We are often asked about the availability of specific replacement equipment from original equipment manufacturers (OEMs) and the secondary marketplace. No easy answer can be given without substantial research and effort unless appropriate (and available) transformers can be found in the marketplace.
New OEM Transformers
We have recently noted that OEM lead (new build) times are down from years past. Along these lines, we have recently seen 22 to 28 week OEM lead times for transformers in the 30 MVA to 180 MVA size range. More unique transformer specifications can still take 10-12 months or even more. Needless to say, these lead times assume all drawings and specifications are in the OEM’s hands and that the OEM has fully priced and specified the assignment.
From experience, we assume that it often takes an additional 3 4 weeks for the related pricing quotations from an OEM to be received. In addition, related analysis confirmed by a client must be completed before a firm order by a client is issued and the quoted OEM lead time period starts. Add to this the time necessary to move the new transformer to the job site and you have a business outage period and business interruption cost that is considerably larger than one might initially expect.
4 weeks drawing/ specifications production and review by OEM and client + 28 week OEM lead time to build + 2 weeks transportation/ commissioning = 34 weeks of anticipated outage.
Importantly, one should realize that a generator step-up (GSU) transformer build time is dynamic and is based on OEM backlogs. Options available today from OEMs and the secondary marketplace may not be readily available tomorrow. Those first to the table with cash are generally the only ones who can have confidence that they will have a replacement on hand.
Different OEMs charge prices based on demand and cost of materials. While pricing between OEMs can differ, consideration needs to be made as to the OEM’s reputation for the specific piece of equipment being ordered. Also, it is important to know where exactly the transformer is being built as transportation complications can add significant time to the sourcing (weather, road permitting, etc). Few OEMs have credible long-term track records supporting their building of transformers 50 MVA and larger. Given that transformers are usually installed in plants that have a long design life, the balance of equipment price and expectation of operational longevity is a very important consideration.
While our emphasis has traditionally been the transformer itself, we have recently encountered situations where older transformers are no longer operable due to bushings that have failed and cannot easily be replaced with market offerings. While a bushing OEM can provide bushings faster than a transformer OEM can provide a new transformer, the time to replace a bushing can still exceed 2 months.
As noted in an earlier newsletter, transformers are part of a system. It is important to realize that other parts of any power generating operation can not only fail as an isolated case but can also lead to a cascade of failures in other pieces of critical equipment that have long replacement lead times.
With regard to the pre-owned marketplace for transformers and related equipment (both used and new) immediately available for sale or rent, there are situations where transformers larger than 200 MVA were obtained, transported, installed and commissioned within 16 days to meet the emergency needs of a power-generating client.
The key factors that allowed this fast response were, in order of importance:
Client recognition and execution of related expedited decision making.
Availability of suitable transformers
Size of transformer
Location of the transformer and the client
Often times there is a need to make substantial modifications to transformers and related equipment to get power generating entities up and running on a fast-track basis. Examples of this adaptation work include:
conversion of a transformers bushings from oil/ oil to oil/ air
connection of 2 transformers in parallel and series
use of wire vs. buss
modification of transformers to fit into a blast wall or other plant configurations
This said, the task of finding pre-owned transformers and related equipment is not easy; the condition of the pre-owned equipment must be carefully considered. In some cases, firms selling or renting used transformers have been known to replace existing oil with “new oil” just before a sale to disguise the fact that the transformer has gassing issues and will freshly paint the transformer along with other cosmetics measures.
Moreover, it is important to consider that many of the pre-owned transformers that are advertised in the marketplace are no longer available due to their prior sale and the listing not being available. One product might even be jointly-owned by several firms. The unfortunate situation is that many providers of equipment have had hard times in recent years and are thus keenly focused on charging the most that they can when a rare fast-track situation is encountered.
In one of my prior newsletters, I noted my sentiment that minimizing the cost of a transformer and its installation was often given far too much weight when compared to the high costs of business interruption in emergency response (failure) and “fast-track” project situations. This is a critical point of consideration, and bears repeating.
Assume the emergency replacement of a 150 MVA transformer might cost $ 1,500,000 including equipment, transportation, and installation. A 10% cost reduction is ultimately obtained by comparative pricing and use of non-expedited shipping. This 10 % reduction lowers the cost by $ 150,000 to $ 1,350,000 at the cost of 2 weeks (the extra time required to obtain /evaluate / leverage competitive quotes etc).
From previously shown examples, we understand that each extra week of a 150 MVA transformer’s outage incurs $ 214,200 in business interruption costs for a total of $ 428,400 for the 2 week period. The “net savings” of seeking transformer cost minimization is actually a “net loss” of $ 278,400.
Renting and Leasing
We have also been asked about the cost of renting or buying a transformer. There is no easy answer.
Rental or lease costs and terms are most often a reflection of criteria that include: cost basis, supply, demand, duration of need, geographic location and, importantly, ongoing relationship between parties. Usually transformer rentals are set on a minimum number of months and in some cases the terms include options to buy.
A piece of equipment that is leased (or located in a remote place) usually cannot be quickly sold to another party (opportunity cost). Often, there are very high costs (including financing costs) associated with owning or storing a transformer that might be some day rented or sold. Likewise, it should be noted that some managers have a duty to look out for owner or stockholder interests. These managers might have mandates to maximize their short-term earnings accordingly.
We generally believe that clients generally will be best served by suppliers of equipment and services who have experience with similar situations. We believe that both service requestor and provider ought to have commonly aligned short term and long term interests.
People Make the Difference; The Name of a Company Does Not
While the need for the first attribute (experience) is obvious, knowing who is capable and who is truly experienced takes specialized knowledge. Most serviced providers in the industry are relatively small firms. The loss of a few key people can lead to poor workmanship, accidents, improper equipment and supply shipment shipped and other complications that can add significant delays to the successful completion of a fast-track project.
While many hold the reputation of a firm at the utmost importance, it is critical to know that those who earned this reputation are still working at the firm. You want these experienced people working on a hands-on basis with your project.
The simple truth is: everyone wants to take credit for a firm’s success few want to take credit for a firm’s failures.
The second attribute (aligned interest) is typically not a primary consideration of many service providers’ focus when it comes to fast-track work. We believe aligned interests should be a primary consideration when evaluating a supplier, especially in situations where there is material business interruption cost or business income loss.
Specifically, the nature of properly aligned interests should go well beyond just winning the immediate assignment. A determined focus on building a reputation for quality work, fair treatment and unique delivery capabilities should be clearly evident as it will allow the supplier to build a much larger business in the future by attracting other clients. This longer-term focus will help ensure quality work and treatment on your specific assignment.
Knowing the High Cost of an Outage
While one can argue the specific numbers, one related critical point to highlight is that people or teams making GSU transformer replacement decisions need to be informed of the true business interruption costs being incurred by the outage. The end user should be empowered to address these business interruption costs. Moreover, these people should be recognized for their ability to minimize not just the cost of equipment and services but fort their ability to minimize both the total cost of the immediate outage and likelihood of future losses.
With regard to future losses, we again highlight the need to carefully consider warranty coverage and ongoing operational lifetime maintenance expectations for the equipment being purchased. A dollar saved today might be at the cost of a higher incidence of failure in the future.
Lastly, simply finding an appropriate replacement transformer does not mean that the problem is solved. The replacement transformer needs to be transported to the job site, installed and commissioned. Many replacement transformers are damaged in transport (hit overpasses, fall off trucks, dropped etc) or fail due to initial mortality reasons. Transformers can get held up for transportation logistics (customs, permitting).
For this reason, we at Fast-Track Power endorse the use of firms’ that can offer seamless or turn-key services.
The Less Obvious Costs of a GSU Transformer Failure
Transformer failures offer less obvious economic cost issues to a power generation entity. Heightened regulatory oversight, public accountability defenses, lawsuits and higher insurance premiums coupled with reduced insurance coverage are several examples. Management costs also need to be considered, as manager and staff must allocate time and effort to address the failure versus work on other projects.
We hope that you will consider asking us for our thoughts on your high-voltage transformer and related equipment needs. Whether it is the emergency replacement of a failed transformer or a new build situation that needs to be completed quickly and correctly, there is no cost to you for our proposed solution. We hope our contact details will find their way into your emergency response planning options on both the corporate and line operations levels.
Background on Fast-Track Power
Fast-Track Power is a private company with a specialty focus on providing service through our global
network. We are adept in repairing and installing large high-voltage transformers and related equipment on a global scale while ensuring a high level of service. We also offer loss mitigation advice to both power generation clients and the global insurance industry to ensure generation operations.
We seek to help you reduce your business interruption losses by knowing how to access the necessary equipment at competitive terms, and on a Fast-Track basis. We know experienced service providers who are the perfect fit for the job at hand, and we have a myriad of financial options available for consideration.
As experts in the field of high-voltage service, we can help you source new or used equipment on a Fast-Track basis while keeping cost considerations in mind. We address transportation, installation, and commissioning issues seamlessly, while helping all parties understand the issues and options available. Fast-Track Power will help you navigate the waters of high voltage utility services, and will ensure that you avoid the usual industry scams.
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.