By
Jens Bredal Nielsen
Chief Specialist
5 minute read
Most wind and solar service contracts run for a fixed term under the original manufacturer. Most owners only start exploring their options once that term is nearly up. By then, the negotiation leverage is gone.
A manufacturer that knows an owner has nowhere else realistically to go, and no time left to look, has little reason to offer its best price. That is true even for owners who plan to stay with the same manufacturer anyway. Being unprepared for renegotiating the service terms could lead to not only missing out on a better supplier; it could also lead to paying more for keeping the one you already have.
As thousands of turbines installed in the previous decade start to come out of warranty or hit their 5-10 year operational lifetime, many wind asset owners across Europe soon face the most critical financial decision of the remaining operational life of their asset: how to setup service supply for the next 15-20 years?
When an O&M agreement approaches expiry, the question is not simply whether to renew. It is whether the existing service model still provides the right balance of cost, risk and control for the next stage of the asset’s life. For larger assets, you would need to start roughly two years out, where you can build the case you need to design and procure a financially and operationally optimal O&M model. But, many asset owners delay the preparation, ending up with only a few months to scramble together a renegotiation with the supplier (often the OEM) and end up overpaying or oversubscribing for actual O&M needs.
We partner with many asset owners to help them get fit for their next service agreement. And we always start by running due diligence on the expiring contract against what was originally promised. This is done to make sure gaps are addressed or compensated before the current provider walks away.
Next comes a value-based inspection, not a blanket check of everything on the turbine, but a focused look at what represents risk in the coming period. There are many hours and dollars to save by scoping this process to the specific asset, the contract, and what service strategy the owner has set. Whether that is switching provider or negotiating harder with the incumbent, being prepared and having the right data takes you a long way.
There are two ways to get this wrong: a quick look and a rubber stamp that misses what matters, or a full, all-encompassing audit that costs more than the savings it uncovers. The useful version sits in between, a defined process rather that draws from a pool of activities, including data review, inspection, financial and risk evaluation, as well as negotiation support; all scoped to a specific asset and owner strategy.
A contract renewal is usually treated as an administrative deadline to get through. Handled two years out instead of two months out, it becomes one of the more direct ways to improve the economics of an asset that is already built and producing. No new megawatt of capacity, no new capital, just a better price for the same output and fewer surprises paid for out of margin. If your service agreement has a year or two left on the clock, that is the window of opportunity to bolster the profitability of the asset and make sure you don’t leave value on the table, just because you were not prepared.
Background data: Wind Systems Magazine, “Warranty Worries In The U.S. Wind Maintenance Market”; Reuters Events / Wind Energy Update, “Does your O&M supply contract really meet your long-term requirements?”
Are you interested in learning more about DIS/CREADIS?
Enter your information in the form and we will contact you shortly.