China’s big wind operators have been hit by darkening investor sentiment over a spike in operating expenditure to keep ageing turbine fleets up and running, according to new research.
The “unexpected surge” in Opex is being driven by a large number of turbines exiting their OEM warranty period, typically after five years of operation, said energy industry analysis specialist Wood Mackenzie.
A rise in post-warranty costs, either through new service agreements or building in-house O&M capability, is adding to the financial pressures on wind operators already facing the end of lucrative subsidies for new projects as the Chinese market moves to a subsidy-free era, said Wood Mackenzie principal analyst Daniel Liu.
That is reflected in share price falls for the likes of Longyuan Power Group, Huaneng Renewables, Huadian Power and Datang Renewables, which have fallen by up to 28% in the last quarter, said Wood Mackenzie.
With more than 60GW already operating for more than five years and new capacity growing rapidly, Liu and his colleagues expect China's operators to increasingly rely on developing in-house capabilities in an effort to drive costs down, in a Chinese wind O&M market they expect to total $5bn over the next 10 years.
In their favour are the already-low level of O&M costs in China relative to international markets.
“We expect China's average per megawatt O&M cost to be around $13,000 in 2018, less than half of the estimated $27,000 seen in the United States. The favourable cost position is driven by comparatively lower labour and spare part costs,” said Liu.
Chinese players will also benefit from the availability of better turbine technology as the industry there evolves, Liu added.
“The latest Chinese models have both larger nameplate rating capacities and greatly improved operational performance.
“When coupled with the adoption of digital-based, full life-cycle wind project management platforms, the industry should see a general reduction in unplanned failures and improved control over Opex in the long term.”