The good news: Africa is attracting a record amount of capital for clean energy development. The bad: Funding for fossil fuel projects is nearly double the funding for clean energy on the continent.
To pull more commercial investors into solar energy development, Nairobi-based CrossBoundary Energy is setting up a portfolio of commercial and industrial rooftop solar projects that allow banks, corporate backers and investment funds to diversify their risk.
“We’ve always seen this as a portfolio-level financing opportunity,” CrossBoundary Energy’s Pieter Joubert tells ImpactAlpha. Utility-scale projects, by comparison, have “commercial funders or development financial institutions participate on a project-finance level” – or one project at a time.
The firm last week secured $140 million in senior debt from South Africa’s Standard Bank. The financing is part of a $300 million package to support CrossBoundary Energy’s commercial and industrial, or C&I portfolio, which provide on-site solar power to businesses. Such projects are larger and less risky than small-scale home solar, but still far smaller than a utility-scale development.
“Giving a funder the ability to lend against a diversified portfolio,” says Joubert, “is a really helpful structure for the lender to consider.”
C&I surge
CrossBoundary got its start in 2011 using blended finance to usher capital to sustainable investment opportunities in Africa. In 2015 it launched its first energy-focused fund, leveraging a $1.3 million grant from USAID to attract more than $10 million in private capital for commercial and industrial projects on the continent. It sold the fund to ARCH Emerging Markets Partners in 2021, giving its investors a full exit and a 15% return.
In CrossBoundary Energy’s six years operating the fund, Africa’s C&I solar sector grew more than 15-fold. Now, the majority of Africa’s new solar capacity is coming from commercial and industrial contracts.
Still, most projects are one-offs, with businesses buying and installing the systems directly. It’s similar to how residential users acquire home solar systems, just on a larger scale. That’s made it hard for investors to get comfortable with the sector.
CrossBoundary Energy’s approach is to effectively become the energy provider to businesses: it sets up and manages the rooftop solar sites, and companies pay CrossBoundary for providing the power, rather than becoming owners of their own solar systems.
The company has a portfolio of 330 megawatts of solar assets stretched across commercial properties in 18 countries in Africa. Its clients include Rio Tinto, Unilever and Heineken, most of whom seek independent renewable energy to lower costs and/or to have more stable power supplies.
“We’re allowing them to access immediate savings with no upfront investment,” Joubert says.
A growing number of its clients are looking to expand their renewable energy capabilities. One in Madagascar, for example, wants to add on-site wind turbines, says Joubert. CrossBoundary energy also operates a 178-megawatt-hour battery storage portfolio and hybrid mini-grids.
Rooting out returns
That demand, along with its almost decade-long track record in Africa’s C&I sector, is bringing more African and European commercial lenders to the table. Another factor: fewer opportunities for competitive returns in utility-scale solar.
“Over the last 10 years, utility scale projects attracted a lot of interest from commercial funders and development finance institutions, but that market has become more saturated,”Joubert says. “That’s been a driver of increasing interest in the C&I sector. Some of our projects are still quite sizable, and there’s opportunity for these institutions to employ meaningful amounts of capital.”
Banks and other commercial lenders are also signing on to residential solar deals where they can cut large checks: early pay-as-you-go solar players like Sun King and d.light have been able to raise hundreds of millions of dollars in debt by securitizing cash flows from their unit sales.
Blended-finance models like CrossBoundary Energy’s early C&I fund will be critical for Africa to both achieve universal energy access and to decarbonize its grids and broader energy sector. For those goals, the International Energy Agency estimates $28 billion in concessional and catalytic capital is needed each year in Africa to mobilize $90 billion in private energy financing.
“There is always going to be a role – certainly for blended finance or for some special financing – in helping de-risk what are perceived as the more complex and risky areas of the energy sector,” says Joubert.
