Far from retirement: lifetime extensions

  • ADD TO MY BRIEFCASE

(Originally published in the Summer 2018 edition of IJGlobal)

A lot has changed in the last 20 years, not least in the power generation sector. When the first commercial wind farms were developed few would have predicted how quickly renewable energy technologies would become established, how widely they would be adopted, and how far their costs would fall.

Those first projects are now reaching or have just passed their certification periods. When completed two decades ago, the plan might have been to decommission them at the end of their contracted life. Asset owners just needed to consider how best to decommission and what value they could extract from the leftover hardware.

It might not always be the smartest option to decommission existing wind and solar projects, as there are benefits of extending the lifetimes of their projects.

The principal resources for renewable energy generation – wind and sunlight – persist beyond the end of existing contracts, and the oldest sites are usually the best ones. Some hardware may need replacing, but keeping an existing plant operational is likely to be far more profitable than building a new one. Not least because project debt facilities should have been repaid, meaning any further income is pure revenue.

Asset owners also benefit from knowing the site conditions, with extensive operational performance data making it easier to project future outputs, and experience of how hardware ages in those conditions. Additionally, extending necessary environmental permits and land rights is usually achievable, and the plant will already be connected to the grid.

The lifetime extension model has been established by hydropower plants, with some operating for over a century now thanks to periodic upgrades and hardware replacements.

There are a range of different options available for extending the life of your project, but a number of issues need to be considered.

Assessing health

The performance of the project to date will inform lifetime extension decisions, but this requires extremely detailed analysis.

  • Environment: The speed at which equipment has been degraded and how long its life can be safely extended for is dependent on the specific environmental conditions at each project site. Actual conditions since project commissioning must be compared against predicted conditions pre-construction. If a project has been operating in conditions it was not designed for, this could significantly limit lifetime extension opportunities.

For wind farms this means analysing data including average wind speeds, extreme events, and the turbulence intensity at the site. For solar PV plants, data such as ultraviolet radiation, ammonia, humidity and salt levels need to be assessed, as do local wind speeds and the prevalence of mist.

  • Maintenance: As well as natural factors, the level of maintenance enjoyed by the project over its life is also important to assess. Predictive, preventive and corrective maintenance must be carried out to the highest standards and accurately monitored to enable realistic lifetime assessments.
  • Operation: Depending on the resource availability and connection circumstances at the site and its ancillary equipment, the effects of the asset’s operation can vary. Assessment can be made either through direct inspections (visual, videoscope and vibrations) or through data analysis.
  • Design: Understanding the design, manufacture and installation of the asset is also crucial. Each stage can create issues related to lifetime extension but by tightly controlling processes, quality problems can be avoided.

Information availability is key. No matter if the asset has been changing hands, there is information, such as resource availability, maintenance, root cause analysis, and serial defect reports, which needs to be available for this process. Some information might be sourced out separately, but if it does not come from the site, it increases the uncertainty of the process. Another concern is the drive to reduce the levelized cost of energy during bidding processes as we are seeing in many markets these days, leading to designs which can limit the possibilities for lifetime extension. This will surely impact the life extension processes of the future.

  • Manufacturing: Ideally you want to be able to track each component from drawing board, through factory and transportation, to construction. In our experience, these are just a few checklists that have been kept from the purchase period. Knowing the market, its practices and where the components were manufactured is the best information we can have at this point. DNV GL has been present in these processes in markets all over the world, and we are aware of the different issues and impacts.

Every manufacturer has their own criteria, practices and safety tolerances, and processes can range from high manual, such as manufacturing wind turbine blades, to tighter controlled machining and welding, as well as PV panels or inverters.

Being able to assess this process from drawing board to installation becomes increasingly important due to ongoing pressures to reduce costs. For example, new tower foundation designs, which use less concrete and steel, are becoming increasingly prevalent. These designs create much higher requirements on materials and therefore stricter control of the onsite conditions for the concrete plants and closer monitoring of the steel bars arriving at the site.

Outside forces

While you may be satisfied that the physical condition of the asset allows for lifetime extension, other factors also need to be considered.

Not least of these is the regulatory environment, which may have changed since the project was originally developed. This may mean any refurbishment, retrofit or expansion requires new permits.

In most markets rental contracts are easily extended and interconnection permits have no expiry date but environmental impact assessments (EIAs) can be more problematic, as the last two decades have seen significant changes in environmental regulations.

For example, regulations may have tightened so much that it would be impossible to erect wind turbines today at existing wind farm sites. In such circumstances, extending the life of the existing infrastructure, rather than new construction, may be the only option.

Either way, a new EIA could be needed and this would need to be completed before the end of the existing project’s planned life. This enables swift execution of extension plans.

Extended assets are also likely to be more exposed to merchant risk. Any existing power purchase agreements (PPAs) will probably expire after year 20 of the asset’s life, removing certainty of revenues. New PPAs could be negotiated – with a corporate offtaker, for example – but if not the asset will be exposed to the open market and power price volatility.

Extended projects are partially protected from these risks by being debt free, but the need to understand and stress test a project’s financial model is essential.

Before any investment in an asset, inputs from tax, technical and legal advisers will be used by the project’s financial team to create its long-term financial model. This model needs to be tested against all of the assessments on the project’s health described above, and benchmarked against similar assets of the same age, for their likely impact on its future economic performance.

While lifetime extension is a live issue for that first generation of renewable projects, assets owners of newer projects would be smart to prepare for the end of planned commercial operation periods.