Last week, solar finance startup SunFunder closed a $2.5 million Series A round. Although small by the standards of developed countries, the deal shows that leading investors are interested in the future of solar beyond the grid.
In addition to drawing support from Khosla Impact and Better Ventures, SunFunder was able to entice a heavyweight in the world of electricity: Schneider Electric.
Schneider follows SolarCity as another major solar player to back off-grid applications. The move shows an increase in interest about the future of these markets.
Based in San Francisco and Tanzania, SunFunder provides short-term working capital and project finance loans for solar home systems, microgrids and commercial solar projects in emerging markets. The company 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. The company has a goal to unlock more than $1 billion in debt for solar beyond the grid.
To reach that ambitious goal, the startup needs to exponentially expand off-grid solar. That's not an easy task. But investors like Sandhya Hegde of Khosla Impact believe the firm has the right model to open up the possibility.
“SunFunder’s diligence weeds out risks, and its 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," said Hegde.
A company like Schneider Electric can also help. Schneider is a behemoth in the energy space that has operations in 100 countries and annual sales of $30 billion in 2013. With products ranging from circuit breakers to power plants, the company is an important force for making the grid more reliable.
So does this deal mean that Schneider is looking to move further away from the grid in emerging markets? It already has -- this is just an extension of its current work.
From its distributed solar products to AC and DC microgrids, Schneider has a whole line of beyond-the-grid products already in place. Schneider is now interested in finding new ways to deploy its products in off-grid markets, which are growing at very strong rates.
To enter those markets, the company has to solve the same problem everyone else does: a stifling lack of access to capital. That’s why the SunFunder deal makes sense.
"We are convinced that financing the right companies is key to unleash energies that will provide access to energy," said Christophe Poline, Schneider Electric's sustainable investment manager.
Schneider is investing to unlock working capital in order to finance distribution of its wide range of products. Indeed, Schneider is also working on launching its new $80 million energy access fund with bilateral agencies like the U.K.’s Development Finance Institution and the European Investment Bank to help unlock capital.
While Schneider is only entering the space in a limited way, it’s clear the company sees opportunity in this market -- one that is potentially worth $12 billion.