EGG-energy

Crisis Mode in Clean Energy and Africa Investments: Ironic?

Isn’t it ironic that some of the most important areas for investments in sustainable, balanced and long-term development, namely Africa and clean energy, are so heavily impacted by the current economic downturn? It certainly makes sense for investors, companies and consumers to focus on their investment base, reduce their risks and consolidate to do better in the future.  At the same time, isn’t it the best time to support the potential products, ideas and startups that can make a difference in the global warming mitigation and sustainable growth race?

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2009 was a tough year and the situation looked scary.  Stock markets were down – see the Dow Jones’ 50% drop in two years -, banks such as Lehman Brothers were going bankrupt and unemployment reached 20% in such places as Spain.  It therefore made sense for consumers, companies and investors to reduce their spending and appetite for risky investments.

One of the sectors which suffered the most was clean energy.  A look at the fluctuations of the Wilderhill New Energy Global Innovation Index highlighted in an article from the Economist (The Green Slump, http://www.economist.com/specialreports/displaystory.cfm?story_id=14994802) shows that clean energy was hit almost twice as hard as the S&P 500, losing 43% of its value between 2007 an 2009 when the S&P 500 was only losing 24%.  In 2009 alone, clean-tech companies saw a 50% drop in investments from the previous year, although fortunately the number of deals increased (U.S. clean-tech investment falls 45% in fourth quarter, http://latimesblogs.latimes.com/technology/2010/02/us-cleantech-investment-falls-45-in-fourth-quarter.html).

This is alarming as clean energy is one of the most critical areas for investments, not only for financial returns but also and above all as the fuel to the engine of global warming mitigation.

Why are clean energy investments suffering so much?  Some of the key reasons put forward in the Economist (The Green Slump, http://www.economist.com/specialreports/displaystory.cfm?story_id=14994802) include high up-front costs. This means debt finance funding and high debt-to-equity ratios, which explains why, when the financial crisis made money less available, the clean energy sector was among the first to suffer.  Others argue that the lack of support from consumers triggered fear from investors.  Lack of support from consumers?  Well yes, in critical times, consumers tend to flow towards whatever cost effective solutions they can find.  And the relative failure of the Copenhagen meeting in 2009 did not help incentivize consumers to favor more eco-friendly solutions.

It remains to be seen what impact this will have on global warming.  Clean energy investments must grow to reduce our environmental impact and limit temperature rises.  But by how much?  Different views have been voiced.  A study by New Energy Finance and the World Economic Forum shows, for instance that they should reach $600 billion yearly by 2030, from a little more than $100 billion in 2009 (Green Investing: Towards a Clean Energy Infrastructure, 2009, http://www.weforum.org/pdf/climate/Green.pdf).  This would imply a five-fold increase in 20 years, which will not be easy.  We were already late when signing the Kyoto protocol in 1997, we are still very much behind this target today.

At the same time, the financial crisis has also had a significant impact on Africa.  The BBC estimates from $49 to $280 billion the losses for 2009 alone (Crisis will cost Africa $49bn,  http://news.bbc.co.uk/go/pr/fr/-/2/hi/business/7945843.stm).  This is bad news for a continent that needs to catch up on development and accelerate its growth.  What’s more, the impact of a $ 280 billion drop in investments on poverty and development is likely much worse in Africa than on other continents.  Programmes for health, education, nutrition and infrastructure were reduced or stopped.  And some are wondering if Africa will ever meet its Millennium Development Goals.

People, here is a gap to fill.  To catch up, we need to find solutions that are innovative, affordable and efficient.  This is what we have been trying to develop at EGG-energy: an innovative supply chain, an affordable project for investment and an efficient idea using existing products, channels and means to reach consumers and reduce their kerosene/carbon footprint as quickly as possible.  Luckily enough, EGG-energy is only one of many ideas that are out there to help the world be a better place: good luck to them all!

Emmanuel Cassimatis

and 5000 cumulated revenues. GOOOOO EGGGGGGG!

Recently some smart cool college students came up with the SOccket – a soccer ball that stores the kinetic energy created by being kicked around and makes it available as electricity.

SOccket has attracted plenty of media attention, which is a bit of a mixed bag. On the one hand, anything that gets people thinking about the lack of power in the developing world is good. On the other, anything that gets people thinking that the solution is going to be something as telegenic as an electric soccer ball is bad.

Most people who have spent time in the trenches of development know that the real problems are crushingly un-catchy. In terms of difficulty, of trying to do something we just aren’t quite sure how to do, spurring development is up there with reforming healthcare, regulating the stock market, and coping with global climate change. It shares with those problems a combination of complexity and inscrutability.

A problem is complicated when it’s, well, complicated. Sending a man to the moon is complicated. A problem is inscrutable when it’s hard to tell what a “solution” would look like, or if one even exists. Living a good life is an inscrutable problem.

Complicated problems with clear end posts can be thrilling. No matter how difficult the path, the goal is always visible. That’s why, for example, tasks which might otherwise be considered drudgework become appealing when inserted into the highly structured, goal-oriented worlds for videogames.

Inscrutable problems devoid of technical complicatedity can be rewarding subjects for artworks or daydreams. Tolstoy for example threads a theory as to the proper interpretation of history through War and Peace, and of course Proust’s In Search of Lost Time is largely involved with an examination of how and whether personal identity persists.

It is when complexity and inscrutability collide, however, that truly mind-numbingly boring and hellacious problems are created. This is why you will never see a (successful) video game based around reforming the health care system, or a novel whose central conceit is an exploration of the melancholy truths revealed by the depressive effect of mark-to-market accounting standards on corporate balance sheets.

The question of how to spur development is surely both complicated and inscrutable (how does one even define the word development in this context?). As such the greatest strides forward are apt to be found in the least sexy of places.

Jukka’s trip to our Tanzanian outpost is coming to an end. During the few weeks he spent assisting Jamie in Mvuti and Dar, Jukka designed an incentive plan to bolster EGG-energy’s sales capability, assembled field data to update our financial models, roamed the capital city to find four white polos to be printed with our logo and worn by our highly motivated salesmen, picked up a few more kishwahili words and helped install our systems at customers’ houses. There’s little doubt that the sight of his butterfly sunglasses will be missed by the Tanzanian sun!

In addition to the many stories and energetic enthusiasm that he’ll bring back to Cambridge, MA, Jukka was tempted to toss an old tincan in his backpack before deciding to leave it on Jamie’s bedtable. Yesterday, one of our customers brought it to the station, as a gift to us: a tin can that had gotten a new life as a kerosene lantern. Polluting, leaking, a fire hazard, low quality light. “Now that I’m your customer, I don’t need this anymore. I’m giving it to you as a gift.” He must be happy with our service, confident that he can pay our fees all year round, and sure of our continued presence, him who’s giving away what was lighting up his family’s evenings! We’re betting that seeing this unexpected token of appreciation every morning will help put a smile on each of Jamie’s days!

This side of the ocean is not short of good news. We’re very proud to share that
- we’ve been selected to compete in the next round of the William James Foundation’s socially responsible business plan competitions,
- we’ve progressed to the second round in the Global Social Venture Competiton,
- we’ve been invited to present at the UNC Kenan Flagler’s annual Sustainable Venture Capital Investment Competition and
- and we will represent MIT at the Net Impact 2010 Walmart Better Living Business Plan Challenge.

Goooooooooooo EGG-energyyyyyyyyy (TM Ben)!

- Blandine

When you bring electricity to a Tanzanian village for the first time ever, every person in the village will know about your project within a few days. This doesn’t, however, automatically translate into customer subscriptions: people will not understand the value proposition, pricing or service levels. To get the customer count growing we wanted to build a sales presence that is more typical of a tech start up than a traditional development venture.

EGG-energy sales team ready to go

EGG-energy’s approach is all about getting our sales people out of the office and where the potential customers are. We made several initiatives to support sales. First, to motivate the sales reps, each new, installed customer that he approached outside the station brings the rep a sizable bonus. Second, we built demo kits to demonstrate what the lights, switches and battery would look like inside the customer’s house.

Hussein and Jukka explaining the concept at the market

Finally, we did sales training, increased the amount of marketing materials handed out and are currently improving the link between closing a sale and having an installation scheduled. As the household decision maker is seldom home during daytime and closing the sale at site is difficult, we now collect phone numbers from prospects, and do follow up calls after they have had a chance to discuss the purchase with the right people.

Micah and Hussein demoing the product

Demand for electricity is driven by appliances and at the moment chargers for mobile phones drive many of the purchase decisions. High on our task list is sourcing new products for which our batteries provide enough power and which we can find at prices that suit our target group. A TV bundle by the world cup is a must!

The very first experiences from increased sales efforts are promising. First, the monetary incentive (up to some 50% of the monthly salary with good sales performance) seems to be an efficient motivator: sales people spend a lot of time doing house calls. Second, we have been winning over a very high percentage of our potential customers and have increased the traffic at the charging station significantly. Next few weeks will show how good we are at converting the increased demand to paying customers.

Jukka

Welcome to everyone visiting for the first time!

We were just featured in a great piece by Katie Fehrenbacher at Earth2Tech, which was picked up by @TomRaftery, @TimOReilly, and Gizmodo.

Thanks everyone for all your support. Keep the links coming!

-Mark

Okay, I admit it. As a kid, I was afraid of the dark. When I had to go back to my pitch-black room to retrieve something I had forgotten, I would have to be very strategic about it. I would sneak around the corner until I could just barely peek out from behind it, then BAM, I would make a frenzied dash to the light switch and throw on the lights, scanning the room quickly to be sure there did not happen to be a monster on my bed, waiting to get me.

The fact that the light switch was there, and that flipping it would illuminate the room, had always been blindingly obvious to me. What does one do when the sun begins to set and it becomes too dark to continue reading? What does one do when entering an unfamiliar area, perhaps the basement, or the garage? “Well, duh,” my smart-aleck younger self might had replied. “You figure out where the light switch is!”

However, for almost a quarter of the Earth’s population, that light switch doesn’t exist. According to a WHO/UNDP report released November 2009, there are one and a half billion people in the world today who lack access to electricity. The problem is worst in Sub-Saharan Africa, EGG-energy’s home turf. In Sub-Saharan Africa, 74% of people don’t have access to electricity, and in Tanzania, the figure comes in at a shocking 89%. As we can see from Map 1, over 80% of those without electricity worldwide reside in Sub-Saharan Africa or in South Asia.

But the problem doesn’t stop there. Research shows that households without access to modern energy sources (such as electricity) often turn to solid fuels (coal or traditional biomass, such as wood, dung, or charcoal). Indoor air pollution caused by the smoke from solid fuel use has been linked to almost two million deaths per year worldwide from child pneumonia, chronic obstructive pulmonary disease (COPD), and lung cancer. A remarkable 99% of these deaths are occurring in developing countries, suggesting that these deaths are highly preventable.

Important an issue as energy is here in the developed nations, regularly bandied about in the halls of our capitals, how much more important must it be in the developing nations that don’t enjoy our indulgent level of access! The fact of the matter is, energy is a challenge for all of us, because it touches upon so many inescapable aspects of our well-being, from quality of education to quality of medical care, from economic impact to ecological impact.

Developing countries, especially, cannot hope to achieve the national energy access targets they have set (and in particular, those Millennium Development Goals set for six years from now) without a significant increase in efforts to make modern energy sources available to their citizens, efforts that EGG-energy is very much a part of. Working together, we can and we will start switching on the lights for those 1.5 billion people still living in the dark, and help them begin to vanquish the monsters that they face in their own lives every day.

-Mark

One of my all time favorite books is the Alchemist, a fable about following your dreams, by Paolo Coehlo. “There is only one way to learn- it’s through action,” writes Coehlo. “Everything you need to know you have learned through your journey.” Among the fable’s many lessons to the protagonist is to pay attention to clues, omens and symbols along this journey.

Two recent announcements about new sources of funding specifically targeting access to clean energy sources have made me think of Coehlo’s charming novel and its teachings on heeding signs and embracing opportunities. Just last week, US Energy Secretary Steven Chu announced the launch of a new Renewables and Efficiency Deployment Initiative—Climate REDI—which aims accelerate the transfer of clean and renewable energy technologies to developing countries. In an effort to reduce greenhouse gas (GHG) emissions, fight energy poverty, and improve public health, the United States and other major economies, including Italy, Australia, UK, Norway, the Netherlands and Switzerland, have pledged $350 million to the program. Climate REDI will emphasize deployment of solar lantern and light-emitting diode (LED) technology, super-efficient equipment and appliances, sharing information, and scaling up renewable energy sources such as solar and wind systems.

Earlier this month, E+Co, an investment firm that provides business support services and investment capital to clean energy enterprises in Africa, Asia and Latin America, received two significant capital infusions: $7.5 million from the Norwegian Investment Fund for Development and $6.65 million from FMO, the entrepreneurial development bank of the Netherlands. E+Co’s current investment portfolio includes over 150 small and growing businesses from micro-hydro developers in Nepal and solar retailers in Nicaragua to efficient cook stove manufacturers in Ghana. E+Co. The organization anticipates that approximately 60% of the new capital will be invested in Sub-Saharan Africa.

These monetary commitments underscore the timeliness of EGG-energy’s recent pilot launch and the importance of the company’s mission to provide clean, adequate, affordable power to underserved communities in sub-Saharan Africa. Now, more than ever before, power companies committed to providing access to modern energy services have an unprecedented opportunity to help drive sustainable development in the poorest countries. I’m reminded every day of the catalytic effect that EGG-energy and our peer firms like D.light and dissignio can have on generating economic opportunity for our customers.

As the year comes to a close, a few other signs stand out, giving every reason for optimism.  The team is closing on pilot financing from an angel investor. Jukka is heading to Tanzania for January as an MIT Public Service Center fellow to bolster our sales and marketing strategy and to scope out new sites for EGG-energy’s charging stations. Another competition victory brought in an additional $25,000 in capital that will enable EGG-energy to jump start on expansion. We continue to push ahead and as we head into 2010, we remain consistently alert and eager to pick up on clues and cues, largely from the amazing network of EGG-supporters and allies.

Happy holidays everyone!

Alla

One of the risks we get most asked about and spend time finding mitigation strategies for is the exchange rate risk. I wanted to provide a short intro to how we think about it.

In general, hedging currency risk in Tanzania’s poorly developed capital markets is challenging. First of all, there are no publicly traded options for the Tanzanian Shilling. Buying options directly from banks is expensive as the currency is fairly volatile and as there isn’t significant competition among the existing issuers. We would also have to bear the counterparty risk which outside of the few global banks that operate there (like Citi) may be substantial. Moreover, the Tanzanian exchange market is both small and inefficient (monthly USD sales volumes are at $100m+) and consequently the interest rate parity doesn’t hold. This makes money market hedges and forward contracts resemble private bets more than anything else.

Our business faces two types of currency risks. First, as our inputs come from China, Europe and the U.S. and as our revenues are realized in Tanzania, the Shilling’s depreciation hurts our margins. Second, as we fund our operations from the U.S., a depreciating Shilling makes it difficult to repatriate earnings or to pay back loans.

To mitigate the first risk, we seek battery and charging equipment manufacturers within Tanzania and in neighboring countries (the correlation between East African currencies is surprisingly high), so that both inputs and outputs are in the same currency. Luckily, the price of our main competitor, kerosene, follows oil price, which, in turn, is dollar based. Thus, as the Shilling depreciates, both the cost of kerosene and that of our inputs increase. As a result, the prices of all the products in the market increase, and we may be able to have the end-customer share some of the increased costs.

The most efficient way to mitigate currency risk associated with the repatriation of money is to expand internationally. Instead of being dependent on the Shilling-US dollar relationship, we will then have a portfolio of currencies to work with. Although our position is, in this case, hurt by the correlation between currencies, rapid international expansion remains the best way to go.

What is the magnitude of EGG-energy’s currency risk? A depreciating event that with current volatility happens once in 20 years would eat 40% of our full-scale profits. Luckily there is no indication that the Shilling is grossly mispriced at the moment and no extensive correction is expected.

Shilling volatility: Five year trend – TZs vs. USD

Jukka

Although power grids are synonyms for gigantic publicly funded infrastructure built as a robust backbone to provide power to later on connected ramifications, our ambition is to build a fully operational “bottom-up grid”.

Since our customers, who live in low-density rural areas, cannot pay for the cost of being traditionally connected to the power grid, they have little experience of the comfort and empowering capacity of electricity. By offering them an affordable ticket to the electrical wonderland, we raise their expectations and hope to create a positive feedback loop in the form of increased demand for electricity, which we can then bootstrap to build a larger power infrastructure.

Our battery inventory, currently used to transport electricity to our clients, can indeed be considered as our first investment in power production. Given the prolific potential of our target countries for renewable electricity production (esp. solar and biomass), the power plants that we plan to build in order to meet the power demand that we presently work at creating will be fueled by renewable energy sources. Their intermittency can be mitigated by establishing a storage system, one that would be charged at energy-bountiful times, and to be drawn from when the sun or the wind are down. What can be better to achieve that task than the very batteries that we currently own?

They are our flexibility card. Thanks to the storage reservoir that they constitute, we can confidently plan on bringing in renewable energy sources into our power distribution adventure. Although the robust sealed absorbed glass-mat lead-acid batteries that we currently use are a perfect match for our distribution purpose, we nonetheless keep an eye on the many technological improvements that the field of electricity storage is certain to experience soon.

Boosted by the need to protect established power grids from the unpredictable variability of intermittent renewable energy (wind & solar) on one hand, and the interest in cheaper and denser forms of portable electricity on the other (small electric appliances as well as batteries for electric vehicles), battery technology is on its way to improving storage capacity and reduce the cost per stored kWh.

What’s on the shelf of a growing number of research groups?
Virus-engineered lithium batteries for portable applications, large-scale liquid batteries to balance grid fluctuations, innovations such as those retained by the ARPA-E’s Transformational Energy Projects Grants, all of which will contribute to creating a greener power infrastructure.

- Blandine