Powering The Future, Decentralize Mexico's Energy, Raffaele & Edoardo, Co Founders of Niko Energy

Mack Okay, thank you, Raffaele for joining us today and getting into the story behind Niko Energy. If you want to start with the inspiration behind Niko Energy, a little bit about your inception story. Raffaele & Edoardo Sure, thanks for inviting us. Let me real quick, as a context, myself and Edoardo are actually both Italians, we're friends ever since.

We decided to move to Latin America to follow the dream of being an entrepreneur. This was 2018, where we initially decided to jump into the dark kitchen business at a time no one really knew what it was, but we saw the opportunity to grow in sector with the need of proper kitchens for delivery. And that's how Cocinas Ocultas was founded back then. And we were lucky enough to exit the business to Cloud Kitchen, which was, know, easily in the number one leader in the sector that was, you know, still led by Travis Kalanick who was founder of Left Uber and stuff.

Focusing on that, we saw like two Italian-doing kitchens at a point that no one really knew what they were, an opportunity to grow globally together. And so we spent three years there, initially lodged. operation across the world, spent a year also in Korea, came back and lived in Mexico and Brazil. And that's where we decided to set base, know, three years of living like nomads around the world.

We needed a break and, you know, among all we saw, we saw Mexico as a huge place with a gigantic opportunity of fast growing economy and with a ton of things to do. And while setting base here, we... had very clear that we wanted to go back entrepreneurial endeavors. This time, you know, like enough to be able to be in a position of taking the time to actually pick the right sector, the right thing to do, et cetera, and eager of doing something positive for this world, we started looking at clean tech as a whole, right?

So actually, Edoardo, my business partner, had done some work in the past, even an internship in the space. And the more we started looking, the more... we saw the untapped opportunities up for the day. And the more we saw, the more we lied.

And that's how Niko was born in June 2023. And here we are. The thing is basically was pushing adoption of solar energy, which should be a reality already. And we're still below 2%, 3 % of penetration in Mexico.

And seeing the reality of solar the economics for Mexico, which definitely makes sense. Seeing little adoption, couldn't really measure it too, and that's when we saw a big problem that needed a big solution, and here we are. Mack Before we go into Niko and the inception story, which you hinted at, it's a big leap from going from cloud kitchens to energy. And I know you mentioned Edoardo's background.

How did you guys land on this? Was there a brainstorming process? I know you mentioned you had the luxury of some time to think of some other ideas. Was just this the most obvious glaring problem with a huge opportunity?

Raffaele & Edoardo And approach is similar to the one we follow initially with like Cocinas Ocultas So we start looking for a geography, specifically a country with huge potential that start looking for a sector with huge tailwinds and upside, potential upside. And then within this environment, we basically analyze different business model and pick the right. Mack either one of you. Raffaele & Edoardo So the idea of our philosophy is like a bad entrepreneur in a good sector is more successful than a very good entrepreneur in a bad environment.

Mack No, you guys are good at both, but yeah, no, no, I got the analogy. So then getting into the specific problem, as you mentioned, only 2 to 3 % adoption, I think if I recall correctly, in solar here in Mexico. Why do you think it's overlooked specifically in Mexico to this point? Raffaele & Edoardo Well, I'm Mainly because the sector is pretty new in Mexico.

So if you look back in 2015, there were almost no installations. And now we saw a huge growth that brought us to 100,000 installations last year, 2024. For this same reason, there are no very sophisticated or tech enabled companies in the sector. Most of the players that serve our segment, these small medium-sized projects, are family-owned businesses with a very narrow geographical scope.

So, on the client side, if you want to move to solar, despite the fact that the savings are huge, you need to wait three days, four days, up to weeks for a quotation. The level of service is very low. Mack Mm-hmm. Raffaele & Edoardo then you need to find by your own like a financing solution.

There are no financing solution and lot of paperwork. So it's so painful. They've all experienced on the client side. And most of the clients, even if they see like an opportunity, they just drop along the process.

So that's why we saw like an opportunity there, right? So with us. Mack Mm-hmm. Raffaele & Edoardo You can receive a quotation in less than three minutes.

You can get your credit approval almost instantaneously. The whole experience is completely different. Mack And for you guys, I know the vision has evolved in many ways. Like at first, residential going to people that maybe had liquidity or maybe didn't need financing.

That's what most players are doing. Now you guys mentioned this financing option. How does that still make it a challenge for people to see the value, right? So one might say, if I can't afford it, do I really care if my house from the residential side, have a, you I can afford the electrical bill.

It's not a problem, right? So How do you guys see this evolution now into the B2B side where there's actually a lot more cost savings? Raffaele & Edoardo I think a point to add to what was mentioned earlier, which is attached to what you just asked, is there is very little amount of understanding of green need or like a greener world. So really the decision making today is driven by costs, So potential savings and we don't have an education push or we didn't have an educational push from previous government around the benefit of doing...

Mack Mm-hmm. Mm-hmm. Raffaele & Edoardo or shifting towards solar, which has completely shifted with the new government. And attached to what you were saying, because it's mostly a cost thing.

For residential, the vast majority of the population is subsidized by government. So you're either very wealthy and then you pay electricity per kilowatt-hour, similar or even higher than the US, or your cost of electricity is very, very low. When we were going only residential, like the ones that were affected by high cost of energy were again, top of the pyramid, which they've been paying bills all their life long. They obviously saw the pain, but it's not a starving pain.

You're running out of money because you're paying electricity. And so what we saw in between was the actual need of people. So it's a cost that is hitting your P&L every month. Mack Mm-hmm.

Raffaele & Edoardo that you, your parents, you know, was on the little store around the corner a bit, being hit forever and then seeing this growing constantly over time, they don't think there is a solution out there. So when we come in with a solution that, you know, solves a 40-year-old problem without having to have the money to do so, for them it's like my blood, right? So it's really high. We usually run into the problem that is too good to be true, right?

So we have conversations and then they don't get it. Mack Yeah. Raffaele & Edoardo What is the, you know, the tricky part? it's a, that's why we start to hit in the name on the head and, you know, see the option grow.

Mack So if I understand correctly in my research with you guys is there's not a virtual power plant to date really or at scale in Mexico. You guys are looking to do this. If you could give like a basic understanding what a virtual power plant is and why this is has a huge opportunity in the B2B market in Mexico. Raffaele & Edoardo You're right.

To have a proper virtual power plant, need two main elements. First of all, it's regulation that allows you to create a virtual power plant. And second is having players, or one player at least, that manage a portfolio of what is called decentralized energy resources. are typically solar system, batteries, heavy chargers.

smart thermostat or whatever it takes. Because the real power of virtual power plants is being able to control the demand side. So what we are doing now at Niko is actually building this portfolio of decentralized utility resources. And to do so, we are financing our clients.

And that's the idea. On the other side of regulation, we have seen, especially in the recent month, huge derates. So the government is actively discussing on every way, every week, the new news coming out about implementing, not specifically with the power plants, for example, solar communities that in our view are a step forward like the implementation of the power plant. So we are confident that in five years from now, the regulation will be in place and by then we will be...

will have enough portfolio of managed assets. Mack So just so I understand now, you guys, there's like two parts of the business model, right? You have the finance side of the actual infrastructure, and then you have like this energy as a service type of like continuous, like a SaaS model, is that correct? And can you explain how that works based off the customer profile?

Raffaele & Edoardo No, it's not really a SaaS. Like what we offer today is still like our core. It's, you know, a financing product for solar system where we come in, it's a zero money down. We put the solar system on your roof.

We do all the paperwork. You basically get interconnected into the, into the grid. And what you start paying for your system, it's less than what you were paying for the utility company. Right.

And at end of the contract, you own the system. Mack Mm-hmm. Raffaele & Edoardo we can keep giving you services if you want. And if not, like it's, it's, it's all, it's all on you.

And that's what we do for both residential and B2B. If people want to pay, you know, a front, they can pay upfront. is no, no issue. don't force anyone into a specific type of long-term cut.

Right? So what we are doing is basically building a network of thousands of these systems, right? That are being Mack Got it, okay. Raffaele & Edoardo adopted as we speak, eventually the idea is that bringing the system online when regulation regulates, they can interact among them.

So that's the phase two of the company. We're not there yet. obviously there is several things that are in the development of energy systems that can interact. Mack Mm-hmm.

That's phase two. Gotcha. And you guys have mentioned like there's like now somewhat of a push and there's some tailwinds behind like the regulatory environment. How does this help you guys navigate your future?

And it seems like now it's very clear that solar energy is essential to the future of Mexico in some capacity where maybe five, 10 years ago it wasn't as obvious. How do you guys evaluate that? And are you actively trying to engage with regulation and trying to make sure that this is at the forefront? Raffaele & Edoardo Indeed.

Look, we went through a fundraising process recently and every single investor that actually looked at us and did some work and obviously asked around, heard the same story and you know, Mexico desperately needs energy, right? So it's not, the country today is not able to produce enough energy to fulfill the demand. So there is actually, you know, the whole near-shoring play where Chinese companies want to move here, et cetera. basically not been fully exploited because of this, right?

So there is area of the country where you want to open a factory and simply the company tells you, I'm sorry, I cannot bring you electricity, I don't have enough, right? So what's clear today is that the country needs electricity. The new president has a PhD in energy, so she gets what we're talking about. And everyone even close to government that we talk to knows that it's top of agenda for her.

If you look at her published 100 points program for the next five years, two of them are around this, right? So, you get an idea of like how much of an issue it is and they know this is the solution. Right? If you were to go and build a nuclear plant, takes 10 to 10 years, billions of dollars that, you know, the country essentially cannot afford.

allowing small installation, small to mid-size installation to drive and then to actually contribute to the grid is what they need, is what they're pushing from. And with respect to our... contribution? Yes, for sure.

think there is many ways that or many things they can do to actually give an extra boost. One of them is community solar, you know, a reality in the US and non-existent here simply because the law is not there yet. It's been stuck for approval for a while and hopefully it's now getting into final stages. But that's one.

But other than that, there is so many things that they could do and not necessarily losing control, right? So guess their concern is that You know, we own electricity as a country. We don't want to lose that, at least not for now. But even without losing that, opening it up, know, it's, it's, it's slightly, it's definitely going to be a good change.

So we are definitely trying to be part of the table of the conversation and bring value to that and ideas as well. Right. So maybe it's something we haven't thought of and we're just, you know, more knowledgeable. We look at the US, we look at the UK, we see stuff that works, bring to the table and why not?

They end up applying. Mack We'll get to the, that's a great point, we'll get to the concept of like this B2B enterprise and from my research it seems like there's this interest that you guys are gauging there. But how do you guys like balance like the affordability from the basic B2C consumer or these underserved communities that are in rural Mexico? Is that on the hit list?

Are you trying to have some ability to serve those areas or is not so much a priority? Raffaele & Edoardo You sing rural Mack Like rural areas, like underserved communities that really probably have challenges with the grid. Raffaele & Edoardo No, unfortunately at the moment there's not much we can do on the rural side of the population. What we can actually do now is financing very small family-owned businesses like the very small corner shop in every very low-level neighborhood of the country.

Because it's an asset-backed financing, so we actually use the same asset as a guarantee of the financing and we support the credit with the savings because we actually... Mack Mm-hmm. Raffaele & Edoardo So we already like targeting these kinds of that till today or before Niko, no one even tried to serve. But the real revolution there to serve the lower level of the population of rural communities is the implementation of solar communities because you basically separate the investment of in a solar system.

You don't need a roof. but you can actually install a solar system somewhere else and then just sell electricity, like clean energy and cheaper energy to the rural community. So you don't actually need to finance those guys, those guys don't need to pass like credit approval process. So there, when the regulation will pass, there will be like a dramatic change for sure.

Mack Mmm. Got it. last couple things, going into the enterprise interest, how has that evolution in the conversation happened? Are larger corporations now really intrigued by this opportunity to take some of their consumption to what you guys are doing now?

Raffaele & Edoardo They are indeed, what's surprising still today to me is that when we get to the table with this corporation, they've never heard of this solution. Many times it's like us bringing education to the table and then, know, knowing or getting to know that there is this option available, et cetera. And what we see them looking for is basically peace of mind. So it's like, okay, I kind of hear you.

I'm not sure I trust you, but like what you're saying is too good to be true. Mack Wow. Raffaele & Edoardo Prove me it's actually that way and if so, know, sky's the limit. So what we're doing with a of these is initial pilots where they get to know, to see the system, they get to see their P &L improving, right?

And then through that, we are confident we will be able to upsell or grow the customer base to the entire base they have. it's, on the enterprise level is... or used to be more of a green need, Because of all, know, especially the very large one, et cetera. So when you come with an actual cost and you get to talk to the guy that, know, runs the P&L or whatever, it's like, wow.

It's not just another, green company trying to sell me the carbon benefit or whatever. Right. Mack Right. Carbid credits, it's not a nice to have it's actually affecting their bottom line Yes How do you guys see so you guys are like different phases is what you're saying with the evolution of Niko How do you see AI coming into the future of what you guys are doing and have you guys started exploring opportunities there?

Raffaele & Edoardo Correct. Yeah, I think it's all, I mean, we see a huge potential about AI. We are an ops heavy business. So we have technical engineers on the ground.

We do technical site visit. So it's very ops intensive business. And this is actually where we can actually benefit the most from AI. So we invested in AI since the very first day at Niko.

The first our first investment was building what we call the Niko engine. So the idea of moving from like a wait of three days to receive a quotation to an instant quotation. So we are bringing like e-commerce experience to the world of solar system, right? And we are just like investing or putting AI in every aspect of our operation.

The idea is being able to operate with 50 % of the headcount of a traditional company. That will allow us to lower our prices and increase even more the savings we are able to give to the clients. So making our non-brainer option even more non-brainer. Mack Nice.

No, and I think that makes sense from the streamlining efficiency through operations. Okay, last two points, and both you guys can chime in on these and they're not always easiest, but what was the biggest misconception? Obviously, you guys had some experience in the energy space, but what was the biggest misconception you had before launching Niko? Could be about the market, could be about the opportunity, could be about the infrastructure.

Raffaele & Edoardo think number one was when pushing our residential agenda at all costs. We thought that B2B was well served, which was definitely not the case. And we thought there was an angle for residential, which I'm sure there is. But by forcing ourselves to just focus on residential we were missing out on a huge opportunity that we later discovered.

Mack where do you guys see the biggest opportunity for you guys? Obviously, Mexico is huge, but do you see yourself continuing to grow into Latin America or just really being concise and consolidating this country for the next five, 10 years? Raffaele & Edoardo Well, the dream is of course building like a huge cross-country regional business model, the same way we did with the previous one. The initial pitch when we raised the pre seed was actually we want to go regional.

After one year operating, we realized that Mexico is so big, there are so many opportunities that actually we see going abroad as a distraction. It doesn't make any sense. So the idea for us... For the next couple of years, we'll be consolidating our operation here, a market here, and then we'll see.

Mack Perfect. Awesome guys. this was great. I appreciate everything.

Raffaele & Edoardo Thanks, thanks, thanks for now and setting this up and great to meet you. Mack Yes. Yes. Yes.

Yes. Nice to meet both of you. Talk soon. Bye.

Raffaele & Edoardo Bye.