Solar Asset Management - To outsource or not?
You have just acquired a portfolio of solar assets. You are wondering if you should outsource this to an independent solar asset management firm or manage the solar assets in-house. With solar asset management we refer to the full scope of commercial and technical asset management, including the supervision of the O&M service provider. What are the considerations you should keep in mind?
During the Solar Media conference in Munich last week, Nick Boyle, CEO of Lightsource Renewable Energy, quoted 3 reasons for managing everything in-house: 1. Keeping control, 2. Not giving away margin and most importantly 3. gaining more commitment and ownership of any problems.
Does this mean that in-house is the better option? It depends.
First of all - scale matters. If you have just a few solar assets and you are not planning to grow your portfolio, you may not have the necessary economies of scale to set up a cost effective in-house operation. In this case, outsourcing may be the better solution, unless you can lever your existing administrative and financial team. But if you are planning to grow your portfolio significantly, you may want to start building in-house operational knowledge sooner rather than later: your solar asset management team may be able to provide an important “feedback loop” for future investments.
Secondly – complexity is an important factor. Not all solar markets are the same. If your solar assets are located in a market with low solar asset management complexity (for example German Feed-in-Tariff projects), asset management will be easier and much less work compared to other markets. However if your solar assets are in one or more countries or in markets with higher complexity, such as the UK or US, you will have to prepare for a lot more work. You will need to bear this in mind when you are doing your break-even calculations.
A third consideration is uniformity of your portfolio. If all your assets are very similar, with very similar project agreements, asset management will be relatively straightforward and you may consider doing it in-house. However, if your assets are a patchwork of different equipment types, EPCs, O&Ms, PPA hosts, incentive structures, bank loans etc., you may be better off leaving the asset management to an experienced independent asset manager until you reach the necessary scale to take it in-house.
But at the end of the day it will also come down to your investment goals. Are you a more active or passive investor? As a passive investor, you may feel more comfortable outsourcing the asset management to a third party, even if this could potentially mean lower returns. Please bear in mind that if you are managing other people’s money, you still have the fiduciary duty to ensure the asset management operations are done properly: you will need to have internal control mechanisms in place to ensure that your asset management service providers meet their service levels.
Regardless if you decide to outsource or keep solar asset management in-house, we are here to help: If you decide to outsource, 3megawatt’s BluePoint software solution can assist you tracking the performance of your solar asset management service providers. If you decide to do asset management in-house, 3megawatt can help you to set up an efficient in-house asset management organization by providing software, methodology and support.
Would you like to discuss what strategy is right for your organization? Please don’t hesitate to contact us, we look forward to talking to you.