GOGLA’s new Off-Grid Solar Investment Trends Report shows a worrying picture for investment in the off-grid industry: 75 percent of all commitments in 2020 went to the Top 3 international recipients.
It is also obvious that local solar companies continue to be barely considered and are therefore negligible as a market factor. It remains the case that the industry is not succeeding in building up a viable SME sector. Although the establishment of such a medium-sized company must be a decisive goal for an impact-driven industry. After all, sustainable economic success in the developing countries of Africa and Asia is more likely to be measured by this than by the number of electrified households or solar products sold.
The gigantic investment of USD 90 million that Greenlight Planet has announced in these countries will only increase the unfavourable market concentration. This is a fatal development for the off-grid sector, which the GOGLA report unfortunately does not name with the necessary clarity.
However, the report points out as the “areas of concern”: “It is apparent that the off-grid solar sector needs to adapt to a “new normal”. Supply chains will likely continue to experience some disruptions, both at international and local levels, for the foreseeable future. Existing customers may face challenges to make timely payments for their systems, and making new sales may prove challenging. OGS must also redouble its efforts to identify and mitigate critical risks that have been accentuated by COVID-19. This includes overall operating risks, and a heightened risk of slow or non-payment among their portfolio of consumer loans.
Concessional, impact-driven financing has been the lifeblood of the sector to date. Given the current circumstances around COVID-19, this type of financing is more important than ever. New financing vehicles that are prepared to confront these challenges alongside the sector must be mobilized. These new sources of finance would buttress the immediate needs of energy access enterprises, and help de-risk and crowd in additional investment from existing and new financing partners. For this reason, new vehicles such as the Energy Access Relief Facility and the African Development Bank’s Covid-19 Off-Grid Recovery Platform would provide critical bridge financing to the sector.
While the Deals Database shows a significant increase in YTD2020 grant commitments to the sector, it is important to note that nearly three quarters of that came from a single grant making program, and that most of those awards were structured well upstream of the COVID-19 crisis. Though some grant announcements have been made since COVID-19 emerged, these are limited, and there is very little visibility on significant new volumes of grant capital that is being readied to support the sector. This is particularly worrisome for earlier stage enterprises that, by their nature, may not be ready to take on debt from the financing vehicles that currently under development.” (p.15/16)