Having worked with several leading investment managers specialising in clean energy infrastructure, Sennen CEO Gaby Amiel shares his thoughts on how the industry has been grappling with performance metrics and how data can be used to drive improvements.
The business of renewable energy investment has matured a great deal in the last 4 years and managers are becoming more sophisticated, bringing a much needed rigour to performance measurement and reporting.
In the bad old days, data would be left in separate different excel or pdf (gasp!) reports. Most operators now have a centralised system to manage their KPIs. But there are conflicting views on what data needs to be tracked and how to use these to drive improvements.
Broadly, there are four key groups of periodic data to think about: technical, financial, HSE and Environmental and Social Governance (ESG). The latter is a hot investment theme at the moment and can make or break fundraising be it institutional or retail. These groups are interrelated so, for ease and consistency, are ideally generated and stored in one place.
One thing to consider: when we talk about KPIs, we are looking at general monthly data, not higher frequency raw data, such as SCADA. The raw data is a crucial source to calculate KPIs but it is not of itself a KPI. Why? That’s a whole other article. (I’ll link to it here when I’ve written it, or you can sign-up to our newsletter here to receive it in your inbox).
If we drill down further into each of the four groups, we start to get a picture of how measurement, when done thoroughly, is central to success:
Measuring production is clearly number one. It’s the key driver of performance (the other being power prices which, sadly, we cannot control).
However, with a variable resource (wind/solar/hydro), production is not enough. Introducing other metrics is helpful to help distinguish resource variability from plant or contractor performance. In our experience, a thorough approach records the raw availability/ Performance Ratio (PR) in addition to the figures excluding grid outages and carve outs from O&M performance warranty. Do not (!) rely entirely on calculations done by an O&M contractor.
For wind and solar sites, it’s really important to track a benchmark of the wind or irradiation. Ideally this would be on-site measurements but the difficulty and cost of getting consistent and reliable on-site data means that satellite irradiation and modelled wind speed data are often used as a back-up.
Anaerobic Digestion is a different matter; ‘feedstock conversion’ (MWh per ton of feed) tells you about the quality of the fuel and the conversion efficiency.
Finally, a word on operational measures of performance. These can give a useful measure of contractor performance and can be great for motivating people but are strangely used much less frequently. For example; mean time to failure (MTTF) or repair (MTTR) can give great insight on a large portfolio. It doesn’t need to be this complicated; one of our clients uses ‘turbines down over-night’ to motivate their technicians to hustle.
Environmental, Social, and Corporate Governance
ESG status is of critical importance in attracting funds into clean infrastructure. Almost $45tn are invested in companies with ESG principles and the performance of this sector has been resilient in the face of COVID-19. What KPIs do operators opt to track in this category? The most basic are:
– Carbon offset (in tonnes or equivalent in terms of household energy use). This must account for the fuel supply mix of the territory where each project is located.
– Financial support given to community projects
However, I would like to see more imagination used to find measures of the beneficial impact, for example; how many ‘green’ jobs are sustained by the portfolio? This kind of data is viewed as very valuable in setting sustainable investments apart from the crowd.
Revenue is the most critical KPI. Often this is broken down into different streams such as power sales and subsidy. For technologies where the OPEX costs are variable, such as batteries or biomass/biogas, the more insightful metric is EBITDA.
Operators often need to track certain metrics to ensure they satisfy lenders and equity investors. Most commonly, this means tracking distributions at project and fund level or calculating a debt service coverage ratio.
Finally, a listed fund would often calculate and report the Net Asset Value (NAV) on a regular basis. It’s also useful to be able to monitor the number of value enhancement initiatives completed and how these have impacted NAV.
Financial investors too often shy away from this category, taking the view that this can be ‘delegated’ to project level or handled by third party asset managers. However, my personal feeling is that this approach is at odds with trends in the sector – as the operators become more like independent power producers, this approach will shift.
HSE legislation often requires that safety incidents are recorded, so the starting point for KPIs tracking is to record all incidents and near misses including instances where they must be reported to governing authorities.
Some operators are taking a more sophisticated approach by tracking KPIs that will help to shape better working practices. These break down into two categories:
– Lagging indicators. These are reactive in nature and measure the effectiveness of a safety program such as lost time injury frequency (LTIF) and days away from work (DAFW).
– Leading indicators. These are proactive in nature and include, for example, safety audits completed, changes made to working practices, tool-box talks completed.
It seems to me that lagging indicators are standard for HSE reporting but you can go the extra mile and reap benefits by working on leading indicators.
Finding the right measure
As the market develops and investors look to renewables as a resilient sector in a post-Covid world, operators need to refine their monitoring and measurement strategies. For some, this will mean sophisticated digital architecture with multiple layers. For others, a simpler approach may be taken. Understanding what exactly is needed is half the battle, but companies that get it right don’t look back.
Finally a word about how to handle the data. Take care to consider the right way to aggregate and weight KPIs as many metrics work differently. Getting it wrong can be embarrassing, I know!
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Sennen provides powerful, intuitive, and effective data systems that facilitate the deployment and operation of new infrastructure in the clean energy sector. Get in touch to request an information pack or to book a quick, personal demo.