The role for ESCOs in African telecoms and beyond

In July 2017, GreenWish Partners signed their first telecom ESCO project with Orange in the DRC, taking over management of power on 250 sites, now reaching over 300 sites and datacenters, working with Sagemcom as their operational partner. TowerXchange speaks to GreenWish Partners’ Founder, Charlotte Aubin, to find out more about the ESCO, why they see the African telecom sector as promising and how the ESCO model can be optimised to suit the requirements of different parties.

TowerXchange: Please can you introduce GreenWish Partners.

GreenWish Partners is an independent power producer (IPP) dedicated to clean power in Africa. The company was started back in 2010, initially as an advisory company in the renewable energy sector and then in 2014 the company turned its focus to be exclusively developing and investing in clean power solutions in the African market.

TowerXchange: Why did GreenWish choose to focus on Africa?

Africa needs power and we see that cleantech and IT combined is key to the sustainable powering of the continent. The existing energy mix is often expensive, polluting and unreliable and electrification of the continent is dragging.

To power the African continent there are various business models to consider. Firstly there is the IPP model characterised by long term contracts with the government usually as a counterparty. Whilst this can deliver scale, it has long lead times and has certain other constraints, particularly in terms of bankability and the ability of different governments to contract with the private sector.

At the other end of the spectrum is the B2C model, supplying power directly to the individual customer with solar home systems for instance. Whilst this is an interesting area it is not the current positioning that GreenWish has chosen to focus upon. Between the IPP and B2C solutions there is the B2B market, presenting exponential opportunities to provide climate smart solutions to the commercial and industrial sector, with the telecoms sector being particularly attractive.

TowerXchange: What was it that you saw in the telecoms sector which was so attractive?

The telecom sector is an energy intensive sector with growth figures and multiple consumption sites that are off-grid, difficult and expensive to service with conventional power. On the other end, the sector needs to reduce the cost of operations drastically as ARPU continues to decline.

In this context, solar hybrid systems are the solution to bringing cheaper, cleaner, more reliable power to the telecom sector. Meanwhile, utility scale storage systems are still expensive, battery solutions for small capacity such as telecom towers in rural locations are very competitive.

Additionally, the telecommunication sector in Africa is characterised by leapfrogging; firstly in telephony, mobile has leapfrogged over fixed line communications followed by mobile banking leapfrogging over conventional banking solutions. I see the same opportunity for the power sector; telecom can foster innovations and decentralised cleantech power solutions. Having the largest distribution network on the continent, the telecom sector has a very strategic role to play in this off-grid electrification, be it for its own consumption around towers and datacenters, microgrid development around these towers or using their distribution networks to spread solar home systems with digital payment solutions.

I foresee a greater proportion of decentralised power generation over the grid thanks to cleantech and IT (net metering, internet of things, supervision system et cetera).

TowerXchange: When did you start looking at ESCO projects in the telecoms sector?

The first opportunities we looked at were in Nigeria and Chad back in 2016 but we didn’t crack them. Whilst we saw the business opportunity and the value that the ESCO model could bring, we needed to refine our route to market and our technical, financial and contractual structures. Whilst we had extensive expertise in the power sector, we also needed partners with a strong background in telecom managed services to be our operational partner. We looked at about 10-12 potential partners before signing with Sagemcom. What works so well in our partnership is that Sagemcom are very strong on management services to the telecom sector, with extensive expertise in the field of operation and monitoring and we are strong in the power sector, also bringing expertise in financial optimisation and structuring.

TowerXchange: Do you now have an exclusive agreement in place with Sagemcom?

We have a strategic partnership with Sagemcom; where we respectively give each other priority in new countries. If, however, we want to go into a country in which Sagemcom doesn’t operate, we will partner with another operating company.

TowerXchange: GreenWish Partners signed their first ESCO contract with Orange in the DRC, can you tell us more about the project?

The project with Orange in the DRC is a landmark agreement; it not only represents GreenWish’s first deal, it is also a flagship project for Orange. The DRC is a particularly challenging market both in terms of precocity of the power sector and the operational complexity of the country, it is however a high growth country and one where the ESCO model can create a lot of value.

Replacing the use of HFO (heavy fuel oil) in remote areas is very efficient as you can significantly reduce the burden of refueling as well as carbon emissions, truck roles and managing gensets in very remote areas. When you convert diesel generators to hybrid solutions, you divide the amount of operational intervention required by three, you reduce the risk of operations and you improve the energy performance. Cleantech provides a lot of upside from an operational, reliability, environmental and financial standpoint.

TowerXchange: Can you explain more on your technology selection process for projects?

When it comes to selecting equipment, we still see major future progress on technology and pricing and want to remain open to the technology improvements. As such we are not tied up to any specific vendors, we want to maintain our capacity to optimise power equipment and remain technology agnostic. We work together with Sagemcom on procurement, we both bring a lot of expertise to the table. There is precious IP in designing, sizing and developing your own system as well as in your deployment and replacement strategy and this is something we look to customise for every project. There is a lot of value in the way you design your system and this is one of the ways that you differentiate yourself from your competitors.

TowerXchange: What about optimisation on the financial side?

An ESCO contract is, before anything else, about balance sheet optimisation. When MNOs outsource the power to an ESCO, they convert it from a high cost power generation expense with exposure to fuel price, currency fluctuations and import risk, to long term fixed contracts thus creating predictability in opex whilst also reducing opex and total cost of operation. GreenWish’s team has extensive technical, financial and contractual skills and we put ourselves in the MNO’s shoes when structuring a contract. We look at how to structure the best potential financial package between debt and equity to optimise the cost of capital and rollout to finance all this equipment. We look at the MNO’s balance sheet structure; Do they have debt capacity?  What are their accounting rules? We examine their financial constraints and their objectives and then adapt the financial and contracting structure to their objectives. There are multiple customisation options.

TowerXchange: How does Greenwish’s background in the IPP space support your role in the telecom ESCO space?

From our IPP business we can leverage our understanding of and network in various countries, the regulatory, tax and legal frameworks and can also lean on our relationship with the government. Additionally, our IPP background brings a wealth of technology and procurement expertise and even more financial engineering which is at the core of ESCO model.

TowerXchange: Do you see the potential for providing power beyond the tower, deploying microgrids to support surrounding businesses and communities?

Definitely! We are developing the GreenWish Villages, a concept inspired by our ESCO proposal to the telecoms sector. My vision and commitment is to develop ancillary services on the back of our clean power solutions around connectivity points at marginal costs. GreenWish Villages is the B2B platform that we intend to develop around telecom towers, potentially in partnership with towercos and MNOs whereby we provide value added services around energy and connectivity including cold storage, distribution, water purification and especially social and commercial digital services. We have already engaged with some MNOs and potential ICT  partners to develop partnerships around ancillary services to our energy and telecom sectors.

TowerXchange: Do you seen an opportunity for GreenWish Partners to work with towercos as well as MNOs?

Yes, I do see the potential for us to work with towercos, particular towercos who may be intending to go for an IPO. The market will value them more highly if they have optimised their balance sheet, their cost of power and their exposure to fuel price volatility. Working with an ESCO could be a great value add for them.

TowerXchange: Finally, on what proportion of African cell sites could you foresee ESCOs managing power?

My gut feel is that the telecom ESCO cycle will be similar to the towerco one; once it starts it won’t stop. If you look at the towerco model in Africa, within five years of its entrance, close to 40% of towers were outsourced to towercos. When it comes to the ESCO model, Orange are being the pioneers and I think that they will have converted their portfolio and outsourced what they can within two years. Other MNOs will then follow, if the ESCO model creates value for one MNO, it will create value for others.