The level of uncertainty in today’s energy market presents a higher degree of risk for each decision made over the past few years, according to Dale Probasco, managing director of Navigant’s generation service section.
Speaking on Wednesday morning’s POWER-GEN Europe panel on “Investing in existing and new assets: strategic options”, Probasco emphasized that market uncertainties impact not only decisions regarding new power generation, but also decisions about O&M expenditures, refurbishment, and how to deal with existing power plant assets. Because of this, plant management has changed dramatically in the last five to six years, he said.
“In a world of uncertainty,” he asked, “where do you put your limited dollars? What are you looking at retiring, versus adding new kinds of generation?”
The best decision outcomes – the ones that avoid risk – display certain characteristics, Probasco said. They involve key management team members with area expertise; they are data centric and rely on actual company and industry operating experience and outcomes; they are driven by base model to ensure that decisions are evaluated equally across company assets; they apply a range of risk-adjusted scenarios to the decision-making process; and they are well documented to provide insights on how decisions were made.
Solid data on a plant’s own and other assets is needed, he warned, as well as realistic expectations of how a project will improve a power plant. Data is also needed on plant performance and the best performance it can realistically achieve.
Navigant has compiled an asset management process which consists of several basic steps. It’s crucial to verify the asset’s mission (for example, changing from baseload to intermediate/peaking); an annual model update of pricing and risk assumptions (latest market prices and fuel prices) is also crucial. Then stock is taken of the kinds of projects anticipated for the current year; a value analysis (with risk) is performed, as well as a value review and a financial ranking.
While scenario analysis is performed, “we think it should be risk-adjusted,” Probasco said, as “not all scenarios are created equal”. He suggested applying certain levels of risk tolerance, taking into account the levels of risk associated with each scenario.
This type of risk analysis helps to “put decision capability in the hands of the client,” Probasco said, making for a “more robust and defendable final decision”.
However, there are no perfect solutions, he warned. Navigant’s method helps to reduce risk, but it’s impossible to eliminate it altogether.