“Any O&M contractor will do.”
While I’ve never heard someone actually say those words, I see many solar asset owners acting that way. In the race to the bottom on solar O&M costs, some owners are signing O&M contracts that simply are not serviceable.
Why is this happening? Supply and demand. The beauty of free markets is that economic efficiencies naturally occur. As supply (O&M contractors) begins to outstrip demand (MWs that need servicing), the market clearing price drops. But when does an O&M contractor know their bid price doesn’t even cover their fixed costs? Usually not until they look in the rear-view mirror and see they’re operating at a negative cash flow. Once that happens there are only two things they can do — stop providing all the services they were contracted to perform or default on the contract. It’s only a matter of time.
The plant’s apparent maintenance costs were reduced when the lowest bid O&M contract was accepted, but the true lifecyclemaintenance cost of the facility just went up.
Assuming they don’t default on the contract, sooner or later, the contractor starts cutting corners. “Maybe we don’t need to thermal image all the combiners this time,” or “It’s too expensive to torque test the inverter terminals. Let’s just do a visual during the annual PM.” The result? The equipment is not properly maintained, operating availability starts to drop, and the useful life of the asset is reduced.
In other words, the plant’s apparent maintenance costs were reduced when the lowest bid O&M contract was accepted, but the true lifecycle maintenance cost of the facility just went up. Don’t get me wrong. There is a place for low-cost, local service providers in the owner’s overall maintenance strategy. They just shouldn’t be the prime contractor for owners committed to properly managing operational risk.
So, what are the characteristics of a good O&M contractor? I recommend that solar asset owners evaluate at least the six following characteristics in addition to price:
- Scale: One of the benefits of going with a national O&M contractor is that may have pull with equipment suppliers that the little guys won’t. This is especially important when an important part that is keeping the plant offline is in limited supply. If there is a demand for that part and the supplier is forced to decide between a contractor that represents a meaningful percentage of their parts revenue and a local contractor they’ve never heard of, who do you think is going to get the part?
- Engineering Capability: As discussed in the previous article, solar O&M is simpler than traditional fossil power assets since there are few moving parts and the equipment experiences less thermal cycling. That might imply that the engineering bench strength of your O&M contractor is not important. Not true. I have seen many occasions when equipment is under-performing and the supplier is baffled or opaque regarding the root cause. Revenue is slipping through your fingers and no one has an answer. Only larger scale O&M players can afford in-house technical experts who can identify the real problem and develop a remediation plan that stops the bleeding.
- Remote Operations Center: Only contractors with a 24/7 ROC can really ensure high availability. Why? It is not uncommon that a grid disturbance can open the plant main breaker in the middle of the night. If no one is there to respond to the alarm and start the plant dispatch process at 2am, you lose precious sunlight and revenue the next morning when the plant doesn’t come online as the sun comes over the horizon.
- Training Program: Any idea what the turnover is for qualified field service technicians? Let’s just say it’s high. How can an Owner know fully qualified, capable and safe workers are working on their equipment? Training, training, training. Anyone know what it costs to develop and support a good training program? You get the idea.
- Efficient and Standard Processes and Procedures: Like a training program, it is difficult for small O&M contractors to invest in standard business processes and procedures. When’s the last time you met a good field service tech who liked to write operating procedures? Exactly. To do this right, it takes technical writers and business process specialists — things only providers with scale can afford to staff.
- Safety Program: It is difficult for small, local electrical shops to invest the time and money required to develop, support and maintain a quality safety program. My former boss attended two funerals in one year. I vowed that would never happen to me.
Though price is certainly important, it’s just one of many factors a solar asset owner should consider when outsourcing O&M services for its facilities. To minimize project LCOE, we need to optimize project revenue and operating costs. Typically, this tricky balance is not achieved by minimizing O&M spend.
So next time someone says, “Any O&M contractor will do,” enlighten them by responding, “…sure, but the right O&M contractor can help me achieve my project returns.”
Steve Hanawalt is a founder and executive vice president at Power Factors.