Generating New Value From Ageing Renewable Energy Assets

Posted by Shantal Göres on February 20, 2019 | No comments

Two key questions facing owners, investors and other stakeholders today are “How long will my renewable energy assets last?” and “What happens at the end of their planned lifetime?”. 

Lifetime extension is a challenge that will be faced by all kinds of renewable energy assets. Many first-generation renewable energy sites are having to address it now as a matter of urgency, but newer sites would also be well served to start considering it. In his well-researched paper, Carlos Albero from DVN GL provides guidance on the options for extracting further value from renewable energy projects that are nearing their planned end of life and reveals how to identify the best option based on your circumstances. 

Report written by DVN GL first published in August 2018.

ageing assetsConstruction at a wind farm in Ohio. Photographer: Daniel Acker/Bloomberg

OPPORTUNITIES FOR LIFETIME EXTENSION

End of life planning is becoming an increasingly prominent issue in the renewables sector. This is particularly the case in wind power, where the first commercial wind energy projects are now reaching – or in some cases just passing – their expected 20-year lifetime. But the question is also relevant for photovoltaic, biomass and hydro plants.

For most of these projects, the end of their planned lifetime was generally predicted to be the end of commercial operations at the site.
The only decisions to be taken then were the best way to decommission the site and what value could be generated from the decommissioned hardware. But this need not be the case. For renewable energy generation, the principal resource – the wind, sun, water from which we extract the energy – is still available. For example, some hydroelectric sites have been in operation for over 100 years, upgrading and replacing hardware as required.

Recently, DNV GL has been in discussions with various project stakeholders over the possibilities of extending the lifetime of their project beyond that originally planned. Where possible, lifetime extension is a very attractive proposal. The end of the planned lifetime typically also means the end of arrangements with lenders and investors. Hence, the project CAPEX is effectively paid off, and any further income from the site would be pure revenue.

Moreover, extending the life of an existing project has many potential advantages over developing new sites. Firstly, you have much better and more extensive insight into the site conditions. The longer you operate, the more you know – particularly about how actual operating conditions compare with models. Hence, it is possible to make much more reliable projections of future outputs and generating patterns. You can also gain a better understanding of suitable design criteria for any new hardware or retrofit required as well how local conditions impact the ageing and maintenance requirements of hardware installed at the site.

Another advantage is that much of the infrastructure for connecting the site to the grid is already in place. In some cases, the necessary environmental permits and agreements for accessing / renting the land on which the project is built are also valid for longer than the originally planned lifetime – or can be easily extended.

MAKING INFORMED DECISIONS

When faced with a renewable energy project that is coming to the end of its planned lifetime, operators essentially have two choices. They can choose to just continue operating the project as before until OPEX costs eat up all the revenue. Alternatively, they can
carry out a thorough assessment of the condition, performance and safety of the current hardware and build a new data-driven model of the actual
remaining lifetime of the assets. This approach allows for more informed decisions about the future of the project to be made. For example, based on the results of that assessment, it may make more economic sense to replace some assets (e.g. the turbines for wind farms), possibly with newer, more efficient or higher output versions.

 

FACTORS AFFECTING LIFETIME EXTENSION

When looking at the lifetime extension possibilities for a specific project, several different factors should be considered. These include site conditions; design, manufacture, and installation; operation, regulation, and market models. Each of these factors is discussed below.

SITE CONDITIONS

The first of these factors is the environmental conditions at the site. Obviously, some sites have friendlier conditions than others, which affects the rate of degradation of assets and thus how long beyond their planned lifetime they can operate safely. Of particular interest is how the actual conditions over the life of the project to date have compared to the predictions used to define the design criteria of the components used in the project, as operating equipment in an environment for which it wasn’t designed can significantly degrade it.

Naturally, the specific parameters of interest will depend on the type of renewable energy being generated.
For wind farms, the key information is the wind class data including average and peak wind speeds as well as the amount of turbulence. For solar photovoltaic parks, data such as ultraviolet irradiation, ammonia, humidity and salt levels plus local wind speeds and the prevalence of mist must be considered.

DESIGN, MANUFACTURE AND INSTALLATION

How an asset is designed, produced, transported to the project site and installed all influence the asset’s durability in the field. Thus, any attempt to accurately assess the potential for extending an asset’s lifetime must consider all these processes.

Generally, there is plenty of information available on the design of the components used. However, it is important to remember that wind and solar are rapidly evolving areas, and technologies may be implemented before they are fully mature. A related concern is the drive to

reduce the levelized cost of energy (LCoE). Increasingly, this leads to designs being optimized to minimize LCoE, which may limit the possibilities for extending the lifetime of new assets.

When it comes to manufacturing, every manufacturer has its own criteria, practices and safety tolerances. Processes can range from the highly manual, for example in manufacturing wind turbine blades, to tightly controlled machining and welding. This data is not usually publicly available. However, if the project has implemented best practices, accurate records of all processes, manufacturing conditions and milestones should have been kept, tracking each component from drawing board through the factory and transportation to the construction.

Experience tells us that significant issues can arise from all these phases and we have identified a number of critical paths that need to be tightly controlled to avoid quality problems that could limit lifetime extension possibilities. This is increasingly important to maintain quality as the industry strives to reduce costs, necessitating ever closer control of manufacturing, transport and construction. To illustrate this with a very specific example, the market is seeing many new foundation designs for wind turbines.

These designs use less concrete and steel but place much higher requirements on materials and therefore stricter control of the on-site conditions for the concrete plants and closer monitoring of the steel bars arriving at the site.

OPERATION

Once installed and operating, the way an asset is operated and maintained is becoming increasingly influential on its lifetime potential. Predictive, preventive and corrective maintenance must be carried out to the highest standards and accurately monitored to enable realistic lifetime assessments.

The availability of data is crucial. Many assets change hands (multiple times) over their lifetime, which can complicate matters. But even so, information such as resource availability, maintenance, root cause analysis and serial defect reports should be available and is essential for a reliable assessment of lifetime extension possibilities. Some information may be sourced separately, but if it doesn’t come from the site being assessed, it will increase uncertainties in the final results.

Pressure from the merchant market means that most renewable assets today do not generate electricity all
the time – instead operators track wholesale prices to balance supply and demand. This has an immediate impact on asset condition. As a result, a deep dive into
its condition is vital, mainly through data analysis support by direct inspections (visual, videoscope and vibrations). Asset management must also become more professional, which requires experience and technical expertise as well as appropriate tools.

REGULATION

Before making a decision on lifetime extension, it is necessary to review the project’s permit status within
the current regulatory landscape to ensure there are
no limitations on siting, interconnection or land rental. The original project will have been developed in compliance with the rules in place at the time of its inception, and these rules may no longer be valid for new projects. Hence any potential refurbishment, retrofit or expansion of the project may require new permits.

Usually, this is easily checked, and the biggest con-
straint is typically the environmental impact assessment (EIA). In most markets, rental contracts can be easily extended, and interconnection permits have no expiry date. However, environmental regulations have changed considerably over recent decades. For example, at some wind farm sites, regulations have changed so much that it simply would not be possible to erect wind turbines there today. In this case, lifetime extension is the only option for extended the value of the site.

Thus, a new EIA must be carried out. This can be done out as the existing project is nearing the end of it planned life so that re-powering or other plans to extend generation at the site can be executed swiftly.

MARKET MODEL

When planning investment in a new or existing project, the financial team creates a long-term financial model based on inputs from tax, technical and legal advisors. This model is usually expected to cover at least 14 years. A key step in evaluating lifetime extension potential is to stress test that financial model.

This requires an intimate understanding of the generation asset? In the case of a wind farm, that means identifying the weak points of the specific turbines used, known defects at similar sites that have already reached the same stage, the environmental conditions at the site, the condition of the assets and how all this could affect major equipment such as gearboxes, generators, converters and blades. Events such as major replacements, retrofit campaigns, up-tower repairs and curtailment situations mist be reliably modelled to assess their impact on the future economic health of the project.

It is vital to remember that extended projects will be much more fully exposed to merchant risk. Any existing power purchase agreements or other agreements for the use of power generated by the original project are likely to expire after year 20. Without that support, the extended project will need to sell its energy on the open market and this will be subject to potentially large price variations. Fortunately, as a typically debt-free asset, extended projects are in a much more favourable position in this regard than newly built projects.

The complete report including a customer case of DNV GL, can be found at here. 

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