Exclusive interview with Riccardo Ridolfi, co-founder and CEO of Equatorial Power. At Future Energy East Africa he will participate on two panel discussions covering off-grid, innovation and productive use of energy.
“My message at Future Energy East Africa will be simple: Electrons alone are useless!”
As a board member of Umeme and a minigrid developer, you operate on both sides of the coin: What in your view should be the degree of interaction between the national grid and off grid solutions?
In terms of energy access and service delivery, there is no doubt that national utilities have the lion’s share of the challenge. That said, off-grid private actors – along all parts of the energy spectrum – have shown unique capabilities to innovative, particularly with regards to customer-facing models that drive demand.
From an off grid angle, it is an unfortunate, and unhelpful narrative that the mini grid sector is in any way adverse to, or in competition with the national grid in any country. Mini grids are (or ought to be) an essential complement to the national grid in any emerging market national electrification strategy and we aim to work closely with public utilities in finding the most efficient way to bring energy to places where it's lacking.
I believe the three key pillars for interaction between a national utility and private off-grid operators are:
1) Accelerated access;
2) Customer-facing productive demand growth; and
3) Innovation, particularly centred around collection and usage of data.
Therefore, also from a national utility perspective, I see significant potential for interaction and have been actively pursuing this objective at the Umeme Board level. In fact, we hope to be in a position to announce some innovative collaborations and pilot projects in the near future so stay tuned.
Mini grids have been struggling to meet financial viability: What in your view are the main challenges that must be overcome?
First of all, allow me to set the context by emphasising two particular issues:
i. Electricity is a means, an enabler, never an end in itself.
Electricity is a factor of development and, as such, must enable people to improve their lives. Although this starts from lighting and mobile phone charging, in order to achieve sustainable development, rural communities must be delivered productive power, meaning electricity of sufficient quantity and quality to enable productive use and revenue-generating activity, particularly agro-processing.
ii. Energy demand in off-grid rural settings is low and does not grow alone. This is evident with mini-grids, but also with the extension of the national grid. Rural poor can afford electricity, but they cannot afford productive machinery and appliances with which to fully benefit from that electricity. Furthermore, rural agro-processing and storage needs go far beyond the bankability of smallholder farmers and there is a need for a larger investor to deploy localised processing solutions.
This translates to the fact that there is a tremendous and urgent need for rural productive power, but that under business-as-usual conditions, neither mini-grids nor the national grid are profitable when accessing these rural customers. Therefore, without a subsidisation scheme (whether public subsidies or private internal cross-subsidisation), there is yet no purely commercial way to deliver productive power to rural communities.
Technology is important and all progress welcome, however the real need currently is innovation on the business model to deliver rural services. It is necessary to think outside the box in order to find a commercially sustainable way to accelerate access to productive power to the rural poor, starting today.
The Solution - Business Model Innovation
Equatorial Power has been championing a new business model to immediately accelerate access to productive power in a commercially viable manner.
Research shows that in off-grid rural communities between 40 and 50% of all agricultural products are wasted, predominantly due to lack of cold storage and processing.
What has emerged is that cold storage is a recurring common lack and pain-point on both islands and rural mainland areas. In fact, just a few other agricultural value chains cover most needs across sub-Saharan Africa. These include: cold storage and ice production (fish, meat, vegetables, fruit), grinding / milling (grain, coffee, other), milk pasteurization and cooling, packaging and basic processing.
Equatorial Power’s focus is therefore on identifying and addressing the relevant gaps in the local agribusiness value chains that could benefit from productive energy, to then fill those gaps and serve as the energy demand anchor as well as providing agricultural value-addition locally.
We design and build productive use mini grids, generally larger than the market average and look to directly invest in productive use in two ways:
a) Business incubation to enable local entrepreneurs– through training and financing – to fully benefit from access to productive power; and
b) Agro-processing of local produce, to directly drive energy demand and local value addition, for the benefit of the community as a whole, as we all the mini grid’s economic sustainability.
We have collected considerable data and have performed various tests, including in our previous productive use mini grid, giving us significant comfort as to the potential of this business model.
We are excited to be pioneering this approach and look forward to commissioning our first site.
What progress has your company had in the industry?
The team at Equatorial Power has put in tremendous amounts of work to bring our first projects, both on and off grid, to the implementation phase.
Nothing is easy for a startup and progress takes time, particularly in infrastructure, but I am very happy with our achievements over the last six months.
We now have active projects under development in Uganda, Kenya, Rwanda and DRC. We are excited to be developing our mini grid sites in accordance with an innovative holistic business model, centered entirely around the productive use of energy, with some very interesting partners.
We hope to commission our first site in Rwanda later this year and our principal pilot project in Uganda by Q2 of next year.
In Uganda, with full Presidential support, we are developing a large number of productive use mini grids on islands in Lake Victoria, as well as grid connected mini hydro power plants.
In Rwanda, we are developing five mini grid sites and are finalising financing for our first project.
In the DRC we have a number of mini grids under development, notwithstanding uncertain times ahead – people will always need power.
We are also working in Kenya and have begun exploring other markets, such as Ethiopia, Zambia and Nigeria.
What is your company’s vision for success?
Our vision for success is universal access to electricity – productive electricity wherever possible – at a much faster pace than we are currently witnessing.
In order to achieve this, Equatorial Power believes in the need for a commercially viable model. We believe this necessarily involves a holistic approach to rural services, where energy should improve all aspects of rural life and economy, catalysing the delivery of other essential services, such as clean water and agro-processing.
Essentially, our ambition is to accelerate the delivery economic transformation, anchored around productive uptake of electricity.
At the national level, the ambition to accelerate access to productive power is absolutely rational, not only driven by a desire of delivering a public good or social impact. In real economic terms, the opportunity cost of not having access to productive power (and the means with which to exploit it) over the next 10 years is far greater than the investment required to address this issue.
At Future Energy East Africa, you are part of two panel discussions focussing on off grid. Can you give us a sneak preview of what your message will be at the event?
My message will be simple: Electrons alone are useless!
There is a natural perfect alignment between greater socioeconomic impact to local communities and profit considerations for mini grid operators (and investors): invest or otherwise support localised productive use and agro-processing.
Does this increase operational risk? Maybe… or maybe not. What we strongly believe is that it is a far greater market risk hedge than the additional marginal operational risk.
Finally, more cooperation is required across the sector, among off-grid private actors, as well as between them and national utilities. We are all fighting the same battle and ought to join forces.
Anything you would like to add?
At the cost of sounding redundant I would like to close with essentially the same message I gave last time, which (unfortunately) is still very relevant, namely: Poor people can afford electricity, but cannot afford the assets and appliances with which to truly benefit from that electricity. In the interest of national utilities and off-grid operators alike, focus must be on innovations driving customer-facing sustainable demand growth.
EnerGrow is an example of a start-up that does exactly that. It features a tech platform offering data-driven productive asset financing and training to rural and peri-urban energy consumers, in a perfectly scalable manner. Anybody interested can contact the EnerGrow team at Future Energy East Africa.