Responsible for delivering telecommunications services to consumers, telco operators are facing a dual challenge: meeting growing consumer demand for faster and more reliable services while reducing energy consumption and emissions.
Rising data demand and IoT connectivity
Telco operators, the companies that deliver telecom services directly to consumers, are often the frontline in this growing energy conundrum. As they meet rising customer expectations for faster, more reliable services, they also face increased scrutiny from regulators, investors, and consumers to reduce their environmental impact. These players are key enablers of IoT, providing connectivity for millions of smart devices. With IoT adoption surging, telco operators must handle massive amounts of data, placing further strain on data centers and network infrastructure. This leads to greater energy use across the entire value chain, from data centers to network infrastructure.
Customer expectations, service optimization and sustainable operations
To deliver personalized and seamless digital experiences, telco operators rely heavily on big data, AI, and machine learning. These advanced technologies require substantial computational resources and energy. As customer demand for high-quality services grows, telco operators are under pressure to scale their operations sustainably.
Operators must navigate these challenges by investing in energy-efficient technologies, streamlining their network infrastructure, and exploring renewable energy sources. The adoption of AI-driven optimization techniques can not only enhance network performance but also reduce energy consumption and operational emissions.
Addressing the impact of rising energy costs in telecom operations
Companies in each area of the telco value chain are affected by the rising global costs of energy. Recent energy price hikes have hit the telecommunications sector hard, compounding the increased energy use involved with building out networks, traffic growth, and the ongoing transition away from legacy technologies. Energy spending was already a significant cost factor for telecom operators, at up to 5 percent of revenue reporting in 2023, before recent price hikes (McKinsey & Company, 2023). In the last few years, though, large operators have seen their energy cost increases outpace sales growth by more than 50 percent. Yet even as they set ambitious decarbonization targets, operators’ responses to rising energy-related costs have been muted so far, constrained by operational and organizational limitations.It is possible for telcos to achieve significant savings on energy, by combining analytics, procurement, and technology shifts with the right vision, and organizational strategy. Research by McKinsey shows that companies can achieve 15 to 30 percent savings in energy cost by using a holistic approach that combines technology solutions with site and equipment optimization, pricing, and operational levers to create substantial and sustainable change.
Decarbonization Strategies
To effectively reduce their carbon footprint, telcos must integrate multiple and often interconnected strategies:
Scope 1: Reducing Direct Emissions
To minimize direct (Scope 1) emissions, telcos can focus on using cleaner fuels and improving energy efficiency within their operations.
- Enhancing Energy Efficiency: Data centers can significantly reduce power consumption by incorporating AI-driven optimization tools and smart cooling systems. These strategies cut energy demand and directly lower operational emissions.
- Using Biofuels: During power outages, data centers can rely on biofuels like Hydrotreated Vegetable Oil (HVO) and biodiesel for backup power. This helps reduce Scope 1 emissions while maintaining reliability.
- Implementing Renewable Natural Gas (RNG): In regions where renewable electricity is scarce, renewable natural gas (RNG), including BioLNG, offers a viable way to decarbonize operations, further cutting direct emissions.
Scope 2: Reducing Indirect Emissions from Energy Use
Reducing Scope 2 emissions, which come from the electricity telcos purchase, involves transitioning to renewable energy sources.
- Sourcing Renewable Electricity: Telcos can lower their Scope 2 emissions by procuring renewable electricity through Energy Attribute Certificates (EACs), Power Purchase Agreements (PPAs), or Virtual Power Purchase Agreements (VPPAs). These mechanisms help green electricity consumption and reduce their carbon footprint.
Scope 3: Addressing Value Chain Emissions
To tackle Scope 3 emissions, telcos must engage with their suppliers and offset any residual emissions.
- Engaging with Suppliers: By collaborating with suppliers to adopt renewable energy and set emission reduction targets, telcos can address their Scope 3 emissions, decarbonizing the entire supply chain.
- Compensating Residual Emissions: For emissions that cannot be avoided, such as those from equipment manufacturing or third-party services, telcos can purchase carbon credits to offset their residual carbon footprint and achieve net-zero targets.
There are also viable financial options telcos can leverage to invest in decarbonizing their value chain:
- Transferable Tax Credits: In the United States, transferable tax credits can provide a significant financial benefit for telcos investing in clean energy. These credits can be sold or transferred to other companies, allowing telcos to monetize tax incentives related to renewable energy projects, such as those for energy efficiency, biofuels, and renewable electricity. This mechanism provides flexibility and enhances the financial viability of decarbonization efforts.
- Power Purchase Agreements (PPAs) and Virtual PPAs: By entering into PPAs or virtual PPAs, telcos can lock in long-term, cost-effective renewable energy strategies. While PPAs help stabilize energy prices and hedge against volatility, some agreements also include upfront capital contributions from energy providers, which can support decarbonization investments. Engaging in renewable energy procurement through mechanisms such as PPAs and EACs can also decrease Scope 2 emissions, while collaboration with suppliers can help address Scope 3 emissions.
- Green Bonds and Sustainability-Linked Financing: Telcos can issue green bonds or secure sustainability-linked loans to raise capital specifically for environmentally friendly projects, such as energy-efficient infrastructure or renewable energy procurement. These financial instruments often offer lower interest rates or incentives tied to achieving specific sustainability targets, making them attractive options for financing decarbonization efforts.
- Government Incentives and Grants: Many governments offer financial support for companies working toward sustainability goals, such as tax incentives, grants, or subsidies. Programs that support renewable energy adoption, energy efficiency improvements, and carbon reduction initiatives can provide telcos with the necessary funding to invest in decarbonization projects.
The challenge of providing fast, reliable data without downtime, while moving toward a low-carbon future, is increasingly critical. The Telco industry can make impactful strides by adopting decarbonization strategies that are both effective and sustainable.
STRIVE by STX partners with companies to deliver tailored decarbonization solutions. Reach out to learn how we can support your business in achieving its climate goals.
