By 2020, Consultancy MAKE estimates that 30% of US wind turbines will be a decade old. In that same year, MAKE also expects that there will be 40GW of off-warranty GE turbines across the Americas, and more than 20GW of off-warranty Vestas and...

By Katherine Steiner-Dicks

With margins on turbine sales as low as 2% compared to margins on after sales closer to 20%, upgrade platforms could be the cash flow win-win for OEMs and turbine owners in 2015.

“We will see power curve upgrades rolling out for many of the first tier manufacturers’ turbines in 2015,” says Warren Wilson, Director, Service Sales and Business Development at Gamesa.

“The main market drivers are purely economic; owners are looking to maximize the profitability of their fleet and to increase the value of their assets. Drivers include expiration of existing project PTCs, a need for capital to fund further development activities and an active YieldCo market,” says Wilson.
“Today, we are only at the tip of the iceberg in in terms of identifying which wind turbine generators (WTGs) are truly viable candidates for an upgrade (vs. replacement) both technically and in terms of project economics.
Energy consultancy FTI Intelligence's preliminary rankings for the world's top five wind turbine original equipment manufacturers places Vestas at the top spot in the preliminary rankings as the leading turbine OEM. Siemens is at second place for 2014.
"2014 was a record year for the wind industry, but it was mainly driven by the boom- and bust fear created by the regulatory uncertainty in China and Germany," says Feng Zhao, Director at FTI Consulting and Head of Wind Energy within the FTI-CL Energy practice.
"Although the growth in South and East Asia, and Latin America will remain strong, without a stable market structure in Europe and the policy consistency in the US, the global wind market is likely to fall in 2016,” says Feng.

Upgrades equal cash flow now, fatigue later

By 2020, Consultancy MAKE estimates that 30% of US wind turbines will be a decade old. In that same year, MAKE also expects that there will be 40GW of off-warranty GE turbines across the Americas, and more than 20GW of off-warranty Vestas and Siemens machines.

Many turbine owners have financial asset models set at 20 to 25 years, but new upgrade analysis is proving that turbines can churn out power closer to 30 to 35 years.

There are a number of countries that get an even larger percentage of their electricity from wind – another important metric. However, annual production is a good indicator of how efficient and productive the U.S. wind industry is by world standards, says an EWEA Blog.

In 2015 and 2016 wind farm operators, such as E.On in the US are likely to choose immediate upgrade revenue benefits, extracted from turbine performance software, over any perceived shortened turbine life expectancy due to increased power output.

To date, companies such as EDP Renewables North America are not reporting significant increases in operating expenditure (OPEX) from upgrades. They are looking to harness more cash flow now, rather than betting on a longer cash stream over time.

EDPR entered the US market in 2007 with the acquisition of Horizon Wind Energy LLC from Goldman Sachs. The addition of Horizon, now EDPR North America (EDPR NA), helped to more than double EDP’s wind-power production. The US platform has seen rapid growth since 2007, operating over 3,600 MW.

Source: EDPR

“Turbine upgrades designed to provide power curve improvements offer a much stronger ratio of profitability improvement than O&M cost reductions,” says Wilson.

Source: Breeze

According to MAKE Consulting, 10% O&M cost reduction in OPEX may only yield a 1% increase in LCOE, whereas a mere 1% production increase may yield the same 1% profitability increase.
According to Wilson, Gamesa’s Medicine Bow Wind Farm Overhaul project included a full overhaul of V47 and V42 turbines (new cabinets, new converter, new control software and SCADA, new generator (RCC to DFIG), etc).

“The project was driven by the economics of the overhaul. It included excellent payback on the investment and a long-term extension of revenues by increasing the life span from 20 years to 30 years,” says Wilson.

Wilson expects that as technologies improve and the costs of those technologies decrease, opportunities for retrofits and upgrades will grow, especially with gearbox and bearing technologies, power electronics, control software and composites.

GE says its PowerUp concept can increase a turbine's annual energy production (AEP) up to 5% and is proving successful with turbine owners.

E.ON enrolled a total of 469 wind turbines in the service since GE’s PowerUp services launched in 2013 and, once validated, could reach a projected increase of 87 GW/h of additional energy production across all turbines, or the equivalent of adding 19 GE wind turbines to E.ON’s fleet, based on performance extrapolations. This is money in the bank for E.ON and GE.

In 2014, GE contracted with renewable power producer First Wind to implement GE’s PowerUp services on 107 GE 1.5-77 and 1.5-82.5 wind turbines at the Milford I and Milford II wind farms in Utah.

Turbine maker Siemens claims that its Power Curve Upgrade for existing blades can boost by 1.5%; with Vestas claiming its Power Uprate offering increases AEP by 1-4%.

Getting all parties on board

“Owner-Operator Self-Perform and OEM’s have been aggressive in the after-market for the past five years. Rather than distinguish by company type, I believe many owners look for results and quality. They want the right service quality, the right safety standard, the right business philosophy and the proven ability to deliver more production, lower OPEX and longer asset life,” says Peter Wells, CEO of ISP UpWind.

Certain upgrades may render component or type certificates of the wind turbine invalid, if they lack the approval from the OEM or otherwise have a professional assessment that the upgrade will not affect turbine safety and long term operation.

If owners lack valid turbine certificates or otherwise breach their contractual obligations, any damage might be completely on their expense.

This can label ISP upgrades as a perceived higher risk compared to OEM-offered upgrade platforms, according to a report by wind data performance software company Breeze.

“In the short term, the perceived higher risk enables OEMs to charge a premium,” says Jonas Corné, CEO of Breeze.

“In the long term we don't think the intricate knowledge that turbine manufacturers now possess will be a differentiating factor. We also think competition will bring prices down, which is good for the owner and for the consumer of electricity," he says.