Unlocking Capital for Emerging Market Solar

SunFunder is a solar finance business based in San Francisco and Tanzania with a mission to unlock capital for solar energy in emerging markets. This is where we share insights about our work and beyond the grid solar sector.

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SunFunder reaches first close of the $50m Beyond The Grid Solar Fund

We are delighted to announce the first close of our new $50 million Beyond The Grid Solar Fund, which marks a new and exciting chapter for SunFunder.

We’re grateful to our first close partners, which includes a step change in our relationship with institutional investors. The first close amounted to $21 million and is backed by the Overseas Private Investment Corporation (OPIC), MCE Social Capital and The Rockefeller Foundation. We’re thrilled to be working with them all. Elizabeth Littlefield, OPIC’s President and CEO, commented that, “OPIC is proud to partner with SunFunder in delivering innovative financing solutions for off-grid and grid-deficit solar energy in developing countries.”

The new fund dramatically increases the size and range of our debt finance offerings for solar in Africa, Asia and other emerging markets. It takes SunFunder into a new trajectory, as we position ourselves at the forefront of the opportunity to mobilize hundreds of millions, and then billions, of dollars for high impact solar in the coming years.

In a sense, we are moving in lock-step with the market. Solar has proven itself to be a no-brainer for delivering scalable energy access and reliable power in many parts of the world, while costs continue to fall. Our customers - the solar entrepreneurs deploying solar products and projects - are expanding, both in terms of size and geography and in the sophistication of the appliances and services they can offer alongside solar. They need increasingly more debt financing as they sell more pay-as-you-go solar home systems, distribute more solar lanterns, and develop commercial and industrial scale solar projects to power businesses as well as households.

We’ll start deploying the fund immediately for our pipeline of solar projects and businesses needing debt finance to scale. We’ll also be expanding some of our new financial products for the sector, such as SAFI (our structured receivables finance solution for pay-as-you-go solar companies), and moving into commercial-scale project financings.

We look forward to working with all of you across the sector to finance the solar revolution that’s already benefitting the 1.2 billion people in developing countries without access to electricity, and the further billion with only unreliable access.

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Our Evolution From Crowdfunding to Raising Solar Notes

Crowdfunding is what started it all. With the amazing support of our community of crowdfunders, SunFunder has been able to prove that solar works for solving energy poverty. Now, as we scale our solar finance solutions with institutional investors, we are retiring our crowdfunding operations. 

SunFunder’s crowdfunders have been an integral part of our journey from the very beginning. With you, we formed an incredible community that launched our mission and paved the way to unlocking greater amounts of capital for solar in emerging markets. Without you, we would not be able to be where we are today: 78 loans totaling $12.9 million and closing our $50 million Beyond The Grid Solar Fund. We cannot thank you enough.

Why crowdfunding, to start

SunFunder was founded with one mission: to finance a global solar transformation to solve energy poverty and global warming. We remain 100% committed to this. In July 2012, SunFunder launched to the public with a $4,000 crowdfunded loan to help finance small solar lighting and cell phone charging products for 100 households in Palawan, Philippines. Since then our community of crowdfunders funded 21 loans totaling $437,500—a huge achievement. They have directly led to improved energy access for 119,500 people, and displaced 9.8m tons of CO2 equivalent emissions.

Crowdfunding allowed us to validate our business model and to create a track record for ourselves and our solar company customers. Our crowdfunders effectively spread the word about the positive benefits solar energy creates for low-income households that live off the grid in Africa and Asia. Media outlets such as The New York Times and The Economist picked up on our crowdfunding progress and amplified the story of off-grid solar to a broader global audience.

The evolution to Solar Notes

As the market grew, so did our goal: to invest $1 billion into off-grid solar around the world by 2020 and to show that off-grid solar can be a true commercial investment opportunity. And we soon realised that meant the long-term story of SunFunder would involve mobilising larger amounts of institutional finance, and the way to get there was to start working with accredited investors. That’s why in 2013 we piloted our Solar Notes, which provide accredited investors an opportunity to invest in a diversified portfolio of off-grid solar projects and earn a financial return.

By the end of 2014, we had funded 36 loans totaling $1.67m, of which $324,000 (19%) was crowdfunded. By then, the solar companies we work with were becoming more sophisticated and growing quickly.  As they scaled, their financing needs increased from 5-figure to 6 and 7-figure loans. Our experience showed that while we could raise up to $50,000 loans in a timely way through crowdfunding, it became difficult to meet our customers’ debt financing needs on time. We tried to mitigate the timing issue by introducing pre-investing, but for crowdfunding to truly fulfill our customers’ growing needs, we would need to use up significantly more resources.

Solar Notes, which we had proven by 2015 that they work, offered more flexibility and capacity  to more efficiently raise larger amounts of capital with limited resources.  The less resources we used for raising capital, the more resources we have for work directly tied to our mission: developing relationships with solar companies, doing risk assessment on them, and structuring, closing and monitoring loans.

As a startup, we have to make sure we focus our attention on what moves the needle the most. It took time for us to acknowledge that we had already reached a point where running two different types of fundraising side by side was no longer sustainable. The success of SunFunder’s work relies less on how we raise money and more on what we do with it. As the size of our loan portfolio expanded, so have our solar loan offerings, which now include structured finance (SAFI) for solar home systems and loans for larger, commercial installations.

With this evolution in mind, we came to the decision to retire crowdfunding despite the difficulty of having to end something that is dear to our hearts. We deeply thank you for all the support you’ve given us -- it will forever be appreciated.

The retirement process and getting repaid

You have the option to withdraw your account balance by September 30, 2016. Your account balance is calculated as the money that you have put in our projects over the lifetime of the crowdfunding platform (i.e. the total of all the credit card charges incurred on your account) minus the total amount that you have withdrawn. If you have funded one or more of the three crowdfunded loans that are still awaiting repayments (Light Up Homes with Little Sun, Solar for Clean Homes, and Light and Information Access for Sitapur District), your repayments will get accelerated and you will be fully repaid at the same time as everybody else. This also means if you have pre-invested money into Invest in the Next Project, your pre-investment will be paid back to you.

If you choose not to withdraw your account balance, we will donate 100% of your account balance to the non-profit organization Solar Sister.

To withdraw your account balance, please follow the instructions sent to you via email. If you have not yet received an email from us, please reach out to [email protected] and we will get you the proper instructions for account withdrawal. 

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SunFunder launches Structured Asset Finance Instrument (SAFI) with an initial $2M loan facility to SolarNow

We are announcing a new $2 million loan facility to SolarNow that marks the launch of SunFunder’s newest product, the Structured Asset Finance Instrument (SAFI). SAFI has been specially created by our team of structured finance experts to meet the needs of the off-grid solar residential market. 

SolarNow is a solar distributor in Uganda that makes solar affordable through a 24-month payment plan. This business model ensures that  they can make high quality solar be available to low income households, but it also turns the company into an extremely working capital intensive business due to the growing receivables. SAFI provides a replicable, flexible transaction structure to finance receivables for solar home system providers selling systems on credit. The initial $2 million SAFI facility is the fourth loan facility between SunFunder and SolarNow, a leading pay-as-you-go solar home system and electrical appliance provider in Uganda.

          A small business with a SolarNow system installed

SunFunder began lending to SolarNow in 2013 with small, crowdfunded inventory loans. Through these initial loans, SolarNow established a repayment track record that helped enable SunFunder to unlock capital from accredited investors for larger and longer-term loans needed to match SolarNow’s growing working capital needs. In 2015, SunFunder extended facilities totaling over $800,000 of loans to SolarNow. The new SAFI facility builds on SolarNow’s strong track record in sourcing high-quality customers and extending credit on appropriately sized solar home systems based on customers’ energy needs and their ability to repay. The facility will scale SolarNow’s capacity to build and service such customers with contract terms in the future and multiply the positive impact SolarNow can make in the region.

“The launch of SAFI marks a new chapter in our long-standing relationship with a top-quality solar company,” said Audrey Desiderato, SunFunder’s Co-Founder and Chief Operating Officer. “Our partnership with SolarNow has grown with our own evolution as a financier. Starting with small crowdfunded inventory loans, to larger working capital facilities funded through our Solar Empowerment Fund. The launch of SAFI, marks a next step in our relationship and aims to efficiently deliver scale. We are proud to announce this market-leading transaction with SolarNow and play an important role in their continued success in the market.”

“SunFunder has been a fantastic partner throughout this process,” said SolarNow’s Managing Director Willem Nolens. “With this financing in place, the board and management believe our business is now well placed to continue our growth in Uganda and beyond.”

          A family in Uganda enjoying solar powered electricity from SolarNow

SAFI draws on well-understood and internationally proven asset-finance concepts which have been consolidated and adapted to the off-grid solar sector. It is designed to be replicable to other solar providers across a wide range of developing markets and expandable in size by permitting additional investors to join a syndicate alongside SunFunder. This structure ensures that any of SunFunder’s loan facility with SAFI can match an operator’s growth profile over the long term on consistent and fair terms, allowing the operator to concentrate on growing their business. The availability of SAFI complements SunFunder’s recently announced OPIC-backed $50 million Beyond The Grid Solar Fund, which will allow SunFunder to provide greater debt capital to companies operating along the solar off-grid and grid-deficit value chain.

“Safi means ‘clean’ in Swahili. By utilising a bankruptcy-remote special purpose vehicle (SPV), with sensible and conservative covenants, both borrower and lender achieve good downside-protections within a simple, safi structure that delivers an easily understood and clear credit story for investors. The result is a high quality transaction structure that we hope can open the doors for a wide range of players in this market,” said David Battley, SunFunder’s Director of Structured Finance and lead designer of the SAFI facility.

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OPIC Approves $15 Million in SunFunder’s $50 Million “Beyond The Grid Solar Fund”

SunFunder’s goal is to finance $1 billion dollars into solar loans around the world by 2020 and to prove that emerging market solar is both a profitable and impactful sector.  To this end, OPIC signed a $15 million commitment to be an anchor investor in SunFunder's Beyond The Grid Solar Fund, which will allow SunFunder to provide greater debt capital to companies operating along the solar off-grid and grid-deficit value chain. For more information on OPIC’s investment, see the official press release.

Beyond The Grid Solar Fund will enable several million individuals in low-income communities to benefit from switching from kerosene to solar energy, reducing households and businesses’ expenditures on energy and significantly reducing CO2 emissions.  The fund will be open to other investors for the remainder of the year.

“Solar energy is the most viable solution to replace dirty and unreliable fossil fuel energy sources and to increase energy access for those who really need it,” said Ryan Levinson, SunFunder’s Founder and Chief Executive Officer. “To support solar’s growth in emerging markets, access to sector-specific financing is key. OPIC’s investment in SunFunder's Beyond The Grid Solar Fund will help expand our ability to respond to the financing gap that exists for off-grid and grid-deficit solar. Getting this kind of support and validation from OPIC will open up more opportunities not only for solar enterprises but also for investors worldwide.”

Since 2012, SunFunder has been in the business of providing working capital and structured loans to solar projects in emerging markets. Founded by Ryan Levinson, SunFunder started raising the capital for solar loans through a crowdfunding model which allowed individuals to make zero-interest loans to solar projects of their choice.  While SunFunder's crowdfunding platform drew in over $200,000 from more than 1,000 crowdfunders by 2014, as the financing needs of its solar borrowers expanded, SunFunder transitioned from crowdfunding to raising capital through private debt issuances.  To date, SunFunder has financed a total of $8.7 million of loans to 23 solar companies in 10 countries and increased energy access to more than half a million people - while maintaining 100% repayment rate to investors and a loan default rate below 1%.

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SunFunder raised $17 million in equity and debt in 2015 to finance solar energy beyond the grid

Debt investors include: Iberdrola, Deutsche Bank, Ceniarth, The David and Lucile Packard Foundation, Calvert Foundation, Treehouse Investments, DOEN Foundation, Arjuna Income and Impact Fund, Etho Capital and 29 individual accredited investors

Equity investors include: Treehouse Investments, Khosla Impact, Schneider Electric and Better Ventures

In 2015, SunFunder raised over $17 million in equity and debt capital for financing solar projects. Along with the other $131 million total equity investments in 2015 that have poured into the off-grid solar sector, SunFunder’s total investments send a strong signal that this sector is growing and has tremendous potential. One estimate puts this sector’s market opportunity at $12 billion annually by 2030.

Below we provide more information about our  equity and debt fundraising in 2015:

Equity

SunFunder raised $3.3 million in a Series B investment that closed in December 2015.

The round was led by Treehouse Investments and also included existing investors Khosla Impact, Schneider Electric, Better Ventures, Radicle Capital, and several angel investors. 

On why Treehouse Investments chose to invest in SunFunder, Director Raoul Slavin says, “Treehouse seeks to promote the efficient allocation of real capital to real needs - Sunfunder does precisely that.  We began by investing in their Solar Notes, but became increasingly impressed with their team and its vision.”

The Series B investment is aimed at helping SunFunder achieve its goal of catalyzing billions of debt financing into solar projects in emerging markets in the next decade. In particular, the Series B investment will allow SunFunder to:

Expand into new geographies and solar project segments

Make investments in off-grid solar efficient and a mainstream finance product for accredited investors

Provide a variety of loan products, including inventory, to structured (asset-securitized) finance, and project finance

Build stronger processes around diligence and risk mitigation and increase SunFunder’s expertise with technology and systems

Debt

SunFunder raised $13 million of Solar Notes in 2015 for financing solar projects in emerging markets. Solar Notes are a private debt offering that gives accredited investors an opportunity to invest in a diversified, vetted and high-impact portfolio of off-grid and grid deficit solar projects.

In 2015, 44 accredited investors invested in SunFunder’s Solar Notes. More than half of Solar Notes investors are individual accredited investors from 5 countries. The others are institutional investors that represent a wide range of entities, including corporations Iberdrola and Deutsche Bank, investment firms Arjuna Income and Impact Fund, Treehouse Investments, Ceniarth and Etho Capital, and foundations DOEN Foundation, Calvert Foundation, and Packard Foundation.

To date, about 1 out every 4 of SunFunder’s accredited investors have made repeat investments in Solar Notes. Of the Solar Notes investors that have been repaid, 65% have reinvested their principal to more Solar Notes

SunFunder Progress and Goals

To date SunFunder has facilitated debt financing of $7 million to 22 solar companies in Africa and Asia while maintaining a default rate below 1%.  To investors of our Solar Notes debt offering, we have maintained a 100% repayment rate.  

SunFunder’s solar borrowers include companies such as d.light design, Greenlight Planet, SolarNow, Off Grid Electric, BBOXX, One Degree Solar, and others.

Over half a million people have gained access to clean and affordable solar energy as a result of SunFunder’s work.

SunFunder is catalyzing a solar finance ecosystem and aims to finance billions of dollars into solar energy assets beyond the grid. Hints of that ecosystem are already surfacing; many of the solar companies that have received some of the $131 million total equity investments in 2015 are also SunFunder borrowers.

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Random forests for predictive analytics

By Aravind Natarajan, SunFunder’s Data Scientist

A major difficulty that solar companies face in developing countries is the absence of a verifiable credit score for their customers.  Many solar companies in Africa operate on the “pay-as-you-go” system -- this means the customer obtains a solar powered home system largely financed by the solar company, with monthly installments made by the customer.  Although a sound concept in principle, the pay-as-you-go approach is fraught with difficulty.  The large fraction of customers who default on their payments causes solar companies to incur losses and potentially drives them out of business. As a result, many solar companies require that customers pay the entire cost of the system at the time of purchase, limiting its utility to a small percentage of relatively wealthy customers.

Solar companies are increasingly turning to data science to help them figure out which customers are financially stable, and which are too risky to support. This is done by measuring a large number of socio-economic factors: age, gender, marital status, number of dependents, income, number of sources of income, etc. A machine learning algorithm then utilizes this information to distinguish between good customers and risky customers.

The technique of random forests has rapidly become one of most powerful techniques for working with supervised datasets (i.e. customers labeled as being ‘good’ or ‘bad’ in our case). The building block of this method is the decision tree or flowchart. We construct a tree with a number of nodes and at each node, ask questions designed to filter the data into ‘good’ and ‘bad’ customers.

Decision trees work well as classifiers but they have several problems. For example, a single decision tree is prone to overfitting, which occurs when the classifier fits for noise as well as data. The solution is to build several decision trees--a forest of them--and to consider an aggregate of the results of all trees. While each tree (also called a learner) may be weak, the ensemble of many learners will be far more robust.

This is the principle used in the random forest method. The term `random’ comes about due to two reasons: Each decision tree in the forest is provided with a data sample that is randomly chosen with replacement (this is called a bootstrapped sample). At every decision node, the condition to be tested is randomly chosen from a subsample of features. This ensures that not every decision tree considers the same data and not every decision tree utilises the same features for classification. This introduced randomness along with the ensemble approach ensure that the collective wisdom of the forest is superior to the output of any individual tree, and results in a classifier robust to the overfitting problem.

Another highly prized quality of the random forest technique is its ability to choose features intelligently. Let us say we are provided with 1,000 customers, each having 5 features (which could possibly be gender, income, marital status, rent, and size of plot). With such a small data set, it is straightforward to plot each feature against every other feature and search for relevant features visually (the number of plots to be examined is 10). The visual technique becomes increasingly difficult as the number of features grows. (With n features, the number of plots is n(n-1)/2 which grows quadratically with n. With 25 features, 300 plots would need to be examined). Needless to say, a more systematic and mathematically sound technique is desirable.

Consider the following toy example data set with 3 features (called ‘Rent’, ‘Income’, and ‘Marital’) along with 2 possible outcomes (labeled ‘Paid’ and ‘Delinquent’).

Since our aim is to best separate ‘Paid’ and ‘Delinquent’ customers, which features should we choose to perform the split? We could choose to split the dataset on the node ‘Rent = High?’. For those customers whose rent is high, 2 out of 3 are delinquent, while 1 out of 3 has paid. We therefore have a probability = 66.7% of finding delinquent customers by splitting on the ‘rent’ node.

How about the ‘Income = High?’ node? Choosing customers whose Income = High results in all ‘Paid’ customers, i.e. a 100% purity in the split! On the other hand, the node ‘Marital’ results in as many ‘Paid’ customers as ‘Delinquent’ customers and is therefore useless. The gini impurity is a quantitative measure of the deviation from purity defined as:

where k is the number of output classes (2 in our case), and pi is the probability of obtaining class i as a result of the split. The node ‘Rent’ has a gini impurity of 1- [(2/3)^2 + (1/3)^2] = 4/9. The node ‘Income’ has a gini impurity of 0, while the node ‘Marital’ has a gini impurity of 0.5. It is clear that the gini impurity lies between 0 (all samples belong to the the same class, and hence a perfectly pure split) and 1.0 (a large number of classes, each with equal probability). The decrease in the gini impurity is then calculated as:

where N refers to the node in question, N-L, the node to the left of N, and N-R, the node to the right of N. n is the number of samples to the left of node N. The decrease in gini impurity is computed for each feature, and averaged over the forest. A large decrease in gini impurity implies that the feature being considered is useful in distinguishing between classes. The random forest algorithm thus tells us which features are best suited to distinguish between good and bad customers. The figure below shows useful features ranked by their gini importance:

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SunFunder in 2015

All year round we are so focused on all the things that we want to do, the end of the year becomes a useful reminder to pause and reflect on the things we have achieved so far. 2015 has been a very active year for SunFunder. Here are several milestones that we are proud to have accomplished to date:

Our total loan portfolio grew to $7M

We provided a total of $5.3M of loans in 2015 and are excited to do more in the new year. For context, here are previous years’ figures: at the end of 2013 and 2014, our portfolio was at $353K and $1.7M respectively.

We have now worked with 22 solar companies

We started working 7 new solar companies in 2015 alone. Together, all 22 companies represent 9 different countries. This year also marks our entry to the West African solar market, starting with Ghana.

Some of the 7 new companies from this year are d.light design, One Degree Solar, Voltzon, and Persistent Energy Ghana. We enjoy working with each one and hope to continue our partnerships for many years. For more information about borrowing from SunFunder, visit our Borrow page.

Raised a total of $16M in Solar Notes 

At the end of 2013 and 2014 we had raised a total of $250K and $1.4M. In 2015, the total amount of Solar Notes increased tenfold.

Also in 2015, 42 new accredited investors invested in different Solar Notes issued through our Solar Empowerment Fund. 27 of the 42 new investors are individual investors that come from 5 countries. The others are institutional investors that represent a wide range of entities, from corporations like Iberdrola and Deutsche Bank to foundations like Calvert Foundation and Packard Foundation. Thanks to their collective commitments, we’ll be able to scale our financing activity even more efficiently in 2016.

We are now a team of 16 people

At the end of 2013 and 2014, SunFunder had a team of 3 and 5 respectively. We now have a global team of 16 people that come from 8 different countries and a variety of professional backgrounds, from investment banking to nonprofit work. When we say we have a diverse team, we really mean it!

To accommodate our team growth, we moved to a bigger office in Arusha, Tanzania and cannot be happier with our new space:

In San Francisco, we also moved to a new office, although it feels more like going back to an old home. Our office is now located back in Impact Hub San Francisco, where we participated in the Hub Ventures accelerator program in the spring of 2013.

Of course, we would not have been able to make this much progress without our partners and supporters. For that reason, our team extends a heartfelt thank you to everyone in the SunFunder community for helping us through our journey. We look forward to getting more done in 2016. Happy new year!

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Powering Health Care with Solar

By Audrey Desiderato, cofounder and COO

In Tanzania, it is estimated that less than 30% of healthcare facilities are electrified. The strong linkages between energy and healthcare are obvious. Access to energy means access to improved health care since energy is a requirement for lighting, machine operation, refrigeration, communication, safety, etc.  The impact is particularly felt by women. Imagine a midwife in a rural clinic delivering a baby while trying to hold up her cellphone for light. In Malawi, a doctor told me that women are advised to bring 3 candles when arriving at the clinic to give birth--incase this takes place at night.

If you’re more into data than stories, then here are a couple: 

On a global scale 44% of the 6.3 million child deaths every year occur due to neonatal issues. 

In Sub-Saharan Africa, a woman’s risk of dying from treatable or preventable complications of pregnancy and childbirth over the course of her lifetime is 1 in 38 compared to 1 in 7,300 in developed regions. Example complications include hemorrhage, infection, eclampsia, and obstructed labor.

Last week in Dar Es Salaam, during the UN Foundation’s conference on Powering Healthcare, I met a few practitioners offering solutions. For example, Laura Stachtel, a doctor who identified the critical energy need while working at hospitals in Nigeria, developed The Solar Suitcase with her solar engineer husband and founded We Care Solar. Laura shared with us her experience of working in a hospital in Nigeria. The hospital, while connected to the grid, had electricity for less than 12 hours per day. In times of distress, communicating and finding doctors becomes an issue due to uncharged cellphones. A donated ultra sound machine sat unused in a corner. Patients requiring a blood transfusion arrive with their own source, typically a family member, in hopes that their blood types match. Laura and her team installed a solar system at this hospital. Within a week, maternal death rates dropped by 70%.

Today, the Solar Suitcase, which costs $1,645, is a complete system that includes high-efficiency LED medical task lighting, a universal cellphone charger, a battery charger for AAA or AA batteries, and outlets for 12V DC devices. The basic system comes with 40 or 80 watts of solar panels, and a 14 amp-hour sealed lead-acid battery to power mobile communication, laptop computers and small medical devices such as a fetal Doppler. The maternity kit comes with a fetal Doppler. It is designed to support timely and efficient emergency obstetric care in a range of medical and humanitarian settings.

Photo credit: We Care Solar

For large facilities, a health center’s needs hierarchy is as follows:

Lighting (particularly task lighting)

Refrigeration (However the need for battery replacement poses a challenge)

Staff housing

Sterilization (not possible with solar off grid)

Water pumping

ICT & communication

So how does one decide whether to meet these by connecting a center to the grid, or answering to these needs through a solar system? While the grid should be the long term answer, immediate solutions are needed. This study suggests that using cost considerations, a health center less than 5km from the grid should be connected. As you can imagine, this is still subject to debate as it’s not just about being on or off-grid, but as the Nigerian example demonstrates, grid reliability is just as much of an issue.  

While there is some donor money being directed at powering health centers with renewables, the current procurement-driven approach is ineffective. It is estimated that almost 50% of the off-grid health centers with solar systems are either not working or working poorly. Companies bid for tenders, install the systems, and then leave. In few cases are there O&M contracts are budgets to replace batteries.  This isn’t just a waste of money but it can also spoil the market. Neha Misra from Solar Sister pointed out to me that in many rural communities, a solar system on an institution like a hospital or school is the communities’ first contact with solar technology. When they see these systems fail after just a few years, their trust falls with it.

Guaranteeing health, as a public good and human right, belongs to the state. But when these current approaches fail (and dare I say, mismanagement of public funds by certain ministries occurs), to what extent can businesses step in to power health care? Solar entrepreneurs call for shifting the paradigm away from procurement (i.e., deliver equipment, walk away) to a more business oriented model (i.e., only pay for services that work). For instance, Great Lakes Energy currently builds and maintains solar home systems at health facilities in Rwanda. If the system isn’t working under the company’s watch, the company will pay the clinic a penalty fee rather than receive its monthly O&M payment. In addition, it is applying entrepreneurial innovation to address the uniqueness of a health facilities’ energy needs. GLE is combining hardware with software that can be integrated into any system to ensure high-quality remote monitoring and communication with clinic staff to preempt misusage and optimize the systems that are on loan management. 

A few initiatives were discussed during the conference to strengthen primary healthcare through solar energy and innovative business models. While not commercially viable (and scalability still needs to be tested), they offer hints at what an improved paradigm might look like:

Cordaid Health Investment Fund in Rwanda and Burundi works through a solar lease model to promote business modeling within each clinic and ensure maintenance of the solar system. 

Philips Community Life Centre uses the health center as an Anchor tenant, selling excess supply to neighbouring businesses. The extra income, they hope, will help support operational costs.

Koko Medical Facility, health clinic maintained by Great Lakes Energy in Rwanda. (Photo by Sameer Halai/SunFunder)

Lastly, I invite you to tweet me your comments  topic of solar and health care at @sunfunder. Thank you!

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A glimpse into unlit Africa

By Marilu Snyders

In a time when we are at the cusp of incredible technological advances, a stark reality exists in contrast to seemingly infinite possibilities. At the same time you are reading this on your laptop or smartphone, 1.3 billion people on this planet do not even have basic access to electricity. The majority of these energy-poor communities are based in rural Asia and Africa as well as in urban areas in some less-developed nations.

While extending the electricity grid is one solution to connecting people to this vital need, it is a slow and expensive process, especially in the more remote geographies. And as the world’s population expands, the off-grid market keeps growing - often faster than the rate of grid extension. With most of the rural areas having excellent solar potential and studies indicating that there is a definite demand for rural communities to gain access to electricity, off-grid PV solutions are a much more cost-effective and realistic solution to this growing problem.

The African market has one of the the biggest global demands for solar products. Although the IEA (International Energy Agency) projects that 950 million people in Sub-Saharan Africa will gain access through mainly off-grid and mini-grid solutions by 2040, in that same amount of time 530 million in the same geography will remain in the dark. The barriers to universal energy access are multiple but access to finance across the entire supply chain remains a major concern. This is where SunFunder plays an integral part in the vision of lighting up Sub-Saharan Africa, greater Africa and other rural parts of the planet.

    Lower cost, easier access

As the demand for solar PV products increase, the cost of manufacturing and importing them is steadily decreasing, strengthening their position as a viable solution to the energy poverty problem year upon year. Financial support is required in all parts of the supply chain, from manufacturing to the end user. Realistic or not, the IEA estimates that $640 billion will be needed to ensure global energy access over the next 20 years. This is 300 to 500 per cent higher than current investments in energy access. The need for solar financing companies like SunFunder which can unlock capital to catalyze the expansion of the off-grid market is more evident than ever before.

Over and above the visible need for financial support, there are other, more  strategic factors that need to be considered in growing the off-grid market. Each geography and community has different requirements, key players and ways of conducting business. This is why SunFunder is growing its regional presence and local expertise in our focus markets (currently East Africa and parts of Asia).

The potential exists. We are currently in a position where it is absolutely possible to lower the global consumption of fossil fuels like kerosene and diesel, the major fuel for lighting in off-grid communities. The expansion of the solar footprint and uptake of solar products in Africa is showing exponential growth, which makes it very exciting time for being involved in this high-impact industry.

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A week in the life of a data scientist

By Aravind Natarajan, SunFunder’s data scientist

“So what is your job title?” I was recently asked this question when purchasing auto insurance for my new car. “Data Scientist!” was my response. After a long discussion on what I do at work, the agent put me down simply as “Scientist.” Having spent many years in academic research, I was perfectly comfortable being referred to as a scientist, but it got me thinking about what a data scientist really does.

Simply put, data science refers to extracting actionable intelligence from data. Perhaps, a nicer definition is the one provided by data scientist Josh Wills of Cloudera: “A data scientist is someone who is better at statistics than any software engineer and better at software engineering than any statistician.” Data science thus combines statistics with coding skills, database techniques, and data visualization ability. The best data scientists are also skilled story tellers -  they have the ability to work with messy and scattered sources of information, and construct a compelling story with the data.

After having spent many years as a cosmologist searching for patterns in gigabytes of extremely noisy radio data (the proverbial needle in a haystack), I was curious about the work being done at SunFunder.  As a solar finance company lending in the developing world, it is extremely important to be able to correctly assess the credit worthiness of our borrowers. And so, I delight myself with crunching numbers and playing mad scientist.

        Aravind (right) and Baraka discussing data from SunFunder’s solar customers.

I use a variety of tools, and am not too attached to any one kind of technology. Most commonly, I use Python as a fast prototyping language. The superb Statistics, Machine Learning, and Natural Language Toolkit packages of Python make it one of the best choices for a general purpose high level, platform independent programming language. For data handling, I prefer MySQL which is the simplest (and free!) version of the Structured Query Language - SQL does only one thing - store and retrieve data - but it does it better than anything else. Our team typically uses Apple Mac notebooks, but many of us are fans of the Linux operating system as well. For the few cases when I need browser and mouse functionality, I favor Flask, which nicely includes Javascript functionality with Python’s backend capabilities. A typical week at work involves the following:

In house statistician:  This is an important part of my job and part of the reason I was hired was to have statistics experience in house. Rarely do I go by a week without doing some statistical analysis on our borrower companies, or on their customer data. An important characteristic of lending to small companies in the developing world is the absence of reliable credit scores. Needless to say, we will not be in business for long if our loans are not paid back in a timely manner! We therefore do routine diligence checks on all our borrowers.  I work with the lending team on determining the financial parameters that are most likely to determine the stability of a small company in a developing country, e.g. Tanzania or Uganda.

Typical analyses of interest include figuring out customer repayments each month, and whether we can make realistic predictions of their revenue. SunFunder provides this analysis free of charge to our customers, and so I often arrive to find a pile of data in my inbox.  Data visualization tools are, of course, important in effective communication. Javascript libraries such as D3.js and Tableau.js have become standard visualization tools, though I also make substantial use of Python’s matplotlib package, and Gnu’s excellent gunplot program.

A visual representation of data often makes anomalies stand out with clarity - in the above example, the bar plot on the top correctly identified one customer with an unusually large unpaid loan. Similarly, when I was recently asked to investigate payment patterns, the histogram plot on the bottom part of the above example nicely showed that customers have preferences even when they have complete flexibility in making payments. If customers paid at random, we would expect the histogram to be mostly flat. Interestingly, that is not the case. Most customers prefer to pay once a week, once in two weeks, or once a month. For salaried employees, this often corresponds to pay day.

Data cleaning and Database management:  Part of my duties as a data scientist is to figure out the most efficient way to store data, retrieve it, and to automate the data flow. We have now built a system by which an interested party fills out a form which populates a database and presents a succinct summary of their finances through a browser interface. Such an automated system saves us valuable time, and makes for a far more compelling presentation of the data flow process.

I also determine the database structure for our customer data, as well as our own fundraising and crowdsourcing efforts. For the most part, the MySQL implementation of the Structured Query Language has proven to be sufficiently powerful to handle our data, though I sometimes work with PostgreSQL databases as well. The raw data is often messy or incorrect (for example, including commas to separate digits in a number, including the dollar sign, entering characters in a number field, etc). The first step in the data storage process is to clean the data. I write scripts in Python to read a text file, and output the relevant fields in the correct format. The cleaned data is then stored in a database hosted on an Amazon-Web-Services server. Fast and reliable data retrieval is key to the next steps in the analysis pipeline.

Predictive analytics: It is often possible for us to get a good idea of a customer’s credit worthiness by monitoring their payment history for the first several months. But it would be so much better if we could assign a credit score to a customer before the first payment is even made. Amazingly this can be done through machine learning - one of the most powerful techniques in the data scientist’s tool box.

We were recently asked by a solar company to look into their data and to help eliminate the customers who were at greatest risk of defaulting on their loans. After the data has been cleaned and entered into a database, the first step in predictive analytics is to determine what qualities (usually called features) of a customer determine their credit worthiness. A technique used to identify relevant features is to construct decision trees and to thereby measure the gini importance of each feature. Consider the decision node on the left of the plot above: Let us assume a mixture of customers with half being low risk and the other classified as high risk. The decision node asks a question and uses the answer to filter customers either to the left or to the right side of the tree. Ideally, we would like to see 100% of good customers on one side of the tree, with 0% good customers on the other side. It is clear that some features will achieve this split better than others.  The plot on the right shows different features arranged on the basis of their importance in determining credit worthiness.

Once we have identified the important features, the next step is to train a classifier to make predictions. A set of classifiers known as margin classifiers construct a boundary between the classes (good and bad customers in our case), and interpret the distance of a customer from this margin as a measure of probability.  The Support Vector Machine  (SVM) technique is able to maximize the margin, i.e. it chooses a boundary that maximizes the distance between good and bad customers. Once trained on a subset of the data, our classifier can be tested with unseen data. Well trained classifiers can predict credit worthiness with over seventy percent probability, resulting in a useful screening process.

Staying up to date in the ever changing world of technology is also an important task for a data scientist. I try to learn one new technique or language each quarter year. As you can see, being a data scientist is very much a full time job but with the advantage of being a mixture of a number of new and interesting areas. At times, the job can be frustrating (particularly when our customers write down “cash” when we ask about their yearly income!) but it is also very rewarding to be able to translate highly mathematical concepts into something more tangible. And in the long run, it helps run the company more efficiently, providing solar power to thousands of people in need of electricity.

[sunfunder]

How many SunFunder employees does it take to install a solar system?

By Irene Mayallah (Operations and Outreach Lead, SunFunder East Africa)

On a sunny Wednesday the SunFunder Arusha team enjoyed the view of Mt Meru on their way up the Ilboru rough road to Yohanes’ house to install a Greenlight Planet Sun King Home solar system. Yohanes is a farmer by day and a security guard by night. He has 5 children and wanted to light his home so that they could study in a bright room.

The Sun King home system is manufactured by one of our borrowers, Greenlight Planet, and distributed by another one of our borrowers, Global Cycle Solutions. Today, it was Baraka, the Financial Analyst-turned-Fundi (Fundi is the Swahili word for “technician”) that delivered the complete solar powered light system to Yohanes’ home. It is is fully equipped with three hanging lamps and wall mounts for light switches. It has a 6W solar panel and 2 USB ports for easy charging capabilities.

To set up the home system, Baraka the “Fundi” started by finding a sunny spot to place the solar panel. Elisha and Joshua held the ladder to make sure our Fundi doesn’t fall.

On the inside, Lais installed the Control Panel (with a Battery Meter) by the front door.

(Control panel)

After placement of the solar panel, it was then connected into the main control panel. Joshua went ahead to find the best spot for the first light outside, then connecting it to the control panel.

(Audrey reading the instruction manual carefully making sure the installation goes perfectly!)

The second light was placed in the sitting room; right in the middle of the room. Quite useful for the children to use when doing their homework and studying at night.

(Still counting? I’ve got four so far…..)

We went on plugging in the third light and the light switches. Each light comes equipped with a daisy chain adaptor and two wires; one that you can connect to the control panel and one leading to the light switch. Another amazing thing is that each light has three brightness modes. The battery management technology automatically switches three lamps to low-power mode when the battery is running low, yielding additional hours of light.

(Lais saying, “This switch is good to go! Who wants to light up the room?”)

(Yohanes’ eldest son doing the honor of lighting the sitting room being cheered on by Baraka. Joshua is in the next room doing his magic behind the curtains!)

(The room was not only lit up by the new solar lights, the smiles were even brighter! Audrey and Yohanes’ daughter pictured here. The Sun King home system also comes with a free Sun King Eco, the green portable light- helpful for traveling at night.)

(Well, it was my turn to see how the three brightness modes works…)

You may notice that a light switch and wires already exist on the walls. Yohannes had installed these years ago, waiting for the day that he could access (and afford) connection to the grid. He got tired of waiting and opted for a solar system instead.

[The team pausing for a photo after a hard hour’s work installing the Sun King home system…… From  Left to right top row: Yohanes’ eldest, Alycia (Head of Debt Funds), Yohanes’ 2nd son, Yohanes himself, Yohanes’ daughter, Audrey (COO), Joshua (Portfolio Manager), Elisha (Portfolio Analyst). From left to right bottom row: 2 neighbour kids, Baraka (Financial Analyst) and myself Irene (Operations & Outreach Lead) with Yohanes’ last born. Photograph by Lais (Business Development Associate).]

It took 7 solar finance nerds and one hour to install the system (not counting the hike to Yohanes’ home). However, this was a team building exercise and we can confidently say that the Sun King Home System really only needs 1 literate person and a solid ladder to be installed. The Sun King Home System retails for less than $100 in Arusha.

[sunfunder]

GOGLA sees a bigger role for public funding to play in energy access investments

The Global Off-Grid Lighting Association (GOGLA) recently released its industry opinion on a variety of topics. One of those opinions is on the role of public funding to mobilize investment for energy access. We’d like to highlight it here:

The members of GOGLA hold the view that public funding for energy access, including both development financing as well as international climate financing, should be used where it is most efficient and effective in reaching poverty reduction and climate objectives. Consequently, donors, development finance institutions and MDBs should vastly increase the amount of public funding for distributed energy access projects, and create the framework programs and facilities that enable this. At the same time, public funding institutions should develop strategies to encourage energy access investments by other actors, such as commercial investors. They should use their capacities to help create enabling business environments in the countries and achieve large-scale impacts.

Our work lies in the heart of energy access investments. Through Solar Empowerment Fund, SunFunder offers investors an opportunity to invest in a diversified, vetted portfolio of solar projects that tackle energy poverty in off-grid and grid-deficit markets. While we have worked with some institutional investors in growing our Solar Empowerment Fund financing activities, we also see the need for more public funding to get involved with energy access investment opportunities to achieve large-scale impacts.

Hence, we could not agree more to this particular recommended action put forth by GOGLA:

Collaborate with commercial banks and investors to mobilize financing through a wide range of financial products. Public financing (development as well as climate financing) should be allocated to leverage the available and potential commercial financing by absorbing investment preparation and transaction costs; de-risking investment; and reducing the cost of (commercial) capital.

As we have repeated again and again:

Over the next decade, solar energy will leapfrog the electricity grid in developing countries much like cell phones leapfrogged landlines. SunFunder is dedicated to financing this emerging solar market transformation.

We welcome all players to join us as we catalyze the solar ecosystem in emerging markets. 

[sunfunder]

First Private Debt Note Series is Fully Repaid

A year and a half after its launch, SunFunder’s first private debt note series with an 18-month tenor is now fully repaid. As of March 10, 2015, four investors received their principal plus a fixed interest return. Below are the solar customers in this series’s portfolio:

SunnyMoney

SolarNow

Fenix International

BBOXX

Global Cycle Solutions

Zamsolar

SunFunder launched Solar Empowerment Fund (SEF) in September 2013 to finance off-grid and grid-deficit solar projects and to meet the rising demand for working capital from solar businesses in emerging markets. Through the Solar Empowerment Fund, SunFunder has financed $2 million of loans to solar product distributors, prepaid solar energy service providers, and commercial end-users in Kenya, Uganda, Tanzania, Zambia, India and the Philippines. By end of 2015, SunFunder will increase its total portfolio size to $12.5 million with a focus on the East African and South Asian solar markets.

[sunfunder]

19 Projects Fully Repaid

Since July 2012, SunFunder has financed $1.75 million into 39 project loans for 15 solar partners. In just a little over two and a half years, 19 of the 39 project loans are fully repaid, which total to $421,000. In other words, nearly a quarter of SunFunder's total investments have been fully repaid, and this is a strong validation that off-grid solar technology is a commercially viable solution to solve the world's energy poverty problem. Here are some of the strategies we have in place that helped us reach this milestone:

Fast repayment track record

SunFunder is able to get repaid quickly on many of its project loans because we focus on short-term working capital loans to solar partners with a clear repayment schedule. Our loan term ranges from 6 to 36 months, with the average being 12.4 months. The majority of the loans have a quarterly repayment schedule.

Technology and systems

We focus on building the right technology and systems to smooth the administrative tasks that sometimes get in the way of a timely repayment from our solar partners. This includes solutions such as automated reminder emails of upcoming repayments. The efforts we have made in technology and systems contribute to the long-term relationship building approach we have with each one of our solar partners.

Low default rate

To date, SunFunder has maintained a 0% default rate from its solar partners and strives to keep the rate below 5%. Short loan tenor is among the many factors that contribute to the successful maintenance of a low default rate. Other factors include rigorous due diligence process and a robust risk portfolio management system to track the financial and management health of our solar partners throughout the length of the loan.

[sunfunder]

Pre-Investments Are Back

SunFunder only lends to solar partners that pass our rigorous diligence process. Despite the high quality bar, we have a huge pipeline of partner companies and this list is constantly growing. To date, people like you have invested in 19 projects that total to $374,000 and we have had zero defaults so far. Of that $374,000, $50,000 is from pre-investments that eventually funded Solar for Clean Homes.

Pre-investments help us solve the timing problem we face with crowd projects. In a nutshell, you can pre-invest today in the next solar project. When the project gets fully funded, our team will match it right away to the best candidate for the next loan. With consistent pre-investments, our team can more efficiently perform diligence work on our pipeline of solar partners. This helps maintain our standard of high quality projects for the crowd to invest in, while ensuring we can deploy more project loans using crowd investments. 

You will be pre-investing in projects similar to the ones we've funded before, which will have loan terms of 18 or fewer months. You will also be able to monitor which projects your pre-investment has been used for in your account activity when you log in and on your email updates. In other words, all other activities surrounding your pre-investments are no different than with regular investments. 

Consider making a pre-investment for solar in emerging markets today!

[sunfunder]

SunFunder Completes $2.5 Million Series A Equity Round With Khosla Impact, Schneider Electric, and Better Ventures

Investment lays groundwork for scaling solar energy finance in emerging markets

SunFunder, an emerging market solar finance company, has completed its Series A equity round with investments from Schneider Electric, Better Ventures, and a private family foundation based in Palo Alto. This follows the first stage of the round led by Khosla Impact and a group of angel investors, bringing total Series A funding to over $2.5 million.

Ryan Levinson, CEO of SunFunder, says that the investments validate the need for innovative financing solutions to unlock solar energy development in emerging markets.

“Over a third of the world lacks access to reliable energy and solar energy is leapfrogging the grid in these markets. Access to reliable finance is the main barrier preventing solar energy providers from reaching scale. In the last 2 years, SunFunder has established a solid track record and proven that the market is economically viable. This investment round will allow us to expand our capacity in local markets and substantially grow our loan portfolio.”

Based in San Francisco and Tanzania, SunFunder provides short-term, working capital and project finance loans for solar home systems, micro-grids and commercial solar projects in emerging markets. It brings strong solar industry and local market expertise and provides reliable financing designed to scale with its customers’ long-term needs. SunFunder raises debt capital through the Solar Empowerment Fund, offering accredited investors a risk-reduced, fixed-income investment opportunity in diverse portfolios of high-impact solar loans across multiple countries and solar technologies.

Sandhya Hegde of Khosla Impact Fund said: “Investors agree that solar is a reliable, clean market-based solution, however solar companies and projects struggle to attract finance. SunFunder’s diligence weeds out risks, and their technology and systems make investments in off-grid solar a mainstream finance product. It’s creating a standard for viable, profitable and ‘bankable’ solutions to attract large commercial investors to this rapidly growing industry.”

SunFunder has financed $1.3 million of solar projects, with 14 solar companies in 6 countries, and maintains a zero percent default rate. This has helped over 140,000 people get access to affordable solar energy. In the next three years SunFunder aims to raise and deploy $100 million into solar projects around the world.

[sunfunder]

New Project is Already 90% Funded Thanks to Pre-Investments

We are proud to announce a new partnership with Boma Safi to deliver solar powered energy access to rural communities in Kenya. To kickstart this partnership, we launched the project Solar for Clean Homes (fun fact: boma safi in Swahili means clean homes). The terrific news is that the project is already 90% funded, thanks to our community's impressive work with pre-investments in the last couple of months.

The project is fundraising a $50,000 loan that Boma Safi will use to purchase inventory and sell 1,350 solar home systems to SACCO members through Kenya Union Savings and Credit Co-operatives (KUSSCO). These products will benefit about 6,750 people and help each household save 6.5% of their annual incomes from no longer needing to buy kerosene.

We only need to fund $5,000 more to get this project off the ground. Consider lending $25, and spread the word to your friends.