Episode Transcript
Host: You're listening to the Levy Inspiration Grant Program podcast, where we share stories of business students following their entrepreneurial passions to every corner of the world. I'm your host, Tyler Seybold. Through the program, students at the Kellogg School of Management can travel to any country of their choosing to immerse themselves in a particular topic with an eye toward building a business around it. When they return, they sit down with me to reflect on the experience and share what they learned along the way.
During their time at Kellogg, students are introduced to countless topics and technologies that they haven't encountered before. For Julia Ha and Mohit Patel, mini grid and micro grid electricity was one such topic.
Julia: After coming to Kellogg, I learned about this investment fund that primarily invests in developing countries, and that they are making investments in micro grid in many African countries and that it was making like a huge impact in those countries.
Host: While they each had prior exposure to international markets and development, microgrid technology was new for them and had the combination of market potential and impact that made it particularly enticing.
Before we get into their trip experience, how about a quick crash course in energy tech and terminology? First, let's talk microgrids. In the U.S., most people get their electricity from the large, centralized power grids that transport energy over long distances. This electricity is generated using a multitude of sources including nuclear, fossil fuel, coal, and renewable sources like wind and solar, among others.
Mini and microgrid technology, on the other hand, are smaller, localized systems that serve a more confined footprint. As an example, microgrids are gaining popularity among U. S. school districts and college campuses as a way to address costs, build resilience from power grid fluctuations and reduce carbon dioxide emissions. In terms of emerging and developing markets, like the ones that Julia and Mohit visited, the context of mini and microgrids is typically centered around expanding energy access for communities that previously didn't have access to electricity.
Another phrase that you'll hear a few times throughout this episode is "productive use of electricity." While there are a few definitions of this term with different degrees of specificity, in general, productive use refers to electricity that is used for income-generating activities, such as manufacturing or agriculture. In short, providing electricity to a shopping mall could be considered productive use while electricity for a typical home is not.
Learning about microgrid technology set Julia and Mohit down a course of exploration that eventually took them on an Inspiration Grant trip to Kenya and Ethiopia. While there, they interviewed locals about their varied experiences with electricity and met with several companies in the industry, all of whom are trying different strategies to provide energy access to more people.
This is their Inspiration Grant story.
Mohit: So for me, I worked in Nigeria for 3.5 years and in Ghana for six months. I remember the first time when I landed in Nigeria, when I came out of the airport, I figured that there was this how should I put it, but this lingering fossil fuel burning smell that was around.
And to me that was new because coming from Mumbai, it's also heavily polluted and there are a lot of vehicles, but it didn't take me a lot of days to realize that in Nigeria people have diesel-powered generators because electricity is not stable which was the cause of this lingering smell. I researched a lot and I realized that this access to electricity is not just an issue in Nigeria, but it's an issue in other countries as well.
I remember this one time I was in a city in Nigeria, Abuja, and I'd asked one of my colleagues to stay back because we had some steep targets. And she came to me with this unusual request if I could help her drop to her place. I agreed and when I went there, I realized that the entire neighborhood was in darkness and she told me that they do not have electricity after 7 p.m. That's when I realized that living in the city center, I took access to electricity for granted and that's when I realized that this was actually an issue.
Julia: We chose to travel to Kenya and Ethiopia. At first we knew that we wanted to go to Africa: to drop you some numbers about like 80 percent of the whole population that do not have access to electricity are currently living in Africa. So we knew this is the market that we first want to explore and has biggest potential for that type of business.
Mohit: We tried to meet a variety of stakeholders when we were going into the trip. We wanted to meet current consumers of mini grid electricity, but at the same time we wanted to meet different stakeholders like current companies, current startups that are already doing this, and get a view from each party of what they feel about this business model and how can we make it a viable business model? For example, to learn from the mistakes of current players, and what challenges do they face?
Julia: When we were there we were trying to get as many perspectives on this power problem as possible, so we tried to talk to the local people there because they're going to be our end user of the electricity.
When we were passing by a cafe, we just grabbed some people on the street and try to talk to them. We wanted to talk to a guy who was like sitting next to our table. We just struck up a conversation with him.
He talked about his parents who were living in rural area of Kenya who were basically farmers. He was the one who was paying for their electricity bill, so we could hear some stories about energy consumption pattern in rural area of Kenya. It was actually shocking to us because he said his parents are spending only two dollars per month on their electricity: one dollar to charge their phones and another one dollar to watch television. They do not have any other electric appliances other than those two things.
So even though we would bring to them more like amount of electricity at possibly a slightly cheaper price, their willingness and ability to for this electricity bill will not really grow higher, because they're only gonna use electricity for the phones and televisions and they're not going to make money out of using electricity.
This is actually what we later found out is called productive use of electricity.
Julia: We also interviewed this girl from a company called PowerGen, it is like largest company in African countries in the power industry, and she said actually it is really difficult to make a profit out of micro grid business because there is no productive use. She said, actually there is no private company that is actually making profit out of this business just yet. The segment that they're making profit out of is C&I, commercial and industrial. The way that they can generate profit out of this business is to put power generator and microgrid besides manufacturer facilities or like shopping malls, something that can actually generate some income out of using this electricity.
This person from PowerGen also said even though you think microgrid would be the solution to, solve this, whole electricity problems in developing countries, it is actually not. What is really important is the mixture of various solution, especially when it comes to energy market. So there are some areas in the country that is more appropriate to provide electricity with just larger scale, like national grid system. Whereas there are some areas that micro grid is more efficient. For some rural areas that are really remote without any commercial facilities around, basically without any productive use, it may make more sense to provide them electricity with just normal, household solar panels on their rooftop.
She said there's no one perfect right solution that can address this whole problem, you should just really consider the mixture of various solutions when you approach this problem.
Mohit: As Julia just mentioned about finding productive uses of electricity, in Ethiopia, we were able to find a solution, but not exactly complete solution, but we were able to move towards that solution. So in Ethiopia, we met HumEn or Humanitarian Energy. It's a company that's backed by Mercy Corps, a nonprofit from the U.S., they are working on providing electricity to refugee camps in Ethiopia.
For them, the unit economics works slightly differently. They divide their customers into two parts: one are anchor customers and the other ones are regular customers. For example, millers of grains, they make productive use of this electricity and they can pay a premium for this.
But at the same time, these millers are around the refugee camps. These refugee camps, while they are not making productive use of this electricity, they are able to pay for it.
Quite honestly, those refugee camps are necessary because you need a larger population of people to achieve economies of scale, while at the same time having these anchor customers so that you can have that profitability. So we came up with this new challenge that now we have to find people who need electricity and at the same time we need to have those anchor customers around those regular customers who can pay a premium for that electricity because they're making productive use of that electricity. And by doing that, we can solve the problem that we discovered in Kenya.
Julia: I thought this was a really great opportunity for us because before going in there, we just thought that, microgrid would be the solution to address the electricity problems in developing countries. After talking with the actual, potential consumers, we realize that there are actually more complications in this problem and we really need to be specific when we want to address a certain issue. I am planning to keep studying and like keep finding ways to solve the problem in electricity market in developing countries. I understand the situation better than before in order for a private company to actually be successful in this business while making an impact, and that's not easy.
Mohit: While we went in thinking that the challenge would be access to electricity, now we have to think about how we could help them make use of that electricity in a productive way so that they can pay for it. It's important to close that loop because without doing that, investors would be putting in an investment with the lower probability of success. So working on the second piece of the puzzle is really important for us. We need to now research and find out how we can solve that second piece of the problem, which in turn will make our business model more viable.
We interviewed a lot of consumers and one of them was a salesperson for a consumer goods company, so for him, it was important to have his phone charged. He would say that he'd have to keep his phone at some shop, charge it and then pay for that.
Oftentimes he was not able to charge it at his place because he was living slightly away from the city center and at night, many times there wouldn't be electricity. He had to come to the shop business the next day, get his phone charged, so that it would work. Which was shocking because phone is something that he needs for his working, and if he has to meet his targets, which will eventually lead to a better incentives and higher earnings, he needs his phone charged, but that basic access to electricity isn't there. So that really stuck with us.
One big takeaway for us was that, when you're looking for problems there's one thing about doing secondary research and then figuring out a problem and thinking of a solution. There's another thing to actually go to the place and see the problem by yourself, because that's when you realize the disconnect between what you initially thought and what is actually on ground. By doing that you will be able to redirect your efforts in the right direction.
So if you have a problem, make sure you see the problem firsthand rather than just reading it off the internet. And by doing that, you will be able to give a more customized solution that will actually solve problems. It's about talking to them and knowing what they need rather than just assuming.
Host: That's all for this episode. As a heads up, we'll be taking a break for the month of December, but we'll be back in January with new episodes and stories, so stay tuned then.
The Levy Inspiration Grant Program is made possible through the generous support of Larry and Carol Levy and is managed by the Entrepreneurship program at the Kellogg School of Management at Northwestern University. To learn more about the Levy Inspiration Grant Program and other ways we support student entrepreneurs, visit our website at kell.gg/entrepreneurship. That's kell.gg/entrepreneurship. I'm your host, Tyler Seybold. Thanks for listening.
