Off-grid renewable energy is one of the most cost-effective solutions for electrifying low-income households despite only 5% of annual investment in residential electricity access going to off-grid solutions^1,2. Some of this modest funding flows to the off-grid solar sector, which has rapidly evolved over the last decade and provided electricity to nearly half a billion people by 2022³. However, there are growing concerns that some off-grid solar solutions are not benefiting remote and lower-income communities to the extent that was envisaged^4,5,6,7,8. Meanwhile, the volume, structure, and types of funding going to the off-grid solar sector is evolving alongside the sector’s growth, with underexamined implications on marginalised groups⁹. We interrogate this issue in this perspective, focusing on the Pay-As-You-Go (PayGo) solar sector in Africa given that most off-grid solar sector funding in the region goes to PayGo solar, and the PayGo model is intended for lower-income households¹⁰. In offering our perspectives on this topic, we aim to contribute to a better understanding of the rapidly evolving PayGo solar sector in Africa and assess its continued suitability to deliver on the mandate of SDG7 (affordable modern energy for all).

The PayGo solar business model allows customers to lease-to-own solar systems and pay for them in monthly instalments usually spread over 6 to 36 months¹⁰. This addresses the affordability gap in energy access, underpinning the model’s suitability for low-income groups. Extreme poverty and electricity deprivation are most acute in Africa, affecting 45% and 51% of the population respectively¹¹, therefore it is imperative that we continue to centre lower-income groups in off-grid energy discourse. While acknowledging the inevitability and desirability of commercial financing to a maturing sector, we consider how shifts from public capital and concessional financing to non-concessional and commercial funding are likely to impact solar access for lower-income households. Concessional funding is provided at below-market rates, flexible terms and longer pay-back periods (e.g., low-interest loans, low-value equity, and grants) usually by institutions like multilateral agencies and development banks, while non-concessional funding is offered at market rates and terms (e.g., commercial debt, private equity) usually by private sector financiers and lending institutions¹².

PayGo solar models provide first-time electricity access and sometimes the only electricity source to households without access to the grid or other high-tier energy sources. As such, they have attracted steady and growing demand in some contexts. Between 2015 and 2020, 25–30 million people in Africa gained their first electricity connection via PayGo solar systems (International Energy Agency, 2022). In key markets like Ghana, Kenya, and Nigeria, the growth of solar home system (SHS) connections over this period outpaced connections to solar PV, mini-grids or the grid. Other evidence shows that the share of SHS product sales done through PayGo increased from 24% in 2018 to 39% in 2023, with 65% of smaller SHSs and 95% of larger SHSs sold through PayGo in 2023². Further, some scenarios estimate that annual sales of SHSs will quadruple over the 2022–2030 period and provide first- time electricity access to 18% of all the people gaining access¹³. At the same time, mobile phones are one of the primary drivers of SHS adoption¹⁴, however, mobile phone ownership among lower-income households is low. This limits PayGo solar uptake and signals unmet demand and market potential for PayGo solar. While lower-tier solar systems have drawn some criticism for the limited level of energy service they provide^8,15, they are a viable clean energy source for lower-income households and remain important contributors to narrowing the energy access gap.

Despite the complex and challenging operating environment in Africa, the PayGo solar sector continues to grow. Several dozen PayGo solar companies currently operate in the region, collectively selling over eight million products every year since 2018². This growth has been enabled by a diverse funding ecosystem, which has consistently invested over USD 300 million annually since 2016 from development funders, corporate financiers, multinational conglomerates, manufacturing corporations, and even fossil fuel companies^16,17,18.

While many PayGo companies are still struggling to reach profitability¹⁹, investments in the sector have shifted from concessional finance like grants and low-cost capital to non-concessional finance like commercial loans and private debt and equity. The earliest companies started off as social impact enterprises offering very low-cost products (e.g., d.light’s “$10 Kerosene Killerâ€�) and were mostly capitalised through grants and social-impact funding^20,21. But as the sector has grown and become increasingly commercialised, debt and equity funding has increased and outstripped grant funding as shown in Fig. 1. While this shift to commercial financing demonstrates sectoral growth and progress towards maturity, it could also impact PayGo solar access for lower-income and remote households.

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The left panel shows sources of funding in million US dollars split between Grants (orange curve), Equity (blue curve), Debt (green curve), and Total funding (black curve), excluding results-based financing. The right panel shows the funding, in million US dollars going to the “big 7� scale-up companies (blue bar) and early-stage companies (orange bar). Seed and growth stage companies are those focusing on initial market validation and portfolio expansion while the “big 7� refers to the seven companies that have reached scale-up according to the Global Off-Grid Lighting Association, and these are: Bboxx, d.Light, Engie, Lumos, M-Kopa, Sun King, and Zola Electric. Sources: Created with data from the Off-grid Solar Market Trends Report 2022 & 2024^1,2.

The off-grid solar sector generally attracts funding through three main vehicles: grants, debt, and equity. Between 2012 and 2024, the sector attracted over USD 3.6 billion in funding, roughly 4% of which was grants (USD 141 million), 42% equity (USD 1.5 billion), and 55% debt (USD 2 billion)². Most of this funding went to the more mature East African market (Kenya, Rwanda, Uganda), followed by Nigeria (West Africa) and Zambia (Southern Africa). Additionally, over 70% of this funding was acquired by seven companies all in the scale-up phase (the “big sevenâ€�), with the rest going to over 150 seed and early-stage companies which often seek investments below the minimum ticket sizes offered by most financiers and lenders²². These funding patterns raise several concerns and lead to challenges in serving lower-income households.

Companies in the scale-up or growth stage raise larger ticket sizes predicated on their demonstrated ability to attain a certain service reach and sales volumes, maintain credible credit risk management and steady revenue flows. However, these metrics do not consider the socio-demographic makeup of the customers reached beyond the broad umbrella of “the low-incomeâ€�²³. Further, the PayGo model’s credit risk management practices aim to minimise customer default rates, therefore companies serving lower-income customers operate with longer payback periods as lower-income customers’ repayments are spread over a longer time. Longer repayment periods can cripple companies capitalised with non-concenssional funding, a reality that has prompted growing calls for so-called patient capital²⁴. Even as the sector becomes more commercialised, social impact remains integral to companies’ marketing and fundraising strategies. Flexible funding would enable companies to serve harder-to-reach and higher-risk markets and meet their social impact goals. As such, this perspective examines how increasingly non-concessional funding could impact PayGo solar companies’ ability and willingness to serve lower-income groups.

The sections that follow highlight four possible impacts of the PayGo solar sector’s funding trends on energy access for lower-income groups. Specifically, we consider impacts on: (1) affordability and access to PayGo solar for lower-income households, (2) the target market and service focus of PayGo solar companies, and (3) the growth trajectories and reach of small-sized early-stage PayGo solar companies.

Capital pressures reduce service to lower-income households

The first impact we consider is solar affordability. The PayGo solar sector is particularly sensitive to product pricing and affordability, since the business model directly depends on low-income customers’ ability to pay. Most PayGo companies onboard new customers based on customer credit assessments²⁵, aiming to maximise collection rates, minimise receivables at risk, and minimise product write-offs and re-possessions²⁶. However, households with low, irregular seasonal incomes face persistent challenges in paying off their solar loans, exacerbated by shocks like the Covid-19 pandemic, extreme climate events, and macroeconomic factors. The share of PayGo companies incurring write-off ratios and receivables at risk increased in the period between 2020 and 2023², which typically results in solar systems getting repossessed or customers voluntarily stop using them⁴. While most companies try to avoid these situations, repossessions are becoming more prevalent even in the more robust PayGo solar markets like Rwanda²⁷. This has implications for solar access for lower-income customers, and it also raises concerns regarding customers who make partial payments but cannot complete their payment.

For companies, write-offs and receivables at risk curtail revenues and cashflows. This is especially risky if the company has a higher proportion of non-concessional funding invested, as the higher costs and rigidity associated with this type of financing limits the capacity of companies to adjust their business models to irregular or defaulted customer payments. Consequently, companies that rely primarily on non-concessional financing may avoid serving customer segments that pose this risk. Further, most of the funding is in foreign currency, which exposes companies to currency devaluation and volatility and increases their capital costs²⁸. In 2023/2024, the Nigerian Naira and Kenya Shilling depreciation against the US dollar led to an over 300% and 200% increase in the price of solar lanterns respectively². This presents affordability challenges for lower-income households. Compounded by higher distribution costs to remote communities, this further disincentivises companies from serving these customer segments.

Shifting sector priorities lower demand for PayGo solar

A direct consequence of affordability challenges is decreased demand for PayGo solar systems, particularly in contexts where more affordable alternative solutions become available. Some of the least densely populated countries in Africa have the lowest electrification rates, are highly deprived and fragile, and yet remain underserved by lower-tier solar solutions (see Table 1). Countries like DR Congo, Madagascar, Mali, Mozambique, Somalia, and Zambia have low national electrification rates and millions of unelectrified rural households, and their low density makes them well-suited to PayGo solar solutions. While this suggests a substantial untapped market, Tier-1 and Tier-2 solar adoption in these countries remains low.

Table 1 further illustrates that despite some countries like Tanzania, Nigeria, and Mozambique having sizeable mobile phone ownership, millions of rural households are still without access to electricity. For households whose only device is a mobile phone, the availability of more affordable phone charging options may reduce the need for PayGo solar systems. For instance, in contexts where subsidised grid extension and mini-grid development enable high electrification rates, the market for stand-alone PayGo solar could fall²⁹. In addition, it paves the way for alternative business models that could displace PayGo solar. Business models such as communal charging at electrified facilities like schools or mobile battery charging stations and kiosks eliminate the need for downpayments on solar systems and offer more affordable pay-per-use services. These approaches may be more effective in lower-income contexts where the primary electricity needs of households are minimal, for example limited only to phone charging. Therefore, as the sector prices out lower-income households, more affordable alternative models and approaches will emerge and reduce the demand for PayGo solar in these communities. These alternatives should be identified and recognised for their role in advancing energy access so that they receive the requisite policy and funding support.

Financial incentives draw solar providers toward higher-income customers

Another likely outcome of shifts in funding is PayGo solar companies moving more upmarket and prioritising ‘high value’ customers. By this we mean for instance: companies adjusting their product offerings from lower-tier to higher-tier products for applications beyond lighting and phone charging, focusing on higher-income customers who can afford larger solar systems, shifting from a predominantly rural customer base to an urban customer base, or targeting commercial customers through productive use of energy (PUE) products. The drivers of such upmarket shifts are manifold, but several can be directly linked to funding. First, many customers who acquire lower tier solar systems do not use them for income generating activities, which diminishes their continuous ability to pay⁴. Additionally, unreliable urban grids in many countries have increased urban dwellers’ appeal for off-grid solar, a market that carries significantly less distribution and operating costs than remote rural markets^30,31. For other companies, venturing into higher-tier solar systems has been incentivized by market mechanisms like results-based financing (RBF) schemes that specifically target PUE – see SEforAll’s RBF tracker³².

Another potential knock-on effect of PayGo companies moving more upmarket concerns the role of PayGo solutions for long-term rural electrification vis-à-vis higher-tier alternatives. PayGo solar systems are often considered a transitional technology to enable first-time electricity access given their limited capacity, and most rural customers will switch to higher-tier sources like micro-grids, mini-grids or the grid once they become available^33,34. As such, PayGo companies moving upmarket could lead to direct competition with micro-grid and mini-grid providers, further distorting the off-grid solar market. When considering how to most effectively deploy the limited funding available for universal electrification and given that large proportions of households are still unelectrified (Table 1), it may not be optimal for PayGo solar companies and mini-grid companies to target the same communities and customer segments.

Serving more upmarket customers also requires substantial capital infusions, therefore these companies are more likely to be in their growth and scale-up phases with sizeable cash flows that can raise large ticket sizes of non-concessional financing. While this is a positive trend and natural progression of a maturing market, it may necessitate that companies pursue and prioritise liquidity goals for portfolio quality, profit margins, debt repayments, or shareholder value at the expense of their social impact goals of serving lower-income households⁷. Some types of funding like commercial debt and private equity inevitably render PayGo companies exclusively profit-driven, which is concerning given that many started out as social impact enterprises aiming to alleviate energy poverty in underserved communities and households.

Uneven capital flows weaken smaller PayGo solar companies

The size and type of financing that PayGo solar companies acquire typically corresponds to the company size and stage of growth. Seed-stage and early-stage companies considered high-medium risk primarily raise low-cost equity and grants to test their business models and fund market entry. As companies move into expansion and scale-up phases, they grow and are proven lower-risk, therefore they can raise larger capital from equity and debt, freeing up concessional finance for smaller companies³⁵. However, the PayGo solar sector’s growth has resulted in a dwindling pool of concessional financing available to an increasing number of early-stage companies as illustrated in Fig. 2. Therefore, only a small fraction acquire enough funding to sustain their operations let alone grow. And yet when it comes to PayGo solar reaching remote locations, the smaller domestic companies usually fill the gap left by larger companies which tend to concentrate in dense urban areas and are starting to move upmarket as discussed earlier². Yet small-sized early-stage companies that could serve harder-to-reach customers are struggling to attract flexible low-cost funding that could propel their growth and facilitate their reach to these customers.

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In each year block, the left bar shows funding that went to scale-up companies and the right bar shows funding that went to early-stage companies, in million US dollars. Each bar also shows different funding sources, Grants (blue bar), Equity (orange bar), and Debt (green bar). Sources: Created with data from the Off-grid solar market trends report 2022 & 2024^1,2.

With the increasingly limited funding they attract, early-stage companies find it difficult to build and scale logistics networks to reach remote customers or achieve product price points that appeal to lower-income customers. The landed costs of PayGo solar systems have significantly fallen over the past decade, from over USD 150 in 2016 to about USD 54 by 2024 due to the declining costs of solar modules and batteries^2,36. However, high distribution costs, particularly to low-density rural remote areas, can increase local SHS prices by over 50%². Further, some analyses reveal that PayGo solar loan payments are slower for companies that offer lower-cost solar systems²⁵. Therefore, while cheaper solar systems can reach a wider and lower-income customer base, low collection rates make it difficult for early-stage companies to run their operations solely off product sales or factor expensive capital into their overheads and margins. With less funding going to these companies, their reach to lower-income customers is limited, which in turn limits their growth, ability to attract flexible capital, and overall contribution to enabling affordable energy access for underserved households.

The trade-off between serving lower-income households and maintaining fiscal sustainability is one of the most challenging aspects of the PayGo solar model⁷. Left to market forces alone, PayGo solar companies taking on more commercial debt, equity payout obligations or facing high capital and operating costs will preferentially serve markets and customer segments that align with their financial sustainability goals. As such, there is a need for concerted efforts between funders, policymakers, and PayGo solar companies to purposely de- risk and improve the financial viability for companies of different sizes and growth-stages to serve lower-income groups.

Suitable market mechanisms such as supply-side and end-user grant subsidies, concessional consumer finance, lower-cost debt, flexible payment programs and tailored results-based financing (RBF) schemes will be required to incentivise solar companies³⁷. Beyond the existing financial interventions and market mechanisms which have already been proven to narrow the affordability gap³⁸, better targeted incentives should be explored. Subsidy-based incentives should explicitly include risk mitigation strategies that enable companies to serve customers living in the hardest-to-reach areas or in extreme poverty. For instance, many RBF schemes pay companies based on product sales regardless of the socio-economic demographic of the customers served. However, to reach lower-income households, these incentives should be designed to also consider deprivation indicators like the customer’s income strata, location and geographical remoteness.

Some initiatives are already deploying such approaches. For instance, the RBF program under the World Bank-funded Electricity Access Scale Up Project in Uganda offers PayGo solar companies higher incentives to deliver solar products to hard-to-reach areas, and the highest incentives for products sold in refugee hosting communities and settlements³⁹. The project also contains a specific financial intermediation component that, through local financial institutions, provides companies with low-interest loans for working capital and customers with access to financing to purchase solar products. Customers are further supported through demand-side subsidies for lower-tier solar products that rival those of higher-tier systems i.e., solar lanterns (60%), solar home systems (50%), and productive use systems (60%). Early evidence attributes the 59% year-over-year growth in solar energy kits and record solar water pump sales in Uganda to the subsidies offered under this project⁴⁰. In Rwanda, the Pro-Poor RBF subsidy based on the principles of Ubudehe (a Rwandan practice and cultural tradition of community mutual assistance to solve socio-economic problems) is targeted at the lowest-income households and provides subsidies tiered according to socio-economic categories⁴¹. Such targeted subsidies blended with low-cost financing can ease the affordability burden for customers while also lessening the debt burden and de-risking PayGO companies.

Further, affordability for lower-income people needs to be deliberately considered by policymakers, financiers and PayGo companies, striving for a strategic balance between company fiscal health and serving the lowest-income households. For instance, companies should seek a blend of low-cost finance (even if it may offer lower ticket sizes) alongside concessional financing, or supplement corporate activities with non-profit or public-private partnerships that specifically target the hardest-to-reach. In rural Madagascar for instance, the globally active NGO ‘Barefoot College’ is targeting the lowest-income, most remote regions to train rural women in solar repair, and the World Bank’s ‘Digital and Energy Connectivity for Inclusion in Madagascar’ project is financing the distribution of ‘social solar kits’ to underserved marginalised communities^42,43.

The approach taken by Barefoot College is noteworthy for its focus on solar repair and maintenance, an aspect that most PayGo solar models do not typically support especially if the solar system breaks down outside the loan repayment and warranty period. However, as highlighted by a growing body of work^{44,45,46,47,48}, off-grid solar repair and maintenance is a crucial element of affordable, sustained, and reputable solar energy access in rural and remote communities. Therefore, business models, financing instruments and incentives that offer repair support to PayGo customers until they have access to alternative higher-tier solutions could ensure continued usability of solar systems without worsening the financial situation of customers if their product breaks down and is repairable.

Other evidence suggests that even when customers can raise the down payment for solar systems, the recurring loan payments can be the more challenging hurdle for lower-income customers. This often results in their solar systems getting remotely turned off or repossessed²⁶. Therefore, demand-side incentives should be equally if not more meaningful in supporting lower-income customers with their instalment payments even as existing mechanisms assist with lowering the total product cost and down payments. This presents an opportunity for subsidy schemes that lower the amount or frequency of loan payments or that enable flexible payments to be commensurate with the irregular incomes that are typical of many low-income households.

In contexts where PayGo solar has no future because the lowest-income households are priced out, alternative energy provision models are required. For instance, these households may be better served through approaches similar to those deployed in displacement settings such as mobile battery charging points and phone charging kiosks or electrified community buildings providing nighttime lighting, phone charging and entertainment services. Further, grid extension to rural communities attracts a wide scope of incentives, and these could be widened to PayGo solar companies to capitalise on the economic viability that such modular localised energy systems offer.

Ultimately, to reach the unelectrified households for whom off-grid solar is the least cost solution by 2030², better-targeted incentives must be pursued and a blend of private and public concessional funding made available to PayGo solar companies at different growth stages. Companies will also need to adjust the traditional PayGo solar model to achieve that elusive balance between reaching the most marginalised of these unelectrified households while also meeting their financial and growth goals. This way, the sector’s evolution and maturity can deliver on its promise of electrifying underserved communities and truly advance the universal energy access agenda.

As the PayGo solar sector grows and evolves, policymakers face the dual challenge of supporting vulnerable households to affordable modern energy while allowing PayGo solar companies to access commercial capital and grow. This section offers some guidelines for navigating the transition between social objectives (inclusiveness) and commercial objectives (commercial viability) in the sector.

Design hybrid financing mechanisms that blend concessional and commercial funds. Hybrid financing going to PayGo companies at different growth stages could be one avenue, such that concessional loans and grants support early-stage companies to get their footing in the market and serve lower-income households, while more mature companies leverage their growth and wide service footprint to attract commercial finance that enables them to serve upmarket customer segments who have a higher ability to pay.

Establish incentive schemes tied to inclusiveness metrics. Policies and incentives that encourage PayGo companies to serve lower-income households should be explored. For instance, time-bound subsidy programs tied to inclusiveness metrics similar to approaches currently being implemented in some results-based programs in the region.

Encourage public-private partnerships that address varied sectoral objectives. Strategic public-private partnerships can ensure that the dual objectives of social impact and commercial viability are met. The public sector could focus on alleviating (energy) poverty and enabling affordability for lower-income households in the short term while the private sector and PayGo companies focus on serving higher-income customers and urban markets or on offering productive use energy (PUE) services. PUE is an essential component because it allows customers to generate income which allows them to afford energy services without requiring continuous financial support or incentives.

Provide regulatory incentives to attract sustainable private investment. Standardised and coherent regulatory frameworks can attract consistent private finance at favourable terms, which would help to mitigate risks for PayGo companies and stimulate customer protection practices that maintain affordability for lower-income customers.

Explore alternative models to PayGo solar. Other low-tier energy provision approaches that have proven effective in other vulnerable settings should be identified and supported. For instance, financing the electrification of communal facilities or mobile battery charging could serve remote unelectrified households, eliminating the limitations of accessing and owning PayGo solar systems for these households.

Increase concessional finance to the energy access agenda. Overall, mechanisms to increase the volume of concessional finance available to the Global South, and specifically to the energy access agenda, need to be pursued. This finance should also be offered at favourable terms to match the scale of the energy access gap in Africa.

The PayGo solar sector’s growth is a testament to the continued role of multi-scalar off-grid solar in advancing energy access in Africa, particularly for low-income households for whom other electricity access options remain unlikely or unviable. However, this growth has precipitated consequential evolution in funding and investments into the sector, such as increasing commercial non-concessional funding, most of it concentrated in a few scale-up companies. This perspective has argued that these trends could derail solar access for lower-income households by impacting solar product accessibility and affordability, reshaping the target customer groups of PayGo companies, lowering the demand for PayGo solar, and hindering funding acquisition for early-stage companies. While it is still too early to measure and quantify these impacts across different demographic groups, this perspective offers early speculation that can inspire more deliberate PayGo solar provision that continues to centre low-income households for whom these solutions are intended. Specifically, we urge that lower-income groups living in remote locations and/or in extreme poverty be deliberately considered by companies, financiers, and policymakers in investment-seeking and fundraising efforts. We call for more and flexible funding to smaller-sized companies, more flexible blended financing, and better targeted market mechanisms and incentives to de-risk PayGo solar provision to lower-income households. We hope that these insights will inform more equitable off-grid solar provision and access in Africa, ensuring that the PayGo solar sector’s growth and evolution leaves no one behind.

Given the pace at which the PayGo solar sector is evolving, a shift towards more commercial financing is both inevitable and desirable as it signals sectoral maturity. However, little is known of how the PayGo solar market could then be structured so that it maintains its social objectives while progressively transitioning to financial sustainability. Future work could explore this question. Further, there is a need for a broader discussion on whether PayGo funds are well spent in this sector compared to investments in other electrification models. For instance, some remote and lower-income communities may be better served through models similar to those used in displacement settings, and their potential and co-existence alongside PayGo solar warrants exploration. Lessons can also be learned from grid extension efforts, particularly regarding the scope of incentives given to companies to extend grid coverage to rural communities. Lastly, as PayGo solar companies seek diverse financing, their business models should also consider extended repair and maintenance support to customers in remote areas, to ensure sustained access beyond the repayment and warranty period, if possible until they have access to other alternatives. Further research is required on this topic, as the extent of solar waste and system repair requirements across the full spectrum of defunct PayGo solar products in African households is not well known.