Dr. Thomas Hillig is the founder of TH Energy, a consulting service that helps investors in the renewable energy sector, particularly those entering the market and companies facing challenging market conditions.
Hillig is an expert on a wide range of topics, including microgrids and solar/wind diesel hybrid energy. In an exclusive interview, Nick Rice speaks to Dr. Hillig about rural electrification, off-grid energy and more.
Can you describe some typical ways in which TH Energy helps companies from the renewable energy sector in dealing with the main market-challenges?
To give just a few examples, many renewable energy companies depended in the past on incentives such as feed-in tariffs (FITs), renewable obligations, or tax credits. This first stage of renewable energy growth was important for creating a critical mass and bringing costs down for solar and wind energy. These incentives, however, did not always reflect the market needs.
The renewable energy companies did not have to care about off-takers [buyers with an agreed intention to purchase a certain amount of the producer’s future output]. In the case of commercial and industrial off-takers, marketing and sales are extremely important. We help our customers to build up these skills and to implement them in their organisations. One main challenge is that in many engineering-driven organisations, sales and marketing are not the main priority.
TH Energy also assists our customers in finding their sweet spots in the energy transition process. This often starts with setting up a strategy that is based on the company’s specific resources. We then also help our customers with implementing the strategy. This is sometimes also about acquisitions. TH Energy has been involved in recent years in several mergers and acquisition processes, identifying investment targets or providing due diligence services to our customers.
The renewable energy industry is worth billions and growing exponentially, but what are some of the major challenges that remain?
One of the main challenges is bringing commercial and industrial companies on board and preparing them for the changes of the energy transition. For traditional players, there are several starting points regarding renewables. They can rent out rooves or land, purchase renewable energy through PPAs, build their own solar or wind plants.
Even more important might become flexible consumption patterns to deal with the intermittency of renewables. For many traditional players, the energy transition will be a business opportunity and even for smaller players it will be important to build up at least some basic knowledge.
What happens to the giants of the fossil fuel industry such as Shell and BP et al, with the gradual but inevitable global transition to renewable energy sources?
TH Energy works with oil companies and also with utilities. For them the renewable energy boom means a certain loss of market share. The main problem for most of the traditional fossil fuel industry is that the renewable business is rather low margin in comparison to their traditional business. As renewables are less complex than huge central coal, gas, or nuclear power plants, company size is not such an advantage anymore.
Many smaller players with leaner organisations have entered the market and have turned out to be extremely cost-competitive. In times of capital abundancy and low interest rates, they also manage to finance large scale renewable energy projects.
Many traditional players were hesitant in entering these low margin markets early. At the same time, we see exceptions. The French oil company Total has acquired various companies and minority stakes along the renewable energy value chain. Today, Total is one of the leaders in renewable energy.
Over a billion people worldwide lack basic household electric power – in the 19thcentury that would have been the population of the planet. Is the developed world doing enough to assist with rural electrification in under-developed countries?
Rural electrification is definitely an important piece of the puzzle for development. The developed world makes things often too easy by declaring electrification as the Holy Grail of modern development. Even if some studies say so, our experience in the field taught us that electrification does not automatically trigger development. More entrepreneurial spirit and microfinance solutions are needed in newly electrified villages. This has resulted in too many over-dimensioned mini-grids when the development process never kicked in.
What more could be done to promote the worldwide growth of rural electrification?
The international community could contribute by setting up programs for de-risking rural electrification projects. In addition, we cannot leave the mini-grid developers alone with creating productive use applications in newly electrified villages. It is similar to making our Western utilities responsible for city development. The electrification process should go hand-in-hand with development efforts such as providing entrepreneurial education and microfinance solutions to newly electrified villages.
India reports 99.4 per cent electrification, yet there are over 300 million people who still lack access to electricity according to data from the country’s National Energy Policy. How do you unpick such a paradox?
In India, villages are considered as electrified if 10 per cent of the inhabitants have access to electricity. This explains the difference in numbers and also shows that there is often a divergence regarding the physical access to electricity and the ability to pay for it. Sometimes it just does not make sense economically to connect the remaining 90 per cent, because they cannot afford electricity anyhow.
Off-grid power generation is a lifestyle choice for a growing demographic in developed countries, but a necessity born of circumstance for many millions. What are your thoughts here?
Going off-grid in developed countries helps to create a market and to develop solutions economically. At the same time, we must not demonize the grid, which has many technical advantages, such as levelling demanding changes and economies of scale. The excrescences we have seen in the past decades rather stem from managing the grid and bad control of large players involved in power generation and distribution. In many under-developed countries, these control functions are typically even worse than in developed countries. Therefore, off-grid power generation will be, in general, more attractive. In addition, off-grid does not have to compete with existing and often already fully amortized grids. This makes off-grid solutions also more attractive from any economic point of view.
What obstacles must the off-grid sector overcome to become a real industry?
One of the main factors is optimizing sales and marketing. Many commercial and industrial off-grid customers are located in remote places. Efficient sales and marketing processes are a key success factor.
The situation is similar in the residential off-grid segment. The technology is rather mature and further costs decreases will improve the business case. The key challenges will be then more on the demand side – optimizing the customer acquisition and also after sales costs.
The off-grid industry typically must deal with an additional challenge: in remote locations, there are hardly any other off-takers. That means, in case a customer does not pay, the renewable energy assets must be relocated. We see more and more technical solutions for making solar power assets more flexible.
What are the biggest environmental challenges we face at the moment?
The severest consequences, long-term, come from climate change. At the same time, it’s important not to neglect short-term issues such as air pollution in cities – especially in Asia. Another challenge that is only partly linked to climate change and that also has a short-term dimension is increasing water scarcity and pollution.
What are the things which give you cause for despair and what allows you to think that things will be alright?
I sometimes get exasperated when I see how uncoordinated many international development initiatives are. The resources from developed countries are often not used in an optimal way. We also see that development agencies crowd out private services.
Another cause for despair is the influence of lobbying, originating from some slow-moving traditional energy companies who do not accept the new competitive situation.
It’s good to see that renewables have generated so much dynamism that they cannot be stopped anymore. It’s great that even backward-looking leaders who are strongly financed by the oil and gas lobby will not be able to stop this development.
On a more personal level, every solar power plant in Africa that provides poor families with electricity lifts me up.