Strategic asset management for the power and generation industries

By Clive Deadman

The power and generation sectors have pioneered many modern strategic asset management tools and business systems. It is now common, for example, to find these industries making frequent use of a range of tools – such as acoustic and condition monitoring, and thermal analysis in real time – to help decision-making This pioneering approach to asset management has allowed the industry to address many recent challenges but it will also enable it to tackle the fundamental issues of the next few years.

In order to understand these issues I will be drawing from my recently published book, Strategic Asset Management: the quest for utility excellence to answer to the following four questions: What exactly do we mean by 'asset management' in the power and generation sectors? How good does asset management need to be so it adds more value than cost to our businesses? How are leading asset owners managing their assets, and what challenges have they had to overcome? How might great asset management help us address our challenges and opportunities in the future?

Asset management

Asset management is a relatively new name for something regulators, engineers and the boards of infrastructure-owning companies have wanted to do for years. The Institute of Asset Management's definition of asset management is:

Systematic and coordinated activities and practices through which an organisation optimally and sustainably manages its assets and asset systems, their associated performance, risks and expenditures over their lifecycles for the purpose of achieving its organisational strategic plan.

Put simply, asset management is an activity that allows us to see and manage short- and long-term asset risk, as well as performance and cost, and so achieve our objectives. In practice, if we are to do this well we must be able to balance local issues, such as improving the lubrication of equipment or reducing overtime spent, with strategic issues, such as the need to close or renew power stations. Further complications arise because the cost of many important issues - including pollution, safety, land consumption and the future cost of asset failures - are hard to predict and value.

Historically, strategic investment decisions have been made at head office in discussion with policy-makers while local decision making has been done by local staff, as they have had the best understanding of local priorities. However, as business and asset management systems grow in complexity and capability, the boards of companies and regulators have a growing duty to understand all the opportunities and risks they are managing.

It is tempting to think 'better asset management' is a modern phrase for greater central control over issues that have historically been managed quite satisfactorily by local staff. However, that is not the case for two reasons. Firstly, local frontline staff may not appreciate the full consequences of all their actions and any major disaster - such as the recent problems in the Gulf of Mexico - is evidence of this. Secondly, local operational staff must also be invited to make significant contributions to major strategic decision making. For example, the flooding of New Orleans by Hurricane Katrina in 2005 is an example of a disaster that could have been easily avoided if policy-makers had taken heed of the valid concerns of technical experts and frontline staff.

However, introducing the new business systems and ways of working required by modern asset management approaches is expensive, and can be extremely disruptive. It is therefore important that the approaches used are tailored to the needs of the organisation. At one extreme may be Joseph Stalin, the Soviet dictator, who apparently had train drivers shot for being late, and others executed for going too fast and wearing out the rolling stock.

Fortunately, such draconian approaches to reward and punishment aren't tolerated these days. However, a poor asset management system will mean the business cannot manage long-term value. Likewise, an overly complex asset management system will saddle an otherwise efficient business with complexity and cost. Accordingly, business leaders must balance asset management functionality with cost and complexity if they are to earn and deserve the confidence of the board and front line staff.

Added value

Two key questions which infrastructure asset owners grapple with continually are 'How good does an asset management system need to be? and 'How is such a system best implemented?' There is no right answer to these questions and a small African power station and a large European wind farm would come to different conclusions.

In my book, I propose six factors that asset-rich organisations must consider as they find their own answers to these questions: Climate, complexity, goals, tools, organisation and teams.

Three of these factors (climate, complexity and goals) help define how good an asset management system needs to be while the three remaining factors (tools, organisation and teams) should be considered when making improvements to asset management systems. By finding a good balance for all these factors, organisations can make sure improvements or simplifications to asset management systems add more value than cost.

The challenge for the power and generation sectors is that, compared with other utility industries, they operate in extremely challenging 'climates'. This is because they must have the capability to operate at the highest levels of performance at those times of the day when demand is greatest.

Furthermore, weather events, equipment failure in neighbouring countries and even television viewing figures can impose immense sudden planned production demands on the industry. As a consequence, the failure of energy networks or generating plants at times of peak demand can result in penalties or missed revenue payments of many millions of pounds an hour. Fortunately, power and energy industry equipment is tightly supervised and enjoys sophisticated instrumentation and control systems. For these reasons, compared with other utility sectors, the generation and energy industries have a lower level of unmanaged complexity than other utilities.

If we view and contrast energy and generation in a 'climate' and complexity' map and contrast it with other utility sectors we see the following picture emerge:

Figure 2: A 'climate and complexity' map for typical utility industries

This combination of the highly challenging climate and lower internal complexity of generating and power networks means they experience the greatest need for the most sophisticated asset management systems. They also experience fewer challenges in getting the basic asset cost and performance information that all great asset management systems need.

Management

Extensive use of process controls, on-site control room, the low levels of bespoke customisation and comparatively high levels of supervision mean the capability of asset management systems in the generation and power industries are comparatively good. However, they also experience the greatest need for further enhancements. Accordingly, developments underway in leading energy companies include work on the following areas: Introducing company-wide risk and benefits management systems that allow asset risk and performance to be compared between different operating power plants; and the introduction of real-time work order management, which allows the 'in day' flexing of resources and inventory between sites to optimise corporate performance and improve safety.

Undoubtedly, these developments are invaluable for the boards of utilities, which need to ensure budgets are allocated efficiently. However, these new ways of working can be of great assistance to site and plant operators. For example, a typical pattern during the earlier years of a power plant may be as follows:

A 'rising star' manager is appointed to oversee the design and commissioning of a new flagship project.

3)When commissioning is completed and a routine is established, the rising star may be promoted and new managers appointed to develop their skills. The lower levels of maintenance typical of new equipment may become an established expectation and a drive to increase efficiency will invariably release any spare resources and inventory. In time, complex condition monitoring systems and information systems may fail to be fully maintained and enhanced.

As equipment becomes older the need for increased resources and innovation grows. It can sometimes be difficult to make a case for such additional resources. Company-wide asset risk and performance systems can provide support to an operational manager and ensure resources are made available before a major equipment failure demonstrates asset resilience is unacceptably low.

Centralised asset management business systems also threaten the enormous authority and responsibility plant managers have typically held. For these reasons, change needs to be managed with great respect and sensitivity and the limitations of central resource management systems must be recognised. In other words, great asset management systems give the board and other stakeholders a 'line of sight' to important issues but rarely give them a 'line of control'.

Challenges

The power and generation sectors now face an unparalleled period of change. In the last 15 years the commercial landscape for our power and energy industries has been revolutionised. At the policy level, the introduction of legislation such as the Large Combustion Plant Directive means major industries like coal power generation have a limited life.

At a political level, the recognition that carbon dioxide accelerates global warming means nuclear power is becoming popular while public resistance to coal is growing. We are about to embark on an expansion of wind generation, while smart grids, smart meters and a range of distributed generation are being established. All these measures must be retrofitted on to a stressed and aged network. Given the gas and electricity transmission and distribution network in the United Kingdom has an estimated replacement cost of £9000 (€11,000) per household, it is unclear if we could get it operating again if it ever became de-energised. The consequences of losing control are unacceptable.

As households increasingly commission and operate solar, wind, hydroelectric and smart meters, we also need to understand what effect that may have on national power systems. Whether households will recognise their growing duty to maintain systems and provide appropriate data is unclear. Sadly, homeowners have a track record of being poor at asset management, as the slow take-up of home insulation (despite the quick payback) demonstrates.

To conclude, it is not clear how a generating industry that has used sophisticated systems very effectively to run a small number of large critical generating plans might adapt to operating much larger numbers of wind power, combined heat and power units and solar sites. On one hand, we could imagine the existing data definitions and control protocols used will be successfully replicated into the growing number of new, highly flexible power networks and generating assets. Under such circumstances an effortless transformation to smart grids and smart distributed generation could occur.

Alternatively, the growing complexity and lack of standardisation which may arise from increasing volumes of distributed generation could start to overwhelm the industry. If this were the case, the generation and power industries may have to explore how the less sophisticated but more complex utility sectors - such as water and waste water treatment - have had to manage the semi-chaotic parts of their asset systems.

Undoubtedly, this may require a level of network and generation redundancy and flexibility which would be unaffordable for most households, particularly in these times of austerity. The reality may lie somewhere between the two. What is clear is that the cost to society of losing control of this evolutionary step is unthinkable.

Biography

Clive Deadman is the author of Strategic Asset Management: the quest for utility excellence. He has worked in both water and electricity utilities, and is also a member of the council of Institute of Asset Management and the European Federation of Maintenance Societies. He can be contacted at c.deadman@tiscali.co.uk.

For more information on the book Strategic Asset Management: the quest for utility excellence, go to www.strategic-asset-management.com. See also the book review in this issue.