In this post, we explore what separates asset performance management from AM (and O&M), the road ahead for asset performance management, and how Bay4 Energy is leading the way in delivering higher ROI through intelligent performance management.
Below is a recent conversation between Dennis W. Odden, President of Bay4 Energy Services and Jim Porco, Bay4 Energy Marketing Director covering valuable insights into the intricacies of asset performance management.
There has been a number of discussions recently about the growing importance of performance management and system optimization. You only need to look at the number of companies focusing more attention on system optimization software to realize APM has started to anchor deeply in our industry. Does Bay4 Energy have an official definition of APM?
Jim: Asset Performance Management is not only about contracts, billing and scheduling, but also the systems themselves, seeking to optimize performance through continuous system monitoring to ensure production is maximizing for facility owners. It is not only ensuring the legal, fiscal and tax elements of a system are monitored and optimized, but also the production and performance of the system is optimized for owners and investors.
Dennis: Yes this is close, but I would go deeper. Let me suggest that Asset Performance Management (APM) encompasses the proficiencies of data capture, visualization and analytics that are integrated to improve the reliability and optimization of physical assets.
Simply put, APM’s fundamental goal is to utilize data capture and integration of system data information to enhance the reliability and optimization of renewable facilities. In fact, it is this data component and the visualization of information that has seen some of the strongest attention recently in the renewables industry.
What is critical about “P” in APM…How is this different from AM? Or O&M Monitoring?
Dennis: When you talk about “Performance,” you have to throw the dollars and cents into it. You are not just making sure a facility is up and running, you have to tie it to financing (the dollar’s side) and the investment return. We certainly could make sure every system is up and running to its maximum level, but doing that would likely have a substantial impact on operating costs. If you roll trucks every time the system is running “less than optimal,” this is hardly a ROI model that would gain traction with owners or investors.
Jim: Yes, I agree you have to establish the balance between production and cost monitoring. You have to approach performance with the economics of the facility in mind.
Dennis: Performance means that you are not just trying to focus on the absolute top kilowatts for the facility, but also approaching it smartly for the owner – balancing the costs against the performance of the system. “Optimize the performance by maximizing the return.”
The key difference here is that O&M companies might look at this and think Asset Management is optimal performance in terms of kilowatt hours. APM has to include dollars as well as kilowatts. The bottom line is that APM is focused on maximizing efficiencies at all levels: you are capturing production and operation data and doing power analytics, you are measuring the maintenance and required services against the costs, all the time focused on maximizing the return on that system performance.
Jim: So, the key aspect of the “P” is understanding where the additional O&M costs will not enhance the facility’s profitability further and in fact, reduces rather than optimizes ROI.
How has Bay4’s history, experience, and origins in technology leasing helped you in clean energy APM?
Dennis: When we were on the leasing side, we were asset managers, we had millions and millions and millions of assets over the decades that we managed. We had to become experts in looking for the returns on the assets we owned. Solar facilities are a different kind of asset, but the core focus is similar, to be able to manage the return smartly for the owners. We look down to the individual asset level and understand how to maximize the returns for these assets that we are operating for ourselves and others.
Jim: What has been a key factor that has contributed to Bay4’s success from its over 30 years of asset management experience?
Dennis: Over the years it has come down to making sure you know where these assets are going, making sure the warrantees are in place and kept up, making sure your thinking down the road what do you do with the assets. If the assets are not going to stay in place or hit the end of their lifecycle, how can you retain value and not just thrown them away? If you’re taking a facility off-line, how can you improve and upgrade performance with newer technology.
At one facility, for example, we had a number of inverters go out. We looked at having them repaired but these units were not even at their 10-year use. We made the decision to replace the inverters with ones that were more reliable and had a longer useful life. It made more cost-effective sense to replace the bad inverters with ones that were more reliable and had a longer life, and to not repair the existing less reliable inverters. It is a balance – what is the optimal thing you can do to improve performance, realizing that it may not be more efficient, but it makes the system more reliable. Uptime is everything.
You have to track and know every single aspect of these assets, and you need to have an organization who knows all facets of the facility, and knows how to look at them and fine tune them based on ROI.
Three years from now, where is APM going to fall?
Jim: APM is not just focused on lowest operating costs or construction costs, but optimizing efficiencies throughout the expected lifecycle of the system. And, in an era of declining margins and increasing competition, APM may become the magic bullet as a way to optimize return on investments and profitability. Like you mentioned, uptime is everything and can even trump efficiencies when you are talking about diminishing returns on efficiency-investment dollars.
Dennis: APM is just now starting to come on strong and starting to gain real traction. Prior to 2016, it was lowest cost, lowest cost, lowest cost. If you want a “magic bullet” in terms of ROI, design is everything. It is the time and effort and specifications upfront that helps ensure the return for investors and owners. Developers (and owners) need to look at facility design with 20-year glasses. Sure, you can build a facility as cheaply as possible, but the reliability of the equipment and upfront design is going to dictate how well your “P” (performance) can be optimized.
Take an issue like vegetation abatement, you need to look at that upfront, as part of the design. Maybe you put netting down or special grass, because the cost of maintaining the vegetation is something that no one probably thought about. Maybe you put fiber down to inhibit growth or something similar because it is going to impact costs throughout the life of the facility and those costs are going to eat into profits. Understanding the varied costs throughout the life of the facility are absolutely critical, and these design costs should be critical to investors and developers. These are the things a company like Bay4 Energy with our Technical Services division and our independent engineering reviews (IER) can do. We help the owner and developer make cost effective decisions that are not just part of the construction costs, but the facility costs the owner will have to shoulder throughout the life of the plant – for the next 20 or 25 years!
It may be that an inverter or another piece of equipment is slightly higher, but over the life of the system it has higher reliability so you have fewer equipment fails, fewer truck rolls, and the system stays online longer and brings a higher return on the investment. Yes, maybe you pay a bit more upfront, but you have a more reliable key piece of equipment over a 20-year useful life, versus one that is a bit cheaper but only with a 10-year useful life and regular repair costs.
Any final thoughts of APM, and where Bay4 stands apart from others?
Dennis: Facility design and equipment selection has been overlooked it in the past, but this is what owners and developers needs to focus on upfront. Do the upfront work and make sure the design is sound, and that is what should be built; make sure you stay on top of the design and ensure that the plans, construction and equipment does not change.
Make sure you have someone out there that understands the long term (20, 25-year) implications of equipment, construction, or design changes, and what the financial impact of changes or cutting costs are to the owner. Adhere to and verify minimum technical standards.
Jim: I agree, Bay4 Energy is an owner advocate. Quite simply put, we know how changes in design, construction or specific equipment can impact long terms facility costs and, more importantly, reliability and uptime. We understand the balance between efficiency upgrades, ROI, and uptime. We have experience and data to support recommended system enhancements. Our Technical Services division can monitor performance; our engineers, scientists and subject matter experts can troubleshoot and diagnose issues; our in-house testing center (LABS) can scientifically show loss of performance and even the fiscal gains of one piece of equipment over another.
Bottom line, Bay4 Energy has the right tools and experts to verifying that what you have agreed to, is what you have installed at the site and on the ground.
Dennis W. Odden is President of Bay4 Energy Services. As President, Dennis W. Odden oversees Bay4 Energy’s Asset Management and Technical Services teams. Dennis has been with Bay4 Energy since its inception bringing more than 25 years of experience and an extensive operating background in the finance and technology industries. Dennis began his career at Sun Financial Group and developed his leadership experience in positions including Chief Operating Officer of Sinter Capital, Managing Director with GE Technology Finance, President of Convergent Capital Corporation and Vice President with Convergent Communications Services, Inc. Dennis moved exclusively to Bay4 Energy in 2014 after working at both Bay4 Energy Services and as Senior Vice President at Kenyon Energy.
James Porco, PhD, is Director, Marketing for Bay4 Energy Services. As Director, Dr. Porco manages and oversees corporate and strategic communications for Bay4 Energy. James has more than 25-years of experience in the energy industry, including 10 years of solar energy research for investor owned and municipal utilities. Dr. Porco previously was Senior Vice President and Director of Research at RKS Research & Consulting, a marketing research and consulting firm. A PhD in Telecommunications from The Ohio State University, with an emphasis on Communication Research and Theory as well as Message Design.