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[Episode #12] – Energy Access for the Developing World


What’s the best way to bring energy to those in the developing world who lack it? Why do forecasts by agencies like IEA always seem to overstate the cost of solutions in the developing world? Why do big expensive programs run by NGOs and the World Bank so often fail to achieve their aims of alleviating energy poverty? Why do those programs always seem to favor big coal plants, nuclear plants, CCS projects, and other big-ticket items that never seem to get built? And what’s actually getting the job done, right now, in places like sub-Saharan Africa? What are the prospects for those efforts in the future? We answer these questions and more…like where Bill Gates goes wrong with his zero-carbon equation.

Guest: Justin Guay, Program Officer on Climate for the David and Lucile Packard Foundation

On Twitter: @Guay_JG

Recording date: February 28, 2016

Air date: March 9, 2016

Geek rating: 2

Chris Nelder: Welcome Justin to the Energy Transition Show.

Justin Guay: Good afternoon Mr. Nelder.

Chris Nelder: So bringing energy, especially electricity to parts of the world that lack it has been a consistent focus in your career. And there are a lot of dimensions to that from the big national scale all the way down to the scale of a single lantern or a cell phone. In the last episode we talked with Ashish Fernandes about bringing electricity to those who lack it in India which most people assume would be powered by coal but now we see indications that perhaps renewables will do the job instead. So let's start there with the big picture stuff and work our way down to the small stuff. OK.

Justin Guay: Happy to.

Chris Nelder: So the expectations for coal generation seem to have been consistently overblown, like last year when it was becoming common knowledge that China was building a new coal fired power plant every three days, or you know whatever the statement was, its use of coal actually had started falling. And the forecast for India's coal consumption also appear to have been considerably higher than India's actual use of coal. As we discussed in the previous episode. And a paper that you sent me, an informal analysis by the European Climate Foundation last year, compared projections by WRI and IEA for global coal plant expansion to actual coal plant construction and they use commercial data, primary research, media and GIS and all sorts of stuff to figure out what was actually being built and they found huge gaps between the projections and the realities, for example since 2007, 120 gigawatts of new EU coal plant projects were announced but only 4 percent entered construction, and of around 145 gigawatts of coal plants announced in the U.S. only a small fraction actually commence construction. So my question for you is, why do you think there has been such a consistent bias toward over projecting coal plant construction around the world?

Justin Guay: It's a really good question. I think that the first easiest answer is that I think it serves the people who make those projections. So if you look at whether it's the industry or analysts who are very close to the industry what you see is consistently people overestimate the time to completing or constructing a project to the ease and ability of securing finance, to the presence or lack of presence of local opposition to things like pollution and environmental externalities that will destroy people's livelihoods. And I think the irony here is that the flipside of that is also very true. So people overestimate the ability to get a coal plant constructed and then they dramatically underestimate the ability of developers working on things like wind solar and other alternative technologies to step in during that delay and beat them to it. So I think it's pretty interesting, I think the other thing that's highly fascinating is you look at that Vice article that was written I think a few few months back about who was the most, the most accurate when it came to renewable energy deployment figures and of all of the analysts looking at that it was Greenpeace and even they underestimated deployment growth and I think what nobody has done and what we need to do is the reverse of that and see who has the most wildly overly optimistic on the coal capacity deployment and it's almost always the most conservative establishment status quo agencies.

Chris Nelder: Well OK. I'm willing to go along with your thesis there. But in what way does it serve them to overestimate that stuff?

Justin Guay: Well I think that for instance if you look at the IEA, their coal team, those that look at the deployment numbers and the assumptions, are very close to the industry and they end up taking industry figures oftentimes. Now we would never imagine that anybody who is asking for a projection of say solar deployment would turn to SolarCity and exclusively rely on SolarCity's deployment figures. So I think that there is you know a bit of a situation where there's just too much of a cozy relationship. I think though it's also oversimplifying the problem to say that it's simply agencies for whom this benefits them. I think there's also just the fact that people have assumed business as usual will continue for however many years out into the future and they refuse to discount the fact that the future rarely looks like the past. And so I think what you have is kind of some form of inertia or status quo that you know blind people or agencies to a changing and dynamic set of situations that will dramatically alter the likelihood of any of those forecasts going forward.

Chris Nelder: Yeah. Almost a sort of recency bias I guess.

Justin Guay: Absolutely.

Chris Nelder: OK. So again drawing on the aforementioned study, the authors noted that IEA expects 400 gigawatts of coal plants to be retrofitted with carbon capture and sequestration, CCS gear in its 450 scenario, but that this assumption seems to be unsupported by real world data and my own study of CCS backs this up. I mean for years we've heard all these high profile announcements about plants being equipped with CCS, big ticket CCS projects being backed up by governments, and then they just seem to fizzle out with with nary a mention. Usually they don't even get an obituary, usually after burning through a couple of hundred million dollars. So why do you think CCS continues to be featured as a big part of the solution set by all these major agencies and governments when the reality on the ground is one of so much failure?

Justin Guay: You know honestly I think because deep down it scares people, because if CCS does not manifest itself we have a serious problem with making these numbers work. I mean if you look at the IEA scenarios to get to two degrees we have a tremendous amount of fanciful thinking when it comes to CCS deployment, BECCS, sequestration of other forms you know to get two degrees which is already going to be you know in some ways a Herculean task we have also baked in these numbers that are completely fanciful today. And so I think when you look at the IEA and other agencies that are trying to project out a future that is compliant with two degrees the only way they can square that circle, the only way they can make those numbers pencil out is to essentially slot in CCS deployment figures that nobody thinks are real. And I think that is actually the bigger problem. You know we have continually looked backwards trying to force CCS as a solution or force ourselves to believe it will one day become a solution and it has I think in many ways really blinded us from the bigger problem which is that it's not working out whatever your opinions are of the technology and it's highly doubtful at this point that it is any more of a solution than any other solution we might have. I mean if you look at the DOE investment program I mean they made available what was it $8 to $10 billion. You know they can't even force that upon people, nobody even wants the investment dollars because these projects just don't work in the real world. So I think we have a really big problem that is bigger than the fact that these agencies you know deep down want CCS to work and it's that we don't know what we're going to do if CCS doesn't work.

Chris Nelder: Right. The burden of telling a story that people want to hear without CCS as this sort of wedge of hope in the your future scenarios - just too difficult.

Justin Guay: Absolutely and that's not to say that you know sequestration of some form or any kinds of technologies that deal with the fact that we have made the atmosphere one giant superfund site is not necessary, but it's to say that we can't keep kidding ourselves. And I just again find it highly ironic the kind of double standard we have around our ability to believe in a future for CCS and our almost purposeful inability to believe in a future for any alternative technologies or solutions.

Chris Nelder: Well I'm going to, I'm going to let EIA off the hook here in a minute but not just yet so. EIA and many other agencies like it to be fair also seem to consistently overstate the cost of bringing energy access to the powerless parts of the world. You know whether they're estimating it with coal or renewables or what have you. In a 2014 report on clean energy financing which we'll link to the shownotes you and your co-authors at Sierra Club wrote that energy access can be delivered much more cost effectively, for example energy services for appliances including television, fans, lighting, mobile phone charging and power appliances like refrigerators can be provided for approximately $200 billion which is 69% lower than IEA estimates. That's a pretty big gap. I mean why do you think these cost estimates put forth by IEA and its ilk are so much larger than what you know folks like you come up with.

Justin Guay: Yeah I think it goes back to that inability to project out a future that looks a lot different than the past. I mean I think that's baked into modeling as an exercise period, but I think that there's also a set of disruptive technologies, approaches, and scenarios that lead to that dramatic cost reduction that are you know to be fair to them are almost impossible to model out. But the reality is what they do then instead of attempting to you know take into account these different scenarios, these different technologies, they simply assume what we have always done is what we will always do and what we've always done is essentially try to throw the kitchen sink at a problem, starting from the top down with grid extension that is extremely expensive and you know has largely been ineffective, and costs a lot of money rather than looking at a more surgical approach which would go directly to the people who would benefit the most, do it much more quickly at a much cheaper cost. And you know look at building that system from the bottoms up. And I think that's really the difference is that you know myself Stuart Crane and Evan Mills over at Lawrence Berkeley we looked at you know a set of technologies, a set of approaches, a set of businesses that are operating today that take just a very different approach than what we've always done and they do that because the approach that we have been working on for the past 30, 40, 50 years simply hasn't worked, and we don't see any reason to believe that it will work in the future. And so I think that by freeing ourselves from the fallacy that the future will look anything like the past we were able to look and see a different set of technologies and approaches that would get the job done at a much cheaper cost.

Chris Nelder: You know I think this point of recency bias is an important one, and it probably helps to explain why not only do we always have these CCS wedges in the future scenarios from these agencies but they also seem to be really really bad at forecasting the retirement of coal plants for example. I don't know of any of the major agencies that even came close to correctly forecasting exactly how much coal power has been retired in the last couple of years, certainly not forecasts that were made even just three, four years ago.

Justin Guay: Oh absolutely and I think what for me really revealed this was the whole debate around peak coal in China. So if you looked at the things that even Wood Mackenzie, you know a classic bull for oil and coal markets across the world. They were predicting a doubling of Chinese coal consumption just one to two years before the peak hit. Now there's still a lot of debate, I think it's a false debate to say whether or not we have hit peak coal today. But I think if you look across the board analysts have now quickly worked to revise their estimates and change their narrative and essentially say we always knew this was coming and now here it is. But I think that it's just shocking to me that an agency that is taken so seriously that really sets the tone both for policymaking, as well as investment decisions could be so wildly off. And I think that is I think something very very important for us all to grapple with when we think about what the future could look like and we unburden ourselves to try to you know make it what we know it needs to be.

Chris Nelder: You know you made kind of an intriguing little allegation there of you know the peak coal in China question being sort of a false debate why why do you call it a false debate?

Justin Guay: Well I think it's a false debate for the same reason that it shocked me that I saw WoodMac claim eight billion tons of coal consumption a year before the peak hit. I think what we're seeing now is a bunch of analysts who didn't see this coming or maybe saw it coming but really weren't brave enough to stand up and call it before it happened. Now trying to cover themselves and cover those false assumptions in a debate that you know will eventually work itself out to the point where the vast majority of analysts will agree in fact we have hit the the reality is what we see today and we have now squared our model to fit reality. And I think that it's just difficult to be able to admit to the world and admit to people who you need to sell future models and assumptions to that you were so wrong on your past predictions.

Chris Nelder: You know this is a subject that gets no attention at all. But I think in many ways especially in the world of energy modeling and energy analytics, it's really sort of the elephant in the room, the higher profile you are in one of these agencies, the more important it is for you to put forward ideas that are not too far out of what people consider normal. You know you have to sort of maintain a certain normality or a certain reference or rooting in the recent past to even be taken seriously, to even get to the position that you're in you have to be that way and people who stray too far off the reservation, even though they may be right simply can't get into those positions or can't get those forecasts heard and people who go off the reservation are quickly disappeared even when they're right. It's remarkable how much not only a recency bias but a normalcy bias there is to work in forecasting.

Justin Guay: Yeah that's right and I should say I mean to be fair you know I've talked to people who are fairly close to the EIA models and you know there are a lot of people who recognize the problems with the system and the status quo.

Chris Nelder: Oh absolutely no. I've talked to them myself. I mean these are smart people, they're good modelers, they're not unaware by any means of these problems. Yeah.

Justin Guay: Absolutely.

Chris Nelder: So let's switch contacts here and talk about Africa. 620 million Africans they say have no access to reliable affordable energy in Africa, no source of heat and light for their homes schools or hospitals. And it seems that really small little solar solutions like the Sunny Money solar lanterns we discussed in Episode #5 which are being deployed across Africa and the little micro solar leasing solutions like that offered by our mutual friend Xavier Helgason company Off-grid Electric in Tanzania and elsewhere. This is where the real progress seems to be being made. It's not in grand projects that will extend a centralized grid to those without power. So I believe you have some personal experience with bringing energy to Africa. Why don't you tell our listeners a little bit about your experience and why you think these are off grid solutions are able to make progress where the big grid projects aren't?

Justin Guay: This is I think a topic near and dear to my heart. One of my favorite topics in the energy world. So let's start by letting me reverse the roles here and ask you a question and that I think will help us dive into the topic. So if I were to ask you which country is home to the most wildly successful solar home system project, a project meaning policy support to deploy solar home systems in the world today. What country would you would you say, what country comes to mind?

Chris Nelder: The most successful country in the world for solar homes. Wow, I don't know. I guess I would probably say Germany.

Justin Guay: See and I think that is the answer most people would have. And I think as you were talking about, you know recency bias and normalcy bias, I think there's also bias inherent in believing that innovation and cutting edge energy deployment come from the developed world and flow to the developing world. So the answer is Bangladesh. So Bangladesh has three million solar home systems installed, their market grew 60 percent, a compound annual growth rate of 60 percent over the past decade and they have half of the world's deployed solar home systems. Now you know to be fair these are much smaller than the home system I have on my roof. Or you know your average Tesla driving Californian has, but I think the point here is that scarcity is the mother of invention and in emerging markets where you live and breathe horrifically polluting fuels and you are in desperate straits when it comes to power in your life you will find ways to solve this problem and that really is the story of entrepreneurs like Xavier and others who are stepping into this void where grid extension has just completely failed. And they are deploying incredible innovative business models financial models and some of the most cutting edge technologies, not just solar and lithium ion it's machine to machine technology, it's pay as you go mobile phone enabled payment systems. It's potentially drone delivery as we'll talk about later. There's some really exciting interesting stuff happening in these markets. And I think what we need to do is stop thinking about it as a paternalistic aid focused Western world helping the developing world problem, and we need to start thinking about it as potentially the testbeds or labs for energy innovation that may eventually come back and dramatically impact our own lives. So I kind of jumped too far in here but I should take one step back and just give the macro issue of this problem. So you know globally we have about a billion people who are unelectrified. We've got another billion people who are "under electrified" meaning they have access to a grid and wires but they have juice maybe two hours a day, four hours a day, maybe six hours a day. But underneath both of those numbers I think there's a whole nother subsegment of people who we're not counting. So to take an example if you look at India's definition of energy access 10 percent of a village having access to the electricity grid defines the whole village as being electrified which means that India's numbers are vastly overestimated and you can imagine a scenario where other countries for a variety of reasons may have overestimated the number of people currently receiving adequate reliable energy services. And so when you think about that you start to look at the business as usual scenario, the grid and extending it out in a very costly manner, powering it with heavily polluting power plants that are hundreds of miles away, and you realize that it really only serves about a third of humanity which means there's this massive vacuum for entrepreneurs to step into and disrupt the status quo. And that's really what's happening that's kind of the macro picture that I wanted to make sure we painted. And so the other thing that's really interesting is that in that vacuum there are other technologies trying to step in, electricity isn't the only service people lack. It typically becomes the service which unlocks other services, it's the first entry point, but you can look at mobile phone deployment around the world and we now have 411 million people around the world according to GSMA who have a mobile phone or access to a mobile phone connection but can't power it. And so you have this really interesting intersection of technology deployment and needs that is creating the demand and the conditions that are ripe for innovation.

Chris Nelder: This is interesting because there has been a long running argument about the best way to bring reliable power to Africa and to other developing parts of the world. How much emphasis should be placed on expanding the grid and how much on these little off grid solutions like Sunny Money Lantern's and the other things we've been discussing here. So NGOs that have focused on off-grid solar energy have been criticized for actually diverting attention and funding away from developing these large scale power infrastructure projects. And it seems that many elected officials particularly in Africa favor these large infrastructure projects. But then activists, many of them believe the grid expansion will just never happen. And so they say that's a false choice, that the choice is not between renewable energy and the grid but rather between clean off grid solutions like wind and solar and dirty off grid solutions like kerosene batteries and wood. What's going on here? Why do elected officials and NGOs and so on believe so much in this centralized grid model?

Justin Guay: Yeah, I mean I think there's no simple solution here, a simple answer. I think it's a bit murky. But you alluded to it in your preface which is that again there are people for whom business as usual defined as large infrastructure deployment serves their interest. And so I think that that really answers a whole lot of questions around why do we keep doing this thing that clearly doesn't solve the problem. But then there are another set of people who I think truly do care about solving this problem, but truly do believe that distributed generation, some of the bottoms up solutions, are not going to get us there or are not adequate. And for me the biggest reason I think that I differ with them is that if you go and talk to some of the pioneers in the off-grid solar world in emerging markets and I think nobody better than Harish Hande from SELCO who has been operating in Karnataka, India for the past 20, 30 years. So this is somebody who eats, lives, dreams, sleeps this stuff. His first customers were people who had access to the grid but were sick of the fact that the grid was so crappy and so they went solar to provide them with reliability. So if the people right now who say we need to expand the grid and if you count somebody as being electrified who gets a solar home system that's not enough services and you're distracting us from the mission. Well the truth is if your solution isn't even serving the people today that we are counting as being served, why would we believe that it will then serve people further down the rung who are more politically marginalized who are poorer who are economically marginalized. Why will they get better services or even equivalent crappy services as those who enjoy its benefits today? And I think that leads me to the bigger point which many of these people you know I think oftentimes sitting in whether it's academic institutions or very nice comfortable desks not far from the ground don't realize is that the grid in emerging markets is already distributed. It relies on diesel gensets. You know we have 400 gigawatts of global diesel genset capacity around the world. They're the ones that are doing the heavy lifting of actually keeping people's lights on. Not the centralized grid. If you look at India there's something like 70 gigawatts of annual capacity in diesel gensets because the grid is so terrible. So it's really hard for me to believe that we are being honest about where we are today with the grid and where the grid could take us when we don't recognize what people are actually doing in the real world not what we think they're doing in our economic modeling.

Chris Nelder: Right. So you would agree then that it's really a question of clean off-grid solutions versus dirty off grid solutions.

Justin Guay: I think so. I mean so again if you look at those numbers and I sent along hopefully we'll have show notes the latest numbers from the global tracking framework that the Sustainable Energy for All the World Bank put out. It's primarily a rural problem and it's primarily an Asian and African problem. And I just, you know when you look at the reality of people living in rural parts of the developing world they are not expecting a grid connection anytime soon. They are living and dealing with these heavily polluting fuels. And so you start where the problem is and you provide them with superior solutions today. And so that's why I think that at least for that subset of the population, that is where we start with distributed solutions. Now I think what is really interesting is where that goes, again I think it's not as simple as we will have the grid and we will have off-grid solutions. I think what you're going to see which will be really interesting in a few years is a huge amount of deployment of things as far and wide from lanterns to home systems to mini-grids and you'll have essentially the Wild West of energy systems. None of it talking to each other but you'll have the opportunity to make that into a coherent system. And so I think that's the interesting part of this whole equation.

Chris Nelder: Yes. Yes. I've been looking at that future potential myself. A very intriguing opportunity. Well into the future, but very intriguing all the same. So M-KOPA the Kenya based company that is the global leader I take it in pay as you go energy for off-grid customers just launched its first solar powered digital flat screen TV. It's existing customers, more than 280,000 homes in Kenya, Tanzania, and Uganda can upgrade to the TV offering or new customers can buy a 20 watt home solar system with the TV. And either way the customer can pay for it with daily micro-payments over time which actually turns out to be affordable even for these extremely poor people. So for many of these people, this will actually be their first regular access to a television and open up a whole world that until now has really been dark to them. And I just think it's amazing. First of all that it's even possible to power a TV with a 20 watt solar system. But I mean what kinds of implications do you think this sort of nanosolar or even I guess pico-solar innovation has for the future of off grid power systems in the developing world?

Justin Guay: See this is where it finally starts to get really juicy. This is the fun stuff. There's a lot of different ways we could take this but I think the thing that has really excited me about pico-solar and energy access as an issue for so long is what I said earlier. Energy is the first intervention. And the companies that are the smartest recognize that they are going to be the most valuable and the most powerful when they retain the customer and retain that customer relationship over time. And that becomes powerful because you then are the first business to provide them with an array of modern services and solutions that as you said they have not had up until this point. And so what's really interesting is that while the people who are sitting in offices in D.C., in Brussels and wherever else are busy wringing their hands trying to figure out how we will ever solve this intractable problem of energy poverty. I think what will happen is they will wake up one day to a world where the M-KOPAs and Off- Grid Electrics and Mobisols have not only solved the problem of energy poverty but they now are the one stop shop for everything these consumers are looking for. You look at wi-fi, digital finance and mobile money, delivery of products and services. You know there's any number of different sectors that these companies can branch off to. And I think the really interesting thing becomes, OK so what is the comparable in the U.S. market, are they an Amazon or are they in Netflix. You know what are these companies, and I think again going back to the fact that we shouldn't be comparing them to companies in the United States but we should be looking to figure out what companies in the United States will look anything like these companies in 10 to 15 years because we can't imagine a company that combines the solar services of SolarCity with the digital finance or you know the banking solutions of Bank of America with the ICT Internet and communication technologies of a Netflix or even an ISP. You know you couldn't even imagine a behemoth of a company like that today. And I think that's not to say that these companies will get there, but the opportunity and the potential is there today and they're operating in a vacuum and it's going to be incredibly interesting to see where it goes.

Chris Nelder: Yeah I mean I mean it's sort of hard to imagine it existing in a place like America. But you could imagine in Africa like a one stop shop providing energy and communications and broadcast services and banking and all sorts of stuff just sort of out of the same shop under the same storefront. Yeah absolutely and I think that's why you're finally starting to see an interest from big companies like Facebook and Google who have recognized that you know they need to expand their user base in emerging markets that's why Facebook had a big push Google as well. They're using all kinds of interesting innovative technologies everything from drones to high altitude balloons to try to cover the developing world with Wi-Fi signals. But you know they're starting to wake up to the opportunities that this sector presents. And so you've seen investment starting to tick up as well. So back in 2014 we tracked the annual investment in off-grid solar companies operating in these markets. It was about $80 million. Last year it was about $200 million. And in the first quarter of this year we've already seen about 40 to $50 million of activity. So you can see that you know it's not just kind of a pollyannish view that this could be something big. We're actually starting to see money flow behind this vision.

Chris Nelder: You know speaking of some of these sort of wacky or high-tech solutions, you alerted me to this company you mentioned a few minutes ago Mobisol saw which is testing a solar powered drone delivery system across East Africa. This is an area where the road infrastructure is notoriously poor and it makes a certain amount of sense I guess at least conceptually but I wonder just how much these drones can really do. I mean how much of a payload can they carry. And for how far, and how accurate is their guidance system and how secure can they make those payloads if it's just sort of flying through the air. I mean I just sort of wonder is this an interesting little techno fantasy or is this - does this kind of thing have real potential in a place like East Africa?

Justin Guay: I mean I think all of those are serious barriers and I don't think that by any means this is the solution for overcoming traditional infrastructure. I mean let's be honest. Many of these countries still have a serious amount of infrastructure that needs to be built to develop a modern economy. That being said the reason I found it powerful is again that notion of recency bias and normalcy bias we can't sitting today understand what the world will look like in subsaharan Africa in 20 years and their world is completely different from our world. So while someone like Jeff Bezos talks about Amazon having drones to deliver packages as you know essentially a convenience for the super rich, it's actually a necessity for people living in places without infrastructure today. So it's not so much that I think that becomes the model or the answer but it is a tantalizing view or peek into what happens when you divorce status quo and business as usual and attempt to innovate some of these intractable problems that we've been dealing with for decades.

Chris Nelder: Yeah I mean you could imagine certain applications where that kind of a delivery drone could just be an amazing asset delivering a crucial medication for example.

Justin Guay: Absolutely. I was just going to say medication, and I think the other thing that makes this fairly interesting and I'm surprised you haven't brought up Bill Gates yet. But the irony here is that this solar suddenly becomes a vital necessity for people who care about very different things. So we have now seen institutions like Omidyar Network that care deeply about financial inclusion in the developing world investing in off-grid solar companies like Off-grid Electric and D.light because they are leading to financial inclusion because they are actually opening up new mobile wallets, new mobile money, banking accounts because the only way their solar systems work is if these people can pay with their mobile money accounts. And so it becomes a driver of financial inclusion in a way that is incredibly powerful. And I think that becomes really interesting in terms of the kind of cascading developmental benefits that you might not imagine when you think of just energy alone.

Chris Nelder: Right. Well just for the record I have studiously avoided bringing up Bill Gates until now - so strenuously disagree with his approach to call for breakthrough or miraculous technologies in energy when clearly to me the real progress is being made in incremental improvement and deploying things that work today. And I just see in the call for R&D and breakthrough technologies, the seed of delay really - it's saying that the technologies that we have today aren't good enough, which there's a real argument to be made that that's true. We're not making progress fast enough on climate. I think that's clear. However, we can make progress, and all the progress that we have made has been made because we're deploying things and getting down the learning curve on these technologies. And I just really have no patience for this argument that we have to hang our hats on some sort of miracle breakthrough. I just don't think that's the right approach. And frankly I think that people like Bill get much too big of a platform for their views simply because they're rich and successful and in a different domain as an energy expert I don't have much time for his views frankly.

Justin Guay: You couldn't have said it better I couldn't agree more. Good thing that you said it and I didn't. But I will give one ...

Chris Nelder: It's a good thing I don't work at Microsoft anymore.

Justin Guay: I did want to give one concrete example because I think you said it exactly right which is that. So one of the biggest knocks on off grid deployment and off grid solutions is that a solar lantern while nice, and you know providing a level of service delivery that's important, is not a fridge, it's not a TV it's not all of these other things that people need and people want and that is 100 percent true. Nobody is under any delusion that you say the job is done when somebody has a solar light. But what we do learn and what we do become better at is deployment when we start even with those pico solutions. So all of the lessons we've learned in selling solar lanterns, everything from those pay-as-you-go solutions the machine-to-machine technology, the distribution systems you know who pays and when they pay and whether or not we can trust them as credit worthy. All of that then rolls up to the next level of deployment, solar home systems, and then we learn another round of lessons and then that rolls itself up to mini-grids and that to me is the energy ladder that we talk about. You know in all kinds of academic papers. It's not a literal ladder, but we are actually learning about deploying these solutions at lower levels today that will inform and enable those ultimate solutions and services that we know are necessary. And I think that is the real innovation and it's just really unfortunate that people who are so obsessed with innovation can't see it.

Chris Nelder: And you would think that people in particular with successful backgrounds and tech would be able to see that.

Justin Guay: Again no comment.

Chris Nelder: I mean there's not a huge leap from a micropayment system run by a cell phone to a PayPal. I mean come on now. OK. So some people including me have speculated that next generation technologies in energy will actually probably be developed originally for off-grid markets and then make their way back to the on-grid markets in the developed world. So for example hyper-efficient TVs that are like we were discussing earlier that are designed to run on a tiny little 20 watt solar system on an off-grid house and Africa could actually lead to more efficient TVs in our houses here in America or technologies might be developed to run for example a micro grid or a nano-grid in islanding mode disconnected from any larger grid in a place like India, and then make its way back to I don't know Hoboken, New Jersey to keep a micro-grid there alive. The next time a major hurricane sweeps through, so I wonder will manufacturers do this or will they make one ultra-efficient TV for the whole world or were there always be like sort of two different markets and I wonder?

Justin Guay: So I think this is another kind of tantalizing opportunity. So if you think about this market - so we have a billion people who have no access to electricity today. And then maybe another billion, who are you know victims of spasmodic electricity if you are a manufacturer looking to develop a TV, a radio, a fan, any number of consumer devices. It's really hard to believe that you would create a bifurcated system thanks to economies of scale. You're going to want to make one super efficient appliance that rules them all. And so I think that becomes this really interesting boomerang effect. And if you think about the technologies that enable that particularly in TVs and phones it's the LED. I mean it's already there. And so it's kind of a no-brainer that that will come back and you will see super efficient TVs in developed economies. I will say though that, and I know from experience in India, that some manufacturers do maintain bifurcated manufacturing structures and they do that so they can charge a premium for the better product so it's not guaranteed that that happens via market forces alone. As always we need some good policy to help guide that market. But I do think that it offers up a really interesting opportunity and I think the last thing I would say is that you know one of the biggest lessons that I took away from looking at this market is that it's not technological innovation, it's not solar, it's not storage that unlocks energy access for the poor, it's energy efficiency. So you were talking about how you couldn't imagine how a 20 watt system could ever power anything, let alone a digital TV capable of bringing the world somebody's living room. That is only enabled because of the LED light bulb. And so if you look at the next megatrend that will unlock energy access for the poor and unlock enormous climate benefits it is the deployment of super efficient appliances most likely to happen for this billion customer segment that doesn't have any access to power today and does not have the luxury of wasting electrons in a profligate way like we do here in the developed world. And I think that will be really really interesting to watch. There's a group called Global Leap that does contests for super efficient appliances starting with TVs. And I think that's one of those spaces that is very unsexy but incredibly impactful as it develops.

Chris Nelder: Back in December you wrote a piece in The Huffington Post titled 'Will Data Unlock Billions in Solar Investment for the Poor' and we'll link to that in the show notes. In it you talked about the pay-as-you-go off-grid solutions we've been discussing today and how they can generate data which in turn can be used to make those solutions investment grade. You talked about how a company named BBOXX just performed the first securitization of off-grid solar systems for residential and small commercial customers using nearly 12 years worth of data to structure asset backed notes that it can sell to investors. Those notes named 'distributed energy asset receivables' or DEARS represent a bundle of customer contracts with an average contract present value of $300. So this is really small stuff. Yet you wrote that BBOXX is aiming to finance the equivalent of $16 million worth of these projects in 2016 and doing it in both U.S. dollars and local African currencies, I mean now that's a real market. How big do you think the market opportunity is for these kinds of off-grid securities?

Justin Guay: It's early days. Right. So this is the very first deployment of asset backed securities in the off-grid space ever. That being said I really think the sky is the limit. You know if you look at the amount that people are paying for kerosene and you know candles and things like that today it's $30 billion. So if you just assume that we would displace that consumption, you have some sense of what we are looking at. But again going back to your previous question about why we can deliver energy access so much cheaper. The truth is it won't be a $30 billion market because our services are cheaper and better. And so you're likely to see smaller initial market for lighting alone. But you get a sense of scale. But I think going back to you know how is this possible and why is data so important. It's really interesting so I visited the BBOXX headquarters in London a couple of years back and I was chatting with their CEO Mansoor and I was looking at some of their back-end systems and it's just amazing how much data these companies generate. You got to remember every single product that they deploy in the field has machine to machine technology that is sending back data to the mother ship on repayment patterns, uptime. All of these things. And he was talking with an not to be named European utility who was looking at the same set of data and back-end systems and they were jealous because they don't have a similar level of intelligence capability for their own fleet. And I think it really underscores the fact that again these will be the labs of innovation for energy systems worldwide and these innovations will happen there first and then come back to us slobs in the developed world much much later. And I think if you look at what will be the most powerful piece of their ecosystem it will be the data they collect. Because if you look at what took us so long to deploy solar in the United States it was to deploy securitization in United States, is the fact that we have 20 year PPAs and you have a long time you have to collect it before to be able to show repayment histories and repayment strains. These systems are being repaid in as little as a few weeks to as long as a few years. So that cycle and that data collection is fastforwarded. And so now we have the ability to unlock huge amounts of institutional capital simply by showing with that data that these people will repay. And I think there are enormous boomerang effects. You know everything from trying to deploy solar for anybody who has a lower than 740 FICO score in United States, there's a lot of lessons there in terms of how we figure out how to expand the benefits of solar not just in emerging markets but even in our own backyards.

Chris Nelder: Wow, it's just sort of a mind blowing thought really to consider all the ways that that kind of data access could really, could really change the way that the game is played. How much of a difference do you think it will make for a place like Africa particular to bring in a lot of outside capital using these kinds of securities. I mean it's often I don't know sort of a double edged sword really to bring in a lot of capital because sometimes it winds up where the beneficiaries of that capital in these impoverished countries actually just sort of wind up drowning in debt without really benefiting in the ways that they were supposed to benefit from the solutions that capital bought. And it seems to me that there is actually a certain kind of self-sufficiency, a bootstrapping, that's more resilient and even more admirable in buying these solutions as you go on a very very very small scale. So I'm happy to see this amount of capital coming in through these kind of securitized vehicles. But I'm also skeptical about what might happen, especially if too much of it arrives in one place too fast. You know what do you think the potential is for this kind of capital flow to really change things?

Justin Guay: Well see I think you put your finger on it because you can't see only good and ignore what could be potential downsides to the deployment of resources at this scale. But this knife cuts both ways. So up until two years ago, many of these companies that are the same ones who are actually solving this problem we've been living with for decades, found it nearly impossible to raise the resources they needed just to get started. We're not talking angel round seed rounds we're talking series A,B,C. You know the initial amounts of equity they needed to demonstrate that these solutions really worked. And even in many cases when they had raised those rounds, they then couldn't unlock commercial debt to scale up their activities which is really the problem we face right now is just unlocking that debt to kind of scale these solutions we've already proven out. You know until a couple of years ago the problem was not enough money. But I do think what we will face in the next few years, you're absolutely right, will be too much money too fast and this is that classic boom-bust problem and I think if you look at what happened with cleantech in the United States just a few years ago it ended with Solyndra and it ended with an enormous kind of backlash from VCs in the Valley who saw cleantech as a failed sector. I think very wrongfully as many of us have seen over time. I mean you look at Tesla, and SolarCity there's a lot of positive examples of really profitable companies. But I worry that you may see something similar happen in this space and the fallout will be much worse because we're not talking about people like you or I who own a home and have you know fairly secure economic existence. You're talking about people who you know make a few dollars a day and who can't afford to deal with unscrupulous lenders. That being said, I think there's no way we solve this problem without raising the resources we need to scale the solutions. So we do need the money and we need these kinds of innovative structures to unlock money. But we what we need is policy to help govern how that money flows. And I think that's the biggest problem we have right now which is that there is just a wild west of activity in these markets because you know governments haven't paid any attention to these people, they're politically and economically marginalized the only ones who do anything historically have been aid agencies and they give systems away and then they leave and never pay any attention to whether or not they're taken care of. So what we desperately need, what the need of the hour is to develop policies that continue to enable this growth, but ensure that we create protective structures for people who could end up on the wrong side of its downsides. So you know I think I think you need both. I will note though that the reason we have such tremendous innovation and such interesting business and financial models happening today is exactly because no one's paying any attention. It's that vacuum into which they've stepped that has allowed innovation. Now you can't leave it that way forever. We will need policy. And I think it would behoove us to develop that policy sooner rather than later.

Chris Nelder: Yeah yeah. No I absolutely agree. Well Justin I think that should cover it for today. Such a pleasure always to talk to you and you've got such an incredible wealth of knowledge about this stuff so thanks a lot for making the time to join us on the show today.

Justin Guay: No thank you sir. And I just want to point out I've been listening to the show quite a bit. It's really one of my new favorite energy podcasts.

Chris Nelder: Hurray. Thanks man.

Justin Guay: All right.