N66bn market opens as telcos explore green energy for power

Nigeria and other African countries’ telecommunication companies’ drive to explore renewable power solutions to drive their off-grid telecommunications masts could potentially create a N64 billion market to be tapped by third party Energy Service Companies (ESCOs), with requisite technical competence, BusinessDay investigations have shown.

Analysts say this could serve as a stop gap, pending when the dividends of the ongoing reforms in Nigeria’s electricity sector materialise, as energy is believed to be the largest cost item in developing markets, representing as much as 40-50 percent of total operating costs.

For instance, in 2012 alone,

telecoms companies spent about N45.9 billion to fuel generators that power Base Transceiver Stations (BTS) – a critical network component required to deliver communication services.

Renewable energy is energy that comes from resources which are naturally replenished on a human timescale such as sunlight, wind, rain, tides, waves and geothermal heat.

According to the Global System for Mobile Communications Association (GSMA), a global body representing the interest of operators, the market potential currently stands at $265 million annually, at a PPA (Power Purchase Agreement) rate of 0.6 US$/kWh.

But with the total number of telecom tower sites in Nigeria and Ghana expected to reach 43,917 by 2015 at a CAGR of 13.8 percent, the body also forecast that the ESCO market value will reach $405 million (N65.6bn) annually by 2015.

For many operators in developing markets, energy is the single largest cost item, often representing as much as 40-50 percent of total operating costs, and the energy cost item is high due to the use of diesel to power base stations. In 2012 alone, telecoms companies spent about N45.9 billion to fuel generators that power Base Transceiver Stations (BTS) – a critical network component required to deliver communications services.

Telcos are expected to spend more this year. “If you think about Nigeria, 100 percent of cell sites need an alternative power source. In fact, most of them need an alternative for the alternative”, Kamar Abass, managing director, Ericsson Nigeria, said in an interview. “This implies having two diesel generators plus battery per cell site. It just adds complexities to the point where this thing is just expensive to manage.”

David King, chief executive officer, Flexenclosure, a developer of intelligent power management systems for the telecom industry, said, “One single diesel powered base station can consume around 20,000 litres of diesel per year, and spew 50 tonnes of carbon emission into the atmosphere. Operating a single diesel powered base station can cost $40,000 per year.”

According to him, the current situation presents a huge market opportunity for companies with the right expertise to provide alternative energy solutions to operators. “There are several companies offering power management solutions based on renewable energy sources, with control systems and battery banks for energy capture and storage. And even without renewable energy sources, simply using energy efficient power systems based on intelligent controllers and batteries, power for base stations can become ‘green’ using a fraction of the diesel currently used today”, he further explained.

Beyond energy cost, security officials monitoring telecoms towers also estimate that around 15-20 percent of total diesel consumption is pilfered.

Rising running costs, widespread diesel pilferage and a myriad of taxes, according to analysts, are taking a huge toll on the cash flow of mobile networks.

For them, “adopting green technology has become a necessity, due to high energy costs and access issues in rural areas.

Serving the underserved is an emerging business model to tap the value at the bottom of the pyramid”, said Hemant Joshi, partner at Deloitte. Firms such as Ericsson, Huawei, Alcatel-Lucent, ZTE, amongst others, with the necessary proficiency to provide ‘green’ solutions, need to step up their game in this regard.

The telecoms market in Nigeria has grown quite significantly, recording a subscription base of about 129 million. Though, penetration has reached substantial levels at over 85 percent respectively, the network coverage is still far from reaching 20 percent of the population living in rural areas.

A mobile network operator, for instance, with only five percent of its base stations in rural areas without power grid access, might spend as much as 25 percent of the company’s total expenses on this relatively small number of base stations.

Besides, off-grid base stations are often located in rural areas with low average revenues per user (ARPU). This trend, according to analysts, has slowed down rural network expansion, as many Mobile Network Operators (MNOs) look to deploy infrastructure in more financially viable areas.

“Lowering the operating expenses (OPEX) is the key to profitable roll-outs of off-grid base stations and coping with the increasing diesel cost and reduction of ARPU in areas with existing off-grid sites”, Peter Karaszi, an expert in intelligent telecom solutions, told BusinessDay.

There is a downward telecom price pressure in Nigeria, due to regulatory interventions and intense competition, he further added. According to him, the population density is lower in rural areas and the disposable incomes in those areas are lower than in urban areas. These market dynamics, according to analysts, have necessitated more investment in green solutions to lower telcos’ OPEX.

 Mobile operators are also adopting business models predicated on reducing operational costs to free up requisite resources for service and marketing oriented activities.

In recent weeks, India’s Airtel and United Arab Emirates’ (UAE) Etisalat have both sold Base Transceiver Stations (BTS) to tower companies. Etisalat disclosed recently it would sell 2,136 of its towers to IHS Nigeria and lease them back as part of broader plans to expand its coverage in Africa’s most populous nation.

Bharti Airtel, said it has entered into strategic agreement with Helios Towers Africa (HTA), independent telecoms Towers Company, for the divestment of 3,100 of its towers. These firms have disclosed plans to adopt alternative energy solutions to cut down on the huge cost of power.

Businessday