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 Enensis.

Speaker 2: 0:36

Hello, this is Nico. Welcome to our episode on impact and reach. Is it time for a paradigm shift in mini-grid financing? I'm discussing this subject with Cliff Aaron from GreenMax Capital and John Oku from Amda. Cliff is a clean energy finance expert. Since 1994, he has focused on international emerging markets, including Sub-Saharan Africa. Cliff is leading GreenMax activities as a fund manager, providing blended finance solutions for the off-grid energy and e-mobility sectors throughout Africa. John has a financing and entrepreneurial background. Today, he is the Africa Mini-Grid Developers Association COO, representing the view of mini-grid developers. Cliff, when you and I were attending CAMCO's event gathering mini-grid CEOs and representatives from the financing sector in Nairobi in early 2023, you came forward with a very interesting idea to completely change the way mini-grids are financed. Can you tell us more about that?

Speaker 3: 1:48

Sure, and thank you for having us here today for this interesting and important discussion. So we need to look at the mini-grid sector today in a historical context. Today, in a historical context, nowhere in the history of rural electrification anywhere around the globe have we asked the private sector to take the lead in electrifying rural populations. Yet now the paradigm has been that this should be done by commercial companies, at least in part with private capital, and that's all well and good. It makes sense to build private utilities of the future, but we need to have a different set of financing instruments than currently exist in order to facilitate their doing so. In general, the DFI community has done a remarkable job of changing the dialogue over the last decade about climate change and energy access and an equitable energy transition. Today it's part of the mainstream discussion that we need to electrify these 660 million some odd people without power as part of fighting climate change and implementing this energy transition. But these same institutions that have changed the dialogue have done very little to reform the way they do business and the way they deliver finance into the system, and that needs to happen. In one word, the issue is risk, and right now we see very little appetite for risk-taking by the international financial institutions, and that needs to change. So there's different types of capital that are needed in order to scale up mini grids in Africa and South Asia, where the preponderance of need remains nearly enough. We need to provide upfront development capital to help the companies in the space become the utilities of the future.

Speaker 3: 4:32

Right now, you see that most of the capital is being provided by private equity VCs impact investors with a PE perspective. This is not long-term patient capital. This is not development capital for building companies that are providing rural infrastructure. The return expectations are too high and the perspective on exiting is way too short. If you look at the World Bank reports on the mini-grid sector, they're saying that just in RBF alone, more than $70 billion is needed just in subsidy in order for mini-grids to fulfill their portion of meeting SDG 7. And if you look at the 40, 50, 60 some odd mini-grid developers working in this space, it's hard to see how those companies, as they are configured today, could possibly absorb that level of capital. Because if it's 70 billion in RBF, it's, you know, 150 to 200 billion in overall capex. Right, and you know, maybe the companies today could deal with 10% of that, but not that order and level of magnitude. So we have to put our attention I think urgently on giving the resources to these companies to allow them to hire the kinds of internationally competent staff that they need at all levels, at CEO level, at CFO level, at CTO level, at CLO level, at ESG management level, in order to really enable them to become the private utilities of the future.

Speaker 3: 6:36

So our proposal is in that respect let's take $100 million, let's pick 10 developers through some kind of competitive process and let's put $10 million into each of them just to develop their human resources over the next three to five years. And that should be delivered either ideally delivered as grant money, but at worst deliver it as junior equity with a 10-year time perspective and a 5% to 10% return threshold. So that's number one. Number two we need project finance. Now, project finance in the infrastructure sector has to be appropriate for building rural infrastructure. Right, it means we need long-term tenors of 10 to 15 years. We need interest rates that are compatible with infrastructure projects. So you know, not 15%, but you know 6% debt facilities and we need project equity that's also appropriate for building rural infrastructure. Patient capital, again with sub-10% return thresholds. How do we get there.

Speaker 3: 8:05

Our proposition is let's take again a billion dollars, let's put 20 percent of that money as first loss capital from DFIs so we're talking about $200 million from DFIs and let's form a mini-grid infrastructure fund where private capital is insulated from the first 20% of loss and therefore can have a different type of risk return perspective. So those are our two main global concepts of how to deal with the sector. Those are, I think, two pretty simple and doable approaches. Now there's a lot that you know we can talk about of how do you implement those. You know you've got the World Bank Ascent and World Bank Dares programs that you know we're trying to do some of that, but they haven't really been able to think out of the box because of their own institutional constraints.

Speaker 3: 9:13

So you know, is it the best way to organize these funds by putting $250 million into TDB Bank? Is that smart? I mean, there hasn't been an opportunity for stakeholders to really debate that because it's a fait accompli. It's the only way the bank can invest is through publicly owned institutions. But does TDB Bank have the capacity? Do they have the track record? Do they have the understanding of the sector? And, at the end of the day. If the bank is providing sovereign bank loans at very low interest rates and long perspectives, why is it that what we're getting from their intermediaries is 8% to 12% debt with five to seven-year tenors Doesn't quite make sense to us. Let me stop there and let John say a few words.

Speaker 2: 10:13

Yeah, john, please, this is quite revolutionary. I would say, cliff, you're talking about numbers that the mini-grids sector has never seen. But probably, like you're probably right, we need these numbers and we need also new instruments to prepare the companies for growth. John, what do you think?

Speaker 4: 10:33

Thanks so much, nico. Thanks so much for this opportunity to participate in this debate. I think I agree mostly with what Cliff is proposing. What I want to say is that we could probably go further. What do we need to do before the funds arrive? Right, I think we need to sit down as stakeholders and really agree on some very simple basic terms. One of them is Cliff alluded to that recognizing mini-grids as a different asset class, where we say that we cannot apply the same standards in mini-grids as we apply in large infrastructure projects or IPP projects in the energy sector. This is a special asset class that we should look at in a very particular way, and so, even in terms of due diligence requirements, they should be brought to scale so that they correspond to the nature and the scale of the sector. Once we agree on that, then we can look at the money that is coming and how it is going to be deployed. I like the idea of blended financing, because the blended financing between subsidies and grants help bridge the gap between cost-reflective tariffs and affordable tariffs to pave way for the private investors to come in at a later stage, and I can mention a few players in the market who have really contributed to that In West Africa, in Nigeria, the NEP program and now again the DARES program, where it comes as a risk mitigator first investment to kind of lower the risk of the mini-grids to pave way for private investment to come in later on.

Speaker 4: 12:14

There's a multi-stakeholder collaboration approach, which Cliff has also alluded to, where we have collaboration among founders, developers and key stakeholders to come in and really work together. And this was discussed deeply in what you alluded to earlier, nico, in the CEO roundtable in Nairobi in 2023, where the CEOs of the mini-grids sat together and discussed some of these issues which were how do we unlock deal flow, how do we strengthen ESG and its impact? How do we mitigate regulatory risk? We've not discussed those issues. Those are the issues, I think, that need to be discussed first, before even we see how we can deploy capital in this sector. But I agree largely with what you have proposed, cliff, but I think you know we have to think out of the box. We have to bring patient capital, we have to work with local pension funds and I can talk about this later on. I think we're going to discuss this where we can have insurance instruments, we can have local currency investment, green bonds.

Speaker 2: 13:14

We've not discussed yeah, john, you mentioned we need to somehow remove some hurdles, and, cliff, you said that we should maybe start by developing companies' capacities with large amounts of grants or junior equity, and I think that can go together right. The hurdles that we're seeing in the mini-grid sector at the moment can be overcome by proper human capacities in the companies. If the mini-grid sector is presenting the right ideas and the right concepts, then also regulators, policymakers, will answer to this and, after all, create the framework most likely accordingly. Now, cliff, my question who would provide this kind of junior equity? I couldn't imagine a World Bank or an AFDB providing that, and after all, this money has to come from DFIs, as you said already. So where do you see channels to actually get that money into the sector?

Speaker 3: 14:32

Well, we actually co-manage one such facility that has the capability of doing this, if we're able to scale up our capital base, and that's the Clean Energy Inclusion Foundation for Africa, or CEI Africa as we call it, which today is a 63 million euro fund, established as a Dutch foundation that can only receive concessional capital in its funding base from bilateral or philanthropic donors, and we have a mandate to co-managing this with TripleJump and Persistent Energy to expand it to be a half a billion dollar fund. Now, a few things make CEI Africa a unique instrument. Number one we have a long-term perspective. We have a mandate till 2038, having started in 2021. So it's not one of these three, four five-year programs that take three years to start up and then try to disperse all their money in one year. So we have that advantage. We have, as I said, 100% concessional capital base, and that gives us the ability to approach these issues with a different risk lens.

Speaker 3: 15:54

And what we've tried to do with CEI Africa is to provide a one-stop shop of financing for the mini-grid sector, to offer RBF and outcomes-based grants, concessional debt in the form of a forgivable loan that pre-finances the grant funding, because you know, rbf is great, right, it covers 50, 60% of CapEx, but it comes after the fact. That works great if you're a company big enough that you have the resources to get there, but most of the companies in the space today don't. So they need a preF milestones and if they never achieve the RBF milestones then we convert to a term loan at a slightly higher interest rate. But hopefully we never get to that point.

Speaker 2: 17:04

But, cliff, this is not the equity that you've been talking about before. Right, this is still related to projects RBF grant funding and then debt funding for certain projects but what you were talking about is capital to build capacity within a company.

Speaker 3: 17:21

Well, you know, there were two things I was talking about. One was development capital and the second is project capital. So at CI Africa, we're providing project capital, but we're providing it with a lot of concessionality. We provide junior debt in addition to the RBF grants, outcome-based grants and forgivable loans, concessional debt. We also provide junior debt and senior debt that leverages in private capital for implementing projects. So my point is that an entity such as CEI Africa it doesn't have to be CEI Africa, but the model of CEI Africa, where you have a foundation established that is able to collect donations from bilateral and philanthropic donors and therefore has 100% concessional capital in its capital stack, allows you to do things that you wouldn't normally be able to do with DFI money, for example.

Speaker 3: 18:30

I see Our proposition would be we currently do not have a mandate at CEI Africa to provide equity, but we'd love to be able to do so.

Speaker 2: 18:42

Okay, john, do you see the necessity to provide, let's say, capacity growth equity to mini-grid companies? Or are the current instruments, as Cliff just explained, right project-related RBFs, project-related debt funding, project-related equity? Is that enough to build the capacity of the companies, and can the companies grow step-by-step with that money coming into their organizations?

Speaker 4: 19:16

Thanks, nico. I think understanding which type of capital investment is needed and when is important, and I think you've nailed it, nico. There's a role for each type of financing throughout the trajectory of company growth, right? And I think what most of these companies need at this moment is some form of equity or equity-like instruments, and we are going to shortly, in the next few weeks, have a session with our CEOs where we're going to do a sort of workshop and present to them the differences between corporate finance and project finance.

Speaker 4: 19:52

There's a time when you need corporate finance, there's a time when you need project finance. That is essential. Once we understand that, it's going to be a bit better for our CEOs. So this type of capital is required in the growth of companies so that they can establish strong corporate teams, right? That is critical to improving and expanding operations before they start the growth area. And I think if that is not addressed, if we don't deal with that issue, we'll have companies taking up loans and loans and loans and debt, and debt, and debt and debt, and they end up facing what we call the value of death, which will prohibit the sector from scaling, and have companies that are not making it beyond a certain number of years. I liked Cliff's proposal in the beginning where he proposed some kind of equity coming in and it being de-risked at around 20% by DFIs or other institutions or a fund like Cliff's Fund, and then you know, the second portion being taken on by impact investors coming in.

Speaker 2: 20:55

But do you think that would happen if you told impact investors well here, 20%, put your 80% into a company, make it large? Would they take that opportunity? Or would they still say, yeah, but we haven't seen too many successful companies out there yet? Even 80% is still a lot of money, and we're talking about 80% of 100 million, as you said, cliff. So we're talking about $80 million, which is a lot of money. I'm not sure if impact investors would buy in what do you think?

Speaker 3: 21:25

The $100 million fund. What John is referring to is corporate equity and this, I believe, needs to be primarily concessional capital. You can develop it as a blended capital structure, maybe with three tiers the lower tier being 100% grant money, middle tier being philanthropic debt providers, you know, mission debt from foundations and the top tier coming from DFIs and impact investors. Coming from DFIs and impact investors. What exactly the gearing of those three tranches in the stack are requires some study, but my guess is that it would require more than just 20% in the lower stack, probably 30%, 40%, even 50% maybe in the lower stack. You know, because equity is on the front line of taking risk and we're taking risk in very young companies. You could also, you know, use, you know, guarantee type instruments AGF, africa Guarantee Fund, for example, africa Guarantee Fund, for example, unbeknownst to most people in the space, agf provides an equity guarantee where they cover 50% of loss in the event of liquidation of the investee and the problem with that is that they have a maximum deal size of 2 million, so they can provide up to 1 million in cover. But those kinds of instruments could be expanded to provide cover also for a fund such as this. We've had similar discussion with CETA to deploy their guarantee instrument, but their instrument is quite complicated. So I do think it's possible.

Speaker 3: 23:26

It takes a shift in mentality from donors and I'm separating donors from DFIs. Right, donors are bilateral donors, like BMZ in Germany and Swiss Agency for Development Cooperation in Switzerland, not their bilateral DFIs like KFW and DEG. Right, let's call it 100% soft money. Right, and we understand there's a lot of demands on national budgets right now, with two wars, with two wars, inflation, you know populist movements in all of these Western European and North American countries. Yeah, we understand that. But the mentality of how money is deployed is still very old school. It's like we'll fund an RBF program because we're putting money into a specific project and we can see the very specific connections and we can communicate to our taxpayers that, yeah, we funded a new electricity connection. Isn't that wonderful? It is wonderful. But if you want to get there, you have to provide some other instrument. I mean, I'm talking about a $100 million fund with maybe $30, $40, $50 million in concessional capital in the lower tranche that feels achievable from the FCDOs and the BMZs and the SDCs of the world right.

Speaker 2: 25:07

Yeah, but you're correct. How do you sell that to your voters? After all? Where is the direct feedback from spending this money? What is the direct impact that you can report? It takes forever, so to say from a ministry's perspective at least, more than one is coming to an end in 20 years.

Speaker 3: 25:48

We have an immigrant problem. If you're a leader, we have refugees coming from these countries. Why are they coming? Because they can't achieve, you know, livelihoods that make sense for them. That climate change is destroying the livability of these countries, so why not be bold and put at least a tiny portion of our taxpayer resources at risk in new and innovative ways? United States, under Joe Biden's leadership, has actually done that, not on an international basis as much as they should, but absolutely domestically, through the Inflation Reduction Act. It's the largest public works program since the Great Depression, and if we can take that same political will on a global scale, I think we could get to where we need to be.

Speaker 2: 26:52

And another angle that we could discuss here and we're still talking about this initial corporate equity that we need to inject into the companies to grow the organizations and make them ready to scale. Another angle could be well, what about states? What about governments in African Asian countries taking equity stakes in mini grid companies? Because that is what happened in Europe to a very large extent. After all right, there were private sector companies, and whenever they ran into issues, the government helped them out, injected a lot of money, got a decent amount of equity and shareholding in the companies, and then, well, they are doing quite well after all right, and they are even listed at the stock exchanges and investors are happy with the returns. So why can't governments put their money into these types of companies, not owning them completely, but at least contributing?

Speaker 4: 28:01

Yeah, I think you're right, Nico. I think you're spot on, and this is being done. If you look at Africa 50, africa 50 is now collaborating with some of the governments to invest in the infrastructure in terms of the transmission lines, and Africa 50 is a bank that is funded by African states, and I think we should advocate and speak more about that, what you're saying, and make them understand that they need to do more on the mini-grid side, as well as they're doing on the public sector transmission lines, that they are partnering with governments. This can be done by also having World Bank and just to name a few, come in and hold the governments accountable for the public money that they give to governments and say you know, a portion of this can go into public sector infrastructure, a portion of this can go into rural electrification in terms of having partnerships with people like Africa 50 to come in and invest into mini grids. That's a very good discussion. To come in and invest into mini grids, that's a very good discussion.

Speaker 2: 29:02

It would be a relatively straightforward avenue, I believe, as this falls right into the mandate of the development banks. Like World Bank, african Development Bank could lend to the states, so to say, and the states could use that money to buy shares in mini grid companies. But, john, do you think mini-grid companies would welcome states becoming shareholders in their companies, or would they not?

Speaker 4: 29:29

That's a tricky one. That's a tricky one.

Speaker 4: 29:34

Yeah, and I think, like I said before, I think rural electrification needs thinking out of the box and if we can have a mechanism where, in terms of local content, we have some sort of shareholding participation of local content, it could come through that direction. It would come through, probably, local pension funds. It doesn't have to be government directly, it can be the local institutions, pension funds coming in and taking in positions in this mini-grid, and that is patient capital, right, cliff? I think that's what we need in this sector and it's local currency investment to make it even juicier and sweeter, right.

Speaker 3: 30:13

So I'm going to challenge your idea, nico. I think having governments invest in the current version of private mini-grid developers at this stage would be a terrible idea. In Africa is not at the same point which European and North American public and civic society were at in the mid 20th century when rural electrification was happening in these countries, and I think it would be very difficult to take the entrepreneurial culture of these small mini-grid developers and burden them with having to interface with an African government shareholder at this time. I think that's fraught with problems, absolutely. Pension funds, insurance companies, commercial banks all can be lured into instruments that allow them to participate in providing the kind of patient capital that's needed, and you need to look no further than what has been accomplished by InfraCredit in Nigeria, where you have government participation in InfraCredit to float private placement bonds for local currency institutional investors to be largely insulated from risk. That's a structure that has already been duplicated by GarantCo in Pakistan, and there's discussion of setting up something similar in Kenya. This is a model that I think is a really useful deployment of public capital, because instead of having, as you suggested, nico, having government invest directly in the mini-grid companies, government is providing a backstopping solution, a risk-sharing solution that insulates local private capital from risk enough so that they will invest in an intermediary like InfraCredit that then provides local currency debt solutions that private, local institutional capital can participate in. So that's a great model and that's how I see the role of an African national government contribution to the financing of mini-grids to participate in risk-sharing instruments that enable local capital and to do that in partnership with DFIs. Right, so you know?

Speaker 3: 33:40

Another issue is local currency fluctuation. We're dealing in countries like Nigeria and Zambia, and even Kenya over the last two years, in high volatility currency environments where the Naira has lost 50% of its value over the last year. Approximately the Kenya shilling devalued by a third last year. So local governments can contribute to instruments that insulate against that risk in particular, for example, particular, for example so they could contribute, pari passu with donors and DFIs, to some kind of cash reserve fund, for example, that is specifically set up to cover for currency devaluations. I mean, we need this desperately. In Nigeria, we see mini-grid developers that have taken hard currency debt to build their mini-grids now unable to service those debts. So we'd love to see some kind of backstopping mechanism that's co-funded by national governments and donors that address that specific risk by national governments and donors that address that specific risk.

Speaker 2: 35:04

Okay, let's talk about this other type of financing instrument that you talked about, cliff. So far, we have discussed about the money that needs to flow into building the institution, building the company itself, the capacity, and then you talked about the parts that is even significantly larger which we need to build in peril to then finance the projects, and there is a lot going on already. As you mentioned, there's Ascend AFDB is looking into opportunities here, and there are so many international donors already that are supporting with grants in various countries. So far, it is not very well coordinated that is at least what I see and everyone is finding its own methodology of how to disperse the funds. How can we coordinate better in the future?

Speaker 3: 36:08

Yeah, so I'm an old guy at this point, I'm a curmudgeon and you know I take the position of trying to always be the guy in the room who says let's think out of the box, let's change the system. And when we've had groups of donors together in a room trying to participate in a single instrument and the typical disaster occurs where they can't find even the common legal instrument that meets the criteria of their government regulations in order to join together in a single entity I mean, we had this even with CEI Africa, where we had some additional donors who were going to come in and they were together with the German and Swiss donors that we have today. And honestly, what I said to them was grow up, you're acting like children, don't?

Speaker 2: 37:12

we have one common goal.

Speaker 3: 37:14

If you've got a legal constraint, let's fix it, let's find a solution. But of course, you know I'm talking a bit like I'm in cloud cuckoo land right now, right, because the reality that we have to deal with is that we have each individual donor, each individual national government has their own perspectives and they all want to design and develop and implement their own instrument. And there's, you know, few and far between examples of real collaboration. So what I think is a more practical solution than me calling them all a bunch of children is to start with bilateral collaborations, right? So, okay, you know, last year the person responsible for mini-grids at GAP, who's no longer working there, had the idea of convening all of the donors together in one room and using GAP's bully pulpit to tell them hey guys, we need one fund, we need you all to participate. One RBF fund, one debt fund. Let's all come in this together. Giap will provide a tranche of concessional capital to de-risk the whole thing.

Speaker 3: 38:37

And in reality, that can never work, right? You can't bring 50 donors in the room together and expect to have a positive outcome. You just can't. That's the world we live in. So let's bring AFDB and the World Bank together. Let's bring KFW, the Swiss and the Austrians together. Let's start with small collaborations that can then be expanded upon. That seems to be the only solution, and I'll still be in all those rooms telling them to all grow up.

Speaker 4: 39:12

Cliff, I would probably temper that a little bit and say there's been examples of collaboration, and one of them, I think, was with the TCX Fund, which is a fund that was found in 2007 by developing finance institutions in Switzerland yes, germany, britain, the French government, european Commission and that solution was there to offer a solution to currency risk and we proposed this to our developers a couple of months ago when it was open for African countries, and most of our developers liked it and some even subscribed to that solution where they provide guarantee to local commercial bank currency funding and that really mitigates the risk part taken by local currency institutions, commercial banks, and I think those are the kind of initiatives that if they can be multiplied and we could have more of those kind of initiatives, then we could eliminate some of these currency risk situations, some of these fluctuations in terms of currency and all that. I think that that should be the solution, because if you bring complicated instruments, hedging instruments into this sector, it might even complicate things further.

Speaker 4: 40:21

My idea and I come from the PE sector and my idea is always to think local and have local solutions for local problems, and I think this was one of them that really worked well. If we can multiply these kind of initiatives where we have different governments coming together and forming this currency risk solution, it could be a good solution for the future.

Speaker 2: 40:42

Yeah, indeed, my perception is that innovative financing instruments, wherever they come up, are usually absorbed and used by the more advanced companies, like by the PowerGems, by the NGs, by the Husk Powers that anyway have ample of opportunities already to acquire finance. But somehow the local companies? Well, the only opportunity they have is to find equity investors, impact investors that provide corporate finance to their company and then most likely mix their mini-grid business with a different type of business, which is usually Solar, c&i, to stabilize their cash flows. That is usually the trajectory that small African companies are taking and they are not really benefiting from those new innovative instruments that come online. Is that also your understanding?

Speaker 4: 41:44

Yeah, let me take on that. I think there's one misconception we have here they don't take the instruments, probably from lack of knowledge and lack of understanding of the instruments, right, and that is something else we can discuss in terms of technical assistance and TA required and more support required for these companies in terms of experienced CFOs to integrate these companies and understand these instruments. Some of these instruments are very complicated and these developers will not get to understand these instruments.

Speaker 4: 42:11

So they don't tend to go towards them, and that's why you have the HASCs and the PowerGens going towards this kind of instruments, because they understand the instruments and how they work, and that is, I think, what we need. We need to provide a bit more TA and technical assistance to these local companies and also, you know, get a way of probably having a shared CFO experts. Let's go out there and get the retired CFOs who've been successful in the West, like Cliff and the rest, and come up and say, okay, let's give some time to these companies and let's walk them through some of these innovative instruments that we have and that are available in the market for them to use to fund themselves.

Speaker 2: 42:52

Yeah, either we take that route, john, or we take the route that Cliff introduced earlier and provide these companies with capital, with equity that allows them to hire the people that would otherwise go to other industries.

Speaker 4: 43:07

Perfect. And then the second thing that I disagree on with you, nico, is that the model of mini-grids and C&I mini-grids and cooling appliances is a model that even the big companies are adopting now. Model that even the big companies are adopting now, and I think it's a model that mitigates risk in terms of cash flow risk in a certain way and gives investors comfort to invest. So if that is a model that mini-grids have to go towards, then so be it. Let's also accept market requirements and what market wants and what investors want to invest in.

Speaker 2: 43:41

Yeah, John, don't get me wrong. I'm not saying that this is a bad model. This is not a model that doesn't work. It works actually, as you see in Husk Power right, and they have been doing it for a long time, but it distracts the companies from focusing on rural electrification with mini-grids. They need to earn their money from Solar C and I, while financially supporting and cross-subsidizing the mini-grid electrification department of their organization. And well, how much more could they achieve if they had the equity to just concentrate on what they actually want to do?

Speaker 4: 44:18

I slightly disagree again, nico, sorry. I think if you have a company that is well organized and cut across different divisions doing different activities, different CEOs for the activities and a holding group, there's no reason why you can be successful and you can't deploy mini-grids at scale. I think you can do it and I think if we have 10 husks we could go very far in terms of mini-grid deployment at scale in Africa. Right, and the holding is the one that takes the investment from the investors and at the holding level you have kind of removed all the income risk and the cash flow risk that sometimes a mini-grid are perceived to present. I'd like to hear Atleaf's opinion on this.

Speaker 3: 45:05

Yeah, so let's call a spade a spade, right. There is enormous bias in the financing markets against African entrepreneurs, enormous in the energy access space. Still, 90% of all capital goes to Western majority-owned companies. There's a lot of lip service being paid to try to rectify that. But it's a long-term thing, right, and we have to recognize that. We're dealing with that bias and be vigilant in speaking out against it and creating mechanisms like the GetInvestFRS program that try to build up capacity of African-owned companies, and like the Elevate program at Gogla, and I hope and pray that Amda will be able to launch something similar to the Elevate program specific to mini-grid developers. I think that would be a great thing. But in the short term and the medium term, that bias is going to continue to exist. So you know it's going to be Husk and WeLight and Energy City and PowerGen. These are the companies that capital in large increments are going to flow to. That's just the reality. So I wish it weren't, but it is.

Speaker 3: 46:41

So what can we do? Do what kind of business strategy can local developers, like you know, haven Hill and NIO Tropical, et cetera in Nigeria what can they do? What business model can allow them to thrive as companies and still forward. The energy access and mini grid scale up agendas. So what we advise these companies is stop trying to build a mini utility company, because you're not going to be able to attract sufficient capital to be able to do that unless you sell your company to Anji right, which you know some are talking about doing right. So what role can you play in the ecosystem? And I think there's a vital role that they can play in project development, project implementation, but not to own the assets.

Speaker 3: 47:47

Right To place these assets in internationally financed SPVs and you see some models of that developing. Nio Tropical did deal with ARM Harith. That, I think, is a great model, for this Cross-boundary energy accesses model is kind of like that right. And I believe that these companies can grow to be essentially development and EPC and O&M services companies and they can grow to be 20, 30, 50, even $100 million companies doing that business without trying to raise the billions of dollars that are needed to own and operate assets, and they can even wind up with a carried interest in these SPVs. I wish it were different. I wish that the money would flow to A4&T and my friend IO and that he could build the mini utility of the future, but I, unfortunately, I don't see it happening in the short run. So let's support these companies to do what they can do with a lot less capital, but yet still grow and play a vital role in the ecosystem.

Speaker 2: 49:03

Yeah, I'm very much aligned with that, cliff. So that is also what I believe should and will happen, as economies of scale, as we all know, must be developed very quickly to make the sector sustainable. And well, capital doesn't flow in the magnitudes required to these African companies yet with these African companies yet, yeah, and anyway, at the moment, mini-grid companies are doing everything right they are developing, they are constructing, they are operating, they are owning the assets, they are acquiring finance and everything. I believe that, as in every sector and in developed countries, electricity sector especially the development of a project is usually separate, is done by a different entity than the operation. So maybe we even see that in the mini-grid space At least, as you just said, we separate the asset ownership from the development and operation on the other side. John, do you see this happening? Are many AMDA members thinking about this?

Speaker 4: 50:21

I think I subscribe to that solution. That is a problem. I've never seen that in the IPP sector, where I come from initially, where you have, you know, the same developer developing, operating and owning the asset. It's quite a challenge when you have to build the infrastructure. You have to, you know, do the O&M, you have to do the EPC and you have to look for funds for investment. So it's quite a challenge, time consuming, and I like the idea of separation of entities between the EPCs, the O&M, operational maintenance companies, and then the owner of the asset, which I like. Cliff's idea of having an SPV that gets the ownership of the assets. And some of these, probably other companies, wind up to become EPC specialists, some become operators, the companies wind up to become EPC specialists, some become operators, et cetera. Yeah, I totally subscribe.

Speaker 2: 51:11

I think that we're going in that direction and, after all, that may even help mini-grid operators to pick up those activities that guarantee stable cash flows, like what we call rural industrialization, edge computing, productive use and these kind of things edge computing, productive use and these kind of things if they offload certain tasks on the yeah, capital acquisition, after all, at this site and then have more resources available to go deeper into various operational tasks, digitization of their operations and all these kinds of things that we urgently need to make mini-grid companies more efficient and help them get a more stable cash flow.

Speaker 3: 51:53

I want to add one component that we haven't talked about yet, which, when you talked about Nico and John, the mini-grid developers, being asked to do everything, one thing stands out in my mind, and that is productive use of energy, because without PUE, we talk about energy access, but just turning the lights on is not bringing prosperity and improving livelihoods. It's productive uses of energy that create economic development. But productive use of energy is, in fact, economic development and requires a different mindset and a different type of financing than building infrastructure. Right, and I think we should go back to history again and look at how did rural electrification happen in the US I'm much more familiar with US history than European history and it happened through the selling of productive use appliances to rural households. That that was the selling point.

Speaker 3: 52:57

The point was going to the woman in the household, frankly, because that's how households were organized back then, right, who was responsible for all of the household tasks, and saying to her imagine how a refrigerator or an electric iron could improve your life. And then government, actually, through the public works programs of the Great Depression, were providing these appliances at very low cost. So what rural customers were buying into was productive use of energy, not just a light bulb from day one, and asking mini-grid developers to also finance economic development programs. To develop and finance economic development programs is a tall order. So I think you know we need to be thinking about national or regional economic development programs focused on productive use of energy that provide a separate financing platform for bringing energy using appliances that improve livelihoods into these communities. So I just wanted to bring that up because I think it's a very important piece of the pie.

Speaker 2: 54:19

Good, let's wrap up this session. Maybe you could both provide your final statements on what you believe is required to change the perspective of mini-grid financing and how we could actually achieve that and what could be the long-term outcome. Who wants to start?

Speaker 4: 54:40

Yeah. So, in terms of conclusion, what I think is a future of financing energy projects in Africa, and especially mini-grid, I think one this project should be seen as infrastructure projects that require long-term and patient capital in terms of developing these projects. Number two, increased use of blended financing, growth of green bonds. And then the last one that we've not talked about but is equally important, is integration of climate finance and carbon finance instruments in the sector as well, and this can be done through platforms. That is being done already. This inception project is being done, but it should be something that we could, you know, put more focus on and see how we can integrate those innovative financing instruments.

Speaker 4: 55:30

The other one, I think and without that this cannot even happen is that stakeholders should collaborate, and that was what Cliff was alluding to in terms of PPPs with government, banks, developers, to share this risk and leverage on each other's strength. The other one would be collaboration among financial institutions development banks, commercial banks, climate finance, you know, can pull resources together to fund larger projects. The last one I would quote is the sharing and capacity building among stakeholders on innovative finance mechanisms, which I mentioned earlier, where I think we need to promote, to have more and more TA accorded to capacity building and bringing most of these companies into explaining how these innovative finance mechanisms work. And I think you mentioned the program that was launched by Googler. I think we'll be doing the same thing Elevate. We're going to do the same thing in the mini-grids sector by AMDA. We're going to, and we're starting to do that by these forums and workshops we are holding with developers to explain to them these financial instruments that we have in the sector that are available to them to fund and invest their projects.

Speaker 2: 56:44

All right. Thank you, john Cliff. Your final statement for our episodes.

Speaker 3: 56:48

There's not a lot I can add to what John said. That was a great summary of what we've been discussing. What I would focus on a bit is that maybe all of us need to have a bit of the curmudgeon that's in me. And when the donors say we can't do that, don't take that no for an answer. Let's be resolute in finding the political pathways to make the case, you know. Let's make the case to AJ Banda that MIGA is not the right instrument for providing guarantees. We need a different instrument. Let's come up with one together. That you know. Maybe working through the regional development banks is not the right way to finance rural infrastructure. Let's speak out, be resolute and not accept the status quo. Let's force the political powers that be to react and come up with reforms to the international finance system that delivers the kind of capital that's necessary to make this transition a reality.

Speaker 2: 58:03

All right. Thanks a lot, Cliff. Thanks a lot, John. Let's hope that we triggered off some thought processes with this episode and let's continue innovating. Thanks a lot.

Speaker 4: 58:17

Talk to you soon. Thank you very much, thanks. Thank you very much, nico. Thank you very much.

Speaker 1: 58:21

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