February 2, 2021 — Industry Trends
Do long-term servicing deals eat into profits at your projects?
Turbine servicing deals are increasingly important to the financial performance of the wind industry’s largest turbine makers, but what does this mean for operators? In this article, we look at how this introduces conflicts of interest that could cost you money.
Chief Growth Officer, Greenbyte
Get a second opinion. This is one of the first pieces of advice you’d hear if you got a medical diagnosis you didn’t agree with. Doctors can have similar training but reach different conclusions, and people make mistakes. It’s sensible to get another view.
Or what about when your roof leaks? You don’t automatically go with the first roofer that turns up. You talk to a few experts so you can compare what they say and come to the right conclusion. This is normal for big decisions about your home or health.
The same should be true of wind turbines. Like your body, you should be looking to keep them as healthy as you can for as long as you can. Like your roof, you want to go with the right solution and not just the first solution. But our fear is that dynamics in the wind industry will sideline independent experts and end up costing you money.
This is being driven by ongoing changes at turbine makers.
Long-term servicing deals
Now the first thing to say is we love original equipment manufacturers (OEMs). They are developing the innovative wind turbines that are driving the global move to clean energy sources. We wouldn’t be where we are without OEMs and their expert staff.
But they make mistakes too. For example, Vestas took 150 turbines out of operation globally last month after finding a fault on some of its V150 blades. This followed the collapse of a turbine in Sweden in November. Vestas knows its machines inside out, but no OEM gets it right all the time. Accidents happen. It’s an imperfect world.
This becomes problematic for wind farm owners because OEMs nowadays don’t just supply turbines. They also want to dominate servicing and maintenance too, making it tougher for companies to get hold of independent data about project performance or bring in external experts. We believe this is a clear conflict of interest for OEMs.
This year’s annual results season, which runs from now until the end of March, will show just how important these long-term servicing deals are for the top OEMs.
Vestas is forecasting that it will reveal a 7% rise in revenue in its servicing arm in its annual results on 10th February; Siemens Gamesa said in November that servicing was its fastest-growing division in 2020 after the purchase of Senvion contracts; and we expect other OEMs to report a similar boost in their Covid-affected 2020 results.
The appeal of such deals for OEMs is obvious. They are long-term recurring revenue and provide stability for companies that would otherwise be solely reliant on securing turbine orders. Essentially, it’s the nearest that OEMs get to a subscription model!
That doesn’t mean it is also the best solution for wind operators.
Conflicts of interest
We see the appeal of these deals for owners and operators. Giving OEMs control of servicing and O&M may feel like a simple solution, but it also lacks transparency. Do you expect an OEM to share a truly independent view about potential failings of their machines? No. This is sensitive information that OEMs are highly protective about.
We also have a concern about the length of these deals. If you have a servicing deal of ten years or longer, that is a long-term commitment. You want to ensure the OEM is as focused on the delivery of profitability at your wind farms as you are – and the best way to ensure that they are is if you have an independent source of truth.
That’s where data comes in. Using an independent software platform can help you to manage your project performance data better, and ensure that OEMs are getting the most out of your assets. This can provide a vital second opinion that helps you to get more out of your contracts with OEMs or other providers. It takes off the blindfold.
This is a message we hear consistently from Greenbyte customers. They tell us that the Greenbyte Platform has helped them to spot problems that their OEMs missed, and then found profitable solutions. This only happened because they were able to access their project performance data and then work constructively with OEMs.
This independent view helps OEMs too. Bringing in independent expertise helps to identify issues they might not have seen, and contributes to improving the sector.
Long-term servicing deals by OEMs need not be a problem for the industry, as long as there is openness on performance data. We believe that being open on data is a pre-requisite for a green energy system, and foster collaboration that helps the wind industry to thrive.
Do you need a second opinion on your project performance? Get in touch and we’d be delighted to talk about how you could get more out of your renewable assets.