New Solar Financing Initiatives in Africa

Submitted by mrakhmilevich on June 6, 2018

As part of its sustainable development goals, The United Nations has mandated that all communities have access to sustainable energy by 2030.

What has stalled developing countries more than anything is a lack of financing for projects, even though, remarkably, they tend to outpace the rate of renewable energy financing in industrialized countries, according to a 2016 REN21 report. New crowdfunding initiatives are working to fulfill the financing needs by providing investors and businesses opportunities to work together to expand solar markets in Africa.

If we briefly examine how this crowdfunding performs in general, we see that “the marketgenerated an estimated $2.1 billion globally for start-ups in 2015, with the World Bankpredicting it will skyrocket in developing countries over the next 10 years.” We’ve already seen, for example, the US-based initiative Wunder Capital (for accredited investors) has already funded 15MW for 50 solar projects in the US, meeting the electricity needs of about 2,000 homes, all while generating up to 7.5% annual ROI to investors since its launch in 2013.

In Africa, where ~600 million people lack access to electricity, a successful investment scheme like this could play an important role. Energise Africa, an initiative announced in October, 2017 in the UK for UK investors, is aiming to install solar projects to help 110,000 families in sub-Saharan Africa. It consists of a partnership between the UK’s investing platform, Ethex, and the Dutch crowdfunding platform, Lendahand, with backing by Richard Branson’s nonprofit, Virgin Unite.

How does it work? Aside from auxiliary funding provided through the Department for International Development (DfID), investors pool their investments together in unsecured bonds to create the capital base to fund small businesses specializing in selling solar systems. Small businesses in Africa then set up contracts with homeowners and use the revenue + interest to repay their investments every six months. If a loss is incurred, the advantage to this program is that the loan repayments to crowdfunders would be covered under “first-loss cover,” a guarantee written into the investment contract of eligible projects which ensures repayment of any losses from the businesses to participating investors before any repayment is made to DfID. The goal for the initiative would be to raise $28m.

Successfully repaid contracts will boost the capacity of solar installation companies, reducing the net start-up cost for commercial solar and allow more businesses to invest in solar for their own facilities, netting more profit from decreased energy costs and thereby creating jobs.

An outline of the risks involved with investing, including natural disasters, political instability, social unrest and/or economic downturn, can be found here.

Another example is TRINE, a Swedish crowdfunding platform with a similar goal as Energize Africa that has a three-year track record. According to the TRINE CEO Sam Manaberi, “we currently have zero losses and that is due to our hard work with risk mitigation. In the cases (two so far) where the solar partner has been unable to repay the loan we have used third-party guarantees to protect the crowd from losing their money.”

TRINE’s overall objective is to raise $126m by 2021 to provide clean electricity for 66 million residents in Uganda, Tanzania, Senegal, Kenya and Zambia.

“Crowd funding is one of the most progressive and innovative ways of raising money for projects, and relatively unexploited in Africa, said George Wachiuri, a leading Kenyan investment advisor and head of Nairobi-based company Optiven. “It is a trend we should see grow in Africa in the future, especially when projects impacting the poor are involved.”

In one example of TRINE’s fully-funded campaigns, a small business, VITALITE, is now able to offer 1,800 Pay as you Go (PAYG) solar systems to low-income residents in rural Zambia. As sales climb from 800 systems sold per month, VITALITE are expanding from their headquarters in Lusaka to Kasama, Mpika, Nyimba and Lundazi districts in the North and Eastern Provinces of Zambia, providing Africans new jobs in the process.

But to bring results at-scale by the timeframe of 2030, a large public-private partnership is needed. In April 2018, TRINE announced its first ever partnership with the United Nations Development Programme and BBOXX to expand access to off-grid solar systems in Kenya. By the end of 2018, the goal will be to invest $7 million to reduce 84,000 tons of CO2 and provide 300,000 people with clean energy, through a pilot program of UNDP’s Climate Action Impact ToolBBOXX, an international leader with 11 locations across Africa, will be receiving the investments.

Of course, no investments are guaranteed to succeed and there are risks associated with political and economic instability, insolvency and restructuring, and currency value fluctuations as detailed here. But for TRINE CEO Sam Manaberi, it’s all about building trust: “By partnering up with UNDP and use UNDP’s climate action impact tool, we will take a step forward in increasing trust in the sector and make the impact more tangible, which serves our goal of accelerating sustainable investments.”

From a social justice angle, these initiatives demonstrate new approaches to increasing much-needed access to capital and a spirit of optimism for the future. Together we can create a future where we build an economy to better the lives of all and make clean energy for all a reality.

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