As the off-grid sector continues to grow and evolve beyond basic household lighting, and as utilities strive to stimulate additional demand, attention by government, donors, and the private sector has turned toward boosting PUE by consumers. PUE has broad socio-economic benefits for the population, including economic growth, income generation, job creation, and often reduced workloads that allow time for additional productive activities.
This report consolidates findings from interviews with over 70 stakeholders as well as a literature review. The scope includes applications that generate income and create employment for socioeconomic development with a focus on the sectors described above and the 15 countries in sub-Saharan Africa with whom Sida has bilateral partnerships.
Multiple donor-led initiatives have emerged in the past few years and have been instrumental in helping the PUE sector grow. These range from more upfront milestone-based grants to pure RBF programs and are most effective when led or backed by governments that signal strong support for market-led deployment of productive use solutions.
For nascent markets, challenge funds and milestone-based grants are generally most appropriate as companies continue to conduct research and development of products and test customer acquisition strategies and refine business models. Lack of availability of equity and debt for these startups makes it difficult for them to take advantage of RBFs where payments come only after verification of sales. The availability of grant funding alleviates the need for companies at this stage to spend their own limited funds, which are often inadequate for their business needs and which ultimately increase the price of the final product, exacerbating the affordability problem.
More mature companies that can secure their own funding are more likely to take advantage of RBFs, though some may struggle to achieve the sales volumes required by donor programs. Working with companies that operate in multiple countries, including manufacturers that not only operate in several geographies but also work with multiple distributors, can help increase ticket sizes. Working with wellestablished SHS and mini-grid companies can enhance the chances of success, though RBFs should ideally be open to businesses that focus purely on PUE. To avoid market distortion and the exclusion of existing market players, especially local ones, programs could be open for extended periods and accept applicants on a rolling basis to mimic a subsidy that is available sector wide and benefits all companies. Even with such a scenario, donor flexibility can still result in requirements that are difficult to meet and effectively exclude smaller players.
Guarantees can also support the most mature companies seeking loans for larger ticket sizes through bilateral transactions or lenders that wish to establish a portfolio of PUE companies or PUE end users. Guarantees could enter at different levels, either directly to manufacturers and distributors or as supplier credits to distributors through receivables financing and microfinance institutions lending to consumers. Existing guarantees could also be modified to incorporate PUE, if appropriate, to reduce the high transaction costs of establishing new guarantees.
The range of donor-funded interventions mentioned above is welcome by the private sector. However, companies have often noted difficulties with these initiatives, including long procurement times, lack of flexibility to adjust program requirements midstream to account for realities on the ground, the high administrative burden of monitoring and evaluation requirements, and the potential for market distortion. While these problems are sometimes difficult to avoid, governments and donors should strive to make additional efforts to involve companies extensively during the design phase to address potential issues.
Technical assistance (TA) and policy and regulation can additionally be helpful for creating a conducive enabling environment for the private sector. Most PUE programs include a TA component, which should be of high quality and tailored to specific needs. It should ideally support a range of stakeholders, including end users and financial institutions in addition to companies and governments. Policy and regulation can play a critical role in raising awareness, while exemptions from taxes and duties can reduce prices to help address the affordability issue. Strong support signals from government will also give confidence to the private sector, encouraging investment in businesses that focus on deploying PUE.
Numerous recent PUE initiatives have resulted in some success, but these have been relatively small and there is nothing yet at scale. Challenges to deploying PUE are significant, including the higher cost of equipment compared to smaller SHS, affordability, risks in providing financing to entrepreneurs who can struggle to earn enough additional income to make reliable payments, fewer potential sales per village in remote rural areas, complications in the supply chain and after-sales servicing, the need for customization, competition with incumbent technologies, and challenges in customer acquisition and awareness.
Despite these challenges, some technologies are starting to scale in a few notable areas, but broadly speaking, the PUE market is nascent with only a few more advanced technologies, generally in East Africa. Solar water pumping is the most advanced sector, but refrigeration and cold storage, agricultural processing, and e-mobility are starting to show promise. In addition, companies are beginning to provide financing for appliances in on-grid and mini-grid settings, and governments are starting to work with donors and the private sector on providing solutions for health facility electrification.
As attention to productive uses of energy grows, stakeholders continue to identify and address gaps. Given the inherent unpredictability of nascent markets and the numerous challenges faced by the private sector in deploying PUE, governments and donors should co-design initiatives with the private sector and maximize flexibility in programming to the extent practicable. With the range of necessary components gradually falling into place, the PUE sector is poised to scale along with the ambitions of governments and donors to support energy access beyond basic needs and toward enhanced economic growth through new employment opportunities and increased income generation.
Excerpt of: Scaling Productive Use of Energy Solutions in Sub-Saharan Africa: Market Scoping and Design of a Results-Based Financing Window for the PUE Sector (Nefco 2023)