The green energy space is in its infancy in Nigeria. How did you see it as a viable economic opportunity?
It was just about looking at the numbers. At present, Nigeria is one of the largest decentralized energy markets in the world. There are about 60 million small-scale fossil fuel-based generators in the country. One knows what it costs to run those, and if you can offer a solution and service that is less expensive than that, there is profit to be made. I think that was the fundamental justification.
Rensource Energy's business model is based on micro-utilities. Can you explain this concept?
By using the term micro-utility, we want to distinguish it from general central power provision. Whether you are in the US or Nigeria, you get power from a centralized grid infrastructure. However, since infrastructure is so underdeveloped in Nigeria, building discrete grid infrastructure and the corresponding service provision customized for a communities' needs, whether that community be a marketplace, housing estate, or industrial park, is a more sustainable model. So rather than having one large grid you build and connect a number of small grids. This is what we mean by micro-utility. Rensource Energy is in the business of building lots of micro-utilities, but we manage them centrally with other supporting service infrastructure in the communities. We are also looking at other types of micro utilities beyond marketplaces, such as industrial clusters, housing estates or collaborating with some of the traditional electricity distribution companies (DisCos).
Are your micro-utilities based solely on green energy?
We focus only on solar hybrid systems. This means solar with a combination of solar, batteries and sometimes a backup fossil fuel, such as a generator. We may also explore using natural gas, but for now we are focusing solely on solar-hybrid based grids.
How would you describe Rensource's clientele?
Most of our business is powering large urban marketplaces such as the Sabon Gari market in Kano or Iponri market in Lagos. We are active in about six markets and we have a pipeline of another 20; however, we are also eyeing commercial and industrial clients. These are the single off-taker manufacturers, such as flour mills. Nevertheless, markets remain for now our core business. The way our model works is that while we are billing and handlings service provision to the end user of power, typically a micro-SME merchant in the market, our contractual counter-party is the owner of the market, which is either a private individual, company, or a state government.
What will it take to scale the company to serve large corporations?
We already have significant additional capacity, but this is more about educating the clients about solar and how it can complement their existing power sources. A lot of these clients have already invested in self-generation, mostly generators or gas generation. Therefore, we need to justify the incremental expenditure of what we are offering them. We often do this by selling energy rather than the equipment. We incur the cost of the asset and just sell the power to the client.
Nigerians spend over USD60 billion annually on fueling diesel generators. What can be done to change the mindset toward cleaner energy?
There is no easy alternative. If the grid was working effectively, given it is cheaper and cleaner, people would obviously use that. Generators are not efficient, but they are easy to use. They are cheap to acquire, but expensive to run. Most people need something they can pay in small increments over time, which is what generators allow them to do. If you can offer other technologies that allow people to pay over time, they will turn to that, and I think solar can offer this. We are seeing that scaling up in Nigeria. I believe we will witness the same with natural gas, which Nigeria is blessed with.
How is Nigeria going to overcome its power supply shortages in order to feed its envisioned economic and population growth?
The problem is not limited to generation. There is about 12GW of installed capacity in Nigeria, but only 3.5GW on average reaches end users. There are issues across the whole value chain, from distribution and lack of metering to power theft, all the way to transmission. Therefore, it is a multifaceted problem, but thankfully there are distinct initiatives underway to address all of them. Distribution companies are investing more in sub-franchising the distribution areas to address the more challenging areas with a more hands-on approach. The World Bank has committed USD1-2 billion to transmission infrastructure in Nigeria and supporting connection fee subsidies for micro-grids. Nigeria's Rural Electrification Agency (REA) is doing excellent work. Unfortunately, not much is happening on the generation side. The last large-scale generation project was the Azura-Edo Power Plant in Edo State, but since then not much has happened because there is not a way to take that power and distribute it once its available. Once the transmission and distribution infrastructure improves, work on the generation side will pick up. It is easy to point fingers at the DisCos because they own the opportunity, but they also have their own grievances about tariffs and whether the government has held up its part of the bargain. Someone has to bite the bullet at some stage, but there is no one villain to blame.
In light of this, what is the way out for Nigeria?
I believe the answer is to decentralize. Whether it is natural gas, solar, or hydro, what's important is taking power to the community. That community could be as small as a market or as big as a large industrial park, housing estate, or the entire Lagos Island. I think building power resources for distinct communities is the only way Nigeria can solve the problem.
What are your expectations from Rensource in 2020?
We will see a more diversified offering in decentralized energy for commercial and residential clients. And in the marketplaces we provide energy, we will begin to deepen the relationship with the end-user of power by providing services that go beyond energy provision. There is a lot of spending happening on infrastructure, for good reasons. The geopolitics that drive oil prices will be quite volatile over the next year. But overall, things should improve. For Rensource Energy, it is about growth. You will hear our name a lot more and see us collaborate more actively with the existing players in the power sector. We will go beyond the narrow focus on energy for markets we have had over the last two years.