Evaluation off-grid energy solutions

Zola Tanzania (42).jpg
Evaluating the impact of our investment

How off-grid solar energy solutions improve the lives of Kenyans without access to the grid

The rapid development of solar energy has helped create access to electricity for millions of people.

Several companies have emerged that develop small home systems with a solar panel that provide light, radio and sometimes even TV to people living remotely. These services can significantly improve the way that rural households live, especially if they previously did not have access to electricity. This motivated FMO to support energy players active in the off-grid energy market, including Orb Energy in Kenya.

Because selling products to people who live in distant rural areas and have unstable incomes from agriculture is expensive and difficult, the off-grid energy market is still nascent and risky. In such markets, Development Finance Institutions (DFIs) like FMO can play an important role. The off-grid market’s high risk and high developmental impact nature made it a strategic focus sector for FMO and the Access to Energy Fund (AEF).

FMO asked independent experts to study the development impacts of solar home systems (SHS) provided by Orb Energy in Kenya to help answer the question whether solar home systems indeed live up to their development impact potential, and how the development impact can be maximised in this sector.

Learnings for FMO

There are still millions of people living without access to electricity. FMO wants to be an enabler to companies and support them in their quest to bring prices of off-grid systems down further such that the business case for obtaining clean off-grid electricity further improves. 

1. Poverty alleviation

Both our study on Orb Energy and a study by 60Decibels show that investments in the off-grid sector have not significantly contributed to poverty alleviation. The study finds that SHS primarily deliver an increase in living standards, but that the economic savings generated with the system are (with  prices of SHSs during the time of the study, which have come down since) not enough to earn back the system in a foreseeable timespan (of less than five years). Orb Energy clients had a 14% likelihood of living below the $1.5/day poverty threshold. The average of many other off-grid investments studied by 60 Decibels was a little over a third of customers live in poverty (compared to 60% across the countries where their projects were undertaken).

Over the past years, FMO has experienced that (most) companies in the off-grid sector are still far from profitable. They struggle with distributing products and services in the underserved and scarcely populated regions, i.e. due to the high distribution costs involved. We learnt that off-grid companies therefore also had to start selling larger systems with higher margins in order to improve the profitability of their business. Even today, the sector continues to struggle to improve the unit economics of selling products to last-mile customers. Only selling smaller lantern products in very remote places to increase the outreach to the poor is difficult to sell profitably without a grant or subsidy component or requires a very lean distribution model, which not all players have. FMO therefore continues to challenge companies to a) operate lean distribution models and b) to also sell lower-end products that are cheaper and more affordable for poor people, next to the higher end products. Based on this evaluation, we feel strengthened to do so even more in the future. Recently we also developed the FMO Ventures Program that allows us to, together with AEF, invest in early-stage, second generation companies that are typically more cost-efficient to be able to focus on last-mile distribution in underpenetrated markets. 

2. Over-indebtedness 

The study on Orb Energy’s customers finds that the purchased SHS generally do not facilitate significant income-generating activities, while clients get loans to purchase the systems. Also the 60decibels report mentions that “while over-indebtedness is still only hitting a small proportion of customers, the negative impacts they experience are significant: 4% of families we spoke to said that their energy payments were a ‘heavy burden’ and 5% are forced to regularly cut back their food consumption in order to make payments.

Even without the income-generating component, investing in rural access to energy still facilitates development. The savings on energy expenditures for kerosene and mobile phone charging help pay back for the investment in the SHS. The Orb Energy evaluation shows that this payback period was longer than initially expected, which is concerning. However, we have learnt that, in search for profitability, many companies started optimizing. Orb Energy has cut its prices since the research was conducted. In addition, the study finds significant other non-monetary benefits that clients are willing to pay for and help improve the quality of their life, such as the better quality lighting and the access to information via TV and radio, which should not be underestimated. Nevertheless, FMO acknowledges even more so after learning from these results that is extremely important to protect consumers for the impacts of loans. FMO is one of the founding members of GOGLA’s Consumer Protection Code and aims to further increase its impact in the sector.

3. Mini-grids 

Mini-grids have the potential to reach a higher proportion of low-income families. The nature of the mini-grid business model requires a high density of connections to cover the fixed costs of setting up a localized grid. According to the 60Decibels study, mini-grids also offer increased income generating opportunities, higher capacities and thus more potential for businesses to develop.

Mini-grids are also a part of FMO’s strategy in the off-grid sector. FMO has an ongoing commitment with Husk in India and is working a few others. The financial sustainability of mini-grid business models is however also still quite challenging as initial capital expenditures for the system are high and usage is often underestimated. In most countries, mini-grids still need subsidies to make break-even. However, they can work well in places with high population density and stable regulatory frameworks. The opportunities to partner with subsidy-providers (such as GIZ and the World Bank) are currently improving. Going forward, we are hopeful to further increase our activity in this sector.


Cleaning process of a mini-grid by Husk (India)

FMO thus feels encouraged to continue activities in the sector, helping connect more people with access to electricity in an (environmentally) clean and targeted manner. Off-grid electricity then also has the potential to create a positive impact on net household income and contribute towards poverty alleviation.

Access to electricity helps provide basic living standards, but is still unavailable to many

Some 13% of the global population does not have access to electricity.[1] The majority of those people live in Africa and in rural areas. Most of them use small kerosene-lamps to light their homes and firewood to cook their meals, and they travel to towns to charge their mobile phones. The advancements in solar energy technology have helped an increasing number of companies to develop tailor-made solar products, initially to provide lighting, but more recently in the realm of leisure (TV and radio), refrigeration, water pumps and water heaters. There are now over 200 companies providing such products in often difficult-to-reach places.

To many, Kenya was the cradle for the development of the off-grid sector, with low electrification rates (18% in 2010[2]), a large and growing population and a conducive business environment stimulated by the government. Kenya soon became the target of many new off-grid solar providers and has now become the most mature off-grid market with 61% of all active companies selling in Kenya (the highest in Africa)[3].


FMO has been active in the off-grid sector for many years and is eager to continue to improve its strategy

Through the Access to Energy (AEF) fund, FMO has supported the development of the sector since 2012. In 2015, FMO invested in Orb Energy Plc, a company that started selling off-grid solar products in India in 2007 and wanted to expand into the Kenyan market. FMO provided USD 2 million of equity from AEF to support that expansion the branch network and the addition of more manpower to service the difficult-to-reach client areas. Orb Energy’s business model relies to a great extent on cooperation with local (micro-)finance institutions (MFIs) which provide loans for Orb’s products and promote these products in credit groups. Orb Energy provides various solar home systems, from small solar lanterns with one light, to a TV set with four lights and integrated solutions for small business owners.

The impact on the lives of the beneficiaries, and thus FMO’s rationale to support the sector, was easy to comprehend: longer-lasting and better lighting at home, as well as avoiding the use of dirty and dangerous fire-based lighting sources significantly helped families in their daily chores. It also provided a greater sense of security at night, and better study opportunities for children at home. Investments in the off-grid sector therefore clearly contribute to several SDGs, but in particular SDG7 (Affordable and Clean Energy) and SDG13 (Climate Action).

A large household-level survey among 528 Orb Energy SHS users and a control group of 520 similar households without SHS at home was conducted to measure the economic impacts at the household level and environmental impacts from reduced greenhouse gas emissions related to the lighting source. The impact on how families with a solar system spend their daily lives was also studied in detail in order to capture other changes in their lives compared with households that did not have access to electricity, such as time spent studying at home by children and watching TV.

Zola Tanzania (42).jpg

Family using a solar home system

Solar home system
users are happy with their product and use it intensely

The study confirmed that most households that use solar home systems live in rural areas (84%), but a share live in peri-urban (12%) or urban (4%) areas and use the system to cover black-outs on the grid. The average number of household members in the house is five and their median income is between 13,000 and 16,000 Kenyan Shilling (between EUR 110 – 135 per month). Placed against the income distribution in Kenya, this means that the average SHS client is classified as ‘lower middle income’ and is part of the 30-40% group in terms of income (with 100% being the wealthiest Kenyans).  The clients are happy with the purchase they made: 38% was ‘very likely’ and another 30% ‘likely’ to recommend the Orb Energy SHS to friends and family [4]. They also use all features of the system significantly:

  1. All households used the LED lights, and on average for 3.3 hours per day
  2. 92% of households used the system to charge their mobile phones and 40% of them also charged the phones of others (and if they did for about 10 phones a week)
  3. Some 68% of the households with a system used it to listen to the radio, for on average 2 hours a day
  4. And all households that have a TV with the system used it to watch TV for on average 3.3 hours a day. Since the maximum capacity of the system would power the TV for 4 hours a day, the clients probably used the lighting sparsely to maximise the time they could watch TV.

An investment into a solar home system can pay itself back, but the largest benefits are in increased convenience

The detailed econometric comparisons between households with and without a system found that the system significantly affects the lives of SHS-owners in two main areas:

1. Household income and expenditures: Households were not found to earn more money with a system (e.g. to sell goods at night or charge mobile phones), but the use of the system still generated savings in household expenditures large enough to earn back the purchase of the system in approximately 7 years (interest paid not considered). For Orb Energy clients, the use of the system namely resulted in:

    1. a reduction in the consumption of kerosene for lighting of 1.2 litres per month. In addition, there is a reduction in the number of batteries needed to power a radio. This reduced use of kerosene and batteries saves households about KSh 103 a month (~EUR0.8 or ~USD1).
    2. no longer having to pay to charge their mobile phones. Now only 8% of SHS households charge their phones outside their homes as compared to 46% of households without SHS. They save about KSh 44 a month (~€0.4) with this.

In total, SHS users save about KSh 147 a month (~€1.2) on expenditures for lighting and mobile phone charging. The payback period of 7 years is longer than the average lifespan of the battery (approximately five years). Ideally, the price of the systems should go down to ensure they are affordable. Orb Energy has already lowered its prices since the conclusion of the study.

2. Increase in living comfort: SHS users experience an increase in their level of comfort. Their satisfaction with the quality of lighting at home increases by almost 1 point on a 1-5 scale (to 4.4 on average) compared to households without a system. Spouses of the head of household and children also watch more TV, some 30 minutes and 10 minutes per day respectively. Lastly, they save time as they travel less often to buy batteries and/or kerosene: they save approximately 10 minutes per week.

Contrary to what is often claimed in the industry, though, the study did not find evidence that children study longer at home with a SHS. Most other existing academic studies also did not find an effect, or found only a very minor effect, on the amount of time children spent studying at home. However, children did spend more time watching TV.

3.  Finally, the study also quantified the positive effect that the SHSs have on combating climate change: The 13-14 litre annual reduction in kerosene consumption per SHS means a reduction of about 37 kg of carbon dioxide equivalent GHG emissions per year per household with a SHS (on the basis of average use). 

[2] See: IEA.org 

[4] 25% said they were neutral and 7% said unlikely.

Orb Energy

Access to Energy Fund


Read more

  • FMO evaluation report on Orb Energy (PDF)
  • 60Decibels off-grid impact performance report (PDF)
  • GOGLA -  global association for the off-grid solar energy sector (website)

For more evaluations, visit our reporting center