The Changing Asset Management Landscape
"Today, solar asset management is the new buzz word in the industry. What has changed?"
Edmee Kelsey - CEO & founder, 3megawatt GmbH
When talking about solar asset management only three years ago, you either got a blank stare or a proud comment that everything was under control - the panels had just been washed. Today solar asset management is the new buzzword in the industry. What has changed?
There are many reasons why solar asset management is becoming very topical: first of all the global installed base of operational solar has grown significantly: there are simply more solar plants to manage. Secondly the complexity of managing the assets is increasing, as solar projects are becoming smaller and bundled in portfolios. Thirdly investors and banks have gained more experience and are demanding a more professional approach of asset management. And last but not least changes in feed-in-tariffs, bankruptcy of project contract parties, and the progression towards more market oriented electricity sales mechanisms are increasing the overall administrative burden.
“The upside for well-constructed plants is limited: the sun will not shine any harder. This is why owners are now increasingly focusing on limiting downside and reducing project company costs. ”
This is why owners and operators are looking for ways to make their solar asset management more efficient and effective. Their initial focus is often to increase the performance of the solar plants to increase revenue. This can be very effective for troubled solar installations. But the upside for well-constructed plants is limited: the sun will not shine any harder. This is why owners are now increasingly focusing on limiting downside and reducing project company costs.
For owners of portfolios of solar assets it is typically easier to reduce costs. If they outsource, they can use their scale to negotiate better terms. If they manage their solar asset management in-house, they can manage their internal resources more efficiently and thus save costs.
However as their portfolios grow, investors find it harder to keep visibility of all their solar assets. If they outsource solar asset management, they may need to consolidate reports from multiple vendors. The formatting and quality of these reports can differ greatly. A simple query “what is my exposure to manufacturer X” will only be able to be solved by a flurry of emails - not very efficient. If they do solar asset management in-house, they will need to put solid processes in place to deal with training, employee turnover and lifecycle management.
With portfolio growth, asset managers have the additional challenge of consolidating multiple monitoring systems. For independent solar asset management service providers it is generally not economical to invest in an “aggregating” monitoring system, because margins they are working with are too thin and the contracts are too short to amortize the set-up costs. In addition they may have to deal with some “exotic” monitoring systems that are in the owner’s portfolio, which cannot be aggregated easily. Initiatives in the market to standardize data acquisition will hopefully make this process easier in time.
“The asset management activities of the small developer will probably be squeezed out of the market sooner rather than later: not only will it be hard to stay cost competitive, but YieldCos and other publicly financed vehicles will also look for a strong balance sheet to provide guarantees.”
In the US, the developer often retains some ownership in the solar project. This is why it makes sense for them to perform solar asset management: it provides a nice recurring cash flow and they will also benefit from any upside in the project. But YieldCos like Terraform Power are quickly consolidating this market. The asset management activities of the small developer will probably be squeezed out of the market sooner rather than later: not only will it be hard to stay cost competitive, but YieldCos and other publicly financed vehicles will also look for a strong balance sheet to provide guarantees.
In Europe, investors have generally outsourced all solar asset management. This is because they are buying projects “turn-key” from an EPC. However large portfolio owners are now finding that it may be more cost effective to perform asset management in-house. And with the recent cut in feed-in-tariffs in various European markets, some investors have taken asset management in-house just to be in control.
Despite the consolidation and trend for “in-housing”, it seems common perception that the barriers to entry for independent solar asset management service providers are low. Many new players are entering the market every day. They compete on price and superior service. If the solar industry continues its explosive growth, there will be room for many of them in the short run. However in the long run only most efficient with global presence and large balance sheets will survive.
Written by Edmee Kelsey