This blog was published on 27 July 2024.
Amid the complexities of policy and profit lies a meeting point where the private sector intersects with governmental incentives. The private off-grid solar industry in Africa exemplifies this intersection, bringing electricity – and with it, opportunity – to households across the continent. GOGLA, the global association for the off-grid solar energy industry, representing over 200 companies dedicated to providing energy access to communities still without electricity. From solar kit distributors to product manufacturers and software companies, GOGLA’s diverse membership plays a vital role in delivering sustainable energy solutions, transforming lives, and promoting economic growth throughout Africa.
Background: How Government Incentives Can Enable Energy Access
Public funding in terms of subsidies and/or fiscal incentives is a form of government assistance that keeps prices for consumers below market levels, raises prices for suppliers above market levels, or reduces costs for consumers and suppliers alike. Such measures work because of policies enforced by government, law, or even corporate responsibility promises. Customers in California or the Netherlands are using more renewable energy for their households because policies have been enacted to make things like rooftop solar panels more affordable through subsidies or tax incentives.
In Africa, specifically Cameroon, we see a nation of 26.55 million people that had an electricity access rate of 70% in 2020. Rural and urban electrification rates were 32% and 98% respectively. This discrepancy between rural and urban electrification rates isn’t uncommon – for context, it was only in 1953 that rural Americans could access electricity as easily as urban dwellers could. The 1936 Rural Electrification Act provided federal loans to create electrical distribution systems for Americans living in rural areas, which was the starting point for country-wide access to energy.
Across Africa, over the past 20 years, the private off-grid solar sector has stepped in to provide electricity access to communities that were otherwise not served. It has enabled millions of rural households to access clean, safe, and reliable solar energy solutions – though many lower-income customers still need financial assistance when it comes to purchasing energy or appliances. Through the years, the industry has grown without government mandates: donors, private investment, and huge strides in innovation have helped many companies get off the ground, but it’s absolutely imperative to bring more savings to the private off-grid solar energy industry for customers and businesses. In order for electricity access to truly scale and for SDG7 to be realised, energy costs need to be subsidized.
One way to help keep costs down for privately run off-grid companies (and in turn, their customers) is for governments to offer fiscal incentives and subsidies that benefit this private industry. But how exactly does that work? Who comes up with the ideas for exactly which tax incentives should be applied to which products, and how do we know when fiscal incentives really work?
GOGLA’s role: advocacy, policy influence, and technical expertise
Fiscal incentives in the form of VAT and Customs duty exemptions for the off-grid solar sector are usually proposed by several stakeholders and partners, including GOGLA – as a representative of the private sector actors and the industry. Through advocacy materials and analysis, GOGLA promotes national-level policy change to create a policy environment in which off-grid solar companies can operate. GOGLA frequently acts as the project manager coordinating and unifying the voices of this enormous coalition of private companies and industry stakeholders. Our influence in shaping policy directly derives from our robust membership of over 200 companies.
As an example, GOGLA was able to recently influence a national policy change in Cameroon along with APELCA (the local Industry Association), Power Africa, and other key partners. GOGLA members communicated with our policy team to emphasise We need products to be more affordable for low-income households. We used our industry expertise and strong connections to initiate a public-private dialogue. We crafted the industry position and lobbied for fiscal incentives with an exact list of specific solar products.
After a series of public-private dialogues, the government in Cameroon announced tax exemptions for a wide range of renewable energy technologies, including solar panels, solar home systems and solar batteries (full list here). The government also plans to assess PURE appliances such as solar refrigerators and solar mills for possible exemption during importation. With this step, Cameroon joins numerous countries and governments across Africa (Rwanda, Malawi, Liberia, Kenya and Zambia) that are recognising the importance of off-grid solar to achieve their energy access and climate goals by implementing tax incentives that favour the industry and renewable energy.
The Cameroonian government’s commitment to supporting the off-grid sector is a crucial step towards rapidly increasing the affordability and scalability of solar energy solutions. If designed and implemented effectively, this initiative is likely to attract significant investment into Cameroon. And by directing investment into off-grid solar projects, renewable energy reaches the people who need it most, ultimately improving the livelihoods of communities.
A Positive Start, but What’s Next?
Experience tells us there will be challenges in implementation, such as ensuring consistency and predictability in policy enforcement – and GOGLA is committed to continue supporting the government and industry in navigating these hurdles. As part of the proposed measures, a comprehensive implementation roadmap will be developed and impact assessments will be conducted in order to demonstrate the tangible benefits of the new policy.
GOGLA’s Policy and Regulation team proposes to create a study after some time to show the impact of this decision and how to implement more changes. We also propose a multi-sectoral off-grid solar coordination platform that can create a sustainable, scalable solution where the government, the private sector and development partners sit together, talk about the pain points of the sector and come up with action points.
The fact that Cameroon’s government is considering exemptions for PURE appliances, such as solar refrigerators, underscores its broader commitment to promoting sustainable development and addressing energy poverty. By extending support to innovative technologies beyond traditional lighting systems, Cameroon sets a precedent for embracing renewable energy solutions across various sectors.
Of course, the Cameroon government will want to see the impact of their bold decisions. As an industry leader in data collection and analysis, GOGLA can lead research and conduct impact assessments to track progress and demonstrate why sustained support for the off-grid solar sector is meaningful. We are confident that the end result of leveraging fiscal incentives will mean more energy access for all Cameroonians, leading to economic growth and more empowerment of underserved communities. While forgoing the revenue credit from VAT isn’t easy, the long-term gains of having a country with more energy access are worth it.
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Watch this space: GOGLA’s technical advice will be featured in an upcoming taxation handbook for Nigeria, Cameroon, and Zambia.