Productive Use Has Challenges: What’s Holding the Sector Back — And How Companies and Investors Should Respond

Across Africa, renewable power is powering much homes than ever, but it hasn’t yet powered prosperity. For smallholder farmers, productive-use technologies specified arsenic star irrigation, acold retention and agro-processing tin person a transformative impact. They tin trim post-harvest losses by up to 50%, raise yields and unfastened up caller markets for premium products. In India, to return 1 example, nan median dairy husbandman utilizing solar-powered micro-chillers from Promethean earned 61% higher profits.

The effect and nan committedness of these technologies are undeniable. But nan standard isn’t. Despite their clear potential, nan number of cultivation companies delivering productive usage of renewable power (PURE*) solutions remains small, and less still are increasing accelerated capable to meet nan scope of nan problems they are trying to solve.

What’s holding nan PURE assemblage back?

To thief reply that question, Acumen collaborated pinch Open Capital Advisors to research nan barriers to finance and maturation successful solar-powered acold concatenation and star irrigation. This progressive anonymized interviews pinch companies, investors and different ecosystem actors, alongside study of publically disposable finance data. This article shares nan conclusions we came to from that research, on pinch quotes from Acumen investees and different PURE investors we interviewed.

Solar Irrigation and Cold Chain Investment: A Stagnant Market

Our study recovered that investments successful specialized star irrigation and cold-chain companies person remained mostly stagnant. The upticks seen successful 2024-25 were driven by conscionable 2 companies, SunCulture and Ecozen. Overall, 91% of each assemblage backing since 2019 has gone to these 2 marketplace leaders, while only 7 different companies person managed to raise moreover $1 million, and galore others person survived connected mini summons grants.

As 1 task superior (VC) Investment serviceman who is acquainted pinch nan PURE abstraction told us, “There has been a batch of unit connected nan [PURE] assemblage to show nan momentum it had astatine its start, six years ago. As investors, we’ve seen that PURE companies successful nan marketplace person faced a situation demonstrating standard — nan expertise to not conscionable thrust investing waves, but to turn and standard their products. The PURE marketplace has taken overmuch longer than expected to scope scale.”

Sales information echo these finance trends. GOGLA reports that star h2o pump (SWP) income were slightly down successful 2024 for companies that had reported successful aggregate cycles, while world solar-powered refrigeration income were down by 35%. 

Within Acumen’s ain pipeline, we person been capable to put successful a fistful of outstanding companies. But nan pipeline opportunities person been less and farther betwixt than we expected: Acumen rejected 60% of that pipeline for being excessively early-stage, pinch small grounds of a compelling product-market fresh — investor-speak for “they’re not (yet) trading things breathtaking capable astatine a value debased capable that existent group are consenting to salary it.”  

Why person location been truthful fewer successes? Our investigation points to a acquainted group of structural challenges: constricted affordability, anemic demand, and business models that are excessively analyzable and capital-intensive to replicate quickly.

There is not capable ‘low-hanging fruit’ successful productive-use markets

Customers who are seeking to switch existing diesel assets should beryllium an easier waste — they tin prevention money from a well-financed renewable asset, whose operating expenses are almost zero. CrossBoundary estimates that crossed sub-Saharan Africa location are 465-700 1000 mini diesel atom mills, while Hystra and ISF estimate that 1.5 cardinal diesel irrigation pumps person been sold. At ~$1,200 per star mill and $380 per star pump (the estimates those respective reports use), that could beryllium complete a $1 cardinal opportunity successful conscionable axenic sales. But not truthful fast:

• Those 2 – 2.5 cardinal customers are thinly dispersed crossed dozens of countries. 
• Solar assets, peculiarly for milling and acold chain, are still much expensive. CrossBoundary estimates that an mean star mill costs 6x nan value of a diesel mill. These assets besides create different personification experiences (slower, longer-running) which require behaviour change. 

Even for star h2o pumps, which are much costs competitive, location are not galore customers looking to switch diesel pinch solar. The existent marketplace is elsewhere. 

The Real PURE Market is Much Larger, But Much Tougher to Serve

Most smallholders person ne'er had entree to irrigation, cooling aliases processing technologies. The mechanization complaint successful sub-Saharan Africa (horsepower per hectare) has hardly accrued since nan 1960s, and is 2% that of India. Unlocking that greenfield opportunity is wherever existent effect lies, but it’s besides wherever nan financing and business-model challenges multiply.

New customers correspond nan PURE sector’s way to existent effect and scale. But serving them pushes companies down 1 (or both) of 2 difficult paths:

• Solving for affordability: One logic farmers don’t bargain existing diesel pumps aliases mills is because they can’t spend nan upfront superior outlay. To scope them, PURE providers either widen plus financing, aliases connection entree “as a service.” 
• Solving for market: Another logic farmers don’t adopt PURE is because they are reluctant to put successful caller instrumentality erstwhile they deficiency guaranteed buyers for their produce. Some PURE companies person truthful stepped into off-taker roles themselves, aggregating and trading crops to ample buyers.

Both of these paths require further capital:

• Building a in installments aliases logistics limb requires equity (or important grants); 
• Financing a customer-credit portfolio aliases leasing retired infrastructure needs semipermanent debt; 
• Aggregating nutrient calls for short-term moving capital; and 
• Farmer training relies connected assistance aliases business funding. 

Moreover, erstwhile companies play nan off-taker domiciled themselves, they besides return connected inventory and value risk, buying nutrient earlier securing end-markets, which further tightens rate flows and heightens working-capital needs. The consequence is simply a business exemplary that is capital-intensive, slow to beryllium and analyzable to replicate.

One CEO of a PURE institution acknowledged this issue. He said, “We request to beryllium a leaner statement to support up profitability, but we are fundamentally a bank, a star institution and a distribution company.”

Additional Headwinds to Scale successful nan Agri-PURE Sector

In summation to complex, vertically-integrated models which return clip to perfect, agri-PURE companies (which successful this article encompass acold concatenation and irrigation) look different headwinds, including:

• Exposure to climate: Revenues dangle connected cultivation productivity. When upwind patterns shift, farmers’ yields — and their expertise to repay aliases acquisition caller instrumentality — diminution sharply.
• Dependence connected vulnerable agriculture worth chains: For PURE technologies to present their intended impact, galore factors must align, including: entree to value seeds and inputs, husbandman training, timely harvesting, aggregation, and reliable markets. If immoderate nexus fails, nan technology’s worth proposition weakens and repayment rates suffer.
• High costs: With slow maturation and costly capital, nan assemblage has not achieved costs competitiveness aliases economies of standard that would bring down portion prices.
• Low user awareness: One CEO told us, “We’ve had nan situation of customer consciousness everyplace we’ve tried to group up. We are introducing a caller conception from nan accepted measurement of things that group are utilized to.” That acquisition has a cost, they said: “We did not recognize that our astir important disbursal aft infrastructure would beryllium acquisition of section communities.” 

Even pinch these challenges, Acumen’s agri-PURE portfolio companies person managed median yearly gross maturation of astir 25%, a testament to their resilience. Yet that pace, while impressive, is still not accelerated capable to pull nan adjacent activity of equity investors.

The Agri-PURE Equity Wave is Not Forthcoming

We person capable years of grounds to show that nan agri-PURE abstraction is good down different clean-energy segments. This floor plan shows nan first six years of finance successful nan off-grid star (OGS) sector, e-mobility and agri-PURE (irrigation and acold chain), pinch twelvemonth 1 being nan first twelvemonth nan conception raised much than $5 million. Off-grid (PAYGo) star crossed nan $100 cardinal annual-investment period wrong 4 years; e-mobility reached it successful six. Agri-PURE has yet to do so.

There are a fewer reasons for this:

• No unifying finance story: Today, PURE is an effect story, not an finance story. There is not a communicative that creates excitement among improvement finance institutions, fto unsocial among VC aliases backstage equity investors. As 1 later-stage investor put it, “We don’t spot a spot for america successful PURE yet because of smaller summons sizes and consequence profile.”
• Fragmented sub-sectors: PUE aliases PURE are umbrella position for a group of technologies that person very different distribution models, margins and costs structures. Understanding those different sub-sectors requires an finance of time, and not galore investors person bothered to make it.
• Investor fatigue: Many equity investors stay cautious aft mixed experiences successful nan PAYGo star boom, peculiarly pinch a assemblage that whitethorn output little returns. As 1 investor notes, “There is finance fatigue from nan star location strategy assemblage and it is reflecting successful PURE.”

The early influx of equity that powered nan PAYGo assemblage built skills, infrastructure and confidence. Without a akin activity of patient, risk-tolerant capital, PURE invention has and will proceed to stall. Changing that will require a different attack to investing, and stronger ecosystem support. One stakeholder told us, “There are immoderate companies that person a proven way record, but if you want to put successful this space, you person to beryllium diligent and flexible. And your type of occurrence needs to see different factors alternatively than only money.”

The Way Forward for nan PURE Ecosystem

To make existent progress, nan PURE ecosystem needs to beryllium retooled to flooded structural barriers and make more, and much appropriate, superior disposable for companies. Three priorities guidelines retired from Acumen and Open Capital’s research.

1. Deploy catalytic grants and supply-side results-based financing (RBF) to build investable companies

Most agri-PURE businesses move done respective rounds of loop (e.g., connected merchandise design, business model, repayment structures, customer engagement and husbandman training) earlier they find unchangeable demand. During this stage, margins are bladed aliases negative, rate pain is high, and nan way to standard is seldom straightforward. And dissimilar PAYGo solar, agri-PURE companies person constricted entree to early equity that tin sorb this risk.

That’s why catalytic, elastic grants matter truthful much. While early programs for illustration PREO, EEP Africa, AECF and Energy Catalyst person helped companies validate technology, a important spread remains for ventures moving from aviator to commercialized growth. These companies request larger-ticket, $1 million+ grants that tin backmost squad buildout and operations, support exemplary testing, screen specialized instrumentality and early inventory, sharpen portion economics, and thief them participate caller markets pinch capable runway to learn.

You whitethorn beryllium asking: Why attraction connected grants arsenic opposed to equity — moreover risk-tolerant equity? There are 3 reasons why grants are preferable:

• Equity is constricted successful this sector, for reasons we picture below. 
• We person consistently seen that PURE companies request to pivot their business models, meaning they request funders that are capable to put successful aggregate iterations of a business. If equity is utilized to finance each pivot, founders tin quickly go overly diluted. 
• Not each PURE business models are due for raising equity capital. For instance, slower maturation models don’t lend themselves to VC-style equity raises. However, nan way a institution will beryllium capable to return (e.g., accelerated maturation driven by equity, vs. slower maturation driven by affirmative rate flows) is unclear successful nan early stages of its journey.

S4S Technologies offers a clear illustration of what stronger assistance backing tin unlock. In its early years, S4S relied heavy connected grants from Shell Foundation and others to administer its first 2,700 star dehydrators. That support fto nan institution trial demand, refine operations and build nan systems needed for commercialized scale. Those impervious points helped S4S unafraid a $1.75 cardinal pre-Series A round from Acumen and different investors, and further superior to grow procurement and fortify margins.

Alongside accepted grants, results-based financing tin beryllium a powerful measurement to present supply-side support. Larger, multi-year RBFs tin thief companies validate caller markets, amended portion economics aliases standard proven models by tying backing to verified outcomes, while giving them nan elasticity to put successful their teams, capex aliases operational systems arsenic needed. These are chopped from demand-side RBFs, which explicitly bargain down nan costs of units for extremity users.

Without well-designed grants and/or RBFs, anchored successful clear milestones and investor expectations, galore promising firms will stay stuck successful nan “missing middle,” incapable to turn into investable companies.

2. Combine pinch system indebtedness to capable nan spread near by a constricted equity market

As agri-PURE companies move beyond pilots, their superior needs grow dramatically. They request to finance specialized equipment, transportation inventory, build section teams, negociate agelong working-capital cycles and widen in installments to farmers. In different sectors, early-stage equity would enarthrosis this burden. But successful agri-PURE, nan equity activity that powered nan innovations astir PAYGo star simply has not materialized, and is improbable to do truthful anytime soon.

The operation of analyzable operations, agelong payback periods and humble margins has led to only a fistful of agri-PURE companies raising important equity — including first movers and/or those that person developed much asset-light business models. For those firms, equity will stay important, and it tin thief them build nan teams and systems needed for accelerated growth.

But for nan immense mostly of companies, nan superior pathway to standard will dangle connected very patient, semipermanent superior and appropriately system debt. That includes:

• Off-balance-sheet vehicles (e.g., Special Purpose Vehicles, YieldCos and others) that assistance dense assets disconnected institution books;
• Receivables financing that unlocks rate tied up successful long-tenor costs plans;
• Seasonal working-capital lines accessible to early-stage companies that lucifer cultivation cycles; and
• Blended aliases concessional accommodation that let lenders to underwrite higher risk.

SokoFresh offers an illustration of really these different types of superior tin beryllium leveraged. The institution deploys a fleet of solar-powered walk-in acold rooms designed to destruct post-harvest losses and unlock farmers’ entree to markets. It leases immoderate of those acold rooms to commercialized clients, but nan remainder it operates arsenic an offtaker, purchasing nutrient from farmers successful strategical worth chains and on-selling it to world and home buyers. 

Sokofresh’s superior travel has been unique. It was created retired of a task studio, Enviu, which utilized assistance backing to screen nan first costs of R&D, merchandise improvement and piloting. In nan years since it was spun disconnected arsenic an independent entity, it has raised further grants and equity, which it has leveraged successful imaginative ways:

• The institution has group up a Special Purpose Vehicle pinch a financing partner to move its costly assets (solar-powered walk-in acold rooms) disconnected its equilibrium sheet, astatine an earlier shape than most. 
• It has besides raised short-term moving superior from indebtedness investors specified arsenic Rabo Bank, for purchasing avocados and different crops.  

The instruction is clear: Agri-PURE companies request superior designed for nan reality of their business models — which are slow, iterative and profoundly tied to cash-flow stability. Structured debt, blended instruments and semipermanent diligent superior tin springiness companies nan abstraction to amended operations and standard sustainably, without taking connected unhealthy levels of risk.

3. Build an enabling situation that unlocks affordability and strengthens nan ecosystem astir PURE

However, moreover pinch amended financing, agri-PURE companies cannot standard quickly connected their own. Farmers still look affordability barriers, consciousness remains low, and cultivation worth chains deficiency nan coordination needed for PURE technologies to present their afloat value. A stronger enabling situation is basal if PURE technologies are to scope millions of smallholders.

Affordability is nan first challenge. Even erstwhile companies connection plus financing, galore farmers can’t negociate nan upfront aliases regular payments required for irrigation aliases acold storage. Well-designed, impermanent end-user subsidies tin adjacent that gap, buying down nan value of PURE assets successful a measurement that accelerates take without distorting nan market. To get an illustration from different sector, successful Nigeria RBFs person tied disbursements to verified income of star location systems, lowering investor consequence and giving providers liquidity to grow distribution, innovate connected PAYGo models and pull backstage capital. The Nigerian Electrification Program’s RBF led to yearly star lantern income jumping by a whopping 72%. 

But to beryllium effective, RBFs must beryllium ample capable (over $1 million), multi-year and deployed strategically, specified arsenic for description into caller geographies aliases caller customer segments. And nan institution must beryllium established capable to execute connected nan RBF — while besides having a clear attack to continuing maturation erstwhile it ends. As 1 PURE institution Acumen interviewed put it: “RBFs are a awesome action for scale, but location is simply a request to move nan assemblage distant from short-term RBFs.”

Awareness and spot besides matter. Many farmers simply don’t cognize that these technologies exist, and galore others don’t understand really they work. Large-scale, public-private consciousness campaigns tin alteration that. For example, nan World Bank’s Energy Efficiency Awareness Campaign successful India dramatically accelerated take of businesslike appliances and h2o pumps by pairing wide outreach pinch organization engagement. Uganda’s emerging agri-PURE strategy is an encouraging motion of a akin consciousness schedule for PURE. Scaling these types of campaigns could importantly little customer acquisition costs and summation demand.

Cross-sector coordination is nan last piece. Agri-PURE sits astatine nan intersection of energy, agriculture, finance and trade, yet these systems seldom run successful sync. For PURE technologies to present existent worth (e.g., higher yields, little spoilage and amended marketplace access), farmers besides request value inputs, agronomic training, aggregation services and reliable offtake markets. Ethiopia’s Agricultural Transformation Institute offers a exemplary of what this benignant of cross-sector coordination tin look like: By aligning nan Ministry of Agriculture, power agencies, microfinance institutions and farmer-extension services astir star irrigation, they created an integrated programme that boosted some consciousness and adoption.

Taken together, these enabling-environment interventions tin dramatically summation demand, trim consequence for providers, and create nan conditions successful which agri-PURE companies tin scope existent commercialized viability.

What will it return to standard nan agri-PURE market?

If there’s 1 instruction from our research, it’s that effect isn’t nan missing portion — standard is. Farmers who summation entree to irrigation, cooling aliases processing spot meaningful improvements successful their income and resilience. But excessively fewer companies person developed nan business models that tin present these technologies to ample numbers of people. The situation now is not proving that agri-PURE works; it’s creating models that tin scope hundreds of thousands of farmers successful a reliable, affordable way.

Building those models requires room to experiment, iterate and fortify portion economics. And that abstraction only exists erstwhile companies person entree to nan correct benignant of capital. This is wherever donors and investors person an outsized domiciled to play. Just arsenic catalytic superior helped unlock nan PAYGo star assemblage a decade ago, nan adjacent section of agri-PURE will require a akin committedness to backing nan difficult activity of business exemplary innovation. With nan correct support, much companies tin move from promising pilots to proven, investable scale, yet bringing nan benefits of productive usage of renewable power to millions much farmers. 

* NOTE: We usage PURE (productive usage of renewable energy) to mention to these technologies, arsenic opposed to nan much communal PUE (productive usage of energy). We spot PURE arsenic nan much meticulous term, since a diesel h2o pump aliases petrol-guzzling atom mill could some beryllium described arsenic utilizing power productively, while our attraction (and that of nan broader effect sector) is connected productive technologies that are powered sustainably.

Daniel Waldron is Head of Insights astatine Acumen; Duda Slawek is an Associate Partner astatine Open Capital; Chris Emmott is nan Associate Director of Investing successful Energy Access astatine Acumen; Kristi Chon is a Senior Associate connected nan Chief Investment Office squad astatine Acumen

Photo credit: GroblerduPreez