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14:00 | 06.11.2017
Aging US Wind Energy Fleet Driving Surge in Operating and Maintenance Spending, IHS Markit Says

The North American wind energy market is aging—the majority of installed
wind-turbine equipment averages more than five years in age, and
operations and maintenance (O&M) expenses cost the industry $3 billion
to $4 billion annually, according to a new benchmarking study by IHS
Markit (Nasdaq: INFO), a world leader in critical information,
analytics and solutions.

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Forecast of weighted average age of installed wind capacity, United States and Canada. Source: IHS Markit
IHS Markit estimates total O&M spending for the wind energy sector will
exceed $40 billion, cumulatively, from 2015 to 2025. (The U.S. Bureau of
Labor and Statistics is also keen on the potential for employment in the
sector—it estimates wind energy technicians will be the fastest growing
occupation and will more than double in demand during the next seven
years.)

“The average age of the North American wind fleet will rise from 5.5
years in 2015 to 7 years in 2020, and to 14 years in 2030,” said Maxwell
Cohen, senior research analyst at IHS Markit. Cohen, along with Ryan
Siavelis, senior research analyst, at IHS Markit, is co-author of the 2017
IHS Markit Wind O&M Benchmarking in North America: Summary of Key
Findings. “Along with that, equipment maintenance and
operating costs are increasing significantly, leading operators to focus
on performance optimization and cost management. We designed this study
to help wind-asset owners compare the performance of their projects
against the market as a whole, as well as to help them determine the
optimal O&M strategy for their business.”

“Though it may seem counterintuitive, first-year start-up costs are
quite expensive as problems with new equipment are addressed, then, as
projects age, we see a spike in costs for equipment maintenance at about
the five-year mark through to 10 years of operation,” Cohen said. “Some
wind installations in California date back to the 1980s, so you have a
wide variety of equipment and installations, and there is a real need
for some comparative analysis to help the industry assess and manage
operations and maintenance costs.”

“The IHS Markit benchmarking analysis includes input from many of the
largest wind project owners and operators who asked IHS Markit to
fulfill their need for concrete, standardized data and analysis to help
benchmark the cost and performance of wind-farm operations,” Siavelis
said. “There was a void in the market for this type of analysis.”

The IHS Markit report comprises data from nearly 300 wind projects,
representing 30,000 megawatts (MW) of capacity and nearly 20,000
turbines installed in North America (about one-third of the market).
Project start dates range from 1994 to 2016. The data represents more
than 115,000 turbine-years of operational history, and gives study
participants the ability to track projects and turbine performance over
time. The IHS Markit study includes data on wind turbines manufactured
by more than 15 turbine OEMs.

Currently, more than 50,000 utility-scale wind turbines comprising
nearly 100,000 megawatts of generating capacity are installed in 42 U.S.
states and 12 Canadian provinces and territories, with an average age of
six years. By the year 2030, IHS Markit expects those numbers to
increase significantly. More than 70,000 wind turbines will generate
more than 150,000 MW of power in the U.S. and Canada.

“The age of that capacity in 2030 will make the O&M business very
lucrative, which is why so many players are expanding into this sector
of the business,” Siavelis said. “We see new entrants from across the
value chain competing for wind O&M service agreements. Original
equipment manufacturers (OEMs) including Suzlon, Siemens Gamesa, MHI and
Vestas are becoming more active in offering to service turbines
manufactured by other OEMs, for example.”

Suzlon and MHI, which have both shuttered U.S. manufacturing, are
re-focusing in the U.S. as service companies for their respective 6.4
megawatts of combined installed wind turbines, as well as for other
OEMs, said IHS Markit. E.ON Climate & Renewables is the latest wind
independent power producer (IPP) to launch a business serving turbines
owned by others in 2015, following in the footsteps of EDF RE and Duke.

“These IPPs are tapping project administration and balance of plant
(BoP) experience to capture new deals,” Siavelis said.

O&M costs are lowest in the first year of operation, but only slightly.
During the first 10 years of a wind turbine’s operations, costs average
between $42,000 and $48,000 per MW, IHS Markit said. There is, however,
a great range of costs from project to project, with age, location, and
O&M strategy all being important factors.

As projects continue to age, direct O&M costs (that is, the direct cost
of actually maintaining the turbines) increase while indirect costs
(e.g., general site administration and other business services) remain
steady or even decline, leading to mostly stable total costs on net.
However, Cohen said a wide variation in costs exists for wind projects
depending on size of the installation, equipment used, and whether
maintenance costs are managed by the OEMs, by independent service
providers (ISPs), or by operators themselves.

The median O&M cost for a project with a full-wrap warranty was slightly
more than $48,000 per MW per year in 2016. After the warranty period,
the median costs for projects maintained by OEMs and ISPs were nearly
the same, while the median cost for projects moved in-house was 19
percent lower. “The study indicates that substantial cost savings can
typically be obtained by switching to self-performance,” said IHS
Markit, but the authors caution that the data set used in this study is
weighted toward large owners that are experienced in self-performance of
maintenance.

“Performing their own O&M can be risky for owners who do not have a
track record of conducting maintenance,” Cohen said. “These turbines are
massive, complicated machines, containing thousands of parts perched 25
stories or higher above ground. Our study found that one-quarter of all
turbines’ gearboxes need replacement during just the first decade of
operations. Owners that perform their own O&M need to coordinate labor,
spare parts, and cranes for this sort of complicated turbine
maintenance, all while minimizing turbine downtime. These owners may
have projects using turbines built in different years by different OEMs
that are spread all across North America in remote locations, so doing
their own O&M is a major undertaking.”

Contracting with an ISP can provide greater flexibility, but the IHS
Markit report found that ISPs have a mixed record when it comes to cost
savings. ISPs, IHS Markit said, have a ‘long-tail’ of projects in the
bottom quartile in terms of cost savings, and owners should note that
savings may not be as great as expected in low-performing projects.

“The key here is that there is no one-size-fits-all strategy for wind
operators,” Cohen said. “Our goal was to provide a comprehensive
assessment of the entire O&M market, so wind asset owners can select the
O&M strategy that best balances cost, convenience, and risk profile for
their particular portfolios of wind projects.”

To speak with Max Cohen or Ryan Siavelis, please contact Melissa Manning
at melissa.manning@ihsmarkit.com.
For more information on the 2017 IHS Markit Wind O&M Benchmarking in
North America: Summary of Key Findings, please contact leslie.downey@ihsmarkit.com.
About IHS Markit (www.ihsmarkit.com)

IHS Markit (Nasdaq: INFO) is a world leader in critical information,
analytics and solutions for the major industries and markets that drive
economies worldwide. The company delivers next-generation information,
analytics and solutions to customers in business, finance and
government, improving their operational efficiency and providing deep
insights that lead to well-informed, confident decisions. IHS Markit has
more than 50,000 key business and government customers, including 85
percent of the Fortune Global 500 and the world’s leading financial
institutions. Headquartered in London, IHS Markit is committed to
sustainable, profitable growth.
IHS Markit is a registered trademark of IHS Markit Ltd and/or its
affiliates. All other company and product names may be trademarks of
their respective owners © 2017 IHS Markit Ltd. All rights reserved.View source version on businesswire.com: http://www.businesswire.com/news/home/20171106005106/en/


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