Can mini-grids be profitable? SOLshare in Bangladesh doubles down

Friday January 20th, 2017 - Smart Villages

Interview with Dr. Sebastian Groh

Managing Director of ME SOLshare

Location: Dhaka, Bangladesh

“People are very smart about solar home systems in Bangladesh”

In Bangladesh, 17 million households are off-grid, and 85% of the population lives in rural communities. Solar works here and has done ever since the early nineties when the first solar home systems (SHS) were first introduced. According to Dr Sebastian Groh, his fellow Germans and founders of MicroEnergy International were taught the opposite when they studied at Technical University in Berlin: solar was a nice concept, but it did not work. Groh now runs a spin-off of that company, called SOLshare, which is based out of Dhaka and still maintains an office in Berlin at the parent company. SOLshare does two main things: 1) it trades solar electricity in mini- grids, and 2) it is switching existing solar systems to pay-as-you-go models.

Prior to starting his role, Groh says he travelled the world, educating himself on how microfinance and decentralised energy supply could marry together. “Energy providers can teach systems through micro-credits. It was a common pattern—you could focus on solar home systems and what stops its broader uptake. The marriage was quite tricky.” His PhD from Aalborg University (Denmark) on the role of energy in development processes, energy poverty, and technical innovations, took him to Stanford University in the U.S. Here, he pitched, and eventually developed, the concept for SOLshare with the CTO of the company, Hannes Kirchhoff, who was doing his PhD in Electrical Engineering.

Making mini-grids profitable

When SOLshare discovered that the solar home systems were producing around 30% excess capacity, with an average size of 30 to 50 watts, Groh was amazed. “Wow, we thought—that’s thousands of megabytes of electricity and power getting lost every year”. Electricity produced by the photovoltaic panel could not be stored in the battery because of the difference between rainy and dry seasons: “you can make a battery big enough to store everything, but in the rainy season the battery breaks as you can never usually charge it”. The expensive solution was a mini-grid system—add to that the difficulty of financing its capital expenditure whilst also covering the operating costs.

“There are very few mini-grids in the world which are fully financially and operationally sustainable”, says Groh. “You have to estimate demand for the next few years—which is close to impossible—if it’s too big, the capital expenditure is too high, and if it is too small, it breaks down all of the time.” SOLshare’s solution was to build a mini-grid from the bottom-up. By interconnecting hundreds of solar home villages with cables, with a meter providing a feed-in possibility, people could see what energy could be put into the grid, and be notified on consumption rates. “We connected this to mobile money, which is penetrating Bangladesh; it works as a seamless gateway and payment platform”, says Groh. “The system produces a surplus and sends it to the grid, which you can then see on your phone. It’s a nice feature”.

Today, there are solar trading systems in Shariatpur and Mymensingh; the latter provides internet through a wifi tower, which connect the SOLshare smart meters to a wider database. “People are very smart about the system”, says Groh. “One woman told me our meter was not accurate, since it didn’t show her all the money she had in the battery—I thought that was amazing, as she really considered the electricity her SHS is producing as an asset that she has the power to liquidate”.

SOLshare_production_6

SOLshare tests its systems

Pay-as-you-go takes off—but more innovation needed

Groh joined the project as a consultant in 2009, when solar energy was still relatively virgin territory, although institutions such as the Grameen Bank and Grameen Shakti were marked as players on the scene. “They were a small light at the time”, Groh recalls. “There were around 200 systems, and now there over 1.5 million installed systems. At the time, solar batteries failed, and there were a lot of technical issues. Microfinance institutions didn’t understand the technology, and the technology didn’t understand what credit risks were”. Whereas, at the time, pay-as-you-go was but a twinkle in the eye of the solar industry, it has now grown by leaps and bounds. Groh remarks that as of 1 February 2017, pay-as-you-go will become obligatory in Bangladesh, a positive sign of the market recovering its health in the future.

However, with around 4 to 5 million solar home systems in Bangladesh, does Groh feel that the market is oversaturated? He concedes that there was a moment when it “became a bit spoilt” with donor money, although he believes that corrective measures are in place. “Repayment rates do go down drastically, as people stop paying for the systems, but we tend to disagree that the good times are over”, he says. “This is the biggest market in the world and has immense infrastructure—there are thousands of people in rural areas who can fix the solar home systems themselves. The market has not yet reached saturation point, but needs some new impulse through innovation”. One contribution to that could be SOLcontrol, a device that switches (even existing) systems from paid to prepaid seamlessly, he claims. “It gets the repayment problem under control”.

Advice to entrepreneurs in Bangladesh

Groh has lived in Bangladesh for three years; after a year, he met his future wife, a teacher at an international school. Meanwhile, the professional transition from being in academia to CEO and managing director of a renewable energy company has been stark, he admits. “Academia and my current work is two different worlds at two different speeds—the thesis feels like you’re running a marathon, whilst the company is a 100-metre sprint everyday”.

Other challenges initially included learning how to start a company abroad as a foreigner. “You need about twelve months to get your company set up from a legal point of view—in Singapore, it took me three hours to set up a holding structure for SOLshare”. Some tips he now offers include the importance of avoiding bribes, and to apply for a company with a local person involved. For example, he saw his application flagged in the early stages because his name was on the documents as the founder. “The first year was a lot about getting set up, legally speaking, but also working in the laboratory. The second year was about raising funds and developing and testing our prototypes in the field. This thirds year is all about growing up to become more professional, implement processes, and generate revenue”, he adds.

Whilst Groh looks at the bureaucratic aspect of those first stages as a “catastrophe”, he points to the Ease of Doing Business Index, which ranks Bangladesh as one of the worst countries to work in. In other words, the struggles were predictable, or ulta palta obosta: “an amazing expression in Bengali, meaning the situation is screwed up”, laughs Groh.

With a UN climate award in hand, and a promising year ahead in a country where rural electrification is flourishing, the gamble has paid off.

—Nabeelah Shabbir (@lahnabee)