The best regime for long-term operation and maintenance (O&M) of a project comes down to spending money wisely. "It's a question of legal and financial engineering to optimise projects - how do you combine people and technology?" says Ed Zaelke, co-chair of law firm Akin Gump's global project-finance practice.
The question of who shoulders the risk is the most basic, notes Kevin Alewine, marketing director at Shermco Industries, a maintenance provider to majors such as EDF, Invenergy, Vestas and GE, and chair of the American Wind Energy Association's O&M working group. More complex is matching the needs of owners, operators and service providers. And, over time, the best option can change because of a new phase in a project's income or tax-credit status.
The industry is seeing a growing emphasis on asset management as projects age, even beyond their original life expectancy. With a shift over the past decade towards larger owners, original equipment manufacturers (OEMs) can be squeezed harder for better deals, including for warranties. In the US, the owner is now more likely to be a major utility used to managing power plants.
Increased competition among independent operators and service firms is upping the ante. Big turbine makers have jumped into servicing because profits tend to be more stable than for selling equipment.
Prepare for sale
In the US, more projects are close to ending the ten-year production tax credit, which began in 1992. Owners, perhaps after five years, focus less on financing, when peak performance need only hit a certain benchmark, such as 95%. They start to look at selling the project, and emphasise increments in performance, says Zaelke.
The needs of ageing projects change in other ways, as they come out of a service agreement, typically after five years. "The first five years are more straightforward," says Neva DePalma, a lawyer at Stoel Rives and a former corporate counsel for Vestas who worked on service agreements. "It then gets really interesting during years six to 20 or 30."
Service options
During this time O&M might be performed in-house, especially by those with their own asset-management team that uses financial models for planning. But, while asset teams vary in experience, size and budget, an MBA in finance does not replace real O&M experience, says Alewine.
Other options include a "full wrap" O&M package from the turbine original equipment manufacturer (OEM), or a hybrid where the owner conducts daily tasks but buys major repair or component replacement from the OEM or an independent service provider (ISP). Specialist sub-contractors may feature in any of these.
In 2012, according to the 13GW of North American projects in the DNV GL database, 46% used in-house O&M, 28% had a full-wrap model and 26% were hybrid, says AnneMarie Graves, a senior manager at the company. Size does not dictate the O&M model choice she adds. For example, Noble Environmental Power, with less than 1GW of wind projects, and NextEra Renewables, with more than 10GW, both service their turbines in-house. Pattern Energy, a mid-sized owner of 1.5GW of wind projects, recently signed up for a ten-year O&M service agreement with Siemens.
"Balancing the appetite for technology risks, operating costs and how long the owner plans to hold the wind portfolio are the primary drivers to this decision," Graves says. Power-generation companies with a history of in-house maintenance and used to assuming the technology risk in coal, hydro, oil, nuclear or natural-gas power plants tend to operate their own wind portfolio. "(In contrast) independent power producers who entered the energy business as wind developers tend to carefully calculate the economic benefits of various O&M strategies and are more likely to either enter into full-wrap agreements or focus on building the competency to self-manage projects."
During warranty, OEMs must often guarantee performance perhaps as an availability percentage - turbines must be capable of producing when enough wind is blowing, says Alewine.
Regional trends
In Europe, says Alewine, maintenance tends to be emphasised more than in North America, where so many investors installed projects quickly and with a shorter-term view. In Europe, staff are often better trained and more experienced, he adds, even though the US has more large wind projects with on-site service teams. OEMs do not usually maintain the balance of plant - such as the foundations, cabling and the substation - but in the US some are trying to include that in proposals.
One major servicing difference is that in Europe, an OEM full-wrap service contract is typically based on output, says Tim Holt, CEO of service renewables for Siemens' energy services division. But in North America, it is usually based on a fixed cost per turbine. This is largely due to the potential for curtailment and because power prices are more volatile.
Crucial factors in choosing a strategy include who is responsible for the project's profit — owner or operator — and for how long? How is income generated? What type of firm is the owner — what is their in-house technical knowledge, and what are their longer-term intentions?
Time throws up a growing need for repairs and possible upgrades, highlighting the importance of reliability. Looking at operations so far, the owner must consider the reliability of major turbine components, balance of plant, previous maintenance, the availability of condition-monitoring software, and basics such as site conditions and project remoteness.
Contract bonus
"Levers" in a contract help owners to get the best from an operator, notes Zaelke. He advises using the best real-time project data. An availability guarantee, such as 95% or 97%, should not have too many exceptions and should include incentives even if the mark has been missed, he says. Likewise, an operator's incentive bonus should be structured to account for turbines that struggle to meet the chosen threshold. The bonus might be 25% to 50% of all revenues above 98% availability, for example. Ideally, this will coax an operator to spend wisely, although it can also make them run the equipment too hard, reducing longevity. A contract should also hammer out staffing, response time, spare parts and equipment.
The financial targets of owner and a service provider should align, says Philippe Delleville, North American vice president of services at Gamesa, which maintains its own turbines and those of other OEMs. Some owners are reluctant to share their financial goals, he says, but communication must be open. Gamesa also needs to know the service history and likely future reliability, and a project's regulatory and environmental conditions.
Turbines that get a good price for electricity, but with older technology, will benefit from a different package than a project with newer equipment that barely breaks even, he says. Or a project in an area prone to lightning may need coverage for blades but not gearboxes - an a-la-carte approach. Delleville suggests that owners think of managing a three-dimensional matrix when selecting a service package: project reliability, profit margin and the owner's technical expertise.
Another issue that needs to be taken into account is the potential risk of delaying servicing because the wind is especially favourable. Siemens' Holt says that for an offshore project, the five highest wind days may produce 12% of annual output. For project longevity, maintenance must be thorough, with constant monitoring and possible upgrades and innovations.
And remember the big picture : for example that upgrades to increase turbine productivity should not overload the balance of plant. And as in any industry, avoid tension between short-term profits and long-term investment.
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