Energy Access Crowdfunding – State of Market report 2022
The dynamic evolution of energy access-related crowdfunding takes centre stage in the latest report from Energy 4 Impact’s Crowd Power programme, revealing a drop in the total volume raised, from $62 million in 2021 to $50 million in 2022. This decline is driven by shifts in the debt crowdfunding market, which still commands close to 90% of all energy access-related crowdfunding activity. Since 2016, crowdfunding platforms have raised over $250 million for energy access, experiencing steady growth from $8 million in 2016 to a peak of $62 million in 2021, with 2020 being the exception.
The intricate interplay of changing macroeconomic conditions, including rising interest rates, high inflation, coupled with defaults among historically significant borrowers such as PAYGo SHS companies, played a role in the reduction of debt lending volumes through crowdfunding in 2022. Equity crowdfunding volumes witnessed a 20% increase in the same year, with five energy access companies collectively raising a total of $5.6 million.
Whilst debt crowdfunding volumes fell by 22% to $43.2 million in 2022 from $55.4 million in 2021, it is crucial to contextualise this decline in light of the USD appreciation in 2022. On constant EUR-USD exchange rates, the decrease in debt volumes falls to -14%. The crowdfunding sector was severely affected by the macroeconomic environment in 2022, where inflation reached 9% on average in the European Union. Performing in these market conditions is an ongoing challenge for platforms. To keep attracting investors, they must compete with rising interest rates, while offering affordability to borrowers, whose size and payback abilities are constrained. In addition, investment opportunities have reduced due to repayment difficulties among borrowers in the SHS space that have historically attracted significant volumes. Major platforms such as Trine, Lendahand and Energise Africa have undertaken pivot actions in their investment strategies to deal with those challenges, increasing lending outside PAYGo SHS companies for example.
The decrease in debt volumes varies among platforms. Debt platforms offering smaller ticket-size loans of $50,000 to $250,000, such as Kiva, bettervest and Charm Impact, increased lending in 2022, largely outperforming the overall market. There continues to be a shortage of opportunities across the investment landscape for companies seeking smaller ticket size loans. The higher transaction costs relative to loan size remain a challenge for platforms and platforms are experimenting with innovative solutions such as the automation of due diligence and aggregation of loans to alleviate the challenge. Debt platforms providing larger ticket-size loans of $500,000-plus, experienced on their side a significant decrease in lending volumes and have subsequently diversified their portfolio, dealing with a thinner pipeline of PAYGo SHS company borrowers and harshest market conditions to attract lenders.
Global equity crowdfunding continued to show resilience in 2022 despite a dip in global venture investments. Five energy access companies raised $5.6 million in 2022, up from $4.5 million in 2021. Equity crowdfunding investments in the energy sector increased in 2022 and climate tech is now the top-funded sector across leading European platforms such as Seedrs and Crowdcube. This is good news for energy access-related companies that fall within this sector. The key to success on equity crowdfunding platform lies in setting an attainable fundraising target – often less than $500,000 – and reasonable valuation. This is particularly evident in companies that have raised multiple rounds via equity crowdfunding platforms.
Going forward we expect to see debt crowdfunding platforms expanding into adjacent sectors and new geographies to diversify risk and secure growth. Among smaller ticket-size lenders we expect to see increased innovation as platforms experiment with automation and aggregation. A high interest rate environment will continue to pose a challenge to debt crowdfunding platforms working in the energy access sector due to lower risk-adjusted returns. The need to maintain competitiveness may result in higher interest rates for energy access company borrowers.
Supported by the UK government’s Foreign and Commonwealth Development Office (FCDO) via its Transforming Energy Access programme, Energy 4 Impact’s Crowd Power programme has helped over 70 energy access companies raise $17 million from 2015 to 2022, through 14 crowdfunding platform partners. Based on this success, Crowd Power entered its third phase this year and will continue until 2027. Crowd Power seeks to consolidate gains from the past phases to accelerate sustainable growth in energy access crowdfunding through targeted support for equity and debt platforms.