The Basics on Generator Step-Up Transformers

Generator Step-Up transformers step-up generated voltage and reduce generated current so power can be transmitted over distance with minimal loss. This is the basic principle of Ohm’s law. In other words, if the voltage of the secondary is greater than the primary as noted on the transformer’s nameplate, then the transformer is a GSU transformer.

Step-down transformers are transformers that perform the reverse so that transmitted power can be used by equipment that cannot stand higher voltages and require higher currents.

Size of Transformers

Both GSU and Step-down transformers are measured/ sized by either MVA (1 MVA is 1,000 KVA) or KVA ratings that are based on the simple formula: AMPS X VOLTS = KVA. This measurement reflects an hourly metric. For example, 176 MVA is 176,000 KVA per hour.

While there are exceptions, a good rule of thumb is to multiply the transformer’s highest MVA rating (the” size” of a transformer) by its Power Factor (efficiency rating) to determine the power generation of a power plant in MW.

Common GSU transformers can have material time delays in sourcing typically ranging from 10-400 MVA. Transformers over 400MVA tend to be rare and therefore fast-track alternatives are difficult to come by unless transformers can be connected in parallel or the generating entity can operate at a lower generation output.

Transformer MVA to MW Formula

GSU Transformer’s highest MVA Rating (“size”) X Power Factor (usually a figure between .80 to .98 with .85 a common rule of thumb) = MW of generation capacity by the power-generating entity.

For example, a 100 MVA transformer supports the generation of 85 MW of power per hour by a turbine/generator combination assuming a Power Factor of .85. By this math, the failure of a 100 MVA transformer means that 85 MW of power cannot be sold per hour.

From a real world perspective, 7 FA turbines / generating units are fairly common. The 7 FA produces 184 MW in simple cycle and might require transformers larger than 200 MVA and substations designed to match both this generation capacity and the needs of the transmission system (voltages).

The High Economic Cost of a GSU Transformer Failure

The wholesale price at which power can be sold ultimately depends on both supply and demand variables. In some cases, power is sold by a power generating entity at spot rates to the marketplace.

In other cases, power is sold by a prior agreement such as a Power Purchase Agreement (“PPA”) or by another form of future contract; both of which might require the power generating entity to supply power even if it cannot produce it (i.e. the power generating entity might have to go into the market and buy power at a high “spot” price and then sell this same power at a lower price to the counterparty of a PPA). This situation incurs a loss for the generating company.

The price of power is not universal. The price of power in Ontario will not be the same as the price of Power in California due to supply, demand and different local levies (including taxes and surcharges). Moreover, the price of power in each geographic location can also change quite considerably on a calendar basis due to supply and demand as illustrated by the following table.

Average Hourly Prices for each month since market opening on May 1, 2002. Averages are weighted by the amount of electricity used throughout the province within each hour.

While the above table is in Canadian dollars the important item to note is the variability of price between months and years. The difference in some cases is well over 100%. The selection of a “lost profit per kw/hour” number to use in any business interruption calculation is not as easy as one might first imagine. One needs to know what the average sales price per kw/hour is during the period of the failure and the average cost to produce the power per kw/hour during this same time frame. The difference between these amounts is a simple way of calculating the “lost profit per kw/hour” (lost business income per kw/ hour) due to the failure.

GSU failure history indicates that many transformer failures happen at high demand/price times when loads on GSU transformers are greatest. usually summer months. Thus, one might consider reviewing the potential impact of business interruption (lost profits and lost business income) due to a transformer’s failure assuming a range of “lost profit per kw/hour” estimates ($.01 per kw/ hour; $.0125 per kw/ hour; $.015 per kw/ hour etc.) as both the sales price and cost of production are independently variable.

There will likely always be strong debate on the appropriate numbers to use when calculating the cost of producing/sourcing power (only allowing certain variable costs vs. allowing both variable and fixed costs) in any failure situation. Consequently, a discussion relating to the cost of power production on a per kw/hour basis is well worth having both internally and with insurance and accounting advisors who have experience with business interruption losses before any failure happens.

It should be highlighted that even a small change in the “lost profit per kw/hour” number (in cents or fractions thereof) used in a failure situation can make a huge difference in the ultimate calculation in “lost profits” when expressed in total dollars (see below). Significant amounts of stress and litigation costs can be avoided by having all parties to a failure (including the insured, insurance company and accounting parties) sharing clear understandings in advance. These understandings should not only relate to the details pertaining to the calculation of the business income loss, addressing both the variable and any allowed fixed costs, but to the required reporting procedures and documentation necessary to file or substantiate a business income or business interruption claim. Such conclusions might even be outlined by agreed hypothetical loss examples.

Significant amounts of stress and litigation costs can be avoided by having all parties to a failure (including the insured, insurance company and accounting parties) sharing clear understandings in advance. These understandings should not only relate to the details pertaining to the calculation of the business income loss, addressing both the variable and any allowed fixed costs, but to the required reporting procedures and documentation necessary to file or substantiate a business income or business interruption claim. Such conclusions might even be outlined by agreed hypothetical loss examples.

Moreover, it should be also noted that the existence of any Power Purchase Agreements (PPA’s) between the power generating entity and users can often materially impact the number used in the calculation of “lost profit per kw/hour” as the power generating entity might have to enter the open market to buy power at a very high cost to meet its obligations. This could mean the full purchase price of power (at open per kw/hour market terms) less the stated selling price per kw/hour in the PPA would need to be added to the other costs of the outage by the power producer. In a PPA situation, there is a chance that the power producer is forced to sell power at a loss.

Consequently, care needs to be taken in understanding any possible insurance business interruption or business income coverage when there is exposure under PPAs or other agreements.  The situation could be that fuel is supplied to a power-generating operation under agreed terms that also could increase the cost of an outage for a power producer (i.e. “take or pay” gas agreements). Insurance coverage might not fully embrace losses associated with some or all obligations made under these types of agreements unless specifically addressed ahead of time.

Given the above, one can build a simple calculation table for the cost of various GSU transformer failures. In the table below, we are assuming a simple case of a Power Factor of .85 (per earlier discussion) and a simple “lost profit per kw/hour” number of $.01.

Again, the difference between the sales price of power and the cost of power production is unique to each failure. The $.01 used in this table has no basis other than to illustrate a situation where the power producer might have been selling power at $.05 and with a $.04 cost of power production. $.05 -.04= $.01 etc.

Power-generating businesses that are insured for business interruption or loss of business income (either by election or due to financing requirements investors can require this coverage as part of their financing terms) often have deductibles with potentially onerous consequences to the insured. In some cases, these deductibles are noted in dollar amounts. In other cases, they are stipulated in outage day periods with 30, 45, and 60-day deductible periods commonly stipulated.

Thus, per the above table, a power generating client with a 200 MVA transformer and a 30 day deductible might have to carry $1,224,000 in net losses before making any insurance recovery. Small differences in “lost profit per kw/hour” can mean high costs on a monthly basis.  MVA Example:

Our Value Proposition

If you are a power generation facility, a third party firm that works with a client in the power generation industry, or an insurance company that insures worldwide power generation risks, Fast-Track Power LLC offers the following value:

  • Reduce the Cost of Business Interruption

    We seek to help you (or your client) reduce the very high cost of business interruption by providing expedited “fast-track” access to the necessary high-voltage equipment and services at competitive terms.  We are your global fast-track resource for both equipment and services on a turn-key / seamless basis.

  • Provide Expert Knowledge for Better Decision Making

    By injecting competition and experience into the process of a fast-track situation, Fast-Track Power LLC positions you to receive significant cost savings, reduced risk, and enhanced decision making knowledge.

In a recent failure of a large GSU transformer, the presence of competition in the fast-track replacement process achieved a client over $200,000 in savings from the firm that had originally been contacted to source a replacement transformer.  Moreover, the client and its financial partners also gained the direct attention of the most experienced people (who used their expertise to lower the chance of a problem during the replacement process) and a better understanding of the universe of credible options.