Last year, $244bn (£149bn) poured into global renewable investments. But only a tiny amount of that trickled down to where it is needed the most – to provide power to the two billion people without access to energy. The UN’s goal of universal access to modern energy by 2030 will require an annual investment of up to $41bn a year. Progress to date has been slow, to say the least.
Over the past year, a new model has emerged which blends the crowdfunding entrepreneurship of Kickstarter with the social enterprise of Kiva. Ryan Levinson conceived of SunFunder, an off-grid solar finance company, during a trip to South East Asia after quitting his job at a US bank. During this trip he began to hear repeated stories about lack of access to capital to fund solar projects.
“With my background in energy finance on US solar energy projects I could see how access to finance can really open up the market,” he said. “Financing is a challenge for the clean energy industry all over the world but there are regions without electricity that are best suited to distributed solar power. But who is going to finance this transformation of a market where 1.3 billion people have limited or no access to electricity?
“I really believe that solar can leapfrog the grid over the next decade or two the same way cellphones were able to leapfrog landlines in developing countries. But it’s going to require a lot of capital – we’re talking about hundreds of billions of dollars and there doesn’t seem to be any company that specialises in this emerging sector.”
In May 2011, Levinson left his job at Wells Fargo, where he oversaw $500m in financing for commercial-sized projects in the US. A little over a year after SunFunder was founded in the summer of 2012, it has fully financed 10 projects in Uganda, Zambia, Tanzania, Kenya and the Philippines. Some of the financing is small – between £4,000 and £25,000 – but the impact is often large.
Solar photovoltaic panel costs have reduced by 60% over the past two years, making PV technology more economically competitive than ever before, particularly in remote locations in the developing world that would never be reached by the grid or have to rely on diesel generation.
“For the first time, solar energy can be affordable economically for people all over the world and often with no subsidies,” said Levinson. “That really struck me having worked in more developed markets where there is a large solar energy industry dependent on subsidies. This was an enormous opportunity to solve such a big problem – it seemed like a perfect time and I felt like my background lent itself well to creating a company dedicated to solving this problem.”
Earlier this month, SunFunder announced a milestone with the full repayment within a year of its first loan for a SunnyMoney project in Zambia. But that milestone was not just significant for the San Francisco-based startup and the social enterprise division of London-based charity SolarAid.
Levinson said that every project that crosses the 100% repayment line brings off-grid solar finance a step closer to bankability. Scale is one of the main objectives of SunFunder, which aims to invest $1bn by 2020. To reach those volumes, the involvement of large international finance institutions like the World Bank, government entities and foundations will be essential. The International Energy Agency estimates that nearly $1tn in cumulative investment will be required to achieve universal energy access by 2030.
While rows continue over energy price hikes in the UK, the proportion of a family’s income spent on kerosene, candles, batteries and diesel generators in the developing world is much higher. In addition to the financial burden, the costs to human health are also high, with an estimated two million deaths a year associated with the burning of solid fuels indoors in unventilated kitchens. Women and children are most affected.
Though Levinson does not like to use the kerosene parity comparison, he acknowledges the financial burden on poor families. “The point is that on both a per unit of energy basis and as a percentage of income, people pay way more for energy in off-grid communities, and often this is for very poor quality energy that brings a number of negative impacts,” he said.
Solar systems even of a small size increase productivity levels for work and study, respiratory disorders often subside, while savings from the freedom from kerosene are significant. Increased connectivity through access to cellular phones and the internet is also a powerful tool to unlock economic growth and can only be achieved with stable supplies of electricity.
“People often use kerosene as their primary source of light and at the same time you have 600 million people in the world with cellphones and no good way or affordable way of charging those cellphones,” said Levinson. “It’s not just about access to electricity it’s also about access to connectivity and information which in our world is increasingly important.”
Earlier this year, SunFunder launched a new partnership with Fenix International, a Silicon Valley renewable energy company that designs and manufactures mobile phone charging systems for emerging markets. In March, SunFunder won the Facebook Cleantech Goes Social contest and a $25,000 prize to develop an app that will connect crowdfunding investors with end-users who benefit from solar projects. SunFunder will also launch social gift cards through Facebook’s internet.org initiative, which aims to make the internet available to the two-thirds of the world population not yet connected.
So far, SunFunder has raised $150,000 from more than 590 people in 37 countries. Securities and Exchange Commission rules allow crowdfunders to participate outside the US but restrict returns to a “dividend” that is put back into an evergreen fund. SunFunder also recently closed an issuance of Solar Empowerment Notes that raised $250,000 from four accredited investors.
“For us, it’s about a diversity of sources of funding,” said Levinson. “Crowd funding has been great and it’s a big part of who we are and we’re going to stay committed to it. But we’re also raising capital from private investors to fund projects and it’s a big part of our strategy going forward. We wouldn’t have been able to do that if we were not able to show through crowdfunding that this works. Crowdfunding is proving that this is a bankable sector. But we’re not going to limit ourselves to the crowd.”