solar energy

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.  

SunEdison Bankruptcy? Nothing To Worry About!

I read the news of the SunEdison bankruptcy and @Jigar Shah’s gracious note to his old team from the offices of a nano-grid development company in Lagos Nigeria (picture below). Like everyone who is working, investing and hoping on the impact that renewable energy can have on our lives I asked the question ‘what happened? How does a company, any company, go from a stock price of $34 to (technically) $0 in about a year and a half? 

So what went wrong? The common understanding, at this point, is that SunEdison fell for three main reasons. The company

  1. spent too much money on acquisitions
  2. placed bets on Yieldcos (special vehicles that were essentially holding companies for renewable investments) but raised about 30% less funding than the $1Bn it intended to raise selling more shares in the Yieldco than it intended to sell.
  3. spent way more money than it was making. Much more. In Nov 2015 the company was $11bn in debt, was generating $2.4Bn in revenue and had net income of $536M.

Summary? Icarus flew too close to the sun (hubris), lost the wax in his wings (money) and fell to his death (bankruptcy).But things are not as bad as it seems.

We have seen this before and things actually turned out great for you and I. It is the story of  WorldCom in the early days of the current telecommunications industry. WorldCom, which started off as a small long-distance telephone company, followed the same strategy of growth through acquisition completing 

  • a mind-boggling 65 acquisitions in 6 years
  • to the tune of $60Bn
  • incurring debt of $41Bn! 

The company bought MFS/UUNet and got into internet service provision to businesses (see where I’m going here?). The acquisitions came with managerial problems for the company and the high flying stock price led to hubris in decision making (more acquisitions and a feeling of invincibility). Like Worldcom SunEdison found accounting issues but unlike WorldCom, which gave loans to executives to load up on company stock, found no fraud.

So what's the lesson from similar paths between two businesses in different industries in different eras but with the same outcome? The similarities are that all the work that WorldCom (better known to you and I as Verizon) did in the 1990’s had a hand in you streaming Netflix and binge-watching Transparent on Amazon this morning. Yes, the wires that were laid, towers that were built and the infrastructure that was put in place during those early days of the telecomms industry as we know it now are critical to the benefits we enjoy close to 20 years later.

And that is the lesson here. The renewable energy sector is in it’s very early days. The bankruptcies and confusion come from the search for business models that will work in a new paradigm of energy provision. We will figure it out. But there will be blood. A lot of money will be spent, made and lost as we wade through the murky waters in the early stages of this industry (the same way it works for the early days of any business). We, as an industry, will figure it out and the world will be better for it.

So whenever you doubt whether the renewable energy will survive just glance at your mobile phone and remember that the companies that laid the foundation for your enjoyment of Beyonce’s visual album mostly no longer exist. SunEdison may be struggling now but hundreds of businesses will take it’s place and ensure the adoption of renewable energy continues.

Here I’ll make a pitch for investing in renewable energy in Africa; The average cost of commercial power in the USA is ~12c/kWh, in Nigeria the average is ~36c/kWh (I’m looking at data from hundreds of commercial locations as I type this) and rises to closer to ~50c/kWh if you factor in diesel generators (which is a big part of the mix). With ~8 sun hours/day solar generation, at 12.2c/kWh, makes so much sense that it’s surprising there aren’t more investors diving into what is a ripe market. Reach out if you are interested...the adoption of renewable energy across the world is inevitable. SunEdison has been a big part of that revolution.

Seyi Fabode is an author and Partner at Asha Labs consulting with power industry executives to develop and implement strategic plans for technological change. Seyi writes about energy (future utility), technology (smart cities) and people (systems thinking) at www.asha-labs.com/blog. Follow@Seyi_Fab.