The ESCO (Energy Service Company) proposition is finally building some momentum in telecom, with the number of cell sites with power managed or provided by ESCOs doubling to over 20,000 in 2016.
One of the leading and most credible proponents of the ESCO business model, and of renewable energy for telecom, is Voltalia, a €125mn+ turnover renewable energy player with a strong balance sheet and an extensive expertise in off grid sites. Voltalia has capital to drive to scale in telecom in the coming two to three years; Voltalia’s vision is to supply power to 10,000+ cell sites (approximately 50MWp).
TowerXchange: Please introduce yourself and your company.
Charles-Henry Duprez, Managing Director, Renewable Energy for Telecom, Voltalia:
Founded ten years ago, Voltalia has multiplied its installed capacity by more than ten since 2012 to become a leading player in renewable energy, in solar, wind, hydro and biomass. In particular, Voltalia has grown an extensive expertise in green power generation in remote areas over the past few years.
Our Group recently acquired Martifer Solar, Europe’s leading PV player, which gives us offices in 17 countries, a staff of over 400 and a global reach to provide our clients with the best renewable energy solutions.
I worked in telecoms for over 20 years, within companies such Equant, Orange and BT, and more recently at tower company Eaton Towers where I was part of the founding team. At Voltalia, I have gathered a team of experienced people from the telecom sector, including Michel Faivre, former Infrastructure Sharing Programme Director at Orange. Together, we will leverage Voltalia’s off grid expertise and propose a win-win model to the telecom industry.
The way we manage energy at Voltalia is different than within the towerco or telco sector, specifically our vision is as a power producer to minimise the LCoE (levelized cost of energy: the average total cost to build and operate a power-generating asset over its lifetime divided by the total energy output of the asset over that lifetime).
TowerXchange: Please describe Voltalia vision to minimise LCoE.
Charles-Henry Duprez, Managing Director, Renewable Energy for Telecom, Voltalia:
Voltalia is a clean energy producer. Our main focus is to develop renewable energy solutions from scratch in order to reduce dependency on fuel and O&M costs and propose a fixed pricing to our clients.
Our vision spans from the development and construction of clean distributed generation, to O&M, and our projects range from large scale 110MW wind plants in Brazil to small solar hybrid solutions for MNOs in Mozambique.
We want to become a long-term partner of our clients within the telecom and tower industry and enable them to focus on their core business while we manage the end-to-end provision of energy to their sites.
The mission of Voltalia is both to improve the global environment but also to foster local development in countries where we operate, providing water irrigation, helping grow new local businesses, et cetera.
TowerXchange: Who are your shareholders and what can you tell us about the strength of your balance sheet?
Charles-Henry Duprez, Managing Director, Renewable Energy for Telecom, Voltalia:
Our shareholder base includes renowned institutions such as Proparco, the French development institution specialised in the private sector, and Korys, recognised investor in the renewable sector. Our main shareholder is Creadev, the investment company of the Mulliez family, owner of one of the largest retail groups in Europe (including Auchan, Decathlon, Leroy Merlin, et cetera). For our shareholders, investing in renewable energy is a commitment in line with their long term vision.
Voltalia is listed on Euronext in Paris and has a turnover in excess of €125mn (double compared to last year’s) and over €500mn of assets on its balance sheet. We have undertaken a capital raise of €170mn last November in order to finance our additional capacity and we also have the ability to raise debt both at a corporate and project levels.
TowerXchange: Talk to us about Voltalia’s credentials outside telecom.
Charles-Henry Duprez, Managing Director, Renewable Energy for Telecom, Voltalia:
Telecom is only one sector Voltalia is looking at, and our exposure to other industries will enable us to achieve economies of scale faster as a power provider to telecom and beyond.
We have developed and built over 1GW of power plants in renewable energy. In around half of these cases we own the assets, the other half we manage for third parties. We have our own global NOC in Portugal from where we managing 400 solar farms, from Chile to Japan, supplemented by local NOCs in selected markets.
One example of our off grid energy projects is in Oiapoque, a 23,000 inhabitant city in Brazilian Amazonia which is completely off the electricity grid. At the tender organised by the city, Voltalia was the only competitor proposing a renewable energy hybrid solution, hence offering the lowest price and clean electricity. The project includes a hydropower plant and a solar plant to provide approximately 90% of the electricity, the balance being produced thanks to diesel fired generators.
TowerXchange: What is the current status of Voltalia’s efforts to engage with the telecom sector?
Charles-Henry Duprez, Managing Director, Renewable Energy for Telecom, Voltalia:
Our target emerging markets are in Africa and in Latin America, but also in Southeast and Southern Asia where we are present.
We are currently working on several RFPs for ESCO projects encompassing 500-1,000 towers each, launched by tier one MNOs, with the objective to reduce their power bills and their carbon footprint.
We are ‘technology agnostic’ and are partnering with ‘best-in-class’ equipment suppliers in selected markets to offer end-to-end solutions.
TowerXchange: What are the challenges ESCOs must overcome to evangelise their business model to MNOs and towercos?
Charles-Henry Duprez, Managing Director, Renewable Energy for Telecom, Voltalia:
There are currently three main challenges:
- Our first challenge is to make MNOs and towercos realise it is in their own interest to sign long term contracts. Investing in solar panels and batteries requires substantial upfront capex, and equipment lifecycles can be in excess of 20-30 years. While contracts in the energy sector are typically 15-25 years, in telecoms a minimum duration of 10-15 years is required. Contracts in telecom are often aligned with tower or O&M contracts, which is not enough to finance the energy generation project, which needs a true PPA (Power Purchase Agreement) to be bankable.
- Another challenge is to make MNOs and towercos realise they have to give full autonomy to the ESCO to produce power, governed by the terms of their Service Level Agreement (SLA), in order for the ESCO to be able to design optimal solutions, hence achieve the lowest level of LCoE. We also need the autonomy to provide excess energy for community power and to other towers. Some operators haven’t really understood the ESCO model – they want lowest fee but they also want to impose constraints on the energy storage solutions and gensets we use. They have to give us more leeway as to how we deliver within the SLA.
- The third challenge is regulatory. ESCOs must be licensed and must have the ability to sell energy as an independent power producer (IPP). As of today, regulation differs considerably across countries although overall the regulatory framework goes in the right direction.
The price of solar PV modules have halved in the last five years and the total cost of energy storage is decreasing as well, albeit slower than the price of solar, yet the pace of renewable energy generation technology adoption still lags in the telecom industry.
TowerXchange: Please describe the current state of cell site energy.
Charles-Henry Duprez, Managing Director, Renewable Energy for Telecom, Voltalia:
The cell site energy proposition is very different from country to country, region by region, almost tower by tower – no one solution fits all. Nonetheless there is a universal opportunity to reduce dependency on and consumption of diesel, and by doing so reduce costs of O&M and pilferage.
In order to implement this diesel replacement, the industry has got to install as much solar as possible while managing the batteries over the length of the contract. This can only be done by teams with deep experience of distributed generation and energy storage. This is why this will be handed over to specialist ESCOs and powercos who can manage the arbitrage between generation and storage. Our business is to produce energy with lowest LCoE, and I believe with the ESCO model we can clearly get below the US$1 per kWh mark in challenging countries… but only if we can work under contracts with at least a ten year horizon!
TowerXchange: What happens at the end of the 10-15 year contract?
Charles-Henry Duprez, Managing Director, Renewable Energy for Telecom, Voltalia:
Our clients will most likely want their contracts to be renewed, but they could decide to terminate. If termination clauses are not well defined, the ESCO will be reluctant to invest in last years of the contract.
At termination, there may or may not be an opportunity to buy the assets, the value of which is typically linked to the net book value and the condition of the equipment.
TowerXchange: How does the ESCO model have to be adapted for the era of infrastructure sharing?
Charles-Henry Duprez, Managing Director, Renewable Energy for Telecom, Voltalia:
It is critical to have the best estimate of radio equipment deployment and the associated energy load going forward; whether loads are generally reducing as a result of equipment modernisation, or whether loads are increasing due to increasing data traffic or the addition of multiple tenants.
Battery racks are not very modular as loads increase, so the reality is that diesel genset runtime remains the buffer. This is why typically energy pricing is by load band, not just by the kWh – so as load increases there is some impact on price.
In the long term, ESCOs are likely to acquire their own land to provide community power – so eventually the ESCO may extend beyond the cell site compound. The ESCO must look beyond towers to consider the needs of telecom retail distribution networks, data centres, office rooftops et cetera; such diversification is in the clear interest of MNOs and towercos, primarily in terms of power cost and reliability, but also from their own business perspective (increased access to energy for communities, and in turn for telecom service demand).
TowerXchange: What cell site modernisation initiatives will have the greatest impact on energy load?
Charles-Henry Duprez, Managing Director, Renewable Energy for Telecom, Voltalia:
The transition from indoor to outdoor equipment is key. Indoor sites consume much more energy because of the parasitic load of air conditioning and old equipment.
The transition to 4G also typically reduces energy load compared to 2G and 3G.
Typically, we consider that outdoorisation and transition from 2G/3G to 4G reduce energy load by 20% to 30%.
TowerXchange: Part of the Voltalia value proposition is to be multi-model: which business model is best for telecom?
Charles-Henry Duprez, Managing Director, Renewable Energy for Telecom, Voltalia:
One of our strengths is precisely our flexibility to adapt to different models: where appropriate we will still use the capex model. But in general for partnerships with MNOs and towercos we are seeking long term opex model contracts – we invest the capex, undertake installation, O&M and crucially we also provide replacement capex.
Last but not least, our focus extends beyond off grid and bad grid sites, to cover all energy needs of MNOs – solar can be interesting as an alternative to grid power. For example, Voltalia recently won a bid for AT&T Mexico where we will build a 70MW solar farm to provide daytime energy needs, largely for on-grid sites – solar is becoming cheaper than grid power in most markets with sufficient solar resources. This also gives the telecom operator better visibility on their future cost of energy and enable them to focus on their core business.
