While attending the Solar Plaza Asset Management conference in Milan this year, we had the opportunity to hear a presentation on How to Optimise Investment Performance by Abid kazim, CEO at WiseEnergy and Investment Committee Board Member at NextEnergy Capital.
This presentation was tailored for solar asset management and outlines some important strategies to optimize your portfolio and maximize returns. Mr. Kazim shared 5 areas to optimise investment performance that can increase a project’s IRR by 3 to 4%.
Each of these 5 areas utilize three overarching themes denoted by:
- Alpha (α) -increasing revenue.
- Gamma (γ) -mitigating revenue loss.
- Theta (θ) -reducing costs.
Achieving the three overarching themes can be managed by segmenting focus of responsibility as follows:
At every level Mr Kazim emphasises an overall highly educated and involved workforce “by building a continuously learning organization.”
Here are the 5 areas elaborated further:
#1 Plant performance -increasing plant generation.
Estimated IRR impact: 1.0 – 2.0%
This could include “large ticket items such as re-wiring or change in panel orientation”.
It is hard to detail exactly what measures should be implemented -every project has different performance issues. What will help in this regard is detailed accurate data and chasing small under performances and downtime. This will provide insights on what might be tweaked or changed to capture more generation.
#2 Reduction of operation costs
Estimated IRR impact: 0.1 – 0.5%
A systemic and proactive approach to reducing costs across the investment is key.
Preventative monitoring to not hurt generation is crucial. Rather than having assets breakdown at inconvenient times, plan and perform preventative maintenance when generation is low. Having detailed and accurate data here as well will help in this regard.
Read our Arbox articles on preventative monitoring for additional insights:
Other costs that can typically be cut: O&M, security, insurance, Energy Supply, Accounting, and GSE costs. This also includes “[building] commercial upsides against existing generation baseline, such as systems stacks for grid services or avoided costs.”
#3 Finance structure & #4 Lease Extensions
Estimated IRR impact: 0.1 – 0.5% each
The intent of lease extensions is to match leases with technology lifecycle.
#3 and #4 are lumped together here because they typically come down to negotiation. When the opportunity to renegotiate a contract arises Mr Kazim advises leveraging growing scale of the portfolio and cutting out redundancies.
#5 Technology Expansion -upgrading the project with better technology.
Estimated IRR impact: 1.0 – 2.0%
With the intent of increasing plant generation as well, along with storage this includes “nano-coating or voltage optimisers”.
It is worth noting that although this method has a more significant estimated IRR impact than the rest, it also requires more capital from the fund to be used. Depending on how what you choose to add the estimated IRR impact might vary more. However, it is also telling that the presentation diagram highlighted storage -indicating that adding storage alone is probable to have that much of an impact.
Asset management software such as Arbox’s Hap can help with Plant Performance, Reduction of Operating Costs, Finance Structure, Lease Extensions, and to a certain extent Technology Expansion. Hap consolidates commercial, technical, and financial asset management into a single platform. This improves accessibility and transparency for getting insights into to act on each area with live data that can be analysed within the platform and automates the process to achieve it.
Contact us today to see how HAP® can help you manage your activities efficiently and boost your bottom line.