A Question of Management...

RenewableAssetManagement

Renewable energy generation, data collection, changing analytics, the grid edge... In a continually evolving industry how does the renewable asset manager keep up with the changes? Edmee Kelsey, founder and CEO of 3megawatt GmbH, gives PES her analysis of the situation....

READ ARTICLE IN PES MAGAZINE - JUNE 2016

These are turbulent times for Renewable Asset Managers.  Every day there is something new on the “grid edge”. The grid edge is the new industry buzzword that describes the impacts of the transition of the traditional electric power industry to the next-generation distributed energy world.  The growth of wind and solar, two important distributed energy sources, is seemingly unstoppable.  According to Bloomberg New Energy Finance, investment in clean energy broke new records in 2015 and is now seeing twice as much global investment as fossil fuels. And this is not a trend that seems to reverse in the near future, even with low fuel prices.

The rapid rise of new energy assets is forcing the change of how energy is generated, distributed and consumed. This in turn has far-reaching implications on how renewable energy assets are managed. Emergence of new business models and evolutions in renewable energy project structuring are guaranteed to keep the asset managers on their toes.

What is renewable energy asset management?

Asset management in the broadest sense is the management of money or property of a company or organization in order to make as much ROI as possible.  Asset management refers to a systematic process of deploying, operating, maintaining, upgrading, and disposing of assets cost-effectively.  In the early days of renewable energy asset management, this definition was limited to monitoring and maintaining the physical asset alone. However, today it includes everything else that enhances the cash available for distribution to the financial investors in the generating asset.  This includes such a myriad of functions including operations, maintenance, subcontractor supervision, energy invoicing, utility relationship management, accounting, cash management, regulatory, contract compliance, investors and bank reporting.

Renewable asset management is typically performed by a grouping of organizations or by a vertically integrated firm. They will combine solid management, financial, economic, engineering, and other practices with the objective of providing the required level of service in the most cost-effective manner.  As the renewable energy industry veers for lower energy pricing, there is tremendous pressure on asset management margins. Therefore being able to offer superior service with a constrained budget requires prioritization, efficiency and scale.

How is renewable asset management changing?

1. Data is growing rapidly

In a quest to allow for even smarter analytics, the industry has a never-ending thirst for data.  The volume of data available to the asset manager is exploding, which is creating questions on how to handle this mount of data. For example: How long should the data be kept (6 months or lifetime)? What is the time interval that data should be tracked at (every 5 minutes or 15 minutes)? What is the best granularity of the data (for all pyrometers or an aggregate)? And how does the asset manager know what the quality of the data is? Are the data sets reliable and consistent between generating assets and data sources? Good data capture, validation and normalization is becoming an art. The asset manager 2.0 has to ensure that he or she is on top of that game to be able to do any meaningful data analytics.

2. New analytic tools are forming a jungle

Not an industry tradeshow goes by without a plethora of new analytical tools being unveiled.  These tools come from teams of smart engineers claiming that their magic algorithms are better at analyzing and predicting performance of the renewable energy plants to industry organizations trying to push standard analytics to the industry as a whole. In addition, asset managers increasingly desire to perform their own set of analytics, either because these analytics are very specific to the asset type or required for performance guarantee calculations.

The challenge for the asset manager 2.0 is to determine what economic value these new analytic tools provide to the assets that they manage.  On one hand this will depend on the type of renewable energy asset they manage, as well as the requirements to perform advanced analytics for regulatory and contract purposes. On the other hand, it will depend on the interest and the budget of project stakeholders to improve the long-term performance of the plant.

3. Industry actors are changing faster than wind speed

It is never a dull moment in the renewable energy world: Industry darlings of yesterday are fighting for survival and new players seem to emerge seemingly out of nowhere.  Sever competition is leading to more mergers and acquisition activity. There are few employees in the renewable energy industry that can boast more than a 5-year track record with the same employer.  This widespread industry staff turnover puts pressure on companies to monitor and keep organizational knowledge. The asset manager 2.0 needs to ensure that his or her organization has a lifecycle management processes and systems in place, which are scalable for sharp organizational growth or change of ownership. These systems and processes will be instrumental in surviving staff turnover and will prove to be very beneficial for the fast on-boarding of new employees.

4.  New business models and financing structures are creating new puzzles

Just look at the changing topics presented during renewable energy industry conferences to get a feel for innovation and new business models and project finance structuring.  Last year’s topics of YieldCos, securitizations, smart inverters and green bonds are rapidly followed by this year’s topics of “storage as a service”, microgrids, community solar, virtual power plants, demand charge reduction and energy regulatory compliance.

These new business models or financing structures have consequently the day-to-day tasks of the asset manager are always changing. For example, they will now need to deal with time of day billing, advanced energy forecasting and storage asset O&M. It seems that the industry is like a giant puzzle, which is growing as it getting closer to being solved. The asset manager 2.0 will love the challenge of figuring out these puzzles for the benefit of the industry.

5. Digital disruption is creating new opportunities and threats 

Some experts claim that current technology innovations are on the verge of creating a disruption in the energy industry, similar in size to the disruption caused by the rise of the Internet.The grid edge is relying on innovations in technology to balance energy supply and demand.Intelligent grids and interconnected energy assets will have ripple effects on energy markets and prices. New technologies, such as batteries and grid-embedded generation, are making the cyber security of grid systems more vulnerable.

Interconnected assets, actors and technologies need interconnected software solutions. These software solutions will be instrumental for creating efficiencies, minimizing operational risk. These solutions will also assist in making timely and informed decisions to control the generating asset to maximize pricing while balancing the grid. The use of new integrated software tools to address the industry’s opportunities and threats has become indispensable for Renewable Asset Management 2.0.

Conclusion

The rapid evolution in the renewable energy industry is changing the way in which power assets are managed. Technology advancement is enabling these changes and the industry will need to cope with an increasing wealth of data from interconnected data sources. Performance analysis and decision making is likely to be pushed to new levels through more and better data and new analytic tools.

Asset managers need to be very versatile to adapt to changes in business models and financing structures, which are happening at a break-neck speed.

Asset management organizations will be forced to enhance their service levels to meet the needs of investors and shareholders. They will also be under increasing pressure to deliver these service levels within a lower budget.

The winners of Renewable Asset Management 2.0 will have consistent and coherent internal processes and procedures in place to eliminate the risk of staff error and staff turnover. They will find the right balance between data management policies, the use of advanced analytic tools and their asset management budgets. The winners will survive pricing pressures by enforcing efficiency and automation of business processes.  They will adopt state-of-the-art interconnected software solutions to automate recurring tasks, which will create operational advantage for their skilled financial, management, engineering and legal staff. Let the energy revolution begin……