Catalytic Capital in Action: Off-Grid Energy Financing
Off-grid solar market financing presents a classic case study for catalytic capital. This study was written by SunFunder, which has unlocked over $62m as of 2017 through a series of aggregated debt funds, deploy loans to 37 solar companies—including Greenlight Planet, d.light and Off-Grid Electric—through over 100 transactions, primarily in sub-Saharan Africa, directly resulting in improved energy access for more than 3 million people. Catalytic capital investors include Packard Foundation, Rockefeller Foundation, and DOEN Foundation. A news story on this study was featured by Impact Alpha as part of MIE's 2018 National Conference, which highlighted key lessons in catalytic capital.
Off-grid solar energy — a solar panel system that does not require access to power grids — relies on electricity powered by the sun and stored in batteries. It is currently one of the critical, high potential solutions to provide clean energy for millions of people around the world who lack access to electricity.
Yet off-grid solar ventures — particularly when working in frontier markets, where such energy solutions are needed most — lack sufficient access to debt capital (versus equity) to fund growth, due to perceived risk by traditional lenders. Financial intermediaries, like SunFunder, have grown to fill this gap by providing specialized debt financing to companies in these frontier markets. In this report, SunFunder discusses the role that blended finance, and particularly catalytic capital, has played over the years in scaling impact— and growing the market.
Catalytic Capital Examples from the Report
In mid-2015, SunFunder launched a three-year note, but could not provide the first-loss capital on its own. The DOEN Foundation stepped in to invest $500,000 in the higher-interest bearing junior layer alongside a smaller HNI investment. This risk protection enabled Calvert Impact Capital to make a $2 million senior investment. The increase in size meant disbursements could now include a larger lending facility for d.light, one of the largest off-grid energy providers, and the first pay-as-you-go solar receivables financing through SunFunder’s structured asset finance instrument (SAFI) with SolarNow.
In 2016, Facebook provided SunFunder with an investment-like grant, intended to be recycled permanently into future funds as a risk- mitigation instrument when the existing fund dissolved. This funding unlocked 27 investors made up of HNIs, impact investors and a foundation, which in turn enabled The Packard Foundation to make a $3.5m senior commitment.
Facebook, along with the Rockefeller Foundation, provided first-loss “junior” capital for SunFunder’s $47 million “Beyond the Grid” fund, its largest to date. That fund includes OPIC as well as Dutch and Belgian development-finance institutions, Baldwin Brothers and MCE Social Capital. SunFunder’s report says the first-loss capital from Facebook and Rockefeller helped bring in 11 times the investment in additional capital.
Note: The Impact Alpha article on this case study can be accessed at the link below. As of May 2018, Impact Alpha allows readers to access a certain number of articles free each month. After that quota is met, readers are required to subscribe to read further.