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December 02, 2013

Calling All Village Infrastructure Angels

VIA solar pic 1While it's potentially clean energy's next big market, off-grid clean tech suffers from an acute lack of finance. That's the barrier to ramping up efforts to finally move 1.3 billion people around the world from darkness to light.

Entrepreneurs have responded by repeatedly demanding $500 million in finance to catalyze the sector. Unfortunately, multi-laterals like the World Bank have been reluctant to join the fray leaving a yawning chasm between capital needs and capital flows. Luckily entrepreneurs are stepping in to fill this gap. One of the first to step up to the plate is Village Infrastructure Angels (VIA) – an organization worth knowing.

VIA is perhaps the world's only angel investment group solely focused on emerging market micro/village infrastructure. Their business model is predicated on the notion that finance, particularly consumer finance, is the key to unlocking this market. As co-founder Stewart Craine puts it, "I firmly believe that everything - technology, field partners, knowledge – is in place to deliver clean energy for all. Everything that is, except investor appetite for the risk of consumer lending."

Their strategy for addressing the challenge is pretty simple: mobilize the money sitting in every potential 'angel's' pocket and put it to work. That makes their founding philosophy a belief that anyone can be an angel investor and therefore a participant in alleviating energy poverty. Judging by experience they may be right. They've organized angel investors from all walks of life - from retirees to people with decades of experience in this space. They've also had some strong institutional supporters such as Rotary Club Melbourne, Rotary Club and IRENA plus early support for technical assistance and feasibility from the multilaterals such as the World Bank and the Asian Development Bank.

VIA puts these angels money to work as a project developer organizing projects end to end while providing 1-3 year loans or longer. Their model enables them to take all the risk while asking field partners to deliver the product/service to villages. That expands the payback horizon, making clean energy radically affordable for poor populations around the world.

VIA solar pic 2Their financing is unlocked by initial risk guarantees that leverages private investment by covering cases of default which offers an attractive, low risk option for investors looking to use their money to reduce energy poverty while earning a return. Given the relatively short payback periods enabled by long term financing, investors can expect to see returns within the first six months to one year.

But easy as it may sound, getting long-term finance secured for these markets was anything but. The key for VIA was mobilizing debt and risk guarantees - something multi laterals like the IFC and World Bank should be providing today. Stewart believes that over time, these risk guarantees can drop away, but they are the most important form of missing finance right now. "Put those guarantees in place, and the debt will come faster, which means scale will come faster, which means equity will follow. This is how we solve energy poverty."

Of course securing the money is one thing, investing it appropriately is another. VIA's approach to the latter is also unique - rather than acting as 'micro-VCs' they place a priority on securing shares in field projects, not companies. That means they are a mini version of the World Bank - they are trying to increase the amount of project finance available to entrepreneurs. They invest this way due to the belief that long-term cheap debt is what will ultimately unlock this market. "Equity is just the oil that lubricates the engine. What we really need is gas in the tank - 'venture debt' to provide project finance and long term scale," says Stewart.

While finance is the name of the game, VIA also takes on a number of technical assistance projects to help jumpstart the industry while paying the bills. Much of that work is based on Stewart's decades of expertise in the field. Perhaps the most exciting is a campaign to map all off-grid households in the world (www.developmentmaps.org ), so the industry can better map and plan how it's going to reach everyone. That work has found village locations from existing data is badly misleading. "It will help if we can see where the people live that we're all trying to help," says Stewart.

While they have yet to unlock finance from the multi-laterals, VIA believes their studies and tools will help mobilize investment from these institutions in the next 1-2 years. But this market, and the billion plus people living in the dark today, simply can't wait. That means we need finance to fill this gap by forging ahead and investing in projects immediately. Which is exactly why VIA was formed and they have a message for you: Calling all angels - it's time to put your money to work.

-- Justin Guay, Sierra Club International

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