Tuesday, October 19, 2010

Renewable Energy Outsourcing – What Next in Outsourcing and Renewable Energy?

Renewable Energy

Increasing Use of Renewable Energy is a Global Trend. Focus is on improvement in technology and availability of options – Solar, Wind, Fuel Cells etc

But there is no business case of Renewable Energy without government subsidies or incentives – grants, feed in tariffs, capex subsidy, tax breaks etc

Only off grid areas where there is no electricity supply have business case for implementing Renewable Energy provided there is strong business need for electricity

Off grid Telecom Sites have strong business need for electricity and have business case for implementing Renewable Energy

Current business model is prohibiting wide scale use of Renewable Energy in Telecom Sites . Why?

1. Capex intensive projects - Benefits are long term but investment is short term.

2. Renewable Energy needs specialized resources to plan and implement projects

• Which source to choose? – Solar, Wind, Fuel Cell etc or optimum combination of each
• Which Technology to choose? – Myriad of Technology to choose from – PV, Thin film, Poly Crystalline, Solar Thermal, Horizontal Axis Wind Turbine, Vertical Axis Wind turbine, Methane Fuel Cell, Hydrogen Fuel Cell, Flow Batteries etc
• How to get reliable data on performance of different technologies? – Technologies are untested for long term benefit claims by vendors

3. Difficulty in running Operations and Maintenance of Renewable Energy Operations?

• All renewable energy resources are intermittent and nature dependent. How best to optimize their usage and prepare for redundancy?
• Decision on Capex vs Opex
• Maintain specialized workforce for trouble free operations.
• Scale might not be enough to recruit specialized human resources and deploy new technologies for proper operations

In short Renewable Energy needs specialization and scale that is not core to Telecom Operators. This is a familiar problem with widely accepted solution in other industries – Outsourcing

What drives Outsourcing ? Focus on core business processes and outsource other businesses processes. Here other processes are also specialized processes that need specialization and scale. Third party specialized service provider can provide these services with agreed Service Levels (SLA)

Outsourcing started with Manufacturing and later got extended to IT and Business Processes. Advances in Technologies and rise in expertise in developing countries led to offshoring as an extension of outsourcing concept

Applying Outsourcing to Renewable Energy Problem

Solution – Renewable Energy Outsourcing

Outsourcing services provided by Third Party (Outsourcing Company) to Telecom Operators. Outsourcing company will

• Sell Power at unit or Kwh Basis
• Utilize Economics of Specialization and Economics of Scale
• Decide among combination of one or more different renewable energy options
• Decide Capex
• Own Renewable Energy Assets
• Responsible for all Opex and Maintenance
• Responsible for Service Levels as per Agreement (SLA)

This is different from equipment financing or Leasing Model since apart from financing, outsourcer has additional responsibilities of dimensioning and deciding on optimum Capex and Opex , to meet SLA's.

This model can be further extended. Outsourcing Company can

• Centralize and provide renewable energy services to multiple telecom clients from single site.
• Provide Renewable Energy to other needy customers such as schools, hospitals, offices, community centres and agriculture farms from single renewable energy site.

Possibilities are endless and Model is scalable.

The demand from Telecom Operators is strong, but supply is not catching up ( some local companies are experimenting on this though). Here also, outsourcing industry can show the way. Earlier Outsourcing was provided by shared service or captive operations, later outsourcing moved to third party as this industry evolved.

In Renewable Energy Outsourcing, Telecom Operators can come together and invest in Renewable Energy Outsourcing Company as they did in Tower Infrastructure Companies. Later supply will increase to fill up the demand.