Interview with Stewart Craine
Founder, Village Infrastructure Angels
Location: Vanuatu, Indonesia, Honduras, Papua New Guinea
“You have to be obsessed with access to sustainable energy to do this job”.
Stewart Craine calls his work “an adventure”—an indication of the robust attitude he’s applied throughout his career as an energy access entrepreneur. Craine co-founded Barefoot Power, a company that addresses energy poverty by designing, manufacturing, and selling household solar products in developing countries. Initially focusing on micro-solar lighting and phone-charging products, Barefoot Power has grown to reach two million people in 22 countries since its beginnings in 2005. He then moved on to co-found Village Infrastructure Angels, or VIA, in 2012, a company he describes as “part investor, part entrepreneur, kind of halfway in between, trying to help new technologies and new financial mechanisms bring a richer array of options for investors and entrepreneurs as the energy access industry grows. And it’s well on its way to becoming a US$1 billion industry by 2020. Our job is to try to mobilise public money next to private money so that both of them can get out there and build sustainable energy infrastructure without undue risk for investors”.
VIA received a $1 million loan guarantee over three years from USAID’s Powering Agriculture initiative.
Stewart Craine’s adventures in the field began 20 years ago, when he got his first job with Australian Volunteers International building micro-hydro mini-grids in remote areas of Nepal. His brand-new degree in civil engineering hadn’t quite prepared him for building electrical systems, but Craine was undaunted. “I bought a textbook on electrical engineering and skedaddled off to Nepal.” The lessons he learned there about designing and building off-grid for maximum value and sustainability became the basis of his master’s degree—this time in electrical engineering. What he learned about the project’s socio-economic benefits for villagers was equally important.
“You could see the result in reduced manual labour for women when they didn’t have to process crops by hand, because they had a mill. The daytime use of energy in Nepal 20 years ago was mostly around milling, processing the crops they ate every day, because there are very few crops you can eat without processing. A diesel generator might be the way to do it if you didn’t have electricity. It’s a natural step for me to go past my Barefoot Power experience of replacing kerosene lamps with solar to tackling the next fossil fuel, which is diesel”.
Focus on daytime energy use–and working capital
VIA’s creation of community-level resources like mini-grids, food mills, and refrigeration is directly related to the issues Craine first saw in Nepal. “Now that solar panels are cheaper and batteries aren’t yet, we really need to focus on daytime use of energy. And daytime use of energy in micro-micro-systems is mills, so that’s what we focused on for VIA. We saw that pre-harvest technologies like solar irrigation were being well met by other people, but for post-harvest technologies like crop drying and crop processing, there was hardly any activity from the solar sector at all. So VIA has been created to try and fill gaps in the space”.
These days the great challenge for Craine in filling those gaps is raising money to develop larger-scale, more sophisticated solar products and systems. There’s great opportunity and unlimited potential demand, he says. But meeting those requires investment.
“You don’t need much capital if you’re selling solar lanterns and small home solar products for cash, which was the Barefoot Power business model. Compare that to selling solar systems to the poor through a loan. With the upfront cost gone, people now can afford US$50–200 products they couldn’t afford for cash. So they move up the energy ladder just because we’re helping them with finance.”
On the need for working capital, he added, “We invest about half our money in solar lighting with a short payback, half our money in longer payback technology like mills, solar refrigerators and other products, so it becomes even a little more capital intensive. It takes longer to get repaid, because you’re lending this product to them for one or two or even five years. You have a larger product and you’re not turning your cash over every six months as you buy and sell for cash. So you end up needing four or five or even 10 times more working capital to reach the same number of people”.
Make your model replicable
The U.N. Advisory Group on Energy and Climate Change has a vision of sustainable energy for all by 2030 that looms large for Craine, but the challenge in making that vision a reality is raising capital for products and systems. Speaking from his office in Vanuatu, where “we’re helping people recover from a category 5 hurricane that flattened the country last year”, Craine said VIA is trying to meet the challenge of investment by demonstrating what is possible.
“If you’re in a small market like we are here in Vanuatu, investors can take a look at the market size and say ‘Well, with a few million dollars we can reach everybody in the country’. And we like that. We like that we’re going to be able to achieve sustainable energy for all in Vanuatu by 2020, not 2030. Similarly, we’re doing the same thing with half a million people on Sumba Island in Indonesia, to show in a small way in a concentrated environment how solar and other technologies can deliver sustainable energy both off-grid and on-grid with a fairly modest amount of money”.
Craine is concerned about what he sees as an over-saturation of investment in some markets—particularly East Africa—that by now are more familiar to investors. VIA’s focus is on virtually untapped markets where the demand for energy isn’t just through the roof, as Craine puts it, “it’s through the trees … We think there’s a great opportunity to have a large impact in some small markets to prove up some models that are very replicable in other countries. VIA is rolling out similar sorts of models and technologies in Indonesia, Honduras, and Papua New Guinea, not just concentrating on one country, so we can demonstrate this is a replicable model not just to be executed by ourselves but by other partners”.
Craine’s hands-on experience makes him enthusiastic about the increasing accessibility of solar. “We need to basically bring the IKEA plug-and-play mentality not just to solar home systems, but to larger village-level power stations. For me, having DC systems that are low-voltage and safe that you can put together yourself without a qualified electrician being required is a very likely part of that equation.
We do need to get that richer level of services out there, and by 2020 I think we’ll be able to quote a lot of examples where that can be achieved”.
Calling all angels: “Angels are the lifeblood of innovation and start-ups in every country”
The much-quoted goal of sustainable energy for all by 2030 is marvellous, but the big challenge in meeting it is raising capital, says Craine. He spends the majority of his time and effort courting investors, with a “95 percent failure rate”. That’s usual for energy access investment approaches, says Craine, though he finds the process frustrating when it ends in rejection. “The only thing that compares to it in my experience”, he adds, “is trying to date girls in high school”.
“People are often shocked when I tell them it took 70 separate investments from 50 different investors to raise $10 million for Barefoot Power. Seventy deals is doing a deal every month for six years. I wish I could say I’m having a different experience with VIA, but I’m not. We’re already up to about 20 investors and are only just breaking through our first few million. It is a very time-consuming and inefficient process. You have to be obsessed with access to sustainable energy to do this job. I know a lot of other people have tried and given up”.
Reticence to commit is mainly due to unfamiliarity, says Craine. For Barefoot Power, which was started in Australia, most investment came from offshore, because “Australians were keener to invest in mines, the latest brewery, or something to do with sports”.
The attitude, he says, was, “‘Ah, you’re investing in poor people? In Africa, and you have no intellectual property? Why would I invest in you, versus all these other wonderful deals that sell to rich people in rich markets and have great IP attached to them?’ So you need a specific type of investor, one who wants to get out there and make a change in the world”.
For the most part that means that typical equity investors are not what Craine is looking for. They tend to want quick and potentially dramatic growth on their fund. Debt investors who are happy with standard long-term returns of 5–15 per cent are what is needed, and individual investors—called “angels” in investment jargon—are more likely to have the freedom and inclination to invest in sustainable energy access.
“Angels are the lifeblood of innovation and start-ups in every country. We need the deals to be made sooner, which is why Village Infrastructure Angels exists as an angel group. I can’t go to the bank as a startup in Australia, no matter what I’m doing, and get a loan. They don’t fund innovation, they fund mature businesses. They need three years of financials and a profitable business.
“What I’ve found in my experience over the years is that angel investors do those deals a lot faster than institutions. It was always individual angels and people who ran companies who invested in Barefoot Power. Institutional investors can take years to make a decision. Angel investors will usually just take weeks or months. The first VIA projects for Vanuatu we crowdfunded on Kiva got fully funded in four hours”.
Making investments safer
But even change-agent angels can be very conservative at times, says Craine. VIA’s safeguards for investors meet a high professional standard, something he feels he has to keep repeating. “Our job is to make that investment safe for you. We have a three-year $1 million guarantee from USAID’s Powering Agriculture, part of which means the first million dollars invested in solar agro-processing power stations has full protection and full security of that capital being returned”.
And Craine points out that investors and entrepreneurs should understand that pay-as-you-go technology has been a game-changer for securing investment in energy access investment. Smart grid sensors give companies the ability to remotely switch off the service if people aren’t paying for it, so most money raised in energy access these days is going to pay-as-you-go services.
Still, says Craine, “companies haven’t stepped up yet to higher-power community shared infrastructure like milling and a refrigerator at the clinic and things like that. So you need to work shared infrastructure into the system”.
He also thinks that public institutions looking at funding for energy access should try appealing to angels rather than banks. “Why not use some of that public money to get angel investors involved in this? … This is millions if not billions of dollars of potential investment by people who understand the value proposition of solar and would love to give a $10,000 opportunity to a village somewhere if they can repay a fairly short-term loan. So there’s a massive convergence coming between individuals running power stations on their own roof and potentially helping the poor run power stations in their own village. And that for me, is what gets me up in the morning”.
—Valerie Schloredt, Writer and researcher