Off-grid Solar Sector Faces Investment Shortfall, Threatens Goals

GOGLA Reports Need for Increased Funding to Meet 2030 Targets

by Adenike Adeodun

The off-grid solar sector experienced a significant investment decline in 2023, with funding falling to $425 million—a 43% decrease from the previous year, according to the Global Off-grid Lighting Association (GOGLA). This downturn highlights broader concerns about the sector’s trajectory towards contributing to universal energy access by 2030. To meet the ambitious targets set for Sustainable Development Goal 7, which aims for universal energy access, an annual investment of $3 billion is required, a stark contrast to current levels.

The report from GOGLA reveals that the drop in investments was most notable in the scale-up segment of the market, indicating that macroeconomic challenges are diverting the sector away from its developmental path. These challenges include double-digit inflation and rapid currency depreciation, which particularly affected key African markets such as Kenya, Rwanda, and Nigeria in 2023. These economic conditions not only impacted company revenues but also diminished consumer purchasing power, further complicating the landscape for off-grid solar solutions.

Despite these challenges, the sector continues to play a crucial role in addressing energy poverty in parts of Africa, striving to meet and exceed electrification targets set by individual nations. The report underlines the necessity for increased use of de-risking instruments and concessional financing to boost investment to the needed levels. Current funding mechanisms, although effective in some instances, are insufficient to catalyze the required industry growth.

In terms of investment dynamics, the sector saw $425 million distributed among 85 companies, with the composition of funding being $281 million in debt, $128 million in equity, and $15.5 million in grants. The Productive Use of Renewable Energy (PURE) deals witnessed a notable surge, doubling in funding to $65 million in 2023, reflecting a growing recognition of the economic benefits of renewable energy beyond basic electrification.

Furthermore, locally-owned and female-owned companies saw significant increases in financing, with local firms receiving double the investment compared to 2022 and female-led firms experiencing a 400% surge in funding. This shift indicates a broader diversification in the types of enterprises attracting investment, which is essential for fostering innovation and inclusivity within the sector.

Startups, particularly those focused on PURE applications like solar irrigation and cold chain technologies, also showed robust growth. These companies secured 34% of the total investment, underscoring the market’s acknowledgment of their potential to impact significantly on agricultural productivity and food security. However, while equity investments in household solar startups showed signs of recovery from the lows of 2022, they have yet to return to the peak levels seen in previous years, suggesting that more support is needed to nurture new companies that are crucial for broadening electrification.

One promising area highlighted in the report is off-balance sheet financing, which constituted 75% of the total committed debt in 2023. While currently dominated by industry leaders, broader adoption of this financing mechanism could catalyze further growth and innovation across the sector.

While the off-grid solar sector is at a critical juncture, facing significant investment shortfalls and economic headwinds, there are clear pathways to recovery and expansion. By leveraging new financing models, supporting diverse company profiles, and enhancing investment appeal through risk mitigation, the sector can still achieve its ambitious goals of universal energy access and significant contributions to sustainable development by 2030.

Source: ESI Africa

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