AST: Turnkey energy management as a service

There are very few ESCOs with the credibility and experience of Applied Solar Technologies (AST), which operates nearly 3,300 cell sites in India, and which has a proof of concept under way at five cell sites in Nigeria. To illustrate the transferability of the ‘turnkey energy management as a service’ business model from India to Africa, and emphasise how it must be adapted to ensure successful execution, TowerXchange spoke to Kapil Kathpalia, CEO of AST’s domestic Indian business and Sanjay Deshmukh, President of AST International.

TowerXchange: Please reintroduce our readers to AST, your business model, your balance sheet, and your footprint in India and Nigeria.

AST provides energy as a service using a combination of renewable, grid and DG power for critical applications – where reliability is important. We have been in this business since 2008 and today are managing several thousand tower sites in India and five proof of concept sites in Nigeria.

The primary renewable source of energy we have deployed to date is a solar PV based off-grid hybrid power solution for telecom towers. AST designs, builds and operates these solar installations and takes over the energy supply management of each site. We use a combination of solar PV, battery back-up, diesel generators and grid power, where available, making it a hybrid energy solution that optimises the usage of various energy sources through the AST power controller. The optimal usage of these sources results in decreased diesel consumption, increased battery life, reduced diesel generator maintenance and replacement costs resulting in savings for AST’s customers.

Our business model is based on long term take or pay contracts wherein all of the capex requirements for the entire hybrid solution are borne 100% by AST with zero capex invested by the customer.

AST provides turkey energy services comprising of the assessment of energy systems at each site to ensure optimal energy usage, design and deployment of efficient and cost effective energy systems, and comprehensive operations and maintenance services including fuel filling and site security with assured Service Level Agreements (SLAs). We make investments in energy systems and enter in to long term 10-15 years fixed fee contracts with our customers, providing savings of 10%+ over current opex levels.

AST is adequately funded for rolling out of energy systems on nearly 5,000 telecom sites on an immediate basis, and has ability to raise further funds as required by the business.

TowerXchange: Can you share some detail on your company’s business model and footprint in India?

We provide Energy as a Service for critical applications, where uptime is a critical issue, like telecom towers, ATMs et cetera. We bring in all the additional infrastructure to the site and take over the operations and management of the existing infrastructure equipment on the site. We maintain ownership of all equipment and handle all installations, maintenance and site management in India.

Generally, we enter into ten year contracts with our customers. This is a win win for both parties as the customer gets savings from day one without having to incur any capital cost, and monthly payments by the customer to us are fixed, stabilising opex.

Currently we have our solutions deployed in approximately 3,300 towers in India, where we’re currently working with Bharti Infratel, Indus Towers, MTS, American Tower Corporation and Idea Cellular. The majority of our clients  in India are towercos; we have approximately twice as many towerco sites as MNO sites.

TowerXchange: Please compare the range of capex an energy services company needs to deploy per site in the Indian compared to the Nigerian tower market?

In India, the capex cost per site for our solution ranges from US$15,000 up to US$40,000 per tower.

In Nigeria the typical capex range is from US$50-75,000. At our initial five sites we have deployed AST energy systems comprising of 6 KW of solar panel, 1200 Ah battery and a rectifier system of suitable capacity with the remote monitoring system of AST. We are using existing diesel generators at these sites.

Whether it’s in India or Nigeria, the capex required for deployment of solar hybrid system at sites depends on many factors like DC load, AC load, site conditions, availability of grid power, period of autonomy desired and site location.

TowerXchange: How do you achieve economies of scale and realise efficiencies with a diversity of different site designs for different environments?

Opex varies a lot across the full portfolios of towers; the cost of maintenance and site visits varies depending on where sites are located, how close they are to the teams we have deployed, time taken to reach the site and what they need to do to access the site.

In India, the main key to achieving scale with our solution is by having a minimum number of sites per client, which is 300, then we build from there. The largest number of towers we have equipment on for one client is 1,248.

TowerXchange: What would you say are the main challenges facing a renewable ESCO to drive to scale in the Indian market?

Kapil Kathpalia, CEO, AST: Growth of the renewable ESCO business model has so far been concentrated in the States with poor grid connectivity like Bihar and Uttar Pradesh. The off grid and poor grid sites are scattered in other States owing to the better grid conditions. This lack of concentration tends to make operations economically inefficient if only the renewable energy sites are under the ESCO. For further growth of the renewable ESCO business model, the approach of contracting the renewable ESCO to manage all the sites in the cluster with off gird and poor grid sites needs to evolve. The industry is moving in this direction.

TowerXchange: How is AST’s balance sheet funded, and how would you describe investors’ appetite for putting capital into ESCOs?

We have different investors including some local Indian companies, international organisations such as the IFC, and some loans from financial institutions. Interest in renewable energy is definitely increasing as the business case becomes clearer and the long-term benefits of the technology are proven over time; as a result the capital available for investment is increasing.

TowerXchange: How has the market for renewable energy in the Indian tower industry changed since you began operations and how do you see it continuing to evolve over the next two to five years?

The Indian market has changed a lot since we started out in 2008; at the outset there were no renewable energy solutions for telecoms towers. Now in 2015 we estimate that there are over 5,000 towers with hybrid energy solutions and this number is only going to increase as the long-term benefits these solutions become apparent. In addition to this, regulators called upon MNOs in 2012 to meet targets for carbon footprint reduction and they are now under pressure to meet these targets. Regulators and MNOs are still looking for new ways to reduce emissions, and renewable energy sources will play a key part in this process going forward.

TowerXchange: I understand AST’s systems have been up and running in Nigeria for three months now – how many cell sites are using your solutions? Where are the sites located? What is the load?

AST systems have been operational in Nigeria for the last three months. We had selected five Helios Towers Nigeria sites for a proof of concept wherein the model is to deploy AST energy systems with remote monitoring systems, managing the energy systems at the site to demonstrate the benefits on the ground.

These sites are located in the Oyo and Kwara states which range from six to ten hours’ drive time from Lagos.

Load on these sites ranges from 1 KW to 5 KW.

TowerXchange: How is the equipment serviced in Nigeria, and on what basis is power provided to tenants?

We have entered into a service contract for comprehensive operations and maintenance of all the energy system components at these five sites including AST energy systems, diesel filling and site security. We have a local partner in Nigeria with experience of managing telecom sites. We bring the technology and the business operations know-how, our partner brings local knowledge and on the ground operations. AST along with our local partner have capability to provide comprehensive services at telecom tower sites in Nigeria.

This being a proof of concept, the energy systems are owned by our customer with the objective to prove that AST systems deliver performance as per design.

TowerXchange: What has been the performance of the five sites in Nigeria since AST’s equipment was installed?

AST systems are working as per design. Key benefits achieved are:

• A 66% reduction in diesel consumption per month on these five sites.

• The corresponding enhanced life of the DG sets thanks to reduced DG runtime.

• Reduced DG runtime also means a reduction in DG maintenance costs.

TowerXchange: What have been your key learning points in terms of the potential to scale up AST’s Nigerian operation to a larger portfolio?

The actual on the ground performance of AST systems has reaffirmed our confidence in the efficiency and capability of our systems in Nigeria. It has proven our capability in terms of technology as well as execution on the ground in Nigeria. Along the way we have learned key Nigeria specific attributes related to execution and it will help us substantially in large scale rollouts.

Learning pointss are essentially in two areas. The first one is related to the execution on the ground for the deployment of systems from the point of view of roads, availability of local manpower for work, dealing with local communities, and feeding and accommodating the project team. Challenges vary from area to area and site to site. The other learning is with respect to the practice and methodologies followed in Nigeria for carrying out operations and maintenance activities at telecom towers from the perspective of team location, team formation, beat plan for diesel filling et cetera. These are essential learnings to ensure the ability to execute projects on the ground at large scale.

AST has already established in India that large scale deployment of solar does work and makes a good business case for the telecom tower company as well the ESCO. This proof of concept has established that deployment of solar does make sound business sense in Nigeria and similar countries.  The key attributes for ensuring successful deployment of solar are: the necessity of energy system design for individual sites; the importance of product and execution quality; and most importantly efficient operations and maintenance of energy systems.

TowerXchange: Finally, what differentiates AST’s offering from that of other ESCOs? 

There are eight or nine ESCOs in the Indian market, but there are only two or three other companies that provide a full managed service. We were the first renewable energy ESCO to appear in the Indian market back in 2009, and being the first company has helped us build a lot of expertise and helped us to maintain our edge.

We focus exclusively on increasing margin and maximising uptime in our clients’ towers; we have an average uptime of 99.9%. The secret to maintaining this level of service and increasing margin lies in the balance between the solar, battery, grid and diesel power included in our hybrid solution.

There are four key differentiators between AST and the other aspiring ESCOs seeking to reach scale in Africa:

1. We have over six years of unmatched experience in the energy as service business in India, which means we have robust technical and operational capabilities.

2. We have experience of design, deployment and operation of energy systems in Nigeria.

3. We have the ability to deploy and manage operations of energy systems at a large scale.

4. And we have access to funds for immediate rollout and the ability to raise further funds as required by the business.