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Concentrate on the basics
02-JUL-2005

by outsourcing operation and maintenance

Many users of cogeneration plants in Europe have decided to outsource plant operation and maintenance to a specialist. David Flin examines the reasons for and the benefits of leaving it to an expert.

One of the advantages of cogeneration plants is that they can use the waste streams of some industrial processes to produce electricity and heat, changing the potential problem and cost of waste disposal into the benefit of on-site power. Also, cogeneration can be used in a variety of settings, such as hospitals, universities, community housing and hotels, among many examples.

However, the owners of such power plants may have limited experience of operating and maintaining them. Their experience and core competence lie in other areas, not in power plant operation and maintenance (O&M). Acquiring that expertise can be costly, especially if the staffing requirements are low. On the other hand, forced outages can be inconvenient and very costly, especially in circumstances where the industrial process is continuous and requires constant, uninterrupted power.

One solution is to use a firm that specializes in O&M services. This enables the contracting firm to make use of expertise that it would be otherwise difficult to acquire. Because the specialist can concentrate expertise, it can provide its service at a reasonable cost.

Power plant owners may have limited experience of operating and maintaining their plants

It is surprisingly difficult to estimate the amount of O&M work that is outsourced. This is partly because different organizations use different definitions for whether work is outsourced or not. Some organizations assume that only long-term contract work can be classified as outsourced O&M. They define work involving just one site visit as simply a one-off contract. Other organizations assume that any work carried out by another company is outsourced O&M. There are also differences in the definition of work classified as O&M. Some organizations assume that any work undertaken on an operating CHP plant is O&M work, others discount the kind of work which upgrades plant, or any work that leaves the plant with a different design. This is based on the premise that such work is upgrade work and is better classified as design and construction rather than O&M. With all these caveats in mind, 30–60% of CHP plants in Europe contract energy management. It is a market that is growing significantly in developing countries.

O&M OBJECTIVES

According to the needs of the site, the emphasis of O&M might include maintaining efficiency, maximizing operational hours, minimizing operational costs, minimizing emissions of CO₂, disposing of waste in a productive manner, or ensuring reliable and rapid start-up, among other options. The site might need flexibility of supply of heat, electricity or both to match varying demand, and it might need the options to sell electricity to and buy it from the national grid. The cost–benefit analysis can vary according to circumstances.

For example, pulp and paper plants do not want unexpected outages because an interruption to the production process causes major disruption and expense. As a result, they require reliability of supply above all else. Hospitals, on the other hand, have different pressures. While they need very reliable supply, they also often have investments tied in over long periods. One concern that hospital authorities face is the need to have reliable and known costs for operating the supply. Outsourcing O&M removes the risk of varying costs and leaves it with a company which specializes in this technology.

In addition to hospitals, there are many other types of operations for which subcontracting out O&M activities makes good sense. In particular, aside from financial considerations, there is the question of the growing skills shortage in many countries. It is becoming increasingly hard to recruit sufficiently qualified engineers. Furthermore, there is an increasing trend towards using small numbers of staff who are flexible in their operation and maintenance of such plants. This requires great experience, flexibility and initiative on the part of the plant staff, demands which require them to be knowledgeable, experienced and well trained. Recruiting and retaining such staff is difficult for non-specialist organizations. Specialist firms can usually deploy staff more effectively, transferring them from one site to another as operational needs vary. Specialists can also maintain a central reserve of operators who can travel to any specific site as required.

STAFFING LEVELS

In addition to being able to optimize the use of skilled staff, O&M specialists can often monitor plants remotely, sometimes several from one central location. this allows the specialist firm to optimize its use of monitoring staff.

There may not be sufficient engineers to meet current O&M demand

As cogeneration plants grow in popularity and as governments increasingly encourage their construction, there will inevitably be an increased demand for staff to operate and maintain these plants. Both the US government and the EU have stated that they have targets to double the amount of CHP in operation by 2010 compared with 2003. It is unlikely that the number of people capable of operating these plants will increase, never mind double over this period. Indeed, with the time it takes to train engineers, and with the number of engineers currently in and entering the system, it is questionable whether there will be enough to meet current demand, never mind a dramatically increased demand.

According to the UK’s Department of Trade and Industry (DTI), the number of engineers entering the system is just about equal to the number reaching retirement age. While this counts all engineers and doesn’t include those who might be interested in O&M, it is indicative of the difficulties facing any expansion of engineering projects.

Under such circumstances, it is imperative to make the most effective use of the available engineers. The most efficient way for engineers to cover a large number of CHP plants is through the use of central control, which will encourage the use of outsourcing for O&M.

Llandough Hospital, Cardiff, UK Llandough Hospital and Community National Health Service (NHS) Trust near Cardiff, UK, had to upgrade its electrical distribution system. A review of the existing system revealed that the energy performance of the hot water generation system was low and that expenditure on maintenance was increasing. Installation of new energy-efficient equipment would reduce costs, but the hospital had other priorities for capital resources. Three options were considered: financing by the NHS, postponement of all but essential work, and contract energy management (CEM). The hospital chose CEM involving private finance. The hospital signed a 15-year contract with Dalkia under which Dalkia provided the capital investment of £595,000 (US$1,085,000) for the new energy plant, which consisted of three CHP units. these have a combined output of 450 kWe, which provides baseload electricity. Dalkia also converted three existing 4090 kg/hour boilers and tanks from gas to oil to enable the use of inexpensive heavy fuel oil. It upgraded the electrical distribution system and introduced a boiler management system (BMS) to monitor and control the boilers and CHP units with expansion of the existing BMS for critical point monitoring. The system comprises: three Aggreko CHP units, each rated at 150kWe, with normally aspirated natural gas-fired Perkins 3008Si engines which include Newage UC274G 180 kVA generators New Trend BMS which comprises six outstations. These employ 300 points in total to enable Dalkia to monitor and control the boiler and CHP units an extension of the existing Satchwell BAS 2000 BMS to allow the hospital personnel access for monitoring critical points four APV steam-to-water plate heat exchangers rated at 2 MW each. These use steam at up to 80 psig to provide low-temperature hot water two APV water-to-water plate heat exchangers for domestic hot water services, each rated at 0.4 MW two hot water service storage vessels with a nominal capacity of 900 litres each, providing a buffer for the hot water system, with water held at 60°C. The hospital has estimated that this contract has saved £50,000 (US$91,000) per year, savings expected to continue throughout the 15-year life of the contract. To date, the hospital has received consistent and uninterrupted energy supply. The centralized BMS has improved energy control throughout the hospital.

SPECIALIST EQUIPMENT

In addition to specialist staff, many O&M activities at CHP plants require specialized equipment, such as the kind required for balancing rotor blades. It is costly to maintain such equipment, which is only of use during maintenance outages. Since such outages only represent a tiny fraction of the life cycle of the plant, the equipment would be lying idle for much of the time if it were held by operators that have just a few plants.

There are three solutions to this. The first is for such equipment to be hired as required. This tends to be time-consuming and places pressure on O&M staff to complete maintenance outages as rapidly as possible. The second solution is to share equipment with other users in a similar situation. This can be difficult to co-ordinate, especially when there may be conflicting and competing demands from the sites for use of these tools. The third solution is to outsource O&M to an organization that is able to keep such special equipment in constant use. If such equipment is shared, either by a co-operative of several sites or through outsourcing, it will be necessary to ensure that conflicts of interest with regard to when such equipment is available at specific sites can be resolved easily.

REMOTE CONTROL

Remote monitoring of CHP plants is increasing. This is taking place with both outsourced and in-house O&M programmes, although the increase is more significant for outsourced programmes. Many contract energy-management firms offer remote monitoring of plant as standard. Control, instrumentation and monitoring are increasingly based on user-friendly microprocessor controllers communicating with remote PC-based control and monitoring stations. In the UK, for example, ENER-G offers a Distributed Intellect Remote Monitoring System (DIRMS). This performs 70 parameter checks every second and runs continual diagnostic checks.

Remote control is also used to balance supply and demand.

This can be quite complex when the costs of buying electricity from the grid have to be compared with the cost of producing power from the plant and the potential profit from the sale of excess electricity to the grid. These costs also have to be balanced with the maintenance implications of the plant that arise when output levels are changed.

Avecia chemical plant, Grangemouth, Scotland, UK Avecia’s chemical plant at Grangemouth in the UK makes textile dyes, industrial and specialist colours, fine chemicals, agrochemicals, biocides and pharmaceutical intermediates. The company wanted to concentrate its resources on its core business and decided to contract out energy services to specialists. In addition, it wanted to benefit from the cost savings and environmental improvements that could be achieved with the installation of a new energy plant. Avecia awarded a 15-year contract energy management agreement, including a £6.5 million ($12 million) capital investment for a new energy plant at the site. The contract was in two phases, in the first of which Dalkia operated and maintained the existing energy supply system for 2 years while the new CHP plant was being designed and built. In phase 2, Dalkia will be responsible for providing electricity and steam from the CHP plant to the Grangemouth site. This includes: top-up and stand-by electricity bulk purchase of fuel full warranty of the plant for 15 years full responsibility for efficient O&M of the energy plant. The CHP plant consists of a 4.5 MW gas turbine, a 3 MW steam turbine and a 30 tonnes/hour waste heat boiler. The exhaust gases from the gas turbine pass into an auxiliary fired waste heat boiler which raises steam at 62 barg. This steam passes through the steam turbine and is delivered as process steam at 11.7 barg and 2.4 barg. The total steam capacity of the waste heat boiler is 30 tonnes/hour, which operates in conjunction with a new 30 tonnes/hour gas or heavy fuel oil boiler and two 15 tonnes/hour heavy fuel oil boilers that provide top-up and stand-by steam supplies. A new powerhouse was constructed for all the equipment, including high technology computerized remote monitoring and control systems. The combined effects of improved energy efficiency and the use of CHP with fuel combination have resulted in: a 51% reduction in CO2 emissions a 66% reduction in SO2 emissions a 63% reduction in NOx emissions a 99% reduction in particulates emissions.

OPERATIONAL NEEDS

One situation that encourages in-house O&M rather than outsourcing is where a process has complex and changing demands for heat, steam and electricity. For example, the headquarters of UK pharmaceutical products retailer Boots has a CHP plant consisting of three gas turbines which are operated and maintained in-house. The plant uses special software to determine the optimum number of units to operate. This calculation is based on the cost of buying electricity from and selling it to the grid, and the current and future demand of the site. In-house staff are likely to be able to better predict the demands of the site compared with those from a specialist firm. Where sites host industrial processes whose demand can vary and a need exists to match supply with demand, it might prove advantageous to have staff familiar with the operational demands of both the CHP plant and the site.

Another factor that needs to be considered is scheduling maintenance outages. In-house O&M can easily accommodate such outages in a way that optimizes use of the plant. It can also respond instantly to an unexpected need for maintenance. Outsourcing of O&M can result in difficulties if several sites have unexpected difficulties at the same time.

In-house O&M can easily accommodate maintenance outages in a way that optimizes use of the plant

One of the most important requirements of outsourced O&M is close co-operation between the owners and the operators. Both parties have to manage timings carefully to ensure that the plant achieves peak output when required, that outages take place during quiet periods, that any extra demand that might be forthcoming can be met, and that any likely long-term change in demand patterns are communicated, among other outcomes. However, there are anecdotal reports of some owners being reluctant to communicate such information to the operator, because they regard it as commercially sensitive. The inevitable consequence has been diminution in efficiency of operations.

RISK VERSUS EFFICIENCY

Outsourcing O&M relieves the plant owner of the risks associated with the costs of such activities. By paying a set sum to receive specified levels of heat, steam and electricity, the plant owner ensures that it is not subject to escalating costs or recruitment difficulties. However, the other side of this coin is that because the owner has no financial risk, it also has limited incentive to improve the operational efficiency of the plant. If the owner is paying a fixed sum to receive specific amounts of heat and electricity, then it has little to gain from improving the efficiency of fuel use because the net benefit would accrue to the operating company rather than the owner. If the owner does not have the drive to improve efficiency, then the company to which O&M has been outsourced has only limited incentive to do so. It has a contract to supply specific levels of heat and electricity at specific prices. It is only when the cost of meeting that contract, possibly through a sharp rise in fuel costs, threatens to reduce the profit of that contract that there is a strong incentive to improve efficiency.

DOMESTIC GENERATION

University of New Hampshire, US EMCOR Group won a US$40 million, 20-year contract from the University of New Hampshire, US, to operate and maintain a cogeneration and chilled-water facility at the University’s main campus in Durham. The contract followed an earlier one awarded in May 2004 for EMCOR to design and construct the facility. The facility is a 7.5 MW central cogeneration unit that has the option of being expanded to over 22 MW. The facility’s chilled water plant has a capacity of 1200 tonnes, which can be expanded to 2400 tonnes. These facilities are intended to increase the university’s energy independence, substantially reduce energy costs and provide increased reliability of energy supply. The existing facility has reached full capacity. The contract comprises three agreements: an operations agreement in under which the on-site team will manage and operate the new cogeneration plant, the new chilled water plant and the existing central steam plant a maintenance management agreement under which EMCOR will manage contracted services for energy infrastructure, including the maintenance of remote boilers, chiller plants, high-voltage equipment, and street and car-park lighting a construction management and consulting services agreement under which EMCOR will provide consultative and construction management services to support energy master-planning, modelling and construction management services for energy infrastructure projects.

Predictions abound that the not-too-distant future will see a significant increase in the number of domestic CHP or micro- CHP units in operation across Europe. When this happens, many units will be in place that will require regular servicing, much as domestic boilers require regular servicing.

If the predicted growth of domestic generation occurs, with upwards of 600,000 units being installed each year in the UK alone, and if the assumption is made that each unit will need a regular service once every 3 years (compared with the recommended frequency of once per year for standard gas boilers), then there will be a demand for an increase of about 200,000 services every year.

Many of the companies involved in contract energy management believe that O&M for domestic CHP units will be something of a niche market – in the short-term, at least – which they plan not to target. If this market does start to expand as some have predicted, then the lack of O&M servicing capability might prove to be a serious bottleneck to greater expansion.

GROWTH MARKET

According to BP Energy, contract energy management is growing steadily and has significant potential for growth. This is based on the view that the market for new CHP installations is increasing, which will have a two-fold effect on contract energy management opportunities. First, the increase in the CHP market will result in more contract energy management opportunities, assuming that the proportion of such contracts to in-house work remains constant. Secondly, as the number of CHP plants increases, there will be greater pressure on the resources – both people and equipment – needed to operate and maintain these plants. As a result, many people predict that the proportion of plants operated and maintained under contract energy management will increase sharply over the next 5–10 years.

David Flin is a freelance energy journalist based in the UK.
e-mail: cospp@jxj.com

 

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