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Since 2009 the off-grid solar energy has delivered quality energy services to hundreds of millions of people, something traditional electricity utilities had been unable or unwilling to serve, say World Bank analysts Dana Rysankova and Russell Sturm in a report for the organisation.
The report said that in 2009 off-grid solar was almost completely unknown as Lighting Africa kicked off in Kenya. Today the industry is thriving across sub-Saharan Africa, Asia, and beyond.
While in 2010 only six products met Lighting Global Quality Standards –today nearly 40 million units of over 150 quality verified products have been sold. A gray market of less reliable products also flourishes alongside, the report observes.
The impact of this growth is seen in Nigeria in thousands of new connections established daily in rural areas where grid electricity is non-existence. With over 80 million people without energy access in Nigeria and the utilities burdened by liquidity constraints, the off-grid energy sector is poised to close the gaps.
“The off-grid energy sector has been succeeding primarily on commercial terms, with over $500 million in investment pouring into the sector in the past two years. Electrification in Sub-Saharan Africa is now out-pacing population growth – which is largely attributed to off-grid solar expansion,” says the report.
New businesses have been created and it has helped stir competition. “One of the signs of a healthy dynamic is increasing levels of competition. These competitive forces stimulate innovation, efficiency, and reach, strengthening an industry’s long-term viability and building market resilience.
The story of the older and more mature solar PV manufacturing sector provides context for the younger off-grid solar industry: In 2012 alone, at the peak of the solar PV manufacturing industry’s shake-out period, some 40 companies closed operations and another seven companies were absorbed or acquired by other companies in the sector. And yet, today, that industry continues its upward path and has been the forebearer and enabler of a global energy revolution in the electricity sector, the report said.
The report said the attractiveness of the off-grid solar sector has always been its ability to deliver social impact in a financially viable way. These returns have motivated impact investors and DFIs to support early stages of the market’s development. In the past two years, more commercial investors have entered the market, driven by prospects of financial returns. Meanwhile, governments and development-focused investors have been increasing pressure on companies to reach faster, farther and deeper into the markets. The result has often been competing pressures to deliver both profitability and social impact in unrealistic timeframes; such promises frequently belie the early-stage nature of these markets.
The World Bank report now cautions that there is need to apply a dose of realism in the pursuit of energy access goals. “Social objectives must be considered in light of unit economics and pricing constraints, while speed of growth targets, will need to realistically reflect real-time learnings from the market and allow for refinements.
“The business models that have enabled the off-grid solar industry to reach previously unbanked, remote customers need time to mature before they can be stress-tested in an accelerator. It’s a steep learning curve for these companies, but developing a firmer focus- on operational efficiency, an exceptional grasp of the nuances of local markets, adaptive management, and clear communication- will help the industry to navigate the challenges of next-stage growth.”
It said that is key to buy investor support for management that targets fundamental performance over a singular focus on growth. Development-focused investors can engage with governments to build the enabling environment that can reduce the costs and risks of doing business, all the while engaging local financial institutions to establish a sustainable source of local currency. The Governments and their development partners can intelligently use public finance to support the industry to reach remote markets that cannot be served on a fully commercial basis.