Investment in commercial and industrial (C&I) solar seems to be holding up in Africa as the COVID-19 pandemic dents investor confidence across the continent, insiders have said.
The Sun Exchange, a South African peer-to-peer solar leasing platform, has had its busiest period ever during the “peak pandemic” period from February to May this year, said Abraham Cambridge, founder and CEO.
The company, which is four years old, completed 11 of its cumulative 31 C&I solar installations this year, he said. “This time last year we had just started our seventh solar project,” he told GTM.
The rapid growth of the platform, which allows individuals worldwide to purchase solar arrays that are leased out to community buildings in South Africa, attracted $4 million in Series A funding in a round that ended this month.
Zahid Hassen, director of the Africa Renewable Power Fund at London, U.K.-based Arch Emerging Markets Partners, which contributed $3 million to the round, said that despite the prospect of a downturn, “investors are acutely aware that the cleantech sector offers significant opportunities.”
Off-grid and C&I solar in particular are still seeing strong interest because deals don't always require in-person meetings, he said.
“From project development and deal execution perspectives, the coronavirus is having a greater impact on on-grid investments, as these types of projects rely more heavily on face-to-face engagement with project counterparties,” Hassen said.
Arch is focusing more on off-grid and C&I investments during the pandemic, he added.
Funding models determining COVID-19 solar fortunes
Jay Naidoo, CEO of the South African solar installer IMPower, said platforms such as The Sun Exchange had helped counteract a fall in installations from local companies facing COVID-19-related financial difficulties.
“We have lost a fair amount of orders, which has been directly attributable to the coronavirus lockdowns,” he explained. “However, most of our canceled orders have been for our capex-based solutions. Interest in the zero-cost model, which Sun Exchange provides, has actually increased.”
The outlook for renewable energy investments in Africa contrasts with the prospects for growth in other sectors across the continent. According to a report by AfricArena, a technology ecosystem accelerator, tech investments are set to fall significantly across Africa this year.
The firm estimates money flowing into African technology startups could drop from $2 billion in 2019 to between $1.8 billion and $1.2 billion this year. AfricArena’s most pessimistic scenario does not see technology investments returning to 2019 levels until 2022.
Cambridge said investors are likely to see African C&I solar projects as both a worthy investment and a safe bet at a time of extreme market volatility. The Sun Exchange installs solar panels on buildings such as hospices, retirement homes and veterinary hospitals.
“These are the kind of organizations that are going to feel the pain even more in a post-COVID world, so the energy savings we’re getting for them are more important than ever,” Cambridge said. “And these are also operations that will carry on. These things are there to stay.”
On The Sun Exchange, investors can achieve an internal rate of return of between 10 percent and 12 percent, which roughly equates to a 5 percent annual percentage rate taking the devaluation of the South African rand into account, Cambridge said.
The organizations benefiting from the solar installations, meanwhile, can typically meet around 40 percent of their energy needs through solar, which can equate to double-digit-percentage savings on their electricity tariffs. The Sun Exchange targets a minimum 20 percent saving on most installations.
Based on market intelligence from BloombergNEF and GreenCape, The Sun Exchange estimates the C&I solar market in sub-Saharan Africa could be worth more than $7 billion between 2019 and 2024.
This segment remains an attractive one for investors, in contrast to the situation in more developed markets such as the U.S., where distributed solar is expected to be the hardest-hit part of the industry as the coronavirus crisis unfolds.
Meanwhile, in Africa, where availability of institutional debt financing was already spurring the development of solar plants by C&I building owners, programs that give external investors a chance to lease rooftops are expected to grow.
“Tough economic conditions, continually decreasing costs of solar, increased utility energy costs and a growing understanding of the solar industry by the C&I market has resulted in an increased willingness to enter into long-term energy agreements,” said Naidoo.
“Post-coronavirus economic conditions have only further promoted the appeal of Sun Exchange’s zero-capex lease solution.”