For our second episode titled ‘Managing currency risks in the off-grid solar market’ we were joined by our guests Brian Cox, President and CEO at MFX Solutions, and Per van Swaay, Sr. Vice President, Structuring & Sales at TCX, to discuss managing currency risks and hedging.
Here are our top key takeaways from the conversation:
1. The off-grid solar sector is vulnerable to foreign currency risk that jeopardises business and industry sustainability. Currency fluctuations are a feature of many African markets and the PAYGo model is susceptible given the high upfront costs in hard currency and returns over time in local currency. International lenders are key to the off-grid solar sector, both as a funder of early-stage companies and for scale-up of profitable players.
2. MFX Solutions and TCX have developed solutions for the MFI industry and adapted these to help off-grid solar companies manage this risk. Collectively, MFX Solutions and TCX are equipped with a range of instruments (including now for crowdfunding and securitisations) and ticket sizes to serve the entire development finance community. International lenders can now hedge their investment and lend capital to their borrowers in any national currency; it is no longer necessary to impose currency risks on the borrower or their customers.
3. Currency hedging is an important step in attracting local financial institutions to lend in local currency; it gives banks important data points in terms they understand, and helps companies get the track record and profitability they need to meet the criteria of local banks.
4. The question of affordability remains decisive for many players; the speakers encourage lenders and borrowers – and the industry at large - to consider the approach to forex risk management and growing a sustainable sector.
Today, 760 million people, more than the entire population of Europe, still lack access to electricity and are using products such as kerosene and candles to light their homes. For a majority, off-grid solar solutions provide the fastest, most cost-effective, and impactful way to gain access to life-changing, clean, electricity.
Off-grid solar improves health, safety, and opportunity for families across the developing world. It is powering small enterprises, boosting agriculture, and lighting clinics and schools, all while reducing millions of tonnes of CO2e.
The off-grid sector not only unlocks a huge impact but also creates significant financial opportunities. Among 31 off-grid solar investors surveyed in September 2020, 75% anticipate maintaining or increasing their level of investment into off-grid solar as they are “optimistic about the performance and potential of the OGS sector” and “remain bullish around the impact”.
Yet, the financing that the sector receives still needs to at least triple to reach universal energy access.
So far, impact investors, DFIs, and governments have been key to reaching 300 million households. To achieve sustainable development goals though, we need coordinated action to boost investment and drive financial innovation We urge governments, investors, and the international community to work with us to support the off-grid industry and power recovery from the COVID pandemic.
Hosted by: Laura Fortes, Project Manager, Investor Engagement, GOGLA
Produced and Edited by: Aletta D'cruz, Communications Manager GOGLA