Off-grid solar market investment growing, but off-pace for SDG7

GOGLA’s updated Investment Database shows a 44% growth in the off-grid solar industry in 2021, with total investment reaching a record $450million.

This record growth is a positive sign after five years of stable investment flow. Hopefully this new period of growth pushes the off-grid solar industry toward achieving universal access by 2030.

The updated investment data suggests market leaders in the off-grid solar sector are gaining the trust of new investors as they reach profitability. This newfound profitability rooted in diversification into energy-adjacent products such as mobile phones and digital finance has been driven by consumer demand. This shows that infrastructure built by off-grid solar companies has the potential to be maximised to respond to new consumer needs.

GOGLA information shows that climate-aligned and impact-driven investors have been particularly interested in entering the sector because off-grid solar aligns with their social, economic and environmental strategies. A good example is the $260m Sunking (formerly Greenlight Planet) equity raised in 2022, which doesn’t yet form part of the historic data in the updated database.

Off-grid solar start-ups need more equity and debt
The Association says the updated data shows that companies in the early stages of growth were more vulnerable to the negative impacts of the COVID-19 pandemic. They especially experienced increased difficulty in attracting early-stage capital, specifically in the form of equity

In 2021, the total equity and debt investment into start-up companies did grow, but it has yet to go back to pre-pandemic levels. In fact, to achieve SDG7 and climate goals in Africa, this funding would still need to grow multiple times over, particularly in the form of patient equity.

The seed and start-up phase of off-grid solar businesses have historically relied on grant financing to refine their business models and gain proof required by commercially oriented equity and debt investors that the business can succeed. The sector attracted around $10m in grants during 2021, directed specifically at earlier stage productive use companies and companies that are locally-owned and managed.

Deep-dive into the numbers
The GOGLA deal database captures investment trends in the off-grid solar market between 2012 and 2021, with support from GET.invest (the European programme supported by the EU, Germany, Sweden, the Netherlands and Austria).

44 New companies received first-time funding during 2021. This is up from the 34 of 2020. Most of the $120m equity growth in 2021 could be attributed to the largest players who had stopped equity investments altogether during 2020.

27 Companies received $120m in equity during 2021, compared to 19 receiving $133m in 2019. This is significantly less than the 300 companies and $6-11 billion of investment needed to achieve global electricity access targets.

Three-quarters of venture building grant capital released in 2021 was focused on the productive use of energy (PUE) companies and half of the grant capital went to locally-owned companies. All of the grant funding tracked during 2021 was directed toward start-up companies.

Investor companies sampled during data collection indicated the biggest driver behind increasing or maintaining off-grid solar investment allocations over the next three years is impact (48,78%), followed by diversification (19.51%) and risk/return profile (17.07%). Half of the investors indicated they expected to increase their total amount invested during 2022 by 10 to 20%.

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