At Distributed Energy (“DE”), we want to accelerate the deployment of renewable energy and provide a clean path to growth for developing countries across a broad range of impactful sectors. This preliminary DE-Solar Rooftop Fund 1 (“DESRF1”) Blueprint is proposed in order to invite expressions of interest (EOI) from sophisticated investors and financial institutions to join with those already involved to bring the vision and intention behind DESRF1 a reality in India. DESRF1 is tentatively scheduled for launch in early June 2020.
DESRF1 aims to realize average potential returns for the long-term (20 years) of no less than 15% for its investments into solar projects.
The supply of energy in developing countries is today an intricate system comprising the regimes of technologies, regulatory frameworks, socio-economic impacts and techno-ecological interactions. In order to facilitate this, DESRF1 would deploy a wholesale and direct investment approach across a broad range of sectors. Wholesale investments would take an array of forms including into solar off-grid and on-grid support, and enterprise development projects. This focus has a multiplier effect, enabling existing players to do more, as well as encourage more participants to enter because capital is more readily available. In the direct investment approach, DESRF1 will proactively pursue innovate and scalable solar projects, with potential for higher impact, returns and investor appetite.
Our objective involves focusing on deployment of solar for the private sector. We will seek, review and sign Power Purchase Agreements (PPAs) with industries, businesses and commercial organisations. We will focus on a minimum cumulative project size of 100kW and a maximum of 10MW.
We intend to have insurance for all our plants and equipment’s. We will also evaluate credit insurance availability for each client to ensure reduction in risk for our investors.
Structure and Governance
DESRF1 would be run and managed by DE. It would have a high-performing, multi-disciplinary investment committee and leadership team. It would have a governance and accountability framework that ensures it is independent, effective, inclusive, transparent and compliant.
Given DE’s track record and experience of having deployed and operated solar rooftop projects across India, the Middle East and East Africa, we consider our experience as operators to be an added advantage to raising and deploying such a fund.
In order for DESRF1 to realize its investment objective, execute its mission and mandate credibility, initial modelling indicates DESRF1 would need to raise at least INR 250 million. The fund subscription will close at the raise of INR 700 million. It is anticipated the capital to establish DESRF1 would come primarily from sophisticated investors and financial institutions, followed by established social sector organisations and philanthropy. The minimum initial subscription amount is INR 10 million.
The following risk factors are not exhaustive and do not purport to be a complete explanation of all the risk and considerations involved in investing in DESRF1- general economic and political risks, such as reduced economic activity, rising interest rates, inflation, rising prices in commodities, deflation, liquidity risk investments, counter-party risk, currency risk, natural disasters, political developments, acts of terror and war.
The ultimate benefits of DESRF1 would be felt by the communities and the economy in India. The capital injection into impactful sectors will help bridge the energy supply-demand gap in states, particularly off-grid societies and reduce sectoral dependence on fossil fuel based sources and promote instead the utilisation of environmentally-friendly, cleaner renewable technologies.
In a lot of the markets we operate in, there is also an absence of reliable grid power. Our rooftop solar will primarily focus on supplying base load to ensure that the customer will be heavily incentivised to enter into a PPA with us.
Lastly, given the current rate of solar infrastructure, we intend to focus on offering PPAs that have a per-kWh rate that is better than the grid.
There is a window of opportunity characterised by growing momentum and interest in renewable technologies as a driving force to catalysing energy independence in developing countries. The cost of solar has now crossed the inflection point where the IRR on offer is very attractive. Being an early bird and investing in innovative, socially beneficial outcomes could be a winning strategy, especially with the growing appetite from investors to allocate more of their resources to creating social as well as economic value.