In Part One of this series, we talked about the “Don’t’s” of O&M oversight, and in this article, Katherine Janik, Founding Principal at Garnet 3 Consulting, and I talk about what you can do to not just build a better functioning relationship with your solar O&M provider, but a better business overall. And all while minimizing risk and maximizing the return on your O&M relationship.
How Do You Build the Right Benchmarks for O&M Performance?
Janik recommends you consider response times first. Janik has reviewed many O&M agreements that don’t include this, and it’s a major oversight. How can you tell that your provider is performing well if there are no stipulated response times to benchmark against? Response times in O&M contracts are broken out by level of urgency or materiality, so you need to be sure that your provider is responding in accordance with that. Also of particular importance is the appropriateness of your O&M provider’s response to a given situation.
Beyond that, Janik says that the level of detail in the O&M report is particularly important. Statements along the lines of “Performance is X,Y,Z” aren’t that helpful. They’re out of context. There should be a story told around the data included in the report. Is there a lot of snow on the ground now? Are there forest fires creating heavy smoke? All of this context is important, and needs to roll up the chain of command.
Is your O&M provider following the process as it was outlined in the O&M agreement or in your expectations phone call, Janik asks? A good provider doesn’t need to be reminded, she says.
Don’t assume that KPIs provided are calculated the way you want
Janik says that what KPIs matter, and how they’re calculated, varies massively by owner or investor, and by how they’re using those metrics. There’s a limit to how much standardization of operations and maintenance KPIs is even possible for that reason.
It also depends on what the O&M provider is managing towards. If they’ve got a performance guarantee in place, they’re really managing the downside, not the upside. How is a performance guarantee even evaluated, Janik asks. Do you use production? Is it radiance adjusted? Is it inverter level? Is it string level? Is it plant level? There are so many different ways to calculate these things. This is the same terminology and measurement problem the industry’s grappled with since inception. Standardization is being driven from the large-scale investor level down through things like the Orange Button Initiative, but it’s slow going.
Why You Should Have a Master Plan, Or A Master Provider
There aren’t many solar operations and maintenance providers that cover multiple regions, let alone multiple countries, and Janik says that this can create inefficiencies and process and reporting problems, but never fear, there are a few simply strategies to help mitigate this.
First and foremost, asset owners should have a master O&M plan that feeds down to each O&M provider in cases where there are multiples. Each site has its own plan or manual, but these should fall in line with your master plan. In the EU, multinational O&M providers have begun to come into play. They’ve built their businesses on providing owners with a more standardized approach to O&M across regions, meaning that asset managers can work with a known party across the board, which then outsources the “boots on the ground”. Janik says that this helps reduce the time spent looking for a good provider on a case by case basis. Reducing the number of providers you’re working with helps streamline things, and it keeps them consistent. With multiple providers, it becomes increasingly difficult to oversee the quality of the work to the extent that might be necessary.
The Future of O&M Oversight, and Industry Standards.
“My first dream for renewable is to have one software platform that does everything from start to finish. My second is to have people start talking about proactive, risk-based asset management. A lot of focus is on structuring new deals, and often asset management is an afterthought,” says Janik.
Let’s clarify what we’re talking about when we say “risk-based asset management”. I’ve got 10 years’ experience in renewable energy myself, and I’ve seen owners and operators push risk out in all directions through contracts. What does going beyond this into risk-based asset management mean?
According to Janik, you set the precedent for risk-based asset management as you’re structuring the deal, first by creating and evaluating categories of risk, and developing strategies to mitigate them in the structure of the deal. Janik says most owners already do this to some extent. What they typically don’t do is monitor those risks throughout the life of the project. The risks the origination team identify often aren’t monitored afterwards.
Janik recommends that everyone on the team know and understand the risks the origination team identified, be they operational risk, construction risk, counterparty risk, or any other kind of relevant exposure. They should also be reviewed proactively, regularly and be reported against.
In essence, good O&M providers abound, but how you manage them, their expectations, communication, contracts, etc. is as important as the work they do on the ground.
How are you managing your O&M providers? Have you thought of implementing tools like PowerHub to coordinate and oversee their work?