China

China

Chinese wind owners 'face growing O&M pressure'

Share prices of key Chinese wind players have been hit by an unexpected surge in operating and maintenance (O&M) costs, according to new analysis.

Wood Mackenzie Power Renewables expects Chinese O&M services for 2018 to be US$13,000/MW, compared to US$27,000 in the United States (pic credit: Scott Meltzer)
Wood Mackenzie Power Renewables expects Chinese O&M services for 2018 to be US$13,000/MW, compared to US$27,000 in the United States (pic credit: Scott Meltzer)

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The increase has depressed the mood of investors, causing the stock of asset owners such as Longyuan Power Group, Huaneng Renewables, and Datang Corp Renewable Power to drop between 12% and 28% from March to June this year, according to anaylsis by Wood Mackenzie Power & Renewables (WMPR).

Much of the surge in O&M costs is due to a "considerable" number of early-generation turbines reaching the end of the warranty period offered by manufacturers, WMPR principal analyst Daniel Liu explained.

While project owners have a range of options for meeting O&M requirements, WMPR expects more companies to rely on in-house services teams.

Warranty

Turbine manufacturers typically bundle O&M warranty with turbine sales, normally for a period of five years, WMPR explained.

While under warranty, asset owners are largely shielded from any major deviations in Opex budgets as the manufacturer takes on any financial risks associated with poor reliability or underperformance, Liu added.

But with 60GW of turbines reaching five years of operation and the end of typical warranty agreements, asset owners are increasingly vulnerable to service costs.

Asset owners have the option extend the service agreement with the original supplier, outsource it to an independent service provider, or create an in-house servicing division.

WMPR said it expects more asset owners in the China to rely on their own O&M capabilities to tackle these issues.

Liu explained China already enjoys some of the lowest cost levels in the wind power industry, due to cheaper labour and spare parts.

WMPR expects Chinese O&M services for 2018 to be around $13,000/MW, compared to $27,000/MW in the US.

Further efforts to keep O&M costs low — as well as innovations in new technology — are "urgently" needed to help reduce project costs as the Chinese government seeks to scale back or remove wind subsidies for new projects by the end of 2020, it added. 

The Chinese onshore O&M market could be worth $5 billion per year by 2030, WMPR noted. By comparison, the analysts estimate global onshore O&M spending in 2018 was about $2.3 billion.

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