Renewable Energy Investments – Why Asset Management Optimization Matters

Industry Insights

What is Asset Management Optimisation (AMO)?

Asset management is the continual supervision of the financial, commercial and administrative tasks necessary to achieve financial out-performance of a portfolio of renewable energy plants. Meanwhile, operational management is the supervision of the technical tasks associated with asset operation, and in particular the monitoring, analysis and reporting of risks and performance, to drive continuous improvement and to anticipate problems. Together, sound asset and operational management will comprise a planned programme of asset management optimisation (AMO). We summarise below the main headline tasks associated with these financial, commercial and technical activities. These tasks serve as indicators for assessment and benchmarking of performance, to optimise asset operation and financial performance.

Why does AMO matter?

AMO is more important than ever in today’s renewable energy market, characterized as it is by yield compression as a result of competitive tendering of power purchase agreements and growing appetite among institutional investors. The importance of AMO is heightened further by the sharp reduction in equipment prices, such as wind turbines and especially solar modules. These reductions have made non-equipment costs the biggest cost component in renewable energy projects, with the cost of financing the biggest item of all. Furthermore, the advent of PPAs signals a higher demand for ongoing professional management services. Figure 1 shows the contribution of modules towards the total installed cost of roof-top solar installations in Germany, one of the world’s most mature markets. The share of modules has fallen, reflecting Moores law-like price reductions over the past decade. That has left a growing share for the remaining costs, and in particular the cost of capital, as well as the costs of remaining hardware and labour.

Today, the single-biggest cost of a renewable energy project is actually an invisible one: the cost of capital. Put simply, the riskier the investment, the higher the compensation fee demanded by an investor for making capital available. The cost of this compensation – commonly labelled as the cost of capital – must be paid from the revenues of the projects. Thus, the cost of capital has a direct influence on the project’s return on investment (ROI). Riskier investments command a higher cost of capital, and any unexpected rise in cost of capital will impact bottom line profitability and ROI.

Asset management and operations management are about paying detailed attention to the fine detail of running renewable energy power plants in the most efficient way possible. By reducing the risk of things going wrong, such careful management can cut risk and increase returns.

Asset management refers to the “white collar” tasks of running a power plant, including financial, commercial and administrative activities. Operational management refers to the “blue collar”, more technical tasks, such as performance monitoring and analysis, service reporting, managing of warranties and maintenance scheduling. Taken together, sound asset and operational management will assure a focused, continuing, centralized attention on performance, thus limiting downside risk, and where possible achieving additional upside.

Through coordinated activities, asset managers at Aquila Capital drive value in a number of ways. First, we are involved in a project from day one. In this way, we ensure timely and continuing attention to asset operations across the project lifetime, from the stage of equipment selection, through constant performance monitoring, to refinancing and repowering. Second, we are the lynchpin, working with all project participants, from the asset owners and debt providers to technical and commercial partners, thus sharing knowledge and competences to optimize performance, and drawing on all available skills when solving unexpected problems. Third, asset managers can draw upon economies of scale across their wider portfolios, for a greater breadth and depth of project management experience. These portfolios may benefit from a range of different renewable energy technologies, legal structures, support regimes and geographies, and can therefore be a source for value-adding ideas from all levels within the asset management organization. Aquila Capital is among the leading service providers that have experience in both wind and solar assets on different continents with an installed capacity of over 1.700 MW. We conduct all aspects of renewable energy project optimization, drawing upon expertise from a portfolio across the renewables sector and multiple geographies.


Credits: SolarPower Europe, O&M Best Practices Guidelines Version 2.0






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