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Estimating Long Term Operating

Costs of Wind Farms ORTECH Power


WINDPOWER 2008, AWEA, Houston, TX
June 1 - 4, 2008
Uwe Roeper, President, ORTECH • Consulting (40 staff):
– Wind Resource Assessment.
– Operational Troubleshooting.
– M&A Due Diligence.
– Pet interest: long term repair costs for
WTGs (5 years now).

Cost of Warranty, Service


Budgeting Challenge Maintenance Contracts
$/WTG - O&M + Warranty (Yr. 3-5)

$80

Thousands
• Turbine design life 20 years, op. $60

experience < 10 years. $40

• Owners & manufacturers hesitant to $20


1 2 3 4 5 6 7 8 9

share experience data. Selected Price Quotations by OEMs

• Few government statistics (except ISET • Example of price variability in WMS contracts.
in Europe; Sandia & NERC starting). • High quotes related to remote sites.
• O&M costs are site specific and model • Large WTGs typically have slightly higher $/WTG-
yr.
specific.
• In this presentation, we will use $39,000/WTG-yr

Wty. Portion of WMS WMS as Part of Total O&M


O&M Contract, $39,000/WTG-yr
Warranty O&M - $(000)/WTG-yr

Warranty, $13,000 Adm, $5


BOP, $5
O&M, $26
M-Tax, $9
Service, $26,000

Land, $5

Ins, $7
• WMS provides first benchmark for estimates Reserve, $0 Warranty, $13

• Warranty cost often not broken out.


• WMS typically amounts to approx. 60%.
• Contractual exclusion vary.
• Largely market based, not indicative of actual.
• 1/3 assumed as wty. portion of contracts. • Avail. only for early years (few repairs).

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Post Wty. Service Costs Service Cost Control:
Post O&M - $(000)/WTG-yr

• OEM
Adm, $5

BOP, $5
– Pro: familiar, meets specs, experienced, has parts.
M-Tax, $9
Service, $25 – Con: perhaps not least cost.
Land, $5
• Independent Providers
Ins, $7 Maintenance, $4
– Pro: perhaps reduced cost, no training required.
Repair Reserve, $16
– Con: involves procurement process, performance
contract set-up, change in process, parts.
• Internalize
• Service portion of WMS upper budget limit. – Pro: potential for least cost.
– 24/7 remote monitoring + scheduled mtnc. + basic on-site. – Con: need to develop competence (training,
• Budget varies by turbine model and site location. SOPs, mgmt. system), parts.

Post Wty. Maintenance Cost Maintenance Cost Control:


Post O&M - $(000)/WTG-yr

Adm, $5
• Increase parts inventory to reduce
BOP, $5
Service, $25
outage time (hidden cost / rev. loss).
M-Tax, $9

Land, $5
• Improve parts supply chain & 24/7 fix.
Ins, $7 Maintenance, $4 • Track inventory statistics (items
Repair Reserve, $16
needed per year).
• Unscheduled minor maintenance highly variable by site / model. • Early & preventative replacement.
• Budget figure meant to refer to minor recurring small part
replacement. • Develop staff competence / train.
• Excludes major component repairs.

Post Wty. Repair Reserve Repair Reserve Analysis:


Post O&M - $(000)/WTG-yr

Adm, $5 • Depends greatly on site & model.


BOP, $5
M-Tax, $9
Service, $25 • Highly uncertain, little data available.
Land, $5 • May not know for many years what
Ins, $7 Maintenance, $4 actual cost is for a specific site / model
Repair Reserve, $16
/ age.
• Funds best held in a capital reserve,
Planned or unplanned major repairs.

• Highly variable by site / model / age.
not in an annual operating expense
• Best to track as Capital Account – Repair Reserve. account.
• Expected to occur only a few times during 20 year life.

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Wty. Vs. Post Comparison Variable Annual Repair Costs
Warranty vs Post O&M Annual Repair & Maintenance Expenditure (illustration)

$30 $50

Thousands
$40
$(000)/WTG-yr

Repair
$20

$/WTG-yr
$30

$20
$10
$10
$0 $0
Service Wty/Mtc Reserve Ins. other
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20
Warranty $26 $13 $0 $7 $24
Operating Year
Post $25 $4 $16 $7 $24

• Maintenance is the expensed portion (recurring • While unscheduled minor maintenance is expected
annually), reserve is the capital portion. to remain fairly constant, major repair will occur in
• Mtnc. + Reserve = $20,000/WTG-yr. intervals and increase in cost with age.

Total Life Cycle Cost Capital Account


Cumulative Repair Expenditure (w/o CPI)
Capital Repair Reserve Account (w/o CPI)
$500
Thousands

$100
Thousands

$400
$80
$/WTG-yr

$300
$/WTG-yr

$60
$200
$40
$100
$20
$0
$0
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20
Operating Year
Operating Year

• The operating goal is to minimize the cumulative total • Purpose of the capital account is to ensure that the cost has been
through preventative maintenance, early detection, reduction budgeted and the funds are available, regardless of the year in which
of outage times, etc. the repair occurs.
• Small expenditure now may save big later. • In early years, repairs are less than $16,000/WTG-yr, excess is saved.
In later years, the reverse happens.

Repair Reserve Cost Check Sizing of Capital Reserve


O&M Compared to European Stats

Service Repair Ins. other


• Extremely difficult to validate.
$80
Thousands

$60 other
other • Should be done based on site
$/WTG-yr

Ins.
$40 Ins.

$20
other
Ins.
Repair
Repair Repair
characteristics (eg. turbulence, shear),
Service Service
$0 Service

Europe(ISET) Warranty Post Wty.


model (eg. failure history, component
ISET stats for >1MW WTGs, 7-8yrs old analysis).
• Combined mtnc. ($4,000) plus reserve • Highly dependent on preventative
($16,000) is much larger than $11,250 for 7-9 maintenance and monitoring.
year old turbines in Europe (ISET).

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Accounting for Inflation Conclusions
Impact of 2.5% Annual Inflation

Service Repair Ins. other


• Limited data available for budgeting.
• Warranty / OEM quotes vary widely and may not be cost
$150 based.
Thousands

$100
• Conservative budget method outlined above.
Wty.
– Allows for cost savings in Service and Maintenance.
$50
• Major repair best managed as life cycle capital cost.
$0 – Manage costs by preventative maintenance and condition
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 monitoring.
Operating Year ($/WTG) – Major repair cost difficult to est. / dep. on site/model/age.
• Use of capital reserve account is recommended for major and
infrequent repairs.
• Budgets can be projected forward by assuming inflation rate.
• Inflation assumption can be used to project future years.
• Parts and labour costs may move differently than inflation.

Estimating Long Term Operating


Costs of Wind Farms
WINDPOWER 2008, AWEA, Houston, TX
June 1 - 4, 2008
Uwe Roeper, President, ORTECH