The perfect RBF - standardized vs. custom fit

Speaker 1: 0:09

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Speaker 2: 0:35

Hello everyone. My name is Nico Pieterschmidt. I'm the CEO of Inensis. Today, we're talking about the perfect results-based funding scheme Standardized versus custom fit. My guests are Anita Ottubu, senior Director of Universal Energy Facility, sustainable Energy for All, and LaMide Nii Afouye, chief Executive Officer of the African Mini-Grid Developers Association. At SE for All, anita leads on the program delivery of the Universal Energy Facility, a multi-donor-funded results-based financing facility for the development of renewable energy projects across sub-Saharan Africa.

Speaker 2: 1:17

Prior to joining SE for All, anita was the head of the project management unit of the Nigeria Electrification Project, nep, with a $550 million facility jointly funded by the World Bank and the African Development Bank. She has experience working with senior government officials, for example, as a member of the advisory power team in the office of the vice president of the Federal Republic of Nigeria or as a legal technical assistant to the Minister of Power. As CEO of AMDA, lamide represents the private sector mini-grid operators in Africa. He brings in experience from multiple sectors, including law, financial markets, investments and renewable energy. Prior to joining AMDA, he served as strategic advisor to the CEO of Mainstream Energy Solutions Limited, west Africa's leading hydropower generation company and concessionaire of Kanji and Jeba hydropower plants, where he drove the end-to-end processes for the acquisition and concession of strategic investments. He also worked at FMDQ, a securities exchange focused on organizing the markets for the admission, trading and reporting of securities and financial products. Welcome Anita, welcome LaMide.

Speaker 3: 2:44

Thank you very much, Nico. Glad to be here.

Speaker 4: 2:47

Thanks a lot, Nico. Happy to be here.

Speaker 2: 2:49

We are talking about results-based funding today, which is, in brief, rbf. Anita, can you tell me a little bit about RBFs, like what is an RBF?

Speaker 3: 3:01

An RBF essentially is a results-based financing facility. It's a mechanism or an instrument that's used to incentivize private sector companies to grant payments, paid out upon verified connections being made, so that's electricity connections where mini-grids are powering households, msmes and other types of buildings, public institutions and so on. Payments could also be tied to agreed upon milestones, so at the point of major equipment arriving at site, at the point of technical commissioning of these mini-grids and then thereafter at the point of actual connections being made in the supply of the power from those mini-grids to the households, to ensure that not only are these projects actually delivered but they're also fit for purpose, all right, thank you, anita.

Speaker 2: 3:54

What is the difference between an RBF and a so-called performance-based grants PBG or a minimum subsidy tender, msd?

Speaker 3: 4:04

then so, in my opinion, a results-based financing facility in a performance-based grant or one in the same.

Speaker 3: 4:12

When I was heading the Nigeria Electrification Project, we had a component called a performance-based grant, where essentially we were providing payments upon verified connections being made, and at the Universal NG facility which I currently had now we refer to it as a results-based financing facility, where we essentially make payments upon verified connections as well Performance results, essentially linking payments, incentives, to actual, tangible milestones.

Speaker 3: 4:42

With the minimum subsidy tender, it can also adopt a results-based financing approach as well, or performance-based grant approach too, which essentially links payments to actual milestones or connections being made. But the difference, typically with a minimum subsidy tender, is that the program would identify the communities and put them into portfolios of projects and ask minigrid developers to essentially bid to build out minigrids within these portfolios of communities and essentially state what the minimum subsidy is that is required in order to make these projects viable. What is the minimum subsidy they need in order to raise sufficient finance to build out these projects? However, with a results-based financing facility or performance-based grant, typically it's where companies identify the communities themselves and, upon obviously meeting necessary criteria laid out by the program itself, and then you enter into a grant agreement with those companies and then the companies do the need for in terms of building out the projects and securing those connections and thereafter being paid.

Speaker 2: 5:57

That's interesting, anita, because we in Enensos have a slightly different definition of RBFs, pbgs and MSTs. We consider performance-based grants and minimum subsidy tender grant funding schemes. They cover everything, including how the funds are being managed, how the funds are being allocated, how sites are being selected and, after all, how the money is being disbursed. And the way the money is disbursed can be an RBF a results-based funding and RBF is basically just a disbursement method that could be used under various grant funding schemes. So PBG could use an RBF to disburse grants, but an MST could also use an RBF to disburse grants. But you could also, for example, have an idea competition which disburses funds using the RBF approach. I think we're not too far from each other and we can still talk about RBF. Today, and with that I would like to hand over to Lamida. Can you guide us through some famous major RBF schemes that exist for the mini-grid sector?

Speaker 4: 7:12

The RBFs that I'm familiar with are obviously the UEF, the Universal Energy Facility, the Niger Electrication Program. I've come across one more recently called the CEI Africa, which builds itself up as a sort of one-stop shop for all the forms of financing. So we're hoping. Also the imminent launch of the DEAS Program, which is Distributed Access to Renewable Energy at Scale, if I'm correct, perhaps started in Nigeria. So those are the ones that I'm familiar with, but I'm sure that there are quite a few more in the market.

Speaker 2: 7:54

Yeah, there are many, many more smaller ones, larger ones across the continent, even outside of Africa. There are many RBFs available for the mini-grid sector, but I think you covered the most important ones. Thank you. If you ask mini-grid companies across the African continent, they would usually prefer a PBG over an MST because under the PBG they can select the sites and they can match the sites with their specific business models. They have and select those sites larger sites, smaller sites, sites with certain economic potential in a certain sector or crops or goods that could be produced at that site. Anita, what is your take on this PBG versus MST? I?

Speaker 3: 8:38

think minimum subsidy tenders are great because it allows for the market to dictate what that viability gap is and what the required subsidies are or is in order to bridge that gap. It also gives an opportunity to, I guess, get the minimum subsidy, which should in turn provide a lot more funds to go around, as opposed to when you give a flat subsidy rate or amount, which is what's typically given through a performance-based grant approach. However, with that being said, from my experience I personally prefer the performance-based grant approach, and this is because of the time that it takes for a company to build out these projects. With the minimum subsidy tender, as I mentioned earlier, the program would have to identify the communities, conduct the feasibility studies, carry out the stakeholder engagement activities, put these projects into portfolios, ask companies to bid and by the time you've concluded that process, maybe a year has gone by, or a year and a half, and you select those companies. The companies now go out to these sites to start building mini-grids at these portfolios of sites and you find that they've already been taken by performance-based grant developers, who have been given the liberty to just select sites as they see fit, and obviously they're going to identify those sites that make economic sense to them, where they see some level of economic activity or for whatever reasons that suit them.

Speaker 3: 10:13

And so for speed purposes and we are eager to bridge this NG-Axis gap within the shortest timeframe the performance-based grant approach works better for me. But in terms of cost effectiveness purposes or cost saving or ensuring that you have enough funds to go around to achieve maximum impact or coverage, perhaps the minimum subsidy tender and also with the minimum subsidy tender it would allow for those not so attractive sites to also be picked up, because with the performance based grant sites they will typically be the ones that are more attractive than those in the most remote rural areas with minimum economic activities. With minimum subsidy tenders it allows for a mix of different types of communities where you could also bring in cross subsidization to ensure that nobody is left behind. So I guess they both have their pros and cons.

Speaker 4: 11:13

Yeah, if I may comment, I think what I just said is very apt. There's a need for speed, so naturally the market would prefer the one that is quicker and can help address the electrification challenge while still making some sort of commercial sense. So I think that that's probably what the RBS tried to address. The MSTs perhaps are a mix of sites, to the extent that the gap is still very wide. I think there's room for both methods. It's just that there maybe should be a more coordinated approach to how we're allocating sites or how we're designing these programs, so that there's no conflict between the RBS and the MSTs. So that's my thinking.

Speaker 2: 11:59

After all, they even partly depend on each other. Like if you only run PBGs in one country, you would never know what the right grant amount would be. You will only find out once you run an MST procedure where the competition determines the grant amount that is adequate for a certain type of mini-grids. And once you have done that, you can apply that knowledge to the PPG and provide the framework that the mini-grid developers need to develop successful mini-grids. So I would even say one without the other doesn't work very well. Either you lack the speed that the PPG can provide or you lack the accuracy of identifying the right grant funding level that only the MST can provide. Let's go back to the original definition of the RBF scheme. So the RBF, as Anita already said earlier, disperses funds based on verified results. I know from own experience that the verification process of results is one of the trickiest parts of an RBF. Anita, do you want to tell us something more about that and maybe how the UEF is handling this?

Speaker 3: 13:28

Yes, it's really important that RBF programs are seen as transparent and also fair and, as such, with the UEF, the Universal Energy Facility, and, I believe, with probably other RBFs, we have an independent verification agent responsible for verifying the agreed upon milestones that have to be met. We do adopt a two-stage approach, so we have a physical verification approach as well as a virtual approach. Physical in the sense that the independent verification agent will actually go to the site and verify what's on ground, the connections achieved and so on. And virtual through the meters which are integrated into the Odyssey platform, which shows who these customers are and also consumption rates as well. So it's not just about seeing the fact that the meters have been connected, but actually seeing that those households have been supplied electricity. So, yeah, we adopt both a physical and a virtual approach.

Speaker 3: 14:36

But what I should also note as well as we changed the results in which payments are being made. So, for example, initially the program only made payments upon after 30 days of supply of electricity from the mini grids to the households. Now that we have two additional milestones, which is upon major equipment arriving at site and also upon technical commissioning of the mini grids, we did decide to enable self verification for the first milestone. So, upon major equipment arriving at site, we allow for the companies themselves to provide evidence of equipment on ground with pictures that show coordinates, with the serial numbers for the PV panels, for the batteries, for the inverters are the major equipment and it's essentially presented in a report style document and it's shared with us. And unless we feel as though there's some discrepancies, then we may ask the independent verification agent to go on ground to conduct further verification of what they say has been delivered to site. But it's not until the second and third milestone where we really do bring in the independent verification agent to verify what is being claimed has been achieved.

Speaker 2: 15:52

Anita may I ask what a typical disbursement upon the first milestone would be like upon the arrival of certain goods on site?

Speaker 3: 16:02

Yeah, so we pay out 40% of the cost, the total cost agreed upon. So if you said it's $592 per connection, per household connected, and there are 10 households, for example, so essentially 40% of that amount. And, like I mentioned, the equipment that we want to see on ground are the PV panels, the batteries, the inverters and also the meters, because the meters are a good indication of the number of households they intend to connect as payments are made. What we are tracking are actual connections, the number of households, msmes, buildings that are connected to the mini-grid.

Speaker 2: 16:42

Yeah, a capital in the mini-grid sector is still very expensive, and pre-financing grants, because they are only dispersed after the costs have been incurred, requires some interim finance, or so La Mide, what is the private sector perspective on this?

Speaker 4: 17:03

Well, I mean, I think the answer is very obvious Private sector would prefer to have more options for pre-development type financing. Whether or not that comes through an RBF, that's a different question. But if we're talking about 380 million people needing access to electricity through mini-grids between 140,000 to 160,000 mini-grids required to power these people then naturally speaking, you need more developers available. You need more sites being developed. So naturally, the private sector would much prefer to have more pools of funds available that could frontload the investor costs.

Speaker 2: 17:50

Yeah, my understanding from various interactions with probably hundreds of mini-grids developers and operators in the sector is that many of them really appreciate the simplicity of the RBF procedure, the relatively low level of effort required from the developer side, and I guess actually I know from talking to them that they would not prefer anything that is more complex over this relatively simple procedure that the RBF provides. However, la Mide, what you just said is absolutely true Somehow they need to find funding to pre-finance the RBF amount. There are some opportunities out there. There is, for example, sun Thunder, which provides interim funding or finance for grants, because the risk of that finance is relatively low lower compared to the infrastructure funding that you need for the long-term operation of the assets, for example. And this is, of course, an easy entry point for a financing institution to come into the mini-grid sector and gain some initial experience.

Speaker 2: 19:06

But I also am aware of the approach that the CEI Africa Foundation is introducing, and that is basically what they call a forgivable loan. So they assign a certain RBF grant to a certain project and then they sign a loan agreement over the grant amount and if the project is implemented as expected, then the loan would be forgiven. Basically there would be no interest. That applies that is at least my understanding and if the project is not implemented as foreseen, then suddenly the loan agreement comes into play and the amount that has been disbursed up front needs to be repaid, including the interest and the principle. So that is an innovative approach, which of course comes with a certain complexity and certain degree of additional administrative effort. Anita, what do you think about this approach? Is this something that you would be willing to look at under the UEF?

Speaker 3: 20:20

I think it's a fantastic approach. I've always advocated for having a one-stop shop type of platform where developers can come and access all the finance that they need to blend in order to build out their projects within the shortest time frame. As speed is important, rbfs tend to make payments at a quite a late stage in the implementation of the project. So, as I've mentioned before, after supply of electricity for 30 days, in the case of Nigeria electrification project, it was even 90 days of supply. Understanding that, this didn't really help the developers in being able to secure the initial capital investment required. That's why I made adjustments to the net when I headed the net, and also to the Universal Engine Facility to allow for earlier payments. So that's, I guess, for us, our way of being innovative. But certainly the UEF team are open to working with other types of finances who are providing equity and debt to blend with our grant funding.

Speaker 4: 21:22

I think what the UEF is doing, what CEI Africa are doing, what the Olands are doing is fantastic. What we need is more of these, or maybe bigger tickets. So if we're talking about $91 billion required to be coming to the sector through multiple forms grants, investment, equity, climate finance, carbon credits we just need more, and I suspect Anita would like to see the size of her fund grow even bigger so that we can support the sector even more.

Speaker 2: 21:53

All right. What needs to be done? To scale, as Lamida said, to scale the amount of grant available to the sector. Where we are now, we are talking about hundreds of millions of dollars per project. That is the maximum size. In many countries it's tens of millions of dollars. What we probably need is billions of dollars per country larger countries, smaller countries less probably. But how do we get there? What is required?

Speaker 3: 22:23

Data is super important. You need the pipeline of projects right Bankable projects, finances would like to call them. If you have that data readily available and you also have cases where these projects are seen as being successful and viable, so existing mini-grid projects at scale that are actually working, that data is readily available, this goes a long way in being able to justify the need for more finance in this space. I would also say the legal framework has to be there. The enabling environment has to be there too. You're not going to raise finance if a particular country doesn't have the enabling environment to allow for scale of these types of projects in that country. So is there a regulation in place? Is policy in place that protects private sector investment, that protects developers who want to go and build mini-grids within the rural communities or peri-urban communities?

Speaker 3: 23:22

In Nigeria, as you may know, they have the mini-grid regulation that not only allows for off-grid mini-grids but also for interconnected mini-grids as well, provided the necessary agreements are entered into with the distribution company, with the responsible utility, Understanding that the political will is there as well. So it goes a long way when presidents are announcing that they want to roll out 1,000 mini-grids within their country, as we're seeing in Zambia, for example. The political will is there. You now have the legal framework or the enabling environment through regulations, and then you have data which actually identifies where these communities are, where you can build out these projects, and then you also have evidence in terms of these types of projects working with the support of blended finance. Having all of this information readily available, this will go a long way in being able to secure the type of finance that's needed to achieve the scale of connections that's being targeted.

Speaker 4: 24:24

Thanks a lot. Anita has a spot on. I used to work in capital markets and I can tell you for free, transparency drives investments. People do not come into long-term especially long-term infrastructure where there's not enough information on what exactly we're investing in. So I think that the mini-grid sector is at a point of reckoning where we know that business as usual will not work or will not provide enough scale of capital required to do the work that is required. So I think this is a good opportunity for me to sort of put out all the ideas that Amdur is working with, our strategy for the sector.

Speaker 4: 25:05

Looking forward, as Anita said, policy is a big part of what we do and policy is what we'll continue to do. But it's very clear to us that without the necessary enabling environment from the policy perspective and clarity in the regulations, then we would not succeed. Usually the government sort of says we have this plan to electrify our people, but the question is how Some countries are taking the lead Niger, ghana in building these elaborate national electrification strategies. We need more countries to do that. In fact we need all 54 countries, but if I may be restricted to South Africa, where the problem is bigger, we need them to adopt electrification strategies that embrace mini-grids as one of the cost-effective solutions to closing the electrification gap. Mini-grids can achieve a large-scale electrification with minimal investments when you compare it with grid. We also need to change this dichotomy of grid versus off-grid I say this with all sorts of responsibility that mini-grids are part of the grid in any sense. The future is decentralized energy. For the scale of the problem, for how far some of these rural communities are, it looks like it's better that some of the distribution companies or the national utility sort of cooperate with slash, allow the private sector, migrant developers to do the work that they probably might struggle to do and maybe focus on the areas where they can reinforce their existing networks.

Speaker 4: 26:48

From the perspective of the developer themselves, amda will be focusing on enhancing the capacity for developers. So scale up of the developer to take advantage of the scale up of the sector. That would mean, for example, tomorrow we have our second CEO roundtable where we will be sharing ideas amongst developers. So, for example, people like yourself, nico, who've been in the sector, you're like a grandfather in the sector. You can bring in your experiences to somebody who's just coming in. So there is a convergence of information, sharing, knowledge, pair discussions.

Speaker 4: 27:29

For this perspective of data, research and standards, we're working to build a repository of information so that there is a reference point for data and data. On the mini-grid sector, the World Bank has done a great job and we're going to be working closely with them while using our benchmarking Africa mini-grid reports. And then the final point is access to capital. So on two sides, we'll be speaking to the likes of the UEF to make sure that things are streamlined as best as we can. A convergence in the RBF programs, really so that things can be more streamlined, ticket sizes can be bigger and can support the scale that is needed. And on our capacity building perspective, we would love to work closely with developers to educate and enhance their capacity on understanding investments in general. So I'll stop there, but I just thought I should put out what I think is needed for this sector to scale. Thank you.

Speaker 2: 28:30

Thank you, lamida. That was very comprehensive. Let me go back to one of the main points that Anita raised. Now. What we need to convince donors and funders to put more money into our BF schemes is track record and data. Lamida, do you think the mini-grid operators will finally deliver that track record and data? Because what we have seen so far is great announcements. We will soon become profitable, we will soon be EBITDA positive not now, not yet, but just wait. Give us double the amount of money and then we'll reach there. Is this a game? Is this something that we need to take seriously? These announcements when will they turn through?

Speaker 3: 29:21

Can I come in here? I think it's important that we create a safe enough space for developers to feel comfortable enough to share their data. This culture of really sharing this information, track records of success or challenges faced. It's not really out there. What do we need to do as a sector to make these companies feel safe enough or confident enough to share this information with us?

Speaker 2: 29:52

There are two components to that question. The first component is are mini-grid companies willing to share data? I think AMDA has proven that yes, if you anonymize the data properly, members are willing to share their data. Then you can compile these wonderful sector reports that AMDA is publishing every year, every second year or so, and which provides a wealth of insight and information that is very much appreciated. Unfortunately, that data still shows that we are on the way towards profitability. That is where we come to the second component of that question. Funders would like to put their money where they can actually create a market with their donations. The question is when are we at that level? We can say and mean we have a market that works. We can finally show you the data. Here it is. It shows mini-grids are profitable. Lamite this goes back to you. When will we have reached there? When do you think we are at that point when we say funders, here is the data, look at it, it's all profitable. Now we can go.

Speaker 4: 31:13

Well, I would have to be able to predict the future. I think there is a chicken and egg situation. A lot of structural issues have to be addressed For us to be able to see a line of sight to say there are more examples of profitability, Although they are today. I mean, from what we've read about, from what some of our members have said, we need to see more success stories. That comes with everybody playing their respective parts, from the governments to the financiers, to the grant providers, to the mini-grid developers and to suppliers. The whole ecosystem has to agree and rally around the sector for us to be able to clearly show more success stories.

Speaker 2: 31:57

The truth probably lies in between what you just described and what I provocatively described earlier, where you say it has to be a movement, with all players taking the next step Funders providing the next level of funding, mini-grid developers and operators developing their business models to a level where they can show profitability, governments providing the right framework, and so on and then, if everybody takes more steps, then we will reach that point where and that is where I believe my case will kick in that as soon as we have reached that tipping point, funding will just flow. Money will flow into the sector. Mini-grid companies will not know how to actually implement mini-grid projects faster than us because there's so much money coming in. But until that happens, I believe we have to go through the process that you just described.

Speaker 4: 32:59

I think what is clear to me and you summarized it very well that mini-grids are important, mini-grids are necessary and mini-grids will stand the test of time. Question is when? So just to hone in that point, to the extent that everybody has embraced mini-grids as a solution to this electrification gap, the right kinds of funding, the right kinds of policies, the right kinds of frameworks and business models will become mainstream.

Speaker 2: 33:29

All right. And Anita, when you talk to grant funders that you expect to put money into the UEF, what do they expect from you as the UEF? What are their requirements? Is it easy to talk to them? Is it easy to acquire funding? Under what conditions can you acquire funding? What is the process like?

Speaker 3: 33:49

I think the most important thing is for you to identify donors who have strategies that align with your strategies, so donors who are passionate or keen to bridge the MG Access gap within particular regions, whether it's sub-Saharan Africa or whatever it is, so long it aligns with your own strategy. Secondly, it's important for you to be able to explain how your program is different from the other similar programs that are out there. They're delivering on the same outcomes or targets. What is it about your RBF program that's different from the other RBF programs that justifies this particular donor selecting your RBF program to fund? You're oftentimes given pretty short timelines to achieve these connections sometimes 12 months, sometimes 24 months and to me personally, I don't think that these timeframes are realistic. Think about the Nigeria Electrification Project. This was a financing agreement between the Government of Nigeria and the World Bank and the African Development Bank for about four to five years. It takes a lot of time to prepare these programs, to launch them, get buy-in, to get necessary data and then get companies on boards, companies identifying the communities going through the evaluation process, companies then getting the necessary permits or regulatory approvals, purchasing the equipment, equipment being installed, connections being achieved and then the supply of the power as well. This takes a considerable amount of time and you find that donors often want to see these connections and they want to see the supply of electricity within the shortest of timeframes. So I think the difficulty really is to do with managing expectations and getting them to understand that you need a bit more time for these products to really take off and for you to really achieve these targets and see impact. That will ultimately even justify asking for more money when you have that data that comes from the success of these projects that you've been able to implement.

Speaker 3: 36:05

What sets the Universal Energy Facility apart from some other RBF programs is that we're not just there to disperse funds. We don't just sign grant agreements and then, after 12 months, call up these developers and say oh, have we achieved these connections now? When are you going to invite us for the commissioning? We're ready to make payments. We like to believe that we're working in partnership with these companies. We're supporting them with their project management. We're supporting them as they encounter challenges with various stakeholders, whether it be government stakeholders and even, as it concerns even raising finance, being open to having conversations with financiers that they're reaching out to and regulatory and other government bodies as best as possible to support these developers as they go about building these projects or implementing their projects. Being able to share this strategy or approach with donors innovative ways of ensuring that we achieve the success effectively and efficiently I think that's really what's important in order to be able to secure the donor funding that's required All right.

Speaker 2: 37:20

Lamida, you mentioned earlier that you see some advantage in harmonization and standardization of RBF funding approaches across the continent and that you expect this harmonization to lead to more donor interest in the sector. Is that correct? If yes, to what extent can this harmonization actually happen and where do we need to go into country-specific considerations?

Speaker 4: 37:53

They're advantages and I guess just advantage of having multiple RBFs, as maybe they're catering to different sort of Pain points. You know, some focus large your productive use, some focused on just getting the connections available. But I think maybe what I should emphasize on Convergence in structuring, convergence in organization and convergence in size. So I think what I find is that multiple RBFs programs are speaking to the same People. You know what I mean. So if you have like a couple of people, just two or three, four people speaking to those same Types of maybe foundations and students, people that are ready to fund energy access, perhaps we might see bigger checks being written, people speaking with the same voice. That's what we mean when we say our view would be, you know, streamlining of this.

Speaker 2: 38:47

Yeah Well, reality on the ground in many countries is that many good developers are trying to Develop mini grids but there is simply no Grant funding available. Look at Cameroon, for example, where there are mini grid companies waiting for Five years, ten years or so it for money to come in and nothing's really happening, not at least from an RBF type of instruments side. There are developers out there which are ready to deploy and ready to scale, but RBFs are simply not coming through. And it's not. The way that Many donors may think is that when you put money into a country, suddenly companies come. Yes, they may even come, but then you get only the international large companies which can jump from one country to the next. But governments may not prefer this option of rural electrification with mini grids through international companies.

Speaker 2: 39:52

Many of the governments, as far as I know, prefer domestic players to do the job, and there are domestic players in almost every market. It's just that there are some countries where we have an abundance of grant funding programs, in some countries where there is simply nothing and developers are waiting for funding to come in their screening the opportunities and then they find, okay, this may work here in this country, but if I want to use that money, then I have to change my business model. Okay, let me change my business model just to get access to that money. This is not the way it should be actually. And yes, I agree, lamida, that there should be Various programs allowing various business models to be supported, but I also believe that there should be a wider geographic coverage and, anita, I understand that the UEF had started off with exactly that idea and, after all, you basically picked some individual countries to implement and did not go for that all Continent coverage. Why was that?

Speaker 3: 41:06

We would love to cover the entire continent. That's the truth of the matter. But we are also limited by available finance. At the moment we have about 45 million US dollars. We intend to raise about a hundred million, hopefully by the end of this year we've got like less than two months, you know and ultimately, within the next few years, perhaps to be a five hundred million dollar facility. You know, the more finance we have, the more justification we would have to be able to launch in, you know, more countries so at the moment, we're in five countries and you know that's where 45 million US dollars.

Speaker 3: 41:46

The Nigeria electrification project alone, which is just based in Nigeria, had 550 million US dollars for my year alone. So it's impossible, I guess, to use the funds that we have to cover the continent, unfortunately, and that's why there's so much need for a lot more philanthropic finance, grants you know to be Given to RBF facilities like the UEF, in order to ensure that coverage, in order to get to the kemarines, as you'd mentioned, and yet you know the other countries that unfortunately don't have RBF facilities there. What you find is that RBF programs will target those countries where there is demonstrated political will. You know the governments are strongly for renewable energy projects, mini grid, decentralized projects, interconnected projects within their countries, where you know there's the legal framework, the regulations are in place and there's also evidence of existing mini grids as well that are working.

Speaker 3: 42:50

But there's somewhat of the market that there are developers already on ground. Because you don't want to just, you know, launch in a country. No developer is there and you know you're having to rely on International companies, which is not a problem. But international companies, they still need to go through the whole registration process, incorporating, you know the local entity there and getting familiar with that country right, which has its own peculiarities. So that's really the issue, but certainly it's the plan. The ultimate goal of the UEF, in its name itself, universal access is universal access, you know, globally, but it definitely is limited to available funding and it is also limited to demand. It's a core. Will you know? Governments saying this is. You know, we want this, we need your support.

Speaker 2: 43:41

What we have said so far is that the political will and a regulatory and legal framework is a precondition for an RBF fund to be interested in this specific country. And From a government's perspective and a regulators perspective, it's usually the other way around. It's not the the framework being prepared before the funding comes, but it's usually the funding that triggers the development of the framework. So now, if everybody just looks at those Countries where others have done the job, like other technical assistance facilities, or so have done the job and prepared the framework with initial funding for initial mini grids, then what happens to all those countries that are interested, like listen to this episode that we had with Amda and Afour represented just a week ago, where Samuel clearly stated that we are not as far in the development of the regulatory frameworks in the countries as we think, but it can go quickly as soon as funding is available.

Speaker 2: 44:54

So now that it's again a chicken and egg question, what comes first? And after all, it's again a matter of convincing funders of taking the first step or convincing governments of taking the first step, and Probably we'll come back to the process that you described earlier, lamida, that there are mini steps from each side and at some point Somebody says, okay, now this is enough, let me make the big leap.

Speaker 4: 45:25

and then suddenly something so always say political world actually is the key driver because it means that the government itself has embraced it, embraced this solution and that's the first step to investor confidence that President so-and-so has said. We need thousand mini grids established in our market by this period because I want my people to have power. You'll find very limited flow of investment, of funding, in a market where, first of all, there's no political will, there is no clear regulatory framework and there is no consistency in the implementation of the. Consistency in the implementation, political will and clear sort of understanding of how Regulation and policy on locks capital cannot be overemphasized.

Speaker 2: 46:18

I would like to Present to both of you some of the concepts that Inansis is currently discussing with various entities in the sector and get your feedback. The first concept is one that we had introduced in other episodes already. It is the inclusion of the regulator in Grant fund definition per site. Let me give you some background here Now. If you look at a PBG, for example, you have one fixed amount that is dispersed per connection made, but based on that scheme, all the project developers would always go to the largest sites possible, because those are the sites with the most economic potential, where economic growth happens more or less on its own, without a Significant additional input from the developers, and they can really concentrate on Electricity generation, distribution and supply and do not need to do all these productive use stuff, funding, financing of productive use appliances, rural industrialization and all these kind of things that Most of the mini grid developers don't really like to do. Governments strongly push for Electrifying small villages at the same time as large towns, but that, however, requires a differentiated RBF grant allocation. Towns may need a smaller amount per connection, while small villages require a larger amount per connection, and this is where the regulator comes in, because usually as a grant fund management organization, you do not have all the insides that are required to determine what what grant level is required for one specific village. But the regulator after all has to deal with these kind of questions anyway when he sets the tariff. So therefore they may need to make assumptions and they need to come to terms somehow with the project developer about the economic potential of a site, and then they can either increase or decrease the tariff.

Speaker 2: 48:39

But when you look into the episode on price elasticity here under this podcast, you will see that the lever that the regulator has in changing the income of a mini grid operator is very, very limited because of this constant expenditure of household customers.

Speaker 2: 49:04

Per week they just spent the same amount, independent of what the tariff looks like, and if the tariff is higher they consume a little less energy, and if the tariff is lower they consume more energy. So therefore, the regulators are often Confronted with a situation where somebody else has determined the ground amount and they now have the numbers on their table and they don't make sense and after all they have to come up with a tariff and issue a license with a tariff that they know upfront that will not work, will not make sense after all. So now our approach and our suggestion here is to involve regulators in determination of ground levels at an earlier stage and combine that with the tariff definition, because usually licenses have to be secured Before funding comes in. So therefore that process has to happen anyway before the rbf is actually dispersed. So what do you think about that approach?

Speaker 3: 50:14

I think it's a good idea. It may just get complicated, though, because it could mean having multiple subsidies for different locations right within a country.

Speaker 2: 50:28

True, yeah, exactly, a small village would get $600 per connection, whereas a large town would get $300 per connection. For itself.

Speaker 3: 50:36

Honestly, you can look at it in so many ways Giving subsidies, different types of subsidies, because of the various characteristics of a community. Giving subsidies Based on the actual country itself. So some countries may, as a whole, require higher subsidies, so perhaps like Zambia, requiring higher subsidies than Nigeria, where there's already an established market. It could even be giving different subsidies based on the companies you know, because you know that the local companies are going to find it more difficult to raise finance Than the international companies. But it gets really complicated that way. It's more straightforward when you have the standard subsidy amount.

Speaker 2: 51:16

Yeah, but the regulator has to go through that process anyway. When determining the tariff, it has to consider the weighted average cost of capital of the mini-grid developer, like what interest rate does he get for his loan and what is the equity expectation, return expectation? He has to consider the economic potential of the site how fast will the demand grow over time? The regulator has to consider the capex of the equipment generation and distribution, metering and these kind of things have to consider all the technology has to consider the data, the reporting, the cost of managing the company, the number of sites operated under one management, and so on and so on. So that is exactly what you just said. So this is what the regulator is doing already. Yeah, by just giving the regulator the opportunity to determine the grant level, you would basically release him from this trap that he's in. Right, he knows what needs to be done to actually make the mini-grid work. The grant needs to go up or down a little bit, but he doesn't have that decision making power.

Speaker 3: 52:25

But typically the the toolkits that they use to calculate the tariffs will factor in the grants that they receive, and so they would expect for it to have some sort of impact on the overall tariff. True, exactly.

Speaker 2: 52:38

Yeah, yeah, and that is what I'm saying. As I mentioned before, if the tariff doesn't change much about the revenue of the mini-grid operator, if you increase it or decrease, it doesn't make much of a difference, because the revenue will always be the same. It's just the demand of the people increasing or decreasing a little bit. After all, the only thing that could make this project viable is a slightly increased grant In the smaller village, whereas in the larger site and I'm talking to mini-grid companies and some of them say hey, now, if we go to this town here, then don't tell anybody, but the grant is covering close to 100% of our capex already. Yeah, so, and that is something we don't want to see very cheap.

Speaker 3: 53:23

Yeah, honestly, nico. Yeah, it is really important that we, just from the perspective of leaving no one behind and Trying to avoid cherry picking of the best communities, you would want to incentivize them with higher subsidies to be able to reach you know, those hardest to reach Communities.

Speaker 4: 53:42

I'm in here. I think there's a lot of work that needs to go into, if you like, this sort of scientific approach for determining. You know plug-and-play. I guess the perfect RBF will determine the exact, the exact value of subsidy that needs to go into a particular site. That would make it on one side the tariff is reasonable and on the other side it makes some sort of commercial sets. There's still some work to be done. Hopefully all stakeholders will rally together to to keep Evolving. I sort of like what Anita said about how you respond to market realities and you tweak the you've tweaked the NEP To suit market realities. You tweak the UAF to suit market realities. When it becomes clear that this More scientific approach which you've just described Is absolutely necessary, I think I guess I'm hoping it would become mainstream again.

Speaker 2: 54:43

Yeah, let me just repeat quickly the science that you mentioned is already being applied. Right, this doesn't need to be developed anymore. It's being applied by the regulators and the Tariff determination tools, as Anita said, they consider grant, of course, they consider all the financial variables, and it's just a matter of Organizational innovation, like how do we work together? Where are decisions being made? At what point in time do we need what decision, by whom? I think that is the question. As I said, the regulator is going through all these Calculations anyway and there is no more science to be developed. The science is already there. Okay, good, let me Confront you with another approach that we are currently discussing and this is also alluding to the discussion that you just started La Mide complexity versus simplicity and then that range considering speed of implementation.

Speaker 2: 55:51

But we believe, on the Enenzo site and we have discussed this with various stakeholders from the sector, and there are also other entities in the sector which come up with similar ideas we believe that mini-grid companies, when they are on site in those rural places, in those rural villages, and they are the only ones actually providing that level of technical expertise that is required to do so many things in the rural communities, to trigger economic cycles, to trigger some a technical implementation of technology, why shouldn't they pick up this job and just do it and perform, because they can easily perform. If you sent another entity to that same site, you multiply the cost for that little service that somebody on site having that specific expertise could do within a few minutes. So and I'm specifically thinking of of impacts that could be generated by, for example, providing medical equipment to hospitals in rural areas, in rural villages, hospitals or health centers that are connected to the mini-grids anyway and that are purchasing electricity from those mini-grids. Now our approach would be to set up some kind of RBF grant funding program may be coupled to an existing connections-based program, just as a top-up that allows mini-grid company to provide these little additional services like bring the medical equipment to the hospital, train the staff of the hospital in using the medical equipment and then letting them use that electrical medical equipment to do good, basically, to their community.

Speaker 2: 57:49

In the past, the challenge has always been that the staff of the health centers and hospitals were not properly trained and the verification of the training level Takes a lot of effort, and we've been talking about verification in this episode earlier.

Speaker 2: 58:05

The idea that in nzos presents here is that Well, with modern technology, it would be relatively easy to develop an app that this medical staff in a health center would then use to answer questions, like a small test on their knowledge about this electrical medical equipment.

Speaker 2: 58:26

And Only if that staff passes the test, then the RBF would be dispersed, and as there is more effort on the mini-grid developer's sides to supply that equipment and make sure that it works in a specific environment and do the training, then just connecting an additional customer. Also, the level of grant would need to be on the higher side, and that would be an attractive additional income to the mini-grid operator, while at the same time I strongly believe that this is the cheapest way of actually bringing that Knowledge and equipment to those rule sites. The same could be done with schools and computers, for example, and there are probably other Opportunities out there where we can simply use the technical know-how that mini-grid companies have in these rural areas. What do you think about that? Is that something that may fly, or do you think it's too complex?

Speaker 4: 59:29

I think it would be challenging to be too prescriptive over what a mini-grid developer chooses to do. Again, I speaking as a representative of private sector me good developers at different approaches that me developers take. You know, some just want to build, make impacts and possibly make it a commercial venture. Others want to, if you like, to go the extra mile or go further than that and ensure that the communities are empowered. But I think that there are multiple ways to address this issue without necessarily passing the burden or the responsibility of that as a mandatory thing to the developers.

Speaker 2: 1:00:13

I'm not saying that.

Speaker 2: 1:00:14

I'm not saying that we Obliged mini-grid companies to do this or that right, and what I'm saying is that we may open up a new opportunity For mini-grid companies to get some additional grant funding For additional services.

Speaker 2: 1:00:29

You could say here's an RBF program following the PBG kind of approach. You select the sides. If you have sides that have health centers and you want to supply Equipment to these health centers, you get another two thousand dollars per I don't know set of equipment that you supply to this health center and the equipment itself just costs five hundred dollars or so and the rest is for your service and the implementation and the training. And this is like where you would usually probably spend tens of thousand dollars to bring in an external person who needs to build up the, the network inside the community, who needs to then go to the community and and Provide, like all the travel costs, force and forth and back, probably not once, but twice, three times, four times, until the training has been completed. All of that the mini-grid company wouldn't need right, because they do the travel anyway, they have sides, stuff on site anyway. Could they could just provide the services, probably get themselves a little bit updated on On how this medical equipment actually works.

Speaker 3: 1:01:37

And, of course, mini-grid companies are no doctors, they they cannot Do the medical part of it, but they can do the electric part so in my previous role I also led a productive use Equipment and appliances component, where mini-grid developers were given the opportunity to get grant subsidies to deploy Productive use equipment and appliances within their mini-grid.

Speaker 3: 1:02:03

We entered into a number of agreements with me mini-grid developers. I had existing mini-grids and, you know, at the point where we were expecting to hear about 10,000 appliances and equipment being deployed, we were getting reports of like 15 I don't even know if it even got up to 20 and when we spoke to some of these developers they would say to is it possible for me to be considered in the next round, in the next phase? We're not quite ready now. To wrap up, I personally think that there is need for Rbf facilities that are focused on energy access projects to partner with Rbf facilities or other types of programs that are focused on deploying medical equipment, educational equipment and materials, such as the IHP program, the integrated health program, which I believe USAID or Power Africa Was implementing, partnering with these other projects that are focused on that side of on that area, and working together to ensure that you're both selecting the same Institution, health, same institutions, health care facilities, educational institutions and, you know, in order to get maximum impact.

Speaker 2: 1:03:19

Yeah, Um, when I heard you speak, I was thinking about here we're looking at the same thing that we have been discussing on the Regulatory and the grant funding side also what degree of complexity can we add to the business case to make it more profitable without Increasing the burden to the minigrid developer too much?

Speaker 2: 1:03:43

And we have discussed this for the regulator and for the grant funding the same way, and my perspective here is that we cannot continue saying no, we need to reduce complexity. Let's reduce complexity to make the simple, because then we will never get to that point that we discussed when we started this conversation, where the funders will finally say, okay, now you have the data, now you have the track records, you're profitable. Now let's scale this up, let's channel billions of dollars into the sector. I think grant fund managers, regulators and especially also Minigrid developers must be prepared to handle a little bit of additional complexity, step by step, and Digitization and all these understandings that we're developing as Sector stakeholders will allow us to actually make room for that complexity. And as soon as we add that complexity, we can have different business models, we can have additional impact, we can have all these things that finally make the minigrid financially viable.

Speaker 3: 1:04:52

I agree with you 100%. But before we get to that point, there's need for the training we need to build that capacity. So yeah, we need that technical assistance that will Set these developers down and help them to really understand you know how to go about incorporating this added layer to their business models. I think that's missing, and to sort of just expect them to just apply for these additional grants to deploy the equipment and not really understanding how to make it work, you're not really setting yourself up for success. So I think, before we jump that Ujjado, there's need for significant training and sensitization, bringing everybody up to speed to really understand how it will positively impact the success of their business models.

Speaker 2: 1:05:43

It's a little bit sad that many of these types of discussions end up at that point where we say, well, we need more training, but yeah, so well, training must be somehow implemented and then come to an end, and especially on the private sector side, I believe that there is not too much training required. What is required is that the private sector finally embraces the digital tools that are out there. I still see that many companies are still not using them, still doing many things manually. That they are finally automating processes that will give them enough room to think about a little bit more complex rural industrialization processes or the delivery of equipment to medical centers that we're just discussing.

Speaker 3: 1:06:36

The reason behind this is because these are new up and coming companies. They're not the Siemens, they're not the GEs. And that's why we have to emphasize on the training, and I agree with you sometimes it just stops there. What are we doing to ensure they get that training? Who's raising the finance, identifying the organizations that will come and give them this digital training and PUE type training that we speak about? But it is an emerging sector. A lot of them are local companies who are just trying to figure out how to even raise money.

Speaker 4: 1:07:12

True, there will be different companies at different stages of growth, even within the sector, and not everybody will embrace the things as fast and as quick as perhaps some people who've based on track record, based on their experience from working globally and stuff like that. I was speaking with somebody today and we were talking about having some sort of shared legal resource and the feedback was some of your members don't necessarily embrace this because they probably think as a catch. So there's a whole lot of things that need to move together. Simultaneously, the companies themselves have to be a lot more comfortable sharing ideas amongst each other, and so that's where you sort of get the oh, actually, I used the Enensus tool. Oh, actually, I used the, and then you have this sort of co-op petition. So it's a healthy competition and cooperation embedded in it. But people need to be ready to work together, because the more we work together, the bigger we do things, the more the pace, the scale, the coordination and the electrification that we achieve.

Speaker 2: 1:08:29

Can I have a final statement from each of you, Anita? What do you think the UEF will look like in three years from now?

Speaker 3: 1:08:39

I know for a fact the UEF is going to look very successful. We're going to have significant numbers as it concerns connections. We're going to have a lot more companies on board that were supporting with their businesses. As it concerns mini-grid development, standalone systems for productive use, we may even bring in additional technology, such as mesh grids. I believe we're going to have a lot more funding and as we secure more funding, we will definitely launch in at least another two countries that can also benefit from the services that we're providing.

Speaker 2: 1:09:14

Thank you, lamida. What do you think the sector, and especially RBFs in the sector, will look like three years from now?

Speaker 4: 1:09:23

Well, again going back to the point of maybe more collaboration, stronger collaboration, more RBF structures that work for the various segments of the mini-grid market, more data to guide the deployment of capital and, I would challenge Anita to say, more countries on the continent with access to the grant funding that can achieve the scale that we require. But just to emphasize Amdaz's role in all of this, what we intend to do is scale up institutionally as an organization so we can serve the sector better, from the capacity building perspective, policy and regulatory and regional coordination perspective, to the access to capital and then, finally, the data, research and standardization perspective.

Speaker 2: 1:10:22

All right, yeah, anita, please come in.

Speaker 3: 1:10:24

I would like to use this opportunity to thank those donors who did take a chance on the Universal NG Facility and are supporting not just financially but also in providing technical support as well to the team the likes of GEAP, rockefeller Foundation, ikea Foundation, shell Foundation, carbon Trust, good Energies, usaid, fcdo, to name a few. They've been fantastic. And, yeah, for those donors who are not sure as to which RBF program to put their funds in, where they're going to see real impact, the Universal NG Facility is here. Feel free to reach me on LinkedIn. I am available, thank you.

Speaker 2: 1:11:05

Thank you. Thank you Anita, Thank you LaMide. We've had a long talk, very exciting one. I think. We discussed a lot of innovative and interesting aspects, and I hope that we can discuss more in depth in the near future. Thank you both.

Speaker 3: 1:11:23

Awesome Thanks, nico, thank you. Thank you, LaMide Take care Bye.

Speaker 2: 1:11:29

Allow me to comment on this important episode myself. We discussed about when we will see enough proven track record of mini-grid companies to unlock large capital flows into the sector. Here we go. Following Husk Power's announcement of having turned EBITDA positive end of 2022, they have acquired US$100 million of funding in 2023. This is by far the largest funding round the sector has ever seen. At the same time, world Bank, afdb and others, in collaboration with respective governments, are channeling funds through bilateral loans into the sector, which are available for RBFs. This means African governments provide the grant to the sector, not international donors. This opens access to new levels of grant funding. At Inensos, we believe that we are experiencing the tipping point mentioned in this episode today, but we should also recognize who is taking the lead in capital acquisition in mini-grids.

Speaker 2: 1:12:39

Husk Power is not a classic conservative mini-grid company. They innovate. They do not shy away from handling complexity, for example, in rural industrialization, ai and automation of operations. Please refer to the second episode of our podcast for more insight. We believe that more mini-grid companies should follow that example. As Husk has shown, this approach may generate the cash flow required to break even financially, even considering smaller villages within a portfolio, which is the door opener to hundreds of millions of dollars of funding. We believe that RBF funds should encourage and compensate mini-grid companies for going beyond their comfort zone, instead of trying to find the smallest common denominator, making things just simple but unprofitable RBF funds. Encouraging mini-grid companies does not mean that RBF funds should force mini-grid companies to onboard a certain type of complex procedure. The decision of which type of complexity the mini-grid company wants to engage in and what capacities the company wants to develop must be with the mini-grid company itself. Rbf funds should rather create opportunities, for example, generating extra cash flow for health center equipment supply, productive use campaigns or rural industrialization approaches.

Speaker 1: 1:14:11

This episode of the mini-grid business has been brought to you by Innsis, your one-stop shop for sustainable mini-grids. For more information on how to make mini-grids work, visit our website, innsiscom, or contact us through the links in the show notes. The mini-grid business powered by Innsis.