First securitization deal for off-grid solar in Africa
David ten Kroode
At the end of 2015, Oikocredit and BBOXX, a British-based solar energy provider, announced that they had teamed up to fund the distribution and financing of solar technology for low-income households in Kenya.
In the off-grid solar industry, this is the first time that securitization has been used to finance solar home systems in Africa.
According to the International Energy Agency, an estimated 1.2 billion people across the world have no access to electricity, relying on expensive and unsafe methods of lighting such as candles, diesel generators and kerosene lamps. Kerosene lamps in particular emit toxic fumes and have a reputation for causing accidental fires resulting in severe burns and even deaths.
Off-grid solar systems offer a reliable and efficient alternative source of energy. Solar home systems also provide good indoor lighting which is essential for running a small business and enabling school-age children to do their homework in the evening.
Growing demand in a growing sector
The demand for off-grid technology is high as more people in developing countries can afford to move up the energy ladder. The off-grid solar sector itself has grown rapidly in recent years as cheaper and more efficient solar products become available and new payment systems allow customers to pay for the products in instalments by using their mobile phone.
Despite the pace of growth, the sector has encountered difficulties in attracting sufficient investments to finance what is perceived as a risky business model, involving relatively new technology, doing business in developing countries and clients with little or no credit history.
Securitization can scale up much needed investment
Securitization addresses these issues and paves the way for more investment in the sector. David ten Kroode, renewable energy manager at Oikocredit, explained: “We are proud to be part of this innovative way of financing where we lend money on the basis of future receivables from solar home system contracts. By demonstrating how this can work, we are paving the way for other lenders to scale up the much needed investments in this early-stage growth sector.”
The securitization structure was created by setting up a special purpose vehicle: a company called BBOXX DEARs. It bundles the contracts of BBOXX customers who have bought solar home systems which are paid off in instalments. BBOXX DEARs then issues notes and sells them to Oikocredit. The value of the notes is based on future receivables on the customers’ contracts.
The sale of these contracts provides BBOXX with capital to supply approximately 1,200 new solar home systems to households with limited or no access to grid electricity, benefitting an estimated 7,000 people.
In setting up this structure, Oikocredit and BBOXX were led by Persistent Energy Capital, a financial advisor specialized in the energy access sector in frontier markets.
"This is the only financial structure that can scale to billions," said Mansoor Hamayun, CEO of BBOXX, in an interview with the Huffington Post. "The fact that we can securitize the credit risk of the unbanked and, very soon, get rated, has us very excited. We now have a methodology to bring solar electricity to off-grid customers at a larger scale."
Set up in 2010 by three engineering graduates from Imperial College London, BBOXX was created to provide a sustainable, environmentally responsible solution to the problems faced by communities and businesses throughout Africa due to unreliable electrical supply. BBOXX designs, manufactures, finances and distributes innovative solar home systems to communities in developing countries.
Since 2010, the firm has sold 55,000 solar kits and impacted 275,000 lives across 35 countries. BBOXX employs 160 people, with the majority based across its core regions of Kenya and Rwanda, helping to sell, install and maintain the systems.