Persistent ABC: S for Solar Receivables Finco

Over the years, Off grid solar home systems (SHS) have provided clean energy to nearly 500 million people worldwide. In Africa, 50% of these numbers are people who have not been able to have access to clean and renewable energy. It is safe to say the PayGo sector has come to revolutionize access to clean and affordable energy in Africa and even in the world at large.

The essence of the PayGo model is the placement (via sale, lease or hire purchase) of a solar home system and related appliances with consumers on an installment basis. In other words, the customer pays for use or ownership of the system over time, making it affordable to have access to energy.

Despite being a hero in this energy access story, the sector now faces challenges strong enough to cripple it – one of which is that the cost of capital borne by PayGo companies is squeezing their profit margins and, in most cases, preventing those companies from achieving profitability. This major challenge has discouraged investors and led top companies to diversify into other ventures for sustained profitability.

The diversification of these companies further continues to pose problems to solve energy poverty worldwide. Among the 730 million unconnected people worldwide, only around 12% can afford to pay for a Tier 1 system in cash and 32% could not even afford it with customer financing. Clearly, PayGo has a critical role to play in reaching those still without access to energy.

Recognizing the urgency to address these challenges, Persistent issued a white paper earlier this year that seeks to shed light on the predicaments faced by the PayGo sector. Its purpose is to bring attention to the financial constraints experienced by PayGo companies and explore viable solutions to ensure the sector’s sustainability and continue to make the sector a target for equity investors.

As a solution, the white paper advocates the establishment of a Solar Receivables Finco (SRF) as a remedy to the financing challenges plaguing PayGo companies. An SRF would function by purchasing receivables from qualifying PayGo companies in any currency. By securing funding from a blend of concessionary and private capital, the SRF would aim to alleviate the financial burdens faced by individual PayGo companies. This solution could prove instrumental in supporting the sector and ensuring continued access to affordable energy.