This week, more than 350 decision-makers gathered at Unlocking Solar Capital Africa in Dakar to identify and tackle solar financing challenges. On financing off-grid solar, they discussed how companies can succeed better within the current market environment, but also on how the business environment is likely going to change in the next years
Here are some main learnings we took away from the conversations:
1. It’s all about good unit economics. Recent failures in the industry have resulted in investors being more focused on performance and sustainability of business models. Companies will need to have their unit costs economics under control, as the very basis for future profitability. Companies come up with very different responses on how to do this.
2. The right kind of debt. There is more debt available, which in itself is good news. However, loan terms matter and many companies cannot benefit from this trend yet. Particularly local currency financing remains evasive and expensive. To unlock debt funding from local financiers and other debt providers, they will need better data and indicators to allow them to assess and compare company performance transparently.
3. A bit of hope for starters and African entrepreneurs. Attracting equity investments remains a significant challenge, especially for starting entrepreneurs and African-owned companies. New players will need to demonstrate that they add value and impact – which they can do for example by focusing on productive use technologies powered by off-grid solar power. Fortunately, some of our partners announced exciting findings and initiatives designed to help local and early-stage companies:
- Catalyst Off-Grid Advisors and Open Capital Advisors launched VentureBuilder at the conference, a new approach to supporting African off-grid solar companies. The initiative is supported by DOEN Foundation, Shell Foundation, Facebook and USAID.
- Acumen presented its report on exits in the off-grid solar industry. More exits within the sector will allow early-stage investors to recycle their capital into new pioneering off-grid companies.
4. Entering of the big players. In recent months we’ve seen a larger number of strategic investors in the space, including Engie, EDF, Total, Shell, Mitsubishi, and Marubeni. It’s too early to say how this will affect the market and how much. But a change in competition dynamics is likely, as these multinationals bring cheaper capital to their investees, as well as more operational discipline and rigor.
5. Partnering with public funding. Off-grid solar is now firmly on the radar of governments and multilateral development banks. Several countries are reviewing how they can deploy public funding in innovative ways to stimulate faster market growth or a deeper reach – such as the World Bank-funded ROGEP program, which involves 19 West African countries. Growing government interest might however also lead to an increased push for regulation. How things will pan out will be very different from one country to the next – check out, for instance, the new country market briefings from USAID. It will be all the more important for the industry to continue conversations with governments and development partners in the “Community of Champions” format, or at the industry’s next major event, the Global Off-Grid Solar Forum in Nairobi.
GOGLA would like to thank its co-organizer Solarplaza, all sponsors, exhibitors, speakers, partners and attendees for making the fourth edition of Unlocking Solar Capital Africa a success.