Operational Renewables Projects – Part 3
With the Feed-in Tariff now closed to new applicants (from 1 April 2019), and the Smart Export Guarantee still a twinkle in the government’s eye, now is an opportune moment to assess where the opportunities and challenges lie for operational renewable energy assets.
In the first and second articles in this series, Roadnight Taylor and Ashfords considered the actions that could be taken when retrofitting equipment in the pursuit of improved asset performance and financial return, and decreasing operating costs and maximising revenue.
Effective O&M and asset management is essential
Solar and wind projects were often conceived as “plug and play” investments. Compared to anaerobic digestion and biomass facilities, certainly solar projects are less onerous on a day-to-day level.
However, even with solar and wind projects there is a list of planned maintenance which needs to be carried out in order to maximise revenues and the lifespan of the assets, which can include:
- appropriate trimming of hedges
- regular cleaning of the PV panels, and
- checking the water-tightness of key structures
Often these activities are outsourced to an O&M contractor.
Additionally, there are ongoing legal obligations which need to be attended to, such as:
- completing annual filings at Companies House
- renewing insurance required by law, and
- complying with any on-going obligations contained in planning permissions
Asset managers are often retained to carry out these tasks.
“The best asset managers will be proactive and seek out technical and commercial efficiencies. However, some asset managers may simply “coast”, delivering little in terms of real value. It has been known for asset managers to fail to obtain the correct insurance, which needlessly increases operating costs and opens the project – and asset owner - to unnecessary and avoidable risk. We’ve also discovered liabilities not considered, particularly with medium-scale solar, in relation to potential and significant business rates risks. The best asset managers will mitigate the liabilities and seek innovations with the changing marketplace, such as unlocking additional grid capacity from ‘flexible’ connections.”
“When you outsource the management of O&M activities, it is still incumbent on the asset owner to manage the contractor; asset owners should manage their O&M and asset management contractors to do the job that they are paid to do. Where a contractor fails to do so, careful consideration should be given as to whether pursuing that remedy is worthwhile and, if not, what the alternative course of action should be. A careful balance needs to be achieved - the quality of evidence of the breach and the likelihood of recovery of damages need to be balanced against the value of the potential claim – so that ‘good money is not thrown after bad’.”
Assessing contractor performance
The issue is as much to identify that there is an issue with a contractor as it is to deal with the issue once it has been identified. Even where asset owners are given the performance data by their O&M contractor/asset manager (which they certainly should ask for if they are not) and they review that information (which they certainly should), this data can be lacking the context that would enable any meaningful evaluation. How can you distinguish between general decreased performance from aging of assets and acceptable variability in performance from poor contractor performance?
Jonathan outlines one solution:
“Independent benchmarking of performance data can be a very useful tool in helping to identify whether there is a general performance issue with the assets and whether this issue is caused by an underlying failure by the contractor.”
“From the outset, it is important to distinguish and define the role of the asset manager and the role of the O&M contractor to avoid combined roles. An independent assessment is crucial to avoid any parties “marking their own homework”. Setting out clearly-defined KPIs and explicit commercial parameters for under-performance ensures all parties are clearly focussed and aligned. When we carry out PV Health Checks, for example, we independently assess the electrical performance of the asset and we also consider our database of similar assets in similar geographical locations.”
Challenging contractors about their performance can be one of the least appealing activities an asset owner needs to undertake, but it is necessary if the full financial rewards of the venture are to be realised. Often, with the right advice and advisors, issues can be resolved without becoming adversarial, so that existing relationships are not damaged and continuity is maintained and disruption minimised.
About the contributors:
Jonathan Croley is an Associate at Ashfords LLP. Jonathan and his colleagues have advised on a number of negotiations and disputes relating to EPC, Operator and O&M performance in the context of renewable assets across solar, biomass and AD technologies relating to underperformance by contractors.
Richard Palmer is a Senior Consultant at Roadnight Taylor, a leading independent power and energy consultancy that provides strategic energy reviews and advises on optimal deployment of generation and storage technologies, as well as financial optimisation of existing assets.
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