10 pv o&m budgeting - pricing & practices - epri v1

© 2016 Electric Power Research Institute, Inc. All rights reserved.

Nadav EnbarPrincipal Project Manager

PV Life Cycle & Reliability Workshop

PV Systems SymposiumMay 11, 2016

PV O&M Budgeting: Pricing and Practices

2© 2016 Electric Power Research Institute, Inc. All rights reserved.

Presentation insights derived from PV O&M white paper

Research rationale: Little information exists regarding the budgeting process, actual metrics ($/kW-yr), consensus best practices, and industry gaps.

Joint effort by EPRI and Sandia National Labs Focus: Utility-scale solar PV Data/insights derived from:

– In-depth interviews– Online survey

The publicly-available paper is available for download at: http://www.epri.com/abstracts/Pages/ProductAbstract.aspx?ProductId=000000003002006218


New PV deployments: now more about economics than mandate?

Greater levels of utility-scale PV procurement based on economics– 8.7 GW to meet states’

RPS mandates / goals*– 7.9 GW beyond RPS*

Install costs improving– 1-10 MW: $1.75-$2.50/W– 10 MW+: $1.40-$1.75/W

Source: GTM Research, Q4 2015 Solar Executive Briefing

Source: GTM Research. U.S. Utility PV Market Tracker.* Values based on procurement pipeline in Sep. 2015

U.S. PV Installed PV Capacity by Market Segment – Post ITC Extension, 2010-20E


To lower PV LCOE: OpEx increasingly important as CapEx reduces

CapEx reductions driven by learning curve, innovation, scale economiesOpEx becoming increasingly important to project margins

– Asset Management, O&M, Repower/Decommission

Source: BNEF, “PV OM Index 2015” Sep. 2015. Note: Assumes an initial O&M cost of $30,000/MW‐yr, lifetime of 20 years, CapEx of $1.39.W, 0.7% annual degradation, 2% inflation rate, 21% tax rate, Electricity sold at $110/MWh, initial equity IRR 6.0%

Relative change in rate of return on a 1 MW PV plant

Soft costsLabor

Hard BOSInverter

Module

Source: GTM Research, “Executive Briefing, The Future of U.S. Solar” Nov. 2015

CapEx prices (USD) for utility-scale PV

2.00

1.50

1.00

0.50

0.002012 2013 2014 2015E 2016E

10% decrease

10% increase

Capacity Factor (%) -52% +45%Equipment Cost ($/MW) +18% -18%

Fixed O&M ($/MW) +11% -12%Development cost ($/MW) +11% -10%

Construction debt (%) -8% +11%


Unresolved question: What is the cost-benefit of PV O&M?

80% of worldwide utility-scale plants built in last 5 years– Time needed to correlate O&M to

benefit Inadequate budget transparency

– Differing stakeholder motivations / incentives

Many variables impact O&M approach– Size / location water availability, travel distance,

geography– Climate mowing, soiling, wildlife, corrosion

– Plant technology / architecture tracking vs. fixed-tilt, panel and

inverter types

Source: GTM Research and SolChamba Consulting, “Megawatt‐scale PV O&M and Asset Management 2015‐2020: Services, Markets and Competitors,” Nov. 2015.


Companies & their roles in the PV O&M space

The structural manner in which PV plants are developed, owned, and operated is a primary explanation for the observed variation in PV O&M approaches and investments.


The overarching O&M budgeting landscape

Budgets historically low (and remain so) No one-size-fits-all approach

– Budgets typically 1-5% of MW-scale plant’s $/kW-yr price tag

– Variation based on System / fleet characteristics Business interests O&M approaches (scope) Contractual arrangements Miscellaneous: labor rates,

local energy prices, project volume, profit taking

– Broad structure guides budgeting process that is informed by multiple factors/attitudes

Source: EPRI, PID 3002005779

Note: O&M estimates developed using bottoms‐up approach; incorporates detailed info from EPCs, and input from industry data (i.e. equipment cost and labor indices), market analyst info, and developer feedback. Estimates for conceptual 10‐MWdc plants.

Avg. Utility-Scale PV O&M Costs, by Technology


Key factors that frame O&M budgeting approachEmployed O&M strategy

Preventative Maintenance (PM) Reactive Maintenance Condition-based Maintenance (CBM) Reliability-Centered Maintenance (RCM) Reliability Availability and Maintainability (RAM)


Key factors that frame O&M budgeting approachContractual structure

Fixed Price / Full Wrap Covers all O&M activities for a

fixed annual price Common, especially during first 5

years of plant life during which warranties in place Typically more expensive due to

price escalation

Pay-Per-Use / Cost-Plus Charges on fixed price basis for

recurring activities, on a per-task basis for corrective maintenance and other assignmentsGaining industry traction

– Offer greater definition of activities, frequencies, expectations

Greater risk-reward tradeoff


Key factors that frame O&M budgeting approachContractual provisos

Service-level agreements: specify compliance timeframes– Compliance variable based on equipment type, severity, “clock

start/stop”Availability guarantees: define plant uptime requirements

– No standard calculation used for determining availabilityPerformance ratio/yield guarantees: stipulate plant performance

levels– dc:ac overbuild can undermine the provision’s intent

Production guarantees: state annual plant production levelsPerformance incentives: reward/penalize for plant performance

– Can be undermined by environmental factorsEnergy-based contracts: Link plant production with O&M service

provider revenues


Key factors that frame O&M budgeting approachBudget development terms

Stated plant owner terms– Organization / design of project bidding and RFP process

EPC / O&M provider negotiationsTurnkey vs. disaggregated development and upkeepUtility vs. non-utility development


PV O&M budget components and costs

Caveats $/kW-yr metric can skew

perspectives– Other metrics can be more

instructive Normalizing O&M budget

figures for comparison can be difficult The constituent parts of

O&M budget don’t always add up to overall average budget $/kW-yr O&M costs tend to

decrease as system size increases– Returns diminish as plant

size grows– O&M of smaller systems

can be 2-4x more expensive than for larger sites

Budget Item Budget Range ($/kW-yr)

Overall Budget $10.00 - $45.00/kW-yr*

General Site Maintenance $0.20 - $3.00/kW-yr

Wiring Electrical Inspection $1.40 - $5.00/kW-yr†

Panel Washing $0.80 - $1.30/kW-yr†

Vegetation Management $0.50 - $1.80/kW-yr†

Inverter Maintenance $3.00 - $7.50/kW-yr†

Inverter Replacement $6.00 - $10.00/kW**

Racking / Tracker Maintenance Insufficient data

Spares $2.00 - $20.00/kW-yr***Source: EPRI

Notes: Budget numbers for utility‐scale plants; encompass an entire range of baseline, cost‐plus, and warranty terms.* Constituent O&M budget components are non‐linear; will not necessarily add up to overall budget on a $/kW‐yr basis.** Inverter replacement metrics based on a $/kW, cover one‐time equipment replacement and installation activity over the course of a plant’s lifetime.*** Budget range for spares primarily encompasses equipment procurement and storage costs.† Price points based on a 1x annual frequency (i.e., per event)


Snapshot: labor requirements

IPP / Integrated O&M Provider– 1 FTE supervises ~10 MW (up

to 50 MW)– PM activities = 2 techs at 8

hrs/MWac

Electric Utility– 1 FTE oversees 18-30 MW– 40 MW justifies on-site

presence– Employees w/multiple skill sets

Unburdened PV O&M Labor Rates

Source: EPRI

Notes: Values represent range of labor costs across the U.S., include union and non‐union labor. Values cover all O&M provider ranges, from distributed‐ to utility‐scale. Utility labor rates not included.

O&M Labor Allocation– 40% apprentice / technician, 50%

electrician, 10% electrician w/MV experience

Identified efficiency improvements– UAS for thermal scanning– Greater inventory control– Smart monitoring and upfront

analytics– Install standards optimized for

maintenance


Snapshot: insurance coverage

Rules of Thumb– O&M providers: 5-7% of their revenue to general insurance– Budget $0.10 for ever $100 of insurable value for the components in a PV system– All-risk product = $3,000-$5,000/MW-yr

Conventional insurance categories– General Liability– Property Risk– Environmental Risk– Business Interruption– Contractor Bonding and Risk Management– Underperformance

Emerging Insurance Products– PV Plant Performance Coverage– Cyber Security and SCADA Insurance– Coverage of additional Contract Claims– Forced Outage Insurance


Conclusions: re-imagining the O&M budget process

Instill greater O&M budget transparency

Align incentives along value chain

Evaluate / refine budgeting during initial years

Require O&M review in IE reports commissioned by lenders

Incorporate new approaches for determining service requirements to maintain component warranties

Develop better link between maintenance frequency vs. energy output– PV can benefit from development

of Preventative Maintenance Basis Database

Use innovation & big data to reduce cost

Consider decommissioning activities

Standardize budgeting and tasks


There is ample room for PV O&M improvement

Improving the link: Maintenance frequency vs. energy output– PV Preventative Maintenance Basis Database– Field research

Increasing O&M budget transparency– New DOE-funded PV O&M Working Group

Misaligned incentives along value chain– PV standards development

Use of innovation & big data to reduce cost

Inadequate attention to plant life cycle considerations

Sources: FLIR Systems, Oregon Infrared LLC, Thermographic Consultancy (clockwise)


Questions?

Nadav EnbarPrincipal Project Manager, [email protected]

Geoffrey KliseTechnical Staff, Sandia National Laboratories [email protected]


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