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Encourage Capital raises $40 million to help India’s small businesses switch to solar

ImpactAlpha, June 27 – The Indian government wants to have have 100-gigawatts of solar energy capacity up and running by 2022. It’s about a quarter of the way there.

Encourage Capital is working to unlock an under-tapped segment of the market through a new fund that will capitalize commercial rooftop solar. The New York-based impact investment firm reached a $40 million first close for its Encourage Solar Finance equity fund, to invest in financial institutions in India that provide loans to small businesses for rooftop solar installations. Encourage hopes to raise up to $100 million.

“There is a lot of capital deployment happening for larger customers and projects, but it is only going to high credit customers. The mass market is small and mid-sized businesses, which pay very high power prices and face a real gap in financing to invest in clean energy solutions,” Encourage’s Ameya Bijoor told ImpactAlpha.

Encourage commissioned an independent study, which found that commercial rooftop solar is a 15-gigawatt, $9 billion market opportunity in India. So far, only 3.5-gigawatts of rooftop solar has been installed.

Encourage’s goal with its fund is to provide lenders with growth capital that they can leverage to raise debt and expand their lending activities. It aims to make three to five investments in lenders providing solar financing for systems ranging from 20-kilowatts to 250-kilowatts.

The firm has developed a set of technical standards that it expects its portfolio companies to enforce through its lending practices. This includes working from an approved list of both equipment and solar installers. “We want to make sure that the projects that get financed are high quality,” Bijoor explained.

Encourage is looking to achieve market-rate returns for its investors, while achieving several environmental impact metrics. The firm will track new capacity financed and small business customers reached, to ensure that smaller projects receive adequate lender attention. A portion of its carried interest—the profits Encourage itself earns on its investments—is tied to achieving its impact targets.

Encourage launched in 2014 and has focused its Indian portfolio on financial services. Bijoor explained that the firm’s decision to launch a fund for commercial rooftop solar evolved from its experience and familiarity with India’s small business financing gaps.

German development finance institution KfW, Capricorn Investment Group, the MacArthur Foundation, the Grantham Environment Trust and the Sant Foundation backed the fund. 

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