Voltalia has acquired a very strong track record in the ESCO space over the past few years. With over 500 MW of installed power generation capacity, recognised industrial capabilities, over €900mn of assets on its balance sheet and a very long-term reference shareholder, Voltalia can afford to take a longer term, more industrial view than private equity-backed competitors. In this interview, we learn about the progress of Voltalia’s maiden telecom ESCO project in Myanmar, and learn about their pipeline for future business and targets for the coming years.
TowerXchange: Please introduce yourself and your company.
Charles-Henry Duprez, Managing Director, Renewable Energy for Telecom, Voltalia:
Founded thirteen years ago, Voltalia has multiplied its installed capacity by more than ten since 2012 to 524 MW, consolidating our position as a leading player in renewable energy, in solar, wind, hydro and biomass. In particular, Voltalia has cultivated an extensive expertise in green power generation in remote areas over the past few years.
We have almost 500 employees in eighteen countries spread across four continents.
Eight months ago, Voltalia signed its first telecom ESCO contract with MNTI in Myanmar (one of the towercos at the forefront of the MyTel rollout), and we’ve just installed the 100th of 171 contracted sites. We’re also actively pursuing opportunities elsewhere in Asia, in Sub Saharan Africa and North Africa – in fact we just opened our third office in Africa in Cairo (after Rabat and Dar es Salaam).
To introduce our renewable energy for telecom team, 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, and Laurent Roineau, formerly Group CTO at Camusat, prior which he was CEO of TowerCo of Madagascar – Laurent is now our COO and Myanmar Country Manager. 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) while improving quality of service (QoS) at the same time.
TowerXchange: Please describe Voltalia’s long-term vision.
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 fossil fuel, to reduce O&M costs, and propose the lowest price 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 100MW wind plants in Brazil to small solar hybrids solutions for MNOs.
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: What specific challenges are you helping MNOs and towercos overcome?
Charles-Henry Duprez, Managing Director, Renewable Energy for Telecom, Voltalia:
Energy often represents more than half the operating costs for cell sites on bad grid or in remote areas. The high and unpredictable delivered cost per litre of diesel, exacerbated by theft and the high costs of maintenance, means the price per kWh can often be significantly in excess of US$1. And this can have an adverse effect on QoS for difficult to access sites.
The best way to reduce and predict opex is to reduce or eliminate the use of diesel. Solar is the obvious solution, but MNOs and towercos have many demands on their capital, so often lack the available capital to invest in hybrid renewables.
Voltalia overcomes this challenge by bringing its unique capacity for investment, combined with its extensive experience in industrial project development, solar and battery expertise and O&M capabilities.
TowerXchange: Congratulations on winning the contract with MNTI in Myanmar. What can you tell us about that contract and the challenges to be overcome in Myanmar?
Charles-Henry Duprez, Managing Director, Renewable Energy for Telecom, Voltalia:
MyTel, the fourth operator in Myanmar, backed by a consortium headed by Viettel, launched commercial operations on June 9 of this year, at which point we were already operational on around half of our contracted 171 sites for one of MyTel’s key rollout partners, local towerco MNTI.
We currently have 100 sites live in Myanmar, with the balance of the contracted sites to be fulfilled after the rainy season, prior to the end of this calendar year. We’ve exceeded our expectations in terms of operations and implementation – Laurent Roineau and his team have done a great job down there – despite the number one challenge to find experienced and reliable local contractors .
Our initial tranche of 171 sites is in the Bago and Ayeyarwaddy regions, where 20-25% are on good grid connections, 10-15% on unreliable grid, and the remaining ~65% off grid. At the moment most of our sites are battery hybrids as we continue to conduct proofs of concept for solar hybridisation in order to further reduce the use of diesel, hence lower the cost of energy. Contrary to the popular belief that it rains too often for solar to be a viable option in Myanmar, there are an increasing number of solar sites, particularly in the Northern states.
Ours is the first ESCO contract in Myanmar, and it has a ten-year duration. We own all the energy equipment, and our contract has three components: infrastructure, maintenance (both fixed costs) and energy, which is charged according to consumption within load bands. Diesel costs remain a pass through, at least for the time being.
We’re excited by the opportunity to expand our footprint in Myanmar where we are also exploring opportunities in mini-grids and utility scale renewable energy projects (solar and hydro).
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:
Voltalia is listed on the Euronext in Paris and our reference shareholder is Creadev, the investment company of the Mulliez family, owner of some of the largest retail groups in Europe (including Auchan, Decathlon, Leroy Merlin, et caetera).
Our shareholder base also includes the renowned Proparco, the French development institution specialised in the private sector. For Creadev and Proparco, investing in renewable energy is a commitment in line with their long term vision.
Voltalia has a turnover of €180mn (up 42% YOY) and over €900mn of assets on its balance sheet. We have undertaken a capital increase of €170mn in 2016 in order to finance our additional capacity and we also have the ability to raise debt both at a corporate and project levels.
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 highest level of Quality of Service (QoS). 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 the 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 is moving in the right direction.
The price of solar PV modules has 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 technology adoption still lags in the telecom industry.
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: What differentiates Voltalia from other ESCOs?
Charles-Henry Duprez, Managing Director, Renewable Energy for Telecom, Voltalia:
Many of our competitors are private equity backed, with a limited near-term capacity for investment whilst they re-finance. Voltalia has a very solid industrial background, €180mn annual turnover and over €900mn of assets on our balance sheet – we can afford to take a long term view.
Voltalia is a service-oriented partner, offering full Energy Service management, proven over multiple large-scale power production projects. We have developed an holistic range of installation, maintenance and monitoring services tailored for the telecom market. Contrary to some other ESCOs proposing vendor financing like approaches, we are willing propose a 100% OPEX offer over long-term period, to ensure our customers full predictability on their power needs with guaranteed SLA through a one stop shop.
In addition, as renewable power producer and service provider in the energy sector (turnkey power plants, O&M), which is unique in the ESCO space, we can easily extend our footprint to solar and wind farms, solar rooftops, etc, through CAPEX or OPEX models, to bring even more environmental and financial benefits to the MNOs.
Our investment appetite extends beyond telecom ESCOs to become an independent power producer (IPP) in each country, which means we not only bring mobile connectivity to communities, but also mini-grid power to local homes and enterprises, promoting economic development and enhancing revenue generation for the cell site owner.
TowerXchange: Having worked for both a towerco (Eaton Towers) and now an ESCO, what’s your opinion on why an MNO should choose to partner with an ESCO rather than a towerco?
Charles-Henry Duprez, Managing Director, Renewable Energy for Telecom, Voltalia:
ESCOs have a single-minded focus on optimising the LCoE, whereas towercos’ focus is on revenue generation – lease prices and lease up.
For an MNO willing to keep the ownership of the towers, the ESCO under a buy and lease back model could be a tremendous opportunity to generate a quick sale of non-core business assets, with a guaranteed savings on its opex. The ESCO could also play the role of colocation agent to the benefit of the MNO.
Also, we’ve initiated dialogues with many emerging market towercos about the idea of simplifying their business model by selling their energy assets - their entire power-as-a-service business - to an ESCO such as Voltalia. Doing so could make their business model less complex and less risky, and therefore more attractive to institutional investors.
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. We are discussing with several tier one MNOs in Africa to provide them energy on large scale (20MW or more) through corporate PPAs – 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.
TowerXchange: What are your targets for the growth of Voltalia’s telecom ESCO business?
Charles-Henry Duprez, Managing Director, Renewable Energy for Telecom, Voltalia:
We’re targeting 10,000 sites in the medium term: additional sites in Myanmar, others elsewhere in Asia, but probably the majority of new sites in both Sub-Saharan and North Africa.
Voltalia is unique among the companies bidding for large ESCO contracts in that we have a robust balance sheet, enabling us to take a more long-term, industrial view than competitors backed by short term private equity funds.
