Interview: Nelson Quinta, Europe Partner, Exus Management Partners

• Investors not maximising performance of wind assets, says Quinta
• Hybrid projects represent a significant opportunity to optimize grid
• Financial risks increasing as industry moves to merchant model

Investors are currently battling it out to snap up the best wind energy assets.

However, as Nelson Quinta, partner at renewables investment specialist Exus Management Partners highlights, many investors, in their haste to build-up their portfolio, are taking their eye off the ball when it comes to ensuring their assets are performing to their maximum.

In an exclusive interview with A Word About Wind, Quinta discusses how many market players are “losing focus” when it comes to project performance, what steps can be taken to improve performance; why hybrid projects are an excellent way of optimising the grid; and why financial risks are increasing as the wind industry moves away from subsidised tariffs to a merchant model.

What do you see as the most significant investment opportunities at present?

Nelson Quinta: We’re seeing a huge demand for new renewable energy projects such as onshore and offshore wind and solar. These are investments that are considered safe and future-proofed. National renewable energy targets are also finally being declared by regulators in the majority of global markets. There is demand for developing projects as well as existing assets, and people are seeing strategic value in investing in existing assets, which often offer both the possibility of growth and an opportunity to enter a new market.

We are also seeing new trends such as the development of hybrid projects, which we are starting to see in Iberia and some other countries. Both Portugal and Spain are also in the process of clarifying regulations for wind repowering. Strategies for hydrogen production and energy storage facilities are also becoming increasingly common, though these plans will probably be in the medium to long-term for the most part. In terms of markets, North America remains very interesting due to its maturity and high levels of competition.

How can investors optimise technical performance and reduce financial risk?

We try to integrate all the best practices in technical management, as well as the latest optimisations in wind – power curve management, yaw control, big data analysis. We also have full financial capabilities and we always try to supply our investors with the best possible financing, and re-financing packages, as well as energy-trading mechanisms, to try to optimise revenues.

Is it often the case that projects are not optimising performance?

Yes, the market is growing very quickly and we’re seeing lots of players primarily focusing on the acquisition of new assets which, once purchased, are left unoptimised from a performance perspective.

What is the best way of mitigating risks associated with wind performance?

From a technical perspective, renewable energy owners need to ensure that: 1) assets are being monitored correctly 2) asset data is analysed in-depth 3) power curves are being monitored continuously, and 4) assets are put under 24-hour surveillance. From a financial point of view, financial packages need to be constantly monitored – energy trading, for example, is very important to insure against financial risk.

Exus has stated that hybrid projects represent a significant opportunity to optimise the grid. What sort of hybrid projects are you referring to?

The most immediate opportunity would be developing solar assets on an existing wind farm. In most markets wind is the more mature technology, and there are a large number of operating wind farms that are moving out of subsidised tariffs and entering a fully merchant market. Solar is also very competitive right now.

On the other hand, you have governments and regulators wanting to increase the share of green energy in the grid. In this scenario, it makes complete sense to plug new solar assets into existing wind farms. Hybrid projects such as this will be able to capitalise on the existing wind infrastructure to deliver increased quantities of green electricity to the grid without becoming an extra burden, as no additional grid connection is needed. Portugal and Spain are among the first movers when it comes to hybrid projects.

What types of new investors are entering the renewables sector?

We are seeing all types of investors, infrastructure funds, industrial players, and traditional industries looking to install behind-the-meter renewable energy facilities to supply their manufacturing facilities. We are also seeing new private equity investors and funds join the market.

Are the financial risks of operating in the sector increasing? Is this due to more complex merchant electricity markets?

In short, yes. The main risk is the merchant regime that countries are beginning to step into. We are seeing a lot of power price volatility, with electricity prices recently skyrocketing following a historic low last year. There is also a lack of stability in policy. Depending on the type of investor, this means potentially setting up medium-term or long-term PPAs [power purchase agreements] and financial hedges to protect their investment.

What are the biggest challenges that renewables projects face from a development and construction perspective?

The development phase is a very chaotic step in the project lifecycle. It’s hard to control and predict, often lacks structure, and is different across markets - and different in the same market at different times.

The main issue is to be able to provide comfort to investors about the quality of the development process and schedule. What we often see in many markets are a lot of delays, deviations and projects that are failing to meet expected development timelines. Typically, most development challenges have passed once the construction stage has begun, but not always, so we are very careful in the way in which we choose the contractors to try to maximise success.