Beyond the Grid Fund for Africa

Table of Content - Introduction - Overall progress - Key Messages - BGFA Energy Service Providers performance - The off grid market in general - BGFAs role in achieving universal access - Partner capacity - Burkina Faso window - DRC window - Liberia window - Mozambique window - Uganda window - Zambia window - Partnerships, synergies, knowledge management and BGFA Academy Introduction This conclusion on performance covers the period July 2022 to December 2023. It is based on two semi-annual reports, documentation and dialogue during three semi-annual Steering Committee meetings (the first held in Kampala, Uganda end of November 2022 combined with site visits and dialogue with stakeholders, the second held in Oslo in June 2023 and the third held in Monrovia in November 2023), and continuous dialogue with Nefco, programme implementing organisation REEEP and NIRAS, and colleagues at participating embassies and the other donors contributing to BGFA as well as sector stakeholders like GOGLA, A2EI, Acumen, Get.invest etc. Overall Progress - Key messages - Portfolio building phase almost complete 25 investees across 5 countries - Almost 55 MEUR in funding committed to Energy Service Providers (ESPs) - Some further origination to be completed in DRC, Uganda and Mozambique - Portfolio diversified across geographies and technologies - Ongoing focus on disbursements, aim to reach 10 MEUR payments to all investees by year end 2023 - Over 1 million people with energy access already reached Forecast - 8.6 million people to be reached with electricity access and - Almost 100,000 businesses to be reached with energy services for productive use Leveraging of further 135 150 MEUR - 6,800 jobs created The forecast is based on contracted companies so far that run up to first quarter of 2027. Of the whole portfolio of companies, Sweden is providing about 63% of total funding and Germany, Norway and Denmark the rest. BGFA Energy Service Providers performance The performance of the Energy Service Providers (ESPs) in the BGFA portfolio is mixed. Many ESPs, particularly the ones in the Launch to Scale (LS) category, are not yet profitable and struggle to attract investment. For LS companies, equity is scarce and many are overleveraged. The Direct to Scale (DS) ESPs are on the other hand enjoying high margins, strong portfolio quality and have manageable overheads and low cost of capital. The picture below illustrates the risk profile companies in the BGFA portfolio and is pretty much a normal distribution. To a large extent, the companies that are classified as lower risk are larger companies that have gained experience, sometimes consolidated by merging several smaller companies and are more likely to be making a profit. The companies most at risk are smaller local companies with less experience and operating in one or fewer markets. If the objective is to reach people with access to renewable electricity, why should we care about the smaller more local companies? One reason is that some markets are not prioritised by the larger companies, but they play a role in realising increased access. Although Sida has sometimes compared the Distributed Renewable Energy (DRE) sector to the telecom sector there are differences. For one the DRE sector is not like the telecom sector where 7- 8 large companies deliver. The DRE sector is diverse and offers a broader range of services compared to the telecom sector. Even if 70-80% of customers are served by the large companies, the smaller ones are needed to reach further and deeper. The large companies are dependent on the ecosystem of the smaller companies. According to GOGLA (the global association for the off-grid solar energy industry, with over 200 members and affiliates that provide affordable, high-quality products and services to low-income and climate-vulnerable people) the dynamics of the market still needs more innovation and business development before we can lean back and say its done. During 2022 a market analysis to test the hypothesis if an RBF/Social Impact Procurement approach would be suitable to accelerate the market for Productive Use of Energy (PUE) was carried out by Tetra Tech, procured by Nefco and initiated by Sida. A final report was received in February 2023 and the conclusion that was drawn was not to launch a new specific program using social impact procurement to accelerate the PUE market due to the still limited number of companies that are pure PUE companies and the need for earlier type of financing than RBF. PUE has rather been included as an option under BGFA calls were also incentives have been provided to include PUE applications amongst investees. There are now a number of contracted ESPs that are covering four types of ESP sub-categories as illustrated below. It shows that BGFA is aiming at stimulating market development and scaling of four broad categories Mini-grids, SHS, PUE and Battery rentals. Looking at the portfolio from a pro-poor perspective, the mini-grids and the battery rental categories are reaching the poorest customers. PUE and Mini-grids are underpinning economic development beyond basic electricity access. The SHS direct to scale is the category where the largest number of customers will be reached. The off grid market in general The off-grid sector is a developing and evolving market albeit facing some challenges. At the same time it has a lot of potential to improve the lives of millions of people who lack access to electricity and there is no known alternative to achieving universal electrification without the inclusion of off-grid solutions. Some voices are more alarmistic about the sectors performance than others and talk about the business model being broken. In discussions with GOGLA, their view on the sectors performance is rather a matter of how the business model is delivered. There are lots of slow paying customers among PAYGO companies overall (not specific to the BGFA portfolio). GOGLA started tracking collection rates two years ago. Collection rates are an important indicator of how well PAYGO companies can manage their cash flow and ensure customer satisfaction. In the last two years, collection rates have increased from 62% to 71%. It is moving in the right direction but needs to improve further to support a healthy and sustainable off-grid sector. There are success stories of companies turning lossmaking to profit with targeted technical assistance (TA). (Case Study: Doubling collection rates by putting consumers first, Lessons from Zuwa Energy in Malawi) Evidence of this are cases where targeted Technical Assistance to companies have successfully turned around operations from loss to profitability. TA helps PAYGO companies improve their product quality, customer service, operational efficiency, financial management, and market expansion. When searching the internet for examples of successful TA providers the following are mentioned: CGAP (Consultative Group to Assist the Poor), which offers customized solutions for different countries and contexts; Nefco, which provides technical support as part of the BGFA (Beyond the Grid Fund for Africa) programme; and Lighting Globals PERFORM project (Performance Reporting & Analysis Framework), which aims to standardize financial reporting and benchmarks for PAYGO companies. There is also a role for financiers not pushing too hard on growth and expansion but also on portfolio health. GOGLA believes one needs to be careful about how the industry is talked about. The debate should be honest and correct information should be spread. There is a risk that if there are too many negative perceptions of the sectors performance, equity and debt providers may turn to other investment opportunities and negatively impact access to modern energy services. BGFAs role in achieving universal access When the privately led off-grid market started taking off, there was a sense that everyone could be reached without much public financing support. It is now widely recognised that subsidies will be needed to reach universal access. More public funding and subsidy schemes are needed. In discussions with several stakeholders in the sector, there is agreement that the role of BGFA is to kick-start markets through which subsidies can be channelled. A key feature and a comparative advantage of the BGFA program (also recognised by organisations such as GOGLA, Get.invest and ACUMEN) is accelerating market activation; supporting the delivery of a large number of basic high quality energy services at high speed and at a low average per connection subsidy cost. Market activation is a necessary foundation onto which further more concessional or public finance can be channelled with subsidies to achieving universal access. At the last Steering Committee meeting held in Monrovia in November 2023, the question was raised as to what the cost would be to contribute to universal energy access in Liberia. The exact number has not been calculated, but a ballpark figure can be estimated. In Liberia BGFA has contracted four companies to reach almost half a million people with a financial incentive of on average 12 EUR per person getting access. If the cost was the same it would mean that all Liberians could have access if 60 MEUR in public financing were allocated to this purpose. An assumption is that the cost would go up as poorer and more remote customers are reached. But perhaps not that much. Sun King, an off-grid PAYGO company operating in Nigeria has based on its experience with the World Bank funded Nigeria Electrification Project that is providing a financial subsidy for connections being made in the form of an RBF-subsidy, estimated that it would require about one billion USD, or 10 USD per person getting access to reach universal access in Nigeria. So very similar numbers as is currently the financial incentive in BGFA in Liberia. The image outlines the OGS sector conditions to facilitate and to give a better understanding of the market. The overview can help to elaborate different stakeholders roles and their efforts depending on where they wish to achieve a stronger impact. Partner capacity Sida's assessment is that the cooperation with NEFCO works well and has been to Sida's full satisfaction. The program is now moving into a managment phase, where most funding reserved for contracting ESPs is being allocated. The donors have asked Nefco to develop and present a plan to ensure that as much as possible of allocated funds from donors are made use of and that the procurement process is carried out more speedily. Sida notes improvements in both the speed of the procurement, due diligence and contracting process and is seeing that efforts are on track to make sure that as much as possible of allocated funds from donors are made use of. Following an early evaluation of the BGFA1 call, the due diligence process has been revised where Nefco is taking a more active role with the aim of making the process more focused on the issue relevant for the approval and contracting process as well as with joint efforts make the due diligence process more streamlined and efficient. Since end of 2022 the NIRAS team has been on-boarded and are now supporting on Monitoring Reporting and Verification (MRV) as well as in facilitating support to national platforms for market change, building on the experience from Zambia and adapting to the national conditions. The REEEP team is now focusing on coaching the ESPs with strategic business development assistance. Burkina Faso window Procurement of Energy Service Subscriptions (ESS) In Burkina Faso four ESPs have been contracted to deliver in total just over 160,000 Energy Service Subscriptions (ESS) at a total contract value of 7 MEUR. 20 30% of advance payment disbursements to ESPs have been made but no ESS reported yet. The security situation is the main operational challenge for ESPs in Burkina Faso as it disrupts deployment of staff, results in unrecoverable loss of equipment when customers flee and leave equipment behind, a stronger preference to save money preparing for escape rather than investing in improving their livelihoods through energy access. A migration towards underserved peri-urban areas, ineligible for BGFA funding is noted and two of the contracted ESPs have requested the inclusion of Ouagadougou and Bobo-Dioulasso to deliver contracted impacts. Institutional support services Activities to set up off-grid task force, engagements with government and other stakeholers have been fruitful and the organisation of a first off-grid stakeholder meeting is scheduled to take place. The security situation is however a challenge. Technical Assistance to ESPs By June 2023 the following TA support has been provided to ESPs in Burkina Faso: - Oolu: Security plan and gender action plan as well as the ESMS plan - ARESS: Gender policy and gender action plan - Qotto: Gender policy and gender action plan DRC-window Procurement of Energy Service Subscriptions (ESS) In the DRC, two ESPs have been contracted at a value of 8 MEUR to deliver about 125,000 ESS. One advance payment of 240,000 EUR has been disbursed. No ESS reported yet. Contract negotiations with a third metro-grid ESP is ongoing. Two more mini-grid/metro-grid ESPs are undergoing due diligence but Nefco has raised that there might be a need to move down to the reserve list if these candidates to not pass through the process. The mini-grid projects are more complicated than the Solar Home System (SHS) or Productive Use of Energy (PUE) ESPs. Nefco noted in the SC meeting held in November 2023 that it is taking longer to finalise contract negotiations with the mini-grid developers/operators than was indicated earlier. Institutional support services Engagement around institutional support and establishment of an off-grid task force has been making progress both with the Ministry of Energy and Hydraulic Resources (MERH) and the National Agency for Electrification and Energy Services in Rural and Peri-urban Areas (ANSER) but communications with MERH has stalled lately due to upcoming elections and no Letter of Intent (LoI) or Memorandum of Understanding (MoU) has yet been signed. ANSER is still engaging with the BGFA team and seen as an interim lead of the process until elections have been completed. One of the next steps is to organise a broad off-grid stakeholder workshop i.e. an Off-grid task force inception meeting. Liberia -window Procurement of Energy Service Subscriptions (ESS) In Liberia four ESPs have been contracted to deliver just over 95,000 ESS (ESS) at a total contract value of 5.5 MEUR. 26% of committed funding to ESPs has been disbursed and about 22% of contracted ESS have been delivered. During due diligence, the ESP Energicity was rated as a high risk project partly due to the perceived risk of being able to access debt financing. This risk has reduced since Energicity was successful in raising debt financing from the Mirova Sunfunder Solar Energy Transformation Fund with whom Sida has a guarantee agreement. A clear example of how synergies within the Swedish Power Africa portfolio of contributions can mitigate risk and how different types of contributions complement each other towards an overarching goal of market development, increased access and mobilisation of capital. The ESP Mobile Power is transforming energy and transport through innovative and affordable energy solutions, enabling a net zero future for all through an innovative battery rental service. Institutional support services In Liberia the off-grid task force and subcommittees are operational with regular meetings and buy-in from the Rural and Renewable Energy Agency (RREA). Challenges faced are related to ad hoc funding support from the OGTF partners, weak private sector representation and a need for enhanced donor coordination on results based financing. Technical Assistance to ESPs By June 2023 the following TA support has been provided to ESPs in Liberia: - LIB Solar: Inventory management system - Easy Solar: Environment and Social Management System (ESMS) plan, fundraising, gender policy and gender action plan as well as consumer protection Mozambique-window Procurement of Energy Service Subscriptions (ESS) The Mozambique call, which is a purely mini-grid window, stalled due to unclarities about the regulations for mini-grid developers and operators. In March 2023 the government of Mozambique announced the regulations for mini-grids and a re-launch of the first Mozambique call was published in June 2023 and closed end of August 2023. The BGFA2 evaluation was completed end of October and only one company was left to be assessed under a due diligence. If the outcome of the due diligence and the contract negotiations result in the selection of this one company, it will be contracted. This will most likely result in unused funds allocated for BGFA2. Sida has asked Nefco to propose how much of the funding allocated to Mozambique is likely to be needed with only one ESP contracted as a basis for a financing plan to possibly reallocate the funding allocated to BGFA from Mozambique. Sida is also discussing with Nefco the commissioning of an external lessons-learnt study on why BGFA2 did not work and more broadly the challenges BGFA and RBF in general has faced specifically in contracting mini-grid investees. Institutional support services The BGFA team led by Niras has supported the establishment of the Energy and Planning Coordination Unit (UIPCE) at the Ministry of Mineral Resources and Energy (MIREME/DNE). A first off-grid stakeholders meeting was held in August 2023 and AMER has led the work on creating working groups to reflect UIPCE priorities which cover 1) Mini-grids 2) SHS 3) Fiscal incentives 4) Gender and 5) Climate and improved cooking solutions. Going forward the BGFA team is engaging further with MIREME around an official launch of the UIPCE/OGTF and continuing its engagement with AfDB (SEFA 2.0), Get.transform and others. The assessment of Sweden is that the Mozambiquan government agencies should take the lead in the UIPCE and when invited Develpoment Partners can participate. A challenge is that DNE has capacity issues to lead the process. Uganda-window Procurement of Energy Service Subscriptions (ESS) In Uganda five ESPs have been contracted to deliver over 480,000 ESS at a total contract value of 10.8 MEUR. Disbursements to ESPs of almost 2.4 MEUR have been made and more than 90,000 ESS have been delivered. A second call in Uganda was launched in March 2023 when it became evident that it would not be possible to allocate all the available funding in Uganda through the first call. The second call in Uganda (BGFA5) has been adapted based on the recommendations from the early evaluation of the first calls and uses a more streamlined procurement and due diligence process as well as a single stage call with one funding lot for all types of project, i.e. stand-alone, mini-grids and productive use of energy. Seven bids were evaluated by independent third party evaluators (provided by USAID Power Africa) and completed in mid-June 2023. Sida's assessment is that it is likely that projects will match allocated funding. Institutional support services In Uganda the off-grid task force was inaugurated in November 2023 with strong backing from the government, development partners and the private sector. The OGTF is embedded in the National Renewable Energy Platform (NREP) with support from GOGLA. An LoI with Nefco has been signed. Challenges include the need for a data sharing platform among partners to facilitate informed policy decision and the long term sustainability of NREP beyond the support from GOGLA and BGFA. Skills development activities The job creation and skills development programme introduced as a sub-component on the initiative of Denmark and co-funded by Sweden was launched end of 2022 and has so far trained almost 100 participants in a range of topics from sales and interpersonal sills for the solar industry to testing, repair and installations of SHS, that have been developed based on needs of off-grid companies in Uganda. Participants that have completed trainings have rated both material and trainers very positively. Challenges include limited in-person training and an on-line training is being developed. Women's participation has been 23% with more women taking part in the sales and financing training but not so much in the technical fields. Zambia window Procurement of Energy Service Subscriptions (ESS) In Zambia ten ESPs have been contracted to deliver over 860,000 ESS at a total contract value of about 23 MEUR. Disbursements to ESPs of about 3.2 MEUR have been made and more than 115,000 ESS have been delivered. Institutional support services The Off-grid task force activities are naturally most mature in Zambia with broad stakeholder participation and outputs being delivered such as new regulations, capacity building activities and an OGTF impact study underway. The Ministry of Energy has expressed a need for financial support to run the OGTF and is looking for more support from BGFA. This is something that Sida is sympathetic to and have asked Nefco to propose funding allocation to the OGTF work. Technical Assistance to ESPs Up until June 2023 the following TA support has been provided to ESPs in Zambia: RDG (Zambia): Environment and Social Management system (ESMS) plan and DGs capabilities on overall ESS delivery were supported through the review and assessment of their scale up business strategy including communication, implementation and clarity of KPIs towards operationalisation through the company departments and staff • Vitalite (Zambia): ESMS plan and gender policy and action plan • Zengamina (Zambia): Environmental impact assessment Evaluation of the Beyond the Grid Fund for Zambia A final report covering the Beyond the Grid Fund for Zambia (BGFZ) program has been prepared by REEEP. An external evaluation of BGFZ has been commissioned by Nefco and is under implementation. Sida is active and part of the reference group as is EBA, REEEP, REA Zambia and Niras. The evaluation is expected to be concluded in April 2024. This evaluation will complement the final report prepared by REEEP, as well as other thematic evaluations including evaluation of customers impacts of receiving energy services carried out by 60_decibels, an evaluation of the MRV and EDISON applied under BGFZ and an assessment of the performance and long term financial and operational sustainability of the contracted ESPs. The evaluation should have a strong focus on lessons learned from BGFZ, identifying the key factors for the success of the program and how these can be transferred to BGFA. Sida has also commissioned a strategic central evaluation on Sida's work with poverty reduction and the BGFZ program is one of the programs that is part of the scope of that evaluation. The two evaluation teams have been introduced to each other. Partnerships, synergies, knowledge management and BGFA Academy Nefco has entered into formal partnership agreements with Get.invest (which also host the digital MRV platform PROSPECT) and with the Private Financing Advisory Network (PFAN) to mobilise further capital for the growing portfolio of companies under the BGFA instrument. This is a development that Sida is positive to and something that has been brought up in dialogue with Nefco and the other donors. Nefco has developed a BGFA Knowledge Management Strategy and initiated what is called the BGFA Academy which is an online community of practice which amongst other things seeks to introduce potential financial providers to the portfolio of companies. In 2023 Nefco arranged seven BGFA Acadamy events on-line. Sida is happy about these developments and something that has been raised in dialogue with Nefco about the opportunities of closer collaboration between programs that each have their niche depths. Security has been introduced as a standing point on the agenda in the Steering Commitee meetings since end of 2022. The early evaluation of the BGFA CfPs 1-3 was undertaken by Oxford Policy Management (UK) end of 2022 and generated valuable recommendations on the BGFA processes which resulted in a Management Response from Nefco that have taken on board the recommendations and adjusted the procurement approach in the BGFA CfP 4-6 that have been launched since. Nefco keeps a high quality in its communication about BGFA and its various country programs. The communication is underpinned by a Communications Strategy that reinforces the objectives of the programme and identifies and targets different stakeholders with different types of messages.