Africa's Off-Grid Solar Sector Attracts Mainstream Investors Through Landmark Deals

Landmark fundraising deals by two of Africa’s largest off-grid solar companies are raising hopes that private capital markets could become a significant source of funding for bringing electricity to millions of homes lacking reliable power.

A $50 million green bond issued by affordable energy company D.light in June, and $286 million in securitized debt by rival Sun King mid-2025, are testing whether institutional investors will back a pay-as-you-go (PAYGo) business model on a commercial scale. These transactions are fueling debate over whether Africa’s off-grid solar sector has reached a financial turning point, attracting mainstream investors beyond its traditional base of donor agencies and development finance institutions.

Both D.light and Sun King employ the PAYGo model, allowing customers to pay for solar home systems and appliances in small installments, often via mobile apps, rather than the full price upfront. The companies then bundle these future payments, known as receivables, to use as collateral for bonds or other securities sold to investors. This allows the companies to raise immediate capital.

Sun King's global chief financial officer, Krishna Swaroop, described the transactions as “pathbreaking” for the industry, demonstrating the entry of commercial capital and instruments at a scale not previously seen in the sector. However, he cautioned that these deals are underpinned by years of operational experience and repayment data, which many smaller companies may lack, as investors typically require five to seven years of such data.

Securitization, a financing technique common in mortgage and auto-loan markets, allows solar firms to convert years of future customer payments into immediate capital. While this can lower financing costs for larger firms, the associated legal, regulatory, and credit guarantee expenses make it uneconomical for smaller companies. Swaroop identified portfolio quality risk—the possibility of loans not performing as expected—as a significant deterrent for mainstream investors, noting that many off-grid companies struggle to present this data in a way investors understand.

A green bond, like D.light's, functions like a conventional bond where proceeds finance environmentally beneficial projects. In D.light's case, the bond is backed by a special-purpose firm holding thousands of PAYGo customer account receivables. Sun King's transactions utilize securitization, where future customer payments for solar systems serve as the underlying assets.

Industry leaders, including Sarah Malm, executive director of the off-grid solar industry association GOGLA, view these deals as evidence of a maturing climate financing market. Years of improvements in product quality, certification, and repayment records have made customer receivables more attractive to investors, with PAYGo receivables now being rated, listed, and bought by institutional investors in London and New York. GOGLA’s 2025 Investment Data Report indicates that Africa’s off-grid companies are increasingly attracting sophisticated financing, with local-currency investment reaching a record 47.2% of funding in the past year, alongside new participation from commercial banks in several African nations.

Wangari Muchiri, founder and chief executive of clean energy transition firm RE.Think Energy, called the transactions an “important tipping point,” suggesting that each successful deal reduces perceived risk and eases future financing. However, she noted that wider adoption will necessitate more investment-ready companies, standardized financing structures, robust performance data, and supportive regulations.

Analysts point out that these transactions still rely on significant credit enhancements. Penny Herbst, senior energy adviser at the Rabia Transition Initiative, highlighted that D.light's green bond, for instance, was substantially de-risked by a full guarantee from the Green Guarantee Co., a mechanism designed to mobilize private capital for climate investment in emerging markets. Details of such private placements remain confidential.

Supporters believe that if such financing becomes more common, it could reshape Africa’s electrification efforts. Advancements in technology, such as the increased lifespan and reduced cost of lithium-ion batteries, coupled with independent product certification, warranties, and repair networks, have further reduced investor risk by making customer payment streams more predictable and financially sound.

However, Swaroop raised a concern that the pursuit of capital-market-level returns could potentially lead companies to focus on larger, more creditworthy customers, potentially neglecting the needs of the hardest-to-reach, lowest-income segments of the population.