Translating Vision into Investment: Power Africa’s Financial Modeling Tool for Off-grid Solar Start-ups
By Carla Visser, Power Africa Off-grid Project
For off-grid solar energy start-ups competing for financing in a crowded investment space, a sound financial model can strengthen a company’s investment pitch. Power Africa’s new financial modeling tool is designed specifically to help build pay-as-you-go (PAYGO) energy access business models.
Demonstration of Power Africa’s Financial Modeling Tool for PAYGO Energy Access Companies
Off-grid solar energy products are in increasing demand — especially in emerging markets in sub-Saharan Africa. According to GOGLA, the global association for the off-grid solar energy industry, nearly 200 million solar energy units are expected to be sold globally between 2019 and 2022. PAYGO financing solutions enable lower-income customers to pay for energy services in small installments, making off-grid energy more affordable and accessible.
The off-grid energy sector is capital-intensive, with companies relying on equity — and increasingly on debt investments — to scale operations, offer new products, and expand to new geographic markets.
“Over the years, we have seen a lot of solar home system companies that have a great product and a great vision, but they are not always able to translate that vision into investment capital,” said David Stonehill, Lead for Power Africa’s Beyond the Grid initiative. “Right now, with investment capital tighter than usual, one of the best things a company can do to increase their odds of obtaining financing is to develop a sound model that can be used to paint a detailed financial picture for investors.”
Modeling a PAYGO energy access business can be daunting. Power Africa’s Financial Modeling Tool for PAYGO Energy Access Companies is designed to help companies analyze various aspects of their own business and strengthen their value proposition to investors.
The financial modeling tool allows companies to project their financials in different scenarios, from best case to worst case, to help them understand how changing circumstances may affect profits. The tool also provides different methods for determining company valuation, an important aspect of company-investor negotiations. With the tool, Power Africa offers companies looking to expand to new geographies a consistent way to quantify the commercially addressable off-grid solar market.
“Investors are generally interested in sector specific key performance indicators, forecasts for profit and loss, balance sheets, and cash flow — having a financial model that takes all of this into account is a significant asset when competing for investment,” said Frida Pettersson, Finance Advisor with the Power Africa Off-grid Project.
The Power Africa Financial Modeling Tool for PAYGO Energy Access Companies and related user guide are available at no cost for offline use. Benefits to companies include:
- Projecting profit and losses, cash flow statements, and balance sheets for up to 10 years.
- Running forecasting scenarios based on macro and micro assumptions.
- Illustrating the evolution of key performance indicators over the model’s lifetime.
- Analyzing unit economics to calculate gross and contribution margins on a per product basis.
- Projecting sales for up to five product lines with different customer payment plans.
- Displaying financial statements by accrual or cash expenditure.
- Analyzing sales growth, churn, overhead costs, and operating expenditure.
- Calculating the impact of currency fluctuations.
- Factoring seasonality into sales forecasts.
- Providing methods to determine a company’s valuation.
The financial modeling tool augments Power Africa’s technical advisory support to more than 250 off-grid solar enterprises and investors. By helping companies access the capital needed to expand their operations in sub-Saharan Africa, Power Africa is helping to turn more lights on in communities beyond the grid.
