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Rwandan Energy Company

 - Feb 9, 2012
Perhaps as international as interviews get, Skyped the Founder and Executive Director of Inyenyeri, Eric Reynolds, who is, of course, based in Rwanda where his energy business operates. covered the social benefit company, which uses crowdsourced biofuel to transform energy systems in Rwanda, at the end of last year and it was one of the most popular pieces that November.

From the U.S., Eric Reynolds is a long-time entrepreneur who effectively sold all of his assets to start Inyenyeri (he invested more than $350,000 on the social business). He lives in Gisenyi which is on the north shore of Lake Kivu.

Toward the end of the interview, we briefly touched base with Eric Millinger, Inyenyeri’s Deputy Director, who is instrumental in the day-to-day direction in Rwanda. He studied engineering at the University of Colorado and encourages recent graduates to consider social business when entering the workforce.

Springwise named Inyenyeri as one of the top 10 business ideas and opportunities for 2012, and after this interview, you may agree: Inyenyeri is one to watch as it strives to become one of the biggest energy companies in Rwanda. Here, Eric Reynolds goes deep into his "wild big dreams" as he calls it -- and went along for the ride.

Interview with Eric Reynolds How did the idea for the business model come about?

Eric Reynolds: It was an evolution based on experience and learning. I certainly benefitted from my prior career as a serial entrepreneur in the U.S., founding and being skilled with a bunch of different companies. But I made a visit to Rwanda in the spring of ’07 as a volunteer to help the people at Barefoot Artists build a genocide memorial and survivor’s village in the area. In the course of just those few weeks, I spent a fair amount of time in the homes of these survivors in this village and got some very strong early impressions. I decided that that trip was so rewarding of an experience that I would come back twice a year to do some volunteer work like that.

When I came back seven months later for three more weeks, with the same group of friends, the Barefoot Artists, I instinctively had been studying Rwanda full-time for the last seven months, which turned into four years of self-studying on the topics of tribes, economic development and Africa and whatnot. I was particularly drawn towards the energy sector where you’re cutting down trees to make charcoal, and cutting down trees to cook with wood and agricultural waste, and you’re bringing it in like a campfire and you have all this smoke so you’re getting sick, you’re destroying your environment. It’s this spiral that’s going to go down the drain. It’s completely unsustainable on many levels. Early on I started thinking that the most fundamental of all of the infrastructures upon which any successful modern economy is built in terms of increasing wealth and health in a society, is the energy infrastructure -- without it you can’t build roads, have clean water systems, have electrical copper wire systems, etc.

So I started thinking about cooking energy. As I got deeper and deeper into the business model of trying to establish that infrastructure not by selling clean cooking stoves to people who have no money, because, how can you do that? You’d have to give them away and you can’t give away enough cooking stoves in this world to solve the problems -- there's not enough money to continually give away clean cooking stoves. So it was about forming an energy company that was selling a clean renewable form of energy and that was the source of income that enabled you to give away the cooking stoves and indeed, to most people, give away the fuel for free as well. What stage are you at now in terms of trials? How far along have you gotten?

Eric Reynolds: We’re very, very early. There’s been a very substantial amount of research, education, business modeling and financial modeling in preparation. There’s been far more than the usual survey work and market research where we’ve interviewed people with quite detailed questions with over 500 very poor households here. Loads of work on all that -- that has essentially been four years plus in the works. But the actual roll-out of stoves, the actual number of houses and tons of biomass that we’ve made is all very early-stage, just a few dozen stoves with very early experiments. We’re proceeding very slowly, very carefully and learning as much as we can with one-on-one interviews in the households using the stove. Have you encountered any setbacks with measuring impact generally and with how you’ve planned to do randomized control trials?

Eric Reynolds: By being a for-profit social business and having an entrepreneurial background, we’re used to running organizations that require extensive amounts of data and an analysis of that data. What are you doing and are you getting results? That’s how you measure your bottom line, to determine if you’re going to be profitable. You do extensive research into, "How much did you pay for it? How much did it cost you to make it? What’s your profit margin?" For something like this, when you get involved with a house, "How many people continue to use it? At what rate do they use it? How long do they use it before the product breaks? Do you make or give or sell them another one?" These are all kinds of things that, perhaps, an NGO might not be thinking about but they just come naturally in our model. Some impacts that we would have to measure to know if we’re succeeding are impacts that we can measure directly though the kind of numbers that we would want to know from a business point of view. For other numbers, we’re going to have to work with other entities or research them and get ourselves. Randomized control trials, whether a haphazard natural trial that falls into your lap or whether they’re very expensive kinds of randomized control trials through an institution like J-PAL (Poverty Action Lab) are far more sophisticated and beyond our level of expertise at this time. We at least know that and know who to approach and try and get involved as partners in those trials.

We’re finding that there’s tremendous cooperation in the public-private sector intersections in terms of the very strong likelihood of getting cooperation from the schools which service the villages, the health centers and hospitals which service these individuals in order to be able to get the data to track houses before and after, with and without the stoves and the fuel pellets, to be able to know if we’re getting an increased school attendance in houses that have the stove because there’s less smoke inside therefore kids are less frequently sick. What are the birthrates of the children born in the households with or without the innovation? A whole host of things. That kind of impact was beyond what we would want to have simply to measure our bottom line but it is a vital business interest to get that data to be able to prove those impacts because they impact our ability to be able to get low dilutive equity in the company. My primary principle would be not to have to sell the equity in this company while we raise 15 to 20 million dollars of capital in the next four or five years, but to get all of that through philanthropic outlets with zero-interest or low-interest loans. If we can prove to those entities that we have the impacts then those kinds of funds are much more readily available than the normal NGO who’s going at it and saying, "Just give me this money to try and do this thing and I’ll tell you that I think I’m doing a good job." Most NGOs aren’t particularly sophisticated in even the thinking that goes into impact measuring much less being able to go out and do it. What do you hope for the future of the business?

Eric Reynolds: Like most entrepreneurs at the start of a phase, you dream wild big dreams. And we aspire, within 10 years, to have half the houses in Rwanda cooking with these energy pellets and having, on average, three of our stoves in the houses. If we’re able to accomplish that and we’re selling our energy pellets at half the price, this will be a 600 or 700 million-dollar a year revenue company with net profits of 100 to 150 million a year before carbon credit income with an excess of over 100 million dollars a year. One thousand employees. Half a million dollars of infrastructure in the pellet plant capacity. A massive industrial-scale energy company, the largest company, potentially, in Central and East Africa. And putting back all of the retained earnings to the goal of reducing and eliminating poverty. Not taking any of those retained earnings out for our shareholders, which is me. I have no intention of taking out retained earnings for myself. I want to invest all of them back into poverty reduction in this country. That’s what we’re shooting for. How do you get your inspiration?

Eric Reynolds: The daily contact with the reality of doing it is inspiring. Implementing a plan that has been so long and deep in the making is insanely inspiring and exciting. Seeing, essentially, so far, how most of our ideas and details of how we thought we would roll this out, most of them were turning out to be on target or better than we had expected. And in the cases where we run up against things that aren’t working well, we’ve been able, in each case, to come up with a solution and figure out a way to do it differently than we originally thought. We haven’t come across anything that’s potentially a deal-breaker yet.

At this point, I think taking care of the big questions, in terms of reducing risk in the model, I think we can say with some strong degree of surety that people will and can bring us clean, dry biomass in exchange for free pellets. The rural area of Rwanda has more than a sufficient amount of biomass to be able to supply our system and to be able to supply all of the urban customers who would be paying for the products. We can sell the product at a price well below the price of charcoal, which is what they use now in the cities. There’s an incentive to be participating. It’s either free if you’re bringing biomass or it’s way cheaper than charcoal. The first reason people use this is not because it’s clean, indoor, healthy and not destroying the environment – that's all sweet -- but the main reason people are going to do this is because it’s free or cheaper. It’s in their own self-interest to be doing "the right thing."

Through actually making pellets, delivering pellets and making stoves, we’ve been able to identify what our costs are for making pellets and they’re way below what we thought they would be at this stage and already are providing us with a huge profit margin opportunity that would satisfy any grant or investor; that this is a very large gross profit margin business that can quickly become profitable and self-sustaining. Anything else you want to share with our readers?

Eric Reynolds: I encourage anybody who’s older and highly skilled at something to not even consider retirement. Go take that skill and go do something a bit more fun than you’ve ever done in your life. I feel 40 years younger. It’s just a total blast.

Eric Millinger: As a corollary, I would add to that and encourage people who have just graduated who want to enter finance or business, instead of going to work on Wall Street or somewhere like that, go work for a start-up social business. You can learn a lot, if not even more than you can in the United States.

Eric Reynolds: He’s getting experience and wisdom far beyond his peers.

In addition, Rwanda is a really special place. Because of the combination of how far forward it is in the future and how the society is leaning, I’m greatly encouraged by the future prospects for this country, particularly when contrasted against their difficult recent history.