MEET THE PLAYERS

Leila Garcia da Fonseca is responsible for Wind and Solar Operations & Maintenance (O&M) market research globally within Wood Mackenzie Power & Renewables. Additionally, she leads the team of wind analysts covering the entire American region. She brings more than a decade of experience in the renewable energy industry, having worked in both mature and developing markets from Denmark and the US to Brazil and Mexico. Prior to joining Wood Mackenzie, Leila worked as marketing leader for Vestas, as well as marketing manager for GE Renewables in Mexico. Leila is currently located in Vancouver, Canada, and holds an engineering degree from Pontifícia Universidade Católica MG in Brazil and a Masters in Renewable Energy from German Carl von Ossietzky University of Oldenburg.

With twenty years of leadership and operations experience, Managing Director Michael Eyman ensures that Origis Energy Services’ rapidly growing solar and energy storage portfolio performs for owners and communities.

The Report

In September, Wood Mackenzie published the report, Global solar PV operations and maintenance (O&M) service provider dynamics.

This report is published on an annual basis looking back at the previous year. The report from 2023 looks back into 2022 numbers. Fonseca explained it is based on data obtained by reaching out to several major service providers globally, including Origis Services. The goal is to understand how the solar PV capacity globally is being managed, as well as pricing costs and general market trends.

Key Findings

For the first time since 2015, when Wood Mackenzie began publishing this report, there was market fragmentation. That means that the top 15 O&M players decreased their market share compared to the previous year.

For many years, especially in the United States, there were new and new big entities being formed. 2022 was a relatively quiet period in the M&A market, meaning that the transactions were not significant in terms of volume in megawatts.

In 2022, “we saw a lot of smaller players, players that are not within the top 15 global companies increasing their portfolio, and also smaller companies, even companies that had maybe less than 500 megawatts under their managed capacity, really increasing more than maybe three times their capacity,” said Fonseca.

The second surprise was pricing. Wood Mackenzie does a survey every year with the major O&M companies. This year, they sent the survey to more than 125 companies and had a record response, which gives relatively high certainty of the results. Pricing actually came down and did so for all regions.

Fragmentation

According to Fonseca, the Top 3 service providers globally (NovaSource, Solarig, and SOLV Energy) in 2022 had big growth but Then the next Top 15 providers actually saw a 3 percent market contraction. players outside those Top 15 added 17 gigawatts year over year, while the Top 15 added 13 gigawatts, which is big growth for smaller companies.

Eyman and Fonseca theorize that what’s driving some of what is shaping data is global fleet age, combined with owner self-service.

If components are going out of warranty on a particular site, the asset owners may begin trying to find more competitive contracts for O&M to reduce their spending. Depending on the market, smaller players are willing to take on contracts that are not as profitable because they have the local labor, and they can make that happen for asset owners. By picking up those contracts with older assets, they slowly start to increase their capacity under management.

Because some asset owners now want to control their own operations, several new entrants are now serving their own needs and putting out their shingle for third-party business. That dynamic has been happening for a few years now, but it’s more obvious in the 2022 data.

“I think we’ll see that continue,” said Eyman. “There’s a number of reasons. One is because traditional M&A, the thought is, through scale, you can get savings, you can drive value, and you can scale up and then get a multiple value. You know, it’s a typical PE driven mentality. And it doesn’t really work that well for services companies because the margins are not that great. And you don’t get as much from scale because the core of the business is labor-heavy. It’s 60% to 70% labor.

“So the scale doesn’t respond to consolidation like a software or technology company would. I think more and more owners with big portfolios and big pipelines are going to be taking it onto themselves. And I think consolidation in your developers and owners is going to drive consolidation in the operations.”

Price

According to Fonseca, Wood Mackenzie has been predicting for the past three publications that price would increase because costs are increasing: labor, inflation, fuel, trucks, tools, spare parts, technicians, everything is going up.

But when the numbers came in, there was a decrease, and the authors were all very surprised. The 2022 price was $7.90 per megawatt DC per year, down from $10 per megawatt DC per year in 2021.

That price is based on a calculation of a national average to include two mowings per year and two module washings a year, correctives, both DC and AC, and preventative maintenance for a 100 MWdc utility scale project.

The biggest price reduction was on the preventative maintenance portion in 2022.

Fonseca said she would not be surprised if the 2023 prices went back to 2021 levels around $10 per MW for 100 MWdc utility project on average, which is what the Wood Mackenzie model estimates.

Eyman added the context that since 2020 when COVID slowed new deals and then a market anticipation of the Inflation Reduction Act, fewer deals closed which drove competition for the O&M contracts, driving price down. Adding to the competition is the number of owners who have chosen to service their own projects. Both Eyman and Fonseca agreed the current market averages pricing levels are not sustainable.

As new deals are picking up in 2023, both expect pricing dynamics to shift in the next report. And while some owners might want to believe that operations prices will continue to drop, in some cases floating a number as low as $3-4 per MW for 100 MWdc utility project on average, neither believe that a site can be properly maintained at that price.

Conclusion

“If I was going to warn owners and financiers about this, the one thing I would tell them is if you focus on price alone, which by the way, most of them do, you are never going to stabilize your portfolio,” said Eyman. “You’ve got to focus on what the sites actually need.”

Fonseca agreed, “Every conference I go, I say the same. And I will keep saying the same because I think it’s important. I believe we have to get rid of this metric, although we talk about the, of course, the cost per watt per year, but we have to get rid of this metric and really think in a way that you are maintaining your power plants to perform in the best possible way.”

During their conversation, the power players discussed trends from this past year and how those could play out in the coming year in O&M services for solar plants. There were two trends that were surprising:

1. Fragmentation of the market, rather than consolidation.
2. Price of O&M going down, rather than up.

We’d like to thank our Power Players, expert guest Leila Garcia da Fonseca and host Michael Eyman, for their insightful conversation, giving context and perspective to industry data.