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Quality Assurance Is Key to Growth in the Off-Grid Solar Products Market

Monday, October 26, 2015

Introduction: Off-Grid Solar Products Market

More than one billion people, mostly in Sub-Saharan Africa and Asia, live without access to electricity. The recent advent of off-grid solar technologies give these groups a safe, clean alternative to dirty and ineffective technologies, such as kerosene lamps, for lighting. Photo: Flickr/DIVatUSAID
A study supported by the Clean Energy Ministerial’s Global Lighting and Energy Access Partnership (Global LEAP) highlights the central importance of a strong quality assurance framework in the development of the off-grid lighting (pico-solar) and solar home system (SHS) markets. More than one billion people, mostly in living in Sub-Saharan Africa and Asia, are without access to electricity. Until the recent advent of off-grid solar technologies, those populations relied exclusively on dirty and ineffective technologies, such as kerosene lamps, for lighting. The development of solar lanterns using efficient LED light sources has begun to change this situation. Moreover, the increasing availability of larger stand-alone solar-powered home energy systems and efficient end-use appliances such as televisions, fans, mobile phones, and radios enables access to expanded energy services in off-grid homes. 

Between 2009 and 2014, the combined global pico-solar and solar home system (SHS) market grew at a compound annual rate of 38%. Annual combined sales reached an estimated 8.2 million units in 2014, up from 1.6 million units in 2009, a five-fold increase in annual sales. Despite this spectacular increase, solar lanterns (which represent the majority of total sales) are still estimated to account for only a small percentage of all lanterns in off-grid households, and there is still a long way to go before inefficient fuel-based lighting is supplanted by more efficient technologies for the majority of off-grid homes. A number of factors will affect the rate of penetration of off-grid solar technologies, including the development of supply chains, affordability and payment mechanisms, sustainability of business models, and consumer perceptions of the risk–reward profile of the technologies.

The Role of Quality Assurance and Efforts to Date

Good quality solar lanterns offer significant life-cycle cost savings compared to kerosene lighting because they avoid the need for regular purchase of expensive fuel. However, the initial capital outlay is appreciably higher, and this constitutes a risk to consumers if product quality is not ensured. In recognition of this, The World Bank Group’s Lighting Africa program established a quality assurance (QA) program to certify the quality and performance of solar lanterns and other pico-solar products in 2009. The QA program uses rigorous testing to evaluate product durability and truth-in-advertising for key performance metrics. This approach provides a framework for evaluating quality while giving companies flexibility to innovate. The geographic scope of the program was expanded to Asia beginning in 2012, following the launch of Lighting Asia. At this point, QA activities were transferred to Lighting Global. As of June 2015, over 12 million quality verified products had been sold in African and Asian markets since the program began, providing improved energy access for more than 27 million people. Moreover, the share of solar lanterns sold in Africa that are quality-verified under this program has grown considerably and is estimated to have reached 50% in 2014. The quality assurance effort was strengthened and expanded through the development of the International Electrical Committee (IEC) technical specification for pico-solar product QA (IEC/TS 62257-9-5:2013[E]) and through extension of the QA framework to cover larger SHS kits, activities that have been supported in part by the Clean Energy Ministerial’s Global Lighting and Energy Access Partnership (Global LEAP). World Bank Group support for the global QA program cannot continue indefinitely; thus, the Group is actively exploring options for the program to become self-sufficient.

Impact of QA on Long-Term Solar Products Market Growth

But how important is QA to the development of the market? Analysis conducted by Navigant Consulting for Global LEAP in support of the Lighting Global program examined this issue. In partnership with the Global Off-Grid Lighting Association (GOGLA), Navigant surveyed representatives of 38 leading organizations active in the off-grid solar products market to establish their views on the impact that QA will have on the development of the market. On average, those surveyed estimated that without the implementation of an effective international QA program, growth of the pico-solar and SHS market would be suppressed by 28% in 2020 compared to the study’s base case. which includes continuation of the global QA program. Without a global QA program, poor quality products would be expected to enter the market in larger numbers, thereby undermining consumer confidence in off-grid solar products. To put this into volume and value terms, Navigant produced a forecast of the growth in solar product sales under a base scenario that assumes continuation of the current QA effort without significant changes (Figure 1). Navigant also developed forecasts for scenarios that assume higher levels of QA implementation at the upper bound and no QA program at the lower bound (see Figure 2 for the pico-solar segment only).

Figure 1. Annual Pico-Solar and SHS Unit Sales and Revenue by Region, World Markets: 2014–2024. Source: Navigant Research

According to Navigant’s base forecast, combined global annual unit sales of pico-solar lighting and SHSs are projected to grow from 8.2 million products in 2014 to 64.3 million in 2024. Revenue from the sale of these products is projected to increase from $538 million to $2.1 billion over the same timeframe. Within the SHS segment, there is an important split between SHS plug-and-play kits and the wider SHS market. The wider SHS market is currently much more established and represents the majority of sales, but the share taken by SHS kits is growing more rapidly, largely because their installation costs are substantially lower. Overall, the Asia Pacific region is expected to remain the leading market in terms of combined pico-solar and SHS sales revenue through 2018. However, from 2019, Africa is projected to surpass Asia Pacific in annual revenue and remain the largest market through 2024.

Figure 2. Pico-Solar Product Revenue Based on Stakeholder Survey Estimates of the Average Impact of QA on Sales, World Markets: 2014–2023. Source: Navigant Research

Under the high QA implementation scenario, total pico-solar and SHS kit sales are expected to reach 42 million units and $679 million in 2020. In contrast, under the no-QA scenario, sales are projected at just 32 million units and $514 million in value in 2020. Furthermore, the Navigant analysis found that the expected revenue benefits exceed the anticipated costs of funding an effective successor QA certification program. Cumulatively from 2016 to 2023, it is projected that the QA certification program would cost $15 million to operate but would increase product sales revenues by approximately $557 million (i.e., have an average benefit-to-cost ratio of 37). This increase in sales revenue is proportional to an increase in product sales and a commensurate increase in adoption of solar-powered products in off-grid communities. Thus, there is an overwhelming business case for the continuation and funding of such a program.

The value proposition of the continuance of an effective off-grid solar product QA program with global scope is clear from these findings, and it is in the sector’s own interest to support such an initiative. However, the off-grid solar products industry is still in a nascent state. Even the largest companies have annual revenue of between $10 million and $20 million, and many have revenue of less than $0.5 million. Under these circumstances, it is problematic to envisage a purely industry-financed QA effort in the near term; thus, public–private partnerships are likely to be needed.

In addition to the estimated market growth impacts, the stakeholder survey also found there is: 

  • Strong support across the sector for the continuation of a QA certification program building upon the existing Lighting Global QA program 
  • Interest in extending the focus to cover SHS kits and counteracting counterfeit/ imitation products 
  • Strong preference to continue with the current QA initial product certification and market surveillance model 
  • Strong preference for governance of a post-Lighting Global QA program to be via a public–private partnership 

Next Steps

Informed by these findings, Lighting Global is currently looking for partners to help support the continuation and strengthening of its off-grid solar products QA program with an aim of making the activity self-sufficient within a few years. Effectively communicating the business case to key stakeholders that are in a position to help sustain the QA effort is going to be critical if a viable successor organization to the Lighting Global Quality Assurance Program is to be established.

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