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O&M budgets 'slashed' during Covid-19 pandemic

Asset owners have slashed their operations and maintenance (O&M) budgets amid the coronavirus (Covid-19) pandemic, raising fears of continuing price pressures on manufacturers looking to generate income from both turbine sales and service contracts, according to new analysis.

IntelStor now expects O&M contract prices to continue falling as asset owners leverage more favourable deals (pic credit: Deutsche Windtechnik)
IntelStor now expects O&M contract prices to continue falling as asset owners leverage more favourable deals (pic credit: Deutsche Windtechnik)

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If O&M spending continues to decline, the resulting price pressure on manufacturers — unable to offset negative margins on turbine sales through lucrative service contracts — could cause further industry consolidation of mid-tier companies, CEO of advisory firm IntelStor Philip Totaro warned.

The pandemic — which has created logistical challenges due to social distancing and caused financial uncertainty — has disrupted an ongoing trend of rising O&M costs in the past ten years, according to IntelStor.

Some asset owners are trying to offset reduced revenue due to lower power demand during the pandemic, while OEMs are still looking to favourable O&M deals to claw back reduced margins on turbine sales.

IntelStor believes asset owners have the upper hand in negotiating contract prices — especially when they seek to extend a wind farm's operational life, rather than repowering it.

Before the coronavirus pandemic reduced demand for electricity and working-from-home provisions shifted consumption patterns, the advisers had expected O&M costs to continue rising.

Pandemic strategies

During the pandemic, companies that carry out their own O&M work are seeking to reduce their overall operations expenditure (Opex) by managing their spare parts inventory or cutting insurance, overhead and administrative costs, accordingt to IntelStor.

Meanwhile, some of those that have turbine suppliers maintain their assets are renegotiating or trying to terminate long-term service contracts to offset lower power demand during the pandemic, IntelStor CEO Totaro told Windpower Monthly. 

Others are delaying potential major correctives on turbines to comply with social distancing measures, in addition to deferring costs, according to IntelStor’s analysis.

Asset owners are also showing more interest in digital solutions — including predictive analytics, whereby operators can be alerted to malfunctions before they happen — but many remain unconvinced of the potential value for money given the expense, the advisers noted.

As companies look for new revenue streams during the pandemic, more are receptive to out-licensing asset-performance and operational data to help offset cost reductions or redundancies carried out to reduce Opex budgets.

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