INSIGHT: Winning the service game

At the ninth SKF Wind Farm Management Conference in Berlin in June, Insight conducted a survey among the 200 management delegates on key issues facing the industry.

A separate 30-page report with the detailed poll results is available from Recharge, but the highlights are presented below.

With high growth and high margins, the wind farm service market has attracted interest from different parts of the value chain. Turbine makers and their suppliers see O&M and product upgrades as a potentially lucrative, fast-growing market, with service offerings for wind farms, single turbines or even individual components, such as gearboxes.

On the other hand, project owners, seeking to maximise returns from their assets, see cost-effective O&M and product upgrades as a key way to drive down the cost per MWh of electricity generated.

Reflecting these trends, 88% of delegates in Berlin expect the O&M market to grow faster than the wind market — estimated in the medium term to have a compound annual growth rate of about 5% — with more than 44% tipping the O&M market to increase at least twice as fast.

Pricing on O&M contracts has come down significantly since 2009. Looking forward two years, 68% of delegates expect prices to continue falling, while 41% expect O&M full-service contract prices to decrease by more than 5%. Only 14% think prices will go up.

Opinions are, however, split on the future concentration of the market, with 51% expecting further consolidation; 48% think that the OEMs will be the dominant players in this market, but 31% feel that independent service providers (ISPs) will dominate. A surprisingly low 14% believe that self-performed maintenance will be the leading business model in the service area.

Mirroring this, three quarters of delegates expect the service business to represent at least 15% of OEMs’ sales in the next two years. Reaching these levels of service revenue would take the turbine makers closer in business model terms to mature industries such as aerospace, where equipment sales are virtually the loss leader for the lucrative after-market service.

The most important driver in choosing a service provider is cost, followed closely by competence at preventative maintenance, then reputation. Being offered an availability guarantee is also considered important. Interestingly, remote monitoring and a tie-in with the OEM are not considered important selection criteria.

A key decision for asset owners is what to do with older turbines. As machines have got progressively bigger and more efficient, turbines that are more than ten years old are starting to look relatively inefficient. Options for producing much more and much cheaper electricity exist through repowering the site or product upgrades. Issues surround both options, as they may require site reconsenting, refinancing, new or lower tariffs and so on.

The availability of spare parts for these machines is also starting to look problematic, with most delegates reporting that when sourcing parts, they experience minor to severe problems and price rises for those components. Having said that, nearly 45% of respondents believe that life-extension programmes are likely to be the most popular strategy to extract more value from older turbines, with 28% considering repowering to be the best solution. Somewhat surprisingly, nearly 15% have not yet even considered life extension or repowering.

The O&M and service businesses clearly look set to grow as asset owners try to maximise performance, while manufacturers and the supply chain seek to extend their client offering as growth flattens and the operating fleet of turbines starts to mature.

Insight believes that the OEMs hold the key to the most value creation, with remote monitoring/preventative maintenance, lifetime extensions and product upgrades likely to form the backbone of a profitable offering that will probably see them dominate the service market.

However, the key will be their ability to keep adding value to existing turbines through these services and find creative ways to share in the benefit created asset owners. Basic maintenance is likely to be self-performed by most asset owners, with a continued smaller but important market for the ISPs, which will probably see the biggest opportunities with smaller owners of older turbines.

In established mature markets with fragmented ownership, there remains plenty to play for.

Recharge Insight is a new premium subscription service aimed at providing renewables thought leaders and decision-makers with best-in-class analysis of key issues facing the industry. For more information on Recharge Insight, contact Ksenia Burkova at