Energise Africa is a unique impact investing platform that enables everyday people (retail investors) to invest in renewable energy companies operating in Sub-Saharan Africa. Retail investors provide these companies with access to vital working capital, that isn’t currently available from traditional lenders, so they can provide Pay-as-you-go solar power to customers that wouldn’t otherwise be able to afford it.
To date, Energise Africa has mobilised 29 million pounds in investment from a mix of over 4,000 UK-based individual investors and governments and foundations, including UKAID, Good Energies Foundation, and Partnerships for Green Growth (P4G). These institutional funders provide concessional funding that is (and will be) blended in a number of ways, including partial guarantees, currency hedging and subordinated debt – this innovative blending makes the products Energise Africa offers its investees more attractive in terms of the ticket size, the flexible and affordable nature of the finance that they can get, and the currency that they can get it in.
We spoke to Lisa Ashford, CEO of Energise Africa, about the potential of retail investors in blended finance, how they navigate FX risk, measure impact, and much more.
Can you describe blended finance transactions or products that Energise Africa has been involved in?
The first example I’d look at includes funding that UKAID has provided. What we did as part of the approach was look at first loss and match funding predominantly going into individual investment campaigns of between 10 and 50% of the total campaign size. We considered how this could have a leveraging effect in terms of crowding in additional investment form retail investors.
In particular one of the businesses that we chose match funding for is Sollatek, who are based in Kenya. Sollatek tend to install bigger solar systems for schools and clinics. So we took an experimental approach to work out the optimal way to add the match funding . For example we tested adding the match funding on an incremental basis as individual investments are made and adding it in at specific times – start/middle/end to drive campaigns forward to their target before the campaign close. We worked with Energy for Impact looking at the data from these campaigns to see how we could make maximum impact with the matchfunding.
This process demonstrated to solar businesses that crowd investment can be used with confidence and that they can have certainty that the working capital they need can be delivered within the right timeframes. Using this approach of blending institutional and retail investment has proved to businesses that this type finance is a very legitimate part of their overall financing mix.
The other example is where we created a guarantee for new investors with support from the Good Energies Foundation. We now guarantee capital for first investments up to 100 pounds. This means that in the situation that an investee is not able to make repayments and goes into default, then a pool of capital that has been set aside specifically for this purpose will be utilised to make the repayment to each new investor up to £100. We found that this investor guarantee really gave people the confidence to take that first step and invest. As a result of this success, Transforming Energy Access (a program run by UKAID and their Crowd Power Programme) helped the roll out of this scheme across other platforms. For us it was great to see that the guarantee had an impact and that other providers could replicate it and provide other retail investors across different markets in Europe with the confidence to start investing in similar schemes.
How does Energise Africa measure the impact of its blended finance activities?
From a blended finance perspective, we’re looking at the leverage rate, what money are we deploying from public and philanthropic sources and what is that bringing in. At the moment we have a leverage rate of around 1 to 6, so for every pound we’re spending of public funds, we’re raising an additional 6 pounds from the crowd. The other metric we look at is our ability to revolve that money over a given period. So how many times can the public money be recycled over and over again.
Of course we also look at impact on the ground, such as how many people have gained access to clean energy (850,000 people since we started in 2017). We also look at household income, because access to energy is associated with increases in productivity as well as the ability to set up small businesses, and we’ve estimated that as a result of clean energy access additional household incomes increased by 22 million dollars. We also look at how many smallholders and MSMEs have benefitted (~8000) and tonnes of CO2 mitigated (~180,000 tonnes annually). Finally, we look at our ability to lend to organisations, the number of organisations we’ve lent to, and the geographical spread of the investees - in the number of different countries where we have managed to provide finance.
How do you see Energise Africa’s blended finance activities evolving in the future?
We want to expand what we’re doing beyond Sub-Saharan Africa and to other sectors, and to do that we’ll of course need blended finance. Now that we’ve shown how this model really works and is underpinning growth in the solar sector, we want to replicate it and apply it to new sustainable sectors and new geographies.
We also really want to scale up the amount of financing coming from retail investors – people powered finance. There is appetite among retail investors across the UK and Europe, and if every UK and EU retail investor increased their investment into SDG and climate-focused investments by 1.7%, we would be able to bridge the SDG funding gap, so the potential to scale is huge.
So, our plans over the next five years are ambitious, but achievable, especially since one of the big missing pieces to blended finance is obviously deploying high impact, high risk capital on the ground, and that’s where we’re seeing our value add, working with our local networks to really get that capital deployed in quite a granular way.
How does Energise Africa navigate FX risks?
We are working with the Currency Exchange Fund (TCX) to mitigate FX risk, we’ve actually worked with them through Lendahand (our joint venture partner) to deploy the first local currency blending for the Cedi (Ghanaian currency). TCX is also a great example of blended finance, because they use another government source to underwrite the kind of risk associated with that FX hedging.
In addition, with support from Good Energies Foundation, we are also looking to launch our first fully hedged US dollar transaction this year, where, because of Good Energies’ involvement, there’s no FX risk to the borrower and there’s no FX risk to the retail investor. We’re undertaking this transaction because US dollar lending is often critical in certain sectors, such as clean energy.
What gaps and opportunities do you see in the blended finance market?
What we want to see is donors being more flexible about the different kind of mechanisms that can be deployed from a blended finance perspective, such as partial guarantees or setting up a credit default pool, or looking at retail investors as a really legitimate and scalable solution. From a UK context, charities and philanthropics also sometimes struggle with the idea of an organisation that they’re involved in not being a charity or NGO, but profit for purpose organisations such as ours can be instrumental in scaling sustainable solutions to the SDGs. So again, what we want to see is donors being pragmatic and looking at what’s needed and trying to be flexible around their approach, especially when it comes to blended finance.