As a solar company grows, it often seems like a no-brainer to build out the business development and origination teams. With more team members working on deals, there is more opportunity for new business; the value of new revenue is well understood, and the return on investment is seen as a clear win-win. Asset management, on the other hand, has a tendency to be a cost center rather than a profit center. Given that companies spend resources on asset managementwithout related revenue, it begs the questions, what value does asset management add to a company? Over the course of a few blogs, we will explore this question.
The answer, though, is straightforward in one sense and as complicated as a tax equity structure in another. As companies keep investing in new solar projects and closing deals, the end results are increasingly large portfolios of projects that must be monitored. When a deal closes – whether in solar, other renewable energy, or the traditional energy space – the project continues as a living, breathing entity. In many cases, that means there are annual operating budgets to review, monthly and quarterly metrics to track, risks to monitor, and amendments or waivers to effectuate. Those tasks, and the associated portfolio risk analysis or any changes from closing, are not the responsibility of the origination team, but that of the asset management team.
In this sense, the revenue ascribed to origination teams depends, in large part, on a robust asset management team.
Why Data Management Matters
Given the responsibilities outlined above, the building block of any successful asset management team is, necessarily, rigorous data management. To this end, project and site level data is collected in several ways: covenant deliverables such as production reports and financial statements, on-site monitoring systems, and interaction with the project developers and operators. A list of some technical and financial metrics used on solar projects is below. Note: this is a small sample of the data collected for solar projects that we have closed.
Production Cash Flow Lease Service Were cash traps triggered? Distribution Amounts Solar Resource Revenue Internal Rate of Return Was a prepayment triggered? Payment of fees Inverter Availability Operating Expenses Return on Investment Milestone Dates Tax Rates Performance Ratio Operating Income/Deficits Debt Service Coverage Ratio Liquidated Damages Warranty Production Availability Debt Service Lease Service Coverage Ratio Contribution Amounts Tax Credits
In asset management, we rely on this quantitative data to monitor and analyze trends, deviations, or gaps—be they technical or financial. The primary data from the project is analyzed to determine how the project or portfolio is performing against the benchmarks agreed upon at closing and against the budgeted figures for that period. Therefore, it is imperative to have a high level of data integrity. Data validation processes, quality control and utilizing a data management system and/or a workflow management system contribute to clean and useful data as the project changes throughout its useful life. Asset management software should be able to store and report out on financial, technical and profile data of a project as well as compliance deliverables.
This quantitative analysis, though, can only tell one part of the story. The asset manager’s responsibility is to blend quantitative reporting with qualitative information to best understand the projects, determine patterns (good or bad), and identify any risks to which the project and investment are exposed.
Once this analysis is done, the asset manager’s role is to leverage the information and work to mitigate those risks to protect the investment. All of these functions described above are completed for each project within a portfolio multiple times a year. The Sol Systems asset management group works hard to see the success of our investors’ solar portfolios; your investment in the solar asset class is safe with us.
ABOUT SOL SYSTEMS
Sol Systems is a solar energy finance and investment firm. The company has facilitated financing for 262MW of solar projects on behalf of Fortune 100 corporations, insurance companies, utilities, banks, family offices, and individuals. Sol Systems provides secure, sustainable investment opportunities to investor clients, and sophisticated project financing solutions to developers. The company’s tailored financial services range from tax structured investments and project acquisition, to debt financing and SREC portfolio management. Inc. Magazine named Sol Systems on its annual Inc. 500 list of the nation’s fastest-growing private companies for a second consecutive year, ranking it No. 6 in the nation’s top solar companies in 2014. For more information, please visit www.solsystems.com.
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