Context and Key Definitions Over the past decade, the biennial Lighting Global/GOGLA Market Trends Report has been the anchor of the Lighting Global/GOGLA franchise of market data and trends reports, which are the go-to source of sector information for investors, industry members, policymakers, and other stakeholders in the sector. The series includes semi-annual reports that track sales and impact results by country, region, and worldwide for Lighting Global Quality-Verified and other branded solar devices sold by GOGLA members. The Off-Grid Solar Market Trends Report is where we step back and dive deep into trends in the sector to deepen understanding among market players and illuminate the pathway forward. Geographically, this report covers Sub-Saharan Africa, South Asia, and South-East Asia. energy” will require not only reaching currently unserved populations, but also helping those using below Tier 1 products move up to Tier 1 systems. Growing sales of larger systems that can provide at least Tier 1 service indicates progress towards that goal.
While the total potential market as a result of unreliable grid exceeds one billion people, only a subset of
these people are realistic customers for OGS backup energy products. Although unreliable grid populations are increasingly important markets for OGS products, market penetration remains relatively low against the large number of people with unreliable grid connections. Countries for which data are available, supported by consultations with industry stakeholders, suggest that OGS devices currently reach only 5 percent or less of unreliable-grid users, even in markets where the grid is very weak.29 Nonetheless, anecdotal evidence and interviews with companies show that unreliable grid populations are increasingly viewed as an important growth market for OGS companies, particularly in South Asia. As a realistic benchmark of what could be reached in the coming five to 10 years, we estimate one in four people with an unreliable grid connection may also buy an OGS product, which would bring the market down from more than one billion to around 250 million people.
The OGS market has evolved rapidly beyond lighting and consumptive energy services for households and microenterprises, offering a range of PULSE applications. Demand for dual-use appliances (providing both residential and productive use services), as well as demand for SWPs, cold storage solutions, and solar milling solutions for smallholder farmers, is substantial and expected to grow.
SEVERAL SIGNS INDICATE THE INDUSTRY’S GROWING FINANCIAL MATURITY, SUCH AS AN INCREASE IN DEBT INVESTMENTS AND LARGER INVESTMENT SIZES. As of the end of 2019, the OGS sector had attracted more than US$ 1.5 billion in investment, with growth in the early years primarily driven by equity, and debt becoming more common recently.40 From 2012 to 2018, capital investment in the OGS sector grew at a 50 percent compound annual growth rate (CAGR), with investments in 2018 reaching an all-time high at US$ 352 million (Figure RS 10). The decline in 2019 should not be cause for concern but is rather symptomatic of (1) the concentration of investments in First-Generation companies, which raise debt funds cyclically, and (2) the long time horizons on debt deals. A number of First-Generation companies raised significant debt in 2017/18, so the decline in 2019 is unsurprising; several First-Generation companies are expected to close large debt financing rounds again in 2020. In addition, increasingly large and complex debt deals are taking longer to close, with the anticipated announcement of around US$ 100 million in debt delayed from 2019 to early 2020. This puts 2020 on course to be a bumper year for debt investments, potentially driving total annual investment to an estimated all-time high of US$ 385–420 million.
clearly define the role of main grids, mini-grids, and OGS technologies. Open-source tools are emerging to make geospatial planning tools widely available, in particular with the launch of the Global Electrification Platform (GEP) in November 2019.44 The World Bank and ESMAP have supported or are in the process of supporting geospatial least-cost electrification plans in 20 countries. Other development partners, such as GIZ and Power Africa, are providing additional support. Best practices for OGS integration into national electrification programs are now emerging. Togo and Ethiopia are among the successful examples of how OGS has been incorporated into national electrification plans to catalyze demand and facilitate suppliers’ routes to market. In Togo, a clearly defined role for OGS technologies, transparent licensing requirements, and government support to relieve key market barriers has attracted private-sector operators. Similarly, Ethiopia has set a clear national policy framework for the country’s pathway to universal access, using OGS as both a transition and a long-term solution. Meanwhile, Kenya is leading the way in demonstrating how government support can unlock hard-to-reach and low-affordability customers by providing targeted local currency financing and results-based incentives. All three countries have also adopted favorable tax regimes for OGS products.
The “Key Drivers” are current high-impact market trends that we think are likely to accelerate going forward, enabling our projected growth scenario. The “Low Hanging Fruit” are also high likelihood but lower impact, and will influence our projected growth scenario to a lesser extent. To achieve SDG7, the “Tipping Points” have the potential to propel the OGS sector towards faster growth to close the universal access gap by 2030, but are lower likelihood and will require support across a range of sector stakeholders. Along the way, sector stakeholders may also help support the lower priority “Small Wins” that will have incremental impact on sector growth.
The Off-Grid Solar Market Trends Report (MTR) has been established over the past 10 years as the report of record for the off-grid solar (OGS) industry. In 2020, this report is jointly undertaken by Lighting Global, GOGLA, and ESMAP, produced in partnership with Vivid Economics and Open Capital Advisors and aggregating insights from more than 100 consultations with key industry players.
The sector has appreciably matured over the past two years. The OGS sector has grown from a US$ 1 billion market in 2017 to US$ 1.75 billion in 2019, but this has only scratched the surface; 1.8 billion people remain in need of improved access to electricity. The unreliable-grid population has also become an important new customer segment. Investors have doubled down, deploying US$ 1.5 billion in cumulative investments in 2019, up from US$ 931 million in 2017. Governments are realizing the importance of the OGS sector to achieving their 2030 universal electrification targets, complementing grid-extension, and mini-grids to reach underserved areas more cost-effectively.
THE STATE OF THE OFF-GRID SOLAR MARKET The off-grid solar sector has grown tremendously over the past 10 years into a vibrant, US$ 1.75 billion annual market, which remains on a solid growth curve. The sector is currently serving 420 million users. From 2017 to 2019, revenues grew rapidly at 30 percent annually, while sales volumes grew at 10 percent annually. A shift towards higher-priced Pay-As-You-Go (PAYGo)–enabled products that provide higher levels of energy service has
driven this rapid growth in sector turnover. While pico products still comprise around 83 percent of all sales since 2010, the growing reach of larger SHS products means that over half of off-grid solar customers now receive “Tier 1” access or higher to a clean, modern, and reliable source of electricity.
Trends in technology, such as declining manufacturing costs and increasing appliance efficiency, have
sustained this shift towards larger systems. SHS manufacturing costs have declined by approximately 5 to15 percent over the last two years. There are also now highly efficient DC appliances on the market, representing an increasingly cost-effective option for users. The combination of continued efficiency gains for appliances, declining manufacturing costs, and the use of the PAYGo business model to increase affordability will continue to accelerate the shift towards larger, higher-margin SHS sales in response to growing consumer demand for appliances and backup systems.
In 2017, the industry reached a significant milestone, hitting US$ 1 billion in annual turnover. Since then, turnover has continued to grow to US$ 1.42 billion in 2018 and will reach approximately US$ 1.75 billion in 2019. This represents an annual growth rate of 30 percent from 2017 to 2019 (Figure 1).
This report focuses on the potential market for OGS products in major energy-access deficit markets across Sub-Saharan Africa and Asia–Pacific (Figure 31). Over the last two years, some countries in these regions have continued to make strides towards universal electrification, most notably India, where almost 100 million people gained new access between 2017 and 2019. Despite this progress, global demand for OGS remains high across households and microenterprises that currently do not have electricity access, and among people using an unreliable grid connection, although the entire market cannot be addressed and reached through commercial business models. While markets with major energy access deficits in Sub-Saharan Africa and the Asia-Pacific region account for the majority of OGS sales to date, low-access countries such as Yemen in the Middle East, or Haiti in Latin America and the Caribbean, provide additional market opportunities.
grid electricity may be more willing to purchase OGS alternatives. Potential customers in the Democratic Republic of Congo, Papua New Guinea, and Rwanda should be more willing to consider an OGS product than customers elsewhere, as consumer affordability of grid electricity in these countries (both tariffs and connection fee) is much worse than, for instance, in the Philippines, Indonesia, and Myanmar.220 For electricity needs beyond the basics, households, and microenterprises currently using backup generators are potential customers for larger OGS products—if those products can provide the same (or better) quality of service. In South Asia, grid-connected and off-grid people are almost equally likely to use a generator, suggesting that demand for backup energy systems may not necessarily be eroded by higher rates of grid electrification (Figure 42). Off-grid households, however, spend larger amounts on fuel than on-grid households, using their generators more intensively (Figure 43)
The OGS market has evolved rapidly beyond lighting for households and microenterprises, offering a range of Productive Use Leveraging Solar Energy (PULSE) applications. Demand for dual-use appliances (providing both residential and productive use services), as well as for solar water pumps (SWPs), cold storage solutions, and solar milling solutions for smallholder farmers, is substantial and expected to grow. Figure 45 provides an overview of the potential market as currently defined by recent studies on PULSE for households, microenterprises, and smallholder farmers.
SOCIOECONOMIC AND ENVIRONMENTAL IMPACT An estimated 420 million people worldwide are currently benefiting from off-grid solar (OGS) products, of which 231 million currently receive Tier 1 or higher access to electricity. Off-grid devices are now almost universally accepted as a vital technology not only for achieving Sustainable Development Goal (SDG) 7 but also for enabling several other SDGs. Off-grid products improve households’ access to affordable, reliable, sustainable, and modern energy, which in turn enables wider socio-economic benefits for households, communities, and nations, as well as benefits for our shared planet. This impact potential of the OGS sector attracted large amounts of impact capital and donor funding, helping build the sector to where it is today.
A large unconnected population, an unreliable grid, and few OGS companies in the market offer a huge
opportunity despite challenges such as low affordability, high taxes, presence of low-quality componentbased systems, and poor infrastructure. With a nationally reported access rate of 9 percent (1 percent rural, 19 percent urban), the Democratic Republic of Congo is one of the least electrified countries in Africa.413 Most of the country is not covered by the national grid (more than 50 million people live beyond its reach) and will remain so because investments are limited compared to the country’s sheer size. Alternatives to OGS, such as diesel generators and component-based systems, tend to be expensive in the long run, of poor quality, and potentially dangerous. As such, the several large, densely populated urban areas with unreliable or no grid connectivity, such as Kikwit or Mbuji-Mayi, offer attractive opportunities for off-grid companies. Furthermore, the national government, via
the National Investment Promotion Agency, is leading initiatives to improve ease of doing business in the country. Development partners, such as the World Bank, are supporting the solar energy sector through a results-based financing (RBF) scheme set up via the Electricity Access and Services Expansion (EASE) project to enable increased consumer awareness and uptake of OGS products.