Any discussion with those involved in the management of operational onshore wind farm assets soon makes it clear that the market continues to evolve apace. We see real progress in how the value of assets is maintained and revenue optimised. Improvement is being driven by a combination of technology advances, more efficient commercial structures and expansion in the range of qualified service suppliers.
However, an observer from outside of the onshore wind industry may well express some surprise, if not some concern at the nature of the issues that continue to cause inefficiency and attract management attention.
Issues such as slow and irrational response to turbine downtime, incomplete knowledge of the asset, inefficient multi-party approaches, disconnected site management and turbine-servicing activities, limited use of incomplete operational data and poor technical knowledge are more common than they should be in a mature industry.
It is apparent there is a further dynamic at play here – the size of portfolios and the nature of ownership which can lead to a difference in appetite for change. We also see significant differences in approach between markets, depending on the stage of market development and level of any subsidy support.
Whilst large organisations with sizeable onshore wind portfolios are more likely to have a critical mass of projects and impetus to drive efficiency, their corporate size and organisational structure (particularly where portfolios are international), can make change harder and more complicated to implement, with inertia often being the enemy within.
On the other hand, smaller organisations with smaller portfolios may not have the economies of scale to drive change but are very often able to react quicker to opportunities.
So, while bigger players may be slower to react, many are now taking on the challenge of finding new ways to drive down operational costs, or better still, optimising net revenues from the remaining life of assets. I think it is high time that more of the mid-size and smaller players work to access these benefits. In the first operational life of many sites, subsidies have often enabled owners to make a good return without needing to work too hard. As we move to a post-subsidy world with a much busier competitive landscape, we see two routes for asset owners and their suppliers – minimise change, take reasonable profits short-term and then develop an exit strategy, or get creative, get hungry, work assets to the full for increased profit now and build an ongoing revenue stream.
It’s time, too, for asset owners to demand more disciplined approaches to asset management, with decisions and focus areas based objectively on maximising net revenues based on a conscious decision about a portfolio risk profile. For those with projects in the early years and needing to ensure sufficient debt service, the avoidance of risk may take priority over potential revenue maximisation. This should be quite different to those with projects in later life, seeking to maximise revenue before the end of subsidies and a period of low-margin ownership. There are good rewards for those that are proactive, and there is every sense in re-evaluating through-life strategy, whether across portfolios worth billions or a handful of local wind farms.
In my next blog, I’ll provide a more detail on the actions that need to be taken to the most from ageing assets.
Neil Douglas, Director, BVGA