Convergence Of Business Models Lifts Off-grid Solar Market

"Profitability will drive commercial funding" - Naomi Bruck of IFC org on key takeaways from the off grid solar forum

The rapid growth of off-grid solar market is being propelled by a convergence of progressive business models, resulting in sharp cost cuts, shorter turnaround periods and increased efficiency.

The global off-grid solar market stands at $1.75 billion per year, and lighting up 420 million households, according to a new report jointly released by the Global Off-Grid Lighting Association (GOGLA) and World Bank.

Never mind the industry is just about 10 years old, yet its bold march has ignited hope of enabling the world achieve universal electrification by 2030.

Partnerships and specialisation among solar investors and stakeholders have particularly been identified to be behind this lift force, as was shared at the sixth Global Off-Grid Solar Forum 2020 in Nairobi. The three-day forum, which wraps up on Thursday, was organised by GOGLA and the World Bank, with Kenya’s Energy ministry playing host.

President Uhuru Kenyatta at the exhibition area during the 6th Global Off-Grid Solar Forum and Exhibition (GOGLA) at Safari Park Hotel .

Besides being a growth driver, the model of partnerships and specialisation has enabled smaller companies enter the solar field without building everything from the ground up, industry players shared at the forum.

It means both new businesses and established ones can foray into the green energy space by simply focusing on a single component of the solar value chain. For startups, this specialisation lowers the entry barrier in terms of costs, expertise and turnaround period, while allowing them to perfect their craft, leading to efficiency.

For established businesses, partnerships enable them branch out into the off-grid renewable energy space by providing a service needed by solar practitioners, for instance telcos offering data analytics, remote monitoring and mobile payment services.

This convergence has resulted in faster production of solar lighting and irrigation devices at relatively lower costs and with a great deal of efficiency as firms narrow their focus on one aspect of the value chain.

“The convergence of business models into one through partnerships and specialisations is helping drive off-grid solar and enabling businesses to balance between profit and growth,” said Mansoor Hamayun, CEO of Bboxx – a UK-based home solar systems provider with a market footprint in East Africa.

“You don’t have to do everything yourself as a solar company. Building partnerships across the entire value chain leaves you to do best at what you’ve specialised in. Actually building everything from scratch could be unsustainable,” he added.

Bboxx, whose head office is in the UK, has raised $150 million over the past 10 years with its products manufactured in China.

Hamayun cited Kenya’s largest telecommunications firm, Safaricom, as an example, having entered into pay-as-you-go home solar service through a partnership deal with solar vendor M-KOPA.

The global off-grid solar market has witnessed rapid growth over the past 10 years when it started off. More than 180 million off-grid solar units have been sold worldwide and the sector saw $1.5 billion in investments since 2012, according to the Market Trends Report jointly authored by the World Bank and GOGLA.

Despite the gains made, some 840 million people still lack access to electricity globally, and condemned to energy poverty. A further growth in the solar market is expected to absorb this marginalised global population, most of whom are located in remote backwater villages.

“With a 17 percent market penetration of solar in Africa, coupled with the estimated $6 billion in financing needed to reach universal electrification targets, the opportunities and need for accelerating investment by the private sector, including financial institutions, are immense,” said Jumoke Jagun-Dokunmu, International Finance Corporation (IFC) regional director for Eastern Africa.

“As the sector matures with the financial transparency of firms in the sector, strengthened by efforts such as the paygo (pay-as-you-go) platform, and as the industry’s bankability continues to improve, IFC is bullish on the opportunity at hand to build on our previous investments in the early stage market.”

Market watchers reckon that the solar industry has evolved quickly over a relatively short period, from the earliest days when traditional solar companies pursued vertically integrated models – covering the entire value chain from manufacturing to retail.

Much as this model helped such firms gather insights across the value chain and have control over their operations, it proved too capital-intensive, with only a few deep-pocketed players entering the field.

Then the model changed and smaller yet nimbler firms joined the fray in droves, resulting in the explosion witnessed currently. This unbundling was only made possible by the value chain being broken by the forces of demand and supply into various segments, around which different firms specialised in.

“You don’t have to own the entire value chain. Nowadays you find manufacturing of solar equipment being done by a different company that has specialized in that, another firm providing software, and others doing vending and installation of solar lighting and irrigation kits in a seamless chain of coexistence. Basically different companies with different areas of specialisation and strengths but same cause – solar electricity access,” said Emmanuel Beau, the CFO at Energy Access Ventures.

“Initially, when off-grid solar was nascent, it wasn’t about profit-making but proving the business model. Now that we’re past the experimentation phase, investors have quickly found out that partnerships and specialisation are the keys to creating an impact through power access while making money at the same time,” he added.

Partnerships, be it B2B or between public and private entities, are leading to rapid business scale-ups.

“The interplay between mobile network operators and pay-as-you-go (PAYG) solar providers is a good example of how partnerships are fuelling scalability especially in Africa,” said Nicolas Snel, senior insights manager at Mobile for Development Utilities.

President Uhuru Kenyatta, who opened the solar forum in Nairobi, said that off-grid solar solutions would help Kenya achieve 100 percent power connectivity by 2022.

Kenya’s electricity access currently stands at 75 percent of the population.

“This forum comes at a time when Kenya has been recognised as the world’s second largest standalone solar market after India and we’ve achieved this feat on the basis of 6.2 million verified sales of solar products since 2009 and 14 million people accessing improved energy through off-grid solar solutions between 2006 and 2019,” President Kenyatta said at the forum.

“In fact, in 2019 we continued this upward trend, achieving two million sales of solar products. This tremendous growth in the uptake of off-grid solar solutions is an intricate part of my administration’s strategy towards realization of universal access to electricity by 2022,” he added.

President Kenyatta said his government was working closely with the private investors to unlock a new wave of green financing and achieve the country’s ambitious connectivity goal.

“To achieve our goals for off grid solar solutions, we also recognise the importance of partnering with the private sector. In this regard we as government have provided an enabling environment for private sector investments. In deed we have given import duty exemptions on a range of solar products to ensure more solar investments as well as affordability to high costs products for our consumers.”

According to Radhika Thakkar, Greenlight Planet corporate affairs vice president, for off-grid solar solutions to achieve universal access by 2030, it will require a $7.7 billion bump in investments through a mix of climate finance products and local currency loans.

Read also: Kenya Moves To Join International Solar Alliance.

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