Expected to account for over one-third of total capital expenditures in the U.S. wind industry over the next decade

CAMBRIDGE, Mass. (July 10, 2012) – Annual expenditures for operations and maintenance (O&M) services in the U.S. wind industry are expected to double from just under $3 billion in 2012 to nearly $6 billion in 2025, according to a new report U.S. Wind O&M Strategies: 2012-2025 by IHS Emerging Energy Research (IHS EER). O&M's share of annual U.S. wind expenditures is expected to increase from 12 percent to 29 percent over the same period.

"Despite declines in unit-level costs due to anticipated efficiencies, operations and maintenance spending is only set to increase as the U.S. wind fleet grows and ages," said Matt Kaplan, associate director of IHS EER's North American Wind Energy Advisory program. "O&M strategies are increasingly vital to improving the operational performance and bottom line of a wind owner's collective investment."

IHS EER expects overall annual spend on O&M to increase at a 5.5 percent compound annual growth rate as installed onshore wind capacity in the U.S. grows from 47 gigawatts (GW) at year-end 2011 to more than 127 GW by year-end 2025. The pace of annual O&M expenditure will vary as a result of variations in annual build and fluctuations in annual maintenance costs, the report notes.

The growth of O&M spending is making the market for such services increasingly competitive, the report says. Larger wind owners are planning to bring more aspects of O&M in-house to leverage economies of scale. At the same time, Original Equipment Manufacturers (OEMs) are aggressively expanding the O&M side of their businesses in part due to expectations that the pace of new turbine orders will decline following the record pace of 2012 installations— forecast to reach approximately 12 GW of new capacity additions. The emerging opportunity has also fostered the creation of a host of full service Independent Service Providers (ISPs), aiming to provide more cost-effective O&M than OEMs and owners.

The increasingly competitive environment is already beginning to drive OEMs and ISPs to offer new types of contracts and service offerings with a focus on maximizing production, the report says.

"Companies will need to think outside of the box and invest in innovative technologies and solutions in order to differentiate themselves," Kaplan said.

Production-based availability contracts—which tie O&M compensation to project output—are becoming more prevalent and are anticipated to begin replacing traditional uptime availability guarantees. OEMs and some ISPs are also developing new tools to enhance the production of previously installed turbines as a means of differentiating their offerings. Upgrades include software and hardware modifications and enhanced preventative maintenance solutions that can lead to output beyond what was originally anticipated.

"The industry's intense focus on O&M today will ultimately result in more cost-effective methods for managing and maintaining wind projects, driving down the overall cost of wind in the future," Kaplan said.

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