Exclusive interview with Riccardo Ridolfi, the Head of Business Development for Absolute Energy Capital (AEC). At Future Energy East Africa, he is part of a panel discussion on “How do you harness the potential from mini grids?”
1) Let’s start with some background on Absolute Energy Capital and your role there.
Absolute Energy Capital (AEC) was founded by Alberto Pisanti in 2009 to invest in renewable energy in Europe. AEC was responsible for development and co-investment in roughly 450 MW of which 20 MW as principal. Alberto and I partnered in 2014 to drive Absolute Energy business in Africa and explore the off-grid sector, with a vision to standardise and de-risk a new asset class in order to attract private investment towards accelerating access to productive energy.
Absolute Energy Africa (AEA) was co-founded by Alberto and myself, starting from Uganda, now with projects also in Kenya and Rwanda. AEA has built the most advanced IPP owned mini grid in Africa (in Lake Victoria, Uganda), from which it has gained significant data to validate its holistic business model, towards durable rural development. AEA also partnered with the Shell Foundation and has developed many more projects across East Africa, which it hopes to realise over the next 12-18 months.
I am a co-founder and the Head of Business Development for AEA.
2) Any exciting projects that you are currently involved in that you can share?
Uganda: 2nd mini grid in Uganda. There has been resistance from the Government of Uganda to accept cost reflective tariffs, which has caused substantial delays. However, we are exploring ways to make the project bankable and believe to be close to a viable solution.
Furthermore, we are working on a 20-island portfolio mini-grid project. This would be the first of its kind and therefore is presented with a number of issues that we are trying to resolve together with the Government of Uganda.
Rwanda: AEA’s first solar-hybrid mini grid in Rwanda. The project is in partnership with EnDev and near shovel ready. We hope to have it operational within Q1.2018.
Kenya: community based mini hydro to electrify 27,000 people over the project’s life. Due to certain technical aspects, this project would also be the first of its kind and notwithstanding the recent political complications, we are working hard to try to resolve all issues in order to make the project viable.
3) What in your view are the main challenges in the power sector in East Africa right now?
I believe the principal challenge that most sub-Saharan African Governments are facing today is balancing between adding new generation capacity and building the economic tissue to absorb it, while keeping the price of energy as low as possible. In my opinion that is by far the main focus of most administrations, often at the cost of new access.
Naturally, GDP growth through industrial development requires cheap energy, which must remain a key area of priority. However, Governments ought to give more political priority to accelerating universal access to energy, through a number of complementary solutions. This begins from an acceptance of the technical and financial differences between energy “for industry” and energy “for access”, which can and must be treated distinctly.
In East Africa, there are a number of issues facing the power sector, including policy, bankability of the off-taker, grid-balancing and planning, but the main issue is a lack of the necessary regulatory framework to attract private investment. Some countries, like Uganda, are progressing well, but issues relating to efficiency and timing for administrative hurdles, remain a major impediment to private investor confidence.
At the end of the day, most of these can be resolved with sufficiently strong political will, which is particularly relevant when it comes to off-grid policy. If accelerating access to productive energy is not a real political priority, then it will never gather the necessary momentum to meet regional Governments’ access and development targets.
That said, not all boils down to politics. Another major issue facing the power sector, which arguably is the real elephant in the room when it comes to distribution and tariff setting, is currency risk hedging.
4) What in your view are the main opportunities currently?
There is a huge market potential. Demographics, environmental commitments and Government industrial growth plans are such that energy (and clean energy) will be at the forefront of infrastructure investment in East Africa, for the next 10 to 20 years.
With an increasing focus on industrial development and increasing access to energy numbers, there is a huge prospective demand which will need to be met, coupled with an abundance of conventional and renewable energy resources. Both generation and distribution of energy in East Africa are markets to watch closely over the near future.
Access to energy certainly represents a major opportunity in the region and, in my opinion, solving the issues around making mini-grids economically viable is at the core of unlocking that opportunity. Furthermore, there are few credible players with on-ground experience in this space, which makes it a particularly exciting time to be involved.
5) What is your vision for the industry?
There is a tremendous amount to be done in the East African power industry in order to attain the existing socio-economic and environmental targets set for the next 10 to 20 years. That said, regional Governments have made significant progress in policy and regulatory framework and have shown real commitment.
What is needed is a redoubling of efforts, by political and technical Government institutions and a consistency of commitment, in order to create the viable framework necessary to catalyse the required private investment in this space.
My vision is that East Africa sets the pace for the rest of the continent when it comes to the evolution of the energy sector, as it is currently perceived in Africa. To me this means accelerated productive electrification towards universal access to energy, as well as a majority of renewables in the energy mix.
6) At Future Energy East Africa, you are part of a panel discussion on “How do you harness the potential from mini grids?” – can you give us a sneak preview of what your message will be at the event?
I don’t want to be a spoiler, but I will say this: focus by any developer must be on the consumer, rather than the electron.
However, in order for any potential of mini grids to be harnessed, by Governments, local populations and investors alike, there needs to be a strong political commitment to ensuring an adequate regulatory framework that enables private investment in scale.
7) Anything you would like to add?
I would like to close with what is, in my view, an important message on access to energy, which should be every sub-Saharan Government’s absolute priority:
It is very expensive to be poor. Poor people are paying far too much for energy substitutes, but they can afford electricity, even if more expensive that the national grid. Therefore focus must be on universal access to productive energy first and only subsequently on a universal tariff. That is the key to accelerating access to power, rural development and, as a natural consequence, GDP growth.