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Smart Financing in the DRE Sector - The Building Blocks to Financing Rural Electrification

David Lecoque, CEO, ARE

The ARE Africa Desk – Accelerating Energy Access Investments in Africa through Partnerships, Cooperation & Financial Innovation

Gabriele Pammesberger, Lead for Africa, ARE

As the leading international business association for the DRE sector, ARE is acting as a facilitator and market enabler. We are bringing together different stakeholders to jointly develop innovative solutions to the key challenges of the sector. Partnerships, cooperation, joint action and innovation lie at the heart of all our efforts towards achieving universal access to energy by 2030.

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Guided by this principle, ARE is delighted to partner with the African Development Bank (AfDB), a pioneer in innovative off-grid energy finance in Africa. We have established a dedicated ARE Africa Desk with the aim to leverage the two organisations’ expertise and sector knowledge in order to mobilise the African and international project developer and investor communities to catalyse increased investment in DRE projects and businesses in Africa.

The ARE Africa Desk will focus on accelerating access to finance, particularly for local DRE companies as well as of low-income rural customers; also on local market development through knowledge transfer and capacity building for local businesses, institutions and the financial sector.

To further foster collaboration and joint action towards increased investments in energy access, the ARE Africa Desk is setting up the Finance4Energy Access Working Group, a dedicated, results-driven access to finance working group aimed at bringing together ARE Financier Members. The Working Group aims to address major access to finance barriers and jointly develop solutions, through innovative financial instruments and blended finance mechanisms, leveraged through market enabling interventions that de-risk DRE projects and businesses. Further to being a platform for networking, knowledge sharing and exchange of ideas and best practices, the working group will also foster cooperation, partnerships and the coordination of the development partners’ and investor community’s activities.

The working group will focus on specific high-impact topics for concrete action, including:

  1. Innovative productive use and cold chain finance, such as (digitally-enabled) consumer finance mechanisms, under the energy/agriculture/food nexus;
  2. Specific financing instruments for local early-stage DRE MSMEs, complemented by skills development programmes;
  3. Gender-lens investing in the DRE sector;
  4. Innovative blended finance structures for sustainable, integrated rural healthcare electrification delivery models under the energy/health nexus.

The ARE Finance4Energy Access Working Group will be launched in early May 2021 and we look forward to engaging with our Financier Members!

Contact: Gabriele Pammesberger

 

Raising Capital for Energy Access: Lessons for Early-Stage Companies

Energy Catalyst accelerates the innovation needed to end energy poverty. Through financial and advisory support, Energy Catalyst supports the development of technologies and business models that can improve lives in Africa and Asia. The grant recipients represent a wide variety of stages, some having never raised capital beyond their Energy Catalyst grant funding, and others raising several rounds of commercial capital. We spoke with three of Energy Catalyst’s grant recipients that have successfully raised capital within the energy access sector, and this article shares some key lessons for other early-stage companies.

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Successful capital raises can mean the difference between a good-but-unrealised idea and a thriving business. Early-stage capital allows companies to build prototypes, test ideas in the market, and prove business models. Early fundraising also lays the foundation for future raises by allowing companies to develop traction and proof points. However, raising capital can be challenging for early-stage energy companies focused on developing economies, as they often don’t “fit the mold” for many investors. They must make extra effort to cultivate relationships with investors and tell a compelling story.

Finding the right investor

One of the most common finance questions we hear from early-stage energy companies is “how do I find the right investor for my company?” Engaging investors is time-consuming, but finding well-aligned investors is critical for a successful long-term fundraising strategy. With so many potential investors, it can be challenging to know where to begin. Charm Impact—a crowdfunding start-up that invests in early-stage clean energy enterprises in developing markets—recently completed its own equity raise. The team first organised a long investor list into groups of investors with similar profiles then tested a small number of investors within each group to quickly “pulse check” suitability and eliminate whole groups of investors. Through this process, they ultimately decided to leverage equity crowdfunding, where investors had comfort with Charm’s business model, were happy to take early-stage equity risk, and could provide long-term value to Charm as a large team of "champions" willing to spread Charm's story across multiple audiences. Companies can take such a systematic approach to quickly narrow down to a smaller set of investors who are worth dedicating extra effort to. Said Gavriel Landau, co-founder of Charm, “It’s not necessarily true that you need to knock on 100 doors before you find the right investor…it was about finding the right doors to knock on.”

Playing the long-term relationship game

It’s not all about finding the right investor immediately, or even during the current capital raise. Every investor relationship can pay off down the road. Mobile Power provides affordable electricity in the developing world through its MOPO battery rental platform. Mobile Power COO Luke Burras describes how their fundraising team focused extensively on establishing and cultivating investor relationships during their equity raise, recognising that developing trust takes time. “We [told our equity investors] what we were going to do that year, and then [delivered] on it before we came back to them for funding.” This type of trust can create a reinforcing cycle that will continue to support businesses through successive capital raises, each potentially requiring a new set of investors.

Telling the right story

It’s also important that businesses tell investors a compelling story to justify investment. Connected Energy is a provider of provider of smart metering hardware and software platforms for off-grid solar and biogas. For Vijay Bhopal, their Managing Director, the company’s successful seed funding round was due in large part to the demonstrated robustness of the business model. At the pre-revenue stage, the team focused on extensive data collection, early product monitoring, and partnerships documentation. In doing so, the team showed investors that they “were credible and thoughtful in [their] approach.” This story resonated with two micro venture capitalist firms, in particular, who valued Connected Energy’s ability to demonstrate results despite the company’s early stage.

While every company must pursue a capital raise strategy unique to its needs, model, and mission, placing a strong emphasis on understanding investors and engaging them in a compelling and consistent way is critical to almost every successful raise.

Written by Thomas Ewing and Harry Masters, Finance Specialists, Energy Catalyst Accelerator Programme

 

Smart Financing for Sustainable Growth

Half a billion people in Sub-Saharan Africa live without power, but large-scale initiatives are making gains to put universal access within reach. The United Nations’ Sustainable Energy for All initiative has gained significant traction since it was launched in 2012, and the U.S. Agency for International Development’s Power Africa initiative boasts 18.8 million new connections since the programme was launched in 2013. However, companies delivering off-grid services still face significant obstacles to raise equity from mainstream private-sector investors.

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NRECA International has played many key roles in successful energy access initiatives since it was established in 1962. Today, the team is venturing into new technical assistance relationships with enterprises that are introducing creative and practical ways to finance projects that hope to grow local talent, speed up connecting people to power and boost achievement of electrification targets.

With a partner like NRECA International, young and high-potential energy companies can leverage decades of knowledge, insight, and skills into their operations to reduce the early-stage investment risk to financiers. This form of capacity building is being financed through technical assistance grants by private equity firms who seek to play a role in providing power – specifically renewable power, to developing countries.

Such is the case with an agreement that was struck between three entities: Energy Access Ventures (EAV), a venture capital fund keen on investing in businesses in Sub-Saharan Africa who work on providing power and its benefits to that region; SolarX, an up-and-coming off-grid solar energy developer and financier operating in West Africa, and NRECA International, known for deep experience in developing and implementing national rural electrification programs for more than 50 years. This project was funded by the EAV technical assistance facility, whose donors include the CDC Group’s Grant Facility (CDC Plus), which is funded by UKAid from the UK Government, Fonds d’Investissement et de Soutien aux Entreprises en Afrique S.A.S (FISEA) and Fonds Francais Pour L’Environnment Mondial (FFEM).

SolarX has successfully raised its series A financing round, led by EAV, to fund its business in Mali, Burkina Faso and Ivory Coast. Now, the SolarX team is looking to build capacity and grow its engineering and construction oversight capabilities. To do that, NRECA International was brought in to provide engineering and management capacity-building assistance during construction of SolarX’s first five solar energy projects in Mali. NRECA’s scope included an assessment of SolarX’s technical capacity, quality assurance practices, safety procedures, business model viability, existing capabilities and future plans to strengthen their operations for long-term solar energy projects.

With global COVID-19 travel restrictions in place, NRECA International remotely gathered data and conducted an in-depth assessment SolarX’s technical capacity. The results of this assessment combined with the impact of the pandemic, revealed the need for SolarX to develop and strengthen much of its engineering, procurement and construction services in-house, and making sure these services are in line with industry best practices.

The project was completed in March 2021, and a report was provided to EAV and SolarX, with a detailed report of the company’s technical capabilities, accompanied by a gap analysis and areas for improvement and strengthening. A comprehensive Quality Management Plan was also presented to guide the development of future sites in the SolarX portfolio, promising a clear path for growth.

“Awarding a Technical Assistance contract to NRECA International in tandem with an equity investment with SolarX seemed the best way to ensure success on many levels,” said Vladimir Dugin, Principal at EAV. “These types of partnerships can help mitigate the risks of early-stage investors in volatile solar and mini-grid sectors in African countries and strengthen these companies that have the capacity to be market leaders in the future.”

SolarX hopes to expand into Cote d’Ivoire within the next year. For NRECA International, it is becoming clear that financing technical assistance for small young companies in private-sector rural electrification initiatives can lead to smart growth, making investments more valuable and sustainable.

“By working closely with NRECA International, I’m confident now that SolarX can reach our full potential to provide access to power for people in communities who need it,” said Karim Gammache, CEO of SolarX.

 

Technology's Role in the Due Diligence Process - Embracing the Digital Revolution

The digital revolution has been key in bringing accessible, affordable energy to hundreds of millions of people in emerging markets. Two explicitly technology-enabled products, mobile money and innovative financing models, have been key to this, and in order to address this market, companies must involve technology in every key step of their operations.

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In light of this change in the importance of technology, companies operating in these markets face a number of challenges - from ensuring that the often highly customised customer journeys can be supported by the chosen software, to the technical considerations of tech solutions scaling and growing in an effective manner. These challenges are by no means unique to energy access ventures - indeed they are faced in other last-mile distribution sectors, and across emerging markets. Whilst aggressive growth is a mandatory inclusion in pitch decks from companies, often an understanding of these technological aspects is noticeably absent.

This lack of information is further compounded in the Due Diligence reports undertaken by investors. These reports have traditionally focused on P&L, cash flow and other financial and market-based factors. What they do not include is a detailed understanding of the IT underpinning those companies - including whether the software can scale, if the IT team is ready for the additional load that growth will bring, and issues relating to data security and integrity. 

Using Enable’s experience in the energy-access sector, we have been working with both investors and their portfolio companies in providing analysis and reviews into their technology and IT. These reviews have been key in providing investors with the insights they need to make informed investment decisions, and also in providing the end-clients with the action-focused recommendations and areas that they need to improve on to ensure their business succeeds. 

Impact Investors are undoubtedly aware of the tremendous potential that digital solutions can unlock. By claiming the insights which are there waiting to be understood, they will be able to make better, more informed decisions, and deliver on their lofty ambitions.

 

  • [Podcast] Off-Grid PV: New Ways for Climate Protection & Power Supply?

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    The off-grid solar sector is playing an essential role in the fight against the COVID-19 pandemic. DRE like solar home systems are keeping the lights on in health centres, powering local businesses and helping families stay connected and informed. However, in the first half of 2020, global sales fell 26% compared to the same period in 2019, curbing the sector’s record-breaking growth. But what are the current developments? Which regions are particularly affected? And what solutions are there?

    Hear from David Lecoque as he chats with Smarter E on Off-Grid PV: New Ways for Climate Protection & Power Supply?

  • Rural Electrification Masterclass

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    To enable mutual learning opportunities for DRE companies, ARE supported by the Energy Catalyst organised  an online ‘Rural Electrification Masterclass,’ exclusively for ARE Members and companies supported by the Energy Catalyst on 8 to 10 March 2021.  The free masterclass was attended by over 65 participants.

    The aims of this activity were twofold: 

    • Equipping companies with knowledge about the status quo of the DRE sector in Sub-Saharan Africa and South Asia and hereby assist companies with market intelligence and business development
    • Enabling knowledge sharing between ARE Members, the Energy Catalyst cohort and the wider DRE sector 
  • 6th ARE Energy Access Investment Forum Surpasses its Reputation as the Flagship Event on Finance for Energy Access

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    ARE concluded its 6th Energy Access Investment Forum (EAIF), hosted virtually from 17 to 19 March 2021 and supported by GET.invest, a European programme supported by the European Union, Germany, Sweden, the Netherlands and Austria. Throughout the event, participating decentralised renewable energy (DRE) stakeholders from across the globe renewed their commitment towards addressing investment gaps and achieving universal energy access globally and in particular in Sub-Saharan Africa.

    Almost 1,400 participants from 105 countries attended the flagship event that included public and private sector financiers, project developers and decision makers.

    Key highlights of the EAIF included:

    • Building a flourishing DRE sector in the wake of COVID-19
    • Fast-tracking investment through integrated decentralised electrification policies
    • Partnerships as a pillar to support DRE solutions in rural communities
    • Innovative business models for rural electrification, including productive uses.  

    The event featured over 70 top-level speakers from the private sector, national and international public bodies and civil society. On top of the interactive sessions, GET.invest and ARE facilitated over 500 virtual matchmaking meetings between investors, technology providers, project developers, as well as development partners and innovators in the DRE sector.

    This year, the virtual event was sponsored by RES4Africa Foundation, TCX Fund, ADEME, Blue Solutions, CEGASA, ElectriFI, EDPR, ENGIE Energy Access, INENSUS, NRECA International, Renewvia Energy, D-REC Initiative, South Pole, Sterling & Wilson, Zimpertec, ECREEE, Odyssey, Practical Action, SparkMeter and WindKinetic. ARE also strategically partnered with Energy Catalyst, ACCESS Coalition, ACP, African Development Bank, CLUB-ER, Frankfurt School of Finance & Management, Green People’s Energy, GOGLA, SACREEE, SEforALL, SIAZ, SolarPower Europe and UNIDO.

    Read the press release

  • ARE Extends Work to Benin

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    We are pleased to announce that the Benin Association for renewable energy "Association Interprofessionnelle des Spécialistes des Energies Renouvelables du Bénin" and ARE signed an MoU on 1 April 2021.

    This promising partnership lays the ground for mutual cooperation in Benin and builds on ARE’s ambition to work with and mutually reinforce strong national partners across its focus regions.

    Contact: Jens Jaeger

  • ARE Addresses High-level Panel at the EU-Africa Business Forum

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    ARE CEO David Lecoque spoke in the high-level panel of the event on “Achieving greater private sector participation for a faster sustainable energy transformation in Africa,” alongside Mr. Frans Timmermans, Dr. Amani Abou-Zeid and Portugal’s FA Minister Augusto Santos Silva, and top-level CEOs from IRENA, Enel Green Power, Nithio Holdings, European Investment Bank and African Development Bank on 16 April 2021.

    ARE is proud of the exceptional achievement of being invited, for the first time and as the only DRE business association, to speak with the very top of both the European and African Union with over 1,100 participants attending the high-level talks. David positioned the DRE sector and thus ARE and its Members as the crucial channel through which universal access to clean power can actually be achieved by 2030. All the more so at a time when major decisions are being made regarding EU-Africa policy priorities and the EU’s long-term budget (MFF), including on where to invest in the critical coming 7 years.

    The Digital Marketplace featuring  ARE Members Engie Energy Access, Phaesun, Turbulent, Zimpertec, RES4Africa foundation, EDFI ElectriFI and AMDA was visited 3,460 times.

  • Paving the Way for Clean Energy Transition with DRE Series Opening

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    ARE and Grüne Bürgerenergie (GBE) marked the opening of their new joint initiative titled ‘Paving the way for Clean Energy Transition with Decentralised Renewable Energy (PWCET) Series’ at the EU Africa Business Forum. The opening event, which was attended by over 200 participants, comprised of a keynote speech by Special Representative for Energy in Africa of the BMZ Mrs. Bärbel Höhn followed by 3 power packed interventions by ARE and ARE Members ENGIE and ACCESS.

    More information on PWCET Series to follow soon. 

    Contact: Deepak Mohapatra

  • Claudio Pedretti Re-elected ARE President as ARE Welcomes New Board of Directors

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    The Alliance for Rural Electrification (ARE) held its Ordinary General Meeting on 23rd April 2021 and re-appointed Claudio Pedretti as its President. ARE offers its thanks to the outgoing Board of Directors, Emily McAteer (Odyssey Energy Solutions) and Rebecca Symington (Mlinda Charitable Trust) for their contributions to ARE over the last years.

    Claudio Pedretti is a recognised thought leader in the Decentralised Renewable Energy (DRE) sector who currently serves in several Boards of Directors, profit and non-profit. He brings over 10 years of experience in establishing and growing companies and brands at the international level. During his successful year as President of ARE, Claudio Pedretti coordinated the Board in its efforts to set up the strategy to renew the association and its governance, allowing for its current and future growth and development.

    ARE also welcomed four new valuable Board members:

    • Yoann Le Fol is the Regional Manager of Victron Energy and brings 10 years of experience in the off-grid market in Africa and an extensive network in the solar industry.
    • Rebecca Bregant is the co-founder and Chief Marketing Officer of PineBerry and as such has been active in the rural electrification sector for over four years.
    • Rebecca Sleegers of Africa GreenTec joins the ARE Board with expertise in communication and internationalisation strategies and is keen to pursue her goal to see more women in leadership positions.
    • Iain Munro, Director of Ryse Energy, joins the Board with a wealth of experience across the energy, government and financial sector in strategy consulting, the utility sector in corporate finance, and in financial and strategic communications advisory.

    Press release

  • [Save the Date] Sustainable Energy Forum for East Africa (SEFEA)

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    The East African Centre of Excellence for Renewable Energy and Efficiency (EACREEE) and ARE will be co-organising the first edition of its Sustainable Energy Forum for East Africa (SEFEA) on 22-24 June 2021. The event is also supported by GET.invest, a European programme supported by the European Union, Germany, Sweden, the Netherlands, and Austria; and UNIDO. The event will be held in English and French with simultaneous translations.

    Considering the global COVID-19 pandemic and the ensuing travel difficulties, the event will be held virtually.

    SEFEA will raise awareness about the progress made by EAC member states toward achieving sustainable energy targets set for 2030. It will also focus on achieving the vision of the EAC for a prosperous regional sustainable energy market, which is contingent upon harnessing the region’s vast renewable energy and energy efficiency potentials. A particular focus will be given to the role of decentralised renewable energy (DRE) in powering the EAC region.

    Sponsorship:

    Would you like to showcase your innovative off-grid solutions, products and services to investors and partners? ARE offers various opportunities to raise your profile as a key player in the sector.

    Contact: Jens Jaeger

  • Clean Energy Mini-Grid Policy Development Guide

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    Mini-grids have been identified as a critical tool towards achieving universal electricity access by governments, donors and private sector actors alike. To enable the sustainable deployment of mini-grids, the public and private sector need to cooperate. Policies and regulations which support the most suitable mini-grid delivery models need to be developed to allow the sector to scale. The Clean Energy Mini-Grid Policy Development Guide, developed in partnership by ARE, UNIDO, AfDB, Inensus and AMDA, outlines the various forms and models that public-private cooperation could take and reflects on the outcomes of policy decisions on mini-grid deployment.

    While the guide is not exhaustive, it provides an overview of the most important aspects of mini-grid policy, with the aim of supporting policy makers to accelerate mini-grid deployment and to help guide national debates and decision making on rural electrification policies and frameworks.

    The guide incorporates lessons learnt from existing mini-grid policies and regulations and presents the key decisions that need to be taken by policymakers in designing the most appropriate mini-grid framework for their country. A decision tree designed for policymakers outlines which combination of key decisions leads to which outcome.

    Five critical conclusions may be drawn from the guide:

    1. Sustainable mini-grid business/delivery models require scale.
    2. The way in which mini-grids are ultimately deployed, including the degree of private sector involvement, depends on decisions taken by government.
    3. Large government control over mini-grid deployment, minimum financial subsidies and low end consumer tariffs cannot all be achieved at the same time.
    4. The development of electricity demand in rural areas is difficult to predict, making it important to introduce demand risk mitigation instruments in the policy framework.
    5. The risk of a sudden end to the project, i.e. the termination risk, ought to be considered by policy makers and regulators.
  • NREA Toolkit: A Guide for National Renewable Energy Associations

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    The NREA Toolkit: A Guide for National Renewable Energy Associations has been developed by GOGLA and SolarPower Europe with the support of GET.invest (a European programme supported by the European Union, Germany, Sweden, the Netherlands, and Austria) and Transforming Energy Access for Households and Improved Livelihoods Programme (TEA), funded by the UK Foreign, Commonwealth and Development Office (FCDO), and in strategic partnership with ARE. 

    This toolkit has been developed to provide guidance to existing national renewable energy associations (NREAs) with a comprehensive and practical resource to help strengthen their efforts in supporting the growth of the solar energy sector, and guidance to those considering establishing a new NREA.

    The purpose of this toolkit is to support the NREAs in their activities. These include developing, improving, and sustaining their services to their membership; investing in practicing high standards of management and good governance; and taking measures to assure their sustainability over the long term. It aims to support NREAs to continue to be strong advocates for the growth of the solar energy sector.

  • Unlocking Climate Finance to Accelerate Energy Access in Africa

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    The research, supported by The Rockefeller Foundation and Shell Foundation, and benefiting from technical advice from IKEA Foundation, The Rocky Mountain Institute, Sustainable Energy for All, is the first of its kind on several fronts and will be followed by a series of country deep dives. It combines historical trends analysis, extensive financial modelling and a full lifecycle analysis of energy sources to produce three feasible scenarios to meet the energy needs of rural households and small and medium enterprises in Africa, with varying levels of reliance on DRE and grid extension.

    The study’s business-as-usual scenario paints a stark picture. On current projections 31% of African households would still be unelectrified by 2030, with the use of polluting, expensive backup generators increasing (two-thirds of electricity grids in Africa are unreliable, spurring the use of seven million backup generators today that consume $13bn worth of fossil fuels annually). Over 230 million households would continue to cook with solid fuels, a practice that is a leading cause of the household air pollution that claims 600,000 African lives each year and significant deforestation.

    Two further scenarios are explored: one low carbon and one high carbon, in which 100%  access to electricity is achieved, alongside improved grid reliability and a more marked transition to cleaner cooking.

    The low-carbon scenario relies on more extensive use of DRE technology to achieve 100% household electricity access and replaces 9.2 million fossil-fuel powered backup gensets with solar alternatives. While noting that Africa’s cooking crisis will be difficult to solve, the researchers believe it is feasible to shift at least 39 million households from cooking with charcoal to using modern, less CO2-intensive energy sources like LPG or electricity.

    Under this scenario, Africa avoids up to 626 m/t CO2e emissions compared to a high-carbon scenario − the approximate equivalent to the annual emissions of 160 coal-fired power plants, or 933 million round-trip flights between London and New York City. This is also the lowest-cost way to generate inclusive economic growth.

  • ARE Annual Report 2020

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    2020 was a year of profound and structural change inside ARE, shaking things up for the better. Crucially, it was also a year where the sector demonstrated its drive to survive – underlying again its resilience and merit to attract much more investment to achieve the all-important goal of SDG-7. The groundwork at ARE – the oldest and largest sector federation for rural electrification - is now in place to soar and shine even brighter in 2021 and the years to come.

    In this light, ARE strives to deepen and expand its activities, services, presence and events in Sub-Saharan Africa, South and South-East Asia and Latin America, as well as broaden its scope to include technology and innovation alongside policy, business and finance for rural electrification. To do so, ARE will continue to bring together all the renewable technologies and all types of stakeholders from start-ups to blue-chip corporates including tech suppliers, project developers and financiers, working across emerging markets.

    Our big and growing family of ARE Members means ARE is a beehive of activity, business partnerships and innovation, and allows ARE to credibly position itself and its Members as the ‘SDG-7 delivery service’, provided the right conditions are met.

Please note that views expressed in the Co-Editorial, the In Focus section and the Special Feature of the newsletter, are those of the contributors and do not necessarily reflect ARE’s opinion.

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