Crossboundary offers up its mini grids business model for African peers to benefit

Nairobi-based financial services business Crossboundary Group has announced the successful exit of the CBE I fund it raised five years ago to drive commercial and industrial (C&I) solar projects in Africa.

The landmark was achieved in September, with a sale of the investments to recently established, London-based emerging markets energy fund, Africa Renewable Power Fund (ARPF) as part of a $40 million commitment by the ARPF to commercial solar projects. The ARPF is managed by London-based specialist investment advisor Arch Emerging Markets Partners.

With Arch – which was set up by London-based JCH & Partners LLP – having commissioned Crossboundary Energy Management to find and develop more C&I solar projects for the new fund, the Kenyan group has also announced plans by its mini grids unit to open up its approach to investing in local off-grid networks on an open-source basis.

CBE I

The exit of the CBE I fund set up by Crossboundary in 2015 was announced at a 15%, net, internal rate of return. The fund had been established with the help of a $1.3 million repayable grant from U.S. federal government development agency USAID‘s Power Africa initiative, which attracted more than $7.5 million of private investment. After the sale of its investments to the ARPF, the fund repaid the USAID grant at a 5% return and the vehicle attracted further grant support from the U.S. International Development Finance Corporation and the Shell Foundation, in partnership with the U.K. Foreign, Commonwealth and Development Office.

Pieter Joubert, chief investment officer at Crossboundary Energy, said: “In terms of what comes next, partnering with an industry-leading investor like Arch ARPF [African Renewable Power Fund] highlights the proven viability of captive commercial and industrial solar projects in Africa. We’re very excited to work with Arch ARPF to continue providing Africa’s leading businesses with cheaper, cleaner, more reliable power at no upfront cost. This commitment by Arch ARPF represents the next phase of a larger, $100 million transaction which will allow us to take the C&I sector to scale across Africa and, in doing so, further reduce energy costs for our customers, create additional jobs within the solar sector, and significantly reduce carbon emissions.”

Scalable

Joubert also hailed the U.S. and U.K.-based investors who had kick-started the CBE I investment vehicle, adding: “We are incredibly grateful for the early-stage backing we received from our partners and investors such as Blue Haven Initiative, Ceniarth, Slocum Investments, Treehouse Investments and others, who trusted in our vision to bring cheap, clean energy to businesses across the continent and continued to support and work with us to realize that vision.”

Arch ARPF managing director William Barry said: “We believe that distributed renewables will be an important part of the energy future in Africa. The lower cost for solar and storage means that companies like Crossboundary Energy can offer retail consumers reliable, cost-effective solutions to their electricity needs. At Arch ARPF, we aim to partner with strong management teams and invest in scalable business models that offer compelling alternatives to their customers, including in the C&I space. CBE [Crossboundary Energy] has been able to grow a portfolio of high-quality assets and their growth continues to rapidly accelerate. We are excited to support them to scale.”

Crossboundary Energy is coordinating the development, construction, and operation of distributed commercial and industrial solar projects to give African businesses access to affordable, reliable, cleaner power. The exit of CBE I, and the investment received from the ARPF, will boost the role of distributed renewables in under-served African markets through the provision of public and private, ‘blended' finance.

Commercial solar

Crossboundary's C&I operation has spent five years developing the African solar market through its solar-as-a-service business model, which enables corporate customers to avoid technical risk and upfront capital expenditure. The approach is based on long-term agreements which see Crossboundary and solar contractors and local developers finance, install, and operate solar assets.

The first distributed solar power purchase agreements (PPAs) signed by Crossboundary Energy benefited corporate customers in Kenya, Uganda, Ghana, Rwanda, Madagascar, Zambia, Sierra Leone, and Nigeria. Those deals built an extensive client base with leading African companies including brewer Kasapreko and flower exporter Xflora Group, and with multinationals such as brewers Diageo, Heineken, and AB Inbev; Unilever; Coca-Cola distributors; miner Rio Tinto, and emerging markets investor Actis.

Crossboundary is now delivering or operating $57 million worth of assets for 20 corporate customers across those eight African countries – including 10 MWh of battery storage projects and more than 40 MW of fully-financed solar generation capacity.

While Crossboundary's C&I unit scales up finance, the group's rural mini-grids arm has opened up its methodology. Crossboundary Energy Access aims to accelerate access to electricity and, with around 600 million Africans lacking such amenity, the International Energy Agency has estimated mini-grids will be a cost-effective way of connecting at least 264 million people by 2030.

Although such mini-grids are ready to scale, they are struggling to attract the long-term, low-cost capital traditionally used to establish infrastructure projects, in part because they serve customers directly, rather than government offtakers.

Crossboundary Energy Access and its partners developed a project financing framework to address the infrastructure capital shortfall. The project partners are U.K.-U.S. private foundation Ceniarth; Dutch lottery-funded impact investor The Doen Foundation; London-based renewables fund manager Camco Clean Energy; Boston law firm Foley Hoag and London-headquartered peer Norton Rose Fulbright; Nairobi-based microgrid developer Powergen Renewable Energy and peer Standard Microgrid, which is based in Lusaka; the U.K. government-backed Renewable Energy Performance Platform; the Shell Foundation run by the Anglo-Dutch energy company, and its U.S. peer the Rockefeller Foundation.

Open access

The mini grids business has now offered up details of its interlocking financial models and project contracts in the hope such local power networks can be rolled out at scale across Africa.

Crossboundary Energy Access has published a white paper outlining a financing structure for mini grids, typical challenges and risks encountered during implementation, and possible improvements to the financing model. There are also recommendations for developers, investors, donors, and governments. The business will also offer up term sheets for project contracts and their corresponding project finance models, which will be made available in the first quarter of next year.

The move was explained by Humphrey Wireko, associate principal at Crossboundary Energy Access. He said: “Open-sourcing the solar financing framework could transform the clean energy sector. We’ve seen how the open source movement transformed the software industry. The best innovations in software now impact far more people, and far more quickly. We believe this radical approach to information sharing can do the same for financing energy access.”

Sharing

Matt Tilleard, co-founder and managing partner at Crossboundary, stressed his company's approach would not be a perfect fit for every industry player. “This approach won’t be the best for every financier or mini-grid developer,” he said. “But we do think that we have created valuable intellectual property in adapting traditional project finance for the distributed nature of mini-grid assets. We believe that we will accelerate access to energy globally by proactively sharing that knowledge and, more importantly, collaborating with others to improve on it.”

Emma Miller, head of mini-grids at the Shell Foundation, said open-sourcing the financing framework would benefit key solar industry players, helping expedite processes for faster and more cost-effective PV adoption.

“We are excited to launch the open-source initiative because we see finance as one of the critical building blocks the sector needs to scale,” she said. “It ensures that our funding to CBEA [Crossboundary Energy Access] unlocks maximum impact and it underpins the other sector-building work [the] Shell Foundation has supported: [helping] developers to build and operate mini-grids, [helping] the African Mini-Grid Association (AMDA) to work with governments on innovative regulation for mini-grids, and [helping] the Universal Electrification Facility (UEF) to bring in the public capital the sector needs to scale.” The UEF facility referred to is a multi-donor fund that finances projects such as solar home systems.