Ije Ikoku Okeke, CFO of Abuja Electricity Distribution Company, on decentralizing energy in urban and rural Nigeria, micro-grids, and their biggest technology barrier.
What we've found is that, both in the urban metropolis and in the rural areas, there are interesting ways to incorporate decentralized energy solutions, and we've got a few examples that we're testing out.
Ije Ikoku Okeke: My name is Ije Ikoku Okeke and I am the CFO of Abuja Electricity Distribution Company.
Robert Stoner: Welcome to the MITEI podcast, Ije, it’s great to see you again. Ije, I couldn’t help but detect in your introduction that you have an American accent. It makes one wonder right out of the gate, what are you doing in Nigeria and how did you come by that accent?
IO: I was born in the U.S., so I'm Nigerian-American. Born in the U.S., American citizen, American. I have two Nigerian parents. My dad was going to the university in the U.S., in Oklahoma, of all places, so that's where we were born. Later on, went on to Stanford to get his PhD. I lived in California a bit as well as a toddler and spent some time in Pennsylvania State College where he was teaching. I've lived in different parts of the U.S.
Throughout my life, I've straddled both continents, North America and Sub-Saharan Africa. At the age of eight, I came to Nigeria, did my secondary school, high school, and my grade school in Nigeria. I spent quite a bit of formative years here and then went back to the US for university. Graduated from Stanford like my dad, also in engineering, and worked as an engineer for a while before moving on to finance. I ended up going to Wharton to get my MBA.
Since then, I've been focused, I would say for the past 15 years, on finance in infrastructure investments. I worked extensively with the IFC [International Finance Corporation], which is the private sector arm of the World Bank, for seven years, both in Washington DC and in Nigeria. Subsequent to that, I joined CC Africa, which is the parent company or primary shareholder of Abuja Electricity Distribution Company. That's how I ended up here. It's been one of our more challenging investments, but also one of the more exciting ones.
RS: Tell us about that. Nigeria has this famously problematic electricity sector. It's a big wealthy country, but probably has less generation capacity than the state of Massachusetts, and a lot of people not connected. How did it happen and what's the state of play?
IO: Yes, you're right. We do have quite a number of challenges. A lot of it stems from its history. The primary utility was state-owned, both distribution and generation and also transmission were controlled by the government. Unfortunately, this isn't uncommon, we've found that you do have decades of under-investment in a lot of this state-owned utilities, under investment and mismanagement. In 2013, the government decided to privatize the sector and they privatized two out of the three arms. They privatized generation and distribution. Back then, it was one of the, and I think it still is one of the, most ambitious privatization programs ever done in an emerging market.
It has had its challenges. I think while the intentions were good, implementation was flawed. What we have seen since privatization is really both the private sector operators and the government really struggling to implement good service within the system, to implement tariff increases that will ensure that investors can recover their capital, and make a return on their capital. Because of the many years of under-investments, we're also dealing with a consumer base that is understandably unwilling to pay more for services they're not getting. It's a bit of a chicken and egg situation.
In other markets, when you embark on such an ambitious privatization program and you're starting from a fairly poor service level, the expectation is that the government will subsidize for a period of time. Privatization isn't necessarily a one-time event, it's a continuum. The government, even though you've transferred assets to private sector, you still need to support the sector for a period of time until service improves, investments are made, more capital is brought into the system, and then you can wean off the subsidies and start to gradually increase tariffs to the population.
RS: Has Nigeria done that well? Has the government maintained big subsidies over that period of time?
IO: They have subsidized, but it wasn't well thought-through or planned, because those subsidies weren’t in place at inception, they've had to happen after the fact, and it's more in terms of compensating private sector operators for their decision not to increase tariffs to cost-reflected levels.
RS: I see. It's more bailout than subsidy.
IO: Exactly. It's a sub-optimal way to approach privatization.
RS: That leaves you at the DisCos [Distribution Companies] chronically in financial distress, which makes it hard to raise money I assume.
IO: Yes, you're spot on with that. It's been a struggle for all of the distribution companies. They have, if not all, at least 90, 10 out of 11, have been loss making for at least three years. It's been difficult to raise any amount of capital in that kind of environment because investors go where their money can grow or at least be return. We haven't been able to raise private capital.
RS: That's a disaster for a utility that's struggling with chronic historical under-investment. You're now not only not able to expand the system, but you've got lingering maintenance issues that are very hard to address with no money. What's the effect of that on your operations?
IO: As you can imagine, we had a business plan at the time of privatization, where we committed to invest close to $200 million over a four-year period to invest in metering, invest in the network, invest in proper systems, and ICT applications to help turn around the business. Now because we haven't had cost-reflective tariffs and have been unable to raise the capital needed to deliver on the business plan, the aggregate technical, commercial, and collection losses, ATC&C, is what we call it, hasn't gone down as quickly as it should.
I can speak for ADC, we started at 60% ATC&C losses at privatization. We've been able to bring that down close to 40%, but that's still incredibly high, right? For every dollar of energy that goes into the system, you're only collecting 60 cents. Of every Naira, you're only collecting 60 kobo. There are huge losses in the system that can only be tackled and addressed by massive amounts of capital expenditure and investments in the company. That has not happened over the last six years.
However, in 2019, the government, just recognizing the importance of the power sector to really drive growth and development in the economy, recognizing the importance of distribution and the overall power sector value chain, they took a decision to focus on resetting the entire sector, and that included making distribution companies whole. This started towards the end of 2019.
RS: Perfect, and we're just, unknown to us all, Covid is coming down the road. Great.
RS: How did it go?
IO: Towards the end of 2019, they put together and started implementing the power sector recovery program. That included subsidies for the sector, it included a well-articulated plan on how to increase tariffs over time. What that did for the sector is that it cleared up a little bit the cloud of uncertainty that was hanging over the sector. Your regulator was now very clear on what is owed to everyone in the value chain and in distribution companies historically. The regulation was also very clear on what the tariff path should be. That and also, the regulator asked us to update our business plans and we all developed performance improvement plans, all the utilities.
That helped clear up a little bit of uncertainty, still a long way to go. It was still very important to see that the regulator was consistent in implementing regular reviews in a fairly predictable fashion.
RS: More normal regulations. Did that improve your ability to raise capital toward the end of the year, then?
IO: Not yet.
RS: It's not a lot of time.
IO: It takes decades to build up investor confidence and seconds to wipe that out. Given the history in the sector, as expected, investors were adopting a wait to see approach, but there was interest. I started getting more calls and outreach from investors who were now interested in looking at the sector, whereas historically that was not the case.
Then Covid hit in early 2020 and that had an impact on, as with all operators globally, it had an impact on operations, a negative impact. The entire sector saw revenue drop by about 40% during March and April. It was the peak of the pandemic for us. It's since recovered. It since recovered, but it was quite a bit of a shock and it did slightly throw off the recovery plan that was well put together by the government and various agencies.
RS: This is not a situation that's unique to Nigeria. There was, I think the IAEA [International Atomic Energy Agency] was reporting that in 2019, 30 million households were unable to, or 2020, 30 million households were unable to pay their electricity bills across Africa, going to something like 100 million in 2021, early 2021. It really, really adding a lot of stress.
IO: Right and if you can imagine as well, in a lot of the commercial and industrial customers shut down because of Covid. Even just the demand for power dropped because of Covid for a while.
RS: That can be a good thing in Nigeria. You have an under-supplied system. It's another problem you've got a loss-y distribution system, but there are also isn't enough generation out there available to you to supply your customers all day long when things are going well.
IO: We only have about 6,000 megawatts of installed capacity. On any given day, only about four to 5,000 of that is actually being delivered.
RS: The stress this puts on you as a company must be outrageous but it's also so hard for your customers, especially commercial customers, people who are trying to operate stores or factories or commercial organizations of one kind or another. Nigeria has become famous for so-called off-grid solutions, especially diesel generation. Sometimes it feels like you step outside the door in the afternoon in Lagos, and it's just diesel generation everywhere, a thrum of unsynchronized 50-cycle generation.
This is another problem for you, I assume. You've now got probably the best paying, most desirable customers in the system, commercial customers, not always buying electricity from you and struggling when they do if it's unreliable, and you've got a real specter of defection here. That can't be good for the future of the utility. How are you dealing with that?
IO: Yes, you're right. We have, in Nigeria, more power being generated off the grid than on the grid. We talked about 4,000 to 5,000 megawatts being generated on the grid. Some argue that about two to three times that is actually generated from self-generation. We spend about $10 billion annually on…
RS: For diesel genesis, basically.
IO: …on diesel, yes and diesel generators, on self-generation. We are the largest decentralized energy market. It's just done in a very inefficient and unclean way, but we have been a leader in decentralized energy for a while.
RS: That's true, I guess that does give you a certain flexibility.
IO: Indeed. The interesting thing about that is that the population, a lot of the customer base, is already used to both grid and off-grid supply. There's not much of a learning curve there. It's really a question of how do you substitute the off-grid supply with something that is more optimal, something that is cheaper, and something that is cleaner.
RS: You've got an opportunity here to use emerging technology, maybe even solar and other off-grid, clean off-grid generation, renewable generation in the system?
RS: I know that's happening. Yes, but what are you seeing? You've got a grid that's partly rural, and partly urban, you've got the National Capital District of Abuja, where people live in nice houses and apartment buildings. There are lots of commercial establishments. Then you've got other areas out there in Niger state, where I used to live when I was a very young person, very rural, and different customers, more residential customers. How are you finding you're able to use technologies to relieve the supply problem and in both sets of environments?
IO: You're right, and I'll talk a little bit more about our coverage area. As you mentioned, we cover Federal Capital Territory, and that is a fairly urban, densely populated area for us. I would say about 70% of our energy goes to the capital city. We also cover three states in the outer regions, Kogi state, Nasarawa state, and Niger state. Outside of the capital city, these states are mostly rural areas, and sparsely populated, higher dispersion of customers, and more expensive to serve. For the urban but what we found is that…
RS: Why are they more expensive, by the way? Help us understand why they're more expensive in rural areas.
IO: They're less densely populated, so your network, if you want to build out a network to cover all of Niger state, it'll be done at significant cost. It's the network costs, when you have higher dispersion of customers it's more costly to serve them. Also, the kinds of customers that you will be serving tend to be the lower tariff classes. In the current tariff regime, where you've got rural customers and residential customers, they tend to be lower tariff, one. They tend to also be less creditworthy customers in terms of their payment history and payment track record. They're not as profitable to serve from the perspective of a utility.
What we've found is that, both in the urban metropolis and in the rural areas, there are interesting ways to incorporate decentralized energy solutions, and we've got a few examples that we're testing out. The reason we're doing this is, one, we have liquidity issues in the sector, so it's very difficult to raise the amount of capital needed to extend your network to reach all of your customers in your franchise area. Two, the payback for a lot of these investments are not attractive. Certain areas, we've calculated extending the grid, you would need a payback period of something like 25 years.
RS: If you had the capital?
IO: If you had the capital. Here you have a cash constrained environment, limited capital, and you've got certain areas where it's very expensive to serve. Then you also have certain areas within your urban metropolis where reliability is an issue. You have a network, they have an extensive network there, but because of some of generation issues, and the transmission issues, and the distribution network issues, it's difficult to get power on a consistent basis to where the demand is.
RS: You may not even be supplied at the transmission level to your substations. That's one reason. Then you may also encounter congestion problems within your own system, the distribution system, that isolate customers from you at certain times a day as well when demand becomes high. I see.
IO: Precisely. Even in urban areas, you do need to make continuous investments to expand capacity. You might have an area that is connected, but the population has grown over the last five years and demand has grown, but you haven't made the investments needed to send power to that population. You end up with under supply and you end up with load shedding because of that.
RS: You just have to cut off certain feeders at different times a day because the system can't handle it?
IO: Exactly. From a customer's perspective, what they see is just the inconsistent supply. For certain commercial customers, we found that they're willing to pay a premium for reliability. They don't just want power, they want power reliably. In certain cases, even when the grid is on, they will choose to self-generate because they can control when they receive the power and they can align that with their manufacturing process and their usage so that they don't have interruptions if they have sensitive manufacturing processes or printing processes. For a number of reasons, you have issues in the urban metropolis and then you also have issues in rural areas. Now, we think that these decentralized solutions could be used to address issues in both camps.
RS: Decentralized solutions other than distributed diesel generators?
IO: One of the things we're looking at doing is targeting commercial and industrial clusters, where reliability is an issue, where we have customers who are off-grid, not because the grid isn't available, but because it's unreliable. They may also be off-grid because of power quality issues, the grid is available but voltage frequency issues make it unusable for their processes. We're aggregating these customers, usually they're co-located in a certain geography, and we're looking at ways of investing in both the network that feeds the cluster, but also in off-grid solutions, solar and battery, to provide the backup that they would need in the event that the grid is not available, if they have issues with the quality of power from the grid.
RS: I see, but these solar and battery systems that are being added are connected to the grid then, at least at times? Is that it?
IO: Yes, they are connected to the grid and so the customer can get energy from either the grid or from the off-grid solution, depending on what’s available and what's cheapest, and the time of day. So obviously during the day solar would take priority and during the night the grid would have priority.
RS: Can you give us an example of that? Are there any prominent micro-grids connected to the grid going in within the Abuja service territory?
IO: Yes, we have one that should be commissioned by early April of this year. We already have part of it operational. It's the Wuse Market interconnected mini-grid, and that we are doing in partnership with Green Village Electricity and REA and the market association.
RS: REA is the Rural Electrification Agency, formerly run by our friend Damilola Ogunbiyi?
IO: Yes, this is them when she was heading that agency. They provided support for some of the initial studies that were done to help attract the third-party investors and developers to the area. I'll tell you a bit about Wuse Market. It's the largest market in Abuja. It’s the largest, most prominent, most popular market in the city.
RS: You're not talking about a mall here, you're talking about a giant outdoor…
IO: …giant, open air market with shops and stalls. It’s got about 2,200 shops in the area.
RS: 2,200? This is an exciting place to shop.
IO: Yes. One thing you'll notice, when you go there is the generators just buzzing constantly. They're little tiny fuel generators that are noisy, they're polluting, and they're dangerous. They're all over the market because of the unreliability of supply. We thought, "Look, this is a commercial hub, these are customers that are using energy for productive use. They have the willingness and ability to pay for power and they're not getting it. Can we combine grid power with off-grid power to give them 24/7 electricity?"
RS: But you've got no capital. How are you going to do that?
IO: We don't. Yes, you're right that's why we have to structure this as an SPV with a developer operator and their investors.
RS: A Special Purpose Vehicle, an SPV?
IO: Yes, that's a separate company that will manage this cluster and bring in the needed investment for the off-grid solution and any enhancements needed on the network in the market. They would also oversee the construction of the system and the operations.
RS: Hang on. Okay, so you are basically ceding your commercial customers to third parties who are investing in their own generation as a way of keeping them in the system?
IO: Ceding isn't the right word, because they are still customers, but we are outsourcing certain aspects of service delivery to a third party.
RS: They remain your customers?
IO: Yes, they remain ADC customers but the GVE would now be the interface, they would be in charge of metering, billing, and collections for that cluster. They would also bring in the required investment, which was roughly about $2.5 million for one megawatt system, plus network investments and metering.
RS: They're making a big investment here. They're incurring costs to do that billing and collection work, they're incurring costs even just to pass the collected bills along to you. That must mean that their buying power either from their solar system or from you at cheaper than they're able to sell it, therefore, they must be getting away with charging their end customer more than he's used to paying you. Is that right?
IO: That is correct, yes. Remember, they will be paying more than they used to pay the grid, but they're paying less than they're used to pay for energy.
RS: I see, they're getting that reliability.
IO: Their total cost of energy is grid power plus fuel or diesel self-generation which is very expensive. The value proposition here is the displacement of diesel and fuel self-generation, not the displacement of grid power.
RS: And the benefit to you, of course, as a utility, is that you avoid that defection. You keep that commercial customer within the system, and you supply them, at least sometimes.
IO: Yes, so the benefit here, there are multiple benefits for the utility. One, you still get to supply grid power to this cluster and you have zero collection losses. Because you supply and you meter the supply from the transformer point and the collection risk is then absorbed by a third-party operator.
RS: I see. Because you know where the guy who owns that meter lives. You’ve got to collect from one guy.
IO: We collect from Green Village GVE and 2,000 customers become one customer for us, and our losses are reduced because you don't have to deal with revenue protection issues further down the chain.
The other benefit is that even with the power that is supplied by the off-grid system, because it is using the distribution company's network, because there's an existing network on the market, and you offer distribution using that network to supply the customers in the network, the DisCos also earns a use of systems fees. That's additional revenue that it wasn't getting when that was being supplied by self-generation. You've got reduction of your collection losses, you've got reduction in your operational expenses because your 2,200 customers become one, you've got enhanced revenue from your use of system fees, and you've got happy customers.
RS: But do you have a happy partner, who’s taken on the cost and risk downstream?
IO: Yes, of course, that's a very important part of this. The tariff that the end-user charges compensate for all of the costs, the investments, so it needs to be priced right. The regulation allows for appropriate cost recovery for these interconnected mini-grids.
RS: Does that supplier, though, get to set the price? He just negotiates it with the people on the market and charges what he can?
IO: Correct. Not charges what he can, charges what's reasonable but what allows an attractive return for them and the regulator still needs to give them a permit and just review the tariff that's being charged. Again, this is done on a willing buyer willing seller basis, so the developer/operator will negotiate the tariff with the market association. In this case, with the end users. Remember, it needs to be competitive for it to be attractive. There are market forces that ensure that there's no price gauging in the system.
RS: I see. Any customer can always go off and turn his diesel generator back on or buy his own solar panel.
IO: Exactly, yes. The other thing is that the regulator still reviews it to make sure that its fair.
RS: I assume having the regulator involved also means that you get typical regulatory provisions like equitable service. The market provider can't sell to his friends for less, and his enemies for more, for example, or favor one ethnicity over another, say.
IO: Yes. That end of the business is still regulated. You still have oversight.
RS: Are there people that they're serving that are looking forward to this? Is this popular?
IO: They are. They're so excited, we have a portion of the market that is currently on, they're paying the higher tariff, they're getting 24/7, and every time you go there, they can't wait to join. We had some setbacks due to Covid, some issues with supply chain because a number of the components and parts are imported. We had supply chain issues that set us back at least a year, but we're now looking at April to have it live and have it throughout the market.
We do have the street lights around the market that are currently on and we have one section of the market that is live. One of the great things about this is it's a great example of how provision electricity can actually create jobs and drive wealth creation. The market typical is open from 8:00 to 6:00 and because of this project they've applied to extend their hours to 9:00 in the evening because they now have electricity.
RS: Because they can count on it.
IO: That will obviously drive more, generate more income for shopkeepers in that site. It’s one of the reasons why we’re doing this.
RS: I think this just such a great use of emerging technology. We're talking about solar panels, but I assume we're also talking about things like, low-cost inverters, that is enabling the solar energy to be turned into AC for their people to use in the market, run their appliances and so on. We're talking about storage that allows them to make the power work throughout the day.
IO: Yes, definitely.
RS: How much do those things cost in Nigeria? Is it exorbitant? Or the price is the same as the ones we pay here?
IO: They are more expensive here. The cost is coming down just because of industry maturation and advancements in technology. The price of panels is coming down, the price of battery is coming down, but they remain higher than we would pay in other markets simply because we don't have the scale. You really do need to have these kinds of systems deployed at scale to look at better pricing for the market and because they are also imported. One of the things that we feel will help drive scale is utilities. Incumbent utilities have to really look at these DERs as a way of delivering better service to their customers. Utilities of the future need to start looking at how to incorporate these across their franchise areas. This is one of the things that we feel strongly about.
RS: This is to get volume up.
IO: The technology's here. Yes, to get volume up, definitely.
RS: Purchasing power.
IO: Yes, because we do have a fairly large mini-grid market but it's really still a drop in the bucket. If we're really going to drive scale, you need to see more utilities adopting these technologies, both in terms of deferring investments in the network, in terms of adding and augmenting grid supply to better serve their customers. I think they're here to stay, and we’re going to see more and more of these. Utilities that are proactive are embracing this, I think are the ones who will win.
RS: You point out you’ve got a lot of other companies. Are there 11 or 13 distributors in Nigeria?
IO: We have a total of 11 distribution companies.
RS: It's enough to band together, presumably, and at some level have collective buying power. Is that a subject of polite conversation, consortium buying, in other words, to try to get prices down?
IO: Unfortunately, not yet. Not yet. A lot of utilities are still very much focused on their core business. We hope to be pioneers in that space. One of the things that we're focused on is ensuring that the commercial framework that is employed, the business model that's used to incorporate these DERs is one that creates incentives for utilities. Otherwise, you just won't see incumbent utilities adopt these technologies. In the project I just described, there's clearly a cost-sharing mechanism with the third-party operator and the DisCos through the use of system fee. You have more energy flowing through your network, whether it's from the grid, generation transmission, or from an off-grid solution.
RS: Your costs go down because the number of units you're supplying in the denominator gets bigger.
IO: Exactly. Gets bigger. If you get the business model and the commercial framework right, you'll see a lot of utilities jump on this train. What we're trying to do is see how we can scale this up. We have one mini-grid that's almost operational, April.
IO: Yes, Wuse Market, that will be live in April. We think we have a model that is ready for scale-up. When we look at what we think will impede or stand in the way of accelerating the deployment of these solutions, there are three things. It's the cost of the solutions, which we touched on earlier, the capital needed to support and invest in these DERs across our franchise, and the capacity. You do need more developer operators in the system to actually run these, to invest and construct and operate these. What we've found is that there are bottlenecks in those three areas.
We're trying to address them through a platform that we've developed and incubated here at ADC. We're calling it DESSA, Distributed Energy Solutions and Strategy, for ADC. We hope to tackle those two things. How do we create a robust pipeline, not of one or two, but of 50 or 60 or 70 or 100 potential locations where DERs can be deployed in a complementary manner with the grid?
RS: This is hundreds of megawatts at that point.
IO: Exactly. We then go out to the market and raise the capital needed for this, not just the equity capital, but long-term debt capital for the underlying projects. Then how do we partner with mini-grid developer operators or generation companies to deploy these with a certain set of standards that we have to have standards? We have to have procedures in place to manage all of these in our network. If we can tackle those three Cs, cost, capital, and capacity, we think we'll be prepared to scale and that's what we're trying to do with DESSA.
RS: The future of ADC, and maybe other DisCos in Nigeria, maybe elsewhere in Africa, maybe in India, too, where I'm seeing somewhat similar things, is a utility connected to a whole bunch of partners who are supplying at times when the load is very high, basically from micro-grids that have their own generation, but rely on you as well for generation at other times. It's pretty cool actually.
IO: Yes, and it will help us mobilize capital into the sector and to help us more optimally serve customers, especially rural customers, but even in certain cases, underserved peri-urban and urban customers. I think it has a tremendous application and tremendous potential.
RS: I'll come back to that though, because we've been talking about Wuse, and that's very much an urban customer, but you said that it would help you with rural customers. Tell us more about that. I thought you said those guys were too expensive to serve.
IO: Yes, they are too expensive if you're looking at extending the grid. Your typical model of reaching those customers is to build out grid infrastructure to get to them. As I explained earlier, in a lot of those cases, the payback is not attractive. It's too expensive to simply build out a grid to a rural community that doesn't have a high concentration of customers. What we've found is that using interconnected mini-grids, either interconnected or isolated mini-grids, is a better way of reaching those customers. They tend to pay a higher tariff because the cost of serving currently, possible systems is still fairly high, but we're seeing those costs drop. In certain rural areas, we're seeing tariffs of between 80 to 100 naira per kilowatt-hour.
RS: What's that in dollars?
IO: That's about 20 cents.
RS: That's not too far from where we are, in Boston anyway.
IO: In the urban areas, it's a slightly lower tariff, it's probably closer to 10 or 15 cents. You will pay a slight premium. But you're doing this in a more cost-effective way, a cost-efficient way, because you'll have either an isolated system with battery and solar or an interconnected system that extends the grid through an interconnectivity grid.
RS: You're saying doing this within this Distributed Energy Solutions Strategy, DESSA, for ADC, in other words, with partners, again, even when you have isolated microgrids or mini-grids?
IO: Most definitely. Because the utility is not a mini-grid operator. That's not our specialty. We're looking at working with partners who specialize in operating these companies and these structures, and we're looking at ways of working with them to serve underserved communities in our coverage area.
RS: That's interesting. That's really distinctive and it makes for a vision of an African grid that's different from the grid that we have here. One that's made up of pieces but still under the supervision of a single entity like ADC.
IO: Yes. Even beyond interconnecting mini-grids or isolated mini-grids, you may even see some communities, villages, where it doesn't make sense to deploy an isolated mini-grid. You might look at solar home systems instead. The idea behind the system, and I think it's something that one of your colleagues has done quite a bit of research on, is this integrated distribution framework. We are looking at the most cost-effective way of serving the customers in your coverage area. In a lot of cases, it doesn't make sense to extend the grid at huge subsidies by the government. It makes more sense to build out an isolated mini-grid or to use solar home systems to give them the power they need.
RS: Then you get into a very different distribution model because you're providing, not just electricity to those customers, but you're providing usually appliances that are paired with the system when you have a standalone home system in order to get efficiency.
IO: Yes. You look at demand side management projects as well.
RS: And efficient appliances. I wonder, we have just a couple of minutes left. Here we are at MIT. I'm always thinking about, what's the technological gap? As you look at this and begin to think of DESSA as a way of rehabilitating ADC and expanding it and improving service, which is very exciting, what technology barriers do you see? What needs to get cheaper? What needs to get better? What needs to come into existence in order for you to do this better?
IO: Storage, storage, storage.
RS: I see. The three S’s.
IO: That's the most expensive. I think we've seen quite a precipitous drop in the cost of panels and a lot of research and development has gone into that. If you look at the typical system that we would fund in an interconnected mini-grid or a decentralized solution, the key driver of cost is the storage. It's the amount of storage that's needed. We still think that battery prices are still quite high and it is sort of impeding the kind of progress we'd like to see, even in the adoption of solar energy across the country. Without storage, you still need to rely heavily on the grid or on other “dirty” sources of energy.
Sometimes you do see solar projects that are complimented by diesel, diesel generation, which kind of defeats the purpose. But the reason for that is that the battery storage is still quite expensive. The way to drive that down, and I think we've touched on some of those drivers, it's economies of scale. How do we increase adoption and demand for these technologies? Such that you have more research and development going into it to drive down the cost, but also just based on the quantum of scale procurements, you can get better pricing. I think a lot of the advances that we see in energy storage has been driven by one U.S. company, Tesla.
RS: That's true. I think it's true with storage generally that this enormous surge in demand from the automotive conversion, from ICEs [internal combustion engines] to electric cars, has driven down the cost. The electric power system is the beneficiary there, but a much smaller user so far.
IO: Exactly. Yes. If we can continue to drive scale in usage of these technologies, we will start to see a welcomed decline in pricing.
RS: I'm looking forward to seeing how that helps you to get DESSA going at scale and maybe how you get to proliferate it to other countries in Africa and make a big difference.
IO: Yes, that's the whole idea. We want to replicate this, first in other utilities in Nigeria, and then we want to take this regional because we think that a lot of the issues we're seeing here are applicable in a number of markets in sub-Saharan Africa.
RS: Ije, it's been great talking to you. I'm leaving with a sense of optimism about the Nigerian system after many, many years of not feeling optimistic about it at all.
IO: It's been a pleasure. Thank you for having me.
RS: Good luck with DESSA.
IO: Thank you.