Sharp sales growth predicted for Africa’s off-grid solar energy

The growth of the off-grid energy sector over the last decade has been one of Africa’s social and economic success stories, transforming lives overnight by bringing power to low-income households and small businesses, often in remote areas with little prospect of a link to the national grid.

Inevitably, that expansion has been curtailed by the economic impact of the Covid pandemic on the spending power of poor Africans, whose finances have become more precarious. Some have struggled to keep up payments on pay-as-you-go solar systems, while others are deferring plans to splash out on solar lighting and television packages until their earnings prospects become more secure.

At the same time, off-grid solar providers have found it harder to borrow the funds needed to stay afloat in difficult times, contending with customer growth rates well below those envisaged in their business plans prior to the pandemic, and low equipment stock levels due to fractured global supply chains.

In its Market Trends Report 2020, the World Bank’s Lighting Global Programme reported that the global off-grid sector had developed into a $1.75bn annual market, serving 420m users, mainly in sub-Saharan Africa. In the 2017-19 period, off-grid solar firms’ revenues grew at 30% a year, while sales volumes grew at 10% a year, Lighting Global estimated.

By 2021, the picture was very different. GOGLA, an off-grid industry trade body, said in its latest Global Off-Grid Solar Market Report that two thirds of off-grid solar lighting companies surveyed around the world reported lower sales volumes in the second half of 2020 compared to the second half of 2019, and that a third had reported sales cuts of more than 50%.

Poised for recovery

However, companies with a track record in the African off-grid market say that, while business is challenging now, there are signs of resilience and recovery.

Simon Bransfield-Garth, chief executive of African household solar provider Azuri Technologies, said recently that, while the company’s business volume growth had slowed considerably from pre-pandemic levels of some 40-50% a year, its sales volume was still showing modest growth, and was likely to accelerate quickly if customer and investor confidence returned.

This view is backed up by GOGLA data showing some recovery in SSA markets in the second half of 2021 compared with earlier in the year. In East Africa, sales of 2.2m off-grid solar lighting products by surveyed members in the second half of 2020 were 10% lower than in the second half of 2019, but 41% higher than in the first half of 2020.

In West Africa, sales of off-grid solar products in the second half of 2020 totalled 434,000 – a 19% increase over the same period in 2019 and a 23% rise compared to the first half of 2020.

If African economies do recover quickly, those working in the off-grid sector say a resumption of sharp sales growth is possible given the level of latent demand. Globally, around 770m people still had no access to electricity in 2019, with around three-quarters of this total in sub-Saharan Africa, according to the International Energy Agency. That the global figure was 90m lower than in 2018 underlines the upward trajectory of demand for off-grid power products before the pandemic.

In terms of corporate robustness, the off-grid sector is considerably stronger than it was a decade ago. Companies such as Azuri and Bboxx have developed from startups providing simple solar lighting and charging solutions to commercially successful household names in several countries, supplying homes and businesses with a plethora of services, and able to raise millions of dollars on international markets.

They rub shoulders with deep-pocketed energy firms that have diversified into mini-grid and household solar provision, including EDF, TotalEnergies and Shell.

The sector has been driven by falling equipment costs and rising efficiency. A decade ago, Azuri was offering household lighting packages for around $0.50/day. Today, in Kenya, the company has a TV package for around $1/day, which includes a solar panel, battery, power-efficient television, satellite dish, a satellite service, two high-power tube lights, two spotlights, a rechargeable radio, rechargeable torch and USB smartphone charging.

After around two years, the customer owns the equipment and would then only need to pay for the satellite service.

Storage and efficiency improvements mean that a television supplied by the firm could now run more or less continuously compared to just a few hours a night for its earliest models.

Investment still flowing

Activity may be down but the off-grid market is still generating eye-catching investments.

Engie Energy Access (EEA) said in October that during 2021 it had acquired some 200,000 new customers in the nine sub-Saharan African countries in which it operates, despite the impact of the pandemic. The company, whose customer base now stands at more than 1.3m, caters to a wide range of markets from household solar to large businesses.

EEA reported continued growth in its mini-grids business, which has equipped 13 villages to date and has secured more than 180 additional project orders in the last year.

Meanwhile, another French-based company, NEoT Offgrid Africa (NOA), and Winch Energy said in October that they have invested around $12m in new mini-grid projects in Uganda and Sierra Leone.

When these become operational in 2022, nearly 60,000 people in 49 villages in Sierra Leone and Uganda will be equipped with off-grid and remotely controllable solar solutions provided by the firms over recent years.

Revenues remain uncertain

However, few think the off-grid sector is out of the woods yet. Revenue streams for off-grid providers remain uncertain, with providers having to be accommodating with repayment schedules for struggling customers, while the companies still have the same financial outgoings as they did before the pandemic. Meanwhile, raising money on commercial markets is tough for solar companies.

Companies are reluctant to downsize as it would hamper their ability to cater to new customers if the market takes off again. Downscaling would also jeopardise jobs in the communities the companies serve, including local agents and other personnel that market products and provide customer service. It would also risk reversing gains made by women in rural communities. Around a third of Azuri’s rural workforce are women.

The relatively low cost and reliability of off-grid solar power compared to building out the grid in some areas of Africa also means that off-grid electricity is no longer regarded as a temporary fix while communities wait for the grid to arrive. It’s part of the long-term solution to energy access. If the off-grid sector fails, some national electrification plans risk being derailed. These fears have led to the launch of substantial financial support packages.

“The impact of the Covid-19 pandemic is jeopardising the immense progress that has been achieved over the last decade in electrification through off-grid technologies across Africa,” Joao Duarte Cunha, division manager for renewable energy at the African Development Bank (AfDB), said on announcing the financial close of agreements for $20m of concessional loans to the sector in August.

The funding from the AfDB-managed Sustainable Energy Fund for Africa (SEFA) is part of what is envisaged as a five-year, $50m blended finance initiative to provide relief and recovery capital to energy access businesses, known as the Covid-19 Off-Grid Recovery Platform.

Blended finance initiative

Another major initiative to support the industry in sub-Saharan Africa and Asia, the $80m Energy Access Relief Fund (EARF) supported by DFIs and other institutions, reached its first close for $68m of the total in September. The remainder is expected to be signed off in coming weeks.

Social Investment Managers and Advisors (SIMA), the fund’s manager, is charged with providing relief capital via short-term loans to around 90 energy access companies of widely varying sizes in sub-Saharan Africa and Asia. Loans of some $50,000-$60,000 will be made to smaller firms with revenues of around $150,000-$200,000, while a maximum of four loans of up to $2.5m will go to companies with revenues of up to around $25m.

SIMA says its analysis of energy access companies eligible for relief funding shows that 77% of potential borrowers require emergency financial assistance to stay afloat. Three-quarters of the loans are expected to be disbursed in Africa.

More government support needed

While support packages may help the off-grid sector through a difficult period, more will be needed in the longer term if the industry is to make significant progress in reaching those without power.

So far, companies have been able to pick relatively low-hanging fruit in the form of customers with low-to-medium incomes and financial stability. Reaching the very poorest Africans and maximising the benefits of off-grid supply to rural areas will be a much stiffer challenge requiring wider government support.  

A September UCL report, Off-Grid Energy and Economic Prosperity, calls for greater government intervention to ensure that severe inequality in energy access in SSA is not exacerbated by the pandemic.

“While the pandemic has challenged the economies in SSA, it also provides an opportunity to address structural issues in energy development for a more decentralised energy system,” the authors said.

“To reach universal energy access, governments and partners must promote both supply and demand side subsidies. The former are essential to support off-grid companies scale up operations and serve more difficult market segments, including in more remote areas. The latter can help to close the affordability gap for the poorest customers.”

Use of solar power beyond commercially attractive areas, such as household lighting and television, needs to be encouraged in order to accelerate local development and lay the basis for rural job creation.

Deploying off-grid power for commercial, agricultural or industrial uses to create and improve local value chains, diversify livelihoods and reduce vulnerability to external shocks would have an even more profound social and economic impact.

Read more about the future of African energy in our special report.