CrossBoundary Energy (CBE) today announced the exit of its first fund at a 15% net IRR to investors. ARCH Emerging…
plan for achieving universal electricity access nation wide by 2025.
GOGLA’s deals database reveals that, as of August 31, 2020, US$200 million of commitments have been tracked for the year. The forecast for the year end is $275m, just shy of the 2019 haul. A large chunk of funds has gone to the brand leaders, though more than 60 companies have also closed deals so far this year. Some 30 plus investors have made a commitment in 2020, and 75% of industry investors say their activity will stay the same or increase, thanks to strong financial performance and social impacts.
This despite a crisis that has sent shockwaves through the global economy and presented challenges and heightened risks for off-grid solar markets. GOGLA believes the industry is proving resolute and gets recognition for the value it creates – as investors are relaxing existing terms in cases of need and continue to review funding requests and close deals.
While the headlines portray a surprisingly healthy development for the year, it’s important to note there are signs of underlying concerns which need to be addressed if the industry is to grow and deliver its part in achieving the sustainable development goals. These are explored in the latest Off-Grid Solar Investment Trends report just released by GOGLA and Catalyst Off-Grid Advisors supported by GET.invest. The main findings show:
At first glance, the 2020 financing trends paint a less gloomy picture than one would expect. Commitments were robust for the January-August period, and our report forecasts that total funding raised this year will likely be relatively close to the 2019 figure. Globally, venture capital has remained relatively buoyant, seeing only 6 percent decline when comparing H1 2020 to H1 2019. The GOGLA deals database shows that the off-grid sector has shown even greater resilience with only a 4.6 percent decline. However, concern about future trends in venture capital remains as the effects of COVID-19 on investments may still be felt at a later stage.
Unsurprisingly given the ongoing COVID-19 pandemic, 2020 shows a significant tapering in equity commitments. This echoes global trends where many industries have witnessed a contraction in equity markets as investors prefer to wait to see what the longer-term impacts will be. However, the debt haul is strong, with big legacy deals still coming through from 2019 and crowdfunding refinance telling an intriguing story. In addition, grant funding appears strong, though this is largely from a single donor and allocated pre-COVID. Although there has been a notable lack of grant funds coming online to provide relief to segments of the sector most in need.
75 percent of all commitments in 2020 went to the Top 3 recipients of the year. At the same time, the number of companies receiving at least one investment has increased to 62 in 2020 and the mean investment size has decreased to USD1.6 million. This is both a positive sign for the largest companies who are still attracting significant finance and a positive sign for young and small companies who are gaining smaller catalytic funds.
75 percent of survey respondents anticipate maintaining or increasing their level of investment into off-grid solar over the course of 2020. Less than 30% thought they would reduce activity in the industry, while over 40% thought they would actually invest more. Investors in the sector indicated that their investments were meeting both financial and impact expectations prior to the arrival of the COVID-19 pandemic. They also remain optimistic about the growth potential of the market, with 74 percent of them describing its stage as “about to take off” or “growing steadily”.
The investment data research is part of a bigger package of research that GOGLA has been working on with partners to gather evidence on the impact of COVID-19 for off-grid solar consumers and companies. Among others, this revealed that 86% of Off-Grid customers’ financial situation has worsened since the start of the crisis and more than half state their payments are either somewhat of, or a heavy, burden. Almost all off-grid solar companies have also experienced significant operational and liquidity disruptions due to COVID-19. Many companies continue to struggle or even still fear for their survival, putting the progress towards SDG7 and related SDGs at risk.
Yet, at the same time, many stories of solidarity across the off-grid solar industry are coming to light: Private, public and civil society organizations have been joining efforts to look for ways to bolster liquidity, keep companies active and staff in jobs, and strengthen their ability to meet the needs of consumers. We see these efforts materializing in initiatives such as the Energy Access Relief Fund and African Development Bank’s Covid-19 Off-Grid Recovery Platform, both soon to start providing concessionary loans to support companies that are struggling through the pandemic. These funds are critical to enabling companies to continue reaching and serving energy-poor households and to help de-risk and crowd-in additional investment. They also provide strong foundations for more collaborative initiatives in the years ahead that will be vital for achieving energy access goals.
The industry has proven its financial and operational resilience and outperformed comparable sectors through the current adversity. We know off-grid solar products transform lives, help build economies, and protect the climate and environment. It is time to build on the innovation and action catalyzed by the pandemic to drive more investment into the sector – so it can be an even greater force for recovery and impact.