How alternative finance will accelerate the Energy Transition
Solar power is taking off – and has been for a while. Prices are dropping, batteries are improving and people are embracing photovoltaic systems as an attractive energy solution. In Germany, where roof-mounted photovoltaic (PV) systems have been popularized by a feed-in tariff, solar has contributed greatly to the Energy Transition. However, in developing countries – where the potential of solar is huge – access to finance presents a barrier to the global shift to renewables.
Financing landscapes: a different story
A central catalyst of Germany’s energy transition (the ‘Energiewende’) was the Renewable Energy Sources Act (EEG), introduced in the year 2000 and guaranteeing a lucrative tariff for the feed-in of solar power to the grid for 20 years. The security of the tariff made loans attractive to the finance market, resulting in increased availability of cheap bank loans for both private households and companies wishing to invest in PV systems. This enabled the rapid deployment of solar rooftop systems.
The favourable combination of a feed-in tariff and an attractive finance market, however, cannot be found everywhere. In emerging countries, a lack of guaranteed feed-in tariffs or suitable local banks loans prevents private households or companies from making such investments. Feed-in tariffs are not usually necessary nowadays, as the solar systems produce energy that is generally cheaper than the power from the grid – making the lack of bank loans even more surprising. If local banks do offer credit, it is expensive and only on a short-term basis, with payback times of 18 to 36 months and two-digit interest rates.
What do high energy costs mean for businesses?
In most developing countries, the energy cost is very high: usually between €0.20 and €0.38 per kWh. For some companies such as manufacturing, energy costs can represent a very high percentage of their total operating costs – sometimes up to 80%, which reduces profit margins and hinders competitiveness. Solar power from their own solar systems could reduce these companies’ costs significantly. However, without financing from a bank, many people and companies in these countries don’t have the capital required to invest in PV systems.
The solution: an innovative finance model
This is where ecoligo’s financing model comes in. The company finances PV systems through its crowdinvesting platform, which power businesses in emerging markets who are burdened with high electricity costs. Customers only pay for the kilowatt hours of energy they use. Through this, ecoligo bridges the finance gap and removes one of the biggest barriers to the uptake of solar systems. Crowdinvestors receive an attractive annual return for their investment over a period of around 5 years, during which the solar system generates enough electricity to pay for itself as well as covering the interest payments.
A path to a clean energy future
The win-win situation is clear: the investment provides private investors with a return that is higher than many other financial products, as well as an opportunity to invest sustainably – a factor that is key in addressing climate change. At the same time, it provides low-cost electricity to companies, reducing their electricity bills. Solar energy not only makes these companies more competitive in the economy, but also produces clean green electricity to replace polluting fossil fuel-based grid electricity, saving each company many tonnes of CO2 emissions.
This model can be quickly and effectively rolled out in many developing countries, allowing the Energy Transition that has been kick-started in Germany to resonate through the rest of the world. To find out more and get involved, visit our website.
Photo credit: Julia Caesar