Talking Points: ARC Power
This is the first instalment in our new Talking Points interview series with REPP investees. Here we talk to Karl Boyce, CEO of Rwanda-based mini-grids developer ARC Power, about the challenges and opportunities setting up a mini-grids company in the country, the multiple co-benefits of mini-grid delivered electricity access, the impact of COVID-19, and the company’s expansion plans for 2021.
Karl, you’ve been working in Rwanda’s renewable energy sector for over a decade, starting off in biofuels and later moving to solar PV mini-grids. What inspired your decision to make the move to mini-grids?
[KB] – Having worked in Rwanda for several years already, I had seen the positive progress the country was making in terms of infrastructure development and reduced reliance on donor funding. It was clear, however, that lack of energy access was one of the biggest barriers to this, and so I started exploring biofuels and other utility-scale solutions to the problem with the national energy company. It became very quickly evident through those discussions that decentralised power through solar mini-grids was actually the most effective way to deliver productive-use power to off-grid communities.
As one of Rwanda’s pioneering private mini-grid developers, you must have found yourself operating in a relatively untested, fast-changing market environment. How has the market changed over the last few years? What lessons have you learned and how have you incorporated them into your operations?
[KB] – It’s been an interesting journey, that’s for sure. Mini-grids are a fledgling sector in Rwanda, and the market is evolving both quickly and positively. This has been particularly evident in the investment arena, where until recently the focus had been on solar home systems. The mini-grid market seems to be about three years behind, but there is clearly increasing focus and appetite from investors on mini-grids, which is really positive.
In terms of lessons learnt, we have faced some challenges with supply chains and the process of importing goods from three different continents, particularly regarding timescales, which can have a big impact on implementation. This has taught us some invaluable lessons as we prepare to scale up, and I’m just pleased we experienced those challenges early on before operating on a much larger scale.
ARC Power’s partnership with REPP began in 2019 with an initial convertible loan, which was increased in May 2020 to bring REPP’s overall commitment to £900,000. Why did you approach REPP for support and how has that funding supported your work? Why was REPP a good fit?
[KB] – The partnership with REPP in 2019 was a great milestone for us. We had already completed the first of our pilot installations in Nyamata, Bugesera District, and were ready to scale our installations in that area, which the initial funding from REPP allowed us to do.
REPP is a leading investor in the mini-grids sector, and so whilst the funding was important and a critical factor to our operations, REPP’s support acted as a validation of our business model and execution abilities, which was a huge lift for the company The initial funding also certainly provided other current and potential future investors with the additional comfort they required.
Three years into its operation, today ARC Power has two operational solar PV mini-grids serving seven different villages across Nyamata, Bugesera District, Eastern Rwanda. This has resulted in 1,330 connections to homes and businesses, and contributed towards the Rwandan Government’s NDC commitments and its target of achieving universal energy access by 2024. What more can we expect to see from ARC Power over the rest of the year?
[KB] – We are very excited about the next phase of ARC Power’s expansion, following the recent additional funding from REPP and our other investor. Despite the global impact we have all faced over the last few months, ARC Power has made very good progress with new investors. We are already on track, operationally, to complete our target of 3,200 connections shortly after the lock-down in Rwanda lifts, having already completed some of the work on the mini-grids before the lock-down, but will be aiming for 5,000 connections by the end of the year, subject to the additional funding currently being finalised. This is ahead of a much larger scale-up and expansion into our second country in East Africa, in 2021.
How has the COVID-19 crisis affected ARC Power’s operations and business plans? What kind of measures has ARC Power implemented to protect its employees and community?
[KB] – The global pandemic has certainly had an impact on ARC Power and I expect there will be very few businesses anywhere which haven’t been impacted to some degree. Primarily, the lock-down in Rwanda meant that we had to stop all activity in terms of new mini-grids and connections, but we have been able to ensure the continuity of service for all of our existing customers.
As we are in the middle of raising a further £10m to scale operations in 2021, the process of due diligence from our potential funders has also been slowed due to the travel restrictions and inability to complete site visits in Rwanda. This has however, given us time to review our strategy and plans and further improve our operational efficiencies ahead of the next phase of scaling, once things open up again.
ARC Power employs more than 50 people in Rwanda and it was very important for us as a business to ensure we protected our highly valued team and minimised the impact of this situation on them. I am pleased to say that, with the recent funding from REPP and our other investor, it allowed us to retain the full team throughout this period and be in position to return to operations quickly, once circumstances allow.
The uptake and development of productive uses of electricity (PUE) is critical to both mini-grid financial sustainability and the long-term socio-economic development of the beneficiary communities. What is ARC Power doing to support the uptake of PUE at your mini-grid sites? And what support is required to help mini-grid developers to strengthen the PUE focus in their project development?
[KB] – The uptake of productive uses is certainly a critical factor for both financial sustainability and economic development.
In our pilot cluster of villages, our customers are predominantly households, but there is a strong desire within the communities to develop businesses and increase economic activity. In response to this, we have established a ‘task force,’ at ARC Power, called Demand Development Group (DDG), which is working closely with the pilot communities to identify and support businesses to either be set up or grow to increase the PUE. Unfortunately, progress was hindered by the national lock-down in Rwanda but will be supporting a number of new businesses in the coming months, including a tailor, a milling operation and a water pumping system for irrigation, amongst others.
I think that there is an increased need for soft money to support the PUE growth and we hope to provide a good case study within our existing mini-grids sites to develop a model whereby small business centres and economic activities become part of our overall installation model on future expansion.
What other measures has ARC Power implemented together with the community to improve the quality of life in the project communities?
When entering a new community, ARC Power works closely with the village chief to develop a strong working relationship with the community, and to ensure energy is introduced to the community in a safe and sustainable way. Through this engagement we are able to identify a workforce and security guards from within the community so that as many jobs as possible are created in the community.
We are also currently investigating the potential around centralising community water supply through the use of electric pumps to ensure water is more readily available for the entire community.
What advice would you give to other mini-grid developers starting out in Rwanda or other parts of the region?
[KB] – I am a strong advocate for Rwanda as an environment to invest and do business in, hence why we initially started here ahead of our planned, regional expansion. I would, however, advise any other mini-grid developers starting out to make sure they fully understand their target market and the regulatory environment in their target country as things can take longer than anticipated. Our experience to date highlights that the regulatory process and the efficiency of that process are key to ensuring that energy access targets are successfully met. Patience and perseverance are key in this evolving market, but the potential to deliver long-term, sustainable impact in Rwanda and the region make it worthwhile.