or other forms of consumer finance affordability improves slightly for Tier 1 multi-light and charging systems. 14 Consortium analysis of various sources - see Annex 4 for details. Note the methodology for estimating affordability has been modified since the previous MTR, so estimates for both 2019 and 2021 are (re)calculated in this report. Note: ** for the purposes of this analysis, multi-light systems are categorized as Tier 1, and the price used for this analysis is representative of a multi-light system that would reach full Tier 1 for a household. Overall, over 83% of GOGLA affiliate multi-light systems sold between 2019 and 2021 qualify as full Tier 1, although it should be noted that 17% would fall just short of full Tier 1. 21 Ability to pay - national income distributions Figure 6: Affordability of off-grid solar technologies - based on nationwide ability to pay profiles15 Affordability (2019) Affordability (2021) Cash PAYGo Cash PAYGo 100 4% 100 4% 21% 13% 22% 80 37% 26% 80 25% 57% 72% 42% 60 75% 74% 60 74% 76% 97% 43% 96% 45% 40 42% 40 70% 71% 20 20 34% 45% 17% 23% 24% 35% 18% 21% 33% 20% 3% 8% 4% 4% 3% 8% 3% 9% 0 0 Lantern (<1.5 Wp) Light & Charger (1.5-3Wp) Multi-Light & Charging (3-11Wp) SHS (11-21 Wp) SHS (21-50 Wp) SHS (50-100 Wp) SHS (100+ Wp) Lantern (<1.5 Wp) Light & Charger (1.5-3Wp) Multi-Light & Charging (3-11Wp) SHS (11-21 Wp) SHS (21-50 Wp) SHS (50-100 Wp) SHS (100+ Wp) Tier 0 Tier 1 ** Partial Tier 2 Tier 0 Tier 1 ** Partial Tier 2 Tier 2 Tier 2 unaffordable affordable at a stretch affordable Across national income distributions, around 76% of charging system upfront. Even if unconnected households households could afford a Tier 1 multi-light and charging have a similar income distribution to the national context system and larger systems are commercially viable for of their country, 566 million people would still be unable to some households (Figure 6). For this demand curve, there afford a Tier 1 system in a single upfront cash payment. are some affluent households - likely predominantly in PAYGo is essential to address affordability, but not urban and peri-urban areas - which may be able to afford sufficient to close the affordability gap. With end-user medium capacity, and in some cases high-capacity, solar finance available, those currently unconnected and unable home systems. Unlocking demand from these households to afford a Tier 1 system could fall to between 177 million will be a key to commercial success for companies, while and 277 million people. also reaching more vulnerable BOP households. Affordability may be more limited than previously Affordability - practical discussion thought, as the ability to pay among the poorest communities may be lower than estimated and could Between 566 million and 730 million unserved people worsen. As a result of the COVID-19 pandemic, per would be unable to afford the full cash price of a Tier 1 capita income has declined in many countries; for 40% solar energy kit. If the income distribution of remaining of emerging market and developing economies it is not unconnected households most closely resembles the expected to return to pre-pandemic levels for several bottom of the pyramid demand curves above, of 733 years.16 million unconnected people only between 3 million and 167 million could afford to buy a Tier 1 multi-light and The pandemic has also resulted in job losses and deprivation in already vulnerable communities (largely 15 Consortium analysis of various sources - see Annex 4 for details. Note: ** for the purposes of this analysis, multi-light systems are categorized as Tier 1, and the price used for this analysis is representative of a multi-light system that would reach full Tier 1 for a household. Overall, over 83% of GOGLA affiliate multi-light systems sold between 2019 and 2021 qualify as full Tier 1, although it should be noted that 17% would fall just short of full Tier 1. 16 World Bank Group (2022), World Economic Prospects. 22 Off-Grid Solar Market Trends Report 2022: State of the Sector rural and agricultural); overall it is estimated that COVID-19 pushed 100 million people into extreme poverty Many households in emerging markets are in 2020 alone.17 The global fuel and food security crisis connected to weak grids, alongside which caused by the war between Russia and Ukraine, as well off-grid solar can play an important role in as rapidly rising inflation, will lead to continued financial improving the quality of electricity access. pressure on low income households. The World Bank expects this will push millions more people into poverty and tip countries into a debt crisis,18 especially as countries pressure to supply chains, driving price increases in have already stretched central resources and fiscal OGS products since 2020 (discussed further in Section mechanisms to respond to the pandemic. 2.4), making it even more difficult to serve unconnected Furthermore, the cost to reach the remaining households in lower income groups or remote locations. unconnected households is also likely to be higher than Grid reliability remains a major challenge in sub-Saharan the global average prices. The affordability analysis is Africa. The proportion of people reporting an unreliable based on globally representative price points, which reflect grid connection has remained largely unchanged across 32 predominantly commercial sales to customers that can African countries included in the Afrobaromoter surveys now pay for these products and may not reflect the true between 2016 and 2018 (Figure 7),19 while electricity cost to serve currently unconnected households, which utilities in emerging countries still struggle to be financially may be in relatively remote and difficult (i.e. costly)-to- sustainable with the gap between costs and revenues reach locations. The impact of COVID-19 has added widening between 2012 and 2018.20 Figure 7: Change in proportion of households with electricity most/all of the time (2016-21) 21 Decrease Increase Sudan South Africa Zambia Guinea Eswatini Cameroon Ghana Benin Zimbabwe Lesotho Senegal Gambia Cabo Verde Namibia Nigeria Gabon Botswana Kenya Tanzania Togo Côte d'Ivoire Uganda Sierra Leone Morocco Tunisia Mali Malawi Liberia Mauritius Mozambique Burkina Faso Niger All countries average -40 -35 -30 -25 -20 -10 -5 0 0 5 10 15 Each electricity symbol represents value of one percent +1% -1% No change 17 World Bank Group (2020), Poverty and Shared Prosperity 2020: Reversals of Fortune. 18 Financial Times (2022), Ukraine War will Increase Poverty in Developing Economies, Warns World Bank. 19 Afrobarometer (2022), Still Lacking Reliable Electricity from the Grid, Many Africans Turn to Other Sources. 20 Balabanyan et al. (2021), Utility Performance and Behavior in Africa Today. 21 Open Capital Advisors Analysis of Afrobarometer data. 23 In India the grid now reaches almost 100% of households The potential market for customers with a weak grid and reliability appears to be improving. New Delhi connection is around 775 million people. The largest Council on Energy Environment and Water (CEEW) potential market for OGS as backup is in South Asia (447 researchers found that electricity supply availability from million people), although this market is shrinking with the grid has increased from an average of 12.5 hours in improvements to the quality of grid access in India. The 2015 to 18.5 hours in 2020, while satisfaction levels among next largest potential markets for OGS as backup solutions rural customers increased from 23% to 73%.22 Yet half are Southeast Asia and Pacific region (130 million) and of rural customers face daily power cuts in peak winter West Africa (94 million) (Figure 8). evening hours, and this is likely more pronounced during the period of peak residential power in the hot summer months. Figure 8: Potential market for OGS technologies as primary source of electricity or alongside a weak grid23 Unconnected Unreliable Grid Reliable Grid Central Africa 109 14 East Africa 161 41 West Africa 213 94 Southern Africa 103 33 Southeast Asia 32 130 South Asia 80 447 0 10 20 30 40 50 60 70 80 90 100 Percentage of population (millions of people provided in the labels) OGS already plays a crucial role in accelerating access to high-quality, reliable electricity access. In several © Power Africa countries, off-grid solar systems are already used as a secondary source of electricity alongside a connection to the main grid (Figure 9). For example, in South Asia – where 61% of households using an OGS product do already have a connection to the main grid – 88% of those households report using their backup solar system every day.24 While the appliance markets are still relatively young and there is less evidence, a similar trend would be expected for these products. For example 28% of households using an off-grid fan in Bangladesh are also connected to the main grid.25 22 Agrawal et al. (2020), State of Electricity Access in India: Insights from the India Residential Energy Survey (IRES). 23 Updated from Market Trends Report 2020, with grid reliability held the same for sub-Saharan African countries, but improving in the largest unreliable grid market of India based on CEEW survey. 24 GOGLA (2020), Powering Opportunity South Asia. 25 Efficiency for Access Coalition (2019), The Socio-economic Impact of Super-Efficient Off-Grid Fans in Bangladesh. 24 Off-Grid Solar Market Trends Report 2022: State of the Sector Figure 9: Of households using an OGS system, share using it as a secondary source of electricity alongside e.g. a grid connection26 Rwanda 3% Myanmar 3% Cambodia 3% Uganda 5% Ethiopia 19% Zambia 29% Nepal 56% South Asia * 61% Nigeria 70% 0 10 20 30 40 50 60 70 80 90 100 Off-grid solar - backup Off-grid solar - primary In some cases, the market for off-grid appliances appears to be developing in tandem with SEK markets, but it There is also a sizeable additional market is also emerging as a market in and of itself. This is the opportunity for solar appliances and for case for TVs and small refrigeration units, as these are productive use of energy technologies largely sold bundled with SEKs. However, there has been particularly in the agriculture sector. a deviation in this trend for fans, which have developed as a successful standalone market in South Asia (see Section 5.1 for further discussion). There is significant market potential for off-grid There is substantial potential to leverage solar for appliances. As described in the State of the Off-Grid productive use across the agriculture sector. The Appliances Market Report (2019), the estimated potential combined addressable market potential for the use cases market for off-grid TVs, fans, and refrigeration units of cold storage and irrigation alone across sub-Saharan (RU) was predicted to reach $25.2 billion by 2030. This Africa and India is estimated at more than $14 billion represents a large untapped market, especially in the (2022). Expanding access to technologies for these use context of the current market size for standalone off-grid cases can immediately improve the livelihoods of about appliances ($0.7-0.8 billion - see Section 2.2 below). 26 Analysis of MTF household survey data, * data point from GOGLA (2020), Powering Opportunity South Asia. 25 22 million smallholder farmers (SFH) across sub-Saharan India also presents an attractive market opportunity Africa and India.27 for cold storage productive use technologies, with an estimated potential market size of 52.5 million For cold storage technologies in sub-Saharan Africa smallholder farmers (Figure 11).31 Despite rapid grid alone, there is a potential market size of 7.4 million expansion in India, the grid is still unreliable which has smallholder farmers (Figure 10).28 Smallholder farmers created an opportunity for OGS technologies.32 Notably, who are off-grid or who have a weak grid connection and India is also one of the largest dairy markets globally who operate in relevant value chains such as horticulture, although due to lack of reliable grid connections, millions dairy, and aquaculture drive most of this demand. Across of tonnes of milk is wasted or reaches the market as lower the region, many face significant post-harvest losses, 40% quality dairy products.33 As such, several productive use can be attributed to a lack of temperature-controlled technology companies are developing innovative solar- environments between harvesting and processing. Cooling powered cold storage facilities to improve dairy farmers’ storage solutions have the potential to reduce post-harvest ability to preserve larger volumes of milk, and improve losses by up to 30%.29 farmer’s incomes. These solar cold storage facilities offer a less costly alternative to diesel generators, but are Most smallholder farmers across sub-Saharan Africa, often expensive to purchase upfront even with financing. however, face significant challenges with affording Considering affordability constraints, the addressable cold storage technologies or accessing financing. For market in India is estimated to consist of 15.8 million market sizing in this report, when considering affordability smallholder farmers, or $3.1 billion (2022). assumptions, the estimate of the addressable market for cold storage appliances in sub-Saharan Africa consists of Figure 11: Estimated total potential and 890,000 smallholder farmers, with a value of approximately addressable market for cold storage in millions $296 million (2022). of SHFs in India34 60 Figure 10: Estimated total potential and 52.5M (in millions of smallholder farmers) addressable market for cold storage in millions Cold storage, demand potential 50 of SHFs in SSA30 8 40 7.4M Affordability (in millions of smallholder farmers) 7 gap Cold storage, demand potential 30 6 5 20 15.8M Affordability 4 gap 10 3 0 2 Potential SHF Addressable SHF 1 0.89M Solar water pumps is a key productive use appliance 0 market with an estimated potential market size of Potential SHF Addressable SHF 5.2 million smallholder farmers in sub-Saharan Africa (Figure 12).35 Key growth drivers are increased smallholder farmer incomes, and awareness of the benefits of SWPs. 27 Open Capital Advisors analysis. 28 See Annex 7 - Methodology for estimating the PUE demand potential of sub-Saharan Africa. 29 Shell Foundation (2019), The Cold Chain Opportunity. 30 Open Capital Advisors analysis. 31 See Annex 8 - Methodology for estimating the PUE demand potential of India. 32 Climate Policy Initiative (2021), The Future of Distributed Renewable Energy in India. 33 WeForum (2015), How Milk-Chillers could Revolutionize India’s Dairy Industry. 34 Open Capital Advisors analysis. 35 Open Capital Advisors analysis. 26 Off-Grid Solar Market Trends Report 2022: State of the Sector Across the region, several providers have emerged, a significant share of Indian smallholder farmers still also recognizing the benefits of income generation for face affordability challenges, resulting in an estimated affordability and ability to repay consumer loans. There addressable market size of 4.6 million smallholder farmers, are an estimated 5.2 million smallholder farmers across or $10 billion (2022). sub-Saharan Africa in rural, off-grid areas. These grow predominantly high-value cash crops such as fruits and Figure 13: Estimated total potential and vegetables for export and have access to sufficient water addressable market for solar water pumps in to irrigate their farms. With affordability constraints, the millions of SHFs in India39 addressable market potential in sub-Saharan Africa is estimated to be 0.64 million smallholder farmers, or $684 18 million (2022). 15.3M Solar water pump demand potential 16 (in millions of smallholder farmers) Figure 12: Estimated total potential and 14 addressable market for solar water pumps in 12 millions of SHFs in SSA36 Affordability 10 gap 6 8 5.2M Solar water pump demand potential (in millions of smallholder farmers) 5 6 4.6M 4 4 2 Affordability 0 3 Potential SHF Addressable SHF gap 2 1 0.64M 2.2 Global OGS Market Trends 0 Potential SHF Addressable SHF The global off-grid solar market is valued at an estimated $2.8 billion annually (2021). This includes annual estimates In India, there is a potential market size of 15.3 million for both off-grid solar energy kits (including solar lanterns smallholder farmer households for solar water pumps and multi-light systems, and solar home systems) as well (Figure 13). The country’s agricultural sector has as off-grid appliances, including appliances such as TVs benefitted from government subsidy programs supporting and fans, and dedicated productive use appliances such solar water pumps of different sizes, both grid-connected as solar water pumps and refrigeration units. The off-grid and off-grid, with subsidies of up to 60% of the price of solar energy kits market is estimated at $2.1 billion annually, standalone SWPs up to 7.5kW.37 The government has been of which an estimated 4% consists of off-grid household keen to provide farmers with security–as farmers can boost appliances (TVs and fans) that are typically sold bundled with crop yields by up to 50% and grow water-intensive crops in solar home systems (SHS) (Figure 14).40 The standalone off- the dry season with irrigation and reduce the use of fossil grid appliance market for TVs, fans, solar water pumps and fuels for irrigation.38 Despite government subsidies, refrigeration units not sold bundled with SHS is estimated 36 Open Capital Advisors analysis. 37 Climate Policy Initiative (2021),The Future of Distributed Renewable Energy in India; Government of India (2019), PM KUSUM scheme. 38 University of Cambridge (2019), Solar Irrigation Solutions for Smallholder Farmers in India; Council of Energy, Environment and Water (2021), Powering Livelihoods Globally through Clean Energy. 39 Open Capital Advisors analysis. 40 Note: An estimated 83% of solar-powered TVs and 17% of fans affiliate sales in sub-Saharan Africa are bundled with solar home systems. Given lack of sufficient data on non-affiliates, we are conservatively estimating the non-affiliate appliance market segment consists mainly of sales of component-based systems i.e. no overlap between appliance sales and off-grid solar energy kit sales. 27 at $0.7 billion annually.41 The 2020 Off-Grid Solar Market Note: Section 2.2 discusses global market trends for both Trends Report included an estimate for the market value of ‘affiliate’ and ‘non-affiliate’ products while Section 2.3 the off-grid solar energy kit portion of the market, but not focuses on global and regional market trends for ‘affiliate’ the off-grid appliance market segment.42 products only. See Box 1 below for additional explanation on ‘affiliate’ and ‘non-affiliate’ products. Figure 14: Estimated off-grid solar energy kit and appliance market turnover, annual (2021)43 Estimated off-grid solar energy kit sales turnover $0.7- 0.8B Estimated off-grid appliance sales turnover $2.1– 2.2B Estimated off-grid solar kit sales turnover includes ~4% worth of TVs & fans sold bundled with solar home systems in sub-Saharan Africa. Box 1: ‘Affiliate’ and ‘non-affiliate’ products This report distinguishes between ‘affiliate’ and ‘non-affiliate’ products. • Affiliate products are sold by companies that are connected to any of the partner organizations involved in the semi- annual GOGLA sales data collection and which share their sales data. This includes GOGLA members, companies selling products that meet VeraSol quality standards, and appliance companies that participated in the Global LEAP Awards or are engaging with the Low Energy Inclusive Appliances (LEIA) program. • Non-affiliate products are sold by companies that are not within the matrix of companies distributing affiliate products listed above and often include mainly component-based systems as well as plug-and-play systems. These companies selling non- affiliate products do not participate in the GOGLA sales data collection process, and generally much less is known about the quality and level of Tier access their products provide. Based on 2022 estimates, non-affiliate products are still estimated to account for 72.1% of annual off-grid solar energy kits products sold on the market, compared to 71.5% in 2020.44 Regarding market turnover, non-affiliates account for an estimated 62% of the total, driven by cash sales of solar lanterns and multi-light system solar products (Figure 15). (See Methodology in Annex 5 and Section 2.4 Product Types and Pricing for additional insights). 41 Note: Off-grid appliance market data is extremely limited compared to the off-grid solar energy kit product category. The main sources of information used consisted of published reports available online including CLASP, VeraSol, GOGLA, internal firm knowledge as well as consultations. Key stakeholders approached for these consultations include appliance manufacturers and distributors based in key countries in sub-Saharan Africa and Southeast Asia. The analysis and insights included in this report thus reflects our understanding of key trends based on data available as at the time of writing. 42 World Bank, IFC, GOGLA (2020), Off-Grid Solar Market Trends Report 2020. 43 Open Capital Advisors analysis. 44 World Bank, IFC, GOGLA (2020), Off-Grid Solar Market Trends Report 2020; Note: This is based on analysis of multiple sources of data and information, including: [1] MTF household survey data (11 countries), from which we estimate the total live products (solar lanterns and multi- light systems and SHS) per target country based on data on solar panel wattage; [2] GOGLA annual sales data and semi-annual sales and impact data reports; [3] Country assessments published by Lighting Global, Ipsos, and other organizations; and [4] Industry interviews and other secondary sources. See Annex 5 for additional insights. 28 Off-Grid Solar Market Trends Report 2022: State of the Sector The updated estimate largely results from the inclusion of new data sources (i.e., compositional effects), rather than from a change in the market. This report incorporates newer data from studies conducted in Malawi, Nigeria, and Papua New Guinea, where non-affiliate products account for an estimated 36%, 73%, and 93% of the total OGS market, respectively (Figure 16). (See Methodology in Annex 6 for additional insights). Figure 15: Affiliate versus non-affiliate share of global sales volume & market turnover45 Sales volume 28% 72% Market turnover 38% 62% 0 10 20 30 40 50 60 70 80 90 100 Affiliate Non-affiliate Figure 16: Affiliate versus non-affiliate market share in Nigeria, Malawi, and Papua New Guinea46 Malawi % % Nigeria % % Papua New Guinea % % 0 10 20 30 40 50 60 70 80 90 100 A iliate Non-a iliate before increasing by 13% between 2020 and 2021. Global 2.2.1 Global Solar Energy Kit SHS unit sales also declined from 2019 to 2020 (21%), and Sales Volumes and Market have yet to fully recover to pre-pandemic levels, with unit sales increasing only 7% between 2020 and 2021. Turnover The global solar energy kit market is now estimated at Unit sales for solar energy kits declined 22% in 2020 $2.1 billion annually (2021), with an increase from 2020 compared to 2019, largely due to the COVID-19 pandemic, to 2021 signaling the beginnings of recovery (Figure 18). but recovered by 10% from 2020 to 2021. This was mainly Supply chain disruptions related to the COVID-19 pandemic due to a strong recovery in sales of solar lanterns and have raised manufacturing and distribution costs across multi-light systems sales (Figure 17). Global sales of solar the sector, leading to a (moderate) increase in average lanterns and multi-light systems declined by about 22% prices across most product segments and especially for between 2019 and 2020 due to a decrease in cash sales, higher-value SHS. Higher prices, coupled with depressed 45 Open Capital Advisors analysis. 46 Open Capital Advisors analysis. 29 consumer incomes due to pandemic-related economic challenges, suppressed demand over the past two years. After a 22% decline in solar energy kit Sales volumes have rebounded since 2020, but not yet to 2019 levels, and the faster rebound of the lower cost solar sales in 2020, the sector recorded a 10% lanterns and multi-light systems compared to higher cost increase in sales in 2021, indicating the SHS resulted in a 7% increase in market value for solar onset of a recovery from the impacts energy kits, compared to the 10% increase in volumes. In of COVID-19. The global solar energy particular, cash sales for SHS remain depressed, negatively kit market was valued at an estimated impacting market value (see Section 2.3 Insights from the Affiliate OGS Market for additional insights). $2.1 billion in 2021. Figure 17: Global annual sales estimates of solar energy kits, including affiliate and non-affiliate sales (2010-2021)47 50 45 -22% 16% 40 10% -1% Total unit sales (in millions) 35 30 79% 25 20 15 10 245% 5 0 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 Affiliate sales est. Non-affiliate mid est. (point estimate) Non-affiliate max. est. © Power Africa 47 Open Capital Advisors analysis. 30 Off-Grid Solar Market Trends Report 2022: State of the Sector Figure 18: Estimated solar energy kit annual market turnover (2018-2021)48 2.5 12% year-on-year growth recorded $2.2- -14% 7% between 2018 and Market turnover (in billions, USD) 2.0 52% 2.3B $2.1- 2021 $1.9- 2.2B 2.0B 1.5 $1.5- 1.6B 1.0 0.5 Estimated annual 0 OGS turnover 2018 2019 2020 2021 Annual unit sales of off-grid appliances declined 21% 2.2.2 Global Appliance Sales between 2019 and 2021, falling from 8 million units to 5 Volume and Market million units sold in each year respectively (Figure 19). Pre-pandemic, this segment posted an estimated 73% Turnover49 year-on-year sales growth between 2018 and 2019, driven by sales of household appliances such as TVs and fans (note: affiliates data collection for PUE appliances only began in 2018 and it is estimated that affiliate sales data in that year was significantly under-reported, potentially explaining the significant increase in market turnover Based on an estimated 5 million unit sales between 2018 and 2019). Since 2020, aggregate sales of in 2021, the annual market for off-grid off-grid solar appliances have declined by 21% per year solar appliances is estimated at $0.7 as effects of the pandemic impacted the sector, higher billion and is yet to recover from a 19% average prices and reduced overall product affordability.50 decline in annual turnover since 2019, (Note: the 2019 State of the Off-Grid Appliance Market report, which analyzed global trends in the off-grid indicating sustained negative impacts of appliance sector, estimated affiliate sales account for COVID-19 on the sector.49 between 20% and 50% of total appliance market sales, a wide range in a key assumption that contributed to the wide ranges for the global appliance sales estimates). 48 Note: SEK sales volumes declined by 22% (2019-2020) then increased 10% (2020-2021) although this recovery is yet to bring total sales to pre- pandemic (2019) levels. More specifically, solar lanterns and multi-light system sales declined 22% (2019-2022), then increased 13% ('20-21) while SHS sales declined 21% then increased by 7% over the same period. In aggregate these solar lanterns and multi-light systems and SHS changes then contributed to combined changes in SEK sales volume and turnover i.e. even while SHS only increased by 7% (2020-2021) the higher increase from solar lanterns and multi-light systems (13%) raised the overall SEK growth to 10% over the same period. 49 Note: Off-grid appliances refers to solar-powered appliances that are energy-efficient and designed to run on lower-load energy systems, are typically compatible with direct current (DC) systems, but also include alternating current (AC) appliances combined with inverters. These include both household appliances (i.e. fans and televisions) and PUE appliances (i.e. water pumps and cold storage) appropriate for use in off-grid and unreliable or ‘weak’ grid contexts where standalone solar energy systems are insufficient to power conventional appliances. 50 Note: Due to significant data limitations, global appliance sales trends mainly reflect sales trends in the affiliate market; see Section 2.3 Insights from the affiliate market for additional insights. 31 Figure 19: Estimated appliance annual sales volumes (2018-2021)51 22 In 2018, only H2 affilliate 20 data was available; to annualize 2018 estimates, Total unit sales (in millions) 18 -21% H2 2018 sales data was 16 73% doubled to account for 14 missing H1 2018 data 12 10 8 6 4 2 0 2018 2019 2020 2021 Affiliate appliance sales est. Non-affiliate appliance base est. H1 2018 appliance sales Non-affiliate appliance max est. The resulting estimate for the global market turnover PAYGo demonstrated resilience with a 3% increase over for off-grid appliances analyzed in this report is $0.7 the period, cash sales still account for a clear majority of billion annually (2021) (Figure 20).52 Overall, year-on-year annual market turnover. Note: the global appliance market appliance market turnover declined 19% between 2019 turnover comprises both affiliate and non-affiliate product and 2021, attributed largely to the COVID-19 pandemic sales (see Box 1 for additional explanation). and specific declines in appliance cash sales. Though Figure 20: Estimated appliance annual market turnover (2018-2021)53 1.2 In 2018, only Market turnover (in billions, USD) H2 affiliate data was available 1.0 $1.1- -19% to annualize 2018 estimates, 1.2B 72% H2 2018 sales data was 0.8 $0.8- doubled to account for 0.9B missing H1 2018 data 0.6 $0.7- $0.6- 0.8B 0.7B 0.4 0.2 Estimated annual 0 OGS turnover 2018 2019 2020 2021 51 Note: Affiliates data collection for off-grid appliances only began in 2018 and it is estimated that affiliate sales data in that year was significantly under-reported (and only included H2 2018 sales estimates) an issue that has persisted in subsequent years; CLASP estimates less than 40% of affiliate companies reached out share their sales data. Additionally, due to significant data limitations, we have built off assumptions of affiliate vs. non-affiliate market proportions used in the 2019 State of the Off-Grid Appliance Market report which analyzed global trends in the off-grid appliance sector and estimated affiliate sales account for between 20% and 50% of total appliance market sales and hence assumed non-affiliates account for between 50% (base scenario) and 80% (maximum scenario) of total appliance market sales. See discussion on additional methodology assumptions in Annex 5. 52 Note: Market turnover was derived using a multi-tiered approach. We used the minimum prices estimates from our price ranges listed in section 2.4 to calculate an average weighted for solar lanterns and multi-light systems, and SHS products using volume proportions of GOGLA affiliate sales. We then multiplied our average solar lanterns and multi-light systems, and SHS pricing by global sales volumes to estimate an annual market turnover for solar lanterns and multi-light systems, and SHS products. See additional discussion in Annex 5 for estimating global OGS market value and sales volumes. 53 Open Capital Advisors analysis. 32 Off-Grid Solar Market Trends Report 2022: State of the Sector Among the off-grid appliances analyzed in this report, day to help tackle high post-harvest losses, a key driver for TVs and fans have the highest customer demand.54 TV food insecurity across both regions.56 In Southeast Asia, sales have consistently accounted for about half of all manufacturers are able to sell often costly refrigerated appliance sales (49% in 2021) while fan sales account for vehicles to larger last mile distributors (LMDs) given their about 49% of reported global appliance sales in 2021. ability to pay and preference to pay for higher quality cold Notably, TV sales contribute the majority of the appliance storage solutions.57 Nonetheless, high product prices are market turnover, increasing from 69% in 2018 to 74% in a key limiting factor impacting sales of refrigeration units 2021 (Figure 21). This increasing proportion of TV sales and solar water pumps (See Section 2.3 Insights from the is driven by higher sales volumes globally. (See Section Affiliate OGS Market and 2.4 Global OGS Product Pricing 2.3 Insights from the Affiliate OGS Market for additional Trends for additional insights). insights).55 PUE appliances, however, account for more significant Comparatively, sales for larger productive use of energy market turnover compared to household appliances (PUE) appliances are much lower, despite significant despite their lower overall proportion of sales volume. market potential (See Section 2.1). For example, in sub- While both refrigeration and solar water pumps account Saharan Africa and Southeast Asia, several companies for a very small portion of appliance sales volumes, both have adopted the cooling-as-a-service business model, product segments account for a relatively large portion of offering cold storage space to smallholder farmers for their appliance market turnover, owing to their higher prices. perishable produce at a cost of $0.50 per 20-kg crate per Figure 21: Comparison of annual estimates of appliance market turnover (2018-2021)58 2021 5% 13% 74% 9% 2020 5% 13% 69% 13% 2019 4% 16% 61% 19% 2018 9% 14% 67% 10% 0 10 20 30 40 50 60 70 80 90 100 Refrigeration units Fans TVs SWPs 54 Efficiency for Access Coalition (2021), Televisions Solar Appliance Technology Brief. Note: Household appliances account for significant volume of reported sales compared to productive use appliances due to their lower average prices but the PUE market segment is expected to continue accounting for a growing market share as the sector expands. Also across sub-Saharan Africa more than 80% of TVs are sold bundled in SHS kits; fans are sold in large volumes in Asia. 55 Efficiency for Access Coalition (2021), Fans Solar Appliance Technology Brief; GOGLA (2021), Global Off-Grid Solar Market Report Semi-Annual Sales & Impact Data H1 56 ColdHubs (2020), How ColdHubs won the 2020 Global CaaS prize. 57 Open Capital Advisors consultations. 58 Open Capital Advisors analysis. 33 2.3 Insights from the 2.3.1 Solar Energy Kits Affiliate Market Trends Affiliate OGS Market a. Global Semi-annual sales volumes data collected from GOGLA affiliates offers more detailed insights into the sector during the last two years. While not representative of the entire sector, affiliate data is included in this report as it clarifies trends at a more granular level. Global affiliate sales volumes decreased Affiliate sales reached their highest volumes ever in by 22% in 2020 before growing by 12% in 2019, and a 2018-2019 annual growth of 13%59 put the 2021, driven by increased PAYGo sales, industry on track to maximize its contribution to meeting including a growing PAYGo solar lanterns SDG7 targets. The COVID-19 pandemic, however, slowed segment. the global OGS market (Section 2.2), affiliates included. Global figures indicate a potential path to recovery, but these headline figures hide an uneven and fragile recovery. Data and insights from GOGLA affiliates show considerably Cash and PAYGo affiliate sales volumes demonstrate varied trends since 2019, not only along country lines sales across all product categories fell initially during the but also from company to company. Contributing factors pandemic, but that PAYGo was more resilient and has include company maturity, business model, product lines, already returned to growth. While global affiliate sales markets of operation, and ability to raise funds. Of the 54 decreased across all product categories in 2020, multi-light companies reporting sales in both the second half of 2019 systems (3-10 Wp) and small SHS (11-20 Wp) recovered and and the second half of 2021, 52% reported higher sales in outgrew 2019 sales in 2021. Global affiliate sales of solar 2021 than in 2019.60 lanterns have returned to growth, but have not reached pre-COVID levels. Sales of SHS above 20 Wp have yet to return to growth, with lower sales in 2021 than in 2020.61 Sales of products providing Tier 1 access are recovering, while sales of products providing Tier 2 access are yet to show clear signs of recovery (see Section 2.1) (Figure 22).62 Figure 22: Global affiliate sales volumes of OGS products by category (2017-2021) (in thousands)63 3500 3.219 2.995 2018 3000 2.644 2019 2.459 2500 2.263 2.268 Thousands 2.013 2020 2000 2.253 2021 1500 1.388 1.466 1.192 1.178 1000 511 519 420409 376 500 306 387 332 246 394 307 220 105 180 49 67 0 0-1.5 Wp 1.5-3 Wp 3-10 Wp 11-20 Wp 21-49 Wp 50-100 Wp 100+ Wp Lanterns MLS SHS Partial Tier 1 for Full Tier 1 an for an Full Tier 1 for a household Full Tier 2 for a household individual individual 59 GOGLA analysis of data collected for the Global Off-Grid Solar Sales and Impact Reports 2016-2021. 60 GOGLA analysis of data collected for the Global Off-Grid Solar Sales and Impact Reports 2016-2021. 61 GOGLA analysis of data collected for the Global Off-Grid Solar Sales and Impact Reports 2016-2021. 62 The Tiers of energy access are described in the Multi-Tier Framework (MTF), developed by ESMAP. The MTF represents an effort to build global, aggregable metrics and a database for evaluating electricity access. Energy access is measured on a tiered spectrum, from Tier 0 (no access) to Tier 5 (the highest level of access). 63 GOGLA analysis of data collected for the Global Off-Grid Solar Sales and Impact Reports 2016-2021. 34 Off-Grid Solar Market Trends Report 2022: State of the Sector Resilient PAYGo sales over the last two years sees PAYGo The COVID-19 pandemic has accelerated regional trends representing an increased share of affiliate sales for such as declining sales in South Asia, a slowdown in SHS, MLS and lanterns. In 2021, 37% of all sales were mature East African markets, but growth in key West and through PAYGo (Figure 23). This increases to 47% in sub- Central African markets Saharan Africa where PAYGo is far more prevalent than The relative importance of key regional and country in other key markets in Asia. Globally, the share of SHS markets for affiliates has shifted (Figure 24). sold through PAYGo increased from 70% in 2019 to 84% in 2021, while the share of MLS and lanterns sold through • In South Asia, where total volumes are driven by PAYGo increased from 16% in 2019 to 27% in 2021. Among the Indian market, sales have followed a structural them, the share of solar lanterns with phone charging sold declining trend since 2017 following grid expansions. by PAYGo grew from 12% in 2019 to 38% in 2021 to total 859,000 units.64 The resilience of PAYGo sales compared • East Africa, where Kenya is the most important to cash sales and the growth of PAYGo for smaller market, saw strong growth through 2019. After a product categories highlights the increased pressure on significant dip in 2020, the region is on a slow path to affordability of electricity access solutions caused by the recovery. COVID-19 pandemic’s economic consequences. • In West Africa, sales grew despite the COVID-19 pandemic. Strong growth in Nigeria is the driver Figure 23: Share of PAYGo solar energy kits sales behind this trend. volumes as percent of total solar energy kit sales volumes (2018-2021)65 • Similarly, although more nascent, key markets in Central Africa, such as Cameroon, have remained on a growth trajectory throughout the COVID-19 pandemic. 37% 33% The following subsections share further analysis for each region. 25% 22% © Efficiency for Access 40 35 30 25 20 15 10 5 0 2018 2019 2020 2021 The COVID-19 pandemic has accelerated regional trends such as declining sales in South Asia, a slowdown in mature East African markets, but growth in key West and Central African markets. 64 GOGLA analysis of data collected for the Global Off-Grid Solar Sales and Impact Reports 2016-2021. 65 GOGLA analysis of data collected for the Global Off-Grid Solar Sales and Impact Reports 2016-2021. Data collection for affiliates only enables distinction between cash and PAYGo starting in 2018. Prior to 2018, volumes of cash and PAYGo were aggregated without distinction. 35 Figure 24: Evolution of regional market shares of total affiliate sales of solar energy kits (columns) and total units sold by affiliates in India, Kenya, Nigeria and Cameroon (lines) (2018-202166 3.0 100% Sales volume per country Millions Market share per region 90% 2.5 80% 70% 2.0 60% 1.5 50% 40% 1.0 30% 20% 0.5 10% 0 0% 2018 2019 2020 2021 East Africa South Asia West Africa Central Africa Other India (peaked) Kenya (mature) Nigeria (emerging) Cameroon (nascent) © Efficiency for Access 66 GOGLA analysis of data collected for the Global Off-Grid Solar Sales and Impact Reports 2016-2021. 36 Off-Grid Solar Market Trends Report 2022: State of the Sector b. South Asia again in South Asia, represent only a small share of total volumes (Figure 25). Off-grid solar companies Overall, volumes in South Asia are driven by the Indian have diversified their product portfolio to include new market. Historically the largest market in volumes of products adapted to a weak grid setting, such as inverters affiliate sales, the Indian market consists largely of sales and inverter bulbs.67 Although sales are expected to grow of solar lanterns either sold cash or through microfinance relative to 2020 levels, they will likely not reach pre- institutions (MFIs). COVID-19 levels. A market remains for solar lanterns and Grid extension in India has led to declining solar lantern SHS in India for outdoor use cases or to complement the sales, and sales of solar home systems, while growing grid or mini-grid as a back-up or even as a primary source.68 Figure 25: Affiliates sales volumes of solar energy kits in South Asia (2018-2021)69 199 Thousands Thousands 2800 2666 200 2400 160 2000 1797 1600 120 111 77 81 1200 897 805 80 800 40 400 0 0 2018 2019 2020 2021 2018 2019 2020 2021 Lanterns & MLS SHS c. East Africa decline continuously since the end of 2019. On the other hand, younger markets such as Malawi, Mozambique East Africa, particularly Kenya, has been central to key and Madagascar are seeing strong growth in sales of developments for the off-grid solar industry, including off-grid lighting products. In the case of Mozambique and PAYGo solutions and modern SHS. Since 2018, East Africa Madagascar, support from intervention programs has been has been the largest market by volume for affiliates, ahead a key driver.70 of South Asia. With proportionally higher PAYGo and SHS sales, East Africa represents an important market in terms Growth in East Africa in 2021 was largely driven by of total value. lanterns and multi-light systems, notably through increased sales of PAYGo solar lanterns. PAYGo sales in While the OGS industry in the region returned to growth East Africa recorded their highest level yet with 1.87 million in 2021, this growth has been fragile and unevenly units sold in 2021. However, SHS sales have yet to return to distributed. In Kenya, sales were stable in 2020 compared growth and recorded substantially lower sales in 2021 than to 2019, but reported sales are lower in 2021 as companies in 2020 (Figure 26). weather the protracted effects of the COVID-19 pandemic (see Section 5.3). In Ethiopia, COVID-19, conflict and unresolved foreign exchange restrictions have led sales to 67 Sales of these products are currently not captured by the GOGLA sales data collection. 68 Harrington et al. (2020), Variation in Rural Household Energy Transitions for Basic Lighting in India. 69 GOGLA analysis of data collected for the Global Off-Grid Solar Sales and Impact Reports 2016-2021. 70 Madagascar: Off-Grid Market Development Fund (OMDF) offering RBF and debt funding by the Government of Madagascar, funded by the World Bank and implemented by Bamboo Capital Partners. Mozambique: BRILHO program financed by FCDO and Sweden, and implemented by SNV. Provides funding (catalytic grants and RBF) and technical assistance to support businesses in the off-grid sector (SHS, clean cooking and mini-grids) since 2019. 37 Figure 26: Affiliates sales volumes of solar energy kits in East Africa (2018-2021)71 4000 Lanterns Multi-light Thousands 3438 system (MLS) 3500 3038 3497 SHS 3000 2500 2456 2000 1500 1000 737 721 510 569 500 0 2018 2019 2020 2021 d. West Africa Nigeria represents more than half of affiliates’ sales in West Africa in 2021, and affiliate sales reported in Nigeria West Africa, especially Nigeria, has become a new growth were particularly high in 2021. Strong growth in Nigeria driver for the industry since 2019, particularly in sales is linked to multiple factors including a large untapped of SHS. Prior to 2019, West Africa was still perceived as a potential market, increasing diesel prices in a market relatively new market for off-grid solar, with companies where generators are often used as a back-up to a weak operating in East Africa progressively exploring market grid. The implementation of the Nigeria Electrification entry. Since 2018, affiliate sales, both cash and PAYGo, Program has also contributed, which includes RBF for off- have shown strong growth in West Africa with cash sales grid solar and is implemented by the Rural Electrification growing 31% and PAYGo recording a staggering 178% Agency with funding from the World Bank and the African growth. Lanterns and multi-light systems sales, which Development Bank (see Section 5.1). declined between 2016 and 2018, have rebounded above their 2016 level, while SHS sales were multiplied by Trends in most other West African markets have been less 1.87 between 2018 and 2021 (Figure 27).72 Overall, when consistent, with the majority of markets yet to show a solid compared to East Africa, SHS represent a much larger return to growth as of 2021. share of affiliate sales in West Africa. © Power Africa 71 GOGLA analysis of data collected for the Global Off-Grid Solar Sales and Impact Reports 2016-2021. 72 GOGLA analysis of data collected for the Global Off-Grid Solar Sales and Impact Reports 2016-2021. 38 Off-Grid Solar Market Trends Report 2022: State of the Sector Figure 27: Affiliates sales volumes of solar energy kits in West Africa (2018-2021)73 700 Lanterns & MLS Thousands 600 685 SHS 494 500 538 437 400 377 300 229 250 200 132 100 0 2018 2019 2020 2021 e. Central Africa 103% to close to 300,000 units, while PAYGo sales grew by 178% reaching 115,000 units. During the same period, Sales data from affiliates for the region remains far lower lanterns and MLS sales grew 98%,74 and SHS sales grew than sales recorded in East or West Africa. However, by 450%.75 Further data collection will clarify if the high recent data highlights potential for growth (Figure volume of smaller products sold in 2021 is a peak or 28). Key markets for SEKs in the region are the DRC and indicative of a more significant trend. Cameroon. Between 2018 and 2021, cash sales grew by Figure 28: Affiliates sales volumes of solar energy kits in Central Africa 2018-202176 350 Lanterns & MLS Thousands 348 300 SHS 250 213 200 150 176 144 100 64 50 36 29 12 0 2018 2019 2020 2021 73 GOGLA analysis of data collected for the Global Off-Grid Solar Sales and Impact Reports 2016-2021. 74 Solar lanterns and multi-light systems sales volumes for Central Africa have included peaks in the past (e.g. over 300,000 units sold in 2017) and further data collection will be needed to confirm positive trends. 75 GOGLA analysis of data collected for the Global Off-Grid Solar Sales and Impact Reports 2016-2021. 76 GOGLA analysis of data collected for the Global Off-Grid Solar Sales and Impact Reports 2016-2021. 39 2.3.2 Appliance Affiliate Market Appliance sales data collected from affiliates focuses on four key appliances: TVs, fans, refrigeration units (RUs) Trends and solar water pumps (SWPs). Data on appliances were collected starting in 2018, but the number of companies participating in data collection remains limited, especially for RUs and SWPs. Limitations to the data are highlighted below.77 Affiliate sales of appliances have a. TVs decreased over the last two years as a Affiliates’ TV sales are mostly reported in sub-Saharan result of supply chain disruptions and Africa by PAYGo companies selling SHS bundled with TVs. lower customer ability to pay, particularly TVs sold via PAYGo may be part of a kit or an up-sell to an for larger productive appliances such as existing SHS customer. Large TVs (24-29”) are the most popular and extra-large TVs (30+”) are increasingly popular, refrigeration units and solar water pumps. while sales of medium (18-23”) and small TVs (<18”) are declining. This reflects customer preference for larger TVs and improved efficiency of larger sets, which now use similar electricity consumption to smaller TVs. Figure 29: Affiliates sales volumes of TVs in East and West Africa (2019-2021) (thousands)78 350 327 Thousands 2019 300 294 2020 2021 250 241 200 150 119 113 100 90 50 0 West Africa East Africa Cumulative sales from 2019 to 2021 show the five largest During the first half of the pandemic, increased TV markets in descending order for TVs sold by affiliates sales were reported in East Africa (Figure 29). Evidence are Kenya, the DRC, Tanzania, Côte d’Ivoire and Uganda. suggests lockdowns stoked demand for TVs across major Kenya represents 47% of reported TVs sales globally markets for access to information and entertainment. between 2019 and 2021.79 However, pandemic-related supply chain disruptions particularly affected TV sales, raising prices and leading to stock-outs for distributors during the second half of 2020 and in 2021. TV sales in Kenya in particular increased by 27% in 2020 over 2019 before decreasing by 38% in 2021. 77 Note: Affiliates data collection for off-grid appliances only began in 2018 and it is estimated that affiliate sales data in that year was significantly under-reported including in subsequent years; CLASP estimates less than 40% of affiliate companies reached out share their sales data. 78 GOGLA analysis of data collected for the Global Off-Grid Solar Sales and Impact Reports 2016-2021. 79 GOGLA analysis of data collected for the Global Off-Grid Solar Sales and Impact Reports 2016-2021. 40 Off-Grid Solar Market Trends Report 2022: State of the Sector b. Fans generally table or pedestal fans and are smaller than those sold in South Asia, where ceiling fans are more common. Most fan sales reported by affiliates are from specialized manufacturers. Among off-grid household appliances, Since 2019, Pakistan, Bangladesh, India, the Philippines fans are one of the most affordable appliances, typically and Nigeria have consistently been among the largest recording low unit prices and high sales volumes. Fan sales markets for affiliate fan sales.82 In South Asia, sales have are highly seasonal, with most sales happening between slowed since 2019. While participation by companies in January and June in South Asia due to climate and data collection for fans in South Asia has been inconsistent. weather. This makes confirming trends challenging, although anecdotal evidence points to COVID-19 restrictions and South Asia is the largest market due to strong local supply chain disruptions for raw materials - such as copper manufacturing capability and overall large market size and aluminum - as factors that may have affected the (Figure 30).80,81 Fans are sold for cash and are generally not market. Meanwhile, fan sales in West Africa have steadily bundled with a power source. Outside of South Asia, fan increased over the last two years. sales have grown in West and Central Africa, where fans are likely to be bundled with a SHS. Fans sold in kits are Figure 30: Affiliates sales volumes of Fans in South Asia and West Africa (2019-2021) (thousands)83 650 623 Thousands 2019 600 550 2020 500 2021 450 410 400 350 300 253 250 200 90 150 100 71 50 36 40 0 South Asia West Africa Affiliates reporting sales of RUs are mostly specialized but shows decreasing sales in 2020 and 2021 (Figure 31). manufacturers, although some SHS companies have also This is tied to the effects of the pandemic, and key affiliate integrated RUs into their offerings. Refrigeration units companies deprioritizing RUs within their portfolio. include fridges, freezers and multi-temperature fridges.84 The market for off-grid refrigeration solutions remains nascent. Barriers identified to the mainstreaming of this technology include a lack of proven commercial business models and high cost. The sales data available is limited85, 80 Efficiency for Access (2021), Fans Solar Appliance Technology Brief. 81 Efficiency for Access (2021), Appliance Data Trends. 82 GOGLA analysis of data collected for the Global Off-Grid Solar Sales and Impact Reports 2016-2021. 83 GOGLA analysis of data collected for the Global Off-Grid Solar Sales and Impact Reports 2016-2021. 84 Larger walk-in or containerized RUs have so far not been included in the data collected from affiliates. 85 Participation of RU manufacturers in the data collection remains limited at this stage. 41 Figure 31: Global affiliates sales volumes of refrigeration units (2019-2021)86 2.4 Global OGS Product 9 Pricing Trends Thousands 8.156 8 7.756 7 6.315 2.4.1 Global Solar Energy Kit 6 Pricing Trends 5 4 3 2 1 Global supply chain disruptions due to 0 COVID-19 have fueled increases in global 2019 2020 2021 nominal prices for solar energy kits. There Similarly to RUs, affiliates reporting SWP sales are mostly is also increased price competition across specialized manufacturers. Reported sales volumes the solar energy kits product range. remain low at 13,000 units in 2021 (Figure 32).87 Affiliates mainly report sales of SWPs in sub-Saharan Africa and a majority of units are reported as PAYGo sales. However, this Material costs, logistics costs, and lead times have is largely due to low participation in the data collection for increased due to supply chain disruptions related to this appliance category. Therefore, it is not representative COVID-19. Prior to the COVID-19 pandemic, solar PV of known large markets, particularly in South Asia where module prices steadily declined over decades, driven PAYGo is far less common.88 A peak in sales in 2019 linked largely by technological advances in PV module efficiencies to government programs in South Asia limits the analysis and associated hardware cost improvements. Since of trends. Yet, growth in sales reported by affiliates in 2021 2020, however, the cost of PV modules and key electrical is an encouraging sign. components such as microcontroller chips has increased due to inflated prices of raw materials, chronic shortages of Figure 32: Global affiliates sales volumes of solar key components and shipping disruptions brought about by the pandemic. water pumps (2019-2021)89 Increased costs and resulting inflationary pressures 32 30.513 Thousands from pandemic-related impacts have resulted in price 30 increases for solar energy kits (Figures 33 and 34). 28 Market data from surveys and stakeholder consultations 26 indicate manufacturers have passed on cost increases to 24 consumers across solar energy kit product categories.90 22 For example, between 2020 and 2022, the median nominal 20 prices of 0-1.5 Wp increased from $8 to $9, while the 3-10 18 Wp segment recorded an increase from $88 to $91 over 16 the same period.91 The range of nominal prices for 3–10 14 13.007 Wp products widened to $37–$172 in 2022 compared to 12 11.405 $36–$140 in 2020. The products at the high end of this 10 range include new products with features similar to lowest- 2019 2020 2021 capacity SHS rated at 11-20 Wp. 86 GOGLA analysis of data collected for the Global Off-Grid Solar Sales and Impact Reports 2016-2021. 87 GOGLA analysis of data collected for the Global Off-Grid Solar Sales and Impact Reports 2016-2021. 88 By design, the data collection is limited to SWP smaller than 3kW. Furthermore, at this stage, participation of manufacturers in the data collection remains limited. 89 GOGLA analysis of data collected for the Global Off-Grid Solar Sales and Impact Reports 2016-2021. 90 GOGLA (2022), Supply Chain Disruption Survey (unpublished). 91 Note: Pricing data comprises data from the Mangoo marketplace, company websites, consultations with off-grid companies and Chinese manufacturers, and industry reports such as the Ipsos market studies in Kenya, Ethiopia, and Tanzania. 42 Off-Grid Solar Market Trends Report 2022: State of the Sector Figure 33: Global indicative cash price ranges of solar lanterns and multi-light system products by wattage (2020 versus 2022)92 Price per unit (USD) 200 Median nominal prices 180 $37-172 160 $36-140 140 120 100 $88 $91 80 60 $6-50 $6-51 $4-40 40 $3-26 $26 $27 20 $8 $9 0 2020 price 2022 price 2020 price 2022 price 2020 price 2022 price 0 to 1.5 Wp 1.5 to 3 Wp 3 to 10 Wp Solar lanterns & Multi-light systems These prices are listed as nominal to indicate they are not adjusted for inflation. Based on our analysis of key inflation rates across key markets in sub-Saharan Africa and southeast Asia, we estimate an aggregate inflation rate of 6.58% which may have contributed to price increases between 2020 and 2022 in addition to the other factors outlined throughout the report. Compared to 2020, while average nominal prices sourced directly from China. On the other hand, West across solar home systems have increased, the range of African markets are relatively smaller, with reduced market nominal prices has also increased, signaling increased competition and have longer supply chains compared to price competition as well as diversification by solar kit East Africa, as evidenced by marginally higher $38 median companies.93 For instance, the range of nominal prices for nominal prices for solar lanterns and multi-light system 51–100 Wp SHS widened to $50–$1,100 in 2022 compared products in West Africa compared to $36 in East Africa, to $168–$892 in 2020, with both cheaper as well as more respectively (Figure 35).94 expensive products catering to more consumers within Note that West African markets have also experienced lower and higher price ranges. increased inflation at an estimated 15.5% compared Markets in East Africa and South Asia on average to East Africa which has an inflation of 9.7% which continue to see marginally lower price points than has impacted the prices.95 Despite the supply chain markets in West Africa and East Asia; certain key markets disruptions caused by the pandemic, delivery time to in West Africa, however, have also experienced sustained East Asia from China has remained short, with containers inflationary pressures contributing to higher prices. arriving in the Philippines within 7 days; however the East African markets are quite mature, with high levels of last-mile logistics needed to deliver solar energy kits from competition and greater access to manufacturing hubs, main shipping ports to retail customers spread across while markets in South Asia have shorter supply chains multiple islands and a corresponding lower economies and higher availability of cheaper, non-affiliate products of scale results in higher overall costs to serve customers, 92 Note: The comparison of 2020 and 2022 prices is based on prices accessed from the sources above at the time of writing the report; it is likely that some of the 2022 pricing data includes 2020 prices as companies have not updated their databases and/or are unwilling to disclose latest prices. 93 Open Capital Advisors analysis of data from Mangoo marketplace, company websites and consultations. 94 Open Capital Advisors analysis of data from Mangoo marketplace, company websites and consultations. 95 Note: Key countries in West Africa such as Nigeria and Ghana have experienced sustained inflationary pressures since the onset of the pandemic which could have had a larger impact on prices in that region compared to East Africa. 43 thus higher retail prices in East Asia (median nominal solar trends for SHS mimic those of solar lanterns and multi- lanterns and multi-light systems price: $40) compared to light system products. For example, the median nominal South Asia (median nominal solar lanterns and multi-light prices for SHS products are on average 7% higher in West systems price: $26) (Figure 35).96 Notably, regional price Africa than in East Africa. Figure 34: Global indicative cash price ranges of SHS by wattage (2020 versus 2022)97 Price per unit (USD) 2000 $583-1876 Median nominal prices 1800 $708-1760 1600 1400 1200 $50-1100 $1234 $1230 1000 $168-892 800 $40-686 $678 600 $190-495 $465 $530 400 $33-280 $84-210 $343 200 $207 $147 0 2020 price 2022 price 2020 price 2022 price 2020 price 2022 price 2020 price 2022 price 11-20 Wp 21-49 Wp 51-100 Wp 100+ Wp Solar home systems There is not sufficient data in East Asia to allow for space, the timing of individual country integration efforts comparison with South Asia.98 Potential impact of with ECOWAS policies remains uncertain resulting in policy interventions such as the revocation of OGS VAT uncertainties in tax and duty exemptions which adds to exemptions by the Kenyan government in 2020 likely the cost of doing business and corresponding impacts also contributed to consumer price increases in the on product prices sold in that region. (See Chapter 7 for country. Similarly, in West Africa while countries continue additional policy considerations). to introduce regulations to promote the off grid solar 96 Open Capital Advisors analysis of data from Mangoo marketplace, company websites and consultations. Note: Some markets e.g. East Asia have significantly limited pricing data available online hence these prices are only indicative estimates; similarly across regions, pricing sample sizes varied significantly e.g. in West Africa we consistently had about a dozen pricing estimates per product category compared to East Africa where there are >50 pricing estimates for affiliate products. 97 Note: Pricing data comprises data from the Mangoo marketplace, company websites, consultations with off-grid companies and Chinese manufacturers, and industry reports such as the Ipsos market studies in Kenya, Ethiopia, and Tanzania. The comparison of 2020 and 2022 prices is based on prices accessed from the sources above at the time of writing the report; it is likely that some of the 2022 pricing data includes 2020 prices as companies haven’t updated their databases and/or are unwilling to share latest prices. 98 Open Capital Advisors analysis of data from Mangoo marketplace, company websites and consultations. 44 Off-Grid Solar Market Trends Report 2022: State of the Sector Figure 35: Regional indicative cash price ranges of solar lanterns and multi-light system products99 Price per unit (USD) Median nominal price 200 $5-182 180 $4-172 $9-170 160 140 120 $4-112 100 80 60 40 $38 $40 $36 $26 20 0 East Africa West Africa East Asia South Asia 0 to 10 Wp (Africa) 0 to 10 Wp (Asia) Solar lanterns & Multi-light systems PAYGo prices are on average 25–27% higher than cash over-the-counter prices for solar lanterns and multi-light PAYGo financing continues to drive systems and SHS in line with associated financing costs uptake of OGS sales by enabling increased (Figure 36). Nonetheless, for low-income consumers, affordability. the increase in total cost is offset by two key benefits: (1) increased affordability of PAYGo systems, as it is easier to spend $1 a day than pay $250 upfront, and (2) the PAYGo adoption over the last several years has increased opportunity offered by PAYGo for previously unbanked solar kit sales by lowering the upfront cost. PAYGo and underbanked households to build a credit profile increases the affordability of products for customers, with and lower future perceived credit risk. As a result of down payments equaling on average approximately 8-9% PAYGo payment history, many off-grid companies have of total asset price (Figure 36). Note that PAYGo down leveraged customers' credit payment history to offer other payments can range from 3% of total cost for solar lanterns products and services on credit, such as PUE appliances and multi-light system products to 15% of total cost for (See Section 2.4.2).101 higher-value SHS products. PAYGo is also increasingly offered for DC-powered appliances (particularly in sub- Saharan Africa) either as part of solar home systems or sold as standalone components, often leveraging income generated by productive assets to make repayments, those assets including TVs, hair clippers, and mobile charging stations.100 99 Open Capital Advisors analysis of data from Mangoo marketplace, company websites and consultations. 100 Open Capital Advisors analysis of data from Mangoo marketplace, company websites and consultations. 101 Open Capital Advisors analysis and consultations. 45 Figure 36: Estimated PAYGo down payment of the total contract amount and average PAYGo price as a percentage of cash price for solar energy kit products102 Down payment (%) Upfront cash payment Median PAYGo instalments (as a % of total cost) 130 Median: 8.1% 120 125% 127% Solar lanters & 110 100 multi-light 2.9% 10.0% 90 100% 100% systems (0-10W) 80 70 Median: 8.9% 60 50 40 SHS (11-100+W) 3.2% 14.8% 30 20 10 0 0 5 10 15 20 Cash price Median PAYGo Cash price Median PAYGo price price Solar lanterns & SHS (11-100+ W) Multi-light systems (0-10W) 2.4.2 Global Appliance Pricing Trends Pandemic-related lockdowns hampered transportation and logistics and subsequently increased component and shipping costs, leading to increased prices for appliances such as fans and TVs (Figure 37). According to a recent Global price increases due to COVID-19 survey conducted with a relatively small number of related supply chain disruptions have manufacturers, over the last two years average consumer resulted in reduced PUE appliance sales, but prices of appliances have increased by 13% for small TVs market remains nascent and companies are and 9% for fans.103 These price increases have been driven expected to continue innovating products by the increase in cost of electrical components such as microcontroller chips and batteries due to the supply chain focused on agriculture sector. disruptions caused by the COVID-19 pandemic which has led to manufacturers passing on these cost increases to consumers.104 It is worth noting that TV prices increased during the early stages of the COVID-19 pandemic due to stockouts caused by increased demand (See Section 2.2) as well as supply chain disruptions.105 © Power Africa 102 Note: These charts reflect average PAYGo prices; actual PAYGo prices can occasionally range up to twice the comparable cash prices depending on company, product and other market factors. 103 GOGLA (2022), Supply Chain Disruption Survey (unpublished) and Open Capital Advisors analysis and consultations. Note that these are unbundled prices i.e. TV sold as a standalone appliance instead of part of a solar home system kit; also there are no 2020 prices included given this data was not collected as part of developing the 2020 MTR. 104 GOGLA (2022), Supply Chain Disruption Survey (unpublished). 105 GOGLA (2022), Global Off-Grid Solar Market Report Semi-Annual Sales and Impact Data Report H2 2021. 46 Off-Grid Solar Market Trends Report 2022: State of the Sector Figure 37: Global indicative cash price ranges for solar TVs and fans106 Price per unit (USD) 350 $111-325 Median nominal price 300 $95-290 250 $40-239 200 $34-161 $157 150 $133 $120 100 $8-61 $17-62 $14-65 50 $57 $39 $38 $33 0 Small <12-17'' Medium Large Extra Large Table 100- Pedestal 320- Ceiling 18''-23'' 24''-29'' >30'' 380mm 650mm 1000-1400mm TVs Fans As with solar energy kits, PAYGo has made PUE Customers pay on average a 23% down payment, after appliances more affordable.107 Total PAYGo prices for which, the remaining balance can be paid in regular solar water pumps on average command a 29% mark- PAYGo installments over an 18-month period (or more), up over cash prices to cover financing costs (Figure 38), depending on the company, market and other customer or PAYGo products make these products more accessible. risk factors.108 Figure 38: Estimated PAYGo down payment of the total contract amount for solar water pumps (left) and average PAYGo price as a percentage of cash price (right)109 Upfront cash payment Average PAYGo instalments 129% 130 120 110 100% Down payment solar water pumps 100 (as a % of total cost) 90 80 Median: 23% 70 60 50 8% 29% 40 30 20 10 23% 0 0 5 10 15 20 25 30 35 40 Cash price Average PAYGo price Solar water pumps 106 Open Capital Advisors analysis of data from Mangoo marketplace, company websites and consultations. 107 GOGLA (2020), Global Off-Grid Solar Market Report Semi-Annual Sales and Impact Data H1 2020. 108 Open Capital Advisors analysis and consultations. 109 Open Capital Advisors analysis of data from Mangoo marketplace, company websites and consultations. 47 Research and development in solar water pumps has There are now more products for off-grid cold storage, led to cost reductions since 2019. However, disruptions with manufacturers developing new, niche cooling caused by COVID-19 have increased the costs of some solutions offered at varying price points based on raw material components such as metal casings, as consumer needs. For example, India has one of the well as logistics costs.110 Companies recently introduced largest milk markets in the world, and manufacturers in complete, easy-to-install solar water pumping kits to the market have developed new solar-powered products replace hand pumps in off-grid areas. Priced at an average in refrigeration and cold storage. Solar-powered milk $400–500, a comparable price point to hand pumps, these chilling systems range from medium-sized 300L systems kits last longer and require less maintenance. hHigher- for smallholder farmers in villages to large-scale, 10,000L powered solar water pumps of 1,500+W, though, cost more chilling systems for dairy corporations.112 than $1,000 on average (Figure 39).111 Figure 39: Estimated global cash price ranges of PUE appliances113 Price per unit (USD) 3000 $403-2713 Median nominal price 2500 $120-2427 $2,082 2000 $134-1800 $165-1817 $107-1559 1500 $1,105 1000 $72-793 $754 $624 $651 500 $264 0 Small <100L Medium Large 0-999W 1000-1999W 2000+W 100-200L 200-300L Cold Storage Solar water pumps 110 GOGLA (2022), Supply Chain Disruption Survey (unpublished) and Open Capital Advisors analysis and consultations. 111 Open Capital Advisors analysis and consultations. 112 Open Capital Advisors analysis and consultations. 113 Open Capital Advisors analysis of data from Mangoo marketplace, company websites and consultations. 48 Off-Grid Solar Market Trends Report 2022: State of the Sector 49 © Power Africa 03 The Socioeconomic and Environmental Impact of the OGS Industry © Power Africa 50 Off-Grid Solar Market Trends Report 2022: State of the Sector KEY MESSAGES • The number of people accessing solar energy kits grew from 420 million people at the end of 2019 to 490 million people at the end of 2021 • An estimated 128 million people missed out on accessing off-grid solutions in the last two years • Solar energy kits and productive use of energy products have already avoided 190 million tonnes of CO2e and plays a critical role in achieving a faster and more equitable clean energy transition • Today, the off-grid sector is powering over 10 million enterprises and creating hundreds of thousands of green jobs longer lifespan of larger products, and current customers 3.1 The Impact of OGS beginning to move up the clean energy staircase.115 In many cases, customers move up the clean energy staircase when on Energy Access they have paid off, or made savings from, their initial solar energy kit (SEK) and are able to purchase new, often larger The number of customers with a Tier 1 or higher level products or additional services. 3.8 million customers have of electricity access continued to rise (Figure 40), with also gained access to solar TVs in 2020 and 2021, which were those gaining Tier 2 access growing by 160% between particularly critical for accessing news, health information 2019 and 2021.114 This is a result of ongoing sales, the and educational programs during COVID-19 lockdowns.116 Figure 40: People benefiting from access to electricity through solar energy kits (millions)117 2021 157 214 122 2019 199 172 47 0 50 100 150 200 250 300 350 400 450 500 Millions Below full Tier 1 Full Tier 1 Full Tier 2 SEKs provide the primary source of lighting for millions of rural households and provide both backup and first-time access in urban centers (Figure 41). Households which rely on solar for their primary lighting are predominantly rural. However, there are also notable levels of urban sales, with The number of people accessing solar numbers varying widely by country. Urban sales of solar energy kits has grown from 420 million energy kits are often assumed to provide grid-back up, yet people in 2019 to over 490 million people the data shows that many urban households also use them for primary access.118 Amongst these, Uganda, Rwanda and at the end of 2021, with more people Liberia, see SEKs more commonly used to provide urban gaining higher ‘Tier 2’ levels of access. households with first-time access than to provide backup power.119 114 GOGLA and Open Capital Advisors analysis, using the Off-Grid Solar Standardized Impact Metrics. 115 GOGLA consultations. 116 GOGLA and Open Capital Advisors analysis, using the Off-Grid Solar Standardized Impact Metrics. 117 Ibid. 118 World Bank/ESMAP analysis of the Multi-Tier Framework Country-level Surveys. For more information, please see https://mtfenergyaccess. esmap.org 119 Ibid. 51 Figure 41: Location of customers using solar kit as a primary source of light/power in 8 countries with high electricity access deficits120 Zambia Uganda Rwanda Nepal Myanmar Liberia Kenya Honduras Ethiopia Cambodia Rural Primary Solar User Urban Primary Solar User Rural Back-up Solar User Urban Back-up Solar User Every human pictogram represents one percentage of population. 120 Ibid. 52 Off-Grid Solar Market Trends Report 2022: State of the Sector © Power Africa Households in the lowest income quintiles using solar Many customers with PAYGo off-grid solar are now energy kits most commonly use them as a primary source accessing larger SHS, appliances and ‘beyond energy’ of light, rather than for grid back up.121 For example, of solutions. Off-grid customers are now buying additional people using SEKs in Nepal, 90% of those in the lowest DC appliances, solar generators that can power their income quintile use their kit for a primary source of current appliances with an AC-DC converter, or ‘beyond electricity and 10% use them as a backup source of power. energy’ solutions such as mobile phones and clean In contrast, 30% of solar users in the top income quintile cookstoves (see Section 5.4). It is most commonly solar use SEKs as a primary electricity source and 70% as energy kit companies that are expanding their ranges to backup.122 enable their customers to buy additional, and often more expensive products. However, some companies selling SEK customers in the lowest income quintile rely larger PUE products are also expanding their range to almost exclusively on solar lanterns, suggesting increase their impact and meet demand. For example, that affordability stops those in poorer households solar irrigation company, SunCulture, now includes purchasing larger products, such as solar home systems. lighting and television as part of its latest solar irrigation In Zambia, amongst households using solar energy kits bundle. in the lowest income quintile, only 4% own a solar home system, with 95% relying on solar lanterns and 1% using their product for grid backup. On the other hand, 86% of those in the top income quintile use SEKs as grid backup, 7% use solar home systems as a primary light source and 7% use solar lanterns.123 This suggests that many low An estimated 128 million people missed income customers cannot afford a SHS, and that more out on accessing OGS solutions in the last affordable solar lanterns are instead providing the first two years. access they have to clean electricity. Consultations with companies reveal that, where customers do gain access to solar lanterns, these products can provide a step onto the A slow-down in sales growth compared to pre-pandemic clean energy staircase. Energy savings and/or a customer’s levels caused an estimated 128 million people and 3.1 emerging credit history from their solar lantern purchase million businesses to miss out on access to solar energy can allow them to buy bigger systems and/or additional kits in the last two years (Figure 42). This is a result of products. disruption to OGS company operations and supply chains. Millions more people were pushed into poverty, reducing their ability to afford OGS technologies. 121 Ibid. 122 Ibid. 123 Ibid. 53 Figure 42: Additional people with improved electricity access from off-grid solar kits, per year, alongside those who would have gained access had the sector remained on its pre-COVID growth trajectory124 250 200 69 59 150 Millions 100 168 145 137 131 50 0 2018 2019 2020 2021 Realised Missed opportunity In addition to the missed opportunity for greater The growth in the number of people displaced by war, electricity access, data from the IEA revealed that the violence, persecution and human rights abuses has also increase in poverty created by the pandemic also led to seen more people lose electricity access, with UNHCR millions of people losing electricity access.125 This was estimating that the number of people displaced grew by also seen in the OGS sector. Analysis on ‘write-off ratios’ 8% between 2020 and 2021 to almost 90 million.128 The for PAYGo companies suggests the number of households vast majority of refugees and internally displaced people that may have lost access to their solar energy kit due to lack access to electricity. Those who can purchase energy default on their payments doubled between 2019 and 2020, do so at disproportionate cost.129,130 Forced to leave their remaining at the higher rate in 2021.126 Research to uncover communities, without electricity, they struggle to gain the effects of COVID-19 on PAYGo customers showed that, basic power to study, work, or stay connected to their while they continued to see significant value in their systems families. In the last few years, off-grid companies have and tried to prioritize electricity payments, 75% reported continued to provide solar energy kits to several areas of increased economic hardship in May 2020, with 28% still humanitarian crisis, including Yemen and Bangladesh131, finding their financial situation worse than pre-pandemic and delivered market-based projects in Kenya, Rwanda in October 2020, a key factor in the higher write off ratio.127 and Uganda.132 However, the Global Platform for Action Amongst other macroeconomic challenges, the high levels on Sustainable Energy in Displacement Settings, has of global inflation and the looming food security crisis linked recognized that extensive funding, program and capacity to the war in Ukraine continue to pose a risk to customer gaps need to be addressed in order to electrify the millions finances. Higher defaults leading to lost electricity access is a of refugees and internally displaced people living without significant concern for customer wellbeing. Further insights modern energy. on the growth in the write-off ratio and efforts to address this issue are discussed in Section 5.3. 124 GOGLA and Open Capital Advisors analysis, using the Off-Grid Solar Standardized Impact Metrics. 125 IEA (2022), Tracking SDG7: The Energy Progress Report 2022. 126 GOGLA (2020), PAYGo COVID Impact Monitor. 127 60 Decibels (2020), COVID-19 Dashboard. 128 UNHCR (2022), Global Trends: Forced Displacement 2021. 129 GPA (2022), The State of the Humanitarian Energy Sector: Challenges, Progress and Issues in 2022. 130 Moving Energy Initiative (2018), Prices, Products and Priorities: Meeting Refugees Energy Needs in Burkina Faso and Kenya. 131 GOGLA analysis of data collected for the Global Off-Grid Solar Sales and Impact Reports 2019-2021. 132 EnDev (2020), Humanitarian Energy: Energy for Micro-enterprises in Displacement Settings. 54 Off-Grid Solar Market Trends Report 2022: State of the Sector 3.2 The Impact of OGS on the Sustainable Development Goals (SDGs) In addition to SDG7 - access to affordable, reliable, sustainable and modern energy - the OGS sector is demonstrating benefits that will help achieve a further 10 SDGs, with PUE significantly expanding impacts related to SDG8 and SDG13. Solar kits and efficient appliances create a ripple effect of positive impacts, beyond access to electricity. The graphic below shows how the OGS sector is positively affecting various SDGs (Figure 43), whilst the sections below take a deep dive into impact areas in which new data or activity has emerged in the last two years. These include health, employment, food security, and climate. Figure 43: Examples of how OGS contributes to the SDGs GOAL 1: Low income households GOAL 3: 95% of SHS customers reported have saved an estimated $26 billion in improved health and safety due to their traditional fuel costs through a switch to system136 and OGS technologies are also solar lanterns and small SHS.133 being used to power public institutions and health facilities.137 GOAL 2: 96% of farmers across GOAL 4: In West Africa 91% of six countries report an increase in households with children report productivity since using their off-grid that they have more time to do their solar water pump (SWP)134, while cold homework thanks to solar energy storage is reducing food loss.135 kits138 and OGS is being used to electrify schools.139 133 GOGLA and Open Capital Advisors analysis, using the Off-Grid Solar Standardized Impact Metrics. 134 Efficiency for Access Coalition and 60 Decibels (2021), Uses and Impact of Solar Water Pumps. 135 International Food Policy Research Institute (2019), Solar-powered Cold-storages and Sustainable Food System Transformation: Evidence from Horticulture Markets Interventions in Northeast Nigeria. 136 GOGLA (2021), Powering Opportunity: Energising Work, Enterprise and Quality of Life with Off-Grid Solar. 137 See Section 3.2.1. 138 GOGLA (2021), Powering Opportunity: Energising Work, Enterprise and Quality of Life with Off-Grid Solar. 139 UN Foundation and SEforALL (2019), Lasting impact - Sustainable Off-grid Solar Delivery Models to Power Health and Education. 55 GOAL 5: SWPs reduce domestic hardship GOAL 9: Millions of people can stay for women. Without a local irrigation better connected via phone, radio, TV source, 14 million women in sub- and the internet, with 9 million people Saharan Africa spend more than 30 more financially included via PAYGo minutes a day collecting water.140 solutions.145 GOAL 6: Thousands of SWPs are used GOAL 10: 28% of SHS customers in East to provide fresh, clean water, with Africa, many of whom live on less than emerging technologies also using solar $3.10 a day, reported that their system to remove salt and arsenic from water had helped them increase their income, sources.141,142 helping reduce inequality.146 GOAL 7: 490 million people are currently GOAL 13: 190 million metric tons of CO2e benefiting from improved electricity has been avoided by replacing kerosene access, thanks to off-grid solar. and diesel generators, while OGS is improving resilience to climate change and natural disaster.147,148 GOAL 8: 370,000 FTE jobs have been created in the off-grid industry; and an estimated 10 million enterprises are currently powered by OGS solutions.143,144 © Oolu Solar 140 UNICEF (2016), Collecting Water is often a Colossal Waste of Time for Women and Girls. 141 OffGrid Web (2018), Offgridbox Solar Water Purification System. 142 Otter et al. (2017), Arsenic Removal from Groundwater by Solar Driven Inline-Electrolytic Induced Co-Precipitation and Filtration-A Long Term Field Test Conducted in West Bengal. 143 GOGLA (2019), Off-Grid Solar: A Growth Engine for Jobs. 144 GOGLA and Open Capital Advisors analysis, using the Off-Grid Solar Standardized Impact Metrics. 145 GOGLA analysis. 146 GOGLA (2021), Powering Opportunity: Energising Work, Enterprise and Quality of Life with Off-Grid Solar. 147 GOGLA and Open Capital Advisors analysis, using the Off-Grid Solar Standardized Impact Metrics 148 See Section 3.2.2. 56 Off-Grid Solar Market Trends Report 2022: State of the Sector 3.2.1 Powering Healthcare friendly cold chain infrastructure and illustrates a shift to the use of decentralized clean energy to power health infrastructure in areas the grid does not reach, or where there is inconsistent power supply. At least 25 countries, including Uganda, Haiti, Ethiopia, Since the start of the pandemic, the Burundi and Liberia, funded by the World Bank are urgency of electrifying health centers and also planning to power health centers with off-grid storing vaccines has become more acute. solar. These projects are currently under preparation or implementation. Increased programmatic focus on the use of OGS to electrify health infrastructure is also noted in Many governments and development agencies created Section 7.3. COVID-19 emergency response activities in respect of As well as powering healthcare, off-grid solar off-grid cooling and power for health infrastructure. technologies have a range of other health benefits. For About 1 billion people worldwide are served by healthcare example, solar water pumps are improving crop yields and facilities without reliable electricity.149 It is estimated that clean water supplies that have a direct impact on nutrition one in four healthcare facilities in sub-Saharan Africa and reduced risk of water borne viruses (see Section has no electricity.150 Approximately, 28% have reliable 3.2.2). Reduced kerosene use in the home, by replacing access to electricity.151 A number of governments and traditional lanterns with solar lighting, leads to significant development organizations worked to address this reductions in particulate matter which has been linked challenge and improve health infrastructure and vaccine to reduced risk of respiratory and pulmonary disease. storage with off-grid solutions. For example, at least 30 Results from studies in Kenya153 and Uganda154 reveal that countries, including Sao Tome and Principe, Nigeria, Togo, Somalia, Indonesia, Kyrgyzstan have procured, or are replacing all household kerosene and candle light with procuring, cold chain equipment such as solar direct drive solar lanterns also reduced exposure to particulate matter refrigerators using funds from Gavi, the World Bank, and (PM2.5) by 37%-50% among women, even when solid fuels other agencies as a part of their COVID-19 response (see continued to be used for cooking. School children, who do Box 2).152 The success of the initiative in Sao Tome and not perform household cooking tasks, experienced even greater exposure reductions of 73%. Principe has led to additional funding from ESMAP and the Green Climate Fund to enhance the country’s climate- Box 2: The solar direct drive (SDD) refrigerator: A game-changer for vaccine storage The emergence of the SDD refrigerator has proved transformative for vaccine storage over the last decade. Since 2017, Gavi has delivered more than 15,300 SDD fridges to 36 African countries, including nearly 3,400 units to the DRC and 5,400 to Nigeria. Meanwhile, the Head of the organization’s Health Systems and Immunisations Strengthening team credited the off- grid equipment for achieving a 25% jump in child vaccination rates in Africa between 2010 and 2020. SDD fridges do not require batteries. They run solar energy through an isolator and store it directly in the body of the refrigerator. This helps to minimize cost and complexity and expand product lifetime. Further insights on SDD refrigerator innovations are in Section 6.3. 149 World Health Organization (2022), Accelerating Access to Electricity in Health-care Facilities. 150 Ibid. 151 Ibid. 152 World Bank/ESMAP analysis. 153 Lam et al. (2018), Exposure Reductions Associated with Introduction of Solar Lamps to Kerosene Lamp-using Households in Busia County, Kenya. 154 Wallach et al. (2022), Effect of a Solar Lighting Intervention on Fuel‐based Lighting use and Exposure to Household Air Pollution in Rural Uganda: A Randomized Controlled Trial. 57 3.2.2 OGS, Food Security and Off-grid solar cooling technologies, meanwhile, are beginning to play an important role in food storage. This the Ukraine Crisis is illustrated by India-based Promethean Power Systems which has reached over 75,000 farmers with refrigerators for dairy and other food products.162 Some off-grid companies are also working to enhance the impact of their products by supporting their customers Events in Ukraine in 2022 have put with auxiliary services, such as connecting farmers with agronomic advice and services.163 While solar irrigation a spotlight on food security and the and cooling markets are still emerging, the technologies potential of solar irrigation and cooling to show strong potential and are also seen as a key resource enhance food production and storage. for rural communities as they adapt to a warming climate (see Section 3.2.3). In 2021, the UN reported 53 countries were officially in a global food crisis, with 570,000 people in four countries 3.2.3 OGS and Climate Change: in a food ‘catastrophe’ phase. The Ukraine crisis has Mitigation, Adaptation and pushed the price of food to a historical high due to reduced food supply and rising energy costs.155 The UN World Food Resilience Programme estimates that, as the war continues, the number of people in acute hunger is projected to increase by 17% to 323 million people, with the steepest rises in sub-Saharan Africa.156 Solar energy kits and productive use of Today, 14% of food is lost unintentionally between harvest and distribution157, while vast areas of arable energy products have reduced 190 million land go without the benefits of irrigation. For example, tonnes of CO2e and are playing a key role the area equipped for irrigation in Africa is currently in a faster and more just clean energy only 6%.158 Improved irrigation on the continent could transition. lead to increased crop rotations and yields that improve agricultural productivity by at least 50%.159 In this context, solar irrigation and cooling technologies have become Off-grid solar products can benefit hundreds of increasingly recognized for their potential to improve millions of climate-vulnerable people that live without food security, whilst reducing reliance on external energy electricity.164 Despite the high burden these individuals sources.160 will face as a result of climate change, they are least responsible. OGS provides fast and affordable basic Solar irrigation and cooling systems are increasing crop electricity access from clean energy sources while rapidly yields and preserving produce. In respect to irrigation, this reducing CO2e and building the adaptive capacity and can be seen in a study of nearly 1,200 customers across resilience of climate-vulnerable people. Kenya, Rwanda, Senegal, Tanzania, Uganda and Zambia which found that 96% of SWP customers saw an increase In terms of mitigation, replacing kerosene lanterns with in farm productivity, and 90% reported higher earnings.161 solar lighting has already avoided an estimated 190 million tonnes of CO2e, equivalent to taking 51 coal-fired 155 World Food Programme (2022), Global Report on Food Crises 2022. 156 United States Institute of Peace (2022), The Ukraine War is Deepening Global Food Insecurity - What Can Be Done? 157 Efficiency for Access Coalition (2021), Creating a More Resilient Food System Through Sustainable Refrigeration. 158 IFPRI (2010), What is the Irrigation Potential for Africa? 159 IFPRI (2020), Irrigation to Transform Agriculture and Food Systems in Africa South of the Sahara. 160 GOGLA consultations. 161 Efficiency for Access Coalition and 60 Decibels (2021), Uses and Impact of Solar Water Pumps. 162 Efficiency for Access Coalition (2021), Creating a More Resilient Food System Through Sustainable Refrigeration. 163 GOGLA consultations. 164 IEA (2020), Power Systems in Transition: Challenges and Opportunities Ahead for Electricity Security. 58 Off-Grid Solar Market Trends Report 2022: State of the Sector power plants offline for a year165,166 while replacing diesel While the industry has not yet developed a standard generators also has clear emissions reduction benefits. framework to fully capture and monitor its contribution Recent research conservatively estimates that generators to climate adaptation and resilience, there is increasing used to provide grid backup emit more than 100 megatons recognition of the role that OGS can play. Off-grid systems of CO2 every year.167 enable people, businesses and communities to absorb and recover from climate shocks and help them to adjust to In sub-Saharan Africa, replacing generators with solar and anticipate changes. OGS provide positive adaptation alternatives avoids as much CO2 as 20% of the region's opportunities in terms of green jobs and solar-powered vehicles being replaced with clean alternatives.168 These enterprise (as highlighted in Section 3.2.4), increase the figures exclude the emissions that could be reduced availability of water and food as climate change increases by avoiding the use of direct drive equipment such as insecurity (as noted in Section 3.2.2) and create clean diesel-powered water pumps and agricultural machinery, energy communications infrastructure. They also boost which would provide further emissions reduction benefits. resilience by creating savings and new revenue streams, For example, emissions avoided as a result of replacing strengthening energy systems and enhancing health and diesel powered water pumps with solar show that, even health infrastructure (see Section 3.2.1). at an early stage of their deployment, the technology has already saved an estimated 640,000 tonnes of CO2e,169 equal to taking 138,000 cars off the road.170 Figure 44: Key impacts of OGS on climate adaptation and resilience Climate Adaptation Resilience Boosts incomes, savings and Creates green jobs productivity for households and and diversifies livelihoods. enterprises. Enhances food and water Strengthens resilience to security (solar water extreme weather events pumping, cold storage, through decentralised agro-processing). infrastructure. Enables access to Supports imroved community information, and digital and household health (powering finance and services health facilities, vaccine fridges, (mobile money, credit, cooling, and avoiding indoor air insurance). pollution). 165 GOGLA and Open Capital Advisors analysis, using the Off-Grid Solar Standardized Impact Metrics. 166 United States Environmental Protection Agency (2022), Greenhouse Gas Equivalencies Calculator. 167 International Finance Corporation (2019), The Dirty Footprint of the Broken Grid. 168 Ibid. 169 GOGLA and Open Capital Advisors analysis, using the Off-Grid Solar Standardized Impact Metrics. 170 United States Environmental Protection Agency (2022), Greenhouse Gas Equivalencies Calculator. 59 As with food security, water insecurity will be Resilience is also boosted through improvements to exacerbated by climate change, and where solar household and community health as a result of OGS. technologies can play a critical role. The use of solar Increased use of solar fans provides a key example. Climate pumps in Kutupalong refugee camp in Bangladesh, home change is expected to drive global temperatures above to nearly one million refugees provides an example, where 1.5 degrees centigrade which will heat tropical regions to solar powered pumps pull chlorinated water from tanks levels that are at the limits of hospitable temperatures, keeping it safe from contaminants.171 Solar innovations with heatwaves already becoming more common and are also being used to remove life-threatening levels of more intense. The recent heatwave in India and Pakistan salt and arsenic from drinking water, a challenge that between March and June 2022 saw temperatures of over will be heightened as water supplies are overused and 40 degrees for multiple consecutive days and reach highs depleted.172,173 of over 50 degrees. Solar energy kits are improving connectivity by As well as the potential to cause loss of life, high enhancing charging capacity for millions of homes and temperatures also destroy crops and reduce productivity. businesses, with many off-grid companies also selling The Chilling Prospects report estimates that in 2020, nearly solar powered radios, TVs, smartphones, tablets and ICT 300 billion hours of work were already lost to heat stress.178 products. This is creating new renewable communications A ceiling or table fan is typically the first active space- infrastructure, whilst helping communities gain the cooling solution accessed by poor populations that have information needed to respond to negative climate only Tier 1 electricity access. A study on the use of highly impacts. Solar TVs, radios and tablets are enabling millions efficient DC fans in Bangladesh also revealed that 81% of of people to access news and information, while access users reported a reduction in the number of mosquitoes in to smartphones are increasing access to digital advisory their home. The number of mosquitoes and other carriers tools. For example, to build up climate resilient agriculture, of vector-borne disease are expected to rise with the the ‘Ama Krushi’ tool provides farmers in India with warming climate.179 agronomic advice on up to 24 different crops through an Amongst other benefits, OGS products help to unlock interactive voice response hotline and SMS.174 savings or to increase incomes, further improving The growing suite of weather-related products, especially household ability to withstand shocks. Solar lanterns relevant for farming communities, also includes early or multi-light kits are often bought outright or paid off warning system tools to help prevent weather-related within a few months, enabling families to save the money disasters.175 Whilst SMS early warning systems are also that would otherwise be used for consumable kerosene, being used to alert communities in the face of natural candles or torch batteries.180 Many SEK and appliance disaster. The decentralized nature of OGS products, owners are also using them to generate additional income which continue to work when grid infrastructure has been or to increase productivity, as explored further in Section compromised by strong winds, heat stress or flooding, also 3.2.4. increase resiliency in the energy system and their ability to be rapidly deployed also make them well suited to use in disaster response, as was seen after the 2019 flooding in Mozambique.176,177 171 UNHCR (2020), Clean Energy, Clean Water: How Solar Power Brings Safe Water to Refugee Camps. 172 Water World (2020), Solar-powered Desalination System Provides WaterKiosk in Africa with Clean Water. 173 Otter et al. (2017), Arsenic Removal from Groundwater by Solar Driven Inline-Electrolytic Induced Co-Precipitation and Filtration-A Long Term Field Test Conducted in West Bengal. 174 GSMA (2021), COVID-19: Accelerating the use of Digital Agriculture. 175 Ibid. 176 GSMA (2019), The Weather Data Gap: How can Mobile Technology make Smallholder Farmers Climate Resilient? 177 GOGLA (2019), The role of Solar Lights and Solar Home Systems in Modern Day Disaster Relief. 178 Sustainable Energy for All (2022), Chilling Prospect Report. 179 Efficiency for Access Coalition (2019), The Socio-economic Impact of Super-efficient Off-grid Fans in Bangladesh. 180 SolarAid (2015), Impact Report. 60 Off-Grid Solar Market Trends Report 2022: State of the Sector 3.2.4 Clean Energy Jobs, in rural regions where employment opportunities are limited.188 The industry supported an estimated 370,000 Enterprise and Income jobs in 2019, primarily in the supply, distribution and servicing of products.189 COVID-19 led to some OGS Generation181182 industry job losses, with Power for All’s latest job census revealing that employment in OGS dropped by 3% and 27% in Kenya and India respectively between 2020 and 2021.190 However, the return to sales growth is already recovering. 191 55% of jobs created directly within the OGS The off-grid solar sector is powering over industry are located in rural areas, with many undertaken 10 million micro and small enterprises by young adults, helping to boost incomes in regions which often have fewer opportunities and create employment for and creating hundreds of thousands of a growing youth population.192 clean energy jobs directly within the industry.181,182 Women in the OGS workforce have a similar representation to country norms and, on average, make up a slightly higher proportion of the workforce than in Off-grid solar kits and PUE are already powering over other energy industries such as oil and gas.193 However, 10 million micro and small enterprises. OGS has the there is still more work to do to achieve gender balance. potential to support hundreds of millions of MSMEs and Many companies and development actors are focused on smallholder farmers.183 Real time energy use tracking increasing the number of women in the OGS workforce and in Nigeria reveals that, at their current rate of energy increasing the number of women in positions of authority. consumption, over 50% of MSMEs could be serviced by For example, after recognizing that women in their an off-grid solar system of 300Wp or below.184 Several workforce are underrepresented in management positions, technologies designed specifically for productive use are PAYGo distributor, PEG Africa developed and implemented also now available. For example, solar irrigation systems a Gender Action Plan, increasing female representation are now used on an estimated 190,000 farms185, with data in leadership by 14% in twelve months.194 While last-mile revealing that they have the potential to increase crop distributor, Yellow, found that few women were applying yields threefold for farms that are currently rain-fed. This for sales agents roles in Malawi, so designated four is boosting income for rural communities and is expected female agents as “Project Khumbo Ambassadors” within to have a positive impact on employment.186 Meanwhile, their agent scout program to provide ongoing support 80% of solar refrigerator customers in India reported using to participating young women and girls, improved the them for micro-enterprise, with a majority seeing income inclusivity of job advertisements and provided digital skills increases of over $55 per month.187 training to women. This led to a jump from 11 women While COVID-19 led to some job losses in the OGS recruited in 2019 to 94 in 2020.195 industry between 2020 and 2021, the sector additionally creates hundreds of thousands of direct jobs, many 181 GOGLA and Open Capital Advisors analysis, using the Off-Grid Solar Standardized Impact Metrics. 182 GOGLA (2019) Off-Grid Solar: A Growth Engine for Change. 183 Ibid. 184 A2EI (2020), Data Release #2. 185 GOGLA and Open Capital Advisors analysis, using the Off-Grid Solar Standardized Impact Metrics. 186 Efficiency for Access Coalition and 60 Decibels (2021), Uses and Impact of Solar Water Pumps. 187 CLASP (2020), Solar-Powered Refrigerators on the Frontlines of Off-Grid COVID-19 Response. 188 GOGLA (2019) Off-Grid Solar: A Growth Engine for Jobs. 189 Power for All (2022), Powering Jobs Census 2021 (forthcoming). 190 Ibid. 191 Ibid. 192 GOGLA (2019), Off-Grid Solar: A Growth Engine for Jobs. 193 Ibid. 194 PEG Arica (2019), Promoting Gender Equality in the Off-grid Energy Sector through Gender Inclusive Business Practices: A Case Study of PEG Africa. 195 Global Distributors Collective (2021), Gender in Business: Lessons Learned for LMDs. 61 04 Customer Profiles and Engagement Strategies © Power Africa 62 Off-Grid Solar Market Trends Report 2022: State of the Sector KEY MESSAGES • The majority of off-grid customers are still rural, low-income households. However, interest in off-grid solar amongst urban customers is growing and productive use of energy products are specifically meeting the needs of farmers and/or micro, small & medium enterprises • While companies still predominantly use ‘traditional’ marketing approaches, as the sector grows, partnerships, data-led and digital methods are expected to grow and evolve • Increased awareness of off-grid technologies has also led to more marketing via partnerships. These are playing a key role in the sale of agricultural products and service Many urban customers are also using solar energy kits 4.1 The Off-Grid Solar to gain first time access to electricity. For example, 80% of urban SEK customers in Uganda are using their product Customer as a primary energy source, illustrating that, although smaller, the unelectrified urban population is an important consumer group, and that OGS has a role to play in achieving universal access to electricity in urban centers. OGS technologies are being used as a back-up to The majority of off-grid customers are still the grid or as a replacement for diesel generators, predominantly in urban settings. Many urban customers rural, low-income households. However, are also using SEKs to provide grid back-up or to replace interest in OGS amongst urban customers diesel generators.199 Urban customers are more likely to is growing and PUE products are have consistent, salaried incomes, making them more specifically meeting the needs of farmers likely to buy larger products and services, at a lower cost and/or MSMEs. of customer acquisition and are less likely to default on their payment plan. While these customers are still a much smaller number than their rural counterparts, further The majority of off-grid solar customers are rural data collection is needed to explore how the rural/urban households and micro-enterprises, due to the clear need customer split will develop in the coming years, and to for OGS technologies by an unelectrified customer base understand if this will have a positive or negative impact on unlikely to benefit from alternative electricity sources the pace of first-time access to modern electricity and on in the near to medium term.196 Solar energy kit (SEK) company sustainability and growth (see Section 5.4). Many customers are predominantly rural, male and living under urban customers have further recognized the potential the median poverty line of $3.10 (Figure 47).197 of the PAYGo business model to enable them to purchase products such as TVs and smartphones on financing plans, There is a correlation between income levels and the size particularly in sub-Saharan Africa where the PAYGo model of solar energy kit that a customer is able to purchase. is more prevalent. The lowest income customers tend to buy smaller off- grid products such as lanterns (see Section 3.1). Many Greater focus on weak grid areas has also led to customers are now making additional or repeat purchases increasing interest in off-grid technologies by urban from OGS companies, gaining access to an expanded range MSMEs, with some companies expanding their product of products and services (see Box 3).198 ranges to include larger commercial size solutions. Solar home systems are already used to support micro- enterprises in rural areas, with 21% of rural SHS customers 196 World Bank/ESMAP analysis of the Multi-Tier Framework Country-level Surveys. For more information, please see https://mtfenergyaccess. esmap.org 197 GOGLA (2021), Powering Opportunity: Energising Work, Enterprise and Quality of Life with Off-Grid Solar. 198 GOGLA consultations. 199 World Bank/ESMAP analysis of the Multi-Tier Framework Country-level Surveys. For more information, please see https://mtfenergyaccess. esmap.org 63 in East Africa reporting that they use their system to as a significant barrier to greater uptake.204,205 This support a business.200 However, companies report that suggests that, while OGS distributors and other industry larger enterprises are increasingly looking at bigger stakeholders are seeing significant potential and interest SHS and solar generators that can power their current in these technologies, getting the price point and/or appliances and technologies using an AC-DC converter. repayment plan right for a rural smallholder audience will For example, ZOLA Electric and A2EI are now selling solar be more challenging. SWP costs range from $400 - $1000 generators (see Section 6.4). Targeting larger, and more (see Section 2.4). expensive, products such as solar refrigerators at MSMEs, Surveys of SHS customers reveal that nearly all where the cost can be recouped through increased sales customers want to purchase additional, related products, or the replacement of diesel generators, also helps ensure with the most common being TVs in the East and West commercial viability. African markets and fans in the South Asian market 206, Urban trends may grow due to urbanization and urban while more than a third of TV customers would like to buy population growth. Rapid urbanization is taking place a SWP (Figure 45).207 In practice, willingness/ability to pay across major OGS markets. For example, African cities are is complex to ascertain, as customer decisions whether or expected to become home to a further 950 million people not to buy a new product are affected by a range of factors by 2050.201 While the urban population in southeast Asia is including need, trust in the technology, affordability and expected to grow from 280 million people in 2017 to 373 the availability of alternatives. For example, research by million people in 2030.202 A2EI on the potential of agri- milling technologies reveals that while solar mills may be cost-competitive with diesel, there is a high upfront cost of the system ($1000) and potential risks in terms of inputs for repayments, such as competition for milling services in densely populated areas, and lower hours of operation anticipated in less Customers want to buy ‘follow on’ or ‘add densely populated areas (see Section 5.4).208 on’ products. Yet affordability issues mean PAYGo financing appears to be enabling some customers that demand is not always translated into to buy appliances alongside solar energy systems and/or additional purchases. However, PAYGo to help them move up the clean energy staircase. 89% of financing appears to be helping to bridge solar TV customers in East Africa are buying these sold with the gap. an SHS209, whilst several PAYGo companies have reported that their current customers are buying new products and services (see Section 4.2).210 More work to ascertain the Amongst rural communities, farmers are increasingly cost benefits of products and explore ways to make them aware of the potential of solar PUE technologies, and more affordable (e.g. via public funding mechanisms and/ in particular solar irrigation. The number of off-grid or the monetisation of impacts) are needed to unlock a distributors selling solar water pumps grew from 5% wider customer base for all technologies, but particularly in 2019 to 26% in 2022 to meet the latent demand.203 to expand PUE markets and reach poorer households with However, income levels for many smallholder farmers solar energy kits. remain low, and industry experts highlight affordability 200 GOGLA (2021), Powering Opportunity: Energising Work, Enterprise and Quality of Life with Off-Grid Solar. 201 OECD (2020), Africa’s Urbanization Dynamics 2020. 202 Bloomberg (2017), Does Urbanization Drive Southeast Asia’s Development? 203 Global Distributors Collective (2022), State of the Sector. 204 60 Decibels bespoke analysis for the Efficiency for Access Coalition. 205 GOGLA consultations. 206 GOGLA (2021), Powering Opportunity: Energising Work, Enterprise and Quality of Life with Off-Grid Solar. 207 60 Decibels and Efficiency for Access Coalition (2020), Use and Impact of Solar TVs. 208 A2EI (2020), Productive Use Report. 209 60 Decibels and Efficiency for Access Coalition (2020), Use and Impact of Solar TVs. 210 GOGLA consultations. 64 Off-Grid Solar Market Trends Report 2022: State of the Sector Figure 45: SHS customers’ top five most wanted appliances and features, per region211 East Africa West Africa South Asia TV TV Fan Fridge Fan TV Iron Fridge More lights Radio Radio Smartphone Speaker More lights Water pump warmer. PUE technologies, meanwhile, may have very 4.2 Customer specific audiences. To grow its solar cooling business in Nigeria, Koolboks particularly targeted its outreach on Segmentation and fishing communities where the better storage of fish, a high value commodity, would lead to robust returns for Targeting customers. Companies commonly use desktop research to understand the broad characteristics of a new market, including the enabling environment, then spend time physically in the region to learn more at firsthand, before trying and testing products to explore which are the best sellers. However, as many companies are beginning to Customer targeting is still largely serve a wider range of off-grid customers with a broader dependent on geography and local suite of products and services, they are also beginning to knowledge. However, companies are segment them using more sophisticated data and tools beginning to develop more sophisticated (described below) and the development of customer approaches to customer segmentation. profiles and personas.212 A key growing segment for companies is their current customer base, due to both the increase in available data, Companies report that customer segmentation is still and as a result of lockdowns which slowed their ability to commonly informed by geography, with businesses using reach new customers, accelerating the trend for cross- local knowledge about population density, income levels, selling. This is particularly true for PAYGo companies that harvest times, key industries and other factors to define already have ongoing interactions with their customers which products to sell, when and how. For example, as as part of their business model. By tracking device usage noted in Section 4.1, lower income customers may initially and the stage of repayment plans, companies can learn only be able to buy smaller energy kits, while specific the best moment to make offers of product upgrades or needs and interests of customers in different geographies trade-ins to customers, the price points at which their have a significant impact on product choice, as is the case current customers are likely to be able to purchase of greater fan sales in South Asia where temperatures are products or services, and the types of products that might 211 GOGLA (2021), Powering Opportunity: Energising Work, Enterprise and Quality of Life with Off-Grid Solar. 212 GOGLA consultations. 65 suit the energy usage of particular homes or businesses. While some larger companies have built this data As well as helping to determine the customers most likely capacity in house, service providers such as Angaza, to make repeat sales, this data can also be used to ensure Solaris, Upya and K-Pay are providing software that can that customers who have struggled to pay for products help other companies capture and monitor customer previously are not offered a new product they may not be and new prospect data (see Section 5.4). Research by able to afford. It can also serve as a basis to make more the Global Distributors Collective found that the two most informed decisions about new customers, as those who common areas in which their member companies used have similar income streams, or are located in the same third-party digital platforms in 2021 were for market and region may share common traits. consumer research and payment collection, and mobile money integration.213 Box 3: Easy Solar: A marketing journey Established in 2016, Easy Solar is a distribution company based in Sierra Leone and Liberia which offers a range of high-quality products on PAYGo finance, including solar lanterns, solar home systems, appliances and cookstoves. With a vision of affordable and accessible electricity for all, the organization initially focused on the sale of PAYGo enabled solar lanterns and home systems in rural settings, but its range and capacity has since grown. An early actor in the Sierra Leone off-grid space, the organization built its brand image and designed its marketing around targeted ‘below-the-line’ approaches, including door-to-door sales, community demos and promotional market days, as well as ‘above-the-line’ radio campaigns. In the early stages of the market, the cost benefit and durability narrative was key to the company’s sales success, but as its brand presence grew, so did trust in the technology and organization, helping to streamline sales. Today, most of its customers are still rural, off-grid households, but the company has also expanded to sell appliances, cookstoves and commercial-scale solar solutions, extending its customer base to urban customers, businesses and institutional buyers. To aid its marketing strategy, the organization has developed several customer personas, including: • Graduates - current customers who want bigger energy solutions and appliances • Bandaids - customers used to grid-level power, who want a more reliable service • All or nothings - customers who want kW-size power • Benefactors - customers who buy solar solutions for their communities, families or friends Personas are also used to guide marketing to businesses, such as: • Pop-ups - tea houses, restaurants, etc. who want plug and play (PnP) solutions • Bricks and Mortar - schools, offices, hospitals, etc. who want commercial-scale power • Farmers - current customers who want solar irrigation and cooling Though direct, word-of-mouth marketing remains crucial, to reach urban audiences, the organization additionally uses digital strategies, brand ambassadors, billboards/walls and key partnerships. For example, it has partnered with banks and civil service organizations to enable customers to buy their products directly through a payroll scheme, while its e-commerce platform caters to tech-savvy customers as well as the diaspora. The organization has also explored other marketing techniques, including TV advertisements, news and awards. While it may use these again in the future, maintaining a trusted brand, an experienced sales team and strong customer relationship remain the company’s key engagement priorities. New digital innovations, such as geospatial mapping and where they may want to direct their operations both within agricultural simulators, are also contributing to customer specific countries and when they are looking to expand to targeting. Companies are also using third-party geospatial new regions. For example, Fraym uses geospatial data such data as they develop their customer targeting, to uncover as density and access to infrastructure at a one kilometer 213 Global Distributors Collective (2022), State of the Sector. 66 Off-Grid Solar Market Trends Report 2022: State of the Sector squared granularity, alongside national census and uptake of solar-powered agricultural equipment, as these demographic data, as inputs to advanced machine learning organizations already have a targeted customer-base to tap algorithms. These are then used to help determine a into (see Section 4.3). region’s potential customer base, and help companies plan their customer expansion strategies. Big data innovations are also being explored in respect 4.3 Marketing and to solar water pumps, where low availability and the high cost of business data have been recognized as key Customer Acquisition constraints to reaching and serving customers. A recent When exploring the role of marketing in customer pilot has used satellite imagery and agricultural simulators acquisition, companies advised that a first focus is always to model the growth of plants based on a parametrization on building brand image and trust. After determining the of soil, weather, farming practices and available assets. audience type the company will focus on (rural, urban, The simulations are designed to quantify the potential MSME, etc.) and relevant product offering, this is usually impact of changes in farming practice, including use of done via the use of a vibrant - and locally relevant - brand solar irrigation alongside different farming techniques name, company colors and logo. These are used for sales and inputs (eg. fertilizers, seeds etc). As well as providing team uniforms and to brand company vehicles, shops and a better understanding of SWP potential, customer impact points of sale. and business opportunity, the data is designed for use in identifying where subsidies for SWPs would be most effective in raising farm incomes and finding areas most vulnerable to climate change and natural disasters.214 Mobile data coverage datasets also help to determine Brand building remains a cornerstone where mobile-enabled PAYGo OGS transactions can be made. For example, the GSMA has developed mobile of customer acquisition. Companies in coverage maps that show the availability of mobile nascent markets need to build awareness technologies in several countries in sub-Saharan Africa of OGS in general as part of their brand that help companies explore where customers will be able building efforts, while those with already to get 2G, 3G or 4G mobile coverage, alongside other key trusted brands in more mature markets infrastructure inputs such as primary and secondary roads and proximity to the central grid. The maps cover several can more easily engage new customers. nascent OGS markets, such as DRC, Guinea, Niger and South Sudan.215 In nascent and emerging markets, and with newer Alongside greater insights on the location and profile technologies such as solar irrigation and cooling, of potential customers, manufacturers advise that companies need to build awareness of OGS products there is still a need for new business-to-business (B2B) themselves as well as to establish their own identity. In connections, to bring their products to new markets contrast, in more mature markets, companies with trusted via a locally knowledgeable partner. While big data brands are able to fast-track sales as they do not need to can help unlock some business critical insights, a lack build trust in their products in the same way. However, of information on the local distribution networks in customers in mature markets are also increasingly shrewd nascent and emerging markets is cited as a challenge for in their deliberations between different brands and the expansion into these regions. As these countries are often product sizes, functions and promotions they offer. affected by fragility, conflict or violence (FCV), establishing A few companies have reported that some PAYGo independent operations is also more difficult for vertically customers are now buying more than one PAYGo integrated players. Most have adopted a dual-strategy package, a trend that could complicate companies’ of providing both B2B and business-to-customer (B2C) financial planning if it develops. Customers in more services, enabling them to build out their own customer mature markets may also be more aware of the durability base in predominantly larger or more stable markets, and reliability of non-quality assured products, and have whilst gaining a footprint in smaller or more complex ones. a better sense of which ones may still provide value for Companies selling solar water pumps have also advised money216, as well as move from a company that is not that better connections with local agri-retailers are key for providing quality products or good customer care. 214 Efficiency for Access Coalition (2019), Using Technology to Build Affordable Business Intelligence for the SWP Market. 215 GSMA (2022), Mobile Coverage Maps. 216 VeraSol (2021), Quality in the Off-Grid Solar Market: An Assessment of the Consumer Experience in Kenya. 67 Figure 46: Common OGS marketing channels amongst affiliate B2C companies Traditional Evolving Direct (face-to-face, shops) Physical (events, promos, Partnerships (retailers, Mobile (SMS messaging brochures, signage) savings groups, MNOs) and targeting) Recommendations (organic, Paid (radio, billboards, Digital / Social Media (via platforms incentivised, community leaders) sponsorship) such as WhatsApp and Facebook) OGS customers in rural regions often have limited For example, the most common way that customers hear access to mass media channels, and are most commonly about SWPs is via a recommendation from friends or reached by traditional marketing strategies (Figure 46). family (Figure 46).217 Marketing tools include, showcasing Given the predominantly rural customer base, companies products, sharing flyers, creating promotions and sharing have built marketing approaches that focus on creating give-aways at events or through competitions. Some one-to-one or community awareness, which generate trust companies also support word-of-mouth marketing with in both off-grid solutions and their brand. These include customer incentive schemes, providing them with a benefit door-to-door sales, demonstration days in local markets, if they refer a friend, neighbor or family member. and using local networks to encourage product adoption. Figure 47: The rural OGS customer218 Purchasing behavior Pain points Learns about new products Expense of kerosene, his current through recommendations lighting source Learns about new products Danger of open flames and low levels in local market of illumination Learns about new products Phone battery runs out / expensive via advertisements to charge on walls/branded vehicles Time taken to travel to buy fuel Buys in local market and charge phone Demographics Makes non-daily purchasing Age: 36 decisions with his wife Owned devices Gender: Male Willingness / Ability to Pay Mobile phone (basic) Family Status: Married with Lives on under $3.20 per day 3 children Some limited savings Marketing strategies Location: Rural Seasonal fluctuation in income, Traditional face-to-face approach in line with harvest time Occupation Following PAYGo purchase, analyze Goals payment history and recommend Farmer For his children to grow up in a home new purchases via SMS with light and power Seasonal offers and promos in line Education To increase his income with harvest Primary To own more appliances e.g. TV 217 Efficiency for Access Coalition and 60 Decibels (2021), Uses and Impact of Solar Water Pumps. 218 GOGLA analysis and consultations. 68 Off-Grid Solar Market Trends Report 2022: State of the Sector Though limited due to company budget constraints, more sales times such as harvest times, festivals and holidays. traditional above-the-line (ABL) approaches, designed to Digital efforts are often supported by calls from company reach a mass market are also pursued, including radio, call centers. While companies are largely using their own press media and TV campaigns. Nevertheless, several databases or customer profiles to share new purchasing companies report using these channels either for key opportunities, the latest Lighting Asia program also used launches and big announcements, or opportunistically. ‘local area messaging’ to alert potential customers about Companies may plan ABL outreach as a part of a the campaign and to share promotions (see Box 5). major campaign, engage press when they have a key Efforts to reach more ‘tech savvy’ urban customers announcement or use national debate and programs to (Figure 48), as well as to reduce the cost of reaching profile their products and services. For example, when better connected rural audiences, have led to a d.light opened its customer care center in Nairobi in growing focus on engagement through digital media October 2020, it also took the opportunity to share an strategies, applications and platforms. For example, announcement on its financial support for customers customers may be reached by WhatsApp and Facebook struggling with loan payments due to COVID-19.219 Whilst and then directed to make an e-commerce purchase, PUE companies, meanwhile, have collaborated with the either through a company’s own web platform, or that East African agricultural TV Show, Shamba Shape, to of an online distribution partner or aggregator. Agents profile the potential for solar water pumps to improve using smartphones to showcase e-commerce catalogs to livelihoods. 220 customers and then gather their customer details also help More data on electricity usage, payment patterns, to combine traditional face-to-face interactions with digital payment history and loan completion status is being engagement tools, and allows for greater data capture in effectively applied to mobile marketing, in particular respect of cash sales customers.221 In addition to direct through SMS messaging. SMS is being used by a number customer engagement, ESSMART is amongst companies of companies to alert customers of new offers, promotions using digital catalogs to make new B2B connections with and product availability at relevant times within the retail outlets. customer lifetime cycle, as well as to coincide with peak Figure 48: The tech savvy urbanite222 Purchasing behavior Pain points Learns about new products through Intermittent ʻbrownoutsʼ from recommendations weak grid Learns about new products Appliances are too expensive via billboards to buy outright Learns about new products via social media, radio Owned devices Buys in local retail outlets Makes non-daily purchasing Smart phone Demographics decisions with his wife Age: 32 Marketing strategies Gender: Male Willingness / Ability to Pay Sales via retail outlets Family Status: Married with two children Lives on under $10 per day Sales via partner channels Location: Urban Some, limited savings (e.g. mobile phone shops) Paid monthly Engagement via social media, Occupation e-commerce platforms Goals Offers and promotions around Salaried office worker national holidays Wants to get a more reliable electricity supply Analyze payment history and Education recommend new purchases via SMS Aspires to own more appliances Tertiary e.g. large TV, tablet, laptop 219 Business Daily (2020), Solar Firm d.light Settles Sh100 Million Loans for Covid-hit Customers. 220 Shamba Shape Up (2022), Welcome to Shamba Shape Up. 221 GOGLA consultations. 222 GOGLA analysis and consultations. 69 plug and play (PnP) solar energy kits and the knowledge that agri-sales teams already have on which products are Increased awareness of off-grid suited to which water, soil and crop types is also beneficial technologies has also led to more in ensuring a sale is appropriate. Agricultural sales marketing via partnerships. These are professionals are also more accustomed to selling higher price, business systems which require knowledge of their also playing a key role in the sale of impacts on crop yields and diesel expenditure, in order to agricultural products and services. help customers understand how they will recoup the cost of the product. For example, while the SWP manufacturer FuturePump initially sold to off-grid solar distributors, it has expanded its reach to specialized agri-retailers As the OGS market continues to mature, new significantly in the last two years. Meanwhile, Simusolar, partnerships are developing, including those in earlier a distribution company that focuses on PUE technologies, stage technology segments, opening up new channels to advised that connections with agricultural organizations, engage audiences. Some OGS markets, such as Papua New NGOs and programs play a key role in its sales strategy. Guinea, have developed via partnerships with established Although sales of solar refrigerators and walk-in cold retail networks where SEK manufacturers can tap into rooms are very nascent, similar trends to these observed existing audiences. Similarly, the Indian market has its for SWP are beginning to emerge between equipment foundations in partnerships with microfinance institutions. manufactures and operators with agricultural specialist As the industry evolves, new partnerships continue to retailers and asset finance organizations. emerge, enabling solar manufacturers and integrated companies to connect with their partners’ audiences. The importance of helping farmers and MSMEs to best For example, on the retail side, Sun King is now selling understand both how to use, and how to maximize products in the supermarkets Quickmart and Carrefour. the use of PUE systems is also important for customer Whilst amongst financial institutions, The National Bank of acquisition. For example, FuturePump has developed a Kenya has partnered with Davis & Shirtliff, a water pump ‘Train the Trainer’ approach to upskill their B2B customers company with a 75 year history in East Africa, to offer (see Box 4), while SunCulture has developed training three-year, no-interest, loans to its customers so they can materials for customers on improving crop outputs.224 In purchase a solar water pump (see Section 5.2.2).223 respect of the cold chain, Cold Hubs in Nigeria has similarly developed information for farmers on what produce can Partnerships with agri-distributors are likely to be key to be stored, for how long and at what temperatures. Whilst more rapid deployment of SWPs. As noted in Section 4.2, Solar Cooling Engineering provides both in-person training agri-retailers already have a customer base of smallholder and hosts an online course.225 farmers. SWPs are larger and more complex products than © Frontier Markets 223 Davis & Shirtliff (2022), Davis & Shirtliff Partners with National Bank to offer Financing. 224 AgriFI Keyna Challenge Fund (2022), SunCulture. 225 Solar Cooling Engineering (2022), Welcome to Solar Cooling Engineering. 70 Off-Grid Solar Market Trends Report 2022: State of the Sector Figure 49: The smallholder farmer226 Purchasing behavior Pain points Learns about new products through Old diesel water pump is inefficient recommendations Diesel is increasingly expensive Learns about new products in local market and via agri-networks/retailers Owned devices Responsive to local agricultural initiatives to reduce SWP prices Smart phone Makes purchases at harvest time Demographics Willingness / Ability to Pay Marketing strategies Age: 46 Lives on under $5.50 per day Traditional face-to-face approaches Gender: Male Some, limited savings and/or via trusted networks Family Status: Married with Some seasonal fluctuation Seasonal offers and promos in line 4 children in line with harvest, but may have with harvest and/or government Location: Rural additional income source schemes Connection via MFIs, farming groups Occupation Goals or agri-retailers Farmer To increase produce for family consumption Education To cultivate additional (small) Tertiary areas of farmland To increase farming income © Power Africa 226 GOGLA analysis and consultations. 71 Box 4: FuturePump: ‘Training the Trainers’ - making more, and appropriate, sales FuturePump is a PAYGo enabled solar irrigation pump manufacturer, established in 2013. It sells three different pumps, targeting one-acre and two acre farms. The company works with a range of distribution partners. However, the last few years has seen more partnerships with agri-retailers, who see the potential of the technology and whose sales teams already have an understanding of electric or diesel-powered pumps. This is a valuable knowledge set for both making sales pitches, and making appropriate sales, as different pump sizes and models best serve different farmers, and sales teams need to ask questions around the farm’s water source, crop types, soil quality, harvest times, and size to understand which pump is suitable. Sales teams explore how much additional income the customer is likely to make as a result of owning a pump, to ensure they will not become overburdened by repayments. Making inappropriate sales is costly for both the customer and companies involved in the value chain. For example, if a pump is mis- sold and does not work properly at harvest time, this can lead to significant losses for the customer. For companies, it could lead to low repayments, and a rapid reduction in consumer confidence, and/or damage to the pump. Futurepump has therefore developed a ‘Train the Trainer’ approach to provide their distributors with ongoing training and weekly emails. These distributors in turn connect with their farming networks to demonstrate and educate them about the pumps - with the aim of making sales and building widespread trust in the technology. A lack of product awareness and trust is particularly 4.4 The Role of prevalent for earlier stage PUE technologies, such as solar water pumps and cooling. This is illustrated in a Programs in Driving recent consumer awareness campaign on solar irrigation in Kenya. Kenya is one of the largest markets for OGS Customer Awareness technologies, yet only 1% of farmers interviewed before the campaign were using an SWP. Following outreach to and Impact farmers and community engagement, 96% of farmers interviewed advised that they would consider purchasing an SWP following the campaign.227 However, a lack of clarity on how farmers would recoup costs and the need for them to save considerably to purchase a system meant that the campaign did not lead to immediate sales. This Awareness campaigns still have a strong suggests that future campaigns may meet with more role to play in driving access to off-grid success combined with affordability initiatives. solar solutions and can benefit from the Programs designed to open up new markets and reach insights gained from previous campaigns, new customer segments also create strong drivers for as well as new marketing approaches. companies. For example, results-based financing (RBF) schemes can be used to target company reach towards customers in more difficult to access geographies, while Millions of people without electricity are living in end-user subsidies in Rwanda and Togo have enabled countries affected by fragility, conflict and violence companies to connect low income homes, and households (FCV), with only nascent OGS markets and limited access in a previously nascent market respectively (see to mass media. While affordability is a huge barrier Section 8.2.1). to accessing solar energy kits, companies advise that While in-person demonstration and engagement awareness also remains a significant challenge. While in remained core to the strategy, digital engagement and more remote areas of countries that have seen extensive the partnership with the women’s network were highly solar energy kit sales, many people are still not aware of successful additions. The latter as the networks were the range of technologies available, or their impacts. This is already established and trusted within their communities demonstrated by the success of the recent Lighting Global so well-placed to make direct sales. The success of these ‘Non-Stop Life’ campaign in India (see Box 5). Awareness elements hinged on access to smartphones among rural campaigns in nascent and emerging markets are still populations in India, with penetration now estimated at needed to drive OGS adoption. 70-80%, and the relevance of the chosen partner. 227 Efficiency for Access Coalition (2022) Solar Water Pump Consumer Awareness Raising Campaign Readout. 72 Off-Grid Solar Market Trends Report 2022: State of the Sector Future programs can use lessons from the Lighting approaches to maximize the success of awareness Global experience and the growing range of marketing campaigns. Box 5: Lighting Global ‘Non-Stop Life’ India campaign: A hybrid approach To catalyze off-grid markets, the Lighting Global Program spearheaded several OGS consumer awareness campaigns between 2014 and 2021. The initial campaigns involved a distinct brand and messaging, with trained marketing teams hosting promotional events in villages run from a branded van ‘hub’ from which they hosted street theater, music, games and prizes. The campaigns were run in collaboration with off-grid companies. Due to COVID-19, the recent ‘Non-Stop Life’ campaign in India was forced to adapt its approach, and in doing so developed a hybrid campaign that used both traditional OGS marketing techniques and newer SMS and digital media methods. Adjustments included: • Using a smaller van from which teams went house-to-house to avoid gathering large groups • Focussing on digital presence and engagement, including videos on YouTube, Facebook and WhatsApp • Using ‘local area SMS messaging, by zip code, to provide localized promotions • Working with a network of female direct sales entrepreneurs who visited the same households a few days after the event © Efficiency for Access 73 05 Market Landscape © Power Africa 74 Off-Grid Solar Market Trends Report 2022: State of the Sector KEY MESSAGES • The electricity access gap is concentrated in countries where the off-grid solar market remains nascent • The market for some household appliances is reaching maturity, while most dedicated productive use of energy technologies are still relatively nascent • Although competition continues to be driven by price, recent supply chain challenges have affected product availability and provided advantages for companies with sufficient stock levels • A number of off-grid solar companies now report to be fully profitable, whilst others report to be partly profitable (e.g. for operations in key country markets or business functions such as manufacturing). This has enabled some companies to unlock a wave of investment from a new, later-stage, commercial investor base • Achieving profitability remains a key driver for companies in the off-grid solar industry, spurring trends on cost-cutting, and increasing sales volumes and customer segment diversification are beginning to show high growth rates but that have 5.1 Market Classification not yet been sustained long enough to achieve more than 10% market penetration. • Emerging - a substantial electricity access gap remains (at least 5% of the population) and SEK sales already reach a significant share of the potential Most off-grid solar sales are into market (at least 10% of the potential market). In general, emerging markets are still on a growth relatively mature markets, while much trajectory which slows as they mature, although some of the remaining need is concentrated in emerging OGS markets may experience periods of markets where the off-grid solar sector is slower growth / stagnation in sales. nascent or still emerging. • Mature - sales reach a high share of the potential market (around 50% or more of market potential), with sales continuing to grow and/or stabilizing. This section classifies national off-grid solar markets in terms of market maturity based primarily on a • Peaked - the electricity access gap is closing combination of cumulative sales penetration and recent significantly and either OGS unit sales are starting to sales growth rates. The analysis presented is based solely decline or the remaining electricity access gap is less on the sales of solar energy kits and lanterns, as there is a than 5% of the population. long and robust database of sales data for these products from affiliates dating back to 2014. This classification includes appliances to the extent that these are often sold as part of bundled kits (as described in Section 2.2), but may not necessarily reflect how markets are evolving for standalone appliances or for productive use technologies such as solar water pumps. For some products these markets may be reinforcing - for example availability of appliances such as TVs may reinforce demand for solar energy kits, while it is also possible especially for some PUE technologies that markets may evolve to maturity separately from the precedent set by SEKs. Recent trends in market evolution are across four market © Efficiency for Access classifications: • Nascent - a substantial electricity access gap remains (at least 5% of the population), with minimal sales volumes (reaching less than 10% of market potential). Nascent markets often still show slow growth rates, or 75 Figure 50: Electricity access deficit and OGS sales by market type228 800 450 45 Electricity access gap (millions of people) Electricity access gap (millions of people) Cumulative OGS sales 2016-21 700 400 40 600 350 35 (million units) 300 30 500 250 25 400 200 20 300 150 15 200 100 10 100 50 5 0 0 0 Nascent Emerging Mature Peaked Nascent Emerging Mature Peaked Nascent Emerging Mature Peaked Total population off-grid Best-served by standalone solar OGS sales (affiliates, cum. 2016-21) OGS technologies have made a significant contribution to communities are not commonly served by commercial closing the electricity gap in relatively mature markets. OGS market activity and will need support from public Figure 50 shows affiliates have sold over 10 million units subsidies (described in Section 8.2.1). Across mature and since 2016 in each of the emerging, mature, and peaked peaked markets more than 100 million people still lack categories. access to electricity. Around 34 million would best be reached by standalone solar technologies. Low-capacity Penetration of OGS technologies is lagging in nascent and/or low-quality products are still common in mature markets, where the need is greatest. Just two million markets, so there may remain a market opportunity for affiliate unit sales have reached nascent markets since higher quality systems and for households to move up the 2016, representing 5% of total affiliate sales. Yet, around energy staircase. In some mature and peaked markets, 298 million people still lack access to electricity in these OGS technologies are increasingly deployed alongside a countries, and most (61%) would be best served by OGS weak grid connection to improve the quality of electricity technologies.229 Public finance, including subsidies, access. will have a key role to play in accelerating access while catalyzing commercially sustainable markets in contexts which are often highly fragile and conflict affected, with low ability to pay, and limited infrastructure to reach rural communities. Emerging OGS markets are characterized by both high penetration of sales and a large remaining electricity access gap. Since 2016, around 12 million affiliate units have been sold in these markets (30% of the total), but over 300 million people still lack access to electricity, of which 58% would be best served by OGS technologies. In mature and peaked markets the electricity access gap is narrowing and OGS is playing a key role in making sure no one is left behind. The electricity access gap even in these mature markets remains over 5%, and those communities currently without access to electricity will often be those that are either extremely poor and/or remote, conflict affected, and expensive to reach. Their 228 Analysis of SDG7 tracking data, population data from UN Population Division, least-cost electrification pathways from the Global Electrification Platform for new connections between 2020-25 (low demand scenario), GOGLA sales data, and a mapping of national markets to each classification. 229 Through this section, the share of population best served by OGS is based on analysis of the Global Electrification Platform, ‘Low Demand’ scenario between 2020 and 2025. Affiliate sales are based on data reported to GOGLA, while the population without access to electricity is based on SDG7 tracking data. 76 Off-Grid Solar Market Trends Report 2022: State of the Sector Figure 51: Market classification230 250% 200% Liberia Mozambique 2-year average growth rate (2019-21) 150% Somalia Philippines Guinea Zimbabwe 100% Nigeria Malawi 50% Madagascar Zambia Pakistan Rwanda Papua New Guinea Burkina Faso Ghana Benin Cameroon Democratic Senegal Republic Sierra Leone Myanmar Togo of Congo Indonesia Tanzania 0% Kenya Mali Ethiopia Uganda India Côte dʼivoire Bangladesh -50% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Cumulative sales as a share of potential off-grid market size (%) Nascent Emerging Mature Peaked Bubble size represents absolute size of potential OGS market Nascent markets Angola, Burundi, Central African Republic, Chad, Congo, Democratic Republic of Congo, 298 million 61% 100 2.0 million people currently best reached average recorded SEK Gambia. Guniea, Haiti, Madagascar, Mauritania, without access to by SEKs fragility sales since 2016 Mozambique, Namibia, Niger, Pakistan, Sudan, electricity South Sudan, Yemen, Zimbabwe In many countries, the off-grid solar sector remains ‘Fragile States Index’ score of 100 over the past five years.231 nascent. The need for electricity access is great, with just This is significantly higher than countries that have under 300 million people lacking access, accounting for successfully developed mature, or even peaked, off-grid 41% of the remaining electricity access gap. Sales are not solar markets. reaching these markets at scale, comprising just 5% of affiliate SEK sales since 2016. This context makes for a challenging environment for commercial off-grid solar ventures. Nascent OGS These countries are often characterized by a degree of markets, since the ability of households to pay is limited, fragility, conflict, and violence. On average, people living with a high incidence of poverty and the cost of operating in countries with nascent OGS markets are in states with a securely and reaching remote rural populations is high. 230 Notes: [1] 2-year growth rate is an average of the last two year on year growth rates, calculated from GOGLA half-yearly market reports, [2] Cumulative sales as a share of off-grid market size is estimated based on the cumulative sales since the beginning of 2016 of both GOGLA- affiliate and non-affiliate sales, divided by the total sales PLUS the remaining electricity access gap as reported in the SDG7 tracking reports, [3] Bubble sizes are based on the absolute market size of the remaining electricity access gap, as reported in the SDG7 tracking reports, [4] Sales growth is capped both at the top and the tail at 200% and -50% respectively for display purposes only. So some countries appearing at 200% may have had a higher growth rate than 200%, and some appearing at -50% may have shrunk by more than 50%. [5] Countries included in this classification exclude those with high levels of electricity access and/or where there is no previous record of OGS sales - this comprises around 710 million people of the total global electricity access gap of 733 million people. 231 Fragile States Index | The Fund for Peace; The index scores 178 countries on 12 indicators spanning cohesion, economic, political and social factors. 77 In these instances, the enabling environment of policies the transition towards ‘emerging’ markets. Altech is and regulations is relatively weak, which does not give an example of a local operator gaining traction in DRC. the private sector enough certainty over operations to Affiliate data reveals that while only 41 companies were plan several years ahead. For example, countries such as reporting sales in nascent markets in 2016, 80 companies Burundi in East Africa, South Sudan in Central Africa, or were doing so in 2021, showing a gradual growth of actors Chad in the Sahel region of West Africa all have electricity operating in these countries.232 International companies access deficits in excess of 80% of the population but only have also entered some nascent markets that have made see a few thousand off-grid solar unit sales recorded by the step to, or are on the way towards, ‘emerging’ status, affiliates each year. In Asia, while many countries have often drawn by incentive programs such as BRILHO Energy seen rapid progress in closing the electricity access gap Africa Program in Mozambique, which launched its second over the past decade, the electricity access gap in Pakistan round in 2022 to support companies providing clean is still large (see Section 1.1), and GOGLA affiliate off-grid energy to households and MSMEs (see Section 7.1).233 In solar sales are still relatively low compared to the size of some nascent markets donor support is also playing a the market. crucial role in accelerating electricity access in contexts which are unlikely to have the conditions for commercial Some nascent markets have emerging off-grid solar market sustainability (see Box 6). ecosystems, often driven by local companies, while support for electricity access programs can help drive Box 6: Challenges and lessons learned in increasing electrification in Chad and Mozambique Chad has one of the world’s lowest electrification rates worldwide at just 6.4% in 2020. Its off-grid solar market remains at a very early stage of development. Most of the population relies on kerosene lamps and expensive diesel generators for lighting, and the PUE appliance market has been predominantly driven by NGO programs.234 Chad’s economy is also struggling following a recession in 2020 (-0.9% GDP growth), with 33.2% of the population living on less than $1.9 a day as of 2018.235 Not only limited purchasing power but also security risks especially in border regions, and lack of policies and regulations to encourage private investments, hold back private sector developers including in the OGS sector.236 The Government of Chad (GoC) is committed to developing the OGS sector, recognizing access to electricity as a key economic driver. The 2020 National Emergency Electricity Plan (NEEP) set a target of 53% electrification by 2030, renewable energy is planned to supply 20% and includes off-grid solutions.237 This policy commitment is supported by programs like (1) the Chad Energy Access Scale Up Project, approved by the World Bank in 2022 and (2) the Regional Off-Grid Electricity Access Project (ROGEAP). ROGEAP was launched by ECOWAS and partly funded by the World Bank in 2021 to foster an enabling environment for OGS businesses, including PUE companies, and to enable access to growth capital.238 These efforts are expected to drive sector development forward. In contrast, Mozambique is beginning its transition towards an emerging OGS market. Mozambique had similar electrification rates to Chad 20 years ago.239 Since then, the country has made substantial progress. Electrification rose to 40% in 2021 with the growing off-grid sector electrifying 1.4% of the population in 2019.240 Government and development partner programs, and enabling policies and regulations are some of the factors contributing towards driving development of Mozambique’s OGS sector. The BRILHO RBF program to support OGS sector development 232 GOGLA analysis of data collected for the Global Off-Grid Solar Sales and Impact Reports 2016-2021. 233 SNV (2022), BRILHO Launches Second Call for Applications to Support Businesses in Mozambique. 234 Lorentz (2014), Solar Drinking Water Supply Am Nabak, Chad; UN Climate Technology Center and Network (2013), SolarChill - Refrigerators and Vaccine Coolers Powered by the Sun. 235 The World Bank (2018), Poverty Headcount Ratio at $1.90 a day (2011 PPP) (% of population) - Chad. 236 The World Bank (2021), Chad Energy Access Scale Up Project: Project Information Document. 237 Afrik21 (2019), Chad: State targets 20% RE in its Energy Mix by 2030. 238 The ECOWAS Center for Renewable Energy and Efficiency (ECREEE), Regional Off-Grid Electrification Project (ROGEP); The World Bank (2019), Regional Off-Grid Electricity Access Project; Lighting Africa (2017), Regional Off-Grid Electrification Access Project (ROGEAP) Overview. Note: The project aims to reach 47.2 million people (across all target economies) through OGS solutions by 2030. The GoC has also been increasing budgetary allocations annually (eg., $76 million in 2018, up from ~$38 million in 2014) to fund OGS projects. 239 OECD (2002), Mozambique Country Report. 240 World Bank, IFC, GOGLA (2020), Off-Grid Solar Market Trends Report 2020. 78 Off-Grid Solar Market Trends Report 2022: State of the Sector was launched in 2019, and continues to see support by international donors such as SIDA in 2021 (see Section 7.2).241 Additionally, in 2021, the GoM approved a new Regulation on Access to Energy in Off-Grid Zones policy to improve regulation for off-grid power provision through mini-grids, SHS and other SAS solutions. Although implementation specifics are yet to be determined, the policy is expected to attract increased investment into the sector and promote further electrification through OGS solutions.242 These initiatives and others by development partners are some of the factors driving OGS sector development and electricity access over the last few years.243 As a result, the OGS market has grown substantially, encouraging local and international companies to enter the space. The sector has grown significantly compared to other nascent markets, making Mozambique an encouraging example for countries that are at an earlier growth stage. This is exemplified by over 20 companies that were present in the country by 2019 selling quality-verified SHS brands, with four of them offering these products on PAYGo.244 The OGS sector in Mozambique still faces barriers to development. These include poor consumer awareness and perception of OGS products; and ongoing macroeconomic uncertainty, mainly caused by its hidden debt crisis uncovered in 2018 and insecurity in the northern part of the country.245 Emerging markets Benin, Burkina Faso, Cambodia, Cameroon, 305 million 58% 93 11.9 million Côte d'Ivoire, Ephiopia, Liberia, Malawi, Mali, people currently best reached average recorded SEK Myanmar, Nepal, Nigeria, Sierra Leone, without access to by SEKs fragility sales since 2016 Somalia, Tanzania, Togo, Zambia electricity Emerging markets account for a high share of OGS sales, commonly providing incentives such as subsidies and RBF with a substantial electricity access gap. There is still a to support market development, while PAYGo is beginning large electricity access gap in these countries, comprising to overtake cash-based sales, and there is an ecosystem of 43% of the remaining electricity access gap. There is also a both local retailers and major international companies. For large emerging off-grid solar market, accounting for 30% of example: off-grid solar sales since 2016. • Togo has had high growth in affiliate sales for several Most of these markets are characterized by a degree of years as the national CIZO program is implemented246 stability that enables market expansion, with high sales growth. In West Africa, several countries have sustained • Nigeria saw relatively stable affiliate sales of around 300,000 units per year in 2018, 2019 and 2020, growth over the last four years, including some of the although this expanded to over 600,000 in 2021 (see fragile and conflict-affected states in the Sahel such as Box 7 for further discussion) Burkina Faso and Mali. Governments and partners are 241 BRILHO (2022), Home Page. 242 Brookings (2022), An Increased Role for Private Sector: Mozambique’s New Regulatory Policy in the Off-grid Energy Sector. 243 Notes: [1] The World Bank approved a 5-year Mozambique Energy For All (ProEnergia) project to support electrification of per-urban and rural areas through various forms of energy access solutions including OGS; [2] GIZ and Fundação para o Desenvolvimento da Comunidade (FDC) set up the FASER RBF to enable the most vulnerable communities, women and populations in off-grid areas to have access to renewable energy, including PV solar systems and SWPs [3] COVID-PAY and COVIDPlus, two funding mechanisms under FASER, were launched during the pandemic to support OGS companies [4] The government introduced temporary tax waivers on quality-verified OGS products and is working to improve awareness and reach of mobile money to further drive OGS sector development. For more information, please see: The World Bank (2022), Mozambique Energy For All. (ProEnergia); EnDev (2020), Energizing Development Progress Report 2020; Faser | Home; Economic Consulting Associates and GreenLight (2018), Off-Grid Solar Market Assessment in Mozambique). 244 Greenlight Africa (2019), Mozambique - Off-grid Energy Market Assessment. 245 Global Green Growth Institute (2019), Country Brief: Mozambique Off-grid solar Power in Mozambique: Opportunities for Universal Energy Access and Barriers to Private Sector Participation. 246 In general for market classification total sales are scaled up on the basis of non-affiliate sales growing in line with affiliate sales. However, this may not always be the case, in particular in a case like Togo where the 2018 market assessment estimated non-affiliate sales comprise 96% of sales, but this is likely to have changed significantly as a result of CIZO which has catalyzed a rapid uptick in affiliate sales. For this reason, for Togo, we instead cap the non-affiliate sales at , which may not always be the case, especially in a context like Togo where CIZO has catalyzed especially affiliate sales.at 90% for the purposes of the classification. 79 • Burkina Faso and Mali have developed relatively • Myanmar was showing signs of strong growth in sales active off-grid solar markets, including some local of OGS products up to 2020, although the market has manufacturing and end-of-life repurposing / recycling been negatively impacted by COVID-19 in 2020 and the through companies like Lagazel coup in 2021 Box 7: OGS electrification projects and PAYGo development boosting electricity access in Nigeria Some emerging markets have made great strides in bridging their electrification gaps, including OGS technologies. Nigeria has a large population of 200 million people and a 45% national electrification gap as recorded in 2019.247 The government aims to achieve 100% electrification by 2040, with a target of 5% provided through off-grid solutions. Besides this target, there is also a strong case for OGS as a weak grid solution, as only 25% of grid-connected consumers receive up to four hours of power daily.248 The rationale behind the Rural Electrification Agency’s (REA’s) programs suggests that the role of OGS is likely much larger than 5% given it can act as a temporary electrification solution to bridge the gap before planned grid or mini-grid developments are executed. National programs and enabling policies and regulations have strengthened the country’s OGS market’s potential and translated into product uptake.249 The Solar Power Naija Program (SPN) launched by the government in 2020 aims to support 5 million new OGS connections for households and MSMEs.250 The program also has goals of growing local manufacturing and supporting installation of PUE appliances (see Section 7.2).251 The Nigeria Electrification Project’s (NEP) RBF program, aimed at increasing electrification through mini-grid and standalone solar connections, recorded substantial progress, reaching 250,000 connections from Tier 1+ solar energy kits in 2021 alone. Additionally, the program has helped to drive activity in the wider market. Affiliate sales of SEKs in 2020 were 300,000 but reached 630,000 in 2021, with growth seen in the sales of lanterns, TVs and fans that were not covered by the subsidy.252 Despite these significant milestones, there is unleveraged potential and barriers to the off-grid sector’s growth, including product quality promotion to address risk of low quality products, and increased tax exemptions for solar accessories and appliances to attract players to the market. Mature markets Ghana, Kenya, Papua New Guinea, Rwanda, 71 million 41% 87 13.7 million Senegal, South Africa, Uganda, Vanuatu people currently best reached average recorded SEK without access to by SEKs fragility sales since 2016 electricity While growth rates may be beginning to stabilize, mature assurance, and policy stability. For example, Kenya and markets dominate OGS sales volumes and make a Rwanda have achieved stable sales volumes and high significant contribution to bridging the electricity access penetration of off-grid solar products, while implementing gap. The electricity access gap is narrowing; just 10% of robust quality standards. Kenya remains the clear market people lacking access to electricity live in countries with leader, with around two million sales recorded by GOGLA mature OGS markets. Nonetheless, there is still the need each year, over half of which are sold through PAYGo. In and market opportunity for OGS, as over 30% of people countries which have made a relatively quick transition in mature countries still lack access to electricity. Mature through emerging to mature such as Papua New Guinea, markets account for 34% of off-grid solar sales over the last cash over-the-counter sales are often the main driver of three years. sales, and non-quality verified, relatively small capacity products are still highly prevalent. In this context there is Mature markets are often, but not always, characterized still a large market opportunity even in mature markets, by a high share of PAYGo sales, relatively strong quality 247 IASS (2022), The Nigerian Electrification Project. 248 ACE (2021), Stand-alone Off-grid Solar Nigeria. 249 Note: In 2018 the GoN launched the Nigerian Electrification project with the World Bank and the African Development Bank to provide electricity access to under and unserved communities using renewable energy resources. 250 Rural Electrification Agency (2022), Solar Power Naija: Enabling 5 million New Connections. 251 Ibid. 252 GOGLA (2022), Global Off-Grid Solar Market Report Semi-Annual Sales and Impact Data H2 2021. 80 Off-Grid Solar Market Trends Report 2022: State of the Sector as customers begin to replace their products with higher characterized by relatively low ability to pay, hard-to-reach capacity and higher quality products, potentially supported communities which are not served by commercial business by increased availability of PAYGo enabled products. models. To incentivize OGS companies to reach these communities, governments and development partners Even in mature countries, supportive financing is key need to work together to provide public subsidies (e.g. to electrifying hard-to-reach regions which are not through RBF), such as KOSAP in Kenya and the Renewable commercially viable markets. For example, regions in Energy Fund in Rwanda (see Box 8). extreme northern Kenya such as Mandera and Turkana are Box 8: Support is still needed to incentivize OGS companies to reach unserved population targeted for OGS electrification in Rwanda Countries in mature markets continue to grow albeit slower than they have in the past. As of Q1’2022 ~21% of Rwandan households were connected by off-grid solutions, not too far from the recently revised target of 30% electrification through off-grid technologies by 2023/2024 as laid out in the country's National Electrification Plan (NEP) by 2024.253 In a bid to accelerate the implementation of the NEP, the government and development partners have been instrumental in supporting OGS sector development. The government developed a Rural Electrification Strategy in 2016 and has so far signed a memorandum of understanding (MOU) with 21 private companies to increase the supply of SHS. These partnerships have improved Rwanda’s supply chain and brought solar systems closer to consumers countrywide.254 As a result of efforts to grow the sector, in the first half of 2021, the country recorded sales of over 97,000 solar lanterns and multi-lights systems, and SHS; a 30% increase from the second half of 2020.255 The PUE market is also a focus area for OGS development. For example, between 2018 and 2020, Energy 4 Impact implemented the Solar Irrigation Rwanda (SIR) program, which saw 1,450 farmers adopt solar irrigation systems.256 However, with the commercially viable market being nearly saturated, reaching the remaining 9% allocated for electrification through OGS by 2024 will likely be challenging. With the remaining market being largely composed of households in hard-to- reach areas with limited ability to pay, government and development partner funded programs have to remain an integral part of the OGS electrification strategy. To address this, in 2020, the government added to the existing Renewable Energy Fund (REF) a $15 million subsidy window called the RBF Window 5 to provide SHS to a minimum of 445,000 off-grid households and a $20 million guarantee framework to support banks that lend to OGS companies.257 The RBF Window 5 was designed to address affordability of SHS through reduction of product prices with the goal of reaching BoP consumers in Rwanda, channeled through partner OGS companies.258 Peaked markets Bangladesh, Guatemala, India, Indonesia, Peru, 33 million 15% 78 12.5 million Philippines, Thailand people currently best reached average recorded SEK without access to by SEKs fragility sales since 2016 electricity 253 Rwanda Energy Group (2022), Electricity Access. 254 Rwanda Energy Group (2022), Solar Home Systems. 255 GOGLA (2021), Global Off-Grid Solar Market Report Semi-Annual Sales and Impact Data H1 2021. Note: Other efforts introduced in the past to develop the sector include the introduction of fiscal incentives, such as tax exemptions for some solar equipment, and the launch of industry associations such as the Energy Private Developers association (EPD). For more information, please see: GOGLA (2022), Rwanda Country Brief. 256 Energy 4 Impact (2021), Solar Irrigation Rwanda. Note: The Solar Irrigation Rwanda (SIR) by Energy 4 Impact implemented between 2018 and 2020, addressed affordability challenges through leveraging subsidies and loans resulting in 50% to 75% of equipment cost reductions and contributing to product awareness. 257 MININFRA (2020), Government Launches US$35 Million Solar Project For Rural Households. 258 The World Bank (2020), Restructuring Paper On A Proposed Restructuring Of The Rwanda Renewable Energy Fund Project; Rwanda Energy Group | RBF Window 5; Rwanda Energy Group (2021), RBF Window 5 – A New Subsidy to Enable 370,000 Households get Solar Home Systems. 81 A handful of markets show signs of having peaked, with There is also an opportunity for the role of off-grid unit sales declining. The electricity access deficit in these technologies to evolve alongside the main grid. As countries is now relatively small, accounting for just 5% of described in Section 2.1, off-grid solar solutions are people still lacking electricity worldwide. OGS sales even already playing an important role alongside weak grid if declining are still large in absolute terms, accounting for connections, particularly relevant in these markets where 31% of affiliate sales since 2016. the grid has expanded its reach quickly but a fully reliable service may still be many years away. In part driven by In these markets the main grid has expanded and OGS a recognition of the limitations of the reliability of the sales are approaching saturation. As the grid reaches main grid, some governments are explicitly planning for almost all communities, OGS technologies are evolving distributed renewable energy to drive productive use, to play a dual role. Firstly, to serve a small part of the such as SWPs by farmers. For example, both India and market that is remote that the grid cannot yet reach, and Pakistan have introduced net metering for residential and increasingly, to provide a secondary source of power commercial buildings, and implemented off-grid solar alongside a weak main grid connection to enhance the water pump programs, with potential interconnection to quality of electricity access for households and businesses. regional electricity grids (see Box 9). There is still a significant market in absolute terms. For In general, even as a handful of markets pass the peak example, two of the largest OGS markets historically, of OGS unit sales, there remains significant potential for India and Bangladesh, have seen both a rapid roll-out of the market for these technologies to evolve. As described the main grid and high penetration of OGS sales. Yet, in in Section 2.1, there is still an important role for solar absolute terms, they ranked 2nd and 20th for absolute technologies to play alongside the grid, for productive use sales recorded by GOGLA in 2021. in agriculture and small businesses, and for even a small share of households to transition to larger SHS as they ascend the energy staircase. Box 9: Unreliable grid solutions and PUE appliances present new opportunities for OGS companies in India Targeted government initiatives over the last decade played a significant role in India’s drive to universal electrification. Currently only 2.4% of households in India do not have access to electricity.259 This is attributed to the government’s grid expansion efforts and launch of various support programs implemented since 2014, that included the supply of solar energy kits including maintenance services over a five-year period for households too remote to access grid connections.260 While the OGS market is declining, unreliable grid connection in rural areas presents a need for PUE appliances and rechargeable batteries. Although 97% of the population has access to the grid, customers’ grid connections are often unreliable, affecting households and businesses. As a result, energy companies started diversifying their product portfolios beyond OGS, to include rechargeable batteries to meet customer demand. These batteries are charged when grid electricity is available and used when it is unavailable. PUE appliances, milk chilling facilities and SWPs, in unreliable grid areas are also an attractive product category. In 2019, the government’s Ministry of New and Renewable Energy launched the PM-KUSUM Scheme to improve energy security for farmers. The scheme included one component to co-finance the purchase and installation of two million standalone SWPs and another to support the solarization of 1.5 million existing grid-powered pumps to increase energy reliability.261 30% of the cost is provided as a State Government subsidy, 30% as financial assistance from the Central Government (50% in North Eastern States) and 30% is a loan to the farmer who would cover the remaining 10% out-of- pocket. However, while the scheme has facilitated the installation of over 110,000 solar water pumps, when compared to the initial ambition of installing 1.75 million SWPs by 2022, implementation has been slow. This is due to challenges such as poor coordination between implementing partners and the government, and difficulties experienced by farmers in obtaining financing from banks.262 This program, if current implementation challenges are resolved, will be instrumental in driving demand and uptake of SWPs in India. 259 Council On Energy, Environment And Water (2020), State of Electricity Access in India: Insights from the India Residential Energy Survey. 260 Notes: [1] The Saubhagya scheme was launched in 2017 providing free or highly subsidized grid connections for unconnected and off-grid households [2] The OGS PV Application program launched in 2014, which was one of the government’s first initiatives to provide solar based solutions. For more information, please see: MNRE | Brief on Off-grid PV Programme. 261 National Portal of India (2022), PM-KUSUM (Pradhan Mantri Kisan Urja Suraksha evam Utthaan Mahabhiyan) Scheme. 262 Energy Tracker Asia (2021), KUSUM: Bumpy Ride for India’s Solar Pump Scheme; MNRE (2021), PM KUSUM Scheme. 82 Off-Grid Solar Market Trends Report 2022: State of the Sector Table 1: Correlation between SHS sales and appliances / PUE sales263 Productive use of energy technologies are still at an early stage of market Appliances / PUE product Correlation with development, tending to follow segment cumulative solar energy kit sales (2016-21) established off-grid solar markets. All Appliances 0.53 Solar Water Pumps 0.60 Household appliance markets are often reinforcing Refrigeration Units 0.59 the maturity of the market for solar energy kits. There is a moderate-to-high correlation between sales of Televisions 0.59 refrigeration units, TVs and SEKs (Table 1), as appliances Fans 0.12 both support and can help drive sales of solar energy kits. For example, Kenya is the world leader for cumulative TV sales, and second only to India in terms of SEK sales. The market for off-grid fans is thriving in countries 5.2 Market Competition where SEK sales are not showing the same growth or are declining. This is particularly the case in South Asia where Pakistan, Bangladesh, and India are the top three ranking 5.2.1: Solar Energy Kits Market countries for fan sales, but where SEK sales are declining Competition264 (India and Bangladesh) or not showing the same high rates of growth (Pakistan). This is driven to a large extent by demand for fans alongside weak grid connections. It is worth noting that in SSA sales of fans appear to be predominantly bundled with PAYGo SHS, suggesting that Although competition continues to be in Africa they may follow the same trajectory as noted for other appliances above. driven by price, recent supply chain challenges have affected product The emerging solar water pump (SWP) markets are all availability and provided advantages for in relatively mature (including peaked) off-grid solar markets. Kenya, Senegal, Uganda, Bangladesh all have companies with sufficient stock levels. recorded SWP sales from GOGLA affiliate companies, while India has also deployed tens of thousands of SWPs. Togo is also rolling out SWPs supported by public subsidies. In general, emerging markets for SWPs appear to have both relatively developed SHS ecosystems, and support from public funding. This seems to suggest that specific PUE technologies may be following markets which have previously developed supporting policy and regulatory environments for solar energy kits, and where how to unlock demand for productive use of solar energy products is better understood. © Power Africa 263 Analysis based on GOGLA affiliate sales data only. Note: the correlation coefficient is a number between zero and 1, where zero would represent no correlation, and 1 perfect correlation. The closer the coefficient is to 1, the higher the degree of correlation between the two data series. 264 Analysis on market concentration and competitive trends in this section is limited to affiliate companies that report sales every year. Some report consistently while others may fail to report in some periods. Analysis in this section therefore relies on sales reported in each period and market by affiliate companies and reference to market entries and exits could be informed by reporting trends. 83 A range of factors influence competition in the OGS Studies conducted by Ipsos on behalf of Lighting Global sector, including product type, geographical region, shed some light on the non-affiliate portion of the market and affordability. Price remains a crucial element but have not been updated over the last two years. The driving competition in the sector while product quality is analysis in the remainder of this section is thus focused beginning to influence competition, especially in mature on data from the affiliate market segment, which are likely markets. For example, in Kenya, quality was one of the indicative of broader competitive trends but have been main aspects of consideration for customers purchasing observed based on affiliate-only data. SHS, for both quality-verified and non-quality verified Sales in the affiliate OGS market are dominated by a brands.265 few vertically integrated companies, through both B2B Over the last two years, stock availability, due to supply and direct distribution. These companies are enabled by chain challenges caused by COVID-19, was a key factor sufficient levels of funding. Some examples of vertically driving competition. During the pandemic, global supply integrated companies that have recently secured chain disruptions, such as shipping delays and increased investment to expand PAYGo operations across key new logistics costs and availability, not only raised the overall African markets include the following: Bboxx raised $15 cost of products leading to a general decline in sales but million in debt in 2022, Sun King raised $260 million in also caused stock shortages.266 Some companies mitigated Series D funding in 2022, and d.light raised $25 million in these challenges by exploring alternative product brands equity in 2021 (see Chapter 8 Funding Flows).268 for distribution from suppliers with stock on the African However, more distributors entering the OGS market continent. Others, like Anuel Energy in Uganda, adopted and a gradual increase in the number of Chinese original modular systems, replacing plug and play (PnP) systems equipment manufacturers (OEMs) quality-verifying by purchasing different components and assembling their products through VeraSol, could lead to increasing them locally.267 Companies that either had sufficient stock market share of distributing companies. The increase levels in-country or that were able to innovate around the in Chinese OEMs registering their products on VeraSol is stock challenges had a competitive advantage during this largely observed in SSA-destined products and driven by period. The continued global shortage of parts, such as quality requirements of government and donor-funded semiconductors, alongside the high demand for batteries OGS programs. For example, the number of Chinese outside of the off-grid industry, mean that the availability manufacturers with VeraSol-certified products increased and cost of components remain an industry challenge. to 28 in 2022 from 14 in 2019, surpassing the number of European manufacturers (22 in 2022). Chinese OEMs mostly partner with last mile distributors (LMDs) and specialized OGS companies as well as programs with a focus on increasing participation and efficiency of local Sales in the affiliate OGS market are based companies. The GET.invest Financial Readiness dominated by vertically integrated Support currently being piloted is one such example. This companies, however more distributors may lead to increased competition and directly affect are entering the market and partner market share of vertically integrated companies. with Chinese manufacturers, indicating increased competition. Entries in nascent and emerging markets Evaluating the level of competition in the sector is continue to increase due to large market difficult because little information is available on the non-affiliate portion of the market. While GOGLA collects opportunities and increasing government sales data on the affiliate portion of the market, no such and donor support. centralized database exists for the non-affiliate segment. 265 Verasol (2021), Quality in the Off-Grid Solar Market: An Assessment of the Consumer Experience in Kenya. 266 GOGLA (2021), Off-grid Solar Supply Chain Disruption: 87% of Manufacturers Expect Increased Prices for Consumers. 267 UOMA (2021), The COVID-19 Impact on Access to Finance for Local Off-grid Solar Businesses in Uganda. 268 Bboxx (2022), Bboxx Secures $15 Million Debt Package; d.light (2021), Inspired Evolution Led $15 Million Raise in d.light to Fund Expansion in Key Markets; d.light (2021), d.light Welcomes Investment from Proparco on its Journey to Impact 1 Billion Lives; General Atlantic (2022), Sun King Raises $260 Million, Led by General Atlantic’s BeyondNetZero, to Expand Global Access to Affordable Solar Energy. 84 Off-Grid Solar Market Trends Report 2022: State of the Sector Figure 52: Key affiliate market competition statistics269 Nascent Emerging Mature Peaked Market attractiveness Total number of companies (2021) 34 61 53 10 Overall increase (decrease) in total number of companies 9 12 2 12 (since 2019) Total Lantern & MLS sales volumes (2021) 146,532 1,689,041 1,589,324 627,049 % increase (decrease) in Lantern & MLS sales volumes (5-year CAGR) 50% 12% 3% 41% Total SHS sales volumes (2021) 50,105 233,645 514,856 12,655 % increase (decrease) in SHS sales volumes (5-year CAGR) 97% 135% 109% 25% Market share of the top three players by sales and changes in sales Market share of top three Lantern & MLS players (2021) 47% 60% 89% 100% Increase (decrease) market share of top three Lantern & 16% 3% 5% 12% MLS companies (2019-2021) Market share of top three SHS players (2021) 70% 58% 63% 93% Increase (decrease) market share of top three SHS 15% 4% 5% 34% companies (2019-2021) More companies are entering nascent and emerging Market entrants in nascent markets reporting sales over markets, attracted by the market potential of thousands the last three years are primarily Chinese OEMs. LMDs of unelectrified households and support programs by are the primary route to customers for OGS manufacturers governments, development partners and donors. A and have previously mainly distributed products of large percentage of the population in nascent markets vertically integrated companies. Increased Chinese OEM lack access to electricity. While higher poverty rates, market entrants indicates that these LMDs are beginning economic fragility, and insecurity has limited the number to diversify their product portfolios to include distribution of active companies overall, observed market entries are of quality-verified, white label products sourced from often driven by the market potential of the unelectrified Chinese manufacturers. In order to increase their products’ population. For example, with a population of 84 million - attractiveness, Chinese OEM manufacturers are also of which 91% are unelectrified, DRC presents an attractive increasingly including PAYGo technology in their products. market for some OGS companies, exemplified by Bboxx’s For instance, Shenzhen Solar Run and Niwa, two Chinese entry in 2017 and Altech’s recent expansion into additional manufacturers, partnered with Angaza.272 This trend is regions of the country.270 The market potential alone is supported by the fact that the top three players in nascent often not compelling enough, and companies at times markets have steadily lost market share over the last three make their entry/expansion decisions by government years. and donor commitment to growing the sector through While the majority of sales in nascent markets are still dedicated programs. One vertically integrated company solar lanterns and multi-light systems mostly sold in that recently benefited from the provision of a subsidy by cash, a steady increase in SHS sales indicates rising Nigeria’s Rural Electrification Agency (NREA) was driven by demand for, and ability to afford, larger systems. A the program’s subsidy potential.271 number of affiliates entered nascent markets by selling 269 GOGLA data from affiliates that reported sales in referenced periods and OCA analysis. Notes: [1] * Market attractiveness: an increase in the total number of companies or in sales volume signals increasing market attractiveness while a decrease signals a decline in market attractiveness, and [2] CAGR stands for Compounded Annual Growth Rate. 270 Bboxx (2022), Country Profile DRC. 271 OCA stakeholder consultations. 272 Shenzhen Solar-Run (2022), Solar Run and Angaza Partner to Bring Reliable Energy Access to Underserved Markets; Niwa (2022), Our Partners; Angaza (2022), Manufacturers. 85 solar lanterns and multi-light systems but introduced SHS A general decline in OGS sales and the number of a year after market entry, leading to a decline in the market companies reporting sales serving peaked markets is share of the top three players. Although increasing SHS observed. The decline in the number of affiliates that sales signal rising consumer energy needs, affordability reported sales in peaked markets was observed in 2019 remains a challenge as many nascent countries have and 2020, and is potentially due to off-grid solutions taking limited PAYGo infrastructure. However, some nascent up a small proportion of some distribution companies' markets like Mozambique have begun developing product portfolios and pandemic-related difficulties in mobile money networks through support to enable 2020. The downward trajectory in OGS sales is in line with PAYGo financing, which is expected to lead to increased the low electricity access gap in peaked markets as the grid competition in the SHS segment. expands to electrify a larger proportion of the population. OGS solutions remain relevant to serve those who cannot Chinese OEMs working through local distributors and access the grid, and those with unreliable grid connections. vertically integrated companies opening subsidiaries Based on this trend, competition among companies in new markets has driven competition in emerging is likely to continue reducing as grid connections are markets. This move is largely driven by increasingly strengthened and companies exit or shift focus to other attractive enabling environments such as tax and OGS products, including PUE appliances. duty relief, increasing mobile money penetration and government subsidies focused on scaling the OGS sector. For example, M-KOPA and Bboxx officially entered the 5.2.2: PUE Appliances Market Nigerian market in 2021.273 Competition Declining entries were observed in mature markets driven by a decreasing Competition in the SWP segment commercially viable customer base and remained relatively stable and sales already high levels of competition, while volumes continue to be driven by exits were noted in peaked markets due to specialized companies. advances of grid electrification. Only a few traditionally solar energy kit companies have included SWPs in their product portfolios in mature and There are fewer market entries in mature markets, emerging markets, though interest in PUE appliances indicating saturation of the commercially viable market. is rising among LMDs. Bboxx and PEG, two companies There are already many companies serving mature that previously focused on SEKs are currently offering markets, competing for commercially viable customers. SWPs as part of their portfolio. They have done so through Although the electricity access gap is still significant, subsidy programs and partnerships. Other companies at 30% of the population (see Section 5.1), this market have considered incorporating SWPs into their product segment is less commercially attractive for companies portfolios to benefit from the potential for increased active in the sector, given they are located in hard-to- income, better repayments, and customer segment reach areas and lack the ability to pay for access. As a diversification, but prioritized managing cash flows and result, programs such as demand-side subsidies and adjusting business operations. Other reasons companies RBFs, are gaining popularity to incentivize companies have not incorporated SWPs into their portfolios include to serve these customer segments. For example, KOSAP, the difficulties of adjusting business operations to allow for an RBF program launched by the Kenyan government, is the products’ complex sales, installation and maintenance incentivising companies to enter 14 most unelectrified processes. Despite noting similar difficulties, more LMDs counties in Kenya. The decreasing market share of the top are selling PUE appliances and more are interested in three affiliates providing SHS products in mature markets doing so in the future driven by rising consumer demand indicates an increasingly aware customer base assessing and potential to achieve higher impact. This is evidenced product differences, often based on cost. by the fact that 35% of Global Distributor Collective (GDC) members reported sales of PUE technologies in 2022, up from 6% in 2019, with the majority stocking SWPs 273 M-KOPA (2021), M-KOPA Expands to Nigeria, Appoints Babajide Duroshola as New Country General Manager; Bboxx (2021), Bboxx Launches in Nigeria to Deliver Clean Energy and Sustainable Development to 20 Million People. 86 Off-Grid Solar Market Trends Report 2022: State of the Sector at 26%. Furthermore, an LMD survey revealed that 21% New market entries and expansions for instance include of respondents would like to sell PUE appliances in the walk-in-cold room companies, like Ecozen, InfiCold and future; this is the product category that registered the refrigerator companies such as Koolboks and Sundanzer, highest level of interest.274 driven by programs such as IFAD’s Green Technologies Program targeting Rwanda, Mozambique, Malawi, Specialized SWP distributors are few and continue to lead Zimbabwe and Tanzania.278 Programs by development B2C sales in the SWP market segment in mature markets partners and donor organizations are already being set up in SSA, with financing options being the primary driver of to support scaling of viable business cases for solar cooling market uptake. Specialized companies create added value technologies across various agriculture value chains. While to their customer base by bundling SWPs with additional these programs have assisted in increasing competition in appliances such as TVs and services such as agronomy the sector, business models need to be further developed advisory and weather forecasting. However, affordability to address product market fit and to start competing in the remains the biggest barrier to customer uptake of SWPs, market (see Section 4.4). with cash prices starting from approximately $500. As a result, specialized pump distributors, such as SunCulture and Simusolar, continued to drive B2C sales through their PAYGo platforms. Similarly, in a quest to increase its market reach in rural areas, East Africa’s leader in pump distribution, Davis & Shirtliff, recently signed an agreement Solar refrigeration saw an increase in to make financing available to its end consumers with the competition especially in the cold storage National Bank of Kenya to provide a 5% discount on SWPs segment, despite the total number of financed by a $40 million loan facility by the bank.275 companies in the segment remaining SWP sales in Bangladesh and India, continue to be driven small. by government subsidies that are attractive incentives for companies. Agriculture is one of the key contributors COVID-19 also led to increased supply of cooling of Bangladesh’s and India’s GDP. Government irrigation solutions to the healthcare sector, with sales likely programs are strategic moves to strengthen the sector driven by a few companies and direct procurement from and increase output. Since inception, India’s PM-KUSUM governments and development partners. Increased scheme has facilitated the installation of over 110,000 supply of refrigeration units to the healthcare sector was solar water pumps (see Box 9) while the Bangladesh observed during the pandemic period, particularly of solar government, in partnership with IDCOL, has installed fridges for COVID-19 vaccines. This was largely funded by 1,500.276 These programs were launched in 2019 and 2021 governments and development partners for remote health respectively. Sales are likely driven by well capitalized centers in all markets. For example, in sub-Saharan Africa, companies, given the slow nature of government SureChill received funding from the Global Environment repayments, which necessitates sufficient working capital Facility (GEP) to equip off-grid health centers in Kenya to compete for government tenders. and Eswatini with solar fridges for COVID-19 vaccines, and The diversity of companies active in the refrigeration in SEA, GAVI, the Vaccine Alliance launched an initiative segment in mature and emerging markets has increased, involving the provision of 674 Cold Chain Equipment primarily driven by companies targeting the agriculture (CCE) to help boost Papua New Guinea’s (PNGs) cold chain sector. The greatest potential demand in the cooling capacity for the safe storage of vaccines.279 Only a handful industry is driven by the agricultural sector, which has of companies are able to provide these solutions as safe always been an attractive target for cooling appliances storage of vaccines is ensured by detailed government and due to the perishability of produce and the need to keep WHO requirements for cooling technologies. produce fresh for both the export and local markets.277 274 The Global Distributors Collective (2022), State of the Sector. 275 Business Daily (2022), NBK, Davis & Shirtliff Sign Financing Deal for Water, Solar Systems. 276 Ministry of New and Renewable Energy (2021), KUSUM Scheme. 277 Ecozen (2021), Ecozen Comes to Kenya: Channelizing the Path to Sustainable Development. * Compared to solar lanterns and multi-light systems and SHS, there are no quality verification standards in the SWP segment. VeraSol only tests products and provides recommendations on technical ability. 278 Efficiency for Access, Lessons Learned from IFAD Green Technologies Project. 279 UNICEF(2021), Government Receives Additional Cold Chain Equipment for Country’s Overall Immunization Program; SciDevNet (2021), Solar Fridges to Chill COVID-19 Shots in Rural Africa. 87 5.3 Company The market value of solar lanterns and SHS (including appliances if sold together) from affiliates reached a Performance and record $584 in 2021, up from $565 million in 2019, and $525 million in 2020. The rise of PAYGo among affiliates is Profitability a hugely significant trend - whilst PAYGo sales represented only 36% of the units sold in 2021, these sales represented more than three quarters of the total market value, exceeding more than $450 million (Figure 53). Given that the median down payment on a PAYGo product is 8% of the total contract amount (see Section 2.4.1), assessing The affiliate market has proved resilient companies’ financial performance requires us to look beyond sales to how successful they are at collecting in the last two years, in part due to the subsequent payments. rise of PAYGo. Some high-performing companies have grown and matured, whereas others have stagnated or shrunk. Figure 53: Number and market value of cash sales and PAYGo sales from affiliates280 9 500 Millions Millions 8 450 7 400 350 6 Number sales (units) Market value (USD) 300 5 250 4 200 3 150 2 100 1 50 0 0 2019 2020 2021 Sales Cash Sales PAYGo Value PAYGo sales Value Cash sales PAYGo market trends and company benchmarks on portfolio quality and financial health indicators are now Pioneering market data is now available available, in what is a new development since the 2020 on key financial and operational metrics Market Trends Report. Building on the industry-standard PAYGo PERFORM KPIs that were finalized and published of PAYGo SHS players that enables a in 2021.281 There is now a PAYGo market data initiative deeper and richer analysis of company with a growing number of PAYGo companies reporting and industry performance. data, and new ways of sharing and analyzing the data coming online. The data can help companies to measure and benchmark their performance and find areas for 280 Analysis based on GOGLA Sales & Impact Database. Results are for solar energy kits and appliances (if sold together). 281 CGAP, GOGLA, IFC Lighting Global, MFR (2021), PAYGo PERFORM: Financial, Operational, and Portfolio Quality KPIs for the PAYGo Solar Industry. 88 Off-Grid Solar Market Trends Report 2022: State of the Sector improvement, whereas from the investors’ perspective, viability of companies. This development is significant standardized periodic reporting and benchmarking make as increased transparency and insights on company it easier to assess industry risks and understand the and industry performance have long been identified as potential for growth and return. Furthermore, it provides a critical enabler for increased investment and industry donors and governments with critical new insights on such growth. as how many people default on payments and the financial Box 10: PAYGo market data, a new era of transparency and insights The PAYGo PERFORM Monitor (PPM) started in early 2022 (building on the PAYGo COVID-19 Impact Monitor in 2020-21282) to provide benchmarks and market trends on industry KPIs for companies and investors. The initiative will collect, analyze, and share these insights semi-annually on an ongoing basis. Summary reports from the initiative will be publicly available and company benchmarks will be accessible to participating companies and subscribers on the interactive ATLAS platform from MFR.283 The initiative also works to improve transparency on accounting practices and improve comparability of data.284 PPM has collected data from more than a dozen PAYGo companies representing nearly 40 country operations, selling SHS and appliances, between 2019 and 2021. Participating companies have a combined portfolio of nearly $600 million, and represent three quarters of the total B2C sales volumes generated by GOGLA affiliates in 12 countries in sub-Saharan Africa.285 While this is a significant sample it does not cover a share of the sector, meaning results are illustrative rather than comprehensive. The Collection Rate - the percentage of customer Low collection rates are a concern for companies as payments received compared to payments expected for a they put a strain on their financial health. Whilst most given period - had a mean value of 62% in 2021, though companies target and plan for a higher collection rate than some companies performed much better than this, the mean of 62%, this figure isn’t inherently unviable if it and some much worse (Figure 54).286 Consumers can be is baked into the business plan. The 15% of PAYGo country segmented as ‘fast’, ‘moderate’, and ‘slow’ payers – a low firms with collection rates above 80% are likely close collection rate indicates a large proportion of slow payers, to or exceeding targets, whilst the 15% below 40% are i.e. people who take a much longer time than expected to undoubtedly well off the mark. The company benchmarks complete their payments, though eventually do enjoy free help identify an individual company’s performance relative use of their system, when fully paid off. The OGS business to peers, and the detailed results show the trends by model is relatively tolerant of slow payers due to the country and region, and company size. Notably, three of powerful payment incentive from the lock-out technology, the four worst performers on collection rate are in a single the in-built flexibility and length of the payment plans, and country, pointing to the market context such as lockdown the repossession value of the assets. measures or other macroeconomic trends driving results, as opposed to company strategy. The industry averages for customer portfolio health KPIs show room for improvement, though there are high- © Power Africa performing companies with good portfolios that offer success stories for lower-performing companies to follow. 282 GOGLA (2022), PAYGo COVID Impact Monitor Infogram. 283 Atlas (2022), About us. 284 World Bank/Lighting Global, GOGLA (2021), PAYGo Accounting Brief. 285 The PAYGo business model is predominantly used in sub-Saharan Africa, whilst in South Asia and other large markets, products are more often sold on a cash basis or through microfinance institutions. 286 The mean value is non-weighted, i.e. each company weighs the same. The goal is to present the performance of companies, including both small and large (otherwise performance is skewed towards few large companies with many customers). 89 Figure 54: A histogram of the median portfolio quality results of PAYGo companies in 2021287 50 30 40 20 % of companies 30 20 10 10 0 0 0-20% 20-40% 40-60% 60-80% 80-100% 0-10% 10-20% 20-30% 30-50% >50% Collection rate (%) RAR 30 + Write-off ratio (%) indicates an increase in the number of customers who lost access to their systems after defaulting on their payments, and presents a significant concern for customer well- being. Even before the pandemic, as many as 5% of people There has been a decline in the portfolio purchasing a SHS,289 and 9% of people purchasing a SWP,290 health of the PAYGo sector in 2020 and had to regularly cut back on food consumption in order to afford payments. The pandemic has exacerbated the 2021 that represents a loss of income for affordability issue in many places, as in Kenya for example, PAYGo companies. It suggests that many where food insecurity jumped from 14% pre-COVID-19 to people may have lost access to electricity. 47% in mid-2021.291 The mean collection rate dropped from 67% in 2019 to 66% in 2020 and 62% in 2021, and the Write-Off Ratio + RAR 30 indicator (a measure of non- and slow- payments)288 increased from 18%, to 29%, and 32% in the © Efficiency for Access same period (Figure 55). The Write-Off + RAR 30 results worsened for three-fifths of companies between 2020 and 2021, and worryingly, one-fifth of companies have more than half of customers in this category. Simultaneously, two-fifths of companies’ Write-Off + RAR 30 results improved between 2020 and 2021, and one-sixth have less than one in ten customers in this category. Overall, this 287 GOGLA, World Bank/Lighting Global, MFR (2022), PAYGo PERFORM Monitor. In partnership with CGAP, CDC, FMO, UNCDF. To ensure the data from different companies is comparable, the data is collected as ‘building blocks’ rather than the calculated ratios, e.g. it collects payments expected and payments received rather than Collection Rate (since there are a variety of ways companies calculate the Collection Rate). Only country operations older than two years are included to avoid the irregular results of very young portfolios creating ‘noise’. 288 Write-Off Ratio: the percentage of payments expected from customers that have been written-off due to customer non-payment during a given period. The Receivables at Risk on 30 consecutive days unpaid (RAR 30) is used alongside the Write-Off ratio to offer more comparable results (since it neutralizes differences in accounting practices arising from variations in when companies record a write-off). Note: Write-offs are removed from the Collection Rate calculation (since they are no longer active customers with expected payments), thus an increase in Write-offs can improve the Collection Rate. 289 60 Decibels (2020), Why Off-Grid Energy Matters. An Impact Performance Report. 290 60 Decibels, Efficiency for Access Coalition (2021), Use and Impacts of Solar Water Pumps. 291 Central Bank of Kenya (2022), FinAccess MSE COVID-19 Tracker Survey Report. 90 Off-Grid Solar Market Trends Report 2022: State of the Sector Figure 55: Trends in non-weighted mean PAYGo from 2019 to 2021. Companies that had strong credit risk Collection Rate and Write-Off Ratio + RAR 30292 management were better able to cope with the downturn, though there are also other drivers in some cases, for 70% example, impacts affecting particular country contexts or customer segments. 60% 50% 40% 30% Higher performing companies have strong credit risk management, and consumer 20% protection practices that are underpinned 10% by rich data analytics. 0% 2019 2020 2021 Some companies have highlighted that the low collection RAR30 Write-off Ratio Collection Rate rates in more mature markets (such as Kenya) may also be linked to customers buying more than one PAYGo system and ‘picking and choosing’ which they pay for Data suggests that whilst COVID-19 has had a big impact and use at a given time. The establishment of an industry- on portfolio health, company performance largely focused Credit Reference System to help companies assess depends on business strategy and execution. There potential customers’ ability to pay and identify if they are were high levels of variation among company collection already an existing customer of another provider could rates and Write-Off ratios pre COVID-19. The gap between be a useful tool for companies, and at the same time help high-performing and low-performing companies increased customers to avoid becoming financially overburdened with contractual obligations from multiple providers. Box 11: Two sides, one coin: credit risk management and consumer protection293 For PAYGo companies, credit risk management and consumer protection are inseparable. To protect customers, companies need to ensure that they understand the terms of their contract and can comfortably make payments. Equally, if companies want customers to pay for their financed assets, they need to conduct honest and fair business, and ensure they’re satisfied with their product. Responsible sales and pricing and fair treatment of customers are two of the key Principles within GOGLA’s Consumer Protection Code. These Principles have been developed alongside a framework for companies to measure, monitor, and improve their performance. Independent monitoring and verification is also being piloted. 78 companies and investors have made a Commitment to the Consumer Protection Code and are using it for self assessment and reporting, with 36 having adopted it since January 2020.294 Simultaneously, the standard of knowledge and practice on credit risk management in the industry has improved.295 Whether a product works well, and the ability and speed lantern owners, 47 for SHS owners, and 38 for appliance with which a company resolves issues, are significant owners.296 Even still, among the top performers there is factors in consumer satisfaction. The Net Promoter Score room for improvement with around one third of their in the industry is high, with an average of 67 for solar customers experiencing a technical challenge with their 292 GOGLA, World Bank/Lighting Global, MFR (2022), PAYGo PERFORM Monitor. 293 CGAP (2021), Two Sides, One Coin: Credit Risk Management and Consumer Protection. 294 GOGLA (2022), Consumer Protection. 295 CGAP (2021), Getting Repaid in Asset Finance: A Guide to Managing Credit Risk. 296 60 Decibels (2020), Why Off-Grid Energy Matters. An Impact Performance Report. Note: the creators of the NPS suggest that a score above 0 is good, above 20 is favorable, above 50 is excellent, and above 80 is world class. 91 product or payment, and only about a third of these cases are fully resolved.297 Furthermore, there is a correlation between customers that reported that the payments are The top-performing companies have a higher burden, and low satisfaction and payment rates very high consumer satisfaction rates, (Figure 56). The customers that are too stretched to make though there is a wide variation between payments and have to spend periods with the system companies. This is driven by product being locked are naturally less satisfied. High-performing quality, after-sales service, and low companies achieve the virtuous cycle of providing customers with a payment plan they can afford, delivering burden of payments, and correlates good-quality products and service, and reaping higher strongly with payment rates. payment rates. Figure 56: Consumer experience and satisfaction ratings for 15 PAYGo SHS companies298 NPS varies significantly across companies Bottom performing Higher burden Lower repayment 61 companies see customers of repayments... rates... 58 with higher challenges 46 rates... 46 37% 46 40% 70% 68% 40 34% 29% Compamies 31% 37 36 40% 34 16% 34 33 32 26 24 Top- Middle- Bottom- performing performing performing Top- Middle- Bottom- performing performing performing Top- Middle- Bottom- performing performing performing 8 % customers % customers % customers experiencing reporting their solar saying they are making challenges with payments are a ʻheavy repayments as normal their solar product burdenʼ technology works perfectly, if the farmer, for example, doesn’t have the knowledge or inputs to increase production, or lacks access to the market to sell the The performance of productive use produce at a good price, there may not be sufficient companies largely depends on the ability increase in income to pay for the system. Successful of their customers (i.e. entrepreneurs productive use companies are providing an end-to-end or smallholder farmers) to grow their service that aims to ensure customers have the knowledge, incomes, and this requires the PUE information, and support they need to raise incomes and make payments (see section 5.4). company to provide services beyond the technology. A recent study showed most companies achieve gross margins - a measure of the product price and indication of company profitability - in the 45-55% range, though the Research on productive use machinery in agriculture leaders sustained a gross margin of ~60%+.300 It estimates shows that more often than not, economic factors that that 55+% is needed to be profitable at scale and generate hurt the ability of the entrepreneur to make additional enough cash to cover the high operating costs of serving low- revenue are the main factor that undermines ability to income consumers in distributed geographies with the high pay and Collection Rates.299 Even if the solar-powered 297 GOGLA, 60 Decibels (2020), Consumer Insights during COVID-19. 298 GOGLA, 60 Decibels (2020), Consumer Insights during COVID-19 Webinar. 299 A2EI (2021), Productive Use Machinery in Agriculture, from Development to Market Maturity. 300 Persistent (2021), Learnings from a Decade of Investing in Energy Access in Africa. Gross Margin is defined as: (Contract Value - Cost of Good Sold) / Contract Value. The Gross Margin does not include Operating Costs such as staff, facilities, provision for loss, cost of finance, overheads, etc. 92 Off-Grid Solar Market Trends Report 2022: State of the Sector costs of finance currently available to the industry. However, economies of scale that reduces the cost of goods PAYGo players face the dilemma that if they increase their sold and boosts the gross margin. However, the study prices to improve their financial health, their products may asserts that whilst a certain scale is required to achieve become unaffordable to their target customers and make it profitability, having strong unit economics is the key harder to reach sales and impact targets. determinant of profitability rather than size. Running a lean operation and adjusting the operating model to work in the local context is considered paramount. Another study of 15 last mile distributors (LMDs) showed that locally-owned companies are leaner and more Industry discourse on strategy has now efficient (Table 2). They have a significantly higher ratio firmly moved to ‘quality over quantity.’ of total sales revenue to total capital raised, an alternative As the sector matures, companies and measure of the financial performance, than foreign-owned investors are driving for strong unit companies. This indicates they are much leaner probably due to value chain specialization, local market knowledge, economics over a fast growth and scale and low overheads, and therefore may have a shorter path strategy. This will help drive industry to profitability.301 However, the low ratio of the foreign- sustainability and growth. owned companies may be a feature of their stage of maturity - achieving a higher ratio may take longer as they have invested more heavily in organizational development The alternative is to reduce costs, though this has proved and expansion and are yet to achieve economies of scale. harder to achieve. High sales volumes can help achieve Table 2: Slower-growth and locally-owned LMDs have realized higher revenues per $ of capital raised than faster-growth and foreign-owned LMDs. Data from 15 LMDs selling off-grid solar products302 Total sales revenue Total capital raised Revenue / Capital Raised ratio Faster-growth (7 LMDs) $63 million $33 million 1.9 Slower-growth (8 LMDs) $21 million $10 million 2.2 Foreign-owned (8 LMDs) $50 million $34 million 1.4 Locally-owned (7 LMDs) $34 million $8 million 4.1 Nearly one-third of country firms (29%) reported a profitability of industry leaders represents a significant positive EBT margin (cashflow)303 to the PAYGo PERFORM new development as it is a potential tipping point to Monitor in 2021, and many of these firms are on a unlock long-term growth and sustainability for the sector. positive upward trend from 2019 and 2020. Companies Sun King’s recent series D equity round of $260 million, reporting profitability have established strong portfolio and d.light’s $238 million debt raise in 2022, and other quality and unit economics, as well as a variety of scale-ups exploring an initial public offering (IPO) points other strategies that are elaborated in Section 5.4. The to a step-change in the ability of market leaders to access 301 Global Distributors Collective (2021), The Growth and Fundraising Journeys of Last Mile Distributors (LMDs). The 15 LMDs selling off-grid solar products are between 4 - 12 years old and at different stages of maturity. Faster-growth LMDs have an increase in annual revenue greater than $440k per year (though results have wide variation). Locally-owned is defined as majority local ownership and leadership. Note: there is significant overlap between LMDs classified as faster-growth and foreign-owned, and smaller-growth and locally-owned, though not a complete match. 67% of the faster-growth companies have ambitions of market leadership, rapid scale and/or international expansion, whereas 67% of the slower-growth companies pursue consolidation in existing markets and profitability before expansion. 302 Ibid. 303 Profitability remains a challenging characteristic to define and measure in the off-grid solar industry due to the complex business models, variety of metrics, and different accounting methods. The PAYGo PERFORM initiative concluded that EBT Margin (on cashflow) is the most meaningful and comparable single metric for profitability, though Contribution Margin (on cashflow) may be more useful for young companies despite it being more difficult to calculate. For companies with multiple countries of operation, milestones of profitability include positive EBT margin (cashflow) in each country and then at the group level (with other business units such as manufacturing and software further complicating the picture for vertically integrated players). 93 new sources of capital on the back of strong financial productive use technologies for many years (e.g. Davis & performance (see Section 8, Funding Flows). Shirtliff), and PAYGo specialists that are emerging strongly (e.g. SunCulture), though many players are still too young to achieve profitability. Segment leaders have established strong product unit economics, but profitability will require greater scale for these capex intensive businesses with large fixed costs. As per the collection rate (described A handful of off-grid solar companies now above), a strong financial performance requires that report being fully profitable, whilst others the company address many challenges faced by their report being partly profitable. This has customers in what becomes a complex operation. enabled some market leaders to unlock a wave of investment from a new, later- stage, commercial investor base. Many companies have struggled in the However, many companies in the industry have further face of the pandemic due to rising costs, to go on the path to profitability. A survey of GOGLA’s reduced customer incomes and a more members in early 2022 revealed that 25% of respondents reported being profitable using net profit (including cost challenging investment environment. of goods sold, operating expenses, cost of financing, This has led some companies to exit the and taxation), a further 13% were profitable using market. operating profit (which excluded the cost of financing and taxation).304 This left the majority of respondents, 53%, reporting that they made a gross profit, excluding Whilst the sector did not experience a widespread operating expenses, and a further 9% were not profitable, liquidity crunch as was feared in early 2020, and some failing to cover the cost of goods sold. companies report healthy reserves, it appears many companies are in a weak cash position. Data from 26 The reduced purchasing power of consumers and company country operations in the PAYGo PERFORM increase in costs over the last two years has been a Monitor showed that the median liquidity rate (the setback for many companies on the path to profitability, availability of liquid assets over 90 days) increased from though despite this respondents were almost universally 34% in 2020 to 44% in 2021.305 This shows a promising optimistic about their prospects going forward, with 97% move in the right direction, but figures remain low in expecting their financial sustainability to improve in the absolute terms and need to increase further if these next three years. Realizing the full potential of the off- players are to increase resilience. There are a notable grid solar industry will be dependent on whether a wider few company operations that report a much healthier range of companies are able to improve credit policies and position with figures well over 100% due to recent practices, and better manage the challenges of servicing a investments, prudent cash conservation, and strong large number of low-income customers, dispersed across financial and operational performance. The MFI sector wide geographies and difficult economies. provides a useful comparison; 86% of MFIs can cover It is difficult to characterize the profitability of the more than three months operating expenditure with productive use segment given the early stage of the cash in hand (equivalent to a 100% liquidity value of 90 market, the range and diversity of technologies and days), and many hold considerably more.306 Achieving business models, and the lack of data and insights. There these industry averages in the PAYGo solar market will are a number of mature companies that have been selling be highly dependent on the future investment landscape 304 GOGLA (2022), Financial Sustainability Survey (unpublished). The survey included responses from 38 companies, predominantly distributors and manufacturers, mostly under six years old, with a smaller proportion between 7 and 12 and over 12 years old. The majority of respondents operated in just one country, with smaller proportions operating in 2-5 or over 6 countries. The survey was conducted before the outset of the Ukraine war, which as we know has changed the outlook on the global economy. 305 Liquidity (next 90 days/Total Costs). This is an indicator of how easily a company is able to pay its financial liabilities e.g. through cash reserves or assets that can be quickly liquidated. 306 CGAP (2020), Is There a Liquidity Crisis Among MFIs, and if so, Where? 94 Off-Grid Solar Market Trends Report 2022: State of the Sector and companies’ ability to control costs and move towards closures driven by COVID-19-related business disruptions, profitability.307 lack of funding, or inability to stay competitive amidst pre- existing challenges in the business environment.309 GOGLA Companies with insufficient cash positions pre-pandemic also reported three COVID-19 related departures from the experienced cash flow shortages, with some forced market. The experience of Pawame provides an illustrative to shut down. Some start-up companies, already over- case study, demonstrating the challenges of managing and leveraged, continue to find it difficult to raise capital, fundraising for a PAYGo business that relies on a complex especially equity; debt providers also steered clear, as balance of investment and a vulnerable receivables book default risk seemed high.308 Some companies have faced (see Box 12). Whilst the Energy Access Relief Fund310 has financial difficulties due to a high cost structure and cash been a life-saver for some companies, the disbursements burn rate, which creates a pressing need for the leadership starting in the second half of 2021 arrived too late for team to focus heavily on fundraising, sometimes at the others. With the global economic outlook remaining expense of operational excellence. This struggle resulted in difficult and supply chains still under stress, market entries a number of companies closing shop during the pandemic. and re-entries will be limited, and more market exits are For example, approximately 13% of Global Distributors anticipated in the immediate future, paving the way for Collective’s (GDC) members in 2019/20 faced company acquisitions. Box 12: Pawame’s struggles through COVID Pawame is a PAYGo company in Kenya with a specialized distribution business model that leverages the investments in hardware and software of the vertically-integrated early movers. This model holds promise of a shorter path to profitability as the business is simpler and with lower costs relative to the more complex vertically integrated model. The company was performing well pre-COVID-19, with strong growth, positive operating profit and imminent launch of Series A fundraising. The equity raise was put on hold as the COVID-19 pandemic emerged and debt became hard to secure which led to a shortage of working capital to buy stock and generate revenue. At the same time, the Kenyan economy took a hit with many households struggling financially, resulting in delayed or non-payment from their customer base. They found a mix of solutions in early 2021 by combining bridge equity funding, debt from the Energy Access Relief Fund and other pandemic-linked debt, and a limited repayment freeze from lenders - although this proved time and labor intensive. Unfortunately, difficulties re-emerged when Pawame's debt-equity ratio, which had deteriorated in 2020, prevented access to new working capital facilities, and a promising Series A equity investor pulled out due to an internal reorganization. At the time of writing, the company had missed debt repayments and their cash runway was shortening. Pawame is exploring solutions to ensure their customers can continue to benefit from their SHS and their debtors can get a return. 307 NextBillion (2022), Understanding COVID-19’s Impact on PAYGo Solar: Data From a Pioneering Study Reveals Key Insights About the Sector’s Financial Sustainability. 308 Open Capital Advisors and GOGLA consultations. 309 Global Distributors Collective (2022), Last Mile Distribution: State of the Sector; Key to note is that only 75% of GDC members were OGS companies. 310 SIMA Funds (2022), Energy Access Relief Fund (EARF). 95 5.4 Key Trends and Specialized service providers targeting the OGS sector are slowly emerging in more mature markets. A few years Innovations ago, the market trended away from vertically integrated companies into specialized OGS companies focusing on Affecting a few segments of the value chain (e.g., distribution and financing), allowing for more partnerships across the OGS sector (e.g. vertically integrated companies, doing Competition in both manufacturing and distribution like d.light and GLP expanded their B2B business by partnering with the Sector distributors like PEG and Deevabits Green Energy in certain markets). As the next step in market maturity, we now see a rise in non-OGS companies providing specialized services to the sector, such as after-sales services and payment Achieving profitability remains a key collection. This trend, seen primarily in more mature markets, is allowing OGS companies to increase their driver for companies in the off-grid operational efficiency and focus on growing core business solar industry, spurring trends on cost functions. For example, in 2020, GLP in India outsourced cutting, and increasing sales volumes and after-sales services, such as installation, repair and customer segment diversification. maintenance to CarlCare, a company providing outsourced repair services to mobile phone companies like TECNO.312 Given CarlCare’s presence in a number of countries in sub- COVID-19 has increased the pressure on companies to Saharan Africa and Southeast Asia, this service will likely improve their cash flow management and implement become available in other markets. clear paths to profitability. Continued pressure for OGS Payment collection providers are also among specialized companies to achieve profitability was noted as a trend in service providers targeting the OGS sector, with some 2020 and has been heightened by the effects of COVID-19. companies already benefiting from their expertise. The push for profitability can be observed across different PAYGo companies traditionally leveraged sales agents company categories across the OGS sector. This has to collect payments. While this can be useful to align stressed the importance of companies implementing agent incentives and ensure higher repayments upfront, clear strategies tied to product market fit, business it often takes a long time to collect all payments. The model suitability, and credit management.311 To reach longer loans remain outstanding, the harder it is to collect profitability, some companies have diversified customer partial or full amounts, and the more the resources segments, increasing their sales to customers with more required for follow-ups. This becomes a costly endeavor, stable income sources in (often grid-connected) urban diverting resources away from new sales or other areas of areas to de-risk their loan portfolio health, which might operations. Specialized payment collection companies, lead to slowing SDG7 progress. Many PUE companies are such as Glichery Limited in Kenya, facilitate the collection largely on a quest to prove concepts of business models of these payments, allowing OGS companies to outsource introduced to increase affordability of PUE appliances and this service and keep their businesses lean. create more value for their customers, which is expected to continue to drive PUE demand. Use of digital platforms continues to be a key trend across OGS companies, to increase efficiency, track performance and reduce costs, and was accelerated due to restrictions in movement during the COVID-19 pandemic. Data and digital tools underpin all aspects of the OGS business and are important in achieving To cut costs and optimize business financial and operational success across many business models, companies continue to outsource functions and services. While vertically integrated niche, non-strategic functions and companies, especially those selling PAYGo-enabled digitalize operations. products, have already digitized some core functions, such as payment tracking and remote after-sales services, 311 World Bank, IFC, GOGLA (2020), Off-Grid Solar Market Trends Report 2020. 312 CarlCare (2020), CarlCare Becomes Authorized Service Provider for Sun King. 96 Off-Grid Solar Market Trends Report 2022: State of the Sector new developments, such as active utilization of big data store crates of produce in part of a cold room at a fixed analytics, are emerging. daily rate charged per crate, improving their ability to afford cold storage in a way that makes sense for their Big data analytics is used by OGS players to convert business models. collected data into actionable insights that can be used to more accurately inform business strategies in a timely manner, and to automate and optimize business processes for increased efficiency. Bboxx, for example, launched Bboxx PULSE in 2018, allowing the company to make pre-emptive data-driven decisions. Improving affordability of PUE products Bboxx has also automated many repetitive tasks like through pay-for-use models is an ongoing sales lead management and assigning customer care jobs trend, with pue asset financing potentially to its operations team to improve efficiency.313 Limited movement during the pandemic also pushed companies leading to improved loan repayments. to optimize after-sales services through digitalization. For instance, Zonful Energy in Zimbabwe launched a platform Large-scale cooling companies are also extending add- digitalizing after-sales service by connecting customers in on services to increase income generating potential need of after-sales care to the nearest technician.314 for end users and boost demand for PUE appliance services. Another innovative solution being explored, While some vertically-integrated companies have complementary to the cold storage service and in line with the tools and in-house teams to support greater increasing end-user income, is extending services vertically digitalization, many LMDs tend to outsource to along end-consumer value chains, either downstream (by specialized digital solution providers. GDC Digital providing digital market linkage services for agricultural Service Catalog lists over 70 digital services that LMDs produce) or midstream (by introducing refrigerated trucks can outsource.315 The GDC also receives and shares to bridge the cold-chain gap). This strategy adds value to feedback from a series of pilots initiated by its members consumers, encouraging them to take up cooling services and digital service providers to drive digital innovation, that help increase their income in the long run (see Box 13). including a group lending mobile app, a remote sales team management software, and a data driven underwriting service, further demonstrating the opportunity for digitalization to enhance LMD performance. Outsourcing digital activities has proven beneficial for LMDs, resulting in optimized processes and financial gains. For example, PaygOps, a software solutions provider, reports that one of its clients, an LMD based in Uganda, was able to reduce its operational costs by 85% following adoption of PaygOps’ inventory management solution.316 These outsourced digital platforms and services are expected to provide a lever for LMDs to level the playing field and increase their competitive edge by improving the efficiency of their business operations going forward. In the large-scale cooling space, operators introduced © Efficiency for Access Cooling-as-a-Service (CaaS) models to improve affordability of PUE appliance use. Cooling solutions tend to be more cost-effective at scale and are often unaffordable for outright purchase to a large segment of the population. To address the affordability constraint, some companies are exploring the CaaS business model, whereby target customers like farmers and traders can 313 Bboxx (2018), Launch of Bboxx Pulse. 314 Global Distributors Collective (2022), State of the Sector. 315 Global Distributors Collective (2022), Digital Service Catalog. 316 Global Distributors Collective (2020), Innovation Challenge. 97 Box 13: Enhancing cold storage models to increase value to end-users and drive PUE demand317 Companies in the large-scale cooling space have started to extend their services beyond localized cold rooms to ensure cooling along customer value chains to drive uptake. As one of the leading providers of affordable, shared cooling services in Nigeria, ColdHubs noted that while uptake of their cold storage services was picking up as they created awareness among their key target customers (i.e., farmers, aggregators, and retailers in the agriculture sector), the uptake rate was not as high as expected. Customers demanded a mid-stream link to ensure that their produce remained fresh at all stages of the value chain. To address this, ColdHubs introduced refrigerated trucks into their model to complete the ‘cold chain’, extending their services beyond stationary cold rooms.318 This competitive strategy improves their value proposition to customers and increases demand for their services. To respond to the market-need, Ecozen in India launched a digital marketplace for farmers to complement their cold storage solutions and SWPs.319 Providing a market linkage service for their customers has the potential to improve their returns as customers are able to sell more of their produce and then see more value in investing in cold storage solutions.320 Such end-to- end services give these companies a competitive advantage in their markets by creating value for their clients and, in doing so, driving demand. FoodFlow, a food loss-reduction program by Enviu, uses large cold rooms supplied by Ecozen, to offer CaaS to farmers and aggregators in Kenya through its cold storage platform, SokoFresh. The cold storage service integrates a digital logistics function that ensures efficiency in aggregation of agricultural produce and provides smart market linkages to wholesalers and retailers in major cities. The program's approach reduces post-harvest losses and costs incurred by a single farmer. This makes cold storage affordable and valuable to users who are additionally assured of a market for their produce thus driving overall demand.321 317 Open Capital Advisors analysis. 318 ColdHubs (2022), ColdHubs Unveils Full-scale Refrigerated Transportation Services. 319 Ag. Funder News (2019), India’s Ecozen Closes Series A on $6m to Help Farmers Reduce Spoilage, Navigate Supply Chain. 320 Hindustan Times (2021), Startup Mantra: Green Marriage of Farming and Tech Fertilized by Innovative Marketplace. 321 ENVIU FoodFlow (2022), Our Ventures. 98 Off-Grid Solar Market Trends Report 2022: State of the Sector The development of more innovative solutions is likely increases the ability of consumers to complete their contributing to increased affordability and income of payments faster, improving cash reserves. end-users, as well as healthier loan portfolios of PUE Companies will likely continue diversifying their companies. The uptake and utilization of PUE appliances revenues to remain competitive. Diversifying the can be transformative from an income generating customer portfolio to include more urban based, wealthy perspective. SWPs and cooling solutions are key in customers is expected to slow OGS supply to unelectrified, agricultural markets where product volumes and post- hard-to-reach customer segments. While this might be harvest losses are concerns for farmers. Farmers who beneficial for companies in terms of achieving profitability utilize these appliances are able to not only increase and cash flow stability, and maintaining a competitive edge their volumes and postharvest output but also raise key to their survival in the market, it may be detrimental their income potential as PUE appliances contribute to to electricity access. Consumers lacking access to energy increased farm yields (solar water pumps) and product run the risk of remaining largely unserved, which will longevity (cooling solutions).322 Increased income potential negatively affect achievement of SDG7 in the medium to for target customers increases their ability to fully pay long term. for appliances, which in turn is expected to benefit PUE companies. As a result OGS companies that offer PAYGo are likely able to build healthy loan portfolios as consumers’ incomes increase and are able to pay-off their loans. This cycle supports company longevity. Despite the push towards product diversification, some companies continue to innovate their business models to serve last mile consumers without electricity Some companies continue to diversify access. their product portfolios to reach more profitable customer segments to stabilize Some companies continue to innovate their business their cash flows. models to improve affordability for solar lanterns and multi-light systems and SHS products. Affordability of OGS products remains a barrier. Some OGS companies OGS companies across different markets continue have leveraged existing business models or innovated new to move ‘beyond energy’ to diversify their income ones to address the affordability challenge, to continue streams. More companies are selling non-OGS or to serve the BoP. For example, GLP extended its offering complementary products and services, mostly those they to PAYGo-enabled solar lanterns and multi-light systems, can easily incorporate into their business models, such increasing affordability of existing products further and as smartphones, and LPG gas, as well as education loans, companies like Mobile Power, and Jaza have launched insurance, agricultural advice and crop-price monitoring. battery rental businesses, enabling consumers access to For example, d.light began selling smartphones on PAYGo, solar batteries for a short time period at low rates (see M-KOPA offers financial services, and Vitalite, a local OGS Box 14). Business model innovations like this enabled company in Zambia, partnered with an insurance agency customers who cannot afford to purchase SHS on PAYGo, to pilot an innovative agriculture insurance product for to have access to electricity and increased the affordability SHS customers that provides smallholder farmers in of solar power for low-income consumers. Innovations Zambia a ‘payment holiday’ on their SHS in the case of a like these thus indicate avenues for OGS companies to severe drought.323 continue competing in customer segments that are still This trend is also emerging among LMDs, i.e. 68% of GDC considered difficult to serve.324 members are selling more than one category of products. Broadening product portfolios can enable OGS companies to reach new, often more urban customer segments, characterized by more stable incomes. Additionally, providing financing for products with lower overall costs 322 60 Decibels (2020), Why Off-Grid Energy Matters. An Impact Performance Report. 323 Shell Foundation (2021), How can Agri-insurance Reduce the Risk Associated with Solar PayGo? 324 Shell Foundation (2022), Lighting Tanzania’s Rural Areas: How Jaza Are Reaching Households Living On $2/Day. 99 Box 14: Rent-To-Rent; an innovative business model for BoP customers In Tanzania, more than 60% of the population lacks access to electricity, the majority residing in rural areas. Nearly 50% of people live on $1.90 daily or less (below the extreme poverty line) as of 2018.325 The limited income makes it difficult for these consumers to afford higher Tier energy options. Recognizing this challenge Jaza Energy, an LMD in Tanzania that offers rechargeable battery packs for household electricity needs on a rental basis, further innovated their business model.326 Initially, the majority of the target low-income market remained unserved as they were unable to afford Jaza’s pricing that included a comparably high initial down-payment. Jaza redesigned its pricing model to rent out its battery pack, with customers paying a small nominal registration fee and providing a guarantor. The company also opted for lower-capacity batteries of 60Wh to make the model even more affordable.327 Their fees are now as low as $1 for registration and $0.22 for daily rental fees, making Jaza’s solution cheaper than kerosene and affordable for people living below the poverty line.328 Offering its products on a rental basis has allowed Jaza to reach more consumers, providing access to solar power solutions, especially the very poor. To date, the company’s innovative business model has seen them reach over 51,000 people across Tanzania, up from 39,000 in 2020.329 While business model innovations are a key contributor models. As such, grant funding is key in providing to increasing the competitive edge of OGS companies, companies with the support they need to continue to establishing innovative business models particularly innovate and find the best products and business models around increasing affordability tend to be costly. This is to cater to customers at different income levels. due to the capital intensity of launching and sustaining For example, in 2020, Ashden Clean Cooling Collaborative these models, especially where credit mechanisms are and ClimateWorks foundation launched the Fair required as they increase the number of transactions made Cooling Fund, focused on enabling affordable access to for the sale of one system and thus the cost of selling the refrigeration solutions for low-income households through system. Thus the lower the total value of the product the provision of grant funding. The fund enabled PEG Africa lower the profit margin tends to be. Companies already to pilot the sale and leasing of solar-powered freezers to have tight margins, making it difficult to commit financial rural off-grid households in Ghana through facilitating the resources to pilot innovative business and operational provision of affordable payment plans.330 © Devidayal 325 The World Bank, Access to electricity (% of population) - Tanzania; The World Bank (2020), The World Bank in Tanzania: Overview; The World Bank (2021), Poverty & Equity Brief, Sub-Saharan Africa: Tanzania 326 Jaza Energy (2022), Our Products: Packs 327 EEP Africa (2021), Putting Stars on the Map, The Innovative Business Model: Jaza Energy 328 ESI Africa (2021), Tanzania: Supercharging Last Mile Access through Battery Rental; The World Bank (2020), Poverty & Equity Brief, Sub- Saharan Africa: Tanzania 329 Jaza Energy (2022), Our Products: Hubs 330 Ashden Climate Solutions in Action (2022), Fair Cooling Fund; Ashden Climate Solutions in Action (2022), PEG Africa. 100 Off-Grid Solar Market Trends Report 2022: State of the Sector 101 © Alison Wright 06 Technological Innovations © Efficiency for Access 102 Off-Grid Solar Market Trends Report 2022: State of the Sector KEY MESSAGES • Off-grid solar technology is now more powerful and versatile. It allows people to leapfrog electrical grids and fossil-fuel sources entirely with quickly-deployable, affordable, low-carbon technology • ‘PAYGo everything’ is here. PAYGo technology is being leveraged to offer consumer finance on smartphones, electric motorbikes, and many other devices, as well as to offer digital financial services • There have been rapid advancements in the maturity of a few appliances and productive use technologies, but more R&D investment is needed to accelerate a wider array of technology onto the market • Distributed solar and storage technologies combined with high efficiency appliances could transform electricity access for homes and businesses on the weak grid 6.1 Developments in Solar energy kit customers appreciate the quality and reliability of the technology, though there is scope the Core OGS to further improve. 75% of solar lantern owners, and 74% of SHS owners, and 66% of appliance owners rated Technology the value for money of their product as ‘very good’ or ‘good’, and the Net Promoter Score is 67, 47, and 38 respectively.332 However, nearly one third of customers report experiencing a challenge with their product, with the battery being the most common problem. In a move to improve battery performance, the industry has now Solar lanterns and solar home systems largely shifted from lead-acid to lithium-ion batteries. sold with TVs, fans, and radios are now Lithium battery technology continues to improve in terms mature, commercial technologies that of cycle life/longevity, depth of discharge, energy density, and performance in different environments.333 The typical offer a high-quality and impactful service design life for a SEK battery is now around 2500 cycles334 – for consumers. potentially giving five to seven years’ service - and this chemistry is also non-toxic which reduces the risks at end-of-life. As the off-grid industry counts more than 12 years of development, it has a strong core of products and brands The industry has leveraged the rapid decline in costs of that have reached maturity. The historic global product solar PV and lithium batteries335 combined with major sales by affiliates of solar lanterns, multi-light systems, efficiency gains for lights to lower prices for off-grid solar and solar home systems are 36 million, 7.4 million, and consumers. The improvements in appliance efficiency 6.5 million, respectively.331 There were 261 quality-verified and growing economies of scale have lowered costs for solar lanterns and SHS from 67 brands listed by VeraSol in larger and more desirable appliances. TVs have been at 2021, up from 201 products from 51 brands in 2019. SHS the forefront of this trend, with more than 1.5 million units are increasingly sold with appliances, for which there is sold by affiliates the majority of which are packaged with a also a sizable market of quality-tested products on the SHS and sold through PAYGo. For example, extra-large TVs market, including 152 TVs from 88 brands, 131 fans from 86 saw a 48% increase in efficiency between 2016 and 2019, brands, and 94 fridges from 52 brands. and a reduction in average cost from $256 in products tested before pre -2018 compared to $190 in the 2018–2020 sample.336 331 GOGLA analysis based on the Sales & Impact Database. 332 60 Decibels (2020), Why Off-Grid Energy Matters. An Impact Performance Report. 333 World Economic Forum (2021), Closing the Loop on Energy Access in Africa. 334 Shell Foundation (2018), Energy Storage: Off-grid Trends in Emerging Markets. 335 World Bank, IFC, GOGLA (2020), Off-Grid Solar Market Trends Report 2020. 336 Efficiency for Access Coalition (2021), 2021 Appliance Data Trends. Insights on Energy Efficiency, Performance and Pricing for Off-Grid and Weak-Grid Appropriate Appliances. 103 However, there is now upward pressure on technology Off-grid solar is increasingly versatile, with products costs due to electronic component shortages, increasing and services becoming more customized, interoperable, costs of raw materials and parts, and a tripling in modular, and circular. This has significant benefits for shipment costs (see Section 1).337 A recent survey of consumers by giving them greater flexibility and choice, OGS manufacturers revealed that many expect the prices and enabling them to move up the clean energy staircase in three years’ time to be higher than today due to the more easily. It also has the potential to change the mindset costs of materials and components remaining high.338 of OGS technology; consumers are no longer buying into There are also potential factors that can drive down cost, a single product or brand, but into a marketplace that will with normalization of shipping and logistics ranking help them grow, and serve their growing needs. With the highly, followed by improvements to the efficiency and growing range of appliances powered by off-grid systems, standardization of core components. There is hope that and the possible integration with the grid, the technology perovskite solar cells will bring a step-change to PV need no longer be seen as limited and temporary. This performance, though these are a horizon technology that creates a new paradigm for integrated energy planning, may take three to five years to reach the market. and represents a sizable opportunity for business and investment.339 There is a shift towards customisable products. 26% of quality-verified products in 2021 were in a product family340 compared to 7% in 2017 ( Figure 57). Whereas Off-grid solar technology is now more the SHS kit certification is for a fixed design (i.e. a single specified PV module, battery, and loads), the Product powerful and versatile. It allows people Family certifies a number of components that can be mixed to leapfrog electrical grids and fossil-fuel and matched by the manufacturer to find the right market sources entirely with quickly-deployable, fit. For example, Shenzhen PowerOak’s P-Series Family affordable, low-carbon technology. includes six batteries (from 8Ah to 28Ah), four PV modules (from 55W to 160W), and a 24” and a 32” TV.341 These can be combined in a variety of ways to give flexibility in the supply chain and suit local market or customers needs. Figure 57: The number and type of quality-verified products listed by VeraSol Number of QV products: 155 201 201 245 261 100% Product families Percentage of products available SHS kits 80% on website each year Multi-light pico-products 60% Single light and mobile charging products 40% Single light only products 20% 0% 2017 2018 2019 2020 2021 337 GOGLA (2021), Off-grid solar Supply Chain Disruption: 87% of Manufacturers Expect Increased Prices for Consumers. 338 GOGLA Supply Chain Disruptions Follow-up Survey (unpublished) of 30 OGS manufacturers in March 2022. 79% expect solar lanterns to ‘increase somewhat’ or ‘increase a lot’, compared to 73% for SHS and 60% for TVs. 339 Shell Foundation and Rockefeller Foundation (2021), Unlocking Climate Finance to Accelerate Energy Access in Africa. 340 VeraSol (2022), Product Database. 341 Ibid. 104 Off-Grid Solar Market Trends Report 2022: State of the Sector There have been significant efforts to enhance of easier and cheaper integrations with a wider array technology interoperability in the industry since it of appliances on the market, and the value addition for was identified as a game-changer by the Off-Grid Solar consumers. Other prominent players favor a brand-specific Market Trends Report 2020, with advancements in / proprietary model, citing concerns about the challenges hardware, software, and firmware interoperability. For of having to provide after-sales service to a wider array example, the Connect initiative (see Box 15) has gained of brands, and the prospect of increased competition traction with prominent companies, including vertically- that would undermine the profitability of the business. integrateds and B2B manufacturers from different regions The competitive landscape between interoperable and of the world, and the first products that align with the proprietary ecosystems will be an interesting dynamic in Technical Guidelines are expected on the market in late the coming years. 2022. These companies see advantages with the prospects Box 15: The Connect Initiative342 GOGLA, Efficiency for Access, and EnAccess Foundation are leading the Connect Initiative, an industry effort to enhance the interoperability between different brands and models of 12V SHS kits and lights and appliances. The initiative has defined a universal family of connectors, standard electrical characteristics, and device-to-device firmware guidelines for device control and PAYGo activation. A number of market leaders, including vertically-integrated and B2B manufacturers, have been active in defining the Connector and Electrical Technical Guidelines, and the firmware layers have been defined by Angaza and Solaris in cooperation with their manufacturing partners. The guidelines are open source and designed to complement the IEC 62257-9- 5, -9-8 and the VeraSol certification scheme. The aim is to create a common market for SHS Kits and appliances that improves product quality and price, enables new partnerships and supply chain innovation, and accelerates PAYGo and IoT integration. Figure 58: The Connect Initiative Universal Family of Connectors for 12V SHS Kits, lights, and appliances There have been recent advancements in device-to- Management Platforms and/or produce multiple platform interoperability between the major software- inventories owing to platform compatibility restrictions as-a-service players (including Angaza, PaygOps A number of companies are also selling ‘modular’ and Paygee).343 These three PAYGo platforms are now technology, where customers can add extra battery or compatible in a way that enables any SHS kit, integrated PV capacity to increase the run-time or use additional or with one of the platforms, to also integrate the two other larger appliances without having to replace their entire platforms. This makes it possible for distributors to work system. SolarWorx’s Solego for example has a system with with the platform of their choice without manufacturers 50W panels and either a 80Wh or 160Wh battery that can be having to multiply integration efforts with all PAYGo stacked on top of each other to increase the storage capacity 342 GOGLA (2022), The Connect Initiative. 343 Solaris Offgrid (2020), PaygOps, Paygee and Angaza are becoming Interoperable! 105 and the maximum power output. Its PAYGo integration PAYGo companies are increasingly looking at ways to offers a single monitoring, control, and payment mechanism maximize the value of repossessed units345, which in many as new modules are added to the system. Zola’s Infinity is cases are in full working order and have value for resale described as a power management technology for light after testing and refurbishment. Off-grid solar companies commercial users that integrates solar power and battery are tackling a number of technological challenges to storage with power from the grid or a generator to deliver enhance repair and refurbishment, including improved 230 V power. It can operate with a single box (325W PV, 2.3 labeling of materials, design for disassembly, expanding kWh battery) or with up to ten boxes stacked together. The digital tamper-proofing – and more complex challenges system can be upgraded as and when needed. such as improved battery management systems346, and enhanced interoperability. Greater investment in R&D and Off-grid solar technology and business models have industry cooperation can help unlock these and make the many elements of circularity in their design, though there sector more sustainable (see Box 16).347 is significant scope for optimisation and replication.344 Box 16: Second-life lithium batteries The most sizable opportunity for circularity in the off-grid solar sector may be second-life lithium-ion batteries. Studies have found that as many as 73% of used lithium battery cells from OGS products could be rebooted and have a second life, thus turning a costly waste stream into revenue potential.348 Advanced energy storage specialists such as Aceleron and recyclers such as Hinckley in Nigeria have completed pilots with OGS companies, including the local manufacture of second-life batteries and the installation of the first lithium-ion battery treatment equipment in Africa349 - this represents an opportunity for job creation and manufacturing development. Solaris piloted a battery prototype that retrieves used battery cells from the automotive industry and creates second-life battery packs that can be smoothly integrated with off-grid solar products.350 The second-life battery is intended for use as a replacement for SHS batteries that have reached their end-of-life. It is designed as a tamper-proof external battery that can be attached to a SHS, or removed and recycled, without discarding the entire system. It aims to extend the life of SHS with low- cost, sustainable technology. 48% of new products listed by VeraSol in 2021 were 6.2 Digital Innovations PAYGo-enabled (and as such are inherently an IoT device), compared to 37% in 2019. This trend is helped by the and the Rise of falling price of IoT sensors. The average price was $1.30 in 2004 and $0.38 in 2020352, as well as their dropping power PAYGo Technology consumption and data requirements that reduce the costs of transmitting the data from the product.353 Beyond Off-grid solar technology is digital and uses the Internet enabling the payment-linked remote lock/unlock at the of Things (IoT) to enhance the performance and core of PAYGo, IoT sensors are being used for an increasing functionality of products. The number of IoT-connected range of features including: devices globally reached 12 billion in 2020.351 The number of IoT enabled devices on the OGS market is growing • Tailored product design, by giving companies’ detailed insights into how people use products to help optimize rapidly – PAYGo sales have a growing market share and product design and market fit 344 GOGLA (2019), E-waste Toolkit Module 2 Briefing Note: Design for Reduction of Waste. 345 In 2019, 7% of PAYGo consumers did not finish their payments and were liable to have their system repossessed, and in the midst of COVID in 2020 this rose to nearly 14%. This represents a significant potential asset base to PAYGo companies (See Section 5.3). 346 Solaris Offgrid (2021), Solaris Offgrid Develops Smart Battery Technology backed by Global LEAP Awards. 347 Efficiency for Access Coalition (2021), Innovations and Lessons in Solar E-waste Management. 348 Ibid 349 Ibid 350 Solaris Offgrid (2021), Solaris Offgrid Develops Smart Battery Technology backed by Global LEAP Awards. 351 Techjury (2022), 49 Stunning Internet of Things Statistics 2022 [The Rise Of IoT]. 352 Statista (2022), IoT Average Sensor Costs 2004-2020. 353 Efficiency for Access Coalition (2021), ICT Solar Appliance Technology Brief. 106 Off-Grid Solar Market Trends Report 2022: State of the Sector • Improved system performance by optimizing power usage • Preventative maintenance Off-grid solar technology is embracing the Internet of Things (IoT) and artificial • Linking products and customers to relevant information intelligence and driving the global digital • Real-time data on usage and performance for remote transformation in homes and businesses monitoring and verification for such as consumer across the developing world. subsidies, RBFs, and carbon credits. Box 17: Aeris IoT solution provider354 Aeris is a global leader in IoT connectivity solutions that has partnered with Bboxx to provide a complete solution for their product subscriber identity module (SIM), communications network, and connectivity management platform. Bboxx products are manufactured without a known destination and, as such, with certain mobile network providers, a local SIM card would have to be inserted into the device following sale and then would require local configuration. This process required additional time, cost more, and hindered operational effectiveness. Aeris is a carrier-agnostic service provider that offers both GSM and CDMA connectivity, including 2G, 3G, and 4G LTE that enables them to serve clients with a single network for all device types in any country of the world. Bboxx can now install the Aeris global SIM at the point of manufacture to negate the need for local configuration to reduce the supply chain costs and deployment time. The Aeris platform allows them to manage their entire portfolio of products across multiple countries from a single platform, and they provide on-demand operational support and a per-device pricing schedule. Artificial intelligence is being used by some PAYGo on the horizon. For example, one agency piloted customer players to enhance product design, improve credit payment insurance to provide smallholder farmers in risk assessments, and guide consumer engagement Zambia a ‘payment holiday’ on their SHS in the case of a operations. Machine learning takes historical information severe drought. These innovations offer the potential to on how input data affects one or more pieces of output make the sector more impactful, profitable, and resilient. data, in order to predict what future input data will result in, giving companies accurate insights in a dynamic market. PAYGo companies are using it to predict which customers are likely to default on a certain product, supporting a credit decision or recommending an adjustment to a different product or payment options. It is ‘PAYGo everything’ is here. The PAYGo also being used to build consumer risk profiles, analyzing technology is being leveraged to offer payment history to predict risk of default that can be used consumer finance on smartphones, to guide consumer engagement strategy (see Section 4.2) electric motorbikes, and many other and to inform the cash flow forecast of the company. devices, as well as to offer digital financial OGS technology and the PAYGo model is also being services. leveraged to offer digital financial products and services, with a growing range of offerings on the market. PAYGo companies’ data infrastructure, credit risk algorithms, and The PAYGo technology that unlocked consumer financing software platforms enable them to offer a range of financial for SHS can be used with any electronic device and products such as small business loans, school loans, and is now widely available for dozens of products and health insurance. These digital financial products are brands.355 Angaza, for example, has integrated its PAYGo typically secured against the original SEK using the PAYGo technology in more than 50 devices, including laptops, locking mechanism. Large PAYGo players have invested electric cookstoves, and biodigesters, whilst K-Pay has also significantly in recent years to build the technology and integrated with public toilets and electric vehicle charging teams to enable this expansion. Further innovation driven points. by advancements in data infrastructure and analytics are 354 Aeris (2020), With Aeris, Bboxx Provides Clean Energy Solutions to Off-Grid Communities. 355 Mastercard (2018), PAYGo and the Internet of Things: Driving a New Wave of Financial Inclusion in the Developing World. 107 At its core, the PAYGo technology is a secure controller costly and complicated for OGS manufacturers, suggesting that remotely locks the device if the user stops paying, that industry guidelines and consumer-facing labels may and is connected to a network (GSM, IoT-based, or via become necessary. Nonetheless, the rapid growth of PAYGo offline keypad) that registers payments and activates smartphones deepens the complementary relationship the control. There is now more flexibility and choice in between OGS players and the mobile sector358 and may how this is achieved. The manufacturer or the distributor enhance the profitability of OGS with a “pull product” that can integrate the technology by simply adding firmware is relatively easy to sell (see Section 5.4). to the existing controls, or by adding both a controller and firmware. There are more pricing options, with pay-per-time, 6.3 Off-grid Appliance pay-per-use, pay-per-amp356, and the range of payment gateways is also increasing, with mobile money wallets, and Productive Use QR codes, Unified Payments Interface (a digital payments platform connected to banks in India) and more. There Technology and are also a growing number of PAYGo product development / software-as-a-service providers that integrate the PAYGo Market Maturity technology with a wide range of business tools (CRM, inventory management, sales agent apps, and more) to help distributors build data-driven, digital businesses, though smaller companies with limited expertise and resources may find it difficult to maximize the opportunities this technology presents (see Section 5.4). There have been rapid advancements in the maturity of a few appliances and PAYGo smartphones have burst onto the market following the development of remote-locking technology. productive use technologies, but more The PAYGo technology has been adapted for smartphones, R&D investment is needed to accelerate a with a secure locking system embedded in the handset wider array of technology onto the market. hardware, enabling a company to lock the device if payment milestones are not met. The locked handset only functions for payment top-ups and emergency calls, and Highly-efficient direct current (DC) appliances purpose- once a payment is made, the phone and all services are made for off-grid customers are now commonplace in remotely unlocked. M-KOPA has reached more than one the product range of PAYGo companies. Affiliates have million customers with PAYGo smartphones in Kenya and sold 1.5 million TVs, 1.4 million fans, nearly 30,000 fridges, Uganda in 2020 and 2021 alone.357 and 64,000 SWPs. These appliances have benefited from intense R&D efforts that have spurred improvements in Other OGS players have developed partnerships with the efficiency, performance, durability, and cost. People handset providers including Samsung, Nokia, and Mara with grid electricity have access to a much wider range of Phones, and smartphone consumer finance specialists affordable appliances and productive uses, which can also such as PayJoy have launched in Latin America, be available to people in off-grid areas with further R&D. India, and South Africa. The need for OGS products to The Technology and Market Maturity Map (Table 3) shows support smartphones is therefore becoming increasingly the many other potential use cases that could collectively important. In some cases, charging a smartphone can transform the lives and productivity of people in off-grid take over 24 hours, which is clearly unsatisfactory. There areas. are many different fast charging protocols which makes it 356 K-Pay India is an example of a company offering these solutions. For more information, please see Our Solution – KPay (kpayasyougo.com). 357 GSMA (2022), M-KOPA: Applying the PAYGo Model to Smartphones in Africa. 358 GSMA (2022), What is the Value of Pay-as-you-go solar for Mobile Operators? 108 Off-Grid Solar Market Trends Report 2022: State of the Sector Table 3: Technology and Market Maturity Map of solar appliance technologies for off-grid use cases359,360 Commercial 1 Concept 2 Horizon 3 Emerging 4 Near-to-market 5 market Tech level Product prototype Product being piloted Minimum viable High rates of design Incremental changes exists product exists and manufacturing in cost, performance, innovation and cost and efficiency reduction Market level Nascent Business model being First sales from a few Growing sales and new Products sold at volume piloted early adopters entrants in the market by many players. Market ‘ecosystem’ of supporting inputs and services exists Health equipment Walk-in cold storage Solar water pumps TVs Electric pressure (other than vaccine (for ag products) cookers (DC solar- fridges) powered) Refrigerators Fans Clothes irons Laptop computers and tablets Milk chillers PAYGo smartphones Radios Washing machines Wi-fi / internet router Agro-processing equipment Hair clippers Speakers / amplifiers (e.g. milling) Inverters Egg incubators Food dryers E-mobility Enabling platforms / components – PAYGo technology (IoT sensors, comms networks, firmware, software, etc.). Smart batteries. Permanent Magnet Motors. Phase Change Materials. Emerging qualities of technology – Digital. Customisable. Interoperable. Modular. Circular. Solar water pumps (SWP), seen as an ‘emerging’ (e.g. Bengal Solar), and there are many hundred more that technology two years ago, are now classified as ‘near- are available on the market.362 SWPs on the market today are to-market’. There are a wide range of technologies in this more efficient, affordable, and impactful - they now typically product category (<1kW PV input for one- to five-acre feature brushless direct current (BLDC) motors, PAYGo smallholder farmers), including submersible and surface capabilities (with firmware and GSM-enabled), and are IoT- pumps for low, medium, and high heads (up to 100m) and enabled for enhanced monitoring, controls, and provision of flow rates up to 80 m2/day.361 42 products from 21 brands information to the user. have been quality-tested by VeraSol, including renowned The reliability of SWPs appears to have improved, with global players (such as Grundfos), PAYGo specialists the customer Challenge Rate dropping from 45% in (e.g. SunCulture), and numerous Chinese and Indian brands 2018/19 to 32% in 2020/21 (and the Resolution Rate has 359 Adapted from Efficiency for Access Coalition (2021), Solar Appliance Technology Briefs. 360 The technologies have been classified based on the authors’ understanding of the market and stakeholder consultations. It should be noted that some technologies such as refrigerators defy simple classification as they include a range of product sub-segments that are at varying stages of maturity, for example vaccine fridges have been sold for decades, whereas domestic fridges using phase change materials are an innovation. Furthermore, there may be products or brands that are ahead of (or behind) the curve compared to the level designated on this map. 361 VeraSol (2022), Product Database. 362 A market survey conducted by the LEIA program found more than 500 SWPs across 10 off-grid solar countries in Africa and South Asia. 109 increased from 52% to 57%)363, though there is clearly there is a high variation among all pumps tested, with a still room for improvement of product and service. The minimum of 11% and a maximum of 60%.366 most common issues for the customers who say they’ve Solar cooling, seen as an ‘emerging’ product two years experienced a challenge (in 2020/21) are unreliability, ago, is now considered ‘near-to-market’ following poor/faulty valves and controllers, and poor battery. intensive research and development efforts due to Despite the improved reliability, the NPS score dropped the increased demand for vaccine storage and high from 55 in 2018/19 to 46 in 2020/21, with detractors - potential for productive use. There are an array of fridges, just 7% of all respondents - citing a need for improved freezers, and combined fridge-freezers on the market for pump durability, with identified issues including rust and the variety of distinct use cases, that have seen trends to corrosion, dry run protection, improper water ingress higher efficiency and lower costs thanks to technological protection, and battery issues.364 advancements (Figure 59). 95 Fridges from 50 brands Efficient motors are key to reducing SWPs’ energy have been quality-tested by VeraSol, and there are many consumption and unlocking lower total system cost. All hundred more that are available on the market, with both but one of the 34 SWPs tested for the Global LEAP Awards AC and DC power systems, and solar-battery-powered used a highly efficient BLDC motor, an indication that and solar direct drive designs.367 Leading refrigerator market leaders have already adopted these technologies to manufacturers have driven technology innovations, increase overall pump efficiency.365 The average wire-to- in-house and through donor-supported programs, and water efficiency for surface pumps is 29% on a typical solar achieved significant efficiency gains. However, other day, compared to 33% for submersible pumps, though brands found on the market have a long way to go to achieve similar performance. Figure 59: Use case and product segmentation of off-grid solar cooling technology368 Domestic Light Commercial Small-Scale Agriculture Clinical Food & Drink Storage Retail Shops Vaccine & Distribution (mobile) Pharmaceutical Restaurants & Bars Fresh Fruit & Storage Vegetables Biological Sample Fresh Fish Storage Dairy Veterinary Clinics Meat Ice Community/cooperative or individual scale 363 Efficiency for Access Coalition (2021), Uses and Impacts of Solar Water Pumps. 364 Efficiency for Access Coalition (2021), 2021 Appliance Data Trends. Insights on Energy Efficiency, Performance and Pricing for Off-Grid and Weak-Grid Appropriate Appliances. 365 Efficiency for Access Coalition (2022), Solar Water Pumps. 366 Efficiency for Access Coalition (2021), 2021 Appliance Data Trends. Insights on Energy Efficiency, Performance and Pricing for Off-Grid and Weak-Grid Appropriate Appliances. 367 A market survey conducted by the LEIA program found nearly 500 refrigerators across 10 off-grid solar countries in Africa and South Asia, with about 1/3 of these being low voltage (10 – 48V). Many of the 230V fridges are unlikely to be optimized for the limited energy available from off-grid solar systems. 368 Efficiency for Access Coalition (May 2020), Use Cases and Cost Breakdown of Off-Grid Refrigeration Systems. 110 Off-Grid Solar Market Trends Report 2022: State of the Sector The fridge product sub-segments are at different levels of • Clinical applications are already viable for off-grid technology and market maturity122: refrigeration and have seen a surge in interest and investment due to the COVID-19 pandemic. This • Domestic and light commercial technologies are already is a mature technology that is subject to rigorous being sold in many markets, though the high cost performance standards given the critical need to keep remains a critical barrier to uptake. There is significant vaccines in a permissible temperature range. product overlap for domestic and light commercial sector appliances, with units generally sized less than Recent innovations in fridge insulation, efficient 150 liters, though products up to 300 liters are available. compressors, and better controllers are driving down The Global LEAP Off-Grid Refrigerator Test Method is costs, and improving efficiency and durability.372,373 One now in process of being formalized as an IEC quality example is the use of phase change materials (PCMs) that standard369, and field-testing standards have also are increasingly being adopted into off-grid and weak- grid been developed to demonstrate how the product may cooling technology. PCMs collect thermal energy during operate under ‘real-life’ conditions.370 the cooling cycle that is then released during the melting cycle, maintaining the cooling temperature with a lower • Small-scale agricultural applications are very run time of the compressor (see Box 18).374 Advanced promising, but the technology is still relatively young, insulation materials are also improving efficiency. For and, in many markets, they remain unproven. This example one product uses aerogel that is up to three times segment has a range of technologies, including walk-in more effective than traditional expanded polystyrene.375 cold rooms, milk-chillers, icemakers, and electric chiller Another trend is the use of super-efficient variable speed vehicles, that are sized to serve producer co-operatives compressors that use permanent magnet motors that are and as part of aggregation and distribution chains, more efficient, and are often smaller compared to standard rather than for individual smallholder farmers.371 motors, and make installation and maintenance easier. Box 18: SureChill’s phase change material and smart controller technology376 SureChill has developed a domestic refrigerator with PCM that harnesses a unique property of water to enable continuous cooling from inconsistent power. It removes the need for a battery by converting electricity into thermal energy and storing it in the form of ice in a water-filled chamber that surrounds the interior where food, drinks and medicine can be stored. SureChill has also integrated a smart controller with features that improve the efficiency and performance of the product. The controller has eliminated the need for large capacitors that had been required to meet the high in-rush current of the DC compressor, and protects the compressor from electrical faults and power surges. It monitors the state of the refrigerator and the power supply to optimize the compressor operation to maintain an optimum temperature without compromising other loads on the system. It has a versatile design for use in solar direct-drive and battery-powered systems, with a range of compressors, and a communication module that enables integration with common PAYGo firmware. SureChill estimates that adding a smart controller led to a 32% cost reduction in the compressor system, and results in a $84 price reduction for the end-user. 369 VeraSol (2022), Global LEAP Off-Grid Refrigerator Test Method. 370 The daily energy consumption measured during field testing differed considerably from lab-tested measurements, with 88% of tested refrigerators consuming up to 124% more energy in the field. 371 Powering Agriculture (2020), Technology Case Study: Clean Energy Cold Storage. 372 Efficiency for Access Coalition (June 2021) Refrigerators. Solar Appliance Technology Brief. 373 However, most of a refrigeration system’s cost comes from the battery, solar panel, charge controller, shipping, duties, and taxes, regardless of geography or model. A holistic approach of policy and supply chain development is needed to dramatically improve affordability; improvements in efficiency alone will not be sufficient. For more information, please see Efficiency for Access Coalition (2021), 2021 Appliance Data Trends. Insights on Energy Efficiency, Performance and Pricing for Off-Grid and Weak-Grid Appropriate Appliances. 374 Efficiency for Access Coalition (2021), Phase Change Materials: The Future Of Efficient Refrigeration? 375 Efficiency for Access Coalition (2021), Retrofitting Refrigerators To Create an Affordable, Energy Efficient Cooling Solution. 376 Efficiency for Access Coalition (2021), The Sure Chill Company - How Smart Controllers can help to Unlock Universal Access to Domestic Refrigeration. 111 While still relatively new to African and Asian markets, E-mobility products are now seen to be emerging with solar-powered walk-in cold room technology targeting 2-wheel and 3-wheel (2w / 3w) vehicles being the fastest key links within the agricultural value chain is now growing form of transport in emerging markets due to emerging. Though walk-in cold rooms are very energy their small size and relative affordability.380 Most micro- intensive and expensive, innovation around the use of e-mobility vehicles consist of a battery and electric motor- solar direct drive (SDD) technology can eliminate the use of powered system, typically with permanent magnet motors expensive batteries for energy storage.377 Few cold storage (PMM) as they offer greater energy efficiency, performance rooms use only SDD technology, but a growing number and reliability than other electric motors. With only 10% are integrating phase change materials to enhance energy of the number of parts found in a typical petrol engine, efficiency for off-grid use cases. To reduce costs, some electric motors are easier and cheaper for users to maintain. developers are innovating with locally available materials E-vehicle companies are currently focusing on urban areas, such as clay bricks or recycled plastics for insulation, rather though the battery-charging is considered a good fit with than the more expensive Polyurethane (PUF) - however mini-grids that are seeking to increase the energy offtake these are often less insulating and are yet to be widely and welcome deferrable loads. The electricity demand of adopted. Combining such technological improvements even a small 2w e-moto is beyond the capacity of the typical with CAAS business models378 can help unlock cold chains SHS. Fishing boats in East Africa are also shifting to electric- that may enable developing countries to raise food supply motors that have lower running costs, and create less noise by 15% – about 250 million tons. and fumes, than fossil-fuel engines. Manufacturers of small-scale agro-processing machinery Battery-powered e-vehicles now compete with hybrid have continued to make headway, improving product and internal combustion engine (ICE) vehicles. Though efficiency, affordability and product-market fit, but 2w e-motos have higher up-front costs, they can reach total business models need to be proven to drive demand and cost of ownership parity with a petrol-engine moto in two sales. Some machinery developers have made significant to three years due to lower per-kilometer and maintenance performance improvements over the last two years. Agsol, costs. Upfront costs are driven primarily by battery for example, has substantially reduced prices, more than technologies, as the battery packs account for almost 40% doubled milling rates, and increased energy efficiency of an electric vehicle. In markets such as India, low-cost with their new MicroMill. According to Agsol, the MicroMill lithium-ion (Li-on) batteries are projected to dominate is 2.5 times more efficient than other electric milling the 2w and 3w e-mobility market by 2025 due to their machines on the market and can deliver the small sieve lighter weight and higher energy densities.381 To further size that consumers desire. Although the mills produce reduce upfront costs and increase affordability, e-mobility flour at 60 kg/hr compared to 120-150 kg/hr by a typical solutions being adopted across emerging markets include diesel mill they are over 60% more profitable compared to retrofitting existing ICE vehicles, as well as integration with a new diesel mill given the lower running costs incurred, PAYGo technologies and ‘charging as a service’ models. with no diesel costs and minimal maintenance costs.379 On the horizon, Electric Pressure Cookers (EPCs) offer This indicates potential to out-compete diesel mills in the cheapest alternative to biomass cooking solutions in the market, improve accessibility to essential services, areas with low cost grid connections and high charcoal and positively impact GHG emissions by displacing diesel costs. EPCs can reduce energy costs by 90% and take 75% use. It also indirectly improves income generation and less time compared to traditional cooking methods.382 In food security for end users. Nonetheless, the market for 2020, the Global LEAP Awards program developed the first small-scale milling remains nascent, and business model test method to assess the energy performance, quality and validation and appropriate avenues for asset financing, safety of EPCs. The average electricity consumption was including uptake from off-grid-solar companies, has yet to found to be between 370Wh and 868Wh per day depending be demonstrated. on the size of EPC (from 1 to 9 liters)383, which represents a large electricity demand that is prohibitively expensive 377 Energy for Access Coalition (2021), Walk in Cold Rooms, Solar Appliance Technology Brief. 378 NextBillion (2020), Taking Cold Chains Off-Grid: How Solar Powered Cold Rooms Could Dramatically Reduce Food Waste in Sub-Saharan Africa. 379 Next Billion (2020), 2020 Most Influential Article Candidate: Milling on Mini-Grids: How Africa’s Largest Crop Could Go Diesel-Free. 380 Efficiency for Access Coalition (2021), E-mobility. Solar Appliance Technology Brief. 381 Bloch et al. (2019), Breakthrough Batteries: Powering the Era of Clean Electrification. 382 MECS (2019), The Kenya e-cookbook; Efficiency for Access Coalition (2021), Electric Pressure Cookers. Solar Appliance Technology Brief. 383 Efficiency for Access Coalition (2021), Electric Pressure Cookers. Solar Appliance Technology Brief. 112 Off-Grid Solar Market Trends Report 2022: State of the Sector from an off-grid system. Furthermore, the market is OGS can improve electricity access for an estimated 775 currently dominated by AC-powered EPCs, which represents million people living with a weak grid connection.385 a barrier for uptake in off-grid households, and the cost The electricity supply for weak grid customers is typically of an AC EPC is $22 and considerably more for a DC EPC. inadequate, unavailable, unreliable, and unsafe - though EPCs are currently only affordable for grid-customers, with the quality of supply varies significantly, with some areas some pilots exploring viability for mini-grid customers, and experiencing only minimal disruptions, whereas others further R&D needed to enhance the efficiency and reduce have only a few hours of power per day, including 160 costs to make them accessible for off-grid solar consumers. million grid customers in Africa that have less than 12 hours Beyond SWP and refrigerators, permanent magnet per day.386 This particularly constrains businesses from motors (PMMs) have the potential to transform the investing in appliances and machinery, since their ability to market for solar-compatible fans, electric vehicles, use them reliably for income generation is hindered. 16% washing machines, etc. in off- and weak grid settings by of households in India have also experienced a safety issue significantly improving the energy efficiency, performance, with their 230V electricity supply in the last year387, and reliability, and cost.384 Appliances with PMMs consume nearly 30 people die every day across the country.388 between 22% and 42% less electricity than conventional AC motor appliances and can deliver 30% cost savings to Weak grid customers are forced to rely on back-up off-grid consumers, thus allowing for the use of larger and technologies that are dangerously polluting, and expensive. additional appliances. In addition to electricity savings, Fossil-fuel generators proliferate as a back-up technology. In appliances with PMM offer a more reliable service and Nigeria alone there are an estimated 22 million small petrol expanded set of features coveted by consumers. Whilst affiliate manufacturers have been quick to adopt PMM, generators being used to power homes and small businesses, significant technological and market barriers persist for the this is eight times the grid’s peak capacity.389 Generators are wider adoption of this innovation. also expensive, with an average service cost of $0.30 per kWh for the fuel alone. In India, there are 55 million homes with a lead-acid battery and inverter for back-up power though a 6.4 Distributed Solar and further 218 million with little or no back-up.390 These systems are typically inefficient and expensive as they feature basic Storage Technologies battery technology, low-cost inverters, and conventional AC appliances with low efficiency. with Efficient New technology segments are emerging that integrate distributed solar and storage with the weak grid to Appliances to dramatically improve the quality and affordability of electricity access. Distributed solar and storage can be Strengthen the Weak integrated with the grid supply391 in a way that increases the availability and reliability of power for a home or Grid business. The battery is charged by the grid and/or solar panel and provides power to the loads during the grid outage. The power can be used in low voltage (e.g 12V or 48V) mode on direct current (DC) with high-efficiency lights and appliances, or the power can be at grid voltage, with an inverter taking power from the battery to alternating Distributed solar and storage technologies current (AC) for conventional loads and appliances. There combined with high-efficiency appliances is also an emerging class of smart lights and appliances could transform electricity access for that have inbuilt batteries that can continue working during homes and businesses on the weak grid. outages, and appliances that work in both DC and AC 384 Efficiency for Access Coalition (2021), Solar Appliance Technology Brief: Permanent Magnet Motors. 385 IFC, World Bank Group (2019), The Dirty Footprint of the Broken Grid: The Impacts of Fossil Fuel Back-up Generators in Developing Countries. 386 World Economic Forum (2021), Closing the Loop on Energy Access in Africa. 387 Smart Power India, The Rockefeller Foundation, NITI Aayog (2020), Benchmarking Distribution Utilities. 388 Times of India (2019), Electrocution kills nearly 30 Indians a day. 389 Access to Energy Institute (2019), Putting an End to Nigeria’s Generator Crisis: The Path Forward. 390 GOGLA (2020), Opportunities for Hybrid AC-DC Infrastructure in India. 391 Note: whilst the analysis in this report focuses on integration with the grid, the innovation could likewise relate to mini-grids. 113 mode. Digital technology is a key feature, with IoT system However, it is a complicated and fragmented market, with monitoring and management, and smart metering, billing, an array of grid supply scenarios, possible system voltages and payments. and architectures, and variety of appliance types, that make it challenging to standardize and commercialize. There is much innovation in this space, with off-grid solar Four market segments, defined by the system architecture, companies and donor-funded R&D programs targeting with high potential are emerging. solutions that are affordable and scalable (see Box 19). Segment One: Low voltage for all loads and appliances Optional Customer segment: Low-income. Very weak supply / new grid customers. PV Zero or low appliance ownership. System architecture: The grid supply is converted to low voltage (e.g. 12V or 48V) direct current (DC) with a rectifier. When the grid is available, it powers the loads through a rectifier and charges the battery. When the grid is not available, the battery powers the 24*7 (on 12/48 V DC) loads directly. All the loads are high-efficiency Low Voltage DC. A smart meter enables metering, billing, and payments, and the IoT manages system performance. Segment Two: Low Voltage and Grid Voltage in parallel Customer segment: Low-Middle income. Weak supply. Some appliance Optional ownership. Domestic and Light Commercial. PV Technology Description: As with Segment 1, a range of ‘core’ loads Grid availability and appliances are on the low voltage DC line, with the battery back-up (230 V AC) providing high availability and reliability. High power loads are on a parallel grid-voltage AC line and can only be used 24*7 (on 12/48 V DC) when the grid is available. There is flexibility as to where specific appliances may sit, for example, there may be a DC TV on the low voltage line, or an AC TV on the high voltage line. Segment Three: Grid Voltage using appliances with in-built battery back-up Customer segment: Low-Middle income. Weak supply. Some appliance ownership. Technology Description: All the loads and appliances are powered by the Grid availability grid-voltage AC line. Lights, fans, TVs and other select appliances have (230 V AC) in-built batteries and electronics that enable continued operation during power outages. Segment Four: Grid Voltage with battery back-up and inverter Optional Customer segment: Middle income. Weak supply. Some appliance PV ownership. Domestic and Light Commercial. Technology Description: When the grid is available, it directly powers the 24*7 (230 V AC) conventional AC loads and charges the battery. When the grid is not available, the battery powers the loads via an inverter. Solar PV and/or a fossil fuel generator may be used for additional generating DC - AC capacity to supplement the grid and boost the battery during outages. Inverter 114 Off-Grid Solar Market Trends Report 2022: State of the Sector Box 19: Solar generators gather pace in Nigeria392 The Access to Energy Institute (A2EI) has developed a solar generator for small businesses in Nigeria. It is a demonstration of how Segment Four can provide reliable and affordable power for weak grid customers. Their research of fossil-fuel generators used by street markets and small shops found that 80% had a power output of less than 1kW, and that on average, they are running on only 22% of their respective nominal load. A solar generator with an inverter is capable of meeting their power needs, and can do so more affordably than fossil fuels. A2EI has designed a solar generator to provide an uninterrupted power supply that places a special focus on usability and affordability. There are two models that are turnkey solutions equipped with 1200 Wh / 2400 Wh battery, 820Wp PV panels, and a 1 kVA / 3 kVA inverter, and IoT sensors with the ability to remotely monitor system performance. The solar generator can be connected to the grid and thereby acts as a back-up to ensure uninterrupted electricity access, but also functions as a standalone PUE off-grid solution where no grid is available. The technology is open source, with the hardware specifications and system data publicly available. A2EI has installed over 728 solar generators in Nigeria, which translates into 590kW of solar PV and 180 tons of carbon mitigated, officially confirmed with Gold Standard certificates. A solar generator offers a more reliable supply, and eliminates the recurring cost of fuel. The fuel savings pay for the solar generator and over five years (the minimum lifespan of the solar generator) offering an estimated saving of over $1,700. The dual input of grid and solar PV increases the resilience of the system and reduces the electricity demand from the grid. Though the system may function well without solar, relying simply on the grid and battery back-up. This may be The component technologies for the lowest upfront cost for households, though they may distributed solar and storage on weak grid be able to save on their ongoing costs with the addition of are mature and available, but further R&D solar PV. is needed on system design, integration, Advanced systems such as the A2EI solar generator and control. or Zola’s Infinity, can also accept power from a diesel generator, and control the system to ensure constant power and cost-optimisation. Battery storage is an The component parts of Segment One to Four are all essential component that features in every system, with mature technologies, though the system integration the simplest systems for lighting and phone charging architectures remain niche. Many companies have requiring very small, low-cost batteries. Larger systems products in customers’ homes and businesses as per the with a range of appliances have a few kWhs of storage. Segment One to Four architecture, though the industry Market forecasts show that improvements in electricity is fragmented. There is a lack of technical standards and access over the next decade could drive an estimated interfaces for hardware, software, and firmware to build sevenfold increase in stationary battery capacity in sub- supply chains and partnerships and achieve economies Saharan Africa, from 11GWh in 2020 to 83 GWh in 2030393 of scale. Furthermore, there is no strong consumer-facing across grid, mini-grid, and off-grid solar segments. brand or labels that can drive marketing and sales. And critically, the technical standards and regulations for There are new categories of appliances emerging, ones integrating distributed solar and storage with the grid are with a low voltage direct current (DC) input, ones with in their infancy. These barriers are now the focus of R&D dual AC and DC inputs, and others with AC input and an programs. integrated battery.394 These are all essentially DC, making them more efficient and reliable than their conventional The solar PV and battery need to be appropriately sized AC counterparts, though they are less available and more to ensure reliable power and cost optimisation. This expensive. Whilst these new technologies bring a range of is challenging to standardize given the variability in the possibilities it also introduces a complex array of options availability of supply from the grid and solar, and the for companies and customers to evaluate. Appliances demand from the loads, the most cost-effective solution may be rated for use with DC or AC, and powered by the will depend on the component costs and financing options. 392 Access to Energy Institute (2021), A2EI’s Solar Generators Gather Pace in Nigeria. 393 World Economic Forum (2021), Closing the Loop on Energy Access in Africa. 394 GOGLA (2020), Opportunities for Hybrid AC-DC Infrastructure in India. 115 electrical AC grid, DC or AC mini-grid, or DC solar home The customer-centric controls in the Smart Home market system. Where the power supply and appliance are not are also renowned, with Amazon’s Alexa, Apple’s Siri, directly compatible, a power converter – an inverter or and Google’s Assistant allowing users to control lighting, a rectifier – is required. An inverter converts DC power temperature, and home theaters via voice or app from to AC power, while a rectifier performs the reverse the home or remotely. Smart electricity meters are now conversion of AC to DC. The use of a power converter adds commonplace in many countries - hundreds of millions additional power consumption, and typically increases the of units are installed every year and the global market complexity of the system set-up, as well as adding cost and was $20 billion in 2020, including electricity, gas, and quality considerations.395 water meters.400 Traditionally smart meters enabled the remote monitoring, control, and payments of electricity In India, as many as 55 million households are using consumption, though with the arrival of IoT platforms, a lead-acid battery with an inverter, 90% of which advanced meters are now able to carry out a broader range are below 1.5 kVA.396 When used with conventional AC of data analytics, system management, and notifications appliances, these systems can be very inefficient and (see Box 20). significantly increase the energy demand from a user, increasing their costs and putting additional stress on If deployed at scale, distributed solar and storage weak grids. The global inverter market is projected to technologies could transform electricity networks into grow from $13 billion in 2020 to $27 billion by 2025397, with smart grids; this represents a challenge and opportunity demand driven by residential solar customers in developed for utilities, network operators, and regulators. For economies, and large developing markets such as India. network operators, it brings changes to demand profiles at the level of individual customers, sub-stations, and the Sophisticated control technology is needed at product- wider grid that would require planning and management. level to integrate power inputs from the grid and solar Digital tools to enable monitoring and control, including PV, manage energy storage and demand from a range of demand-side management, are on the market though appliances, and provide metering, billing, and payments these are not widely adopted, and often not being used services. The capabilities and technical standards that to their fullest potential. Product technical standards the solar PAYGo sector has developed to remotely monitor and regulations to ensure safety are also necessary. For and control SHS using IoT and AI are a solid foundation for example, if there is a grid power outage, anti-islanding this purpose. The global Smart Home market - estimated features stop houses with inverters from electrifying the at $84.5 billion in 2021398 - is also a source for innovation nearby grid and electrocuting workers repairing the fault. and inspiration. For example, the Open Connectivity Distributed solar and storage technology is a ground-up Foundation is a global, member-driven organization approach to build digital electricity grids that are less that has developed technical standards to enable trust, carbon-intensive, more reliable, and more financially interoperability, and secure communication between IoT viable. devices and services in homes and buildings.399 Box 20: SparkMeter401 SparkMeter is a US-company that offers advanced metering and grid management solutions to distribution utilities and mini- grids in developing countries. SparkMeter’s technology allows utility companies to gain greater insight into grid performance through its plug-and-play management software. The software creates a ‘digital twin’ of energy grids by combining real-time data with detailed models, increasing grid visibility, making it easier to respond to congestion, line and transformer stress, and plan for new grid dynamics such as distributed energy generation. The technology helps utilities to improve their reliability and collections, which can accelerate the retirement of diesel generators while deploying cleaner sources of energy. 395 Efficiency for Access Coalition (2020), Performance And Efficiency of Off-Grid Appliances With Power Converters. 396 GOGLA (2020), Opportunities for Hybrid AC-DC Infrastructure in India. 397 MarketsandMarkets (2022), Inverter Market Size Share and Trends forecast to 2025. 398 A smart home refers to a convenient home setup where appliances and devices can be automatically controlled remotely from anywhere with an internet connection using a mobile or other networked device. 399 Open Connectivity Foundation (2022), Homepage. 400 MarketsandMarkets (2022), Smart Meters Market Size. 401 SparkMeter (2022), SparkMeter Raises $10 Million to Accelerate Growth in the Implementation of its Advanced Metering Solution Globally. 116 Off-Grid Solar Market Trends Report 2022: State of the Sector Distributed solar and storage with efficient appliances a short or medium-run asset to increase access, as well as a has the potential to unite off-grid and weak grid long-term asset for the grid. A grid customer with a battery customers in Africa and Asia with a common technology will have higher satisfaction from the grid connection – and base. This would create a huge market for electricity the remote monitoring, control, and payment technology access that would drive economies of scale and represent can be advantageous for the grid operator. a massive opportunity for companies. The investment Distributed solar and storage has the potential to opportunity in achieving universal electricity access with improve the reliability and quality of electricity supply off-grid solutions and replacing nine million back-up which is likely to yield greater willingness and ability diesel generators is estimated at $200 billion - a sizable to pay and boost the revenue for utilities. It could sum even before considering the hundreds of millions potentially offer ancillary services to the grid operator, of other weak grid customers that could be well served such as reducing the peak load, advancing digitization of with this technology. This scenario would also mitigate the grid, or deferring investments in grid reinforcement/ more than 500 MT carbon emissions over the next decade, transmission upgrades. approximately equivalent to the annual emissions of 130 coal-fired power plants.402 Introducing distributed solar and storage at scale to the grid will require new partnerships and cooperation between traditionally off-grid and on-grid players. As the Utility 2.0 initiative makes clear, centralized and decentralized electricity can work together to identify Strengthening the grid with distributed critical path technology, process, and regulatory interventions needed to transform electricity systems into solar and storage technologies is a vast robust networks that deliver reliable, affordable, universal opportunity for the off-grid solar industry. access for all.403 It can also benefit utilities by enhancing It is now clear that the term off-grid solar, used to customer satisfaction, improving revenue, describe the technology in the industry - and the brand and offering ancillary services. of the industry itself - is no longer all encompassing. The possibilities for distributed solar and storage to integrate with the weak grid broaden the scope beyond off-grid, The ability of distributed solar and storage to integrate whilst the wide array of appliances, productive use with the grid and mini-grids can enhance the consumer equipment, and digital financial services go beyond solar journey up the energy staircase and create a new technologies. There is an opportunity for the industry to paradigm for integrated electricity planning. It removes the rebrand itself to reflect these technological advancements distinction between short-term off-grid electrification and and to position itself firmly and clearly in the minds of long-term grid electrification, and makes the OGS product a customers, investors, donors, and governments. future asset in the distribution grid, that can be seen both as © Power Africa 402 Shell Foundation and Rockefeller Foundation (2021), Unlocking Climate Finance to Accelerate Energy Access in Africa. 403 Power for All (2019), Universal Renewable Energy Access: The Utilities of the Future. 117 07 Enabling Environment © Power Africa 118 Off-Grid Solar Market Trends Report 2022: State of the Sector KEY MESSAGES • The 2021 UN High-level Dialogue on Energy, alongside the focus on delivering a clean and just energy transition for all at COP26, elevated the global profile of the OGS sector • While at least 12 countries completed the development of their electrification plans over the last two years, only a few governments are adopting and implementing them at a pace that matches ambitious targets • Greater recognition of the importance of OGS has led to new programs and a widening of scope by some governments and development partners. This includes a focus on productive use, powering healthcare and ensuring that no one is left behind in the clean and just energy transition in Glasgow, where developing countries emphasized the 7.1 OGS in the need to respond to climate risks without compromising their development agenda. Beyond electricity access, International governments and other stakeholders are increasingly recognizing the potential of off-grid solutions as a tool Agenda for reducing CO2e emissions whilst building climate resilience. For the first time, an SDG7 pavilion was hosted, which highlighted the opportunities and approaches for delivering a just and clean energy transition using renewable electricity solutions. OGS was profiled as a key The 2021 UN High-level Dialogue on solution. Efficiency for Access became the co-theme lead Energy, alongside the focus on delivering for electricity access in the newly created COP Resilience Hub, to increase the focus on helping people cope with a clean and just energy transition for all at the impacts of climate change.405 These initiatives elevated COP26, have elevated the global profile of the profile of OGS on the world stage for its potential to the OGS sector. address the issues of electricity access, climate resilience and range of other development challenges, while helping to drive action at national levels. The High-level Dialogue on Energy, convened by the UN Secretary-General in September 2021 was the first gathering of world leaders in over 40 years at the UN solely focused on energy issues, attracting participation from 100+ Member States. The dialogue delivered a roadmap with recommended actions and milestones 33 countries have included off-grid solar to achieve SDG7; alongside voluntary ‘Energy Compact’ solutions in national climate change commitments from states and other stakeholders mitigation plans, while five have included convened by SEforALL. On behalf of the OGS industry, it in adaptation measures. GOGLA submitted a Compact to ‘Power 1 Billion Lives’ by 2030 through increased access to solar kits and productive Between 2020 and 2022, at least eight countries seeking use of energy (PUE) products.404 The compact is endorsed to meet and or surpass their climate change commitments by over 100 organizations and various governments either updated or revised their nationally determined including Ethiopia, Kenya, Malawi, Uganda, Nigeria and contributions (NDCs) to include increased access to the Democratic Republic of Congo. Ethiopia, India, Nigeria, off-grid electricity solutions, taking the total to 33. Zambia and Bolivia have also developed their own energy These included Bangladesh, Pakistan, Nigeria, Malawi, compacts which have incorporated OGS to drive the Mozambique, Ghana, Rwanda and Ethiopia.406 As part of universal electricity access agenda. its climate mitigation measures, Nigeria aims to increase In November 2021, the United Kingdom and Italy co- off-grid renewable energy generation to 13 GW by 2030, hosted the 26th UN Climate Change Conference (COP26) of which at least 2.7 GW will be solar home systems and 404 GOGLA (2021), Powering 1 Billion Lives Energy Compact. 405 Efficiency for Access (2022), Co-theme lead for Energy Access at new COP Resilience Hub. 406 United Nations Framework Convention on Climate Change Secretariat (2022), Nationally Determined Contributions Registry. 119 solar street lights,407 whilst Ethiopia’s proposed climate particularly in sparsely populated rural communities. adaptation measures plan to increase the use of off-grid Many governments are including OGS in their Integrated energy solutions in rural areas.408 NDCs are the foundation Electrification Plans (IEPs) alongside the national grid and of the Paris Agreement and embody efforts by each country mini-grids; at least 12 more countries completed their IEPs to reduce national emissions and adapt to the impacts of in the last two years.410 Governments have also increased climate change. their efforts to support the deployment of OGS technologies and the scale up of off-grid markets in their countries. The inclusion of OGS in National Adaptation Plans of Action remains more limited, with only five countries For example, Madagascar has dedicated 30% to off-grid including it. This includes Nigeria, which also supports solutions in its IEP. At 33.7% total electrification in 2020, the adoption of solar energy in its Ebonyi, Kaduna, Madagascar is still far from achieving SDG7.411 Given the Gombe, Bauchi, Delta and Lagos state adaptation plans.409 short time remaining to 2030, Madagascar has allocated However, a better understanding of the impacts of OGS a share of 30% to off-grid solutions (20% through mini- on adaptation and resilience is needed for this to become grids, 5% through SHS and 5% through solar lanterns) a central part of climate change planning for national in its electrification plan.412 The government partnered governments and to stimulate investment by actors with the World Bank to launch the Least-Cost Electricity focused on climate adaptation. Access Development (LEAD) project to finance cost- effective investments in grid and off-grid infrastructure that leveraged the OnSSET tool to design affordable 7.2 Status of Integrated electrification pathways for the country.413 Through the LEAD project, 30,000 households have been electrified with Electrification Plans a goal of reaching 100,000 by 2024 through OGS.414 Mozambique and Nigeria, having launched their IEPs in 2017 and 2019, respectively, are making strides in their implementation to achieve their OGS targets. • Mozambique: With a target of 50% off-grid Governments recognize the importance electrification by 2030 specified in its IEP, the of OGS as a viable electrification solution government has rolled out a number of initiatives and off-grid technologies have been towards implementing this goal.415 The BRILHO mainstreamed in electrification strategies program was launched in 2019 to support the IEP and approaches to achieve SDG7. targets, aiming to reach 1.5 million Mozambicans and 15,000 small businesses through SHS, mini-grids and improved cooking solutions.416 By October 2021, the program had deployed over 53,000 SHS and provided With just eight years left to achieve universal access, electricity access to over 306,000 people and 5,000 governments are increasingly embracing OGS as a viable SMEs i.e., approximately 20% and 33% of the program’s electricity access solution. Off-grid solar has become widely population and business targets, respectively.417 acknowledged as the least-cost electrification solution for Similarly, the ProEnergia project, approved by the World hundreds of millions of off–grid households (see Chapter 2), 407 Government of Nigeria (2021), First Nationally Determined Contribution 2021 Update. 408 Government of Ethiopia (2021), First Nationally Determined Contribution 2021 Update. 409 Government of Malawi (2021), First Nationally Determined Contribution 2021 Update. 410 Open Capital Advisors analysis. 411 The World Bank, Access to electricity (% of population) - Madagascar. 412 Reiner Lemoine Institut (2020), Draft Version Deep Dive Analysis. WP5: Recommendations to include off-grid RE in the NDC Update 2019, Madagascar. 413 OnSSET is an energy optimizing tool developed by the KTH Royal Institute of Technology that estimates, analyses, and visualizes the most cost effective electrification strategy. 414 The World Bank (2022), Madagascar - Least-Cost Electricity Access Development Project - LEAD. 415 GGGI (2019), Country Brief: Mozambique. 416 SNV (2021), Government of Mozambique Approves Off-grid Energy Regulation Taking a Key Step Towards Universal Access. 417 BRILHO (2021), BRILHO Programme Celebrates Progress and Welcomes SIDA as a new Donor during Recent Energy Access Event. 120 Off-Grid Solar Market Trends Report 2022: State of the Sector Bank in 2019 was initiated to support electrification, electricity generation and distribution at grid level. This including through OGS.418 often affects the implementation of OGS targets set out by IEPs (see Box 21). For example, a number of countries • Nigeria: The Federal Government of Nigeria is targeting are still lacking dedicated government bodies creating 90% electrification by 2030 and has embarked on a policies, regulations and programs to assist OGS players number of projects to achieve their OGS targets.419 The to serve areas identified as ideal for OGS electrification. government launched the Nigeria Electrification Project As a result, OGS continues to be under-prioritized in (NEP) to be implemented by the Rural Electrification planning, budgeting and implementation compared to grid Agency (REA), which targets reaching 1 million solutions. households and 250,000 SME’s through SHS or mini- grids, to provide electricity at lower costs.420 By 2021, the Adequate resourcing for electrification plans, and project had provided standalone solar (SAS) systems predicting future developments has been challenging. for 70% of their target of 300,000 households for SAS.421 With off-grid solar markets still relatively new, it is difficult Projects such as the Solar Power Naija project, launched to estimate how quickly they can deliver and which kind in 2020 with an overall goal of achieving 5 million new of support is required for them to achieve set out targets. connections through either SHS or mini-grids, have For example, even Rwanda, although having one of played a crucial role in supporting the installation of the fastest rates of electrification on the continent and 100,000 SHS and an additional 200,000 to be supported having successfully developed a Rural Electrification by the Nigeria Sovereign Investment Authority (NSIA).422 Strategy, is reconsidering the role of OGS in their National Electrification Plan. The government initially prioritized off-grid solutions but during implementation, realized that OGS markets were not delivering electricity access at the pace that At least 12 countries completed the the government initially expected. They are therefore development of their electrification contemplating reducing the targeted OGS contribution plans over the last two years, yet only from 48% of the population to 30% and increasing its grid targets from 52% to 70% by 2024. a few governments are adopting and implementing them at a pace that This adjustment of OGS targets is due to delays in the matches their SDG7 ambitions. implementation of sector support programs and changing official product standards, but also elements outside the government's control, such as over-optimism in growth projections by the private sector, and under-appreciation Implementation of OGS electrification is currently of the impact of low levels of ability to pay amongst under-prioritized due to limited technical skills and target beneficiaries and the need for greater demand- implementation capacity of the public and private sector, side support. To meet new OGS electrificaion target by slowing progress and, in some instances, resulting in 2024, the Rwandan government is launching initiatives the reprioritization of status quo technologies including to incentivize the private sector to serve the unelectified the grid. There is a clear skills gap for OGS solutions in population for example, by participating in the Pro-Poor many public sector electricity access agencies, compared RBF (see Section 7.3). to longer standing experience and education of key members on more traditional power solutions, such as 418 The World Bank (2022), Mozambique Energy For All (ProEnergia). 419 REA (2022), The Master Plan. 420 REA (2018), Nigerian Electrification Project Overview. 421 The World Bank (2022), Nigeria Electrification Project. 422 REA (2021), SPN launches the deployment of 100,000 SHS Under ESP; Africa Energy Portal (2022), NSIA To Provide $24m for Solar Power Naija Programme; Rural Electrification Agency | Solar Power Naija. 121 Box 21: Challenges faced and lessons learned from implementation of Kenya’s NEP Kenya is one of many examples that illustrates the difficulty of moving from creating a Intergrated Electrification plan, to implementation. Kenya developed its electrification plan in 2015 and officially adopted a national strategy drawing from the plan, the Kenya National Electrification Strategy (KNES), three years later.423 Although considerable success i.e., 75% electrification in 2021 up from 20% in 2013 can be observed, the implementation of electrification targets through OGS solutions has not been without difficulties. The Kenya Off-Grid Solar Project (KOSAP) is one project that faced challenges during implementation from which lessons learned can be drawn. KOSAP was designed to drive electrification in 14 high electricity deficit areas through OGS solutions, but may be falling short of achieving this by 2023. The 14 counties include West Pokot, Turkana, Marsabit, Samburu, Isiolo, Mandera, Wajir, Garissa, Tana River, Lamu, Kilifi, Kwale, Taita Taveta, and Narok. While 20% of the population live in these areas, they are also the least dense counties, accounting for 72% of the country’s total geography, making it substantially more costly for OGS companies to serve these customers. To encourage OGS companies to extend their services to the target counties, KOSAP launched an RBF scheme as an incentive. While the program was set up with the best intentions in mind it had only achieved 28% of its standalone solar systems target approximately 4 years since the approval of the program.424 Despite being able to electrify ~200,000 people through OGS solutions under KOSAP, the project experienced implementation challenges that provide helpful lessons for other countries. Implementation challenges of the KOSAP program that likely led to the slow progress include complex administrative processes and, and incentives that may not have been appealing to OGS companies. 1. Delays in contracting companies, agents verifying RBF results, and validating results as well as delays in disbursing incentive payments to OGS companies are some of the administrative challenges.425 2. KOSAP targeted counties with low electrification rates and low income. For sparsely populated communities, per-company targets may not have been optimal for OGS companies to prioritize distribution to the identified areas, as opposed to markets they already operate in. Outside of KOSAP, other challenges that may have affected the project’s progress, like changing key policies, may have disincentivized some companies. The Government of Kenya revoked OGS VAT exemptions in 2020, to comply with national fiscal policy to raise revenue and gradually eliminate tax exemptions, leading companies to focus their operations on more commercially attractive markets. Considering this, there are general lessons to be observed including: Program designs should reflect implementing agencies’ capacity. Program implementers should adequately plan and budget to ensure smooth execution of OGS programs. This includes, but is not limited to: putting in place suitable incentives; ensuring that team skill, size and capacity are well accounted for; incorporating the right systems to track progress, and finally, making disbursements accordingly to avoid delays in implementation. RBF managers should also ensure that streamlined and efficient verification agents are contracted early enough, preferably before the program starts; this will reduce delays in claims settlements and the resulting impact on company cash flows. Implementation challenges experienced by governments for off-grid solutions. For example, the World Bank have increased initiatives to execute lessons learned, partly funded the Regional Off-Grid Electricity Access assist governments to effectively plan for electrification Project (ROGEAP) launched by ECOWAS in 2021 that and implement electrification plans. These initiatives includes a technical assistance component offered to include: key stakeholders, such as the governments and OGS companies in the region, to help accelerate the rate • Technical assistance (TA): several countries collaborate of OGS sector development.426 Public sector TA for with development partners for technical assistance with example, focuses on supporting governments to adopt best implementation practices apart from financing 423 Ministry of Energy, The World Bank (2018), Kenya National Electrification Strategy: Key Highlights 2018. 424 World Bank (2022), Off-grid Solar Access Project for Underserved Counties. Note: data from Results Framework: Intermediate Results Indicators (households provided with new electricity connections by stand-alone systems) as at September 30, 2021; accessed on July 4, 2022; USAID’s Power Africa Off Grid Project (2019), Off-grid solar market assessment: Kenya. 425 Open Capital Advisors consultations. 426 Dalberg (2021), Commercial & Economic Feasibility Study for Enhancing Off-Grid Solar Inclusion in Sub Saharan Africa. 122 Off-Grid Solar Market Trends Report 2022: State of the Sector and implement national policies and regulations that the first project, signed a debt agreement of $69.88 boost OGS sector growth and further deployment of million funding in 2022 for implementation from 2022 OGS solutions.427 to 2025.428 The Mwinda Fund, a renewable energy RBF launched in the DRC, is another example of an initiative • Development partners collaborations to launch that was designed to attract funding from multiple funded projects: some governments are working donors.429 with development partners to establish national programs that include funding commitments and • Knowledge-sharing: development partners are creating capacity building. For example, the government of platforms and forums for governments to share ideas, Ghana worked with the World Bank and the AfDB, experiences, and lessons learned from challenges faced and engaged other stakeholders to develop the the during program implementation. One example is a Scaling-up Renewable Energy Program in Ghana network of representatives from African government Investment Plan (SREP-Ghana IP) in 2015. The program energy ministries and regional bodies named the aimed to accelerate electrification through renewable ‘Community of Champions’ that facilitates peer-to- energy solutions across three projects, with the first peer knowledge sharing (see Box 22).430 Benefits such involving standalone solar solutions. The World Bank as improved implementation strategies for OGS are was a project design and implementation partner and expected to result from the ‘Community of Champions’. the AfDB, the lead multilateral development bank for Box 22: The Community of Champions: A growing and evolving network The Community of Champions is a platform established in 2018 with the support of the World Bank/ESMAP, Shell Foundation, Power Africa, Africa Clean Energy, Sustainable Energy for All and the Africa Enterprise Challenge Fund. The platform facilitates peer to peer learning between governments and exchange of ideas, challenges, successes, and best practices related to scaling up off grid electricity access through integrated energy approaches for public sector energy access champions. It also enables a dialogue between governments, the private sector off-grid solar industry, and development partners / relevant stakeholders to co-create an enabling policy environment for the realization of universal energy access across sub- Saharan Africa. Five additional countries, DRC, Liberia, Mozambique, Somaliland and Zimbabwe, have joined the Community since 2020, taking the total to 24 national governments and three regional organizations spread across sub-Saharan Africa.431 Increased membership is driven by continued and growing interest in OGS by national governments. Discussions have also expanded to include topics such as PUE, job creation, consumer protection and COVID-19 response. Availability of funding besides faster upskilling is implementation support, it is imperative that more funding needed to achieve SDG7. While some countries are be made available more conveniently for well-intentioned working towards implementing their IEPs, launching electrification strategies to be actioned according to programs to support OGS sector development, the pace of planned timelines to achieve SDG7. implementation remains slow. Besides upskilling and 427 ROGEAP (2020), Regional Knowledge Sharing And Technical Assistance For Integrated Electrification Planning And Strategy Improvement. 428 Climate Investment Funds (2015), SREP Investment Plan For Ghana; Afrik21 (2022), GHANA: Government Secures $70m For Off-Grid Solar Electrification. 429 World Bank IDA (2022), Project Appraisal Document On A Proposed Grant In The Amount Of Sdr 215.6 Million ($300 Million Equivalent) And A Proposed Credit In The Amount Of US$300 Million To The Democratic Republic Of Congo For An Access Governance And Reform For The Electricity And Water Sectors Project; Elan RDC, Sector Overview - Renewable Energy. 430 GOGLA (2022), Community of Champions. 431 Ibid. 123 7.3 Sector Development their programming. For example, the World Bank/ESMAP Lighting Global program has expanded its remit to include and Support PUE technologies such as solar water pumps, mills and sewing machines. ESMAP will also contribute to human Programs capital development by supporting electrification of public health centers and schools. As World Bank’s activities are driven by government demand, this illustrates the evolving interest of national leaders. Between July 2015 and June 2022, World Bank programs New programs and a widening of scope by which include OGS have been approved in more than three quarters of the countries in sub-Saharan Africa. governments and development partners Including technical assistance (TA), the total amount has led to more focus on productive use, committed to accelerating adoption of OGS since July powering healthcare and ensuring that 2015 is over $2 billion (Figure 60). The chart below no one is left behind in the clean energy includes funding allocated to off-grid solar standalone transition. solutions, including residential, productive uses, and public institutions. Several activities supporting the off- grid solar market development are carried out under the Governments and development partners are recognizing TA components, such as consumer awareness campaigns the potential of off-grid solutions to power healthcare, or market intelligence. However, the TA funding is not productive use and agriculture, and are increasingly exclusively allocated to off-grid solar and also supports focused on bridging the ‘affordability gap’ for the poorest other project objectives, such as strengthening the utilities and most vulnerable households, impacting the focus of or enhancing the capacity of governments. Figure 60: World Bank funding for off-grid solar between July 2015 and June 2022432 Projects Approved in Fiscal Years 2018-2019 Projects Approved in Fiscal Years 2020-2022 2000 1500 USD (in millions) 1000 Off-Grid Solar Technical Assistance & Capacity Building 500 0 Chad Uganda Rwanda Ethiopia Burundi Liberia Mali Yemen Pakistan Malawi Haiti Total 18-19 Total 20-22 ROGEAP Mozambique Mozambique Sierra Leone Others 18-19 (KOSAP) DRC RIFF CAR Nigeria Niger Madagascar Total 15-17 Ethiopia ROGEP (Western Africa) Kenya 432 GOGLA analysis. Please note that fiscal years run from July-June. 124 Off-Grid Solar Market Trends Report 2022: State of the Sector Of the $2 billion committed by the World Bank since July health, PUE and climate-smart agriculture outcomes. 2015, more than $470 million in specific support for OGS For example: and $160 million in related TA has been approved since 2020. The 14 energy access projects benefiting from this • Launched in 2021, EnDev and the IKEA Foundation are co-funding a three-year Sustainable Energy for funding include: Smallholder Farmers (SEFFA) program ($8.1 million) • Rwanda - Pro-Poor RBF: Providing an additional $30 to support application of PUE appliances, including million to support implementation of a pro-poor RBF cooling, across dairy and horticultural value chains in program that offers an end-user subsidy for SHS. In Kenya, Uganda and Ethiopia.434 recognition that, even in mature markets like Rwanda, additional support is needed to reach the lowest • The Water and Energy for Food project (WE4F) that aims to increase food production along the value chain income households. through a more sustainable and efficient usage of water • DRC - AGREE: The Access, Governance and Reform and/or energy.435 for the Electricity and Water Sectors project will provide support to DRC's Mwinda's fund, building on • In 2021, the Global Energy Alliance for People and Planet (GEAPP), a $10 billion clean energy initiative was and expanding an RBF program established under launched. This is expected to lead to significant new the previous World Bank operation, as well as other funding being targeted at PUE and job-creation, as well supportive measures to develop the country’s mini-grid as new and influential organizations entering the OGS and off-grid solar sector. space. GEAPP is led by The Rockefeller Foundation and • Ethiopia - ADELE: Under the Access to Distributed has been developed in partnership with the Bezos Earth Electricity and Lighting in Ethiopia project, a $50 million Fund, IKEA Foundation and other leading foundations, off-grid solar component will provide access to finance international finance corporations and multilateral in both foreign exchange and local currency, as well as development banks. The initiative focuses on economic an RBF for SEK and PUE products. The project aims to productivity and larger SHS and PUE products. further increase market intake and support expansion of the supply chains in rural areas. It also includes a • At COP26, the Transforming Energy Access Programme, funded by UK Aid, was given a £126 million extension. It $55 million component on the electrification of public continues to have job creation and the productive use facilities. of energy as objectives. It now also contains a ‘leave no • Several FCV affected country projects: A new wave of one behind’ component that focuses on reaching the recently approved projects focuses on connecting the poorest households and people living in humanitarian hardest to reach in nascent markets with high levels of settings, which includes health. fragility, conflict and violence. This includes the Chad Energy Access Scale Up Project, approved in 2022 with • In 2022, the Low Energy Inclusive Appliances research and innovation programme, funded by the IKEA $93 million allocated to OGS, the Niger Accelerating Foundation and UK Aid, received a three-year extension. Electricity Access Project with $35 million allocated Its focus on appliances has also led to strong emphasis towards OGS and the Central African Republic Electricity on productive use and health. Strengthening and Access Project, with a $50 million OGS component. • In 2022, USAID/Power Africa announced a new public and private sector alliance that plans to electrify 10,000 In addition, several World Bank programs approved in healthcare facilities in sub-Saharan Africa. This brings 2018-19 came online, such as the $240 million Regional together partners from the energy access space, such Off-Grid Electricity Access Project (ROGEAP), covering 19 as SEforALL, Shell Foundation and We Care Solar, countries433 in West Africa and the Sahel, and the $350 alongside predominantly health-focused organizations, million Nigerian Electrification Project supporting mini- such as GAVI, UNICEF and World Vision. The alliance grids and OGS (see Box 7). creates foundations for the two sectors to drive Other development partners have also broadened their progress together.436 scope and/or continued their support for improving 433 Benin, Burkina Faso, Cape Verde, Gambia, Ghana, Guinea, Guinea Bissau, Cape Verde, Ivory Coast, Liberia, Mali, Niger, Nigeria, Senegal, Sierra Leone, Togo, Cameroon, Central African Republic, Chad and Mauritania. 434 EnDev (2021), Sustainable Energy for Smallholder Farmers (SEFFA). 435 Water and Energy for Food (2022), Homepage. 436 USAID/Power Africa (2022), USAID’s Power Africa Launches Partnership to Electrify Health Facilities Across Sub-Saharan Africa As Part Of President Biden’s Global Infrastructure Initiative. 125 • Initiatives in multiple countries are under development SWPs amongst a full range of other solar equipment and or have been developed to electrify health centers and/ DC appliances. Similarly, Togo’s CIZO program provides or provide greater storage for vaccines, as noted in border tax exemptions for SWPs from eligible providers. Section 3.2.1. This illustrates growing recognition by governments of the role that PUE technologies can play in boosting climate Many governments and development partners are smart agriculture and could lead to a greater adoption of increasing efforts to reach homes and businesses most exemptions for PUE across the continent. at risk of being left behind in the clean energy transition. As well as the growing focus on OGS for FCV countries, Despite this progress, border tax laws can be several countries are exploring, or implementing, end-user unpredictable, creating uncertainty and risk for companies subsidies (EUS) to lower the price of OGS technologies for and investors. The last few years have seen examples low income households (solar energy kits) or smallholder of changes in both the laws themselves, and in their farmers (solar water pumps). After initial reticence due to interpretation, often at short notice. For example: their potential to distort markets, the OGS industry also changed its position to support EUS. ESMAP/World Bank, • Kenya unexpectedly re-introduced 14% VAT on solar equipment including batteries in June 2020, increasing ACE-TAF, EnDev and GOGLA have developed an End User this to 16% in January 2021438, before then reintroducing Subsidy Lab, to promote and study smart EUS design to some elements of the exemptions later in 2021.439 ensure that future programs can best reach the poorest, whilst supporting sustainable market growth. More • In 2020, companies in Zambia received tax bills covering details on EUS, as well as current and future programs are imports that had occurred in previous years due to an explored in Section 8.2.1. A comprehensive overview of amendment to the regulations in 2019 that clarified that different public funding mechanisms can also be found previous exemptions were not applicable.440 in the recently released report, Designing Public Funding Mechanisms in the Off-Grid Sector. • In April 2022, Ethiopia’s authorities began enforcing a 15% import duty on solar lanterns and SHS in a country where these technologies, alongside solar pumps, 7.4 Fiscal Incentives had been exempted from import duty, excise duty and surtax for more than a decade.441 Adding to this unpredictability, implementation of exemptions often remains inconsistent. In some countries, the ability to avail of tax exemptions can More governments are offering VAT and vary from company to company, or even shipment to shipment. However, efforts to simplify customs procedures tax exemptions for OGS, including solar are emerging. For example, in 2020 and 2021 ACE TAF water pumps. However, implementation is developed importation guides in Kenya442, Senegal443, inconsistent. Zimbabwe444 and Nigeria445 in collaboration with customs authorities to provide clarity on importation processes and the tax exempt status of OGS products. The national Since 2020, Senegal, Mali, Benin and Liberia joined other renewable energy associations in East Africa, with the countries in sub-Saharan Africa437, and more around support of the UK’s FCDO funded PowerUp! program, the globe, in providing VAT or duty exemptions for solar also developed a Taxation Handbook for the East energy kits and components, while several countries African Community which was launched on 7th July have expanded border tax exemptions to productive use 2022.446 Ongoing support for customs authorities in the technologies. Mali, Senegal and Sudan included solar water implementation of VAT and tariff exemptions, for example pumps (SWPs) in their exemptions and Liberia exempted 437 Power Africa, GOGLA (2022), Off-grid VAT and Duty Tracker. 438 Government of Kenya (2020), Finance Act 2020. 439 Government of Kenya (2021), Finance Act 2020. 440 GOGLA consultations. 441 Ethiopia Ministry of Finance (2021), Customs Tariff Amendment. 442 Africa Clean Energy (2019), Importation Guidelines For Solar PV Products and Systems in Kenya 2019. 443 Africa Clean Energy (2021), Sénégal – Elaboration de la Stratégie Genre et Inclusion Sociale (GESI) du PANGE. 444 Africa Clean Energy (2021), Customs Handbook for Solar PV Products in Zimbabwe. 445 Africa Clean Energy (2021), Importation Guide for Solar PV Products and Technologies in Nigeria 2020. 446 National Renewable Energy Associations in East Africa (2022), The East African Regional Handbook on Solar Taxation 126 Off-Grid Solar Market Trends Report 2022: State of the Sector within future programs and capacity building initiatives, levels of authorisation for their operations. This would will continue to ease doing business for OGS companies, have included opening new stores, expanding into cross ultimately supporting electrification efforts. border markets and importing products. Efforts to update and clarify HS Codes for OGS In 2022, Kenya enacted The Central Bank of Kenya technologies are also a step in the right direction but Digital Credit Providers (DCP) Regulations to provide for more focus is needed on harmonization and standardized the licensing and oversight of previously unregulated application. Many OGS products are not well defined Digital Credit Providers. They were intended to regulate under the current Harmonized System (HS Codes), the the manner in which DCPs would conduct their business, numerical method used by customs officials in classifying including provisions on lending, pricing, consumer and assessing duties and taxes for traded products. In 2022 protection, debt collection and anti-money laundering. As updates to the HS Codes, the World Customs Organization in Tanzania, the potential application to the PAYGo sector created new subheadings for a range of off grid products would have seen companies fall under the regulatory that were previously left out or not well defined.447 oversight of both the country’s Central Bank and the However, there are still inconsistencies and persistent Energy Sector Regulator. differences in the application of HS Codes by different However, as a result of technical consideration and broad countries remains a challenge. For example, in 2021 solar consultation with sector players, the Central Banks of lanterns in Malawi were unexpectedly reclassified to a Tanzania and Kenya determined that these proposed new HS code without any accompanying change in law, regulations were not a fit for PAYGo companies in the resulting in new duties becoming applicable and causing OGS sector. While noting that the provision of credit in significant delays in the clearance of imports.448 Tanzania is a regulated activity, the Bank of Tanzania noted that appropriate regulations for the PAYGo sector were yet 7.5 Industry Regulations to be developed and that consultations to determine the most appropriate regulator and regulatory regime would continue. In its case, the Central Bank of Kenya clarified that the DCP Regulations would not apply to credit arrangements incidental to the sale of goods, effectively excluding PAYGo transactions. Looking forward, it is clear While the prospect of regulations on that governments, industry and other stakeholders will PAYGo grows, the appropriate regulatory need to work together to develop appropriate regulatory frameworks for the PAYGo sector, that not only protect framework remains uncertain. consumers, but also provide for the sector’s growth and role in the country’s energy landscape. The PAYGo sector is currently operating under laws or regulations applicable to the broader retail or rent- to-own sector. However, companies increasingly offer financing to customers, and governments are exploring appropriate ways to implement additional regulation. For The appropriate handling and disposal example, as part of its broader efforts to protect consumers of electronic products at their end of life and regulate the provision of consumer credit in the country, Tanzania enacted the Microfinance Act in 2018, (EOL) is a subject of increasing concern for followed by publication of regulations in 2019 to enforce governments and the industry. activities of the new law. While the primary objective was relatively clear, regulating the provision of all credit, including activities of non-deposit taking microfinance Given the millions of products that have been sold over service providers, the new law and regulations proposed the last decade, concerns on the appropriate handling to treat all entities affected as financial institutions. An and disposal of e-waste have emerged for governments, analysis of the Tanzanian regulations indicated that development partners and the broader industry. Over the OGS sector players whose core business could include last two years, several countries have sought to strengthen the development, import and sales of OGS products in their existing waste management laws and regulations to addition to offering PAYGo solutions to customers, would introduce or enhance extended producer responsibilities be treated as financial institutions and require additional 447 World Customs Organization (2022), Amendments Effective from 1 January 2022. 448 GOGLA consultations. 127 and address current e-waste management challenges, including from OGS. For example: 7.6 Quality Standards • Kenya signed into law the Sustainable Waste Management Act in July 2022, and has developed the Extended Producer Responsibility (EPR) regulations covering electrical and electronic equipment that is Countries have increasingly adopted currently under stakeholder review. the International Electrotechnical • Ghana has developed a National Electrical and Commission (IEC) quality standards for Electronic Equipment (EEE) Management and Control solar energy kits but capacity constraints Policy with the objective of establishing an e-waste disposal and to collect and recycle waste in Ghana. hinder effective enforcement. • Tanzania reviewed its 1997 National Environment Policy. Among policy gaps addressed is the inclusion of Protecting consumers from the negative impacts of bad a dedicated section on management of Electrical and quality products remains a concern. Low-quality products Electronic Equipment waste. can harm consumers, the environment and the off-grid market. Purchasing a product that breaks easily can waste • Nigeria reviewed its 2011 E-Waste Regulations in 2021 customer savings, create additional e-waste and erode to incorporate stand-alone solar products and to confidence in OGS technologies. This can have a knock-on mandate that end-of-life management of all OGS waste impact on sales of OGS by companies that are producing must be dealt with through a Producer Responsibility high-quality products, potentially slowing the pace of Organization specifically authorized to collect it. electrification. Companies will increasingly need to plan for e-waste To protect customers from low quality OGS products, the regulation and build it into their operational plans World Bank Group’s Lighting Global program developed and processes. It also creates space for innovation and quality standards for solar kits to drive up, and maintain, strategic partnerships with other parts of the electronics a base level of quality within off-grid technologies (see sector, due to the current lack of e-waste infrastructure in Box 23). These were integrated into the globally recognized countries with high electricity access deficits. For example, International Electrotechnical Commission (IEC) standards only a few countries in sub-Saharan Africa (including in January 2021. The process for national standards bodies Rwanda, Nigeria, Kenya and South Africa), have e-waste to adopt standards for solar energy kits has consequently management facilities that are equipped to handle end- improved and created greater uptake. Ethiopia, Zambia, of-life products from off-grid solar, and cross-boundary Uganda, Zimbabwe, Sierra Leone and Senegal have fully movement is expensive and complex. adopted the IEC standards and Nigeria has adopted national standards that are harmonized with the IEC. Tanzania and Papua New Guinea are in the final stages of adopting the IEC standards, while DRC has begun the process. China has adopted the standards on a voluntary basis. In addition, the standards are being used as a measure to ensure quality within a number of intervention programs. Box 23: VeraSol Quality Assurance program Launched in 2020, VeraSol is an evolution of the IFC-World Bank Lighting Global quality verification and assurance program. Verasol’s current activity areas include: 1. Expansion beyond lighting and solar home systems, with specific QV categories for off-grid solar appliances and for productive use technologies previously under Equip data, including solar water pumps, refrigerators, fans, TVs and electric cookers 2. Continuing work with upstream manufacturers, standards authorities, and testing laboratories in China, to increase voluntary adoption of quality standards on the supply side 3. Integration of the VeraSol quality standards with the internationally recognized IEC test standards, and leveraging this to facilitate adoption of the VeraSol/IEC standards into national regulation on the demand side 4. Providing support to governments in adopting and implementing OGS standards 128 Off-Grid Solar Market Trends Report 2022: State of the Sector The IEC has adopted Lighting Global Quality Standards for solar lanterns, multi-light systems and solar home system kits with PV modules rated up to 350 Wp (IEC TS 62257-9-8).449 This is a foundation for quality in the OGS sector. VeraSol evaluates products against the newly adopted IEC quality standards and products that meet the IEC quality standards are deemed VeraSol verified. All certified products are recorded in their central database: data.verasol.org450 Despite the increased adoption of quality standards While efforts to protect customers from low quality for OGS products, several challenges hinder effective products are key, it is worth noting that recent research implementation. These include: on consumers’ experiences with off grid solar products in Kenya found that some cheaper non-quality verified • Limited capacity of standards authorities to enforce: solar lanterns and home systems still provide a relatively Ensuring compliance to applicable standards requires high level of service. However, the study also found that, adequate infrastructure and capacity to undertake for many other non-quality verified products, the lower cost market surveillance and enforcement activities. also translates into a lower level of durability, reliability • Standards are not tied to fiscal incentives in a majority and/or output; with significantly higher proportions of of countries: A few countries, including Madagascar, non-quality verified solar lanterns (19%) and SHS (31.3%) Malawi and Senegal, currently provide VAT or duty breaking down compared to quality verified ones (9.2% and exemptions on quality compliant products, effectively 8.9%, respectively). Non QV products also lacked meaningful lowering the price for consumers. However, such warranties and any recourse to replacement, aftercare or measures to encourage the import and sale of quality complaints processes. Further studies to develop a better verified products have not yet been widely adopted. understanding of these products, which are often developed and deployed outside the affiliate market, could help to • Introduction of bespoke standards: In some countries, uncover insights on affordability and customer-choice. standards authorities have chosen to introduce national standards that are not aligned with international standards. In India, solar energy kits must conform to national testing standards and certification procedures, not aligned to the IEC standards; while in Rwanda products need to comply with ministerial Although PUE technologies are in early guidelines that provide additional requirements to the technology and market development IEC standards. This has resulted in product redesign stages quality standards are emerging for and additional transaction costs for off-grid solar solar water pumps, cooking and cooling companies, which are passed on to end users. appliances. • Standards applied inconsistently to OGS products: In some countries, international standards are required for some products but not others. For example, in India, Although PUE technologies are at an earlier stage of enforcement of standards do not cover the full range of development, with wide variations in their technology off grid technologies, as products less than 20 watts are configurations and a more limited availability of exempt from testing certificates. performance data, the development of international There has been progress in the development of quality standards, Minimum Energy Performance accompanying measures to enforce compliance to Standards (MEPS) and test methods for some PUE quality standards. For example, a joint initiative by the technologies are underway. For example: International Finance Corporation (IFC), VeraSol and ACE • Under the VeraSol Program, quality standards for TAF between 2020 and 2022 built the capacity of market refrigerators are currently under public review, while surveillance solar test laboratories by training personnel test methods for solar water pumps and pressure and upgrading lab equipment in Zambia, Nigeria, Kenya cookers are available.451 and Ethiopia. However, capacity building and surveillance infrastructure in other regions is still needed to ensure that • India is also developing its own test methods for solar quality products are reaching consumers and providing water pumps. reliable electricity access. • The UN Environment Program’s (UNEP) United For Efficiency (U4E) Initiative is also in the process of 449 World Bank, Lighting Global (2020),Summary of Requirements in IEC TS 62257-9-8:2020. 450 VeraSol (2022), Product Database. 451 VeraSol (2022), Draft Quality Requirements for VeraSol Certification of Off-Grid Solar Refrigerators. 129 developing model regulation guidelines designed to The PV module supply chain has multiple steps that are help governments with the deployment, adoption spread across multiple locations and many companies. and enforcement of energy efficiency regulations for refrigerators. These guidelines contain essential elements, including product scope, definitions, test methods, minimum efficiency levels and a set of minimum performance requirements. They are As the industry grows there is pressure to accompanied by market surveillance measures to ensure consumers can purchase quality efficient improve the sustainability of the supply products with confidence. chain through increased transparency of solar PV module manufacturing. • MEPS for energy efficient cooling appliances are at different levels of implementation. In February 2021, out of the 21 countries in the South African The forced labor concerns center around the first step in Development Community (SADC) and East African the chain; the approximately 45% of the world’s solar- Community (EAC) regions, four countries including grade polysilicon supply that comes from manufacturers Kenya, Mauritius and South Africa had mandatory MEPS in Xinjiang. Off-grid solar manufacturers buy a finished in place and three (Uganda, Rwanda and Seychelles) PV module from a supplier – none of which are based in had voluntary MEPS for refrigerators.452 Xinjiang. It is, however, virtually impossible to track the U4E, in collaboration with the East African Centre of provenance of materials from source to finished product Excellence for Renewable Energy and Efficiency (EACREE) due to the complex supply chain and lack of traceability.454 and SADC Centre for Renewable Energy and Efficiency A group of 12 multilateral development banks, led by the (SACREEE) also commissioned market assessment to IFC, is developing more rigorous procurement processes inform the development and adoption of harmonized and a framework for collective action. It is recognised that MEPS and energy labels in EAC and SADC regions. the off-grid solar sector has minimal leverage in the supply Comprehensive quality standards for some earlier-stage chain, representing only 0.06% of the global PV industry.455 PUE products may be premature, as their capacities and Nonetheless, it is expected that additional requirements configurations are still being developed. Guidelines, will be made by development banks in the push for minimum efficiency standards and common test methods increased transparency and traceability. create the foundations to ensure good service to customers and for universal standards in future. National governments are increasingly interested in the potential for job creation, reduction of imports and forex savings that can be gained through local manufacturing 7.7 Supply Chain, Local and assembly or products, including those for the off-grid sector. COVID-19 and the accompanying supply Manufacturing and chain disruptions has raised concerns in the private sector about security of supply, creating an interest in exploring Assembly alternatives for local sourcing or production. Despite this, a 2021 ACE TAF report to explore localizing the supply chain Manufacturing advancements and supply chain in the short to medium term in Nigeria, Ethiopia, Zambia, efficiencies have brought high quality and affordable Tanzania and Rwanda, revealed that the potential for local solar technology within reach for the world’s poorest assembly or manufacturing of OGS products is restricted people. However, the industry has a broader responsibility by challenges including: in sustainability to manage the full range of social and environmental impacts in the supply chain. A particular • Import tariffs that minimize the economic advantages of local assembly. concern is the human rights of workers in the production of PV modules following reports that provide evidence of • Lack of quality standards for locally assembled violations against the Uyghur ethnic group.453 products. 452 U4E (2021), Overview of the Market on Refrigerating Appliances and Room Air Conditioners in East and Southern Africa. 453 Murphy and Elima (2021), In Broad Daylight: Uyghur Forced Labour and Global Solar Supply Chains. 454 The Solar Energy Industries Association (SEIA) – a US industry association of large solar players – has developed a rigorous Traceability Protocol and Buyer’s Guide. This is not appropriate for small companies and the off-grid sector, though offers an insight into what a scaled- down approach may entail. 455 70 MW / 127,000 MW = 0.06%. GOGLA analysis based on data collected for the Global Off-Grid Solar Sales and Impact Reports 2016-2021 and IRENA (2021), World Adds Record New Renewable Energy Capacity in 2020. 130 Off-Grid Solar Market Trends Report 2022: State of the Sector • Lack and/or inefficient implementation of incentives. Several national governments of high energy access deficit countries are striving to address the barriers to the • Uncertainty around off-take of OGS products. local assembly of OGS products, with several initiatives emerging in the past two years. These include: • LAGAZEL’s Benin Zawoue project (see Box 24). While some governments are eager • The Solar Power Naija (SPN) scheme in Nigeria: designed to expand local solar manufacturing capacity and create to increase local manufacturing and 250,000 new jobs. The scheme supports the financing of assembly, the underlying conditions are upstream companies dealing with manufacturing and not yet developed enough to support assembly of off-grid value chain components, such as this in most high electricity access deficit solar panels, inverters, and batteries. countries. • India’s Production Linked Incentive (PLI) scheme: providing an incentive for setting up manufacturing facilities (including for OGS) in India by giving a The report recommends that governments interested direct payment amounting to a 4-6% subsidy on the in establishing local manufacturing take a staged incremental sales of goods manufactured in India. The approach, and ensure that the local base for assembly Financial Budget of India, 2020, includes a specific or manufacture is established before they put in budget for the solar manufacturing sector. place policies to prioritize locally made products. This will avoid delays to electrification efforts due to the • Solar module maker, Faso Energy, in collaboration disincentivization of companies that currently supply with Spanish equipment provider Mondragon, began off-grid technologies and maximize the number of local to manufacture modules at a factory in Ouagadougou, jobs that can be created within the supply chain, including Burkina Faso, with a capacity of 60-100 PV panels per in sales, management, after-sales support and repair (see day. Faso Energy secured about $1.8 million worth of tax Section 3.2.3). exemptions during construction of the $5.8 million facility. Box 24: The Benin Zawoue project: Solar energy kits made in Benin by LAGAZEL Local initiatives can play an important role in developing products and business models suited to local conditions, creating jobs and building local skills, and ensuring sustainable end-of-life processes. The French-African manufacturer, LAGAZEL launched an assembly unit for solar kits in Benin in October 2021. The establishment of this second production unit, after its first plant in Burkina Faso, is part of its objective to set up five manufacturing workshops in Africa within five years to produce a target of more than one million solar products. With an installed capacity of 100,000 units per year, but current target annual production of 20,000 units during the first two years of operation is well within this. 95% of components are imported from France and China, with the latter supplying solar modules and batteries. An investment of $1.1 million in co-financing from the Millennium Challenge Account (MCA-BENIN II) under the Off-Grid Clean Energy Facility (OCEF) and tax exemptions of construction and materials for the plant have been pivotal to project development. To date, the Benin project has contributed to the creation of twelve jobs. LAGAZEL is also looking to source packaging materials and assemble battery packs and solar panels locally. However, despite establishment of this production facility, LAGAZEL still faces challenges of strong competition, at the local level, due to the presence of many cheap products of poor quality. In addition quality certification processes are more suited for bigger manufacturers with centralized production. Small or decentralized producers like LAGAZEL face challenges including lack of access to local facility inspectors, and IEC testing in West Africa adding compliance and certification costs. Regarding PUE technologies, Ecolife in Uganda and brings for tailoring cold rooms to customer specifications. InspiraFarms, Solar Cooling Engineering, Sun Transfer However, it will take years before cooling units including and Soko Fresh in Kenya are also at different stages of compressors and energy components, such as charge piloting pre-design and local assembly of containerized controllers and inverters which are integral parts of a cold component solar walk-in cold rooms for cooling fresh room, can be locally assembled given the high level of agricultural produce. This was driven by the availability of skill required. Stll, this illustrates the potential for some, cheap materials for the containerized structure, the ease lower tech, OGS products or component parts to be locally of construction and the advantages that local assembly assembled in the short to medium term. 131 08 Funding Flows © Power Africa 132 Off-Grid Solar Market Trends Report 2022: State of the Sector KEY MESSAGES • The challenge of reaching the poorest has led to greater focus on funding via results-based financing (RBF) and • The off-grid solar sector has attracted $2.3 billion of an emerging interest in end-user subsidy schemes. To capital to date. The sector is bifurcated in two streams: 7 date, over $211 million has been disbursed or is currently scale-ups that are attracting larger ticket sizes through a disbursing through RBF since 2013 later stage investor base and over 150 companies that are in their seed or start-up phase • New types of capital are coming to market with the potential to scale-up the industry: climate finance, local • The 7 companies in scale-up phase are solidifying their currency, and blended instruments market position through their ability to attract capital, diversification of their investor base and access to • A wide range of financiers (agriculture, climate and increasingly higher ticket sizes infrastructure, among others) have shown interest in productive use of energy (PUE) companies, and although • Investment volumes in start-up companies were the majority of these companies are in the early stages of negatively affected by the pandemic, slowing down their capital attraction, several capital providers are showing growth. Early stage equity and debt remain a critical their willingness to invest barrier to industry growth 8.1 Investment Flows business viability including publicly-funded subsidies. Other emerging revenue streams for the off-grid sector, although largely unexplored, include carbon finance and Companies in the off-grid solar sector finance operations Distributed Renewable Energy Certificates (DRECs). Figure with grant456, debt, or equity financing at different 61 highlights the different investment and revenue streams growth stages. Besides customer revenue, off-grid solar that will be profiled in this chapter. companies also draw on other revenue streams for Figure 61: Investment sources and revenue streams in the off-grid solar sector Investment Sources Revenue Streams Equity Supply Side Subsidies Customer Revenue Subsidies Debt (Sales from units sold End-user to customers) Subsidies Carbon Finance Grant DRECs 456 Notes: [1] Grants are considered an investment and included at GOGLA Investments Database while Subsidies and Results Based Financing (RBF), are considered a market incentive and as such, accounted separately, [2] Grants generally act as a concessional investment stream, and similar to other types of investments such as angel investments or early stage equity, they give the investor/donor a recourse over the company, albeit usually never repaid. Grants should aim at catalyzing more commercial capital and be coordinated with subsequent investors, [3] Results Based Financing (RBFs) are dependent on the verification of sales, acting effectively as a subsidy to the purchase of goods or services delivered by the awarded companies during a period of time within a specifically designated geography to boost revenues for otherwise non commercial markets. This generates revenue for the company for sales they have already delivered or will be delivered in the short term, i.e. the funding comes upon sales / after verification of sales. However, it does not provide pre-sale financing (i.e. investment) like a grant would do, [4] Some new RBF structures are quite similar to grants in timing and use, and some grants are aimed at geographical expansion, which makes the difference between some RBFs and grants blurry. 133 In 2021, the off-grid solar sector surpassed $2 billion in according to the GOGLA Investment Database (see total financing commitments since 2012 (equity, debt Box 25). From 2016 to 2020, the industry saw yearly and grant). Investment volumes grew by 44% from 2020 investment volumes plateauing between $300 million to 2021, a strong return to growth after five years of flat and $350 million, before reaching $457 million in 2021, annual investments. mainly driven by debt financing raised by industry’s largest companies (Figure 62). Although not tracked in the From 2012 to 2021, the off-grid solar sector raised $2.3 investments database yet, 2022 is set to be another record billion in external capital in debt, equity, and grants year in terms of investment volumes. Figure 62: Investment amount by investment type 500 10 400 119 4 14 17 7 29 USD (in millions) 300 123 110 132 80 8 177 200 326 117 228 100 205 6 179 172 3 6 125 44 82 14 8 0 2 2 23 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 Debt Equity Grant Box 25: GOGLA Investments Database The GOGLA Investments Database was launched in 2017 to showcase investment trends in the off-grid solar industry. The database contains equity, debt and grant commitments reaching companies since 2012 and is updated every 12 months using information shared by industry respondents in interviews, and/or publicly announced deals in press releases, news reports and research reports.457 The GOGLA Investment Database includes data shared primarily by affiliate investors, companies and development partners.458 The affiliate market has good coverage of household solar, including cash sale and PAYGo market in Africa. South Asia and China are least represented. OGS companies are bifurcating into two streams: players million each), and over 150 companies that are in their that are attracting the biggest share of the funding, seed or start-up phase (attracting up to $100 million). 72% described as scale-ups, and companies that are in their of current industry investment has been directed to the 7 seed or start-up stages that have attracted significantly scale-ups, with the remaining 26% directed to the other less capital. GOGLA Investments Database tracked 7 150 companies in the database.459 companies in the scale-up phase (attracting over $100 457 Only direct commitment transactions to companies are tracked in the database and not funding towards industry funds. 458 For more information, please see: https://www.gogla.org/access-to-finance/investment-data 459 The remaining 2% could not be assigned to companies due to confidentiality. 134 Off-Grid Solar Market Trends Report 2022: State of the Sector 7 companies in scale-up phase460 • Bboxx • d.light The 7 companies in scale-up phase are solidifying their market position • Engie Energy Access461 through their ability to attract capital, • Sun King diversification of their investor base, and • Lumos access to increasingly higher ticket sizes. • M-KOPA • ZOLA Figure 63: The 7 scale-ups - historical investments (equity, debt and grant) 350 300 10 70 250 12 USD (in millions) 200 4 6 157 70 107 18 3 150 97 81 243 100 176 153 131 50 103 75 82 0 2015 2016 2017 2018 2019 2020 2021 Debt Equity Grant In the last two years, the 7 companies in their scale- financing vehicle in local currency that is dedicated to up phase have expanded their consumer portfolio in acquiring PAYGo accounts receivables from d.light’s Kenya established markets through large debt transactions subsidiary.462 In 2022, d.light announced a $238 million (Figure 63). These companies have been able to access expansion of this vehicle, with multi-currency financing innovative debt financing structures, such as Special over a two-year commitment period to expand to other Purpose Vehicles (SPVs), which provide off-grid solar African countries.463 companies with flexible capital to finance continued Another important trend among the 7 scale-ups is growth and allow companies to focus on operations the use of syndicated structures between commercial rather than financing. The most prominent case of this lenders and DFIs for local currency denominated deals. type of financing in the last two years was led by d.light, Syndicated deals among DFIs and banks act as a risk- with over $127 million raised via an off-balance sheet 460 The criteria to classify companies into start-up or scale-up is exclusively the total volume of investments attracted until 2021. Some of the companies in the 7 scale-ups might have different business models and paths to scale going forward. 461 Includes investment volumes of its acquired companies historically. 462 Norfund (2021), Press Release BLK-1. 463 The 2022 expansion is not included in the Investment Database yet. 135 mitigating mechanism to effectively de-risk commercial capital for the sector. In 2021, Sun King announced one of the largest ($75 million) syndicated sustainable finance deals in the region to be provided in local currency.464 Investment volumes in start-up Equity volumes for the 7 scale-ups did not grow companies were negatively affected by comparably to debt in 2020 and 2021 (Figure 63), as COVID- the pandemic, slowing their growth. 19-induced uncertainty negatively affected company valuations and due diligence processes. Nevertheless, the 7 scale-ups seem to have overcome the pandemic and are The sector can also expect secondary equity exits or reporting net profitability at the group levels465 (see Chapter subsequent large equity raises from the 7 scale-ups.466 5). This is likely to unlock new, large equity raises which This will increase the confidence of other late-stage will help them expand into new markets and reach greater investors, proving the sector’s equity returns multiples, numbers of consumers in the coming years. Consequently, and making capital available for the industry from early established companies may grow faster, and more stage financiers. The recent exit by Apis Partners from Sun consolidation is likely to take place. The large equity raise by King is an example of this (see Box 26).467 Sun King in 2022 reflects this trend (see Box 26). Box 26: Sun King raises $260 million in equity in 2022468,469 Sun King (formerly Greenlight Planet) raised $260 million in series D funding in 2022, marking a new record investment in the off-grid solar industry. The funding round was an example of private venture capital and climate aligned financing entering the industry, led by a private equity and climate-aligned investor, BeyondNetZero, the climate investing venture of General Atlantic. As a result, former investor Apis Partners could partially exit its position. Sun King plans to use the equity raise to expand its presence geographically and introduce larger products to its portfolio capable of powering appliances like refrigerators. COVID-19 negatively affected the volume of investments mature markets would be needed.471 Start-up companies in start-up companies (Figure 64), slowing their growth. report that accessing equity capital has been challenging, In 2020, the volume of debt towards start-up companies resulting in some being over leveraged, and others facing decreased, substituted by larger volumes of equity and business difficulties. dominated by convertible debt deals, that translated into Lack of early stage equity has resulted in the stifled growth larger equity raises in 2021. In 2021, levels of debt bounced of many companies. This is a barrier to the expansion of off- back, but have not yet reached pre-pandemic levels.470 grid solar in new markets; as equity, grants, or output based The number of companies accessing equity in the last incentives, such as results based financing, are generally two years has remained relatively constant (Figure 65). best placed instruments for market expansion (see Chapter Nevertheless, the pace of growth is behind the amount 5 Market Landscape). However, the renewed confidence required to accomplish universal electrification. In 2018, from investors in the 7 scale-ups could yield positive effects a Shell Foundation study estimated that to achieve SDG7 for start-up and growth-stage companies. Early stage capital energy access goals, around 300 OGS companies raising could be released via secondary sales proving that the significant equity and operating in both emerging and industry is viable and is poised for growth in multiple markets. 464 Standard Bank Group (2021), Standard Bank Group, Citi, Norfund, $75 Million Sustainability Link Facility. 465 GOGLA consultations. 466 GOGLA consultations. 467 Apis Growth Fund (2022), Apis Growth Fund I partially Exits Position in Sun King. 468 TechCrunch (2021), Sun King Raises $260 Million to Widen Clean Energy Access in Africa, Asia. 469 This deal is not included in the Investment Database yet. 470 Note: A large share of relief funding recipients were unknown. Hence, they are not included in this graph. Relief funding totaled $31 million in 2021. 471 Shell Foundation (2018), Achieving SDG7: The Need to Disrupt Off-grid Electricity In Africa. 136 Off-Grid Solar Market Trends Report 2022: State of the Sector Figure 64: Investment trends in seed start-up and growth companies (equity, debt and grant) 140 4 120 24 9 4 51 100 USD (in millions) 15 80 50 4 60 62 3 39 40 81 78 1 19 52 20 19 26 20 27 0 6 2015 2016 2017 2018 2019 2020 2021 Debt Equity Grant Figure 65: Number of companies receiving equity per year (per ticket size) 35 1 30 2 3 2 25 Number of companies 10 7 20 11 5 3 15 6 4 5 10 10 6 18 17 2 12 14 5 4 5 3 11 6 7 3 2 3 1 0 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 $0-1m $1-10m $10-50m $ >50m Only start-up and seed companies received grant capital local and productive use of energy (PUE) companies. Out in 2021, illustrating that grant makers are shifting of $10.2 million grant capital provided in 2021, $7.7 million their attention away from companies in their scale-up was assigned to PUE and almost half of the capital was phase.472 The recipients of grant financing were largely dedicated to locally-owned and managed companies. 472 Note: Grant capital excludes results based financing schemes. 137 Box 27: Locally-owned and managed companies Locally-owned and managed companies are seeing more donor and investor interest. 50% of the total volume of grants and 10% of the total volume of equity tracked by GOGLA Investments Database was raised by local companies in 2021. Some locally-owned companies have key roles as distribution partners. A Global Distributors Collective (GDC) study473 describes two types of distributors: Faster-growth last mile distributors (LMDs) that seek market leadership, rapid scale and/ or international expansion and finance their growth via equity; and Slower-growth LMDs that pursue profitability before expansion and finance themselves mainly with grants and debt. There are multiple donor and investor initiatives that have a specific focus on locally-owned companies. For example, a group of industry capital providers and development partners, the Household Solar Funders Group, designated access to finance for local companies as one of their three top priorities. Industry initiatives to enhance investor readiness of locally-owned and managed companies have also launched, such as GET.invest Finance Readiness support and GOGLA’s ELEVATE; several industry investors have also included supporting local companies as priority in their investment thesis.474,475 Box 28: Relief funding in the off-grid solar industry during COVID-19 Several initiatives have been launched to alleviate the effects of the pandemic, targeting seed and start-up companies. In December 2020, The African Development Bank (AFDB) launched the COVID-19 Off-Grid Recovery Platform (CRP).476 The $20 million concessional investment provided relief and recovery capital to energy access Acumen (2021), Coalition Launches Energy Access Relief Fund. businesses, anchored in a partnership with three specialized energy access fund managers: Triple Jump, Lion’s Head Global Partners, and Social Investment Managers and Advisors (SIMA). The $20 million concessional envelope was blended with the fund’s own capital and instruments, leveraging $30-$40 million in complementary commercial funding, enabling more affordable debt products. In September 2021, the Energy Access Relief Fund (EARF), a $68 million fund, was launched with the aim of providing relief funding to start-up and growth-stage companies in the industry in the form of short-term, unsecured, highly concessional loans.477 The EARF targeted around 100 African and Asian energy access companies that are struggling with disruptions caused by the lingering effects of the pandemic. Some country-level initiatives were also launched to provide relief initiatives, such as the AECF REACT Fund, that provided emergency grants of $50,000 –$200,000 to MSMEs in Kenya. companies to expand into new markets and grow their portfolio of customers. In time, this increase in scale may translate into increased operational efficiencies and economies of scale, which will drive down system costs More consolidation is expected as a result and accelerate electricity access. of a maturing sector. Industry insiders expect that the next wave of consolidation will not come from big energy conglomerates, but from market leaders acquiring Investors in the sector believe consolidation in the smaller companies to expand their consumer base or industry is inevitable.478 Some commentators have geographical reach, or from growth-stage companies expressed the belief that such consolidation is the natural merging amongst themselves. Acquisitions in the sector evolution of a young sector and will be beneficial, allowing among start-up and scale-up companies have taken 473 Global Distributors Collective (2021), The Growth and Fundraising Journeys of Last Mile Distributors (LMDs). 474 GET.invest (2021), GET.invest Launches Pilot of Finance Readiness Support to Unlock Financing for Clean Energy Companies. 475 GOGLA (2021), ELEVATE, Supporting the Next Generation of Off-grid Solar Companies. 476 AfDB (2020), African Development Bank Launches $50 Million Facility to Support Energy Access Companies. 477 Acumen (2021), Global Coalition Launched $80 Million Relief Fund to Protect Energy Access in Vulnerable Communities from COVID-19 Fallout. 478 GOGLA consultations. 138 Off-Grid Solar Market Trends Report 2022: State of the Sector place, sometimes as a result of companies facing business interest from grant-makers in supporting the expansion of difficulties or operating in mature markets with more this segment in the coming years. However, affordability of aggressive competition. In 2022, the first big acquisition PUE products remains an issue for uptake and scale, and from one of the 7 scale-ups took place, with the acquisition more incentives such as supply and demand-side subsidies of PEG Africa by Bboxx, proving that market leaders can are being explored (see Section 8.2.1). use acquisitions for geographical expansion.479,480 Earlier acquisitions, such as Mobisol by Engie in 2019, have helped to allay investor fears that assets could be stranded by consolidation. Almost 10% of the total volume of Productive use of energy (PUE) companies are in the early stages of the capital continuum, and attracted 9,8% of the investments in 2021 ($44.9 million) was total volume of capital in 2021 ($44.9 million). Of this, $21 invested in PUE. Of this, $21 million equity million was directed to start-up or growth-stage companies. was directed to start-up or growth-stage PUE companies can attract a wide pool of financiers due to companies. the technologies' clear links to agriculture, infrastructure and climate adaptation and resilience. There is also strong Box 29: PUE focused companies capital raises in 2020 and 2021 SunCulture is leading the way in capital attraction for PUE. The solar water pump company has attracted around $27 million debt and equity to date.481 Its $14 million Series A round in 2020 was led by Energy Access Ventures, and joined by Électricité de France (EDF), Acumen Capital Partners (ACP) and Dream Project Incubators (DPI). A subsequent $11 million debt facility was led by SunFunder in 2021.482 This was groundbreaking for the sector, due to its size and its combination of working capital and end-user financing. The company has also participated in Government subsidy schemes: in 2020, SunCulture was part of the CIZO cheque subsidy in Togo, where the Government provided a 50% subsidy to halve the cost of solar-powered farming and irrigation systems for 5000 farmers.483 Many other PUE companies are in the earlier stages of funding attracting equity; Bonergie Irrigation attracted $2.4 million to scale-up access to solar-powered irrigation solutions in Senegal from Infraco Energy in 2021.484 Oorja, a solar-powered irrigation, milling and cooling company in India also raised a $1 million seed funding round, with equity investment from Schneider Electric Energy Access Asia (SEEAA).485 Another example is Simusolar, a distributor focussed on PUE which raised $1.5 million from ElectriFi to strengthen operations in Tanzania and Uganda. additional revenue streams for OGS companies are 8.2. Additional Revenue subsidies (results-based financing and end-user subsidies). Nevertheless, climate mitigation financing tools such as Streams carbon financing and Renewable Energy Certificates (RECs) have started to emerge as alternatives and could be key A significant financing gap, coupled with the low to de-risking companies' portfolios, boosting investor purchasing power of off-grid solar customers, has confidence and effectively subsidizing consumers. popularized the development of additional income streams for off-grid solar companies that can help shore up revenues for business viability. The most popular 479 Previous acquisitions in the sector were made by large energy companies such as Engie. 480 Bboxx (2022), Bboxx Consolidates its Market Leading Position by Acquiring Solar Energy Front-runner PEG Africa. Link: https://www.bboxx. com/news/bboxx-consolidates-its-market-leading-position-by-acquiring-solar-energy-frontrunner-peg-africa/. 481 GOGLA Investments Database. 482 SunFunder (2021), Groundbreaking $11 Million Syndication for Sunculture to Expand Solar Irrigation. 483 ESI Africa (2020), Partnership Cultivated to Deliver Solar Powered Farming in Togo. 484 Power Engineering International (2021), Solar Powered Irrigation Systems Take Off in Senegal. 485 Oorja Solutions (2021), Oorja Raised $1 Million Seed Funding. 139 8.2.1 Subsidies while a pay-for-water model is used to recoup the balance (40%) and to pay for ongoing maintenance. The initiative, Interest in using results-based finance (RBF) schemes to implemented by the World Bank’s Global Partnership for reach consumers and scale markets continued to grow. Results-Based Approaches and supported by SIDA and Of $211 million that has been disbursed or is currently the Dutch Government, has been designed to mirror the disbursing to the sector through RBFs since 2013, over current price that villagers are paying for water and uses $100 million came on stream in 2020 alone (see Table 4). mobile money technology to enable payments.488 This The results show that a relatively low level of investment keeps costs stable for villagers but helps to partially fund can help to create significant impact. This is demonstrated the switch to a more sustainable water supply. in the case study on Nigeria (see Section 5.1). The success However, while RBFs can be particularly valuable in of RBFs is expected to lead to an expansion of this type of driving energy access, they have not been without financing in the years ahead. challenges. For example, the verification process for RBF schemes can be complex and challenging to implement. This has led to delays in companies receiving financing in some cases, with knock-on impacts on financial planning.489 Concern around late payments has been cited The challenge of reaching the poorest as a deterrent by some smaller companies that have opted customers has led to greater focus on not to take part in current schemes, as they are not as well placed as larger companies to withstand a delay to funding via results-based financing and expected cash flow. In 2021, EnDev, a leader in the design an emerging interest in end-user subsidy and implementation of RBFs in the OGS sector, launched schemes. a report to share lessons from its RBF programs in 14 countries.490 Amongst other insights, EnDev highlighted that having a deep understanding of market barriers to RBFs are being designed to meet a growing range of appropriately design an RBF and having a clear business objectives. As well as broad market stimulation for proposition that will enable companies to understand quality-verified OGS products, RBFs are being used to how schemes can be integrated into their operational meet a number of other goals. For example, the KOSAP and financial planning, are key to their success. However, Program is designed to reach specific marginalized there is little data available on the different RBF designs customer groups (see Section 7.2) while Global Leap and their long-term impacts. Greater analysis of the RBFs have been developed to drive uptake in emerging challenges, limitations and breadth of impacts created by technologies.486 RBFs are also partnered with other RBFs is needed to continue to improve their design and public funding mechanisms so each mechanism can be implementation. targeted at the market barrier or objective it is most able to address. A common concern is that RBFs are more attractive to larger actors and that, as payments are only paid on results, smaller companies do not have the upfront finance to participate. RBFs such as the BRILHO scheme in Mozambique have therefore been teamed with catalytic grant finance to make it easier for smaller companies to take part in the initiative.487 As the sector develops, continued innovation is expected. © Power Africa Results-based approaches are also being piloted to increase the use of OGS in public infrastructure. For example, a pilot in Tanzania is exploring the subsidization of community solar-powered clean water pumps. The cost of the village system is paid for through a grant (60%), 486 Global LEAP RBFs, implemented through the Efficiency for Access Coalition and managed by CLASP, aim to catalyze the uptake of high-quality, super-efficient appliances. 487 For more information, please see https://brilhomoz.com/ 488 The Global Partnership For Results-Based Approaches (2020), Closing Gaps and Financing Taps: The Next Step for Rural Water Supply. 489 GOGLA (2021), How End-user Subsidies Can Help Achieve Universal Energy Access. 490 EnDev (2021), Transforming energy access markets with Results-based Financing. 140 Off-Grid Solar Market Trends Report 2022: State of the Sector Table 4: Results Based Financing funds491 Fund Name Amount Donors Implementing Target countries Period Products committed Agency Beyond the $36.2 million Sida, BMZ, NEFCO & Burkina Faso, 2021- 2026 SHS Grid Fund for Danida REEEP Liberia, Zambia, Africa Uganda EnDev/SNV $31.1 million UK Aid, GIZ, EnDev, SNV, Benin, Rwanda, 2013-2024 SHS, solar lanterns, Facilities SDC, USAID, CLASP Tanzania, Kenya, multi-light systems, BMZ, IKEA Bangladesh, solar street lighting, Foundation Uganda, solar water pumps, Mozambique refrigerators, fans, TVs Various $142.5 World Bank Several Madagascar, Kenya, 2019-2027 SHS, solar lanterns, government million Rwanda, Nigeria, multi-light systems access projects DRC, Yemen, Haiti supported through the World Bank USAID Funds $1.7 million USAID Power Africa, Malawi, Kenya, 2019-2021 SHS, solar Powering Tanzania, Uganda, water pumps, Agriculture Zambia refrigerators, fans, TVs, electric pressure cookers A better understanding of the growing affordability gap install 1170 solar pumps, covering 75% of the cost.493 The has also led to increasing interest in end-user subsidies grant is additionally being used to establish workshops (EUS). An EUS directly reduces the cost of a product for a to maintain the pumps and a pump testing laboratory consumer and is designed to specifically help those on very to provide certification and training. These schemes are low incomes access off-grid products. EUS may be applied designed to enhance agricultural communities, increase to the off-grid product price directly by the company, food security and reduce CO2 emissions by replacing diesel which then receives a grant to make up the difference, or water pumps. The comparatively high cost of solar water customers may get a voucher or direct cash transfer to pumps, as well as other PUE solutions, suggest that EUS help them buy a product. Amongst others, the Pro-Poor and other innovative schemes will be needed to drive scale RBF pilot program in Rwanda supported by EnDev, and the and access to these technologies. Togo CIZO program, supported by the AfDB and EU, have The introduction of EUS into the market is likely to proven successful in reaching low income households. This have a significant impact on investment in the off- success has been translated into nationwide scale up of grid sector, through an uptick in public finance and the pilots.492 The ESMAP/Lighting Global program is also a knock-on impact on commercial finance. This is supporting the development of end-user subsidy programs particularly the case where very specific targeting of in several other countries, as part of larger World Bank poor households is not easily feasible, and where EUS lending programs, including in DRC, Niger and Nigeria. are being applied to all products and services. However, A number of EUS schemes for solar irrigation are also while the risk that EUS could make some markets less being implemented and explored. For example, the commercial remains, they also have the potential to open KUSUM scheme in India is a frontrunner (see Box 9), while up fragile, conflict and violence (FCV) affected markets the second phase of the CIZO scheme in Togo has been and reach new and more vulnerable customer segments, expanded to incorporate solar water pumps. The AfDB also creating more opportunities for investment in the long provided a grant to the government of South Sudan to help term. EUS may also be needed to unlock markets and 491 This overview includes RBFs that have disbursed funds, are currently disbursing, or will start disbursing before 2023. The full amounts are disbursed to companies and do not include programmatic costs. 492 The scale up of the Pro-Poor RBF in Rwanda is funded by the World Bank. 493 AfDB (2019), Sudan: African Development Bank Approves $21.783 Million Grant for Roll Out of Solar-Powered Irrigation. 141 investment opportunities for larger, more expensive, benefit. Nevertheless, some companies are benefiting from PUE technologies, where affordability for lower income this financial mechanism. For example, Namene Solar, customers is already a well documented barrier. an off-grid solar distributor, has achieved Gold Standard certification for projects in Zambia and Namibia.494 8.2.2 Climate Mitigation Carbon Financing also creates an opportunity for new service providers. One such organization, Solstroem, is Financing already simplifying the process for off-grid solar companies to access carbon financing by aggregating and generating micro-credits for companies directly, avoiding the high transaction costs implied for smaller companies. Several market barriers have prevented The D-REC Initiative provides another example of how off- the realization of the full potential that grid solar companies could benefit from climate financing. Distributed Renewable Energy Certificates (D-RECs), carbon markets offer for off-grid solar. are certificates representing one kilowatt-hour (kWh) of However, the industry is starting to see electricity that has been generated from a distributed positive developments. renewable energy source (or multiple sources). These certificates allow renewable energy project developers to certify every kWh of electricity their projects generate. The Some companies are beginning to tap into the voluntary initiative will use open source technology to measure and carbon markets to monetise their greenhouse gas (GHG) verify the electricity produced from the underlying projects, emission reductions. Yet, this opportunity is currently then issue and certify D-RECs to capture the positive limited by several market barriers. These include the environmental attributes associated with that generation. complexity of regulatory compliance with carbon markets, Renewable energy providers will then monetize these the high transaction costs for companies, and the fact that, D-RECs by selling them to corporations that can then use using current methodologies, off-grid solar projects yield them in their sustainability reporting. However, this initiative relatively small amounts of emission reductions when is currently pre-pilot and it is yet undefined how off-grid compared to utility-scale renewables, meaning that the solar companies may benefit from it. cost to generate carbon offset could exceed the economic Box 30: Climate-aligned financing in off-grid solar Climate-aligned financiers have started to realize the potential of off-grid solar for climate mitigation, adaptation and resilience; and are gradually becoming involved in the sector. The Green Climate Fund, the largest global fund dedicated to help fight climate change, is supporting several initiatives in the off-grid solar sector, including the Energy Access Relief Fund, KawiSafi Ventures, and most recently the $171 million contribution to the AFDB’s Leveraging Energy Access Finance Framework (LEAF) program. In 2021, Sun King received the first Green Bond of the industry, issued by Symbiotics.495 The promise of an increase in adaptation finance at COP26 is an opportunity for the off-grid solar industry. In 2019/20 less than 10% of climate financing went to adaptation, with the majority of funds going to large infrastructure projects in developed and middle-income economies.496 COP26 pledged $100 billion per year in climate finance by 2023, and a promise from the investment community of greater equity for developing countries and parity for adaptation funding. Access to electricity from OGS products can help people adapt and become more resilient in a variety of ways, including income diversification and access to digital services. Beyond this, appliances such as solar water pumps help smallholder farmers increase crop yields and profitability while adapting to unpredictable rainfall patterns; cold chain technologies strengthen agricultural value chains, enhance food security and support health interventions; and access to radios and mobile phones helps disseminate climate information and early warning systems. A framework for how OGS is supporting adaptation and resilience is currently absent, but could lead to improved performance and unlock pathways to climate financing. Unlike avoided CO2 emissions, metrics for adaptation need to allow for context- specific outcomes. A measurement framework should be flexible, realistic for company implementation, local, focused on 494 Namene Solar (2021), Climate Projects Namene Solar. 495 Symbiotics Group (2021), Symbiotics Launches $15 Million Green Bond. 496 Climate Policy Initiative (2021), Global Landscape of Climate Financing. 142 Off-Grid Solar Market Trends Report 2022: State of the Sector end-users, and go beyond financial and output-based measurements. Existing frameworks such as the Race to Resilience metrics, International Climate Finance KPIs and BFA’s Digital Finance for Climate Resilience can be used as a basis from which to develop sector-specific metrics that meet the criteria outlined above. New climate focussed challenge and grant funds relevant for the sector are also emerging. These include the recently launched GSMA Innovation Fund for Climate Adaptation and Resilience, the Dutch Fund for Climate and Development, EEP Africa and Africa Adaptation Acceleration Program. Such funds serve as entry points for the OGS sector to access climate funding and support industry efforts to develop a framework and demonstrate impact. As they act as aggregators for investors with different 8.3 Sources of Capital risk and impact profiles, they represent an easier point of entry for investors unfamilliar with the sector, more risk averse, or unable to make direct investments in the 8.3.1 Capital Provider Trends industry. The potential success of specialized industry funds in diversifying their investor base and attracting climate-first and institutional investors could be a game changer for the industry’s financing landscape. The size of specialized funds could significantly increase if bilateral Specialized industry funds will be key to donors, DFIs, foundations and other junior lenders create a base for greater numbers of senior lenders to step in via crowding-in and de-risking institutional first-loss layers of capital and guarantees (see Box 31). The and climate investors in the OGS sector. role of industry’s specialized funds is also relevant to reach companies with smaller ticket sizes. The Energy Access Relief Fund, SIMA-Angaza Distributor Fund and Acumen Specialized industry funds have already played a key Fund are good examples of this. role in the financing of off-grid solar and PUE companies. Box 31: $500 million Gigaton Empowerment Fund by SunFunder One of the industry’s main fund managers, SunFunder, is raising funds for the $500 million Gigaton Empowerment Fund, which aims to improve energy access for over 10 million people and reduce more than 18 million tons of CO2e. The Gigaton fund is focussed on attracting institutional investors as senior lenders, and has recently been shortlisted by the UN-convened Net-Zero Asset Owner Alliance, a group of 60 institutional investors with $7 trillion Assets Under Management. Such a step from institutional investors would be significant for the financing landscape of the sector. makers. There are many industry specialized funds where foundations and philanthropies have acted as first-loss investors. A recent example is the Energy Access Relief Fund; where Shell Foundation, Ikea Foundation and the Rockefeller Foundations have continued playing a Foundation, alongside ESMAP and the IFC, participated catalytic role, mainly acting as anchor providing first loss layers or highly concessionary funding, investors of sector specialized funds. which helped the fund to launch and catalyze engagement by other investors with lower tolerance to risk. Some foundations in the industry provided direct Foundations are key players in the energy access space grant financing to companies. A recent example is the as drivers for additionality497, acting as risk mitigators to partnership between Shell Foundation (SF) and U.S. crowd-in other investors, both in their role as investors International Development Finance Corporation (DFC) through first loss or concessionary capital tranches in where Shell Foundation has committed to deploy $45 industry’s specialized funds, and through their role as grant million grant funding by 2025 to build a pipeline of start-up 497 Additionality in this case pertains to providing financing where other funders are not willing to venture while prioritizing the follow-on of other investments. 143 and venture stages Distributed Renewable Energy (DRE) join DFC as a senior lender in the BLK1 structure, which companies.498 The role of DFC is to provide early- stage is a local currency impact financing vehicle dedicated to debt and equity to support growth of these businesses for providing d.light’s Kenyan PAYGo SHS business with access further scale. to on-going, flexible and sustainable receivables funding. DFIs, bilateral and multilateral donors have maintained Another role that DFIs and bilaterals have undertaken their commitment and exposure to the sector through has been to provide risk guarantees, which are vital for multiple investment channels and via the creation of new leveraging more sector investments. Guarantees provided funds.499 An example is the Energy Entrepreneurs Growth to the sector take different forms: MIGA provided guarantees Fund (EEGF), which began disbursing equity or capital to to sector funds that invested in Bboxx to address political venture-stage companies in 2021. The EEFG was created and currency inconvertibility risks, while SIDA provided by Shell Foundation, co-funded by UK aid, and the Dutch guarantees to help launch and catalyze investments in Entrepreneurial Development Bank (FMO) and is managed industry funds such as the SET Fund by Sunfunder.504,505 The by Triple Jump.500 The fund completed its first investments European Commission also approved a guarantee for TCX to in 2021 to Yellow and Baobab+. Other examples include the reduce the costs of hedging in 2021.506 Africa Go Green Fund backed by KFW and SunFunder’s SET fund backed by DFC. Crowdfunding platforms are established as a stable source of investment for off- Development finance institution (DFI) grid solar companies at all stages, as an investments and bilateral donors continue easy to deploy instrument. to be critical for the sector, through both direct investments, syndications and Investments through crowdfunding platforms have investments made through funds. remained stable. Their popularity as a quick mechanism to provide flexible financing has been recognized by sector donors and DFIs which are getting involved in the creation DFIs have also continued lending directly to companies. of new structures to resolve market gaps, such as the This is mainly through debt, but also through equity lack of local currency financing. For example, in 2021, the investments such as the $10 million investment made first local currency denominated deal via a crowdfunding from Norfund to Baobab+ in 2021, the $10 million raised platform was realized via a partnership between TCX and by d.light from PROPARCO, and Simusolar’s $1.5 million Lendahand.507 Another example is the €49 million financing convertible debt raise from ElectriFi.501,502,503 agreement provided by KFW to the Clean Energy and Energy Inclusion for Africa Foundation (CEI Africa). This Some DFIs have invested in expanding securitization will provide co-financing and technical assistance to crowd structures for the industry. These include Norfund’s lenders to provide financing for solar lighting, solar home investment in the expansion of d.light’s BLK 1 vehicle in systems, solar-powered mills, solar water pumps, and Kenya by Africa Frontier Capital. The expansion saw Norfund cooling systems.508 498 ESI Africa (2021), Shell Foundation and DFC Collaborating To Accelerate Energy Access. 499 The GOGLA Investments Database tracks lead investors. In 2021, DFIs supported several commercial deals but not with majority stakes. 500 Shell Foundation (2021), Energy Entrepreneurs Growth Fund Announces three new Investments in African Energy Access. 501 Norfund (2021), New Investment Aims to Equip One Million Households with Solar and Digital Products. 502 Proparco (2021), Proparco Supports d.light: A Global Leader in Solar Energy. 503 ElectriFI (2021), Simusolar Secures $1,5 Million Convertible Note from EDFI. 504 Africa Energy Portal (2021), MIGA Guarantees Bboxx Solar Systems in Rural Areas. 505 SunFunder (2021), SunFunder Completes SET Fund. 506 European Commission (2021), A Range of Financial Guarantees to Boost Investment in Africa and the EU Neighbourhood. 507 Lendahand (2021), Financing SMEs in their Local Currency. 508 Triple Jump (2021), Triple Jump B.V., Persistent, and GreenMax Capital Advisors Awarded Management of the Newly Launched Clean Energy and Energy Inclusion for Africa Foundation. 144 Off-Grid Solar Market Trends Report 2022: State of the Sector To date, most commercial debt lending has been also kept their interest in off-grid solar and productive use supported by DFIs. While the need for support from DFIs of energy. For instance, EDF took a 23% stake in Bboxx and impact investors is likely to continue in the near future, Kenya and Canadian Solar invested early stage equity in commercial capital is expected to gain importance as a Solarworx.511,512 funding source. An example is the $75 million syndicated debt facility raised by Sun King in 2021, which was led by Standard Bank Group and Citi, together with CDC and 8.3.2 Investor Confidence Norfund.509 Investors expect the pandemic to be a Commercial debt and equity investors short-term financial setback, and remain have made opportunistic investments in positive in their financial expectations for the sector, signaling a further step in the 2022. maturity of the industry’s big players. Commercial equity investors and strategic corporates COVID-19 negatively affected the financial performance have made opportunistic investments, and are active of companies compared to investor expectations in 2021. partners in driving value. Commercial equity funds are In mid 2020, the early days of the pandemic, only 13% seeing an opportunity to diversify their portfolio with of investors stated that their off-grid solar portfolio was PUE companies, and off-grid solar service providers. underperforming compared to their financial expectations. The $260 million equity raise by Sun King was led by a When asked the same question in 2021, the result was 28%. climate aligned growth-equity investor, BeyondNetZero, Investors expect this trend to be short-term, and remain the climate investing venture of General Atlantic, with bullish in their financial expectations for 2022, claiming participation from M&G Investments’ Catalyst and Arch that performance of their off-grid solar portfolio assets will Emerging Markets Partners.510 Strategic corporations have realign with their expectations in the year. Only 5% advised that they expect their portfolio to underperform (Figure 66). Figure 66: Investor survey 2020 & 2021: How is your off-grid solar portfolio performing relative to your financial expectations? 100% 10 13 90% 3 14 5 5 80% 70% 60% 50% 73 55 82 40% 30% 20% 10% 27 13 0% 5 2020 2021 2022 (Expected) Underperforming In line Outperforming Not Sure 509 British International Investment (2021), Greenlight Planet Secures $75 Million Debt Facility. 510 TechCrunch (2021), Sun King Raises $260 Million to Widen Clean Energy Access in Africa, Asia. 511 Bboxx (2021), Bboxx and EDF Ramp up Partnership with Investment in Kenya Expansion. 512 Solarworx (2021), Canadian Solar Invests in German Off-grid solar Pioneer Solarworx. 145 Despite the financial challenges, investors with current market conditions and the more positive picture seen exposure in the industry remain committed to the around performance in the industry as a whole. Investors sector: 86% of investors surveyed in 2021 expect to either remain optimistic about the sector’s impact and 90% of increase or maintain their exposure in the industry in 2022 investors cite this as a key reason they plan to maintain or (Figure 67). This is a result of their long-term strategic increase their investment exposure going forward. interest in the industry, an understanding of the difficult Figure 67: Investor survey 2021: Relative to past years, how do you expect your off-grid solar activity to change in 2022 (in terms of total amount invested)? 4.5% 9% 36% 50% Decrease by >20% Decrease by 10-20% Little change (+/-10%) Increase by 10-20% and M-KOPA suggest that this trend could soon change 8.4 Regional Trends and that market expansion towards new geographies will be effective once the large players start raising capital to expand their consumer base in specific regions.515,516 Almost 50% of historical funding flows have been invested in operations in East Africa. However, investors have been increasingly focused on West Africa in the last two years. The largest share of funding to date has been assigned to East Africa (49%).513 This is predominantly linked to large debt deals assigned to the 7 scale-ups companies to finance their working capital requirements in their most established markets. In 2021, for instance, of a total $328 million, $189 million debt commitments was assigned to East Africa, compared to $25 million assigned to West Africa (Figure 68). © Power Africa Large amounts of investments, such as the equity raises from the 7 scale-ups companies operating globally, cannot be allocated to regions.514 New equity raised by the big players for expansion in new markets such as Sun King 513 A large share of deals in the GOGLA Investments Database cannot be assigned regionally due to companies doing capital raises for their global operations. 514 This is primarily the case with equity deals assigned to vertically integrated companies. However, some of the debt deals are global by nature as well. 515 TechCrunch (2021), Sun King Raises $260 Million to Widen Clean Energy Access in Africa, Asia. 516 TechCrunch (2022), M-KOPA Raises $75 million as it Clocks 2 Million Customers Across four African Markets. 146 Off-Grid Solar Market Trends Report 2022: State of the Sector Figure 68: Investment amount by geographical focus of funds 500 450 400 350 300 USD (in millions) 250 200 150 100 50 0 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 Eastern Africa Southern Asia Northern Africa Middle Africa Western Africa No region assigned Southern Africa Southeast Asia Analyzing the overall number of transactions, more companies are receiving investments in the West African market in the last two years. For instance, this is notable in equity deals in 2021 where the amount of companies receiving an equity investment was higher in West Africa than in East Africa, reflecting that there are early-stage companies poised for growth in the region.517 Nevertheless, the total value of investments does not yet match those in East Africa, as the companies receiving investments in West Africa are generally in earlier stages of growth and are not yet able to absorb large ticket sizes. There is limited data available on investments in the off-grid solar industry in Asia, in part due to the fact the market is dominated by non-affiliate companies not part of the Investment Database. Furthermore, the limited penetration of the PAYGo business model and other less capital intensive models, such as direct cash sales or © Power Africa partnerships with microfinance institutions, contribute to the lower investment in the region. New opportunities are arising with the uptake of PUE products in Asian markets such as India, where early stage equity deals have been announced and growth is expected. 517 GOGLA Investments Database. 147 Annexes © Power Africa 148 Off-Grid Solar Market Trends Report 2022: State of the Sector Annex 1 - Definitions of Key Household Product Segments Product Definition Power Range Indicative Price MTF Level Example Category (Wp) Range ($)518 Portable Single light only 0-1.49 $4 - 40 Enables Tier 0 (or lanterns partial Tier 1) Electricity Single light & 1.5-2.99 $6 - 51 Access for an individual mobile charging person d.light S3 Multi-light Multiple light & 3-10.99 $37 - 208 Enables Tier 1 systems mobile charging Electricity Access for at least one person and up to a full household Barefoot Power Li1000 Entry-level Three to four 11-20.99 $33 - 333 Enables Tier 1 SHS lights, phone Electricity Access for a charging and household powering a radio Bboxx Flex 40 Basic-capacity As above, plus 21-49.99 $40 - 686 Enables Tier 2 SHS power for a Electricity Access for television, more a household when lights, appliances coupled with high- & extended efficiency appliance capacity StarTimes Solar S100 Medium- As above, but 50-99.99 $50 - 1100 Enables Tier 2 capacity SHS with extended Electricity Access for capacities a household even using conventional appliances BioLite SolarHome 620 Higher- As above, but 100+ $248 - 2862 Enables Tier 2 capacity SHS with extended Electricity Access for capacities a household, even using conventional appliances JUA H4G-300 518 See Annex 5 for discussion on methodology for determining product pricing trends for the global OGS market. 149 Annex 2 - Definitions of Key Household and Productive Use Appliance Segments Household / small business appliances Product Category Application Indicative Price Example Range ($) Televisions Television sets provide access to $34 - 325 entertainment, educational content, and news. Most televisions sold as part of SHS kits are DC-powered, although AC-powered sets can be used with DC-AC solar inverters. NIWA Solar ELED TV 23.6” Fans Fans improve household comfort, especially $14 - 65 during hot seasons. fosera. POWER LINE Standing Fan 12V Refrigeration units Off-grid refrigeration units reduce the $72 - 1817 (up to 300L capacity) risk of food contamination and preserve perishable produce and beverages for both households and small shops in rural, remote communities. Koolboks Refrigerator Other Other, smaller appliances include radios for Variable households and multi-port phone chargers for small businesses. Sun King Radio 150 Off-Grid Solar Market Trends Report 2022: State of the Sector Productive use appliances Product Category Application Indicative Price Example Range ($) Solar water pumps (up to Solar water pumps improve irrigation $107 - 7630519 2kW) and extend the growing season for rural smallholder farmers. Futurepump SF2 Solar Pump Refrigeration units (up to Off-grid refrigeration units reduce the risk of $72 - 1817 300L capacity) food contamination and preserve perishable produce and beverages for both households and small shops in rural, remote communities. Koolboks Refrigerator Cold-storage solutions (> Solar-powered cold-storage solutions enable $3,456 - 150K+ 520 300L capacity) larger scale preservation of produce, meat, and dairy products, targeted mostly at small businesses. Ecozen EcoFrost Agro-processing The most common agro-processing $660 - 1,310 equipment application is solar-powered grain milling, given the importance of the maize value chain in sub-Saharan African markets. AGSOL Solar Powered Mill 519 Prices for solar water pumps include systems up to 5kW in size. In certain markets, such as India, much larger, more expensive solar-powered systems are used. 520 Refrigeration for productive use ranges from small, household-sized refrigerators to large, walk-in refrigerators that sell for $100,000 or more. 151 Annex 3 - Company Typology Off-grid solar companies can be classified in different ways. – Specialized OGS distributors: Have PAYGo offering, For the purpose of this report, companies are categorized primarily distribute OGS according to the company types below. Please note that the figures are for illustrative purposes only and this list of – Last mile distributors: Have OGS as part of their portfolio but also distribute other products/ services companies is by no means exhaustive. • Manufacturers: Manufacture products across solar – (Third party) E-commerce platforms: Provide OGS products via a third party or their own online energy kits offering platform • Vertically integrated: Operate across the entire value chain (manufacturing, distribution, and service – Traditional retailers: Provide OGS products via a physical location provision) • Distributors • Service providers: Provide a service solution (e.g. digital payments) to OGS companies Figure 69: Companies selling solar energy kits and services Manufacturers Vertically integrated Distrubutors Service providers Specialized OGS distributors Last mile distributors E-commerce platforms Traditional retailers Figure 70: Companies selling off-grid solar appliances Household and small-business appliances Productive use of energy appliances TVs Fans Refrigerators Solar Water Pumps Agro-processing Cold rooms Specialized companies OGS companies 152 Off-Grid Solar Market Trends Report 2022: State of the Sector Annex 4 - Affordability Methodology To estimate affordability of off-grid solar products, an more than this will quickly mean sacrificing expenditure on estimate for (1) ability to pay (demand) is compared other primary goods and services. For a longer discussion to latest data on (2) supply (pricing). This box explains of the use of the 5% and 10% monthly thresholds, refer to the approach taken to constructing demand curves, and the Off-Grid Solar Market Trends Report 2020. comparing the demand curves to the cost of acquiring OGS Finally, we present two possible affordability analyses products on a cash over-the-counter basis and/or using some for OGS products The first is conservative and may better form of end-user finance, such as the PAYGo business model. represent the remaining unconnected households, and one that is much more optimistic but represents ability to Step 1 - Estimating ability to pay pay including in urban areas potentially as a back up to the Ability to pay is analyzed bottom-up from proxy demand main grid by country. First, a country-by-country demand curve is built up from: • Conservative - bottom up: for this analysis, the demand curve for each country is built from the bottom end 1. The distribution of consumption expenditure for of the income distribution, up to the total size of the each country from the latest available year of data in remaining energy access gap. For example, for a country PovcalNet, which gives us the shape of a demand curve with 100 million people, of which 20 million still lack for each country. access to energy, the demand curve is based on the estimated income of the poorest 20 million people only. 2. An estimate of the total income across each national This is probably a reasonable proxy for the ability to pay population, using GNI per capita (GNI, Atlas method, to close the energy access gap, as those without access current $). to energy are likely to be among the poorest in their 3. Aggregating per capita demand into household country demand, using household size per country from the • Maximum - nationwide income distribution: here Population Research Bureau the national income distribution is used, which may 4. Estimating a minimum and a maximum affordable be a more representative estimate of ability to pay expenditure as: including potential OGS customers who are stepping up the energy staircase (i.e. already have access to an a. for small lighting products assuming these will OGS product) and/or may be using their OGS product be paid in full upfront (cash over-the-counter), alongside a weak grid connection allocating between 5% and 10% of monthly household income, saved up for three months, Step 2 - Comparing the cost of acquiring an OGS product b. for multi-light systems and solar home systems, These demand curves are then compared to the cost assuming these may be purchased with end-user to purchase an off-grid solar system. The prices used financing, with an allocation of between 5% and 10% are shown below (Table 5), with the PAYGo prices then of monthly income to repayments each month. calculated based on a 10% upfront deposit and 12 to In practice, many households do commit 10% or more of 18 monthly repayments based on an annualized cost of monthly expenditure to energy access - and sometimes consumer finance of 40%, which results in a PAYGo price even up to 25%. However, spending over 5% is typically premium of around 26%. considered the threshold for energy poverty, as spending Table 5: Indicative prices of off-grid solar products ($) Product Capacity Median price Median price Min price Max price Business model 2020 ($) 2022 ($) 2022 ($) 2022 ($) Single Light (Less than 1.5 8.37 9.08 (+8%) 3.71 39.91 Cash over-the- Wp) counter Single Light & Mobile (1.5–3 Wp) 26.08 27.30 (+5%) 6.14 51.29 Cash over-the- Charger counter Multi-Light & Mobile (3–11Wp) 88.00 83.67 (-5%) 16.67 247.03 PAYGo, 12 months Charger Entry-Level SHS (11–21 Wp) 147.00 213.59 (+45%) 33.48 449.28 PAYGo, 18 months Basic SHS (21–50 Wp) 342.50 508.13 (+48%) 40.22 871.02 PAYGo, 18 months Medium SHS (50–100 Wp) 530.00 678.20 (+28%) 50.27 1,099.81 PAYGo, 18 months High-Capacity SHS (100+ Wp) 1,234.00 1,230.00 (-0%) 248.00 2,862.00 PAYGo, 18 months 153 Annex 5 - Methodology for Estimating Global OGS Market Value and Sales Volumes To estimate global sales volumes and market turnover for solar kits with key modifications due to significant data off-grid solar kit sector, we use the following approach: limitations521: Step 1: Estimate the proportion of affiliate and non- Step 1: Estimate proportion of affiliate and non-affiliate affiliate off-grid solar energy kit (solar lanterns and multi- PUE market sales light systems, and SHS) sales by target countries where data is available • Due to significant data limitations, we have built off assumptions of affiliate vs. non-affiliate market • Estimate total live products (solar lanterns and multi- proportions used in the 2019 State of the Off-Grid light systems, and SHS) per target country using MTF Market (SOGAM) report which analyzed global trends data on solar panel wattage that categorizes household in the off-grid appliance sector and estimated affiliate products into relevant product segments (note: 2022 sales account for between 20% and 50% of total off-grid analysis includes 3 new countries: Nigeria, Malawi, and appliance market sales Papua New Guinea) • These estimates have also been corroborated by • Estimate live affiliate solar kit products per market key stakeholders engaged during consultations e.g. using data from GOGLA appliance manufacturers and distributors based in key countries in sub-Saharan Africa and Southeast Asia • Compare live affiliate solar kit products to total live solar products to derive an estimated percent share of Step 2: Estimate global proportion of affiliate and affiliate (and non-affiliate) products in each market non-affiliate market split, scale up affiliate sales to • Triangulate market share estimates in target countries global level and estimate market turnover using pricing with known sources for example, Ipsos reports, past research data MTR reports, and other secondary sources to sense- check outputs of analyses • Assuming a global non-affiliate appliance market split ranging between 50% and 80% respectively, scale up global affiliate appliance sales to total global appliance Step 2: Scale up affiliate sales to global level and estimate sales522 market turnover using pricing data • Include additional scaling up assumptions to account • Calculate a global weighted average of affiliate versus for incompleteness and/or under-reporting of GOGLA non-affiliate market sales using affiliate sales across affiliates appliance sales data523 target countries, then use this global weighted average proportion to scale up total global affiliate sales to total • Estimate global appliance market turnover using global sales for solar kit market resulting total global appliance sales volumes multiplied by pricing estimates across each of target • Estimate global market turnover using total global segmentation levels for example, affiliate versus non- solar kit sales volumes multiplied by aggregate affiliate and cash versus PAYGo product pricing estimates across each of target market segmentation levels for example, solar lanterns and • Conduct a sense-check of market sales estimates based multi-light systems versus SHS, affiliate versus non- on historical published off-grid appliance sector reports, affiliate, and cash versus PAYGo key industry and stakeholder interviews, and existing firm sector expertise524 To estimate global sales volumes and market turnover for PUE market, we use a similar methodology to off-grid 521 Note: Productive use of energy appliance market data is extremely limited compared to off-grid solar kits product category. The main sources of information used consisted of published reports available online including CLASP, VeraSol, GOGLA, internal firm knowledge as well as consultations held virtually at the convenience of those being interviewed. Key stakeholders approached for these consultations include: appliance manufacturers and distributors based in key countries in sub-Saharan Africa and Southeast Asia. The analysis and insights provided in this report thus reflects our collective understanding of key trends based on information available as at the time of writing. 522 Efficiency for Access Coalition (2019),The State of the Off-Grid Appliance Market: Executive Summary. 523 Open Capital Advisors analysis. 524 Note: the 2019 The State of the Off-Grid Appliance Market report estimated a historical 50-80% annual market growth rate for appliances as at 2019; based on this methodology and current assumptions, in the 2022 MTR, our analysis results in a 30% CAGR (annual growth rate) between 2018 and 2021, a marginally lower estimate that reflects slower market growth as a result of impacts of COVID-19 pandemic. 154 Off-Grid Solar Market Trends Report 2022: State of the Sector To derive pricing estimates for product pricing trends for by product type (e.g., solar lanterns and multi-light the global OGS market, we used the following approach: systems, SHS or key appliances e.g. solar water pumps), or by region e.g., Global, East or West Africa or East or Step 1: Build a database of global prices South Asia • Develop a pricing database with market-level product • Leverage consultations and internal firm expertise to pricing data sourced from company websites, off-grid validate derived price range estimates and cross-check solar marketplaces e.g. mangoo.org, and other relevant insights with additional published market reports sources of data including consultations, focusing primarily on data for major OGS markets in order to • Note that the comparison of 2020 and 2022 prices is develop point and range estimates for product prices based on prices accessed from the sources named across each of the main product categories assessed in above at the time of writing the report; it is likely that this report some of the 2022 pricing data includes 2020 prices as companies haven’t updated their databases and/or are • Populate the database with key information, including unwilling to disclose latest prices product brand/name, unit price, wattage, pricing by region (including both cash prices and PAYGo cost of • IMPORTANT NOTE: These pricing estimates are ownership, as well as terms for example down payment indicative and nominal i.e. they are not adjusted for where data is available inflation. Based on our analysis of key inflation rates across key markets in sub-Saharan Africa and southeast Step 2: Consolidate, analyze and conduct sensitivity Asia, we estimate an aggregate inflation rate of 6.58% checks on pricing data which may have contributed to price increases between 2020 and 2022 in addition to the other factors outlined • Aggregate pricing data in a consolidated dashboard in the pricing section of the report using the captured dataset to identify pricing trends © Efficiency for Access 155 Annex 6 - Affiliate vs. Non-affiliate Live Products Distribution per Country Figure 71: Estimated non-affiliate market share per MTF country (2021) 97% 49% 42% 40% 34% 30% 3% 51% 58% 60% 66% 70% 72% 75% 25% 14% 7% 6% 28% 25% 75% 86% 93% 94% 5% 2% 1% Affiliate 95% 98% 99% 100% Non-affiliate 156 Off-Grid Solar Market Trends Report 2022: State of the Sector Annex 7 - Methodology for Estimating the PUE Demand Potential of Sub-Saharan Africa To estimate the market potential for cooling solutions we To estimate the market potential for solar water pumps we use the following approach: use the following approach: Step 1: Estimate the total potential market size for cold Step 1: Estimate the total potential market for irrigation storage pumps • First estimate the number of rural smallholder farmer • We begin by estimating the total population at households which is 33 million for SSA then we estimate a national level and the average population per the number of smallholder farmer households across household at a national level to estimate the total three key value chain segments in agriculture i.e. number of households horticulture, dairy, and fish • We then determine the share of rural vs. urban • The underlying assumption here is that these three households and estimate the number of rural agricultural sectors have the most-demand for cooling smallholder farmer households as the target market for services due to high-value, perishable produce irrigation solutions • We estimate the grid access of both rural and urban • Next, we deduct those with access to the grid to populations and use these estimates to exclude the determine the number of rural smallholder farmer segment of farmers with grid connection to derive households with no access to the grid the estimated number of smallholder farmers in the horticulture, dairy, and fish segments without access to • We consider the smallholder farmer households growing non-subsistence or cash crops as key targets the grid for irrigation solutions • Next, we consider the number of farmers per unit to estimate the number of cold rooms needed for the • Next, we consider smallholder farmer households growing non-subsistence crops with access to water to smallholder farmers irrigate the land because this is a key factor for success • This estimate is then multiplied with the average cost of using irrigation solutions and with that we get the total leading cold storage rooms in the region to get the total potential rural smallholder farmer market size potential market Step 2: Estimate the addressable market for solar Step 2: Estimate the addressable market for productive irrigation pumps use appliances focusing on the cold chain use case • Once we have the total potential market, we apply the • Once we have estimated the total potential market, we affordability constraints by estimating the total number apply affordability constraints by deducting those that of smallholder farmer households that can afford solar may be unable to afford the cooling solutions. We do water pumps either through the amount of disposable this by estimating the % of smallholder farmers with the income they have or the access to credit ability to access credit to purchase these solutions • We then multiply the target number of smallholder • Next, using the number of potential cold rooms needed farmer households that can afford the solar water per smallholder farmer unit and applying affordability pumps with the average solar water pump price to get assumptions, we estimate the addressable market the estimated addressable market 157 Annex 8 - Methodology for Estimating the PUE Demand Potential Of India To estimate the market potential for cooling solutions we To estimate the market potential for solar water pumps we use the following approach: use the following approach: Step 1: Estimate the total potential market size for cold Step 1: Estimate the total potential market size for solar storage irrigation pumps • First estimate the number of dairy smallholder farmer • We begin with estimating the number of smallholder households in India which is 70 million. The assumption farmers in India and then move to estimating the made is that the dairy segment of the agricultural sector number of smallholder farmers in rainfed areas in India has the highest demand for cooling services given its highly perishable nature • We then estimate the number of smallholder farmers growing high priority/value crops that require irrigation • We then estimate the number of dairy smallholder farmers in organized groups and those who are not part • Next we estimate the utilization rate of the solar water pumps, we multiply the number of smallholder farmers of organized groups. We conservatively assume that the in rainfed areas growing high priority crops that require unorganized dairy smallholder farmers have a higher irrigation with the % of irrigation needs that can be fully cooling market potential as those in organized groups met by solar water pumps likely already have access to shared cooling services • We then estimate the number of farmers per dairy • This estimate is then multiplied with the average solar water pump price to estimate the potential market cooperative and assess how many cold storage units are needed to meet average daily milk production potential Step 2: Estimate the addressable market for solar • This estimate is then multiplied with the average cost irrigation pumps of the leading cold rooms in the country and region to estimate the total potential market • Once we have the total potential market, we apply the affordability constraints by estimating the total number of smallholder farmer households that can be able to Step 2: Estimate the addressable market for productive afford solar water pumps either through the amount use appliances for cold storage of disposable income they have or the ability to access • Once we have estimated the total potential market, we credit apply affordability constraints by estimating the % of smallholder farmers with the ability to access credit to • We then multiply the target number of smallholder farmer households that can afford the solar water acquire cold storage pumps with the average solar water pump price • Using the number of potential cold storage rooms with the government subsidy component to get the needed per smallholder farmer unit and applying estimated addressable market the % of aggregators who can afford we estimate the addressable market 158 Off-Grid Solar Market Trends Report 2022: State of the Sector 159 © Power Africa 160 Off-Grid Solar Market Trends Report 2022: State of the Sector