Data show rising operations and maintenance costs as U.S. operators adapt to more out-of-warranty turbines.
2012 was a remarkable year for U.S. wind energy installations: Developers installed a record 13.1 GW of capacity, pushing the U.S. total installed capacity to more than 60 GW at the end of the year. More wind power capacity should be good news for anyone in the business of providing operations and maintenance (O&M) services for wind turbines.
However, the primary driver of this surge in installations – the anticipated expiration of the production tax credit (PTC) – is just as much a threat as it is an opportunity for incumbent O&M providers. The last-minute extension of the PTC has left turbine manufacturers, many of which are already struggling to remain profitable, with a financial hole to fill this year.
In response, many original equipment manufacturers (OEMs) are seeking to expand their presence on the operations side of the business, which offers the prospect of stable income with lower capital costs. It has been suggested that greater competition in the O&M services sector in a number of countries has led to a sharp drop in global turbine operational costs. Although costs may be dropping in certain regions, the strong influence of local and project-specific factors on O&M costs makes global conclusions about cost trends of limited practical value.
Based on company data collected at more than 8 GW of installed wind projects throughout North America over the past decade, O&M costs in the U.S. actually increased between
2008 and 2011. The study examined actual scheduled and unscheduled turbine maintenance costs, as well as balance-of-plant (BOP) costs, across more than 8 GW of projects. The data reveal that total turbine O&M and BOP costs rose from an average of $21,000/MW in 2008 to an average of $31,000/MW in 2011.
The huge growth in wind farm installations since 2007 has led to a big increase in the number of turbines reaching the end of their manufacturer warranties. One of the critical issues now facing the industry, and the key factor pushing up O&M expenditures, is the rising cost of unscheduled maintenance.
The multitude of machines out of warranty, combined with the technological diversity and geographical spread of projects, presents significant challenges to the industry. Responding to these challenges are three main types of O&M service providers: manufacturers, independent service providers (ISPs) and owner-operators. In the U.S., each type of provider has a significant share of the market – unlike in Europe, where manufacturers dominate.
The diversity of service providers in the U.S. has resulted in a wide variety of approaches to wind farm operation. Some owners have opted to limit capital expenditure on O&M infrastructure in order to keep fixed costs low, while others have invested more heavily in sophisticated data-monitoring systems with round-the-clock support.
Each of these approaches has proven to be successful in different situations. But what the upward trend in O&M costs – especially the increase in unscheduled-maintenance costs shows is that the industry is still developing its understanding of failure rates and the appropriate methodologies for dealing with them.
The process of optimizing O&M activities and the spotting trends takes time and money – which is likely to be one of the primary reasons for the uptick in O&M expenses. In some cases, the transition to successful and efficient out-of-warranty operations has been hampered by a shortsighted view of costs, with under investment in performance-monitoring, condition-monitoring and predictive-maintenance systems.
Maintaining wind farms efficiently and cost-effectively demands a deep understanding of turbine performance. The vast majority of wind farms are equipped with some type of supervisory control and data acquisition (SCADA) system. However, in many cases, the available data are not being used to diagnose performance issues and resolve problems before they lead to expensive failures. Therefore, investment in the proper analysis of available SCADA data and in condition-monitoring systems is critical to decreasing operating costs.
Recently, several large owner-operators, ISPs and turbine OEMs have incorporated advanced data-analysis platforms and inspection routines to allow for detailed performance and health monitoring, which can inform predictive maintenance.
A data-driven approach to maintenance and greater investment in advanced maintenance approaches will have a positive effect on O&M costs. However, those steps alone will not lower O&M costs. Ultimately, the failure of turbine components, such as gearboxes and generators, coupled with unscheduled costs, such as those required for crane procurement, are key factors in determining wind farm operating costs.
While there have been extraordinary advances in wind turbine design over the last 30 years, continued investment to improve turbines’ efficiency and reliability is needed. Major failures not only impact direct revenues, but also lead to secondary costs, including those related to component replacements, logistics, crane availability and backup staff. Therefore, improvements in wind turbine designs would greatly reduce the size and cost of the infrastructure currently dedicated to support operations.
It is also instructive to note that there are regional variations in O&M costs. As wind project owners and operators know, O&M costs are impacted by a host of variables, many of which are unique to specific regions and projects.
Texas is at the low end of the O&M cost scale, with an average cost of $26,000/MW, while O&M costs at wind farms across the Northeastern states – such as Pennsylvania, New York and Maine – average $40,000/MW. Texas now has more than 12 GW of installed wind power capacity, and operators benefit from the sheer scale of the industry, availability of resources and concentration of development in a relatively small area.
The Lone Star State also features the largest average wind farm size in the data set. Larger wind farms generally result in lower per-megawatt O&M costs, as fixed expenses can be spread over a greater number of turbines. In addition, the state’s moderate climate helps reduce scheduling uncertainty and weather delays, and its uncomplicated terrain simplifies logistics.
Conversely, the Northeast has a lower concentration of wind farms, so distances and transport times are greater. These logistical challenges, in turn, make the efficient pooling of resources more difficult. The data sample also shows that the wind farms in the Northeast are the smallest in the country, further contributing to higher per-megawatt O&M costs. Cold weather, winter storms and challenging terrain also conspire to push up costs in the Northeast region.
Wind power has become a nationally significant source of energy. Ironically, this success has played a role in increasing operating costs. Lowering the costs of building the infrastructure needed to support turbine operations will take steady investment and knowledge-building. Many of the regions that are new to wind energy development now have a solid foundation on which to build more cost-effective wind farm operations.
It is logical to think that a maturing industry will drive down O&M costs over time. Although the wind industry is likely to continue grappling with the uncertainty of gearbox failure rates and replacement costs in the near term, there is enormous potential for future O&M cost reductions in the U.S.
Craig Houston is head of strategy and policy at GL Garrad Hassan. He can be reached at firstname.lastname@example.org.
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