
Off-grid solar is enjoying record new deployments and helping provide power to those most in need. But as JP Casey reports, new ideas are needed to plug the sector’s multi-billion funding gap and realise the ambition of universal energy access.
Off-grid solar solutions have perhaps the greatest potential to deliver electricity access to those living in so-called energy poverty. Such extremely decentralised systems can often involve as little infrastructure as a solar module and storage system connected to a lantern and a mobile phone charger. They can provide access to electricity without the need to spend considerable time and money on developing new grid infrastructure, granting a level of energy independence to those in need without having to rely on a grid or utility.
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Such are the conclusions of a report published by GOGLA, the global association for the off-grid solar energy industry, and the World Bank’s Energy Sector Management Assistance Program (ESMAP) earlier this year. The ‘Off-Grid Solar Market Trends’ report found that off-grid solar systems would be “the most cost-effective” way to deliver electricity access to around 398 million people by the end of the decade – around 41% of the households currently without access to power.
However, the same report revealed a significant gap in the levels of investment needed to maximise the potential of off-grid solar to provide power to those without energy access. It estimated that a total of US$21.3 billion would be needed between 2025 and 2030 to enable off-grid solar to play its “critical” role in achieving universal household access to electricity by that time.
That represents a six-fold increase in the investment the sector has received to date and raises serious questions over how the off-grid solar sector can access the levels of investment needed to offer maximum impact to those in greatest need.
According to Drew Corbyn, head of performance and investment at GOGLA, off-grid solar will help deliver electricity access to close to one billion people by the end of the decade, many of whom are in low-income areas.
“The total number of people to electrify between 2024 and 2030 is 969 million, so nearly a billion people, and off-grid solar is considered the best option for 41% of these people,” Corbyn tells PV Tech Power. “Off-grid solar is the best option in areas with low density and low-income levels.”
“The historical investment in the industry has been US$3.5 billion in the last 12 years and to achieve universal access to electricity at a household level will require US$21.3 billion, that’s 50% private capital equity and debt – and 50% public capital in the form of grants to companies to expand into new geographies, and consumer subsidies to make products and services more affordable,” adds Corbyn.
The investment gap
As Corbyn says, the funding required to scale up the off-grid solar sector will come roughly 50-50 from private and public sources. Breaking the figure down, the GOGLA/ESMAP report estimates that US$10.7 billion of commercial debt and equity investment is needed, US$1.5 billion in grants and US$9.2 billion for addressing the affordability gap through subsidies, which will be used to grant electricity access for those who currently lack access to even the simplest solar systems.
The range of investment needed is shown in the graph in Figure 1, which reflects how no single financial sector is likely to meet this US$21.3 billion goal alone.
“I think there are different kinds of subsidies,” says Amaury Fastenakels, chief commercial officer at Bboxx, which works to deploy off-grid solar systems in a number of countries across Africa and Asia.
“For us, we have a bit of a mix; for the richer customers, they need the technology and there isn’t a need for subsidies; for the poorest customers, it’s the kind of subsidy for them to acquire the system, but it’s not something we encourage them to [rely on] in the long-term, and these people still pay for the system.”
This combination of financing types is also reflected in the GOGLA/ESMAP report, which notes that public and private investment will collectively need to exceed US$3.5 billion each year from 2026 to 2030 in order to achieve the universal electrification goal.
In the next few years, the private sector is expected to account for more of this investment, with private finance needing to contribute US$1.4 billion, US$2 billion and US$2.7 billion in 2025, 2026 and 2027 respectively; however, between 2028 and 2030, the GOGLA/ESMAP report forecasts an annual public investment total of US$2.1 billion, compared to US$1.5 billion from the private sector.
This uneven distribution of public and private funds reflects recent trends in non-private investments in the off-grid solar sector and illustrates how a combination of both investment types will be the safest option to reach the universal electrification goal. ESMAP figures show that the World Bank has committed a record US$626 million to the off-grid solar sector thus far in 2024, but the total investment for 2023 reached just US$355 million, close to half of this figure.
Making off-grid solar financially viable
Making off-grid solar projects financially attractive investments for both public and private actors will be a priority for the sector if it is to attract the funds it needs.
“[In] the solar business it’s a big necessity, to sell it to people, who will pay for it because they need electricity,” says Fastenakels, who notes that building a business case for off-grid solar in countries with smaller economies and weaker local currencies that are perceived as risky investments by the global investing community is a key challenge that must be overcome.
This is exacerbated by the fact that the US dollar has driven the vast majority of investments into the off grid solar sector, and a perceived weakness of local currencies has dissuaded further support from overseas investors. According to the GOGLA/ESMAP report, in 2023, non-local currencies such as the US dollar accounted for 65% of all investment in off-grid solar. This figure soared to 90% as recently as 2022, and while this figure is skewed by the uncertainty that followed the Covid-19 pandemic, the trend that local currencies are not seen as strong currencies is clear.
“It’s been a tough time for investors and lenders, and they’ve pulled back a bit just to protect their investments,” adds Corbyn. “But you see the demand from the customer base is very high.”
“There are big markets in Nigeria, the DRC [and] Ethiopia [but] many markets across Africa are nascent,” he continues, suggesting that many of the countries that would most benefit from greater private investment are those that are perceived as risky or unsafe investment destinations. “There are some major shocks that are felt by the industry, such as high consumer inflation, high interest rates, currency volatility and dollar shortages, so you need to have guarantees of public funding that can protect the
private sector and increase lending.”
In this context, the GOGLA/ESMAP report points to a number of “game-changing business models” that the off-grid solar sector could embrace in order to de-risk potential investment. These include an aggregation approach delivered by Solaris through its Bridgin platform, through which smaller off-grid solar firms can pool their outstanding payments from customers into larger bundles that can be sold on to investors, making it easier and more straightforward for investors to participate in the sector.
“Personally, and for Bboxx, we really believe that this is the better way to solve issues, to turn them into businesses, even if it’s a hard business, because, in the long-term, it’s going to make that sustainable,” says Fastenakels. “Maybe it has the ability to attract more capital, but, most importantly, this capital stays in the ecosystem and is able to be re-invested long-term.
“We really believe it’s the best for all the customers and the sector, that’s for sure, and along the way we hope to be an attractive destination for investors.”
Beyond residential uses
While the residential sector remains the cornerstone of the global off-grid solar industry, there is a growing interest in using off-grid solar to support local businesses, or what the GOGLA/ESMAP report calls “productive use of energy (PUE)”.
“We see quite a lot of small businesses that need solar energy [such as] barbershops,” says Fastenakels, pointing to one such example of a PUE. “Barbers, for example, use our systems, because you need that in every town. Then there are big businesses, say telecoms, that need to have their towers electrified … and they will also need a solar system.”
While the PUE sector only accounts for 2% of the global off-grid solar sector, according to GOGLA and ESMAP, the benefits of greater investment in the off-grid PUE sector are striking. The report notes that where off-grid solar systems were used for PUE users, 81% of customers saw their incomes rise, suggesting that greater integration of off-grid solar in commercial and industrial uses could help deliver exactly the kind of financial growth that is essential to the long-term health of the off-grid solar sector.
“Investors are interested in this, both from the revenue angle and the impact; impact investors are motivated by jobs and livelihoods as well,” says Corbyn. “There’s an expansion in the nature of the industry from consumptive residential power to productive economic power, which is, of course, important for economic development and growth.”
These PUE systems can also benefit from models such as energy-as-a-service, which aim to make the generation of power even more financially sustainable. The GOGLA/ESMAP report points to the World Bank’s Uganda Electricity Access Scale-up Project (EASP), in which the World Bank works with Ugandan government ministries to select contractors to install and operate solar systems to provide electrification for public institutions, such as schools and health centres.
These installations are supported by a grant from the Uganda Energy Credit Capitalization Company, and operators must deliver electricity against a set of criteria – including reliability and sustainability monitored and enforced by the World Bank. The report notes this as an example of a more creative financing structure for the off-grid solar sector and one that is better suited for use in its local area than the traditional public procurement approach, which the report describes as one that “does not pass the test of time”.
From charging phones to powering business
The GOGLA/ESMAP report divides the world’s energy users into tiers based on the energy intensity of their products.
“Tier one access constitutes multiple lights, phone charging, maybe a fan and maybe a TV; the TVs are in really high demand, which is accessible from that tier one level,” says Corbyn. “By the time you get to tier two, you’re talking larger systems, possibly up to a fridge as well, so you’re talking more power and more appliances with that. The demand is for what you do with the energy, not the energy itself, and appliances are a big driver of demand.”
The graph below demonstrates how tier one users have come to account for the greatest proportion of off-grid solar users as of 2023, with 253 million people using electrical products at the tier one level. This compares to 132 million in tier two and above and 177 million who are using products small enough not to qualify for tier one, and it is a considerable increase over the 172 million people relying on tier one energy systems in 2020.
The number of people relying on tier-two systems has also increased, albeit at a much slower pace, and these systems can often include heating and cooling products that could be used to operate a local business. According to the GOGLA/ESMAP report, in 2023 over three million people around the world were using solar home systems to “run an enterprise”, and these businesses reported considerable commercial gains from using solar, with 86% of solar water pump users reporting increased productivity since using solar systems.
Towards the universal energy goal
Ultimately, a combination of all of these approaches – more locally tailored solar systems, greater public and private finance and more creative financing solutions – will be needed to reach the goal of universal electrification. Fastenakels suggests that the massive growth seen in the off-grid solar sector, both in terms of capital investment and capacity of solar systems put into operation, demonstrates that the technology and its financing options are fit for the purpose of achieving universal electrification.
“In the last 14 or 15 years, the sector has gone through huge growth, and we’re making strides towards universal electrification; therefore, it’s something we can say is proven to be working,” says Fastenakels. “I don’t think there are many programmes from non-government organisations (NGOs) that are proving sustainable year-on-year.
“We always need new funding, so this is a very efficient way to solve some of the world’s big problems. The reality is that you do have to wait a little bit, but what you can do is to show the success you’ve
had in some countries, with different programmes and different methods, and share that, and help them design the same kind of programmes.”
Corbyn, meanwhile, has an even more positive outlook, describing both his and GOGLA’s stance on the growth of off-grid solar as “optimistic”.
“We’re optimistic about what the future holds for this industry,” he says. “It’s been a difficult couple of years, with the economic landscape and some of the modest growth in sales and investment. We’re now seeing that there’s the political will and public funding that’s sending good signals to investors, as well as understanding some of the weaknesses in this funding model and getting our heads around that.”
Yet perhaps the best way to summarise the recent trends in the off-grid solar sector is ‘encouraging but insufficient’. While the growth in investment and the number of new investors and financing schemes in regions lacking energy access are impressive, raising more than US$20 billion to meet the universal electrification goal will be no small task.
Indeed, the GOGLA/ESMAP report notes that the world is currently “not on track” to achieve Sustainable Development Goal 7 (SDG 7), which pertains to ensuring access to “affordable, reliable, sustainable and modern” energy around the world.
“Addressing key barriers such as low affordability, narrow company margins, limited access to capital, high costs to enter remote settings and high levels of perceived risk can drive first-time access and accelerate the pace toward SDG 7,” reads the GOGLA/ESMAP report, if the off-grid solar sector is to “meet its full potential”.