Even with all its potential, the off-grid cleantech sector suffers from an acute lack of finance. Money is the main barrier to moving 1.3 billion people around the world from darkness to light.
Entrepreneurs have responded by repeatedly demanding $500 million in finance to catalyze the sector. However, some multilaterals have been reluctant to join the effort, thus leaving a yawning chasm between capital needs and capital flows.
Luckily, entrepreneurs are starting to fill this gap. One of the first to step up is Village Infrastructure Angels (VIA).
VIA is perhaps the world's only angel investment group solely focused on emerging market micro/village infrastructure. Its business model is predicated on the notion that finance, particularly consumer finance, is the key to unlocking this market.
As VIA co-founder Stewart Craine put it: "I firmly believe that everything -- technology, field partners, knowledge -- is in place to deliver clean energy for all. Everything that is, except investor appetite for the risk of consumer lending."
VIA's strategy for addressing the challenge is pretty simple: mobilize the money sitting in every potential "angel's" pocket and put it to work. The organization's founders believe that anyone can be an angel investor -- and therefore a participant in alleviating energy poverty.
Judging by experience, they may be right. VIA has organized angel investors from all walks of life, including retirees and investors with deep experience in the space. They've also had some strong institutional supporters such as the Rotary Club and the International Renewable Energy Agency, plus early support for technical assistance from multilaterals such as the World Bank and the Asian Development Bank.
VIA puts angels' money to work as a project developer organizing projects, while providing one- to three-year loans. Their model enables them to take all the risk while asking field partners to deliver the product/service to villages. That expands the payback horizon, making clean energy radically affordable for poor populations around the world.
The organization's financing is unlocked by initial risk guarantees that cover cases of default. That offers an attractive, low risk option for investors looking to use their money to reduce energy poverty while earning a return. Given the relatively short payback periods enabled by long-term financing, investors can expect to see returns within six months to one year.
But simple it may sound, getting long-term finance secured for these markets was anything but easy. The key for VIA was mobilizing debt and risk guarantees -- something multilaterals like the IFC and World Bank should be providing today.
Craine believes that over time, these risk guarantees can drop away, but they are the most important form of missing finance right now.
"Put those guarantees in place, and the debt will come faster, which means scale will come faster, which means equity will follow. This is how we solve energy poverty," he said.
Securing the money is one thing; investing it appropriately is another. VIA's approach to the latter is also unique. Rather than act as "micro-VCs," the organization places a priority on securing shares in field projects, not companies. That means it is a mini version of the World Bank, trying to increase the amount of project finance available to entrepreneurs.
VIA invests this way due to the belief that long-term cheap debt is what will ultimately unlock this market. "Equity is just the oil that lubricates the engine. What we really need is gas in the tank -- 'venture debt' to provide project finance and long-term scale," said Craine.
VIA also takes on a number of technical assistance projects to help jumpstart the industry while paying the bills. Much of that work is based on Craine's decades of expertise in the field. Perhaps the most exciting is a campaign to map all off-grid households in the world so the industry can better plan how it's going to reach everyone.
While it has yet to unlock finance from the multilateral banks, VIA's founders believe their studies and tools will help mobilize investment from these institutions in the next year or two. But this market, and the billion-plus people living in the dark today, simply can't wait. That means filling the gap by forging ahead and investing in projects immediately, which is exactly why VIA was formed.
Justin Guay leads Sierra Club's international program.