Improving Fossil Fleet Performance through Actionable Benchmarking

Transcription

1 Improving Fossil Fleet Performance through Actionable Benchmarking ScottMadden s Methodology for Achieving Results Author: Jake Jacobi Contact: Stuart Pearman

2 Introduction With ever-increasing performance pressures on fossil units, operators will be required to do more with less New coal plants will only get more difficult and expensive to build Owners and operators will need to get the most out of existing coal units The stakes are raised significantly when investments are made in air quality controls Existing fossil plants will continue to be required to operate in new and challenging ways Mid-merit and peaking gas plants will be expected to run more often and more reliably Traditionally base load coal and gas will need to cycle more (and more often) to make room for renewables Budgets will continue to be tight and highly scrutinized in the current economic environment In the face of these challenges and myriad others, benchmarking is a critically important tool. This document outlines ScottMadden s approach to fossil fleet benchmarking, the hallmarks of which are: Specific and actionable analysis Clear, transparent, and defensible results which can be swiftly put into action Prioritized results for optimum impact The tools needed to determine where to start and where to focus Organizational change management Success is measured by the ability to change behaviors to improve results ScottMadden s approach to fossil fleet benchmarking provides operators with the analytics needed to succeed. 1

3 Fossil Generation Is Facing Unprecedented Challenges Coal plants are being retired at a record pace, and base load fossil generation is unlikely to be replaced in the foreseeable future A total of 20 GW (224 units) were retired in the last 10 years Average projections for future retirements are approximately 45 GW over the next 10 years; projections range from 14 GW 1 to as high as 81 GW 2,3 FERC s preliminary assessment indicates 40 GW of coal-fired generating capacity "likely" to retire, with another 41 GW "very likely" to retire New coal plants are facing extraordinary headwinds as siting and permitting have become prohibitively difficult Of all announced plants in the United States not already under construction, only two plants (15% of total GW) have attained air permits or entered into key contracts suggesting that these projects are continuing to move forward In contrast, seven large projects representing more than 3.5 GW (23% of the total) have been indefinitely postponed 2,000 1,800 1,600 1,400 1,200 1, Projected Coal Plant Retirements by Region (in MWs) ,042 1,356 1, , , Source: SNL Financial Planned Coal Steam Turbine Capacity by Project Status (% of Total GWs) Postponed, 23% Adv Development, 15% Announced, 62% MRO WECC SERC RFC 1 SNL Financial 2 ICF International, Integrated Energy Outlook, 5/9/ FERC Letter, Response to Senator Murkowski: Proposed EPA Rules, August 1, 2011 Source: SNL Financial Total = 15.1 GW 2

4 Additional Regulations Are Inevitable and Costly The EPA s projected regulations of air, water, and coal ash disposal will require owners of coal power plants to invest in even more costly pollution control and monitoring equipment The significant up-front capital investments to retrofit existing plants with environmental controls have been widely discussed and debated New plant capital cost estimates range widely from $150/kW to upwards of $500/kW depending on the scope and scale assuming a highly efficient new plant Retrofitting an older existing plant would likely result in even higher costs Specific equipment configurations will ultimately need to be catered to each site and unit Regardless of the specific control technologies employed, the associated costs have three additional important implications less frequently considered Variable cost effect Incremental variable O&M required to operate air quality control (AQC) equipment makes it more difficult to achieve the market clearing price Efficiency effect Once the unit is in the money, the load lost to environmental equipment reduces the MWhs available to sell into the market Equipment failures Outages and de-rates from AQC equipment failures further reduce the amount of energy reliably available to sell into the market 12% 10% 8% 6% 4% 2% 0% Illustrative Variable O&M ($/MWh) to Operate AQC Equipment Bags for Baghouse, $0.07 SCR-Catalyst Replacement, $0.24 Ammonia, $0.17 Gypsum, $1.09 Projected Station Power for AQC Equipment on New Coal Plants 15% increase in auxiliary power requirements 400 MW 600 MW 900 MW Source: Sargent & Lundy (8/28/2009) Limestone, $0.53 $2 3 of additional variable O&M ($/MWh) impacts dispatch economics Source: ScottMadden Analysis; hypothetical new subcritical 400 MW unit FGD Baghouse Wet ESP Auxiliary Power (Before AQC) 3

5 Total MWs The Outlook Gets More Challenging Going Forward Reserve margins will be squeezed by a combination of capacity reductions, load growth, and higher station service to operate environmental controls on remaining units 40% 35% 30% NERC Reference Case vs. EPA Regulation Scenario Projected reserve margins could fall below NERC-required levels NERC s special analysis of resource adequacy in light of potential EPA regulations suggests that all but two regions could face reserve margins below the reference margin requirement by 2015 In more aggressive regulation scenarios, NERC s analysis even suggests that several regions could see reserve margins nearing zero or turning negative in the 2018 planning horizon Fossil units (coal and gas) are the primary resources used to integrate intermittent renewable energy sources (e.g., wind, solar) on to the grid. The implications for fossil fleet owners and operators include: Increased Automatic Generator Control (AGC) operations Increased load cycling and more starts Increased ancillary service demands (spinning reserve, frequency regulation, etc.) Greater flexibility and agility by plant operators Increased risks of damaging irreplaceable assets and increased O&M expenses 25% 20% 15% 10% 5% 0% 35,000 30,000 25,000 20,000 15,000 10,000 5,000 FRCC MRO NPCC RFC SERC SPP TRE (ERCOT) Forecast Reserve Margin - NERC Reference Case WECC 2015 Forecast Reserve Margin - NERC Analysis of Potential EPA Regulations NERC Reference Reserve Margin Growth of Intermittent Renewables in the U.S. ( ) 30,280 Total U.S. 10,168 7,714 5,785 4,710 1, (YTD) Grand Total Wind Solar Coal fleets will get older and smaller, reliability expectations will increase, and budgets will remain under pressure. Source: NERC; Notes: 2014 forecast reserve margins are summer total anticipated margins per NERC s 2010 LTRA reserve margins are deliverable capacity resource planning reserve margins (moderate regulation case) per NERC s 2010 Special Reliability Scenario Assessment 4

6 Actionable Benchmarking: Critical Data, Key Decisions Meeting cost and reliability objectives now requires the specific, actionable information such as that developed through focused benchmarking. Typical outcomes of a ScottMadden Study include: Identifying areas of positive performance to be encouraged and reinforced Pinpointing areas of comparatively sub-par performance to set the stage for root cause analysis Discovering top performing plants at other utilities which could be studied for leading practices Prioritizing improvement initiatives to focus efforts on achieving results ScottMadden s Unique Methodology Specific and actionable analysis We use great care and diligence in developing and validating transparent peer groups Apples-to-apples comparisons are challenging in the heterogeneous world of fossil generation, and data from multiple sources must be carefully scrutinized before drawing meaningful conclusions or setting goals Transparent peer groups provide the ability to effectively match comparable plants and units in both cost and reliability, preventing the possibility of creating unrealistic or arbitrary targets (i.e., lowest cost and best in reliability) Prioritized results for optimum impact We partner with clients to focus improvement efforts. Our insights include: Actionable reliability analysis which isolates disproportionate failures by system and specific component type, highlighting the most promising areas for root cause analysis and improvement initiatives Decomposition of all MWh losses by outage type which provides indicative information about whether failures resulted from material condition/operator error, maintenance processes, or planned outage best practices Understanding of change management Benchmarking is inherently intertwined with change management, and ScottMadden knows what it takes to achieve consensus and buy-in from the stakeholders who will ultimately deliver improvements We have conducted benchmarking studies for nearly 100 plants in all U.S. markets Our clients trust our analysis to draw meaningful conclusions and make important decisions about their assets. 5

7 Specific and Actionable Analysis Client Asset Unit 1 Sub-critical coal steam turbine Vintage: 1962/Capacity: 110 MW Tangential boiler fuel firing system Transparent and defensible comparison Peers comprised of like-in-kind units Peer Group 28 Units, 11 Utilities Sub-critical coal steam turbines Vintage: /Capacity: MW Tangential fuel firing Failure Cause Analysis Observations High-Potential Focus Areas for Additional Investigation Compared to the peers, Unit 1 experienced a higher percentage of fuels system lost MWh problems for the five-year period (and three times higher for 2009) Lost MWh events included pulverizer overhauls, pulverizer gear shaft failures, green coal silo cleaning, coal flow problems, mill exhauster fan failures, coal belt failures, and a large number of feeder/feeder driver issues Steam system lost MWh were four times higher than the peer group for 2009, but it appears that the major contributing lost MWh event was misclassified as a steam system failure when in reality it was tube leak inside the boiler If this event were properly classified as boiler system event, this would result in the boiler system failures for Unit 1 being on par with the peer group for 2009 Boiler inspections and overhauls made up approximately 43% of the five-year lost MWh total, with scheduled boiler overhauls, reliability outages, and immediate outages (U1 or unit trip) the major contributors There were more than 64 FD/ID fan events in the five-year period that contributed to approximately 11% of the total lost MWh, including variable speed drive problems, fan vibration and balancing issues, and fan ductwork issues In addition to the 31% of lost MWhs in 2009 attributable to pulverizer systems (more than one third of which were related to plugged feeders), 7% of all lost MWh in 2009 were due to fuel-quality problems Fuel-handling issues were the major contributor to fuel-quality problems, representing 5% of all lost MWh, with contributing lost MWh events including green coal silo cleaning, coal flow problems, and low BTU coal Compared to like-in-kind plants, Unit 1 had disproportionately higher lost MWhs in these categories. 6

8 Prioritized Results Failure Cause by System Illustrative failure cause analysis lost MWh by system NERC GADS data from was used for this analysis. All lost MWhs for Unit 1 are compared to aggregate data from like-in-kind peer plants Peer Group 1 Unit Unavailability by System 9.5% 5.1% 11.1% 15.2% 2.7% Unit 1 Unit Unavailability by System 9.5% 11.1% 5.2% 2.3% 5.2% 2.3% 2.0% 3.5% 2.0% 10.4% 13.4% 9.9% 50.2% Fuel Steam Boiler Auxiliary (BOP) Turbine Generator Miscellaneous 10.4% 59.6% Copyright 2010 by ScottMadden. All rights reserved. Copyright 2010 by ScottMadden. All rights reserved. Based on the peer comparison, 59.6% efforts to improve Unit 1 reliability should begin with fuel-system issues Copyright 2010 by ScottMadden. All rights reserved. Source: NERC GADS 7

9 Prioritized Results Failure Cause by Component Illustrative failure cause analysis lost MWh by component NERC GADS data from was used for this analysis. All lost MWhs due to forced outages and de-rates for Unit 1 are compared to aggregate data from like-in-kind peer plants Peer Group 1 Forced & De-Rate MWh by Component Unit 1 Forced & De-Rate MWh by Component 1% 2% 1% 1% 1% 2% 2% 2% Boiler Water Tube Leaks, 10% 3% 3% 2% 2%1% 1% 0%0% FD/ID Problems, 17% 3% 2% Environmental Problems, 10% 3% 3% 3% 3% Other Turbine Problems, 7% 5% 6% Pulverizer System Problems, 16% 4% FD/ID Problems, 7% 4% opyright 2010 by ScottMadden. All rights reserved. 4% 5% 5% 6% Reheater Leaks, 6% Pulverizer System Problems, 7% 7% Copyright 2010 by ScottMadden. All rights reserved. 9% Generator Problems, 10% BFP & Drive Problems, 10% Based on the peer comparison, efforts to improve Unit 1 reliability should begin with FD/ID problems, pulverizer system issues, and BFP & drive problems Source: NERC GADS 8

10 Benchmarking s Role in Change Management Launch Performance Improvement Initiative Conduct Benchmark Analysis Review Results and Key Findings Conduct Challenge Session Develop Action Plan Objectives Continuous Improvement Benchmarking is a key component for successful change management Identifies specific areas for improvement and provides basis for setting performance goals Where do we need to improve? Provides clear link between specific actions and performance objectives What do we need to do differently? Encourages collaborative planning, execution, and communication (buy-in) Organizational participation and ownership is fundamental to success Defines common vision (i.e., top quartile, best-in-class, etc.) Is repeated as an integral part of planning and improvement processes Not a one-time event Benchmarking is a critical component in driving positive changes in behavior. 9

11 Recent Examples of ScottMadden s Work ScottMadden performs comprehensive analyses of cost and reliability for fossil fleets in North America Utility in the Midwest/Cost and Efficiency ScottMadden helped a large investor-owned utility in the Midwest identify plants which were higher cost and lower reliability compared to similar peer plants Significant new and incremental variable renewable generation in the region was forcing base load coal plants to be cycled in new and unprecedented ways causing unplanned and unexpected outages Subsequent collaboration between the plant operators and the trading and marketing group resulted in a more holistic and constructive process for dispatching units as a portfolio Plants more suited to cycling were identified and targeted for accommodating curtailment required by the market, and those which were more prone to failures were allowed to run unabated Investor Owned Utility in the Southwest/Reliability ScottMadden conducted a study to help a large fossil fleet operator in the Southwest identify specific components which were failing at disproportionally higher rates than peers resulting in disproportionately higher lost MWhs Because transparent peer groups were developed collaboratively, plant managers had faith in the results This set the stage for the plant managers to conduct root cause analyses, develop improvement initiatives, and set reasonable goals for future improvement A task force comprised of cross-functional subject matter experts has also been chartered to address a handful of high-priority issues which were identified as themes across multiple plants Benchmarking has been embraced and institutionalized, and a procedure was developed to update ScottMadden s analysis once a year in the process of business planning and budgeting 10

12 Contact Us For more information on improving fossil fleet performance through actionable benchmarking, please contact us. Stuart Pearman Partner and Energy Practice Leader ScottMadden, Inc Glenwood Avenue Suite 480 Raleigh, NC Phone: