INTERVIEW: FG Should Allow Private Sector Lead Investment Drive In Solar Projects – InfraNergy CEO

Dr. Uche Isiugo is the founder and Chief Executive Officer of Infranergy, a US-based solar PV and energy storage developer with operations in Nigeria and other parts of Africa. The Forbes honoree speaks to THE WHISTLER about Nigeria’s energy problem and how the private sector can play a key role in the government’s quest to attract more investment in solar projects to cushion the effect of rising prices of petroleum products on the citizens.

Can You Explain To The Layman What InfraNergy Does?

Infranergy is an energy developer and what that means is that we focus on renewable energy, and we deal with solar and battery energy storage. We design solutions for corporate clients and communities to provide low cost energy to them and we also finance the systems such that our customers don’t need to pay for the entire equipment upfront. They just pay on a monthly basis, over time. So essentially, we become like their utility. We install micro utilities which produce green energy, at a cost-effective rate.

Does Infranergy Manufacture Batteries And Solar Equipment As Well?

We don’t manufacture the batteries, we design the systems which include the solar panels, batteries, inverters, cables accessories and accompaniments. We design and right-size an energy system for each client. Each person has a unique power situation, so we design, develop, and in cases where it’s like a community project, we have to go to the community and engage stakeholders which, in some cases, include regulatory bodies like the Nigerian Electricity Regulatory Commission (NERC). We may also have to engage with electricity distribution companies but we haven’t had to do that yet.

So, really that is energy development because besides just designing a project, you have to develop the relationships and streamline the red tape around it to make sure that you can actually install a project at that site in an environment that fosters a long-term partnership.

For example, we have off-grid projects where solar was brought to remote communities and we had to engage the community leadership. We have people in the communities to help manage our high-grade hybrid solar systems, but those are more so mini-grids. We, however, focus on commercial and industrial applications. For example, providing solar for a factory or warehouse, that’s commercial, all that needs to be developed upfront, so we would procure the equipment from different manufacturers and integrate and install the whole thing.

So, it’s not just installation, it’s financing, designing, developing, installing and operating. We provide a fully wrapped solution where the client doesn’t pay anything upfront, so it’s zero money down. Payment is usually on a monthly basis, in relatively small amounts and we have a couple of options. The client could pay a flat monthly fee, or they could pay based on their consumption, so we just customize for every single situation.

For homes, we tend to prefer doing entire estates, but if it’s for single homes, we would provide stacks. Stacks are essentially predesigned stacks of hybrid solar battery systems. So, for example, a three-bedroom bungalow might take 4kva, depending on their loads, but we already have those predesigned so we don’t have to go and design them from scratch. If there’s a residential client that wants to have a larger size than is recommended maybe because they have a special situation, like maybe they have many Air Conditioners and they work from home, then we would suggest a larger stack, like the next level up of stacks. So, we do have residential stacks but we don’t have to do any heavy lifting in the designing because those are already designed.

Can You Explain What Infranergy’s Payment Plan Is Like?

So, we typically would have an agreement that spells out how long the relationship will last, and payment runs through the course of the term of the agreement. We have a few clients who would prefer to pay everything up front and that’s also an option.

How Accessible Would You Say Infranergy’s Service Are To The Average Man?

The payment plan is actually a sort of lease. So, you’re paying for our services from us. Nowadays you have utilities, whether it’s on your laptop or an app on your phone, it serves a purpose. For example, just like Apple iCloud which you pay for every month, that’s the model.

In terms of the average Nigerian, absolutely, I mentioned earlier that we have solar stacks, we have gotten a lot of interest in those and the opportunity around that is sometimes we may have retail folks who say they have introduced this at their place of work and that could have a bigger impact on those corporate customers that have 50 to over 100 employees who are benefitting from solar. And the employers are actually making more profit because they are saving on their power and it allows for a more conducive environment because it’s not loud and it’s just a lot more stable. It’s essentially just a high level of customer service because you have better power and you can conduct your affairs a lot more seamlessly and at a lower cost.

What Inspired You To Start Infranergy?

I had a background in energy early in my career. One of my first professional experiences was when I did my internship at Chevron headquarters in California, where I researched competitive strategies and alternative fuels. So, I looked at, amongst other things, Tesla, which had released the first prototype in California that same summer, Ethanol fuel, and things like that which were emerging.

This was several years ago, and then I had a short exposure to the Nigerian privatization of PHCN, formerly NEPA. Just from my knowledge of the gap in the market, I realized that energy was very crucial and important for the future. I was in grad school then, so I finished my Ph.D. and got a couple of job offers.

The one I chose was a managerial role in NextEra Energy, the largest renewable energy firm, so I worked there for some years and really honed my skills in project finance, commercial management, development of these renewable energy markets at the global scale and with my background, I just thought I could contribute to help fill that void in Africa. That’s how the idea for Infranergy was born and since then, we’ve been working on projects in Nigeria and looking to scale the business.

What Is Infranergy’s Most Notable Project Till Date?

Our most notable project to date would be the delivery of a high-grade hybrid solar battery storage system for a health technology client and the battery is the largest private-sector battery storage project in Nigeria.

It’s quite an ingenious idea because the battery can do so many different things including, storing green energy from the sun, solar energy, and just ensuring that their power supply is more robust and readily available for critical loads. I’d say that’s our most notable but I think we have some more milestone projects in the pipeline and we’re very excited about the future.

Why Did You Decide To Bring Infranergy To Nigeria?

Infranergy was registered both in the US and Nigeria. In the US, prior to Infranergy, the core business of energy development was the primarily advisory type of work in the infrastructure space and then some energy mandates within the realm of infrastructure.

Infranergy was helping develop energy projects in the first phase of inception, but because a lot of folks thought it was more of a financial or investment type of playbook as opposed to being an energy company, I then decided to break out the energy piece into its own company and that’s how Infranergy was created. Infranergy’s vision is to have both high local responsiveness and global integration, so we will build on our experiences, resources and relationships, and can leverage this platform in Africa, the Caribbean and the U.S.

In terms of focusing on Africa, I’ve always wanted to be an entrepreneur that would make a big difference in Africa, that’s always been my vision and so for me, years ago, it didn’t really matter what type of business but I knew I wanted to do a big business that would make an impact.

So, when I started getting into energy, it made total sense to do that because I believe that any business that you’re in, you’re at an advantage if you actually know the business.  I had worked as a manager at the world’s largest renewable energy firm and as a director at another leading energy firm in the US, so it just made sense, I decided why not take these relationships and skills to Africa and hit the ground running.

When I came in, the main focus was on utility-scale-sized projects, and I quickly realized that that was not moving at the time in Nigeria because we have so many issues around energy transmission, distribution and risk. With that knowledge, I pivoted into smaller-scale distributed generation, which essentially is on-site solar, on the premises of the business, to generate energy and serve the businesses at a low cost.

Nigeria, being a very virgin land in terms of solar, it just made a lot of sense to do it here. Some people prefer to do this solely in the US, and the US is a trillion-dollar market right now, but we straddle both markets because the windows of opportunity differ in both countries and we can cross-pollinate resources and best practices across both markets. I think in Nigeria, the window is advantageous right now and there are other related opportunities around that, which can help this business flourish so that’s why we came here, because there’s a lot more impact to be made in the lives of many here.

Africa Is Believed To Have One Of The Largest And Most Attractive Off-Grid Opportunities In The World But The Continent Has Struggled To Move Off-Grid Compared To The Western World. Why Do You Think That Is?

I think there are a couple of reasons. The first thing, I think, is people are dubious of solar being a resilient energy source and we have just begun to successfully disabuse their minds of that. People who use solar and love it, really love it.

I think the issue is, most people who bought solar some years ago, bought cheap materials and that was likely because the installer wanted to meet a high-profit margin, so they sold the customers the cheapest goods in the market and charged them at a price where they could make a profit. Because of that, a lot of these systems would stop functioning in a couple of years and I’ve heard a few horror stories.

Because of that, a lot of these systems would stop working in a couple of years and I’ve heard a few horror stories. But I think now, we’re at a certain phase where people who are buying solar are getting higher quality products with solid manufacturer warranties, and they are seeing that it actually works.

The other thing is the macro economy. At the macro level in Nigeria, we have a few issues. Number one is the tariffs that we pay our electric distribution companies are lower than market, they are not cost-reflective. The companies would be able to make more money and pay back their capital if they were charging tariffs that are cost-reflective. Utility tariffs are relatively low due to subsidies, which tend to be a hot button issue where we have sort of a Catch-22 problem: the masses prefer to keep utility costs low, so on one hand, raising the tariffs could lead to strikes and political repercussions, but on the other hand, mounting government debt which helps finance the subsidies and keeps tariffs artificially low, is unsustainable. The subsidy is also hurting the distribution companies as they are losing money in trying to keep electricity tariffs low.  So, I think the tariffs ought to be higher and this is inevitable, due to market forces. Realistically, the utility electricity tariffs in the country will continue to rise until they get close to the actual cost of power being used by consumers, to the extent allowed by regulation.

The third thing is diesel. I think the biggest competitor for solar is diesel generators in general, and we’re moving to a sort of tipping point where in both the short to long run, diesel is going to go up significantly, and other fossil fuels including gas will spike in costs and volatility. Thus, subsidies will become too expensive to maintain, and this will lead to profound opportunities for businesses to save costs, avoid price volatility, and improve the flexibility of their power situation by installing solar. With our commercial agreements, InfraNergy enables businesses to lock in cost-effective, sustainable power prices over a long horizon, as they consume cost-effective solar energy which is generated on their premises.

Discerning businesses and power consumers are now increasingly opting for solar, owing to the unreliable national grid and rising costs in the electricity value chain, driven primarily by gas and diesel prices. The average manufacturing company in Lagos, where diesel prices are lowest, paid about ₦220 per litre for diesel in February 2021 to run their generators, but about a year later, they see that diesel now costs over ₦600 per litre. These businesses are already grappling with high production costs and low sales, so we try to help them boost profitability and remain competitive.

Big picture, looking at the oil and gas industry, the oil reserves are not increasing; also, it costs more money to drill for oil and these oil and gas companies don’t have as much access to capital as they once did, so the cost of capital will go up.

Eventually, we will not only have higher cost, we’ll also have lower quantities of oil reserves which means lower supply. That, in theory, means it would make refined products go up in price, over a long 10 to 20 years as solar adoption continues to grow, and investors get the picture and are quite keen on solar as a result. With those market forces occurring, it adds more competitiveness for solar and people would increasingly flock to the solar space to get solar solutions.

It’s a confluence of all those factors, but all those are in our favour. I think I should add the last factor which is that solar has been dropping in cost over the last 10 years. By 2020, the global cost of solar electricity dropped by 89% in ten years to become arguably the cheapest source of power, due mostly to huge leaps in technological advancement.

In What Other Ways Do You Think The Cost Of Solar Equipment And Installation Can Be Reduced?

There are a few other ways. In Nigeria another thing is, we have value-added tax (VAT) which is about 7.5%, so that automatically adds cost. I think there have been some initiatives where some people have tried to lobby that solar-related equipment should not be subject to that, but it affects them now.

We also have import tariffs. Solar equipment and batteries have tariffs that have a negative effect. All these add to the cost. I will also mention that I think the government is making some strides in this respect. For the cost of capital, there has been some provision through the CBN to provide a solar facility, which is a step in the right direction. All these are really big impacts on the solar energy space and we could probably reduce the price of solar by about 30% just looking at the tariffs, the VAT, and looking at the cost of capital that any energy developer faces, even installers. That is very impactful.

The last thing I’ll mention is foreign exchange. FX prices change every week, and that’s not an exaggeration. If solar companies were to improve their access to foreign exchange similar to other industries, such that you don’t have to convert your local currency to dollars at an exorbitant rate, then that would really open up the market.

What Opportunities Do You Think Solar Energy Can Offer Nigeria And Africa?

I think we would become a lot more energy independent and we would rely less on other sources of energy. Africa can also benefit from it environmentally, so we would have a lower carbon footprint. As our cities become more crowded and there’s more pollution, solar would help offset the load and impact our environment more positively.

How Do You Think The Government Can Leverage Solar Energy To Address Nigeria’s Energy Challenges? 

The government should focus on the bottlenecks in the system. Maybe bottleneck is the wrong word, but one of the biggest ones is the fact that we can’t really evacuate new power plants efficiently, we have very huge electricity losses. We need a lot more transmission infrastructure in order to spur the utilities’ scale segment, so that could contribute to a huge chunk of energy for Nigeria.

The second thing is, in the crowded cities like Lagos, solar needs would be a lot more than in communities and semi-urban areas, so I think the government can encourage more solar by providing some subsidies around that for individuals and then some programs that would help raise the profile for solar amongst customers to make it more competitive.

How Do You Think The Government Can Attract Investment And Public Support For Solar Projects In Nigeria?

The government has different local, and financial investment initiatives and some of them are already geared towards solar. For example, Nigerian Sovereign Investment Authority is looking at executing solar projects, and the Bank of Industry is supposed to also have a solar programme.

I think that the government can also be more proactive in the private sector by, instead of having to access government support through a government parastatal, the government could actually select private sector players who can help and who are better at identifying opportunities and investing in them.

They should delegate more to the private sector in this area because, in every country in the world, the private sector is known to be more efficient at allocating resources. These programmes would be executed faster with better impact if, at least, the private sector is included.

I think that the public sector institutions should also increase their focus on solar, but the private sector can help by having autonomy around the deployment of resources into solar energy.

Congratulations On Your Recognition By Forbes In The Next 100 List Of Entrepreneurs Last Year. How Did That Come To Be?

It’s a nomination process, and I was happy when I got it. I think it started to sink in more when I started getting a lot of calls and congratulatory messages. I believe it’s a great testament to what we’re working on because being an entrepreneur is not a walk in the park.

The feature has opened some doors for Infranergy because it helps showcase what we’re doing and we’ve had some more activity linked to the coverage by Forbes. I think it just helps show the world the credibility of one’s operations.

What Is Next For Infranergy?

Infranergy is doubling down on Nigerian opportunities while looking at other markets, we understand the Nigerian market quite well at this point and are looking to expand here but also plan to do significant work outside Nigeria, but what I’ll say our next step is right now is just Pan African strategy of expansion and scaling the business in the different segments we operate in. Generally, looking at where we can add value so definitely Pan African projects.