Solar energy is the poster-child of the new, environmentally friendly, economically feasible world of the 21st century. Lightning-fast technological innovation in the private sector and complementary government tax credits have brought about the rapid ascent of the low-impact energy source, much... Read More
It’s been a few weeks since the announcement of the “historic” COP21 agreement, wherein a majority of the world settled on goals for mitigating and adapting to climate change. Since then, I’ve been asked by countless family members at holiday gatherings how my experience in Paris was and what I... Read More
October 27, 2015 | Why Asset Management Is Making a Big Entrance on the Solar Scene
As the number of solar photovoltaic (PV) systems in the U.S. grows, the number of PV systems outliving their warranty coverage grows as well. This is giving rise to a new industry of solar asset management (AM) companies tasked with managing commercial and industrial solar assets, as well as operations and maintenance (O&M).
In fact, the industry is new enough that it’s still trying to figure out how to differentiate between service offerings. AM and O&M are both separate specialized services. However, their definitions blend together as both strive to please investors and increase return on investment. One industry trend is to integrate the two services and offer a comprehensive solution.
Operations and Maintenance
O&M consists mostly of the technical activities required to ensure performance of solar PV systems in accordance with regulations and guidelines. This can include technical maintenance, vegetation control, security, etc.
Solar O&M services can be monitored live via data collected through a data acquisition system (DAS) fed into a cloud service. More sophisticated systems will include performance management data, company administration data, as well as investor and bank report data coming from asset management.
Asset management can be interpreted broadly and often includes O&M services as a subset. Asset management consists of financial, commercial, and administrative activities required for a solar PV system to operate smoothly and generate revenue.
Where O&M services are generally conducted in the field and at the location of the solar PV systems, AM services are usually carried out remotely in offices. This can include billing, collections, distributions to investors, incentive management, accounting, administrative tasks, communication with local authorities and regulators, as well as insurance paperwork and processing.
An integrated asset management approach is relatively new to the solar industry. However, considering the nature of AM and its relationship with O&M services, it only makes sense to integrate the two to offer a more holistic solution to solar PV management.
How It Works
Similar to general project finance, the solar industry’s asset management begins when the project documents are signed and extends through the life of the product. This includes initial construction, O&M services, and financial management.
Construction and O&M teams gather and share basic data metrics and risk information for asset managers to synthesize. Asset managers can then process the data to determine how it will impact the overall return on investment and what the proper response should be.
For example, if a construction project is delayed because of permitting issues, asset managers will assess the impact of the delay on the project’s milestone schedule, capital contribution schedule, and loan disbursement schedule, then quantify the total lost revenue. This same feedback system is in place during the O&M phase as well. If severe weather were to impact a solar PV project, asset managers assess the insurance implications of damaged equipment. Asset managers would then be able to determine the level of impact from the weather event and relay that information to investors.
Asset management also includes reporting of other technical and financial performance of the project to investors and other stakeholders. In addition to risk management, asset management provides information necessary for investors and stakeholders to make informed decisions about maintaining, selling, or buying assets and forms a feedback loop to improve the structure of transactions before they close.
The growth of solar PV companies can be largely attributed to the growing industry and aging equipment. However, this is still a relatively new industry, and there is plenty of evolving left to be done. As the solar industry continues to grow and mature, so will the role of asset management companies.