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Introducing the Featured Speakers MODERATOR Michelle Froese Senior Editor Windpower Engineering & Development FEATURED SPEAKER 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
EDF Renewable Services 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 5
EDF RE -Key Figures Across North America MW 12,000 10,000 8,000 6,000 4,000 10,723 EDF EN North America Activity December 31, 2015 7,782 6,703 4,094 3,840 2,000 0 Operations & Maintenance Developed Put Into Service Installed Capacity Divested 6
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
Multiple Perspectives 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. 8
Multiple Perspectives (cont.) 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. 9
Multiple Perspectives (cont.) 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. 10
Physical Asset Management 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 11
Physical Asset Management (cont.) 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. 12
Physical Asset Management (cont.) 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 13
What Are We Trying To Accomplish? 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. 14
What Are We Trying To Accomplish? (cont.) 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. 15
What Are We Trying To Accomplish? (cont.) 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. 16
Holistic Asset Management FINANCIAL TECHNICAL CONTRACTUAL AND REGULATORY OBLIGATIONS 17
Financial Sponsor Debt Project Company Collects and Disperses Revenue Tax Equity Service Providers Landowners Other Obligations 18
Financial 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 19
Financial (cont.) 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. 20
Technical Expertise 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. 21
Technical Expertise (cont.) 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? 22
Technical Expertise (cont.) 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. 23
Technical Expertise (cont.) 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. 24
Relationships, Compliance, and Contract Management 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. 25
Relationships, Compliance, and Contract Management 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 10 th 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. 26
Sample Project Structure SPONSOR MSM Tax Equity Investors Post COD: [99]% Class A Members MM Sponsor Administrative Services Co Construction Lenders and LC Providers BL Lenders and LC Providers Subsidiary. [50]% M Asset Manager Direct Asset Management Relationships Below Red Line Post-COD: PPA LC costs and reimbursements are obligations of Project Co Acquisitions and Holdco parent MSM Administrative Services Agreement Management Agreement MSM MSM Acquisitions Co Construction Management Company. MSM Holdco MSM Acquired by Holdco from Developer Project Company Pre-COD: 100% - MSM Post COD: [1]% - Class B & MM Construction Services Agreement Legend MSM = Manager and Sole Member MM = Managing Member M = Member Project Company Transmission Co 27
Food for Thought 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 28
Bringing it all together Common Goals 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. 29
Questions? MODERATOR Michelle Froese Senior Editor Windpower Engineering & Development mfroese@wtwhmedia.com FEATURED SPEAKER Larry Freeman Business Development Manager EDF Renewable Services Larry.Freeman@edf-re.com @Windpower_Eng company/edf-renewable-energy
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