This blog was published on 20th October 2023.
Carbon finance is generating much excitement in the distributed solar industry though the opportunity remains tantalisingly out of reach for most companies.
GOGLA is hosting a six-part webinar series for our Members only, with the aim to increase our collective understanding of this potential additional revenue stream and explore the requirements for the off-grid solar (OGS) sector to create and sell high-integrity offsets. It will showcase initiatives and service providers, to give you new insights and help you make new connections on your carbon finance journey.
The introductory session provided an overview of the voluntary carbon market, its opportunities and challenges and entry points for different industry stakeholders.
1. Carbon finance is a hot topic in the off-grid solar industry
A lot of people from a lot of companies and investors among the GOGLA Membership participated in the call, some had already secured revenues from carbon finance, some were developing projects, others were at a coping stage / considering it.
2. Off-grid solar technologies displace dirty diesel and kerosene to make carbon finance an attractive opportunity though challenges remain.
The carbon finance ecosystem is complex, with many players and models.
Project developers (i.e. OGS companies) need capacity development and access to finance. The investment required before a company can start selling carbon credits, from the process of documentation through registration and commercialization is significant and may run into hundreds of thousands of US dollars. There are a number of intermediaries emerging to address the complexity; this is a topic for an upcoming webinars in this series.
3. Carbon finance offers the potential to improve profitability and enhance access to investment. But it’s not a slam dunk.
A single Solar Home System (SHS) today offsets in the range of 0.1 – 0.3 tCO2e, with the carbon revenue potential offering a Net Present Value (NPV) in the order of $10 – $20 per unit ( depending indeed on the baseline, methodology, and carbon price). This is an order of magnitude lower than cookstoves. This marginal benefit makes it more difficult to prove additionality (on a financial basis), though there are positive trends. Digitalisation could be a game-changer for Monitoring, Reporting and Verification – making it cheaper and easier to create higher quality carbon credits. Rigorous new methods and tools are creating higher integrity offsets that could command higher prices.
Carbon revenues add to sales revenue, but are not sufficient to fully address the affordability gap that remains for most of the currently unelectrified population. It is a de-risking instrument that can help catalyse more investment.
4. Demand for high-quality credits is growing.
The Africa Carbon Market Initiative is building a pipeline of Advanced Market Commitments (AMCs) of $1bn by COP28 and buyers are demanding more of us on transparency and integrity.
Ensuring transparency and integrity of underlying credits are thus essential, leading to higher prices.
5. Carbon finance has a long and bumpy history – Now is the right time to look into carbon finance again.
There are opportunities for the industry to collaborate to accelerate carbon finance in the off-grid solar sector. Keep an eye on the GOGLA website for key takeaways from the ongoing webinar series, and learn more about initiatives and opportunities to get involved.
We would like to thank our partners and speakers – Catherine Allinson, Director, Future Earth, Susie Wheeldon, Head of Communications and Insights, GOGLA, Sebastian von Wolff, Head of Finance Advisory, GET.invest, Kigen Chelimo, Principal, Open Capital Advisors, Dennis Nderitu, Manager Energy Systems, The Global Energy Alliance for People and Planet (GEAPP), Erik Wurster, VP Environmental Markets and Sustainability, BioLite – for their insightful contributions towards the first webinar in the series.