Duke Energy estimates cost savings of up to 35% from shifting to in-house O&M

Switching to self-performance of wind farm operations and maintenance (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.

Duke Energy owns 2.5 GW of U.S. wind power capacity and has implemented its own O&M services post-warranty rather than using independent service providers (ISPs) and original equipment manufacturers (OEMs).

As well as reducing costs, self-performing O&M gives the operator full control of the site's performance and better control over safety and reliability, Wehner told Wind Energy Update's O&M Dallas 2016 conference on April 12.

"We find that there are substantial cost savings by in-sourcing it...We have more freedom to go in there and make the changes we might want to make, in terms of operating philosophies and resource allocations," he said.

There are also challenges associated with in-house O&M activities and the operator must be prepared to take on all operational risk, including downtime and parts availability, Wehner said.

Operators must take into account their risk profile and cost expectations when making the decision between self-performance, ISPs and OEMs, he said.

While in-house O&M can save an owner as much as 35% compared with OEM arrangements, the use of an ISP could present cost savings of up to 25%, Wehner said.

Switching to an ISP reduces operational risk for the plant owner, and these arrangements typically provide an energy yield or availability guarantee.

Taking into account all the factors, Duke Energy saw self-operating as the most valuable post-warranty O&M option.

"We looked at the risk, that was a concern to us, but the value we are getting outstrips the risk that was presented to us," Wehner said.

Smooth transition

Operators need to assess their firm's capabilities when building their post-warranty strategy and allow sufficient time to make the end-of-warranty decision, Wehner said.

Companies must evaluate the technical condition of their assets, the firm's capability to analyze performance data, as well as in-house technical staff resources.

Warranty management plans can be implemented to define in-house labor requirements and set out end-of-warranty inspections schedules, Wehner added.

Operators may want to allow three to four months to obtain the different quotes for post-warranty O&M options, and between four and six months to prepare for and conduct the end-of-warranty inspections which will require significant data management, he said.

"I would argue you would want to do end-of-warranty inspections on every turbine to ensure you're not getting any surprises at the end," he said.

The resolution of warranty claims could take between six and nine months, and companies might take two to three months to conduct a risk assessment and make the post-warranty O&M decision, Wehner said.

Large companies may need to involve a number of internal stakeholders and investors to make the final decision, he noted.

Market forces

While Duke Energy has made cost savings from moving towards in-house post warranty O&M, Wehner noted that O&M service products are continuing to evolve and companies must pick the right strategy for their risk profile.

"Optionality in my opinion is critical... You want to evaluate, frankly, all three options," he said.

OEMs are recognizing the move towards in-house O&M activities and have increased the range of service products on offer, Wehner noted.

"Some [OEMs] are developing menus of options so you only have to buy what you truly need," he said.

In the highly competitive O&M market, lower Power Purchase Agreement prices and wholesale market prices will continue to push down O&M pricing, and wind operators must also prepare for the expiration of U.S. Production Tax Credits (OTCs), which could influence their O&M strategy, Wehner said.

"We've got to find opportunities to reduce costs just to make those assets that are in the ground right now viable once the PTCs expire," he told conference attendees. Self-operating could be an option for you," he said.