Why Orange are ESCO evangelists
Herve Suquet, CTIO of Orange MEA described why Orange started working with ESCOs and why they are supporting the model
Orange faced many challenges in their MEA markets when they first decided to experiment with the ESCO model. As is clear from the co-hosting of the ESCO Roundtable Borderless this May 27th the experiment has proved a success. This write up codifies the details given in the presentation and Q&A by Herve Suquet, CTIO of Orange MEA at the ESCO Roundtable Borderless.
Challenges and answers
In Africa Orange wants to meet a site availability rate of 99.6%, and power is the principal reason site availability fails in emerging markets. In their MEA markets grids are often unreliable, and in some markets are actually degrading, the cost of energy is increasing, and coverage targets require them to build sites in rural areas without any grid connection. In addition to this Orange need to upgrade sites to 3G and 4G while improving profitability.
Historically, Orange has explored a couple of options. On the one hand they have looked at the towerco business model. Orange made the decision at the corporate level that the towerco model is not optimal and flexible enough for them for a few reasons. Operationally Orange found the towerco model is too rigid for them, as they wanted greater flexibility in their asset management. Orange also prefers to keep ownership of its sites which precludes a sale and leaseback deal. There was also concern that towercos were not investing in renewable energy at rates which Orange considered appropriate, even if there are notable changes at the moment.
The other option previously explored is a “do it yourself” option, which was the norm in emerging markets prior to the intervention of towercos in the 2000s. However Orange is not an energy, expert that is why they are now looking at the ESCO model. They want renewable energy, they want expertise and they want reliability.
Managing an ESCO relationship
Orange’s partnership with ESCOs began in 2017. Since then it has expanded to six markets, with two more planned to follow this year.
The first stage of the ESCO process, once a contract is signed, is a full audit of the network. From there you are able to assess the quality of each site and then the ESCO – the energy experts – can perform remedial action to bring sites up to the best standards possible. After that Orange and their ESCO partner finalise a modernisation plan and the ESCO begins to deploy energy capex to improve the sites.
Orange measures three key energy KPIs:
1. NUR – Network Unavailability Ratio
2. MTTR – Mean Time To Repair
3. RER – Renewable Energy Ratio (Renewable Energy / Total Energy Consumption)
These three KPIs are then combined with more direct operational KPIs – for example, fault recurrence, power supply recovery time after interruption, preventive maintenance completion – to enable management of the ESCO contract.
The RER is especially important to Orange as its Engage 2025 strategy commits it to carbon neutrality by 2040 and to drawing 50% of its energy from renewable sources by 2025. This target is driving Orange to work with ESCOs, but also to build solar farms so sites which are grid connected have access to renewable energy and to create on-site solar for Orange’s data centres.
Are decisions made at the group level or opco level?
The ESCO programme is supported at group level but at Orange each country has its own decision process. Orange have a set of experts centrally to drive the process internally, including support for RFQs and support for ongoing management of the relationship.
This is not a plan for all of their MEA markets because some countries have very good grid, so an ESCO is not needed. And in some countries Orange will maintain their Do It Themselves processes for now to enable then to make comparisons with ESCO performance. ESCOs are also not right for their European markets, where their strategy is focused on forming a towerco.
Orange’s near-term ESCO footprint
ESCOs have proven resilient in the current crisis. Orange and their ESCO partners have set up and implemented business continuity plans. In each country Orange and their ESCO are fully integrated and special actions were designed and put in place to ensure network continuity. Orange has supported its ESCOs to ensure they have the right permits and permissions to continue to operate through lockdowns.
As a result of these actions, ESCOs have performed positively through the crisis and Orange has suffered no impact in terms of network operation. There have been some challenge for modernisation plans due to supply chains disruption, but the key learning from the crisis is that the ESCO model is resilient.
During the Q&A, a number of people asked about internal blockers to a major change like energy outsourcing. Herve Suquet outlined a few internal issues to think about. First of all, a few people in each opco are used to their current way of doing things and you may face some difficulties moving beyond the Do It Yourself idea. When an opco is used to a certain way of working they will have preferred local partners and people will have specific positions internally they want to defend. As with every transformation some people closest to power at the start of the process may be most resistant to change.
The mind-set of your operations has to change too. Operations will move from managing power directly to working with a big partner, so you may need to set up a partner management function that is able to understand a contract, and manage the contractual, operational and financial aspects of a contract. This is very different to managing small O&M firms which may have been the norm before. This process requires education and training. Orange has established a community of partner managers to share best practice on how they manage their main partners – this group covers ESCOs, towercos and other major partners.
Why Orange works with ESCOs
Orange continues to expect improved levels of service. That means improved quality of energy delivered to Orange, meeting the 99.6% availability rate and reaching a renewable energy ratio of over 50% by 2025. All of that must happen while at the same time meeting its financial targets of zero energy capex and reducing energy opex. Orange is hopeful that through its ESCO partners it will be able to take advantage of the latest energy innovations like lithium ion batteries, solar, hybrid gensets and new DC technology. Another 600 Orange sites should pass into ESCO hands during 2020, and more will follow if the above can be achieved.