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Case Study: Telefónica México

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Telefónica continually strives to generate a positive impact on its environment in all its aspects, for this reason, for over a decade, Telefónica México have made use of solar energy technologies in base stations. 40% of Telefónica México’s energy will come from Solar Energy, providing power to its stores and antenna bases. Telefónica’s commitment is for all of the company’s energy consumption to be 100% green by 2030

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Executive Summary

Through a PPA (Power Purchase Agreement), 40% of Telefónica México energy will come from Solar Energy, providing power to its stores and antenna bases. Telefónica’s commitment is for all of the company’s energy consumption to be 100% green by 2030.

In a highly competitive environment like the Telecommunications market in México, where there is a preponderant player with more than 90% of the market, low rates and a high need for investment, it is essential to carry out actions that optimise operations.

As the number of Telefónica base stations and commercial stores grows, the demand on electricity supply has accordingly increased. In parallel to this growth, there have also been periodic rises in the cost of energy. These events have resulted in the increased expense of energy, making it the second largest expense for Telefónica.

Taking advantage of the Energy Reform of 2013, Telefónica México signed an agreement with BAS Corporation[1] that the supply of 40% of its energy would come from the Kaixo Solar park[2]. In 2017, Telefónica made a public commitment at the global level that all of the company’s energy consumption will be 100% green by 2030. These agreements have been the impetus to accelerate the search for energy consumption alternatives allowing for a constant price of energy to meet the public commitments of a green company and to significantly reduce energy costs.

To evaluate the potential impact, the Network Economics Model baselines a hypothetical tier 1 operator’s cost structures, models innovation scenarios to identify the delta in terms of operational expenditure (OpEX) and capital expenditure (CapEX) these can deliver.

You can see more here (in Spanish): Telefonica Kaixo Solar Park

Introduction

Telefónica is one of the largest telecommunications companies in the world in terms of market capitalisation and number of customers. With its best in class mobile, fixed and broadband networks, and innovative portfolio of digital solutions, the company is transforming itself into a ‘Digital Telco’. Telefónica has a significant presence in 17 countries and a customer base of over 327 million accesses around the world. Telefónica has a strong presence in Spain, Europe and Latin America where the company focuses an important part of its growth strategy.

Telefónica has a made a solid commitment to sustainability and has a clear strategy in terms of energy efficiency and renewable energy. After the approval in 2015 of the global objectives of energy and climate change, Telefónica has become a lead operator contributing to the fight against climate change worldwide.

The global objectives include the commitment to reduce greenhouse gas emissions (GHG) by 30% in absolute terms by 2020 and 50% by 2030[3].

The main lever to articulate this change is Telefónica’s Renewable Energy Plan. Telefónica is committed to 50% of its electricity consumption from renewable sources in 2020 and 100% in 2030. As a result, in the last two years, Telefónica has reduced its GHG emissions by 28% in absolute terms and has reached 46.8% of its global electricity consumption from renewable sources.

The Renewable Energy Plan contemplates different alternatives adapted to each country, purchase of guarantees of origin, renewable self-generation, or the signing of long-term purchase agreements with renewable energy generators. Telefónica México is the first operator of the Telefónica Group with a PPA agreement.

 

Figure 1: Telefónica’s energy goals

 

Since their arrival in México, Telefónica has always sought to generate a positive impact on its environment in all its aspects, economic, social, and environmental. For this reason, that for over a decade, Telefónica México has made use of solar energy technologies in base stations by installing solar panels. However, the high investment and maintenance costs derived from location conditions such as remote areas vulnerable to crime has led to a reduction of solar panels with an annual consumption of approximately 10,200 KWh at a number of base stations.

The Energy Reform of México, approved in December 2013, proposed that private initiatives could participate in the generation of energy by investing in the construction of solar parks, as well as in the exchange of energy with individuals contributing to the commercial network. This paved the way for competitive costs in relation to the real cost of supplying the Comisión Federal de Electricidad, (CFE), Federal Electricity Commission.

The Energy Reform included an opening in two major areas: legacy contracts and the wholesale electricity market. Telefónica México entered a PPA business model with the specific aim to purchase electric power and Clean Energy Certificates (CELs) between interested parties.

Business Imperative

Within the options of legacy contracts, is the item of Self-Supply, which considers a few important benefits. The main benefit being the generation of clean or ’green’ energies, named for their origin in renewable resources such as solar and wind, i.e. without the use of fossil fuels. The significant benefit of replacing fossil fuels with green alternative energy sources is the reduction in CO2 emissions into the atmosphere, which studies have revealed to have a major impact on the world’s climate[4].

Apart from human resource costs, energy expenditure is one of the highest OpEx for most companies. This is often the driver for companies to search for energy efficiencies that allow this expense to be reduced in proportion to the increase in load and the rate that may be incurred every month.

Likewise, the monthly calculation of energy consumption made by the supplier company, CFE, in lieu of actual readings from each load point, generated inconsistencies, typically above the actual consumption. This supposes an over cost to the real consumption of energy realised.

The Solution

The scenario for Telefónica:

  • Increases in consumption and therefore energy cost, derived from the creation and increase of base stations and commercial stores,
  • Increasing the cost of energy,
  • The options to generate own green energy have not previously been viable due to security and high investment cost,
  • Current energy meters are not precise, resulting in additional costs to the CFE for energy not actually consumed,
  • Energy reform opens up new opportunities in the country,
  • Telefónica is committed to making all its energy green by 2030

It is for all these reasons that Telefónica have been looking for options that will lead Telefónica México and Kaixo Solar Park (BAS Corporation) to become partners under the Self-Supply regime.

The contribution of this partnership with Kaixo can be separated into three major milestones:

3.1 Renewable Energy

Use of clean source energy: A solar park developed in Ciudad Juarez for a useful life of 30 years, would result in a gradual reduction of emissions by incorporating more base stations and commercial stores (charging points) of Telefónica’s growing network in México.

3.2 Savings in Operating Expenses.

It provides a significant reduction in operating expenses, from the inexhaustible solar source guarantees a lower price in the generation of energy, and replaces the traditional generation by means of turbines for non-renewable fuels, overall lowering the price rate of consumption of the charging points.

3.3 Real-Time Billing

Derived from precise consumption readings from each load point. In order to capture real-time billing, it is necessary to have electrical meters with telemetry; a meter that can send consumption data to dedicated servers, allowing energy consumption to be itemised per minute, generates an effective payment for the energy used.

Economic benefits

Since energy production expenses were established by the supplier company in December 2017, tariffs for energy consumption, established production expenses and fixed expenses have been published monthly. Having obtained a lower price in July 2018, prices have since been adjusted upwards, resulting in an increasingly advantageous difference on the Self-Supply Project when compared with the state supplier of energy, CFE. This advantage is largely due to securing a fixed rate over the 20-year lifespan of the project.

4.1 Investment rationalisation

In the Self-Supply model, fixed costs such as distribution, transmission, tax, and public lighting costs, as well as power factor benefits are transferred to Telefónica México. Savings are directly related to the consumption of energy operative cost, as shown in the below graph.

The investment in CapEx is recovered from the same savings in operating expenses; already defined by year. In some cases, this recovery is deferred during the term of the contract with the generator or at a suitable period for the generator and self-supplied partner.

4.2 Testimonials by customers

At the start of the project, complications were experienced due to the model being relatively unknown in the telecommunication world. Coupled with changes in energy reform, other difficulties such as obtaining permits, homologation of meters and the resistance to change by the CFE, all added to the complexity of implementation.

Testimonial:

“That Telefónica consumes, in renewable energy, 40% of the energy of its stores and antennas is important on several fronts. Firstly, the mere fact of removing the proportional contribution of greenhouse gases from the atmosphere, especially in urban environments.

Secondly, Telefónica is able to open a market in a potential sector in which its network of distributors and services produce stable jobs and with a positive net contribution to society, employment, green business fabric and quality to the planet.

Finally, I consider the most important, the visualisation. Visualisation as a company, marking a path to the sector, in which competitive necessity forces the competition to position itself in the environmental field and therefore sets in motion a wheel that can only bring environmental benefits, but at the same time highlights two important points.

1. It is possible to generate 40% of the needs through renewable energies, so that those people in their influence radius (distributors, clients, competition and administration), so they break that ceiling of “myth” in that renewable energies are not viable in practice.

2. The ability to access these renewable energy management micro-networks makes them a scaled laboratory for data management, the data flows needed for networks in smart cities, the development of tools and data flows necessary for the management of V2G networks and trends to study what could be developed at the local level. Isolated networks and especially renewable networks connected to the network, managing an important flow of data from them and management in real time, are part of the short and medium-term trends that could well generate new branches of the service market part of Telefónica México.”

Fernando García, cliente de Telefónica Movistar.

Market Context

The location of the generating plant is based on the type of renewable energy being generated. A photovoltaic park, for example, is most suitably located in a desert climate, harnessing optimal solar radiation. Combining the position the of panels with historical data of hours of sunlight per year, panels can be placed in the most advantageous position maximising generation capacity of each park.

Ideally, the construction of a self-sufficient park should be as close to a substation of the CFE as possible to carry out the connectivity with the electricity transmission. A self-supply permit, obtained from the government, outlines the deadlines for the progress of development. Once all the permits and studies have been obtained, the civil works begin.

In parallel with the CFE is the homologation of meters. The replacement of energy meters that are present in each declared load point and the implementation of an energy measurement system. From the commencement of construction of the park, including the permit approval phases and meter implementation has an approximate timeline of 1.5 years.

It should be noted that the charging points must have a meter with telemetry that sends the consumption data to the servers that will account for the consumption and its billing in real time. Therefore, programming for the replacement of these meters also depends on the CFE, which reviews and adjusts the meters before installation.

5.1 Key considerations

The most important consideration is that a solar park not only brings benefits to the company but also can generate employment, bring investments to rural communities and above all, helps to reduce global climate change.

5.2 Milestones and future plan

Telefónica México is the first telecommunications company to use sustainable energy sources in México, thanks to its earlier adoption of harnessing sustainable solar energy for up to 40% of its operations. With this initiative, Telefónica México has become the first operator of the Telefónica Group to sign a long-term renewable energy supply contract or PPA.

By the end of 2019, Telefónica México plans to utilise clean energy for medium voltage load points. This would equate to 85% of migrated cargo. The remaining 15% is outside the national electricity system, located in the US, however, the possibility of integrating it into a similar scheme in the medium term is being considered.

Conclusion

In conclusion, Telefónica continues to demonstrate that, not only are they focused on creating, protecting and boosting connections but are deeply committed to promoting innovation-based solutions that address global social and environmental challenges (identified in the Sustainable Development Goals) while also guaranteeing a profitable economic model to ensure its future viability[5]. By always looking for projects that bring benefits to the community, this project is a prime example of green alternative energy sources, bringing investment and employment to México while taking advantage of better energy prices.

NOTES:

BAS CORPORATION is an IPP (Independent Power Provider) company with experience in 16 countries, delivering projects to 12. BAS is the result of the consolidation of several Spanish companies of recognised international prestige spanning more than 50 years of industrial trajectory.

BAS investments include industrial plants and energy infrastructure, focussing on the generation of renewable energy, including water treatment and the management and treatment of hydrocarbons; they manage integral projects, from conception and design to construction, start-up and operation. Currently Dominion, as a reference shareholder, is in charge of the turnkey construction of the projects in which BAS Corporation invests.

DOMINION is a global provider of multi-technology services and specialised engineering solutions. Founded in 1999, Dominion operates in three major areas of activity; Technology and Telecommunications, Industry, and Renewable Energies. Dominion applies knowledge of processes, technology and innovation to achieve efficiency in the business processes of its clients and believes in digitisation as a catalyst and differential value of its business model.

With a presence in more than 30 countries, more than 1,000 customers and around 8,000 employees, Dominion reached an adjusted turnover of 745 million euros, an EBITDA of 57.7 and a net result of 25.8 million euros in 2017. The company bases its strategy on a unique culture and management model and on an ambitious growth plan. It has been listed on the Spanish Stock Exchange since April 2016

[1] BAS Corporation, international renewable generation company that owns the Solar Park, belonging to the Dominion multi-technology group  http://bascorporation.com/en/.

[2] Dominion has been the turnkey builder of the Kaixo Solar park. http://www.dominion-global.com/-/kaixo-parque-solar

[3] Objectives validated by the Science-Based Targets global initiative.

[4] http://science.sciencemag.org/content/329/5997/1330; and http://iopscience.iop.org/article/10.1088/1748-9326/9/3/034014/meta

[5] https://www.telefonica.com/en/web/about_telefonica/our-vision-values