As the global wind industry matures and more projects reach end of warranty, the cost benefits of choosing between Original Equipment Manufacturer (OEM) contract extensions, Independent Service Providers (ISP), in-house or hybrid arrangements is under close scrutiny.

The uncertainty over the production tax credit (PTC) in the coming years will put further pressure on optimising operational expenditure (OPEX) to maintain competitiveness in the US market.

In a recent survey conducted in the WEU Onshore O&M Report Series 2015, the market’s expectation over which type of O&M provider would dominate varied widely.

Hybrid/ tapered O&M deals edge ahead as the most likely to dominate the O&M landscape in the next five years with 25% of votes, but some 28 % of respondents indicated that it is not yet clear which O&M type will prevail, the survey said.

The choice in O&M service options will ultimately be decided by price as increased competition and innovation lowers costs.

“I would estimate that prices in general have come down by 20 to 30 % over the last five years, while service quality and performance has increased at the same time”, Wells said.

“What the service market has greatly benefited from is independent service providers who have brought competition, innovation and customer options into the market – disrupting the status quo with new ideas, competitive pricing and higher service levels”, he said.

John Robinson, Director of Operations at Siemens Energy, agrees there has been a significant reduction in costs.

“In the past O&M wasn’t really the focus, the focus was on getting new turbines up and running from an industry standpoint. There is a lot more attention on optimizing O&M – what needs to be done and for what price,” Robinson said.

Figure 1: Which of the following service strategies do you anticipate to dominate the O&M landscape in your key market over the next five years?

Product range
Historically, OEM contract extensions have dominated the end of warranty O&M market. This traditional model encompassed a full scope of O&M services.

OEMs are now providing a wider range of solutions as competition increases with the rise of ISPs as well as in-house and hybrid opportunities.

“What we are really trying to do now is provide more variety in our offering so we can provide a solution that can be tailored to different clients”, said John Robinson, Director of Operations at Siemens Energy.

“We have some customers such as investment companies who have little engineering experience and staff,” Robinson.

These clients tend to require a turnkey type solution where Siemens takes on as much of the work as possible and leaves the customer with a limited amount of O&M work, he said.

“On the other hand are your professional utilities. They will have a very different approach where they will want to do as much as possible on their own and have a very limited scope for Siemens’s services”, remarked Robinson. These clients would only really require help in highly complex technical and engineering tasks, he added.

Risk vs reward
According to the WEU Onshore O&M Service Options Report 2015, deploying in-house O&M strategies can reduce costs by 35%.

This cost benefit will depend on the amount of risk owner-operators are willing to take, considering that many lack the know-how and experience of OEMS and ISPs

Both Robinson and Wells said understanding this risk is key.

“Not all owners understand the risk profiles of their assets because they don’t have access to the right data and analysis. Some owners do have enough data and knowhow to understand what type of component failures they can expect in the coming years, but many simply don’t,” Wells said.

“Understanding an asset’s risk profile is critical as you really want to make sure that you are transferring the amount of risk to a service provider that you want to, holding on to a level of risk that meets your appetite or model, and therefore optimize the mix of value, risk and price certainty”, he said.

More for less
US Congress is yet to reinstate the PTC following its expiration in 2014 and this uncertainty will push service plant owners to find ways to deliver more production with lower costs.

Service providers will have a critical role in this, delivering more at lower cost, whilst still maintaining attractive profit margins, Wells said.

“Price reduction resulting from competition is now largely done. The only way we are going to see continued reduction of OPEX is through true innovation, improved efficiencies, and different models for O&M services,” he said.

Bringing services in-house may lead to some cost reductions for operators, but this could limit the long term advantages generated through healthy competition between ISPs and OEMs over the past decade.

“What the industry really needs is a complex and diverse O&M service apparatus”, Kerry Chamberlain, Research Analyst and producer of the WEU Onshore O&M Report Series 2015, said.

The fact that 28% of market survey participants were unsure which type of provider would dominate shows “there will be room for all of these options going forwards depending on both market and technology nuances,” Chamberlain said.