In Part 1 of this series, we tracked the rapid growth of the renewables industry over the past decade, and pointed out that management focus on growth and investment has often brought a laissez-faire approach to most major costs. It’s been easy to turn away from cost management and efficiency thinking: with the most important components of project cost falling rapidly, over the past decade LCOE has declined more than 60% for wind and more than 77% for solar projects. In other words, if you compete in the renewables market, you probably think you’re doing great at managing costs—even if you’re not.

We have often seen high-performing renewables companies overspending on critical aspects of the project life cycle (whether through sub-optimal origination processes, construction decisions, or operations and maintenance practices); and we have seen renewables businesses (like their peers in every other industry) balloon with complexity, as they’ve taken on more kinds of projects in more geographies than ever, in the rush to deploy capital and meet growing demand. As your company continues to grow, in an effort to bring more and more renewable capacity online, is now the time to take a hard look at your cost structure?

Whether going it alone or working with specialized consultants like WP&C, you may find a great deal of value lurking in the bottom half of your income statement. Our experience assessing costs and efficiency in the renewables space—along with our experience in other capital-intensive industries, our expertise in tackling corporate complexity, and our general penchant for pattern recognition, suggests the following six tips:

1. Get granular, quickly. Looking at LCOE as a metric doesn’t point the way to valuable change. When it comes to your cost structure, the value comes from drilling down.  A detailed look at project origination and development spend, team, and practices can typically reveal opportunities to improve site research practices and suggest lower-risk geographic exploration profiles. Close examination of project construction spend, relationships, and operations often reveals sub-optimal equipment choices, sub-scale project plans, and opportunities for contractor renegotiations. Finally, a hard look at asset operation sometimes reveals additional areas where data-driven decisions are possible, chiefly around preventative maintenance, cleaning, and other services.  
   
   
2. Start with geography. Project origination, development, and construction all vary dramatically by region—both across the ten US wholesale power markets and within each market, at the state and even county level. In this environment, taking a localized view of your cost structure is the only way to know if you’re overspending. For starters, there are foreseeable differences in development pipelines across geographies most companies fail to fully bake into their planning decisions. (Project attrition is notoriously high in the ERCOT market, for instance.) Construction-related costs such as the delivery of wind turbines and the fully-loaded cost of contract labor can also vary dramatically from site to site. Finally, given the variance in daily sunlight patterns and the power density of wind, a localized view of production capacity, efficiency, and yield vs. plan is necessary too. If you’re benchmarking costs across facilities and against peer companies, you have to take location into account from the outset.
   
   
3. Consider equipment choices. Equipment almost always makes up at least half of capex spend for new renewables projects, and this portion of cost is growing as projects get bigger and bigger. Technological advances have occurred steadily over the past decade, and overall the most significant driver of declining LCOE has been improvements to major machinery (e.g., larger turbines, cheaper solar modules, better operating software). Is your company taking full advantage of the latest technology? Are your plans for new solar and wind facilities keeping up with your competitors? Have you chosen the most efficient battery storage configuration, given the wide range of setups possible and the outsize impact of battery system design on capex and LCOE?
   
   
4. Don’t neglect “soft costs.” Other costs adjacent to origination and development are significant, and based on our experience your processes for choosing sites, getting projects started, and landing the right buyers for energy may be lurking hotspots where value can be released. For example, project overhead, including permitting, inspection, and interconnection (PII) costs, often reveal both process inefficiencies and strategic misalignment (particularly driven by site choice). Customer acquisition costs and efficacy are often problematic as well: expertise in sales and marketing generally and depth in this sector tend to be crucial determinants of success and can be optimized for many companies.
   
   
5. Flex project scale. Solar and wind projects tend to show significant economies of scale, including equipment purchase volume discounts, engineering cost (and other overhead) efficiencies, and O&M efficiencies for larger projects. As we pointed out in Part 1 of this series, average project size has been rising steadily over the past decade; given rising general demand both from retail power users and from massive corporate data centers with enormous individual power needs, the market is likely poised to accommodate even more very large (“hyperscale”) projects over the coming decade. What is the right scale for your next project? How should your company balance capital limitations and execution risk against these scale factors?
   
   
6. Attack O&M costs. Over the past decade, the cost to operate and maintain renewables assets has fallen industry-wide, with the most significant drivers being the rising reliability of equipment, better use of data, deployment of automated technology, and general maturity of skilled operations (i.e., greater operational expertise as teams now have a decade or more of experience). Is your company operating at the new standard? Is self-service the right model for your assets, or would OEM or third-party service be preferable? Are you making appropriate investments in preventive maintenance, and are there further opportunities to minimize unplanned spend? Is your battery operation optimized to balance time-of-day arbitrage against long-term battery life considerations?

At WP&C, we dig in to hard questions like these—and others, with a holistic view of your company in which cost plays a major role, but not the only role.  

Our team of seasoned professionals are here to support your corporate objective needs. To get to know our Renewables capabilities, please reach out to Toyyab Khan (tkhan@wilsonperumal.com) or Brandon Fail (bfail@wilsonperumal.com).