This article is sponsored by Ardian Infrastructure
What are the main challenges for renewable energy producers in the current environment?
Marion Calcine: There are three main challenges facing renewable energy producers – and society – today. The hot topic is producing energy at the lowest possible cost. There are also significant concerns around energy security and the sovereign independence of countries’ energy supply – this factor has come into prominence this year. Finally, there is the stability of the energy system. The intermittency of renewable energy brings new operational challenges for electricity grids and it is crucial that we find a solution to ensure load stability if the world is going to transition to 100 percent renewable sources of energy.
Simone Tonon: There are more specific challenges, too. One of these is getting permits processed for new, greenfield capacity and the way producers and developers gain acceptance from public opinion and local stakeholders for this. Connecting to the grid and the appropriate market can also bring some difficulties. And, from an operational standpoint, the challenges include managing the capital costs, managing the supply chain for the required equipment to build generation capacity, and making sure that producers can fully exploit renewable energy sources when they are available.
And what are the key drivers behind these challenges?
MC: One of the major developments over the past 10 or so years is that renewable technology is now mature. It has become a low-cost, effective technology that no longer relies on subsidies to make it viable. That’s great, but it also means that it has to compete with the conventional technologies that run alongside renewables – it has to be cheap by comparison. Finally, there are few flexible, non-conventional sources of energy today. Batteries are not yet fully mature as a technology and asset class, making grid reliability a big challenge.
How can producers manage these challenges effectively?
ST: We need to find ways of investing in new or existing assets so that they produce energy when there is a supply of renewable sources, and that this energy is used when it is produced. It requires additional investment in the grid, storage and even in conventional assets, including peakers. There are many different angles from which you can approach this and hence plenty of options on the table to improve how the energy system as a whole is managed.
What place do digital tools have in addressing some of these challenges?
MC: Digital tools have a pivotal role to play. They can help with the three issues of providing cheaper renewable energy, energy sovereignty and intermittency. They can help maximise production by converting as much wind and solar as possible into energy, in part by identifying asset degradation and corrective actions early on. They can also extend asset lives by predicting required maintenance, rather than having to take corrective steps when something goes wrong.
Digital tools can help produce more accurate forecasts to limit intermittency, make the grid more stable and therefore help address energy independence concerns. They can produce better pricing forecasts that help producers see the most attractive windows in the market and, finally, they can support asset integration to match electricity supply with demand.
What will the load of solar, plus battery, be? How much can I produce? How volatile will it be? Can we sell under a baseload PPA? Digital tools can help answer all of these questions. Overall, they can promote stable energy production at the lowest cost.
How are you developing these tools for your portfolio?
ST: We have promoted a collaborative project to create a digital asset management program called OPTA. We have been partnering with asset managers, operators and a dedicated team of data scientists to develop the tool, and we have also involved local management teams in our portfolio – the hands-on operators of renewable assets – plus service providers and risk management specialists.
The concept is to leverage and centralise real-time data from our asset base across a comprehensive monitoring system. This helps to identify common trends across a wide platform of more than 7.6GW of renewable assets in our portfolio worldwide. OPTA tools collect and analyse a massive amount of data to give a granular view of the real performance of assets. This all gives greater control and insight into how to improve and optimise the operational performance of assets and is independent of, and additional to, the monitoring that operation and maintenance (O&M) operators provide.
MC: It is important to note that this technology is not just being deployed on, say, one wind turbine. We can look at the performance of all the turbines in our portfolio, wherever they are. It can give us details on specific conditions such as when a turbine has been curtailed and at what speed – it is very granular. This allows us to validate and challenge reports from the O&M provider and steer performance to the next level.
How has implementation gone to date?
ST: In the past 12 months, we have implemented OPTA into more than 2GW of capacity in our portfolio across Europe, Latin America and the US. We have been able to assess performances at portfolio level and provide feedback to local management teams so they can seek improvements. We have used wider information to check with O&M providers and, importantly, we have been able to provide more granular data to investors on the portfolio’s performance.
So far, we have already had concrete benefits. In one of our windfarms, thanks to the granular information gathered and the detailed analysis of each wind turbine’s operating mode against O&M reporting, we have been able to spot derating conditions causing the wind turbines to produce less than contractually agreed. This derating had a roughly 20 percent negative impact on the EBITDA of the windfarm, which we were able to win back. Being able to spot and resolve the issue promptly thus significantly improved the business plan.
The information we have collected to date has also helped us identify the most relevant upgrades for our fleet of wind turbines which will improve production and allow us to extend the life of our assets beyond 20 years. We also started a pilot project in the US on energy risk management, and we are now partnering with other asset owners and operators outside our portfolio so that we can share operational data and insights on a wider portfolio – which is valuable on both sides.
How can tools such as these develop further? Are there new functionalities to develop?
MC: There are a lot of new functionalities to develop. As you implement these kinds of tools, it quickly becomes apparent where there are gaps you can work on and it continuously opens new doors. One of these is reducing the penalties renewable producers pay for intermittency. These are linked to the price of energy and they are currently very high. The challenge today is that there are no readily available tools that can forecast production accurately, so there is scope for development here through machine learning models which will improve reliability and reduce costs for producers.
There are many other areas we think are ripe for development, such as integrating batteries with wind and solar assets. Digital tools can determine how much revenue is currently lost on curtailment, in certain areas, and put this into perspective with the cost and efficiency of batteries.
One area we are looking at is whether it will be possible to achieve cross-border or cross-technology hedging, especially when batteries are brought on board. This would see PPAs on solar plus batteries, or solar and wind plus batteries, to supply energy in different markets. There is clearly more wind in Northern Europe and more sun in the South, so pooling these together could be a great step forward.
Pooling technologies to create more stable revenue flows would also improve financing options – many banks are put off by the volatility of revenue flows in renewables.
ST: We are working to develop our own production forecasts for specific assets and building a database of upgrades, commercially available, that have been validated independently from the supplier on our fleet of assets. With solar assets we are working on more granular and systematised statistics and developing specific tools to spot deficiencies that can cause underperformance of the plant. These can then be used together with the manufacturers and the operators to eliminate equipment bottlenecks on the assets and achieve superior performance, for example.
We are also using digital tools on energy management to assess revenue risk in order to identify different scenarios such as strategy of asset consolidation at portfolio level to get access to cross-border or cross-technology hedging or financing.
Finally, we are developing sophisticated models to assess configuration and convenience with the installation of standalone storage systems, or a combination of storage system with renewable asset, in all geographies. Such tools take into consideration multiple options for storage systems to provide ancillary services or grid services, or to operate on the power market in the balancing, dispatching and wholesale trading of electricity and optimise the revenue streams.
More broadly, how do you see the development and adoption of digital technologies changing the renewable energy production landscape?
MC: Digital technology is a must-have for renewable energy producers if we want to have cheap and efficient electricity from renewable sources. These tools will enable the integration of all parts of the energy system, including smart grids and distributed generation and, ultimately, they will link the producers to the end users. Importantly, because they could be so transformative, they could change the way pricing and contracts are set and agreed.
It is clear that technology can help with managing assets and portfolios, but what about at the investment stage?
MC: Digital tools can help us be more competitive in deals. If we know an asset’s areas for improvement, we can factor upgrades into our investment plan. We implemented a software upgrade in Italy last year on our wind farm, for example, which increased production by roughly 2 percent – that’s pretty significant. Having this knowledge is giving us an edge when buying new assets.
Marion Calcine is chief investment officer and Simone Tonon is managing director for asset management of renewables at Ardian Infrastructure