O&M moves in-house: DONG Energy

For more than five years, offshore wind farm operator DONG Energy has been taking care of the operations and maintenance (O&M) of its offshore wind farms in-house. This strategy has not only brought the benefits the company expected, it has also resulted in some added bonuses.

Nevertheless, the company didn't get everything right from the outset, and neither does it intend to remain static in this area as the industry matures. DONG's O&M team is confident about one thing: when it comes to strategy, it's heading in the right direction and will not be going back to relying solely on original equipment manufacturers (OEMs) any time soon.

In 2008/09, when DONG Energy brought the O&M of its offshore wind farms in-house, the key drivers behind its decision included: the desire to be in control of its wind farms, from an operational, and from a health and safety point of view; and the need to reduce costs to achieve the company's overall aim of lowering the levelised cost of energy to less than €100/MWh by the end of the decade.

"Having control of operations as well as of health and safety performance were two very important drivers, and, on the more practical side, we wanted to create a competitive situation," says Michael Simmelsgaard, head of global operations for wind at DONG Energy. "You don't want the OEM to have the monopoly on being able to support you because this does not allow a competitive environment and can cause the OEM to become complacent."

Moreover, no matter what incentives you give OEMs to offer availability and production guarantee, they just don't have the direct trade-off that operators themselves do. "When you send out a jack-up or a helicopter, it's much easier to get the right trade-off between production and cost structure when you have a direct trade-off," Simmelsgaard explains. "I can make a direct trade-off on the production loss compared with the cost of getting the park up and running. With an OEM, the decision will always be based on an evaluation of their contract."

Unexpected benefits

Has DONG's decision to dispense with third parties paid off? Simmelsgaard believes it has. "We've proven we can do it cheaper than the OEMs". One of the key reasons for this is the sense of ownership the team now has over DONG's parks.

"We have a core team of technicians and managers around a site that have a fantastic sense of ownership when it comes to the integrity of the park; they're driven not by a contract but by pride in the wind farm and its performance. This has proven to be a very strong lever for safety performance, cost structure and the yield the park produces," Simmelsgaard explains.

"When you take your car to the garage, you want the mechanic who knows the car to repair it, and it's a bit like that; we can provide that kind of consistency.

"This also drives the team's awareness of the safety situation. They take more ownership of the safety culture on site and thereby have a very strong reporting culture, driving fantastic performance of the site in this area."

These advantages were expected, but bringing O&M in-house also had one big, unexpected bonus: the benefits DONG has seen when it comes to bringing investors on board. "The fact that we can prove that we have the next 25 years under our full control is an enormously strong-selling argument in the financial markets," explains Simmelsgaard. "Because they know we are taking ownership of the operational side, they are more confident, so that integrated business model has become a big part of any investor presentation."

Of course, this also has to be backed by systems, processes and controls, something Simmelsgaard and his team are very much aware of. "That's why we've chosen to become ISO 55001-certified, which happened in June. This proves a strong commitment to showing we have integrity under control at our different parks," he notes.

The right balance

It was no easy task to bring the complex beast that is DONG's O&M in-house, and it started through partnering with OEMs during the five-year warranty period of its offshore wind turbines. "The part we really focused on was keeping our feet on the ground, meaning at least 50-60% of the technicians working during the warranty period were employed and controlled by us," says Simmelsgaard, adding that DONG also set up a management structure around this, as well as collecting and analysing data in parallel with the OEMs. Then, the whole suite of activities previously carried out by OEMs was brought in-house.

Yet, while DONG initially brought a wide range of activities in-house, the team has since realised that not all of these actually needed to be internalised. "First, we took quite a lot of activities and said these were the capabilities we needed to make sure we had learnt when this part went out of warranty. Some of them ended up being relevant, while some of the activities we ended up stopping later," explains Simmelsgaard.

"Later" was two and a half to three years ago, when Simmelsgaard - who joined the company in 2012 - and his team looked over what had been brought in-house back in 2008/09 and started to look at what was critical to achieving DONG's initial goal of gaining control over operational, and health and safety activities.

"[The team that initially brought DONG's O&M in-house] was very visionary, but we decided to look at it again, decipher what was important and what was not, and get the latter outsourced again. The most important things for us are a few sets of activities we need to have control of, for example the daily operations on site and the logistics setup, because they are strong levers in this market, and they create efficiency and give accessibility to the turbines."

On the other hand, it was decided that simple activities such as the exchange of oil or hydraulic hoses would be outsourced to third parties. "This gives us the flexibility to tap into a sourcing market rather than doing it in-house," Simmelsgaard notes. DONG also brings in trainers to the training centres in its main hubs.

Future challenges

Looking to the future, Simmelsgaard wants the balance of outsourced and in-house O&M activities DONG currently has to continue, despite the huge challenges that are inevitable as offshore wind farms get bigger and further away from the mainland. "We are building and preparing ourselves to continue our current strategy," he notes. "We are so clear on the benefits that it's actually been an easy decision."

The main challenges DONG's O&M boss foresees are updating logistics solutions to cope with operating wind farms as far as 120km from the shore, and accessibility to larger-than-ever parks.

Yet, Simmelsgaard believes these challenges are possible to overcome while staying on the same path strategy-wise. "Those capabilities were part of our roadmap already, and we believe we can stay on a par with the OEMs," he says, adding that, of course, O&M will never be kept in-house without good reason. "If there are capabilities we can't keep at the same level as the OEMs, we will definitely work with OEMs and buy those services. We only want to do things in-house when we believe we have a competitive advantage, because in a world where we need to bring down the cost of electricity, doing it just because we theoretically believe it's the right thing is just not going to fly."