Published on October 20th, 2019 | by The Beam0
It Takes A Crowd: Funding Solar Energy In Developing Countries
October 20th, 2019 by The Beam
This article was published in The Beam #9. Subscribe now for more on the topic.
As the Country Director at Marie Stopes Ghana, Anne Coolen’s focus is on “building a world where women can have children by choice and not by chance.” But when the organization’s energy bills come through, she also has to consider how they are going to continue providing high-quality medical services while keeping overhead costs down.
Ghana’s electricity prices are already some of the highest in Sub-Saharan Africa and are expected to rise further; a central challenge facing the country’s businesses and industries. For impact- and profit-driven businesses alike, this is a major threat to their future success.
The renowned Nyaho Medical Centre in Accra is no exception. Dr Elikem Tamaklo, Managing Director, says: “As energy prices continue to go up, we want to make sure our services are affordable and accessible to all Ghanaians.” The higher the energy bills, the more difficult this becomes; costs must be cut elsewhere, which could prevent the hospital from investing in top medical equipment or life-changing research.
“Many developing countries face a lack of affordable and reliable power: the consequence is that companies struggle to grow, and local economic development is limited.” — Martin Baart
High electricity prices are not unique to Ghana. A 2018 price hike in Kenya put further pressure on businesses, but Grace Nyachae, Executive Director of Simbi Roses flower farm, said that energy costs have been an issue since she started the farm in 1995. It was clear to Grace that she needed to find an alternative energy source: “The high price of energy impacts our business because it increases the cost of production, [but] the returns on our product don’t increase.”
Some Southeast Asian countries experience similar problems, particularly where energy transmission across small islands is concerned. In the Philippines, eco-lodge owner Bettina Rodarte found it difficult to predict price fluctuations of diesel, which she used to power the off-grid resort of Qi Palawan.
The cost of electricity: An obstacle to development
Many developing countries face a lack of affordable and reliable power: the consequence is that companies struggle to grow, and local economic development is limited. Current energy standards and their historical basis vary greatly between countries, but with increasing global access to low-cost energy generation technology, businesses in emerging economies should be able to have the same energy outlook as their European counterparts.
This is possible with affordable solar energy. The cost of generating solar power is still falling at an incredible rate, and the current prices are already low enough to provide significant cost savings for businesses. Despite this potential, however, finding suitable finance for solar photovoltaic systems remains a notorious obstacle in emerging markets.
There is a funding gap for projects to meet the needs of commercial and industrial (C&I) energy users: companies don’t want to invest outside of their core business, and local banks have high interest rates and short loan tenors.
This is what Simbi’s founder, Grace, encountered: “I started thinking about powering Simbi Roses with solar about four years ago. We have spoken to a number of companies to see if we could afford it.” She uses solar energy to power her home, giving her first-hand experience of the potential reduction in power bills she could achieve. She quickly realized that getting a solar system installed at her house was easier than at the 30-hectare flower farm.
Emil Afenyo, Registrar of Ghana’s Central University, encountered the same issue: “Our light bills were just getting more and more out of hand. We started speaking to a number of solar companies and we realized they were too expensive, or the financing model was not manageable for us.”
One of the solution to close this finance gap is with private capital. Crowdinvesting is a fast, flexible and relatively inexpensive solution, especially today through the use of digital technology. This solution would not only enable businesses like Simbi Roses to access solar energy without a high upfront cost, but that would also take care of the installation, maintenance and management of the systems.
“Powering our center with solar energy will mean we can spend less time worrying about our electricity bills and give more time to the women who need it,” explains Anne Coolen, at Marie Stopes Ghana, where a 40 kWp solar project has been implemented through crowdfunding.
The direct impact on these businesses is clear; however, crowdinvesting could also begin to address some deeper issues.
Large financing gaps are a key concern for some of the biggest challenges our global society currently faces, such as mitigating climate change and reaching the UN’s Sustainable Development Goals. Mobilizing private investment from a variety of sources can contribute to closing that gap. However, the sheer monetary impact is not necessarily where the alternative financing tool holds its value.
Solar projects provide many benefits, such as improving public understanding of renewable energy in emerging markets; providing examples of alternative energy solutions for businesses; demonstrating a way to sustainably boost economic growth; and beginning to raise standards of energy supply.
On the financial side, funding successful and impactful projects through crowdinvesting will prove the viability of alternative financing methods and showcase sustainable, profitable and transparent options for small private investors. In the long-term, it may lead to improved perceptions, frameworks and processes for larger financers, channeling investment into important markets that have been perceived as risky in the past.
When it comes to the global energy and development outlook, we should be considering crowdinvesting as an enabler that could begin to level global playing fields and ensure that sustainable business is at the heart of sustainable development. The challenges we are facing cannot be solved by crowdinvesting alone, but initiatives that make it easier for individuals to act together are already leading the way.
Martin Baart is the CEO and Co-Founder of ecoligo, a Berlin startup supplying affordable solar power to businesses in emerging markets. Martin has extensive experience in designing and managing on- and off-grid renewable energy systems and is a specialist in microgrids. He is also a Certified Expert for Climate & Renewable Energy Finance from the Frankfurt School of Finance and Management.
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