One Resolution to Solar Profits

January 16, 2015

Reprint by permission:  Solar Power World

If you are a solar plant owner, developer or investor there is one New Year’s resolution you can make to achieve a profound impact on your long-term asset profitability.

You can increase reliability and profitability of your solar PV power plants by…

Resolving to engage the operations and maintenance (O&M) professionals in the design and contracting phase of your PV solar power plants.

This one discipline, to involve solar O&M experts in the designing, building or acquiring of solar projects, will provide a financial return in at least these three areas:

  1. Reduced construction costs and delays
  2. Reduced annual maintenance expenditures
  3. Increased kWh output

Source: Forces Compressing Solar Margins
Several market forces are contributing to the increase in size and geographic diversity of solar portfolios, the complexity of operating diverse solar assets and the downward pressure on margin from reduced PPA and other financial drivers.

This article provides some thoughts and insights into how including the O&M team or consultants into the beginning of the process will provide better financial results at the end of construction and over the life of the project.

1. Use O&M Professionals Early to Reduce Construction Costs and Delays

During the design and commercialization phase, utilizing the experience of the maintenance and asset management team will address areas where initial costs can be reduced and long-term annual savings can be designed into the project.

Poor or improper design is the cost that keeps on taking (profit margin squeeze) through:

  • Increased construction costs
  • Delays in going on line commercially to sell power
  • Initial equipment failures early in the project’s life
  • Higher periodic maintenance requirements and costs
  • Not designing for local environmental conditions

Solar independent power producers (IPPs) and investors can ensure long-term profit preservation by taking these early steps involving seasoned solar operations, maintenance and management experts.

Fulfillment Steps:

    1. Strategize team structure – As you construct your team, be strategic in your choices. In teams which I have led, members have included internal and external designers, the project development lead, O&M and a few builders/EPC companies.
    2. Task the team with goals up front – Goals should include a metric related to reduction of construction costs. For example, the team could target a reasonable reduction of construction costs by 10%. This can be achieved through value engineering the preliminary design. Similarly, metrics should address reducing annual O&M budgets by focusing on design, process and key components with the highest O&M costs. It is not unreasonable to expect a 20% reduction in annual O&M costs with upfront value engineering of operation and asset management factors.Wikipedia defines Value Engineering as the systematic method to improve the “value” of goods or products and services by using an examination of function. Value, as defined, is the ratio of function to cost. Value can therefore be increased by either improving the function or reducing the cost. It is a primary tenet of value engineering that basic functions be preserved and not be reduced as a consequence of pursuing value improvements.
    3. Systematically fish for best ideas – Individually and as a team, brainstorm reduction concepts. Start with a large pool of ideas and work through the most promising opportunities. Positive results will be gained by reviewing materials, methods and processes. Take the results and build them into the design drawings, material specifications, construction plans and contracts.
    4. Implement “best practice” standards in construction plan – With your best ideas now filtered into the construction management plan, work the plan. The plan will minimize delays in commercial operation and early equipment failures. Quality installation and commissioning is key to overall, long-term performance. Manage the site team to ensure work is completed per design and best practices. Commissioning and documented to a standard such as the IEC 62446, grid-connected photovoltaic systems, minimum requirements for system documentation, commissioning tests and inspection, is a must do activity.Plants which meet these requirements reach commercial operation quickly and efficiently with minimal site failures effecting the initial availability and performance.Typically the O&M team is skilled and proficient in providing this service or oversight of third party commissioning agent. Being independent from the EPC with long-term view and skin in the game, O&M oversight has the vested interest in making sure the plant comes on line, producing the proper energy output from the start.

2. Early Use of Solar O&M and Asset Management Expertise to Reduce Long-term Maintenance Expenditures

In addition to the reduction of initial construction costs, you can reap long-term margin contribution from reducing annual maintenance costs by taking early steps to address asset maintenance and management.

Early engagement by providers of services needed for the next 30 years can utilize their expertise and commitments for “right sizing” the O&M plan. Too many plant owners and financiers utilize a standard check list of services to be effected on the PV plant. These services are drilled down to monthly, quarterly, bi-annual and annual service. Historically, if operated in this mode, there is no opportunity to set a cost-effective O&M plan in place backed by performance guarantees of the O&M provider. Significant annual cost reductions can be achieved for power plants by setting performance-based goals for availability, performance ratios and kWh output, then putting the burden onto the O&M professional to set maintenance cycles based upon OEM equipment requirements, real-time monitoring and predicative maintenance algorithms.

Fulfillment Steps:

    1. Analyze your company needs – Use O&M expertise to analyze your site needs and the type of service that will work best with your organization. To best adopt solar O&M into your company, review your resourcing strategy during this phase. Skill sets needed in management of solar plants include asset management, electrical testing, monitoring, grounds maintenance, panel cleaning, networking and database administration. Next, develop a list of factors which define success for the company while developing the plant-level strategy for O&M. Some of the key factors to review include contractual obligations for the asset, internal commitments such as O&M budget, revenue projections and key performance indicators (KPIs).Third, for the company, review operating philosophies for solar, who and how maintenance will be performed, determine if O&M service provider(s) will be bid or negotiated and if a longer-term “partner” in operations will make sense for solar O&M.
    2. Analyze plant level requisites – During the plant level review each facility will be researched for permit, PPA, landowner and interconnection obligations, equipment and EPC warranties, contract requirements and external stakeholder reporting. For the equipment under operation, spare parts requirements, manufacturer recommended and required maintenance are identified. An easy way to document these items is with the use of a spreadsheet table with listing of equipment, quantity, OEM recommended maintenance cycle. This provides for the start of scoping the work requirements at each site.
    3. SourceUtilize Pareto chart cost comparison strategies – Develop a Pareto chart of the historical costs of O&M for the plant type and location under review. Develop a second Pareto chart for the construction budget/historical costs. Typically the largest cost buckets provide the opportunity for the biggest opportunities for savings.
    4. Set solar O&M reduction cost targets – Set realistic targets for the reductions—10% to 20% should be easily achievable. If reductions are too aggressive, it will be difficult to gain buy-in on from the team.

3. Increase kWh Output with Early Utilization of Solar O&M Expertise

Input during design and construction phases of solar O&M expertise can and should yield an increase in energy production long-term. One vital area to review is monitoring.

The monitoring and “big data” gathering of solar assets worldwide is undergoing a major transformation. Solar PV monitoring, the suite of hardware, software and services that allows stakeholders to track and assess the production and performance solar PV systems, is a burgeoning global market with 39.7 gigawatts installed in 2013, according to GTM Research and SoliChamba Consulting’s most recent report. Solar monitoring is a complex variable to be addressed early in the development phase.

Smarter Solar Monitoring = Solar ERP
Moving away from monitoring of small sets of data, the management of solar assets is increasingly complex, thus necessitating the evolution of how, why and for what purposes we are gathering information. The development of solar enterprise resource planning tools is emerging now.

Fulfillment Steps:

  1. Determine needs for solar maintenance and management reports – Determine reporting needs for your solar operations, maintenance and management results including what metrics are needed, the list of stakeholders and reports needed for each; and the timing of the reports. Use automated Solar ERP (enterprise resource planning) to initiate early alarms for loss of kWh from the design model.
  2. Get warranty reporting on “radar” early – Quickly engage suppliers and EPC firms on warranty issues to ensure all deadlines and requirements are built into the maintenance plan from the beginning. Solar ERP contains all pertinent contractual requirements and escalation paths to gain a resolution of problems causing a restriction in generation. Where warranties are not at issue, the O&M provider fulfills the repair task(s) to restore full service in minimal time.
  3. Ensure robust KPI reporting from the start – Document key performance and testing from commissioning and periodic maintenance in Solar ERP. This provides for early identification of trends and components not performing to expectations. Solar ERP should keep records of availability, performance ratios and string testing, visual and thermal inspections.

Early engagement and smarter use of operations and maintenance professionals leads to a winning formula for the PV solar fleet. If you’re not already doing it, resolve to include the only group who is aligned with the long-term needs of the owner, the operations and maintenance group.