24 September 2015 by Susan Kraemer, Solarplaza
There are challenges associated with raising finance in non-traditional markets. Crowdfunding looks like a credible alternative.
Experts say renewable energy crowdfunding has the potential to become a catalyst for solar project development in emerging markets, especially within underserved segments like commercial and industrial. Midsize commercial customers, with grid-connected farms and factories that employ hundreds of people in food packaging, or coffee or flower growing, are a neglected sector in Africa, said Martin Baart, co-founder of ecoligo.
They are too small for World Bank funding, which has little interest in projects under €20 million, but too big for non-governmental organisations focused on very small-scale off-grid consumer needs.
Yet "these projects are viable,” said Baart, who is developing a new crowdfunding platform, ecoligo, to provide finance focused specifically on solar investments in emerging markets. “The solar projects are economically making a lot of sense. These are big consumers with a factory full of machines; with the power consumption of a small European village."
Baart and his partner are in East Africa regularly and are very familiar with local market conditions. The solar projects they are looking at crowdfunding typically range from 50 kW up to 1.5 MW, with loan needs ranging from between €75,000 and €2 million.
Traditional funding for these projects is further hampered by the fact that most banks in Africa are not familiar with PV. "Local banks have little experience in terms of financing of solar,” said Baart.
“They may be interested in it but they just don't have sufficient skilled people. They don't have the experience to understand how a solar project works and to assess the risk, so they often need to get external advice, which is expensive.” Plus banks are traditionally risk-averse, Baart said. “They basically say: we can give you some money, say USD$100,000, but because we don't have experience with solar, you have to pay us back within a very short period.” Bank interest rates can range up to 24%, which significantly affects the viability of projects.
But through crowdfunding, Baart estimates ecoligo will be able to finance projects at approximately 5% interest rate, low enough to realise a project but high enough for crowdfunders to beat typical European bank interest earnings by 4%. The ecoligo site would collect and lend from a central collection point in Europe, bypassing the lack of African financing infrastructure, but allow investors to choose in which projects they invest their money.
Such crowdfunding initiatives offer two further attractions for emerging market project developers. One is that paperwork is potentially reduced. With crowdfunding, on the other hand, much of the investment appeal is emotional. "In theory, crowdfunding allows people to invest in projects that matter to them," said Lars Kroijer of AlliedCrowds. The other advantage of crowdfunding is that it potentially opens up projects to a much larger pool of investors.
“Crowdfunding is inherently a democratising force,” said Kroijer, who will be speaking at the Renewable Energy Crowdfunding Conference this November.
“Instead of investment opportunities being limited to the wealthy and the well-connected, crowdfunding allows more people to benefit from wealth creation.”
- To find out more about crowdfunding opportunities and challenges, sign up now for the Renewable Energy Crowdfunding Conference in London, UK, on November 5, 2015.