Operation & Maintenance Agreements (O&M) 30 October 2012, GIZ Workshop, Ho Chi Minh City, Vietnam.

Operation & Maintenance Agreements (O&M)30 October 2012, GIZ Workshop, Ho Chi Minh City, Vietnam

Contents

GL Garrad Hassan1.

2.

3.

Technical & Commercial O&M Options

Service Agreement Considerations

4. Summary

Contents

GL Garrad Hassan1.

2.

3.

Technical & Commercial O&M Options

Service Agreement Considerations

4. Summary

Local understanding forms a global perspective

GL Garrad Hassan: 1,000+ staff, 44 locations, 26 countries

VancouverOttawa

PortlandSan Diego

MontrealPeterborough

AustinQuerétaro

Porto AlegreSantiago

BeijingSeoulTokyoShanghaiMumbaiBangkokBangaloreSingaporeNewcastleWellingtonMelbourne

Bristol Cork Paris

IzmirCairo

CopenhagenHinnerupOldenburgHamburgWarsaw

Lisbon Barcelona ZaragozaMadrid

Imola

LondonSlough

Glasgow

Cape Town

HeerenveenSint Maarten Kaiser-Wilhelm- Koog

Part of the GL Group: renewables, oil & gas, maritime

GL Garrad Hassan Capabilities

• The world’s largest renewable energy consultancy. It offers independent technical and engineering services, products, and training courses to the onshore and offshore wind, wave, tidal and solar sectors.

• Has been supporting investors in wind farms for over two decades. The detailed technical understanding of its experts provides a solid basis for informing intelligent decisions, regardless of the scale of the project or investment, or the lifecycle stage.

• Has worked with almost every major manufacturer. It has led the market for manufacturer services for many years and is continuously developing its industry standard turbine design software.

Wind: Experience MattersEnergy Assessment• analysing 20,000 MW of new projects per year• 25% of all projects worldwide• 70% of UK installed capacity• 75% of Irish installed capacity

Operational Assessment• 15% of the world’s installed capacity

Due Diligence• over 25% of the world’s project financed wind

farms• world’s largest wind farm portfolio acquisition• world’s first wind energy bond deal

Independent Engineer• 45% of US wind farms• The world’s five largest wind farm financings• The first project financed offshore wind farm

Short-term forecasting• over 20% of the world’s operational capacity

Measurements• power curve measurements on 500+ turbines• load measurements on 100+ turbines• founding member of MEASNET• first ever load measurements on offshore wind farm

Products / software solutions• Industry standard wind turbine design software -

Bladed• Bladed used to design world’s largest turbine• world‘s largest independent SCADA supplier – 6,000

MW

Offshore Wind• project management of world’s largest offshore wind

farm - Thanet

Contents

GL Garrad Hassan1.

2.

3.

Technical & Commercial O&M Options

Service Agreement Considerations

4. Summary

SIT

E D

ISC

OV

ER

Y

DEVELOPMENT PHASE(0.5 to several years)

FIN

AC

IAL

CL

OS

E

CONSTRUCTION PHASE(12 to 18 months)

TAK

E O

VE

R

OPERATIONAL PHASE(20 to 25 years)

DIS

CO

NN

EC

TIO

N

CO

NC

LU

SIO

N

DECOMISSIONING PHASE(3 to 4 months)

CA

SH

FL

OW

MEDIUM RISK &LOW INVESTMENT

HIGH RISK & HIGH INVESTMENT

MEDIUM RISK & MEDIUMRETURN

MEDIUM RISK & HIGH

RETURN

LOW RISK & LOW RETURN

BREAK EVEN(loan repaid)

Wind Farm Project Cashflow

Wind Farm Investment Risks

• What are some of the key investment risks in a wind farm project?

Risk ExampleEnergy Measurement and Analysis

Deviation from base case due to uncertainty or error in the measurement and/or analysis?

Operating Performance Deviation from the base case due to machine breakdown or other reason to shut down turbines or the wind farm?

Technology Is it reliable and how much will it cost to operate?Cost Overrun Will there be an additional funding requirement for additional equipment or will the

contracts claim for additional costs?Delay Will the revenues start in time to pay the first loan repayment?Credit Risk What is the risk of bankruptcy of a counterpartyRegulation Is there a risk of change in green energy support pricing or grid regulation?Insurance Will it be available and at what price?Financial Is there a risk of interest rate and foreign exchange changes?Country Risks Political instability or regulation change. Also climate risks.

Initial Proposal

Initial Banking Model

Term Sheet

Credit Approval

Syndication

FIN

AC

IAL

C

LO

SE- 6

months- 5 months

- 2 months

- 1 month

Construction Draw Down

Detailed Banking Model, audit & tax

Basi

c Fe

asi

bili

ty

Model

+18 months

Operational Repayments

+ Xyears

Energy AssessmentDue Diligence (legal, technical, insurance)

Due DiligenceMonitoring

Due DiligenceMonitoring

Final Acceptance

Final Payment

Wind Farm Project Financing Timeline

Why is an O&M agreement required?

• To ensure that the wind farm assets continue to be cared for and operated in an appropriate and effective manner for as long as possible.

• To drive an adequate return on investment on the wind farm assets through a contractual framework that incentivises the operating parties to ensure that the wind farm is always technically available to produce power, and converts the wind energy to electrical energy as efficiently as possible.

• Optimise the availability and efficiency of the asset so that valuable wind windows are not missed.

O&M Commercial Options

• All turbine suppliers will typically provide some form of service agreement to support the owner for a designated period following the capital investment.

• These contracts are named differently by suppliers and will vary in cost, guarantees etc.:

• WOM: Warranty, Operations and Maintenance• SAA: Service and Availability Agreement• AOM: Availability, Operations and Maintenance• MSA: Maintenance and Service Agreement

• Different contract packages are available at different costs depending on the level of insulation the owner is looking for from the operational risks.

O&M Commercial Options• Three main formats of service agreement:

Full Service Contract - typically offered by manufacturers for newly purchased wind farms

• 24/7 monitoring of the wind farm• All scheduled (routine) maintenance in line with the original equipment manuals• All minor and major unscheduled (failure) maintenance, through defect or breakdown• Availability warranty

Limited Service Contract - typically offered by manufacturers following expiry of initial FSC term

• 24/7 monitoring of the wind farm• All scheduled (routine) maintenance in line with the original equipment manuals• Some minor unscheduled (failure) maintenance, whether through defect or other breakdown• Availability warranty• Management of the aforementioned activities on site

Service Only Contract - offered by both turbine suppliers and third parties

• Periodic, as needed routine maintenance in line with the original equipment manuals• Periodic, as needed replacements, whether through defect or other breakdown

O&M Commercial Options• Three main formats of service agreement:

• Management activities, monitoring and performance guarantees are excluded from a Service Only Contract.

• It is expected that the owner will manage the day to day running of the wind farm, monitor its performance, schedule and coordinate routine and replacement maintenance and manage supply of spares and equipment to site.

• All scheduled and unscheduled maintenance is at extra cost.

What are the turbine maintenance works?

The turbine service contractor will typically manage the following maintenance:

TURBINES

Un ScheduledScheduled

Gear box & Generator Blades & pitch system Drives, shafts, gears & brakes Computers and Circuit boards Hoses and cables Fixtures & fittings Lubrication & coolants Lifts & ladders Doors & hatches Safety equipment

Contents

GL Garrad Hassan1.

2.

3.

Technical & Commercial O&M Options

Service Agreement Considerations

4. Summary

WARRANTIES & DAMAGES

PRICE & SCOPE

TERM & CONDITIONS

SPARES & MONITORING

What is the lead time for

parts?

How much do parts cost?

Is a reserve fund needed?

When will parts fail?

What are the strategic considerations?

Other Strategic Measures

• Access of owners and technicians to central experts within the turbine suppliers organisation.

• Technicians based permanently on site, or at nearby service centres.

• Dedicated and focused service managers working under efficient organisational structures with proven procedures and work instructions.

• Motivated, skilled and well equipped service technicians, trained in the best techniques to identify and address turbine faults in a safe and efficient manner

What are the operational warranties?

DEFECTS:- Replaced parts- 12 months

AVAILABILITY:

• Normally 95% to 97%• Often lower in first 3 months

Calculation: Total Time – Down time + Allowable events Total Time

• Allowable events: Scheduled maintenance, FM, no wind, 3rd party stop• Damages payable if below warranted level• Sometimes bonuses above warranted level

Curtailment

Power Curve / Noise: WOM

Warranty Omissions & Exclusions

• The warranty provider may also define a number of events that are excluded from the warranty cover, thus pushing an element of risk back onto the owner.

• Safety restrictions under site rules or otherwise.• Customer ordered stops not due to the fault of the contractor.• Agreed additional services.• Operational constraints from customer or 3rd party.• Works driven out of changes in Law.

• In addition, delays or damage caused by those events defined as Employer’s risk can include:

• Unauthorised repairs to the turbines;• Weather conditions outside of defined operating or design parameters;• Yearly grid drop outs above a certain frequency; and• Failure of the balance of plant equipment etc.

Service Agreement Costs & Structures

• Approximately 20% to 25% of overall LCOE to be used to cover all fixed and variable operational costs associated with a typical project.

• Contract pricing can be approached in two different ways, through fixed and variable pricing.

• A fixed price contract will entail a specific lump sum which will include a certain defined scope of work.

• A variable price component is based on a figure calculated retrospectively from the energy generated from an asset.

• Often additional supplementary (sometimes called variable !!!) costs relating to management, BOP maintenance, land lease fees, utility bills, insurance fees. etc.

How is wind farm operating cost split?

• Total varies by machine size, age and supplier €20k – 100k / WTG / Year (Plus variable site costs)

• Offshore is more expensive again

• Typically 20 -25% of LCOE

Scheduled & unscheduled maintenance services

Taxes, rents, power, coms, leases, interest, community funds & insurance

Coordination, monitoring & reporting

Wind Farm Operating Costs

• Typical wind farm operation and maintenance costs for new projects in 2010:

Source: International Renewable Energy Agency

Wind Farm Operating Costs

• Operation and maintenance costs for US projects, 1980 - 2008:

Source: International Renewable Energy Agency

Wind Farm Operating Costs

• Operation and maintenance costs for US projects, years since commissioning:

Source: International Renewable Energy Agency

Reliability, Major & Minor Failure Rates

• If not FSC, consideration of major (and minor failure rates if SOC) needs to be considered over the life of the wind farm.

Source: ReliaWind Project

Contents

GL Garrad Hassan1.

2.

3.

Technical & Commercial O&M Options

Service Agreement Considerations

4. Summary

Summary• O&M agreements ensure the wind is maintained and operated effectively, to

drive an adequate return on investment and to optimise the availability and efficiency of the asset.

• Different commercial options exist (ie. WOM, FSC, LSC, SOC), each requires careful consideration.

• Key considerations include spare parts, resourcing, operational warranties (and there omissions and exclusions).

• O&M pricing is significant, comprises multiple components (ie. fixed, variable, supplementary) and will vary by project and over time.

• Reliability and failure rates of major (and minor) components is a critical consideration outside FSC.

Thank-you!

Daniel Astbury – Senior Engineer, Business Development Manager – Thailand

[email protected]