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

Hello, this is Nico. Welcome to this flagship episode on rural industrialization with mini-grids. On rural industrialization with mini-grids, my guests are representatives from three African mini-grid companies who are implementing and operating rural industrialization schemes in their respective countries. We have Peter Benhurnieko, co-founder and director of Mandoulis Energy, running rural industrialization with biomass mini-grids in Uganda. Camille-andré Battey, co-founder and CEO of Anka, running rural industrialization with solar mini-grids in Madagascar, following their agri-grid model. And Oluwatobi Soyombo, chief Growth Officer at Haven Hill Synergy Limited, running rural industrialization with solar mini-grids in Nigeria. In addition, I will contribute with Inensu's rural industrialization experience from Tanzania and Uganda. Welcome, peter, kami and Tobi. Peter, do you want to tell us more about rural industrialization under Mandoulis?

Speaker 3 1:50

Thank you so much. Yeah, we've been operating for the last 12 years in Uganda and our first mini-grid is 10 years old now and we've realized from the beginning that because our main feedstock for our mini grids is agricultural waste because it's bioenergy so it helps to have agricultural processing to get access to the waste we use for our power plants and then to make sure we have enough waste to run our power plants for the whole year, we introduce pellet making so we compress the waste into pellets. So agriculture processing followed by pellet making, and then, once we run our power plant and we have biochar coming out and bioslurry coming out, we manufacture biofertilizers so that we don't throw away our waste but it brings in a revenue. So in a cycle, it's agriculture processing, it's pellet milling, it's fertilizer production, then finally water cleaning, because we need water for our bioenergy power plant as well. So that's how it works for us and it's been a great journey.

Speaker 2 3:00

What a nice project. Circular economy Very nice. And what agricultural products do you grow? Is the actual farming and agricultural side of the business integrated, or do you purchase those products from surrounding?

Speaker 3 3:16

farmers. Instead, we provide our farmers with access to milling services for rice and milling services for groundnuts, I see, and threshing services for maize Now, because they have lower cost access to processing with us. They bring us on their own crops for us to process and after the processing is complete, they take the finished product which is more valuable and they sell it in the marketplace and they leave us with the agricultural waste which we need for our feedstock and we give them a discount equivalent to the value of the waste they have left behind with us. So that's the approach we follow.

Speaker 2 4:09

Interesting. All right, have you ever thought of trading the goods that you get delivered from the farmers?

Speaker 3 4:18

We have. We initially traded the goods ourselves, but then we decided instead to connect the final buyers directly to the farmers, and that allowed us to not have to store all the crops ourselves, but actually, when the value goes straight to the farmer and the farmer increases their income, the farmer and the farmer increases their income. Their ability to pay for electricity and some of the other services we provide, like milling, like fertilizer, like water, become a lot more strengthened.

Speaker 2 4:54

Some of you may know this Inensos paper about the key maker model where we say, well, if you bring electricity into a community and take all the effort of establishing all this infrastructure there, all the lines and the poles and the connections and the generation plans and everything, and then you have people on site and do the servicing, the technical maintenance and the customer service and so on, and you have a professional company in the background, then it's relatively straightforward to also trade the goods. And after all our experience and I can tell you later where we actually made this experience taught us that a professional company is sometimes required to get better prices from the offtakers and that the farmers themselves would potentially not perform as well as we could in price negotiations and they could probably also not organize the logistics as well as we could as a professional company. How are you going about that?

Speaker 3 6:00

Peter, actually, that's why I said we started by spending a good five years to set up all the systems for the farmers yeah so we, we negotiated the contracts long term, we set up the logistic systems in place.

Speaker 3 6:17

Um, we we spent a lot of time, uh, between, let's say, 2018 and 2022, to make sure all the ducks were lined up, and during that time, the farmers learned from us as we were leading the way, and, after we had made enough progress, we basically passed on the mantle to the farmers, who now had groups that had been set up as strong groups working together. And it worked out well now, because, initially, we would provide milling services to them. They wouldn't pay for the milling until the crops were sold that's how we did it initially and we would negotiate for the price and so on. But then, after the first, let's say, you know few years of them accessing the support of us, facilitating the process, they have now been able to learn exactly what to do, how to do it, and all they have to do is renew the contract that we had already set up. And so now, when they're on their own, they're basically working from a playbook that we've developed.

Speaker 2 7:31

So, after all, you basically supported electricity demand growth through rural industrialization, and that is, after all, also one of the main aims right of the rural industrialization scheme increase income levels, support reliable income and then create a lively and active local economic cycle that is connected to the national economic cycle. And I know that, peter, that your example under Mandoulis Energy is definitely one of the large success cases. Let's go into Nigeria. Toby, do you want to tell us a little bit about how Haven Hill is approaching the rural industrialization concept?

Speaker 4 8:17

Yes, thank you, nico, and thanks for this platform. Yes, for us, I would categorize rural industrialization as all the other value-added services, as we like to call them. So those are all the things that we do apart from selling electricity in itself. So just to run through them one, we have an appliance finance scheme where we identify the commercial customers amongst the customers of our mini-grid. So this would be like, maybe, a small grocery store within a community. It could be a customer who has a big grinder, milling machine and all of that when it doesn't exist at all. We provide finance, provide the appliances itself to them. So we bring in the energy-efficient appliances into the community, hand it over to those customers. And not just that, we also then handhold them. We support them in understanding more about their own businesses and how they can grow those businesses and then ultimately repay the cost of their plans that we provided them and ultimately grow their business over a long period of time. So that's Appliance Finance.

Speaker 4 9:18

We also have something we call the Farm Fuels Initiative. So this is something we started about two years now, where we went to our farmers and we asked them a simple question you have these vast hectares of land in this community. Why are you not cultivating more? And their response to us was very simple they cannot afford to buy the seedlings, the mechanization required to even clear the land, they can't afford. And then we said if we provide you all of these things, are you going to cultivate more? And the answer was yes.

Speaker 4 9:49

So we went back and allocated a small portion of our working capital, brought in the tractors, plowed the land for them and put that into a credit product and allowed them pay back only at the end of the farming season. So we also then connected them to the market. So we have that as well going on. And in addition to that, we have just commenced the construction of a greenhouse, which will be powered by the mini grid of one of the communities that we're currently operating. So that's kind of like a quick summary of all we do, of course, as we get into the conversation, we can discuss more in detail.

Speaker 2 10:21

Yeah, so this all sounds like free services to your electricity customers, who are then also farmers. Are you getting any revenue, any benefit, out of that?

Speaker 4 10:30

Absolutely. It's not all free the way I said. It sounds like it's all charity. No, it's not so. For the appliance finance, for example, we charge an interest rate, so we make money from the interest on that, for example. In addition to that, we also make money from the farmer credit that I mentioned earlier on as well. We make some money from that as well, because when the farmers are repaying that loan, they are going to have to repay with some interest.

Speaker 2 10:53

Yeah, but the products, after all, are with the farmers, right, the agricultural products, and you're not processing them or selling them or trading them or organizing logistics or anything, but it's basically the financing of machines that the farmers require. Do I get you correctly, toby?

Speaker 4 11:12

Yes. So at this point we do not process at the moment, and I can share now why we haven't started processing. Yeah, please do. Okay, good, so we actually went with the idea of being able to process right, if you thought the entire industry has been talking about productive use of energy and all of that and we also thought, okay, yes, let's get on with this thing that is so cool in the industry.

Speaker 4 11:32

And then we got to one of our communities. Our intention was to start a plantain processing facility where we can make plantain chips and potato chips and the likes, and we did a study of the total harvest that we can find in that community. That would act as the imputes for the processing facility, and we realized that the processing facility in itself would only survive maybe for less than a month, that in one month we would have been able to process everything that every community within a certain radius of the host community itself will be able to proceed. So we thought it doesn't make sense to invest all of that money, you know, buy all the machines and everything required to start the pressing facility and only be able to sustain it for one month in terms of impute. So what then happens to the remaining 11 months, so which means that the output within those communities is just too low.

Speaker 4 12:22

So that just led us into that question of so, if you have this vast land that people in the urban areas are dreaming of, why are you then not cultivating more? Why can't we have more plantains out of this community? And the response was very simple If you can give us enough capital to be able to cultivate more, we will cultivate enough to be able to sustain your facility. So it's like taking a step back to say, okay, productive use of energy is fantastic, but if you don't have enough imputes to sustain those use cases, then you will invest a lot of capital to set up a facility that you would not have enough imputes, and it's going to cost you a lot more to source those imputes from elsewhere, because that's what people typically say.

Speaker 4 13:02

But if you look at the logistics cost and all of that, it just doesn't make sense. Why not just site your facility close to where you can find the raw material? So, and that's what got us on that path, and that's why we have not yet started processing for these communities, but eventually, as part of the farm fuse initiative, we do have in our future roadmap to set up a process. In fact we are already talking about that already for one of our communities we are going to have this huge maize harvest and we have to start talking about processing that harvest at least into semi-finished grout immediately. But the first stage is increase the output and then talk about processing next.

Speaker 2 13:33

Yeah, peter, you should have overcome, most likely, a similar challenge. The supply of feedstock to your milling business and after all, to your electricity biomass business is constant and continuous.

Speaker 3 13:51

It very much comes down to locating the site. While most of the players in Uganda will locate their sites where there is ready demand for electricity, we usually try to locate our sites where there is potential for agricultural production, and so when we have areas where the average farmer has access to a lot of land, even though they're not yet producing on all the land that they do have, the fact that they have a lot of land that they can't produce on gives us something to work with. As I said, our choice of technology changed along the journey. We started only with biomass gasification, but now we do both biomass gasification and anaerobic digestion in hybrid. The reason for that change was, with biomass gasification, the main output as a waste, if you may, is biochar. From anaerobic digestion, the main output as a waste is a very nutrient-rich bioslurry, and when you blend the bioslurry with the biochar, you get the most incredible soil-enhancing fertilizer which, on one side, improves the yield of the crops, on the other side, improves the ability of the soil to attract moisture and retain moisture, and what we then did was to basically train the farmers in the use of that product, and when their yields started going higher, they were able to grow more.

Speaker 3 15:23

The next thing that was stopping them grow more crop was basically they needed to have a ready market for the finished product. And so what we did? We linked up with a couple of the large global entities that purchase grain from the farmers People like Coca-Cola, people like Diageo. We actually took them to the sites where the farmers are introduced, them to the farmers and handheld the farmers to understand the ideal volumes to basically, you know, push through. We linked up with people like the UN, fao to help the farmers with the technical support they needed to improve the agricultural practices support they needed to improve the agricultural practices.

Speaker 3 16:07

So, linking up with technical support providers, linking up with the market for the finished product after processing and then, on our own, finding that niche of low-cost, fully organic, biochar-based biofertilizers, has helped us in many ways complete the loop, and that's the main reason why right now we don't need to manage the sales of the products anymore, because the volumes that they're producing are able to sustain our production all through the year. We have had to build significant warehousing now for the waste which we're basically producing, but the size of warehouses we had before we did this is less than what we have now, because right now there is a lot more of a regular flow of production going through the system. That's what's helped us there.

Speaker 3 16:55

I can imagine that it's quite challenging to balance the raw material with the electricity requirement, because all you don't want to produce biogas that you don't burn after all right, it's not too much, because we know that we have to generate the electricity anyway and so, depending on the demand, the households usually use the electricity in the evenings to the early night, so let's say from just before supper to just after midnight. That's the peak demand for households. During the nighttime hours, from midnight to morning, there's usually not much demand and that gives us the opportunity to really maximize the processing work. And then during the daytime hours, it's another opportunity to maximize processing and also to supply some of the other productive uses within the village ecosystem. So when it comes to the balancing, what we basically store is the actual processed biomass.

Speaker 3 17:57

When we do pelleting, when we pelletize the agricultural waste, we can store those pellets for a whole year. So what we store is not the raw biomass waste, we store pellets. And pellets become not just a storage for our own biomass but become a secondary income stream, because the same pellets, now that we've pelletized, we can now distribute them not only to our own village but to other people around, both households, commercial and industrial people who need cooking fuel or heating fuel, because the pellets now replace firewood. So any excess goes to pellets and those pellets actually, right now, if you look at it those pellets are our second largest income stream, after electricity.

Speaker 2 18:44

Okay, I see, okay, understood. So you have an offtake through the pallets channel where you can sell all the surplus.

Speaker 4 18:53

Yes.

Speaker 2 18:55

Now let's go to Madagascar. Camille, do you want to introduce us to what Anka does in the agri-grids space?

Rural Economic Development Through Agri-Grid

Speaker 5 19:02

Agri-grid is something that we came up with, I think, in 2017, when we first decided to develop an inclusive agri-energy nexus model. But before talking about this ultimate approach of agri-grid, I'd like to say that we've been working in this industry for almost a decade and we are pretty close to Peter's achievements. Our oldest mini-grid is almost turning into 10, and we were pretty close to Peter's achievements. Our oldest mini grid is almost turning into 10 years old pretty old and I think that from the very beginning, we acknowledged that providing electrons to the communities was not enough to unlock the potential of social and economic development in the areas that we were working in, and so, basically, even our tagline is pretty much illustrating the vision that we have for this industry energy paving the way for rural resilience and rural economic development. So, very early on, we decided to focus on productive use, and I'm sure a lot of many good developers have also been focusing on that. But we decided to approach this through two different or two main ways. I would say that one way is the micro approach, so basically working with individual businesses, so working with different kinds of businesses locally, such as, I don't know, like a rice machine user or a grocery store or a small restaurant or a welding user, and we developed a few different supports and services for them to help them increase their activity and further develop their business through financial support, technical assistance and so on. But the other way we decided to really make a change in the rural economic development was through the macro level approach, which is more focusing on supporting value chains, and this is where we really decided to work on developing a model that would be building a bridge, a connection between energy access and what we were doing with all of these electrons and the main economic activities or the main economic sector in those areas, and we identified agriculture as one of the main source of revenues for the population, and so, after a few years of development, we came up with this agri-grid concept Back in 2017, we worked a lot on developing this model and basically this is our mission to build rural wealth while increasing access to modern electricity, in a sense, to what we call the mini-grid 3.0 approach, which is basically building nexuses between energy access and other sectors, including agriculture, which is supposed to boost rural economy and growth, but also rural electricity consumption and, ultimately, the financial and economic viability of our mini-grid investments.

Speaker 5 21:54

So we are basically trying to move the industry from selling rural electrons towards creating rural wealth.

Speaker 5 22:01

And the agri-grid concept, or the agri aggregate model, is consolidating existing solar and IT technologies inside of an experimental agri-energy nexus model, which is meant to span the enhancement of yields, the creation of new food and ag products through value addition creation and facilitation of market linkages, and optimization of storage, packaging, logistics and sales.

Speaker 5 22:27

And the core to this agri-grid model is the creation of a community organization, which is led by women associations that we work with, that both convenes farmers and manages the sharing of agribusiness profits to make both electrification powered by our mini-grids, and local sustainable agri-project manufacture profitable and scalable by harvesting synergies from the by-product economies and economies of scope. So this is really our core focus in our model and because of that we've been also able to develop a few other satellite activities, such as electric cooking that we've been implementing in our projects, working in water supply and water management, along with electricity supply management, working on health and education and so on. So we are really trying to build this ecosystem at the local level, and agrigrid is the ultimate approach that we can apply in that context.

Speaker 2 23:27

You have introduced now three different angles from which you look at rural industrialization and my experience, and from what I hear from you, there's always a challenge to stay focused. It's so easy to get sidetracked. If you run one business and you see there is something not working very well, maybe I should offer this additional service too. And then you offer that additional service and then another service or another opportunity comes up and after all you do so many things and nothing is really profitable. But the idea of the rural industrialization is like, at least from my point of view, should be focus on one product, focus on one core process and maybe work with the side products, but after all, monetize it and really focus. Camille, what are you now finally making money with?

Rural Industrialization and Value Chains

Speaker 5 24:31

What is your revenue source besides electricity sales? What I feel from your question is the risk of dilution in the effort, in the activities, and I think that we need to make a distinction between the dilution and the diversification. And I feel like we've been diversifying our activities to make sure that we would be going for this ecosystemic, holistic approach that I feel and that Anca feels is a necessity and not an option in rural economic development and in energy access. I think that we need to deconstruct the simplistic vision of the energy operator as a mere supplier of electrons, because that may be working in developed countries where demand is self-generating because of the economy and the social, societal and political context that stimulate it and give it the necessary means. But in underdeveloped and or developing countries, these resources are either non-existent or very limited, and so demand is not self-generating. The local communities need support, resources, guidance and the cooperation of all parties if we want it to emerge, and so industry to me is basically transformed energy, and so we need to support demand to sustain the emergence of industrialization. But your question refers to, there's so many opportunities in those areas that where is the one that you will be focusing on? And, as much as I understand what you're saying, our understanding and our experience is that one place, one context, one story and so one model. So we don't necessarily need to be involved at every step of the development of such an agri-grid model locally, but we may be the catalyst for every forces and every stakeholders working in the area to build something together and develop a project. It has helped us better understand the needs and the desires and the potentials of the areas that we work in and it's also allowed us to connect with all the stakeholders.

Speaker 5 26:31

That was necessary to build those holistic projects. So we see ourselves more as a catalyst. We bring a set of competencies, of skills, of expertise and we really try to build the foundation of those projects. But at some points we prefer to hand it over to other partners, whether they are working in the food industry or in the trading or in the retail of some products. But because we are at this crossroads of so many sectors and so many activities and because we are connected to so many stakeholders, we feel like this is part of our duty to act as this catalyst and build those connections value chain. We've been working on several, such as I don't know processing groundnuts into edible oil, or working on extracting fiber from banana trunk to make different sort of things, working on cocoa, for instance, on processing cassava. So a few different value chains. But the methodology to develop the project remained the same and we still always apply the same set of skills and the same expertise. But at some point we do require the assistance and involvement of other stakeholders to jump in and to help us develop the projects. Same time, we've also seen on the ground that this is probably the best way to build a resilient ecosystem for local communities and local economic developments.

Speaker 5 28:12

And to answer your question about how these side activities, apart from selling electricity and selling projects, weights into our financials, at the moment this is still a little bit limited, but I do not think that this is because it doesn't have the potential.

Speaker 5 28:30

It's mainly because it's taken so much time for us to actually get those projects off the ground that I would say we don't have enough track record to say whether these weights enough at the company's level to make a change. But at least at the local level and to the beneficiaries, it does, because it creates jobs, because it increases their revenue streams and it also diversifies their revenue streams, and this is also one of the ultimate positive outcomes of this approach, because you can see these models of these projects through the angle of what are the side benefits of these activities. Or you can also see it from the angle of the electricity sales and say we build jobs through these value chains and these projects. We create more revenue streams, we increase the potential for leaning the seasonality effects on the revenue streams, for leaning the seasonality effects on the revenue streams, and so ultimately we basically transform or convert low purchasing power customers into wealthier customers who do spend more money on electricity services on our grids and this we do see as results on our projects.

Speaker 2 29:42

Yeah, camille, honestly, we have many financial investors who listen to this podcast and, well, when they listen to what you just said, many of them will probably say, yeah, this is a nice approach, but nothing I would invest in, because where's the money in there? How is it profitable? Yes, there are a lot of impactful outcomes and you generate some really nice effects like increase of local income and these kinds of things. And yes, we also agree that in the long run, that would increase the electricity demand. But why would we not just invest into a company that electrifies an area where demand already exists? Where is the financial benefit? Where's the profit?

Speaker 5 30:27

You have basically two possible parameters for a mini-grid success. Either it's a high volume of customers, so you have a great number of customers to connect to your grid, or you focus on the highest possible unit consumption per customer, and this is why a lot of us decided to focus a lot on the productive use, for instance In our aggregate model. This aggregate model relies on both parameters, but with emphasis on the highest possible unit consumption per customer, and this goes through two ways. First, by building and connecting agri-processing units to the grids, you build anchor customers to the grids, needs to the grids. You build anchor customers to the grids and so you can rely on customers that have predictable, reliable, high unit consumption.

Speaker 5 31:11

And the second aspect is what I just mentioned, because those activities, those value chains, do create much more jobs than just an individual business that we could support. You convert those households that you have on your grid. When they come back from their job, you make them better customers on the grid, and so if they have more reliable, stronger revenue streams, they can spend more money as household customers on the grid, and so ultimately, you just increase the unit consumption per customers on the grid and so, ultimately, you just increase the unit consumption per customers on the grid and that we've observed. And so that is one aspect. The second aspect is we also have to acknowledge the fact that if the processing in the agricultural sector has mainly been performed in urban or per-urban areas, it is because electricity was available in those areas and not in rural areas where we mainly produce raw material crops.

Speaker 5 32:12

Now that we have electricity being available thanks to the mini-grids whatever mini-grids it does open so many more opportunities for these industries to relocate or develop new facilities in those areas much closer to their production line, and that would have a very strong impact on their financials, these industries' financials, because you get closer to the raw product, because you decrease the logistics costs, because you decrease some of the overhead costs and so on. And so we also see from our discussion with the private sectors, with these economic operators that we work with, because we are also an EPC contractor on the CNI market. So anyway, we have a few connections. We bring some of those industries closer to the production areas which are the real areas that we work in. And so any investor that would not see the financial potential, the economic potential of investing, whether into the industry, food industry facility or whatever, or in the mini grid, for what I just mentioned is just now understanding the economic potential of what we're creating.

Speaker 2 33:26

Yeah, okay, let me also tell the Inensos, or Jumema, and Volterra story just quickly. So we also are experimenting with rural industrialization for quite some time. First we started in Tanzania with Jumema, where we established this fish processing and trading model. We had electrified islands in Lake Victoria and found that most of our electricity customers are fishermen, and these fishermen actually were suffering from overfishing of nipurge. And as the nipurge was overfished, the tilapia, the prey, was growing in population and therefore they were trying to catch tilapia, but they somehow didn't find local demand for that fish. And then we said, ok, well, while we're here, we can purchase tilapia wholesale in large quantities, clean it, degut it, clean it, deep freeze it and then deliver to a wholesale offtaker in Dar es Salaam. And that worked quite well for a certain period of time and was a profitable business. So therefore we established a decentralized processing stage in this tilapia value chain that allowed the rural population to benefit but also allowed our company to be more profitable after all, jumeme as such. And then somebody said, yeah, fish was easy, you wouldn't succeed in a real agricultural value chain. I said, okay, well, let's try this, and we established Volt Terra in Uganda, and Volt Terra is a joint venture between Inensus, as a mini-grid electricity expert, and a Ugandan agricultural company called Gourmet Gardens, and we both hold 50% of the shares each in that company.

Speaker 2 35:17

And we run a block farming approach in a village in Uganda, uganda, and we grow vanilla and chili because we identified those two cash crops to be the most profitable ones. And we work with the local community in that village to grow the crops and we hope to actually sell the first harvests end of this year, early next year. And we process the chili by drying the chili on site, because if you transport the chili fresh it develops aflatoxin which is poisonous, and if you dry it on site immediately after harvest, then the chili does not develop the toxin and you can even have a better quality chili. And with vanilla, vanilla needs a lot of protection to not be stolen from the fields when the vanilla beans get ripe. And well, we do that through cameras and through protection, electric fencing, lights like motion detectors and these kind of things, and that altogether helps us to produce good products.

Speaker 2 36:28

That then we trade and we believe that the real money is actually in the trade, not in the support to the community, and then, after all, basically letting the community do the trade, whereas I believe that a larger entity with more management resources and these kind of things could probably do the trade and the logistics and the processing better than the rural farmers, even if they coordinate amongst each other.

Speaker 2 37:00

So from that perspective I see and correct me if I'm wrong that we have basically two parties in this call. On the one hand there's Camille and Tobi, who are supporting the community in basically lifting itself out of poverty through services that you provide, through financing services, deferred payment schemes, establishing of contacts, support with processing steps, but not tapping into the actual processing and trade yourself and not actually making any money out of this. And then we have the other party here, which is Peter and me, who are trying to somehow get a direct financial return out of this activity. And from my perspective, in the long run I would even say there could be a third party that looks at this whole rural industrialization activity as an opportunity to get access to rural products, and then the electricity generation, distribution and supply business would just be an add-on or a support business that is required to actually get access to the rural products. What do you think of this, camille Tobi? I put you on the other side, so to say, of the table. Is that correct?

Speaker 5 38:26

It is correct and not correct at the same time. Why? Because we have two possible ways of implementing this agrigrid concept. The ultimate approach of agrigrid is actually what you just described for the chemical model model. So we do have, and that is, we have an example of a project that we're just now implementing for processing groundnuts into edible oil, and Anca is involved in the setting up of the facility that we financed together with some partners. We are involved in the processing, in the management, but we are putting the Women's Association on the front stage of the management to empower them.

Speaker 5 39:07

But we do remain involved in the whole process of this activity and we do intend to sell this product on the market and we've performed a whole market study. We've identified off-takers, we've already some contracts signed with off-takers and so on. So we are just still implementing this new project that's the latest one, but where we will be involved on the trading of the end product. So in that sense, we do get closer to what you seem to be describing in your and Peter's model.

Speaker 5 39:41

With that being said, because of the structuring of the market and we don't always find the proper opportunity for sending up this kind of project we also acknowledge that we might have to work together with some stakeholders to do the trading. So we are a little bit flexible on the model, depending on the opportunities, the environment and the context of the arrears that we're working in and what are the stakeholders available and willing to get involved in the project. So in some cases we might just hand over the trading to the Women's Association and another development stakeholder because they are way better positioned to do it, and that also takes a relief on the effort of set of skills within the company, within the mini grid company, to actually develop this kind of project. So I think that we should also ask the question where is the limit to what a mini grid developer can do to stimulate demand and to stimulate economic development thanks to energy access? But what I can say is that within the aggregate concept we do both.

Speaker 2 41:06

Yeah, where's the limit? This is close to my statement, before you easily get sidetracked. So what we tried in like, first in Senegal under Enersa and then later in Tanzania under Jomeme, we tried various productive use models and what we repeatedly took away from it was that, well, you can do trainings you can probably get people with a primary or secondary education and train them on doing business, signing contracts, negotiating good terms for their produce. But is it really worthwhile? Like, how much money do you put in and how much money do you after all get out through an increase of electricity demand? And, peter, you said, like it took you some 10 years or so to increase your demand significantly, electricity demand. And like, if you ask me or if you ask an investor, the investor would say, yeah, but in 10 years I actually want to have not only my money back, but I actually want to have my return, and the return should be significant because it's a high risk investment. I don't want to wait for 10 years until the demand had finally increased to then start thinking about generating a return over in the coming 10 years. Right, the time frame is simply too long. And at the same time, I talk to investors in the space, usually investors that are not very much attracted to the mini-grid space but which are looking into African opportunities, and those said well, if you can produce excellent cash crops and you find a market for it and you can show that this is really profitable, then we are also willing to invest into the support technology which is the mini-grid. But like mini-grid alone, no, stay away. Well, this is not profitable. We are not going to look into this.

Rural Industrialization and Sustainable Profit

Speaker 2 43:03

And I still believe that if we focus more on producing products from rural areas and when I say produce products, it's not that we look into oh, I'm in this village and now what can I do here? Oh, these are the 10 products. Let's support them all. Not like that, right, but really look into. Okay, where are my villages, as Peter said before, where are my villages where I can actually catch the tilapia or have fish farming for tilapia? Or where are the villages that have those rare natural environmental conditions to grow vanilla? Okay, let's go to these villages, specifically to these villages, and grow that specific product and make it large, large, large, large scale is basically what we need to be recognized. And then we cannot do okay, we do 100 kilograms of maize and we do 500 kilograms of rice and we do one ton of cassava here or there. I don't think that will take us anywhere, but we should actually grow industries. And this is a statement and I put it onto the table for discussion.

Speaker 5 44:11

Isn't it what we're all trying to do?

Speaker 3 44:14

I was about to say the same thing. I was like, first of all, I'm just so excited that there's four of us on this call talking about the same thing. It's just beautiful because a decade ago we all imagined, you know like you know what if this happens. So this is a massive step in the right direction for the industry that you've got four very strong companies that are actually growing within the space. And each time any of you is talking, I just tell myself they're doing what we're doing in a. I just tell myself they're doing what we're doing in a different country or they're doing what we're doing with a different crop.

Speaker 3 44:49

The shared ethos is pretty much identical across. The difference is basically when you're in a different country and a different part of the country. You basically have different products or different markets and different kind of ecosystems. But in general, when you look at it in the long run, I can see interesting things coming out of it. At the end of the day, it comes down to one thing For industry we've got to see what are we competing against?

Speaker 3 45:16

We're competing against industries in urban areas who access grid electricity at industrial tariffs. Can we, as mini-grids, build our capacity enough to A to be able to attract the kind of investment to bring down our cost of capital so we can match the kind of tariffs which urban industrial parks charge. Or at least if we have considered the logistics advantages of processing at the source, because my electricity might be more expensive than an urban industrial area, but if I attract the industries to the source of a generation of the product, the source of the farming produce, they save transporting waste. So, for example, with most of the grains, when you transport them 100, 500 miles away to be processed in an urban area, up to 50% of what you're moving is waste. So up to 50% of your logistics cost is wasted. So when you balance that with the price of electricity and come up with an interesting middle ground, you may not go down to the 13 cents a kilowatt hour that the industries in the industrial parks are charging. You may not go down to the 13 cents a kilowatt hour that the industries in the industrial parks are charging. You may go closer to 20 cents, but the saving you're making in logistics makes a massive, massive difference. So that's, how do we access that kind of capital? Because the expertise is there, the market's there. It's an issue of accessing the kind of capital which enables that to happen. So definitely that's the future.

Speaker 3 46:48

We may all need to look at whether long-term contracts could help us also maybe do forward sales of some products to bring in the capital needed to scale up, because ultimately what we realized was at a 50-kilowatt mini-grid we couldn't break even. But at a one megawatt mini grid we can do anything and we can do it at the same quality and at the same relative tariffs as they're doing the urban areas. But obviously we've got to grow the market to reach that level. For the first mini grid it took 10 years, but for the second one it only took three years once we figured out which procedures make the most sense, and for the next 12, it's literally taking one year.

Speaker 3 47:30

So the more time we all spend in the trenches figuring out these things, we're all in this great space now where I believe all we need is the right kind of patient capital, not just patient in terms of time, but patient in terms of understanding what focus means. I could say our focus is on delivering profits to our investors and delivering value to our customers. That could be our focus, and if whatever we do delivers that, I think we are as focused as Mbappe is on scoring a goal at the world cup final all right, peter, what you just mentioned, the transport cost and transporting wastes.

Speaker 2 48:11

Basically that is one component or one part of the keymaker model formula, which I would just want to highlight quickly. This is a formula and there's a publication available. It's free of charge, you can just download it from the internet under Keymaker Model for Mini Grids and it basically provides a quantitative insight into how profitable a rural industrialization approach with a certain product is. And it looks into exactly these things, peter, like how much waste do you transport long distance if you don't process on site? How much more profitable would it be to process on site? Even if electricity prices are higher than in urban centers? How much additional cost reduction can you expect if you combine an electricity generation, distribution and supply business and using the same people or a part of the staff to also run the processing and trade business? And then we compare with an urban processor and in many cases we find for certain products that rural products can really be competitive if we combine it with rural industrialization and mini-grid operation. To go for maize, we wouldn't go for rice, we wouldn't go for cassava, we wouldn't go for any staple food, because according to experience, this staple food works with very small margins. But if you go for more cash crops, if you grow tomatoes in a rural area, don't try to bring the fresh tomatoes into the urban trade-offs. Produce tomato paste on site, maybe evaporate the water to reduce the weight and volume even more and deliver concentrated tomato paste, or grow those crops that are natural in these areas where you need some special kind of environmental condition kind of environmental condition.

Speaker 2 50:28

Hermit, you already said that oil crops are usually very nice key maker products where you have a lot of waste that you transport. If you bring the raw material into the urban trade hubs and process there and instead you process in a decentralized manner and then you have your oil and that oil has a significantly higher value and a much smaller volume and weight to be transported, yeah well, there are so many nice products out there Fruits that could be dried, shia nuts that could be pressed, where you can extract the oil for the cosmetics industry. It's just not the staple foods. And that is what in many cases, mini-grid companies don't believe, because they say, well, what is in this area? Oh, they grow rice. Okay, let's go for rice, a rice rural industrialization model, and they say, maybe this is not a good idea. What's your take on this, kami? You've been talking about oil, right Toby, come on.

Scaling Rural Industrialization for Profit

Speaker 4 51:21

Yeah, I think this is going to be quite different for different communities. Well, I appreciate the fact that we are all doing almost the same thing and maybe, just to take us a bit back, when you group this conversation into two, I think we're kind of doing the same thing. For example, in our own case, we do have a greenhouse that we will own entirely, and the goal is to be profitable. So this is not some virtual signaling that, oh, we just want to set up something and generate jobs, and we will generate jobs, but while we're doing that, we would also make a good amount of money. And the same thing with our farmer support program as well. We will make money from that as well. In fact, we've concluded that the right approach for that is that we support the farmers, but in addition to that, we also cultivate ours as well. So if providing support for the farmers to cultivate maybe 50 hectares or 100 hectares we want to be doing 200 to 300 hectares as well in that same community, or even more than that and combining both together with what we think number one, will deliver positive results across the community, the goal is to and if we can, lift the farmers out of poverty, we think we cannot do that by just cultivating ourselves and selling, and then the entire value comes to us alone. You want to make sure that you also have a system that allows the farmers also grow out of poverty. One, they are able to live better lives but, more importantly, they are able to afford the energy that took us to those communities in the first place. So it sounds like we are all doing the same thing. But I just want to comment here because there might be someone listening to us now maybe a donor somewhere, or an investor, or maybe even an energy access company somewhere listening and then who takes this information and says you know what? I'm just going to go and set up a farm and then I will process something. I think we all have to take a step back and say what works.

Speaker 4 52:58

In my context, the fact that you cultivate tomatoes does not mean that you should actually be producing tomato paste. And just to kind of offer a contrarian view on what Nicole said earlier on, the question is can you produce enough tomato paste at a competitive price? Because you're going to be selling the market anyway and people are not going to buy your tomato paste simply because it's cultivated from a rural community. Maybe a small percentage of the population will, but at the end of the day people want to eat tomato paste and they want the best quality at the best price. So what I've found, at least for now maybe until we find a model that has done that successfully is that all the output that you will be cultivating anyway, you may not be able to have enough imputes and enough size of facility to actually produce or process an actual finished goods at a competitive price, because you still have to distribute, you still have to go through all of those other things that people in the urban area would go through, and there's a reason why people aggregate in certain maybe urban centers and then produce at large scale just to be able to drive down the price. So if in your context you believe that for the market that you're going to be selling to and for all the context, all everything considered, you will still be able to deliver a semi-finished good or an actual finished good at a competitive price, then go for it. Go for processing to finished goods or semi-finished goods. But in some context it might be that you're actually best served if you put everything together and then maybe export so that you generate some forex into your company and ultimately to the country as well, if that is what works best. So this is going to be community to community.

Speaker 4 54:29

And also, to take us back to the point you raised, camille, the reason why it sounds like, why Anchor is doing a lot and it looks like dilution is also because there are different communities. I'm not sure exactly how many communities Anchor operates in, but we operate in 30 communities. So that means 30 different problems. It means 30 different contexts. In some communities we cultivate sesame seeds, in some communities it's rice. In some other communities it's a greenhouse with bell peppers and tomatoes.

Speaker 4 54:55

There's got to be some element of dynamism there on the side of the company to say if I operate in 30 communities, the first question is do I want to set this kind of structure up for all 30 communities? If it's going to be 15, then what am I really targeting for those 15 communities and how do I extract enough value from each of those communities in a way that really makes sense? So we are not going to be able to sit down from the headquarters and say we're going to have one approach for all of the communities. If we can only cultivate rice, then so be it. It's only going to be rice. But what if you don't have enough communities to actually make rice make sense, right? So that's just what I want to offer.

Speaker 2 55:28

Yeah, toby, I fully agree that volume is the key. We need to get to volumes, we need to get to scale. Whatever you do and that comes back to an earlier statement that we all made we need to focus. Don't spread too wide. Select the villages depending on the crops you want to cultivate, and then select many villages and make sure that you grow in each village, that you can get to volumes where the industry of the value chain that you're in will take you seriously.

Speaker 5 55:57

I think that most of the mini-grid developers, if not every mini-grid developer, is trying to densify their activities in one area so that they can get to some level of economies of scale, so that they can optimize their operations, and so on. If you are densifying your activity in one same area or in a region, you will probably also encounter the same type of crops and you will be able to replicate the same type of processing activity. So it's not because we go for a diversification of activity through these different agri-grade models that we go for a dilution of effort. If this is combined with a densification of activity in a region, in a zone, in a district, whatever, that makes a lot of sense for the sake of economies of scale and this really helps improving the perception of risk of the projects that we are developing. That's one thing that I wanted to mention.

Speaker 5 57:04

The second thing is and I want to make this record straight, because I feel like Anca has been labeled like we've been deluding our efforts. No, we've basically been, and I think everyone needs to do that we need to investigate and we need to learn from the field. So there's a time for learning from assessing, from collecting information, collecting data, to the point where we make a decision and amongst the I don't know dozens and dozens of possible crops that we will be working on and processing, or the dozen and dozens of possibilities that we have in front of us, we will only be selecting a couple of them because they make sense from a financial perspective, from an economic perspective, from a development perspective, from an operation perspective, from a trading perspective and so on. There will only be a couple that we will really invest in because they make sense and because we can replicate, and I think that replication is absolutely key in this model.

Speaker 5 58:12

I agree with Peter and Toby we're talking the same language. We've come up with the same kind of ideas. We've implemented it, maybe in a different way, maybe on different crops and value chains, but it is practically the same. The way you decide to operate, trade or not, trade the crop or the end product, the way you're integrated within this process or not doesn't really make a change to me, as long as you have this vision of and I think that we all share it that we have this vision of stimulating entire value chains, because this is where we can have the most impact locally, and not only because impact is part of our vision and our ambition, but just because we know this is one of the main drivers for financial profitability.

Speaker 2 59:08

Yeah, and I also think we should reconsider the way we are messaging this. When we started this podcast recording, each of us basically started talking about the impact that we're generating, how well we are performing and how much we are basically sacrificing on our own profitability to support the farmers. Right, that was basically what I heard and the main message, but I think if we actually want to make a change and make a difference, we need to attract the larger amounts of money. We need to finally attract those investors which are not giving us a million here or $500,000 there. We probably need tens and hundreds of millions.

Speaker 2 59:55

The climate crisis is looming on the horizon, draughts are becoming more frequent. We need to basically make a whole continent resilient against what is coming up in the coming decades, and the time is running out. So, therefore, industrialization must happen rather sooner than later to bring income to people, to support with wealth building, to give them some resilience. And well, I think we should focus on and the messaging should be well, we can be profitable, please invest, and it's profitable, yeah go ahead.

Speaker 3 1:00:39

I believe that right now, from just knowing A how difficult it is within the industry and knowing that I've got here with me three other companies that have made and continue to grow, I know for a fact right now, as I speak, definitely, whether it's Camille, whether it's Unico, whether it's Toby, I know each of you will definitely know what to do with $50 million today. I know that for a fact and, if anything, it may not hit a fraction of the plans I know you all have. So the issue I see right now is not for a lack of profitable models. It's not for a lack of ability, expertise and experience to deliver on that. The issue is in this industry, with a perception from the pots of investment that focus on the markets we operate in. I know for a fact if we were doing what we're all doing, let's say in California, we would probably be able to raise the funds needed to get the work done in a lot shorter time. But the parts of investment that are focused on the kind of regions we are working in and for the kind of work we are doing have a lot of perceptions around risk, have a lot of perceptions around what should be and, because everyone else has done it the wrong way for so long, investors have probably moved to believe that the wrong way is probably the right way because that's the records they do have. And so you find that, even though we might be doing the right thing, we might be doing the right thing for everyone, for impact, for profit and for planet. We've got to do a lot more work to get things out there and we may have to look at alternative ways to reduce the perception of risk.

Speaker 3 1:02:28

We may have to look at alternative ways to attract the kind of investors who are not yet investing in the mini-grid space, who are not yet investing in the rural impact space, but investors who know the value of a good return. And it may be time for us to look beyond who the everyday investor basically is into the sector and someone who's just looking long-term a fund, you know that's a pension fund or other kind of funds. Out there there may be funds who will go and go right. I know that I can possibly deploy $200 million into these four companies every five years and get the kind of returns that match anything, wherever I may be, and if we probably look at how to send the message across. Then you will find that once enough of these alternative investors have invested in our regular mini-grid investors will be the ones following, and once they see that others have come on board and followed through, you'll find that they may jump on board quite quickly.

Speaker 3 1:03:24

And one interesting place to look at investors who invest in traditional grid connected projects. There are lots of grid connected. You know IPP investors who actively invest in the tens and hundreds of millions daily and it doesn't take much to get the message across that. You know the work we are doing connects the dots. Whether it's independent feasibility studies by the same consultancy firms that would have done the feasibility studies for 100 megawatt IPP, maybe some of those could get the message across. But there's definitely a lot of scope, there's a lot of opportunity and I think the future could be really bright. But definitely for lack of a more available instant bridge to get things across the line with the kind of volumes that you're all doing right now, if you aren't yet definitely reaching into the climate credits ecosystem whether it's carbon credits or other similar credits, reimbursed credits et cetera could basically help bridge that de-risking gap to move to the big alternative investors and then, finally, I know the investors in the sector will come around once they see everyone else moving.

Speaker 2 1:04:34

Well, investors look at track record right. So if we can show, well, this is a profitable business and we're making a good return, they want to participate in this return and then, well, it will be easy to attract money. I'm pretty sure about that. But I think, as I said before, we should really send our message focused on that and say well, we are basically making the mini-grid business profitable, because the mini-grid business in itself can only become profitable at scale, and there are some companies that will never reach scale because they don't have I don't know the huge amounts of money that you need to actually reach there, but if you have a few tens of millions, right, what can you do? You can do rural industrialization, and that opens the door for especially also domestic African companies that come from a certain value chain, may it be agriculture, may it be mining, may it be forestry, timber, whatever and they may come to the conclusion that electricity supply and decentralized processing of certain products may be beneficial for them and that would finally accelerate the electrification efforts and the electrification of rural areas.

Speaker 2 1:05:55

Now it's the four of us basically running this type of model, but how do we convince all the other companies that are still struggling, trying to find their business model. The four of us, we basically believe that decentralized processing and trading of goods is probably the way to go. How do we convince the other mini-grid companies? Because so far, these mini-grid companies keep telling me oh, with so much effort, I want to focus on my electricity supply business, and if I can go one step further and supply water, it's fine. Or if I can go one step further and provide some productive appliances to my customers, it's enough for me, but I don't go further than that. How do we take the next step on that end?

Speaker 3 1:06:42

The difference between staying alive and continuing to thrive. They both rhyme. But if you look at the four people in this room right now, we're not just staying alive, we're continuing to thrive and the number of mini-grid companies it breaks my heart who are following the message that everyone thinks is the right message, and going bankrupt breaks my heart. But you know why keep trying to survive, why keep trying to get. You know subsidies from ABC. Join Team Thrive and then you don't only survive you don't only survive.

Speaker 5 1:07:23

I think that Peter is right, and that really is a shame to see all these companies go bankrupt and disappear. We're losing so much track record and so much knowledge and so much learning from the space, like decades and decades of learning. If we add up all of them, all of those are disappeared. I think that survival is not the proper mode. Neither is austerity. We need to be creative, we need to be innovative, but this is not only about us. I think that the private sector has a strong role to play, but we cannot just hope for the best and for the financiers and the financial stakeholders to come to us and to at some point say oh, you've de-risked the model, so then we'll be investing. This is not how it works. This is supposed to be a shared effort from everyone. We're doing an extremely fundamental job in an extreme difficult environment with very low support. This is not how it's supposed to work. I think that we should remind anyone who is listening to this podcast that this is a market of more than a billion people around the world and more than 600 million people just in the African continent, with very low shortage risk. So we're just working in an industry where demand is almost 100% guaranteed, where we're building assets that will last long and will create value over time. This is not a risky business on its core. What sounds to be risky where comes the perception of risk is because of the context we're working in, and that is something that not only the private sector can try to overcome, but it's something that we all need to work on together if we are to overcome this risk. So the financial needs at some point to get involved in this industry, knowing the potential and, yes, acknowledging some of the risks.

Speaker 5 1:09:26

But it's been done like a century ago in Western countries and it's been thriving. Some of the major corporations on the world work in the energy sector. That shouldn't be different for the sector that we're working in, but we need some support. This is a collaborative effort and we can be as much innovative and creative in integrating rural industrialization and innovative models such as the agri-grids, the pelling model or whatever tilapia, cassava, whatever it is. This is us, this is the private sector trying to go beyond its role to just prove that this is a viable sector and I think that, yes, the four of us around this table, we've proven in our own way that it can be profitable, and I agree with you, peter. We haven't been surviving, we have been thriving so far, and this is great, but we need more support, and funding the projects and the pipelines of projects is not enough. We need more support from the financials to support the growth of the companies. They need to take a leap of faith and to understand what lies beneath their feet, and this is a huge potential.

Speaker 2 1:10:41

Yeah, you mentioned the term risk now several times. Do you believe that rural industrialization increases or decreases the risk of mini-grid operation?

Speaker 5 1:10:51

To be honest, I think that it's both, but I think that first of all, it does decrease the risk, but it's a huge effort from the company. So I do understand that some of the private sectors are not willing to take that chance and to get into these models that require a shift of mindsets, maybe a restructuring of their entire company, maybe the acquisition of a new set of skills and so on. I think that it's difficult, but I think that it does help mitigate the risk that is being perceived by some of the stakeholders in the industry.

Speaker 2 1:11:27

Yeah. How does it mitigate or reduce the risk? How can we reduce risk by integrating rural industrialization with Menegrits?

Speaker 5 1:11:34

Because we increase the potential of revenue streams, because we increase the reliability of these revenue streams, because diversification of revenue streams is absolutely key in this sector, and it's not only because of the sector, but it's because of the environment. We work in difficult environment where instability is something that we have to cope with, and diversification is absolutely key to build resilience. So I think that in that way, it does really help reducing the risk profile of the mini-grids activity, yeah.

Speaker 2 1:12:06

But an investor would say well, but the two revenues are dependent on each other, like, if one fails, then the other fails too, so it increases the risk. Why? Well, if your electricity business uses electricity mainly to process agricultural goods and then your agricultural goods processing and trading business fails for whatever reason, because of an external price shock or so in your business line, then suddenly your electricity consumption would also drop and your mini-grid business would fail. Or the other way around. If your generation assets fail for technical reasons, then suddenly you don't only sell electricity to the community, but you also cannot process your goods, and then both businesses fail. So they are coupled and they depend on each other. So an investor would say well, it's an increased risk.

Speaker 5 1:13:01

I don't see why. Because you're not replacing all of your customer portfolio by one single anchor customer, which would be your agri-processing unit. You're just adding an anchor customer to your customer mix so that you know when you can predict the consumption of one of the most powerful customer on your grids. I highly doubt that companies like us will put at stake the performance and the continuity of the service. I think that's you know.

Speaker 5 1:13:31

Besides, everything that we're talking about, one of the main job of a mini-grid operator is to ensure continuity and reliability of its service. So electricity doesn't really come as a risk and as far as the agri-component is concerned, this is one of the pillars that you're trying to build and which is supposed to be a strong producer of added value to your grid. But this is not supposed to be the only one. I think that in any kind of markets, you should be very concerned about relying and being dependent more than 80% on one single source of revenue. And that's not what we're trying to say. We're just trying to say that we're diversifying the sources of revenues, building these anchor customers and reinforcing those productive users so that your grid is being fed with different source of activities. So I only see the potential of increasing the revenue streams to the mini-grid projects, and I think that the risk is completely minimized by the fact that this is a complement to a portfolio.

Speaker 2 1:14:38

Toby, do you have an opinion here?

Speaker 4 1:14:44

Yeah, I mean, the entire concept of risk in itself suggests that to sometimes get more profitability, there's a level of risk that you must be willing to accept. So from that perspective, yes, I think deploying more capital especially if it's the first time for those that might be listening in that kind of unknown environment at scale, definitely presents additional risk, not on the mini-grid business itself, but on that actual new line of revenue that you are trying to create. But yeah, not in venture, not in gain, right? So if you don't do that then you probably will not be able to thrive, as Peter called it earlier on. So it adds a little bit of risk for that added revenue.

Speaker 4 1:15:16

But overall I believe that definitely de-risks the entire business, especially, in my opinion, I think each rural community that you operate in should be viewed like a business unit. So the question is how do I make this community profitable? And the way to do that is to diversify your income sources. And yeah, so overall it definitely helps to reduce that risk that surrounds the economic activity at the community level. So one is mini-grids and you already know that the revenues from that is not sustainable. It's not very predictable. There are challenges in actually getting those projected revenues and if you want to de-risk that, you open up a new line of revenue. So from an aggregate point of view it reduces the risk. But, yes, that extra new line of revenue is an extra risk in itself, but I think it's something that should be done if it can work in context that some of the companies are listening to us operating.

Speaker 2 1:16:08

Yeah, and if an investor confronts me with such risk discussion, I usually tell them well, what's the largest risk in a mini-grid business? It's the demand risk, right? The risk that the electricity that you produce will not be bought and that your fixed costs, including the capex, will not pay off, because you simply cannot sell everything you produce, the kilowatt hours. Now, if you have your agricultural processing business right, you have a stable off-taker. You call it anchor customer, so you basically create your own anchor customer.

Speaker 2 1:16:48

And then, on the other side, if you look at large scale agricultural urban processing centers in Africa, well, they have a main grid connection, but they also have their diesel generators. They want to make sure that they get 24-7 electricity supply, because otherwise their production of goods suffers. And now, well, they don't want to rely on third party when it comes to electricity supply. So why should we not take the electricity supply of our processing and sales and trade business into our own hands and generate ourselves, especially if we have a benefit, a competitive advantage, by doing this in a decentralized manner compared to others who are doing it more centrally? So I also believe that rural industrialization reduces the risk of mini-grids and also reduces the risk of product processing and trade. Peter, is there anything you want to add here?

Speaker 3 1:17:51

Awesome.

Scaling Rural Industrialization for Growth

Speaker 3 1:17:52

I basically look at it and say, look, if you look around every mini-grid that is out there, you will find that most of the ones that have not done work to ensure that the electricity they generate is used around the clock will be struggling. Because even when you do demand you know demand encouragement through, you know the normal methods that you find out. There, be it appliance financing or others you will always have an issue whereby between midnight and, let's say, seven in the morning, no one will use your electricity. And so, unless you've got an industry that can run at night, and so, very simply, just by simply coming on and making sure your excess capacity, or rather your unused capacity, is utilized automatically, even if you managed to get your daytime and evening user electricity up to 100%, that whole of that would still come to only 66% maximum. So the only way to reach 100% demand for the electricity you can produce is to have nighttime use of the electricity. And the only way to have nighttime use of the electricity is to have some kind of industry basically plugged in. So, if anything, it is the only way to de-risk the investment that anyone has basically put in. And then, secondly, mini-grids all around are usually designed for the demand that's already there. And then if you look at the growth of demand with households, households can only grow demand to a certain amount. Once you have deployed productive industrial uses it becomes a lot more interesting because now the demand will grow significantly higher. So while a mini-grid that doesn't do industries may grow its demand I don't know maybe a certain small percentage a year, 5% a year or something like that, growing according to the economy's growth. But when you've got industrial uses in the place before long, got industrial uses in the place before long, you're getting growth in the multiples of digits. And that's where you find that the risk of your investor having locked their investment in an asset that's remaining stagnant becomes mitigated and actually reversed.

Speaker 3 1:20:14

And so I look at it in many ways I go. Maybe what the world needs is the success stories of some of us and it's only now that the world can get that. 10 years ago it would have been difficult. Five years ago they would have gone. Maybe it's a matter of chance. But if today you look at it and go, if you assume everyone got the same amount of money to start off with, and if you assume the investors or the donors or whoever plugs money in the banks and everything. Considered all mini-grids model to be the same and then favor some over the others, you would definitely see that those who deployed industrial activities A grew faster, b grew bigger and C delivered more impact.

Speaker 3 1:20:55

So it is the only way to tick everyone's box, and so really the biggest place for work to be done is where the decisions are made. So on one side you've got investors, on the other side you've got regulators and government officials, and on the other side you've got development finance institutions and bodies that try their best to improve the ecosystem, but more often than not they're pushing the majority of the funds they have available to them in what they believe is the safest option. But sometimes what they believe is the safest option may not be the safest option in the long run, when you think of the number of entities that have received all the support but still fail to survive, and the ones who have not received the support failed not to thrive. So you know it's an interesting conundrum. And the ones who have not received the support failed not to thrive.

Speaker 3 1:21:40

So it's an interesting conundrum, and I keep asking myself every time I see a new project going on board with more taxpayer money involved following throwing more good money after further and further models that have proven not to be as sustainable. We've got to come to a point where we ask everyone involved and go you know, in the end, who's really playing a risky game. So let's switch over and, even if we don't want to move things around, let's at least make it an even playing field. Let's consider all business models and let's see what happens in one, two, three, four, five years and in many ways that's, you know, the Silicon Valley venture approach. And when you follow that, I think we have enough data now as an industry to figure out that the answer is staring us right in the face. The industrial mini-grid model, the key maker model, these models that allow us to deliver growth and deliver impact and deliver profitability to all, is the way forward.

Speaker 2 1:22:41

Yeah, peter, that is one trend or conundrum, as you called it, that I saw. Another one is that entrepreneurs, they like to think big, and I think that is what we need here. Right, we need rather larger approaches that can be profitable, because if you're starting too small, then you're just proving that it doesn't work. And then you you go to investors and investors tell you yeah, maybe you want to start one dimension smaller. And then you go to the community and then they say, oh, okay, what are you planning to do? Maybe you want to show us in a small pilot first, right, and then the size shrinks and shrinks and shrinks, until out of the large industrial mill you make a small Porsche mill that you would also find at the next corner in any town in Africa. And then it's not industrial anymore, right, and that is what I've seen many, many times. And then suddenly people come and say, well, let's do an evaluation here. And then they say, yeah, well, but it's not profitable. So rural industrialization is not profitable. And then I say, no, it's not profitable because we're not doing it right.

Speaker 2 1:23:54

You have to look at volumes, you have to look at scale, and I think we talked about this several times look at volumes, you have to look at scale, and I think we talked about this several times and I think we also need to somehow argue into this direction and make sure that all the stakeholders the policymakers, the investors, financiers, but also the village officials support the scaling approach and the scaling approach within a short period of time, because some of them say, yeah, but let's try this year and then you can double next year and then maybe in five years time you get to a scale where you can be profitable, but at that point in time you probably have already given up as a company because you run out of money. Did you make similar experience?

Transitioning to Larger Mini-Grids

Speaker 3 1:24:34

I would say totally. That's what it is, you know, and we are grateful that the investors we have on board have been patient, and we're grateful that the communities we work within have also been patient and have also been willing to walk with us as we figure out different ways to make our delivery to them a lot more robust and a lot more sustainable. And they're also glad, now that you know, things have worked out and, yeah, we are right now in a place where we are finally moving out of only one country into multiple countries and but, yeah, the time that we put in in the last decade has been very, very useful. You know, like Camille mentioned, camille mentioned, we have learned from these different opportunities to test different models or different iterations of the model, and ultimately, it has led us to a place where it's been integrated. Now we know that, since our anchor generation method is bioenergy, whether we like it or not, we have to secure our feedstock. So that goes without saying.

Speaker 3 1:25:43

Then, secondly, since we have to secure our feedstock, making sure that whatever feedstock we secure is not just locked there, doing nothing if the demand rises and falls as demand will. So, by making sure that our feedstock has a market. We're plugging into that same ecosystem by making sure that our feedstock has a market. We're plugging into that same ecosystem and it's. At the beginning there was a lot of iteration, but now the iterations have reduced with time and the stability has increased with time and we now have the confidence to invest in not just 50 kilowatt mini grids but in one megawatt mini grid. And that's only been possible because we've put in that time. 10 years ago it would have been tough to say we're going to do kilowatt mini grids, but in one megawatt mini grids.

Speaker 3 1:26:18

And that's only been possible because we've put in that time. 10 years ago it would have been tough to say we're going to do one megawatt mini grids. Actually, we thought we could only grow to half a megawatt mini grids, 500 kilowatt mini grids, but now we've realized that actually, while 500 kilowatts is a safe space, it makes sense for us now to look at one megawatt and up, because we have realized what it means to not just work with the excess capacity of the mini-grid but also to think about what is a minimum capacity for an industry. So we're now balancing both. We've got to make sure whatever industry we set up can also get its minimum power 24 hours a day, while taking the excess power from the mini-grid when it's not using it. But even the factory needs a minimum load. So that's taken us from what we had initially kicked off on, which was half a megawatt, to now megawatt plus. But obviously the challenge still comes down to an ecosystem where people aren't used to mini-grids being slightly bigger and go.

Speaker 3 1:27:24

You know, are you still a mini-grid? Are you a mega-grid? You know, are you a giga-grid? What is it? So, yeah, but it's yes. Yes, but we're grateful for the entities out there.

Speaker 3 1:27:33

I know in countries like, let's say, like all around I've looked at Spain, I've looked at Uganda, I've looked at Botswana in all of these three countries, 100 kilowatts to 500 kilowatts you basically get the support of the regulator to not have to go through the same stress levels.

Speaker 3 1:27:49

Once you go above half a megawatt, regulatory-wise it becomes a lot more challenging. But I've realized that if the mini grid portion of your installation sticks within that bracket, if your mini-grid portion doesn't go above 100 kilowatts or half a megawatt, but your for-own consumption part of it goes to, no matter how big, it's a lot more flexible and you find that you can do your own production as much as you need. And so it means now we are simply an energy company, a sustainable energy company, a holistic, inclusive energy company, and not just a mini-grid entity. The mini-grid remains a core part of our service offering, but in the end we're delivering energy for sustainable livelihoods and I believe all of us are and we are enabling sustainable livelihoods through our energy not just delivering the energy, but enabling sustainable livelihoods through our energy-based offering. And that's kind of where it comes down to. We are enabling sustainable livelihoods through our energy-based offering. With that we can go to as big as we can. We can increase the size of our offering, because that's what we're ultimately doing.

Speaker 2 1:29:03

And if we can get to a place where the regulators see that definition and where the investors realize that that definition is quite interesting, then no one will say we aren't focused, because that's what we're focused on on enabling sustainable livelihoods, growth through our energy-based and exactly, if you bring in from a regulatory perspective, if you bring in the captive power into the equation and stay below the threshold for the distribution and sales to your customers, then your growth in most countries and in most regulatory regimes is not limited very much, of course.

Speaker 2 1:29:43

Like if you hit the two or five megawatt limit, then of course this is then again a different game, but there's a lot of growth potential in that, from a regulatory perspective for sure. All right, to come to a close, I would like to ask each of you to tell me two things. I would like to ask each of you to tell me two things. One, based on the experience that you went through all the trials, is there anything that you would have done differently with your today's knowledge? And the second, what is your main success factor?

Success Factors in Rural Industrialization

Speaker 4 1:30:15

Yes, I think if I were to turn back the hands of time, we would have started this earlier, right from the beginning. Now, retrospectively speaking, it feels almost criminal to start an energy access company without thinking about this. So I think it would have been the first thing we should think about at the beginning. But, of course, I think almost everybody in the industry kind of you know walked their way up to where we are at the moment. So that's one thing that we would do differently. I think we will start this early on. We will provide more support to the farmers, not just things like as you were talking about earlier on, not just things like appliance finance and all of that, but actually thinking about, now that we're in this community, what can we begin to do immediately in terms of agriculture and merging, closing that gap between energy and agriculture ourselves to be able to make money and enable the sustainability of that mini grid itself. Then, on the other hand, well, I wouldn't say anyone is successful financially doing this, especially at scale, successful financial times doing this, especially, especially at scale. So I I don't want to answer that question from a point of view of, hey, we're here, we've succeeded at this already, but I think one critical success factor that I I would say and I would expand that a little bit to say that it's I think it's that drive to find a way in your own context that makes the difference.

Speaker 4 1:31:44

Today, what we are talking about is industrialization, agriculture and all of that, but for someone listening to us, that may not be the way right. I've had interesting things, for example, about Bitcoin mining and all kinds of other ventures that sound a little bit profitable and viable at the project level, at the community level, if well executed as well. Right. So I think that the critical success factor that I would say is the flexibility of the people running these companies to ask themselves the question how can we go beyond just surviving?

Speaker 4 1:32:14

The answer to that question can lead you on the path of agriculture. It could lead you on the path of whether it could lead you on the part of whether it's Bitcoin mining, if you believe in that kind of thing. It could lead you even the other things selling Wi-Fi in the community, whatever. It is right, because the end goal is that you want to make your mini grid viable and you want to make money in the community and then improve rural livelihoods and all of that. So being able to even ask that question and also being flexible enough to pursue whatever avenue that path leads you, that's what I think is a critical success factor, without necessarily prescribing that going this path of rural industrialization alone is the way out. But the goal, the end goal, is how do we make our businesses more viable?

Speaker 5 1:33:00

I can try to share with anyone who's listening. Do not do it alone. I think that's. What's good now is that a lot of us have already paved the path for others to maybe join in. I know that, in essence, as a print source a lot of information onca as well. You can find a lot of information on the In Access Foundation's website, so I would probably advise anyone who is listening to get in touch, to exchange, to talk to and to learn from one another. They can build their own story on their own, but there's probably some valuable learnings here and there. And as far as the success factor, I guess that's a complicated question because we're all trying to get to a point where we can say, yes, that is a success. I think that starting from a demonstrator stage is important. I think that you want to minimize some risks and to learn at a scale that you can control and learn from, but very quick. You need to go at scale and I think that success really depends on the scale of our activities.

Speaker 3 1:34:08

In terms of going back, you know the very beginning, 12 years ago. What would we have done differently? I believe what we've done differently would have basically been changing the idea of starting with an amount of electricity and what could fit within, but instead going around and looking at what's viable in terms of the productive use. And then, secondly, we would have spent more time and more effort developing alternative ways to secure the financing we need to scale, instead of continuing to knock on the doors of investors who would have not changed their minds that quickly. In terms of our learnings, I mean, yeah, it's online. If you look at, there is a word reparle. If you spell it, it's R-E-P-A-R-L-E. To Google that you'll find interesting literature out there, from MIT to the UNCDF and PREO. That kind of like breaks down how the model basically works and how it could be replicated. And in terms of what we're most grateful to have had the opportunity to do going forward, I think bringing the concept of forward sales of carbon credits as a way to raise the capital needed to deliver energy projects.

Speaker 3 1:35:25

We realized, when our back was against the wall about six years ago, that we would struggle to locate capital through equity or debt.

Speaker 3 1:35:34

Even so, we realized that the most valuable thing we had was the records of our electricity generation through renewables and its consumption.

Speaker 3 1:35:42

We realized that with those records we could actually prove that if we have a license to operate in a community for 20 years or 10 years, we will replace so much diesel definitely, we will replace so much firewood, definitely.

Speaker 3 1:35:56

And the effort put into securing the necessary paperwork to register those projects for carbon credits and the fact that there are available buyers ready to buy high quality carbon credits, and what we hope more and more companies in the space do, is to realize that every single mini grid company, every single rural electricity or sustainable livelihoods company out there is already delivering very, very strong impact returns on the climate side which can be monetized and can be monetized in advance, either through a buyer directly buying in advance or through the possibility to get a contract in advance. And you can take those contracts to commercial banks who recognize registered VR projects out there and will actually give you the capital you basically need to basically scale up. So that's been the saving grace for us and that's been something that we would love to share with everyone in the space and go, you know, definitely consider it.

Speaker 2 1:36:55

Thank you, peter, thank you Camille, thank you Toby, that was highly interesting. Thank you, peter, thank you Camille, thank you Toby, that was highly interesting. I believe what we have shown today is that there are concepts out there that are being tested, that have been tested, that have a long track record five years, 10 years, 12 years even and that in most of the cases, if you look deeper into the numbers, the unit economics make a lot of sense and that it's now time to scale and we just need to get the word out there to maybe find some investors that understand that we are not accumulating risk here, but we are actually reducing risk and that this is actually a real investment opportunity that they should look deeper into. And with that, let me thank you for taking all the efforts over the last years or the decade to run all these experiments, and I hope we can follow up on this conversation in a few years from now and tell everyone wow, this has been the starting point for something very, very big. Thank you all and have a nice day. Bye-bye.

Speaker 3 1:38:02

Thank you everyone, Thank you so much Thank you all, and I look forward to visiting you all as well.

Speaker 4 1:38:06

Same here, peter. Thank you and thanks Camille. Thanks, nico, for hosting us.

Speaker 1 1:38:10

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 business Powered by Enensis.