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Kate Steel

Co-Founder

Nithio

April 13, 2021
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Ep 11: Kate Steel - Co-Founder, Nithio
00:00 / 01:04

Adam Zuckerman
So today, we're here with Dr. Kate Steel, co-founder and COO of Nithio. Kate, it's great to have you here today.

Kate Steel
Great to be here, Adam.

Adam Zuckerman
Welcome to the Energy Impact Podcast. Now you're the co-founder and COO of Nithio, you were the Energy Director of Power Africa, Energy Access Investments Team at Google, Energy Specialist and Manager of the World Bank for Lighting Africa Initiative, and you're not only a professional, you have a fantastic academic background that's assisted you in your career, BS in mechanical engineering from Stanford and a PhD in engineering systems. Kate, you're phenomenal. Tell us about your background? How do you shift from mechanical engineering all the way over to energy financing?

Kate Steel
Yeah, you can tell there's a straight shot of energy through that career path, but from a lot of different angles. I mean, the simple answer is, I studied mechanical engineering, I was looking at what I was going to do right after graduation. And I was talking with a friend and said, You know, if I could do anything, I would travel for a year and decided when you're 21 and have no real responsibilities, whatever, kind of completes that sentence of "if I could do anything" is probably what you should be doing. So I did take a year, I traveled, didn't want to be entirely aimless. So I was teaching in Kenya for about six months of it. And when I was in Kenya happened to be when they were having one of many ongoing power crises. And so I had power on a rationed schedule, power was on either during the day or at night, supposed to be on a schedule, wasn't always, didn't always stick to the schedule. But that got me really interested in what could have caused this situation. You know, I'm a newly minted engineer looking at this thinking like, this is not a really difficult technical problem. Power systems have been around for over 100 years, not much has changed in that time. And so really started to dig into all of the financial and management and political reasons why at that time, 2 billion people didn't have access to electricity, and got really interested in that as a problem and kind of haven't looked back. I did my my graduate work on that and then ended up working at a lot of different organizations, but always with a lens to trying to solve energy access,

Adam Zuckerman
Right. So energy access is clearly what you're focused on these days, we'll work backwards a little bit through your professional CV so to speak. Right now, you're at Nithio, which is a company headquartered in Washington, DC, was founded in 2018, you've raised some funds for your operations, and you're doing quite well. What is Nithio? Tell us a little bit about the company.

Kate Steel
Great, so Nithio is super niche. So I'll start from energy access. Really big problem, there is still over a billion people who lack access. And this is access to any electricity, not connected to the grid, have no no way of kind of charging cell phones, powering lights in their homes, and 600 million of those people live in Sub Saharan Africa. But there's this really exciting industry that's come up for off grid solar and off grid energy technologies. And they're really well matched to people who are off grid at this point. And so it can be, usually it's a solar panel, some lights, cell phone charging, radio, TV, kind of your basic appliances, but it's really well matched for the energy demands for those households, as well as there's a financing innovation called pay-as-you-go, which really makes it possible to keep for people to pay incrementally over time and be able to afford the system for not much more than they were paying for kerosene and cell phone charging from a shop previously. So all of this is like great, this problem is gonna be solved. There's market demand, there's a technology that works. There's a financing solution that works. And it really hasn't scaled as fast as it needs to to reach people by the Sustainable Energy For All target is 2030 trying to get universal access to electricity by 2030. Nithio, we looked at that problem and said, What's the bottleneck? What's what's preventing this sector from really just you reaching all of those 600 million people? What we found is that it's actually a lack of working capital in the sector. Imagine you're out there selling solar home systems, every single household that you're selling it to, you're basically providing it to them and hoping they pay you back over time. You know?

Adam Zuckerman
What type of solar system are we talking about, like 18 kilowatts, are we talking about-

Kate Steel
Super, super small. We're talking more like a 50 watt panel, 100 watt panel, these are really small systems. And, and going off on a tangent, but some of the really exciting stuff that's happened with solar home systems is highly efficient appliances. If you've got to squeeze every little bit of service out of a 50, 100 watt or 200 watt panel, you're going to have highly efficient light bulbs, highly efficient cell phone charging, TVs, radios, etc. So there's a lot of really cool innovation happening there. But, what we were seeing is that this capital is really at risk, because you don't know if people are gonna pay you back. And so we saw that, not only do the distributors and the sellers of these systems, they're like, you know, hope people pay me back, this is a bit risky for me, you can imagine their investors look at that and see a huge amount of risk. So we found that we could solve was, if you can better understand that repayment risk, you know what cash flow is going to be coming back in. That solves a big problem for the sellers of the solar home systems. But it's solves an even bigger problem for investors. And for them to be able to kind of get off the bench, this sector needs hundreds of millions of dollars flowing through it, billions of dollars, to really reach everyone. It's a secure sector, it can handle that amount of money, but you have to be able to understand that the money is going to come back. And that's what we can really bring to the table.

Adam Zuckerman
So explain that a little bit. Technically speaking, Nithio is an energy finance platform that provides services to distributed energy service companies, capital providers, governments and other stakeholders in the distributed solar energy sector in Africa. I think I got that right. A lot to unpack.

Kate Steel
Yes.

Adam Zuckerman
Who are the actual stakeholders and people that you're working with? Are you gathering information from point of sale systems in small towns and rural distributed areas? Are you using payment processing on people's phones? Noted, there are more phones as of 2021 in the world then there are people who have houses connected to electricity. Who are you actually working with? What does it look like?

Kate Steel
So our primary business is B2B. We work directly with companies and investors in the solar home system space, both to provide analytic services, so we can give them details about types of customer repayments, better understanding of the market. And then if you're a seller of solar home systems, we can offer you receivables back financing, so we offer you financing against that money that's going to be coming in from those systems that you sell. But the data sources, we were really pulling mostly from our partner company that has really the best demographic information on African households. They pulled together all different survey sets, and then basically knitted that together filled in the blanks using machine learning and have a really, really rich understanding of what's happening in African households at a statistical level. It's not creepy, they don't know where everyone lives and what they buy. They can get a really rich understanding of what's going on with households, in terms of their preferences and different attributes. And then we pull that together with different data sets, one of them will be payments from existing payments data from a solar home system provider. Other data, we're really careful not to go too far into, we don't pull personal information, we don't pull social media information, we don't pull cell phone data, we do like to keep it a point where you're not really worried as much about privacy issues. But we can merge those datasets together and also use machine learning to better understand what are those repayment paths that different households might be on? And we're able to look at what attributes are predictive of those different repayment paths. And then we can build a predictive model to know going forward, what types of households are likely to be in which categories.

Adam Zuckerman
So it seems like you're almost creating the market, you're gathering the data, you're assisting facilities with financial backing for the companies that need the money to deploy. On the other side, there are facilitation engines like Kiva. Are you then partnering and facilitating so when one side comes in backing from Nithio, the other side comes in to help people finance, or is that something that might come down the road?

Kate Steel
It's where we'd like to see the sector going. I think you can imagine that there's a huge demand. Lots and lots of people who still lack access to not just electricity, I mean, this expands to all basic services, we're really talking about asset financing for goods that improve quality of life. Then you have a lot of money out there that wants to be investing in things like this. I think even if you just look at what's happening with bank commitments, or on climate finance, or really just the commercial sector wanting to be into something that has more impact, we see ourselves as the platform that can help efficiently deploy that capital from one to the other.

Adam Zuckerman
Why hasn't the market been able to successfully address this issue before? Why are you in the right place at the right time?

Kate Steel
I think there hasn't been a good way to understand the credit risk, I think just a very, like detailed in the weeds point of view. I think others have tried and failed. I think it's really tricky to get a handle on that, especially because there haven't been really good datasets out there. I think the other reason is just that there's been- I think that's kind of the fundamental that leads to limited understanding of what the risk is. If you have limited understanding, you don't want to invest in the sector. There are lots of other kind of challenges to the sector overall. But I think that financial flows one is really the most, most key.

Adam Zuckerman
Okay, so everything goes as well as can hope, possibly even better, you're looking back 10, 15, 20 years from now. Climate change is avoided, improving the standard of living for millions of humans around the world. What are some of the other intended consequences? And then what are the secondary unintended consequences that you think might materialize?

Kate Steel
Yeah, I'll give you the optimistic and maybe a little bit of a pessimistic view, given where we are. I think the optimistic is that people have freedom of choice of how they get their energy supply, you can get power from the grid, you can get power from solar generated on site, you can connect to a micro grid, you can have standalone appliances that are battery powered. I think just being able to have that full choice of affordable electricity to meet whatever demands you have. I think that's the real ideal. And I think the way that we're approaching it, now, it would happen in a way that's clean. I'd say the emissions in Africa are still limited at this point. The climate change mitigation story is less - not that it's less important - but it's less of an impact, I think what's really important about what we're doing, what the off-grid industry is doing is about adaptation. And that's my pessimistic point is that I think we're almost- you still have to stay so focused on mitigation, but we also have to prepare for adaptation. And I think being able to have energy generated closer to where it's consumed is, is about resilience. And I think if you have more control over your energy supply, and you're less vulnerable to a storm, knocking out power lines, then the better off you are, and I think that's not just a case of households that are off grid in Africa. I think, you know, a month ago or so, in Texas, we saw that you can have a more modern system really get taken out by some of the climate events that are going to happen.

Adam Zuckerman
You mentioned a number earlier, I believe, 600 million, is that correct?

Kate Steel
Yes.

Adam Zuckerman
So explain what that 600 million is, and then put that in perspective. In America, we have 350-400 million citizens. So this is a fairly large swath.

Kate Steel
A lot of people don't have access. And I think you can even argue that at least that many who have grid connections don't actually get power from the grid, at least not consistently, or in a way that that's affordable. Yeah, it's a lot of people. And that's where I think that I don't see off grid as the necessarily the end solution. I think the systems that we're talking about right now are quite small, and I think you can get, you know, focused on well, is that real power? Is that enough power. And I think my argument would always be it's better than nothing. I think if you've ever spent a night truly off grid and understood - not just for camping, camping is for fun - this is for a full way of life, I think it's hard to say how much of an impact it can have on people's quality of life to just have the lights on, the impacts on health, the impacts on education, the impacts on economic prospects and ability to do additional work. I think it's just game changing. And that's why it's such an important area to be focusing on.

Adam Zuckerman
I think that's a great point. So, by 2030, the stats say that nine out of 10 people living without electricity globally will be in Sub Saharan Africa, which is exactly where you're focused on. Some countries, though, may be a little bit more receptive and primed for this type of effort. There was a 2020 report, Electricity Access, from the Global Commission to End Energy Poverty, and they said that Nigeria has emerged as an epicenter for both regulatory and business model innovation. And they can integrate both on grid and off grid solutions. So it seems like it's a great place for you all. Nithio is working in Nigeria, Kenya and Uganda right now. Why did you choose those locations and where are things headed?

Kate Steel
Sure. So on the analytic side, we actually work across all of Africa. Our lending is specifically, the financing that we offer is in Nigeria, Kenya and Uganda and we're following the market. I mean, we're doing receivables financing, so we need to be where the receivables are and those are three of the biggest markets. They're not the biggest markets, if we were looking at where are the most people who lack access to electricity. Nigeria is one of those, Ethiopia and DRC each have about 100 million people who are off grid in addition to Nigeria. But Kenya and Uganda have very active markets for off grid and Nigeria is moving very quickly. And so it's where you've seen a lot of growth in the solar home system sector. You've seen a lot of really progressive movements by the government on encouraging use of off grid as a solution. So it's a great market to be in.

Adam Zuckerman
Okay. Now, previously you were at Power Africa, under USAID. Did that opportunity and that role help you identify the problem that you focused on right now? Or was this just tangential, where you understood the market very well identified this separately and then moved over to solve a solution? Or find a solution?

Kate Steel
I can't take credit for identifying this as the bottleneck. We worked with a venture builder who had capital and they had really been looking at how you could use data to help solve energy access. And so they had really come upon this. And I'd actually started speaking with them, as I'm basically just advising on whether or not I thought this was a key bottleneck, and really thought they had stumbled into something that was extremely important for unlocking financing. So definitely was on the radar, working capital has always been identified as one of the biggest needs in the sector. But I think no one had really hit upon like, what were the things you could change that would unlock that working capital. I think that was really innovative in that direction.

Adam Zuckerman
Can you explain the opportunity and that function of the organization a little bit better? I'm not sure that many people understand that there are entities out there with that type of role and objective.

Kate Steel
Yeah, I think that the typical founder story is, you come up with an idea and you go and pitch it to everyone you can to try and get funding. And the venture builder model is more about incubating ideas internally, and then pulling a team together to launch that idea. And so Kupanda has been doing this for several businesses, our partner company who actually is the data provider is also a Kupanda investment. So, they knew my co-founder from their time at African Development Bank together, I met them through kind of the African energy networking in DC. And so they kind of brought us together and then launched the company.

Adam Zuckerman
All right. Let's talk a little bit more about your time at Power Africa. What was your role there? What were you focused on? What were some of the challenges that you encountered and some of your biggest success stories?

Kate Steel
Oh, big question. So there is a lot going on. Power Africa, for anyone who doesn't know was launched under the Obama administration as a presidential initiative to double access to electricity in Sub Saharan Africa through bringing in private investment. The goal was really not to go out and build infrastructure ourselves, but to figure out what were the bottlenecks and what would bring in the private sector. And it was really exciting to bring, I think one of the most innovative things Power Africa did was bring together all of the US government. So it wasn't just USAID doing kind of development projects and the work they've been doing around that it's pulling together Development Finance Corporation, previously OPIC, to bring in the investment side, EXIM Bank on obviously export import, the US Trade Development Agency to think about what US companies could be bringing into Africa, doing trade missions, things like that. And a number of other agencies, those kind of bring all the tools together. So it's really exciting to see the whole government working towards one problem. I think it's one of the best cases of that really, actually coming together. I know everyone tends to think of government as dysfunctional, but it can be very functional and really effective. And very exciting to work on them.

Adam Zuckerman
So we'll go back to part C, D, E, and F of the question. I just asked in a minute. There are US government entities, agencies, programs, initiatives that are there to facilitate private companies doing great things around the world. You, as in Nithio, are located in Washington DC. Do you leverage those programs now? What is that scenario like or are things a little bit different with the new administration, too, since you've been?

Kate Steel
Sure, I mean, we announced several weeks ago commitment from Development Finance Corporation in our Nithio lending operation, Nithio FI, so we're definitely looking to the US government resources and have used contacts within the commerce department and USTDA and others to try and better facilitate those relationships. And also in good conversations with State USAID to understand what's going on on the ground. And it's still leveraging a lot of the Power Africa team that's in the market as well. So, definitely making good use of the government resources that are there that are still extremely helpful to businesses like ours.

Adam Zuckerman
Do you have on the ground partners in Africa or is everything remote?

Kate Steel
We actually have about half our team now in the market and will increasingly be based there. So we have team members that are in, right now Nigeria, Uganda and Rwanda. Have another team member moving to Kenya soon, another will be based in Nigeria growing the team there. But most of our hiring from now on will be in country.

Adam Zuckerman
Okay. So going back to USAID and Power Africa, what were some of the challenges that you encountered while you were there? And what were some of the great successes that you saw the team?

Kate Steel
I thought that the challenges would be so in the weeds on like, congressional budgeting process and things like that that probably won't be too interesting. But I think the biggest challenge, I would say, was actually implementing an infrastructure program on political timelines. And I think that's a problem not just faced by USAID, but with a lot of development agencies where people want to see results, and they want to see results quickly and power projects take years to get to the point of financial flows, but then to build them. So it's, it's tough to say, we're gonna have a huge impact and like, tell me what you've done in six months, and you're like, well, these things all move incrementally forward. And that's incredible progress, actually, the fact that they all did move forward. But you don't get a real big fanfare. And I think that's a challenge for anyone working on one of these infrastructure programs, which is the really essential work that has to be done. But just balancing that with, kind of everybody wants a ribbon cutting or, you know, something to look at. But um, I think the successes are enormous. I think, like I've already said, bringing the government together, I think, was actually a big success and something that's been replicated in other programs. But I think even just the results have the ability to accelerate some of the projects that were happening. I think, Power Africa did actually bring power online faster than would have happened without Power Africa, and brought a lot of people electricity, who wouldn't have had it otherwise. So I'm very, very proud of the team's work in that area.

Adam Zuckerman
That's great. Now, where do you see the trajectory of energy internationally, going over the next several decades? And it's a big question to ask. Europe's pursuing the Green New Deal. There's clearly many initiatives in and around Africa right now, Asia through ASEAN.org are doing some fantastic things as well. Are you optimistic of where things are headed? Are you kind of, eh we're not on the best track?

Kate Steel
Mostly optimistic because I think the market power is there. I think if this was a question of, well, is it like environmentally friendly, I think that's a more active debate. It's just cheaper. Like, you can't argue with that. And like the market, you're not going to have people so committed to dirty electricity, that they're willing to pay more for it. So I am optimistic, mainly for that reason that I think just the cost of renewables and the cost of lower carbon energy technologies are going to win.

Adam Zuckerman
Alright, two more questions. And then we'll wrap up, I appreciate your time. Where did the name Nithio come from?

Kate Steel
This is always a good question. Apparently it does mean something in Welsh, but the the actual intent was that it's from the Egyptian goddess Neith, who wove the universe together. So a little bit ambitious.

Adam Zuckerman
Alright, and the last day is, what's something in energy that you've seen recently that gets you really excited?

Kate Steel
Oh, I didn't think about that, what's exciting that I've seen in energy? I think one of the things that's exciting is, and this is not in our area, but eMobility. I think you're seeing that rapidly, a lot of uptake of that in the developing world. And I think it's, maybe I'll say a broader category, I think we always think about technology transfer as US to everywhere else. And thinking about you, we need to buy, we build all these cool technologies, and we need to sell them other places. And I think if you look at what's happening with like what happened with mobile money originally in parts of Africa, you see what happened with demand side management, which is way further along in areas that have electricity constraints than it is in the US. And I think eMobility will be the same thing that I think you'll start to see a shift over to not even necessarily cars, but I think like the other forms of transport that are just much, much cleaner, and I think you'll see that possibly much faster in areas outside of the US and hopefully, will come back here for adoption.

Adam Zuckerman
Right. Dr. Kate Steel, co-founder and COO of Nithio. I don't think that we can end this on a better note. Thank you so much for joining us today on the Energy Impact Podcast.

Kate Steel
Thank you very much.

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