Q&A with Andrew Newman, Armstrong Energy Global

Andrew Newman will be among the speakers at ‘Investing in Indian Solar’, a LEIF roundtable discussion in London on June 30th. For details on the event, please click here.

Guest blog: Julia Hawkins, Ashden PR and Digital Media Manager

Andrew Newman is Director and Co-Founder of Armstrong Energy Global.I found out why he is convinced that India’s energy future lies in solar power.

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Tell me about Armstrong Energy. What’s your vision, and how are you seeking to achieve it?

If you look at stock markets around the world, many of the largest companies are oil, gas, or energy companies.  This demonstrates the scale of capital that is needed to build new infrastructure to decarbonise the economy:  if the world is to make a concerted effort to reduce carbon emissions, then this will require money, and lots of it.

This is a challenge for some in the sustainability movement.  Many in the movement appear to believe that climate change solutions should be targeted on trying to change people’s behaviour.  At Armstrong, we just don’t believe that the challenges of climate change can be fixed by hoping that people will change their behaviour.

We founded Armstrong Energy to  deliver investors good financial returns by investing in projects that also deliver good environmental returns, with the hope that other investors can see that money can be made on sustainable energy projects, thereby attracting more and more investment capital to the sector.

When and why did you set up Armstrong Energy Global?

We set up Armstrong Energy Global (AEG) in 2014 to build solar projects in India. Some time ago, we identified India as an economy where solar would soon be financially attractive without subsidies. This was because of the high levels of solar irradiation and the already high energy prices there.

When we prepared the first business plan for AEG, we expected India to reach grid parity (that is, when projects deliver attractive returns to investors without any subsidy) by 2017. But in actual fact, grid parity has already been achieved.

This is hugely exciting, because if we can already generate electricity from solar at the same price as, say, a coal fired power station, then it will become ever more difficult to justify investing in new coal fire power stations in the future, because of their high operating costs, and their long-term exposure to raw material cost inflation.

Our international conference on 9 June is looking at the role of business in achieving international energy access. How far can business really be expected to meet the poor’s energy needs?

I guess that really depends on how you look at businesses.  If you think that the sole objective of a business is to maximise shareholder returns, then you would have to say that business can do little or nothing to meet the energy needs of the poor in India, as the poor are often expensive to serve. But at Armstrong Energy we absolutely reject this narrow definition of business. We strongly believe that business can have a positive role in meeting the energy needs of the poor. And we also believe that access to energy should not be seen as an end in itself, but rather that energy is a key enabler to improve the lives of the poor.

But we have also to be realistic: rural electrification is really difficult. Effective delivery is time consuming, and often requires a period of education in the communities being served. This is where businesses tend to be less effective, as they tend to focus on the short-term goals. However good the business models are, businesses often lack the patience for time consuming, difficult projects. And rural electrification definitely falls into that category.

For this reason, we have established a charity, the Armstrong Energy Global Foundation, which benefits from Armstrong’s commercial experience and buying power, but at the same time has the independence to use this capital and knowledge in a way that is appropriate to try and deliver these difficult projects.

Where does Armstrong Energy Global fit in this picture?

As a management team, we were uncomfortable with building solar farms in rural areas of India which delivered cost savings to the customer who may be in a town hundreds of miles away and a good financial return to our shareholders in the UK, when the nearby villages may have no access to reliable electricity. So when we set up the business we amended the articles of the Company so that a percentage of the revenues generated have to be paid into the Foundation, prior to any distribution to shareholders.

When deciding how to set this level of donation, we gave a lot of thought as to how we would deliver the greatest social impact.  Ultimately we decided that the best result would be achieved if this donation was set at a level where shareholders were likely to achieve excellent financial returns, as this would enable us to position the company as an attractive financial proposition for investors, rather than a social enterprise. Our business models indicate that if we deliver the business plan then the Foundation would receive millions of pounds in donations each year to fund its rural electrification projects. We believe that this is much more than we would have achieved had we positioned the company as a social enterprise delivering below market financial returns.

What’s next?

For Armstrong Energy Global, our short, medium and long-term focus is 100% on delivering the company’s business plan. Our aspiration is to be operating 1 GWp of solar power plants in India by 2018. That will take a huge amount of work to deliver, and I don’t expect that we’ll have much time to think about anything else.

For the Foundation, we are hoping to launch in the near future a solar water pumping programme, aimed at farmers in India. Our analysis indicates that drip fed irrigation and fertigation can increase crop yields really very significantly. And obviously if we can increase yields for these farmers, then this should increase their incomes. In a country where the average farmer earns less than £1,000 a year, any increase in yields can be hoped to have a material and positive impact on their lives.

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