Access to energy is the key prerequisite for sustainable development and growth of nations. Sustainable economic growth in turn leads to an improvement in the quality of life of the population. On the African continent, Kenya is one of the fastest developing countries and a major hub in East Africa. Kenya recorded economic growth of 7.5 % in 2021, according to the Corona Year 2020, and growth of 5.5 % was projected for 2022.

Nevertheless, there is a major energy problem in Kenya that is hampering the country’s further development: nearly 40 % of the rural population still lacks access to energy, and those who are connected to the grid complain of poor power reliability and high electricity prices. This is also felt by businesses, which have to contend with production losses due to power outages and with enormous costs. Small and medium-sized enterprises in particular are at the heart of the Kenyan economy and provide 80% of the new jobs created each year, thus ensuring stability and growth in the country. In order to remain competitive, many companies are therefore looking for alternatives to the national electricity supplier and opting for a clean and reliable power supply through renewable energies.

This is where Belgian-Kenyan company Hydrobox NV (Hydrobox) comes in, with a mission to provide reliable, sustainable and affordable access to energy. Hydrobox relies on environmentally friendly run-of-river hydroelectric systems, which is more efficient than many other renewable energy sources because it is based on a resource that is available 24/7 (running water).

The company has developed a standardized and smart hydropower plant that is deployed in a decentralized manner on rivers and can be operated and monitored remotely. In addition, the power plants rely on the “run-of-river” principle to generate electricity, which does not require a dam and minimizes the impact on nature.

Through its business model, Hydrobox actively contributes to four of the UN’s SDGs („sustainable development goals“):

By installing the hydropower facilities and implementing an innovative business model, Hydrobox’s customers receive clean, affordable and reliable electricity, which is a cost-effective alternative compared to the Kenyan electricity grid or diesel generators (Goal 7.2). The combination of Anchor, Business and Household customers allows Hydrobox to comfortable repay commercial loans and charge an affordable tariff to its customers.

Hydrobox’s customers are small and medium enterprises operating in various sectors such as agriculture, more specifically tea, coffee and maize processing, or IT. Expensive electricity, frequent power outages and poor power quality are recurring problems. Thus, a constant and reliable source of electricity that is available 24/7 can have an indirect impact on the economic, sustainable growth of businesses (Objective 8.1).

Hydrobox’s hydropower stations can be deployed in a decentralized manner, making them particularly beneficial in rural areas where infrastructure is weak. The innovative stations, which are equipped with smart sensors, can also be operated and monitored remotely. The smart system also enables “predictive maintenance”, which reduces costs and increases the lifespan of the stations (Objective 9.4).

Hydrobox’s business model addresses climate change (Goal 13), as the hydropower stations replace diesel generators and grid electricity, and provide a significant reduction in CO2 emissions.

By switching to green hydroelectric power, Hydrobox’s customers increase their environmental sustainability by reducing their CO2 emissions. The hydropower stations generate approximately 1,746,000 kWh of electricity annually, resulting in CO2 savings of approximately 1,000 tons per year at a rate of 0,59 tCO2/MWh.

Over the life of the loan, this results in CO2 savings of 8,000 metric tons, and over the life of the hydropower station of approximately 25 years, 25,000 metric tons of CO2 can be avoided.

The investment risks associated with the subordinated loan are described in detail in the VIB under item 5 and in the risk notes. The measures taken to mitigate the risks are explained in this section:

1) Dual corporate structure
Three special purpose vehicles (SPVs) are used for the crowdfunding campaign:
(a) The German SPV Afrika Emissions 1 UG (haftungsbeschränkt) acts as borrower and issuer and is based in Germany. It forwards the capital collected from the crowd as a secured project loan to two Kenyan project companies, Gitwamba Power Station Limited and Kiamahindu Power Station Limited. In return, all assets (see point 5 below) are pledged to the German special purpose vehicle until the loan is repaid in full. The shareholders and managing directors of Afrika Emissions 1 UG (haftungsbeschränkt) are independent of the project companies and Hydrobox. In addition, the special purpose vehicle will be provided with a liquidity buffer (see further below under item 4).

b) The two Kenyan project companies, Gitwamba Power Station Limited and Kiamahindu Power Station Limited, jointly act as borrowers vis-à-vis the German special purpose vehicle Afrika Emissions 1 UG (haftungsbeschränkt). During the entire term of the loan, they remain the collective owners of the project assets financed and generated with the project loan. These assets are pledged to the special purpose vehicle Afrika Emissions 1 UG (haftungsbeschränkt).

2) Guarantee of the financially strong parent company in Belgium
The parent company Hydrobox NV in Belgium (HBNV) has confirmed its firm intention to support both Gitwamba Power Station Limited and Kiamahindu Power Station Limited (the project companies) up to the total amount of the crowdfunded loan. This is done by means of a guarantee for 100% of the loan amount in favour of the special purpose vehicle Afrika Emissions 1 UG (haftungsbeschränkt).
In addition, the past shows that the shareholders of the parent company Hydrobox NV have repeatedly provided the company with equity, which further confirms the interest of the shareholders in the long-term success of the business. HBNV had a gearing ratio of 1.17 at the end of 2021, which corresponds to an equity ratio of 46%. Additional capital in the high six figures was injected by shareholders at the end of July 2022.

3) Relatively low share of debt financing
The project companies Gitwamba Power Station Limited and Kiamahindu Power Station Limited receive equity financing from the Belgian parent company Hydrobox NV amounting to almost EUR 500,000 or 46% of the funding amount. Thanks to proceeds from subsidies of approximately EUR 255,000, the debt financing portion of the entire project amounts to a sustainable sum of EUR 983,675 or 54%.

4) Liquidity Provision/Provisions
a) Liquidity reserve
In order to strengthen the project liquidity, a liquidity reserve amounting to 5% of the net proceeds (i.e. a maximum of 49,184 EUR) will be collected in the course of the crowdfunding, to which the German special purpose vehicle Afrika Emissions 1 UG (haftungsbeschränkt) is entitled. EUR 25,000 of this serves as a liquidity buffer for the special purpose vehicle in order to be able to intervene or even take legal action in the event of any repayment problems on the part of the two project companies. The remaining liquidity reserve is reserved for short-term declines in performance. After two years, this reserve will go to the project companies.

b) Cross-liquidity clause
In addition, the investors benefit from a so-called “cross-liquidity clause”. This mechanism is created between the two project companies and allows for cash to be shared between the two legally separate entities to counteract potential liquidity shortages.

5) Pledge of project assets
In addition, the power purchase agreements, all receivables and the corresponding assets (turbines, associated distribution networks, etc.) are pledged to the German special purpose entity Afrika Emissions 1 UG (haftungsbeschränkt) to secure the repayment claim. The value of the assets including reserves amounts to EUR 920,000 and covers 85% of the funding amount.

6) Insurance cover
The two Kenyan project companies, Gitwamba Power Station Limited and Kiamahindu Power Station Limited, take out comprehensive insurance cover for the hydropower stations which, in addition to the usual risks (fire protection, theft, etc.), also covers claims for damages and loss of earnings in the event of damage to machinery.

Financing need

The total project cost is €1.68 million and includes the construction of the hydropower stations, project development costs, civil works and grid costs for electricity distribution. The project is partly financed by a grant and own funds from the two Kenyan project companies (subsidiaries of Hydrobox).

By means of this crowdfunding campaign, the remaining 1,078,000 euros (including fees) will be financed. The loan will cover the costs of turbine design and manufacture, project management, required licenses, civil works (surveying, excavation, construction of intake, forebay and penstock) and electrical works (step-up transformer, distribution boxes, power lines) and transportation costs.

The term of the loan is 8 years and has an annual interest rate of 6.5% p.a. for the crowd-investors. Repayment takes place once a year and includes repayment and interest (annuity repayment). Investors who invest in the project within the first four weeks receive an additional early bird bonus of 1% p.a. (i.e. a total of 7,5% p.a.). The funding threshold for this project is €50,000. If only this amount is reached, the local project companies will cover the difference with additional required debt capital from their parent company Hydrobox BV and carry out the project.

Repayment

The repayments to the investors are to be serviced from funds generated from the sale of the generated electricity through installment payments and concluded power purchase agreements (PPAs) with customers.

The hydropower stations will supply electricity to 300 households (1500 end users), sixteen schools, four hospitals and twelve businesses through two mini-grids. The largest consumers are presented below:

Kiriti Tea Factory is a tea factory developed by and for local tea farmers. It is a group of passionate tea farmers in the foothills of the Aberdare Mountains in central Kenya who have extensive experience in the tea sector. With hundreds of affiliated tea farmers and over 600 hectares of mature highland tea, the factory is very successful and on its way to revolutionizing the Kenyan tea industry.

Emashu LTD is a maize miller in Baricho town. The company requires a load of 80 kW (day and night) which is an ideal anchor customer for Hydrobox. Emashu wants to double its production capacity and is now constructing a second miller next to it’s current one. Emashu has signed an LOI and we Hydrobox is now the process of developing a PPA.

Jay Shree – a farm in Baricho, Kirinyaga County. The farm grows subsistence crops as well as coffee and has signed a power purchasing agreement with a dedicated load of 20kW.

BRCK and Gridless are the creation of serial social entrepreneur Erik Hersman. BRCK provides wi-fi internet in rural areas for the bottom of the pyramid by having customers pay with their time (e.g. through participation in surveys) instead of their money. From running their internet hubs in rural areas, Erik identified the existence of excess energy in rural minigrids. He then developed Gridless which operates as a buyer of last resort for renewable minigrids. They have a flexible demand used for data & blockchain. Hydrobox has a USD PPA with Gridless with a floor price plus a variable upside based on the revenue generated by Gridless.