SPEAKER_01 0:15

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 initiates.

SPEAKER_03 0:36

Hello, Vanessa. Hi, Nicole. We're talking about Electrify, the mini-grid business game, which INENSOS developed. And I think we should start with where we're coming from. We saw over the last few years that uh there's a lack of um kind of high potential, high-quality staff in the sector. And we believe that we need to attract more high potentials, excellent African entrepreneurs, excellent university graduates to fill roles in the mini-grid companies' management levels.

SPEAKER_00 1:17

Yes, that's true, Nico. We notice in the sector that there is an abundance of international professionals. And we ask ourselves, where are all the African potentials?

Talent Gaps And Local Leadership

SPEAKER_03 1:29

We need to see more of them. And my perception is that these high potentials graduating from universities or young professionals, they look at the sector and say, Well, there's no money to be made there. I don't want to go into a sector that is just after impact. I want to go somewhere where I can make a living. I want to go somewhere where there's good opportunity for a highly paid career. And at the moment, the mini-grid sector doesn't look like that. We need to change it. We need to change it. And uh I believe that there is potential in the mini-grid sector to meet that demand. Absolutely. And this is why we said we need a tool to communicate what potential there is in the mini-grid sector. We need to show people within the shortest time frame they have, give them a deep insight into what the mini-grid sector and what mini-grid companies are all about. And here it is electrify the mini-grid business game. That's what we developed. So that is one thing, right? And then another is um regulators, regulators, governments, ministries of energy, they often have an understanding of the mini-grid sector and mini-grid companies that is not quite realistic. Just because they have never acted as uh a mini-grid company CEO, they have never actually experienced what the challenges are like.

SPEAKER_00 2:58

Yeah, we also often see in the sector that they want to provide smaller tariffs, thinking that people living in the communities do not really have the ability to pay. So there is a mismatch in understanding between the government's perspective and the mini-grid operators.

SPEAKER_03 3:20

Yes. And at the same time, if they increase the tariffs a little bit, mini-grid companies could be profitable. Mini-grid companies under this profitability could then acquire additional finance. And this additional finance would help them expand mini-grid electrification and minigrid rollout across the country very fast. But smaller tariffs actually retard the whole expansion. And then there's a third group which has probably some misperceptions about mini-grids, and that is financiers and investors. Well, oftentimes, financiers and investors don't understand the mini-grid sector the way they should to invest into a company. Of course, they can look into financial models and plans and everything, and they can look into historic data and so on, but all that data doesn't show them what decisions need to be taken, what they need to look for in a mini-grid CEO, what the right villages to be selected may look like. And that is exactly what we now want to change with this game. And we want all these three sector stakeholder groups to play this game and learn about the mini-grid sector and understand. And we hope that this will, after all, trigger communication, conversations between these groups that will be beneficial to the sector and help the sector grow. So now, Vanessa, what is Electrify the mini-grid business game all about?

Policy Mismatches On Tariffs

SPEAKER_00 4:51

Electrify is a simulation of a mini-grid company where uh the player actually gets a chance to step into the shoes of a mini-grid CEO and gets to take all the decisions that affect the community, such as selecting tariff levels, digitizing the activities, acquiring equity and that. And the main goal is for the player to have the highest value of shares at the end of the game and make its mini-grid company profitable.

SPEAKER_03 5:24

Yeah, it's difficult to explain in a podcast without video what a video game may actually feel and look like. But let's try, right, Vanessa? Like we've played a lot, and um this game is basically on maximizing the profitability of your mini-grid company, right? As a player, there is a share value calculation based on the profitability of the company. And the more profitable you are, the more profit you make, the higher your share value. You can take decisions as a CEO on many things. And all these can make or break your company. One individual wrong decision can basically run you into bankruptcy, then the game is over. Over. Yeah, exactly. So, what decisions should we mention here that uh a mini-grid company player should take?

SPEAKER_00 6:24

Well, there are important factors to consider. One is site selection. Like we need to consider sites that are closer to major um hubs to have the highest number of PUEs that would then be able to consume electricity during daytime and also have fixed revenues, also would potentially boost income uh within the community, and then we can have like a good overview of revenue growth.

Investor Blind Spots And Risks

How The Simulation Actually Works

SPEAKER_03 6:58

Yeah, exactly. And you can take decisions on digitization. Do you want to go for smart meters? Do you want to go for prepaid meters? Do you want to go for remote monitoring? Do you want to introduce a ticketing system for customer service? All these kinds of things. Um, you need to take decisions on your number of staff. And I think that is one of the aspects that many mini-grid companies struggle with because they do both. They do construction and implementation of new mini-grids and mini-grid operation at the same time in the same company under the same management, and usually with the same stuff. So, therefore, they design their staff size and number for the construction times. But when construction is over, basically what do they do with their staff, right? Oftentimes they just keep the staff, but that reduces their profitability. And with that reduced profitability, they cannot convince investors to invest and provide the finance they need to scale faster. So, therefore, yeah, um staff management and staff level management is one of the core features here in this game. But there are many more. You set tariffs, PUE tariffs and residential tariffs, and you acquire equity and debt. Equity and debt is available only once you can show that you can run a profitable company. If you're unprofitable, then well, no chance to actually acquire any finance, like in real life. There is interim finance available for grants. So grants come usually as performance-based grants exposed, like results-based funding or results-based finance. And uh, in the meantime, you can pre-finance that grant to a certain extent. Then you can size your systems, right? You can say, I want a renewable fraction of 100%, or I want a renewable fraction of 70-50%, whatever, meeting the remaining demand with diesel. And that brings us to all the assumptions. Let me quickly run through the assumptions, and then you can also come in, Vanessa, and explain other assumptions. So, for example, we are taking care of foreign exchange risk, diesel price development over time, price elasticity of demand when it comes to tariff setting. We consider economies of scale. So if you import larger numbers and deploy larger numbers of systems, your specific price of the individual component gets reduced. We have impacts of digitization on staff requirements. We consider customer satisfaction. So if electricity customers are unsatisfied because your staff level is too low or your system doesn't deliver electricity reliably because the system is too small or whatever, then the willingness to pay and your revenue after all will go down. We calculate the average revenue per user on a continuous basis, and we basically simulate the whole game over 20 years, like the whole mini-grid company over 20 years, and those that have the highest share value in their company will rank highest on the leaderboard. Right? And we have seen players who actually turned$1 million of starting capital into$100 million,$300 million over 20 years.

SPEAKER_00 10:33

Yeah, definitely it's a very interesting game to play since you get to see how your decision making affects your profitability in real time. And uh, you've already mentioned a few of the assumptions we make in the game. And I wanted to just jump back on the relationship between the number of staff and the digitization, because I think it's interesting that you mentioned that, since we can also see in real time in the game how digitization, like adopting ticketing, for example, would help reduce the amount of staff by a certain percentage. So these additions, I would say, that a mini-grid company could adopt that would on the long run reduce its OPEX. Exactly.

SPEAKER_03 11:23

Yeah, and another effect that I have not mentioned yet, is uh clustering of sites. Like if you select sites all across the country, then your travel costs will be very high. We could we calculate travel costs. Yeah, meaning that uh your profitability is probably lower. If you cluster properly, if you select large sites, if you select sites that are close to trade-ups, your demand, electricity demand will increase, your ARPU will increase quite rapidly. That will help you become profitable. We're selection of sites is definitely the core of any mini-grid company.

Decisions That Make Or Break You

SPEAKER_00 11:58

Yeah, definitely. I agree. Also, for the sites, the data used from uh Vida. So the sites actually have their own characteristics. You see the wealth indication, for example, you mentioned the distance to trade hog and all of this. So as a player, you kind of already have a feel of what the site could be like, how maybe profitable in terms of number of connections, in terms of the demand overall per year that the site would consume. And also you mentioned the renewable energy fractions where you get to choose if you want more diesel, if you want more renewable energies, if you want to oversize your system to account for potential growth. All of this you can see how it affects your investment, it affects your system size. And also talking about diesel, like we have fluctuating prices of diesel overall uh during the simulation time, so the 20-year simulation time. And you also see how the rise and fall in diesel, if you have a highest share of diesel, would then affect your overall profitability. Yeah, exactly.

Site Selection And Clustering

SPEAKER_03 13:12

And um, what we need to say is that this game is currently simulating using the Nigerian data. If you go there, you will see a map. A map of Nigeria with thousands of dots, and each of these dots is an actually unelectrified village. And that makes it most exciting from my point of view, because it's not some artificial game where you play in an artificial environment. It's basically real data that you're playing with. It is actual village data, and we try to keep it as close as possible to reality. Uh, we are using the data from the Darius planning activities that we had supported earlier a few years back, and we now converted it into this game. Well, similar data is available nowadays uh for other countries also. And the main player here is of course Vida, uh, which collects all these data, and um, thanks a lot to Vida. We can use this data for our game. So, yeah, it's almost like in real life. Yeah, almost yeah. Vanessa, let's look into the use cases of the game a little bit more closely. So we already talked about the three types of user groups that we foresee. On the one hand, the regulators and policymakers, on the other hand, the entrepreneurs and graduates from university, and the third is investors and financiers. And I would say the fourth is, after all, the mini-grid companies themselves. Let's start with the mini-grid companies themselves, and then maybe we can come back to the other three. So, mini-grid companies nowadays actually train their management staff on the job. You hire a person, and there is not much experience in mini-grid management in the talent market, you basically just onboard that person and give him exposure to the challenges while he's actually taking decisions. Which may not be such a good idea in the long run. Maybe it's better to provide some upfront training. And now with this simulation that we developed, any mini grid company could just pick a talent, expose her or him to the game, tell that person, play. If you're unsuccessful, come back to me, ask me questions why you're not succeeding, I will tell you how to improve, and then step by step make that talent understand what it actually takes to run a mini-grid company successfully. So I believe that this could change the way staff training is happening in mini-grid companies.

SPEAKER_00 16:18

Yeah, definitely I agree with you, Nico, also because the game gives you the opportunity to actually lose. And by that I mean that we know that when we're playing a game, we always want to have the highest possible score. But in real life, we know that we might be confronted to unforeseen circumstances. So, for example, by selecting the community with the highest number of customers, you are sure that you have a substantial demand. Whereas you could also decide to test what happens if you select a community with a low number of customers and try to play around with the parameters to eventually see how far you can go with this community, if you can eventually make it profitable at some point or not. And if you can't, what are other things to play around with? So it's not just about winning the game or playing the game for the pleasure of it, it's also a learning experience to know what to do when things don't really align with how you want them to go.

SPEAKER_03 17:26

So yeah, that's very nice indeed. And what we have to say here is that in this simulation of the Nigerian mini-grid market, not only MetroGrid strategies can be successful. Um, the Nigeria Daris program provides higher ground levels for smaller villages, and that makes smaller villages also financially feasible to a certain extent. But of course, we must admit that MetroGrid strategies are always the most profitable ones. But yeah, you can try this out, you can test it and then see. And also for investors, this can be an opportunity to see what strategies they want to promote. Do they want to go more for impact-driven electrification? Do they want to go more for profit-driven electrification? What is their strategy? What risks are they actually taking? And which companies do they want to work with? They can find out for themselves by playing this game, learning more about how the sector works.

SPEAKER_00 18:31

Yeah, exactly. And also um having an idea probably of the types of investments and subsidies that would be required to electrify either one or the other communities where one is impact-driven or one is business driven. So, yeah, I guess they're gonna review.

SPEAKER_03 18:50

After all, the aim would be to create or improve the investor confidence.

SPEAKER_04 18:56

Yeah.

SPEAKER_03 18:57

To make sure that investors know what they're actually investing in, which at the moment may not be the case in all cases. So, all right, now we've talked about mini-grid companies as players or company staff as players, we've talked about graduates a lot, and we talked about investors and financiers. Now let's touch upon policy and regulation a little bit and how regulators and policymakers can benefit from this game.

Tariffs, Finance, And Grants

SPEAKER_00 19:28

Yeah. Government and policy regulators are not usually aware of the realities of the terrain, if I can put it that way, of the environment. And there is quite a mismatch between what they expect as regulators and what uh mini grid operators actually experience on ground. So playing this game, which is, as we mentioned, based on real data and can actually simulate. real life events can help regulators and government entities understand actually the realities from uh an operator's point of view. And things like tariff settings, which are usually on the lower end and uh make it harder for the operators to actually reach break even, could then be pushed a little bit higher without affecting so much the customers and still making the mini grid business profitable while keeping good customer satisfaction.

Assumptions: FX, Diesel, Elasticity

SPEAKER_03 20:35

Yeah and there is still a subject that people think they know but oftentimes they don't really factor in the effects of price elasticity of demand. And I think this is another unique opportunity here to really experience what price electricity of demand actually means? Like what does it mean if you increase your tariff for residential customers? What does it mean to increase your tariff for productive users? What does it mean to increase your tariff for productive users beyond a level where diesel or petrogenerators could generate electricity at similar cost, even at lower cost? What does it mean to increase tariff levels to a range where the solar home system may be more affordable? These kind of things can be experienced here in this mini grid game because we put the assumptions from all our learnings over the last 20 years into this and seeing how it all plays out and how one aspect affects the other is actually a learning experience even for me right when playing the game I thought okay wow where is this effect coming from now? Where is it coming from? And I in some cases I even needed to think some minutes about okay hmm why did I lose what happened? And then after a few minutes I said ah okay well it was I don't know price elasticity or it was too much or not enough staff or it was a digitization decision that I took wrongly or it was the selection of sites or it was simply taking the wrong finance at the wrong point in time. Like there are so many mistakes you can make as a mini grid company CEO. But yeah you can learn how to overcome and to avoid these mistakes with this game. Yeah. Good now recently we've talked to World Bank SMAP AFDB CIFA and GetPro which is running getInvest and getTransform and they all really like the idea of this game and they like the game itself and they like playing it and they like the opportunities that this game brings along and they said they would love to support it and make it something that people actually use to the benefit of the sector. And one of the ideas that were discussed was to run a competition. A competition between players and there may be several groups maybe a group for professionals from mini grid companies there may be a group for university graduates and entrepreneurs that are new to the sector there may be a group for government and regulators and they may be a group for investors and financiers. And each of these groups may play with their respective perspective and maybe even we come forward with some group specific challenges that these groups may need to perform and then after all we will find those who perform best and those best performing players may potentially get a price of whatever that may be a service from getInvest or from AMAP 2.0 or some support for policymakers through SMAP or something like that. Let's see that that has not been decided yet we're all thinking about it we're brainstorming still but it's very likely that something like this will be developed and uh yeah to all our listeners get prepared maybe you want to take part in that competition.

SPEAKER_00 24:24

Yeah it would even be interesting to have a group with all three sectors playing together and seeing how uh each decision that it decides to make affects the overall results.

Real Nigerian Data And Maps

SPEAKER_03 24:38

Indeed yeah yeah very cool idea all right with that outlook let's jump into some recordings from an Inenzus internal electrify battle okay once I get the draw yeah are you learning I mean I'm I'm learning a lot from the side you're going bankrupt you're going bankrupt Silva you're going bankrupt yeah what shall I do? Well at the moment there's no option anymore what so I'm gonna post the game until someone else crash before me thanks everyone because I've been bankrupt already three times so without telling us without telling us now I see Emma you are cash flow positive congratulations thank you yeah and 900 connections you got an uh equity and debt offer what are you taking okay so if I look at the offer whoa what you're doing 57 dollar cents per kilowatt hour for productive users that's crazy that's what I charge keeping not 100% customer service but up to 80% customer satisfaction all right all right if the customers are paying hey who cares who cares there's no regulator here wow Hogar has a super cluster developed around Sokoto yeah 30 connections uh connections 6000 yeah but all small all small towns are all small villages uh jacob is cashing in grants is that a good strategy jakob for now yes let's see let's see how sustainable it will be oh 24 cents per kilowatt hour for households that's very kind of you yeah I'm uh very social many now you have that debt offers tiptoe yeah does that sound attractive to you it's a bit too the interest is a bit too high for the Nigerian one is only five years so I'm thinking if I should accept that or not to fire some people so customer satisfaction is going down revenue is even further going down but the cash flow is not going up yeah it's going up and also I would craft them yeah bankruptcy three months re to recover okay what's your thing wow Jacob you have one two three four five six villages under construction and your bank account is at bankrupt I'll try to Emma if you if you were a banker would you give a loan to someone who has a negative cash flow?

SPEAKER_01 27:35

Of course not alright oh Thomas game over oh what was what went wrong Thomas I think I got impatient and went yeah spent too much money yeah impatience is never good now Holger you're starting again yeah so Sokoto is challenging Sokoto is indeed very challenging game complete now you can put your name I did it this episode of the Mini Grid Business has been brought to you by Ininstance your one-stop shop for sustainable mini grids for more information on how to make mini grids work visit our website ininstance.com or contact us through the links in the show notes the mini grid business powered by Ininstance