by Jackie Longner, MBA ’14
SGE immersion student, Jackie Longner (MBA ’14) discusses GE’s plans to increase the productivity and reliability of wind energy.
As the world population grows and becomes more affluent, the demand for power to operate homes, businesses, and public infrastructure will undoubtedly increase. The question that remains is how to meet this need in a cost efficient manner without creating exponentially more pollution? The world of renewable energy seems pristine and glamorous from the outside, providing 14.2% of the U.S.’s electric power for the first half of 2013 and projected to supply 16% by 2040 according to the U.S. Energy Information Administration. However, low natural gas prices in the U.S. pose a serious competitive threat to bringing more renewable energy resources onto the system.
So how do renewables compete? While working at General Electric (GE) this past summer in its Renewable Energy Leadership Program, I had the opportunity to learn just how wind competes with natural gas and other energy resources. It all comes down to LCOE, the “levelized cost of energy.” Energy costs differ from market to market, so for wind to successfully compete in the market, it has to meet or beat the cost of other available resources.
General Electric strives to bring down wind’s LCOE on two fronts. The first is by aiming for the lowest landed cost, which means being strategic in siting, supplying, and developing wind farms to erase as much of the cost as possible, while maintaining safety and quality standards. Before signing a contract to sell wind turbines to a developer, GE employees take special care to assess the best model turbine for the site with regard to its specific wind profile, the infrastructure in place to get supplies to site, the suppliers to use to ensure quality parts and damage-free delivery, and the expertise necessary to get the turbines up and running. By carefully evaluating all steps of the process, GE and its developers know prior to signing a contract if wind energy will be competitive in the given expected market conditions.
The second way to lower the LCOE of wind was the focus of my summer internship project. In short it was to increase the productivity and reliability of wind resources. Operating and maintenance services are key to maintaining high productivity levels. GE offers both Operating Service Agreements (OSA) for all planned site maintenance and Full Service Agreements (FSA) to cover planned and unplanned work. To simplify, think about owning a car, for which an OSA would cover oil changes and tire rotations whereas the FSA is more like having a bumper-to-bumper warranty. By having GE boots on the ground, the company is quickly learning how often and which maintenance services are necessary to increase reliability. The team also assesses when services should be provided to decrease downtime and revenue loss.
Beyond maintenance, GE strives to increase wind productivity by developing and installing upgrades to its worldwide fleet of turbines. These upgrades range from software updates to blade extensions, whatever makes sense for a particular site. Yet, despite valuable maintenance and upgrade offerings, developers still run into one major roadblock to increasing reliability and productivity – financing.
The GE Wind Services Team is striving to develop new ways of financing service agreements and upgrades that will allow more developers to optimize their fleet. Though still in the early stages, GE is investigating productivity-based profit sharing agreements to align the incentives of GE’s sales force with those of the wind developers. Developers in several world markets are requiring turbine manufacturers to have more skin in the game beyond asset delivery. New profit-sharing models create this stickiness and free up the developers balance sheet.
The game is changing. Is natural gas a credible threat? In the U.S., most definitely. Yet, GE won’t back down and is determined to make ever more sophisticated machines that level the playing field for wind resources and offer financing solutions to get these resources to market.