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Analysis | January 2011

R&M of power plants

To improve the capacity of old plants, renovation and modernisation (R&M) is the most effective option, says PK Chaubey.

Government of India has drawn up a very ambitious target of adding 100,000 MW during the 12th Plan which means adding two–third of the existing capacity in just five years. In fact the nation is facing the uphill task of meeting the following national objectives:

1. Availability of power for all by 2012
2. Per capita consumption to be enhanced from 600 kWh to over 1,000 kWh by 2012
3. Target of adding 78,500 MW of power generation capacity by early 2012 in the 11th Plan. The growing shortage of electricity and the commitment of the government to provide power to all by 2012 has made engineers brain-storm to find ways and means to bridge the generation gaps. While exploring various options to augment the capacity performance improvement of underperforming utilities, renovation and modernisation (R&M) of existing old power stations have been recognised as an effective option to achieve additional generation from existing units at low cost and short gestation period as many thermal plants are not operating at their full potential and some has outlived their original design life.

Renovating existing power plants

The government plans to have on-going renovation and maintenance (R&M) schemes for 135 thermal plants and 35 hydel plants to generate about 90 bn units additionally which is approximately 15 per cent of current levels of generation.

In India, the thumb-rule for adding one MW of fresh generating capacity entails a capital expenditure of around $1 million. However, an equivalent capacity can be achieved by investing almost one third of that amount on renovation and modernisation (R&M) and Life Extension (LE) modification. So it is imperative to enhance utilisation of existing installed capacity through R&M of existing thermal power plants. The cost of R&M programmes are far less in comparison to new plant constructions and can be completed in a much shorter time compared to the gestation period of a new thermal power projects. R&M is an efficiency improvement tool and can improve power generation by 30 per cent, environmental impact by 47 per cent and efficiency by 23 per cent. The R&M schemes are known to cost only Rs 1 crore/MW as against
Rs 4 crore/MW in the case of a new project. Old power plants show poor availability records due to limited or no information management systems. With the lack of information on the plant performance and equipment status, management decision making on the operational philosophies, optimisation of maintenance and overhaul intervals, predictive and corrective measures, etc, become difficult. State-of-the-art control, monitoring and information management systems are necessary today to address the above issues which may be possible through effective R&M exercises.

Advantages

Upgradation of an existing plant has certain advantages mainly because the physical infrastructure is already in place. This means that there is no need to apply for sanctions, environment clearance and so on. There is a need to identify the status of the various components of the existing control and automation system and planning the renovation and modernisation/life extension schemes in a phased manner in tune major equipment overhaul schedules. The advantages of R&M assignments can best be summarised as follows:

Sound Economics

It is estimated that the scope for R&M extends over an existing capacity of 30,000 MW at present in India, against which projects taken up amount to a measly 4,000 MW. One of the reasons for the half-hearted response to R&M projects is that the plants will have to be shut for over a year—not many utilities are in a position to shut the units in the current scenario of power shortages and absorb the loss of revenue on that count. However today, India is in a position to make a legitimate pitch for compensation from the developed world for undertaking R&M projects.

If 4,000 MW of capacity already taken up for R&M is counted as operating at normal heat rate, then the remaining 26,000 MW consume 20 mn tonnes of coal more than they ought to. At today’s prices, that is worth Rs 5,000 crore a year. The R&M cost of bringing these units back to their nameplate heat rates works out to about Rs 40,000 crore. Once R&M for these plants are done, 10 per cent additional capacity—2,000 MW—may be expected because R&M usually results in re-rating nameplate capacity. Calculations show that if one factors in the net present value (NPV) of savings in coal cost over 25 years (as renovated and modernised plants will consume less coal for the same output of electricity), the cost of R&M works out to about Rs 12,000 crore. Additionally, when one takes into account the NPV of the contribution embedded in the revenue coming from the additional capacity of 2,000 MW, the cost of R&M works out to minus Rs 10,000 crore. In other words, R&M results in a net gain of Rs 10,000 crore. The 26,000 MW of R&M-able power plants today spew an additional 24 mn t of carbon dioxide (CO2) into the atmosphere due to higher operating heat rate. R&M will save 13 million tonnes of emissions (net of what the additional 2,000 MW will emit). To put the 13 mn t saving in perspective, that is how much 2,800 MW of super critical thermal power plants will emit in a year.

Huge market

So rapid growth in the R&M market is imperative and the segment is expected to grow at a rate of up to 15 per cent pa. Central Electricity Authority has made a perspective plan to invest about Rs 20,000 crore on the R&M exercise in the 11th and 12th Plan. Total fund requirement during the 11th and 12th Plan from indigenous financial institutions will be around Rs 9,000 crore.

A large existing capacity, ie, 129 units of total capacity 26,283 MW and 95 units of total capacity 21,212 MW has been identified for R&M/LE works during the 11th and 12th Plan period. The old and small size units of early post-Independence period were based on technology as available at that time having a very low efficiency. These units are therefore near obsolescence. The LMZ Russian design larger size units (200/210 MW) and initial KWU design machines are now at the fag end of their economic lifespan. Further, though there has been gradual improvement in the plant load factor over the years, there exists a lot of scope for further improvement. These groups of 200/210 MW machines (LMZ design and early KWU design machines) constitute a major chunk of R&M/LE programme in the 11th Plan and beyond.

This provides a valid opportunity for consultants engaged in residual life assessment (RLA) study and other private sector players to participate in the programme.

Government Policies

Several policies such as National Electricity Policy, Integrated Energy Policym, etc, provide a broad frame work for future R&M.

National Electricity Policy on R&M:

Provisions in its policy documents read as under:

Para 5.2.21—One of the major achievements of the power sector has been a significant increase in availability and plant load factor of thermal power stations especially over the last few years. R&M for achieving higher efficiency needs to be pursued vigorously and all existing generation capacity should be brought to minimum acceptable standards. The government is providing financial support for this purpose.

Para 5.2.22—For projects performing below acceptable standards, R&M should be undertaken as per well-defined plans featuring necessary cost-benefit analysis. If economic operation does not appear feasible through R&M, then there may be no alternative to closure of such plants as the last resort.

Para 5.2.23—For plants with poor O and M record and persisting operational problems, alternative strategies including change of management may need to be considered to improve the efficiency of these power plants to acceptable levels.

Integrated energy policy:

Provisions in the above policy documents under the heading 'Increasing efficiency of coal-based power plants' read as:
“Rehabilitation of existing thermal stations could raise capacity at least cost in the short run. Similarly rehabilitation of hydro stations could yield much needed peak capacity at negligible cost. Both the steps should be taken up urgently.”

Government Initiatives

The Central Electricity Authority (CEA) had prepared a national perspective plan for R&M till 2016-17. The CEA identified 53 thermal units (7,318 MW) for life extension works and 76 thermal units (18,965 MW) for renovation during 11th Plan and 72 thermal units (16,532 MW) for life extension (LE) and 23 thermal units (4,971 M) for renovation during the 12th Plan. The government estimated a cost of Rs 12,433 crore for life extension works of 23 thermal plants and Rs 4,487 crore for R&M of 21 plants under the 11th Plan apart from Rs 28,868 crore for 32 thermal plants’ LE and another Rs 4,971 crore for R&M of eight thermal plants under the 12th Plan.

Strategies

There is need to have a comprehensive strategy aligned to the requirement of efforts and availability of resources to effectively implement the R&M programme which should have the following major components:

• Planned and time-bound project

R&M projects shall have clearly defined time lines constrained by hard deadlines, in which the delivery timing should be as important as the delivery itself. A better approach defines requirement priorities before the project’s start. But failing to prioritise requirements may result in projects missing their deadlines.

Traditional planning methods’ inability to deal with uncertain estimates and their failure to recognise that development work does not progress linearly may not work in this case.

• Detailed cost-benefit analysis done beforehand to decide whether to:
— Scrap and replace
— Continue until possible
— Renovate and modernise
• Identify and evaluate alternate cost-benefit option for each plant
• Focus on cost-effective technology upgrades
• Upfront identification of:
— Targets and objective plans.
— Key R&M milestones: Milestones shall be clearly enumerated
o Key performance indicators: KPI shall be well-defined

Challenges and mitigation

The significant challenges that lie ahead are:

• Establishing techno-economic viability: Techno economic viability of R&M will be established upfront with a thorough cost-benefit analysis. Reputed consultants may be engaged to validate the feasibility report.
• There are challenges in design, procurement, execution and final acceptance due to tremendous inherent complexities: R&M Design shall be based on thorough design studies to minimise surprises, past experiences shall be adequately incorporated in the design and environmental compliance requirements shall be included in technical specifications. No doubt, there is complexity in complying environmental concerns.
• Development of a strategy to handle surprises: There is a need to anticipate surprises and plan for possible component/work requirements, the decision-making process should be clear upfront and the regulator shall be kept in the loop for in-principle approval for possible cost escalation. The regulatory mechanism needs to be conducive for R&M, sequential supplies of equipment, timely execution, availability of additional items due to surprises are important aspects in execution.
• Efficacy of RLA studies and selection of optimal design options for repair, restoration and replacement: There is a need to develop deeper market for design consultancy services that may play a critical role in these areas. They will also help in addressing Balance of Plant issues and proper assessment of the ailing plant.
• Procurement procedure: Getting greater supplier participation is important as their feedback and capability is vital for effective execution. For this, contract design and packaging is where qualification requirements should allow broader participation and performance guarantees should not be excessive,
two-stage procurement process to allow feedback on techno-commercial aspects of bid process, guarantees, penalties, cost-overruns and delays to watch interest of all concerned, etc. There should be an inclusive effort for standardisation
of technical solutions, specifications should focus on functional requirements, standardisation of bidding documents (on the lines of standard bidding documents of Case I and Case II) and bundling of units.
• Private sector participation: Participation of private sector in R&M is the key to success as public sector may have limitations. Following alternative options appear practical and feasible for private investment in R&M schemes. However, states/power utilities may have other innovative options which could be considered.

Option 1:- Lease, rehabilitate, operate, transfer
Under this option, the private player would take over the power station on a long-term lease. Thereafter the party will invest and carry out the R&M of the power station and will take over its operation and maintenance. Normally, the station will revert to the power utility after completion of the contracted period of lease or may be renewed on terms to be specified. However, legal title and ownership of the plant will remain with the utility throughout. This option will require a detailed lease agreement covering all aspects of financing, performance parameters, use of existing resources, sale of generated power, etc.

Option 2:- Sale of plant
Power utilities could offer power stations for outright sale to private parties. The present worth of the plant will have to be assessed, which could be the reserve price for the sale.

Option 3:- JV between utilities and companies
A new company will be formed as a joint venture of the state power utility/state government and selected private/public collaborator. The JV company will undertake the R&M/ LE works and own, operate and maintain the power station. The private collaborator could also be an equipment supplier. Each partner shall hold minimum 26 per cent equity in the JV. This vehicle was used to form a JV between the state of Bihar and NTPC namely Kanti Bijlee Utpadan Nigam (KBUNL) for Muzaffarpur thermal power station.

• Showcasing large R&M requirement in India may solicit interest from developers and consultants of repute from Asia and Eastern Europe.

Road Map for Paradigm Change

There is an inherent need of a paradigm shift in the way R&M assignments have been executed in the past which has been tabulated as follows:

 Past focus  Present focus
  Generation
maximisation
 Plant performance optimisation
 In-kind replacement    Cost-effective technology upgrades
 Restoration of lost capacity  Uprating of capacity
 Attain design
efficiency

 Improve upon design efficiency
-Use of higher cycle parameters to take advantage of recent metallurgical advancements
-State of the art turbine steam path design

 Reactive R&M  Pro-active R&M
 Time-based R&M  Condition monitoring and R&M optimisation through cost-benefit evaluation

Thus plenty of opportunities exist in R&M market in India. But they are not without challenges and constraints. These challenges and constraints can be surmounted in the following ways:

• Bilateral and multilateral support/co-operation from international bodies would help in incentivising R&M activity
• Areas of co-operation could include:
— Process-mapping from concept to implementation of R&M schemes
— Development of model specification for RLA and R&M works.

The author is Client Sales Director at Accenture India and can be contacted at pkchaubey_iitk@yahoo.com.
Views are personal.

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