OFF-GRID SOLAR LIGHTING MARKET TRENDS

OFF-GRID SOLAR LIGHTING MARKET TRENDS 4 th International Off-Grid Lighting Conference

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ESTIMATED ANNUAL SPEND ON OFF-GRID LIGHTING AND PHONE CHARGING (2014, USD BN) AFRICA ASIA 2.6 0.1 18.0 2.1 11.5 0.8 0.8 4.0 0.1 12.7 2.2 4.7 0.9 0.8 KeroseneKerosene lamps Battery torches Candles Mobile phone charging Pico-PV Total Kerosene Kerosene lamps Battery torches Candles Mobile phone charging Pico-PV Total Note: mobile phone charging assumption: one weekly charge at $0.20. Technology breakdown is based on UNEP estimates for 2010. Solar lighting expenditure refers to Lighting Global quality-verified products only. Source: Bloomberg New Energy Finance, UNEP 2

ESTIMATED SALES OF BRANDED PICO SOLAR LIGHTS (MILLIONS OF UNITS, CUMULATIVE) 19.9 0.1 0.4 0.6 0.9 5.7 16.0 12.1 9.8 8.6 7.6 11.4 5.4 3.4 8.5 1.4 2.1 1.8 3.4 1.6 2.2 3.2 4.5 6.3 FY H1 H2 H1 H2 H1 H2 H1 H2 H1 H2 H1 2009 2010 2011 2012 2013 2014 2015 Africa Asia Note: Data is based on sales data of Lighting Global quality verified product, conversations with and announcements of other market players and BNEF estimates for reporting gaps. Source: Lighting Global, Bloomberg New Energy Finance 3

ESTIMATED SAVINGS FROM QUALITY-VERIFIED PICO-PV SYSTEMS SOLD BETWEEN JULY 2014 JUNE 2015 (USD BN) Africa Asia Kerosene expenditure Phone charging expenditure Retail cost of solar 256 Kerosene 11 Phone charging -64 Retail cost of solar 96 10-51 Net savings 202 Net savings 56 Note: The figures represent GOGLA social impact tracking metric 5b. Assumes single solar light systems replace one kerosene light and SHS replace two kerosene lanterns with running costs between $11-40/light, depending on the country and kerosene subsidies. Assumes mobile phone charging costs of $0.20 and one charge per week per household. Solar product lifetime = 1.5 times warranty period. Refers to sales of Lighting Global quality-verified products only. Source: Bloomberg New Energy Finance, LightingGlobal, GOGLA, UNEP 4

SALES OF LIGHTING GLOBAL QUALITY-VERIFIED SOLAR LIGHTS (MILLIONS OF UNITS) 2.9 2.4 1.8 2.0 2.0 Africa 0.9 Asia 0.2 0.4 0.5 H1 H2 H1 H2 H1 H2 H1 H2 H1 2011 2012 2013 2014 2015 Note: Lightly coloured figures are estimates. Source: Lighting Global, Bloomberg New Energy Finance 5

WHY DID SALES DROP IN H1 2015? Hypothesis 1: Data limitations Not all companies report all the time The market can be cyclical and one period not representative 6

WHY DID SALES DROP IN H1 2015? Hypothesis 1: Data limitations Not all companies report all the time The market can be cyclical and one period not representative Hypothesis 2: Structural challenges Inventory financing constraints Correlation with interventions Dependence on a small number of large players 7

PICO-PV MARKET CONCENTRATION BY SOLAR LIGHTING SEGMENT (HERFINDAHL HIRSCHMAN INDEX) Uncompetitive markets Mobile phone operators (China) Lighting Global-verified solar lighting 5,335 4,943 Breakfast cereal manufacturing (US) Branded off-grid solar lights (BNEF estimate) Motor vehicle (US) Mobile phone operators (US) Personal current accounts (UK) Mobile phone operators (India) Meat retailing (US) Solar lighting including generics (BNEF estimate) 2,999 2,908 2,323 2,260 1,800 1,552 1,004 474 Note: HHI = Herfindahl-Hirschman Index, a measure of market concentration. The US Department of Justice uses the HHI to assess mergers and considers any value above 1000 to represent either a moderately or highly concentrated market. HHI estimates for off-grid solar refer to cumulative historical market size over 2009 - H1 2015. Source: Bloomberg New Energy Finance, Lighting Global, US Census data, Ofcom 8

KENYA: LIGHTING AFRICA INTERVENTIONS AND SALES OF LIGHTING GLOBAL QUALITY-VERIFIED SOLAR LIGHTS (THOUSAND UNITS) Kenya consumer awareness campaign starts and ends 970 626 57 85 213 202 2010 2011 2012 2013 2014 2015 Source: Lighting Global 9

WHY DID SALES DROP IN H1 2015? Hypothesis 1: Data limitations Not all companies report all the time The market can be cyclical and one period not representative Hypothesis 2: Structural challenges Inventory financing constraints Correlation with interventions Dependence on a small number of large players Hypothesis 3: Market broadening Have the pioneers succeeded in catalyzing the first markets? 10

ESTIMATED LIGHTING GLOBAL QUALITY-VERIFIED PICO SOLAR LIGHTING SALES, AFRICA AND ASIA (MILLIONS OF UNITS) 0.2 0.4 0.5 0.9 1.8 2.0 2.4 2.9 2.0 Lighting Global quality verified H1 H2 H1 H2 H1 H2 H1 H2 H1 2011 2012 2013 2014 2015 Source: Lighting Global, Bloomberg New Energy Finance 11

ESTIMATED BRANDED PICO SOLAR LIGHTING SALES, AFRICA AND ASIA (MILLIONS OF UNITS) Other brands 0.3 0.5 0.7 1.2 2.3 2.9 3.6 3.9 3.9 Lighting Global associated companies Lighting Global quality verified H1 H2 H1 H2 H1 H2 H1 H2 H1 2011 2012 2013 2014 2015 Note: Data for Lighting Global associates and other brands represents BNEF estimates based on interviews and other reported figures. Source: Lighting Global, Bloomberg New Energy Finance 12

LIGHTING GLOBAL QUALITY VERIFIED PICO PV SALES, AFRICA ONLY (MILLIONS OF UNITS) 1.3 1.4 1.6 1.8 Other SSA Nigeria 0.8 0.6 0.2 0.3 0.1 H1 H2 H1 H2 H1 H2 H1 H2 H1 2011 2012 2013 2014 2015 Ethiopia Tanzania Kenya Africa except Kenya Note: Data for Lighting Global associates and other brands represents BNEF estimates based on interviews and other reported figures. Source: Lighting Global, Bloomberg New Energy Finance 13

Increased competition in frontier markets brings with it many benefits for the consumer; it keeps prices low; ensures a variety of choice; increases availability and builds awareness. [ ] This huge surge in competition has meant SunnyMoney themselves are under threat and have needed to quickly reassess its role in this hugely vibrant market. Source: http://www.solar-aid.org/tanzania-andthe-price-of-success/. Emphasis added. 14

SOURCING ON ALIBABA 600-700 suppliers that seem set up to ship off-grid solar lighting kits readily Source: Bloomberg New Energy Finance, Alibaba.com 15

ESTIMATED TOTAL PICO SOLAR LIGHTING SALES, AFRICA AND ASIA (MILLIONS OF UNITS) 9.7 5.4 7.0 8.0 Generics (BNEF estimate) Other brands 0.9 1.5 1.9 2.7 4.3 Lighting Global associated companies Lighting Global quality verified H1 H2 H1 H2 H1 H2 H1 H2 H1 2011 2012 2013 2014 2015 Note: Data for Lighting Global associates and other brands represents BNEF estimates based on interviews and other reported figures. Source: Lighting Global, Bloomberg New Energy Finance 16

LANTERN COMPANY REACTIONS TO MARKET SEGMENTATION High value products Add high value products to offering Boost high quality, high service reputation Target other consumer segments Consumer financing partnerships Target retail instead of bulk sales Target new frontier markets Low value products Joining the cost race Urban distribution Manufacturing Distribution 17

PROPORTION OF SELECTED MODULE MAKERS REVENUE DERIVED FROM DOWNSTREAM OPERATIONS, 2008-2014 80% 70% 60% 50% 40% 30% 20% Solar module price starts to crash Solar panel manufacturers increased project development amid panel commoditisation First Solar Canadian Solar 10% 0% 2008 2009 2010 2011 2012 2013 2014 Trina Jinko Note: Module makers selected as those with continuous segment reporting over the period. Downstream defined as project development, installation, systems, or O&M as opposed to direct sale of solar cells and modules. Source: Bloomberg New Energy Finance 18

TRACKED INVESTMENTS IN OFF-GRID SOLAR BY RECIPIENT TYPE (USD M CUMULATIVE) 200 180 160 140 120 100 80 60 40 20 0 Pay-as-you-go companies raised almost three times as much investment as cash sales companies in half the time Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 2010 2011 2012 2013 2014 2015 PAYG Cash sales Investment funds Note: shown data excludes USD 40m of investments with undisclosed date and $27m of aggregate data for which the recipient type could not be determined. Source: Bloomberg New Energy Finance 19

THE SHIFT TO PAYG CHANGES THE DYNAMICS BETWEEN THE CUSTOMER AND THE PROVIDER Financing Technology risk Data Service guarantee Higher value services Upsell opportunity Stronger relationships between customer and provider Note: The list of companies represents a sample and does not claim to be comprehensive. Source: Bloomberg New Energy Finance 20

OFF-GRID SOLAR ADOPTION, KENYA Households (million, cumulative) 7 6 5 4 3 2 1 New adopters Radio (US historical, population adjusted) Historical estimated pico-pv adopters Forecast cumulative adopters 0 2009 2011 2013 2015 2017 2019 Source: Bloomberg New Energy Finance, Lighting Global; Lilien, Rangaswamy and Van den Bulte, 1999 21

CASH SALES AND PAYG SALES FORECAST 120 100 FORECAST USERS (M HOUSEHOLDS) FORECAST ANNUAL SALES (M UNITS) Pay-as-yougo 80 Asia >10W cash sale 60 40 20 0 2015 2016 2017 2018 2019 2020 2015 2016 2017 2018 2019 2020 Africa >10W cash sale Asia Pico-PV cash sale Africa Pico- PV cash sale Note: Sales through third-parties with consumer finance offerings are captured in cash sales. Sales projections assume product lifetime of three years and an increasing share of households to purchase a second device after one year. Source: Bloomberg New Energy Finance 22

POTENTIAL BOTTLENECKS AND ACCELERATORS Bottlenecks Accelerators PAYG Entrepreneurial and operational capacity Access to debt finance Grid extension and microgrids Entry of large distribution partners Growth of DC appliance universe Proven investor returns Cash sales Working capital and distribution Market spoilage Cannibalisation by PAYG services, grid extension or microgrids Interventions to catalyse new markets VAT, customs and kerosene subsidy reductions Growth of DC appliance universe Source: Bloomberg New Energy 23

SCENARIOS FOR THE OFF-GRID SOLAR MARKET UBIQUITOUS PRODUCT MARKET PREMIUM BRAND MARKET RELATIONSHIP MARKET Low product differentiation Weak customer relationships Little brand identification High volume, low margins Risk of low quality products Brand identification with manufacturer Few dominant players Product rather than service focus Strong consumer relationships around multiple products + services Brand identification with distributor Source: Bloomberg New Energy Finance 24

THREE PATHWAYS TO SUCCESS UBIQUITOUS PRODUCT MARKET PREMIUM BRAND MARKET RELATIONSHIP MARKET High value, premium branding/products Modular products or bundled offerings Counterfeit enforcement Minimum quality and service standards Source: Bloomberg New Energy Finance 25

MARKETS Renewable Energy Energy Smart Technologies Advanced Transport Gas Carbon and RECs SERVICES Americas Service Asia Pacific Service EMEA Service Applied Research Events and Workshops Unique analysis, tools and data for decision-makers driving change in the energy system Itamar Orlandi iorlandi@bloomberg.net sales.bnef@bloomberg.net