Peter Wells, CEO of UpWind: "I believe there are ISP models, like full service sophisticated approaches that have global application and would therefore benefit from consolidation due to greater critical mass, enhanced capabilities and broader...

By Katherine Steiner-Dicks

FCBI (LONDON) 2015 will mark a turning point for some independent ISPs to innovate or consolidate into global ISPs as the likes of Gamesa’s Life Extension Program, GE's PowerUp, Siemens' Power Curve Upgrade and Vestas' PowerPlus become adopted by fleets of wind farms across the US while warranties are still active.

According to consultancy MAKE, the total available market for O&M in the Americas is $2.5bn, which likely translates to about $1.5bn in the US, growing to about $2.5bn to $3bn by 2020, says Peter Wells, CEO of UpWind, a California-based O&M specialist.

Wells says that MAKE’s findings are consistent with other studies and UpWind’s analysis.

“My view is that there is no reason why the ISP market share should not remain consistent at 25% or even grow if the ISPs continue to innovate, disrupt the market with better options and lead the way on providing value added solutions,” says Wells.

Wells says that ISPs also offer services across the O&M value chain, many of which are not delivered under long term agreements.

“In addition, many, if not all, OEM’s use ISPs for Planned Maintenance. If you allow for all of this, the ISP market presence is large and is likely to remain so,” he says.

Jonas Corné, CEO of Breeze, a Sweden power performance and forecasting data software specialist for the wind industry, expects more consolidation in the ISP market.

“We expect continued consolidation. Scale is necessary for ISPs to learn quickly enough to create compelling offers and to off take risk from the owner by using creative business models, such as only being paid by realized performance increases.

“Our experience is that this is not in the nature of most OEMs. They are too big and too slow.
We think ISPs may have tough time in 2015 - they will be forced to learn quickly - but that they will prosper in the long run,” says Corné.

ISPs: innovate or consolidate?

“Consolidation and globalization of the services market is going to change this picture over time. This will bring opportunities for the larger, global, ISPs,” says UpWind’s Wells.

Wells says consolidation may make sense for a number of ISPs.

“There is already significant consolidation on the Owner/Operator side and with the purchase of assets, which is driving paradigm shifts in the market, globally, that really give rise to better opportunities for the larger, more global ISP models,” says Wells.

He explains, “There are numerous ISP models, however, and it’s hard to give a broad brush response. I believe there are ISP models, like full service sophisticated approaches that have global application and would therefore benefit from consolidation due to greater critical mass, enhanced capabilities and broader global reach into more markets.”

ISPs, such as UpWind, are acquisition targets.

“We’ve been approached numerous times and expect that to continue,” says Wells.

How can ISPs compete against OEMs?

Whole fleets of wind turbines can be managed by centralized operation and service centers. The OEMs can reach through to fleet owners with new products, services, and upgrade packages, by utilizing their base of thousands of turbines.

The logistics and protected data alone of such centers begs the question how can ISPs compete?

“Margins on turbine sales are low, around 2%, whereas margins on after sales is closer to 20%. That being said, the OEM’s margin is someone else's opportunity,” says Corné.

“While OEMs have access to a lot of data, our experience is that the data is massively under-utilized by most OEMs. The real differentiation most OEMs have towards owners compared to ISPs is under warranty.

“After the warranty period we think the lucrative margins will continue to bring in independent competition that will learn rapidly and be more incentivized than OEMs to take the owner’s view,” he says.

“OEM-driven solutions are significantly more sophisticated and reliable than those of many 3rd party providers,” says Warren Wilson, Director, Service Sales and Business Development at Gamesa.

He explains his point of view, “OEM’s have considerable knowledge and expertise in turbine operations and technology. The process of knowledge transfer is enabling us to develop and invest in highly reliable upgrade products that provide customers with demonstrated increases in AEP and the related economic improvements in asset revenues.”

Wells has a different take on the situation.

“I disagree with the view that OEM’s are more sophisticated than ISPs, but again recognize that not all ISPs are the same,” says Wells.

“It is reasonable to suggest that OEM’s should have considerable knowledge and expertise, however, I would argue this is limited to their own technology. OEMs are numerous and their respective strategies and abilities in the after-market vary tremendously.

Conflict of brand interest?

Corné sees a conflict of interest for OEMs staking a claim in O&M services of other turbine brands, an opportunity that Vestas and Suzlon are aggressively targeting.

“It is difficult for OEMs to make a credible case that they are incentivized to make and prove performance increases on another OEM's wind turbines. Again OEMs are mostly incentivized to sell their own wind turbines. They are path dependent in the sense that they have large fixed investments that need to be utilized to build wind turbines,” he says.

UpWind, for example, supports 10 different OEM technologies and 24 different turbine type and was audited and benchmarked by DNV GL in 2014 against a peer group of ISP, Owner-Operator Self-Perform and OEM.

“We have delivered improved availability, reliability and production on dozens of projects and focus our services on adding customer value through three deliverables …more production, lower OPEX and longer asset life,” says Wells.

Source: Breeze

“Our market is competitive, it has always been,” says Wells.

“So developing competitive solutions, reading market dynamics and being ready to adjust or pivot is normal for us and we’ve become good at it. We do see some new opportunities and directions. These are in development and will be launched (covertly or overtly) throughout 2015,” he says.