The cooperative movement

Community-owned electric cooperatives transformed rural electrification in the USA, raising access from 10% to 90% in just 15 years starting in the late 1930s. This successful model has since been replicated in regions like South America and countries such as the Philippines and Bangladesh. In Africa, this movement is now beginning to take shape. In this episode, Doreen Chipika Bwalya and Frank Bergh from NRECA International discuss how electric cooperatives - rooted in member ownership and democratic governance - offer inclusive energy solutions while keeping electricity costs low. They also compare these community-driven models with investor-owned alternatives, shedding light on the seven cooperative principles that encourage local engagement and resilience.

By combining the strengths of cooperatives in local management with the innovation and complexity-handling capabilities of for-profit mini-grid companies, synergies may emerge that could lower tariffs and speed up mini-grid deployment. Could this hybrid approach become a viable model for accelerating rural electrification in Africa?

For more insight into NRECA's work, watch this video: https://youtu.be/gCOqxPax5lw?si=FgvN1BXim0a5c6H2 

NRECA International would like to thank the USAID Cooperative Development Program for funding their work in Zambia and Malawi. 

LinkedIn: https://www.linkedin.com/company/inensus-gmbh/mycompany/
Visit www.inensus.com for more info.

Transcript

Speaker 1 0:09

Solar mini-grids have turned from small pilots to an electrification wave. We were there when mini-grid regulation was established, when financial transactions were closed. We saw new technology thrive and companies fail. This is where we tell the stories. This is where we discuss the future the mini-grid business powered by Enensis.

Speaker 2 0:35

Hello, this is Nico. Today we are talking about the electric cooperative movement movement. My guests are Doreen Chipika-Bualia and Frank Burke from NRECA International. Frank is a senior engineer focused on leading the organization's off-grid and renewable energy programs. Prior, he was self-employed with his mini-grid consultancy Beyond the Grid PLLC, performing engineering, construction, construction operations and advisory services for mini-grid developers in Haiti, the Democratic Republic of Congo, sierra Leone and other markets in sub-Saharan Africa. Doreen is the Program Manager for the Zambia Electric Cooperative Development Program, funded by USAID and implemented by Enrica International. Her professional career spans over 20 years working in the donor public, academic and private sector. She has a wealth of experience in energy, water, climate change and infrastructure development, providing technical support to government and in-country stakeholders. Welcome Frank and welcome Doreen.

Speaker 3 1:49

Thank you, nico, great to be with you.

Speaker 2 1:50

Thanks, nico Doreen. To start off, can you tell us and our listeners how a co-op model is different to an investor-owned model?

Speaker 4 2:00

Thanks, nico, and thank you very much for having me on your program. Own model. Thanks, nicole, and thank you very much for having me on your program. So an electric cooperative is basically a private power utility that is owned by its customers and it's operated as a sustainable business. Within an electric cooperative, each cooperative member owns an equal share of the business, regardless of their connection type or how much electricity they purchase. So, basically, cooperatives are not-for-profit, privately owned businesses, unlike an investor owned business, and these are owned by the members that they often serve. What is key within an electric cooperative or a cooperative business is the governance, because the members will elect the board of directors, who, in turn, will employ a management team qualified to run the power utility as a business.

Speaker 2 2:54

Yeah, Doreen, would you say that a co-op model generates lower cost levels than an investor-owned model?

Speaker 4 3:02

Yes, I think I would agree with that statement.

Speaker 2 3:05

So after all, the mini-grid sector, which always calls for low tariffs electricity tariffs would be better off if more co-op models would be deployed, at least according to what we understand up to now. So, frank, I heard about the seven principles of cooperatives. Can you tell me more about that?

Speaker 3 3:26

Yeah, thanks, Nico. As Doreen said, electric cooperatives are a type of cooperative business and there's seven cooperative principles that span all cooperative businesses, not just electric cooperatives. But we do adopt these as kind of part of the governance model that Doreen was describing. The first principle is voluntary and open membership, and that means that anyone who's living within a mini grid or a service territory can connect to the grid, can become a member of the co-op and therefore can have an ownership stake and a vote in the cooperative's decision. So it's voluntary and open membership. So that means that the members themselves, in other words the people who take power from the grid, are democratically in charge of the grid. You can't serve on the board of directors if you don't take power from the grid. So me from my office in the US, can't be a member and therefore can't have any control, including a board seat of a co-op in Zambia, for example. Number three members' economic participation. So all members have to pay their bills and participate economically in the cooperative, both through membership dues as well as electric tariff.

Speaker 3 4:30

Four autonomy and independence. So cooperatives are autonomous, self-help organizations. They are not affiliated with political parties. They can't be used for political gain or any other type of non-autonomous use, so they can't be controlled, for example, by a foreign corporation, or they can't have some foreign investor telling the co-op what to do. The co-op has its own self-determination and autonomy.

Speaker 3 4:53

Number five education, training and information. A big part of what makes electric co-ops work is the commitment to education and training. It may be the case that no one living in an electrified community has electrical experience or can serve as electrical technician without training, because there's not been electricity there before. Number six cooperation among cooperatives. So cooperatives work together, taking best practices, working collectively, and this happens both between different types of co-ops, like maybe an electric co-op might work with a credit union or an agricultural co-op, you know, in terms of financing or productive use of energy, for example. It may also mean multiple electric co-ops band together to share lessons learned, Similar to AMDA, the African Vinegar Developer Association, that same cooperative spirit among vinegar developers. We have that cooperation among cooperatives as well. And then, number seven concern for community. So co-ops have a very strong tie to the communities that they serve. That's what they are. They're a community-based organization with community ownership. So that concern for community means if it's best for the community, then it's best for the co-op.

Speaker 2 5:55

Yeah, Now I learned that co-ops are basically businesses, right Private sector. When you talk to people in the mini-grid space, you often hear well, co-ops are so close to government. So what is usually the relationship between co-ops and governments?

Speaker 3 6:13

Yeah, I think people have that conception because much of the electric cooperative movement has been propelled by public finance and so there may be a government agency, like a rural electrification agency, that helps co-ops, which is the case in Zambia. We're working closely with REA but cooperatives are indeed private sector businesses. It's not the mayor of the town that leads the electric cooperative, it's the democratic control of all members of the co-op. I mean, there can be government oversight, but it's not a public sector entity.

Speaker 2 6:41

Now, as you said that governments often fund cooperatives, how are cooperatives usually funded?

Speaker 3 6:47

Famous cooperative programs, of course, would be here in the United States. There's nearly 900 electric cooperatives in the United States. These co-ops cover more than half, about 56%, of the nation's landmass and you could say the US could not have achieved universal electrification without cooperatives. That was the model and in those cooperatives the electric cooperatives here in the US benefited from public sector funds that were federally guaranteed an extremely low interest rate. I mean we're talking loans at like 35 year term with, like you know, two to 3% interest rate. So in that type of funding model, obviously the co-ops expanded rapidly and reached across the country and similar cooperative movements have taken root in many Latin American countries as well as some Asian countries like Philippines and Bangladesh. And I can't make a universal statement for how each co-op was funded, but oftentimes one of the ways to make co-ops expand rapidly and achieve access if you want to achieve universal access in 15 years, a big driver would be access to low cost of capital and public sector finance with a co-op model.

Speaker 2 7:50

But I think it's also important to not really talk about grants here, but to talk about low cost debt, because then you can get the bank or the lender as some kind of controlling instrument into the game, isn't it?

Speaker 3 8:07

Yeah, I mean, that's what has worked in the past.

Speaker 2 8:09

Yeah, now, I have been involved with cooperatives.

Speaker 2 8:14

A long time ago, when I was working for the Asian Development Bank as a consultant, went to the Philippines and visited some small cooperatives and some larger ones, and what struck me at that point in time was that the small cooperatives were really struggling Somehow. The smaller cooperatives didn't manage to collect enough money to be self-standing, whereas larger cooperatives with hundreds of thousands of members those larger cooperatives with hundreds of thousands of members, those larger cooperatives compared to the very small village cooperatives. They work quite well and my takeaway at that time was that, after all, what you need to run a mini-grid business successfully is professional management, and that professional management can sit as a management in a cooperative or can sit as a management in an investor-owned company. That doesn't make too much of a difference. After all, you need that team in place to run the operations and the business. As long as that is not available, it doesn't work. So my takeaway was don't try to start small cooperatives. If you want to start a cooperative, go large. Is that a valid takeaway?

Speaker 4 9:31

I think let me talk about what we are doing in Zambia and how we have approached development of cooperatives. So you did talk about the importance of having a professional management extremely correct, and that's why, even initially, I had said, when we have the board of directors, we get a group of qualified people who actually see to the management of the cooperative. Then, in terms of looking at the number of people, so what we have realized is really about economies of scale. The number of connections that you actually get, which the power utility is going to serve, makes a difference. And so, even as we are identifying the cooperatives, we are identifying them through an approach which we are calling a service territory approach.

Speaker 4 10:17

What that means is we are also looking at what area is this rural power utility going to cover?

Speaker 4 10:25

How many customers is it going to have? So what we have done is really to identify which communities are close together and then we'll be served under that one cooperative. So in one area in the eastern part of the country, we actually have about five to six communities clustered together, all those being serviced under one electric cooperative. So, going to your question, I think it is important to consider the size of the cooperative, because we would also want to ensure that the cooperative is able to sustain itself long term. So, yes, it is a consideration. However, even as we are supporting these cooperatives, the issue is also about electricity access and ensuring that everybody has access to power and access to electricity, and I think that is what is at the core of what we are doing and the work that we are working with these people in the rural communities, because we would like to ensure that we actually support even the person at the last mile, who will never have any other access to power, because they, too, need to be serviced.

Speaker 2 11:37

Yeah, covering everyone is of course, a challenge, because the further you go outside of the center of a town or a village, the more expensive the additional connection becomes, and after all, people from the center will complain that their tariffs will increase because we're connecting one or two or three people which are far, far far from the center and all the capex somehow needs to be amortized.

Speaker 3 12:02

I agree to a point, as I mentioned, with the cooperative principles right, these are community owned assets, not investor owned assets. So the community can select its own tariff and if the community wants voluntary and open membership, they see that as a core value. A fraction of a dollar cent is maybe or maybe not worth sacrificing their values Absolutely. The service territory does have boundaries. You know we're not reaching across international borders.

Speaker 3 12:26

You know we're not connecting people from different areas, okay, but you know once that community has registered and has become an electric cooperative, that's the understanding is, you know, a cost-reflective tariff in some ways is much more compatible with a co-op model than a private sector model and the co-op can perform a lot of regulatory functions itself. Because if you raise the tariff on people, you have to see them. That's your neighbor, you know that's the person who's on the way to the store, you know that's the person who's selling you milk in the morning, and if you raise their tariff they'll notice that and they have a vote at the General Assembly to hold you accountable the member consumers, member owners and the co-op staff. I think that's very healthy within the context of that cooperative and in some ways the community-owned model is far more accountable than the investor-owned model.

Speaker 2 13:10

Yeah, what I have seen, especially in small cooperatives. Decisions are sometimes taken with a little bit of a short-sighted view, where they say well, we cannot afford high tariffs, therefore let's go for low tariffs, even if we cannot accumulate reserves, and in case something goes wrong, we have to go out and find new funds. And that is what I see quite frequently and that is my understanding why, especially in Africa, cooperatives have not worked very well. Can you support that statement, or do you have a completely different experience here?

Speaker 3 13:48

Sure. Let me just share two quick stories from Liberia. The TOTA Electric Cooperative in Liberia was supported by NRECA. The cooperative was incorporated in 2017 and it's been operating a mini-grid sustainably since 2018. That mini-grid had a couple of challenges. The one I think I would describe is that they had an inverter failure, an unexpected inverter failure that affected them during COVID when it was difficult to get a spare inverter there, and so, while the inverter was out, the cooperative board voted to operate 100% diesel from now until the inverter comes, because they saw such a high value on the community unity, the ability of productive users of electricity to operate refrigeration, health clinic, things like that were top priority, and so the cooperative voluntarily raised their tariff by something like 50% on an interim basis. They didn't have any riots in the streets, Nobody went wild and opposed it, because they understood this kind of community ethos of you know. We're all in this together and we're going to go ahead and do this until we can get the solar back online and bring the price back down. So that's a powerful kind of story of you know, the community kind of rallying its own resources, you know, maybe going lean for a few months there, but making the best of it.

Speaker 3 15:02

The other thing I would say is that that co-op has doubled its connections since it was built in 2018. So it was built with about 200 connections. It now has about 400 connections. And in order to do that as you mentioned, Nico they would need additional funding. That additional funding was produced by the co-op. They asked NRECA. You know there's no bank that would lend to them in Liberia that they could find at reasonable terms. There's no international lender that was going to come in and fill that gap. So they asked and they received a loan from NRECA a $10,000 loan for poles and wires and then they paid that back and asked for a second $10,000 loan for poles and wires, and so they were able to expand their low voltage distribution network themselves with their own funds. All they needed was access to debt in this case, and we were able to provide that through our financial reserves.

Speaker 2 15:47

Yeah, interesting story, frank, which raises some questions on my end. What if a government does not provide low interest rate financing to cooperatives? Where else could cooperatives potentially get access to finance Like equity investors? No, a different segment, banks, as you just said. Probably very difficult, because there's usually no significant collateral behind and the mini-grid itself one mini-grid would probably not be considered project finance by anyone in this sector. And then again we are running into the professionality of the management. Is there someone who has a master degree in engineering and a master degree in economics or business management? Or so? Probably not. So, yeah, it will probably be difficult to acquire finance from the regular sources that companies would usually turn to. Where do corporates get money from when they need some?

Speaker 3 16:46

Yeah, I don't dispute at all that in today's market it's more difficult to raise money for cooperatives than for investor-owned, investor-driven mini-grids. I would also say that it's not exactly easy to raise money for the investor model either, and that's because there's some magical thinking going on, that you know with SDGG 7 that we're going to reach universal access globally within 15 years, but it's kind of ahistorical to suggest that we could do that at double-digit IRR globally. That's ahistorical. That's not how it worked in the US or Latin America or Asia or anywhere else. In the US, with the funding terms that I described earlier, which I'm sure all mini-grid developers would love to get 35-year loans at 2% interest, and in Bangladesh it was roughly 30-year terms with 3% interest. That is the level of finance that people would pursue if they wanted to get to universal access.

Speaker 2 17:36

The.

Speaker 3 17:36

US went from about 10% rural electrification rate in the late 1930s to roughly 90% rural electrification rate in the 1950s. So in about 15 years we did go in the US from about 10% to about 90%. And there's a lot of countries in Sub-Saharan Africa, including Zambia where Doreen and I are working, where the electrification rate is about 10% today. And imagine what we could do in 15 years with a robust publicly financed cooperative movement. It's just that the funding today it's not available nearly at the terms that would inspire folks to solve SDG 7. Whereas you know, 100 years ago or 90 years ago those terms were made available in the US and the results speak for themselves.

Community-Owned Electric Distribution Cooperatives

Speaker 2 18:15

Yeah, yeah, okay, understood. Another aspect is that when I look at the US cooperative development, most of these cooperatives are distribution cooperatives. Right, there are not that many generation cooperatives. I probably you can tell me more about the numbers, frank, but at the moment what we are trying to do in Africa is to merge generation distribution, put them under one management, which may be a little bit of an overkill for the people that we meet in these rural communities. And, doreen, maybe you can later tell us more about how do you educate people and how you train people in Zambia, and to what degree you can, after all, get them to the level that potentially a master engineer or a master economist or so could perform, and how close you get to that, and if we can convince people that well, these people that you trained can actually run the business in the long run. But first to Frank.

Speaker 3 19:22

Yeah, sure. So today there's 831 distribution cooperatives. There's about 62 generation and transmission cooperatives. So they own large transmission lines. They own generation. It's not just in the US that co-ops own generation. There's large generation co-ops in Costa Rica as well. Many of the Philippine co-ops own some of their own generation In the US. There's about 20 million consumers connected to co-ops in the US and co-ops own about 42% of the electrical distribution in the US.

Speaker 3 19:47

But I guess what I'll say in addition to that is to address a prior point. There's a difference between professional management and foreign management, right? So it is possible to have professional management within these communities. I'll tell you a quick story, which is NRECA? That stands for the National Rural Electric Cooperative Association and that's the association of all the 900 US co-ops.

Speaker 3 20:08

And at our annual event called Power Exchange, we had guests from Zambia. Doreen was there, members of REO were there and we're looking around the room at one of the events. There's over 10,000 people attend this conference and I'm in a room of over 1,000 people just looking out and I said guys, you got to look around here. These are mostly board members from the co-ops in the US. The three of us might be the only engineers in the room, I mean you looking around the board members. I mean many of them have gray hair, many of them are farmers, many of them don't have advanced degrees, but they do offer professional management. These are the board members elected by their neighbors to direct the co-op, and so, with the proper training and formation that is possible, there's no difference between rural people and urban people. We can all work together.

Speaker 2 20:49

Yeah, that is what I wanted to highlight. Running an electric distribution co-op may be easier than running an electric generation co-op because that may be technically and also from a business management perspective, more demanding. And you may not need such a high level of education to run a distribution co-op or distribution business. After all, especially if you are managing together with your neighbors, you're managing yourself, because then you take your decisions within that community and you do not need to push for payment from third parties, so to say from those customers that are supposed to pay you as the electricity company to supply them. But basically you just make sure that you're sustainable with your business, with your business and after all, electricity distribution may work and you may not even need very sophisticated smart metering technology to keep track of electricity theft, because it would probably rarely happen because everything is within the community. But let's switch to Doreen before you answer. I see you want to answer to the electricity theft subject, frank, but let's go to Doreen. Doreen, how do you train and educate people in your cooperative in Zambia?

Speaker 4 22:11

Okay, a lot of interesting points have been said. One thing I need to mention is that the cooperative movement in Zambia has been there for many, many years. People are familiar with agriculture cooperatives. If you talk about any other kind of cooperative financial, credit unions they'll understand what you're talking about. But when you talk about electric cooperatives, it's a new concept, and so part of the work that we have been doing is to really create awareness on what an electric cooperative is and how it's. It is similar to the existing cooperative but then, at the same time, different. And then how then? This cooperative is also going to work within the communities and the rural areas that we're working in. So I think the biggest component that we have for us is awareness raising, and this awareness raising cuts across. It cuts across at every level at national level, when we're dealing with the government agencies. Frank had mentioned RIA, so RIA stands for the Rural Electrification Authority, so the Rural Electrification Authority is the government agency that is responsible for electrification of rural areas in Zambia. These are our implementing partner in the work that we're doing, and then also we are working with the Ministry of Energy and Department of Cooperatives under the Ministry of Small, medium Enterprise Development. So that again speaks to the question.

Speaker 4 23:35

You were talking about the importance of having government as part of the process. So when we are doing our work, we are working with them in these communities also to transfer the knowledge, to ensure that their sustainability beyond the life of what we are doing, and then in the rural areas as well. You asked how do, then, do we go about educating people? The first thing we do is really to begin conversations with the community members to help them understand who they are, what their energy needs are, and then we also then ask them about their interest to be part of an electric cooperative. So we'll convene a general meeting after people are made aware of what this electric cooperative is. Then they vote. So it's really voluntary. If you remember the seven principles that Frank alluded to, the first principle is about voluntary membership. So they vote whether they want to be part of this electric cooperative and then, when they decide that they want to proceed, we will then work with them through the process of ensuring of reaching a point where we actually help them form this cooperative.

Speaker 3 24:44

And just regarding the question of electricity theft or the question of community dynamics, I mean, I think it's very clear everybody's a member of the cooperative, so they're a part owner of the business. The revenues for the co-op are circulating within the community. I mean, their co-op may be one of the highest employers in the community and so your cousin, uncle, sister is a co-op employee and why would you steal their income? And why would you steal from yourself in the case of a co-op employee? And why would you steal their income and why would you steal from yourself in the case of a co-op? But I think it's really important that those revenues circulate in the community.

Speaker 3 25:12

And I also would point out that profitability is a topic that comes up often in discussions of investor on mini grids and profitability, we see it differently within the co-ops. Excess revenue, we would call that a surplus and the co-op board would decide at the end of the year what to do with the surplus. You know, we could lower the tariff for next year, we could invest in more infrastructure or, in rare cases, the co-op can vote to distribute a community dividend and pay back the surplus to its members. So rather than extracting what we call profit and sending it to Europe or to the US or to whichever investor was involved, and extracting it from the community. We're actually reinvesting it in the community in a democratic way.

Speaker 2 25:49

Well, now what I have learned is cooperatives could potentially be the lower cost and probably more efficient distribution company or distribution network operators Because, well, no travel costs, they're all on site. No dividends, no profit distribution after all, just reinvestments or redistribution to the members. No electricity theft because, well, you're not stealing from yourself, you're not stealing from your neighbors, usually because you want to keep living in that community. Yeah, so a very, very nice concept after all. So now for me, the question is who operates hybrid power systems, these kind of things? How do you train people maintaining those assets and the generation system in general?

Speaker 4 26:59

Yeah, so it's a process and I think Frank had already indicated just because somebody lives in the rural area, just because they're illiterate, doesn't mean they're not intelligent. They just have not probably had the same opportunities that others in the urban areas have had. So what we actually do is to provide the necessary education. I can speak about what we're currently doing in Zambia in a place called Tatumbila, in the northern part of the country. Currently, construction of the northern part of the country, currently, construction of the mini-grid is ongoing. Apart from that, we are also putting together training courses and training programs for the community on safety awareness, because this is the first time people in that area will have electricity, so it's important that they also understand how they're going to use it, and also, safety is a major concern. Apart from that, as I indicated, yes, the board of directors comes from the community, but for professional management of the power utility and all these will be qualified to actually run the system. But beyond that, we will then support them by providing the necessary technical expertise, and this training will be ongoing.

Speaker 4 28:18

Speaking about the board, yes, the board members are persons from the community. These are just ordinary people from the community. Some of them are farmers, others are teachers and ordinary people from the community. These are just ordinary people from the community. Some of them are farmers, others are teachers and ordinary people from the community. But what we have done, even with these board members, we have provided governance training so that they understand what it means to sit on the board, how they can actually effectively guide the management team.

Speaker 4 28:46

We have had support from resources coming in from the US, because we know that there's a lot of experience from the US, and so this is part of transferring knowledge to also Zambia. So we had somebody come in he's also actually a board member from the US come in and actually train these board members on how they're supposed to govern and also to ensure that they have the necessary skills. We have gone further to also provide training to the government institution responsible for cooperatives so that this process can be sustained. We have also later on held another refresher training for the board members and we will keep the training ongoing. So you're asking about education. The process doesn't end. Part of our program and the work we're doing is to keep mentoring the cooperative to bring them to a stage where they can be self-sustaining and I think Frank will speak to this. Even the cooperative that we have in Liberia, nric, up until now keeps providing the necessary technical assistance to ensure that that cooperative is running effectively, and so we're doing a similar thing here in Zambia.

Speaker 3 30:00

Yeah, nico, if I could just jump in there. Absolutely, there's a difference between operating a distribution network and a generation system. In some ways, the distribution OPEX is significantly lower than the generation OPEX and may require a different skill level, but I would say the medium voltage systems require extreme skill and diligent training. Nreca had helped to establish medium voltage distribution co-ops throughout Latin America and Asia, but also in Haiti. There was a co-op in Coteau and I worked in Haiti with a private sector mini grid developer and we actually hired.

Speaker 3 30:30

Many of our skilled line workers were trained on medium voltage by the NRECA project in Coteau in the co-op and then they were some of the highest skilled medium voltage line workers in Haiti, and that's true in a lot of the places that we've worked. But the investor owned mini grid operators will also benefit. We offer medium voltage mini-grid safety training in several countries. But what I would say on that topic is the community acceptance is elusive and I think a lot of folks on your podcast talk about you know. One of the key success factors in mini-grids is that the community feels a sense of ownership or a feeling of ownership in the project and to that I would agree.

Speaker 3 31:06

But you know, I guess I would say what percentage of ownership? Because in the co-op the sense of ownership of these technicians is 100% ownership. The community owns 100%, and it's not a feeling, it's not a feeling of ownership, we're talking about real ownership and that does give people a different level of interest in learning these materials, being trained on these materials and see it as a pathway to their future career.

Speaker 2 31:30

Yeah, yeah, yeah, Okay. Interesting Now, as we have been talking about education and training a lot. Have the cooperatives in the 1930s in the US? Have they also gone through all these trainings and so on, and who paid for it and who provided these trainings?

Speaker 3 31:48

Yeah, I mean the Rural Utility Service and eventually the US Department of Agriculture has developed a lot of the standards, and that's another point that I'll make briefly here is that there's differences between rural electrification and urban electrification. In the US the standards for rural electrification are, you know, we use a lot of single phase, we use a lot of small transformers, you know, rather than large centralized transformers with a lot of LV. It reduces theft, it reduces losses and we've taken those kind of least cost electrification standards into the least cost geospatial planning that we do internationally for the World Bank and SE for All and USAID. So I would say today the largest electric co-op in the world is not in the US, it's in Bolivia. Cre has 800,000 members in Bolivia, largest electric cooperative in the world, and at this point there's over 220 million members of electric cooperatives outside of the US compared to about 40 million inside the US. So since 1962, when NREC International was formed, we've established over 250 rural utilities around the world.

Speaker 2 32:46

Rec International was formed and we've established over 250 rural utilities around the world. Now I have two initial ideas that I would like to discuss with you, and I would like to hear your thoughts on this. Frank, I know that you are a frequent listener of our podcast, so you also know the concept of rural industrialization that we're promoting a lot, and one of the ideas that I had was well, if we need professional management to run generation distribution in cooperatives, why don't we tap into existing cooperatives from other sectors agricultural cooperatives, maybe even in the mining sector, or in the forestry sector or whatever? There are probably cooperatives everywhere, and these have professional management, professional financial management. They probably also have high-level technical staff. So why don't we tap into those and tell them hey well, why don't you decentralize your processing? For coffee, for chili, for whatever agricultural produce you prepare? You reduce your transport costs to a certain extent, you improve your efficiencies, you increase your margins and when you have brought electricity for your processing, you also connect your members. Would that work, or would it not?

Speaker 3 34:04

Yeah, yes, it would work, and that's one of our principles number six of cooperation among cooperatives. We absolutely want to do that. Where it gets a little bit tricky is the difference between an electric co-op and a multi-purpose co-op. So if you want the coffee co-op to own the mini-grid, then it's a multi-purpose co-op that kind of separates them from their core business. If you want the electric co-op to own the coffee business, that also similarly becomes a multi-purpose co-op, and then the pitfall there is that if the coffee business is not profitable, then you change the tariff on the electricity business to cover your losses.

Speaker 3 34:37

Now that's a slippery slope, right. And then you have a regulatory issue where the electricity is regulated, the coffee is not, or at least not to the same extent, and then you may end up with kind of a loss-making institution that's being kept along at the expense of its members. That is why most of the co-ops that we form are standalone electric co-ops that then welcome, you know, the coffee co-op, the agricultural co-op and whatever other. In one case we have an electric co-op in Uganda and there's a cooperatively owned milk chiller. It's a community with a lot of dairy cows and there's a community-owned milk chiller that's the largest customer of the electric co-op, but the electric co-op does not own the dairy co-op, or vice versa. They're two separate co-ops but they do collaborate very well.

Speaker 2 35:19

Yeah, and after all, there's probably also the question why should coffee cooperative members support a small portion of their members to receive electricity while they are not benefiting from that themselves? Instead, as you said, frank, you would probably form a separate electric co-op and then share the management's power.

Speaker 3 35:40

That's true, and that's not how it's always been. There's definitely countries where the cooperative movement went much more in the direction of multi-purpose co-ops, but at least with the programs I'm describing today, this is what we recommend.

Speaker 2 35:49

Okay, understood. So this could be a very interesting model for Ethiopia, where I'm flying to next week, where we have conducted some legal research on how co-ops could be regulated under the regulation and laws that exist for the electricity sector there. But after all, yeah, electric cooperatives could even tap into the grants that are available for private sector. As we know, co-ops are private sector.

Speaker 3 36:19

Yes, and I wish that was true. I wish that for the private sector grants and the results-based financing programs that are available for mini grids in sub-Saharan Africa, many of them actually have terms that forbid application by co-ops. So for your listeners who are in the financier community, I would certainly love to have a dialogue because I do believe this cooperative model fits so well into what these grant funds and RBF funds are trying to achieve, and in some cases it's been unclear and in some cases we've later found that without co-finance from an equity investor, that it was not eligible to receive funding. So I would certainly love to have further discussions around that. In those cases we sometimes partner with the for-profit mini-grids in order to be eligible, even though we're proposing kind of a hybrid model, but that can be difficult.

Speaker 2 37:01

That's an interesting observation, because in Ethiopia I'm pretty sure that this is not the case. I'm convinced because we actually took care of this after all, that with the Adela program at least there is an opportunity for co-ops to tap into that, and I'm pretty sure that in Nigeria, under the dares, I don't think that co-ops are excluded. But I also am not sure how many co-ops actually exist in Nigeria.

Speaker 3 37:30

Right, and I'm not saying that to cast blame on anyone. I'm just saying it's very important for the accessibility of finance and especially grant finance. There's no reason that grants need to be for profit. We can decouple that, and so, in the case of the Ethiopia program and the Nigeria programs you described, I'd love to see that as the standard you know across the continent. Now there's other structural disadvantages besides eligibility criteria. It's going to be very hard for local community members to find the terms of reference and submit. They're going to need partners like us to be able to access the finance and they may not be regarded by the evaluation committee on equal footing with a very familiar mini-grid developer. You know a dozen that we could all name that are going to come and they're going to be on the top of the stack because everybody knows them. But these co-ops. I think eliminating structural barriers to community-owned infrastructure is critically important, you know, in terms of accelerating rural access.

Speaker 2 38:23

And the second challenge would probably be how would co-ops actually acquire the counter funding right, as they cannot tap into any bank loans as you already said, in Africa not easily and they cannot acquire any equity other than from their members, and that is, after all, limited.

Speaker 3 38:38

So when we've tried to obtain grant funding and we've needed co-financing, nreca has become the co-financer. We have a charitable foundation. It's really just donations from the members of the US co-ops that get an email or a letter in the mail and makea donation at the end of the year. There's some funds there that we can use for co-financing, but that's not a scalable model. We're not going to electrify the whole continent with charitable and year-end contributions. It would be great for some of the other grant funders in the industry to say look, we'll be your co-financer If you're going to go for a RBF. We can offer X percent equity because the community is going to put up their membership dues, but their membership dues are going to be obviously less than 10 percent of CapEx In some cases. You know 1 percent of CapEx. That's not enough to qualify for an RBF program in most countries.

Speaker 2 39:25

Why wouldn't cooperatives and investor-owned companies work together and each of those two does what they can do best? We already learned that a well-managed cooperative can be a very efficient distributor of electricity and that, potentially, generation requires a little bit more university degree expertise, depending on the system, depending on the size, and that is an area where the investor owned companies could come in and provide their expertise and then also their innovation force and these kinds of things. What do you think about that collaboration?

Models of Community Ownership in Energy

Speaker 3 40:06

I love that idea and I would really welcome any further discussion of it. I think to my question earlier. So you want a sense of community ownership in your mini-grid. What percent, right? So if there are for-profit mini-grid developers who would like a tangible community ownership in their mini-grid, I think we can apply some of these same cooperative principles. The seven principles I described earlier. Probably five of them apply to for-profit mini-grids as well. You don't have always voluntary and open membership, have democratic member control and you don't have autonomy and independence. So, aside from those characteristics, many mini-grids do have cooperation. They do have education and training. They do have concern for the community.

Speaker 3 40:41

Let's find a way to do a hybrid model. There's been some experimentation with this by Rocky Mountain Institute in Nigeria, where they offered grants to for-profit mini-grids that are under operation in exchange for some degree of community ownership, but the ownership stake was quite low. In some cases there was no actual ownership. With that grant they agreed to create a consultative community organization that would advise the mini-grid company. So I wouldn't say that's a true ownership model. I do think that the ownership results in diluting, you know, the equity provider even slightly. Even a 10% ownership is a slight dilution of future returns. So there's reasons why that's not more prevalent, but I would love to see a more tangible community ownership in these programs because, as I mentioned earlier, we can support local electrification without extracting revenue from those organizations, and I think revenue is appropriate. I'm not saying revenue is wrong, but I'm saying that there's a big degree of improvement what we can do with communities as our partners rather than our clients.

Speaker 4 41:42

I actually want to agree with Frank on that and I think it is possible, especially given that, as has been said already, where you have a community-led enterprise, there's a lot of ownership, and I think that also would lead to a sustainable business. What we are doing here. I know we're talking about mini-grids, but in one part of our cooperatives in Zambia, we also have grid-type cooperatives where the distribution is going to be managed by the community and the cooperative and then the generation is being done by the power utility. So, speaking to what you're speaking about, I know in our case it would be a government-owned power utility. So that's different. So that's different. But if that's possible and workable, even in the scenario that you're talking about, where you have a private sector company handling the generation and then you have the community looking after the distribution, that should be workable as well.

Speaker 2 42:37

From a for profit company's point of view, they would probably say yeah, but then we don't have control over our business because we always depend on the success of the cooperative which does the distribution part, and that would probably not be welcomed by investors. After all, would that be the main obstacle in such a setup? Could create enough trust, or a contractual model could be arranged in a way that provides enough confidence to the investors into the investor-owned part of this joint venture?

Speaker 3 43:14

Yeah, nico, it's an ironic question Is the cooperative trustworthy to manage the system?

Speaker 3 43:18

I'm telling you, cooperatives manage over 220 million people connected to power systems globally.

Speaker 3 43:23

That's far more than the for-profit mini-grid business in Sub-Saharan Africa by multiples right. This is, you know, in some ways the dominant model, the most proven model for managing rural electrification and energy access past 90 years. So in some ways it's not us that need to answer that this is the proven model. But I will answer that by saying that yes, and I think distribution co-ops that take all their power supply from the national utility and manage the distribution system medium voltage and low voltage are very similar to what's seen as a new model emerging with the undergrid mini grid or the utility management contracts that are starting to emerge in Nigeria, where a mini grid developer might take ownership of some distribution feeder and just basically they sell the service to the utility of. We're going to increase your collection rate, we're going to increase the community buy-in and morale and community acceptance and in exchange, just provide us the power and we'll make your return for you. That's what electric co-ops have been doing for the past 90 years.

Speaker 2 44:21

Yeah, interesting, and it's also quite similar to the approach that we, when we started Enensis, we came up with in 2004, 2005. The first model that we published was the split of assets model, where now it's being understood as parts of the assets are owned by government and parts of the assets are owned by the for-profit company. But at that time we said no, the distribution assets should be owned, and maybe the fixed assets of the generation plant, like the building, the powerhouse, the fencing, the land and so on, should be owned by the local community, and then the private sector should come in and manage and operate the more complex generation assets. And maybe we are going back to that and finally implement that. I would be really happy about it.

Speaker 3 45:15

Nico, we have more in common than.

Speaker 2 45:16

I thought that sounds like a great model.

Speaker 3 45:18

No, it's a model so old it looks like new.

Speaker 2 45:21

It is Nice, nice. Well, when we go a little bit deeper in this rural industrialization way of thinking, then the rural industrialization could even be on the for-profit side. You could, for example, as a large agro-processor, you could decentralize your operations, making them more efficient, establishing your generation in a remote rural area, and then tell the people around hey well, I have some surplus electricity here. Do you want to buy it? I don't want to deal with distributing electricity, I'm not a distribution network guy and I'd want to deal with smart meters, after all. Do you want to pick it up? Then please create your cooperative. If you like, I will sell electricity to you. Would that be a viable model?

Speaker 3 46:11

Absolutely, and I think Doreen has direct experience of this. You know, in Petauke we're forming five co-ops in Zambia and another five in Malawi, so we have funding here to develop a program.

Speaker 2 46:22

All right. And now, if we are looking at this potential collaboration between investor-owned companies and cooperatives may need a certain portion of loan for better oversight, so maybe we need to bring in some part of that also. And then the for-profit company provides equity and debt for the generation assets. That may be a winning model after all. Let's see if our listeners will implement some of that in the future. I would definitely be happy to discuss this in more detail. But there is also another benefit that cooperatives have as community-based models and Doreen. That is social inclusion and gender equity, which is very difficult to actually implement as an investor-based organization and probably much easier for a cooperative.

Speaker 4 47:40

Okay. I think I would beg to disagree in terms of it being easier to implement for a cooperative and not so much for an investor-owned, because the aspects of gender equality and social inclusion I think should really cut across and active and meaningful participation of everyone in this case, we're talking about women, youth and those who are socially excluded. The inclusion of them, ensuring that their voices are heard and are represented, is something that is important, I think, for anyone who's going to provide power to a community found even as we are working in these communities, for us to ensure that everybody's voice is heard. It actually promotes respect, trust and social harmony and cohesion within the communities that we're working in. So that's why I'm saying it really doesn't matter what kind of model you're implementing. I think this is a very, very important aspect that needs to be implemented. This is a very, very important aspect that needs to be implemented and for us, what we are doing is, within the program, we are looking to increase the participation and social inclusion of everyone. As I have said, what we do is, when we go into an area, before we begin any program implementation, we seek to understand what are the differences, what are the cultural barriers, what are the cultural norms in that area, because we realize these will actually affect the behavior of different people and might actually be a barrier for some people having access to electricity from the onset, that we do an assessment to just understand what the community dynamics are and who's socially excluded. Why are they socially excluded? How is gender equity and equality within that community? And that is now what influences our activities, because what we want to do is to make sure that we are actually providing benefits to the community and we're not doing more harm than good by the activities that we are having implemented within the community.

Speaker 2 49:55

Doreen, what I thought is that US NRECA have, then, a completely different access to the community itself compared to an investor-led company which comes into the community and says, hey well, we are going to supply electricity to you, full stop. Of course, even these for-profit companies would say, yeah, well, we work with the communities a lot and we try to understand how the communities work. But well, in your case, this is inherent right, this is inherent in your approach already. You must understand how communities work. But well, in your case, this is inherent right, this is inherent in your approach already. You must understand how they work, otherwise you cannot do anything. So therefore, you have a completely different depth of understanding of that community compared to an investor-owned company, wouldn't you agree, doreen?

Speaker 4 50:44

Yes, I completely agree with you. I think for us it's really about creating community ownership, because we want the community to be part of the process. We want them to understand and to actually own the system, because that is what will lead to sustainability of whatever initiatives we are doing. And then we are also looking at a community-led enterprise, and so for that to happen, we interact and engage with the community from the onset, and what has been interesting is really to see the enthusiasm and to actually see the people in the community be the ones to move forward and to actually be the ones to make a change. What has been interesting? I can give an example of Tatumbila, the area where we're working. So initially we've been working in that. I think this is now our second year and it's at this point that construction has started.

Speaker 4 51:42

But before, when we went to speak to the community to tell them about electricity and the possibility that they can actually have power come to their homes for the first time, at first it sounded like a story, but the more we engaged with the people and then, the more they started seeing the activities. Just putting up a fence, we were told that people within the community already started changing their roofs. Some of them, you know they have grass-thatched roofs. They started changing them to have iron sheets in preparation of power coming. The chief also the headman, also told us that actually some people moving closer to the community so that they are within the boundary for that mini-grid that is going to be built, and what has happened?

Speaker 4 52:31

Also, as time goes on, the membership of the cooperative increases. At the time we were registering the cooperative, we had over about 190 people. Right now we are 245 cooperative members, and this is before the mini-grid is even completed. So yes, you are right, I think our role is really to engage with the community to ensure that, at the end of it, they are the ones who are leading the process. We are there to just support them.

Speaker 2 53:01

Yeah, and my point was with that you can carry, so to say, social inclusion and gender equity probably more easily than an external party yeah definitely good, all right, perfect. Now let's come to a close and I would like both of you to make your final statements, maybe considering my question what has gone wrong in africa so far? Why don't we see more electric cooperatives on the continent, and what do we need to change to actually make it happen?

Speaker 4 53:34

Okay, so I wouldn't say what has gone wrong. I think I would say at this point is what is going right? There hasn't been knowledge. As far as I'm concerned. I'm talking about within the Zambian context. Like I said, we are at a stage more people now coming to understand and seeing the potential and possibility of what an electric cooperative can actually do. So that's why I was saying it's not so much what has gone wrong. I think it's the fact that probably there wasn't that knowledge and now it's there. The fact that probably there wasn't that knowledge and now it's there. And as we go on and are able to actually showcase what an electric cooperative can actually do and the changes that it can make to people's lives and livelihoods, we are likely to see a lot more coming up.

Speaker 2 54:39

Nice Doreen is saying now is the time, frank, what is your point of view?

Speaker 3 54:47

No, I think Doreen's answer was excellent. My answer to kind of what's going wrong or why are we on pace to miss SDG 7, is because we haven't created a system that's prepared to rise to the challenge. I mean, it would be ahistorical to assume that universal electrification can be achieved on a for-profit basis. It's never happened and it never will. The question that I would ask is discourse of development in energy access in sub-Saharan Africa has swung so far to the extreme of we need more profitability, we need more generous programs, we need more external and oftentimes international mini-grid developers. That we've forgotten.

Commitment to Sub-Saharan Africa's Energy

Speaker 3 55:20

There's a much simpler and much more proven answer, which is to trust people with their own infrastructure, and so the model in the US was to go through cooperatives and let people power themselves. The model in Europe was primarily a public sector model. Models in Asia, latin America, have varying degrees of each flavor of that, but it's only in Africa, in sub-Saharan Africa, that we expect a for-profit model to satisfy universal access, and I think that is a misconception that a for-profit, investor driven model will be faster. In fact it's gone much slower. Whereas in the US there were investor driven utilities in every American city at the time of the Rural Electrification Act and they hadn't made the effort to get to the rural areas. Once you pass the Rural Electrification Act and you allow people to be in charge of their own infrastructure, look what happened 10% to 90% within 15 years. And if we were serious about SDG 7, I think we'd ask ourselves why haven't we offered that level of motivation, that level of commitment to the sub-Saharan African market?

Speaker 2 56:14

Which is mainly as you said loans, 30 years tenor, 2% to 3% interest rate, and then maybe good standards and a little bit of support, which doesn't sound much. Actually, it may even sound better than a lot of grants.

Speaker 3 56:31

I think every listener would agree.

Speaker 2 56:34

Okay, yeah, thanks a lot, doreen. Thanks a lot, frank. This was highly interesting to me, I learned a lot and I'm looking forward to more collaboration between our organizations because, as you already said, frank, I think we have a lot in common. And with that, thanks a lot and talk to you soon.

Speaker 3 56:54

Thank you so much, nico. Thank you Nico.

Speaker 1 56:57

This episode of the mini grid business has been brought to you by Enensis, your one stop shop for sustainable mini grids. Your one-stop shop for sustainable mini grids. For more information on how to make mini grids work, visit our website, inensyscom, or contact us through the links in the show notes. The mini grid business powered by Inensys.