The following is a Q&A with Ted Hesser, the Director of Research at Saviva Research. Saviva Research provides Renewables sector research to family offices, private investors, and others interested in profitable opportunities in Renewables.
GPM: Why is Saviva Research interested in green energy for telecoms?
Ted Hesser: At Saviva Research, we believe that the global telecom industry’s infrastructure-outsourcing trend will create dynamic investment opportunities in renewable energy service companies “RESCOs” in the near term. Mobile telecom operators in remote regions are beginning to shift from an expensive reliance on diesel fuel in favor of hybrid renewable energy systems that require higher CAPEX but afford lower OPEX. Deeply rooted structural changes in the telecom industry, rising diesel costs and declining solar and battery costs have catalyzed the shift.
Our ‘Hybrid Energy Systems for Telecom Towers’ report recently explored the rapid rise of third-party telecom tower ownership, and the implications that this structural shift will have for emerging RESCOs. Our contention is that same industry dynamics that caused operators to sell their tower infrastructure to third parties will ultimately lead to further infrastructure outsourcing in the form of RESCOs.
GPM: Is green energy financially feasible for telecoms? What are Saviva Research’s findings?
TH: Our research found that green energy systems are financially viable today. However, according to data provided by the GSMA, there are an estimated 5 million towers worldwide, 3 million of which are in developing countries, 1-1.5 million of which are tied to unreliable grids, 640,000 of which are completely off-grid and only 55,000 of which are serviced with a hybrid mix of “green” energy technology and diesel generation sets. In other words, green telecom towers comprise just 1% of total towers worldwide.
The primary economic impediment to scale appears to the long payback period associated with renewable hybrid energy system retrofits. While some sites may enable payback in just one year, the majority of prime off-grid sites appear to afford paybacks periods of 3-6 years. Critically, these sites tend to generate lower average revenues per user “ARPUs” and have lower tenancy ratios. However, our modeling also indicates that, even with lengthy paybacks, the IRR’s of such projects frequently exceed 30% over 10 years. Delivered diesel prices north of $2 per liter drive such attractive return profiles. For a detailed look at the economics that we modeled, please see Figures 6 & 7 in our report.
GPM: Do you think the current trend of green telecoms is taking the right direction? If so, is it happening at scale? What do you think will be the future trend?
TH: The infrastructure outsourcing trend should continue its arc from masts and other passive assets onto energy equipment, led by RESCOs. Hundreds of RESCOs have emerged over the past few years in key markets around the world to take advantage of this opportunity. Commoditization of the RESCO equipment offering will soon follow, squeezing margins in the process. However, the market is just now beginning to take shape and the market opportunity is vast. First mover advantage, and deep operating data to demonstrate the efficacy of the systems, will be critical in the race to secure large contracts. However, a technology-agnostic equipment offering, combined with access to low-cost debt, will be of equal or greater importance. Such companies can avail themselves of commoditization and falling costs in system components, and finance large volume sales through low-cost debt, thus creating a platform for large-scale deployment. Accordingly, there is a two-front battle currently being waged by RESCOs: one for cheap capital and one for TowerCo clients as long-term, large-volume customers.
GPM: What are the core barriers the telecom industry is facing while considering green energy for telecoms?
Long payback periods, split incentives among stakeholders and a lack of ‘boots on the ground’ to operate and maintain renewable energy systems in far-flung corners of the world has held back the opportunity to date. Our ‘Hybrid Energy Systems for Telecom Towers’ report details each of these core barriers. Most RESCOs in the telecom space are caught in the catch-22 of requiring scale to gain contracts, but unable to gain enough contracts to scale. However each of these issues are being addressed, and viable investment opportunities are emerging.
GPM: How does Saviva Research want to contribute to the green telecom sector? What is Saviva Research’s ultimate objective with regards to this sector?
Our ultimate objective is to support informed investment in the sector through unique research and analysis. We currently offer free access to certain published research through our website. Additionally, we provide bespoke due diligence and custom research services to clients that have included family office managers, private value investors, technology companies, market-oriented NGOs, national governments, development banks and others interested in profitable opportunities in ‘Renewables’. We define Renewables businesses as those enabling the low cost production and efficient management of essential commodities with reduced environmental impact. This includes a focus on energy, food, basic materials, and other essential commodities. Our Foundational Report details our Macro thesis along with the rationale behind our ‘Renewables’ sub-sector focus.