Wind power – be careful who you choose for the operations manager for your plant

In a nutshell:

In a nutshell:

• Improved know-how in the wind farm business, in particular the know-how concerning negotiations of purchase and all-inclusive maintenance contracts, which are a standard practice in Germany 
• Inclusion of wind farms in IPPs' portfolios
• The demand for diversification and risk spreading reinforced by the increasing complexity of legal, technical and environmental requirements in the core markets  
• Significantly improved access to sites where fast permit procedures for the construction of wind turbines apply 
• New factors, such as the upcoming tendering procedure for wind turbines as set out in the German Renewable Energy Law 2016 [EEG 2016], that additionally deter investors and thus put pressure on project developers

1. How does a potential investor choose from a large number of providers the one that is best for him?
     
   2. What risks and opportunities does an investor/wind farm operator take in a situation where the firm that has developed the project, and often acts as general contractor, is a supervisor to “itself”, which means that it supervises the activities it undertakes in its capacity as plant operations manager, during the warranty period it has granted for its own project?

Choice of the right plant operations manager

The role of the plant operations manager (POM) is often underestimated. A seamless, perfectly coordinated management of a wind farm increases the farm's availability and thus helps significantly optimise its operations. The requirements set to a POM have long gone beyond the daily supervision of the plant and its operating conditions or controlling and meeting maintenance and repair time frames. Today, Today, a POM is also responsible for boosting a plant's future potential, e.g. by optimising the plant technology and reducing the operating costs. To this end, a POM must conduct comprehensive analyses of all available plant-related data by way of extended condition monitoring (detailed supervision of construction components), as well as prepare in-depth reports for the plant operators on this basis. He is also instrumental in the optimal handling of damage events and in the filing of insurance claims.
 
Since many providers offer very different service packages, in some cases at very different prices, the evaluation and classification of available technical plant management offers is anything but easy.  Often, significant differences between the scopes of offered services are difficult to spot at first glance and become visible only after a critical examination by a technical expert or a lawyer. Key words such as “in the full scope” and “immediately” or “support” vs. “taking over” can make a crucial difference as to whether a plant can be promptly and seamlessly put back into operation in the event of damage. Especially investors and potential operators of renewable energy plants can sometimes find it hard to make the best economic choice in this very sensitive matter without the relevant knowledge. The selection of a qualified plant operations manager can have a significant impact on the plant’s availability and, thus, on the profit level. For example, only one day of a technical glitch in a small-scale wind farm with 5 state-of-the-art wind turbines (power class: 3.3 MW) that was put into operation as of 31 December 2015 can lead to a loss of revenue of EUR 12,000 to 36,000.
 

Project developer / general contractor as POM

You might also want to consider engaging the  project developer who developed the wind farm you want to buy to provide the technical plant management service; such services are often offered by project developers. This is because such a firm has the best knowledge of the wind farm and the specific features of the project. It sometimes even happens that a wind farm project developer agrees to sell a wind farm only on condition that the sale contract includes a clause safeguarding that the project developer will be responsible for the wind farm management.
  
However, this issue should be viewed from various angles. The project developer often acts as general contractor (GC) and, thus, gives a two-year warranty for the wind farm (the warranty period for the foundations etc. is even longer). If the general contractor assumes the technical management of the wind farm, this creates the risk for the investor that defects that should be removed by the GC during the warranty period will be 'shifted' by the GC to the subsequent (post-warranty) period so as to avoid claims for defect removal. It should be critically examined whether it is in the interest of a company to fulfil its contractual obligations as the POM and at the same time to detect defects in the construction for which the company was itself responsible (as the GC).
 

Structured approach

All these issues can be properly addressed by a critical examination of the selection of the POM and the weighing of the related risks and opportunities. A structured analysis of both quantitative and qualitative criteria is a challenging task and requires sound knowledge of the market, as well as  knowing what scope of services is indispensable for the best possible supervision of the wind farm.
 
Decision-making can be made easier and faster with the help of a special decision matrix that summarises the required criteria arising from the service specifications and investor/operator expectations. The matrix shows what services are considered important by the investor or which of them may be less important, but are nevertheless required for technical reasons, and what services can be provided optionally and on request only. Finally, the offers regarding the service catalogue are assessed from the economic and technical point of view, and subsequently (if required) negotiated or adjusted and once again critically examined by specialist lawyers so that in the event of damage absolutely all tasks and responsibilities are distributed clearly and according to the investor’s wish.
 
The nature of this business is that every project is different and every investor sets different priorities and that market developments can be addressed through negotiations and finally accounted for in a contract.
 


















Figure 1: An extract from a sample evaluation matrix
(Click to enlarge)

• Improved know-how in the wind farm business, in particular the know-how concerning negotiations of purchase and all-inclusive maintenance contracts, which are a standard practice in Germany 
• Inclusion of wind farms in IPPs' portfolios
• The demand for diversification and risk spreading reinforced by the increasing complexity of legal, technical and environmental requirements in the core markets  
• Significantly improved access to sites where fast permit procedures for the construction of wind turbines apply 
• New factors, such as the upcoming tendering procedure for wind turbines as set out in the German Renewable Energy Law 2016 [EEG 2016], that additionally deter investors and thus put pressure on project developers

1. How does a potential investor choose from a large number of providers the one that is best for him?
     
   2. What risks and opportunities does an investor/wind farm operator take in a situation where the firm that has developed the project, and often acts as general contractor, is a supervisor to “itself”, which means that it supervises the activities it undertakes in its capacity as plant operations manager, during the warranty period it has granted for its own project?

Choice of the right plant operations manager

The role of the plant operations manager (POM) is often underestimated. A seamless, perfectly coordinated management of a wind farm increases the farm's availability and thus helps significantly optimise its operations. The requirements set to a POM have long gone beyond the daily supervision of the plant and its operating conditions or controlling and meeting maintenance and repair time frames. Today, Today, a POM is also responsible for boosting a plant's future potential, e.g. by optimising the plant technology and reducing the operating costs. To this end, a POM must conduct comprehensive analyses of all available plant-related data by way of extended condition monitoring (detailed supervision of construction components), as well as prepare in-depth reports for the plant operators on this basis. He is also instrumental in the optimal handling of damage events and in the filing of insurance claims.
 
Since many providers offer very different service packages, in some cases at very different prices, the evaluation and classification of available technical plant management offers is anything but easy.  Often, significant differences between the scopes of offered services are difficult to spot at first glance and become visible only after a critical examination by a technical expert or a lawyer. Key words such as “in the full scope” and “immediately” or “support” vs. “taking over” can make a crucial difference as to whether a plant can be promptly and seamlessly put back into operation in the event of damage. Especially investors and potential operators of renewable energy plants can sometimes find it hard to make the best economic choice in this very sensitive matter without the relevant knowledge. The selection of a qualified plant operations manager can have a significant impact on the plant’s availability and, thus, on the profit level. For example, only one day of a technical glitch in a small-scale wind farm with 5 state-of-the-art wind turbines (power class: 3.3 MW) that was put into operation as of 31 December 2015 can lead to a loss of revenue of EUR 12,000 to 36,000.
 

Project developer / general contractor as POM

You might also want to consider engaging the  project developer who developed the wind farm you want to buy to provide the technical plant management service; such services are often offered by project developers. This is because such a firm has the best knowledge of the wind farm and the specific features of the project. It sometimes even happens that a wind farm project developer agrees to sell a wind farm only on condition that the sale contract includes a clause safeguarding that the project developer will be responsible for the wind farm management.
  
However, this issue should be viewed from various angles. The project developer often acts as general contractor (GC) and, thus, gives a two-year warranty for the wind farm (the warranty period for the foundations etc. is even longer). If the general contractor assumes the technical management of the wind farm, this creates the risk for the investor that defects that should be removed by the GC during the warranty period will be 'shifted' by the GC to the subsequent (post-warranty) period so as to avoid claims for defect removal. It should be critically examined whether it is in the interest of a company to fulfil its contractual obligations as the POM and at the same time to detect defects in the construction for which the company was itself responsible (as the GC).
 

Structured approach

All these issues can be properly addressed by a critical examination of the selection of the POM and the weighing of the related risks and opportunities. A structured analysis of both quantitative and qualitative criteria is a challenging task and requires sound knowledge of the market, as well as  knowing what scope of services is indispensable for the best possible supervision of the wind farm.
 
Decision-making can be made easier and faster with the help of a special decision matrix that summarises the required criteria arising from the service specifications and investor/operator expectations. The matrix shows what services are considered important by the investor or which of them may be less important, but are nevertheless required for technical reasons, and what services can be provided optionally and on request only. Finally, the offers regarding the service catalogue are assessed from the economic and technical point of view, and subsequently (if required) negotiated or adjusted and once again critically examined by specialist lawyers so that in the event of damage absolutely all tasks and responsibilities are distributed clearly and according to the investor’s wish.
 
The nature of this business is that every project is different and every investor sets different priorities and that market developments can be addressed through negotiations and finally accounted for in a contract.
 


















Figure 1: An extract from a sample evaluation matrix