UGE: Outsourcing cell site energy

Nick Blitterswyk grew up in a nature reserve, where his parents were caretakers, so whilst working in the finance industry, he sought a new challenge with a focus on sustainability. Nick founded Urban Green Energy (UGE) in 2008, with an initial focus on distributed hybrid energy solutions, growing UGE to become market leaders in small wind by 2012, which they’ve used as a launching pad for a focus on telecoms.

TowerXchange spoke to Nick and his colleague David Droz, an engineer with experience of liaising between engineering, sales and R&D. David is spearheading UGE’s entry into the telecoms market.

TowerXchange: Please introduce our readers to Urban Green Energy (UGE), particularly your recent foray into telecoms.

By early 2012, UGE had become market leaders in distributed wind turbines, with experience in over 70 countries. We started looking for new industrial markets where our knowledge could be applied to solve new challenges. We latched on to the telecoms market, attracted by the critical need for sustainable energy solutions at a large number of remote sites. With reliability critical, we felt we could provide a more robust solution by bringing solar and wind together.

UGE announced our telecoms solutions at Mobile World Congress 2012.

The growth of our telecoms department and capability happened organically as a result of the first telecoms sites installed within our partner network. When we reviewed those projects, and the types of clients they represented, we solidified our message and developed a full-blown strategy for telecoms.

Our first project of scale was with the Chinese Navy, which manages proprietary communication sites along the coast of China and in the South China Sea. Many of these sites were remote, off-grid and had been dependent on diesel, so they needed a reliable energy solution that was a fusion of solar, wind and batteries.

Early on it was clear there was a lot of interest in this segment, even before we launched UGE Telecoms.  Alcatel-Lucent and Zain were among early potential clients, having contacted us looking for a solution, which led to us building out the Fusion platform for telecoms and launching UGE Telecoms.

TowerXchange: What are the typical use cases for UGE technology at telecom sites?

Every site has its own requirements in terms of kW, and we try to be flexible to meet those requirements. That said, the sweet spot for distributed renewables like ours tends to be off-grid, smaller scale sites below 10kW, that’s where we can deliver the fastest payback and best IRR. The higher the cost per delivered litre of diesel, the more renewables can save.

We offer customised solutions with solar, wind, batteries and Diesel Generators (DG) all core parts of the anatomy of our Fusion systems. How much of each energy source is used is what gives us our flexibility, and the energy mix is tailored according to the resources available onsite. We conduct a comprehensive resource assessment to determine the sun and wind available and to define what the approach is going to be.

Let me give you an example. In the case of a client we’re hoping to close in Q3, there are 100 sites, each with slightly different requirements. Within the portfolio, we’ll look at every site, modeling the correlation of wind and sun, and the impact of seasonal considerations on energy logistics in order to come up with a reliable solution. Reliability is an order of magnitude higher priority for our telecoms clients, because if the power goes out, the revenue stops.

TowerXchange: Does UGE focus exclusively on off-grid sites?

No - we’ve deployed solutions at a number of sites with unreliable grid as well. These sites were relying on diesel for a good portion of the energy needs, providing just as much of a headache to our client.  In addition, for a new site the cost of connecting to the grid can be really high. Solutions like UGE’s Levelised Energy Agreement Program (LEAP) provide a better way.  Oftentimes you can provide a better energy experience without needing to build that costly yet still unreliable link to the grid.

TowerXchange: How do you conduct a resource assessment?

Our resource assessment capabilities are one of our key differentiators from RESCOS and other distributed renewable energy providers. Assessment planning is all about understanding the topology of a network.

One of the keys is that we can remotely evaluate almost any site to a high enough degree to sign an MOU with a client for deployment of the LEAP. We draw upon the help of partners plus input data from the tower operator to enable us to understand the existing equipment onsite and to apply a baseline to the energy model. We then use statistical and environmental analyses to model changing requirements over a typical 10-year contract. So based on these models, we can iterate and understand the design feasibility and cost impact of adding a little more solar or another wind turbine, for example, if additional tenants are added to the site.

TowerXchange: How do you minimise the cost impact of deploying customised rather than standardised solutions?

Someone within our team recently coined the term “making customisation scalable” and that is really what we’ve been able to do.  At the heart of it is using our stochastic modeling techniques to drive the cost down.

There’s a tradeoff between risk and conservatism - if you oversize by 50% or more because you’re not sure how the site will behave, then you’re paying a lot more for that system. Right now we believe companies are making a choice between grossly oversizing the energy solution and taking a large risk by sizing them closer to their expectation of how the site will react without fully understanding the risks.  If you are only designing one site that can make sense, but when managing a portfolio of sites you are bound to have issues, and it only takes a small percentage of problem sites for it to become a very big problem for the client.  What our stochastic model allows us to do is to really thoroughly understand the risks of each and every site to ensure that we can ensure uptime without the costs. By understanding those risks we don’t know longer need to balance conservatism and price.

TowerXchange: How do you ensure scalability for multiple tenants?

One of the trends we’ve been paying close attention to is the growth of tower sharing. When designing for scalability, you’ve got to consider the site as a whole. If the tower owner installs our Fusion system under our Levelised Energy Agreement (LEA), then what will happen if they later want to add additional tenants to the tower and increase the energy need?  Our technology platform allows for this additional build out, and the LEA allows for adding capacity as well to ensure these aren’t a problem - for our clients this shouldn’t be any more difficult than if you are asking your cellphone provider to add additional services to your contract.  We will take care of the dirty work.

At sites where the mobile network operator is the key customer, they become the beneficiary and the savings get passed to them - adopting the LEA gives that operator a competitive edge.

Independent tower companies are leveling the playing field, with some towers having up to 5 tenants, giving smaller operators the opportunity to benefit from renewables as well.

TowerXchange: What is an ‘Energy Service Agreement’ and how does your ‘Levelised Energy Agreement’ differ from other ESCO business models?

The Power Purchase Agreement (PPA) ESCO business model is now familiar to most people: the PPA defines a fixed cost per unit of energy, allowing the customer to escape the capex outlay required to first acquire a new energy system.

UGE wants to align our interests with our clients’, delivering the maximum return at low cost. The problem with the PPA structure is that it leaves money on the table for energy that is generated, not sold, which ultimately limits the savings that can be achieved. Furthermore, our clients’ revenue doesn’t change based on how much energy is consumed, so we feel the fluctuating nature of a PPA doesn’t fit very well with what our clients are looking for.  Instead, what really matters for our customers is uptime; i.e. reliability of the site.

Our approach recognises that operators want to stabilise opex costs - they don’t want to be exposed to the risk and unpredictability of energy. So we propose a model where we fix costs for each portfolio of sites and start the outsourcing process. The client is able to give up the need to source and manage their energy, and we fix the price and assume the risk.

This initial portfolio gives us the opportunity to quickly help our client and understand their energy supply issues. Using this on the ground experience and our proprietary modeling tools, we fine-tune the energy solutions to yield the optimal result in terms of reliability and cost, then expand the rollout across a larger number of sites. Therefore the interests of the tower operator and the RESCO have been mutually aligned.

TowerXchange: Talk to us about the process of engaging with a new client - starting with that initial 50-site proof of concept.

It’s not really a proof of concept, it’s just a way to more quickly help out the tower operator to overcome problems maintaining a stable energy supply, such as supply chain issues, fluctuating diesel prices and theft. We could look at 50 or 500 sites, and of course we’d like to be talking about 4-figures of sites as well.

In emerging markets, we’ll take over the whole supply chain, and simply charge the tower operator an affordable monthly bill. This process takes time, so we’re looking for long-term relationships.  Once we have the initial agreement signed, we get started with upgrading the energy infrastructure of the sites, such as adding or enhancing distributed renewable energy (DRE) products, power controllers, monitoring systems, et cetera. With the multi-year energy agreement in place we’re able to leverage our financiers to invest in a reliable solution that will stand the test of time.

TowerXchange: Tell us about installation and the integration of renewables with existing generators and batteries.

Though it’s in everyone’s best interest to leverage existing equipment where possible, we often have to replace legacy equipment, either upfront or over time. The installation of batteries has often not been well planned, so an audit is usually needed.  We get in to the sites, learn about them, then press forward with the technology that will provide the best experience.  Furthermore, we know space is a constraint; our solution is often smaller and more efficient than the legacy equipment we replace.

Our approach speeds up deployment. Tower operators know it’s a headache and it’s expensive to deploy hybrid solutions. Under UGE’s Levelised Energy Agreement the tower operator knows what they’ll pay each month, they get a reliable service, and we’ll take ownership of the energy infrastructure, which alleviates energy capex and opex concerns, enabling tower operators to focus on their core competencies.

TowerXchange: How is UGE financed?

In early August 2013, UGE announced our partnership with Tamra Tacoma Capital Partners (TTCP), raising a dedicated US $20 million fund for wind and solar DRE projects in the telecoms sector, particularly to finance our LEA program, and to speed up deployments.  UGE is currently a private company and has had great support from our investors that has allowed us to grow into a leader in DRE.  On the horizon is an IPO which will help facilitate our future expansion.

TowerXchange: How did you persuade your financiers that UGE could manage the execution risk that comes with doing business in emerging markets?

Over the past five years we’ve grown to become the leading small wind company in the world. This wouldn’t be possible without overcoming implementation challenges for our clients, and that is what we have excelled at. With testimonials from major clients such as GE, Hilton, BMW, Nissan, Toyota and Ford, and growing experience with telco clients such as Claro and Verizon, it was something our investors were excited about. We may have an appetite for working in regions without good credit ratings, but our clients are credit worthy as they are typically some of the largest, most successful customers in those regions, and our credentials breed confidence among our investors.

Ultimately we focus on good service, and on creating a company culture that makes us easy to work with, and this has built upon itself as we continue to grow and succeed in DRE.

TowerXchange: How many sites does US $20m get you?

The cost of building out each site can vary by region, but US$20m will cover 200-500 sites which we’re looking to have fully deployed in 2014. That’s a wide bracket because the power requirement can vary so much from a small, remote, single tenant site in a cool part of Scandinavia to a five tenant site in a very hot region of India where the active equipment and air conditioning load is much higher.

TowerXchange: What is UGE’s installed base worldwide?

Across all sectors our solutions are deployed at over 1,500 sites.  Telecoms is one of our newer areas, accounting for less than 100 sites, but the number is growing fast, and we expect to eclipse 100 by a good margin this year.

TowerXchange: I understand you have a deployment planned in Kenya - what can you tell us about that?

Yes, that is correct.  We have a project there that is currently in the planning stage.

In this case we’re managing and installing equipment at a small number of pilot sites in Kenya to get data back and demonstrate the technology.  This project came about before the LEA was announced and we are currently working with the client to understand how it can be scaled into LEA.

One of the biggest challenges has been how to scale from pilot to full rollout. Thanks to the LEA, tower operators don’t need to worry, UGE will manage the supply chain, and we’ll take the risk from day one.

TowerXchange: Finally, please sum up how you would differentiate UGE from other off-grid energy equipment providers?

We are the only RESCO that goes all the way upstream. UGE manages the entire energy supply for each tower, from manufacturing wind turbines, to initial site analysis and deployment, to ongoing management, ensuring reliable and affordable energy supply at minimum hassle to the tower owner. UGE architects sites, we provide finance, and under the same agreement we provide implementation. A big part of this is having a robust overall system encompassing different energy sources to provide a reliable result.  Siting small wind is a challenge. UGE has the ability to remotely assess sites, and to get technology into the field. We have over 1,500 hybrid wind and solar sites in the field. We see telecom as the ideal customer.

UGE proposes a new model for the outsourcing of cell site energy.

UGE’s Levelised Energy Agreement (LEA) proposes a partnership between the customer (in telecoms this would be an operator or tower company); the local installation and maintenance subcontractor; LEAf-1 their current US $20m fund; and UGE themselves as the ESCO.

First, UGE works with customers to determine a levelised cost for a small network segment. Once the Levelised Energy Agreement (LEA) is in place, they implement and maintain sites for the entire contract period. The customer simply pays the monthly fee to have all energy needs taken care of. Upon success of first network segment, expansion to greater number of sites will follow.

As traditional fuel costs continue to rise, energy savings will increase exponentially.