On November 15, Mexico’s third clean energy auction awarded a total of 2.56 GW of solar, wind, and natural gas capacity at a jaw-dropping average of $20.57/MWh. And while the dizzying drop in pricing was unexpected, what is no longer a surprise is solar PV’s continuing reign as the dominant force in regional power auctions.
Given the inevitable PV future, the question many developers, owners, asset managers, and lenders are asking – and if they aren’t, they should be – is how will these projects be operated, given solar prices are approaching $20/MWh?
Last month, in the first of this two-part O&M series, we focused on plant operations, drawing upon lessons learned from Chile for how to best approach Latin American system operators and regulators. In this article, we turn to the maintenance side of the O&M formula, and consider how a proactive approach to activities, particularly early in the project’s operational life, can bring down long-term opex spend.
For most developers and finance teams, thinking about O&M is straightforward: Fill in the opex line item with a reasonable assumption, and go get that project financed. This is not an unreasonable approach, given that there is a lot of ground to cover in getting a project built, and no lack of risk and uncertainty in Latin American markets. But once plants begin operations, that opex number becomes far more important.
Today, we’ll focus on early-stage maintenance planning and activities, homing in on the commissioning and EPC to O&M handover phase, which is particularly critical in emerging markets with limited solar PV experience.
Imagine your project has a PPA, has secured its financing, is finalizing early-stage construction, and nearing commissioning. This is the time to get your O&M contractor on-site – if you haven’t already! Better yet, it is the time to get your asset manager, EPC, and O&M contractor sitting around the same table. While many projects will have their EPC contractors do O&M for the initial stage of the project, from our experience we find that independent service providers are better structured and motivated to protect an owner’s interests. But even if early O&M is provided by the EPC, it’s safe to assume that only the O&M contractor is thinking about the nitty-gritty aspects of long-term maintenance.
The building blocks of a maintenance plan come from project documentation. Project mapping, HSE information, equipment naming protocols, maintenance manuals, network communications and SCADA diagrams, warranty information … All of this makes its way into a good maintenance plan. The sooner your O&M contractor has their hands on this information, the sooner they can get started developing a maintenance plan.
If solar is going to survive sub-$20/MWh PPA prices (and it will), O&M needs to get smart fast. Technician labor rates in Northern Chile are largely impacted by the lucrative mining industry and match those of more developed countries. Mexico is known as a country with much less expensive labor, but limited technician education, and local union requirements – and security concerns mean that overall labor budgets will not drop much, if at all. The takeaway is the same in Latin America as it is everywhere else: Solar O&M needs to work smart, and the days of running solar plants on spreadsheets are over.
Performance monitoring and analytics are one part of the puzzle, but these diagnostic tools need to drive sophisticated maintenance software tools (computerized maintenance management software or CMMS systems) that turn diagnostics into actionable service orders, measurable maintenance data, and key performance indicators (KPIs).
Nobody is better qualified to walk through a site and think about long-term maintenance needs than an experienced O&M contractor, especially one who will be doing the work on-site for the long term. What better incentive to reduce maintenance-related headaches than to walk through your future work site? What will the O&M contractor team see that others won’t?
Local code compliance: Many projects in Latin America are being built by international consortia with companies and workers from all over the world. Are these companies up to speed on local code requirements?
Safety hazard detection: Hazards present during the O&M phase are different from those in construction. Does the placement and access to equipment pose operational risk? Is electrical hazard labelling and signage compliant with local standards? Does the field work match the project as built?
Cable management: Too much or too little slack? Are those zap straps UV-proof? Is that uncovered MC4 connector going to get clogged with dust? Are cable connectors labelled appropriately?
The wrong answers to any of those questions can lead to significant health and safety risks, or hundreds of hours of unnecessary labor.
Involving your O&M Contractor during construction means they are reviewing documentation, preparing a maintenance plan, executing quality inspections, and – perhaps most importantly – engaging with the appropriate stakeholders. Communicating and addressing potential issues with the EPC and asset management is of critical importance, and a huge cost saver in the long run, holding construction companies accountable for their work and avoiding expensive rehabilitation and retrofit efforts.
Of equal importance is the O&M contractor’s engagement of other project stakeholders, like local communities and authorities. Remember that your O&M team will be the face of the project in the long run, and in many sites in Latin America – particularly in remote locations – maintaining good relationships with neighbors is vital. Any project can be seen as a potential source of employment and well-being, or a blight on the society. Having the site manager engage with the local community is key to maintaining good relationships. Construction can bring hundreds of people to a remote site, only to have them drop off to single digits in the operational phase. Being in contact with the same person or team throughout the process can help ease the transition and generate a good relationship, rather than leaving neighbors feeling like they’ve just been played a bait-and-switch.
Author: Nicolás Rossel
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