Funding and subsidies needed for SDG 7

To model the sector’s funding needs, we considered two scenarios. The “current trends” scenario is based on existing funding patterns and assumes continued slow growth in the household solar market, with some increases in the productive use and social infrastructure markets. The “universal access” scenario envisions providing OGS to all households, businesses, farmers, and public institutions for whom OGS is a least-cost solution.

The current trends scenario leaves over 660 million people unelectrified in 2030. In this scenario, OGS will provide access to electricity to an additional 216 million people between 2024 and 2030 at a cost of approximately USD 9 billion. Continued trends in PUE investment would lead to USD 182 million investment in SWPs, meeting the needs of roughly 1% of the total addressable market, USD 50 million in cold storage solutions, and USD 460 million in Tier 2 and above SHS solutions for MSMEs. Notably, this would result in just above one million OGS products sold for productive uses between 2024 and 2030—350,000 SWPs, 60,000 cold storage solutions, and 680,000 SHS products for MSMEs. An extra USD 710 million investment is needed to maintain the current pace of off-grid electrification of schools and healthcare facilities, which would result in the electrification of about roughly 250,000 schools and healthcare facilities between 2024 and 2030. This would likely result in further cost savings from improved health and education outcomes, which were not quantified in the model given limited data. Finally, this scenario will not support consumers living in weak-grid areas, whose quality of life, livelihoods, and public services will be impaired by unreliable electricity.

The universal access scenario will electrify 398 million people, over 750,000 schools and health facilities, and the total addressable market for income generating OGS products.

In this scenario, USD 21 billion is required to electrify households for which OGS represents the least-cost electrification solution. The deep dive later in this chapter explores the funding needed to enable OGS to play its critical role in achieving universal household electrification in detail.

In addition to households, USD 74 billion is required to cover the total addressable market for solar water pumps, cold storage solutions, and the electrification of MSMEs. Finally, only USD 2.4 billion is needed to electrify over 1 million schools and health facilities. Below are the funding levels required to meet productive use and social infrastructure electrification needs:

In-Depth Analysis: Funding Needed to Provide Universal Access to Households

USD 21.3 billion —or USD 3.6 billion per year from 2025 to 2030—is needed to enable OGS to play its critical role in achieving universal household access by 2030. This is 6 times the USD 3.5 billion invested in OGS to date.

Note - This analysis provides an estimate of the funding required to achieve SDG 7 for first-time access households in a vacuum ignoring the OGS sector’s activities in grid backup markets. For the sector to achieve its first-time access goals, profitable OGS companies with a diversified set of activities - including reaching higher-income customers with higher-margin products - need to be in place. It is important to note that data limitations constrain how these data can be used.

The USD 21.3 billion in funding needed breaks down into USD 10.7 billion of commercial debt and equity investment, USD 1.5 billion in grants, and USD 9.2 billion for addressing the affordability gap through subsidies. Debt and equity investments of USD 10.7 billion are needed for companies to cover initial capital costs and ongoing operating costs, with equity accounting for 40% and debt for 60%. Equity supports companies in scaling up operations and expanding to new markets. Debt financing covers upfront capital costs and lending to customers. Grants of USD 1.5 billion help companies cover the higher costs of operating in hard-to-reach or fragile locations without passing these on to end-users through higher prices. USD 9.2 billion is required to address the affordability gap for those who cannot afford Tier 1 OGS products. This population constitutes about 240 million, or 59% of the 398 million people that will receive access under this scenario. The total subsidies needed could potentially be lowered through innovative business models and funding mechanisms such as energy-as-a-service and public procurement. ). Addressing key barriers such as low affordability, narrow company margins, limited access to capital, high costs to enter remote settings, and high levels of perceived risk can drive first-time access and accelerate the pace towards SDG 7. The availability of subsidies is critical to attracting private sector co-investment—grant, debt, and equity financing must all be available in parallel if OGS companies are to sustainably serve hard-to-reach populations that cannot be reached on a fully commercial basis.

There is strategic alignment between profitability and companies ability to deliver subsidized first-time access. Typical customers of the OGS sector tend to be lower-income households with unpredictable revenues. Their ability to repay PAYG loans is highly sensitive to macroeconomic shocks. In traditional markets, OGS providers can earn a higher return on riskier customers through higher interest rates that reflect such risk; however, passing on the cost of that risk to customers negatively affects the affordability of OGS products, which reduces demand and prevents the sector from achieving universal access. As a result, it is easier for companies to deliver first-time access if they have a profitable core business serving a more commercial segment of the market which can cross-subsidize the lower return on lower-income households.