The 2021 kWh Analytics Solar Risk Assessment revealed that solar projects are more than thirteen times more likely to chronically underperform their initial production forecasts over a multi-year period than expected. In this episode featuring kWh Analytics CEO Richard Matsui, Power Players by Origis® dives deep into this underperformance trend and explains how advancing a clear understanding of the true cost of solar O&M and Asset Management can lead to a stronger synchronization between financial models and the resulting solar assets. Don’t miss “Addressing Solar Asset Underperformance: True Cost of Solar O&M Series” for an expert look at an industry-wide challenge and the solutions we need now.
MEET THE PLAYERS
Why are we seeing such alarming data? And what can solar asset owners do to protect against chronic underperformance? kWh Analytics CEO, Richard Matsui and Origis Services’ Michael Eyman address this trend head-on and share critical solutions in the third episode of the Power Players by Origis podcast.
kWh Analytics founder and CEO Richard Matsui is a leading global expert on the solar industry. His company is the insurer for the Energy Transition. Using the most comprehensive performance dataset of renewable energy operating performance in the world, kWh Analytics provides transparency in a rapidly evolving industry and helps asset owners minimize risk and increase returns on their solar portfolios through insurance and data products.
After all the excel sheets are saved, contracts are signed, and hardware installed, Origis Services Managing Director Michael Eyman and his team take over. His skill in strategic and secure growth has helped Origis Energy, third party asset owners and their clients expand while maintaining best-in-class O&M and asset management.
A QUANTITATIVE VOICE ACROSS THE INDUSTRY
When it comes to solar asset underperformance, everyone in the industry seems to have a different opinion. And the industry just isn’t getting it right — as kWh Analytics Solar Risk Assessment notes, “there is a one in eight chance that these assets will be a chronic underachiever.”
Why is this? Is it analysts overestimating financial projections or manufacturers overestimating technology performance? As Eyman observed, it really comes down to the same issue: “When asset owners say sites are underperforming, they don’t mean from what it can do from a physical perspective. They mean from their model.” The problem is a lack of information across the whole asset lifecycle, something that Matsui’s company is trying to solve.
With data from 30% of renewable energy power plants in the United States, kWh Analytics brings transparency across industry. “If you’re looking to acquire a solar farm in a given area, that’s using a certain type of hardware in a certain type of location, then we have data from 20 other projects in the area that look quite similar,” says Matsui. With that data in hand, investors can be clear-eyed about what are conservative or aggressive projections. As Matsui mentions, it’s about “putting some facts to what’s otherwise a varied kind of conversation.”
“At least what we’re seeing is that there’s a fair amount of overestimation going on in this market, right? So that’s fully true, [but] you’ve already got the operating asset, so now what?” Our Power Players suggested two actions.
ANTICIPATING SOLAR PERFORMANCE VOLATILITY
First, owners need to build a better understanding of the assets they own, what risks can be expected from the hardware and architecture involved, and how they should invest in O&M appropriately. This is not easy. Take inverters, for example. The industry has seen inverter companies go belly up, leaving many assets without support. Even the major players, Eyman mentions, “[have] never gone bankrupt, but they have exited the market when they found out those products weren’t performing profitably for them as a company. [This] means that those assets, regardless of the financial viability of the company, [are] stranded and that you then have to figure out how to support them long-term.” Even in best-case scenarios, companies are rapidly developing new models. By the time there’s data to define a model’s performance, there’s a new version.
A best-in-class O&M provider such as Origis Services can be a great partner in assessing and planning for issues in the future, but even they are limited by the terms of the contracts written upstream. As Michael explains, “Owners look at us and say, ‘Well, what are you going to do?’ And my short answer is, ‘Well, I’m going to follow the contract and the warranty, because if I don’t, and I violate your warranty, and your warranty gets voided, then now I’m accountable, right. And I can’t do that.’” Again, great upfront information and actionable contracts are crucial.
INSURING IN A RAPIDLY EVOLVING INDUSTRY
The second action owners can take, after better understanding their own assets, is effectively insuring against risk. Again, there are challenges. “Are the insurance companies getting better information?” Eyman asks. “Are they properly handicapping or pricing the risk around specific architectures? I haven’t seen evidence of that to date.”
Matsui agreed: “The insurers that have been operating in the renewable space, historically speaking, are not experts in renewables. Should we be surprised, therefore, that when innovation comes down the pipe or something happens in our industry that they are the first to bolt? Because they didn’t really understand the space to begin with, they can be blindsided.”
But change is happening. The data needed to build well informed actuarial tables is available, and kWh Analytics is already building insights and financial tools to help asset owners mitigate risk through new products. Matsui’s hope is to create a feedback loop where investors can better understand the risks and potential downstream costs of different solutions through insurance premiums. As our Power Players emphasized throughout the discussion, the ultimate goal is empowering investors to make great upstream decisions before underperformance is discovered in operation.
It’s time to close the loop. The solar industry has invested in different hardware, software, architectures, locations, and partners. The resulting data is available and using this information in upcoming investments is the best way to defend against chronic underperformers. For asset owners interested in better investments, here are the Power Players’ three major takeaways:
- Use data to better evaluate investment opportunities.
- Create actionable contracts and warranties that protect assets during operation.
- Don’t let pressure to close deals result in an overestimation of performance and underestimation of risk.
Thank you to host Michael Eyman and guest expert Richard Matsui for their candid discussion of one of the solar industry’s biggest challenges in years to come.