Conduct Due Diligence In-House or Hire a Specialist?

As covered in our previous articles in this series (Article 1, Article 2, Article 3), conducting technical due diligence before a purchase/acquisition is essential for reducing risk and operating expense.

If it’s so important, should you do this work in house?

There is one big reason to consider doing the work in-house: it can be the lowest cost.

However, that’s only true if you have enough work to keep them fully utilized. If you need to pay their salary even when they aren’t doing the productive work, it may cost much more.

Why should you outsource?

Outsourcing is the best model for most firms in the solar industry. Here is a list of the major reasons why:

  1. Specialists in all areas:
    1. Electrical Engineering
    2. Structural Engineering
    3. Civil/Environmental Engineering
    4. Construction management
    5. On-site electrical Testing
    6. Monitoring/Performance Engineering
    7. Technical Contract Review
  2. Increased bandwidth – Technical due diligence on portfolios is not steady work. You need an engineering resource that can quickly ramp up and down.
  3. Lowest cost – If you don’t have a constant flow of projects, you only pay when you need the engineers which results in savings for all but the very largest firms.
  4. Reduce Travel – With a consultant with teams spread out geographically, they can visit sits faster and most cost effectively.

Summary

Unless you have a very high volume to justify the cost of hiring a few folks to cover the wide range of expertise needed, you will get a higher level of service at a lower price by outsourcing to a specialist such as PV Pros.

PV Pros has the expertise and a high bandwidth to conduct Technical Due Diligence at a high speed and quality. We review all technical aspects of design, construction, and energy production to identify risks and expenses that must be modeled before your negotiation and acquisition.  Reach out today to learn more.

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Buyers Need an Owner’s Engineer in this Sellers’ Market

PV Pros has been helping buyers de-risk in their asset acquisition with our Owner’s representative and Independent Engineering services. We specialize in the technical due diligence and operation, allowing you to focus on the financial and management side of asset ownership & acquisition.

Solar projects are in high demand right now. There is more capital available than there are projects, and it is creating a sellers’ market where projects are being sold for top dollar.

Paying a premium for projects is okay if it has been de-risked.  Don’t get caught in a highly competitive bidding situation without knowing the technical and operational risk of the asset.

If you are buying a project with known technical risks, you need to either:

  • Have the developer remedy the issues before you take ownership, or
  • Discount in the purchase price & budget to remedy the issues yourself (which is often the best idea, so you can ensure the issues are remedied correctly)

A majority of the new construction projects we conduct due diligence on are solid overall, with a handful of issues that need to be remedied before our client takes ownership of the asset.

Older assets (5+ years old) are riskier, as they were built before many installers learned good workmanship and best practices. On average, the workmanship of a system installed in 2019 is much higher than that in 2014 and earlier.  Many are ticking time bombs of issues, with equipment approaching the end of their warranty period.  If you are buying an older asset, then our Owner’s Engineering services are essential.

Occasionally we see an installed solar asset with significant technical issues that is being peddled as a high-quality system. I would go as far to say there are a few unscrupulous folks that are slapping together installed systems as fast and cheap as possible to capitalize on the high demand. These systems should be avoided at any price, even a heavily discounted one.

In summary, PV Pro’s Owner’s Engineering services help the buyers of solar assets to understand the technical risk embedded in a project. Buyers are typically experts on the financial side of a project, and with our technical expertise, you can be confident in your financial model for acquiring a solar project or portfolio.

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3rd Party Drawing Reviews Reduce Risk

PV Pros has been helping our clients de-risk in their assets with our independent engineering and owner’s representative services. We specialize in the complex technical aspects of due diligence, allowing you to focus on the financial and management side of asset ownership.

Long before a system completes construction and starts its 25+ year generation life, it all starts with the design.  The design is a multiplying force where a small mistake can cause big problems and introduce risk throughout the life of the system.

We review other engineer’s drawings and plan sets for the following areas:

  • Utility interconnection compliance
  • Electrical, Building, and Fire Codes
  • Local site requirements and codes
  • Follows equipment specifications
  • Direct installers towards best practices
  • Safety (grounding, working space, etc)
  • Constructability – What is shown 2D on paper can be built in real life

The goal of reviewing the drawings is to reduce risk during construction and cost of O&M phases.

Reviewing drawings to reduce risk during construction:

You can’t say, “If there is an engineering mistake, it’s the EPC’s problem to deal with it and correct it.” Remember, when the EPC struggles, all the stakeholders feel the following problems either directly or indirectly:

  • Schedule Delays
  • Incorrectly specified/ordered equipment
  • Additional overhead for managing through the problem
  • Additional overhead as each project takes longer
  • Contract disputes
  • Stress on cash flow

Reviewing drawings reduces risk during operation of the asset.

Engineering mistakes can cause the following issues throughout the life of the asset:

  • Technical Debt
  • Increased O&M expenses
  • Premature equipment failure
  • Voided equipment warranties
  • Design mistakes greatly increase safety risk, which is especially important when it’s a rooftop installation.

Your EPC partner is a important part of the project and you should have confidence in their ability to deliver a quality project to you. However, you still need to protect your interests, and that starts with PV Pros conducting a 3rd party review of the design. As the saying goes, “trust, but verify.”

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Technical Due Diligence for Solar Purchase and/or Acquisitions

PV Pros has been helping our client’s de-risk in their assets with our independent engineering and owners’ representative services. We cover the complex technical aspects of due diligence, while you focus on the financial and management side of the purchase.

As your Independent Engineer or Owner’s Agent, PV Pros will review the following:

  1. Technical Document Review:
    1. Electrical Engineering
    2. Building Structural Engineering
    3. Racking/Mounting Structural Engineering
    4. Civil/Environmental Engineering
    5. EPC Plan’s Scope of Work, QA/QC Plan, and Commissioning requirements
    6. O&M Plan
    7. Commissioning results
  2. On-Site Inspections
    1. Monitoring % complete and billing milestone.
    2. Confirm quantities of delivered materials.
    3. QC Progress Inspections
    4. 3rd Party Commissioning
  3. Performance Evaluation
    1. Existing/operating assets: PVP has a team in their Remote Operating Center monitoring system performance 24/7.  They are experts at understanding the performance of the system and remotely identifying issues that you need to know about.
    2. Assets in development or construction: We need to rely on PVsyst. Everyone has their own opinion of “industry standard” variables, but very few of those pundits get their opinions by observing the systems in observation as PV Pros does.

PV Pros is unique because we have in-house resources for all 3 of the above areas.  Engineering firms can only do the document review, and O&M firms can only do the On-site inspections. PV Pros does both, plus it has the full technical resources of Pure Power Engineering in the same building!

We have conducted due diligence as an independent engineer or owner’s engineer for hundreds of projects. Our well-rounded experience is essential in reducing the risk of your solar asset purchase!

Reduce your risk, Maximize your profit with PV Pros O&M and Independent Engineering services.

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ASTM E2848 Capacity Test for Beginners

Capacity and performance ratio tests are used to demonstrate the performance of PV plants to buyers or lenders and de-risk their acquisition.  

One popular test is ASTM 2848-13 “Standard Test Method for Reporting Photovoltaic Non-Concentrator System Performance”. The goal of this test is to compare the ratio of a modeled system vs the actual system performance, and the system should perform the same as the model, minus some uncertainty. By using a test like ASTM E2848  where the test criteria is well defined and controlled by a standards committee, it insures a consistency of methods and expectations for minimum quality. 

Why is this important for owners and financiers?  

Failed tests or delays in testing progress could impact liquidated damages (LDs), since this test occurs at the end of the development and build process.  

How is the test conducted? 

This test may seem straightforward in nature, but the calculations are actually very detailed, complex, and prone to errors.  

Step 1 – Gather inputs 

To avoid delays in conducting your test, be sure you prepare the proper items for a test. The following are the prerequisites for conducting this test: 

  • A valid PVSYST model.  
  • Experience in regression modeling.  
  • A properly operating system, with functioning equipment and calibrated weather stations.  
  • A minimum of 30-days of system operation to gather data.  

Step 2 – Export data 

 Take the inputs and prepare the data for analysis: 

  • Take the PVSYST model and extract annual raw data. The raw data should include Global Horizontal (GHI) irradiance, ambient temperature, wind speed, all correction factors relevant to calculate plane of array (POA) irradiance, and a time/date stamp for each set of data points. 
  • Export climate and performance data from your data acquisition system. This raw data should include the date / time stamp, temperature, wind speed, plane of array (POA) irradiance. 
  • Review the system’s mechanical and electrical drawings. This will help the user determine if there are any peculiar issues that would impact the modeling such as shading or severe inverter clipping. 

Step 3 – Filter the data for quality 

The most complicated aspect of the test is in the sorting of the data to exclude low quality or erroneous points. The data shall be filtered such that the minimum data requirements for site data are: 

  • 50 / 15-minute points 
  • Exclude data below 400w/m2 or above the clipping point of the inverter 
  • Reporting condition POA should be sorted in a +/-20% range 
  • There are technically no sorting requirements or limits for temperature or wind, but exclusions can be applied if they do not correlate with the performance 

Step 4 – Run the regression 

The regression model is run to find the power capacity and the standard error of the regression measurements. If the ratio of power measured / power modeled is greater than 95%, and all regression errors are less than 5%, you have a valid test with a passing result! 

If you are not getting satisfactory results, the most common pitfalls are: 

  • Even though it’s called a 4-day ratio test, depending on system design and season, it may take a month or longer to gather the required 50 valid data points that meet the test quality requirements. 
  • The test requires raw data from a PVSYST model that can provide hourly requirements identified above. A summary report is not enough for this. 
  • Not running a proper regression. Even though the ASTM standard spells out the methods, it doesn’t provide the tools to run the analysis. It is typical to have an improper setup in the calculations the first time this test is attempted. 
  • Poorly calibrated weather data. Since the test is only as good as the accuracy of your measurement, it is critical to have the weather data properly calibrated prior to gathering data. 

Who conducts this complicated test? 

PV Pros has an Owners Engineering department that specializes in the ASTM E2848 and other performance tests. As a third party, PV Pros is an impartial engineer that will run the analysis by the book.   

To save time and money on your next project, reach out to PV pros at info@PVpros.com.  

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What is Technical Debt?

Technical Debt is the cost to the system owner as a result of prior decisions made to save time or money during the engineering, procurement, or installation of a solar project.

Technical Debt is a metaphor for the difference between the value you paid for the solar system and the value of the system you actually took ownership of.

Technical Debt = Expected Asset Value  –  Actual System Value

Let’s say you purchased a PV system that you expected to be designed and installed per all industry best practices but received one with hidden shortcomings in the design or installation. Technical debt is the value to resolve the shortcomings.

Those shortcomings are a liability that will be felt financially sooner or later. Obviously, the best solution is to identify and eliminate the items causing Technical Debt before you take ownership of the solar asset. Alternatively, you can either adjust your financial model to reflect the cost of technical debt or negotiate a lower purchase price and address the technical debt yourself.

Analogy to Financial Statements

Technical Debt

Technical debt is a liability that acts like financial debt with an “interest” expense that is incurred until Technical Debt is paid off (all issues resolved).

Technical debt on the balance sheet will result in interest expense on the P&L that comes in the form of:

  • Decreased generation revenue caused by the shortcomings.
  • Increased operating expense (OpEx) to service the problems caused by the shortcomings.

Until Technical Debt is eliminated (all issues resolved) you will continue to pay interest in the two forms above.

How is Technical Debt caused?

  • Poor equipment selection leads to accelerated performance degradation and failure.
  • Poor design/engineering. Code compliance is simply the lowest quality allowed by law, and doesn’t guarantee high performance, reliability, or serviceability.
  • Cutting corners and mistakes on the installation will lead to future issues and premature failure.
  • Safety risks and resulting liability.
  • Lack of documentation (as-built drawings, manuals, QC documentation) that makes it harder to conduct O&M.
  • Inaccurate revenue projections based on a PVsyst energy forecast that doesn’t represent the lower quality of the system and resulting degradation on long term performance.

How does it affect you?

  • It is a hidden transfer of costs from the EPC’s budget to owner’s OpEx.
  • Reduces operating profit. Decreased generation revenue and/or increased OpEx is the “interest expense” on the technical debt.

How is it prevented?

  • MOST IMPORTANT – A Quality Assurance plan for QC Inspections and Commissioning by a third party to confirm the quality of the installation and uncover any sources of Technical Debt. (see our article on commissioning here).
  • Robust procurement process with input from engineers on equipment and supply chain BOM.
  • High quality installers
  • Skilled engineering firm to do the design and plan sets.
  • 3rd party review of the engineering firm’s work if you can’t choose your own engineer.
  • Preventive maintenance plan – Not doing preventive maintenance will allow the system to slowly degrade, creating additional Technical Debt.

Conclusion

If you want to eliminate Technical Debt and the ongoing interest expense, contact PV Pros to learn how our Owner’s Engineering and O&M services eliminate the Technical Debt that puts your financial model as risk.

Six Core Services

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Nationwide Owner’s Engineer and Operation & Maintenance Services

PV Pros provides nationwide technical services for investors and asset managers. We manage your technical needs while you focus on the financial aspects of development, acquisition, and ownership. Our team of professional engineers, licensed electricians, and NABCEP technicians specialize in commercial and small utility solar PV projects. We offer technical due diligence, inspections and testing, subject matter experts for disputes, preventive maintenance, repairs, and monitoring across the United States. With over 100 years of combined experience in just our management team, you can rest easy knowing PV Pros is watching over your system.

  • Professional Engineers
    • Our in-house engineers hold PE licenses in 45+ states and have collectively designed over 500MW of commercial and utility scale solar projects. Our knowledge of codes, engineering, and equipment ensures your system is technically sound, safe, and reliable.
  • Licensed Electricians
    • Our multiple in-house licensed electricians have the experience and credentials to work on PV’s high voltages. Our electricians have 10+ years of electrical construction experience, so they can handle the most challenging repairs.
  • NABCEP Technicians
    • Our trained technicians have extensive inspection and hands-on experience, including years spent in R&D and performance test labs measuring and modeling real-world performance. You can rest easy knowing PV Pros is watching over your system.
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Technical Buyer’s Guide for Purchasing Existing Photovoltaic Systems

A Photovoltaic (PV) System may change hands multiple times over its 20+ year operational lifespan. The buyer and seller in each transaction may view the same project or portfolio from very different perspectives. Simply put, the seller will negotiate for the highest price and the buyer will negotiate for the lowest price. Ideally, the sale price will end up somewhere in the middle of both parties’ anchor price. Focusing in on the technical aspects of the system is where the “rubber meets the road” in the sales negotiation. This article provides a guide for buyers to influence the price, based on a technical risk assessment of the PV system.

Sellers will often host a Request for Proposal (“RFP”) to solicit qualified buyers to make an offer for either a single installation or a portfolio of projects. The RFP typically contains high-level information on the assets. Interested buyers are further qualified and refined down to a select few buyers, often called a “short listing.” The short list is granted access to additional technical information and a limited amount of time to review, request additional information, and make their final offer. Sellers do not provide all the necessary information, requiring buyers to request specific documents. The buyer should request access to the site(s) and access to the following documents:

1.      Engineered Drawings (Electrical/Mechanical/Civil)5.      Construction Permit Approvals
2.      Solar Yield Models (PVSyst Reports)6.      Commissioning Reports
3.      Equipment Datasheets7.      Maintenance Logs
4.      Interconnection Approvals8.      Historical Energy Data

There is generally a mutual sense of urgency to complete the technical due diligence process. The buyer must be extremely efficient so that expenses can be kept to a minimum, in case the acquisition is deemed unfeasible. Completing a thorough review requires a team with a wide range of expertise, working closely with one another. The technical review team can consist of electrical engineers, civil engineers, construction managers, operations & maintenance technicians, asset managers, and performance analysts. For many potential buyers, engaging a third-party, independent engineering firm (with operations and maintenance experience) is often a successful strategy for completing these time-sensitive reviews, which span across multiple disciplines.

What to expect from your Third-Party Independent Engineer?

The IE should provide their services in steps so that the process is comprehensive and easily discontinued in the event the buyer determines the asset(s) fall outside of their risk profile. Itemizing the review process allows for individual scopes of work to be completed and presented to the buyer so that high-risk observations may be discussed, and the buyer can halt the review process and cease additional spending on further due diligence for acquisitions determined not to be feasible.  A typical example of a technical due diligence process looks like the following:

  • Equipment, Construction Permit, and Interconnection Approval Review
  • Engineering Design Review and Solar Yield Assessment
  • Commissioning and Maintenance Log Review
  • Historical Energy Production Analysis
  • Physical Site Inspection

In the structure above, the IE can provide critical feedback earlier in process on high-risk considerations, which can help the buyer move quickly to walk away from a bad deal. Typical high-risk observations from each step are:

Equipment, Construction Permit, and Interconnection Approval Review

  • Equipment manufacturer is no longer in business
  • Proper permits were not secured or closed
  • Interconnection equipment, means/methods were not adhered to

Engineering Design Review and Solar Yield Assessment

  • Design flaws leading to additional capital expense to remediate or increased maintenance costs
  • Code compliance failures that void warranties
  • Solar yield forecast that are not realistic

Commissioning and Maintenance Log Review

  • Avenues for manufacturers to void long-term warranties due lack of commissioning and/or maintenance procedures
  • Installation related deficiencies leading to additional operating expenses
  • Benchmarks to establish energy and power production capabilities

Historical Energy Production Analysis

  • System and component underperformance
  • Sources of system unavailability
  • Accelerated degradation

Physical Site Inspection

  • Accelerated wear and tear
  • Installation does not match the as-built drawings
  • Unaccounted for or new environmental impacts (shading, soiling, vandalism, pest control)

The Independent Engineer report provides an unbiased professional opinion assessing the risks associated with the acquisition. The buyer’s risk appetite must be communicated and well understood by the IE so that this opinion can be effectively leveraged. All deficiencies should be accompanied with a risk assessment rating and related capital expenses to remove the risk. This is difficult for most IEs to provide unless they have experience with PV system repairs. The buyer must have real estimates for remediation efforts, annual operations and maintenance budgets, and other capital expenditures as evidence to properly negotiate and justify their offer price to the seller.

For more information, contact our Director of Business Development, Chris Grablutz at chris@pvpros.com or (201) 351-4001 x201.

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2017 Asset Management and Performance Conference

PV Pros Director discusses the needs of O&M team integration in PV Plant Design/Build Phase

By Chris Grablutz

Operation and Maintenance teams understand the long-term effects that design and build decisions can have on PV system performance. This year’s Solar Power World Asset Management and Performance conference had a consistent message that operation and maintenance cost cannot be based off what is left over in the budget but a planned expense that must be managed during the design and build phase. I was able to share some of my experience as the Director of Field Service Development at PV Pros, Inc. during a session at the conference by delivering a presentation on Asset Management ‐ Good, Fast, or Cheap…Pick two.

I had the opportunity to discuss the topic with solar industry professionals at this year’s SPW AM&P conference held on January 19th and 20th in San Diego, California. In opening, there is no one-size-fits-all when it comes to Solar Asset management. Each project has its own set of needs that can define which two facets are required to get the job done. Design, construction hand-over packages, maintenance procedures, equipment selection/management, personnel, and supervision are a few key dials that can be adjusted to set the stage for picking your two.

Areas of focus to promote a Good, independent O&M firms that provides Fast and Cheap services: Develop an easy to follow Operations & Maintenance Procedure.

  • Failure analysis – Understanding when something needs to be fixed today, this week, or this month.
  • Response planning – Proceduralizing a response plan for major component replacements.
  • PMI protocol – Preventative Maintenance Inspections should be well documented and comprehensive to direct maintenance providers on each visit’s inspections tasks.
  • Personnel – Utilizing internal or external labor that can get the job done safely.
  • Training – Use of proprietary technologies may require product specific training.
  • Cost evaluation – Understand what tasks can be effectively managed internally or by a 3rd
  • Responsiveness – 3rd Party Service Providers should have a main point of contact to manage their team’s site-specific responsibilities.
  • Leverage – Utilizing contractual language that enforces the proper safety and technical training of the service provider’s personnel.

Areas of focus to promote a Fast, independent O&M firms that provides a Good and Cheap services: Design considerations for maintenance can expedite execution.

  • Replication – When possible, design redundant subsystems, utilize the same equipment across your fleet, and verify installation consistency.
  • Grouping – Keep inverters, combiner boxes, strings, and BOS equipment proximity on a site to minimize set-up/break-down time between inspections.
  • Accessibility – Avoid installing serviceable equipment in areas that require special equipment to access or products that are difficult to open after the initial installation.
  • Bankable Equipment Providers – Choose manufacturer’s that will be in business for the 20+ years of operation.
  • Installation Documentation – Well documented methods for materials that are installed in non-readily accessible areas (i.e. underground, interior walls, equipment pads, etc.) can prevent future mark-outs or downtime caused by damage.
  • Spare Parts Management – Keeping commonly replaced materials on or near the site for future needs.

Areas of focus to promote a Cheap, independent O&M firms that provides a Good and Fast services: Strict project controls provide for a thorough transition into operation.

  • QC Plan – Controlling design to build quality will reduce cost padding of future repairs.
  • Contractor/Key Personnel management – The person or people who have experience with the site will have intimate knowledge and therefore not have to factor onboarding cost into a future repair.
  • Warranty Compliance – Preserving warranties such as workmanship and OEM can prevent additional future expenses or purchasing materials for the second time. Negotiate with equipment providers on the cost of warranty replacement labor credits.
  • Equipment Shop Drawings – Custom equipment drawings/specifications will help the O&M team understand exactly what is needed to be fixed and creates an easy handover package to manufacturing for a replacement component.
  • As-Built Documentation – Accurate As-Built drawings can make troubleshooting efforts substantially easier. Understanding locations and materials used will allow the O&M team to deliver a clear and concise plan of action and therefore reduce the cost of the response efforts.
  • Transition Management – Creating a transition for the project delivery plan along with overlapping efforts will ensure each phase is set up for success.
  • Task Execution – Understanding who does what and when is important to prevent team from having to pick up additional tasks, usually provided at a premium rate.
  • Due Diligence – Understand the team, its members and their capabilities before adding them into the mix. Often, contractors offer services that are not handled internally and will require additional cost to cover subcontractor management.

A very close friend of mine introduced a great saying, “Planning your work then work your plan.” This phrase can be embodied during all phases of a PV System. The common strategy with both residential and commercial solar projects is to build the system quickly and cheaply then use whatever is left over to keep the system operating. This strategy leaves the asset managers in a tailspin once a failure occurs and repairs are required. The expenses are often unaccounted for and the responsible party is not always clearly defined. Poor planning creates a disruption for all parties involved. Looking at Operations and Maintenance budgets as an obligation rather than an unexpected expense is necessary for long term system safety.

Proper maintenance planning and execution during the design, construction, commissioning, and operational phases will reduce operating cost and increase system availability. PV Pros, a solar maintenance service provider and Pure Power Engineering, a solar engineering firm, have a successful collaboration on the necessary considerations needed to design and operate a successful plant. Our joint understanding of all phases of a solar project has us looking less at transactions and more on the commitments. Delivering the best solar energy systems is essential to lowering the levelized cost of energy.

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