As a Founder and the CEO of KarmSolar, Ahmed Zahran has been instrumental in putting renewable energy on Egypt’s map. He talks with Law Today about his company’s core value proposition and why it offers an empowering solution to people’s energy needs.
LT: Can you give an overview of the KarmSolar story? You are renowned as a leading company in the field of renewable energy. How did you achieve this so quickly?
AZ: It is actually only recently that we have been seen as a leader in this field. We, the co-Founders, were working in one of the biggest organisations in the country and after the Revolution the company was shut down and we were pushed out. The company’s focus had been on renewable energy, and so I went to the team I was working with and told them I wanted to continue in this field, by starting a company myself. They wanted to come on board, then a number of people who had played managerial roles in the company we had been working in said they would support as investors if we established something.
So we just started as the same team, with investment from ourselves and from some of those people who had been working with us. We were officially established as a company in October 2011 and we moved to office premises in Zamalek in February 2012, with two other small companies, sharing rent, then we expanded and moved here the year afterwards.
It took us around a year after being established to sign our first contract. Everyone thought it would be a six month initiative, we would spend our money and that would be it. But then we started getting business.
LT: What do you see as having been integral to the success of KarmSolar?
AZ: The first part was psychological. We felt that nobody could stop us. After the Revolution we felt that we could do our own thing, applying our own rules, being controlled by nobody else. We could enjoy working in our own place; it was going to be somewhere we enjoyed working.
Secondly, there is an energy problem and people had started to realise this, so there was a market opportunity.
Thirdly, there was not a single fully-fledged respectable solar energy company in the country, so we thought if we established that type of company it would be a reference for what a solar company should look like, in the market.
These were all contributing factors.
We didn’t really have a reference point; the company has evolved a lot from the day it was founded. At the beginning we had a product that we believed was going to be the key product for our company; now it almost doesn’t exist anymore.
Building ourselves as an institution was a process of trial and error because we really didn’t have anyone to learn from. We found ways to effectively oversee the technicalities of establishing and running a company and managing a team, raising money and signing contracts, but remember that we were employees until 2011. When you are an employee you are often not encouraged to be an independent thinker.
LT: How have the priorities of the company changed?
AZ: The fundamentals of the company have not changed, in terms of what it is at the core. The fact that we wanted to create a company that focuses on the core technology of solar energy, as well as design and system integration, still exists. The type of products we offer the market are now different, though we still depend on hardware and software. We still offer both. The kind of application we are targeting depends on what the clients are looking for. So for instance we realised that we had a competitive edge in energy provision, so we have signed a lot of contracts to sell power to our clients. We also started a new company called KarmBuild which is specialised in the intersection between solar and architecture, and that company is doing very well now. Overall, the business expanded in ways we had not imagined.
LT: You have previously stated that you want to convert the entire region to be off-grid and that this is how you see the market. How realistic is that target? How would converting to off-grid affect energy consumption for businesses and individuals?
AZ: You should never aim for anything realistic. Frankly, realistic is for idiots. It is always the unrealistic things that open up new opportunities for us. When the world started, it was completely off-grid and people were more empowered. They had to solve their problems for themselves and they had freedom of movement and they could live anywhere. The centralisation of services was accompanied by an invisible hand, controlling where people lived, because you had to be where the central services were situated. I believe that this is something we need to break. Of course I will do business with the grid, but eventually what I envisage are homes that are fully sustainable, that can provide all of the energy and water they require, and treat all of the waste that they produce. That’s how I think it should be. I do think that removing the leverage some people have over others is fundamentally empowering. I believe the work we do empowers businesses and individuals – because it puts an essential aspect of their lives, power generation, in their hands. And this takes place off-grid.
LT: To what extent does the message of sustainability resonate, in Egypt?
AZ: We consciously aim not to push that message of sustainability. If you read our publications, you will see we consciously don’t use the words ‘sustainable’, ‘green’ or ‘climate change’. You cannot depend on tapping into people’s need to be good to build a viable business. A person may want to be good one time out of ten, but will want their own interests nine times. So anything you design has to target people’s incentives and solve their problems.
So we decided that our products and services have to be designed to solve people’s problems, meet their needs and be the best alternatives out there. Our solution also needs to be the cheapest. If you design a solution like that, people will go for it because it is cost-effective, because it is the best, the most economically viable, the most practical – and that is so much better than using your solution because it is green, or ethical, or because of climate change.
We believe in all those values of sustainability and protecting the planet but we are careful not to communicate them as part of our core marketing strategy to the public, because it would kill so much within our message. Incidentally that is why we don’t accept grants, because we believe they would corrupt the business model. So we only sell products to our clients that will save them money or make their lives easier, but not because there is a grant financing a specific product.
LT: So your clients are primarily businesses but do you also work with individuals?
AZ: We do work with individuals as well, though it is not yet that widespread. We have the Azza Fahmy collaboration for some of our residential household products, but our main business is B2B.
One of the interesting things that helped our growth was the connection we established with young professionals. Instead of investing in real estate – the main investment opportunity in this country – many young professionals became interested in investing in start-ups. When you have a young professional who brings experience in an international organisation or a multinational investing with you, they not only give you money but they give you their brain – so effectively you end up with specialised free consultation, which is an amazing thing.
So this is very empowering if you are trying to change an industry, conceptually and practically. You always have people to call, so many people standing behind you and offering multi-level support. Of course, the more stakeholders and investors we have, the less likely we are to fail, because it is in the interests of more people that we succeed.
So this was a reason that I wanted to do an IPO as well. I felt this was a company that should be listed in the Cairo and Alexandria stock exchange because I wanted it to be one of the main investment options for middle class families in this country. Instead of investing in real estate or the food industry, I thought that we can create something that could be a core utility investment for the market.
We accept investment from Egyptians and Arabs living here or overseas. But we have a specific set of core values that are rare to find today, and we want our investors to embody those core values. We are a company that believes in its people very much and believes in local resources very much, and we wanted to show that it is possible to create a successful company purely with local resources.
We are not interested in building a company to be acquired by one of the big international players; perhaps the opposite. In time, we may want to grow big enough to acquire some of the hostile players from the international market.
Sometimes when people want to compliment us they will say things like ‘We think you are the new Maktoob’. I find this very demeaning. Even in terms of people’s dreams and what they wish for, they have artificial ceilings. Why don’t they frame themselves, and us, as the new Yahoo!, which acquired Maktoob? They always think of themselves and what they can achieve within a pre-existing paradigm, which is not the one I want to reinforce or perpetuate.
LT: In terms of operating in Egypt, what are the processes that KarmSolar had to go through to become operational? What licences did you need and what were the principle challenges faced in terms of the regulatory or legal frameworks in Egypt?
AZ: One of the issues of operating in Egypt is that you need to be very clear about how the system works and the paperwork needed. Power generation is an area where there is a lot of licensing. KarmSolar is the only company that was able to operate its power station in phase 1 of the government’s feed-in tariff program. Although we were one of the smallest companies participating, people thought we would not be able to finish the process, but we did.
We had invested a lot of time understanding the paperwork, the process, and we took it really seriously until we closed the contract. I don’t think the others did the same thing. Before producing the first feed-in tariff licence, we produced the first private licences to have power from solar energy in the private sector. So we had these other licences, then the feed-in tariff licence, then it became something we were known for. We signed our first Power Purchase Agreement in April 2015 and we are still the only company in the market with that licence. We really worked hard to understand these things; it gave us a fantastic competitive edge.
One of the most important products of this company is the company itself – the setup, the infrastructure, the way we invest in our people, how it is tailored in terms of delivery and allocating resources to getting things done properly.
We wanted to work in the Western Desert, so we built a kick-ass campus in Bahareyya and created all the appropriate infrastructure including an office space, a place for people to sleep, comprehensive support.
LT: Did you face any challenges in terms of the legal/regulatory framework?
AZ: Actually I think we are among very few companies that can say honestly we had no problems with the regulatory framework. Even when it came to the feed-in tariff in phase 1, when so many people were complaining about regulations, we did what was asked of us; we just wanted to get the project done.
But when it comes to the legalities, one of the main burdens in the solar sector is the contracts that organise the relationship between the providers of power and the consumers of power. This is one of the main areas where we put in a lot of work with our lawyers, to make sure that we craft contracts that are strong, sound, bankable, good for our clients and good for us. I think there could be a lot of development and increased awareness among clients as to what they should accept and what they should not accept. There is still a lot of work to be done on the legal side when it comes to the kind of contracts that organise alternative energy in general, in this part of the world.
Most of that work has not been done yet and it is the responsibility of the solar companies to change this; they have to ask the right questions of their lawyers, so that they can draft contracts that actually make sense.
The culture of this company is that you prove yourself from scratch with each and every new project and each and every new product. Each time, we completely ignore what we have done in the past and approach every new initiative as if we’ve just started up. From a technical perspective we work from the point of view of accumulation of knowledge, but we make sure we do not have an assumption of success or an assumption of winning.
We have a problem with the definition of success in Egypt. This is a culture that celebrates too quickly, and fails too quickly. You celebrate before you do anything that is worth celebrating – because you love having fun. KarmSolar is not a success story: we are still in the making. For any company to claim success, the business model would have to be repeated hundreds and hundreds of times, and usually that happens over 10-15 years, so we cannot yet claim any form of success. What we can claim is to have achieved some milestones. But there is nothing stopping us from failing tomorrow, like any other small company still trying to prove itself.
LT: So really you are also redefining success in this cultural context?
AZ: You could say that. I think it is one of our contributions to the ecosystem right now. We don’t celebrate ourselves the way the people around us celebrate us.
LT: So how do you encourage and incentivise your people without allowing for complacency?
AZ: You have to align personal goals with company goals, with public and social goals. The people working with you have to be gaining something really exceptional, that they would not be getting anywhere else. This usually related to technical learning, facing challenges they would not be facing when working in normal companies.
LT: Do you feel people (partners, consumers, the general public at large) have become more receptive to the idea of solar energy since 2011? What are the factors affecting this, in your view?
AZ: Yes. For the first time they look at solar and they can associate it with a company that they respect, that they believe is going to be around to support them if something goes wrong, that is growing, trying to prove itself and capable of signing some major corporations in their country. So those things are passing the message to the market that renewable energy is something worth looking at. In the past, people assumed that this was something that could only be done with a grant but right now we are selling power at lower prices than the government subsidies. Of course that is a humungous value proposition.
LT: How do you feel the industry is developing and how would you like to see it developing?
AZ: I don’t think what we are talking about qualifies yet as an industry. It’s really not standardised yet. It is full of very small players, which is not a good thing. No one is interested in paying the price of establishing an institution and conducting research and development. We are the only company that is doing that, which is not a good indication.
LT: Would you like to see more cohesion between the companies working in this field?
AZ: I don’t think that will happen. I think you need fresh money coming in. Obviously I am incentivised to have a monopoly within this market and to be the only company growing significantly within it. But that also doesn’t make sense for the growth of the sector as a whole, because you need competition. Competition opens new parts of the market. So I would want to see competition, but competition that makes sense, rather than scavengers going around the market trying to offer things that do not make sense in order to prove themselves.
LT: How could that happen?
AZ: Fresh investment.
LT: What opportunities for local and regional partnerships do you see as existing in Africa and the MENA region to support the growth of solar and alternative energy?
AZ: Partnerships with financial institutions. We will want to expand beyond Egypt and I think we will be one of the main regional players within the coming five years. Starting in the biggest country in the region, and being number 1 in that country, gives you depth and experience when it comes to expansion. That is one of the advantages of being in Egypt: you have a huge market which makes the cost of doing business much easier to bear.