We’ve put together a list of questions along with responses that you may find useful as an investor/energy customer.
The minimum investment requirement varies depending on the investment mandate expectations. For direct investments, the minimum investment requirement is $100,000. If you choose to investment in our managed portfolio, the minimum is $25,000. For investors committing $500,000 or more, Distributed Energy offers the option of creating a dedicated special purpose vehicle (SPV).
As an investor in one of our projects, you can expect 15%-25% annually, based on the leverage model and size of project. Distributed Energy targets projects with a minimum IRR of 15%. Further leverage normally enhances the IRR to 20% plus.
Distributed Energy signs Power Purchase Agreements that have a term length ranging between 7– 20 years. Depending on the length of the Power Purchase Agreement, there may be a balloon payment at the term end or a free of charge transfer to the customer.
Our income is tied to power generation i.e. performance of the plant. Distributed Energy charge fees of 5% (sweat equity) in the SPV and an annual fee of 15%-20% as Operations and Maintenance (O&M) from the plant revenue. For investors, the minimum project IRR projection of 15% is after all our fees have been factored in.
What are some of the mitigation measures taken by Distributed Energy to minimize risks associated with solar projects?
i) Product damage – using only Tier 1 rated panels, supplier warranty on panels/inverters (20+years) and additional product insurance secured by the SPV. There are force majeure insurances available that cover unexpected events.
ii) Production loss – tying up with world class EPC contractors and production guarantees backed by bank guarantees.
iii) Client default – all our customers go through a rigorous credit risk process and credit insurance is available in place against default. We also diversify the portfolios to spread risk and take 3-6 month bank guarantees from our customers. The cost of moving the panels is usually 10-15% of the total project value.
iv) Fluctuation in tariff – as per the contract between the SPV and the end-client, the tariff is a fixed, pre-decided absolute number and therefore government tariff does not impact our revenue.
i) Own the plant directly – you can invest in a solar plant directly. This is attractive if you want to leverage the depreciation benefits of the asset in the relevant jurisdiction or if the customer in the Power Purchase Agreement is a related party.
ii) Co-Invest in a HoldCo- Invest in a Commercial & Industrial focused managed HoldCo for renewable assets in India. Your equity will be valued at Net Present Value (NPV) and become part of a portfolio of investors. The risk is diversified and returns are based on existing customers and new assets.
iii) Dedicated Special Purpose Vehicle (SPV)- For investors committing $500,000 or more, Distributed Energy can create a dedicated SPV for the investor. Distributed Energy will manage the SPV as well as the customers end to end, ensuring there are no management overheads or challenges for the investor.
Distributed Energy can build a portfolio of 4 assets for as little as $100,000 – you will be co-investing with Distributed Energy and other investors in these assets. Additionally, you will benefit from the following:
i) Automatic Diversification – benefit from investing across multiple energy customers in geographies varying from East Africa, the Middle East and India. You can focus your investment on geographies you feel comfortable with.
ii) Dependable Cash Flows – Distributed Energy targets investments in physical assets with strong, contracted cash flow profiles.
iii) Further Leverage Options – Once the capital is invested, through our banking relationships, Distributed Energy can leverage your portfolio 30:70 at attractive interest rates, vastly improving your IRR.
Distributed Energy finances commercial and industrial sector solar projects that have an energy consumption requirement equivalent to 100 kW – 5 MW.
Distributed Energy focus primarily on Commercial and Industrial sector projects. Commercial and Industrial sector businesses require large amounts of energy to run their day-to-day operations. Additionally, more often than not, they are charged at a higher electricity tariff bracket compared to other users. As a result, we are able to provide a more competitive Power Purchase Agreement (PPA) rate, resulting in substantial electricity cost savings and avoided CO2 emissions. Distributed Energy is open to Government and large residential community PPAs. Please note however, these are not a priority for us.
I am a commercial/industrial sector business owner – what are the steps I need to take to list my project on Distributed Energy’s aggregation platform?
Before any project is listed on our platform, Distributed Energy conducts a preliminary screening to determine the project viability – both in terms of technical and financial feasibility. In order to do this, we require the following information from you:
i) One year electricity bills.
ii) Audited financials of customer’s business from the last two years.
iii) Site location (google map link).
Distributed Energy is involved in the full life cycle of the project – starting from financing, solution design, procurement, construction, commissioning and operations and maintenance (O&M) for the duration of the Power Purchase Agreement term.
Distributed Energy wants to accelerate the deployment of renewable energy across the developing world. Our areas of operation are Africa, India and the Middle East. Within Africa, we are specifically focused on East Africa.
As a customer, what is my incentive to partner with Distributed Energy and transition to solar power?
There are three main benefits you can expect:
i) Operational expenditure – we will finance the full project cost, allowing you to focus on your core business.
ii) Better than market rate tariff – our Power Purchase Agreement (PPA) will offer a rate that is better than the market, ensuring substantial electricity bill savings. Generally speaking, we offer PPA rates that are at least 15% lower than what you are currently paying.
iii) Transfer opportunities – if you no longer want to continue with the PPA, we will provide you with other options to explore.
Normally, project viability evaluation takes 2-4 weeks. Confirming funding for the project takes a further 4-8 weeks. Lastly, project deployment takes 8 weeks.So, a plant will normally go live within 4-6 months from first contact.
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