The cost of diesel for Africa’s mobile operators: 2012 may be the year that this bird comes home to roost

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While oil prices have not yet reached the peak levels witnessed in the summer of 2008, their steady growth with the OPEC basket price of an oil barrel passing the US$100 mark in February 2011, should ring an alarm bell among African mobile operators. Their dependency on diesel to fuel their base stations remains very high but very few of them have make any serious efforts to tackle these critical issues. Isabelle Gross looks at what the short and long terms options are for African mobile operators when it comes to saving on the energy bill that they are currently running.

No later than last September, the Kenyan newspaper Business Daily reported that Bob Collymore, the CEO of Safaricom “said that the cost of running diesel-driven base stations rose by 27% since January, especially in areas with no electricity and in western Kenya where frequent power outages mean the stations must run on diesel for up to four hours a day”. He also acknowledged that the raising operating costs will need to be addressed and a way to do so will be to increase calling rates.

Charging more customers is one approach but it has numerous pitfalls. A price increase can result in lower call volumes and therefore the overall revenue will not go up. Most African mobile subscribers don’t have deep pockets and they remain much more price sensitive than their counterparts in developed countries. Increasing prices is a sure way to drive them to look more carefully at what the competitors have on offer.

Faced with falling voice ARPU and hypothetical additional data revenue, African mobile operators have to pay more attention on the cost side of the business that they are running. Energy expenditures should be among the top items on their list as oil prices have gone up again. When it comes to saving on the energy bills, there is not an “out of the box” solution but it can be done.

The best approach is to first look at how to run existing base stations more efficiently. In other words, the “quick fix” which consists of tweaking various elements of the base station to realise operational savings without incurring additional capital outlay.

The cooling system is obviously a good starting point because it represents as much as 35% of the total electricity consumption of the base station. This proportion can increase to 50% if there are fewer transmitters in use. According to a case study carried out by Axiata, a large Asian telecommunication company, the energy saving in using an inverted air conditioning versus a traditional air conditioning system is between 14% and 22%
depending on the temperature settings (13.8% at 25°C and 21.9% at 30°C).

In a typical setting the pay-back time is about two years. In Africa for example, mobile operators like Vodacom, Orange or MTN have started to experiment with “free cooling system” technology in conjunction (or not) with introducing higher operating temperature in the base station.

Beside free cooling, inverted air conditioners or higher operating temperatures, smarter ways of cooling have already been developed to reduce energy consumption. One
option is to extract the heat directly from the source rather than attempting to cool
the whole cabin.

Equipment manufacturer Ericsson has for example conducted trials in Indonesia that show significantly lower energy consumption can be achieved through the use of heat exchangers for the shelters and separate cooling compartments for the battery back-up. The energy used for cooling the sites can be reduced by up to 60%.

Energy efficient base stations offer interesting savings without requiring a big capital layout but then why are there still so few in Africa when a large number of BTS are running on diesel 24/7?

Further reduction in OPEX will require some capital investments because it implies
purchasing more energy efficient equipment or switching to renewable energy
power solutions. Green options range from the use of solar energy, wind
power to hydrogen fuel cell, biomass, biofuel, etc. Solar and wind remain the most
prominent green technologies used to power base stations in off-grid locations.

When looking at the business case to implement renewable energy solutions to power
base stations, three main factors need to be looked at. There is the price of oil, the BTS load and the renewable energy technology to be implemented. Let’s look at the first factor in more details.

When oil prices are depressed, the pay-back time will be longer – a couple of years more for most renewable energy projects. When oil prices are high, the return on investment will take less time. When diesel price was at its peak in July 2008, mobile operators’ fuel costs were nearly 3 times higher than at the beginning of 2007 with the result of spiralling operating costs (OPEX) for African mobile operators. Shouldn’t the latter comparison start ringing an alarm bell in African mobile operators’ head?

For more details on the short and long term options available to mobile operators engaging in better managing their diesel bill, please see Balancing Act’s report entitled “Energy for Cellular Base Stations in Africa: the quick fix approach and the long term perspective to saving energy” published in February 2011.

On the Balancing Act You Tube Channel this week an AfricaCom special:

Nadeem, Juma, CEO, Mobipay
on m-payments and social media in Tanzania

Scott Bain, Director of Sales, Range Networks on Open BTS and low cost BTS for Africa

Doron Ben Sira, CEO, SkyVision on changes in the satellite market in Africa

Arvind Rao, CEO, OnMobile on comparisons between African and Indian mobile content

Gour Lentell, CEO, biNu on this new feature phone platform taking off in Africa

Jonathan Osler, Managing Director – Africa, Intelsat
on satellite market trends on the continent

Christoph Limmer, Senior Director – Africa, SES on its strategy for the continent

Marc Rennard EVP Orange AMEA on the pressures faced by its operations in Africa

Want up-to-the-minute breaking news? Balancing Act's Twitter feed provides a combination of breaking news for telecoms, Internet and broadcast in Africa, direct tweets from countries visited and access to the occasional rumours circulating. You can follow us on: @BalancingActAfr