Impact investors have been criticized for investing mainly in foreign-owned clean energy access companies and ignoring local entrepreneurs in Africa. This working paper looks at the investments made by impact investors in clean energy access in Kenya, which has been the hub of renewable energy access investment in Africa.
Impact investors have almost exclusively invested in companies developing pay-as-you-go solar home systems (PAYG SHS) and in mini-grid technology. This approach appears to be guided by the expectation that these business models, which allow consumers to pay for electricity in small amounts, will grow rapidly to provide electricity to millions of people across the continent.
Local Kenyan-origin entrepreneurs have been building different types of businesses that focus on distribution of products and implementation of clean energy systems. These businesses are growing at a slower pace than PAYG SHS and mini-grids, but several of them are profitable and create positive socioeconomic impact.
iven their growth trajectory, local entrepreneurs can absorb relatively modest amounts of capital and deliver a positive return to investors.
Current impact investors who invest equity cannot meet the needs of local entrepreneurs because they are incentivized to invest large amounts of capital in investments that can generate higher returns on exit. We therefore recommend the creation of a debt fund that can make relatively small individual investments.
Excerpt of: The Impact Investors’ Blind Spot: Local Clean Energy Entrepreneurs in Kenya, by Sanjoy Sanyal, Chen Chen and Molly Caldwell (World Resources Institute)
Source: World Resources Institute