Article - July 5, 2023
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Key Learnings
As renewable energy generation expands across the U.S., consistent optimization and maintenance of these resources has become more critical.
Several themes are driving growth for renewable energy operations and management providers, such as aging renewable energy infrastructure, rising tech innovation in the space, and increasing public and private spending related to the energy transition.
Essential attributes of leading companies in the renewable energy operations and management sector include scale, route density, skilled technicians, and tech-enablement.
Renewable energy assets are increasingly vital within the U.S. energy landscape, making their dependability more critical. Wind and solar operators are looking to minimize the downtime and intermittence of these assets while maximizing their supply and returns, powering higher demand for reliable operations and maintenance (O&M) providers.
At the same time, the O&M sector’s diverse range of services and high fragmentation create the opportunity to invest in scale and integration.
In this article, senior professionals from our Energy, Power & Infrastructure Group explain the key trends propelling greater demand for O&M providers and traits investors should seek in leading companies.
A Need for Consistent Care and Innovative Solutions
As renewable energy generation expands, optimizing and maintaining wind and solar equipment will become essential to ensure a reliable power supply. Semple points out that risks to these assets are constant, from failures related to components, fatigue, and weather to supply chain obstacles and aging infrastructure.1 “This is driving higher demand for O&M companies that provide innovative solutions and consistent care across renewable energy assets,” he explains.
Aging infrastructure is one of the key themes bolstering the need for O&M services. When energy assets get older, they become less effective and require more servicing due to fatigue failure, component failure, weather-related failure, or recurring break-fix events. “Although new capacity becomes available every year, the existing base of first-generation wind and solar assets is reaching the end of its useful life and requires more frequent upkeep,” adds Spitzer.
Wind turbines are a prime example, with their output declining approximately 1% for every year of service.2 “Once their retirement age is reached, they can be replaced with newer, more efficient turbines to achieve greater energy generation over the same area,” says Semple. “However, even this practice contributes to higher demand for a different set of O&M services, including decommissioning, new installation, and turbine recycling,” he continues.
The renewable energy O&M sector is also highly innovative. Novel technologies are consistently coming online that enhance the services of O&M companies while creating new opportunities for investors to capitalize on, including:
Offshore Wind Growth:
Offshore wind capacity, which has unique demands requiring specialized services and tech, is projected to grow rapidly in the U.S. This will drive continued growth for O&M providers while requiring greater innovation to best serve the needs of wind energy equipment.
Asset Management & Remote Monitoring:
Innovation in monitoring and management software is helping O&M companies run energy generation assets more efficiently and reduce long-term operational costs.
Product Innovation:
Product improvements, including advanced turbine coatings, improved solar panels, lift tech, industrial bolting, dent removal equipment, and advanced drone technology are improving O&M capabilities and cutting costs.
Artificial Intelligence:
O&M providers can use advanced AI tools that find patterns in large data sets to increase efficiency, reduce downtime, and lower operational costs.
Lastly, public and private spending will support the sector going forward and offer near-term opportunities. Wind O&M spending is projected to rise by 14.6% CAGR through 2027, while solar O&M spending is expected to jump 27.9% CAGR over the same time frame.3,4 “This funding remains focused on advancing the energy transition, and recent legislation will be a catalyst for sustained growth in adjacent markets like O&M,” says Spitzer.
Scale and Technology Are Key
For investors looking to capitalize on the growing renewable energy O&M market, there are several critical characteristics to prioritize in leading companies.
Semple highlights scale as an essential component of success in the sector: “Renewable generation equipment is distributed across the U.S., with wind and solar assets allocated differently based on the prevalence of those resources,” he explains. “This broad geographic footprint creates substantial value for scaled players that can service a variety of generation types across a large area.”
Shah adds that O&M providers with the reach to cover a national footprint and capabilities to service both onshore and offshore assets are scarce. “Providers that can also service solar, storage, and distributed generation assets are rarer still,” she continues. “Companies that can capitalize on these needs will be well positioned for long-term growth,” she says.
Due to the product and tech advancements sweeping the sector, companies with the ability to use these innovations to their advantage will also take share.
For instance, AI, robotics, new raw materials, improved maintenance measures, and software upgrades are all providing O&M companies with the ability to strengthen operating assets and avoid issues in the field. In addition, the use of enhanced asset monitoring through drones and tech-enabled platforms, when combined with careful site selection, can help O&M providers ensure assets are operating as close to capacity as possible.
Finally, another key trait of top-performing O&M companies is preventive maintenance. “Providers that invest in a robust preventive maintenance plan can extend an asset’s useful life and work to minimize unexpected downtime and repair costs, giving them a distinct competitive advantage,” says Spitzer.
Generating Value Within O&M
The evolution of the renewable energy O&M market continues to drive M&A. The sector is seeing considerable investment activity from private equity players, with sponsor-backed platforms in pure-play renewable energy O&M, transmission and distribution O&M, and adjacent services.
Even with its long history of M&A, the renewable O&M market remains fragmented with many participants focused on specific disciplines. Few diversified and mature businesses are currently active in the space, offering a substantial opportunity to create value.
To explore opportunities in the renewable energy O&M space, please contact our senior professionals.
U.S. DoE (National Renewable Energy Laboratory and Berkeley National Laboratory), Lucintel
NIH. Cited figure (~1.0%) represents an approximation across multiple studies
U.S. DoE
EIA
