10 February 2017


Asset Management Market Characterized by 'Coopetition'

Author: Solarplaza

Solarplaza - RadianGen seems to be a unique company in the US market and global industry as a whole, since you not only provide operations & maintenance (O&M) and asset management (AM) services, but have also developed your own AM software platform. How do you balance these different propositions in market offerings?

Chad Sachs - To be candid, the “different propositions” are highlighted more at asset management conferences than they are by our customers. Customers want two things – the best performing assets and the most cost efficient operations. To do this, we think it is a real strength to offer an integrated service and supply all the tools, team and services to help customers. Offering only parts of the solution often produces inferior results, higher costs, and more management headaches for customers. It can be challenging to make informed, accurate recommendations without fully understanding all the different angles that influence results in a project – the financial implications, the technical potential and the contractual levers available to produce results. As former developers and project owners, we experienced directly how challenging this integration can be.  

For example, we see groups offering software products that have limited experience operating or managing solar projects, so their understanding of the work is second-hand. Our Radian Lens™ platform is more intuitive because it was developed by and for asset managers.

“We would argue that the current fragmentation of solar’s service industry is more a sign of its relative immaturity than the optimal situation, and we will see more integration of services as time passes.”

On the O&M side, we see some providers that started as EPC companies, good at field work, but not well integrated into monitoring/data analytics or understanding how technical issues impact critical contractual obligations or financial results. Rolling trucks twice….or even at all… should be avoided if possible. A service provider that has a solid understanding of the operational analytics and contractual tools available has a much better likelihood of managing these situations more accurately and efficiently. Radian is focused on producing the best outcomes for our customers not in selling the most truck rolls.

Finally, if you look at more mature sectors like wind or traditional power, there are many examples of integrated service providers, suggesting that this will be the more efficient long term outcome for solar as well. We would argue that the current fragmentation of solar’s service industry is more a sign of its relative immaturity than the optimal situation, and we will see more integration of services as time passes.

Solarplaza - Traditionally the asset manager oversees the O&M. Are there cases in which you fulfill both roles for an owner?

Chad Sachs – Yes. Remember, the goal and outcome that we are aiming for is the best performing assets at the most efficient cost. We are most active in providing both AM and O&M services in the small utility (sub 5MW where the plant is selling wholesale power) and the distributed generation sector. Our customers are looking for a single point of accountability and good coordination between the service provider managing the invoices, the contracts and the physical maintenance. In the DG sector particularly, a good way to keep costs down is having one team evaluate performance issues and manage maintenance operations.  

“Aligning the service provider and owner to work toward the same objective transforms potential conflict into an advantage.”

There can be conflicts of interest, particularly if the participants are focused on a “break/fix” time and materials mentality with poor outcome alignment. However, there are ways to manage these conflicts by aligning parties through the contract. For example, creating incentives for the service provider that are focused on overall project profitability or having cost sharing if truck rolls exceed certain budget limits. Aligning the service provider and owner to work toward the same objective transforms this potential conflict into an advantage.

Nonetheless, we have seen situations where separating the asset manager and O&M provider can be valuable, such as when contentious issues arise around performance guarantees or EPC warranties.  

Solarplaza - Can (competing) asset managers use your software? Isn’t there a potential conflict of interest?

Chad Sachs – We are certainly open to other service providers using our software and they do. We currently have customers that are O&M providers and asset managers using LENS to execute their work. We respect our customers’ client relationships, and we haven’t run into any issues. In fact, these situations usually lead to mutual referrals, as we come across projects that fit one party better than the other.  

“The market is filled with all kinds of “coopetition” where groups need to collaborate in some areas and compete in others.”

The market is filled with all kinds of “coopetition” where groups need to collaborate in some areas and compete in others. O&M in particular is hard to be efficient unless you really specialize in certain geographies. We partner with many O&M providers that have developed strengths in geographies we don’t cover. Likewise, we have some customers that are asset managers who have sourced unique capital parties and need assistance on the operating front.  Lens™ helps them and their underlying capital sources stay better organized, prepare for monetizing their investment and run the project optimally. Finally, the market’s recent focus on back-up servicing has created tiers of coverage, so in some cases there is a need for multiple parties in a transaction.  

Solarplaza - RadianGen is one of very few service providers that handle both large-scale utility assets and residential rooftop portfolios. How are these two segments alike or different, in terms of processes and challenges?

Chad Sachs – Once again, it comes back to the core goal which is to run assets optimally at the most efficient cost. We realize that the utility scale and residential solar segments have distinct operational requirements, but when we broke down the workflows, we found many similarities as well. At some level, the processes around monitoring, identifying under-performance, initiating a work order, managing tickets/tasks, complying with contracts and financing documents, and reporting can leverage the same work flows. We are still tracking / optimizing technical performance, controlling costs, and helping owners achieve their objectives. We try to frame all of our assignments around these processes.

“The threshold of response is at a different scale for residential and large scale solar.”

However, there are significant divergences as well. The threshold of response is at a different scale. For residential, the focus is on the aggregate fleet level performance rather than the individual system level. There is higher tolerance for individual system underperformance provided fleet level metrics are met, and the cost benefit for truck rolls is very tight. For larger assets, a more robust system level response is warranted given the cost benefit of an outage.  Also, the complexity of operating in a utility power market is much more onerous in terms of market responsiveness and requirements, like NERC. Large plants tend to have manned sites, so there is a completely different framework around response.

Solarplaza - Following the monitoring solutions landscape, we see the ‘off-the-shelf’ asset management software landscape becoming increasingly active and crowded. If you would be entering the asset management field today, would you still make the same decisions, i.e. to develop a software platform yourself?

Chad Sachs - We agree that off the shelf products have come a long way since we started developing Lens in 2014, which is encouraging. The products are doing a better job of integrating challenges faced as the production level, the contract level and the financial level.  There is still material improvement to be done, particularly in coordinating with the CMMS systems of O&M providers and the improving capabilities of the monitoring solution providers.  We are excited about the progress that DAS providers are making and think that close coordination with them to enable smarter management by customers will be essential. A new asset manager has many more quality options today than several years ago, which is a credit to the industry.

“Technology is critical to obtaining operational insights and realizing cost efficiency.”

That said, the question goes back to why we created LENS™ in the first place. Our vision is to create an integrated asset management platform. Technology is critical to obtaining operational insights and realizing cost efficiency, both for our team and other owners. We wanted control over the road map for this tool, so it would reflect this vision and our best practices as active asset managers. Strategically, the feedback between software and our company mission is closely tied, so keeping this in-house made the most sense. When we looked at other software options, we felt they weren’t framing these issues the same way.  

Solarplaza - As one of the market leaders in your field: what are 2-3 key trends you (fore)see in the US solar market, related to the services you provide? How will this impact you, your targets and the role RadianGen plays in the market?

Chad Sachs - The first trend is clearly the rapid growth in the “community solar” market. We believe that this is a natural progression for the market to try and optimize where plants should be built vs where plants are most needed by customers. However, the management services attached to these projects, particularly around invoicing and billing, will be complex and require more automation. We have had success in providing these services in Massachusetts and we see it as a large area of growth.

“Management services attached to community solar projects will be complex and require more automation, but we see it as a large area of growth.”

The second trend is clearly the aging of the fleet. Third party reports continue to emphasize that over 90% of the fleet in the U.S. was built in the last 5 years but it is getting older which will bring demands for more efficient maintenance services, post-warranty strategies, better performance analytics and contractual solutions for underperforming assets. These assets are also being traded into more traditional financial structures where cashflow becomes the dominant benefit stream (as opposed to tax benefits) further focusing the lens on performance.

The third trend we see is the outsourcing of residential fleet management. Fleet management has historically been an insourced activity, however as production analytics around residential fleets improve and dispatching strategies become more advanced and efficient, market participants are rethinking their strategies and outsourcing more to improve performance and bring down internal costs.

RadianGen is one of the sponsors and exhibitors at the fourth edition of the Solar Asset Management North America conference, the leading conference dedicated to the operational phase of solar plants and portfolios which is taking place on 28 and 29 March in San Francisco. Learn from 50+ speakers and network with 500+ attendees representing the leading stakeholders active in the North American solar market.

Stay on top of the global solar market by joining one of our upcoming events.