Global non-residential solar operations and maintenance (O&M) spend is expected to hit US$15 billion by 2030. But new research from global energy consultancy Wood Mackenzie indicates that increasingly competitive auction prices, coupled with rising labor and supply chain costs, mean service vendors face challenges to stay profitable.
Total global solar installed capacity is expected to reach 2.2 terawatts by 2030. That means rapid growth for the solar O&M sector over the next decade; a total 2030 market opportunity of US$15 billion is a nearly fourfold increase on 2020 figures. “The US will be the most attractive single market, accounting for US$3.5 billion of the total.
“Our research indicates that despite market growth, low margins could keep new entrants out,” said Leila Garcia da Fonseca, senior manager, Wind and Solar O&M research.
As a result, Wood Mackenzie expects larger service providers to keep their lead in overall market share.
Large providers and large-scale projects
Utility-scale projects will continue to dominate new capacity, and the Americas region leads this trend. Fonseca said the trend toward larger average project capacities helps optimize O&M pricing, as system density is an important cost driver.
“Nearly half of global O&M spend over the next 10 years will be for corrective repairs, including inverter replacements,” she said. “This is a clear driver for potential repowering activities and advanced analytics solutions. It also emphasizes the benefits of full-scope contracts where service providers have warranties in place.”
She said economies of scale are key to achieving cost reductions for full-scope service agreements. O&M providers looking after a significant volume of assets in a given region are therefore best placed to offer competitive pricing.
Competitive renewable energy bidding for solar PV service contracts has become the norm in most major markets. Such auctions have driven down operating expenditure for asset owners significantly over the last decade. However, they result in low prices that pressure the entire industry value chain.
Fonseca said: “With service providers increasingly finding their margins squeezed from both directions, asset owners should not expect this situation to continue in the long term. In fact, our pricing survey indicates that full-scope agreement pricing is beginning to stabilize.”
It’s worth noting that low contract prices are a misleading reference figure in the industry anyway – critical O&M activities are increasingly excluded from scope to keep upfront prices down.
As average project size increases, cost efficiency gains diminish since equipment-specific maintenance dominates costs for large-scale projects.
“At the same time, in the short term, manufacturing shortages, tariffs and rising commodity prices all increase spare part and equipment costs,” she said. “And, in the long term, higher labor costs are likely to be an issue, especially in countries like China and India with particularly high real GDP growth. As a result, we expect per-project, 20-year lifetime O&M costs to escalate over the next decade.”