Solar O&M Market Set To Grow to $15 billion By 2030-Woodmac

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 (Woodmac)   indicates that increasingly competitive auction prices, coupled with rising labour and supply chain costs, mean service vendors face challenges to stay profitable.

Leila Garcia da Fonseca, senior manager, Wind and Solar O&M research, said: “Our research indicates that despite market growth, low margins could keep new entrants out.”

Fonseca said that 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,” she said. “On a regional basis, however, the Asia Pacific region leads with US$5.7 billion of the total spend.”

However low margins are a major barrier to new entrants, she said. As a result, Wood Mackenzie  expects larger service providers to keep their lead in overall market share.

Utility-scale projects will continue to dominate new capacity. The Americas region leads this trend, followed by Asia-Pacific and EMEA respectively. In Europe, the market share of utility-scale projects will grow from 32% in 2020 to 50% in 2030. Globally, average project size is 83 megawatts, 14% larger than reported at the beginning of 2021.

Fonseca said the trend towards larger average project capacities helps optimise 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 emphasises 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.

“However, EMEA is the only region expected to see an overall per-megawatt cost reduction. That’s largely due to projects located in low-cost labour markets in the Middle East and Eastern Europe. Elsewhere, a shortage of skilled workers and manufacturing supply chain issues are likely to offset potential savings from technology improvements, pushing up overall costs,” Fonseca added.

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 stabilise. 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.”

She added that 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. And, in the long term, higher labour 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,” Fonseca said.

In India, we have written earlier on the emerging opportunity in solar O&M. We have seen how new entrants to the sector like PSU energy firms prefer to outsource O&M, even as incumbent large developers like Renew Power, or the Adani Group have preferred to keep it in house. However, with larger portfolios and churn, the market is expected to trend towards outsourcing in a bigger way. Major EPC vendors like Sterling and Wilson Solar have already started focusing on the opportunity in a big way, for the predictable cash flows O&M can bring.