As India's power supply improves, OMCs see drop in telcos' diesel demand

State-run oil marketing companies (OMCs) are witnessing a steady decline in diesel demand from the mobile tower segment, once seen as an important end-user of diesel in the country.

Industry experts explain India’s improved electricity supply, advent of solar projects, and tower infrastructure sharing are some of the reasons contributing to this decline. "The telecom tower industry has deployed more than 100,000 diesel free sites (sites that consume only a litre of diesel a day, use solar cooling units, lithium batteries, simple power panels, fuel cells and FCUs etc.). Undoubtedly, in the past few years, the government has made progressive reforms in electrification of non-electrified areas, which has helped the industry to further reduce its reliance on diesel,"said Tilak Raj Dua, Director General, TAIPA. TAIPA is Tower and Infrastructure Providers Association.  

According to data shared by the country’s largest OMC Indian Oil Corporation (IOC), telecom business as on 2013-14 for IOC contributed 2 per cent to its total retail high speed diesel sales. This, as of December 2017, was lower at 1.7 per cent. A spokesperson for IOC attributed the reduction in contribution to improved availability of electricity.

Mobile towers need diesel to run power generation sets in the absence of steady electricity supply. A few years ago, this segment was an important contributor to non-auto related diesel demand. This, however, is now changing, and industry experts add there is scope for more.

In its data for 2013-2014, IOC said the telecom business consumption was at 800,000 kilolitres (kl). The latest data available is for December 2017, where the consumption for the month was at 51,000 kl, making the yearly average consumption 720,000 kl.

With the entry of Reliance Industries’ Jio into the telecom business, diesel demand from the mobile tower segment was expected to continue to remain healthy or improve. However, the expansion did not lead to higher sales for OMCs. “Some of the towers are now solar. Overall power availability has improved. When loadshedding has reduced, why would they run diesel generator (DG) sets?” said an official from one the three state-run OMCs.

According to the Central Electricity Authority data, all-India peak power deficit for March 2018 was at 1.1 per cent. This compares to 7.4 per cent in March 2013.

Industry estimates suggest the average cost of generation through diesel is Rs 13-15 per unit, against renewable energy and battery generation cost of ~7-8 per unit. Tower companies in the past launched a programme to use more solar and reduce costs. "The telecom tower industry is aggressively aiming to use alternate energy resources to reduce its dependence on diesel," said Dua

There are other factors at play. “In addition to improvement in electricity, for some telecom providers, we have also seen a tendency to underutilise towers in low-demand sectors by not running them 24x7,” said another official from an OMC. There are also constant efforts from telecom service providers to share infrastructure and reduce operation costs.

Though there is a decline in demand, industry experts believe there is scope for further reduction. “Overall demand for diesel may have come down, but the dependence is still high despite improved power supply in most states. This may be due to pilferage of diesel at the field level. More can be done to cut down diesel consumption by effectively adapting to renewable energy and battery,” said Debasish Mishra, partner at Deloitte Touche Tohmatsu India LLP. Mishra added efforts in this direction will also help bring down India’s overall oil imports.

Telecom's dwindling contribution
  • 2013-2014: Towers contributed 2% to retail diesel demand for IOC
  • December 2017: Towers contribution to retail diesel demand fell to 1.78% for IOC
Improvement in electricity
  • March 2013: All-India peak power deficit was at 7.4%
  • March 2018: All-India peak power deficit was at 1.1%

Solar is cheaper

  • Rs 13-15 per unit: Cost involved in diesel-generated power
  • Rs 7-8 per unit: Cost involved in renewable energy usage
Source: Central Electricity Authority of India, company estimates, industry estimates