Intro: 0:09

Solar mini-grids have turned from small pilots to an electrification wave. We were there when mini-grid regulation was established, when financial transactions were closed. We saw new technology thrive and companies fail. This is where we tell the stories. This is where we discuss the future the mini-grid business Powered by INENSUS.

Nico: 0:36

Hello, this is Nico. Welcome to this episode on Productive for Whom Balancing energy productivity and community productivity with Aaron Leopold and Edwin Kwesiga from EnerGrow. Aaron has been working in the energy space for more than 15 years in various positions, including as the founding CEO of the African Mini-Grid Developers Association. Today, he is the CEO and shareholder of EnerGrow. Edwin is a commercial business leader with over 20 years of experience across a range of different sectors, including telecommunications, energy and manufacturing. Edwin is passionate about impact-driven businesses and is working at EnerGrow as managing director. Welcome Aaron, welcome Edwin.

Aaron: 1:24

Thank you so much, Nico. Thank you, Nico, it's a pleasure to be here.

Nico: 1:26

Yeah, thank you for being here. Now we want to talk about productive use of electricity, not only in mini-grids but in rural electrification in general, and then afterwards draw some conclusions of what that after all means for the mini-grid sector. I think we should start with a quick definition of what productive use of electricity is. Who wants to pick this up?

Edwin: 1:51

So, yeah, productive use of electricity yeah, it's a bit of a complicated term that we like using in the energy space, in the energy industry, but when you think about the people who we serve in some of the rural areas across Africa, it's basically just providing income-generating assets to people. Providing income-generating opportunities to people by providing them with electrical appliances and providing them with an opportunity to actually start a new business, to an additional income and to make the most of them having electricity where they live. I mean, it's as simple as just providing income-generating opportunities to people in new areas and it's a fundamental thing that really we've seen our work at EnerGrow how does dramatically increase the incomes of the people that we are serving. People have been able to set up new businesses purely because of having electricity available to them in their communities. Productive use of electricity provides so many opportunities for the community, but also provides so many opportunities for energy partners to engage with the communities, to understand them, to have a deep dive into how to manage their finances.

Edwin: 2:55

So for us at EnerGrow, we actually provide, we disperse loans so we provide affordability to the productive use space and we actually enable entrepreneurs in lower income areas the opportunity to actually purchase or take up an income-generating asset that will fundamentally change their lives. So product use electricity is a life-changing phenomenon in rural communities. It enables new businesses to start up. It enables businesses to increase their incomes and also to keep on and continuously grow. So that's really what it is at a lower level, and what we're doing at EnerGrow is really focusing on driving awareness. Driving awareness of financial management, but also driving awareness of how these new people in rural communities can make the most of the income-generating assets that they have to grow their businesses and to grow communities. So that's really as simple as I'd want to define product use electricity. But I'm happy for Aaron to add more light on to how he views product use electricity based on his experience in the sector.

Aaron: 3:52

Yeah, just one small addition is really about using energy to improve lives and livelihoods. Right, so it could be income-generating, but it could also be cost savings. So at EnerGrow, we don't sell only income-generating assets, but a lot of our sales, almost half of our sales, are for cost-saving appliances, such as electric cooking appliances. You know, on the community side it's about benefiting the community, but then you know we are here talking on the Energy Podcast. It's fundamental to the unit economics of energy systems. So, yeah, probably I think we've got it all there it's income, it's savings and it's energy.

Nico: 4:27

Yeah, you already started talking about a machine's appliances that you finance. What are those? You mentioned electric cookstove, but that is probably not all right. Can you elaborate a little bit on what you?

Edwin: 4:38

offer. Thank you, Nico. We provide a range of different appliances and they can range from a refrigerator, which is very common, it can be a popcorn machine, it could be a grinding machine and also, more recently, an electric pressure cooker, and this really provides cost savings for households. So I mean we really focus on providing a wide range of electrical appliances, but a lot of our work is revolving around understanding what the customer needs for their business and then from there the customer is able to really take on board the electrical appliance that they can most generate income from and will be most beneficial for their business. So kind of long story short, we're in the cooling space with the refrigerators, we're in the cooking space with electric cooking and then also a range of other appliances.

Nico: 5:20

But, if I understand correctly, you don't do mills and like hammer mills, posho mills, maize mills, these kind of things, rice mills.

Aaron: 5:30

Yeah, so EnerGrow is a microfinance company, and so our actual product is a loan, and with that loan we are able to lend to customers that we understand and know very, very well and do a variety of productive assets to our customers. So what we're looking at really is understanding what the rural economics of these communities really looks like.

Aaron: 5:55

And yes, it's agricultural, and so we are looking at now going into the agricultural space. But we did not start there for a very important reason, two very important reasons A, agriculture is seasonal and very complicated to start with. And B, most people are agriculturalists because they have to be, not because they want to be, as their first choice. And so in many villages there's already a dozen little shops, there's tons of small vocational activities happening. There's carpenters, there's tailors who are making clothing, there's pharmacies. There's so much happening in these rural communities that is not agricultural. And actually, if you look at the number of assets in the community that you can sell and the amount of energy that those assets consume, a community only needs a few communal agricultural machines, but they need dozens and dozens and dozens of household and small business electronics. So we started with a household and small business electronics because they're more universal and because they're not seasonal in their repayability in the sense that agriculture is. So now we're moving into ag, but we've started with these sort of like white goods, these general appliances.

Nico: 7:12

I see. And then you determine or define productive not only as business, but also as productivity inside a household, correct?

Aaron: 7:23

Yeah, I mean, I think for the sake of our audience it doesn't need to be that complicated. We're helping improve lives and livelihoods and that can be in the household, that can be in a business. You know, when you're talking to other people in other sectors, no one even knows what productive uses is.

Nico: 7:39

so we generally just say, like income generating and cost saving, irrespective of the customer, okay now, why is productive use of electricity and the application of appliances and the purchase of appliances, why is it not happening automatically? Electric induction stoves comes at thirty dollars, right, not much more than that. So what is so important about financing here?

Aaron: 8:03

so the interesting thing that we observe in the energy access spaces of course you know people can buy things on their own, they say for things on their own, but in particular in many great communities, you know, there's no electronic shops anywhere nearby, right, this community just got electricity yesterday or a month ago and it might be quite far to the nearest city. And customers who have never had electricity also don't know which brands are the trusted brands. They also don't know which technologies are the right technologies for them. So they really do need like a trusted technology partner. And then on the financing side, you know it's all about affordability and, Edwin, maybe you want to talk about the affordability and the barriers for our clients that we help overcome.

Edwin: 8:48

Yeah, yeah, thank you, I think, why you don't come automatically. A lot of things have to be aligned, a lot of different variables, as I had mentioned. You know there's affordability, there has to be no willing customer and there has to be a need for the product. So, yeah, affordability is a challenge and we are directly addressing that need as an agro by providing asset financing and this is almost an asset ladder. We provide the opportunity for somebody who wouldn't be able to walk into a bank or have access to credit To actually get an income generating asset that will transform their lives and their income. And we go through an intentional process of credit assessment, of know your customer.

Edwin: 9:26

We have learned a lot with regards to understanding our customer and understanding how we can actually engage with the community leaders and ensure that we get the right customers on board.

Edwin: 9:35

So affordability is a big step and many customers are not aware of this and they're not aware about how to manage the finances. So we engage with the customers heavily to actually, number one, give them affordability but, more importantly, give them the financial literacy training at a very basic level but they can understand and that can help them Actually pay for the asset and it will also help us be more responsible. So that is one aspect of affordability and that really helps the customer along the line use the asset, finish it and actually take upon another asset. So for P to be automatic, everything has to be aligned. All the ducks have to be in a row. That has to be affordability. There has to be the assets available for the customer. There has to be energy partners. That have to be asset finance partners who can collaborate and I know has been lucky enough or has been intentional enough to really engage with the energy partners and engage with the community and enable To actually flourish in some way.

Nico: 10:29

Yeah, what is the typical value of an asset and appliance that you sell to a customer and what are the payment terms?

Aaron: 10:39

So the average cost is about 300 USD and we are issuing 12 month loans generally. So, on average, our customers are extremely low income and we are now looking at, of course, increasing the loan sizes as we evolve as a business and as we grow we're still quite young, you know. We've done about two hundred thousand dollars worth of loans only to about seven hundred customers. A lot of our loans, however, are for electric cooking appliances, which are cheaper, but the average productive sort of income generating loan is about three hundred dollars. We are now Involving into looking at, you know, different areas such as agriculture, processing and mobility, which are costlier, but those are future endeavours.

Nico: 11:23

As an agro. You have staff on site, if I understand correctly. Right, because in other African countries it is usually the mini grid companies that have to offer these kind of financing services, delivery of appliances, services to the customers to enable the customers to use appliances that are not available in rural areas, as you already explained. But those mini grid companies have the advantage that they have electricity Sevy staff on sites anyway for their regular operations of their generation, distribution and sales business and those could just also sell some appliances. Now, if you have to travel to site to just sell a few cook stuffs, does that pay off?

Edwin: 12:10

Yeah, that's a great question. We have a very much B2C or business to customer model and the nature of our business that we actually disperse loans, and that necessitates us to actually engage with the customer directly. Ourselves, as an agro, we engage with the customer directly, understand their business needs and then we actually disperse a loan after we've gone through the process. So it's a direct business to customer business model that we have, where we directly engage with the customer. But we do partner with energy partners. So we engage heavily with the energy partner or the mini grid partner in the areas where they mini grids. We align with them on the electricity availability and also engagement. But at the end of the day and agro, we engage directly with the customer and it's really because we're dispersing loans and we have a responsibility to ensure that the right messages drill down to.

Edwin: 12:57

That's why we engage with customers directly with regards to the economics of it, or the economics is something we're rapidly improving upon. So we do have agents in many cases. They're challenging sometimes with regards to the economics of it, which is why in many grid areas where the level of income is a bit lower, the economics is not sometimes perfect, but it's something that we are continuously improving upon to ensure that we are both providing impact, but we are economically responsible in terms of being able to actually meet our needs. So in areas that are served by the national grid, the economics is a lot better for us compared to the mini grid area, and that's a constant area that we're trying to improve upon and also engage with community members to ensure that we are viable.

Nico: 13:37

After all, it's probably also a game of scaling. Selling many similar appliances in one community probably is the way to profitability, isn't it?

Aaron: 13:50

Yes, absolutely yeah. You know the issue that Edwin's touching on here and what you just touched on, Nico, are really the core things. We are approached by many technology companies that are offering refrigerators and agricultural processing equipment and irrigation equipment. Because at the end of the day, the productive use companies that we've seen mostly in the market are technology companies and they all need distribution to get to these rural communities. And I would say the largest challenge for productive uses really is on distribution and rural profitability. We cannot have the agile mills and the sun culture irrigation systems all coming in with separate sales people from separate companies going to the same villages. You know we need to have service providers that are offering a catalog of products in order for the financial viability of the productive use space to mature and really to also offer customers these single, trusted partners rather than different salesman coming every week to offer different products. There's both like practical and financial reasons to really look at offering a broad selection, because communities need many things on the one hand, but the interesting thing is, you know we are profitable at the branch level. You know our headquarters and all the core costs are obviously weighing us down as an early stage company, but we're not. We're not going to become profitable overnight, but In rural areas where there are very, very small grids 100 connections or so it's impossible to have a staff there, obviously. So you need subsidy, just like the mini grid sector needs results based financing, for connections to be viable in very small communities.

Aaron: 15:28

We're now seeing productive use of energy, results based financing and other sort of rural support mechanisms, because it's recognized that we want to build a sector which requires really good, financially viable examples of how to make things work, and right now we're also figuring it out.

Aaron: 15:45

So integral is one model, but we have to experiment with many models and there has to be the financial support to do that experimentation. And I would say that, looking at the complexity that you mentioned with this question, the real financial support for experimentation has often been lacking. We have very specific project support to trial something here and there, yes, but the global distributors collective, which we are a member of and it was the first Non off grid solar member of the GDC their research has consistently found, year on year, that there is very, very little funding going to exploring financially viable business models for rural distribution and delivery of services in the areas that the energy sector is targeting. So I think that, in summary, we're doing something hard and we're doing it in a hard place and, yes, we're aiming towards financial sustainability, but there's a lot of experimentation needed to get there.

Nico: 16:41

Yeah, yeah, I believe that for sure.

Nico: 16:44

We've been talking about the various appliances that you have in your baskets and you have decided for those, and I also remember that some years back I would say eight years, ten years back or so there was a big boom around productive use and all the donors thought I don't know, finally productive uses making Many grids profitable.

Nico: 17:09

And then they ran funding programs and myself and JUMEME and also ENERSA, so at longer time back were participating in those, but there was always a little bit of engineering required and it was always around also delivering business expertise, supporting small Entrepreneurs in the communities about how to structure and grow their little businesses. And my take away from that after some years was it was not a profitable business. This was nothing that I thought could be scaled, but still I understood that many good companies or any type of rule electrification initiative needs to somehow deliver the appliances to these rural areas and also needs to provide some finance for some standardized, high quality equipment which lasts in the given environment. Now you seem to have overcome this burden and I would like to understand how you did this and how you decided for your appliances that you're currently supporting.

Aaron: 18:21

So we partnered with the Rockefeller Foundation, with East Africa Power, equatorial Power and UMEME, which is the national utility in Uganda, and the others were mini-grid companies Through Power for All. We all together undertook this Utilities 2.0 project in Uganda, which was quite interesting, looking at integrated energy systems planning. And actually Equatorial Power had the first mini-grid that ever interconnected with the main grid in Uganda and it may have been the first in East Africa, as far as I'm aware. And as part of this we were looking at how much does demand stimulation really impact the economics of the energy system? So we have so far been talking about consumer impact, microfinance etc. But what about the energy economics? Right, that's what this podcast is all about. That's what we're all aiming for is rural electrification and productive use as part of that recipe.

Aaron: 19:13

And what we showed with that Utilities 2.0 project is that on average, our customers increase their income by 69% in this pilot period and on average, those customers at the community level increase their lifetime customer value for the energy companies by a forecasted 400% after only nine months of intervention. So you know we're starting from a very low base. You know, 400% increase above the average rural consumption is, you know, on average in Kenya and in Uganda. It's about a dollar per customer per month is the average income that Kenya Power and UMEME earn and you know 400% more is only $4 a month, which is not anything to throw a party about. But this is after only a couple of months of intervening right.

Aaron: 20:03

And if you know anything about investing and the financial sector, the number one rule that every kid should learn in high school is how compound interest works. You know you invest $1,000 now and in 30 years you can't believe how much it's worth. So when you get started in the community very early with very early productive use interventions, you're setting up the community for compounding benefits over time because their income is increasing early on, their energy consumption is increasing early on and you can dramatically improve the overall unit economics of the power system by engaging with these communities as early as possible and again, by not focusing on one or two things but looking at what does the community need in general and try to offer different solutions for the different community members.

Nico: 20:55

I would like to come back to this utility 2.0 example, where you started off with an isolated mini grid that was later main grid connected and then still electricity supply somehow continued. Maybe electricity tariffs were reduced. Now what is the difference between productive use of electricity in an isolated mini grid to a main grid connected? Rural electrification approach.

Edwin: 21:24

At the end of the day, productive use, both in the main grid area or in a mini grid site or interconnected site, is basically the same.

Edwin: 21:31

We're essentially providing income generating assets to the community and we are allowing the community to increase their incomes, set up new businesses and be more economically viable.

Edwin: 21:42

That's really the general thing that is similar. But why the difference comes in is that sometimes I mean on the mini grid sites there are sometimes load restrictions and these sometimes come during the evening hours where not all customers in that mini grid site are able to use a certain electrical appliance because the evening hour is sometimes a peak hour. So in that instance we communicate with the community members because we align with the mini grid companies and their clear schedules of when there's load shedding and then we inform the community members about when the electricity may be off. So that's really where the difference comes in. Cost economics of operating in an area that is covered by the main grid is a bit better, but the difference really comes with regards to electricity availability. But we have seen that the impact is really the same for all intensive purposes. It's the same for a mini grid community where there were arguably less income income generating opportunities before the impact can sometimes be even better. So it's largely the same, apart from the load restrictions, I'll say yeah, mini grid tariffs are usually higher.

Nico: 22:43

Do you already set? Availability of electricity may be restricted to a certain extent for heavier productive use appliances, and then also the relationship between the electricity supplier and the electricity customers is usually completely different in a mini grid setup compared to a main grid setup. Do these differences also reflect on your business?

Edwin: 23:07

That's an interesting question. I think the relationship is quite different. So in a mini grid area, for example, you'll find that the mini grid provider or the energy provider will have a lot more communication with the community. And remember, these are communities that may not have had electricity before. So there's almost an intimate connection and there's a lot of credibility that the community members have towards the electricity provider Because, remember, they're bringing a service that they didn't have before, that's transforming their lives and transforming their income. So their relationship is very positive, a lot of credibility. And then you look at the main grid sector whether people have been having community electricity for all this time and there's a bit of a disconnect. There's a real direct communication between the community member in the main grid site and, let's say, the national utility provider. So that's maybe one thing, but other than that it's pretty similar. But maybe Aaron can share any additional views or different views on that.

Aaron: 23:57

Yeah, well, I mean. The complexity here that you're talking about with load shedding is something that we didn't really have to worry about a couple of years ago, but with the dramatic increase in fuel costs over the past two years and the Beagle limitations around tariff structuring in the mini grid sector, a lot of companies have seen their operating costs dramatically explode on the mini grid side and they cannot afford to be running generators or really providing power at the legally agreed tariff with the new cost of diesel in some areas or at least really limiting their ability to use their backup generator. So having too much demand is a great problem to have for any business. Right, you know this is the dream. But if you're restricted in your costing and your supply prices are going up while you're restricted with your costing, you can't provide that service anymore.

Aaron: 24:53

This dramatically affects EnerGrow as well, and you know it's not the relationship with the customer that's affected, it's the ability of the customer to actually use the appliances to generate income. So in some of the rural mini grid communities that we have seen, where these fuel price increases have affected the mini grids operability, we lose customers because if they run a kiosk and they want a freezer, or if they run a small little video hall, they can't really imagine spending money on this productive asset right now, when the power is not available at the times when they really want it to be. So it's a bit of a bigger mini grid question around the legalities of operating and tariff licenses that are affecting our business as well in a way that we would not have expected when we started this business.

Nico: 25:45

Hmm, and how risky is it for an EnerGrows customer to enter into a term payment scheme with you? You charge on a monthly basis, if I understand correctly. Now what happens if the customer cannot pay? Do you reprocess the appliance?

Edwin: 26:03

Risk is a funny word to use because, remember, we're dispersing a loan to the customer and this is a loan for an income generating asset that's really going to increase the incomes. And before we disperse the loan, there's an intentional process to understand if the customer is able to pay, and all this and that. So from the onset the risk is reduced because loans normally go bad at the very beginning and we put a lot of focus on the whole credit assessment process. So from the customer's perspective, the risk is pretty limited. Yes, in the event that the customer is not able to fulfill their loans or pull back on their loans, we repossess, but that's a very last resort. Before repossession there's a lot of customer engagement that we go through with. The customer pays a deposit of a certain percentage and through that we've had very few instances where we had to repossess an asset because at the end of the day, this is an asset that is actually generating income for a customer. So, yes, the reposition is there, but it's really a last resort.

Nico: 26:55

Yeah, I'm asking this question from a electricity customer's perspective because in mini grids, as we just discussed, the reliability of electricity supply may change and some businesses really depend on reliable electricity supply. Now, if this electricity is not coming reliably anymore, they cannot run their business, and if they don't run their business they cannot earn income. They don't have the money to pay your loan, like the installments to EnerGrow. Now, after all, the risk from an electricity customer's perspective is mainly depending on the availability of electricity supply, and that is completely out of control for that electricity customer. So that's where the question is coming from how risky is it? Do you mitigate that risk that the customer cannot control at all?

Edwin: 27:48

I mean that's a very good point, Nico. I think the good thing about areas we're operating in with the mini grids is that the electricity downtime or availability is predictable. So it's not that electricity is removed or the load shedding without the customer being aware. There's kind of predictability around the schedule of load shedding and the customer is aware of this and they're able to build their business around this. So, let's say, during evening hours or peak hours where there's no electricity, the customer will already be aware that there be no electricity at that time. So the predictability helps the customer manage their finances and their expectations as well. So that is one mitigating factor that helps mitigate the risk. But yes, we do continuously engage with the mini grid companies to ensure that the communication is clear and also with the customer as well to ensure that they're able to pay. But yes, there's an element of risk involved, but it is slightly mitigated by the predictability of this load shedding schedule.

Aaron: 28:41

Yeah, I would also just emphasize that load shedding is rare. Mini grids have fantastic reliability. The African Mini Grid Developers Association has really showed that. Their average uptime remains above 99% for the vast majority of mini grid companies. But you know, these economic shocks affect the sector, as I mentioned.

Aaron: 28:59

I would also just add that, as Edwin mentioned, most of our repossessions that we've had to make are not because of poverty. We're not taking assets away from people because they cannot make payments, because they are poor. We do this KYC at the beginning to make sure they can afford it. Most of our repossessions have been because of very unfriendly characters. Right, you know people have tried to steal stuff from us. They've moved away and took the assets and stopped paying.

Aaron: 29:28

You know this is when we have to get the police involved and this kind of thing. So, you know, because the income generation element of our sales is important to everyone involved, people try their best to make payments and, you know, sometimes we have customers that have convinced us that they want one asset and that it will be benefiting them and indeed it was like the wrong asset for them, and so they'll stop paying because they're not really using it as much as they thought they would, etc. And you know, instead of approaching us and saying that you know, I'm sorry, I made a mistake, they just don't return our phone calls, and then we have to go and repossess the assets.

Nico: 30:03

Aaron, you said nobody's asking you what you actually need in terms of policy and regulation. Now, if somebody came and asked you, what would you say?

Aaron: 30:11

Well, you know, it's very interesting because some countries at the national level you know they're looking at energy tariffs for electric cooking Because, as I mentioned, rural consumers for on grid communities are also not consuming anything. They're looking at an energy cooking tariff in Uganda, which they already have and they're modifying it. Also, I think Kenya Power in Kenya is looking at like a rebate type structure potentially for customers who can verify that they have purchased an electric cooking appliance. And I think that these are kind of the right starting points is to look at, okay, like what levers does a government have to encourage productive use of energy? Well, it's reducing the cost of energy. Or you could grant a mini grid company some kind of productive energy subsidy where the government will cover part of an energy tariff for productive customers to encourage dramatic increase of milling, for example. So we can look at the energy tariff and energy policy side of things. But then also we just need to look at a rationalization of import duties.

Aaron: 31:17

I think one of the challenges that every African country faces is that they have a very low tax base and people are not paying income taxes, and so you have to add VAT and duties at a very high level to everything for the government to have any revenue at all. But if you're taxing income generating appliances, you will have less income generation. So we need to have a rational conversation around. Okay, well, can we have a zero rated duty for agricultural productive equipment, for instance, or for other things? Now, when you're getting into televisions or something, you can use them in a restaurant or whatever, but generally you're not increasing your income with a TV, but you sell a lot of them.

Aaron: 31:59

So I would say let's keep the VAT and the duty on televisions so the government can be earning the money that they need today, but then let's reduce the VAT and duties on truly income generating assets, so we can get them into the hands of more people, so that more businesses can be earning more money and be paying VAT and income taxes in other areas.

Nico: 32:19

Okay, this is taking us back to the mills, because that, I guess, is a truly income generating machine, right, Edwin? Do you want to proceed from here?

Edwin: 32:29

With regards to mills, it's an interesting area from a financier's point of view. A lot of effort and focus needs to be on understanding the customer, and I mean people who have maize mills. The ag space is a very specialist area and one thing that we've seen is that we need to have specialist people who understand the needs of the agricultural space very well. It's not just dispersing loans to them because, as Aaron mentioned earlier, it's seasonal. There are many variables and many risk factors that affect people who have maize, and that's why we have not rushed into it.

Edwin: 33:02

I mean, we are focusing on the different customers in the areas that we serve and giving them products that generate their income straight away. But ag space is quite specialist, so I think, from our perspective, it's an space that we want to move into. Of course, there's also high capital requirements with regards to having them protecting the mill up front and then dispersing it to the customers. So, on the one hand, you need to have a high level of capital available to purchase the asset the mill, which is expensive, as you know and give it to the customer. Then you also have to have the right team who are deeply in the agricultural space and able to manage their payments more because it's a higher level of risk. So I think it is an area that we need to move into, but there has to be a thought around it and there has to be capital to also have the mills available to disperse the customers.

Nico: 33:49

Yeah, I think mace mills are not that much dependent on agricultural seasonality because, according to my experience at least in East Africa, but also in other parts of Africa, people use mills to freshly grind mace, for example, or cassava, whenever it's being consumed. So therefore, these mills are operated throughout the year and just the feedstock for milling, like the mace or the cassava, that is being stored and that storage needs to be filled, considering the annual seasonalities in the agricultural space. So therefore, yeah, I don't see the risk of financing mills because millers will always have some cash. People will always come throughout the year, will always come, bring their mace, bring their cassava, bring their rice and say, hey, can you please offer the service of milling to me, because tonight I want to have a meal with cassava flour or mace flour or whatever Good. All right, well, have you got stories to tell about where productive use of electricity, setups and ideas and projects failed, and what could we learn from those?

Aaron: 35:08

I mean we can share a little bit about the beginning of our history. I think, similar to any company that's getting started, we had really poor repayment rates at the beginning because we were trying to understand credit and, as you were just mentioning, what are the seasonalities and what are the tools that people need? You asked the question before and we didn't give a final answer. We actually developed a product catalog by interviewing over 3,000 micro and small entrepreneurs in urban, peri-urban and rural areas of Uganda before getting started as a business to establish the product catalog and we've, thankfully, because of that huge amount of work that went in at the beginning, we've not really had like enormous mistakes where we've purchased a certain number of products and then we were not able to sell them. But I think a lot of the challenge is really around enabling the customers and helping the customers to realize the true benefits of these new technologies, Because you know Edwin's mentioned about the training that we provide. We learned how to provide this training and what training to provide the hard way.

Aaron: 36:16

At the beginning, our customers were not necessarily earning more income and we had to figure out how to help them do that, and this is complicated and expensive and we're looking for funding right now to develop a more digitized or partially digitized and rewards-based kind of gamified training so that we can deliver training at scale to thousands of people per month as we grow.

Aaron: 36:40

But it's really about setting up your customer for success and working with the right customers. You know our head of credit says that the loan goes bad before you issue it by working with the wrong people or by not preparing them appropriately. We are now providing micro marketing training to our customers and customer service training to our customers, so they are providing better services to their customers. So we haven't had like catastrophic failures, thankfully. But we've had a lot of bumps in the road and a lot of learning, and one of the reasons why EnerGrow exists as a partner to energy companies is because it's really hard to do this and if every mini-grid company is also dealing with all the complexities of building power systems and they have to learn everything that we learned individually again and again and again, it's just going to be extremely expensive, time-consuming and we won't really progress the way that we want to.

Nico: 37:37

Yeah, yeah, I fully agree. Whereas, on the other hand, of course, synergies between, let's say, travel to site and having staff on site and these kind of things, these synergies should be somehow harvested. Other than that overhead costs will actually kill the business. I believe Wouldn't it?

Aaron: 37:59

Oh for sure, I mean. This is why we right now require subsidy to operate in some of these rural areas. But, moving forward, everything that we're doing is looking at operating through partners. So all of our partnerships with mini-grid companies and with the national utility and Uganda around communications and marketing. So we're looking at the ability for people to learn about our products through our partners. This will lighten the load for us, this will lighten the cost for us as well, and then we do all sorts of commission-based work.

Aaron: 38:33

So our sales agents and our collections agents we don't have salary-heavy teams. We're operating it a rewards basis and this is kind of standard for asset financing across the continent. We have a small retainer or a small salary, and then the majority of our field agents' income is based on performance. So we have found a balance through that structure. But some of the mini-grids in Uganda where we're operating primarily, there's just 100 connections, like I mentioned before, and we cannot have staff there. So there we work through our partners to try to sell some stuff as well. But just like anything else, if there's a market, we'll be there, and if there isn't, then we seek support so we can make it work somehow.

Nico: 39:15

Hmm, okay, good, let's talk about standardization. We already briefly mentioned that you cannot engineer individual solutions for individual customers, and that is what I understand. Many mini-grid companies started off with some seven, eight years ago, looking at oh, this welder needs a machine, let me try to get one machine for this welder that exactly meets his needs and also can be connected to our system at the voltage level and at the quality of supply that we can deliver at this point. And then they spent a lot of effort on this one machine and of course it didn't pay off Right. Of course you must, to a certain extent, standardize and say, okay, this is a machine which can work with even fluctuating voltage. This is a machine that can work in a dusty area. This is a machine that can work in high temperatures, high humidity. How do you select your appliances to meet all of that while still being cost effective?

Edwin: 40:20

That has been quite a learning for us. If I'm to look back two years ago, when we were dispersing some assets in specific communities, we did, you know, some assets such as air compressors, a few assets here and there that were more specialist, and we quickly realized that the agents that we had we needed to actually train them in understanding these assets very well, ensuring that they know all the parts and they're able to speak to the customer. And at first we were excited to provide everything to anybody in terms of we had a product catalog and we were engaging with customers. We were looking at costing on it wide, so to say, to provide as many income generating assets as possible to the specific community. But with time, we realized that we needed to be more strategic and intentional with regards to the customers that we engage with.

Edwin: 41:04

We started engaging entrepreneurs who, let's say, needed cooling. So we'd say, okay, let's look at our asset base. We actually started now categorizing our asset classes. We had cooling and others and we now started now focusing on our sales per asset. And so, for example, under cooling, there were refrigerators of different sizes and we focused heavily on that. I think this was very helpful for us in that we were able to disperse a lot of refrigerators that are standardized, and it was easier for us to first of all engage with the customer and for customers to make repayments as opposed to. Yes, we were serving specialists carpenters, for example but in many cases we didn't have enough knowledge about some of these products. So, yeah, I think that's one learning. So standardization is a good thing, especially if you don't have the right skills on your team to understand specialized products. And how we address that issue is by really looking at asset classes and selling our products based on asset classes, and if we do need to sell a specialized product, then we do need to have specialized support. Not so bad product.

Nico: 42:07

So, coming back to the title of our episode today, productive for Whom? Balancing Energy Productivity and Community Productivity? And I think now this is what comes in here now, electric cooking is the holy grail of rural electrification from my perspective. It has been tried for years. A lot of money has been sunk into actually making it work. As you already said, edwin, pressure cookers are probably a nice way to go, but my experience from my own experiments in various African countries is that many times people like the taste of smoke in certain dishes.

Nico: 42:48

Many times, especially if you think of mini grits, the cookers cannot be operated during nighttime, during evening hours, when there is usually cooking time in various families or restaurants or cafeterias. And after all, these technologies seem a little bit strange to many rural Africans who have been used to cooking on fire, charcoal, three stone fires with wood or so for generations. And it's kind of a change in mindset that is required. That is not that easily achieved. So now, on the other hand, if a rural utility may it be mangrove connected, may it be a mini grits utility If a utility succeeds in establishing electric cooking in the large scale, that could easily multiply the electricity sales and easily take the utility to beyond the break-even level and provide significant contribution to covering the overhead cost. So that is a very nice approach of scaling. So now you seem to be very active in the electric cooking space. How have you succeeded to actually implement this?

Aaron: 44:14

Yeah, so half of our sales are from electric cooking, and I think that the main way that we go about selling electric cooking devices is that we're not trying to convince people that this is your new, only way of cooking food. This is just a new tool in your toolbox, and we mainly focus on rice and beans. There's some kind of rice and beans combination in almost every African cuisine, and this is something that is very time consuming. You have to watch over the pot. Actually, the customer that convinced me to join EnerGrow as the CEO was an electric pressure cooker customer. She was a middle-aged mother of five and told me about how much she loves this little machine, because previously she had a large pot that did not have a top, and so when she was cooking beans it would take four hours, she would have to refill the water again and again because the water was boiling off boiling off the whole time and now she pushes one button, goes and does her work, and when it beeps she knows that she can feed her kids. So I think that it's about understanding and meeting the customers or where they're at, and, because we're at this very early stage with electric cooking in Africa, it's about learning how to make these things cool, make them desirable. Everybody's got a phone. That took behavior change as well, but it was natural because people saw the value immediately. Now you are walking around in southern Kenya and there's a Maasai with his multicolored shuka and a knife around his belt and he's got two phones hiding in there somewhere.

Aaron: 45:54

And this is the kind of thing that we are looking to achieve with electric cooking. It's not by saying that people have to make a change. It's by saying, hey, this saves you money, makes this very time consuming task that you do every day much easier, and you can still have the smoky taste by cooking some things on your traditional methods. So we're not trying to change everything overnight. We're looking to meet the customers where they are and I think because we've already seen a huge demand for this in urban and peri-urban areas also, a lot of our customers are actually buying them for their rural family members, where they are giving them away and bringing them to these rural areas where people have never seen this thing before. But the family members are so convinced that this will be a valuable product that they're bringing them to the rural areas already. So I think that we'll see in the next, like three to five years, a dramatic increase in electric cooking, quite naturally.

Nico: 46:55

What is the electricity tariff level that would be required to incentivize cooking, knowing that mini-grid tariffs can be in the range of anywhere between $30 and potentially $70,? I guess $70 would be too expensive for cooking. Then everybody would just go for the firewood or the coal. But if you approach $30, maybe $40, would that still be enough, or do you need to go further down?

Aaron: 47:22

Well, our customers consume, on average, a little bit more than a dollar a day of charcoal before they buy an electric pressure cooker, and so as long as you're keeping the overall household cost below a dollar and you can help them cover the cost of the investment for the asset itself, you're going to win and the customer's going to win. So charcoal costs have increased. The reason they've increased is because deforestation is increasing and there's less charcoal available, and transportation and distribution of charcoal costs have increased because of fuel diesel price changes. It's different for everyone, right? It depends on the cost of your other inputs, so I can't give you a kilowatt hour price that is like a winner, but it's. How does the electrical cooking price relate to the charcoal cooking price? And so our customers are benefiting quite substantially. On the mini-grids that we're working with in Uganda, there's a cap of about $39 cents per kilowatt hour for mini-grids, and so we're seeing a lot of people use it every day because it's reducing their costs at 39 US cents Good.

Nico: 48:25

Understood, all right. I think this is an interesting outlook for what I call the holy grail of rural electrification. So maybe finally we will be able to implement electric cooking into mini-grids. But there's also another interesting technology that's making its way to the market from the urban centers towards the rural areas, and that is e-mobility E-bodas like e-motorbikes, e-bicycles and these kind of things. Are you active in that?

Edwin: 48:56

sector also Something that we're definitely looking at. We've had a number of conversations with different e-mobility partners in Uganda. It is a specialist area because we'll be trying to take people away from internal combustion engines into e-bodas. One thing that we've seen is that the ecosystem has to be ready. By infrastructure I mean charging points. We haven't moved into e-mobility per se, but it's something that we're looking to move into. Once the economics is right, once the infrastructure is in place and we're able to have some capital, then we can double into e-mobility.

Nico: 49:28

Yes, and I believe e-mobility is a subject that can also be dealt with in another episode, because there's a lot to talk about. Now, coming to the final question of our session today what does the future of productive use of electricity in mini grids look like from your perspective?

Aaron: 49:49

I love this question, Nico, and it really just speaks to the fact that productive uses isn't just about today. It's about 10 years from now, 20 years from now, when we're thinking about electrifying a community. Look back at the communities that were electrified in the early 2000s. Where are they now? And when we see the vibrancy of a lot of these rural communities, we can look and see the future of productive uses for ourselves.

Aaron: 50:18

And I really love thinking about the software engineers that could be working from their home village rather than moving into the capital city. I love thinking about how you could be a consultant for McKinsey or Deloitte or Dahlberg and still work from home in your rural village. Or you could be running a small, thriving business, similar to what people are running today, but have many more options, many more technologies, because you also have the opportunity to bring people back into the community. So there's more business opportunity in those areas.

Aaron: 50:56

In all of the communities where we are working with mini grid companies, the empty houses and rooms have filled up. We are seeing reverse migration back into these communities or migration from unelectrified rural villages into the electrified rural villages. So it really is an engine of growth and that's also why we're not selling one specific asset class, but rather we're looking at what does the community really need, and I think the possibilities will surprise us in the future. But right now we're really working towards an environment where there are many opportunities for men, women, young people, old people, business leaders, employees, etc. In these rural communities and not just thinking about okay, what is the technology of the month?

Nico: 51:46

All right, Edwin, do you want to add to that?

Edwin: 51:48

Potential out there and we are at EnerGrow. We're really focused on understanding how we can increase the customer's income and there's so many opportunities. So beat immobility, beat in the agricultural space, beat in cooking, beat in cooling. The focus for us is on income generation and I see a lot of uptake in cooking over the next couple of years and also immobility with time. But it will be a gradual shift. But I think the next three to five years there'll be quite a big shift in cooking.

Nico: 52:15

All right, thanks a lot. Yeah, thank you, Edwin. Thank you, Aaron. That was an interesting discussion and I hope that especially electric cooking will make it to the mainstream and then all the mini grids will be able to sell a lot more electricity and your company will grow selling a lot of cookers and then also, of course, other appliances and, potentially, immobility. I think this is a component, one piece of the puzzle that needs to contribute to make this whole thing successful and with that, thanks a lot for your contributions today.

Edwin: 52:52

Thank you, Nico, it's been a pleasure. Thanks so much.

Outro: 52:54

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