Last year China was once again the world’s top manufacturer of solar power equipment. Exports stood at USD 29 billion with sales to the Global South growing particularly fast.
China can supply huge quantities of affordable equipment for community energy across Asia, Latin America and Africa. However, research institutions and NGOs have pointed out that the country is rarely involved in financing such projects.
Prior to 2020, almost all of China’s involvement in overseas renewables was in big, grid-connected projects. Global South communities in need of off-grid distributed solutions, particularly in remote rural areas, were outside the scope.
But from 2021, China’s overseas cooperation started to include low-cost “small and beautiful” projects designed to have rapid and direct benefits for communities. The country’s Africa Solar Belt Program, launched in 2023, aimed to provide basic electricity access to 50,000 poor households over three years, for instance. However, only CNY 100 million (about USD 14 million) of public funds were committed. This is orders of magnitude smaller than China’s utility-scale projects on the continent, which can cost hundreds of millions of dollars.
That stark contrast has led research institutions, think-tanks and NGOs to call for China to change the focus of its overseas financing. They say it should plug the Global South’s gap in funding for off-grid and microgrid solutions, particularly in rural areas.
However, that gap is about more than China’s financing preferences. Governments across the Global South could be doing far more to plug it. Particularly, they could mobilise local capital to address structural failings in their own capital markets and fund local renewable energy.
As we will see, China for its part could act as an “anchor investor”, buying up off-grid solar debts issued by local banks. It could also act as an “asset builder”, using its expertise in poverty relief to help Global South communities create assets and find innovative income streams to pay for local financing models.
Not just China prefers large renewables project
The preference for larger projects is a common problem in global development finance, not just in China.
Some multilateral financial institutions have long favoured large, grid-connected generation and transmission networks. For example, the African Development Bank’s (AfDB’s) Desert to Power initiative includes on- and off-grid generation across 11 countries, supplying power to 250 million people. The make-up of its loans clearly favours large projects.
The outside world wants China to rapidly shift direction but this overlooks how many Global South countries could do more to mobilise their own funds. Relying on external development financing reduces their ability to guide their own renewables development.
Some countries are unwilling to invest in “non-bankable” small, high-risk projects with unstable cash flow yet they still have plenty of “dormant capital”. This means investible funds sitting in low-yield assets (deposits, government bonds) rather than being invested in real-economy projects.
In 2023, for example, South Africa’s state-owned Public Investment Corporation had assets worth USD 137.5 billion but only 0.6% of that was energy investments. South Africa invests less than 20% of its portfolios in riskier assets, with the vast majority going instead to government securities, money market instruments and listed equities, according to AfDB statistics. While Nigeria’s pension fund assets were worth USD 14.7 billion at the end of 2024, but it only had 0.95% of those in infrastructure projects, against a strategic goal of 35%. Around 62.7% of pension assets were held in federal government securities, which are considered virtually risk-free.
In Africa as a whole, institutional investors, including pension funds, insurers and sovereign wealth funds, manage around USD 4 trillion in assets, but less than 2.7 % is allocated to infrastructure and productive sectors. Local capital markets are not doing all they can to fund community renewable energy projects. Waiting for China to do so would miss an opportunity.
In Kenya, successful local financing without China’s lead
Some Global South countries recognise that local money should be directed towards community renewables projects and have acted accordingly. Kenya has created a complete funding chain for community renewable energy systems, with no external development funding needed. The country now has Africa’s best-established off-grid solar market.
Broadly, Kenya’s model is a system of local finance allowing buyers of a solar power system to spread the cost.
Using Kenya’s local payment provider M-Pesa, several companies offer a pay-as-you-go model to solve the tricky problem of receiving payments from remote rural communities.
A buyer pays a small deposit to get a solar system, which has an embedded smart meter connected to the internet. Then, via M-Pesa, they pay small daily or weekly instalments to use the system and buy more and more of it. If payments lapse, the system can be locked remotely via the meter. Once fully paid off, ownership is transferred and the system is permanently unlocked.
In this way, one large payment is turned into affordable smaller payments over time, as well as making breaches of the agreement less likely and cash flows more predictable. The purchaser doesn’t just benefit from the power supplied: ultimately, they own the equipment.
The firms selling the systems can package the agreements and sell them to banks, who then collect future payments. This “securitisation” gets the companies significant cash quickly, reducing liquidity risks and allowing for faster expansion.
The securities are stratified by credit rating agencies according to the risk of default. During this process, public funds and development finance institutions can be invited to buy the medium-risk tranches, leveraging private and commercial bank purchases for a stable and higher rate of return.
This catalytic role need not be confined to Western development financial institutions. Chinese policy banks could equally take up such medium-risk tranches, as explored in the final section below.
Because securitisation happens on domestic markets, there are no exchange rate risks arising from overseas transactions.
Emerging market securitisation trades are bundled into two or three tiers by risk. “Senior” securities have the lowest risk and are paid back first. The medium-risk “mezzanine” tier is paid back next. And finally the highest risk tier, “junior”.
If customers fail to make repayments, holders of the junior securities take the first losses. Once they are wiped out, the mezzanine tier takes losses. Only when that tier is wiped out too is the senior tier affected.
A securitisation only closes if every tier finds a buyer, and local commercial banks, which are bound by prudential rules, will only hold the senior ones. When development finance institutions buy the mezzanine tranche, accepting lower risk-adjusted returns as “catalytic capital”, they protect the senior tier and complete the capital structure. Their due diligence also reassures senior investors. Without them, the riskier tiers would go unsold and the deal would simply not happen.
Sun King is an example. The off-grid solar solutions company has so far only manufactured its products in China, but it recently opened a factory in Kenya and has plans for another in Nigeria. It says it has lent almost USD 1.3 billion to 10 million customers in Africa. After a USD 130 million securitisation in 2023, it worked with Citi to complete a similar USD 156 million deal in 2025. This saw local and overseas commercial banks buy up the senior tier. While development finance institutions – British International Investment, Dutch development bank FMO and Norway’s Norfund – supported the mezzanine tier.
East African companies, including those in Kenya, won at least 60% of all global investment in off-grid solar in 2012-2019, according to a World Bank report.
The Kenyan model does have its shortcomings. The cost of capital is high, it remains out of reach of the poorest populations, and the model struggles when, for example, extreme weather events cut off cash flows. But it proves one thing: when local capital, local regulators and local financial infrastructure work together, control over renewable energy development can be kept local. Foreign capital and technology can fill in gaps but they should not supplant local decision-making or the role of local financial intermediaries.
China’s role: From leading financing to supporting ecosystems
As a participant in South-South cooperation, China could consider changing how it approaches “non-bankable” community renewables projects in the Global South. Rather than providing aid and finance, it could work to support renewable energy ecosystems, led by local capital but supported by Chinese technology. This would avoid repeating, in community energy projects, the “lead contractor + loans” model that has historically dominated China’s overseas infrastructure and energy financing.
China could use its expertise in mobile payments and connected devices – also known as Internet of Things – to serve as the technical underpinning for pay-as-you-go solar platforms, thereby reducing the costs of smart locking and remote monitoring.
China could act as an “anchor investor”, working with its own policy banks, multilateral financial institutions and local institutions to buy up securitised off-grid solar debts issued by local banks. This would attract big investors such as pension funds and insurance companies to get involved and help improve and spread the Kenyan model.
China could also be an “asset builder”, drawing on its poverty-alleviation experience to help Global South communities generate assets and unconventional income streams. This in turn would sustain cash flow across the broader financing structure.
This aligns with the “financing for development” and “digital economy” priority areas of China’s own Global Development Initiative. It could help reduce direct administrative and financial input by China during overseas cooperation. It will also reduce overseas concerns about debt traps and technological lock-in. Finally, it offers a route to cooperation with the Global South that is more sustainable and more resilient to geopolitical change.
