South Africa has one of the highest solar indexes in the world, just behind the Mojave Desert in the US and neighbouring country Namibia. Yet while SA has perfect conditions to embrace clean solar energy, current uptake is not as fast as it could be.
The reason, says James Irons, CEO and co-founder of SolarAfrica, is limited access to finance. “The technology is in place, the increase in adoption in Europe and US has caused a decrease in the cost of solar panels, and adoption in SA has moved beyond boutique and into the mainstream. However, the cost of a new system is sometimes beyond the reach of the average small business or household. Finance options to either rent or buy a system are limited.”
However SolarAfrica develops and owns solar systems on behalf of its customers, making its business complementary to many players in the solar industry.
Where finance is available, it is development or infrastructure finance that is being deployed into large scale Renewable Energy Independent Power Producer Procurement (REIPPP) projects, which deliver a better return on effort. “The financing of smaller projects has lagged and this constrains growth of the industry – the contractors, suppliers and installers that currently sell and install solar panels,” he says.
The deal sees Inspired Evolution invest R100 million in equity finance into a special purpose vehicle (SPV) created by SolarAfrica that will be used to provide funding to long-term commercial and industrial solar photovoltaic (PV) customers. The deal will see Inspired Evolution owning just over 50% of the SPV – known as Commercial Energy SA – with SolarAfrica owning the balance. Another R300-R400 million of debt finance will be raised from two to three banks to create a R500 million fund.
“Until this, we financed such deals off our balance sheet or via Section 12J funds,” says Irons. “Both of these options provide limited scope for growth. Having Inspired Evolution as our funding partner in this growing market adds value to Commercial Energy SA as a financing platform under SolarAfrica. It will allow us to expand our digital credit portal with more aggressive acquisitions of solar PV rooftop projects, as well as launch in other maturing markets.”
While Irons is unwilling to divulge details on the commercial terms of the deal, he says the cost of funding is competitive and will enable Commercial Energy to match the cost of power of large scale projects. “This is remarkable if you think about the economies of scale,” he says.
For Inspired Evolution it also marks a new type of deal. “We have been evaluating the commercial and industrial market over the last three to four years and concluded on the merits of establishing an affordable, credit-worthy financing platform as the best point of entry for our Evolution II Fund,” says Christopher Clarke, managing partner.
“This way, we offer an independent financing portal that crowds-in system integrators and contractors that can secure long-term finance for their projects to benefit underlying private business customers.”