A new funding model is promising to make it easier to develop commercial and industrial (C&I) solar projects in Africa. US and Nairobi-based CrossBoundary Energy has recently launched a fund that uses a novel ‘power-purchase agreement (PPA) in a box’ model to overcome some of the challenges that have prevented wider uptake of solar among African C&I customers.
“Our view is that financing was the major barrier to adoption of C&I solar in Africa,” managing partner Jake Cusack told Solarplaza. “Without financing the default option is upfront purchase by the commercial customer, sometimes using bank debt.”
So far, though, C&I firms have rarely taken this route because they “would rather invest in revenue-generating expansion than in cost savings, didn’t have enough money to invest and didn’t trust solar enough to spend a large amount on it.”
In response to these challenges, CrossBoundary Energy raised USD$8 million in equity last December and is looking to use it for C&I solar project financing through a platform called SolarAfrica. Under SolarAfrica, CrossBoundary will build projects after securing PPAs with C&I off-takers. NVI Energy, a partner in SolarAfrica platform, will provide technical oversight and asset management services.
For African C&I customers, “our view is that PPA based funding is generally the best option,” said Cusack, whose associate Matt Tilleard will be speaking at Solar Finance Solutions Africa 2016 in Johannesburg, South Africa, on April 6 and 7.
“For large, established businesses that can access bank debt on very cheap terms and are comfortable taking the long-term risk on technical implementation and performance, buying upfront can make sense,” Cusack said. “However, even then there is likely to be other uses for that capital that would provide a higher return to the business.”
In contrast, he noted: “A long-term investment in solar infrastructure produces a consistent low level of return that is attractive to our investors but would rarely be an ideal capital use for the average business in Africa.”
CrossBoundary’s fully financed PPA in a box allows installers and developers to offer 10-to-25-year PPAs and leases to potential C&I clients, so heavy energy users can benefit from low-cost solar without having to make upfront purchases of plant.
As a result, said Cusack: “We believe our financing is the missing piece of the puzzle for commercial and industrial solar adoption. We expect to see a rapid increase in C&I PPAs in the next two years, and also many solutions integrating storage. We already have one of the largest solar-battery solutions in Sub-Saharan Africa under construction for a luxury safari lodge, on a PPA basis,” he said.