Solar Business Models: Will investors ever see the light?

Christine Saffold

December 17, 2019

Sub-Saharan Africa has the highest share of electricity output from fossil-fuel back-up generators in the world¹.

It’s time to aggressively pursue alternatives to the status quo. The use of diesel generators is a band-aid, not a long-term solution to inconsistent grid electricity, due to expensive ongoing fuel costs and detrimental environmental effects. The continent will suffer from hampered productivity and stagnant economic growth if massive action is not taken to increase access to reliable electricity.

Distributed renewable energy solutions, such as solar power, have been hailed as a promising way for Africa to leapfrog developed markets, akin to how mobile phones have leapfrogged landlines in the telecommunications industry. Is distributed solar energy a viable investment opportunity that can meet the electricity needs of Sub-Saharan Africa? If so, which business model works best? This paper explores the solar business models in the market and recommends next steps.

State of the Market

The grid is unavailable or too expensive for 840 million people globally, of which almost 70% live in Sub-Saharan Africa².

Rates of access to electricity from grid and off-grid sources, measured in percent of total population, vary widely and are summarized in this figure published by Baobab Insights.

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Access to electricity in urban areas shows signs of progress, but there is a long road ahead in rural areas. Some studies indicate that building off-grid solutions would be more cost-effective than extending the grid to places it has not yet reached, but large private companies that governments hire to do grid metering, servicing, and distribution are resistant to players they see as competitors that threaten profits. Market entry has not been easy for distributed solar companies, but the market is growing. Almost 4 million off-grid solar products were sold in Sub-Saharan Africa in 2018, more than any other region³.

To assess the landscape of investment opportunities, let’s evaluate each business model along the following dimensions:

- Product longevity

- Lifetime value of a customer

- Scalability

- Investability

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Solar Lamps & Lanterns

Solar lanterns are the largest category of all off-grid solar products sold worldwide, with Sub-Saharan Africa accounting for 51% of global sales².

While solar lantern producers have provided a light source to many, especially in rural areas, the business model is not scalable due to high capital expenditures, low lifetime value of customers, and because it requires other pieces of the puzzle (in particular, reliable road networks) to reach customers. Lanterns’ minimal power output is often insufficient for household electricity needs.

Companies operating in the lamp/lantern market in Sub-Saharan Africa include Greenlight Planet’s Sun King line of products and d.Light’s solar lanterns. Since its start, d.Light has expanded beyond lanterns and now also offers several solar home systems, which we will discuss next.

Solar Home Systems

Solar home system (“SHS”) businesses beat solar lanterns on lifetime value of a customer and investability, as providers can charge higher price points for their equipment and have greater cross-sell and up-sell opportunities, such as accessories, more powerful batteries, refrigerators, and water pumps, along the customer journey. Most SHS businesses use a “Pay-As-You-Go” (PAYG) model, acting as both SHS retailer and credit financing company to allow customers to pay for the equipment over time.

Several SHS providers have gained traction, such as PEG Africa, which operates in Ghana, Senegal, and Ivory Coast. PEG’s anchor product is a solar home system that includes six lights, a phone charger, a radio, and a TV, allowing consumers living on $5–10 per day to access power⁴.

Other SHS businesses in the region include BBOXX, Fenix International, Lumos Global, M-Kopa, M-Power, Oolu Solar, and Zola Electric. Per M-Kopa, 87% of the company’s customers in the East African region have noticed an improvement in their children’s school grades since they started using M-Kopa solar products, which allow them to increase their study time.

While SHS companies have clearly gained a lot attention and funding over the past decade, there are still questions around whether they can become profitable and continue to scale with endless working capital and distribution challenges.


From a business model perspective, solar minigrids appear to be the clear winner. These independent power facilities are cost-effective and can be designed to meet the individual needs of the community and make power reliable and affordable to its users. The risk of not recouping the costs of setting up a minigrid network, connecting users, and delivering power is mitigated because costs are spread over a group of power users. There are funders who are willing to invest in minigrid assets up-front and then collect cash generated from metered usage, and more investors need to step up to the plate.

Nicole Poindexter, CEO of Energicity, which operates through subsidiaries in Ghana, Sierra Leone, Nigeria, and Benin, breaks the business down simply: “We’re a mini Con Edison. We produce electricity and sell it to customers. We have smart meters that calculate how much electricity customers use, and the customers pay on a prepaid basis.”

Minigrid operator Powerhive navigated the regulatory bodies of Kenya to become the first company to receive a utility concession from the Kenya Energy Regulatory Commission (“ERC”). Powerhive’s 25-year license to operate in Kenya as the country’s first private utility ends the public utility’s monopoly and is a show of support for off-grid solutions. Per Dr. Frederick Nyang, director of economic regulation for the Kenya ERC: “The Powerhive permit was granted in recognition of the fact that grid expansion is not always the most economical choice to expand energy access; off-grid alternatives have a role to play.⁵” Investors cannot let this be ceremonial; this shift creates momentum that the market should build on.

Other minigrid operators focused on Sub-Saharan Africa include Arnergy, Consistent Energy, Oniti Energy, PowerCorner, PowerGen, Redavia, and Rensource.

I advocate the following next steps:

1) Focus investment capital on minigrids

Investors should increase their capital commitments to minigrid businesses serving residential communities and small and medium enterprises (“SMEs”). Over the long-term, minigrids are the most scalable and efficient way to deliver energy to all types of customers, from residential to commercial to industrial and from urban to peri-urban to rural. Making energy costs more predictable and stable for SMEs will provide visibility that can help day-to-day operations run more smoothly. Eliminating the loss of business due to electricity outages stabilizes profits, which in turn creates jobs and increases incomes. This is a win-win for Sub-Saharan African economies.

2) Decouple the financing component of PAYG companies

By vertically integrating with production, distribution, and financing of assets for customers, PAYG companies are hampering their own growth. SHS providers are not banks, nor should they be, so they should partner with companies whose “bread-and-butter” is underwriting loans to make credit options available to customers. To help lenders make informed credit decisions, a creditworthiness assessment tool for residential and commercial solar customers is a promising business opportunity in the distributed energy market.

3) Institute industry standards

Client protection principles will be important as distributed solar businesses scale. The microfinance industry implemented The Smart Campaign to protect clients against predatory lending practices. Solar companies that sell their products to customers on credit should adopt similar principles to demonstrate their dedication to keeping the interests of customers first, such as the principles proposed by Brightlife CEO Stefan Grundmann.

The market is characterized by enormous untapped demand from potential customers who deserve solutions that meet their needs but may not trust or fully understand solar businesses. An ideal next step is an assessment tool that quickly and concisely conveys the following to potential solar energy customers: whether they qualify for a solar solution, what product(s) would be a good fit for their power needs, and an estimate of how much they would save on electricity bills by making the switch to solar.

To advance this market that is still leaving so many in the dark, massive action is required from all players. With all funders, from first-loss donors to late-stage equity and debt firms, at the table, we can eliminate generator-dependency, dramatically increase electrification rates, and create a robust off-grid energy market.


1) IFC, The Dirty Footprint

2) World Bank, Tracking SDG 7: Energy Progress Report 2019

3) GOGLA, Off-Grid Solar Market Report July-December 2018

4) PEG Africa Website,

Clean Leap

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