Significant improvements in power plant lifecycle performance achieved with well planned maintenance and operations
Wärtsilä article, September 2012
Neglected maintenance can be very costly. Through a service agreement power plant owners can secure their investment by optimizing the lifecycle performance.
Managing with increasing fuel costs is one of the main challenges for power plant owners today. Currently between 60 and 85 per cent of the operation costs is related to fuel.
Power plant owners need to make sure that performance is maximized and that the maintenance is done at the right time. They also need to have the latest technology and all processes have to be in order.
Another option is to choose an experienced partner to manage operations and maintenance.
"Downtime in terms of planned and unplanned maintenance comes straight out of owners' revenues," says Mats Ohls, Director, Agreements, Wärtsilä Services.
But the real concern is not the repair cost itself but rather the loss of production and revenue.
Getting the right know-how
The technical development has been very rapid during the last ten years. Both equipment and power plants have become very complex and advanced. This has increased the demand for competent personnel running the plants.
There are two strategies for power plant owners to ensure availability of know-how. The first is to ensure that employees have the required skills for operating the plant while outsourcing the maintenance. The second strategy is to outsource complete operations and maintenance to an experienced operator.
Regardless of which strategy you opt for it is important to choose the right partner. "The right partner must provide lifecycle cost guarantees, use the latest technology, have a well-documented process, implement condition-based maintenance and have a critical mass of installations," says Ohls.
Tailor-made service agreements
Wärtsilä offers four different kinds of service agreements, all of which can be tailor-made to fit customers' needs.
The lightest type of agreement involves contracting the supply of manpower, spare parts, workshop service or a combination of all three.
The second service agreement is a technical management agreement where in addition to the supply agreement also conditional maintenance, annual audits, maintenance planning and technical review meetings are provided.
Then there is the maintenance agreement or long-term service agreement where customers do operations themselves while Wärtsilä supplies spare parts and performs maintenance according to a fixed price based on a long-term agreement of up to 10 years. Performance guarantees can be provided too.
Finally we have the asset management agreement or operational and maintenance agreement (O&M) where Wärtsilä takes care of complete operations and maintenance. Performance guarantees are provided concerning availability, fuel consumption, output and so forth, all based on fixed prices.
Secured internal rate of return
When choosing a service agreement it is important to bear in mind the full life-cycle cost, not just the investment and maintenance for the initial period.
Ohls points to an example where Wärtsilä does a complete O&M, guaranteeing efficiency and hence securing an 11.1 per cent internal rate of return (IRR). Assuming that the customer is able to achieve a 20% decrease in fixed O&M costs by operating the plant on its own, the lifetime IRR increases to 12.4 per cent. However, due to neglected maintenance or less optimal maintenance and operations there is a two per cent decrease in efficiency. The internal rate of return would then drop to 7.6 per cent.
"Discounted of 25 years this means 25 per cent less returns or in this case 11 million US dollars. Any savings achieved by lower fixed operational costs can quickly be lost if neglected maintenance leads to even minor efficiency losses," says Ohls.
Wärtsilä's asset management agreement enables the power plant owner to lock in the level of future returns in terms of operational performance. "This is very valuable both from a financial as well as a risk management point of view," concludes Ohls.
This article is based on Mats Ohls’ presentation at Wärtsilä’s webinar “Performance optimisation for the energy market” on 19 September 2012.