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Business Case for Renewable Energy

In: Business and Management

Submitted By maneshsingh
Words 2051
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[pic]

SOLAR ENERGY SOLUTIONS/SERVICES TO TELECOM TOWERS
(Business plan)

(assignment to COURSE)
(entrepreneurship)

INDEX TABLE

Table of Contents
1. Executive Summary 3
2. The Problem/Pain Points 3
3. The Solution 4 a. Technology Selection 5
4. Why Now: 6
5. Market Analysis 7
6. Competition 8
7. Product/ Solutions 9
8. The Business Model 10
9. Management & Team 11
10. Financial 12
11. The Harvesting Strategy 14

This plan has been prepared for M/S XYZ Energy Servicing Company which intends to provide renewable energy to telecom towers in area where gird power is not available or if available it’s available for lesser time or the quality of power not up to acceptable level hence forces tower company to run the site either on generator using diesel or battery till the time its available. Since its must to run the telecom site 24 X 7 to provide seamless mobile telephone services to consumers/customers/subscribers. This report has been prepared by Telecom & Satcom Consultants.

Executive Summary

M/S XYZ Energy Servicing Company Limited ( hereinafter referred as the Company) has been incorporated as private limited company under Indian Company Act 2013 having registered office ………….. The company is established to provide

• Green Energy Solutions to telecom tower as primary/back-up energy source especially using solar power. • The company would provide O&M and other related services to telecom sites • The company would also explore the opportunity of setting up micro-grid using the solar plant to serve the community energy needs in rural/remotely located area

The company objective is to build the sustainable business and become a lead player in the market in 5 years time. The company would focus in first 3 years in telecom circles in Northern India especially –Haryana, Punjab, UP West , Delhi and Rajasthan. Subsequently company may expand to other circles.

The Problem/Pain Points

24x7 telecom operations require uninterrupted power supply. Due to multiple pain points across power value chain load shedding is quite rampant forcing telecom tower companies to heavily rely on liquid fuel. Diesel power, besides increasing operating cost is also leading to huge greenhouse gas emissions. With regulatory authorities contemplating to curb carbon emissions and rising liquid fuel cost putting pressure on operating margins, re-newable energy could prove to be an attractive option for telecom sector.

In India close to 400,000 telecom towers are there with tenancy ratio of ~ 1.8 . Electrification scenario v/s telecom coverage is depicted in Fig-1

Close to 10% towers don’t have electricity and around 50% towers get less than 12 hours supply. Since telecom operation is of 24 X 7 nature operators/ telecom towers company have to rely on back-up power sources that’s batteries and Genset.

It has been found that every tower on average consumes around 22 liters of diesel because of non availability of grid power which results around 20 CER per year per tower.

Also for a telecom operator in the operating cost the energy cost is 30-33% which needs to be brought down as this has pressure on bottom line as ARPU is getting lower and lower.

[pic]
[pic]
Fig-1[1]

Diesel pilferage losses ~20% have been observed in the industry which further increases the energy costs. In extreme cases overall cost of generation has sky rocketed to Rs 22-26 per unit

These tree pain points need cure in short time, in addition to regulatory requirements, required to be addressed in most effective and cost effective way.

The Solution

Telecom operators and telecom tower companies are having challenges/ to address points-

• Reduction in operating cost i.e. energy cost

• Reduction of carbon emission

• Stopping pilferage

Going ahead, telecom growth is expected from rural areas which would mean greater dependence on diesel for power and hence higher energy cost.

Higher dependence on liquid fuel along with intense com-petition would put pressure on margins for telecom tower companies going forward. Also in absence of 100% fuel pass through mechanism renewable energy appears to be a better option.

a. Technology Selection

A typical telecom tower has an energy requirement in the range of 3-5 kW. Various technology solutions are available for powering telecom towers, but success of each of the available technology depends on multiple factors like capital expenditure, operating cost, reliability etc. While there are complex technologies like fuel cells available, viability in Indian context becomes a question. In India, solar and wind have been widely used in various distributed generation applications and have been successful in the past.

[pic]

Solar & Wind energy are the most mature technologies amongst all the other sources of green power and could be looked as a long term power solution for telecom towers in India.

Therefore the Company would use solar as their solutions.

It would also take up the responsibility of Operation and maintenance of the site. Typically would sign long-term agreement with lock-in period of 5 years and reduction of energy cost to the order of 25%+ of the diesel cost.

[pic]
Fig-2 Site with Solar Solution[2]

Why Now:

Though the providing of power back-up through solar, wind and alternative resources being considered by telecom operators and tower companies since the tower sharing being vogue since 2007 when Department of Telecom allowed the sharing of passive infrastructure through IPL-1 licenses.

The Master Service Level agreements entered between telecom operators and Tower companies envisaged that Energy charges were pass through. Hence no incentive for a tower company to invest in energy efficient infra and operator were too busy in roll out and no focus on efficiency. But now is. Hence MSA being renegotiated for fixed energy charges.

Further as per the Department of Telecommunications directive dated 23.1.2012,

[pic]
Also

[pic][3]
Though telecom operators have been discussing with DoT , this have to be implemented sooner than later.

This provides opportunity for company like XYZ Energy to serve this market.

Market Analysis

There are around 400,000 telecom towers in India. The leading tower companies are and number of towers is as per the Table-1.

|S.No. |Tower Company |No of Towers As on 31st March|
| | |2015 |
|1 |Indus |125,000 |
|2 |Viom |42,000 |
|3 |Bharti Infra |38,000 |
|4 |GTL |32,000 |
|5 |Tower vision |9,000 |
|6 |ATC |10,000 |
|7 |Reliance Towers |65,000 |
|8 |BSNL |62,000 |
|9 |Ascend Towers |5,000 |
|10 |Vodafone/ Idea non Indus circles |14,000 |
| |Total |402,000 |

Table-1 [4]

Considering this if 50% towers having the less than 12 hrs grid supply then the addressable size is around 200,000 towers.

In the Targeted circles for the Company i.e.:

1- Haryana 2- Punjab 3- Up West 4- Delhi 5- Rajasthan

Around 60,000 towers are there. Assuming in first 3 years 30 % of this would get converted into Diesel free sites then its 18,000. Company would be targeting to get 10% thus around 1,800 sites.

Competition

The companies who are in business of generating solar energy grid connected or off grid are in competition but grid connected one not so interested as they deal in bulk supply of energy to grid. The off grid players are the one & RESCOs who are providing such services. Some of them are

• Applied Solar • Bhaskar Solar • Tata BP • OMC Power • Delta • Tapan Solar • LANCO • Moser Baer

The SWOT Analysis of XYZ Energy services are

Strengths:

1- State of the Art Technology based Solar Hybrid Systems 2- Technology expert with proven credential on board as designer of the solutions with combined experience of 100+ years 3- Focused geographical area/ customized services 4- Energy as well as O&M services contracts 5- Relationship with Key decision makers in Industries

Weaknesses:

1- New Entrant 2- Small base 3- Price pressure 4- Financial strength

Opportunities:

1- Large market size ready to be acquired due to regulatory compliance 2- Carbon Credits

Threats:

1- Regulation relaxation 2- Financial constraints of telecom & tower companies 3- Delay in payment / Bad cash flow.

Product/ Solutions

The company would use the integrated solar hybrid systems form the leading power electronics company to provide the solar solutions and managing the different source of energy at the new BTS sites. Company would provide the turnkey solutions comprising

• Power Electronic System • Photovoltaic modules • Cables • Switches • Monitoring & controlling systems • Installation & commissioning services • O&M services • Any other services as would be agreed upon on case to case basis.

And for existing site, it will use the Solar charge controller approach.

[pic]

This is schematic of a typical solar charge controller solution for a telecom site.

[pic]Integrated site solutions

The Business Model

To start with company would work on the OPEX and usage model and would sign contract with Tower companies. The technical configuration would be finalized along with agreed saving with respect to diesel with the customer and would be deployed. This would as follows

1- Customer would pay the monthly installment for 5 years period at the agreed interest rate towards the CAPEX 2- Energy contract would be signed for minimum of 10 years 3- Energy charges ( electricity pass through + agreed qty of diesel at market price) 4- Customer will also pay for the O&M charges of the site 5- Annual Maintenance charges 6- Any other charges mutually agreed upon 7- Space for PV module and other equipment would be provided by customers free of cost.

The company would tie-up with solar module provider and electronic provider as strategic partner for sourcing the required components of the solutions.

Would design the most competitive and reliable solution which meets the customer requirements and ensure the maximum availability.

Executive Relationships of the promoters and proven solutions design capability would be leveraged initially along with the credibility of technology partners.

Field Engineers team would be built-up as business grows at different circles.( 40-50 sites per engineer)

The organizations would be structured in Head office at Delhi and circle offices in Haryana & Punjab, UP West and Rajasthan.

The company would also tie up with local service providers in circles for providing O&M services.

Management & Team

The Organization structure would be

[pic]

Respective Functional Heads would formulate the policies, guidelines and procedures for their functions. However that would be consistent with the ethics and business practices of the organizations of reputes such as Tata .

The company having zero tolerance policy as far as compliance with law of the land, the acts, pollutions policy, labor and sexual harassments policies are concerned.

The company would hire the right person with required technical, communications and conceptual skills at all level without any biases and prejudices.

Financial

Assumptions are

1- The typical telecom sites having 2 BTS require around 6Kwp PV module. Hence the cost @ Rs 50 per watt = Rs 300,000 2- The cost of electronics , cables etc. = Rs. 150,000 3- Cost of battery = Rs. 75,000 4- Manpower cost per site per month= Rs.6,000 5- Interest rate = 17%

The project cost is calculated for 100 sites for maximum period of 10 years

The CAPEX Requirement is Rs. 44,438,087.67

OPEX Requirements as in the calculations.

The NPV for 10 years comes to Rs. 45,797,577.61

IRR for 10 years comes to: 36%

The NPV for 5 years comes to Rs. 7,257,167.33

And IRR for 5 years comes to: 23%

[pic]

The Harvesting Strategy

Based on the above financial the Enterprise Value after having achieved the installation of 100 sites and getting the Cash flow as projected comes to as follows

|The 10th year Revenue is | |
|30,614,300.76 | |
| | |
|The growth in the revenue is 7% | |
| | |
| | |
|Interest rate is 17% | |
| | |
| | |
|Hence perpetuity value is | |
|306,143,007.61 | |
| | |
| | |
| | |
| | |
|Hence Enterprise Value | |
|351,940,585.22 | |
| | |

The exit strategy would be to get the buyer who pays around Rs. 35 Cr. If not, the company would keep expanding the operation and would strive to get leadership position in North India and then All over India.

-----------------------
[1] Ministry of Power Government of India
[2] Department of Telecommunications/BSNL site
[3] DoT letter dated 23.1.2012
[4] Frost & Sullivan and KPMG Report

-----------------------
CEO

FINANCE HEAD

O& M HEAD

SALES & BD HEAD

CIRCLE FINANCE HEAD

CIRCLE O&M HEAD

CIRCLE SALES

FIELD ENGINEERS

HRD

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