Agriculture & processing

Promoting the uptake of solar irrigation through innovative carbon financing

November 9th, 2023

FSD Kenya partnered with SunCulture Limited to proof a concept on applicable ways to catalyse more private capital from the carbon markets to flow to climate-smart solutions for smallholder farmers in Africa.  

In doing so, a demonstration of a case for the potential impact of increasing the affordability of solar irrigation solutions through blending carbon credits into the financing solution was envisioned.  

The opportunity therein, therefore, centred on mimicking specific revenues generated by the sale of carbon credits at a set price of 30$/tCO2 . 

“A $30 per tonne price point represents a price at which solar water irrigation systems can be afforded by more than 50% of the rural population and has been validated a reasonable upper end for high-quality carbon credits.” 

The overall aim of this pilot was to reduce the cost of solar irrigation pumps for smallholders by demonstrating what the “right” / “required” carbon price is to reach scale and moreover contribute towards increased sales velocity, addressable market, repayment rates, and economic impact for the company. 

Early results indicate increased sales velocity for Q2 and Q3 2023, which is 2x the same period in 2022.  In fact, sales velocity data for Q1, which is considered slow due to competing needs for money e.g., school fees etc. tripled in comparison to the same period in 2022. 

FSD Kenya funding has been catalytic both in terms of crowding in new funding for SunCulture and in terms of sales dynamic, consequently: 

  1. transitioning to next funding rounds seamlessly hence, allowing it to keep the market dynamic going,  
  2. crowding in more funders to support this initiative, resulting to an updated vision on how to scale up such initiatives. 

One key learning from this pilot has been the creation of a “demand curve” using the price reduction initiative data which has demonstrated a case for the intricate link between price reduction obtained by use of high carbon credit price sales and improved base of the pyramid market access, resulting in enhanced sales velocity – 2023 Q3, vs Q3 in 2022 which is 84% increase in quarter vs quarter sales velocity.  

Conversely, a direct consequence of servicing smallholders as observed in this pilot is increased customer risk and deterioration of its PAYG customers portfolio health: +4-5% in PAR30 in the ensuing quarters, all which require updated credit checks and redress.

To learn more about this work, click here to download the detailed case study. 

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