Key messages from the report
- Investment in the OGS sector reached USD 1.2 billion during the 2022–23 period, up from USD 773 million in 2020-2021. Investment reached a peak of USD 746 million in 2022 before dropping to USD 425 million in 2023. Between 2021 to 2023, total investment in the OGS sector grew by almost 30% compared to all investment made in the sector before 2021.
- Local currency financing has been growing, especially for larger companies. Over a third of total investment in 2023 were in local currencies.
- Off-balance-sheet financing is now a significant funding source for the sector: a set of large securitization transactions has been closed—much of it in local currency aligned with the companies’ receivables.
- Despite positive developments in funding in the past two years,access to finance remains a challenge for the OGS industry. In particular, the availability of patient capital and equity financing for OGS companies remains limited.
- Public funding for off-grid solar (OGS) is growing; the World Bank lent a record USD 660 million to governments to scale proven solutions in fiscal year 2024 and a range of development partners are supporting innovation in new technologies, business models, and financing, mainly for productive uses.
- Results-based financing (RBF) is being scaled up, with USD 733 million committed and 350 million disbursed since 2018. An increasing number of RBFs offer end-user subsidies to address affordability challenges.
- While the use of credit lines is being scaled back, the use of guarantees to unlock debt investments appears to be growing.
- Climate finance and carbon credits are currently underutilized in the OGS sector, with some notable exceptions, including the Green Climate Fund’s USD 65 million commitment to the Hardest-to-Reach Fund in 2021.
- Access to finance remains a challenge for the OGS industry, with over 60% of small and mid-sized companies identifying it as a "significant challenge." A key barrier to fundraising is the heightened risk perception associated with smaller firms, which often deters investors. More equity financing, patient capital, impact-linked concessional debt and long-term end-user subsidies are all needed.
Key Concept: Investment types in the OGS sector
The main types of investments in the OGS sector considered in this chapter are equity, debt, and grants. These investments can originate from a wide array of sources, including equity investors, debt providers such as commercial banks and financial institutions, multilateral organizations, and other institutional or impact-driven funders. Each type of funding serves a specific purpose in the financial development of an enterprise, supporting growth from early-stage ventures to more established operations.
Equity financing is critical for early and growth-stage companies, as it offers long-term funding without the pressure of immediate repayment (particularly in the case of “patient equity”). It is also important for growing companies seeking to fund scale-up, such as expanding operations or entering new markets. Equity investors often bring additional value beyond capital, such as strategic guidance, governance, and access to networks, helping OGS companies scale up operations and expand into new markets.
Debt financing, on the other hand, allows OGS companies to access capital through loans from commercial banks, microfinance institutions, or development partners. Debt financing is essential for companies that have reached a stage of stable cash flow and are looking to fund working capital or expansion projects without diluting ownership. It plays a key role in sustaining growth, enabling companies to manage operational costs while scaling up their business models.
Grants, while not technically a form of “investment,” are treated like investment and tracked by the GOGLA Investments Database. These are typically concessional and are provided without the expectation of repayment. Much like angel investments or early-stage equity, grants aim to de-risk a company and catalyze additional commercial capital.
All three investment types tracked in this chapter come from both private actors, such as commercial banks or equity investors, and public actors, like governments and development partners. However, even when privately sourced, debt and equity are often unlocked and de-risked by public investments. Conversely, grants are mostly provided directly by the public sector.
Investment in the OGS sector has been growing steadily since 2017 and grew significantly from 2021 onwards
Investment in the OGS sector reached USD 1.2 billion during the 2022–23 period, up from USD 773 million in 2020-2021. Investment in the OGS sector reached a remarkable USD 746 million in 2022, followed by USD 425 million in 2023. The sharp rise in 2022 was largely driven by a significant equity raise from Sun King, one of the largest companies in the industry, which secured USD 260 million and demonstrated the viability of building a profitable and impactful off-grid solar company with private investor support. Large individual deals can have a significant impact on annual figures, making it important to focus on longer-term trends.
Investment amount by type (excluding RBFs), 2017 – 2023 (USD millions)
The sector attracted a large amount of equity investment between 2022 and 2023. The peak in equity investment was largely a result of Sun King’s Series D investment round in 2022, which raised USD 330 million and set a new benchmark for capital raising in the industry. Another USD 38 million in equity investment was injected into companies including BBOXX, SunCulture, Qotto, and Yellow, reflecting investor confidence in the potential of diverse business models within the sector.
Large, international, and vertically integrated companies keep capturing 70–80% of the total amount invested in the sector, which reflects their share of the market. The remaining share of investment in the sector is directed to smaller companies, mostly in their seed or start-up stages. Both firm categories are critical to achieving SDG 7.
Over the past years, three important and innovative trends have emerged in the OGS investment space. First, OGS companies—primarily large players—are increasingly obtaining local currency financing aligned with the currency of their receivables. Second, after a few years’ absence, new securitization deals have emerged in 2023. Third, a few new actors have begun investing in OGS with sizeable equity and debt deals.
The World Bank is the main source of public funding for electricity access and the OGS sector
Key Concept: The public funding toolkit
Governments and development partners can use a range of public funding mechanisms to leverage private co-investment and achieve impact through scaling up off-grid solar markets. These mechanisms have been proven in a range of countries and contexts around the world over the last 30 years.
Public funding mechanisms that channel non-repayable funds to companies include upfront grants, resultsbased financing mechanisms, end-user subsidies, public procurement, and tax exemptions. Upfront grants are non-repayable funds to help companies develop technologies and business models, or expand into new markets, with payments typically linked to agreed milestones. Results-based financing is when companies are paid based on achievement and verification of a predefined result, typically a sale. End-user subsidy is when grants are used to directly reduce the price paid by end-users for an OGS system – this is usually done through results-based financing. Public procurement is when government agencies purchase systems through an organized bid and distribute the systems to end users, typically through contractors who are paid for their services through upfront grants or result-based financing. Tax exemptions involve governments foregoing revenue and reducing costs for OGS companies, enabling them to offer products at lower prices.
Governments can also provide debt to OGS companies through credit lines to help them grow, which may or may not operate on concessional terms. They can also offer risk mitigation instruments, such as guarantees that enable investors to make debt or equity investments that would otherwise have been too risky, and help companies access these forms of financing.
Climate finance and carbon credits are considered a form of public funding in this report. Climate finance channels resources from both public and private actors to support climate mitigation and adaptation efforts. However, most of the climate finance provided in the OGS sector so far has come from public sources.
World Bank lending for electricity access has grown since 2016 and peaked at USD 2.5 billion in fiscal year (FY) 2022. OGS solutions, while fluctuating in their annual allocations, have increasingly received notable support, particularly in FY 2019 and from FY 2022 onwards. The proportion of electricity access lending committed to off-grid solar increased from 12% in FY 21 to 30%—or USD 626 million—in FY 24.
World Bank funding approved for off-grid solutions, 2017–2024 (USD millions)
RBFs are increasingly being used to provide end-user subsidies, helping to address affordability challenges. End-user subsidies lower the cost of a product for consumers, specifically targeting those with very low incomes to help them access off-grid products. These subsidies can be applied directly to the product price by the company, which then receives RBF to cover the difference.
In parallel with a growth in RBFs, the use of credit lines has been scaled back over the past years. Funding allocated to World Bank credit lines between FY22 and FY24 amounted to USD 103 million, compared to USD 256 million provided between FY19 and FY21. However, some credit lines have struggled with implementation challenges.
World Bank funding toward results-based financing for the off-grid solar sector by fiscal year, 2017–2024 (USD millions)
World Bank funding toward credit lines for the off-grid solar sector, 2017–2024 (USD millions)
Guarantees are playing an increasingly important role in unlocking debt through risk mitigation. By issuing guarantees, governments or financial institutions can protect investors against potential losses due to non-commercial risks, such as political instability or currency fluctuations.
The OGS sector still faces challenges with access to finance
Despite positive developments in the last two years, access to both finance - both public and private - remains a constraint for the OGS industry. The investment needed to achieve SDG 7 is an order of magnitude greater than historical annual investment. As well as this step change in total financing, the OGS industry requires a higher proportion of equity financing; patient, concessional, and local currency capital; and long-term commitments to end-user subsidies to lower the risk to investors
More specifically, equity financing is essential to fund growth, product development, and market expansion, particularly for smaller players. However, excluding a single equity investment into Sun King in 2022, debt has comprised 75% of investments into OGS from 2021 to 2023 leading to the market becoming over-leveraged compared to historical levels.
Furthermore, there needs to be more concessional capital that accounts for the impact achieved to help companies overcome high costs of financing. The cost of financing in low-income markets is around 14% of total costs for OGS companies and presents a barrier to growth. Guarantees or blended finance structures can lower the total cost of financing for OGS companies, which can lower the effective cost to consumers and stimulate growth.
Finally, there must be a commitment to end-user subsidies over a long period. End-user subsidies are critical to closing the affordability gap: according to the universal electrification scenario presented in this report, USD 9.2 billion is needed for universal household access.