Asset Management: Multiple Perspectives and Common Goals

#WindWebinar

#WindWebinar

q  This webinar will be available afterwards at www.windpowerengineering.com & email

q  Q&A at the end of the presentation q  Hashtag for this webinar: #WindWebinar

Before We Start

#WindWebinar

Introducing the Featured Speakers

MODERATOR FEATURED SPEAKER Michelle Froese Senior Editor Windpower Engineering & Development

Larry Freeman Business Development Manager EDF Renewable Services

ASSET MANAGEMENT: MULTIPLE PERSPECTIVES AND COMMON GOALS Larry Freeman Business Development Manager – Asset Management EDF Renewable Services February 23, 2016

#WindWebinar

EDF Renewable Services

5

Company Overview §  We’ve been servicing wind projects for more than 28 years

§  Our experience crosses all technologies and covers commissioning to end of life

§  EDF RS is an integral component of EDF Renewable Energy’s IPP business AND an ISP to third parties

§  We bring an ownership perspective to our customers’ projects

About Larry Freeman: §  Oversees Asset Management for our Wind and Solar O&M Business

§  Prior Regional Manager for Solar O&M Operations

  775 MWp of owned and third party solar assets across the United States and Canada

§  Brings 19 years of experience in renewable energy and O&M

#WindWebinar

EDF RE -Key Figures Across North America

6

10,723

7,782 6,703

4,094 3,840

0

2,000

4,000

6,000

8,000

10,000

12,000

Operations & Maintenance

Developed Put Into Service

Installed Capacity

Divested

EDF EN North America Activity December 31, 2015

MW

#WindWebinar

The Renewable Energy Landscape – Future Scenarios

Forecast through 2030

How this will change the Asset Management marketplace §  Strategies for scalability

Internal, 3rd party, or Hybrid

The right question is not where am I now, but where do I want to be?

Source: EIA 2015 Annual Energy Outlook

#WindWebinar

Multiple Perspectives

8

Historically, physical Asset Management was not seen as a specific professional activity, but as a loosely organized set of practices. Perceptions have changed. One notable example is the use of failure analysis to probe the relationship between preventative maintenance and failures in the aviation industry.

Asset Management is the art and science of making the right decisions to optimize the lifecycle performance and profitability of a project. Management of physical assets is key to long-term operational performance and profitability.

#WindWebinar 9

Asset Management is first and foremost a way of management thinking. It is as much a paradigm and conceptual framework as it is a definition.

Asset Management is fundamentally about “telling the story” to decision makers in the form of a business case which allows for sound investment in operations, maintenance, and capital spending.

Multiple Perspectives (cont.)

#WindWebinar 10

What is your goal? All MWh’s are created equal, but no two projects are the same. §  Do you have a long term or short term horizon?

Risk centered strategy versus a cost centered strategy §  Pay more for certainty but have exposure to potential market

exits and failures – Satcon/Clipper

§  Reduced cost = increased risk. This can be mitigated through effective Asset Management.

Multiple Perspectives (cont.)

#WindWebinar

Physical Asset Management

11

A fluid concept with as many definitions as practitioners

A system to minimize the total cost of operating, maintaining and renewing assets within resource constraints while balancing an acceptable level of risk to the organization

#WindWebinar 12

The more we understand about our assets - the demand on our assets, their condition and remaining useful life, their risk and consequence of failure, the feasible options to repair, refurbish, or replace, and the cost of those options - the higher the confidence that our investment decisions are indeed the lowest life cycle cost strategies for sustained performance at an acceptable level of risk.

Physical Asset Management (cont.)

#WindWebinar 13

Both a management paradigm and a body of management practices

Applied to an entire portfolio of assets at all levels of the organization, or to a specific asset

A requirement to continuously deliver the service levels stakeholders desire and regulators require

Physical Asset Management (cont.)

#WindWebinar

What Are We Trying To Accomplish?

14

Asset Management is the balancing of costs, opportunities and risks against the desired performance of assets, to achieve organizational objectives. This balancing must be considered over different timeframes.

#WindWebinar

What Are We Trying To Accomplish? (cont.)

15

Asset Management also enables an organization to examine the need for, and performance of, assets and asset systems at different levels. Additionally, it enables the application of analytical approaches towards managing an asset over the different stages of its life cycle, including any post disposal obligations.

#WindWebinar

What Are We Trying To Accomplish? (cont.)

16

Asset Management is the art and science of making the right decisions and optimizing the delivery of value. A common objective is to minimize the whole life cost of assets but there may be other critical factors such as risk or business continuity to be considered.

#WindWebinar

Holistic Asset Management

17

FINANCIAL

CONTRACTUAL AND

REGULATORY OBLIGATIONS

TECHNICAL

#WindWebinar

Financial

18

Project Company

Collects and Disperses Revenue

Sponsor

Tax Equity

Service Providers

Landowners Other

Obligations

Debt

#WindWebinar

Financial

19

The management of failure in the asset base is highly constrained by cost. We are not typically willing to pay for zero likelihood of failure.

Lowest lifecycle costs

Quantify missed opportunities – missed opportunities are a cost §  This may be obvious, but this is the first step in focusing what

can be controlled

#WindWebinar

Financial (cont.)

20

Key considerations §  Different components have different probabilities of failure, as

determined by age, materials and assembly processes, operating environment, usage and maintenance.

§  Failures vary substantially in their consequence to the organization in terms of the production. Single points of failure hold far greater consequences in the event of a failure.

§  To achieve the lowest life cycle cost, we must understand how our assets are likely to fail (the failure "mode") and which Asset Management processes and practices to deploy to appropriately manage those failure modes.

#WindWebinar

Technical Expertise

21

Don’t just look at the data. Know what it means for the project.

Manage the signal to noise ratio. Data may be the first crucial step, but transforming data into information is the real art of Asset Management.

#WindWebinar

Technical Expertise (cont.)

22

The more we understand about our assets, the higher our confidence that our investment decisions are indeed the lowest life cycle cost strategies for sustained performance at a level of risk your organization is willing to accept. §  What are the demands on our assets?

§  What is their condition and remaining useful life?

§  What are the risks and consequences of failure?

§  What are the feasible renewal options (repair, refurbish, replace) and the cost of these options?

#WindWebinar


23

Do you have the technical expertise available when needed? Very few organizations can afford to keep every possible specialist in house. Effective Asset Management entails knowing who to go to for help, when to seek that help, and having the contractual relationships in place to act quickly when needed.

Do you have the technical strength to effectively manage counterparties who’s interests are not aligned with yours? To be blunt, you need the ability to call and prove shenanigans when an OEM, service, or warranty provider tries to turn an unexpected event into a windfall for themselves.

#WindWebinar


24

Do you have the systems to manage technical documents? This is key in all cases. All of the technical documentation may be safely stored, but these files need constant attention. §  Something as simple as a relay configuration file that was not

amended correctly can cause substantial delays at exactly the wrong time.

§  This can turn an “event” into something far more consequential.

#WindWebinar

Relationships, Compliance, and Contract Management

25

There are two key considerations:

The list of hard deliverables referenced earlier as the “thou shalt” aspects of a project. These include regulatory filings, insurance certificates, financial statements, warranty documentation, tax preparation, lease payments, etc. §  This may seems like the “easy part,” until it isn’t. Unfortunately it

is common for a warranty or insurance claim to be denied because “the right thing wasn’t done in the right way at the right time.”

Maintaining good faith and positive relationships to prevent unforeseen events from spiraling into more serious affairs.

#WindWebinar

Relationships, Compliance, and Contract Management

26

Spend the time and effort to create a procedures manual. §  This concise document, distilled from all project agreements, lists all

deliverables and contacts.

§  Avoids diving back into 100 page documents to confirm that maintenance plans are due to the TO by Dec 1, or that lease payments are due by the 10th day of the quarter.

An asset manager with a spreadsheet may be satisfactory for individual projects, but is not a scalable solution across growing portfolios. There are many providers of compliance software that can supply a product tailored to the renewable energy marketplace at an affordable price. §  Efforts to resolve predictable issues after the fact are a cost. Plan

ahead for compliance.

#WindWebinar

Acquisitions and Holdco parent

Construction Management

Company.

Pre-COD: 100% - MSM Post COD: [1]% - Class B & MM

Tax Equity Investors

Post COD: [99]% Class A Members

Project Company

Acquisitions Co

Holdco

MSM

BL Lenders and LC Providers

Asset Manager

MSM MSM

SPONSOR

Subsidiary.

Post-COD: PPA LC costs and reimbursements are obligations of Project Co

MSM

Legend MSM = Manager and Sole Member MM = Managing Member M = Member

Management Agreement

[50]% M

MM

Project Company Transmission Co

MSM

Construction Lenders

and LC Providers

Sponsor Administrative

Services Co

MSM

Administrative Services Agreement

Construction Services

Agreement

Acquired by Holdco

from Developer

Direct Asset Management Relationships Below Red

Line

Sample Project Structure

27

#WindWebinar

Food for Thought

28

Imagine a simplified hypothetical project: §  150 MW, 25% capacity factor, $40/MWh PPA

§  A 1% increase in production (not inflation adjusted) equals a 20 year revenue increase of $2,628,000

There are many avenues to realizing this 1% §  Is it really a “no-brainer” to invest $500,000 now to see these

returns?   Not if your project horizon is only 5 years   Not if a one-time CapEx hit doesn’t fit with your larger goals

#WindWebinar

Bringing it all together – Common Goals

29

Assemble the right team, using the right technologies, to achieve the best possible outcome.

Each asset owner may have different long term objectives, but they share the common goal of an asset that produces the most value at the lowest cost.

De-risking projects. §  This can be done through wraps in preparation for yieldcos or

institutional and public investors

Different technologies require different Asset Management solutions, but the principles remain the same.

#WindWebinar

Questions?

MODERATOR FEATURED SPEAKER Michelle Froese Senior Editor Windpower Engineering & Development [email protected]

Larry Freeman Business Development Manager EDF Renewable Services [email protected]

company/edf-renewable-energy @Windpower_Eng

#WindWebinar

q  This webinar will be available at www.windpowerengineering.com & email

q  Tweet with hashtag #WindWebinar

q  Connect with Windpower Engineering & Development

q  Discuss this on EngineeringExchange.com

Don’t Forget!

#WindWebinar