The path towards energy efficiency requires buy-in from all sides

Tony Artiga has a background in investment banking and M&A focusing on energy, renewables, carbon trading and co-generation. When Tony decided to join SUNCO in 2011, it was a small family-owned engineering house developing applications for solar telecom, irrigation, solar water purification and solar home systems; technology to compete with diesel for off grid applications. Artiga joined to set up a dedicated structured finance team in order to make these projects bankable and scalable – TowerXchange spoke to Artiga to learn what happened next, and their experiences to date proposing the ESCO model to MNOs and towercos.

TowerXchange: When you joined SUNCO in 2011, what were the main obstacles to achieving scale?

The main obstacles for scale in Sunco’s off-grid projects has had to do with financing and creditworthiness of the end user. Our applications can be very beneficial from a technical and cash flow standpoint, however because we are dealing with relatively new technology, financing entities will always look at the end user payment risk. When we are dealing with, for example, farmers in emerging economies this becomes an issue.

When I joined Sunco, the team had secured a US$100mn contract with the Ministry of Agriculture of Bangladesh for the supply of thousands of solar powered irrigation systems. Farmers depended on the yearly arrival of the rainy season in order to harvest, limiting their production to one or two crops per year. With our design, they were able to double their production by sourcing water from below the surface.  We designed systems to pump and purify the arsenic-contaminated water from up to 200 meters below the surface, installed seven pilots and reached an agreement to roll out 3,000 systems throughout the country. However the government did not want to dedicate funds to this project and we therefore had to secure the financing ourselves. We did so from a Spanish bank, which required a signoff from the Ministry of Finance of Bangladesh, and unfortunately obtaining that signature has not been possible.

TowerXchange: What has been SUNCO’s experience of proposing an ESCO for telecoms?

As long ago as 2009 SUNCO began speaking to a major multinational MNO about how we could provide a more efficient solution to their diesel power sites. In 2012, the same MNO released an international tender for provision of energy efficient solutions for 500 towers in Latin America. SUNCO was chosen from 82 respondents, and we were awarded the generation part of the contract in early 2013. We soon started negotiating with the head office on the design of the ESCO model; it was to be a seven-year contract with a fixed monthly fee per tower, renewable after seven years. We began securing interest from funds and banks, but the project was ultimately killed by a lack of local implementation – none of the local MNO opcos had been part of the international tender process, and too many local interests were tied to those of the diesel companies. This project is still underway.

Around the same time we started speaking to one of the largest MNOs in Africa, who opened a similar bidding process. In 2012, they invited SUNCO and three other leading technology companies to provide a single tower pilot. We were able to provide an average of 84% savings on their diesel consumption, and ours was the most efficient of the solutions piloted. This project was delayed because the African MNO’s towers were bought by a tower company, and we’ve been able to show the acquiring towerco that our tower operation over three years has delivered savings of US$23,400 per year from just the one tower. The towerco has started rolling out a similar programme last year. SUNCO is negotiating now a contract to deliver 500 towers under a capex model.

TowerXchange: Please introduce SUNCO Clean Energy Solutions today.

Sunco today is a boutique renewable energy engineering and investment firm, with three main business areas.

- Utility scale projects, both our own developments and EPC services. We invest and get projects ready to build, and we provide EPC services for third parties. For example we recently completed a 22MWp PV project in Honduras.

- Private sector clients, including telecoms and industrial factories located off-grid or with an unreliable supply of electricity. For example, we completed a 220kW solar rooftop solution for an Indonesian factory previously running 100% on diesel. This project is based on a corporate PPA model.

- Energy access projects, rural development, government projects and rural electrification. For example, Sunco is currently rolling out an electrification programme for 34 Nigerian hospitals, funded by the UK DFID, and a solar for schools programme in Rwanda.

We provide both EPC services for power solutions and ESCO services in emerging markets to different industries including the telecom market. In SunCo’s ESCO model, we along with our financial partners, agree to be the customer’s independent power producer (IPP) and provide service under the terms of a power purchase agreement (PPA) with a SLA to guarantee performance and network uptime.

In addition, we have also developed clean energy solutions for emerging markets. SUNCO has been involved in PV solar, hybrid power (DG, batteries and controller), and PV hybrid solutions for distributed grid and for utility scale applications.  Our services cover a complete spectrum of services including site permitting, feasibility studies, simulation studies, irradiation studies, initial design, engineering, procurement, financial structuring, construction and civil works, and project management.

SUNCO’s headquarters and main engineering team is in Spain, with an investment HQ in Miami. We have business development offices in the Philippines, Indonesia, Honduras, Mexico, and opening in Peru.

TowerXchange: How do you go about developing power solutions for your customers?

Our engineers first perform a feasibility study that includes site consumption analyses, energy cost studies and various simulations. After the study is completed, we design a bespoke power solution, install the solution and provide the tower company or MNO with an electricity cost per KWh. We then lease back the power and provide all of the O&M services for the power solution meeting the MNO’s required network up time, which is defined by a contractually binding SLA.

TowerXchange: What’s SUNCO’s implementation model?

We know our strengths: we’re an engineering, project management and investment company.

We partner with local companies that already provide proven maintenance services – ideally companies that already have experience working with the client.

So we’ll set up the model and subcontract to local partners who we train ourselves – we send a dedicated team to the country or site and our people train local engineers.

TowerXchange: Tell us about the balance sheet backing this ESCO model and what it means in terms of your financial capacity to deploy sites.

We’re an operating company – we can only do so much with our own balance sheet; we made €15mn in sales last year, ~€20mn this year. The key to success in the financial structuring of these projects is having investment partners interested in the model and ready to deploy capital when the project opportunity arises at scale.

This has essentially been my focus since I started running the company in 2015; developing the investment side of our business – the strength of our offering is undeniably linked to the financial structuring of the projects.

TowerXchange: Why should a tower company partner with an ESCO rather than invest capex and retain the efficiencies of hybridisation on its own balance sheet?

We offered the ESCO proposition to the African towerco I mentioned earlier; that’s the model we’re used to. But many towercos like this one are essentially infrastructure funds at their core – their interest is deploying capital and getting returns from the resultant efficiencies. We’re happy to sell on a capex basis – but it’s not how we see these projects scaling in future.

TowerXchange: How many distributed cell sites should an ESCO install and operate in Africa before we can consider the concept proved?

I think the concept has been proved. Sunco and a few other companies have already rolled out these types of solutions and they are working. The question is how the ESCO can ensure that it is aligned with the tower operator in all aspects of its business. A lot of it has to do with energy cost. But there are many factors that go into that cost, including financing costs site location, available space, and surrounding communities. Pricing in these factors correctly and being able to guarantee a “five nines” SLA is the challenge.

With over 600,000 off-grid towers, it’s a big, nascent market – and it’s barely been touched yet.

TowerXchange: Please sum up how you would differentiate SunCo from other ESCOs seeking to secure business from African, CALA and Asian towercos?

We have experience successfully implementing projects.

We’re technology agnostic to our core. In my opinion, components tend to become commoditized – we don’t manufacture solar panels or batteries – we apply the most efficient solution to any given situation. Our focus is providing efficiency to our clients, but it has to be proven – our pilot project proved we were significantly more efficient in implementation than major technology providers who are conflicted when designing systems, as they need to include their own components.

We also have a proven financial structuring capability, and a dedicated financing team, with experience in emerging markets, meaning SUNCO offers the complete solution: both technical and financing at same time.

TowerXchange: How would you sum up your experiences promoting an ESCO business model to the telecom industry?

Telecom is a very challenging client to deal with! There are lots of possibilities, but many interests need to be aligned before adopting the most efficient solution. Ultimately the ESCO model makes sense so sooner or later it will work and work at scale – it’s all a question of being ready to deploy a complete solution at the right time.