Mini series: ‘Today, it’s not just the energy that you produce’

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From August pv magazine

pv magazine: In April you announced that 3megawatt had hit the 30 GW milestone for renewable energy assets managed on the BluePoint platform. What can you tell me about how those assets break down in terms of generation type?

Edmee Kelsey: We’re very happy we reached the 30 GW mark. We are actually at 32 GW already, but it is about half and half [solar and wind]. We started with solar and then we added wind a few years ago, but with wind to collect gigawatts is much faster than with solar. There are one or two gigawatts that are biomass, small hydro – mainly run-of-the-river hydro – and storage.

How different is it as a software provider to offer services to those different generation assets?

I thought they would be very different but to be honest I think wind and solar are closer to each other than, for example, utility-scale PV is to residential solar.

Why is that?

I think the commonalities are that wind and utility or C&I solar involves project finance. And the owners are professional owners, so they will both look at these resources as an infrastructure asset. This means that there is a revenue-generating asset that has a relatively long lifecycle, something like 25 to 30 years, and what you need to do is manage it as such – generate the cash flow to pay off the debt and to pay dividends to make sure the shareholders are happy.

How would you say the approach to managing solar PV assets has changed over the years, as you have progressed toward the 32 GW milestone today?

I think it has changed a lot. When we started seven years ago, I was talking about asset management and people said ‘you mean panel cleaning, right?’ Then for the longest time people thought it was the same as O&M. Now people realize that when you buy an asset you are not just buying a physical asset, but also the contracts that go with it.

The contracts that are really important are the land lease – if you are in default on your land lease agreement, then that could have negative consequences. Your offtake agreement, maybe multiple different offtake agreements for the same project; your interconnection agreement; your loan agreement and O&M agreement. To manage these contracts closely and to make sure you’re not in breach will equally determine the value of your asset. So today it’s not just the energy that you produce.

That is something that has really changed. Unfortunately, some people had to learn this the hard way. And particularly now, with more professional players entering the market, we see that they have experience doing asset management for other types of assets, not just generation assets, but for transmission assets or general infrastructure assets. Before people were talking about $100 million asset portfolios, whereas now people talk about portfolios that are multibillion dollar investments. That requires a different approach to asset management.

You also mentioned the increased complexity on the PPA or offtake agreement side. It seems that is a positive for the industry, as it represents the evolution toward subsidy-free solar. But it also introduces a whole new level of complexity when it comes to managing the asset and contracts – is that right?

There is a lot of evolution in Europe and many other countries in the world, where people have been used to a FIT and sometimes they say that it’s up to the governments to still provide those kinds of subsidies. But to be honest, FITs were a good way to get the market kickstarted, by providing a relatively stable environment where the bankability of the project could be enhanced, as the offtaker risk was mainly country risk, and therefore better understood by banks and investors. Now we have to grow up and compete with traditional fossil fuel generating assets. The question then is, ‘who is going to take production risk and who is going to take price risk?’ In a FIT scenario, you don’t have to take either risk, because regardless of how much you produce, you still get the same price. There are no penalties for underproduction. And that is changing.

Looking back seven years, what has surprised you about the direction the market has taken?

I thought that the commercial and industrial market would be bigger, and that there would be more rooftop than there is actually is. I am actually disappointed about how little rooftop there is. I have also been surprised that projects have become very big – like 300 MW or 500 MW. That is what people are building in certain countries.

Seven years ago when someone had a 100 MW portfolio, it was thought to be very large. Now, 1 GW is the new 100 MW. It has shifted to much larger portfolios, not just in terms of the individual asset, but the total portfolio size. I also thought the market would be more fragmented. There are a lot of new players, but a lot of consolidation has taken place.

In saying that, I would have thought that the market would be a little bit more sophisticated still. There is this feeling out there that the barriers to entry to be a developer are relatively low. Maybe that is still true for the early stages, but if you really want to be a professional developer today and to attract the capital to take your project through the different development phases, I don’t think the barriers to entry are that low anymore.

So solar development is not the wild west anymore?

No, but it’s still wilder than I thought it would be after so many years.