Financing Growth Task Order 5 Small Scale REN Systems

The Pay-Go model allows customers to pay for the amount of energy consumed or finance equipment purchase costs over time, with typical repayment periods ranging from 24 to 36 months. Equipment companies such as Off Grid Electric have set ambitious growth targets in East Africa, with Off Grid Electric aiming to install one million new household solar systems by 2017. However, these companies face significant financing constraints, including high collateral requirements, high borrowing costs, and a lack of access to working capital financing from local markets. Several companies have raised external financing through combinations of grants, venture capital, specialty international lenders, or impact investors. Securitization of customer receivables is seen as an optimal long-term strategy to secure working capital financing, with companies such as Solar City utilizing this model in the US. Suppliers generally view mobile providers and microfinance institutions (MFIs) as potential future partners in Tanzania, with MFIs seen as a potential source of financing to household customers. However, significant capacity building of these partners will be necessary. Key constraints cited by suppliers include the limited supply of large distribution partners, high costs of distribution, and the need for working capital financing to support growth. Companies such as BBOXX and d.light have expressed concerns about the efficacy of the Pay-Go model, citing high transaction costs and default rates. The sector is characterized by a range of business models, with some equipment suppliers operating as manufacturers and others seeking to vertically integrate and own the entire value chain. Companies such as Solar Works and BBOXX have developed innovative distribution models, with Solar Works focusing on the regional lower-middle class and BBOXX offering a range of energy services to clients. The sector is also characterized by a lack of access to working capital financing, with companies such as BBOXX and d.light citing the need for larger financial instruments to accommodate their growth needs. Assets-backed securities are seen as a potential solution, but are poorly suited to investments less than $20 million. Overall, the small-scale REN systems sector in Tanzania is characterized by a high demand for household solar systems, but faces significant financing constraints and challenges in accessing working capital financing.