smart home

Future of the Power Sector in Nigeria (A Response to the Minister)

The transparency that the Minister of Power, Works and Housing provided in the Q&A session on the electricity industry published in Vanguard newspaper is commendable. There was a time when things happened and no one knew why or why not. We truly live in a new Nigeria. The candor shown is also worthy of commendation. Unfortunately, as I read the article I could not help but share my thoughts on some of the responses and hope to contribute my voice to this conversation, one that has never really happened regarding the moribund state of the power industry in Nigeria. 

I write this from a place of hope and a desire to see things change for my family and the millions of Nigerians who have gone from a world where there was power to one where people go weeks without a blink of electricity. There are complaints from the populace but I choose to believe that these complaints come from a place that recognizes that once the power issue is solved there is no way but up for Nigeria. This is how critical power is, it drives the economy. I also write this from a place of experience having worked in every segment of the power industry from power plant operations and distribution (Barking Power Station a 1000MW Gas plant that supplied 400k homes in london), trading (Energyquote a wholesale power brokerage firm acquired by Accenture), investments and consumer services (Power2Switch in the US, serving ~40k customers with energy purchasing and management, and on the board of 2 energy technology companies) for 14+ years.

So what parts of the Minister’s response do I want to address? Unfortunately I will have to frame this from a perspective that suggests that the DISCOs, a central player in the Minister’s Q&A, should not play as critical a role in the future of Nigeria’s power sector. In an industry, across the world, where the incumbent utilities are all currently working on figuring out a minimized role for the DISCO it seems Nigeria is still trying to fix what was instead of recognizing and tapping into what will be. There are three main issues to focus on here

  1. The future of the utility will be distributed and not centralized: The utility industry is made up of 3 layers. The infrastructure layer (generation plants, wires and lines, transformers, meters), a technology layer (the software that runs the operations of all the infrastructure and customer interactions) and the customer layer (metering, billing and payments). Every one of those layers used to operate on the premise that there was generation in a location that is far from the customer and the power is then transmitted to the consumer. In the future of the industry, one that was not mentioned in the Ministers response, generation of electricity will be closer to the location of the consumer. The future of the utility industry is already playing out in countries across the world in the form of incentives provided to consumers to purchase solar panels and geothermal generation at a cost that makes it lower than the cost of power obtained from the grid. Unfortunately this means that the customer is the one who enjoys the benefit and obviously (a point the Minister kept making) the DISCOs are left holding on to assets that are not as valuable as they thought they were when they got into this business of privatizing the Nigerian power market. The tariff increases compensate the DISCOs for a business model of the past when the government (and customers money) should go into building the utility industry of the future. Embracing solar generation and providing rebates and incentives to consumers will enable Nigeria meet the shortfall in power generation quicker than we would by building huge plants in remote locations to help the DISCOs. Building those solar panels in Nigeria, since we will not be reinventing the wheel on a manufacturing process that is relatively straightforward, would create thousands of technical jobs and consequently improving the lives of thousands of Nigerians creating a cycle of jobs-income-spending and a boost to the economy. The part of the Ministers response that mentioned this future reality spoke about the high cost of solar and I address this in point 2 below.
  2. Technology prices will surely drop once mass adoption takes place: The Minister talked about Solar prices being higher than the current price of electricity (N34/kWh for solar compared to tariff of N24) and I will suggest that there is no technology where this has not been the case in the early days of introducing the technology to the market. I will use an example that is familiar to almost every Nigerian; the mobile phone. When I was growing up in Nigeria in the 80’s landline telephones where for the few and the management of those phones were centralized (similar to the centralized nature of the power industry of today). In the late 1990’s and early 2000’s when mobile phones started getting into the market it was still for the educated and slightly well off. I remember holding my fathers bulky Motorola mobile phone and wondering when I would get one of my own (and that future felt very far away). Today, April 2016, there are more mobile phones in Nigeria than there are automobiles and it has become the engine of trade empowering tens of millions of Nigerians, this at a cost that is affordable for most people. People get a phone that is most affordable for them and get credits to use as much as they can afford to. The industry is distributed and no longer centralized. That is the reality of most technologies; they are expensive at the beginning and as time goes on they become affordable to the masses. This will be the case with solar energy if we realize that it has a big role to play in the future of the power sector in this country. The price of solar will drop in the same way the price of mobile phones dropped and even right now with $20M we can supply ~5000 homes with power from solar for (at least) 10 years. Considering the money we are recovering from our past ‘leaders’ this is a small price to pay to start to head in the direction we need to go. This decentralization of the technology addresses one of the other issues that the Minister highlighted; the issue of gas distribution across long distances and sabotage. Very few people, when they start benefiting from distributed solar on the roof of their homes, will sabotage their own electricity supply. People, for the most part, are not self destructive and this is evident as shown in the third and final point I make below.
  3. That future is already here and the cost will be less than fixing the mistakes of the past: Driving through Lagos and even some of the most remote locations in Nigeria what we see is generators managed by businesses and individuals who can afford them and small generators and even smaller lamps being run by individuals who have a need for power to run their lives. This is the future that we are talking about; one where power generation and management is done at the individual level. Again, this is not something that is hard to envision because it is already here and it takes away the need to buy or replace infrastructure that is best suited for the past and instead focusing on adopting technology that serves our future needs. So what is the role of the DISCOs you ask? Their role will be whatever they decide they want it to be. There will still be a need to provide infrastructure as the transition will take time and there will always be a need for some level of centralization even in a localized and distributed grid, the DISCOs can do this. There will still be a need for technology to manage this distributed grid and the DISCOs can play that role and of course there will be a need for customer billing and payments management and this also solves one of the issues the Minister mentioned of fewer users being measured than the number that actually uses the electricity currently generated. When there is a solar panel on your roof or community solar in your neighborhood there is nowhere to hide.

The real question the Minister should be helping the DISCOs answer is what role do they want to play in serving a country of consumers that are yearning for a world where the naturally abundant sources of energy that they can use is not being provided to them? Customers will always want electricity and, as technology improves and the situation continues to get worse, what customers will ask is ‘who can give us power?’ The role of the government should be to help customers answer that question instead of trying to help a soon to be obsolete business model to survive against the tide of change. It is what consumers and technology wants.  

Tech Trends That Will Impact The Utility Sector in 2016

Working at the intersection of technology and the utility industry for over a decade has taught me two things

  1. Few industries are as glacial as the utility industry in adopting innovative technology.
  2. Despite all the resistance the industry inevitably adopts the technology it resists especially if shareholder value can be created.

For an industry that is critical to our day to day functioning (you are reading this from a device powered by the grid) I stay amazed at how little attention is paid to the industry. Regardless, it is on the cusp of a world of change (otherwise known as 'hurt') in the three broad sectors of the i) grid (the wires and lines that get power to your home), ii) operations (the people and equipment that keeps your lights on) and iii) consumers services (billing/payments and customer services).

In futurecasting for this industry one does not need to take too much of a leap in imagination to determine technological advancements because the industry borrows from other asset heavy (but technology friendly) industries. A key one being telecommunications. Investors and professionals interested in this space will do well to watch for the following 

  1. Portfolio management software for distributed energy resources (DER)As solar panel prices continue to drop, as installations of Tesla Powerwalls start in markets where the kWh/price make the battery pack competitive and car manufacturers promise electric cars for the masses, the utility has to manage the variability in source and demand for power. The utility will require software to manage these microsecond decisions on where your electricity should or is coming from.  A corollary is the high frequency trading (HFT) software used in flash trading; enable traders buy and trade stock in microseconds. Similar software, that enables the management of the grid to ensure quick responses and optimal grid performance, will be required and start to make its way into the utilities arsenal for delivering electricity to you and I.
  2. Virtual Reality for Workforce efficiency: VR and AR for training and simulations will enable knowledge transfer and retention to curb the problem of an aging workforce (55% of the utility workforce will be eligible to retire in the next 5 years) before it becomes a catastrophic issue for the industry. A few months ago I attended a conference on the Future of Work and experienced the demo of an Augmented Reality product. The product wasn't for the utility industry but I quickly shared with them how perfect of a use case they have in the utility industry and how well suited their product is to the utility industry.
  3. Self Driving Cars and plummeting LiDAR costs: Unbeknownst to most, a big problem for utilities is outages caused by fallen trees/vegetation. Yes, vegetation. A single tree limb coming in contact with a power line causes circuit breakers to shut off your power. Not ideal as it inconveniences you and costs the utility money. Those self-driving cars you see roaming your streets (for those of us in Austin and San Francisco that is) and the plummeting cost of LIDAR* equipment (from tens of thousands of Dollars to $250) will enable utilities capture 3D data of vegetation close to wires and lines and plan ahead and make decisions about what to trim, when and how before unexpected outages occur. This will cut cost and improve the linesman efficiency who now have a plan to work with instead of driving around all day in search of stray tree limbs. 
  4. Customer service, billing and payment user experience improvements:  I met with a passionate entrepreneur here in Austin a few weeks ago who's applying an experience ubiquitous to digital natives who do use Venmo and do everything with a few clicks on their mobile phone; share payments. George Koutitas through his company Gridmates is enabling any consumer to share energy with people in need in the same way we transfer money to friends/family through mobile phone banking apps.  It's a simple premise but one that is truly disruptive to the current payment and billing technology stack of the power industry (which I've spoken about before).

As is obvious from the list above, these technologies aren't new. But they are new to the utility industry. These technologies are mature in their applications in other industries and, for those in the utility industry, this is an indication of their reliability. The utility requires robust, tried and tested products that will enable secure and stable delivery of power to you and I. That's always been the case and, regardless of how cool or trendy an applicable technology is, the utility is not about to change its criteria...

Any other trends or products you expect to make its way into the industry in 2016?

* LIDAR: is a portmanteau of 'light' and 'radar' which explains the means by which the equipment captures data and converts into 3D imagery.

Nest, The Glitch & Failing At Your 'Jobs-To-Be-Done'

Clayton Christensen developed a framework for segmenting markets called 'jobs-to-be-done'. Essentially 'consumers usually don't go about their shopping by conforming to particular segments. Rather, they take life as it comes. And when faced with a job that needs doing, they essentially "hire" a product to do that job'. The more successful businesses tend to be very clear about what customers are hiring their products or services for.  

A common occurrence is that as companies start to grow fast -  achieved product-market fit, messaging and sales/marketing resonating, distribution channels locked and loaded - the emphasis and clarity on 'jobs-to-be-done' starts to slide. The focus shifts to how to keep the well running machine oiled and functioning as effectively as possible. Nothing wrong with this. The issue arises when this takes away focus from delighting the customer. The problem starts when businesses think they know their customer so well, and stop learning about the customer, and pay most of the attention to selling more products to said customer in the name of fuelling growth.

Nest is, easily, the poster child for the Connected Home (devices in the home connected to the internet and talking to one another).  It's no easy feat for a company to have brand recognition after just 5 years in existence. With its slick product design and user experience, Alphabet/Google acquisition and suite of product offerings it has become the company other hardware companies desire to be in the mold of the Apple's of the world. With its fully (almost vertically integrated) operations Nest nailed the 'jobs-to-be-done'.

Until Nest stopped nailing it's 'jobs-to-be-done. Big time.


 A few days ago Nest customers woke up to non-functional thermostats as a result of a software bug. It's a big deal when a product that is supposed to maintain well being - a warm home when it's cold outside or a cool home when it's hot outside - fails to perform that one job it's been hired for.

But this should come as no surprise to anyone; when a company takes its eye off the ball by focusing on several products when it has yet to gain mass adoption for the main product it sells, there are bound to be mistakes that could lead to catastrophic failure of the business. When the focus is solely on growth, in this case through offering a full suite of products, software glitches that affect the critical functionality might happen. For a company that is so well run, a software glitch of this magnitude is less about sloppiness and more about a shift in focus to priorities that have little to do with the promise it's made to customers.

Does this impact the growth of the connected home market? Not really. The market is expected to grow to $58.68Bn by 2020. The industry is still in the early adopter phase - early customers who are technology friendly and are willing to accept some failures in product functionality with the expectation that the product will improve over time - and product developers are yet to nail the main value propositions of the connected home. We can be thankful for that. These software failures and problems will be solved or at least minimized to a large degree before connected thermostats are present in every single home. 

What we should worry about is whether Nest, like most companies that fail from trying to walk before they crawl, is forgetting the need for a single-minded focus on maintaining the feeling of well-being in our homes. 

Like many people say to an actor who's fluffed his/her part 'you only had one job..'. I'd hate for us to end up saying that to Nest...