It’s Tuesday and today we’re focusing on Sawa Energy, an energy company active in Uganda and Rwanda. Founded by Samuel Kaufman, Jordan Zipkin, and Guillaume Charpenel, the company recently announced a $2.9 million funding round from the EU-funded ElectriFI.

While Sawa targets both Uganda and Rwanda, I’m focusing on the former because the set of circumstances there makes for a more compelling story.

And here’s why.

Uganda, like several countries in the region, is a bit of a paradox when it comes to energy.

We tend to think of development as the starting point for a transition to renewables. That Europe and the U.S. spent the 19th and 20th centuries burning oil and coal to power industrial growth, and only after entering a post-industrial era could they shift focus toward the greater good, environmental health, and long-term sustainability. Hence, the move to renewables.

Well, Uganda has already made that transition despite being one of the poorest countries in the world. 97% of the country’s electricity comes from renewables, with 87% generated by hydropower. You’d think that abundant hydropower along the Nile would eliminate energy-related problems. But that assumption would be wrong.

Only 51.5% of the population has electricity access, one of the lowest rates globally. Access is especially limited in rural areas, where just 9.1% of residents have power. Reasons range from high connection charges relative to incomes, to overloaded and aging infrastructure, vandalism, and a general lack of funding: government expenditure accounts for under 20% of GDP, compared to 35%+ in developed countries.

While households lacking electricity is already troubling, the implications for businesses make the situation even more serious. When factories can’t reliably produce goods, workers can’t be reliably paid, and that drags on the entire economy. And when electricity is expensive, factories either pay workers less than they otherwise might, or they delay investments into growth.

So how serious is the electricity problem for businesses?

In two words: pretty serious.

To go beyond two words, let’s start with how local firms themselves frame the issue.

Power outages remain the biggest constraint for Ugandan businesses, with 23.2% naming it as their top challenge. Another 4.6% cite high power costs. And this is despite improvements over time. In a 2006 World Bank survey, over 60%of companies named electricity as their biggest impediment. By 2013 that number had fallen to about 25%. But even if the methodologies differ (different surveys, different measurements, etc.), 25% is still awfully close to 23%, which suggests that over the last decade the situation has improved, but not dramatically.

When I first read about outages, I assumed companies dealt with a few per week, which is already disruptive. Well, it turns out many firms face a few…per day. In the best cases they have four outages per week, and in the worst cases — up to 15 per day. If a factory operates for 16 hours per day, that’s an outage roughly every 64 minutes.

To supplement the grid, businesses rely on diesel backup generators, and that isn’t cheap. Some companies report spending an additional ~$8,000 per month on diesel. My rough estimates suggest that an average Ugandan manufacturer spends around 5% of its revenues on supplemental electricity . Basically, 5% of money that could have been pure profit. On the extreme end, a business can spend 20% of its budget on diesel.

Even when the grid works, electricity is expensive. The average price is $0.17 per kWh—only one cent cheaper than in the U.S., a country with 80 times higher per capita GDP.

The government is trying to lower energy costs for businesses. It’s implementing a tariff reduction initiative aimed at bringing the manufacturing tariff down to $0.05 per kWh. It targets 60% electricity access by 2027. And it has severalpolicies encouraging solar adoption.

Still, as you can see, there remains a major gap between what businesses need and what the grid actually delivers, both in reliability and in cost.

Sawa Energy provides reliable and cost-efficient energy supply to businesses by building, installing, and operating solar systems. These systems ensure reliable power and battery storage, and they’re designed around each client’s specific load profile.

Broadly speaking, there are two main types of clients Sawa works with. Each group faces related but distinct challenges.

Both groups gain reliability and savings, plus the added benefits of reduced production waste and fewer botched batches. They also lower their CO₂ emissions.

But it’s not like enterprises are unaware of the advantages of solar. It’s free, reliable, and clean, so what’s not to like? The problem is the upfront cost. Diesel may be more expensive on a per-kWh basis, but it’s a variable cost: if your plant isn’t operating, you’re not paying. Solar is a fixed cost, and not many Rwandan or Ugandan businesses want to take on that fixed cost, especially given the high cost of capital that makes such investments even harder.

So how does Sawa Energy get around that? This is where the business model comes in.

The core of the model is to remove barriers to adopting solar power. Sawa Energy does this through Power Purchase Agreements (PPAs), which involve four key elements:

To cover upfront costs that will be recouped only over many years, Sawa needs outside capital. Hence, the financing round. But the model also depends on staying lean, and the company seems to manage that well: it has just 16 employees despite operating in multiple markets already.

This allows Sawa keep costs low while improving operational effectiveness. Engineering and installation are handled by local partners, which means projects can move faster than if Sawa had to deploy its own team to every site.

Sawa Energy uses a pay-as-you-consume model, with a discount relative to what the client would normally pay the grid. Clients usually pay 10–13 cents per kWh, and as I mentioned earlier, Sawa can bring that down by up to 30%.

While the company mentions that it has 65 projects with plans to scale to 250, most sources mention 32 active projects with a total peak solar capacity of 2.6 MW. These projects span Rwanda and Uganda.

For me, most of the bear case is about the combination of financing and energy prices. While Sawa does provide savings, if the national utility tariff in Uganda continues to fall, it becomes harder to justify selling into that market at scale. In Rwanda, the company can’t sell excess electricity to the grid or deploy more than 50 kilowatts per site, with both factors limiting the company’s ability to raise money from investors who are used to financing large-scale projects.

And the company will have to raise more capital while hoping that in both countries—plus any future markets it enters—electricity prices remain high enough relative to Sawa’s offering. Any asset underperformance or maintenance issue increases the pressure to bring in new funding.

To summarize, when you have high upfront capital requirements, long payback periods, and the risk of falling tariffs it creates a difficult balance.

What Sawa is offering is basically no-lose for the customer. There may be some inconvenience in switching back to the main grid if something goes wrong with Sawa’s system, but beyond that the all risk is on Sawa’s side, not the client’s. So as long as the market fundamentals don’t shift dramatically, I think the company can scale quickly. There’s an abundance of businesses struggling with unreliable energy and high costs, and the fact that Sawa operates in relatively inefficient markets actually helps them: change is slow, and slow change gives Sawa more time to recoup project-level investments and build scale economies (for example, in panel procurement).

So on the bright side, this is a huge market, the underlying problem isn’t going away anytime soon, and the core technology isn’t going anywhere either.

It’s funny to think that the main bear case for the company is the government of the countries it operates in becoming more efficient. That’s not really how governments are supposed to work.

1: Manufacturing makes up 15% of the country’s GDP (about ~$8 billion). In 2019, there were 4,920 industrial establishments. Even assuming no growth since then, and treating GDP as roughly equal to total manufacturing revenues, the average manufacturer would have about ~$1.6 million in revenue. Dividing $8,000 by $1.6 million gives roughly 5%.