It’s hard to measure risk for solar investing in sub-Saharan Africa. Nithio has raised $30M to change that. Jason Deign
Access to funding has been recognized as a major barrier for the development of off-grid solar energy in Africa. Startup Nithio Holdings wants to unlock that access for hundreds of millions of potential African solar customers — and it has raised a $30 million funding round to do it.
The Washington, D.C.-based company has developed a financing platform that uses artificial intelligence for credit scoring. That analysis can assess the odds of African customers defaulting on a loan with more than 90 percent accuracy, according to Kate Steel, Nithio co-founder and COO. The technology should give developers, lenders and investors confidence in funding solar systems for the 270 million Africans who Nithio’s analysis has revealed could afford to repay loans, Steel said in an interview with Canary Media.
Today, “the distributors or the operators will be going in basically blind as to whether or not a household is going to repay or at what rate they’re going to repay,” she said. “It’s really a step change in the information that’s available.”
Most off-grid African families do not have enough savings to buy solar systems outright and so rely on loans. But lender concerns over creditworthiness mean most of the money for off-grid electrification comes from international financing programs. And research released last year found these programs are frequently inefficient and poorly targeted, with only 13 percent of the development finance institution money committed to African minigrids actually making it through to projects on the ground.
The Africa Minigrid Developers Association, meanwhile, said its members had received just $50 million in funding since 2013, or around 3 percent of what has been pledged for energy access schemes in the region.
Helping to step up the level of solar asset financing in Africa is not only good news for off-grid communities but could also represent a major opportunity for investors. The addressable market identified by Nithio is roughly 10 times bigger than the U.S. residential solar sector today, based on 2019 predictions from Wood Mackenzie Power & Renewables and the Solar Energy Industries Association.
Helping up to 600 million people
Beyond identifying potential solar customers who could afford to pay for systems through traditional financing, Nithio’s credit-scoring system could help non-government organizations and development finance institutions target less well-off communities.
That could help a further 330 million off-grid Africans benefit from solar energy, based on Nithio’s estimate of a total population of 600 million people without grid access.
Nithio’s credit-scoring platform relies on algorithms that have been trained to estimate default rates based on anonymized data provided by solar system operators and developers. The system also draws on geospatial household data covering subjects such as monthly expenditure, education and employment levels, and car or cellphone ownership.
In markets such as Nigeria, “there are thousands of indicators per square mile,” Grace Fenton, Nithio’s go-to-market director, said in an interview.
Nithio’s technology has caught the eye of a range of investors in its $7 million Series A financing round, including lead investor The Rise Fund (backed by TPG Capital and U2’s Bono) and participating investors Kupanda Capital, Emerson Collective and Powerhouse Ventures. The money will help Nithio scale its business, increase its lending capacity and refine its credit-scoring models, Steel said.
Nithio also raised $23 million from the U.S. International Development Finance Corporation, the European Union-funded Electrification Financing Initiative and other investors to fund projects. This funding will be disbursed through a financial intermediary called Nithio FI.
“We want to do as much lending as we can in this space, but we’ll also provide services to our competitors because we want them to be using the same type of risk analytics that we are,” Steel said.
Smart tech to the rescue
The Nithio fundraising news coincided with another investment announcement combining smart technology with energy access in Africa.
Shyft Power Solutions, which uses machine learning to help integrate hybrid distributed energy resources into the Nigerian grid, raised $3.1 million in seed funding from investors including Total Carbon Neutrality Ventures and Softbank Investment Advisers.
Nithio backer Powerhouse Ventures also took part in the Shyft round. “As hardware costs have plummeted, the biggest barriers to clean energy access in emerging markets are increasingly in financing, deployment and integration,” Emily Kirsch, Powerhouse Ventures’ managing partner, said in an email.
“Advanced software solutions are accelerating the pace of clean energy adoption and helping provide reliable electricity access across Africa,” she said.
William Brent, chief campaign officer at the advocacy group Power for All, welcomes the investments. “The proliferation of mobile payment platforms over the past decade was an important first step in opening up the market for pay-as-you-go distributed solar, since it created a proxy for a credit history,” he said in an email.
“The challenge for the next decade will be about enabling existing solar customers to buy additional appliances that improve their lives and create more income, while also identifying poorer communities [that] need subsidies to exit from energy poverty. Machine-learning, paired with ground-truthing, has an important role in making that happen.”
(Article image courtesy of Sergei Pesterev)