Funding the sun: New Paradigms for Financing Off-Grid Solar Companies

106 Pages Posted: 18 Feb 2021

See all articles by Davinia Cogan

Davinia Cogan

Cambridge Centre for Alternative Finance

Jonathan Coony

World Bank

Alex Hazoury

Cambridge Centre for Alternative Finance

Dana Rysankova

World Bank

Malcolm Cosgrove-Davies

World Bank

Michel Rauchs

University of Cambridge - Cambridge Centre for Alternative Finance

Tibor Kludovacz

World Bank - International Finance Corporation (IFC)

Tania Ziegler

University of Cambridge - Cambridge Centre for Alternative Finance

Bryan Zheng Zhang

Cambridge Centre for Alternative Finance, Cambridge Judge Business School, University of Cambridge

Robert Wardrop

University of Cambridge - Cambridge Centre for Alternative Finance

Kieran Garvey

University of Cambridge - Cambridge Centre for Alternative Finance

P. Raghavendra Rau

University of Cambridge

Martino Recanatini

University of Cambridge - Cambridge Centre for Alternative Finance; Polytechnic University of Marche

François Rostand

University of Cambridge - Cambridge Centre for Alternative Finance; University of Cambridge - Department of Chemical Engineering and Biotechnology

Date Written: January 22, 2021

Abstract

This report is a collaboration between the Cambridge Centre for Alternative Finance and the World Bank, examining the new paradigms for financing off-grid solar companies. It explores the potential interplay of innovative financing channels and instruments with more established methods and provides a roadmap for practitioners, financiers, and entrepreneurs navigating capital raises for companies active in the sector.

Highlights from the report

Substantial new financing sources need to be identified, sourced and advanced – despite the sector generating almost $4 billion in sales as of 2018, it is estimated that to achieve Sustainable Development Goal 7, a further $26 billion in financing is required.

Established financing channels are not acting quickly enough – there is mismatch between the structure of traditional financial instruments available and the underlying business models of companies in the OGS sector. Whilst some established financing channels, such as bank finance, remain important, they fail to address the nuanced needs of OGS companies across the business lifecycle.

The OGS sector and its value chain bring unusual financing challenges – the dominant OGS business model (vertically integrated PAYG) has added consumer finance to OGS company functions. This introduces unique financing requirements, as companies must source capital for product development, manufacturing and operations, while juggling working capital and accounts receivable financing needs.

Limited liquidity of OGS assets adds complexity to financiers – the OGS sector, in deploying a PAYG model, has a long cash conversion cycle, creating a mismatch between credit terms and capital needs. Transaction costs create further currency mismatches, as customer repayments are usually fixed in local currency, whereas working capital and accounts receivable are often in hard currency.

New financing opportunities are emerging – OGS markets are built on the characteristics of being distributed, data driven and based on novel technology. This aligns with new developments in the finance sector, often termed fintech.

A one-size-fits-all approach to financing will not succeed – because of the diversity of OGS companies, in terms of stage of maturation, company capacity, enabling environment, customer needs and purchasing power, there is a need for financiers, companies, governments and development partners to assess the suitability of the financing instruments in the context in which they are working.

Many promising financing options exist in the OGS sector – nearly all would benefit from ongoing support that is patient and charged with a drive for innovation; it must cover regulatory environments, capacity building and piloting to demonstrate proof points.

Keywords: finance, alternative finance, economic development, off-grid solar, capital, receivables, financial instruments, financial channels, capital raising, access to energy, fintech, solar power,

Suggested Citation

Cogan, Davinia and Coony, Jonathan and Hazoury, Alex and Rysankova, Dana and Cosgrove-Davies, Malcolm and Rauchs, Michel and Kludovacz, Tibor and Ziegler, Tania and Zhang, Bryan Zheng and Wardrop, Robert and Garvey, Kieran and Rau, P. Raghavendra and Recanatini, Martino and Rostand, François, Funding the sun: New Paradigms for Financing Off-Grid Solar Companies (January 22, 2021). Available at SSRN: https://ssrn.com/abstract=3771502

Davinia Cogan (Contact Author)

Cambridge Centre for Alternative Finance ( email )

Cambridge
United States
0061403657743 (Phone)

Jonathan Coony

World Bank ( email )

1818 H Street, NW
Washington, DC 20433
United States

Alex Hazoury

Cambridge Centre for Alternative Finance ( email )

Cambridge
United States

Dana Rysankova

World Bank ( email )

1818 H Street, NW
Washington, DC 20433
United States

Malcolm Cosgrove-Davies

World Bank ( email )

1818 H Street, NW
Washington, DC 20433
United States

Michel Rauchs

University of Cambridge - Cambridge Centre for Alternative Finance ( email )

10 Trumpington Street
Cambridge, CB21QA
United Kingdom

Tibor Kludovacz

World Bank - International Finance Corporation (IFC) ( email )

2121 Pennsylvania Avenue, NW
Washington, DC 20433
United States

Tania Ziegler

University of Cambridge - Cambridge Centre for Alternative Finance ( email )

10 Trumpington Street
Cambridge, CB21QA
United Kingdom

Bryan Zheng Zhang

Cambridge Centre for Alternative Finance, Cambridge Judge Business School, University of Cambridge ( email )

Trumpington Street
Cambridge, CB2 1AG
United Kingdom

HOME PAGE: http://www.jbs.cam.ac.uk/ccaf

Robert Wardrop

University of Cambridge - Cambridge Centre for Alternative Finance ( email )

10 Trumpington Street
Cambridge, CB21QA
United Kingdom

Kieran Garvey

University of Cambridge - Cambridge Centre for Alternative Finance ( email )

10 Trumpington Street
Cambridge, CB21QA
United Kingdom

P. Raghavendra Rau

University of Cambridge ( email )

Cambridge Judge Business School
Trumpington Street
Cambridge, Cambridgeshire CB21AG
United Kingdom
3103626793 (Phone)

HOME PAGE: http://www.raghurau.com/

Martino Recanatini

University of Cambridge - Cambridge Centre for Alternative Finance ( email )

10 Trumpington Street
Cambridge, CB21QA
United Kingdom

Polytechnic University of Marche ( email )

Piazza Roma, 22
Ancona, 60121
Italy

François Rostand

University of Cambridge - Cambridge Centre for Alternative Finance ( email )

10 Trumpington Street
Cambridge, CB21QA
United Kingdom

University of Cambridge - Department of Chemical Engineering and Biotechnology ( email )

Cambridge
United States

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