While operators plot their next move, independent service providers and turbine original equipment manufacturers (OEMs) are muscling in for business. One reason for the growing role of manufacturers in servicing equipment is that an increasingly tight-fisted banking sector is demanding longer service contracts before it lends for project construction. Another big reason for the shift is that, in leaner times, turbine makers see an opportunity to diversify their business and are moving in aggressively.
Two or three years ago, service contracts from the OEMs attached to a turbine sale were short - often between two and five years and rarely more than that. Now, because those same OEMs are pulling in less cash from fewer wind turbine sales, and because profit margins on service are good and offer long-term cash flow, they are stepping up their sales pitches for operations and maintenance (O&M).
"Three years ago, when we bought turbines, a lot of suppliers said we'll provide the parts but that's all we'll do. Now there are ten-year service contracts on the table," said Scott McBride, regional operations manager for Padoma Wind Power, speaking at a recent conference on O&M hosted by the American Wind Energy Association (AWEA).
"This industry is changing very fast and this is one area where it's changing especially fast," adds Jeff Wiener, global sales & commercial manager, GE Wind Services. "It's driven by everyone: by lenders for risk aversion, and by operators and a desire for stability in the workforce."
GE now offers contracts from two to ten years and, after a break-in period, provides a guarantee on wind turbine availability. Availability is one of the benchmarks of a wind turbine's performance, reflecting the proportion of time a wind turbine or a fleet is available to operate when winds are blowing. The company now needs to be more responsive with more options, such as long service contracts, says Wiener. "We found that, as the market was changing and a new dynamic was coming along, we really had to be more flexible as a company," says Wiener. "We realised we had to change."
Spanish turbine manufacturer Gamesa, meanwhile, is now offering up to ten-year service contracts and even talking about 20-year contracts, says Sudhir Nunes, a customer service manager for the company. "The motivation is coming from the banks who want longer term assurances," Nune says. Gamesa is also offering full warranties to go with long-term O&M agreements. Like other OEMs it is willing to negotiate a continuation of service as existing projects come off warranty.
Nunes adds that longer service contracts have the additional benefit of enabling manufacturers to retain qualified wind technicians. Service personnel are more likely to stay on as technicians on a project or at a company if they have the long-term assurance of employment. This is particularly the case when technicians have to consider the lifestyle change that can come from moving to distant rural areas to service a wind project, which is more often the case in the US than in Europe. A ten-year contract is likely to be more of an incentive to a technician to commit to such a job than, say, one for two years with uncertain prospects thereafter.
Finding enough qualified wind technicians has been a challenge for the wind industry - particularly in the fast-growing US market. An owner-operator panel discussion at the AWEA conference revealed just how difficult times have been, particularly during 2008 when a large number of turbines were installed. Competition for limited technicians at this time was fierce and often a case of "robbing Peter to pay Paul for a difference of 50 cents on the hour. That hurts a lot of people", said David Barnes, CEO of Bluarc Group, an asset management company operating many wind plants owned by Infigen, a spin-off of defunct Babcock & Brown.
Kevin Devlin, vice-president of operations for Iberdrola, said that small accommodations can make noticeable differences in finding and keeping technicians. Many wind technicians pride themselves on the fitness required to climb the towers, but Devlin said he preferred wind turbines that come with service lifts because it "opens up the pool of qualified people who may not necessarily want to or be able to regularly climb". Devlin added that in today's buyer's market for turbines, he would like to see extras, like service lifts and condition monitoring systems to assess critical components, come standard with purchase of new turbines.
Terry Oswald, director of operations for Horizon Wind Energy, said the technician scramble in 2008 settled down through 2009, partly from new talent entering the market. "The training schools really came into being during that time and there are more candidates coming out," says Ross Newlin, vice-president of asset management for Enxco Inc. "I would say there's a pretty good backlog of industry talent coming in that should fulfil needs."
Talent shortage fear
But not everyone at the AWEA event was optimistic that operators and service companies will find and retain enough qualified talent. "The industry has a crisis on its hands as turbines come off warranty. There's a real shortage of people for this," said Barnes. Echoing the concern, Phil Dutton, senior project manager for wind consultancy Garrad Hassan America, said: "We're headed towards another rash of hard times for training and staffing up as turbines come off warranty."
Warranty expiration concerns are particularly high in the US because the market experienced breakneck growth of turbine deployments beginning in 2005 and ramping up steadily through to today: the US ended last year with 35GW online, up from 9GW at the end of 2005. Most warranties and service contracts from OEMs during this period were between two and five years. As warranties end, all future failures in gearboxes, generators, blades and other critical parts will be the wind plant owner's responsibility.
End-of-warranty inspections have therefore become a critical new offering from the service sector. Although many OEMs design their wind turbines to last more than 20 years, operators know they will not get decades of service from wind turbines without major repairs and have generally factored this into their upfront project costs. Any faulty component that can be identified as such and repaired by the OEM before warranties expire saves operators money.
Gearboxes in particular are receiving the closest inspections. While results vary, gearboxes are generally considered to last between seven and 11 years, but precise statistics are unknown. Independent service providers (ISPs) are considered a logical choice for gearbox inspection. OEMs undertaking pre-end-of-warranty inspections could have a financial motivation to overlook certain repairs to save themselves money; conversely, turbine owners could ask for parts replacements that do not really need replacement. Arguably, only ISPs lack bias in making such determinations because they do not have the same financial stake in the results or repercussions of an inspection that a turbine OEM does.
But Marty Crotty, president of AES Wind Generation, would like to see OEMs carrying out more tests on equipment during the warranty period. For example, manufacturers will often only do one power-curve test - to gauge whether a turbine is producing the power it should be when winds are whipping - during the commissioning phase, when turbines are first installed. But other key adjustments, such as precise anemometer calibration, pitch and yaw system programming and other parameters are all best addressed during the warranty period.
"Hold the manufacturer's feet to the fire during the warranty period because those are some of the most valuable years of a project's life," Crotty says. "OEMs are not focused on operating the turbines as efficiently as we would like them to be."
Thorough inspections before the warranty phase ends can pay off, adds Crotty. For example, Crotty has calculated that if a wind operator can reduce maintenance costs on a $100 million wind project by $10,000 per year, that adds up to $6 million in savings in net-present-value (NPV). NPV calculates the present-day value of a project, taking into account costs incurred over its lifetime. Likewise, at a typical 100MW wind project, Crotty says a 1% improvement in power output equals $2 million NPV.
A significant amount of downtime for turbines is often just the time it takes for technicians to get to a project, says Crotty. Downtime and cost can also occur with O&M safety lapses. "Sites that have poor safety performance will soon or in the future have poor economic performance," he says. "Significant accidents have real cost."
Safety factored prominently at AWEA's O&M conference. As the wind industry establishes itself alongside the mainstream energy industry, it is coming under increasing scrutiny from the Occupational Safety & Health Administration, a workplace regulator under the US Department of Labor (see page 82).
"The enforcement part of it has become very important," says Mike Kelley, environmental health and safety manager with O&M company Upwind Solutions. "We've seen the number of fines being issued going up and the amount of the fines going up."