Delivering Electricity to Transform Lives
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Jim Rogers is and always has been more than just a big thinker. Of his 25 years as the chief executive of electric and natural gas utilities in the U.S., he spent the last seven as head of Duke Energy, helping it grow into the largest regulated utility in the United States. Since stepping down as CEO of Duke at the end of 2013, Rogers has been focused on another one of the biggest challenges on the globe—how to bring energy to the1.2 billion— roughly 1 in 5—people in the world without electricity.
The University Fellow, Duke University Rubenstein Fellows Academy, and former chairman and CEO was keynote speaker at the Charlotte regional conference Energizing Africa Through Partnerships, produced by E4 Carolinas.
The Carolinas, believed to be the largest energy economy in the eastern United States, is emerging as a leader in sourcing energy services, products and project development facilitation in sub-Saharan Africa. At the conference, African and U.S. energy policy officials and executives engaged in the Africa-Carolinas energy trade met to learn about opportunities and develop partnerships to pursue a wide range of projects.
Rogers also provides examples of three companies—Powerhive, M-Kopa and Off Grid Electric—that have been especially innovative and have great strategies for bringing electricity to all parts of Africa.
In the following excerpts (edited for brevity and clarity), Jim Rogers provides his insights into the business opportunities in Sub-Saharan Africa and offers examples on how to succeed in business in this substantial economic development challenge.
Thank you all very much for being here and focusing on the opportunities for doing business in Africa; there are so many opportunities there.
I see Africa through the lens of electricity and energy; I see it through the opportunities that are presented. You know, my experience in Africa is limited—at Duke we used to own a company in Zambia providing electricity to the copper industry. It’s a very cyclical business, and when the business would dip, we’d then build a transmission line to provide that electricity into South Africa or the southern cone of Africa, also generating in Kenya. So the experience there is limited, but most recently I’ve done two things that have allowed me to go deeper, and have a more profound understanding of what’s going on in Africa, what the opportunities really are.
One is I wrote the book about the challenge of bringing electricity to the 630 million people that have no access to electricity. To me that’s stunning. It’s two times the number of people in the United States, almost two times, who just don’t have access to electricity, so that’s remarkable. And then there are tens of millions of people that are connected to the grid, but have intermittent access to electricity, and all this is in the context of 1.2 billion in the whole world with no access, and a billion people connected to the grid around the world, but only with intermittent access.
It’s hard to life your life, hard to plan your life, difficult to run a business when you don’t know when the power will be on or off. So that’s a great challenge—to do business in that context. So I’ve learned a lot writing the book, learned a lot talking to really smart people and really trying to get a profound understanding of what actually is happening and what the opportunities are.
The second thing I did is, just in May of this year, I went to South Africa and Cape Town at the African utility week, and there I had a chance to facilitate conversations with about 20 of the CEOS, leaders of state-owned utilities in Africa, and that gave me a more profound understanding of the challenges—the challenges of building generation, the challenges of building transmission, and you know there’s a number of power pools that have evolved in subsets there in Africa.
As it turns out, I wrote my book, solely on the 630 million with no access in rural areas, and I’ll talk more about that in a moment, but that’s really the background that I bring to the conversation today.
Electricity is so ubiquitous, it’s really back of mind if you live in the U.S. or you live in Europe, or any high income country around the world. It is not something you really ever think about, and as the CEO of Duke, I was delighted that you took us for granted. There were only two times you ever reached out to talk to us: if we screwed up the bill, you’d call us, and if the power was out. Those aren’t exactly experiences that you can say are warm and fuzzy experiences with your local utility, but when I look at the challenge of no access, it’s really remarkable.
Actually I would dare say, people from high income countries around the world have a blind spot with respect to access to electricity, because you never live without it. I mean, maybe my grandfather lived without it, maybe someone in your family, but I’d say most people in this room have not been without electricity in their lifetime, and so when you have it you don’t really know what you’re missing, or the role that it plays in your life. That’s why this blind spot exists. Let me just describe the blind spot.
People talk a lot about economic development in Africa, they talk about health issues—the need to improve the health system. By the way, there are a billion people that go to medical clinics around the world that have no access to healthcare. They talk about education—that there are millions of people that go to primary schools with no electricity. They talk about lifting people from poverty. But what they don’t talk about is bringing electricity to the people that don’t have access.
I’d say that the U.N., which is charged with responsibility of understanding poverty around the world and the opportunities—the U.N. when they did the millennial goals in 2000, never mentioned energy access. Well they corrected that. In September of 2015, they made energy access a sustainable development goal for the period of 2015 and 2030. That’s really important to countries, such as here and Africa to have that as a goal.
But what they haven’t done yet, is make access to electricity a basic human right. Only in 2010 did they make clean water and sanitation a basic human right, but I personally believe and I argue in the book that basically access to electricity is a basic human right, and I believe that because it enables better medical care, it enables better and more efficient farming, it enables education. Just go into the list of all the things it enables, and then you realize that is foundational for every society to have, and very important for people throughout the world to have access to it.
I guess maybe I should kind of stop for a moment and share with you why I wrote this book. You know having spent 25 years providing power, in the U.S. primarily and other places in the world, and then becoming aware of this issue, I said, “You know, this needs to be fixed, and I’ve spent my whole life fixing problems. This needs to be fixed.”
I started writing a book and then I realized that, to my surprise, I came up with a conclusion that extended the grid to these rural areas in the most affordable option. Providing solar electricity was the most affordable option because across the world, not just here in Africa, but around the world, there are several billion people who live on less than two dollars a day, so capability to pay becomes a really important thing when you think of building out.
And then you look at the state of the utilities in these countries. They have limited resources, and they’re working really hard every day to build resilience in the system, to make them more reliable, to extend the grid, but they really don’t have the funds. Nor does the country have the funds to extend the grid to every home, to ever business throughout the country.
The question is, do you try to fund the state-owned enterprise to extend it or do you come up with another model? In the course of writing the book I came up with a notion of doing solar—and by the way I couldn’t have written this book five years ago because the price of solar was much higher. From 2008 to today the price of solar has fallen 80 percent—think about that—so now it is an affordable option. Although there is reluctance to embrace solar. Because people say, “That’s not first world power.” First world power is coal, it’s natural gas, it’s nuclear, it’s not solar. But I’m quick to say solar is 21st century power, because the power systems we built in the United states are retired and are going to be replaced by 2015 and solar will play an increasing role as the prices fall and as more technologies step up.
So this notion of solar in these remote areas makes sense, and it’s affordable, because the number one problem is the use of kerosene. Kerosene for light, but using kerosene even by extremely intelligent understanding can lead to fire, and inhalation of the fumes from burning kerosene, huge problem. If you can replace it with a solar lighter or you can replace it with a home solar system—I mean I think of the solar as a ladder. On the lowest rung is solar lanyards that charge cellphones, next rung is home solar systems, next rung bigger solar systems, and then micro grids. All of these are being deployed here in Africa.
And I think the opportunities are really great to make that happen because people are pricing electricity to match the cost of a liter of kerosene. Think about that—if you’re going to compete with kerosene, let’s get the price right. So that is going on in many places there.
I think the other challenge is even the World Bank, which has the duty and responsibility to loan money and to finance a lot of build out of power plants and infrastructure of the world, they only allocate one and a half percent of the dollars they have to provide renewable energy in the rural parts of Africa. That’s where the 630 million people are. So they need to rethink, because they had that same first world power notion, that I need to build a coal plant, I need to build a gas plant. By the way all of these need to be built to fill out the infrastructure of the utilities that are there, but even that won’t be fast enough to extend the grid as providing a more renewable system in these remote areas because the goal line is to get these done by 2030.
Let me just tell you a basic fact, if we maintain the current “business as usual approach” to energy access between now and 2030, we will still have 630 million people without access to electricity given the growth and the population in these countries. So we’ve got to accelerate our efforts to make this happen. That’s where the business opportunity falls. Let me for a moment talk about the challenges, and then I’m going to quickly talk about some business models entrepreneurs that are on the ground are doing today.
Let me give you a sense, because the notion of bringing electricity to the rural areas of Africa has captured the imagination of people around the world, and has captured a sense of “Yes, we can make money!”, but more importantly we can make a difference. Millennials today—I’m a baby boomer, I’d like to think I’d try to make a difference—but millennials today do not just want to make money, they want to make a difference—they want to have a life with purpose.
Let me quickly talk to you about the challenges. The first challenge is really government and government policies in these countries. One is, there’s often tariffs on solar lanyards or home solar systems, our micro grid equipment. So the important thing is how do you work with the government to reduce or eliminate tariffs, because they don’t manufacture these things in the country, so you’re not protecting an industry within the country.
The second thing is, a subsidy in a lot of countries like in Africa, is kerosene. So they’re subsidizing the cost of kerosene. In some countries like Tanzania, Kenya, have eliminated the subsidy of kerosene. More countries need to do that to allow solar (solar lanyards and home solar systems) to compete on more of a level playing field.
The benefits are overwhelming and easy to demonstrate. With respect to solar, first it’s kerosene and that needs to get done. And then there’s kind of a difficulty sometimes of state-owned utilities not so sure they want to see other people come into the country and provide electricity in the rural areas, and that’s a more complicated story, in terms of what happens.
It’s really important to get governments on the side of the people in terms of bringing electricity to remote areas of Africa—it’s critical. There’s a whole different conversation we can have about the political reasons that governments do not want to see electricity in those areas, I don’t need to go into that, but it’s there. There’s all sorts of issues around corruption in some of these countries. I’m not going to talk about that, but the governments have got to get the policy right to allow acceleration of electricity in these rural areas.
The second impediment is finance; we’ve got to get the World Bank right. We’ve got to get the African Development Bank thinking about this better. We need to develop the number of local banks. We need the World Bank to work with local banks to fill capacity in the local banks.
I remember getting in the wind business in the US. Banks had not funded wind projects, so all you had to do is go to the Netherlands to find banks who have had a lot of experience funding wind turbulence to get the money. I mean I’m talking a number of years ago. U.S. banks got it, and they’re all on board and loving it. But in the early days, they had no experience of lending money on a wind farm. We’ve learned a lot working other banks in other parts of the world to be able to fund our efforts in the early days. That needs to happen in Africa.
There are not many local banks, or even with local banks that have no risk, with an appetite for investing in energy infrastructure. Working with Africa developing a bank and the World Bank, I think improves and builds a capacity to deal with the risk and to loan money. Maybe in the early days a World Bank or African Development Bank provides 90 percent of the loan and the local bank does 10, and over time that percentage changes as they get more comfortable with the risk and have greater capital to deploy.
So, government policy is number one. Number two is finance, and by the way private equity is now being invested in companies in subsidies here in Africa, in the energy space. Hadn’t happened before, particularly with some of these companies I’m going to mention. So, the financial problem needs to get solved. Third thing, is really an issue of technology, and I mentioned the solar ladder, the build-out of micro grids is happening, there’s a learning there. So the technology is being deployed, storage technologies are coming forward. The math around deployment of those technologies is improving.
The other thing is capability to pay, and there is limited capability to pay, which makes it difficult, but a number of people have known business models that install, not perfectly, install the capability to pay. So those are the major challenges to deploy now. There are a lot of other people coming into the country. The Chinese are in these countries in a big way, but they don’t really work with the people in Africa. They bring their own workers into these countries to build roads, they build power plants, they build dams. That’s going on.
I think there are great opportunities for companies to do business in Africa—but they need to get this mantra down. First, listen. Second, engage. Third, recruit. Fourth, train people. Fifth, empower.
Every company that takes that approach and builds the capacity to lead, and builds those skill sets, those are the companies that will, in my judgement, differentiate from everybody else, whether it’s the Chinese or French or anyone. I think those companies are building capability and capacity within the communities. They have a higher chance of doing well over a long period of time, and being embraced, and not just in these communities and villages. But also they will be embraced by the government over a longer period of time, and I think that’s really important.
Now, let me quickly tell you about three companies, and I know all three companies. One’s called Powerhive. It’s run by a guy in San Francisco called Chris Hornor. Powerhive is in West Kenya, and they got the first government franchise to build a micro grid in that area. So it’s a really interesting model to take a look at, particularly on micro-grids, because most of the micro grids in the world are being deployed in India, not in subsets in Africa. We could have long conversations about why that’s happening that way, but Powerhive a good company to check up on.
Another company is M-Kopa Solar in Nairobi. I’ve been to their headquarters, a remarkable facility. I was actually there on family day, so everybody was there with their kids, but I think they call it Fun Day not family day. Everybody was there and it’s just an incredible campus. They have sold small home solar systems to over thousands of families/ homes. Pretty remarkable what they’ve been able to do, and they probably, of all the companies I’ve looked at, are doing the best job, are moving faster, are moving and scaling faster than anyone. Their co-founder and CEO is Jesse Moore, he’s a Canadian, graduated from Chapel Hill, actually tomorrow he will be in Chapel Hill getting a distinguished alumni award, and I think he’s going to stay around for the game in the afternoon. This guy is amazing; he’s raising his family in Nairobi. He has two children—one was just born about a month or two ago, there.
He is committed, but when you walk through his company the people there—they are Kenyans, working. People he’s developed, he’s trained, they’re working—their sales floor is powerful. They have a pay-as-you-go model, where they basically use the convergence between cell technology, the Internet, solar, and then a concept of local banking. You put all those pieces together, you can build a business model that works.
The great thing about their pay-as-you-go model is they’re doing something also very valuable for the people of Kenya. They are building credit histories, because they have a credit history payment, and you know we don’t value that in the United states…You don’t value that until you don’t have it.
I remember an early part of my career where I had kind of perfect credit, but the thought that you don’t have a credit history makes it difficult to buy homes—to buy anything. So I think the byproduct of providing electricity is building credit histories for people here. So M-Kopa to me is kind of setting an example.
They just received significant funding from a private equity group—one of the two companies and the first company to this space to have gotten private equity funding.
The third company is Off Grid Electric in Tanzania. It’s run by a guy named Xavier Helgesen. Xavier went to Notre Dame and then to Oxford, and basically when he was in school he conceived the idea of doing this, and then built a business, there. In Tanzania, basically only eight percent of the people have electricity, so the opportunity is great.
Interesting business models, interesting challenges, and it’s really all about recruiting. I mean all the things that I said in the mantra—you know, listen, engage, etc. Those are examples of people that are really working hard to add value and make a difference. I think it’s critical; it’s a great mission. It’s a great opportunity.
The ability to change peoples’ lives is great, and it’s a huge opportunity. So as you all think about the future, you think about opportunities, and know that there’s a number of companies here, part of E4 Carolinas. It is a huge, huge opportunity to invest in the future. With that I’ll stop and open it up to any questions that you all might have.
Yeah, I’m wondering if you were bold enough in your recommendation about what is the past and what is the future. I remember being in China and advising them on transportation infrastructure—“Please don’t do what we’re doing because we know we need a revolution. So if you build on our model, you’re going to build a problem.” So I’m wondering if you were even bolder in Africa—one of the most diverse environments on the planet—about to convert, building an energy network into that environment. Would you even be thinking that you should maybe be bolder about what the 21st century is about, as a way of thinking about energy?
Well, I thought I was being fairly bold. I guess the way I would respond to that—it’s truly a good question. It’s the right question, because you know, you have almost a blank sheet of paper and the ability to build distributed, renewable systems. I mean, in the ideal world that you discover new ideas and as people start up their economic development, they develop the capability. By the way, 50 percent of people in these rural areas—not different from the United States in the early 1900s—most of how they make money is either farming or in agriculture.
So if you could improve—for example the irrigation is huge, and there’s a lot of solar applications in all these areas—but this notion of going from solar panels to a home solar system, and actually you should design a home solar system so when the day comes it can turn into a micro grid. You can connect all the devices to have everything work as one system. And actually the way to think about this is that’s exactly the way the United States built the grid we have today. We went to cities, I mean I think about where we were in 1910 and 1920, we really built essentially micro grids in this city and that city and that city because of the density of the population, and then we started combining these city utilities, building transmission lines to connect them—and that’s how they got built.
The opportunity here is, with solar, to do it cheaper than extending the grid. Now I’m a pragmatist. I believe we are going to have to still build, whether it’s hydro facilities, utilities scale to solar, wind in some places—not in as many as you’d think, but you really need to do that for the existing grid, because the other practical point is some places the grid makes sense to extend it out to the rural areas, other places it doesn’t.
I’d say there’s a great debate about, “Well, if you’re not giving people enough electricity to build factories, to build other economic development, you’re not going to give them an opportunity to climb out of poverty.” I think that’s kind of wrong-headed, I think you have to think about… it’s not an overnight thing, and plus if you wanted to you couldn’t build it and extend the lines, because nobody can pay for it—not the people, not the government. So this goes a little slower, but the bottom line is it gives people a chance.
I think solar storage, micro-grids, the whole solar system, I think that’s the right way to go. The other thing I left out is so important—there is a huge desire to move beyond lighting. Lighting is great for a zillion reasons—it’s safety, it’s better lighting than the kerosene light, but the other thing is, people immediately want a new, and this is what’s happening—low energy, hyper efficient appliances—people love irons, they love fans, they want radios, they want TVs. I mean probably not in that order, probably in the reverse order.
The important point here is there is a huge opportunity as we build these very, super-efficient appliances, to come back into the United States and other parts of the world. Let’s build super-efficient appliances there.
I have a pretty specific question for you. You really caught my attention with I think it was off-grid in Tanzania—saying they have a pay-as-you-go model. I think if companies were able to go straight to retail, it would really change the game on a lot of things. You mentioned it’s not just energy, but it’s also TV and other stuff. So what I’m interested to know is that a model that they can replicate? Because say if you were selling a TV, direct retail, and you had an agreement with off-grid who has access to the power. That “Hey, if you don’t pay your bill, we’re shutting off the power, too, along with the TV—if they could replicate that model it might be able to allow a lot more companies to go in there if they could sell direct-to-retail as far as a government sale or working with some of the private businesses there.
Every country is not like Kenya, but in Kenya, where about 90 percent of the people have cellphones and mobile banking has sort of evolved, I think it’s a very creative idea. I mean very few people in the U.S. or Europe do mobile banking today, actually. And actually these companies—which is actually kind of back-to-the-future when the power sector of the United States got started, we had separate companies that sold refrigerators, washing machines, irons, dryers. I mean to build load.
These companies—and M-Kopa solar is one— it’s just moved to selling very efficient TVs and are selling them as fast as they can line them up. Plus, the people they’re selling them to own their system, so they know their credit history, so it’s a better bet, going forward. And actually building off to your point, I think other people have an opportunity to come behind, even with other products in that area or to build businesses. A lot of people might build a micro grid, but then if you are building a small manufacturing facility, you can use a generator along with some of the solar, et cetera, to make it 24/7 powered.
First of all, thank you Jim. That was very illuminating. My question, two of your examples were from Kenya, and those two examples have private equity projections, so is it also—I mean it sounds like fantastic management, involvement in those kind of things—but is there something in the policies based in Kenya that allows more of this type of innovation in the off-grid space?
No, actually it’s not just Kenya, it’s Tanzania, it’s Rwanda, Ghana, Tasmania, not just in the south, but in east Africa. It seems to be where the greatest creativity is going on for the moment. But I think it’s a little bit because Tanzania and Kenya are eliminating subsidies for kerosene and I think that helps. Some countries still had discussions over the price of electricity, but I really think that it’s just a unique set of acts came together in those countries for that to happen, and all three electrics are really funded by Elon Musk of Tesla and solar city—I mean part of the funding. M-Kopa has gotten the funding from a group called Generation.
Power is one of the most capital intensive industries in the world, and they’re dealing with infusions of $20 million and $30 million, which is trivial. Power Africa was slow to start, but they are making significant progress—they have $7 billion to help accelerate the build out.
They started out with a little bias towards central station clients, but I think they’re changing and focusing more on renewable and distributed energy in the area. Let me give you a context of what $7 billion is—that’s one year of the capital budget of Duke, okay? So it takes serious money, and while the government’s doing $7 billion, I applaud them, I love what they’re doing, I mean it’s going to go on beyond this administration, it’s important to do—but we shouldn’t forget that that’s a drop in the bucket in terms of capital that’s truly needed to provide electricity in Africa.
When Chris Hornor started Powerhive, he built it with an outstanding team. So in your opinion, whether it’s a small electric cooperative back in rural Kenya or Tanzania or Ghana or Nigeria, do you think that you should chase product first or take the risk of building something versus letting people come in, and you know?
I’m old fashioned, so you’re asking the wrong guy. I’m a risk taker, but not a river boat gambler. I want the big payoff. I mean it’s just the smart way to think about it, if you’re going to invest significant dollars. The approach that M-Kopa and the others are using—they’re making a fairly significant upfront capital investment. I mean, to just be in business, train people, recruit people, etc., it’s really important to think through your model, and it’s important to make sure you have enough capital, because working capital is the number one problem of all these start-up companies. The truth of the matter is, equity investment is working capital, so it’s really important to get patient capital, a lot of up front capital, or as much as you can get, because it reduces for some time your working capital needs in a period when the business is growing.
My question is talking about grid, and I’m wondering if that’s an underground grid or in the air grid with wires—if so, is there a more efficient alternative for extending power? I’m not talking about more wires in the air, but solar on the roof, I mean a home solar system is all within the home, no wires. Other than connecting a solar panel on the roof—you talked about extending the existing grid.
Extending the grid means more transmission, more distribution build-out, more generation. And by the way most people thought if a CEO of a private company in the U.S. took a look at this, my first answer would be extending the grid. People were surprised when I said, “No, not so quick.” I distributed solar, it’s a better approach because it’s the most affordable approach for people, and I think that’s critical.
The benefit of this—and there’s a whole concept that impacted us to talk about, in these companies—you lift these villages up when you bring light to them. The number one beneficiary of electricity in these rural areas is women. It allows equality for women, and anyone that’s ever studied how you change a village, how you build an economy, you’ve got to set the women free, and I mean set them free by basically, you know, the best example in the United States is to go back to read a book by Robert Caro about Lyndon Johnson. He talked about how to transform the lives of women in Texas who lived on ranches and how all of the sudden they now begin education, they now can contribute.
I mean, most women there at 35 looked like they were at 55 with the type of lifestyle they had with water. I mean just all the work of a village, a woman does. So my belief is if you were to transform a society, provide electricity, you will transform the future of women, and that will lift the whole society going forward. So thank you all very much.