Are You Managing Your Solar Project Properly?
If Not, There’s Help.
January 2, 2014
Solar Asset Management (SolarAM) is the comprehensive scope of work necessary to ensure that a solar project performs contractually, technically and financially to provide the expected return on investment. It is more than “boots on the ground” technical maintenance. SolarAM requires a deep understanding of how the equipment, contracts and financial structure all work together to achieve desired results.
Savvy investors and owners understand that effective asset management is essential to achieving a project’s financial objectives. With proper SolarAM, it is possible to increase energy production and decrease operational costs to produce the expected return on investment (ROI). SolarAM requires leadership and accountability to reduce risks for project owners, investors and developers.
The solar industry has seen dramatic growth over the last decade. According to SEIA, 9.4GW of solar projects are installed and operational in the U.S. Thus far, the industry has focused primarily on how to build more projects more cost effectively. However, as the industry matures, there is a need for greater focus on how the existing base of operating projects can be managed to deliver the expected benefits.
Traditionally solar projects were promoted as low-risk investments with few moving parts, well warranted equipment and little technical maintenance. However, as the market has matured, maintenance requirements have been more challenging, there has been consolidation in the equipment sector and the investment structures used to finance the projects are more complex. In addition, the ITC structure has created disincentives for installers and developers to focus on long-term performance. While solar is a good investment, these factors underscore the importance of good, qualified management across all of the functional disciplines that are required for the asset – technical, contractual and financial.
Strong Oversight Of Asset Operations – Oversight and management of operations and maintenance (O&M) activities and the O&M provider, good production monitoring and analytics for energy optimization, clear budgeting and cost/benefit analysis of capital investment requirements or repair work and regular onsite visits.
Contract Administration And Regulatory Compliance – Performance of obligations in the underlying project and financial contracts and compliance with legal and regulatory frameworks to keep the system and project entities operating sustainabilitly.
Project Financial Asset Management – Fulfillment of cash management activities for the project company (billing, paying expenses, setting aside required reserves); control and reduction of operating costs; management of SREC sales.
Financial Structuring, Administration And Tax Reporting – Fund reporting and loan servicing, audits, coordination and management of accounting and tax experts.
Special Situations – Resolution of unexpected events such as insurance casualty events, warranty claims, litigation, etc.
Currently, most owners and investors rely on in-house personnel to perform SolarAM, often relying on a patchwork of technical, financial, accounting and legal resources to implement their SolarAM, which work together with varying degrees of success. They often underestimate the internal time and misallocate the direct cost of using internal personnel. They also often forget the high opportunity costs of using their internal teams.
An external SolarAM provider can provide more expertise and cost-effective solutions, offering benefits of scale and comprehensive expertise that is derived from managing multiple portfolios for different customers rather than just a single owner’s individual portfolio. Outsourcing these services can enable owners to better use their in-house personnel to focus on new project development initiatives, which is typically the owner’s core business.
Whether internal or external, a successful SolarAM strategy will have the following attributes:
1) Comprehensive: Focuses on all interconnected project areas (equipment, operations, contracts, legal and financial).
2) Independent: Establishes transparent processes that avoid conflicts of interest and create clarity in scope and responsibility for all key tasks with appropriate coordination and controls.
3) Accountable: Provides owners with a single service partner responsible for measurable results.
4) Accretive: Focuses on financial performance to optimize long-term performance and operating expenses.
5) Scalable: Decreases the marginal costs over time as the portfolio grows.
With the proper SolarAM strategy and the effective implementation of that strategy, owners will significantly increase the odds that their projects will not only deliver the baseline expected ROI but also exceed pro forma expectations.
By: Chad Sachs
CEO at RadianGEN