Financing sustainable energy: Traditional solar vs. PayGo

  • Yekbun GURGOZ, Climate and Clean Air Coalition (CCAC)
  • Jan-Henrik KUHLMANN, Triple Jump
  • Natalia REALPE CARRILLO, MicroEnergy International GmbH
  • Tim REUTEMANN, UNEP DTU Partnership
  • Francis VAZHEPARAMBIL, Standard Microfinance Bank, Nigeria


Yekbun GURGOZ started the session by presenting the Climate and Clean Air Coalition which is a global effort committed to improving air quality and protecting the climate by reducing emissions of short-lived climate pollutants. The Coalition is a unique partnership of countries, NGOs, IGOs and cities working across sectors such as household energy, brick kilns or agriculture. 

Francis VAZHEPARAMBIL explained the background of Standard Microfinance Bank, a mid-sized MFI operating in a difficult frontier market in North Eastern Nigeria. It serves over sixty thousand clients, mostly rural smallholders. Most villages are off grid and people use firewood, charcoal or kerosene for cooking and lighting. This is one of the major reasons why Northern Nigeria is losing its tree cover and top soil at an alarming rate, leading to desertification. As linking villages to the grid is expensive, Standard Microfinance Bank has chosen to finance clean cooking stoves and solar power systems. The bank has already financed solar lanterns on a pilot basis. Encouraged by the outcomes, the bank plans to scale up and develop a sustainable funding model in partnership with the Climate and Clean Air Coalition. 

Tim REUTEMANN, Carbon and Development Expert at UNEP DTU Partnership, advises the Standard Microfinance Bank how this sustainable funding model should look like. Reutemann showed the clear business case for solar home sets. Approximately one year of kerosene pays for a solar home set that lasts at least three years. However, he identified three barriers: access to credit for off-grid populations, difficulties in consumer trust in product quality and the relatively high transaction costs and low asset value. 

Reutemann illustrated two transformational solutions to draw conclusions on what worked in particular situations. The first example was PayGo in Kenya which uses mobile money and machine-to-machine (M2M) communication to address the identified barriers. Loan collection enforcement is easier as PayGo can switch off the system automatically at distance if repayments stop. Consumers have a guaranteed product quality and can stop paying for the product when it is broken, as well as improved after-sales services due to remote-access to system diagnostics. Transaction costs are reduced as PayGo uses mobile money solutions to collect payment. The second example was IDCOL Bangladesh which utilizes the existing strong rural Micro-Finance Network in the country. It is able to provide loans for solar home sets by using credit history from agricultural microcredits and can assure the quality of the product through a national certification scheme. Transaction costs remain fairly low as IDCOL uses an existing MFI. Together with Vazheparambil, Reutemann needs to identify the best model for Nigeria, which has neither the extreme mobile money penetration of Kenya nor the supreme MFI infrastructure of Bangladesh. 

Natalia REALPE CARRILLO introduced a toolkit for financial institutions interested or already engaged in addressing energy access of their clientele. An estimated 1.3 billion people lack access to electricity and 2.6 billion people still rely on biomass for cooking and heating. These figures have been traditionally measured by having or not having household electricity connection and cooking with non-solid fuels regardless of the efficiency of the cook stove. However, they hardly mirror the reality; poor quality connections or decentralized energy systems are not reflected in the metrics. There are several developments to improve the methods to measure access to energy. Recently, the Energy Sector Management Assistance Program (ESMAP) published the multi-tier framework (MTF), which takes into account the multidimensionality of energy access.

Considering this achieved milestone, Realpe Carrillo designed the Progress out of Energy Poverty Index (PEPI) toolkit to measure the access to electricity services and cooking facilities for households. The PEPI methodology is based on the MTF approach, which measures whether households have reliable, affordable and safe electricity supply and services as well as available, affordable and safe cooking facilities, aligned with the Sustainable Development Goal 7 on energy access. Realpe Carrillo showed the ease of use of the toolkit, comprising a set of frameworks, a survey and an index. The survey can be filled in digitally in the field, but also on paper. Based on the results, an index can be calculated, providing the changes in access to energy instead of a static tier-ranking. As such, through the use of the PEPI, the financial institutions can identify the energy needs of the clientele and track accurately how access to energy in a particular region is developing. 

Jan-Henrik KUHLMANN provided the investor’s perspective on financing sustainable energy. He noted that the sector is pushed by new sustainable energy technologies but also by technologies that lower transaction costs and increase ease-of-use such as mobile money solutions. From the perspective of an institutional investor he mentioned that the sector is regarded with caution, as it remains in flux and dynamic, as business models are still in a development phase and the value chain of the industry is assessed as still nascent and not very efficient. Further, most companies are loss making, which raises questions on the financial sustainability of companies and the sub sector However, he complemented the companies active in this dynamic sector on their professionalism and drive for change. He concluded that as the sector is maturing, the tipping point for large investors to step in is coming closer.


The audience asked Vazheparambil if the Standard Microfinance Bank considers upscaling their activities in Nigeria and beyond. Vazheparambil replied that the bank is partnering with the government to upscale, but is legally bound to Nigeria. Another participant in the audience questioned Vazheparambil on how servicing of off-grid power systems is arranged. The speaker answered that the solar home systems are not yet acquired, but agreed that ease of servicing can be decisive in the acquisition of the off-grid power systems. 

The moderator concluded the session by questioning the panellists on the main challenges to growth they see affecting the sector. Vazheparambil responded that costs are an important issue, underlining the need to manage low ticket loans. In the case of Nigeria he mentioned that mobile solutions can lower costs, but there is still a lack of understanding on how blending finance solutions with innovative finance mechanisms can play a role in the sector. Realpe Carrillo stressed the need for better information to improve understanding, decision-making and trust in the energy solutions. Reutemann stressed that the sector is driven by women. Kuhlmann underlined that the sector still needs to prove its profitability. The industry needs to develop further to prove its potential.