NextBillion - An Initiative of the William Davidson Institute at the University of Michigan

A few weeks ago, I was fortunate enough to catch Richenda Van Leeuwen, a founding board member of the Good Energies Foundation, after the Ross Net Impact Forum. I asked her a series of questions about the firm where she works, Good Energies Inc., a global private equity firm focused on renewable energy investing, and its affiliated non-profit, the Good Energies Foundation. The foundation is trying to tackle the multiple challenges of providing clean energy to citizens around the world, particularly in developing nations. The following is the transcript from our conversation:

Grace Augustine, NextBillion.net: I find your organization’s design interesting. Is it the hope of the Good Energies Foundation to fund projects that can one day be commercial through Good Energies Inc.?

Richenda Van Leeuwen: The Good Energies Foundation is an independent non-profit foundation, and the operations are separate. Our mission in the foundation is two fold: poverty alleviation via provision of access to modern energy, and future poverty prevention through climate change mitigation. Where we can, we actually leverage our corporate expertise to drive our work in the social sector.

The Good Energies Foundation focuses on geographies and situations where a fully commercial approach may not be viable, where any returns may be lower or take longer to achieve than generally accepted by investors or the people are so poor that even with micro-credit they couldn’t afford any sort of system. We have focused a lot on small scale solar powered lighting to date. Our foundation’s work with Stiftung Solarenergie, a solar provider in Ethiopia would be one example. See video on the Stiftung Solarenergie website on its Ethiopia project here.

Initially, Stiftung Solarenergie was completely dependent on subsidies, but having proved their model and shown that solar lighting works in the local context, it is now exploring quasi-commercial community solar options. This includes such solutions as solar home products, LED lanterns and small lighting systems, in order to drive scale. The organization is currently raising a fund to support their drive to scale.

Our social mission is not just concentrated within the foundation. On the commercial side, our company, Good Energies, also has a 3-P mission, which stands for People, Planet and Profit. Good Energies is a private equity firm focused on investing in renewable energy with the goal of having a positive impact on people and the planet, but of course needs profit to function. In fact, all the investment work of Good Energies is, broadly speaking, beneficial to society from an environmental standpoint and in terms of reducing carbon emissions.

NextBillion.net: Could you tell me a little more about your other partnerships, maybe specifically with SELCO India? I see that SELCO is a social enterprise.

Richenda Van Leeuwen: We recently made a “social equity” investment in SELCO India, along with E+Co and the Lemelson Foundation. SELCO India is an award winning registered business based in Karnataka, India. It is a strongly mission-based social enterprise, focused on energy access for the poor, and has cumulatively sold almost 100,000 solar systems since being founded in 1995. SELCO has to be commercially viable in order to be sustainable and to scale their services further, but their mission orientation is all about providing custom solutions for their low income customers. In fact, they were the first solar company focusing on access for poorer customers to reach scale in conjunction with a microfinance partner, SEWA Bank, even before Grameen Shakti in Bangladesh, another significant social enterprise operating in this space. With our social investment in SELCO, if we made a dividend or decided to exit, any money that we made would go back into supporting SELCO or to other projects of the Good Energies Foundation.

NextBillion.net: Speaking of E+Co, I think our readers are familiar with both E+Co and Acumen Fund, which both seem to be pursuing similar objectives, so what would you say differentiates you?

Richenda Van Leeuwen: We look at both of those organizations as cooperative partners. In the case of E+Co, we’ve already been an investor alongside them. I think what they do is terrific. I would say that the only difference is that we’re trying to get ahead on the issue of climate change, and develop products that intentionally mitigate the risk for the most vulnerable populations.

We keep in touch closely with Acumen Fund as well. The primary difference there is that we’re affiliated with a major global player in the renewable energy space, with deep expertise across the solar, wind, hydro, green buildings, and other sectors, and therefore we can bring that commercial expertise to the table as well.

NextBillion.net: I’ve heard that microfinance is becoming a bigger part of the solution to energy access. Can you tell me more about these recent advances?

Richenda Van Leeuwen: The combination of renewable energy and microfinance is just now becoming fully mainstreamed, although some groups such as SELCO India and Grameen Shakti have shown that the model can work for a number of years. There are now proven track records, despite the fact that historically many microfinance groups (MFIs) have been leery of going into any kind of asset-based lending. It has also been challenging for MFIs to structure the right kind of product.

For example, if you’re trying to lend to a farmer who only gets paid once a year, how do you structure an appropriate payment plan? On the renewables side, it is also difficult at the local level for system installations to have expertise as a loan collection agent, so generally speaking it has usually worked best when each entity focuses on its own core competences.

There are new groups out there, like ARC Finance, headed by Ellen Morris and Niki Armacost, and Micro Energy Credits Corporation, led by April Alderdice, that are providing a roadmap for MFIs to show how they can work together with renewable energy providers. MECC is also tackling the carbon credits side of the equation, helping the MFIs tap into the carbon markets, which could be a potential for revenue generation, while ARC focuses more on assisting MFIs entering the renewable energy lending space.

NextBillion.net: In terms of technology, what advances have you seen that are making energy access more of a reality?

Richenda Van Leeuwen: There have been many recent technological advancements that have helped this sector tremendously. The cost of solar panels has gone down 20-30% even since the start of the year. If these savings are passed along to consumers, it increases affordability to an entirely new class of people, since the poor are very price point sensitive. There has also been innovation in LED lights. There are now super-bright LEDs used in low-cost lighting projects. When I was in India with SELCO recently, I saw a product working very well when I visited a poor village outside of Bangalore with approximately 50-60 people that had just installed some solar lighting projects. The houses were probably 12 x 8 feet and the LED lights, hooked up to a solar panel, produced sufficient light for those spaces. LEDs are also more environmentally-friendly than CFLs, as they don’t have the issues of mercury and special disposal, the latter being unrealistic in a rural village. LEDs do, however, tend to be very directional. Only recently, groups like d.light, Barefoot Energy and SunNight Solar have designed low cost products to overcome that limitation.

Battery technology, and energy storage in general, has also been on ongoing issue, but there is a lot of research going into these solutions and I think we’ll see some major developments in the near future.

It’s important for me to note that the Good Energies Foundation is technology neutral, meaning that we don’t give preference for one technology over another, although to date much of our work has been focused on solar lighting, since it is a natural fit.

NextBillion.net: Ok, so to wrap up, can you tell me about the major challenges with providing energy access to the world’s poorest people?

Richenda Van Leeuwen: I think one of the challenges is just the scale of the problem. The average person in the U.S. or Canada probably does not realize that one-quarter of the world does not have reliable or often any access to electricity.

Many non-profits and SMEs are in the space, but face challenges around taking their business or non-profit model to scale. Access to finance is one part of it. I did a rough back of the envelope calculation recently, which found that to provide a 50W system to the 1.6 billion people without access to electricity – generous enough to power lights, a radio, and possibly a small TV – it would cost in the range of US $150 billion; less, incidentally, than the size of the bailout given to AIG. It could probably be done on a more basic scale for around US $100 billion. It may sound like a lot, but it is a finite, solvable problem where cost savings would not only be seen at the level of the household, but also in terms of improvements in health and education that accrue with a non-smoky, less dangerous and better source of lighting.

Our foundation is focused primarily on Sub-Saharan Africa and South Asia, where the largest concentrations of people lacking access to electricity live, but we’re also supporting a non-profit in Nicaragua, Blue Energy that is helping to bring electricity to Caribbean coast communities there. Because of the scale of the problem, working in partnership is essential, with groups such as Lighting Africa, run out of the World Bank.

We need to emphasize those approaches that really have the capacity to scale up in order to eliminate kerosene-based lighting. I have spent years working in the non-profit world, and that is a sector that has often really struggled with producing scalable and sustainable solutions, in part due to the inherent limitations of completely subsidy-driven approaches, or lack of business expertise. A commercial orientation, even within the context of a social enterprise, will often bring more discipline to evaluating the viability of a particular business model, although finding the right balance between commercial and social orientations is a challenge, as we have seen in the microfinance sector over the years.