A solar panel connects to a water pump, which in turn connects to an irrigation system. It may not sound fancy, but this clean-powered technology is changing the lives of tens of thousands of smallholder farmers in rural areas of Africa without access to electricity.
By watering daily, farmers can increase crop yields between two and five times, depending on what they grow, says Tanguy Boussard, chief strategy officer at Kenya-based SunCulture, the company selling the product.
“The impact here is tremendous. It’s the first part of the value chain,” Boussard said. “[Farmers] press a button and they irrigate everything in an hour as opposed to several hours — so it completely changes their day.”
The cleantech irrigation solutions SunCulture offers to over 40,000 customers in Kenya, Uganda and Cote d’Ivoire are part of a growing mix of so-called off-grid systems that ensure electricity can reach remote rural areas in low-income countries even in the absence of a national power grid.
Since big infrastructure projects (such as building new transmission lines) are costly and slow to take off in lower income countries, innovative off-grid setups are gaining traction in the climate financing world as a way of more quickly and efficiently solving an energy access problem affecting hundreds of millions of people.
Money is starting to pour in through a mix of channels — multilateral and national development banks, philanthropies and private investors — showing how access to electricity empowers communities to grow their economies. This development, in turn, makes these regions more attractive for future energy investments.
Yet these solutions are also more challenging business propositions due to the higher cost of capital in developing countries, as Cipher previously reported — and companies say they need more financial back-up to scale-up projects for a lasting impact on the ground.
Off-grid electricity systems fall into two main categories, according to the Alliance for Rural Electrification, an international business association based in Brussels: stand-alone systems and mini grids.
Stand-alone systems are small electricity systems that provide power to individual appliances (from solar-powered flashlights to fridges), entire homes or for productive uses, such as SunCulture’s irrigation systems. Mini grids also work independently from a national transmission grid but supply power to a larger number of concentrated consumers, like an institution or a whole village.
Both present financing challenges. Bringing these solutions to people is the first step. Getting people in these low-income communities on board is the second.
SunCulture uses a so-called rent-to-own model. After a small deposit, farmers pay the company a monthly installment, usually over three years, with a maintenance program included. Once the three years are up, the farmer fully owns the irrigation system. About 75% of the company’s sales fall under this rent-to-own model, and only 25% of farmers choose to pay for the product upfront, Boussard said.
A big challenge is that many of these smallholder farmers don’t have a bank account, which means they cannot get a loan through the bank to pay their deposit. SunCulture had to come up with its own credit assessment process.
“We are not a bank, yet we are one by default, because no one wanted to do it,” said Boussard.
SunCulture is expecting to break even this year in its home market of Kenya, where about 95% of its customers are, after launching the rent-to-own system in 2018. Its financial capital comes through a mix of sources: venture capital funds and debt, as well as some grants from donors and philanthropic funds.
That’s the usual setup for companies in the off-grid sector.
Last year, the off-grid solar industry received a total investment of $746 million, a 63% growth year-on-year, according to a report from GOGLA, the global off-grid association representing companies working to provide stand-alone systems. Out of that amount, $395 million was in equity, $340 in debt and $11 million in grants. For the first time since 2016, the sector attracted more equity than debt. The assessment does not include mini grids.
About 745 million people don’t have access to electricity worldwide, with 80% of them in sub-Saharan Africa, putting the world behind in meeting one of its key sustainable development goals of ensuring everyone has access to clean and affordable energy by 2030.
The industry needs to see more “blended structures,” bringing in more cash from philanthropies and national development banks that can “put capital as a cushion to attract more private investment,” said Laura Fortes, senior project manager for access to finance at GOGLA.
To reach the global 2030 energy access goal, 1.1 billion people need off-grid solar systems, about half of them new customers and the other half replacing old systems, according to a 2022 market report by GOGLA, the World Bank and other organizations. In this report, off-grid solar systems refer to a combination of solar lighting and home systems, but not mini grids.
Another sign financing is picking up across the wider industry is a recent announcement from clean energy company Husk Power Systems that it plans to install 500 mini grids in Nigeria over the next five years after raising $103 million in equity and debt at the end of October.
Investors include Shell Ventures, the United States International Development Finance Corporation, Sweden’s Development Finance Institution Swedfund and the Dutch development bank FMO. The International Finance Corporation (IFC) and the European Investment Bank (EIB) were among those providing the debt component.
Nigeria is seeing an increase in solar mini grid projects, with private investors showing growing interest in the country.
But it’s not happening fast enough. According to the World Bank, powering 380 million people in sub-Saharan Africa by 2030 will require the construction of more than 160,000 mini grids at a cost of $91 billion. At the current pace, only about 12,000 mini grids serving 46 million people will be built.
“We’re still pulling teeth,” William Brent, chief market officer at Husk Power Systems, said recently in an interview, before the company’s financing round.
What’s missing is more money to de-risk these kinds of solar solutions, especially from countries’ national development banks, Brent added.
On top of installing the mini grids, Husk Power Systems also sells electric appliances.
“We’ve come up with a business model that essentially not only addresses electricity supply in these communities, but also stimulates economic development,” he said.
Mini grids also help displace diesel generators, firewood and kerosene lamps, making communities overall more resilient, said Sonia Dunlop, CEO of the Global Solar Council, a non-profit based in Washington D.C. representing the global solar industry.
“It’s absolutely transformational when electricity comes in a village through a solar mini grid,” she said.
Solar mini grids “have the potential to empower rural communities, especially the youth and women,” Damilola Ogunbiyi, CEO of the international organization Sustainable Energy for All and a top UN official on energy access told Cipher via email.
It is encouraging more money is flowing to the sector, Ogunbiyi said, “however, there is still a long way to go for the off-grid renewables sector to achieve its full potential.”
Back at SunCulture, Boussard said he knows companies like his are just one piece of the wider electrification puzzle but emphasized the development and economic spillovers from something as simple as proper irrigation.
“This is just the first step of the ladder, the goal is to allow [farmers] to grow further,” he said. “We would have failed if these guys were still using the same pump we sold them a few years ago. As soon as you started that engine of productivity, it shouldn’t stop.”
Bill Spindle contributed reporting.