Image: Little Sun
GOGLA, along with Solarplaza is gearing up for Unlocking Solar Capital (USCA) in Dakar next week.
In the run-up to the event, we organized a webinar to unpack investors’ perspectives around the path to profitability in the sector. Together with Leslie Labruto (Acumen), Eda Henries (Persistent) and Geoffrey Manley (CDC), we discussed some of the sector’s most prominent topics, including sustainability, sector unit economics, scalability, and growth.
The webinar left us with some pressing questions from you, our audience. In this blog, Eda Henries from Persistent, picks up some of the unanswered questions, talking about investments and market demand in the off-grid solar sector, business models and growth of companies within the sector.
1. From an investor’s perspective, what are your thoughts on defaults from some of the 1st generation off-grid solar companies? Is it likely to affect the cost of capital?
While there has been some initial pullback on the heels of the recent defaults or insolvencies, funders do remain largely committed to the sector. A few things we have seen changed – increased scrutiny around the path to profitability (particularly cash profitability) and increased openness to funding smaller and more unbundled second-generation players. The impact of the latter is yet to be seen given the dearth of early-stage capital we’ve seen in the sector. However, the fact that capital allocation has largely been concentrated with the larger players is increasingly being challenged.
2. How would investors and lenders see a market demand when 90% of people are below the poverty line? How would solar home system companies be profitable and especially in cash terms?
Better product-customer fit along with more patient and concessionary capital is needed to address affordability. Current product costs and the cost of building large distribution networks are still high enough that many low-income customers will require subsidies. Failure to acknowledge this fact and put into place the proper frameworks that allow these customers to be reached will likely stymie the large-scale aspirations of energy access.