The Off-Grid Solar Energy Market in Madagascar – an investment opportunity with social impact

Four out of five people in Madagascar don’t have access to electricity.[1]

In rural areas, where more than 60% of the population live, access is even scarcer, and this means more than three million households don’t have electricity.

This underserved market offers an opportunity for companies which are interested to invest in the distribution of stand-alone solar solutions, such as solar lanterns and Solar-Home-Systems (SHS).

The market has recently experienced a significant uptake with almost 50,000 high quality products sold in 2021. It is estimated that the short- and medium-term market potential is more than four times the current level. The demand could increase even further, to three million households.[2]

As Madagascar is an entry-level market, mainly lanterns and small SHS are currently sold. The vast majority of sales (95%) are made with consumer finance either through microloans or prepayment solutions, so called “pay-as-you-go”.

This form of finance, offered in combination with solar products, enable households to build up a credit history. This financial inclusion can support household in accessing further financing.

There are also other benefits.

Using quality solar products can increase household income as it allows those offering labour, services, and products to do so after nightfall. Solar products can replace candles or kerosene lanterns that are not only expensive but also a safety hazard due to an increased risk of fire or pollution.

In addition, off grid solar products contribute to a favourable learning environment for children. Thanks to solar light, students can get home safer, study at home and have access to information via radio or television.

Given the market potential and limited number of distributors active in the market, the risk of saturation is low in the medium term. In addition, importing companies are benefitting from VAT and customs duties exemptions for quality solar lanterns and SHS.

In order to support the development of the market, the Government of Madagascar initiated the Off-Grid Market Development Fund (OMDF). The programme is led by the Ministry of Energy and Hydrocarbons and financed by the World Bank. OMDF offers grants and loans to companies involved in the distribution of high-quality products. OMDF is managed by Bamboo Capital Partners in collaboration with Société Générale Madagasikara.

Madagascar therefore provides an attractive economic and regulatory framework for providing access to affordable and sustainable energy through the distribution of stand-alone solar solutions. More info: omdf.mg

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[1] 16,5% in 2021. Source: http://energie.mg/electricite/taux-d’accès.html

[2] Source : Enclude (2018): Final Report – Off-Grid Solar Market Assessment Madagascar

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This article was first published in “The American”, edition No 14, by The American Chamber of Commerce in Madagascar. For more information and the complete magazine: http://theamerican.mg/