Julia Sanchez AbealJournal #1
It has been exactly 3 weeks, today, since I arrived in Nairobi. I feel mostly at home and it seems I’ve been here much longer! The experience, thus far, has been amazing—both professionally and personally. Most of it has to do with Acumen’s Fund mission and culture and how comfortable they have made me feel since the moment I stepped in.
Acumen Fund is a non-profit global venture fund that uses entrepreneurial approaches to solve the problems of global poverty. They provide small amounts of philanthropic capital, to build thriving enterprises that serve low income people. Their investments focus on delivering affordable, critical goods and services in four key sectors: health, water, agriculture and energy.
I’m working in the energy portfolio in the East Africa office. The last three weeks I’ve been working on two different activities. On one hand, I’ve been conducting a research of the renewable energy space (particularly for rural electrification purposes) in the East Africa region and on the other hand I’ve been supporting Leah Okullo – who is the energy portfolio associate – in analyzing and assessing different companies that were in the pipeline as potential investments on a initial due diligence stage.
My research work has three main objectives. First, for Acumen and my fellowship experience, gain a better understanding of the renewable energy space in East Africa, identifying both challenges and opportunities for Acumen as well as key issues that look more in-depth when conducting due diligence. Second, the research study has been (and will be) a good way to build relationships with organizations working in the field – from multilateral organizations such as the UN or IFC to private sector players. Third, find organizations to invest in.
For my research work, I’ve been reading and getting extensive documentation about the industry. Most interestingly, however, I’ve been talking to really knowledgeable people in the renewable energy space in East Africa (i.e. UNIDO, GTZ, The Millenium Development Centre, several solar and wind manufacturers, external experts).
From my reading and interviews, I believe that I have gained a broad understanding of the energy situation in Kenya (quite impressive to read that just 15% of the population have access to electricity and in the rural areas this figure comes down to 4%). I focused my research primarily on the micro-hydro power and solar subsectors – where there are more opportunities for Acumen to invest. For these sectors, I’ve learned the different business models that are applicable and the implications of the different models in terms of economics and social impact.
My job in analyzing potential investments in the pipeline has been very interesting as well. In the last three weeks, I’ve attended a couple of meetings with a solar company that is in the initial due diligence phase. This company is planning to sell solar kits to the bottom of the pyramid through MFI’s. The idea is great, but there are many risks involved. I’m very impressed with the due diligence methodology of Acumen and how thorough and exhaustive the process is. In my meetings with this solar company (the initial phase) we talked in depth about their system and accounting processes in place, their marketing and distribution strategy going forward, the economics of the products, the financial structure that they are planning to achieve. Once a company passes to the formal due diligence stage, there is not one single aspect of the company at which Acumen doesn’t look.
Next week, the head of Acumen energy will be here from NY– Raj Kundra . He will be visiting different hydro projects on site and talking to the developers. I’m really looking forward to it.
Yesterday, we had what Acumen calls “Friday Fury” in which someone explains what he/she has been working on and the rest of the people provide feedback and discuss the topic – and it was my turn. I explained to the team my findings in the research bit and which I considered to be the main challenges for Acumen and areas that I should investigate further. It was a great experience and I was very impressed on how much I learned in just three weeks, especially with minimal experience in the energy space.
My plan for the coming weeks is to write a small report about micro hydro power and solar in Kenya and start conducting more research on other energy sources such as wind and biogas. I have already lined up strong interviews for the coming weeks, so it seems that will be exciting as well.
On a separate note – and just to inspire potential applicants of the Fellowship – life in Nairobi/Kenya is tons of fun. It is very easy to connect with other expats. Actually, Columbia’s network is pretty big here as there are five of us all together. Also, there are weekend trips to really exotic sites which are organized almost every week. Despite all the trips, the two weekends that I stayed in Nairobi have been productive and fun as well!
Journal #2
Almost seven weeks into my internship and time is flying! At this stage, I have dedicated half of my time in putting together a report of the energy sector in Kenya, which is a living moment of transformation. Transformation has taken place from both the public and the private sector sides. The public sector has realized the importance of bringing the private sector on-board and has announced a “feed-in-tariff” in which KPLC will sign a PPA (Power Purchase Agreement) and pay a tariff to those IPP’s operating wind, hydro and biomass technologies selling power to the grid. This new incentive will help many projects become commercially viable. On the private sector side, there has been an increase in the interest of producing energy and of improving access for low income communities. It is encouraging to see that, despite being excluded from the “feed-in-tariff”. Solar companies are exploring products, financial schemes and distribution networks to reach rural areas and/or low income consumers.
In my report I have included some of the key areas that Acumen Fund should be exploring when investing in micro-hydropower. Also, I shared key questions that should be addressed in due diligence from a three perspective point-of-view—social impact, economic viability and environmental.
As previously mentioned, the other half of my time has been spent analyzing potential investment opportunities for Acumen. In particular, I have been looking more closely at two investments in hydro power plants and one investment in a solar distributor. Finally, we have decided to take one of the hydropower projects into the due diligence phase.
In analyzing the hydro power opportunity, I have traveled to the potential hydro site in Mount Elgon to assess the impact that the new hydro power will have in the community. In my trip there, I realized how much these types of initiatives are needed in the area. Mount Elgon households have no access to electricity and neither do the schools, dispensaries and health centers in the area. As part of the due diligence as well, I have conducted a background check of the promoters of the project and built a financial model. This Thursday, we are presenting the case to the rest of the Acumen Fund portfolio team and we will get feedback of the project. If Thursday goes well, Acumen Fund will be closer to conducting its first investment in East Africa.
Journal #3
I write this entry from Spain as I am back from Nairobi; three weeks after I finished my internship at Acumen Fund. Reflecting on my internship, I cannot help but feel sad to end such an amazing time; to feel accomplished in some ways, to be able to develop three mini-projects during my internship and, lastly, to feel terribly inspired by the work and spirit of the team at Acumen Fund.
My last three weeks at Acumen Fund were, as predictable, a hectic time as well as a learning experience. After we presented the case for a micro-hydro deal to the portfolio team, we were given “green light” to pursue a formal due diligence. During my last weeks, we started this phase of the investment process and we had a team member of AF India working in the energy portfolio that came over to Nairobi to support us in the process. We basically focused our efforts in two aspects.
Firstly, we worked in the business model. Although I felt very proud given that the financial model balanced since the very beginning, the financial model as such was reflecting a loss-making business and definitely not the kind of project any investor would pour any money in. We knew that it didn’t make any sense since the power conditions of the site were very good (the hydro site had very high head and flow) and normally this type of project requires very few maintenance—making the annual costs very low. So, you ask, what was going wrong? We found out that although the entrepreneur and its team were great on the technical side, they were lacking some financial and business knowledge. Therefore, they were probably overestimating or simply “guessing” the financial details of the projects. For that reason, Leah, my work colleague, and I spent some time benchmarking this potential deal with other deals of similar characteristics to make the financial model reflect a real picture of the business and, above all, make sure it was a profitable business to invest. When I left, they were already finalizing this exercise.
Second, we focused our efforts on understanding the social impact. It is widely known that measuring the social impact has been one of the main challenges of social enterprises and one of the main areas for research. Two of the key criteria for AF, when they decide to invest in any organization, are that they have a major social impact and opportunity to scale. For that reason, we wanted to make sure we quantified correctly the impact that an investment in a hydro power plant will have in the catchment area. The impact was measured not only by the direct impact (number of households that would be connected to the grid), but also the improvement that electricity will make in the development of the community as spurring economic growth. AF also conducted a cost-benefit analysis, putting in perspective the CAPEX of the project and the overall cost with the electricity generated and the number of people that will be impacted. This analysis was also benchmarked with previous investments in the space, other pipeline opportunities and other projects using the same technology.
During my last two weeks I also conducted a small research of the solar power sub-sector in East Africa and the opportunity for Acumen Fund to invest in it. From this study, I realized that solar power represents a great opportunity for AF as there is an encouraging trend of solar reaching the BoP given the high electricity prices, the abundant insolation, and the easiness to scale this technology. Still, AF has to make sure that the project is economic viable, that the products are affordable for the BoP and that there are not any negative externalities.
Overall, I have to say that my internship at AF more than surpassed my expectation in many ways: the work that I was assigned to do, the professionalism of the team, the opportunities we looked at…. but, above all, the team! AF has an amazing team of people who are committed, driven and very smart. I really enjoyed the team and to have the chance to work and hang out with them.
AF is still a relatively young organization, and their patient capital approach has not yet massively been extended, but for sure we will be hearing about them, they are definitely in the right track as providing an alternative solution to traditional aid.
