HomeRegional NewsAfricaWhy renewable energy boards need a technical person

Why renewable energy boards need a technical person

Recent events inspire this article, where a technical advisory services firm was assigned to assist in resolving issues related to distressed assets. It was noted throughout these appointments, that the majority of renewable energy asset boards are commercially and legally very knowledgeable, but lacking in technical experience.

By Chanda Nxumalo, Managing Director, Harmattan Renewables

The article first appeared in ESI Africa Issue 4-2020.
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What is the purpose of a board for a renewable energy plant? To answer this question, let’s first unpack boards in general. According to the Institute of Directors’ Standard for the Board, its fundamental purpose “is to ensure the company’s prosperity by collectively directing the company’s affairs, while meeting the appropriate interests of its shareholders and relevant stakeholders”.

Board members should be required to be sufficiently knowledgeable about the workings of the company to be answerable for its actions, yet able to stand back from the day-to-day management of the company and retain an objective, longer-term view.

The major responsibilities of the board of directors include a strategic function in providing the vision, mission and goals of the organisation; developing a governance system for the business; a monitoring and control function; and a fiduciary duty to protect the organisation’s assets and members’ investment. A gap in this approach is that protection is not the same as optimisation.

Often this definition is interpreted as solely focusing on the finances of the company. How many board notices have you seen requiring a Chartered Financial Analyst qualification? This is because directors still spend the bulk of their time on quarterly financial reports, audit reviews, budgets, and compliance.

However, the board is also responsible for making sure the assets of the company are kept in good order. This includes the company’s plant, equipment and facilities, as well as the people who work for the company, and it is in this area that there are often shortcomings.

Research shows that higher-performing boards review not only robust non-financial metrics, but also shape strategy and drive risk management. They can delve into the detail of the business or play devil’s advocate.

What does this look like for a renewable energy company?

For any project, the key metrics are always the same – time, cost and quality. There are variations on the theme, which depends on the project’s stage and the technologies used, but the key performance indicators (KPIs) all come back to the three components of time, cost and quality.

During construction, CAPEX and contingency spend, quality of installation works and completion according to schedule form the key drivers. The primary project management metrics state that if one of these goes awry, resource needs to be thrown at one or both to resolve the issues.

The key challenge is understanding the best course of action to take. You could be within budget and not utilising any contingency. Still, if your project is late and this jeopardises your PPA, even if this is only to reduce the term, this reduces the asset value should you sell the project on.

A gap in this approach [the major responsibilities of the board] is that protection is not the same as optimisation.

During the operational phase, you could be tracking the generation of a solar PV or wind plant by revenue and be meeting your KPIs. The reason for tracking well could be because everything ran as was expected, but it could also be because the irradiation or wind resource on-site is higher than the original forecast, masking poor plant performance. Some metrics would make this obvious to a technical person when it isn’t necessarily obvious to others.

While early developments (such as in South Africa’s REIPPPP rounds 1 and 2 or similar) often had some financial wiggle room, competition and experience are driving down all margins. This focuses the mind on the importance not only of protecting an investment but also of maximising return and optimising performance.

This focus requires the board to be provided with and to be able to check and challenge reports about:

• plant performance;
• the root causes of problems; and
• remedial action for any deviation from norms.

Following this, it is expected for the board to provide strategic guidance and hold to account the management team on how best to run the plant.

A board needs innovators and problem solvers, challengers and strategic thinkers. In short, it needs engineers!

How should you develop the other board members?

In addition to having the right board composition, companies must provide training and ongoing education. Boards typically have a lot of information available to them in these areas but may not fully understand the materials they receive.

New board member training should be provided to get them up to speed on the technology, relevant technical terms, risks and issues along with any project-specific issues.

Education should also be structured so that boards receive training annually. Invite experts and professionals in various fields to board meetings, to talk about specific topics. This will allow the board to understand what competitors are doing, global trends and issues with technologies, and to learn about current best practices in operations and asset management.

The technicalities

Where the bulk of your value is your assets, such as with renewable energy plants, effective boards need to have a broad mix of skills, knowledge and experience. The board must support robust discussions about the technology, the practices and structures in place and set the tone for optimising the asset. A board needs innovators and problem solvers, challengers and strategic thinkers. In short, it needs engineers!

Without this expertise, renewable energy boards cannot play their most important role: intervening with substantive input about strategic decisions early enough to make a difference. Without these focused technical conversations boards cannot fulfil their fiduciary responsibilities in the long term. To reiterate, by improving the technical capabilities of the board, issues can be addressed earlier, leading to improved asset performance. ESI

Guest Contributor
The views expressed in this article by the author are not necessarily those of the publishers and/or association partners. While every effort is made to ensure accuracy, the publisher and editors cannot be held responsible for any inaccurate information supplied and/or published.