It was not a surprise that Ceniarth, an investor in clean energy access exited the space arguing in a NextBillion article that the industry is going through a “hype cycle.” In a World Resources Institute issue brief on the “pay-as-you-go (PAYG)” solar market in Kenya and Tanzania, my co-authors and I found that the PAYG solar industry is comprised of only a handful of companies. There was welcome investor interest. We chronicled that 52 private sector organizations — including foundations, impact funds, venture capital funds and companies — had invested in PAYG companies in East Africa. However, in any financial market when an increasing number of investors all chase a few targets, a hype cycle is bound to follow.
As part of this ongoing debate, authors from Persistent Energy Capital have also argued that more investment should flow into the sector, to help the millions have access to electricity. To attract greater capital, without creating over-exuberance and hype, the number of companies will have to increase: that would increase competition, expand the range of offerings available to customers and expand the investment pipeline for investors. One way to increase the number of companies is to encourage local entrepreneurs.
But are there local entrepreneurs who can develop solutions and services for the energy sector? In a recent trip to Tanzania, I decided to probe this question. I found several in-country entrepreneurs are soldiering on and creating impact, even though they face great odds.
STARVED OF FUNDING BUT NOT GIVING UP
Benard Okech, founder of Sepon, which supplies solar systems to homes, schools and safari lodges was struggling for trade finance to import a container of solar panels. He and his wife, Easter Sommy, pulled together their savings to build a house and provide that as security for a US $50,000 bank loan. The loan was still refused earlier this year as the bank was not convinced about the security. Okech says it was the most disappointing day in his entrepreneurial career, which he started in 2012.
Every day, entrepreneurs struggle against these odds to build businesses. Hamis Mikate, founder of Ensol, now a large solar installer in Tanzania, talks about how it is impossible to raise funding against secured project orders from credit-worthy customers. In 2005, he secured a project to light 40 dispensaries in the Dodoma region from an international NGO. He went from pillar to post to get bank funding against this order. Desperate, after he was turned down everywhere, he convinced the CEO of the component supplier, based in Nairobi to provide him with credit. He transported the equipment, himself, in a bus to the projects site, just 14 days before the implementation deadline. Working day and night for the next fortnight, he and his colleagues got the system up and running.
FROM HUMBLE BACKGROUNDS TO IMPRESSIVE BUSINESSES
Francis Kibhisa of Rex Solar welcomed me to his office and warehouse not far away from the central business district in Dar es Salaam. He has been running Rex Solar since May 2000. Since inception, Rex Solar has installed solar products adding up to 10-megawatt capacity across 15,000 customers. Sitting in his office, it is hard to imagine that Kibhisa grew up in a family of 10 in a village of the Mara region where there was no electricity. In fact, electricity arrived at the village only a year back. His sister, who went on to study civil engineering provided the inspiration to Kibhisa. Kibhisa recently launched a PAYG business in solar home systems. He said that he already serves 3,000 households, and he is trying to raise money to reach his target of reaching 375,000 households.
Entrepreneurs across Tanzania have inspiring stories of courage and conviction. They are also learning from each other. Benard Okech worked in Rex Solar, before he set up his own company.
BUILDING SOLUTIONS THAT CREATE DEVELOPMENT IMPACT
Ceniarth pointed out that “an energy ladder without increasing incomes is a ladder to nowhere.” It is true that existing PAYG companies in East Africa provide only lower tier lighting solutions for households. I found that the local entrepreneurs are, in general, supplying larger systems that electrify health centers, educational institutions, offices, factories and safari lodges. In doing so, they are creating development impact and new business models. Saturnin Tarimo, founder of Galaxy Energy, another solar startup, has installed a solar pump for a village community in the Mkuranga district in the Pwani Region. Drinking water is pumped from a borewell (which was previously lying unused) and the villagers pay 100 shilling for 20 liters of water. Saturnin financed his first implementation through a grant and is now trying to replicate the project with impact investment. He says he has already lined up three as potential customers – villages where the borewells are lying unutilized because it is too difficult or expensive to procure diesel for the generators.
NO TIME TO LEAVE THE BATTLE
Falling solar prices and consumer acceptance of the PAYG business model have provided a window of opportunity to engage the private sector in providing electricity to the 600 million who do not have access to electricity in sub-Saharan Africa.
This is precisely the time to push ahead. Genuine impact-seeking investors need to look ahead of the current PAYG incumbents and support local entrepreneurs. But it is the local banks that can play the most critical role in lowering the barriers for these entrepreneurs by providing affordable and accessible local currency financing. They can offer lines of credit with cashflow-based security, by working with their existing international development financial institutions and donor partners. This would be the most effective way to crowd in private investment.
Sanjoy Sanyal is a senior associate on clean energy finance with the World Resources Institute.
Top photo: Francis Kibhisa of RexSolar, courtesy of the company.
Homepage photo: DIVatUSAID, via Flickr.
