A 2020 edition technical report released by World Bank on Off-Grid Solar Market Trends Report has revealed the off-grid sector have attracted more than $1.5 billion in investment as at the end of 2019 with growth in the early years primarily driven by equity, and debt becoming more common recently.
“As the sector matures, debt will continue to drive the total value of investments into the sector, though equity demand remains strong. Equity investments dominated transaction value in the sector’s early stages, as companies raised funds to test their business models,” the report said.
The detailed World Bank’s Energy Sector Management Assistance Program (ESMAP) noted that in recent years, debt has become the most frequently utilized financing instrument in terms of both value and number of transactions which is especially true for First-Generation companies that have greater working capital requirements and whose cashflows can support larger amounts of debt.
“Equity investment has remained relatively constant in recent years, as few new investors enter the sector and others have already chosen players to back and have not yet seen a return on this capital through exit. Grants remain an important but small percentage of the total capital deployed to the sector,” the report said.
ESMAP analysis revealed From 2012 to 2018 capital investment in the off-grid sector grew at a 50 percent compound annual growth rate, with investments in 2018 reaching an all-time high at $352 million which later fall to $259 million in 2019.
“The decline in 2019 should not be cause for concern but is rather symptomatic of the concentration of investments in First-Generation companies, which raise debt funds cyclically, and the long time horizons on debt deals,” the report said.
First-Generation companies are companies in the oil and gas sector founded in the early stages of the sector and have since dominated the affiliate market in terms of sales, geographical reach, and value of investments raised.
The report noted that a number of First-Generation companies raised significant debt within 2017 and 2018, so the decline in 2019 is unsurprising with several first-generation companies expected to close large debt financing rounds again in 2020.
In addition, increasingly large and complex debt deals are taking longer to close, with the anticipated announcement of around $100 million in debt delayed from 2019 to early 2020. This puts 2020 on course to be a bumper year for debt investments, potentially driving total annual investment to an estimated all-time high of $ 385–420 million.
“Only by crowding in commercial finance at scale can we reach the target of achieving universal access by 2030,” added Paulo de Bolle, Sr Director, Global Financial Institutions Group for IFC. “We are eager to work with our local bank partners in the more mature off-grid markets where commercial debt can drive the next stage of market growth” the world bank report noted.
Meanwhile, another renewable source, wind energy, is also enjoying success, according to a new report by BloombergNEF (BNEF). In 2019 the industry commissioned 61GW of wind turbines, up from 50GW the year before, with the offshore installation of turbines rising to 12percent, up from 8percent in 2018. Europe and the Americas accounted for over 22GW of onshore wind additions last year, with 30.4GW in Asia Pacific and 0.5MW in Africa and the Middle East.
“This bumper year for offshore wind is just the start. If you look past a likely blip in 2020, installations are set to accelerate, breaking the 10GW-a-year barrier in 2023,” said Tom Harries, head of wind research at BNEF.