STATE OF THE ART IN OPERATIONS AND MAINTENANCE COMMERCIAL MODELS-OPPORTUNITIES IN INDIA
Global new wind installations are increasing at a CAGR of 15% since 2001. This is a positive outlook for the new build of wind industry which is expected to be an attractive opportunity.
At the same time, the installed capacity has almost reached 500GW. Maintaining this large asset base appears to be large business opportunity. Also, recently several mergers and acquisitions were noted within wind services sector. This increases our interest to analyze the trends and see what opportunities it brings to the Indian market. The objective of the analysis is to highlight the global trends and how they can be used to increase wind market valuation in India.
1.1 Components of the wind service market
To understand the opportunity, first a clear understanding of the wind services is required. Wind service market consists of five components-
a) Spares management consisting spare engineering, repair and spare delivery, logistics management;
b) Maintenance planning and execution which consists of diagnostic, basic maintenance and advanced maintenance;
c) Upgrades which is product improvement done for performance improvement and are highly dependent on user’s preference;
d) Asset Management which includes maintain data infrastructure for park control, advanced analytics, resource forecasting, life estimation & outage planning, Sourcing, contract management and administration;
Spare Parts and Maintenance planning and execution constitute around ~90% of the cost to the owners of the wind assets. While asset management constitute 5-10% of the cost, product improvements are a high onetime cost on asset owners’ discretion.
1.2 Increasing commercial opportunity within O&M market
An estimate (Figure 2) on the contribution margin from both new build and services segment within wind indicates a comparable size of the opportunity. This is evident from the analysis below. Regionally, as well, the opportunity is of comparable size.
This large opportunity within wind service has been assessed by the large players across the energy industry. Large wind OEM like Vestas made a few very key corporate acquisitions last year (Upwind and Availon) to build their service capabilities. Developers like EnbW also expanded their services by acquiring Connected Wind. Many more players have developed their service portfolio organically. This interest in the services industry confirms the large scale of the opportunity and high margin expectation.
1.3 New approaches to wind O&M
This interest in the service industry from all kind of players has also resulted in new business models. With an increasing number of owners with large wind capacities, the O&M models have transitioned from OEM dependent O&M to a more owner driven model.
The traditional model is the outsourcing of the complete O&M from the owners to the wind turbine OEMs. Even today, more than 70% of the installed capacity is under similar completely outsourced model. However, as the wind industry has matured and technological knowledge has increased, these services have standardized. The cost of these services has declined by more than 30% in the past three years. This has led to emergence of the owner driven models, where the owner undertakes in-house responsibility of the O&M instead of being completely dependent on the OEM. Independent service providers have emerged in the markets which provide the basic services at even lowered prices. Two variants of this model are a) the complete undertaking by the owners by developing a competent team and collaborating with OEM for specific tasks, b) a few services in-house, while others through an ISP, thereby limiting the role of the wind turbine OEM to complex repairs or upgrades.
1.4 OEMs driving innovation to find technology niches
With increasing number of owners and ISPs in the O&M, the OEMs are leading the technological innovation within the power output, grid codes, forecasting, remote monitoring and control, preventive maintenance and design. (Figure 3)
1.5 Value opportunities in the service market – what is in it for the Indian players
Indian market has witnessed a significant change in the past year. The wind farm approvals are now allotted through auctions. This has highlighted the need for the optimal performance of assets as well as increase the production throughout the lifetime. This increases the need of re-defined approach to the wind farm O&M. Following global O&M trends should be referred to have an advanced approach to O&M. Six specific value pockets exist to capture the opportunity, relevant for both Indian and global markets. (Figure 4)
About MEC Intelligence
MEC Intelligence is a market advisory and consulting firm with vast experience in wind energy sector. In wind services, we have worked with leading utilities, turbine OEMs and private equity firms on projects like strategy support, opportunity scanning in regional markets, commercial due diligence.
About the authors
Sidharth Jain is Director with MEC Intelligence and has worked on strategy, business development, investment, and innovation cases with both corporates and PE firms. He has extensive exposure in evaluating opportunities in wind market and supply chain globally. Contact him at firstname.lastname@example.org
Hina Varshney is a consultant with MEC Intelligence and has worked within global energy markets for strategic and potential market growth and opportunity analysis for energy players ranging from large utilities to small component manufacturers. Contact her at email@example.com
Rahul Kapoor is a consultant with MEC Intelligence and has worked with leading clients across the wind energy value chain, advising them on supply strategies and growth opportunities. Contact him at firstname.lastname@example.org