Shaping the Future of Energy: How Arnergy’s CFO, James Fabola Jr, Drives Financial Innovation

James Fabola Jr, the Chief Financial Officer at Arnergy, brings a decade of expertise in investment and corporate finance to the forefront of the renewable energy sector. He has held key positions at Persistent Energy, Norway’s Development Fund (Norfund), Synergy Capital Managers, and Development Partners International (DPI).

In these roles, he led significant transactions across diverse industries. With an MBA from INSEAD and an M.Sc in Finance and Management from Cranfield School of Management, James is uniquely positioned to guide Arnergy’s financial strategies in the evolving energy sector.

In this interview, James shares insights on overcoming financial challenges, managing operational costs, and the importance of stakeholder engagement in advancing renewable energy initiatives. Join us as we explore the financial underpinnings of sustainable energy with a seasoned leader.

BEA: As a CFO, what do you consider the biggest financial challenge for companies in the renewable energy sector today, and how do you plan to address this at Arnergy?

James Fabola Jr: The biggest financial challenge is raising the right type of financing needed to drive the adoption of renewable energy given the upfront cost being a significant hindrance. 

Renewable energy operators need affordable, patient, long-term capital (equity and debt) to unlock the widening demand-supply opportunity driven by recent macro events, that is the removal of fuel subsidy, sustained heightened diesel prices and approximately 300% in Band A tariffs.

In building for the long-term, it is important to have the right stakeholders and investors who are aligned with the long-term vision of the business while providing support and value. 

We have been intentional about this at Arnergy from the onset as we trust that the choice of stakeholders and investors generally, but even more pertinent in our space, can strengthen or derail the strategic roadmap of a business.

BEA: Given the high operational costs in Nigeria, particularly in terms of energy and logistics, what strategies would you recommend to businesses in this environment to maintain profitability?

James Fabola Jr: This might be self-serving, but the obvious solution to contending with rising energy costs is to switch to solar given that solar is now cheaper than traditional energy sources such as diesel, petrol and Grid (Band A). As a renewable energy company, we are already seeing a significant increase in inbound requests from businesses looking to achieve energy cost savings.

In terms of logistics costs which is being driven by increase in petrol prices, it has become imperative to be more intentional about logistics planning by rethinking strategic approaches such as in-house or outsourcing, and re-looking at inefficiencies which had lower cost implications hitherto. 

Ultimately the businesses that will survive the stringent economic climate are those who are willing to rip apart their old playbook, challenge seemingly established theories and be bold enough to move in a different more practical direction.

BEA: In light of the staggering N1.8 trillion in FX losses incurred by leading Nigerian companies in 2023, how should companies better manage currency risk and financial exposure?

James Fabola Jr: We look at currency risk through two lenses; operational and financial. A significant portion of our components is imported hence we are exposed to exchange rate fluctuations from an operational standpoint.

To combat this, we take a three-pronged approach which are: leveraging the reducing cost of solar components globally, increasing local sourcing where feasible and running a more efficient supply chain strategy to reduce fx volatility.

On the financial side, operators have been clamouring for more local participation in the sector to increase naira-denominated loans. Today, key financiers such as the Nigeria Infrastructure Debt Fund (NIDF), Infracredit and Bank of Industry (BOI) are helping bridge this gap which has led to an increase in local debt funding. However, there is need for a lot to reduce the dependence of foreign debt.

BEA: How do you balance the need for sustainable business practices with the demand for financial profitability in a market that is still warming up to renewable energy solutions?

James Fabola Jr: Firstly, we do not see the need for balance between sustainability and financial profitability. Achieving financial success in this sector means recognizing that these two goals are not mutually exclusive. Of course, there are current challenges impacting profitability, such as limited scale, pricing versus affordability, and import tariffs.

While these challenges are expected due to the sector’s nascency, it is crucial to maintain a clear focus on financial sustainability by leveraging all available resources, including concessionary funding, favorable policies, and incentives. Given the recent macro events that have enhanced the value proposition for solar energy, profitability should soon be achievable, driven by increased scale and a deliberate focus on efficiency gains.

BEA: What role does financial leadership play in driving innovation within a cleantech company, and how do you ensure that investments in new technologies are both sustainable and profitable?

James Fabola Jr: I lead financial innovation, among other responsibilities, at Arnergy. Although there is often a significant emphasis on technology in the renewable energy sector, at its core, it remains an asset financing business.”

Consequently, a significant part of my daily activities involves aligning our funding needs with the appropriate capital. I focus on developing financial structures that enable us to provide our customers with affordable solar solutions while ensuring we achieve the necessary returns, taking into account factors like exchange rates and their current energy expenditures.

We continue to leverage our technical expertise and innovation to reduce input costs. On the financing side, our innovative structuring strategies are essential for mitigating foreign exchange impacts and ensuring that we offer our customers pricing that is favorable for all parties involved.

BEA: Can you discuss the importance of stakeholder engagement in the renewable energy sector and how you plan to foster relationships with investors, regulators, and the community to advance Arnergy’s mission?

James Fabola Jr: For a relatively nascent sector like the renewable energy sector, stakeholder engagement is critical in addressing a few challenges such as lack of regulatory clarity, policy formulation and knowledge gap.

Given recent macro events coupled with global realisation that we are not tracking the various pre-set electrification goals, there has been a lot more stakeholder engagement, both locally and internationally, looking to catalyse more funding and drive cogent conversations to address key issues.

Given Arnergy’s positioning in the landscape, we feel a sense of responsibility to play an active role in these discussions to help drive renewable energy adoption, as a result, we continue to engage various stakeholders, having difficult but necessary conversations with a sense of urgency and excitement

BEA: Leading a major company’s financial strategy must be demanding. How do you unwind and recharge outside of work?

James Fabola Jr: Leading a major company’s financial strategy is indeed demanding. To unwind and recharge outside of work, I enjoy watching Netflix, getting ample sleep, and exploring the vibrant city of Lagos.