by John Parnell
November 04, 2019
Shell and Sumitomo have taken a minority stake in African minigrid firm PowerGen.
The pair will have a combined ownership of 15 percent after leading the most recent funding round alongside six other investors. Shell will get a seat on the board, with Sumitomo taking an observer seat. Financial details of the Series B round were not revealed.
PowerGen has connected around 15,000 homes and business via its minigrid installations in Kenya, Tanzania, Sierra Leone and Nigeria. It will use the new funds to build out its presence on the ground, but not for project finance.
Shell CEO Ben van Beurden has set a target for the company of providing reliable power to 100 million people who don’t already have it by 2030.
Ben Attia, a research analyst at Wood Mackenzie Power & Renewables, said PowerGen’s claim to be the market leader for African minigrids is well founded.
“They have scale and first-mover advantage,” said Attia.
“They are also involved in a fund with CrossBoundary Energy Access that effectively enables the securitization of a portfolio of minigrid assets," he added. "This is so important because it’s very difficult for minigrid companies to scale because they are building capital-intensive infrastructure that makes infrastructure level returns."
"So the payback periods for these systems can be quite long," Attia said. "PowerGen has worked out an innovative way to offload a number of projects, get paid for them, and then go out and build some more.”
Shell has invested in a number of companies as it looks to hit that 100-million-people target. Earlier this year it secured access to India’s commercial and industrial solar market with a stake in
Orb Energy. It also has a stake
in minigrid firm Husk Power and has made several investments in off-grid metering manufacturer SteamaCo.
The other six participating investors in the Series B round were Omidyar Network, Acumen, Renewable Energy Performance Platform, EDFI ElectriFI, DOB Equity, and Microgrid Catalytic Capital Partners.
Sam Slaughter, CEO at PowerGen, told GTM the challenge of helping the company hit its 100-million-customer target was an exciting one.
“Shell has a lot of depth in Africa, so geographically they’re really strong," Slaughter said. "They’re entering the utility market at a time when things are changing and evolving, and it is going to take new thinking and new ideas.”
PowerGen's focus is presenting itself and its peers as an alternative, or complementary, solution to Africa’s frequently failing national utilities, Slaughter added.
“It’s about changing the rhetoric about minigrids from being a niche application for certain communities with certain characteristics to a conversation about how private companies like PowerGen can be alternative utility operators to these national utilities,” he said.
To better influence these conversations, Slaughter said the company will need to continue to scale. He considers a critical mass to be around 200,000 connections, up from the current tally of 15,000. Building the systems and infrastructure required to deliver that will be the focal point for the new funds.
“Our immediate priorities are scaling up in Nigeria and Sierra Leone as aggressively as we can, while continuing steady growth in our more mature markets of Kenya and Tanzania,” said Slaughter.