Pay-As-You-Go solar power

In her thesis, Moncayo notes that harnessing solar energy and converting it to off-grid battery power is not a new idea in Africa. She reports that the United Nations Environment Program claims that off-grid lighting solutions are “a multi-billion-dollar market”. At present, reliable and cost-effective Solar Home Systems (SHS) with 20-50 W solar panels that can power LED bulbs and charge a battery are widely available in the region. How are these affordable to the poor Sub-Saharan African population? Moncayo notes that off-grid energy enterprises have adapted their business models to suit their customers. These include Pay-As-You-Go (PAYG) or rent-to-own schemes that allow flexible access to solar energy for as little as 50 US cents per day. Moncayo reports that one of the best-known providers is BBOXX, a start-up founded in 2010 that has now sold over 85,000 systems, reaching 425,000 people, in over 35 countries. Such access to Solar Home Systems has been welcomed as they enable the poorest to save both time and money. Moncayo states in her paper that before they had access to these systems, the typical customer had to spend more money on kerosene for less lighting quality and travel nearly twice a week to charge their phone.

Lack of initial finance

The problem with the schemes currently in place is that they need initial finance.  Moncayo reports payback periods of about 18 months for each system. For a company to achieve financial stability, they need to sell fast and grow fast. However, even when they are able to expand quickly, they have difficulties to pay back short-term loans with their business proceeds. According to Moncayo, philanthropy, public financing, banks, private equity and venture capital have proven unable or unwilling to match Sub-Saharan Africa’s demands to finance off-grid energy. She investigates how impact investments are stepping up to contribute to fill the gap and help to get off-grid power to the masses. Impact investments are investments made in companies, organizations or funds that intend to create positive social and/or environmental impacts, while also attaining a financial return. Moncayo reports that in 2015, from the $16.1 billion supplied by impact investors in West and East Africa, $4.2 billion were dedicated to energy. She notes that most of these did not invest in off-grid options, but those that did are largely multilateral development banks, Development Financial Institutions (DFIs), impact investing funds and corporate impact investors. The support offered by these actors is now also getting ordinary investors interested in off-grid opportunities.

Impact investments are more than finance

Moncayo is also keen to highlight the main non-monetary contributions of impact investors. The first is their obvious contribution to the development and availability of off-grid energy systems. They attract new investors and connect them with providers, including those that are social-neutral. As impact investing is a cooperative, rather than a competitive sector, capital can be aggregated for co-investment, cutting transaction costs. In addition, impact investors can provide off-grid companies with technical assistance and help them grow their networks. Investors get involved in the governance of companies to help preserve their social objectives. Through the impact assessment of their investments, they have the information at hand to further improve the value proposition of enterprises. Overall, the introduction of impact investor capital and management practices strengthens and endorses the entire off-grid sector.

Energy for all by 2030

To attain access to clean energy for all, globally, by 2030, the OECD and the EIA, Energy For All- Financing Access For The Poor report (2011) stated that $48 billion needs to be invested each year. Moncayo notes that, if Sub-Saharan Africa requires 80% of all off-grid electrification, it would need investments of $5.6 billion a year. Based on figures supplied by Bloomberg New Energy Finance, Moncayo estimated that $188 million in impact investments were made in the Sub-Saharan African off-grid energy sector in 2015. This is just 3.3% of that required by the OECD Energy for All Case for that year. Based on projections for the increase in impact investments in the coming years, she predicts that by 2030, the impact investments dedicated to the off-grid energy sector in Sub-Saharan Africa will have the potential to finance 44% of the OECD Energy For All Case annual budget. Moncayo concludes that this is likely to be less than 1% of the estimated multi trillion-dollar impact investments predicted for 2025 by the Global Impact Investing Network. However, she notes that her analysis highlights the power of impact investors, who are emerging as engine for the global economy and key players in tackling the challenges that the world faces today.

By Mónica Moncayo Escobar – “Role of impact investing in financing access to energy for off-grid populations in Sub-Saharan Africa.

Join His Excellency Dr. Bashir Ifo, President, ECOWAS Bank for Investment & Development, Ben Good, Chief Executive Officer, Energy4Impact and other impact investors to discuss how to deliver affordable, reliable and clean energy to over 600 million Africans, faster, at the 3rd Africa Impact Investing Leaders Forum taking place on 25th – 26th October, 2018 in London. Register interest here

The East African nation has developed the best system of regulating and spurring off-grid power systems anywhere in the world, according to the annual Climatescope study into energy investment trends in developing nations by Bloomberg New Energy Finance.

With more than 620 million people living without access to electricity, Africa is becoming a working laboratory for financial and technical innovations that can bring power to the masses without erecting centralized power plants and costly distribution grids. The continent already has attracted $450 million for off-grid power systems fed by renewables such as wind and solar, BNEF estimates.

“Tanzania has been a pioneer for the continent,” said Nico Tyabji, an analyst at the London-based research arm of Bloomberg LP. “Its smart policy framework for small power projects and mini-grids built up a significant project pipeline.”

The nation trumped Kenya, Uganda and 16 other Sub-Saharan countries in the Climatescope rankings for a second consecutive year. BNEF analysts evaluated the markets based on energy policy and regulations, electrification rates, project developers and private investment.

An off-grid system is a small electricity network that can range from solar-powered lanterns to rooftop photovoltaic panels to miniature grids. Power is generated and distributed independent of the country’s national grid. The technologies have been touted as an answer for lowering energy poverty, particularly in rural areas.

Tanzania introduced a new regulatory framework at the end of last year that was implemented in March. It has a small power producer program that allocates feed-in tariffs in a tender process.

“Tanzania’s framework is the most developed and it has a transparent regulator that actually has a bit of power,” said Michael Gratwicke, head of Rift Valley Corp.’s energy platform. “The downside to working in the country is that the state utility is a bit uncooperative as our prices are lower than theirs.”

Rift Valley is building two off-grid hydroelectric projects in Tanzania with 1.5 and 3 megawatts of capacity, respectively. It has a pipeline with 15 more hydro plants and 2.5 megawatts of wind energy, Gratwicke said by phone from Zimbabwe where the company is based.

Tanzania-based developers of residential solar systems such as Off-Grid Electric and Mobisol have installed tens of thousands of their rooftop technologies. Their photovoltaic panels and batteries can power lights, a small refrigerator, a television set or radio and also charge mobile phones. Off-Grid Electric aims to electrify 1 million homes in the next three years.

By Anna Hirtenstein