1

Managing Wind Turbine Reliability and

Maintenance via Performance-Based Contract
Tongdan Jin, Member, IEEE, Yi Ding, Member, IEEE, Huairui Guo, Naveen Nalajala

ν= coefficient in manufacturing-reliability model

Abstract— Performance-based contracting (PBC) is reshaping B1= baseline design cost
the acquisition, operation, and maintenance of capital equipment. B2= baseline manufacturing cost
Under the PBC scheme, we propose a holistic approach for B3= incremental manufacturing cost
lowering the cost of wind turbine ownership while meeting the c(μ)= unit production cost
availability requirement. Our effects are focused on integrated
m= number of subsystem types
firms who design and market wind turbines, and also provide
maintenance and repair service. PBC differs from conventional r1= repair cost with spare parts available
service contracts in that the wind farmers compensate the service R2= repair cost under backorders
provider for the system performance, not the spare parts and p1= probability of no backorders
repair labor. We explore the analytical relationship between P2= probability of backorders
system cost, reliability and spare parts stocking. This analytical D(μ)= design cost
insight into the system performance allows the turbine M(μ, s)= fleet manufacturing cost
manufacturer to optimize design, production, and after-sales
L(μ, s)= cost for repair and logistics support
services. The study aims to create a theoretical basis to facilitate
the transition of the maintenance paradigm from a material- C(μ, s)= lifecycle cost
based contract to a performance-based contract in the power
industry. II. INTRODUCTION

Index Terms— asset management, performance-based

maintenance, lifecycle cost analysis, reliability optimization,
M odern wind turbines are able to achieve 10,000-15,000
hours MTBF (mean-time-between-failures) [1]. This
implies that the system will fail 10-15 times during its 20
service parts logistics, wind power generation.
years lifetime. Studies show that the expenses on wind turbine
I. NOMENCLATURE maintenance account for up to 25-30% of the production costs
[2]. Equipment downtime costs include spare parts
A= system or subsystem availability
purchasing, repair labor, transportation, crane rentals, and
Amin= availability target
energy production losses.
t0= service contractual period
Wind turbine asset management can be perceived as a
μ= subsystem or system MTBF
process to maximize the return on investment of the
s= spare parts stocking level
tr= repair turn-around time equipment over its lifetime [3]. Preventive maintenance and
ts= repair-by-replacement time reliability centered maintenance have been widely used to
n= number of field systems or subsystems optimize maintenance and repair tasks [4]. Recently,
θ= subsystem or system usage rate, 0≤θ≤1 condition-based monitoring (CBM) emerged as a new
α, β= Weibull scale and shape parameters technology to supplement and enhance the conventional
λ= failure intensity rate maintenance technique. In CBM, the turbine health condition
μmax= maximum MTBF is monitored and predicted based on the trajectory of the
μmin= minimum MTBF degradation signals [5-6]. Driven by the smart grid initiatives,
N= number of failures in [0, t0], a random variable more intelligent sensors are expected to be installed in wind
Td = mean down time turbines, substations, and transmission/distribution lines to
facilitate the just-in-time maintenance decision.
O= on-order spare parts, a random variable
In wind power industry, maintenance, repair and overhaul
x= spare part in demand with x=0, 1, 2, ….
(MRO) activities are often carried out by the original
k= coefficient in design-reliability model
equipment manufacturer (OEM) based on the service
agreement between the wind farmer and OEM. These service
Tongdan Jin and Naveen Nanajala are with the Ingram School of agreements, though varying in conditions and terms, belong to
Engineering at Texas State University, San Marcos, TX 78666 USA (e-mail:
tj17@txstate.edu (corresponding author), mn1070@txstate.edu).
what is called a material-based contract (MBC). Namely, wind
Yi Ding is with the Department of Electrical Engineering, Technical farmers compensate the OEM for spare parts, service labor,
University of Denmark, Denmark (e-mail: yding@elektro.dtu.dk). and transportations each time the MRO is executed. Large
Harry Guo is with the ReliaSoft Company, Tuscan, AZ 85705 USA (e- wind farms may have their own maintenance crew, yet spare
mail: harry.guo@reliasoft.com).

978-1-4673-2729-9/12/$31.00 ©2012 IEEE

 2

parts and key technical supports still rely on the OEM.
Although MBC is a common practice in the power industry,
the OEM has less motivation to improve the equipment
reliability. This is because MRO generates a lucrative revenue
stream owing to spare parts supply. Nevertheless, it creates
financial pressures on the wind farmers who must maintain
high equipment availability to harness the intermittent wind
maintenance, and 4) performance-based maintenance. The
evolution is driven by the continuous reduction of the cost of
ownership. The advent of PBC generates a strong momentum
pushing the transition towards the performance-based
maintenance paradigm.
CM=Corrective Maintenance

System Lifecycle Cost

PM=Preventive Maintenance
power. CBM=Condition Based Maintenance/Monitoring
PBM=Performance Based Maintenance
In the last decade, performance-based contracting (PBC)
has emerged as a new service paradigm to govern the
acquisition, operation, and maintenance of capital equipment. CM
This new service model is often referred to as “performance- PM
CBM PBM
based logistics” (PBL) in the defense industry, or “power by
the hour” (PBH) in commercial airlines [7]. Instead of paying
Asset Management Strategy Evolution
the OEM for materials and repair labor, under the PBC, the
customer actually buys the reliability from the OEM.
Specifically, the equipment users define the reliability goal Fig. 1. The Evolution of Asset Management Strategy
and sign the service contract with the OEM who is then
committed to the reliability performance of the equipment. Evolving from CM to PBM guarantees the cost reduction of
PBC differs from MBC in that it incentivizes the OEM to ownership, but it does not ensure the reliability growth. PBM
potentially benefits reliability growth because OEM is
invest reliability in early system design and manufacturing
incentivized to reduce the maintenance and repair cost under
phase, as this will be paid off by reduced maintenance and
the PBC agreement. However, if the spare parts, labor and
repair cost during the operation.
repair logistics is far below the cost of the reliability
PBC actually has been practiced for a decade in the power investment, OEM has no motivation to improve the product
industry focusing on service reliability in the deregulated reliability, yet the availability goal can still be attained through
market. In [8, 9] the uncertainty of service reliability is a rapid repair process.
incorporated into the design process to maximize profits while
minimizing risk. In [10] a performance-based service program B. Principle of Performance-Based Contracting
is proposed to minimize the A/C maintenance cost. These According to [11], a performance-based asset management
studies usually focus on the energy delivery domain. program can be viewed as a 4-step process: (1) identify
Literature that guides the planning and implementation of the performance outcome, (2) determine performance measures,
PBC program in power system assets management is still very (3) define performance criteria, and (4) devise performance
rare. payment. Steps 2 and 3 are considered the most critical in
This study presents an analytical framework to guide the terms of guaranteeing the effectiveness of PBM policy.
planning and implementation of PBC programs in the wind
Step 1 Step 2 Step 3 Step 4
power industry. We propose an asset management approach Identify Determine Define Devise
that synthesizes design, manufacturing, and maintenance into Performance Performance Performance Performance
Outcome Measures Criteria Payment
a unified optimization model. Based on the model, we
examine the trade-off between reliability, spare parts
inventory, and contractual period with the goal to minimize System System Minimal Cost plus
the cost of ownership while attaining the system performance readiness, availability, availability, incentive fee,
goal. operational MTBF, maximal cost plus
reliability, MTTR, Mean failure
failure rate,
rate, award fee,
The remainder of the paper is organized as follows. Section assurance of downtime, repair
repair waiting linear reward,
III introduces the PBC principle. Section IV estimates the spare parts logistics time, and cost exponential
supply response time per unit time
time reward
system availability taking into account reliability and spare
parts inventory level. In Sections V and VI, optimization
Fig. 2. A Four-Step Process for a PBC Program
models are formulated to minimize the lifecycle cost of wind
turbines under the PBC scheme. A case study is presented in In PBC, reliability performance must be appropriately
Section VII, and Section VIII concludes the work. translated into measurable means so that they can be evaluated
over the contractual period. Meanwhile, performance
III. PERFORMANCE-BASED ASSET MANAGEMENT measures should be used as criteria, decision variables or
constraints to govern the OEM behaviors. Fig. 2 graphically
A. Evolution of Asset Management Strategy shows how a PBC program evolves from the beginning to the
As shown in Fig.1, the evolution of asset management end with the reliability and maintenance goals being
strategy can be divided into four stages: 1) corrective accomplished by the OEM in each step.
maintenance, 2) preventive maintenance, 3) condition-based
 3

C. Determining Performance Metrics Gearboxes, generators, and transformers are typical repairable
As shown in Figure 2, a variety of metrics can be used to LRUs. In the following we estimate the reliability and
evaluate the system performance. This study recommends that downtime at the LRU level.
the wind power industry adopt operational availability (A), A. Modeling Subsystem Reliability
MTBF, and MDT (mean-down-time) as the key variables for
system performance assessment. These metrics can be easily The Weibull distribution is widely used to model the
monitored and estimated in practice, and they are also widely lifetime of repairable systems. The two-parameter Weibull
used in the equipment industry. Let A denote the WT reliability function is given as
operational availability, then
(
R (t ) = exp − (αt ) β , ) (2)
MTBF
A= . (1)
MTBF + MDT where α and β are scale and shape parameters, respectively. If
β=1, equation (2) simply becomes an exponential function.
MDT usually consists of two parts: MTTR (mean-time-to- Since a system failure corresponds to a subsystem failure,
repair) and MLDT (mean-logistics-delay-time). MTTR is the
equation (2) is indeed used to model the lifetime of a
hands-on time used to restore the system to the operational
particular subsystem. Let E[N] be the expected number of
state given the spare part is available. MLDT represents the
subsystem failures in [0, t0]. Then we have
waiting time for materials, labor, and repair tools.
t
D. Understanding Performance Drivers E[ N ] = 0 = λ t 0 , (3)
μ
When planning a PBC agreement, a fundamental question where
confronted by the OEM and the wind farmer is: What are the
1 1 1
key factors that drive the system performance? And how do μ= = Γ(1 + ) , (4)
they interact with each other and jointly control the λ α β
operational availability? Studies [12, 13] show that system
availability is dominated by five key performance drivers, that where, μ is the MTBF of the subsystem, and λ is the average
is, inherent reliability μ, spare parts level s, repair turn-around failure intensity rate in the steady-state condition.
time tr, the fleet size n, and the utilization rate θ (0≤θ≤1).
A. Estimating Mean-Down-Time
Inherent Fig. 4 depicts a typical spare parts supply chain system
MTBF
Reliability (μ) owned by the OEM to support the MRO service in different
OEM

regions. The OEM owns the repair center and the spare parts
Spare Parts Availability inventories located near the field systems. The repair center is
MTTR
Logistics (s, tr) (A) positioned in a central area with a relatively equal distance to
all WT fleets. A centralized repair center benefits the OEM
Wind Farm

System Fleet
MLDT
for achieving labor consolidation and high tool utilization. In
(n, θ) this study, the repair center is modeled as an M/G/∞ queuing
model, which is commonly used in operations management
Fig. 3. Performance Measures and Their Drivers
and service parts logistics literature [14].
Repair by
Fig. 3 depicts the relationship between three performance replacement
measures and their underlying drivers. For example, the Replenish Stockroom WT
MTBF for WT depends on the intrinsic reliability and the inventory with s1 units Fleet 1
usage rate. MTTR relies on the spares stocking level, repair Wind Farm 1
time, the fleet size, and usage. This indicates that both the OEM for Repair Center Stockroom WT
design and
OEM and the wind farm are responsible for the equipment manufacturing
M/G/∞ with s2 units Fleet 2
availability in the PBC regime. Wind Farm 2

IV. MODELING RELIABILITY AND DOWNTIME
A wind turbine consists of multiple subsystems or items,
such as blades, the main bearing, the gearbox, the generator,
transformers, the main shaft, electrical controllers, and
mechanical brakes. The failure of one item often results in the
malfunction of the entire system. Upon failure, the defective
item—i.e. the line replaceable unit (LRU) —is swapped out
and replaced by a spare unit. If the item is repairable, it will be
sent to the repair center for failure removal. Upon fix, the item
is routed to a local stockroom for future replacement.
Stockroom WT
with s3 units Fleet 3
OEM Wind Farm 3
Fig. 4. An Integrated Logistics Supply Chain for Wind Turbines
Two independent scenarios will occur at the customer site
upon failures. If a spare part is available in the local
stockroom, the repair-by-replacement job can be performed
immediately. The average time for performing the
replacement job is denoted as ts. On other hand, if an on-hand
spare unit is not available, the equipment downtime is

prolonged due to the extended waiting time for the spare unit.
Let Td denote the MDT. Then we have
Td = t s Pr{O ≤ s} + (t s + t r )(1 − Pr{O ≤ s}) ,
where
s (nλt ) x e − nλt r
Pr{O ≤ s} = ∑ r
. (6)
x =0 x!
In equation (5), tr is the repair-turn-around time between the
stockroom and the repair center. O is a random variable
representing the steady-state inventory on order. Failures of
field working items are approximated as a Poisson process
with a rate of λ which is given in equation (4). For detailed
derivations of Td , readers are referred to [12].
V. WIND TURBINE LIFECYCLE COST ASSESSMENT
The lifecycle costs of a wind turbine include all the
expenses associated with design, manufacturing, operation
and maintenance. In the following, we present several
analytical models to describe subsystem level costs. The
system cost can be easily estimated by aggregating all
subsystem costs.
A. Design Cost vs. Reliability
In general, it has been agreed that the design cost increases
with the reliability, yet there is no consensus on how to
describe such a relationship. Some researchers [13, 15] argue
that the design cost will grow exponentially with the
reliability. Without loss of generality, we use the exponential
model to characterize the design cost versus the reliability. Let
D(μ) be the subsystem design cost, then
⎡ ⎛ μ − μ min ⎞⎤
D( μ ) = B1 ⎢exp⎜⎜ k ⎟⎟⎥ , for μmin≤μ≤μmax, (7)
⎢⎣ ⎝ μ ∞ − μ ⎠⎥⎦
where, μmax and μmin are the best achievable and the least
acceptable MTBF, respectively. μ∞ is considered an MTBF
level which in theory leads to infinitely design cost, and
μ∞>μmax. Notice that B1 is the baseline design cost for μ=μmin,
and k describes how difficult to further increase the reliability
subject to design, material, and resource constraints.
B. Manufacturing Cost vs. Reliability
To build the reliability into the system, OEM must adopt
new materials, novel technologies, or advanced manufacturing
processes in the production phase. These activities imply
additional investment in the production phase. We adopt the
manufacturing cost model in [13] to estimate the unit
production cost,
c( μ ) = B2 + B3 ( μ v − μ min
v
) , for μmin≤μ≤μmax.
In equation (8), B2, B3 and ν are model parameters. In
particular, B2 is the baseline manufacturing cost for producing
one piece of an item for μ=μmin, and B3 captures the
4
incremental manufacturing cost if the reliability is further
improved. Assuming there are n subsystems operating in the
field, the total manufacturing cost for the entire subsystem
fleet is
(5)
M ( μ ) = nc ( μ ) (9)
C. Logistics, Maintenance, and Repair Cost
The OEM is responsible for sustaining the operation of a
WT fleet at a pre-determined availability level written in the
PBC contract. The sustainment costs comprise spare parts
capitals, inventory holding cost, and all the repair expenses
incurred in [0, t0]. We assume a spare part corresponds to one
subsystem unit. Let L(μ, s) be the total sustainment costs, then
L( μ , s ) = sc( μ ) + sht 0 + nE[ N ](r1 p1 + r2 p 2 ) (10)
The first term in equation (10) is the spare parts inventory
cost. The second term is the spare parts holding cost, and h is
the holding cost per unit time. The last term is the cost for
parts replacement and repair. E[N] is the expected failures in
[0, t0] as given equation (3). Notice that r1 the repair cost
when an on-hand spare part is available, and r2 is repair cost
in case that a spare part is backordered. Similarly, p1 and p2
are the probabilities to estimate whether an on-hand spare unit
is available or not. From equation (6), we can immediately
obtain
p1= Pr{O ≤ s} , and p 2 = 1 − p1 (11)
D. Fleet Lifecycle Cost
By aggregating all the cost items in equations (7), (9) and
(10), the lifecycle cost (LCC) for the subsystem fleet can be
expressed as
C(μ, s) = D(μ ) + M (μ ) + L(μ, s) (12)
A WT system consists of multiple subsystems, say m
repairable subsystems. Each subsystem has different reliability
and spare parts stocking levels. Then the LCC for the WT
fleet can be estimated by
m m m
C(μ, s) = ∑ Di (μi ) + ∑ M i (μi ) + ∑ Li (μi , si ) . (13)
i =1 i =1 i =1
Where μ=[μ1, μ2, …, μm] and s=[s1, s2, …, sm]. The goal of
the OEM is to minimize the fleet LCC while meeting the
performance criteria (e.g. reliability and availability).
Similarly, the goal of the wind farmer is to monitor the system
reliability and devise payment schemes to incentivize OEM in
achieving the performance goal.
(8) VI. PERFORMANCE COMPENSATION
A. Cost Plus Payment Method
There are three types of cost-plus oriented payment
schemes: cost plus fixed fee (CPFF), cost plus incentive fee
(CPIF), and cost plus award fee (CPAF).
 5

CPFF is used when the cost and pricing risk is very high, We solved the gearbox asset management problem using
especially in the development of new systems. The idea is to the decision model in Problem P1. Fig. 5 shows the
reimburse the contractor or OEM for the level of effort or annualized cost for a 10-year service contract computed under
work accomplished, plus certain amounts of reasonable profit. various MTBF and spare part levels. It is found that adding an
CPIF is used in circumstances when metric baseline extra spare part in the stockroom is able to improve 1% of
identification is immature. CPAF is used when subjective availability, regardless of the gearbox MTBF. The chart also
assessments of service performance are desired (e.g. customer shows how to attain the availability goal by trading off the
satisfaction surveys). In many cases, CPAF is used in reliability and spare parts stocking. For example, if Amin=0.98
conjunction with CPIF to achieve the incentive goal as well as is required by the wind farm, the OEM can choose {s=0,
accommodate the subjective judgment on the OEM μ=87,000}, {s=1, μ=64,500}, or {s=2, μ=50,000}. Hence the
performance. Readers are referred to [16] for more discussion OEM is empowered with the flexibility to achieve the
on cost-plus payment schemes. availability criterion under the performance-based service
This study derived the PBC cost model from the OEM framework.
perspective. We assume the technology is relatively mature Table I
and a fixed cost payment plan is adopted by the WT owner. Reliability and Cost Parameters of Gearbox (n/a=not applicable)
Parameter Value Unit Parameter Value Unit
This type of payment plan actually puts the OEM in the
μ∞ 100,000 hours B3 2,000 $
highest risk while lowering the risk of the equipment user. μmin 50,000 hours h 0.30 $/hour
k 0.2 n/a r1 5,000 $/repair
B. Fixed Price Payment Method
ν 0.2 n/a r2 10,000 $/repair
Under a fixed price contract, the OEM prefers to minimize t0 10 or 20 years n 50 units
the lifecycle cost of the committed service. This can be B1 250,000 $/design tr 90 days
translated into the following optimization model: B2 50,000 $/unit ts 216 hours
Problem P1:
Min C(μ , s) = D(μ ) + M (μ ) + L(μ , s) (14) Gearbox MTBF vs. Operational Availability
Subject to (10-Year Contract)
1.00
μmin≤μ≤μmax, (15)
0.99
A( μ , s) ≥ Amin . (16)
Availability

0.98
0.97
This formulation minimizes the LCC for a subsystem fleet. s=2
0.96 s=1
Constraint (15) ensures that the subsystem reliability falls into 0.95 s=0
the desired range. Constraint (16) states the minimum
0.94
expected operational availability by the equipment user. A(μ, 40,000 50,000 60,000 70,000 80,000 90,000 100,000
s) can be easily estimated by substituting equations (4) and MTBF (hours)
(5) into (1).
If we consider the cost minimization at the WT system Fig. 5. Gearbox Availability under the 10-Year Service Contract
level, Problem P1 can be expanded to accommodate such a
requirement. The following formulation minimizes the LCC of
the WT fleet. Gearbox MTBF vs. Annualized Cost
(10-Year Contract)
Problem P2:
380,000
m m m
s=2
Min C(μ, s) = ∑ Di (μi ) + ∑ M i (μi ) + ∑ Li (μi , si ) (17) 370,000 s=1
i =1 i =1 i =1
s=0
Cost ($)

360,000
Subject to
μmin, i≤μi≤μmax,i, for i=1,2, …., m (18) 350,000
m 340,000
∏ Ai ( μi , si ) ≥ Amin (19)
330,000
i =1
40,000 50,000 60,000 70,000 80,000 90,000 100,000
MTBF (hours)
Equation (19) is the system availability obtained through
the multiplication of individual subsystem availabilities.
Fig. 6. Annualized Cost under the 10-Year Service Contract
VII. CASE STUDIES
Fig. 6 plots the annualized cost for 50 gearboxes under the
In this section, the proposed PBC scheme is used to manage
10-year service contract. The lowest service cost is realized if
the reliability and maintenance of gearbox in a WT fleet
the gearbox MTBF is designed between 70,000 and 80,000
consisting of 50 turbines. Costs are calculated and compared
hours. This cost is relatively independent of the spare parts
between a 10-year service contract and a 20-year contract.
quantity. If the MTBF is above 80,000 hours, both the design
Reliability and cost related to gearbox design, manufacturing,
and manufacturing costs dramatically increase. On the other
spares inventory and repair are listed in Tables 1. These
hand, when the MTBF drops below 70,000 hours, the logistics
values are estimated based on the studies in [1, 5].
and repair expenses quickly rise.

Gearbox MTBF vs. Annualized Cost
(20-Year Contract)
260,000
s=2
240,000 s=1
s=0
220,000
Cost ($)
200,000
180,000
160,000
40,000 50,000 60,000 70,000 80,000 90,000 100,000
MTBF (hours)
Fig. 7. Annualized Cost under the 20-Year Service Contract
We also examine the influence of contractual length on the
gearbox lifecycle cost. Now the gearbox LCC is computed
assuming t0=20 years. The results are summarized and plotted
in Fig. 7. We can make two interesting observations by
comparing this to Fig. 6. First, the 20-year service contract
reduces the annualized cost by 40-50%. This is because costs
associated with gearbox design, manufacturing, and spare
parts inventory are absorbed in a longer period of time.
Second, the OEM prefers to drive the reliability growth. As
shown in Fig. 7, the optimal MTBF now falls between 80,000
and 90,000 hours. This is because a higher MTBF benefits
long-term cost savings owing to the reduced failures and
logistics costs during a longer contractual period.
VIII. CONCLUSION
This study made an early attempt to explore a
performance-based service mechanism to manage power
generation assets. We presented a quantitative model to guide
the wind turbine manufacturer to achieve the system
availability goal through the design for reliability. Two
interesting observations are made from the case study. First,
the OEM is likely to invest more resources in reliability under
a longer service agreement. Second, increasing the spare parts
has less effect on the availability of highly reliable systems.
Under PBC, the energy producer can focus on the core
business by delivering reliable and clean energy to end
consumers, leaving the OEM or the third party service
provider to handle the maintenance and repair tasks. This
study derived the PBC cost model from the OEM perspective.
In the future we would like to present the PBC cost model
from the wind turbine operator perspective. In that way, we
can examine what potential cost saving the wind farmer is
able to achieve under the PBC compared to the conventional
service contracts.
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Tongdan Jin is an Assistant Professors in the Ingram School of Engineering
at Texas State University-San Marcos. He obtained the Ph.D. in Industrial &
Systems Engineering and MS in Electrical Engineering from Rutgers
University. His research interests include reliability modeling and
optimization applied to power systems.
Yi Ding is an Associate Professor in with the Department of Electrical
Engineering, Technical University of Denmark, Denmark. He obtained the
PhD in Electrical Engineering from Nanyang Technological University,
Singapore. His research interest is focused on power electronics and
distributed generation planning.
Huairui Guo is the Director of Theoretical Development at ReliaSoft
Corporation. He received his Ph.D. in Systems and Industrial Engineering
from the University of Arizona. He was the recipient of the Stan Ofsthun
Award from the Society of Reliability Engineers (SRE) in 2008 and 2010. He
has more than 10 years industry experience in reliability modeling and
analysis.
Naveen Nalajala is a Master Student in the Computer Science Engineering at
Texas State University-San Marcos. He obtained his BS degree in Computer
Science Engineering at Jawarharlal Nehru Technological University
Hyderabad, India. His research interests are data mining and smart grids.