Developing Harmonized Metrics for PayGo Solar

Over a billion people lack access to electricity; traditional alternatives have fallen short in their environmental performance and reach. Distributed solar, specifically Pay-as-you-go has emerged as a leading business model for alternative energy systems.

Offering consumer financing has proved to be a very successful business model, but needs large amounts of working capital to scale. High perceived and actual risk is limiting growth by restricting access to necessary financing and companies are struggling to finance annual growth of 200%-300% using balance sheets. Key risks of the industry include: Lack of information on credit quality of the off taker; Local currency exposure; and Lack of meaningful collateral for collection purposes.

Harmonized industry KPIs combined with data sharing and benchmarking can help unlock necessary commercial finance. Specifically it would: Enhance investor confidence and decision making speed from better pricing of risk and comparable investment prospectus; Help companies understand their business and competitors better by establishing industry benchmarks on certain KPIs; and Help companies improve their customer targeting and credit risk assessment, thereby lowering overall risk of the investment portfolio. This could lead to future annual investment of up to US$5 Billion if investor confidence is increased and financial products to scale the industry across portfolios are being developed.
Champion

Anna Lerner

Energy & ICT Specialist
The World Bank Group

TEAM

Russell Sturm, Head Lighting Global, IFC
Koen Peters, Executive Director, Global Off-Grid Lighting Association
Matthew Gee, Principal and Founder, Impact Lab
Peter Mockel, Lead Industry Specialist, IFC

Key metrics

Metrics Value
Current market size $60m
Current annual investment $160m
Market opportunity $2.88bn in 2020
Potential scale of intervention $5bn in 2020

Opportunities for involvement

  • Help mainstream KPIs when investing in the PAYG sector
  • Partnership for expansion to target markets beyond SSA
  • Grant financing to enhance intervention
  • Facilitate structure of innovative financial instruments like ‘industry-wide securitization’
  • Support acceleration of early stage off-grid energy companies
"PAYG solar is a new and growing sector with potential to deliver energy access to millions of people. However, expansion at scale requires greater involvement from commercial investors. This intervention targets the need in an actionable way."
- The FiRe Team

Scope

  • Sector: Off-grid solar energy
  • Geography: Sub-Saharan Africa (market testing), LAC, Asia

Action plan

  • Develop language to quantify and characterize investment risks (KPIs) (3/2016)
  • Collect company performance data to ensure data-driven KPI framework (3/2016)
  • Draft industry wide guidance on definitions and metrics for such KPIs (4/2016)
  • Launch open source data collection tool and online benchmarking platform (6/2016)
  • Market test KPIs in investments (6-12/2016)

Main barriers

  • Winning the confidence of credit rating agencies and commercial investors
  • Unknown underlying performance of end-customer
  • Lack of meaningful collateral for collection purposes
  • Local currency exposure

Contact