The Top 3 by E3

Rethinking Solar O&M: Why Current Cost Models Fall Short

• E3 Consulting • Season 3 • Episode 8

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Rounak Kharait, E3's Executive Director of Solar, and Daniel Tarico, E3's Director of Renewables, discuss solar O&M cost models, suggesting that they need to be changed and made more realistic to reflect the true lifecycle maintenance requirements of utility-scale projects. Some of the highlights of the podcast are shown below:

• Daniel brings expertise from metallurgy, construction, and tracker manufacturing to solar O&M discussions
• Early solar financing models incorrectly assumed minimal maintenance would be needed throughout project lifetimes
• Solar plants experience increasing failure rates and maintenance costs as they age, similar to automobiles or other mechanical products
• Standard assumptions ignore the wear-out aspect of aging equipment
• Without the ITC, economic models must shift to focus on long-term performance and realistic maintenance budgeting
• Projects in markets where production is the primary value driver need more accurate revenue and OPEX models
• Major equipment can last a long time if designed well and properly maintained

If you have questions or suggestions for future podcast topics, please reach out at to us at e3co@e3co.com. The full white paper on this topic is available for download on our website .


Rounak Kharait:

Hello everybody. This is Ranouk Kharait from E3 Consulting. I'm the Executive Director of Solar and the host of today's Top 3 by E3 podcast. This is where you get the top three things you will need to look after a particular topic related to solar or storage owners and independent engineering. Today we are going to make a statement that everyone in the industry agrees on, but it's still not making the change. It's related to the operation and maintenance cost models. They need to be changed, and they need to be more realistic.

Rounak Kharait:

I'm here speaking with Dan Tarico, also from E3, who is a director of renewables. Dan is an engineer with decades of experience in solar and expertise with trackers, maintenance, project financial modelings, etc. His vision and ideas on operation and maintenance of utility-scale solar projects has been recently published in an article on LinkedIn. This podcast is to give some snippets of that white paper. Dan's expertise in this area will certainly give insights to all our listeners. Dan, thanks for joining us, and can you share some light on the background and why this is such an important topic, especially in this climate?

Daniel Tarico:

Rounak, I really appreciate the opportunity to discuss this topic and emphasize some of the important points from the paper as they relate to improving solar project performance. Now I'll take some time to discuss my background. My path to the solar industry has been very much indirect, so I'll give you a quick summary because I think it provides useful context for the discussion that follows and certainly for the ideas that were presented in the paper. I trained as a metallurgist in college and as a materials engineer and, though that might seem unusual, in the solar industry, which we think of as being primarily electrical, I realized some years ago that nearly all failures, whether it's machinery, whether it's structures or electronics, they're all materials failures. You know things wear out, they age, they degrade and they break due to things like corrosion or mechanical stress or thermal cycling, uv exposure and so on, and this is as true of your car or home appliances as much as it is of solar equipment. Solar modules and equipment are not unique in this way. Now I started my career working in a research and development laboratory developing technology for the automobile industry, which is really a very demanding industry for cost robustness, durability and reliability, and you know, in fact, that we take them for granted right. Our cars, for all their complexity, are remarkably reliable and durable. Now, I'm not being a good lab rat.

Daniel Tarico:

I detoured for some years into the construction industry, which is, of course, very much different from materials R&D. I specialized in restoring old houses and building kind of unique projects, and within that industry I was an outlier, I really preferring to solve the more complicated and difficult problems and figuring out cost-effective means and methods. Often I found myself repairing things that, in my opinion, should not have failed if they were designed and built to last. And in fact it's this experience in the trenches we might call it has really informed my outlook and perspectives. I'm a strong believer that things can and should be built to last and be easy to repair, and that things made this way are ultimately lower cost for the end user. Now I could give a lot of examples, but we really don't have time for that here.

Daniel Tarico:

Moving on, you know, after some years in the trades and in project management, I detoured again. This time I returned to graduate school to study business and finance, and from there I was looking to tie together all these various knowledge sets I had collected over the years and I settled on infrastructure as a nexus of engineering, of finance and of really construction practice. Right and by chance, I happened to land in the solar industry. Now, though I initially dabbled in project development, I quickly shifted and I co-founded a single-axis tracker company at a time when trackers were not widely accepted in the industry, primarily because they were high cost, they were unreliable and there was uncertainty about the performance benefit. But they were established as a technology and to me there was clear and calculable financial benefit of deploying trackers and I think the industry now agrees with that, as they are now the most common amounting method for solar power projects.

Daniel Tarico:

Our team, we set out to change that, and by focusing on life cycle, cost of ownership and the economic value, we developed a product that was reliable, it was robust, it was durable and it was economically maintainable for the entire project operating life Very important design criteria. At that time. We even included a standard 10-year warranty on the entire system and an optional full BIFA system warranty, because we'd really built something that could last. It was also, coincidentally, the lowest cost tracker that was available at that time, which may seem surprising, but really that was intentional, and it reflected what can be achieved with an overarching design philosophy that cost is designed in and it's designed out right. If you keep it simple, you design for manufacturing efficiency. If you integrate proven technology and establish supply chains and build it to the last, it can be maintainable, which is where we're going with this right. In the case of solar, this lower overall cost and higher reliability translates directly to reduce risk and improve project returns, which are a huge benefit for the owner.

Daniel Tarico:

And though I was initially focused on trackers only in that business, the same thinking applies to the entire solar power plant. Now, as for that company, unfortunately we were too early and really undercapitalized and trackers took a long time to become broadly accepted and established in the market. And trackers took a long time to become broadly accepted and established in the market. Finance here at that time focused on company balance sheets, which we didn't have much of, and less so on the various product technical details. So I exited that business and after some time on the commercial side, I ended up at E3. Now I know that's a long story, but it segues naturally to our discussion about O&M costing and long-term plant performance, because it's something I've been focused on for a long time. Everything will wear out over time, it'll degrade, it'll require maintenance and eventual replacement. No-transcript.

Rounak Kharait:

Thanks, Dan. That was super, super helpful. Your background with all of that experience is certainly helpful for us to understand issues related to operational maintenance modeling as well as the actual concerns that go on when the project is operational.

Rounak Kharait:

my main focus subject matter expertise, I guess is has been on the energy assessment side, but it's fantastic to learn from you on the onm side, where we are trying to get the lower cost but also make sure that the projects are maintained for the lifetime of the project. So can you shed some light on some of the standard assumptions we have today in solar onm models? I always wondered if they are realistic right. Can you maybe share some insight on that, on what are the current typical assumptions?

Daniel Tarico:

Sure, yeah, this is a big topic of discussion and so if we're looking at the kind of the assumptions that are broadly or have been at least in the past probably accepted in the industry, when the industry first started there just wasn't much data for long-term performance or reliability, especially for large grid-type systems, because they just didn't exist right.

Daniel Tarico:

And there were many experimental technologies concentrating PV, various thin films, complicated two-axis trackers, things like that.

Daniel Tarico:

The general belief at that time was that the solar modules are solid state and they should last a very long time, more or less indefinitely, with some slow degradation, that the inverters at that time were expected to last a long time, with certain parts being replaced as they failed, you know, but with routine maintenance. But the thinking was you just build this thing, you put out in the sun, it's going to perform, you know, no problems. Now that mindset formed the basis of early solar financing models and it's carried through really until today as forming the basis of the standard assumptions. And though we've learned quite a lot in the past 20 years, the basic financial model assumptions still are that the modules would degrade more or less to a straight line. They recognize that inverters eventually go and have to be replaced at regular intervals. And then the assumptions that the rest of the plant, including the trackers, will require fairly little maintenance during their 30 to 40 years of projected plant operation during their 30 to 40 years of projected plant operation.

Rounak Kharait:

At E3, one of our main roles as independent engineers or owners-engineers is to guide developers so that their solar facilities are actually performing and are built to last. That means the architecture and O&M budgets must be realistic and maintainable. We must look at everything in the power plant and construction and provide technical due diligence for the people who put projects together and fund them. So, with that being said, can you give us some practical ways of rethinking these standard operational maintenance?

Daniel Tarico:

assumptions Definitely, and again, that's a big part of that white paper. You know there are well-developed bodies of engineering and science around reliability and failure. Now we can borrow their ideas and go into them in depth, but that gets to be a little bit fail and we talk about failure modes. For example, there are many things in your car that can stop working the transmission go out, the radiator can leak, brakes can quit working, the hybrid battery goes kaput, whatever. These are all caused by different things, right, the metal parts wearing out, there's corrosion, there's seals that fail, thermal cycling, there's chemical degradation.

Daniel Tarico:

All these things come into play and an older car that has a lot of miles will be more worn out and have more breakdowns that are expensive. We just know this from our all personal experience. It's common right and eventually what happens is your car is not economically maintainable and there's the cost of keeping it going just exceeds the value of keeping it going. Right Now, solar plants do many of the same things. As they get older, there are more failures are going to happen and they're going to be harder and more expensive to fix right. The older standard assumptions for solar plant financing ignore the wear-out aspect of the aging. So in rethinking those assumptions. I think we in the industry should build a more complete model that looks at each of the major components and then assume about them what we already know and get some data to back it up, but that the failure rates will increase with time and they will become more difficult and expensive to correct.

Rounak Kharait:

This is super helpful, dan. Especially your analogy with cars and solar plants gave me a lot of understanding on this topic, so I appreciate you explaining it that way. I can see, especially in this environment where you know the developers and IPPs are thinking of the post ITC, ptc world, how important it is to have these assumptions Correct right. So can you, can you give your opinion on how important do you think these modified assumptions will be moving forward? Sure?

Daniel Tarico:

Yeah, I think that's a very good question and really an important line of thought right. The industry has often taken what we call go out and build a 500 megawatt or 1,000 megawatt PV plant with attached battery storage system A lot more money changing hands. That's really where the profit is. And also with the ITC in place, you know that was realized in year one. And then there was the five-year makers attached to the plant equipment and those two combined really incentivize short-term thinking like that.

Daniel Tarico:

Without production incentives, the tax benefits were so large compared to the energy value that they effectively disincentivized long-term investment and project quality and maintenance budgeting. That's why the pro formas end up looking the way they do. But if the ITC is removed and it looks like it's going away, then the economic model shifts. Now both the developers and the owners will need to focus on realizing the long-term predicted production, because that's what creates the long-term cash flows, and I believe that we'll start seeing developers renewing their interest in the long-term performance and operations of projects and many projects that are stalled due to this sudden change in government policy.

Rounak Kharait:

Well, this has been very helpful. Thanks, stan, for your input. You see a lot of projects every year and encourage each and every stakeholder to work together to get a more realistic O&M model for their utility-scale solar projects. If I may summarize this discussion here as the top three by E3 output the first one is the solar power plants are not that different from other kinds of equipments with regards to reliability, wear out and maintenance needs. Secondly, the major equipment in the solar plant can last a long time if they are designed to do so and the quality of components and construction is good.

Rounak Kharait:

Economic maintainability may be the key to realizing that model production and, more importantly, the financial projections. And finally, we expect the sudden shift in federal policy will push developers and project owners to modify their operating models so that they match up better with engineering knowledge and operational data. In the markets where the production is a primary driver of project value, more accurate revenue and OPEX models enhance project value and improve financial returns. Thank you, dan, so much for your time. I really appreciate you providing a summary of your paper.

Daniel Tarico:

It's been my pleasure. I hope this will help the industry continue to develop and improve. Absolutely.

Rounak Kharait:

If you have any questions for me or Dan or the rest of the E3 team, or if you have a suggestion for a future podcast topic, please feel free to reach out at our e3co@ e3co. com. We look forward to hearing from you. If you would like to download a copy of the white paper, it is also available on our e3co. com. Thanks everybody for listening. Thank you.