On-site service and maintenance: more than an exercise in risk management

There is more than one way to arrange service and maintenance for on-site power generation equipment – with the original equipment supplier or a specialist third party. Steve Hodgson takes a snapshot of some of the issues around the S&M of both engine and turbine-based plant.

Most owners of on-site power generation plant contract out its service and maintenance (S&M) out of necessity. The average hospital technical team simply doesn’t have the expertise to carry out routine maintenance tasks on an engine generator set to the standard required – even less so for a turbine. [Indeed, once a gas turbine is involved, hosts often contract to buy S&M services from the original equipment manufacturer (OEM) for several years in any case.] Even a large industrial site – dedicated to making chemicals, for example – with its own cogeneration plant, doesn’t necessarily have any expertise when it comes to power generation. And with plant manufacturers and specialist S&M suppliers very ready to do the job for them, there is little incentive for hosts to invest in the skills, either for the early years or later. Where there is choice for operators, it is mainly whether to stick with the OEM for S&M or to engage a specialist, third-party contractor.


Outsourcing service and maintenance to a third party can reduce the level of risk for a plant operator (Wood Group Generator Services)
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As the S&M business becomes more profitable than supplying equipment (at least in Europe), a significant and increasing choice of options is emerging, with both OEMs and third party suppliers refining their offerings and prices. According to Frost & Sullivan, the role of independent S&M providers in Europe is increasing – at least for larger independent power producer (IPP) and utility-scale plants (see box on next page).

While S&M agreements are all about programmes that deliver reliable long-term availability and performance from plant, operation and maintenance (O&M) agreements can be much wider, incorporating day-to-day operation of the plant as well as its upkeep. Rather than the host organization running the plant, a third-party specialist O&M contractor is brought on-board. The argument used by third-party providers is that they do a better job and leave the on-site technical team to do their own work – looking after the buildings and equipment that looks after patients in the case of a hospital again, or running the process plant in the industrial example.

In the 1990s, when the UK cogeneration market was last in a boom period, it was estimated that well over half of new installations went in on the back of some sort of third-party O&M contract. At one end of the scale, for larger plants installed in an industrial setting, were full-blown energy services operations where a specialist contract energy services company such as Dalkia or BP Energy built and then operated and maintained the plant on land or space provided by the host organization, selling its output to the host at a price discounted from market rates. The beauty of this arrangement is that the host often receives the plant at zero capital cost, the supplier effectively recouping this over time by holding onto a proportion of the resulting energy savings in a long-term energy sales agreement. It was this ‘no-capital’ deal that helped the UK cogeneration market to add a couple of gigawatts of new capacity during the 1990s.

At the other end of the scale, suppliers of smaller packaged plant would encourage hosts to opt for a largely ‘fit-and-forget’ unit in the boiler house, safe in the knowledge that it was being monitored remotely by the supplier’s own engineers back at its headquarters. Again most of these units were installed at no capital cost to the host, with installation costs recouped under an energy sales contract.

S&M services for engine generators

So what are the current issues in operation, service and maintenance of the humble diesel engine generator? One perspective, from Wärtsilä Corporation, suggests that:

  • standard scheduled maintenance is no longer good enough in today’s very competitive energy markets
  • condition-based maintenance (CBM) is the key to minimizing the effects of rising fuel costs.

Wärtsilä claims that its CBM programmes can both lengthen component lifetime and reduce the number of unplanned stops and failures of engine generators. It says that the most common form of maintenance is simple, scheduled maintenance based on the operating hours of the equipment, the supplier’s experience and the worst-scenario operating conditions. Scheduled maintenance is a safe solution for many installations but it is also expensive. Furthermore, operating conditions differ considerably from one installation to another and thus the need for maintenance also differs widely.

CBM, on the other hand, offers continuous and detailed monitoring of the real performance of each installation. Wärtsilä’s system is based on automatic collection of performance data from the existing control and monitoring system, and automatic transfer of these data for remote analysis by CBM experts. The measured performance data are compared with calculated ‘ideal’ values for the equipment, taking into account the unique environmental conditions of the application such as operation profile, design data, actual operation conditions, load, ambient condition and fuel in use.

Continuous follow-up of the performance of the installation, including regular feedback with predictions for the future, recommendations and statistics at least once a month, enables the owner or operator to plan and perform the correct amount of maintenance at the right time. According to Wärtsilä, the savings in maintenance costs, for most installations, are in the area of 10%-20% over a period of 30,000 operating hours. It says that CBM can lead to fuel savings of as much as 5% when operating within the ideal operating data window.

Wärtsilä also says that, according to the statistics of several insurance companies, failures due to human error can be as high as 50%-80% of the total. In these cases, the necessary information was available but the required corrective action was not taken. CBM, which automatically analyses and predicts, can considerably reduce this number.

So where does Wärtsilä stand on the importance for plant operators to contract for S&M services with the OEM as opposed to a third-party agreement? ‘The optimal solution for an owner is to contract an experienced and established O&M provider that can package every service and product required for the power plant. If the owner prefers to self-operate, it’s becoming more and more essential to involve the OEM on a long-term basis for S&M due to the more and more complex products and solutions that are installed today. Same as in the car industry, it is becoming difficult – if not impossible – for third parties to provide proper service of equipment.’

There is no doubting the importance of S&M operations to an engine generator manufacturer’s business such as Wärtsilä; the services sector generates more than 40% of its revenue. Perkins Engines backs up the importance of the S&M part of an OEM cogeneration company: ‘Not only that it generates revenue. It also is the ultimate tool to closely keep in touch with the end customer. New sales opportunities are likely if the end customer is happy with the service level and quality of the OEM. It is estimated that around 15%-20% of the cogeneration unit’s sales revenue is transferred into S&M revenue.’

How much does S&M cost the customer over the lifetime of the installation? According to Wärtsilä, the total O&M cost for an on-site power plant over 10-15 years is roughly equal to the capital cost of the power plant. Put another way, by Perkins and for a cogeneration unit: ‘Operation costs of a cogeneration unit contain fuel costs, interest, spare parts, lubrication oil, components and labour. Spares, oil and labour count for around 13% of the whole life costs of a unit and for around 125%-150% of the capital costs of a cogeneration unit.’

Perkins makes another point about cogeneration plants that usually run continuously, generating both electricity and heat: ‘If the cogeneration unit fails, the equivalent energy (electrical and thermal) must be purchased elsewhere (if possible), mostly against the highest cost and sometimes penalties. There must be clarity about the preventive maintenance schedule for the specific application and fuel. Maintenance spare parts should be available on-site or nearby, together with some critical contingency parts to avoid possible unscheduled stops taking long to overcome.’

Cogeneration may be an area of electricity generation for which use of the OEM for S&M is particularly important, or even critical. According to Perkins again: ‘The OEM knows the installation and its control systems. The periphery of cogeneration units is sometimes quite complicated and third party service engineers often find it difficult to understand the specifics of the installation/controls.’

Perkins also offers specific advice on maintenance of stand-by generators, which only run when the main supply has failed. Depending on the stability of the mains, service schedules are usually set to one service visit per year. It is vital, says Perkins, that a stand-by set is tested at least once a month to establish the integrity of the starting system and controls.

S&M services for gas turbines

The O&M of on-site generation plant based on a gas turbine (an expensive and mechanically expensive piece of equipment needing a host of supporting systems) can be one step more exacting. Thus turbine-based generation plants often have higher servicing costs than their engine-based equivalents.

Depending on what the operator wants or needs, a maintenance agreement for a gas turbine generator can, theoretically, be anything from a simple call-out contract (where customers pay just for time and material used for any given job) to a fully comprehensive long-term O&M service agreement. In the latter arrangement, customers pay a fixed rate per running hour or calendar period and the provider performs all planned and unplanned maintenance, guarantees availability and installs engines on loan if a customer’s own engine becomes unserviceable – all included in the price. So says Simon Raymond of engine services at Volvo Aero Corporation, which maintains gas turbines rated up to 15 MW.

‘In terms of the equipment covered, we can also administer the same for package items and control systems, steam compressors, generators and so on by employing our own sub-contractor network. Going beyond that, companies like Dalkia can take over the whole running and management of a cogeneration facility so customers don’t have to involve themselves at all and just uses the energy generated,’ adds Simon Raymond.

Simon Raymond says that the farming-out of operational risk to the third party is the main benefit offered by an outsourced O&M contract. ‘Few gas turbine operators are in the business of gas turbines themselves, and have neither the ability nor the desire to perform maintenance beyond topping up the oil, for example. An O&M service provider will have knowledge from a much larger fleet of engines than just one operator, so can read across lessons learned. Companies like Volvo Aero can amortize those repair development costs over a large number of engines, so all customers end up sharing them instead of one footing the lot.’

One possible downside is co-ordination problems with scheduling requirements. An owner may have certain ideal times for major maintenance activities, while the O&M contractor might have key maintenance personnel active elsewhere. ‘This can arise and it does arise from time to time,’ says Simon Raymond. ‘Careful planning is the key as well as close contact with the operators. For planned maintenance, we can normally dovetail our activities into the operators, many of whom will want to have work carried out during a weekend or a holiday to minimize impact on their production. The planned maintenance schedule is rarely so fixed that maintenance can’t be moved by a few days or weeks to suit other requirements.’

‘The challenges come when unplanned maintenance needs arise, invariably at short notice. We have a rota system for the 24-hour helpline to our maintenance staff and guarantee site attendance to some customers within six hours of a call. We have had guys working off-site on Christmas Day in the past – not so popular but it is a commitment. To reduce vulnerability when personnel are tied up and perhaps far away, we are very much into cross-training so that guys can be pulled from other engine types to help out. This is important in the service industry which is characterized by cyclic workloads – some days are busier than others.’

According to Simon Raymond, contracting out O&M is generally a cheaper option than an operator making the investment in the required skills and equipment. ‘Investing in tooling, education, experience, chemical processes, machinery for parts repair, non-destructive testing (magnetic particle and fluorescent dye penetrant), lab analysis if required, rotor balancing and engine test facilities all cost a fortune. Although there are some users with very large fleets though for whom it does make sense to perform a lot of the O&M work themselves.’

The market for third-party O&M has changed considerably in the past three to five years, causing service providers to change with customer requirements and to find ways of presenting value, not in terms of words and philosophical application, but in terms of true value the customer can embrace, says Sergio Picon of Wood Group Power Operations.

He agrees that risk mitigation, or the proportionate sharing of risks, is certainly a primary benefit to O&M outsourcing: ‘In a financial arrangement where risk of plant availability is placed upon a third-party operator, liquidated damages paid by the third party offset a portion of the risk assumed under the owner’s power purchase agreement(s), tolling agreement(s) or other contractual or dispatch requirements. In the same way, high availability in third-party agreements is a financial benefit to the operator through bonus incentives.’ Another obvious benefit of outsourced O&M is the expertise of O&M services that an owner may not have in-house, especially with advanced technology of modern power facilities.

But how do outsourced contracts work in practice? Do customers expect the O&M contractor just to get on with it or do they tend to want to be involved in the process? Sergio Picon again: ‘You will find this varies from owner to owner, depending upon their perspective of the service being provided. “Savvy” or seasoned owners with multiple facilities will tend to understand more and will work with the operator to implement an effective communication plan, and have a greater involvement on areas where their expertise provides benefit to the relationship. Whereas a single facility owner may simply request a format of reporting but leave the O&M to the experts. Owners that have more risk in the operation (such as difficult or complex environmental reporting) will also be more involved or hands-on in how the facility is being managed.’

Steve Hodgson is the Co-ordinating Editor of COSPP.
e-mail: cospp@jxj.com

To comment on this article or to see related features from our archive, go to www.cospp.com

Lessons on S&M from Europe’s IPP and utility markets

Services markets in the power generation equipment sectors across Europe are contributing to increased growth potential for both turbine manufacturers and independent service providers, according to a new Frost & Sullivan study (see www.power.frost.com) based on research among 200 power plant managers as well as O&M managers.


A gas turbine being disassembled. Long-term service agreements are common for gas turbines in Europe (MTU Maintenance)
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The analysis focused on the maintenance repair and overhaul requirements/strategies of IPP and utility plants in western Europe. It concluded that these growing services markets – particularly in the gas turbines arena – will offer enhanced scope to service providers as profit margins continue to outpace those in the new equipment business.

‘The role of independent service providers in the market continues to increase, perhaps more slowly than anticipated,’ said Frost & Sullivan Research Manager Harald Thaler. ‘OEMs are competing with independent service providers by continually adapting their pricing and maintaining their technological advantage over their third-party rivals.’

Moreover, new entrants such as utility affiliates and specialist companies, which have traditionally been active in the servicing of other power generation equipment such as steam turbines, are focusing on the gas turbines markets as these offer high profit margins.

‘Despite these growth opportunities, the trend towards outsourcing of services is not universal,’ notes Harald Thaler. For instance, while outsourcing of O&M of power plants is widely prevalent in the privatized Italian electricity generation sector, German power plant operators prefer in-house operations, with some German utilities also offering their in-house expertise to third parties through their own dedicated service affiliates.

Quality of work, value for money, lead time/speed of response, technical know-how and customer service were found to be crucial factors that influenced supplier rating according to Frost & Sullivan. Another factor, lead times for critical spare parts, was shown to differ broadly across OEMs though persistent problems related to lead times appear to have diminished.

‘The increasing proliferation of long-term service agreements (LTSAs), especially in gas turbine plants should provide secure and stable revenues over a long period of time,’ said Harald Thaler. ‘Opportunities for full service contracts are likely to be limited in boiler and steam turbine plants, where the incidence of such contracts remains significantly lower.’

On-site O&M contracts for Wärtsilä

Wärtsilä has signed O&M agreements during the past few months for on-site power plants in Saudi Arabia and Belgium, and now has more than 140 O&M agreements in 31 countries worldwide.


On-site power plant at the Pomolaa ferronickel mine and production facility at East Sulawesi, Indonesia
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In February, a five-year agreement was signed to operate a 45 MW power plant supplying energy to Riyadh Cement Company in Saudi Arabia. The ability of Wärtsilä engines to operate reliably under extreme site conditions, at high ambient temperatures (here up to 50à‚°C) and high altitude (835 metres above sea level) is well established. Another key factor is that, under the O&M agreement, the cost-effective life-cycle operating costs of the Wärtsilä engines are guaranteed.

Late last year, Wärtsilä was awarded a 10-year agreement to operate a BioPower plant in Belgium owned by Renogen SA. The biomass-fuelled CHP plant will produce 3.3 MWe and 10 MWth, or 5.3 MWe in condensate mode. The plant will be located at Amel in the Ardennes area of Belgium and will deliver hot water for drying processes in two local factories, while the electricity generated will be fed to the local grid. BioPower plants are highly automated, enabling unmanned operation during weekends and after normal working hours.

All these power plants are being built by Wärtsilä, though the company also enters into O&M agreements for plants having no Wärtsilä hardware. For example, it operates an O&M contract for a 152 MW on-site power plant that serves the Pomolaa ferronickel mine and production facility at East Sulawesi, Indonesia. While 102 MW of the plant comprises Wärtsilä equipment commissioned in 2005, the original 50 MW of capacity features engines from another manufacturer. Wärtsilä is responsible for day-to-day operation of the whole plant, as well as its maintenance, and operates under a performance guarantees for availability, power output and fuel consumption.

Service agreement for Princeton CHP plant

GE Energy’s aeroderivative gas turbine services group has signed a 13-year contractual service agreement (CSA) for Princeton University’s Power Generation Plant in Princeton, New Jersey. The CSA covers one LM1600 gas turbine, an electricity generator, gearbox and all controls, parts and equipment required for the operation and maintenance of the facility. The CSA also includes the management of planned and unplanned maintenance during the life of the contract.


District energy system at Princeton University (The Cool Solutions Company)
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GE says that its CSA agreements are designed to increase reliability and availability of power plant equipment. GE Energy’s field service technicians, parts specialists, engineering personnel and management team will provide Princeton with 24/7 coverage on a 365-day per year basis. This will help to achieve the highest power output and the maximum availability for the facility.

The contract also incorporated a turnkey controls upgrade, which included all new software and hardware required for the LM1600 cogeneration power plant. GE replaced the existing controls with a customized Woodward ‘MicroNet’ simplex control system engineered by GE Energy’s control solutions division.

‘Since the Princeton Power Plant provides not only electrical power, but also steam for heating many of the buildings at the university, the level of customization required for this project required detailed co-ordination between the plant personnel and GE Energy’s technicians at every stage of the project execution,’ said Charles Blankenship, general manager for GE Energy’s aeroderivative division. ‘The end result is a completely upgraded control room that moved Princeton’s plant from mid-1980s technology to a 21st-century control room.’

The equipment is being used for the combined-cycle plant that provides steam to heat Princeton University, water chilling for cooling requirements, and electricity for both the local utility grid and for the university’s consumption. Natural gas is the primary fuel and liquid fuel is used as a back-up.

Award-winning S&M of Kodak’s UK CHP plant

Britain’s Dale Power Solutions, which specializes in the maintenance and servicing of industrial generators, has received an award from Kodak under its ‘Quality First’ scheme that recognizes outstanding service to the company. Dale’s award recognizes its planned maintenance, 24-hour call-out and on-site staff training for the company’s CHP plant at a paper manufacturing site in Harrow, Middlesex, UK.

The turbines operate continually 24 hours a day, achieving 99% power availability during assessment periods. Dale Power Solutions, which has provided services to Kodak since 1994, has now won the award for the second consecutive year.

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