POWER January 2011 - 50

2011 INDUSTRY FORECAST
put in place (Figure 2). These changes came
with significant changes in market price signals
both in carbon ETS markets and in fuel
price volatility.
Coal generation in the U.S. and Canada
has seen nearly constant inflation-adjusted
costs over the past eight years. Data for the
2008-2009 time period show the highest
values in the trend period, which can be explained
partly due to increasingly complex
emissions control installations or upgrades.
As more smaller, older coal plants are retired,
the remaining coal-fired plants will be
required to increase electricity production. At
the same time, those same plants will continue
to be retrofitted with emissions control
equipment and be subjected to increased
regulatory control. As plant complexity increases,
we anticipate an increase in electricity
production cost. We expect these factors
will cause the range in plant availability and
cost performance to widen in the future.
Some plants will adapt quickly, while others
may take two, three, or four years or longer to
adjust to their new operating and regulatory
environment.
There were no surprises with European
CCGT cost trends; as utilization went up,
costs per MWh went down. Even though
CCGT plants in North America have seen a
wide range of utilization, many CCGT plants
are working under long-term service agreements,
so major maintenance costs are somewhat
steady, keeping overall O&M costs in a
similar, consistent range.
Many Lessons Learned
The data appear to say that the period of
baseload coal generation leading the world
in capacity factor and low cost of production
is coming to an end, and not only for European
coal plants. Combined-cycle operators
in North America soon expect to see utilization
factors like those experienced recently in
Europe, as a result of low natural gas prices
and rising costs of coal-fired generation.
In our experience, most plant owners and
operators believe they have the fuel-shifting
situation " under control, " but they either fail
to adapt quickly when their business is hit by
big changes (such as carbon controls), or they
let the smaller changes (the effect of closing
smaller coal plants) slip through without taking
notice.
Maintaining good data is cheap. Failing to
adapt quickly is really expensive. Keep your
eyes on a balanced set of performance numbers,
dig in, and learn from other markets and
assets.
Many lessons have already been learned.
It is important to realize that historical data
can be used to drive our business forward,
to make us better planners, and to make us
better prepared as change inevitably comes.
2. Coal costs increasing. This chart shows inflation-adjusted non-fuel O&M spending for
the same time periods, regions, and technologies shown in Figure 1. Note that European coalfired
generation cost increases correspond to decreasing capacity factors. Source: Solomon
Associates
28
26
24
22
20
18
16
14
12
10
8
6
4
2
28
26
24
22
20
18
16
14
12
10
8
6
4
2
U.S. and Canada
Time period
January 2011 | POWER
www.powermag.com
Europe
For instance, do you know the availability
impact expected when adding new environmental
equipment to your plant? How has
the move from baseload operation to perhaps
load-following or weekend cycling changed
your O&M practices? Have you set new
operating and performance targets for your
assets and plant teams based on this new operating
environment?
Research by Solomon has quantified statistical
relationships between changes in
maintenance spending and the corresponding
time lag in reliability degradation. Research
showed that equivalent forced outage rate
variations became increasingly volatile as
both " underspending " and " overspending "
differences became more severe. The difference
was that typically in overspending situations,
reliability problems already existed,
whereas in underspending situations, there
was a time lag before reliability problems
surfaced. This research indicated a lag of
approximately two to three years from initial
underspending before reliability would
change for the worse.
During the 2008-2009 economic slowdown,
some of our client companies were
quick to adapt, using this maintenance spending
lag information to constrain spending and
defer projects. They understood that reliability
would " hold " for two to three years; now,
spending recovery plans are under way. Remember
the " pay me now or pay me later "
adage: It is impossible to starve your assets
and expect pacesetter reliability performance
over the long run. Understanding this truism
is key for properly managing your core business
assets.
The same adage can be used in reverse.
Understanding maintenance spending deferrals
and their corresponding impact on reliability
performance can be useful toward
the end of asset life. Generating companies
are increasingly looking for data on winding
down major maintenance spending on coal
assets that are nearing the end of their service
life, while managing reliability performance
and expectations from those assets in their
waning years.
Change is just around the corner. If you
have not yet experienced significant change,
it is looking for you. Keep your eyes open,
because if you are not ready and do not adapt
quickly, your company's performance will
suffer-not just this year, but potentially for
a few years to come. ■
-Anthony J. Carrino (ajc@
solomononline.com@ solomononline.com)
is senior consultant and Richard B. Jones,
PhD (rick.jones@solomononline.com) is
director of statistics and risk modeling,
power generation for HSB Solomon
Associates LLC.
49
Non-fuel O&M costs ($/MWh)
CCGT
Coal

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POWER January 2011

Table of Contents for the Digital Edition of POWER January 2011