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US wind study warns of cost challenge from rising fleet ages
A new report by IHS Markit reveals massive improvements in wind operations and maintenance (O&M) efficiency but further innovations will be required to limit the impact of rising turbine ages.
Despite technology gains and growing project experience, the North American wind industry faces rising operations and maintenance (O&M) costs in the coming years.
The average turbine age in North America will rise from 5.5 years in 2015 to 7 years in 2020 and 11 years in 2025, according to the 2017 IHS Markit Wind O&M Benchmarking in North America report, published last month. O&M costs are forecast to rise from $45,000-$50,000/MW per year for turbines aged between five and 10 years, to around $50,000-$60,000/MW per year for turbines aged between 10 and 15 years, it said.
Intense wholesale market competition and falling installation costs are raising the importance of O&M efficiency. IHS data shows how design efficiencies and improved maintenance strategies have sliced O&M costs for newer units.
The average annual direct O&M costs fell from $40/MWh per year for projects completed in 2000, to less than $4/MWh per year for projects completed in 2016, Ryan Siavelis, senior research analyst at IHS Markit told New Energy Update.
The latest turbine designs require fewer replacement parts than older wind farms and newer projects are also using larger turbines, which incur lower O&M costs on a $/kW-year basis, Siavelis noted.
Forecast US turbine capacity, hub height
(Click image to enlarge)
Source: Berkeley Lab Survey (2016).
The median annual U.S. wind O&M costs for projects with a full-wrap warranty is estimated at $48,000/MW but this figure falls to $40,000/MW for projects completed between 2015 and 2017, IHS data shows.
Growing operational experience has allowed firms to improve performance in the first two years of operations. For older projects, costs typically spiked in the first two years.
“There is no such spike for newer projects… operators have learnt from experience,” Siavelis said.
New business models
The size of the wind O&M market is expected to increase dramatically in the coming years and industry relationships are evolving.
U.S. wind farm owners are expected to spend over $40 billion on O&M over the next 10 years and suppliers such as Suzlon, Siemens Gamesa, MHI and Vestas are increasingly moving into the third-party servicing market, IHS said in its report.
The number of utility-scale wind turbines installed in the U.S. is forecast to rise from 50,000 currently to around 70,000 by 2030, by which time the average turbine age will be 14 years, IHS said in its report.
O&M costs are generally stable between three and twelve years of operation, with a pronounced spike between twelve and fourteen years as generators and gearboxes are replaced, Siavelis said. The IHS study found that a quarter of all turbine gearboxes needed replacing within ten years of operation.
The North American wind industry has moved out of its infancy and into a "sweet spot" which could offer many years of useful life with relatively low-cost O&M, Dan Barker, Managing Director - Service, Enercon Canada, said last month.
Speaking at the Wind O&M Canada 2017 conference, Barker warned decisions made at this point will impact the duration of this lower-cost period.
"These are long-term assets and that requires a long-term mindset and strategy in how we manage those assets...Maintaining that long-term view and avoiding the temptation to reduce costs is important, " he said.
Almost 70% of all the projects included in IHS' research had a full wrap warranty. The average duration of full wrap warranties is five years; compared to four and a half years for service only warranties; and two and a half years for parts-only warranties, it said.
After the warranty period, O&M costs in 2015-2017 for projects maintained by the operators themselves were on average 19% lower than those maintained by OEMs or independent service providers, according to IHS' research.
Switching to self-performance of wind O&M at end of warranty can cut costs by between 25% and 35% and allow operators to make more design improvements to increase unit reliability, Jeff Wehner, VP Renewable Operations, Duke Energy, said in 2016.
However, bringing O&M activities in-house requires significant upfront investment in training and infrastructure and costs vary depending on plant size, age and location.
Pattern Energy, which owns more than 2.6 GW of U.S. wind capacity, last year decided to bring O&M activities in-house at five of its 18 wind projects.
“Right now, we are building in extra costs this year and some next year, and we'll see a substantial return on that over the coming two to three, four, five years. It'll take about five years,” Michael Garland, CEO of Pattern Energy, said on a quarterly earnings call in August 2017.
Many large operators are increasing ties with suppliers. E.ON has deployed a range of “Hands-on” supplier-operator partnerships to improve wind farm operations and greater knowledge-sharing between partners will generate further savings, Roland Flaig, Head of Wind Operations- Onshore Europe, at E.ON Climate & Renewables, said In February 2017. In November 2016, Duke Energy and Siemens agreed to collaborate to supply O&M services for multiple brands to the U.S. wind sector.
In the U.S., owners of ageing wind assets must also prepare for the expiry of Production Tax Credit (PTC) contracts and adapt O&M strategies to weak power price outlooks.
"There is an emerging mismatch between availability and profitability which are not really in the owner's interests...We have to look at the evolution of the revenues over time and see how we can maximize these projects," Patrick Woodson, E.ON Chairman, North America, said in April 2017.
"By the end of 2017 we are going to have 20 GW of projects which no longer have any PTC values, most of which are facing extremely low power prices. It's going to continue to be a big challenge for all of us," Woodson said.
"For us, availability isn't really the right metric any more. We think there needs to be a greater risk-sharing approach now between service providers and owners," he said.
Production-based availability guarantees encourage partners to apply a long-term vision to wind farm assets, Casey Kennedy, Customer Account Manager, EDF Renewable Services, said last month.
"As the projects mature and we see more ISPs [independent service providers] come into the marketplace, [Production-based guarantees] will be the owners' mechanism to ensure that we share that vision," he said.
"For us to be competitive in that space...we have to get into a full wrap, an FSA [full service agreement]-type structure where we are de-risking-- taking the risk away from the ownership group and putting more on us," Kennedy said.
By Neil Ford