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DNV GL WHITE PAPER

Long Term Safe Harbor Storage: Risks and Best Practices Guidelines


Table of contents ABSTRACT ....................................................................................................................................... 3 1 RISKS ASSOCIATED WITH SAFE HARBOR STORAGE ........................................................................... 4 2 BEST PRACTICES FOR LONG-TERM STORAGE .................................................................................... 6 3 THIRD-PARTY SERVICES ................................................................................................................. 8

DNV GL - Energy

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ABSTRACT From its unique vantage point as a leading independent engineer in the wind industry, DNV GL is aware that many wind project developers in the United States (U.S.) have qualified, or are seeking to qualify, their 2018-2020 projects under the safe harbor provisions of the Production Tax Credit (PTC), and have purchased turbine components to meet the 5% expenditure threshold. Industry literature and DNV GL estimates indicate the U.S. wind industry will qualify over 4.5 GW of equipment through safe harbor procurement, which represents between 1,500 and 3,000 turbines that will be put in long-term storage, up to 3 years, pending installation and commissioning at a project site. Other developers have opted to begin manufacture of main transformers as an alternate means of qualifying projects for the PTCs. These safe harbor turbine components and main transformers are expected to be stored at facilities across the country (and in some cases even outside of the U.S.) at laydown yards, factories, and railheads until the project sites are ready for turbine deliveries. In its work as independent engineer for project financing, DNV GL has performed a significant number of site visits to verify and inspect components in storage, as well as subsequently reviewing storage maintenance records for turbines and main power transformers. DNV GL has often observed material variation in the quality of storage conditions, consistency of component maintenance, maintenance requirements from Original Equipment Manufacturers (OEMs), and quality of maintenance documentation. These cases introduce uncertainty regarding the condition of components, and may have implications for financing and operations. This white paper is intended to inform owners of key technical risks and proactive steps that can be taken to mitigate such risks associated with long-term storage of components, and in turn avoid negative impacts on project financing as well as issues during project operations.

DNV GL - Energy

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1 RISKS ASSOCIATED WITH SAFE HARBOR STORAGE The goal of component storage maintenance is to ensure components are delivered to project sites in “new” or “like-new” condition. DNV GL considers “like-new” components to have functionality similar to “new” components, although some cosmetic discrepancies may be present. Keeping components in new or likenew condition for long periods of time (up to several years) requires proactive implementation of a storage and maintenance strategy with clear oversight, communication, and complete documentation. Storage and maintenance activities are prescribed by original equipment manufacturer (OEM) requirements for storage conditions, maintenance frequency and documentation. DNV GL has observed cases where storage and/or storage maintenance documentation was inadequate or inappropriate, leading to significant costs and uncertainty during project finance due diligence and reliability issues during operations. Key risks associated with long-term safe harbor storage are summarized below.

Remediation costs for improper storage

Given the Internal Revenue Service (IRS) rules on phase-out of the PTC, it is likely that a significant portion of the safe harbored equipment will be in storage for an extended period of time (greater than 6 months). Short-term turbine component storage (6 months or less) is common in the U.S. wind industry, and the associated risks are typically limited. The consequence of damage or degradation caused by improper short-term storage can typically be resolved during the normal course of turbine mechanical completion and commissioning with minimal budget or schedule impact. However, as storage periods lengthen, minor issues improperly addressed or neglected can amplify and lead to significant remediation costs. Further, turbine manufacturers may implement in-factory hardware and software upgrades on new components within that time frame, such that components in storage can become “new but outdated” and require modifications or upgrades prior to installation, creating an extra step in the installation and commissioning process.

Damage from weather elements

Weather conditions are the driver for most negative impacts on the condition of stored components. Indoor and climate controlled storage eliminates the risk of most of these impacts. Less dirt and dust, and the absence of wind reduces the risk of foreign matter infiltration into bearings, motors, and between gears. The risk of corrosion is also reduced (although not eliminated) with indoor storage, and as such is particularly beneficial for components such as down tower assemblies (DTA) and generators where corrosion can cause significant degradation if not adequately controlled. Indoor storage does significantly increase the cost of storage and therefore outdoor storage is more common in the industry. If limited indoor, climate controlled space is available, converter units, nacelles, hubs, and any standalone drivetrains (i.e. gearboxes or generators) benefit most from such storage. If outdoor storage of components is planned, additional care is required in the installation, inspection, and maintenance of wraps, tarps, protective covers, humidity monitors, corrosion inhibitors and other protective measures.

Changes to maintenance requirements

OEM requirements and specifications for maintenance activities are continually evolving. As such, changes to the maintenance and storage requirements may occur during the storage period. Some of the required changes from the manufacturer can be material in nature, leading to increased storage and maintenance costs for the owners unless contractually allocated otherwise. An active and engaged approach to such changes on the part of project owners with respect to OEMs and maintenance subcontractors is necessary to ensure optimal equipment condition and maintain warranty validity.

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Warranty erosion

Typical provisions under equipment supply agreements include a warranty on components for several years after initial operation assuming all storage and maintenance was performed in accordance with the manufacturer’s requirements. Therefore, failure to conduct such maintenance represents risk to the performance and reliability of the equipment, and also potentially compromises the validity of equipment warranties. In addition, should damage occur during storage or transportation that requires replacement with new components (even if covered under the warranty), the replacement equipment may no longer qualify as a PTC component. Finally, the mere passage of time during storage may erode the length of the post-commissioning warranty period, rendering it still more important to ensure optimal maintenance of the equipment during storage to minimize operational risk.

Lack of maintenance documentation

Missing or inadequate maintenance documentation during the maintenance period presents a risk to project owners as future warranty claims are likely to require evidence that proper maintenance was performed during the storage period. Further, once a project is ready for financing, stakeholders will likely require that any safe harbored components are in “likenew� condition: proper documentation of the storage activities with electronic access to all stakeholders is key to demonstrate proper equipment care. Lack of such documentation may introduce additional uncertainty during financing, with associated commercial protections for investors at some cost to the project.

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2 BEST PRACTICES FOR LONG-TERM STORAGE In general, safe harbor component owners should request detailed requirements from the turbine manufacturer for long-term indoor and outdoor storage, and ensure that such requirements are met and documented. If any hardware and software upgrades have been implemented by the manufacturer, it is essential such upgrades are tracked and implemented in safe harbor components during project installation. The highest standard of care that can be taken with stored components is to place them in an indoor, climate controlled facility. However, if such storage is not implemented, additional diligent maintenance practices are often necessary. DNV GL has outlined best practices guidelines for storage of key components in non-climate controlled and outdoor facilities below.

Gearbox

Gearboxes can be delivered to storage as part of a nacelle or machine head, or as standalone equipment as with larger turbines. In general, the essential elements for maintaining gearboxes are prevention of water or foreign matter intrusion, corrosion, fretting, and flattening on any bearing or gear surfaces. Such wear modes are often difficult to assess and only identified through borescope inspections, which can be costly and time-consuming during project construction. Gearboxes are usually required to be stored on transportation frames away from vibration sources. Further, verification of oil levels at the beginning of any storage period is essential. To protect against weather elements waterproof, UV resistant, and re-sealable wrapping is essential, and should be repaired or replaced if there are signs of degradation. Shaft rotation on the schedule specified by the OEM (typical frequency ranges from monthly to every three months) is necessary to refresh lubrication layers between gear and bearing surfaces where corrosion must be prevented, and to prevent fretting or flattening of bearing surfaces. These are essential to ensure the integrity and “as-new� condition of the gearbox. Corrosion inhibitors, desiccants, or dehumidifiers must be used to effectively control humidity. OEM specifications vary widely on the application of these devices. For storage durations longer than a year, verifying the effectiveness of these preventative activities via a borescope inspection of a representative sample is also be prudent.

Generators and drive train

Storage of generators and drive train components usually involves similar efforts as gearbox maintenance. In addition, moisture control is essential for generator components as excessive moisture and water condensation can lead to compromised insulation characteristics of the generator windings. Hence, desiccant bags are often specified by the manufacturer for installation around the slip rings, stators, encoders, and/or air outlets, which are to be replaced at regular intervals. Adequate re-greasing and periodic turning of the rotor shaft are also essential to re-coat the internal generator bearing elements with lubrication during storage.

Hubs

Water ingress, corrosion of fasteners, and battery discharging are key risks for long-term storage of hubs. OEM recommended guidelines for adequate wrapping and covers to protect against weather elements and water ingress inside the components should be followed. Anticorrosion materials are typically used to prevent buildup of rust and corrosion. Any extended storage for more than six months may require additional re-sealable covers or shrink wraps. Often forgotten, the hub opening toward the ground should be appropriately sealed with a tarp (or other means) to prevent rodent entry and blowing winds that can create significant dust accumulation. Desiccant bags for moisture control are essential for battery and control boxes to protect electrical equipment. Given that the batteries discharge over time, periodic charging of batteries is also required.

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Towers

Tower sections are typically stored in an outdoor location and often suffer from damage to tarps and covers, which leads to excessive dust and dirt accumulation, potential damage to electrical busbar equipment, and water accumulation creating corrosion issues. Tarps should be regularly inspected, and any damaged tarps repaired or replaced. Long-term storage of towers can also lead to bulging or other deformities if adequate soil bearing pressure of the ground is not present. Tower sections are to be stored above the ground with support structures to prevent deformities, and pressure washed to prevent excessive dirt accumulation as best practice. Support structures should be inspected periodically to ensure stability and integrity.

Blades

Like tower sections, blades are generally stored in outdoor locations, and susceptible to corrosion on blade studs, water accumulation in the blade root, and damage due to weather elements such as excessive wind speeds. Regular visual inspections to identify any damage to blade surface or the supporting elements is essential. Any excessive corrosion or damage should be discussed with the OEM for remediation measures as best practice. Support structures and tie-downs should be inspected periodically to ensure stability and integrity.

Down tower assembly

Down tower assemblies (converters, switchgear, etc.) typically do not need maintenance for short-term storage; however, storage in appropriate conditions is critical. The converter capacitor life is sensitive to the temperature and humidity parameters. Storing such equipment in an indoor climate-controlled facility with temperature, humidity and shock indicators is considered best practice. Desiccant bags are typically prescribed for use and periodic replacement within such electrical equipment as well, as significant damage may occur from the build-up of moisture or water ingress.

Main power transformer

Storage of main power transformers for both short and long terms should adhere to manufacturer guidelines such that repairs are not required as a result of storage and prior to transformer being placed in service. Like some other turbine components, moisture ingress is the key risk to the main transformer tank and core/windings as well as control cabinets and components. In general, it is critical to maintain positive nitrogen gas pressure for short-term storage or oil filling and positive pressure for long-term storage in the main tank and tap changers as required by the manufacturer. Control cabinets, if not stored in a climate controlled area, should have the control panel energized, primarily to power space heaters to avoid condensation. All other components, if not assembled, should remain in shipping containers and be protected from the weather elements. Inspection records should be maintained and include visual inspections, pressure gauge readings, and verification that shock recorders remain in operation throughout the storage period. DNV GL considers daily, documented checks of pressure and temperature for the first two weeks of storage, then weekly for the next month, followed by monthly readings at a minimum as best practices. Finally, consideration should be given to the area of storage to limit risk of theft, vandalism, and other physical damage. DNV GL typically recommends the owner document storage duration, location, assembly and fill status, conditions, contractor, inspection, and maintenance records, manufacturer’s approval of conditions and maintenance, manufacturer’s confirmation that warranty coverage is not impacted, and transport records and details from the storage site to the project site. Photographic documentation is also recommended where appropriate.

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3 THIRD-PARTY SERVICES DNV GL considers it best practice for owners to proactively engage storage and maintenance providers prior to the storage period to ensure all OEM-required activities are clearly interpreted and implemented. Storage contractors should be required to appropriately conduct and document the work, including photographic documentation. Careful oversight of the storage and maintenance process and contractor performance is very beneficial. DNV GL can assist owners in execution of such oversight through a variety of services, including: •

Page-turn of storage manual with OEM and owner to explicitly understand requirements;

Thorough initial receiving inspections (with photographs) to provide baseline condition of components;

Assessment of the general condition of the components;

Review of the adequacy of component maintenance procedures;

Assessment of inventory management system and independent cross checks of component serial numbers;

Verification of compliance with the equipment supplier’s requirements to maintain the component warranty and equipment inventory;

Audit of storage records to ensure quality of documentation is sufficient to meet lender/investor requirements; and

Identification of contractual risks in component warranty provisions, or storage and maintenance contracts.

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Title: Presented to:

DNV GL White Paper: Long Term Safe Harbor Storage: Risks and Best Practices Guidelines N/A

Contact person:

N/A

Document No.:

ENA-WP-18

DNV GL - Energy Renewables Advisory 9665 Chesapeake Drive, Suite 435 San Diego, CA 92123 858-836-3370 www.dnvgl.com

Task and objective: This white paper is intended to inform owners of key technical risks and proactive steps that can be taken to mitigate such risks associated with long-term storage of components, and in turn avoid negative impacts on project financing as well as issues during project operations.

☐ ☐ ☐ ☐ ☐ ☒

Strictly Confidential Private and Confidential Commercial in Confidence DNV GL only Customer’s Discretion Published

Keywords: Safe harbor, OEM, turbine components, storage

© 2018 DNV GL - Energy. Reference to part of this report which may lead to misinterpretation is not permissible.

For more information, please contact: Udit Goyal Udit.Goyal@dnvgl.com 773-677-8546 IMPORTANT NOTICE AND DISCLAIMER Neither DNV GL nor any group company (the "Group") assumes any responsibility whether in contract, tort (including without limitation negligence), or otherwise and no company in the Group including DNV GL shall be liable for any loss or damage whatsoever. This document is issued on a no reliance basis and nothing in this document guarantees any particular energy resource or system output. Principal Investigator(s): Meghan Reha, Steven Sultan, Philippe Brodeur, Udit Goyal Approved by: Mark Sayer, Ken Elser

DNV GL - Energy

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Long Term Safe Harbor Storage  

Long Term Safe Harbor Storage: Risks and Best Practices Guidelines - white paper ENA-WP-18

Long Term Safe Harbor Storage  

Long Term Safe Harbor Storage: Risks and Best Practices Guidelines - white paper ENA-WP-18