Expert Interviews

01 Mar 2018

PROJECT DEVELOPER INTERVIEW: “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”

At African Utility Week, he is part of a panel discussion on the Energy Revolution Africa conference track on “Considerations to fast-track the placement for mini grids in Africa against critical project outcomes.”

Riccardo Ridolfi, Equatorial Power, African Utility Week1)    Let’s start with some background on your company.
Equatorial Power was recently founded by myself and a couple of other like-minded individuals, bringing together a strong team with a solid track record in renewable energy and rural energy access.
The company focusses on:
1.    Off-grid holistic rural electrification through green-mini-grids
2.    Grid-connected renewable energy projects; and
3.    Captive power for agribusiness and industry.

The company is based in Uganda, with operations also in Kenya, Rwanda and DRC. We aim to (continue to) pioneer the way towards a commercial viable model to enable the acceleration of access to productive energy in rural sub-Saharan Africa. In this regard, we believe the key focus should always be the consumer and addressing the multitude of challenges they face by providing a broader service offering.  

2)    Any exciting projects that you are currently involved in that you can share?
Although very much in start-up stage, we are working hard on a number of fronts across four countries.

In terms of project highlights, we are developing two grid-connected mini hydro projects in Uganda and a number of captive power opportunities in Uganda and Kenya. With regards to off-grid, we are developing a number of sites in Uganda and structuring financing for the first Equatorial Power branded mini grid in Rwanda, as well as developing a unique off-grid project in the DRC.

What is most exciting for us in this phase is Equatorial Power’s new customer-facing model we are planning to deploy and test.

3)    What in your view are the main challenges in the power sector in Africa right now? You are based in East Africa.
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.

To end on a positive note, however, a lumen of hope is sparked by donor efforts in supporting affordable local currency debt-financing for renewable energy projects. Although this remains limited at the moment (to use a euphemism), the new European External Investment Plan and its ambition to leverage over 44 billion Euros of investments towards Africa including through novel guarantee support mechanisms, represents a concrete move towards bankability in scale for the entire renewable energy sector in this region. 

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. That said, I believe there will be a period of an imbalance between energy supply and demand, where the current supply-deficit will be toppled over and Governments and utilities will face a demand-deficit! This is particularly significant for low-consuming rural costumers and represents a real economic impediment to the extension of national grids on commercial terms and, accordingly, accelerating access to energy. Therefore sustainable demand growth for productive use of energy in rural areas ought to be an area of innovative focus in the next few years – we are certainly working on it!

Both generation and distribution of energy in East Africa are markets to watch closely over the near future.

Access to energy undoubtedly represents a major opportunity in the region and, in my opinion, solving the issues around the economic viability of mini-grids 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.
I see a great opportunity today for tech-friendly utilities and pure tech companies to exert innovation-driven efforts in scaling low-cost digital solutions to support efficient energy demand growth for rural customers, as well as intelligent energy management for industrial clients.  

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 African Utility Week, you are part of a panel discussion on the Energy Revolution Africa conference track on “Considerations to fast-track the placement for mini-grids in Africa against critical project outcomes” - can you give us a sneak preview of what your message will be at the event?
Essentially, there are three key elements to accelerating access to productive power via mini-grids, not necessarily in this order:
1. Political will – translating in simple, transparent and efficient regulations and procedures that enable and incentivise private sector participation. Speed being key.
2. Financing – emphasising the need for long-term, low interest rate financing (ideally in local currency) for energy infrastructure, as is available to utilities in mature markets. This is the only way to obtain cheaper end-user tariffs. It is important to acknowledge and accept that subsidies still have a significant role to play, as they always have in the energy sector, starting from every mature market in the World.
3. Demand growth – meaning tangible investment efforts by developers and utilities in supporting consumers to better exploit the availability of productive energy and, as a consequence, drive energy demand.

There is a lot to be said on all of the above, as well as other important discussion themes and I am looking forward to exchanging ideas with some of the most avant-garde players in the market. 

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 priority:
It is very expensive to be poor. Poor people are paying far too much for energy substitutes, but they can afford electricity, even where more expensive that the national grid. Therefore focus must be on universal access to productive energy and demand-side support first and only subsequently on scale economies, cost-reduction and cross-subsidization towards a universal tariff.

Implementing that order of priority is the key to accelerating access to power, rural development and, as a natural consequence, GDP growth.

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