Challenges in Electrification Implementation

Speaker 1 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 Inensys .

Speaker 2 0:35

Nico , we're switching and I am your humble guest .

Speaker 3 0:42

Olu , you had just interviewed me . Yes , now we . Now we are changing seats , so to say Let me ask you some questions .

Speaker 3 0:49

Yes , you have been around in the African , especially Nigerian , electricity and electrification and energy space . Yes , and your podcast is a little bit different than mine . You have one-on-one interviews . Yes , podcast is a little bit different than mine . You have one-on-one interviews . This way , you probably also are able to talk to higher ranked policymakers . So what difference do you see talking to , let's say , simple people like me and then really talking to those representatives ?

Speaker 2 1:20

Do they have a vision ? Yes , they do , and , nico , you're far from simple yourself . But when it comes to other stakeholders in the industry , people have very optimistic goals . I feel , especially very earlier on when we were doing lots of high level conversations with the CEO of SE4ALL and a few other stakeholders from IRENA what we're hearing from them is , although they buy in fully on the SDG 7 goal of the 2030 vision , they're not removed from the data . They're not removed from the reality that we're still very far away , and a lot of them are working very hard with their teams and also the local level organizations and governments to see the action being done , but the reality is still that we're very far away .

Speaker 2 2:01

So I think everybody really is bought in to the vision of what we're trying to achieve with universal electrification . Everybody agrees that decentralizing renewable energy is the way Africa is going to get to that goal . Now the problem is implementation between here and there , especially with 2030 just looming around the corner . As you said previously before , you mentioned something about five years ago and it's already today . 2030 is six years from now , so it doesn't seem as far away anymore and that's really the consensus . We all agree on the destination , but the data is showing us that we're moving very slowly towards that goal , but action is being taken .

Speaker 3 2:37

Yeah , olu , you said it's about implementation right . What are the problems there , like , why is it not happening ?

Speaker 2 2:44

That's a very good one and from my perspective I've seen a lot of really well-intentioned programs . So we can see an example where you have an organization move in with a subsidy offering and they want to deploy X number of systems across a time frame , and then the problem I see is that a lot of those programs are designed in isolation from the industry itself and sometimes even from other key stakeholders that should be in that conversation . And some stakeholders that maybe aren't being considered a lot of times is the equipment manufacturers , for instance Lopez , because there is this intersection in that relationship where every project that's deployed in Africa at least in Nigeria I don't know how true it is for other countries , but I'm sure it's very , very similar in sub-Saharan Africa is imported mostly from China . All the OEMs have manufacturing there . So it takes time for equipment to come in and the way OEMs operate , because manufacturing is very capital intensive . Manufacturing won't start until payment is made for the order and it has to be full .

Speaker 2 3:45

Most of the time it's either 90% upfront or 70% upfront , and that presents a challenge because then the developers have to go out and source financing themselves and the market for that is particularly difficult for reasons that I'm sure that you , nico , are aware , but maybe for the listeners You're talking about trying to finance a project and all you have as a starting point is a subsidy agreement with the disbursing organization .

Speaker 2 4:09

So then it puts developers in a very tight situation where , especially when they're working on really tight timelines so let's say that the grant says that they have to do this in three months and then deploy and all these things . But the reality is that some of those assumptions in that program design phase isn't very reflective on how the market operates , and I think a lot of that can be solved with much more early stakeholder engagement , especially with the commercial side of the industry , with the OEMs , with the people who are actually bringing in that bridge financing , because that is where a lot of the black box mystery is on why projects get delayed , why aren't things being delivered , and a lot of time . It falls within those categories and that is something that isn't being considered enough at the design stage of these programs .

Speaker 3 4:55

I fully agree . But we know that for , say , six , seven , eight years already right . So why has things not changed ?

Speaker 2 5:02

That's a very good question , and I feel like there is this wall between the private sector that is supplying the decentralized renewable industry in Nigeria or in Africa in general , and the policymakers and the financiers , because it's not a very easy wall to cross and those conversations don't happen organically . So we might know that we have , like , some key equipments that are being deployed so for the mini-grids it might be things like Huawei , jinko , ats or whatever OEM but at the design stage the conversations don't really happen and a lot of those OEMs , a lot of the financiers and the commercial banks aren't even talking to the implementation stakeholders . The burden of that falls directly on the developers . So , depending on the level of the growth stage that the developers are at , then it really depends on how quickly they can move on this . So if you have developers that have really sophisticated financial teams , then they can put together their financial models , their business decks , and go out and raise money a lot faster .

Speaker 2 6:02

But , if you have teams with core engineers , it becomes very , very difficult for them because they don't speak the same language as the financial people do , so that also causes a bridge . So the biggest issue with the way things are currently being done is that it puts a lot of pressure on the developers to do a lot of things that in reality , they might not be very well suited to do .

Speaker 3 6:21

Yeah , what I understand from what you just said is that Many good companies are not professional enough to handle these complex tasks . And now what you're saying is well , if governments or policymakers or funders structure their funding programs better , then the challenge for the immature companies would be less companies , would be less right . But you could also say and that is what I hear from the donors and from the policymakers a lot well , why don't we attract more mature companies ?

Speaker 2 6:57

So now that is a very interesting one , because when you talk about mature companies operating in the space , like there are only a handful of them , maybe five , so probably the names that come to your head , the same names that come to my head . But the reality is we can't rely on just five companies developing the majority of the mini grades , and most of those companies are companies that are either founded by organizations outside of the African continent or organizations that are just have grown so large that they have a lot of those competencies in-house . They have an in-house corporate finance division , they have project finance professionals that can help them do things very easily . But once you have smaller developers developers who , in reality , just have the core competency of just being developers they have engineers , they have technical skills , they have community engagement experience , they know how to go to a site , to size the demand and to deliver on that project that is the value that we want them to bring but they're not big enough to have the other competencies addressed as well .

Speaker 2 7:56

So you have organizations that are plugging this gap Odyssey Energy Solutions , who I also work for . Within our procurement units we help the developers talk to the OEMs and do procurement on their behalf and also help them solve the financing piece . But right now it's just Odyssey that's doing it at the scale that can bridge the OEM and develop a gap and also talk to financiers . But the market is large . Odyssey is just one player . There are so many opportunities going around , there are so many deals happening and , again , the ambition is so large and the timeline that's looming , like I mentioned in the beginning , is also something that we need to be observant of , and if we need to see significant change , it has to come from the design level , because that is what trickles down and affects the rest of the ecosystem .

Speaker 3 8:41

Yeah , on the one hand , I agree that the design level must be advanced . Design level must be advanced , but on the other hand , I also believe very strongly in the innovation potential of private sector . Yeah , companies and their ideas and their strategies and so on , as you just explained , like odyssey , found a very nice solution for procurement of equipment , bringing down cost sharing , data , all these kind of things , and we need more companies like odyssey I believe , to drive the sector forward yeah and , as we just said , policymakers and private sector has to work together of course

Speaker 2 9:20

but it's easier said than done yeah , it is easier said than done and it's always very interesting how you can encourage more private companies to come into the space and truly innovate , because for a lot of outsiders coming in it's very difficult to truly understand how complex the sector can be and all these things . So a lot of the innovation right now is happening by the really big mini-grid operators , so the ones who have a lot of years of experience and just to drop some names out there and give shout-outs you about , like hawks b box , um , the cross boundary group as well is doing some really good work . Um , heavy and healing nigerians and a few others that have grown large enough to be able to start innovating and doing things at scale . Now the quantity of those companies are still very small and it's an interesting question you ask because I actually don't know how we can spur more innovation and encourage people to come in , because it's also very risky to come into the sector and to pitch investors , especially if the company is funded by venture capitalists .

Speaker 2 10:17

Again , it adds even more complexity . So these are really the big issues , but I've had a lot of conversations with grant funders especially , and I think it's a bit of an unpopular idea every time I bring it up that , oh my god , like , why are you guys making it so difficult for people to actually deploy projects ? We should have had these conversations in the beginning and most stakeholders should have been at that table . But I see also from their side how difficult it can be to pull as many people in . But maybe , nico , you could give me from your experience how this process can be a bit more streamlined , because from my perspective , being very much in the weeds it can get very frustrating when you see the same things happen over and over again .

Speaker 3 10:55

Yeah , and I also see many great companies basically rather wanting to implement what they had developed and trying to push through , and many of them are Hoping that scale will , after all , do the job and make them profitable .

Speaker 1 11:12

Yeah .

Speaker 3 11:12

Well , according to their financial models , that is the case , right , but it's still not a financially extremely interesting business . Do we need more innovation in the sector . Is there not enough innovation happening ?

Speaker 2 11:26

I think technologically , we probably don't need many more innovations . I think the innovation needs to come in more subtle ways , especially around how we deliver projects , how we design the financing products that support the subsidy-backed mini-grids especially . I feel like that's where the space for innovation is , because it's easy to think of innovation as like grand leaps in technology and unfortunately for our space or fortunately for our space we don't need to do that , because that's very expensive and that takes a very long time . What we need is innovative processes , innovative delivery of equipment , streamlining conversations between equipment manufacturers , developers , streamlining supply chain , streamlining that last mile financing to actually get equipment into the country and to those sites so the deployments can begin . So that's where the innovation needs to happen and it's a lot more process-based . So in theory it should be easier , but it's not going as quick as you would like .

Speaker 3 12:21

Yeah , innovation and business models right , that is what we need in the mini-grid sector .

Speaker 3 12:25

I strongly believe in that too . When you look at grant funding programs for that purpose , they are usually focused at productive use . Come up with new productive use business models and then you receive a grant . But I also believe that there should be funding programs for what you said , right Financing . How do you innovate on the financing side ? How do you innovate on the data side ? How do you innovate on the procurement side and all these kinds of things right , which is not being considered that much at the moment and where there is still a lot of potential to improve ?

Speaker 2 13:03

Yes , like I said , companies like Odyssey are doing a lot of work there . There's a lot of work that can still be done . Odyssey is scaling up , but the rest of the sector , especially the rest of the markets that I'm not as familiar with my experience so far is in mainly West Africa , but you know the other markets there's still that gap and that gap needs to be plugged in all the markets for us to see that significant scale up that we're all looking for .

Speaker 3 13:28

All right , Thank you , Olu . One last question when you look at the mini-grid sector , I know that your view is broader than that . What role will the mini-grid sector play in the long run in Africa ? Electricity supply .

Speaker 2 13:48

Well , it's going to be significant and it's going to be significant for many more years to come , especially in Nigeria , because we have the new World Bank-funded subsidy program called DERES that's set to roll out anytime now . We've been saying that for a few months , but we'll see .

Opportunities and Growth in Mini Grids

Speaker 2 13:58

So a lot of that support is obviously going to mini grids , and there are a lot of sites within Nigeria that we know that the grid extensions would never reach . We've all accepted that from a technology and a practicality basis . So there's a lot of potential and there's a lot of markets to be served there and there's a lot of opportunity for growth for mini-grid companies as well , because you would want to assume that the most efficient operators of those sites are going to grow and get more opportunities to expand .

Speaker 2 14:22

The electrification rate in Nigeria is about like 55% . Other parts of Africa are even lower . So the opportunities are large and we know that when it comes to reaching those sites and reaching those people , especially with spending power and the lack of capital to do grid extensions , a lot of that is going to fall to mini-grids and mini-grid developers and back to the same challenges that we've been framing throughout this entire conversation . So the opportunities are large . The companies are going to grow . They're going to get more sophisticated with time , but they're going to need a lot of support from different stakeholders that we both know to get there . But the opportunity is there and the players are brilliant .

Speaker 3 14:57

So they're doing really good work . Yeah , I hope that this message will reach the ears of the European Commission and let's see if we can convince everyone that mini-grids is a good idea , better than extending the main grid to everywhere , which would be much more costly , of course yes and with that I would like to thank you , olo . Thanks a lot , that was a very nice bi-directional session and hope to see you soon thank you , nico .

Speaker 2 15:24

It's been a pleasure as well .

Speaker 1 15:25

Thank you for having me on this episode of the mini grid business has been brought to you by Enensis , your one-stop shop for sustainable mini grids . For more information on how to make mini grids work , visit our website , enensiscom , or contact us through the links in the show notes . The mini grid businessed by Inensys .