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Four Key Strategies for Year-End O&M Budgeting

By December 21, 2022No Comments

Prepare for the unexpected while gaining top performance on your solar power plants

By Ian Steele, SVP Services

The holiday season is in full gear. But for asset owners and operators of utility-scale solar plants closing out the year, time off with family is not the only priority. Following the start of the budget season in October, O&M professionals strive to come in at budget, or slightly under, as they sail into the new year. DEPCOM’s Senior Vice President of Services Ian Steele is here to offer valuable insights.

Understand the components of your O&M budget

      1) Fixed vs. corrective

Creating an effective O&M budget starts with understanding the difference between fixed and corrective costs. Fixed costs typically include costs related to items like overhead, insurance, building management, trucks, utilities, etc. Personnel are also a key component of fixed costs. PV asset owners calculate how many people will be needed to maintain everything, from data analytics and monitoring to tightening a screw, based on the megawatts of power generated.

O&M professionals know how to deal with concerns like equipment failures, accidents, and weather impacts through a predictive preventative maintenance (PM) schedule. But then there’s also a corrective portion. Many of the ancillary services, such as panel washing and land management, which are thought of as fixed costs, end up becoming “unfixed,” due to a variety of unpredictable events.

For example, you might have planned on good amounts of rain, but then get a dry year and now face higher panel washing costs than anticipated. These factors can be difficult to predict and could add up to 70% of your budget. Knowing that the summer months will bring even more of this unpredictability, being tight on fixed costs allows O&M professionals to use these savings to cover unplanned expenses.

      2) Implications of the IRA

But existing budgeting concepts now need to be updated to meet the requirements of the landmark Inflation Reduction Act (IRA) enacted in August 2022. Old projects are grandfathered in. New projects, on the other hand, must meet two key requirements in order to receive the 30% tax credit on their investments:

  • In order to be eligible for the ITC and PTC, all laborers and mechanics employed by contractors and subcontractors in construction or repair must be paid prevailing wages during the 5-year recapture period (for ITC). “Prevailing wages” are rates not that meet local standards for equivalent work in which the facility is located.
  • Contractors and subcontractors must hire qualified apprentices to perform a set percentage of the construction, alteration, or repair work, starting at 10% of the labor hours for projects that started prior to January 1, 2023, and up to 15% for projects that start after December 31, 2023. Firms that employ 4 workers must also hire at least one apprentice.

 

Forecast into the future

Forecasting involves determining how long equipment will last and proactively managing replacements and repairs. Some PV panels may degrade at a faster rate. But waiting until the whole system degrades puts your system’s performance at risk. And then you get hit with a much bigger bill. Budgeting for replacement of panels over several years can help avoid these risks.

Another factor is the price and availability of replacement equipment. Moreover, bankability reports and scorecards from organizations like the PV Evolutions Lab, Clean Energy Associates, and the National Renewable Energy Lab can provide quality testing and evaluation to provide assurance on panel longevity and reliability.

Forecasting is essentially projecting the past into the future. Experienced O&M managers analyze seasonal-based spending trends over three to five years to dial in their predictive and corrective O&M budgets. They consider factors like:

  • When does it get hot or cold?
  • When does it rain?
  • When do farmers harvest crops that are close to the solar system?
  • And when do these variables show surprising variations?

Smart O&M means evaluating these factors, comparing them to historical data for the region, forecasting these expenses, and adding contingencies into their budget.

Understanding PV technology and lifecycle maintenance requirements is one thing but tuning into how market dynamics impacts your talent pool is another thing entirely. It’s a competitive industry. As the market expands, if new skilled technicians do not emerge at the same rate, the demand for their skills becomes extremely competitive. Some owners and operators are having a hard time maintaining their top talent due to attrition and/or competitive solicitation.

Keep reserves through the quarters

Catastrophic failures that affect critical system components such as inverters and central transformers are typically not budgeted for, and thus result in a CapEx spend that depletes a portion of annual budgets. Having cash reserves that last the whole year is critical to not only handle such failures, but also address non-performance O&M projects like wire management, tracker retrofits, and balance-of-plant services.

From the perspective of the owner, these funds are available to complete projects that would normally be postponed until the following year. If this budget is not spent during the fiscal year, it is effectively lost. As a result, a wise O&M manager extracts the full value of these resources for performance-enhancing projects.

 

Secure the right partner

Having an effective O&M strategy also stems from finding the right partner to support you with whatever comes your way. One who has relevant experience. But also is innovative and cares about quality. One who sees this as a long-term investment instead of a quick profit, building a relationship and trust.

DEPCOM is currently working on a new program for asset owners and operators to access life extension kits for legacy equipment like inverters as well as other spare parts and installation services. Leveraging years of component failure analysis, DEPCOM brings a unique understanding in how to achieve uptime guarantees on out-of-warranty units. The Repowering+ team is also working with leading OEMs to provide access to parts and materials at competitive pricing and shorter lead times.

As your one-source energy solutions partner, DEPCOM leverages a full suite of capabilities such as engineering support, procurement to ensure part availability, repowering to address factors that reduce plant performance, and recertification services to provide peace of mind.  Get in touch with Ian and his team for specialized support on your plant.

 

About the author: Ian Steele, SVP Services

Ian Steele brings over 15 years of construction and O&M experience across solar, wind, hydro, and conventional power sectors. Having led some of the largest O&M service teams in the nation, Ian is now expanding DEPCOM Power’s Repowering+, Recertification, and Restoration services for operators nationwide. Since 2014, DEPCOM has delivered O&M services for nearly 2 GW of solar plant projects with a mobile, highly trained in-field team providing 24/7 operational response, and an average 99.4% fleet availability.