Catalyzing New Funding Opportunities for African Off-grid Solar Companies
A $1 million Power Africa grant is helping off-grid energy companies gain access to capital that is tailored to their business models. Access to funding that helps off-grid companies scale is translating into access to energy for people across sub-Saharan Africa.
In 2020, Power Africa awarded $1,014,520 in grants to develop specialized financing products, structures, and transactions to help off-grid companies secure the capital needed to increase clean energy supply across Africa.
By the close of the grant window in 2022, the four grantees had supported a range of off-grid companies, including start-ups and established businesses, to obtain more than $34 million in investments.
- First Growth Ventures (FGV) is an advisory company that offers management and investment services to early-stage companies. For its grant activity, FGV researched the pay-as-you-go (PAYGO) software-as-a-service (SaaS) market and established a data-driven subsidiary firm to invest in off-grid solar companies. By adopting such PAYGO software, companies can monitor how customers use and pay for products, generating data to inform business and investment decisions. FGV partnered with PAYGO software provider Solaris Offgrid and Pezesha, a financial-technology company, to pilot a receivables-financing platform. This platform integrates PAYGO monitoring into the investees’ business, revealing cashflow statistics that help to de-risk investments. The Kenyan solar company Pawame was the first business to obtain financing through this platform, securing a pilot round of local-currency financing to acquire assets. FGV aims to scale this platform to create debt vehicles for loaning much larger amounts in local currencies to solar companies.
- Gaia Impact Fund, which invests in renewablevenergy projects in emerging economies, used its grant funding to design a four-month investment-readiness program. The program comprises technical assistance to renewable energy companies, aiming to optimize their capital structures to attract energy investors, and includes a post-investment strategic, operational, and financial roadmap. Gaia chose Innovex Uganda — a remote-monitoring firm serving off-grid companies — to benefit from this pre- and post-investment support. Following the four-month program, Gaia invested equity in Innovex to test how its investment-readiness support affects portfolio growth. Thanks to Gaia’s involvement, Innovex showed a significant increase in sales in the second half of 2021 and began piloting its products in Côte d’Ivoire and Nigeria.
- Nithio Holdings, a women-led company, optimized its credit-risk analysis tool and scaled its lending operation. Nithio’s business model relies on data analytics and machine learning to price the financial risk associated with PAYGO receivables more accurately. In doing so, Nithio can offer capital at lower prices. The grant helped Nithio cover the legal fees for establishing receivables-warehousing facilities, and to analyze six solar companies’ customer repayment data through PAYGO-enabled solar home systems. After this analysis, Nithio began to disburse funds to its first borrowers, Rafode, Solargen, and VEP Solar. Nithio’s financing platform has committed more than $15 million and disbursed loans that financed nearly 20,000 new clean energy connections. The grant also enabled Nithio to expand the types of lenders it serves to include microfinance institutions and other financiers.
- Mirova SunFunder, major provider of blended finance for clean-energy projects in Africa and a Power Africa partner, used its grant to design and close structured-finance transactions for off-grid companies. SunFunder mobilized several investors to invest $11.5 million in SunCulture as Africa’s first syndicated and largest debt facility for productive uses of energy powered by off-grid solar. This investment deployed more than 8,000 solar water pumps in East Africa.
This catalytic grant to unlock funding for African solar companies yielded lessons that off-grid companies, investors, and development partners can apply when organizing funding for off-grid companies in the future:
- PAYGO monitoring technology offers investors insights into business operations and leads to better credit-risk management and more affordable capital.
- Off-grid companies require technical support to transact with investors. Many investors remain risk-averse to work with young off-grid solar companies, which require patient capital and long-term commitment.
- Small and local energy access companies often have advantages over larger international businesses, including less debt and better unit economics, and are more adaptive to local markets.
- Investors are interested in off-grid solar technology that can enhance people’s incomes and livelihoods. For example, solar-powered mills, water pumps, and refrigerators help farmers improve their yields and get more produce to the market. The transactions Mirova SunFunder organized for SunCulture suggest that investors have an appetite to finance such technology and recognize how it can bolster users’ incomes.