The TowerXchange European tower power report

Over the last three months, TowerXchange has conducted an extensive survey, having in-depth conversations with independent towercos, JV infracos, MNO-owned towercos and MNOs themselves across Europe to build a picture of how tower power is managed across the continent. We’ve uncovered unique insights not just into current power requirements, but also how shifting economic, environmental and political environments will affect how power is consumed and provided.

The European tower market is unique in many ways: from the high incidence of shared infrastructure between broadcast and telecoms to the need for extensive decommissioning across many markets; these idiosyncrasies all contribute to a unique power footprint across the continent. With grid power available across most of the region, and excellent coverage across population masses, power needs differ dramatically to markets in Africa or Asia (see the sidebar). In some African markets, power provision can account for as much as 60% of OPEX, by comparison European towercos are reporting at most 12% of their OPEX spend going on power provision as the majority is passed through.

The operational demands of managing telecoms infrastructure in Europe are much more straightforward than in emerging markets. To date, much of the role of the towerco has been financial - allowing MNOs to shift towers off their balance sheet and release capital. Indeed, many towercos have felt thus far that there is little competitive advantage to be had in operational aptitude and thus they outsource much of this on a large scale. By offering a purely ‘grass and steel’ solution, towercos have traditionally expected their tenants to manage their own backup power solutions, although negotiating with utility companies and passing through power has become the norm.

In terms of grid connectivity, Europe enjoys high coverage, with the majority of our respondents stating that their network enjoyed almost 100% grid access. These numbers were attenuated slightly by responses from Scandinavia and Central and Eastern Europe, where some countries have lower grid access due to geography or for environmental reasons. Marius Pilinka, CEO of Teletower, which owns 485 towers across Lativa and Lithuania, explained that “10% of our sites are off grid mainly because it is not physically possible to provide a connection to on-grid power; more than a third of Lithuania’s territory is covered by forests.”

Respondents to TowerXchange’s survey reported negotiating rates for electricity in Europe to be very straightforward, with most buyers comparing their purchasing process to that of any other product with 6-12 monthly price reviews according to the duration of their contracts. In countries like Russia, for example, where the market is dominated by one player and prices are considerably lower than elsewhere on the continent, there is little to no price comparison and assessment needed.

The issue for tower owners in Europe is that they are comparatively small-scale customers for electricity suppliers, and the fact that their needs are disparate and spread over a large geographical area means their attractiveness as customers is limited. Some respondents in Scandinavian countries reported that their membership in buying coalitions gave them a stronger hand in negotiations with electricity suppliers, while others find that hedging allows them to mitigate price fluctuations in purchasing electricity. Vodafone, who are often leading the pack in terms of innovation, are taking part in trials of the SmartNet Project, which allows towers to use their battery backup to support the grid during peak times - a reciprocal agreement which could reduce costs and help to stabilise fluctuations.

EI Towers also pointed out to us that it’s not just about how you buy power, but when, with a tender at the right time saving 10-15% over other times of year. Buyers need to look carefully at the fluctuation of power prices across the year depending on oil costs, supply forecasts and consumption. An example of this includes when French power prices increased sharply at the end of 2016 due to overrunning works on one of the country’s key nuclear plants.

Some tower owners are thinking more creatively in order to reduce energy costs. Juha-Pekka Weckström, CEO of Digita in Finland, explained that “Digita is part of a coalition of big electricity buyers called “Voiman Ostajat” which negotiates electricity prices as a block” he added that  “Along with this we use hedging, which gives a protection against the variation of electricity prices.”

European power is almost 100% pass through on third party towers, with every towerco respondent we spoke to offering pass through power on the majority of their structures, although around 25% of those asked did either have a mixture of pass through power and MNO-controlled power on their sites, and/or offered a fuller power solution to their tenants. Where a mix of models is used, the situation often stems from legacy infrastructure and relationships, meaning that we would expect the number of towers operating on a pass through basis to increase as towercos standardise across their portfolio.

Metering and billing is a low-opex model for towercos, and not geared to generate much profit, but efficiency and transparency are nevertheless critical for infrastructure owners to maintain a good tenant relationship, and tenders are conducted on a regular basis. Metering and billing can prove costly for towercos, however, given their often light operational staffing levels and the vast amount of data which needs to be collected and interpreted.

For broadcast and other clients where third party providers also operate active equipment, power is a part of the package and there’s no direct transfer of power costs but a fixed fee for power provision, allowing a small profit to be made. This fee will include grid power (calculated based on current rates agreed with utility providers), backup power, equipment and monitoring.

Cellnex are keen to leverage greater transparency to improve efficiency across sites, with Mirko Masi, Director Technology - Global Operation, saying: “Where we provide passive infrastructure services to telecom operators we are providing power supply based either on a simple pass-through model or a power as a service model. The trend now is to migrate to a pay-per-use power supply model, where all the associated costs are passed-through to customers in a simple and transparent way. This model is also better to promote joint initiatives to improve power efficiency.”

Backup power on sites is still split between MNO and towerco ownership, varying not just by tower ownership but even from site to site dependent on legacy provision. Unsurprisingly, towercos carved out of MNOs and joint ventures such as INWIT or CTIL tend to take ownership of backup supply for their towers. In addition, broadcast providers like Arqiva or TDF tend to back up their infrastructure due to its role as critical national infrastructure. Increasingly, as independent towercos look to consolidate their position in the market, many of them are moving from a ‘steel and grass’ model towards a service offering in order to differentiate themselves and increase tenancy ratios, and this includes consolidating backup power as well as offering grid power through a pass through or pay-per-use model.

We know that the large telecommunications companies are looking to use renewable energy to reduce fuel consumption and help contribute to a more sustainable world. However, generator sets remain and will continue to be a fundamental part of any BTS, as they are the only way of guaranteeing reliable backup power and providing an immediate response in the absence of any other energy source. Levels of solar radiation are not stable, winds are variable and battery running times only guarantee supply for as long as they are designed to last, meaning they won’t be able to deal with any problems lasting longer than this period. Therefore, any energy model would include an electrical generator in the backup system for the BTS, especially at the most critical stations.” Guillermo Elum, EMEA Regional Sales Head, Himoinsa.

Batteries are the most common form of backup, with an average of around two hours of backup power available, where backup is deemed necessary. Lithium ion batteries are seen as the most desirable batteries for European telecoms, but most tower owners still have questions around ROI in the field.

Gensets are reserved for the most important sites; those with more tenants, which serve a larger than average population or which form part of critical national infrastructure such as broadcast services or emergency communications.

Additionally, we noted the importance of temporary generator hire in the European market, a solution which is not generally observed in emerging markets. Rather than own, maintain and secure fuel for their own generators, MNOs and towercos will use contractors to bring in generators on the backs of lorries for the duration of an outage. Two key factors mean this model works well in the European market; firstly, power outages are infrequent, short lived and usually confined to a small geographical area and secondly, the size of most European countries means that generators can be stored and deployed to most regions with relative ease. Most respondents have a list of local portable generator suppliers which they can call on in an emergency, with towercos often taking responsibility for this.

Increasingly the towercos we spoke to said that they were assessing the possibility of coordinating backup power on site themselves. In part to create a fuller service offering to their tenants, and also in order to optimise the space used at the bottom of each tower and maximise the amount of equipment which can be placed on them.

According to Nigel Moss, COO at Wireless Infrastructure Group ‘We’re deploying our own containerised, tamper-proof diesel generators to around 10% of our facilities where resilience is particularly key, for example at remote locations or at hub sites. Typically we’re deploying permanent 25 KVA generators that can provide resilience to several customers.

We see this as a value added service proposition: it’s about enabling shared economics for our customers, saving space and avoiding duplicative generators.’

Renewable and hybrid solutions are not widely used in Europe, although grid power from ‘green’ sources is preferred in some markets, such as Germany, where incentives are in place. As a rule, renewable and hybrid backup solutions are used by the larger and more innovative players in the market, both in terms of towercos and MNOs, meaning that as their use in the field is proven, there’s a good chance that renewable solutions will become more prevalent on the continent.

There is currently very little government incentive for using renewable power, with respondents claiming that tax breaks for sustainable electricity either don’t apply to telecoms infrastructure or are so small as to make no material impact on their balance sheet. Some respondents stated that, although power prices haven’t gone up significantly, the percentage of the power bill allocated to supporting renewable power has gone up, making tower owners supporters of renewable power by default. Power as a commodity may have gone from 80% to 30% of the bill, but the cost of the full package in absolute terms didn’t change much.

Moves towards more sustainable sources of power are driven in some cases by corporate social responsibility policies, either their own initiatives or as part of the value chain of customers who are adopting best practices in the sector.

Although it’s unlikely that European tower power will ever shift off-grid, there are a number of economic, political and commercial factors which are driving the market towards a hardening of power networks and backup power is becoming increasingly important across the continent. European power networks are coming under increasing strain; as European networks become increasingly reliant on power sources with variable capacity, such as wind and solar, and power consumption continues to increase (in particular through household and electric vehicle usage), security of electricity supply is becoming harder and harder to manage. Winter 2016/2017 saw electricity deficits in both the UK and France, with both countries relying heavily on imports to meet demand. As grids are put under increasing pressure, backing up power is going to become more and more critical for telecoms infrastructure.

In the UK, emergency services communications have shifted from the TETRA system to EE’s network, meaning the towers from which they operate have become a part of critical national infrastructure, and outages are not an option. For those towers which form part of a broadcast network, such as those belonging to Arqiva in the UK, TDF in France and Cellnex in Spain, their position as critical national infrastructure is well established and their networks are well backed up. With threats from cyber attacks and terrorism upping the ante, both battery and genset backup is moving up the agenda.

“We see clearly the connection to the urban grid as the main source of supply, even if distributed generation and local distribution points will help in the challenge. Where backup batteries will be required for small cells, in our view Lithium batteries will help due to reduced volume and weight of the equipment.” Mirko Masi, Director Technology - Global Operation, Cellnex

Towercos and MNOs seem to be split on the small cells issue. There are those who are aggressively pursuing opportunities in order to secure market share, and those who are waiting to see how the drivers for this section of the market develop. Those who are working on small cells see that they will have a new set of energy requirements in the near future for this type of asset. With solutions such as picosolar already in place for some street furniture, this may be an opportunity for renewable or hybrid energy models to break into the European telecoms infrastructure market in a more widespread way. On the other hand, proximity to the grid for urban infrastructure means that batteries may become an important part of the power cycle as street lamps are switched on and off according to time and season.

Most of the tower owners who are developing small cell solutions are in the process of exploring their power needs and trialling solutions at the moment. One complication towercos and MNOs are wrestling with is the low consumption of each small cell - well below the minimum power requirements which utilities need for connection, meaning small cell owners pay for more power than they use as there are no low consumption deals in the market. The challenge will be to have national regulators and authorities provide very low power points of presence. Currently other similar low-consumption street furniture, such as parking meters, are powered through local municipal power networks, but it’s not clear to date if they can provide power for third parties.

Solar and battery solutions, which have been used widely for other street furniture, are an option for small cell owners, but keeping the small cell network ‘invisible’ becomes trickier as power sources are attached. Low impact solutions which can power small cells will be sought after as they proliferate across Europe.

European tower owners have benefitted from near-universal grid access and very low outages since their infrastructure was put in place. This has allowed them to focus their energy elsewhere as they can simply ‘plug and play’ in most locations. However, a number of factors, including the shifting of critical national infrastructure onto telecoms infrastructure, the roll out of small cells and alternative infrastructure and the shift of towercos from seeing themselves as ‘real estate’ owners to focus on service offerings means many towercos are seeking to harden at least part of their network.

According to Heavy Reading’s ‘Mobile network outages and service degradations’ report of February 2016, they estimate that mobile operators are spending 18% more on network outages and service degreadations than they did in 2013 - a total of around $20 billion globally on an annual basis.

In addition, we foresee some major external factors which may well affect tower owners’ abilities to rely on the grid. Power generation capacity is struggling to meet demand in many part of Europe, and while renewables are growing; over- and under- supply due to fluctuations in weather are becoming more common. National power grids’ ability to deal with this varies across the continent but many countries are issuing warnings about a ‘power crunch’ in the next few years, particularly as electric vehicles begin to become more popular and represent both a huge new drain on the network and a shift in the peak times when power will be needed.

Already, power management firm Eaton’s most recent Annual Blackout Tracker saw the number of grid outages in the UK more than double between 2010 and 2015. Tower owners may need to think more creatively about how and when they consume power from the grid, and even leverage their position to become a part of the solution, as explained by Eric Estrade of Vodafone in his recent interview with TowerXchange.

In the short term, TowerXchange hopes to open up the dialogue between MNOs, towercos, suppliers and regulators in order to allow European tower owners to access ‘best practice’ solutions from around the globe, not just in terms of power generation and backup, but also to enhance efficiency and think creatively about their opportunities and responsibilities over the next 10-20 years.

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Africa: Power is the biggest single operational challenge for tower owners in Africa. An estimated 60% of opex is spent on powering cell sites in the region as grid provision is scarce and inconsistent. Theft of diesel and batteries is also a huge problem, contributing to complex logistical and security requirements as well as climate and geographical issues. Hybrid and renewable solutions are becoming more prevalent as they eliminate or reduce the need for a diesel supply chain, but there is no one solution which is currently proving infallible in the current circumstances.

Asia: Power provision in Asia varies dramatically from country to country. With over 30 countries in the region, from Singapore to Myanmar, there is no ‘one size fits all’ in terms of geography or infrastructure. In countries like Myanmar or Laos, as in many parts of Africa only the major cities benefit from grid connection, and the remainder of the country remains off grid. Renewables and hybrid solutions are becoming more popular in Asia, with India recently launching a huge initiative to push green power which is driving change across the country. Responsibility for power varies as much as everything else on the continent - generally towercos will pass through when on grid, and in off-grid cases they will provide a power solution to their tenants, but the measuring and billing of power is not consistent from one country to the next.

Latin America: In LatAm power provision is still managed by the MNOs, even when they are using a third party tower, and even pass through power is almost unheard of. The grid works across the board, with only a few spots with very low population density (such as the Amazon) off-grid. Those sites which are off-grid tend to be powered by diesel generators, with renewables still hardly used in the region. However, auctions for new spectrum are coming hand in hand with targets for increased rural coverage, meaning off-grid provision will need to improve in the CALA region.

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