Erel B. Narida, President, One Renewable Energy Enterprise, Philippines
Erel Narida, a former Shell veteran and current President of One Renewable, recounts the success story of going it alone to deliver solar power to remote rural communities following the global scale-down of Shell Renewables. He provides first hand insights on mobilizing social impact investment, network partner development and the types of payment mechanisms most appropriate to rural retail markets, pressing the case for on-grid solar as a commercially viable alternative to more conventional power sources.
Which opportunities did you see in renewable energy when Shell decided to de-prioritize its renewable business in the Philippines?
One Renewable Energy Enterprise, Inc (OREEI) was born out of my commitment to continue the work that I started as Operations Manager for Shell Solar Philippines Corp (SSPC). My work with SSPC was to develop the operations network for the company. This gave me the opportunity to see firsthand the positive impact of bringing solar energy to remote rural communities where it is most needed. When Shell decided to de-prioritize their renewable energy business and scale it down, some veterans of the company’s renewable energy division and I realized it was imperative for us to take on the challenge.
Whilst a start-up business required initial capital, the bigger investment, which is the network partners and market development, was already made by SSPC; hence, what we really invested in was sweat capital and the tenacity to evolve and take care of the market.
Coming from a big corporation like SSPC our biggest adjustment was to scale down our operating expenditures and move with agility and imagination to address our customers’ needs. A big corporation moves more slowly at greater cost and at the present level of revenues, will not yield the profitability required by its investors.
How did you manage to find the necessary financial resources to move forward with One Renewable?
The package that I got from SSPC allowed me to start moving on with my project. Our first contract was to complete the after sales service that formed part of the three-year warranty of the systems that were previously installed by SSPC. The strategy of OREEi was to re-engage the SSPCs network business partners of SSPC who at that time were either pursuing other businesses or continued small-scale solar projects. If I may say, it is in sync with the popular green mantra ‘reuse, reduce and recycle’.
One major difference in the approach of OREEi, however, was that we did not hire them as employees but encouraged entrepreneurship and helped them to expand and build their own businesses. OREEi supplied them with equipment, project design, costing and installation. This strategy is double edged and benefits both parties: it does not burden OREEi with huge overhead and at the same time creates sustainable sources of livelihood that helps our economy. These relationships have gone a long way to help OREEI reach profitability.
One area where we have seen significant interest is from social impact investors, who expressed their desire to support struggling companies like OREEi deliver products that uplift lives, protect the environment and create sustainable livelihood for the community.
OREE’s approach is to build a network of partners who are incentivized to keep people using the solar-powered systems. Which types of partners are you targeting?
OREEi’s approach is to develop a region, rather than a particular partner, this means entire communities benefit instead of a few individuals. Our focus for the next three years is the Autonomous Region of Muslim Mindanao (ARMM), a region in the Philippines where rural electrification ratio per household is one of the lowest. The latest data from National Electrification Administration (NEA), dated February 2013, shows that 2.4 million homes across the Philippines do not have access to electricity.
In a recently signed partnership with one our local social impact investors, we commit to deliver 26,000 solar systems to these homes by 2016. This number represents five percent of ARMM and one percent of NEA figures nationwide. This is an exciting new market for OREEI and in preparation we went to Indonesia to study the Shariya compliant financing.
As an integrator specializing in fitting renewable energy systems for rural electrification areas, what have been the major challenges that you faced in some of your projects?
For our operations, our biggest challenge is logistics since the Philippines is made up of 7,100 islands. For the business side, however, the biggest challenge is financing, as many of our customers do not have regular incomes and do not have access to banks. By far, the most effective way of bridging this gap is to develop a partnership with a micro-finance institution.
Which are your main priorities today as a company?
We recognize that in order to expand the business we need to create market awareness and demand for solar systems as a viable alternative to electrify homes not only for off-grid areas, but also to generate savings for electrified areas with high cost of power. However, we also have the capability to build large solar systems for commercial use. A major milestone for the company was the work we did for the Zuellig building.
Can you please expand on the Zuellig Building project?
The Zuellig Building invested in an On-Grid Solar Power system that requires minimal maintenance and promises substantial long-term energy savings to promote environmental sustainability. OREE was responsible for the integration of the solar PV system using SMA On-grid Inverters and Panasonic HIT solar module, recognized globally as one of the superior commercially available solar modules today. Both companies guarantee the quality, sustainability, productivity and cost effectiveness of the project in the long term.
There are many people today who are still skeptical of renewable energy products as a viable sources of energy, because these systems are perceived to be very expensive and have limited economic use. However, when they drive through the commercial district of Makati and see the Zuellig building and realize that the PHP 7 billion building uses solar power, they suddenly take on a different view of the product. The Zuellig building is a living testament and a very convincing concrete statement that indeed solar power is here.
We are proud to be a part of this incredible achievement. What is amazing about this technology is its ability to be scalable, meaning the panels we installed in Zuellig are exactly the panels that we can use for small households.
Solar power may be expensive in the initial investment but it assures a level and predictable cost for the next 20 years, since it is not dependent on distribution utility companies whose power rates are subject to fluctuation. This is valuable to any business that has high cost of power as it directly impacts the bottomline.
Massive investment in renewable energy is necessary for the development of energy security. Who do you foresee will be taking on the bill?
I believe that the more sustainable market is in rural retail. It is a Need Market. For this segment, Micro Finance Institutions (MFIs) are the most efficient and effective means of financing.
The big commercial or urban development projects give us the financial muscle to continue our rural retail operations. Presently, I can name a number of financial institutions, like Bank of the Philippine Islands (BPI), Banco De Oro Universal Bank (BDO), Security Bank (SB), Development Bank of the Philippines (DBP), Landbank of the Philippines (LBP) in cooperation with WB-International Finance Corporation, who offer specific packages to finance renewable energy projects. However, these banks traditionally offer a five-year term, which is much shorter than the twenty-year estimated economic life of the asset or the seven to ten-year payback period. Most potential customers cannot afford to finance this difference.
For small businesses to be encouraged to use solar systems for commercial use, the most viable terms of payment is a Power Purchase Agreement (PPA). In this arrangement, an investor who owns the solar grid can offer a long-term contract that offers solar power at a discount from the current cost of electricity from utility companies.
The PPA will allow businesses to benefit long term without the burden of debt for acquisition of expensive capital expenditure so they can carry on business as usual. The best partner who will be willing to deliver these medium scale projects to small business are likewise SMEs like OREE, as these projects are not attractive enough for big players. Given these market conditions, the government needs to create incentives so both the small business customers and the small business integrators can meet.
Which are your ambitions and dreams? And where you would like to see One Renewable Enterprise in five years?
OREE will be much bigger as we are balancing our growth via commercializing services while we are keeping our expertise in the electrification of rural areas. Strangely enough, while our main market is rural retail, the company experiences more openness to solar energy use with large commercial projects and un-electrified rural homes. If there are 10 more Zuelligs projects, we could probably go further and reach more people.
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