Energy has always been a significant expense item for telcos, and now even more so given the higher diesel costs, driven in part by the Russian-Ukraine war. In Africa, the electrification rate is poorer than other regions, and telecoms coverage often outstrips the electrification rate, meaning that some telco towers must be off-grid or 'bad-grid'.
As we have previously highlighted, Africa has high photovoltaic capacity, making solar energy a good alternative for power generation. In this report, we examine tower companies' current power arrangements and explain why solar should become more prevalent in African telecoms.
The electrification rate in Sub-Saharan Africa is poor, and it is worst in rural areas. Asides from Southern Africa, the rural electrification rate in other sub-regions is below 50%. Telco coverage, in most cases, exceeds the electrification rate, meaning that telcos and tower companies (towercos) must rely on off-grid solutions to power their tower sites. According to GSMA, c88% of off-grid and bad-grid towers in Sub-Saharan Africa are powered by diesel.
The rising cost of diesel this year has increased energy costs for telcos and towercos. For instance, the total power generation cost for IHS Towers grew by 82% yoy in Q1 22, which is a c40% increase in average energy generation cost per tower.
IHS Towers' energy model is cutting energy costs and carbon footprint
The tilt in IHS Towers' energy mix towards sustainable energy sources provides a good model for other tower companies (especially in Africa) to adopt. As is typical in the industry, IHS's towers run on behalf of mobile network operators (MNOs) and need to ensure minimal downtime. Africa’s unreliable on-grid power supply poses a unique challenge.
Only 12% of IHS's towers in Africa are powered solely by the grid, as of end-2021. The rest rely on generators and hybrid power systems (which combine diesel generators with solar and battery systems). The interesting point is that, over the years, IHS has reduced its reliance on diesel generators and ramped up the use of hybrid solutions.
As a result, 42% of IHS's towers now run on these hybrid systems, which has translated into lower carbon footprints and operating costs. In Nigeria, for example, incorporating hybrid solutions in 7,400 sites out of 9,000 resulted in a 50% reduction in diesel consumption.
These power systems require annual maintenance expenditure of US$2,000-7,000 per tower in IHS’s African and Middle Eastern businesses. However, the long-term savings from these hybrid systems is worth the investment, and IHS is looking to ramp them up.
Opportunity in solar?
There is an economic and environmental advantage for telcos and towercos in Africa to consider renewable energy for their tower sites and other telco infrastructures. First, although Africa contributes very little to carbon emissions, its population is very vulnerable to the impact of climate change. Therefore, reducing carbon emissions from the telecom industry is not only crucial in reaching the mobile industry’s net-zero ambition but also can help to lessen the dangers of climate change in Africa.
Second, the current high cost of diesel and the declining cost of solar energy is improving the economic justification for switching. Although the initial capital expenditure for switching can be discouraging, it will allow the telcos and towercos to reduce the cost of site maintenance over time.
Last, Africa is blessed with high photovoltaic practical potential that has not been explored. There are strong cost, quality and environmental reasons to make use of this under-utilised resource.
ESCOs could be beneficiaries
Energy service companies (ESCOs) are companies that provide energy solutions for their clients. In the context of telecoms infrastructure, they implement energy savings projects, and offer power generation, energy supply and risk management services to telcos and tower companies. We highlighted the increasing adoption of ESCOs as a likely theme in 2022 given the increasing switch to asset-lite business models, greater consideration for ESG and low electricity access in the region.
We think telcos and towercos are likely to start considering ESCOs for the implementation and management of the switch to solar power for towers.