White Paper

Carbon Credits for Off-grid

Solar in Sub-Saharan Africa
Lessons from Energy-access Companies in the
Voluntary Carbon-credit Market

June 2023

Authored by
Carbon Credits for Off-grid Solar in Sub-Saharan Africa

Content
ABBREVIATIONS AND GLOSSARY ............................................................................................................................... 2
EXECUTIVE SUMMARY ............................................................................................................................................... 3
1. VOLUNTARY CARBON MARKET (VCM) ............................................................................................................... 5
MARKET FORECAST ......................................................................................................................................................... 8
MARKET DYNAMICS .......................................................................................................................................................... 9
CRITICISM AND RISKS OF THE VOLUNTARY CARBON MARKET ....................................................................................... 10
2. MARKET TRANSFORMATION ........................................................................................................................... 11
EMERGING STANDARDS AND METHODOLOGIES............................................................................................................. 11
TECHNOLOGY-DRIVEN CARBON-CREDIT APPLICATIONS ................................................................................................ 12
3. THE AFRICAN VOLUNTARY CARBON MARKET .................................................................................................. 13
REGIONAL IMPLICATIONS ............................................................................................................................................... 13
AFRICA CARBON MARKETS INITIATIVE (ACMI) ............................................................................................................. 13
4. CARBON-CREDIT PRICING................................................................................................................................ 14
CORPORATE COMMITMENTS .......................................................................................................................................... 14
5. CHALLENGES AND NEEDS IN THE VOLUNTARY CARBON MARKET..................................................................... 15
MARKET CHALLENGES ................................................................................................................................................... 15
MARKET SOLUTIONS ...................................................................................................................................................... 15
6. CARBON-CREDIT STRATEGIES .......................................................................................................................... 17
DESIGNING CARBON PROJECTS WITH CARBON REDUCTION AND OFFSET ALLIANCE (ICROA) STANDARDS ............. 17
7. LESSONS FROM OFF-GRID SOLAR COMPANIES ................................................................................................ 21
CARBON-CREDIT PROJECTS DO NOT HAVE A ONE-SIZE-FITS-ALL SOLUTION ................................................................ 22
A COMPLEMENTARY REVENUE STREAM DOES NOT SUBSTITUTE EQUITY FUNDRAISING ............................................... 23
SELECTING THE RIGHT METHODOLOGY ......................................................................................................................... 23
MANAGEMENT BUY-IN IS NECESSARY FOR CARBON-CREDIT PROGRAMS TO SUCCEED ............................................... 24
SIX-MONTH ACTION PLAN TO ISSUE CARBON CREDITS FOR AN AFRICAN SOLAR COMPANY ......................................... 24
8. BUSINESS-CASE TOOLBOX ..................................................................................................................... 26
CARBON-CREDIT CALCULATOR ..................................................................................................................................... 26
PRICE SENSITIVITY ......................................................................................................................................................... 26
ISSUANCE BUDGET ........................................................................................................................................................ 26
RETURN-ON-INVESTMENT CALCULATOR ....................................................................................................................... 27
9. APPENDIX ....................................................................................................................................................... 28

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Carbon Credits for Off-grid Solar in Sub-Saharan Africa

Abbreviations and glossary

Abbreviations
ACMI Africa Carbon Markets Initiative
CAGR compound annual growth rate
CDM Clean Development Mechanism
GHG greenhouse gas
ICROA International Carbon Reduction and Offset Alliance
MRV measurement, reporting, and verification
tCO2e tons of carbon-dioxide equivalent
UN United Nations
VCM voluntary carbon market

Glossary
additionality A key principle in carbon markets which ensures that a carbon credit
represents a genuine emission reduction or removal that would not
have occurred without the carbon-market incentive.
baseline A reference scenario that represents the greenhouse-gas (GHG)
emissions that would have occurred without a specific carbon project.
carbon credit A tradable certificate that represents the reduction or removal of 1 ton
of carbon-dioxide equivalent (tCO2e) from the atmosphere.
carbon offset A reduction in GHG emissions, or an enhancement of GHG removals,
that is used to compensate for emissions occurring elsewhere.
carbon pricing A market-based mechanism that assigns a cost to GHG emissions,
providing an economic incentive to reduce emissions.
carbon project An activity or set of activities designed to reduce or remove GHG
emissions, which can generate carbon credits.
carbon registry A platform that tracks the issuance, ownership, transfer, and retirement
of carbon credits, ensuring transparency and traceability in the market.
carbon standard A set of rules, methodologies, and procedures that define how carbon
credits are generated, verified, and traded.
co-benefits Additional environmental, social, and economic benefits that result
from a carbon project, beyond the direct reduction or removal of GHG
emissions.

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 Carbon Credits for Off-grid Solar in Sub-Saharan Africa

Executive Summary Topics covered

 Voluntary carbon market
Power Africa is a collaborative initiative led by the United States  Market transformation
Government in conjunction with African governments, private-  Carbon-credit pricing
sector organizations, and multilateral institutions. Power Africa’s  Challenges and needs in the
goal is to increase electricity access by adding 30 megawatts of voluntary carbon market
 Carbon-credit strategies
new generation capacity, and 60 million new connections through
 Business cases and toolbox
on- and off-grid solutions by 2030. Power Africa defines energy
 Lessons
“access” as the number of new households and businesses
connected to electricity through an on- or off-grid power source.
Authors
Karim Jabbar, PhD
This paper offers insights for off-grid solar companies keen to Tao Bindslev, MBA
explore the voluntary carbon market. The paper builds on the Rachid Jabbar
technical assistance with carbon credits that Power Africa and
CarbonClear provided to two off-grid companies. This resource also draws on CarbonClear’s
experience of working with more 20 solar companies to evaluate the opportunity and risks of
implementing a carbon-credit program. By focusing on sub-Saharan Africa, this paper examines some
of the obstacles that solar companies face and explores effective carbon-credit strategies to navigate
this market successfully.

The voluntary carbon market (VCM) is an evolving mechanism that enables an entity to offset its
greenhouse-gas emissions by purchasing carbon credits from emission-reducing projects. Although
Africa holds significant potential for climate finance and sustainable development, it currently
composes only a small portion of the global VCM. One initiative to expand Africa’s share of the carbon-
credit market is the Africa Carbon Markets Initiative. Launched in 2022, the Africa Carbon Markets
Initiative aims dramatically to scale voluntary carbon markets across Africa by producing 300 million
credits annually by 2030, unlocking $6 billion in income, and supporting 30 million jobs. 1

The VCM promises to reduce emissions significantly, although it faces challenges. These issues are
the possibility of double counting and lack of transparency; companies’ using the VCM to avoid
making substantive changes to their business practices; the quality of carbon credits and associated
projects; and the market’s lack of regulation and oversight. To resolve these shortcomings, those
participating in the VCM should enhance transparency, ensure high-quality carbon credits, and
strengthen regulatory oversight to maintain the credibility and effectiveness of the VCM.

Off-grid solar companies can participate in Africa’s VCM in many ways, including by designing their
own carbon projects or joining data-driven carbon programs like CarbonClear to navigate the off-grid
carbon market. Developing custom carbon projects typically requires a longer timeline and higher up-
front costs, but reduces risk once credits are issued. Retrieving real-time consumption data from pay-
as-you-go-enabled devices can offer a faster, more cost-effective route to the carbon market, although

1
“Africa Carbon Markets Initiative Launched to Dramatically Expand Africa’s Participation in Voluntary Carbon Market,”
Climate Champions, November 8, 2022, accessed May 22, 2023, https://climatechampions.unfccc.int/africa-carbon-
markets-initiative/.

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Carbon Credits for Off-grid Solar in Sub-Saharan Africa

the International Carbon Reduction and Offset Alliance’s standards do not currently recognize digital
strategies to participate in the VCM. Companies must consider trade-offs to choose a model that suits
their needs based on financial circumstances, installation portfolio, and go-to-market preferences.

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Carbon Credits for Off-grid Solar in Sub-Saharan Africa

1. Voluntary Carbon Market (VCM)

The VCM is a market mechanism that enables businesses, governments, and individuals to
purchase carbon credits to offset their greenhouse gas (GHG) emissions voluntarily. These
carbon credits are generated by projects that reduce or remove emissions, such as
renewable-energy projects, reforestation efforts, and energy-efficiency initiatives. The VCM
has grown significantly in recent years, driven by increased corporate commitments to reduce
emissions and growing awareness of climate change.

The VCM is experiencing significant growth and transformation, presenting an opportunity to

meet the climate-finance needs of African economies. By expanding energy access, creating
jobs, protecting biodiversity, and driving climate action, carbon markets can help to develop
the region sustainably. Despite this potential, Africa today accounts for only a fraction of the
global VCM market.

To aid Africa’s VCM, the Africa Carbon Markets Initiative (ACMI) has announced its goal to
produce 300 million carbon credits annually by 2030. Achieving this level of production would
unlock $6 billion in income and support 30 million jobs. By 2050, ACMI aims to produce more
than 1.5 billion credits annually in Africa, leverage $120 billion, and support 110 million jobs.

The VCM is a dynamic ecosystem consisting of market participants that generate and retire
carbon credits. The market can be categorized into three main segments: Origination,
distribution, and end-buyers.

Figure 1: Stakeholders in the VCM

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Carbon Credits for Off-grid Solar in Sub-Saharan Africa

Several organizations can originate carbon credits.

• Offset-project developers design, implement, and manage emission-reduction

projects that generate carbon credits. They often collaborate with local communities
and organizations to maximize the projects’ environmental and social benefits.
• Carbon-credit standards organizations such as Gold Standard, Verified Carbon
Standard, and emerging standards like CarbonClear develop and maintain the
methodologies and protocols to quantify and certify emission reductions, ensuring the
environmental integrity of carbon credits issued in the VCM.
• Registry services monitor carbon credits as they are issued, transferred, and retired,
ensuring transparency and accountability within the market. Individual standards
manage this service and each operates its own registries. To obtain a comprehensive
view of the entire VCM market, one can use platforms such as AlliedOffsets or refer
to the consolidated data file provided by the University of California Berkeley.
• Third-party audit and assurance providers are independent verification bodies that
typically form part of the International Carbon Reduction and Offset Alliance (ICROA).
Established organizations in other sectors, such the world’s largest classification
society, Det Norske Veritas, offer audit and assurance services to assess the
credibility and compliance of emission-reduction projects with established
methodologies and protocols. These organizations verify the reported emission
reductions and ensure that carbon credits are issued accurately and transparently.

Entities that distribute carbon credits are:

• Resellers, which purchase carbon credits from project developers or other market
participants and sell them to end buyers, often alongside advisory services that help
buyers select suitable projects and navigate the VCM.
• Brokerage and exchanges, which help market participants trade carbon credits and
are intermediaries that connect buyers and sellers. Exchanges can also help clients
discover prices, complete trades, and clear and settle transactions.

A variety of end-buyers of carbon credits are available.

• Corporations purchase carbon credits to offset their GHG emissions and meet
sustainability goals. Large companies have voluntarily committed to reduce their
emissions in line with the Paris Agreement and are increasingly using the VCM to
achieve their targets.
• Individual consumers are becoming more conscious of their environmental footprint
and are using the VCM to offset their personal emissions by purchasing carbon credits
from sustainable projects.

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Carbon Credits for Off-grid Solar in Sub-Saharan Africa

• Resellers on the secondary market purchase carbon credits from other resellers or
end-buyers and sell them to new buyers. This market activity helps maintain liquidity
and reveal prices in the VCM.
• The market participants above work together to ensure that the VCM functions
smoothly. They drive the growth of the market and help to decarbonize economies.

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 Carbon Credits for Off-grid Solar in Sub-Saharan Africa

Market forecast

In 2021, VCM transaction volume exceeded 200 million metric tons of carbon-dioxide
equivalent (MtCO2e), with an estimated market value of $2 billion. Africa shows significant
potential in the VCM, given its abundant natural resources and ample opportunities for carbon
projects.

Figure 2: The chart illustrates the projected growth of the VCM under two scenarios. The first is a more conservative scenario
aligned with a global temperature increase below 2°C. The second, optimistic, scenario assumes that the global temperature
will increase less than 1.5°C. The conservative scenario estimates a VCM valuation of $55 billion by 2030, reflecting a
compound annual growth rate (CAGR) of approximately 45 percent. In contrast, the optimistic scenario envisions a market
size of $180 billion, with a CAGR of 65 percent. These projections stem from the 2021 market baseline, in which
approximately 200 million t CO2e was issued at an average price of $10 per ton. 2,3

The growing market presents opportunities for African off-grid solar companies to generate
additional revenue by participating in carbon-offset projects.

2
Christopher Blaufelder, Cindy Levy, Peter Mannion, and Dickon Pinner, “A Blueprint for Scaling Voluntary Carbon
Markets to Meet the Climate Challenge,” McKinsey, January 2021, accessed May 23, 2023,
https://www.mckinsey.com/~/media/mckinsey/business%20functions/sustainability/our%20insights/a%20blueprint%2
0for%20scaling%20voluntary%20carbon%20markets%20to%20meet%20the%20climate%20challenge/a-blueprint-for-
scaling-voluntary-carbon-markets-to-meet-the-climate-challenge.pdf.
3
EY Net Zero Center, “Essential, Expensive and Evolving: The Outlook for Carbon Credits and Offsets,” EY, 2022, accessed
May 31, 2023, https://www.ey.com/en_au/forms/2022/download-carbon-offsets-report.

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 Carbon Credits for Off-grid Solar in Sub-Saharan Africa

Market dynamics

As climate change continues to be a pressing global issue, the demand for carbon credits in
the VCM is growing. This heightened demand, coupled with increasingly stringent
regulations, promises to drive significant changes in carbon-credit pricing. This chapter
discusses the factors influencing the pricing forecast for the VCM and presents data
suggesting that prices could range from $50 to $120 per MtCO2e by 2030. Several factors
contribute to the anticipated increase in carbon credit pricing in the VCM.

The balance of supply and demand determines the price of carbon credits to a large extent.
As demand for credits outpaces supply, prices are likely to increase. As the market matures,
the demand for high-quality projects with multiple social benefits may lead to price premiums
for such credits.

Figure 3: The bar chart on the left estimates the growth of the VCM until 2030. The chart on the right forecasts the price of
carbon credits and estimates a significant increase in carbon-credit prices. This upward trend is primarily driven by growing
demand for carbon credits, fueled by regulatory developments and corporate commitments to reduce emissions. 4

4
Ibid.

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 Carbon Credits for Off-grid Solar in Sub-Saharan Africa

Criticism and risks of the voluntary carbon market

Despite the benefits of the VCM, publications and organizations such as the Guardian 5 and
Greenpeace have expressed reservations and criticisms about its effectiveness. These
criticisms state that:

• Carbon-offset projects do not reduce the promised volume of emissions.

• Carbon credits allow polluting industries to delay their transition to cleaner technology
and practices.
• The absence of a central registry and standard reporting procedures can enable
entities to sell the same carbon credits more than once.
• Carbon offsetting can come with social and environmental harms (such as
monoculture tree plantations which reduce emissions, but also biodiversity).
• Inconsistent standards and regulations undermine the VCM’s effectiveness.

Although the VCM is an opportunity for businesses and governments to reduce their
contribution to global emissions, the limitations of the VCM are worth solving to ensure the
market's long-term success. Such improvements should focus on enhancing transparency,
ensuring high-quality carbon credits, and strengthening regulatory oversight to maintain the
credibility of the VCM.

5
See: Patrick Greenfield, “Revealed: More than 90% of Rainforest Carbon Offsets by Biggest Certifier Are Worthless,
Analysis Shows,” Guardian, January 18, 2023, accessed May 23, 2023,
https://www.theguardian.com/environment/2023/jan/18/revealed-forest-carbon-offsets-biggest-provider-worthless-
verra-aoe.

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Carbon Credits for Off-grid Solar in Sub-Saharan Africa

2. Market Transformation

Figure 4: The VCM value chain illustrated with new entrants and United Nations Sustainable Development Goals outcomes
for the off-grid solar industry.

The VCM’s growth has attracted new market entrants, including large corporations, financial
institutions, and technology companies. African off-grid solar companies can benefit from the
market’s expansion by forming partnerships with these new entrants, fostering innovation,
and driving further growth in the VCM.

The VCM is undergoing a significant transformation toward data-driven methodologies,

higher quality, and more transparent carbon credits. African off-grid solar companies can take
advantage of this shift by adopting data-driven methodologies while adhering to the principles
of the UN Clean Development Mechanism’s approved methodology (known as AMS I.L.
version 3), ensuring the credibility of carbon-offset projects.

Emerging standards and methodologies

Because organizations develop their own standards and methodologies for carbon-offset
projects, no single or centralized framework governs the entire VCM. The major carbon
standards in the VCM are the Verified Carbon Standard, the Gold Standard, the Climate
Action Reserve, and the American Carbon Registry, which together contribute most credits
in the market. These standards aim to maintain the integrity of the market and the credibility
of projects. Independent standard-setting bodies, such as the Integrity Council for the
Voluntary Carbon Market (ICVCM), have emerged and aim to create a high-integrity VCM
that finances real and verifiable climate-mitigation projects. In recent years, the VCM has

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Carbon Credits for Off-grid Solar in Sub-Saharan Africa

evolved to accommodate an array of methodologies, particularly for technology-driven

carbon-credit applications and projects in developing countries.

African off-grid solar companies should monitor the VCM market for technologies that can
track carbon credits more reliably, such as blockchain and satellite monitoring. Technology
can also influence the types of carbon-offset projects in demand, such as those which remove
CO2 from the air directly.

Technology-driven carbon-credit applications

Digital tools are transforming the VCM, enabling more accurate and efficient monitoring,
reporting, and verification (MRV). Such digital tools are:

• Internet-of-things (IoT): IoT devices enable real-time monitoring and data collection of
GHG emissions, significantly improving the accuracy and reliability of MRV. These
devices can be deployed in various sectors, such as off-grid solar, agriculture, energy,
and waste management, to enhance the credibility of carbon-credit projects.
• Blockchain and distributed ledger technology: Blockchain can offer a transparent,
secure, and tamper-proof platform to issue, trade, and retire carbon credits. These
technologies can improve the traceability of carbon credits and reduce the risk of
double counting, fraud, and other market inefficiencies.
• Remote sensing and satellite imagery: These technologies can monitor land-use and
deforestation. These tools can help project developers and verifiers assess the environmental
outcomes of carbon-credit projects with greater accuracy.

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 Carbon Credits for Off-grid Solar in Sub-Saharan Africa

3. The African Voluntary Carbon Market

Regional implications

The VCM presents opportunity for qualified African off-grid solar companies to generate
additional revenue and contribute to the global transition toward a low-carbon economy. By
understanding the market’s latest developments and engaging with its participants, African
off-grid solar companies can navigate the complexities of the VCM and capitalize on its
growth.

Africa Carbon Markets Initiative (ACMI)

As more African countries commit to climate-change-mitigation goals, and as the international

community focuses on supporting the Global South in this effort, the market for African carbon
credits is forecasted to grow to $6 billion by 2030 and more than $100 billion by 2050. 6

To realize these forecasts, SEforALL has launched the Africa Carbon Markets Initiative
(ACMI). Led by a thirteen-member steering committee of African leaders, CEOs, and carbon
credit experts, ACMI was launched in 2022 to increase Africa’s participation in the VCM. The
initiative aggregates demand-side interest to purchase all types of carbon credits, not only
those sourced from the off-grid solar sector.

ACMI runs programs to secure up to $1 billion in market commitments to promote high-quality

African carbon credits, develop projects with new methodologies tailored to African contexts,
and significantly increase the volume of credits generated on the continent.

ACMI’s reports indicate more than $200 million in advanced market commitments were
secured from global corporations. Seven African nations—Burundi, Gabon, Kenya, Malawi,
Mozambique, Nigeria, and Togo—signed up to develop carbon-activation plans; an equal
number of corporate buyers are preparing to commit to the program.

6
“Africa Carbon Markets Initiative (ACMI),” Sustainable Energy for All, n.d., accessed May 24, 2023,
https://www.seforall.org/our-work/initiatives-projects/ACMI.

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Carbon Credits for Off-grid Solar in Sub-Saharan Africa

4. Carbon-credit Pricing

Pricing in the VCM can vary widely, with some credits trading at just a few dollars per metric
ton of CO2e, whereas others can fetch more than $50 per metric ton. Factors that influence
the price of carbon credits are the quality and credibility of the project, the social and
environmental co-benefits it generates, and the methodologies used to quantify emission
reductions. Corporate demand for high-quality credits, driven by ambitious climate
commitments, can also increase prices in the VCM. As the market evolves, increased
transparency, standardization, and new methodologies and technologies will lead to more
efficient pricing mechanisms and greater liquidity in the VCM.

Corporate commitments

Many corporations are reducing their carbon footprint and adopting more sustainable
business practices to align themselves with the goals of the Paris Agreement, which seeks
to reduce GHG emissions globally. These corporate commitments can be categorized into
four activities:

• Avoid nature loss, such as deforestation.

• Sequester carbon naturally through, for example, reforestation.
• Reduce GHG emissions such as methane from landfills.
• Remove CO2 from the atmosphere with carbon-capture technology.

As companies make public and financial pledges to improve their environmental effects,
social benefit, and corporate governance, they contribute to the growth and credibility of the
carbon and credit markets.

Large corporations such as Amazon, Apple, Alphabet, and J.P. Morgan Chase have
purchased significant volumes of carbon credits, recognizing the importance of reducing their
emissions and investing in sustainable projects. These companies are integrating carbon
credits into their business models and driving demand for carbon offsets. As more companies
follow suit and commit to reducing their carbon emissions, the carbon-credit market will
expand and evolve, playing a crucial role in the effort to combat climate change. To maintain
credibility and public trust, it is essential for corporations to uphold their commitments, ensure
transparency, and be held accountable for their actions.

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Carbon Credits for Off-grid Solar in Sub-Saharan Africa

5. Challenges and Needs in the Voluntary Carbon Market

Market challenges

The main challenges that prevent enterprises—particularly smaller ones—from flourishing in

the carbon market are:

 Transaction and evaluation speed: Implementing and verifying emission-reduction projects

can be a cumbersome process. The complex procedures involved in generating and selling
carbon credits can delay revenues, which is prohibitive particularly for small projects and local
enterprises.
 Cost: Setting up carbon projects is often expensive. High costs can be a significant barrier for
smaller enterprises that lack the financial resources to invest in carbon-credit programs. In
turn, limited participation in the VCM can also reduce revenue streams.
 Awareness and access: Limited awareness and understanding of the carbon market among
potential buyers and investors, combined with complex regulatory frameworks and a lack of
standardization in carbon-credit issuance and trading, exclude smaller enterprises from the
VCM. If Africa’s VCM is to grow, it must bring aboard local businesses through simpler and
more uniform regulations and transactions.

Figure 3: Challenges in the VCM.

Market solutions

To tap the potential of Africa’s VCM, the market must cater to the needs of off-grid solar
companies in this region. To do so, the VCM should be:

 Fast: To make the carbon credit market more accessible for off-grid solar companies,
carbon-credit standards authorities should simplify and streamline the credit-
generation process through:

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Carbon Credits for Off-grid Solar in Sub-Saharan Africa

o Simpler and faster verification and issuance processes, which make carbon
offsetting more approachable for small projects and businesses.
o Remote digital monitoring that improves transparency while reducing data-
collection costs.

 Cost-effective: Off-grid solar companies can benefit from the VCM if most revenues
go to the carbon projects’ owners. For the VCM to be lucrative, it should also be more
cost-effective through:
o Reduced transaction costs: Platforms have yet to be established that aggregate
small off-grid solar projects, enabling implementers to pool resources and share
the cost of verifying, generating, and trading carbon credits. Distributed costs
help lower the barriers to the VCM.
o Technical assistance: Off-grid solar companies require guidance from donors
to navigate the VCM and gain access to funding. Thorough knowledge of the
VCM and its opportunities help project owners optimize their operations, reduce
costs, and maximize revenue from carbon credits.

 Inclusive: Organizations that seek to involve more businesses in the VCM should:
o Encourage collaboration and knowledge-sharing among solar companies,
regulators, and other stakeholders to promote best practices and overlooked
businesses, such as those supplying solar home systems.
o Establish partnerships between off-grid solar companies, governments, and
international organizations to allocate resources for off-grid solar carbon
projects throughout Africa.
o Inform project developers, financiers, and buyers of the opportunities and
benefits that the VCM offers. This will help build trust and drive investment in
off-grid solar projects in marginalized communities.

Figure 4: Suggested metrics to establish carbon-credit projects in developing countries.

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Carbon Credits for Off-grid Solar in Sub-Saharan Africa

6. Carbon-credit Strategies

To navigate the off-grid carbon market, off-grid solar companies in sub-Saharan Africa can
choose between two main carbon-credit strategies:

1. Design carbon projects with ICROA standards, which allows companies to retain
control over the project.
2. Join an industry-specific program such as CarbonClear, which can accelerate
companies’ access to the VCM and lower upfront costs.

Designing carbon projects with Carbon Reduction and Offset Alliance

(ICROA) standards

Companies can tailor carbon-offset projects to their needs so that the resulting carbon credits
align with their long-term goals. Additional benefits of designing custom carbon projects are
the opportunity to build in-house expertise in carbon methodologies and standards as set out
by ICROA, the Integrity Council for the Voluntary Carbon Market (ICVCM), and the Taskforce
on Scaling Voluntary Carbon Markets (TSCVM). A custom project also requires a significant
investment in time, resources, and expertise to design, deploy, and get verified.

Eligibility

To align their projects with ICROA’s standards, solar companies must ensure that their
sourced hardware is not already linked to a carbon scheme driven by the manufacturer of the
solar equipment. Companies should also establish transparent contractual agreements with
their customers to maintain the rights to any carbon credits produced.

Time to market

The time to market for carbon-credit projects that adhere to ICROA-endorsed standards, such
as Gold Standard and the Verified Carbon Standard, can be a significant challenge for off-
grid solar companies. The extended time to market is due to the intricate nature of project
development. Typical implementation times are three years from inception to issuance,
followed by the promotion and sales period. Depending on the complexity and scope of the
project, the time to market ranges from two to ten years.

Developing a carbon project involves multiple stages in which the company identifies a
project, assesses its feasibility, engages with stakeholders, determines baselines, monitors
implementation, and has the project validated by an independent third party. Each stage
demands a high level of expertise and precision to ensure that the project meets the stringent
criteria that ICROA sets forth.

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 Carbon Credits for Off-grid Solar in Sub-Saharan Africa

Verifying and measuring the progress of carbon projects are often manual and time-
consuming, contributing to the lengthy timeline. If the MRV process is not digitized, project
developers must rely on costly and labor-intensive manual audits. Added to these technical
considerations are the regulatory landscape and carbon-credit standards with which the off-
grid company should comply.

Fee structure

Carbon standards, project design, and consultants’ services often come with fees of which
off-grid solar companies should be aware. Companies should carefully evaluate their financial
capabilities and resources before committing to a carbon credit project. For projects following
ICROA-aligned schemes, companies must have a strong cash flow and the capacity to
generate a large amount of carbon credits to offset the project costs. These projects typically
require an initial fee for listing the ICROA standard for issuance, ranging from $100,000 to
$200,000. Project developers must pay annual fees to retain issuance rights to their carbon
credits.

Income potential

Carbon credits under ICROA-aligned schemes offer income potential with relative certainty
because they adhere to major carbon standards and are accepted by mainstream resellers.
Developing custom carbon projects can be uncertain and costly for small and medium
projects in Africa, mainly because of significant upfront investments and extended timelines.
Larger projects, such as the Northern Rangelands Trust, have a stronger business case
because of their larger scope and volume.

The price of carbon credits is crucial to realize a positive return on investment for project
developers. With the growing and evolving market, the average price of carbon credits is
approximately $10 per tCO2e. This price is expected to see significant growth in the coming
years, with forecasts suggesting prices of $50 to $120 per tCO2e by 2030. 7

According to the Berkeley Voluntary Registry Offset Database, the volume of carbon-credit
issuance to date is 137,873. In the category of solar home systems in Africa, 25,159 of these
credits have been retired and sold. Most of the programs are ongoing, with completion dates
from 2025 to 2030. The estimated annual non-binding assurance from the 15 projects within
this category is approximately 326,000 tCO2e per year. Pico-solar systems (which are not
solar home systems) have 24 programs that have issued about 297,000 carbon credits, of
which 144,000 have been retired and sold.

7
EY Net Zero Center, “Essential, Expensive and Evolving: The Outlook for Carbon Credits and Offsets,” EY, 2022, accessed
May 31, 2023, https://www.ey.com/en_au/forms/2022/download-carbon-offsets-report.

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Carbon Credits for Off-grid Solar in Sub-Saharan Africa

Joining an industry-tailored carbon program

For those seeking a more accessible and cost-effective path to carbon-credit generation,
alternative programs such as CarbonClear take advantage of modern technology and
streamlined processes to offer a faster route to the carbon market than traditional carbon
projects.

Eligibility

Off-grid companies looking to join a data-driven carbon program should first exclude batches
of solar home systems financed by donors, development-finance institutions, governments,
or other parties that could claim the resulting carbon credits. Only rooftop-mounted systems
are eligible and, as with other programs, the distributor and its customers should agree that
the company will retain the right to the carbon credits. The program uses a standardized
baseline, making it advantageous for distributors operating in multiple countries. Ongoing
issuance is based on data transfer.

Time to market

The time to market for this strategy is approximately three months, which is significantly faster
than other carbon-credit strategies. This rapid timeline enables off-grid solar companies to
gain access the carbon market quickly and start generating revenue from carbon credits
sooner.

Fee structure

The newer generation of carbon programs eliminate upfront costs and implement a
transparent revenue-sharing arrangement. Unlike traditional carbon-credit programs that
charge flat hourly and item-based fees, industry-tailored programs charge fees only once the
carbon credits are sold and retired from the registry. This fee structure is based on a
percentage of the carbon credit’s retail price, making it more accessible and cost-effective
for project developers. This approach lowers the financial barriers often faced by distributors
in the carbon-credit market, enabling them to focus on developing and implementing projects.

Income potential

Off-grid solar companies participating in data-driven solar programs can expect to generate
carbon credits in line with the methodology of the UN’s CDM. The CO2 yield from these
programs is comparable to that of mainstream carbon standards. The credits become
available on the registry much faster, as the data-driven solution allows for credits to be

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issued daily or weekly. The cost to the distributor is also much lower because fees are paid
only once the credits are sold.

The intended buyers for these credits are small and medium enterprises looking to offset
their CO2 emissions with high-quality carbon credits. Mainstream credit retailers, which
prioritize traditional standards like Gold Standard and the Verified Carbon Standard, are not
the primary sales channel for data-driven carbon programs. Instead, buyers may pay a higher
price per ton of CO2, focusing on smaller orders of between 100 to 1,000 tons per transaction.
This “rack rate” is higher than that of mainstream credits sold through retailers, making
smaller orders more compatible with the CO2 output of small and medium solar-home-system
distributors.

Trade-offs

Carbon-credit programs designed for off-grid solar companies are still a new approach
compared to the established ICROA standards. Buyers and partners less familiar with newer
models require additional time and effort from solar companies, which should educate and
convince stakeholders of the programs’ credibility and benefits.

Large corporate buyers may initially be hesitant to adopt carbon credits generated through
industry-tailored models because of their greater familiarity with ICROA-endorsed standards.
Solar companies using the data-driven model may need to invest additional resources in
marketing and sales to build trust and confidence among potential buyers.

Despite these trade-offs, modern carbon-credit models are an opportunity for solar
companies to gain access to a more efficient, transparent, and cost-effective carbon-credit
generation process.

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Carbon Credits for Off-grid Solar in Sub-Saharan Africa

7. Lessons from Off-grid Solar Companies

The VCM is complex and fast evolving. This section offers insights that companies have
gained from exploring how to monetize their carbon credits. Although these lessons do not
compose an exhaustive guide on carbon finance, an overview of the challenges and
opportunities of the VCM is key to navigate this market. An important aspect of voluntary
credits is that they are unregulated: Their price and quality vary and are negotiated between
the buyer and the seller.

Key lessons from the VCM are:

1. No one-size-fits-all solution exists for carbon-credit projects.

2. Carbon credits are a complementary revenue stream, not a substitute for equity.
3. Off-grid solar companies should choose the right methodology.
4. Management buy-in is necessary for successful carbon-credit programs.

This section concludes with a six-month action plan that African solar companies to chart
their way toward issuing carbon credits.

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Carbon Credits for Off-grid Solar in Sub-Saharan Africa

Carbon-credit projects do not have a one-size-fits-all solution

Off-grid companies such as d.light, ENGIE Energy Access, and Sunk King are exploring
opportunities to monetize their efforts to reduce emissions. Although carbon credits can be a
valuable source of revenue, they are not suitable for every company in the sector. Companies
considering entering the market must carefully assess their eligibility, scale, and capacity to
navigate the complex methodologies and verification processes involved. Key considerations
are:

1. Eligibility and scale: Not all off-grid solar companies are eligible for carbon credits. A
company must meet financial criteria and must be large enough to participate in the
VCM, which may be difficult for smaller companies or those with limited resources.
Projects may also have a limited window of opportunity because of additionality
principles, such as vintage, for generating and monetizing carbon credits, potentially
making the effort less profitable for companies that are unable to act quickly.
2. Market volatility and uncertainty: The carbon-credit market is subject to price volatility
and regulatory uncertainty. For example, emissions savings can count as a national
contribution, making it legally impossible to sell credits on the VCM. Price and
regulatory uncertainty also affect off-grid solar companies’ estimates of returns on their
investment. Prices for carbon credits fluctuates from $1 to $30 depending on the
method used to offset carbon. For small, decentralized household devices, the
average price in 2022 for a Gold Standard–verified carbon credit was $11. 8
3. Partnering with specialists: To navigate the complexities of the VCM, off-grid solar
companies should work closely with consultants or issuing companies such as
3Degrees, ClimatePartner, and South Pole. Collaboration helps companies gain
knowledge and resources to make informed decisions, avoid common pitfalls, and
maximize the benefits of the VCM.

8
AlliedOffsets, “2022 VCM Forecast and Retirement Analysis,” AlliedOffsets, 2022, p.26, accessed May 30, 2023,
https://alliedoffsets.com/wp-content/uploads/2022/09/2022-VCM-Forecast-and-Retirement-Analysis.pdf.

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A complementary revenue stream does not substitute equity fundraising

Although carbon credits can benefit off-grid solar companies in Africa by generating additional
income and supporting environmentally friendly initiatives, businesses should not aim to use
credits to replace equity or traditional sources of funding. As always, companies should
maintain diverse funding sources, and should see carbon credits as an opportunity to:

1. Diversify income: Carbon credits help a company reduce dependence on a single

revenue stream, enhancing financial stability and attractiveness to investors.
2. Enhance projects’ viability: By incorporating carbon-credit revenues into their financial
models, solar companies can demonstrate the environmental and financial benefits of
their projects, increasing the chances of securing traditional funding.
3. Improve access to finance: Participating in the VCM enables solar companies to tap
into a global market of buyers looking to offset their emissions and invest in renewable
energy in Africa.
4. Generate long-term revenue: Carbon credit programs can provide a steady, long-term
revenue stream for solar companies, as they continue to generate and sell credits
throughout the project’s lifetime.

Selecting the right methodology

The methodology is the foundation of a carbon-offsetting project, as it outlines the procedures

and guidelines to quantify and monitor reductions in GHG emissions. A universal
methodology does not exist, and companies must find a methodology that aligns with their
portfolio footprint, industry, and geography.

The right methodology will:

1. Align with the project’s objectives: The methodology should align with your
company’s off-grid solar portfolio and scale.
2. Comply with standards: The mainstream VCM standards have come under
increasing scrutiny because of concerns about the disproportionate costs and lack of
traceability. Digital methodologies are paving the way for more accurate and tailored
approaches to carbon offsetting.
3. Be realistic to implement: Some methodologies can be complex and challenging to
implement, requiring significant technical expertise and resources. Consider the ease
of implementation when selecting a methodology, as this factor can influence the cost
and length of the project.
4. Be recognized in the market: The credibility of the chosen methodology can affect
the demand for your carbon credits. Select a methodology that is widely recognized
and accepted in the VCM to enhance the appeal of your credits to buyers.

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Carbon Credits for Off-grid Solar in Sub-Saharan Africa

Management buy-in is necessary for carbon-credit programs to succeed

A successful carbon-credit program relies on more than a sufficient volume of solar

installations and high-quality data. It also demands that the management of the company
commit to the program. The company’s leadership should recognize the importance of
minimizing carbon emissions, appreciate the business case the VCM presents, and be willing
to allocate resources to generate carbon credits. Management sets the tone for the
organization, and should foster a culture of sustainability.

Our experience working with solar companies in sub-Saharan Africa has shown that engaged
CEOs can significantly expedite the evaluation process by making swift decisions with
minimal delegation. African off-grid companies with committed senior executives are more
likely to succeed in their carbon-credit programs. The case of Easy Solar demonstrates that
CEOs who are engaged in carbon-offsetting make decisions quickly, streamlining the
evaluation process.

Six-month action plan to issue carbon credits for an African solar

company

The steps below describe the onboarding process for the CarbonClear program.

Step 1: Assess financial viability

When launching a carbon-offsetting program, the company should first estimate the value of
the carbon credits that that the off-grid energy solutions can generate. The business should
also evaluate the cost of implementing the program. This information will reveal potential
revenue streams from selling carbon credits and help the company determine if the program
is viable.

Decision point: Positive return-on-investment calculation.

Step 2: Formalize agreements

Establishing the partnership agreement between the solar company and CarbonClear
creates the framework for setting up other agreements such as those for sharing data with a
third-party pay-as-you-go provider. The agreement outlines the terms and conditions of the
partnership, including the scope of work, responsibilities, and timelines.

Decision point: Signed agreements.

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Carbon Credits for Off-grid Solar in Sub-Saharan Africa

Step 3: Conduct due diligence

As part of CarbonClear’s due-diligence process, we require our partners to complete an

onboarding form. This form collects information for our verifier to authenticate the data and
ensure that it meets the necessary standards.

Decision point: Approving or declining the partnership based on the due-diligence process.

Step 4: Integrate data

Integrating data involves establishing a data-sharing agreement with a third-party data

provider, such as Angaza or Paygee. Depending on the volume of data and frequency of
updates, the data integration can be automated and updated in real time. Once fully
operational, the shared data enables CarbonClear accurately to calculate the CO2 emissions
that the off-grid technology saves.

Decision point: Data-quality approval followed by automated data sharing.

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Carbon Credits for Off-grid Solar in Sub-Saharan Africa

8. Business-case Toolbox

The Carbon Credit Business Case Toolbox helps energy-access companies determine the viability of
carbon credits and forecast profitability based on real-world tCO2e-offset prices. Developed in
collaboration with energy-access companies, the Toolbox consists of four calculators: Carbon Credit,
Price Sensitivity, Issuance Budget, and Return on Investment.

Carbon-credit calculator

The Carbon Credit Calculator estimates the number of carbon credits that solar home
systems can generate. The calculator considers factors such as system size, location, and
technology. To use the Carbon Credit Calculator effectively:

• Enter accurate and up-to-date information on system specifications and deployment

locations.
• Update the calculator regularly with any changes in technology or deployment
parameters to maintain accurate projections.

Price sensitivity

The Price Sensitivity module analyzes the effect of changing carbon-credit prices on the
profitability of the project. To take advantage of the Price Sensitivity module:

• Monitor market trends and carbon-credit prices to understand their effect on project
revenues.
• Explore price scenarios to determine the break-even point and assess project’s
resilience to market fluctuations.

Issuance budget

The Issuance Budget module helps companies estimate the costs associated with obtaining
carbon credits, including fees to develop projects and verify and issue carbon credits.
Effective ways to use this module are to:

• Research and gather accurate data on the fees to issue carbon credits, which help the
company estimate the cost of the offsetting project.
• Monitor changes in fee structures or regulatory requirements to update the budget.

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Carbon Credits for Off-grid Solar in Sub-Saharan Africa

Return-on-investment calculator

The Return on Investment Calculator estimates the financial returns on deploying solar home
systems and shows the income generated from selling carbon credits sales. When using this
calculator:

• Update it with accurate data on costs, revenues, and carbon-credit prices to maintain
realistic revenue projections.
• Compare the return on investment of different carbon-credit strategies (such as
developing a carbon project, partnering with suppliers, or joining a data-driven carbon
program) to discover the best approach for the company.

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Carbon Credits for Off-grid Solar in Sub-Saharan Africa

9. Appendix

A sample of listed African carbon-offsetting projects using solar home systems:

A sample of listed African carbon-offsetting projects using pico-solar systems:

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