The power infrastructure development of the African continent is progressing at a brisk pace. It is a huge project with thousands of opportunities, but too many difficulties finding funding, say the founders of ecoligo – two young Germans with over 20 years’ experience in solar power between them. Markus Schwaninger, the financial half of this two-man founder team, explains the business model he devised with his engineer partner, Martin Baart.
We are seeing large numbers of solar farms being set up in Africa. Is the sector really short of capital?
It all depends on the size of the project. On one hand, very small systems designed for homes, craftsmen, small public buildings (such as schools) and so on are relatively well catered for by associations and micro-credit companies. And on the other hand, very large projects worth millions of euros are handled by development banks and African and/or international institutions. But between the two, there is barely anyone to provide finance.
These projects concern local companies in the commercial and industrial sectors and would boost their business by lowering energy costs. Consequently, the demand is there – along with the financial returns – and a financing solution is necessary.
Why does this gap in the coverage exist?
It’s very simple: whether a project is big or small, it generates fixed transaction costs that can’t be reduced, such as technical studies, financial analyses, risk appraisals, the search for economic and operational partners and drawing up contracts. As a consequence, it is only logical for financial stakeholders to give precedence to bigger projects.
How do you overcome these costs?
Firstly, by handling these preliminary tasks internally wherever possible and managing the operation of the solar power plants ourselves: only the technical aspects (installation and maintenance) are contracted out to local companies. Then, by digitalising all of our processes as far as possible – for example the identification and scoring of projects on the ground, sales proposals and financial projections. And lastly by limiting the middlemen – and hence margin stacking – particularly by funding the projects directly through our own crowdinvesting platform. As we manage the major parts of the project value chain, our margin is also much higher than the margin that a pure financier has in a project.
And does it work?
Even better than we expected: our crowdinvestors invest an average of €2,300 in a project, which is four times more than rival, non-specialised platforms. Our first two projects (€107,000 and €153,000) were wrapped up in six and fourteen days, with an interest rate of over 5% p.a. for five years. We’re confident for the next ones and are aiming for about 10 projects a year in the short term.
Will you have to raise funds even so?
For ecoligo, we have already completed a first round with InnoEnergy in mid-2016, which was an enormous help with setting up and launching our platform. We recently closed a second, larger-scale round. The next financing round will be used to expand to further markets and scale the business.
One next step is also to open our project financing platform to institutional investors. As soon as we have enough data from our projects, we aim to get institutional investors involved. By bundling projects, we can achieve the ticket sizes that they are interested in.
If you want to make investments that matter or would like to explore opportunities to partner with us in emerging markets, get in touch with us.
ecoligo in brief:
ecoligo is a solar utility that provides low-cost solar energy to businesses in emerging markets. By financing the solar systems through our crowdinvesting platform, ecoligo closes the finance gap that prevents these projects from being realised. Investments on the ecoligo platform not only provide attractive returns, but save CO2 and support the local economy. Find out more at ecoligo.com
Company kick-off: October 2015 with Climate KIC Stage 1
Company founded: February 2016
Financed projects (as of June 2017): 2 in Kenya: 66 kWp/ €107,000 financed and 132 kWp / €153,000. The equipment is currently being shipped and construction of the projects will begin soon.