US-based impact investor Encourage Capital has raised US$ 40 million for its new private equity fund Encourage Solar Finance that aims to help micro, small and medium-sized enterprises (MSMEs) in India switch to rooftop solar. Goodwin Procter served as lead fund counsel for Encourage Solar Finance.
Prominent investors to the pool included German government-owned development bank KfW and US-based Capricorn Investment Group, the John D. and Catherine T. MacArthur Foundation, the Jeremy and Hannelore Grantham Environment Trust and the Sant Foundation.
Encourage Capital seeks to complete its final closing in the fourth quarter of 2019 with a target of $75 million and a hard cap of $100 million.
“For investors seeking a market-rate return while creating deep and systemic impact, rooftop solar finance for Indian MSMEs represents a large, underserved and attractive market opportunity,” said Ameya Bijoor, Partner at Encourage Capital.
“This fund is an important example of Encourage Capital’s mission to identify, structure and finance commercial solutions to some of the world’s most critical social and environmental problems.”
MSMEs: 15 GW rooftop solar potential
The Indian government has set a target to deploy 100 GW of solar by 2022 (including 40 GW of rooftop solar). However, as of March 2019, only 3.5 GW of rooftop solar has been installed, with the MSME market largely unaddressed.
According to an independent study commissioned by Encourage Capital, the rooftop solar market for MSMEs in India has a 15 GW potential, resulting in a $9 billion lending opportunity for financial institutions.
“With increasing energy demand, high electricity prices and decreasing costs of solar, MSMEs can find rooftop solar to be an attractive, low-carbon solution for their electricity needs, but financing is still a key barrier,” said Adam Wolfensohn, managing partner and chairman at Encourage Capital.
“Our fund aims to address these barriers by partnering with specialized financial institutions and providing them with growth capital and the operational assistance they need to develop and deploy innovative and commercial financing solutions to scale rooftop solar for this market.”
MSMEs are important drivers of economic growth, accounting for 45% of India’s industrial output and nearly 30% of GDP. However, MSMEs face a credit gap of $230 billion in India, which limits their growth.
By providing much needed financial solutions to address important investments in clean energy, Encourage Capital believes that there is a unique opportunity to achieve compelling economic returns, given the rapid growth and superior asset quality of MSME lenders as compared with larger lenders, and to simultaneously reduce the carbon footprint of India’s industrialization.