Flexenclosure: Optimising the relationship between towercos and hybrid systems suppliers

Independent towercos are still a relatively new phenomenon in Africa, and their relationships with critical hybrid energy partners are subject to a wide variety of business models and contractual relationships. David King and Ann Louise Johansson of Flexenclosure, one of Africa’s leading hybrid systems providers, will host a round table at the TowerXchange Meetup in which participants will seek to define business models and commercial relationships that target the common enemy of site OPEX and at the same time create the maximum value for the towercos and hybrid energy innovators.

TowerXchange: Please introduce the topic of your round table at the TowerXchange Meetup.

Flexenclosure and our competitors come to the market with products to save energy OPEX, while the towerco has expertise around site acquisition, tenancy sales and improving site profitability. The question is what form of contractual relationship enables both parties to create the most value?

We’re looking forward to hosting a debate about the best ways for hybrid energy system providers and towercos to work together, how to structure contracts and how to share responsibilities so as to leverage maximum savings from hybrid power systems.

We want to discuss the different business models for governing the provision of hybrid energy, as well as exploring the services that towercos want from their hybrid system provider. How will the need for services evolve over time as towercos mature, as the scale of their deployments grow, as the capacity of their sites and their tenancy ratios increase? Will they be looking for a larger range of services, or do they see themselves becoming experts in managing hybrid systems?

TowerXchange: How is value created and shared between towercos and hybrid energy providers?

Value is created by reducing the cost of running a site. The most substantial saving is achieved by transporting and burning less diesel.  The other key factor is reliability - reducing or even eliminating the potential for faults that would result in downtime. Additional site visits are expensive and compromising QoS and revenue generation for operators often incurs penalties under towercos’ Service Level Agreements.

The combination of these potential savings across a large network of sites amounts to huge amounts of money. However it’s important to realise that these savings are gained incrementally hour-by-hour, day by day and site-by-site. It is not enough for a hybrid system to work well in some sites for some of the time. Maximum value is created only if the system is able to provide sustained performance and reliability over a long time across an entire network of sites.

The value created can be shared in different ways, but for the sake of simplicity we can divide business models in three main groups. At one end of the spectrum is the pure purchase where a hybrid power system is sold as a piece of equipment to the towerco and at the other end of the spectrum is the Energy Service Company (ESCO) model where the towerco would purchase power and not own the equipment. In between these extremes is a model based on the purchase of equipment by the towerco but also including a KPI or SLA to ensure it performs at the promised level.

TowerXchange: What are the pros and cons of the business models currently being used?

The pure purchase type of agreement has not always been successful. If results are disappointing it can sometimes be difficult to identify and agree upon the problem. Was under-performance of the system was to blame? Was it that peripheral equipment was sub-standard? Was the system configured correctly and integrated optimally with existing equipment? In such circumstances the purchaser can be left high and dry, feeling the vendor has taken their money and run.

However, there are also challenges at the other end of the spectrum. Zero-CAPEX, or ESCO, business models can get stuck because the contract between the parties gets complicated or because neither party is able to fund the necessary equipment.

We are searching for the middle ground whereby the towerco and the hybrid system supplier collaborate in such a way that they each focus on what they do best, there is a high degree of mutual trust and there are joint rewards. Ideas that we have discussed with towercos include KPI driven models where Flexenclosure provides some “local optimisation services” to ensure that the equipment hits the KPIs, and if it does we receive a performance bonus. We believe that this makes sense because we fundamentally know our equipment better than our customers and our involvement, at least for a period of time, can lead to greater savings.

We’re looking forward to hosting an open discussion on towercos’ preferences regarding business models and exploring the optimal value creation scenarios for all parties. In addition to exploring different models it will be equally important to discuss how the models would be implemented and whether they would need to evolve as the towerco grows.

TowerXchange: Going back to your point services, can you describe the various service components for hybrid power systems, especially what you call “local optimisation services” and who should do them?

Let’s first divide the service components in to three groups: Installation and Commissioning, Operations and Maintenance, and Support.  We are usually responsible for the Installation and Commissioning of the equipment. We do it ourselves or we send our experts to train our local partners on both the equipment and the tools. This results in fast and safe procedures. For example, we measured the time it took for cutover at an upgrade installation in Nigeria last week and it was only 7 minutes! The tool we use is eManager, which is our remote monitoring and management system.

The Operations and Maintenance is usually handled by the towerco and/or its managed services partner. The part we can play as an equipment supplier is to provide technical and behavioural training to the services partner. For example if there is an older genset, which a site guard is often manually starting and stopping, then there is a risk that the site guard continues to interfere even after the hybrid system is in place. We have the expertise and experience to help the services partner overcome these challenges and in addition we have the tools to enable remote monitoring and management.

And that leads me to the third service component: Support.

As a hybrid system supplier we provide what we call RSSM (Remote Support and Software Maintenance) where we provide hotline support, access to system experts and software maintenance. We enhance RSSM by providing remote network audits and KPI reporting using our eManager monitoring and management system.

With several hundred of our eSites deployed across Africa, we have significant experience of the kinds of practical problems on site that can limit performance and how best to overcome them. And going back to David’s point about where the value comes from, we know that towercos will only get full benefit from our equipment if it performs as expected each and every day at each and every site. With this in mind we can provide “local optimisation service” resources - a team focused on taking the output from eManager and using that data to maximise network-wide system performance.

We can do this ourselves or through our local O&M partners. The local optimisation service would produce and advise on eSite system audit reports, as well as go to a site for hands-on performance improvement work when needed. Local services would also include support to the towerco’s first line support as well as support for eManger functionality and spare part inventory.

TowerXchange: How will these business models and working relationships between towercos, hybrid energy and managed services providers need to evolve in the future?

In our round table discussion we’ll explore how to structure a business model that will create value for all stakeholders and stand the test of time, particularly as more tenants are added and more kilowatts are needed at each tower. What happens when tenants modernise, adding next generation active equipment? Will towercos change their lease rates to incentivise tenants to use low energy systems?

The key for a successful business model is to align the interests and responsibilities between towercos, hybrid energy and managed service providers so that we all work together with the focus on what is mutually most important. And that, of course, will be to achieve the best-possible reduction of site OPEX, and sustaining that reduction over time. For example, assume it costs around $40,000 per year to run a site in Africa. Introducing a hybrid power system that reduces the cost by 80% would deliver a saving of $32,000 per year per site, or $16,000,000 per year for a network of 500 sites. However, if over time that performance only averaged 60% rather than 80%, the lost value would be $20,000,000 over five years! A very strong argument for “sustained” performance to come front and centre in the working relationships between towercos, hybrid energy and managed services providers.