On 24th January 2017, Solarplaza organized the webinar “Facing the Challenges of a Booming Solar Portfolio”. Chris Franz, Vice President of asset management at Cypress Creek, and Edmee Kelsey, CEO of 3megawatt joined the webinar as speakers and shared their expertise in dealing with the challenges of maintaining a growing solar asset portfolio. The entire video recording of the webinar and the speakers’ slides can be freely accessed here.
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Chris Franz, whose team manages a 1 GW solar portfolio, shared his insight into the three pillars of modern solar asset management: compliance, technical performance and financial performance;
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He also went in depth into the key challenges he faced doubling the size of Cypress Creek’s portfolio over the past two years;
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Edmée Kelsey, the CEO of solar asset management software 3megawatt, described the most common pitfalls for growing firms and the best practices needed to avoid them.
Chris Franz is the vice president of asset management at Cypress Creek, a utility-scale solar developer and operator with a portfolio of over 1 GW of active projects. He is quick to note Cypress Creek’s specific approach to asset management. The company has completely separated asset management from the operations & management (O&M) of the plants, going as far as to keep the two divisions in separate LLCs. This is done to reinforce the different responsibilities (or: focuses) of the divisions and to keep them focused.
Cypress Creek take a three-pronged approach to solar asset management: they focus on maintaining compliance, optimizing the asset’s technical performance and maximizing the asset’s financial performance.
Compliance
According to Chris, compliance lies at the bedrock of any successful solar project. Not just regulatory compliance, but also compliance with all significant stakeholders. This includes keeping in mind and working to achieve investor deliverables and contractual obligations.
“It’s been very important to me to have a robust asset management platform where you can track everything.”
Having a good platform is pivotal to successful asset management, according to Chris. He recalls dealing with small owner-operators who’ve opted to use Outlook calendars and Excel spreadsheets for their asset management. Such methods, of course, are not scalable, and aren’t acceptable for any serious size solar portfolio nowadays.
Chris explains that the reason tracking is so important is because compliance often involves multiple filings and inspections with tight deadlines. Contemporary solar development is a very time-sensitive endeavor, and the administrative work involved can quickly become overwhelming for an unprepared asset management team.
Technical Performance
One of the most talked about subject in asset management conferences is how to optimize technical performance. This boils down to tracking and benchmarking different metrics.Which metrics are the most important is still a hotly debated subject, and you’re likely to get a different answer from every asset manager you ask.
Chris shares a shrewd observation he has made from his years in the industry: there are no best metrics, since every audience deserves and cares for different aspects of the asset’s technical performance. The metrics Chris discusses with his O&M are obviously different from the ones he presents to investors and the executive management. Ultimately, the best approach is to adapt your metrics to the concerns and needs of your counterparty.
Financial Performance
The financial side of asset management shares many commonalities with the technical side; most notably, metrics evaluation lies at the heart of it. Statistical models play a much greater role in this aspect of asset management.
To maximize the financial performance of the assets, it is vital to frequently make comparisons with the results predicted by the statistical models; for convenience, Cypress Creek do this on a quarterly basis, which matches the quarterly scheduling of their invoicing.
Key Challenges
Firms managing portfolios as large as that of Cypress Creek are faced with prohibitive challenges, the most important of which is scalability. Small asset managers frequently choose to solve problems with short-term, easy to deploy solutions. These ‘band aid’ tactics are effective when starting out, but the temptation to rely on them must be suppressed early on if the firm is to expand properly.
The best way to set up your company to be easily scalable is to invest in setting up the software and platforms necessary for the expansion at an early stage. Paying for the licenses of enterprise-level software might be a steep cost for a small asset manager, but ultimately the time and headaches saved later on will more than pay off.
Chris also highlights the importance of a proper information handoff process, both for internally developed projects and for late stage acquisitions. Clear and frequent communication with the EPC contractor and their legal team is necessary, and you should go over every paragraph of the transfer agreement before shaking hands.
Abounding Threats
Edmée Kelsey is the CEO of 3megawatt, the fully integrated solar asset management software used by dozens of other industry-leading companies. Her experience dealing with asset managers of variously-sized portfolios lends credibility to her warning that asset management is a road full of dangerous twists and turns.
Edmée has seen on many occasions integrated developer & operator companies become overly focused on the development and technical side of their business, while neglecting human resources and process planning. It is essential to put the time and effort into assembling a skilled asset management team; although it is the silicon cells that produce the electricity, it is ultimately the people behind the company that determine its long term health.
Maintaining proper and organized documentation can go a long way according to Edmée. She has frequently dealt with clients who have acquired existing solar assets with minimal or scattered documentation. Amateur issues such as different date and number formats, mismatched cross-document linking and incorrect currency conversions are surprisingly common; thus, it is best to develop good documentation practices early on.
Edmée notes that in the current state of the asset management field, hardware costs are assumed to be decreasing. Consequently, asset managers are seeking different avenues along which to cut costs, and too often the soft costs that end up being cut are related to software licenses and human resources. Nothing can hurt a solar asset portfolio more than a dissatisfied analyst team with inadequate resources.
