Risk Based Scoping secured by Asset Management Control for Aging Coal Fired Power Plants

1. RiskBasedScopingsecuredby Asset Management ControlforAgingCoalFired Power Plants Thesis Master of Science in Asset Management Control Edgar Wienen BSc. E.ON Benelux, Rotterdam, theNetherlands March 9th 2012

2. Problem initiation Generating electrical energy using aging conventional production facilities with low efficiency do not compensate the marginal costs in comparison with newer more efficient generation. EBX CEO (Van Dijk, dec. 2010) affirms the conclusion of ECN and stated that this will result in lower profitability of the production facilities of EBX. Deployment of these production facilities in the near future will become too expensive and the margins will become smaller. (ECN, 2009)

3. Problem initiation The most significant cause is a deteriorating market situation due to: • Increase of CO2 tax to reduce CO2 gas emission by means of fiscal measures; • Preference of renewable energy in stead of conventional energy; • Increase of renewable energy; • Competition.

4. Problem initiation The consequences for E.ON is a cost reduction announcement of 1,5 billion euro which will be realized by reducing personnel with 9.000 – 11.000 from 80.000 employees and a major cost reduction. Therefore the driver and essence behind this research subject is to be able to determine where to spend money and man-hours by means of continuously identifying "need to haves" and "nice to haves” By means of a risk based approach and combined with AMC The consequences for EBX are not clear in detail for this moment but it is a fact that we in the very near future have to manage our assets with less budget in a lean organization. This conclusion implies also a change in the scope of work

5. Theoretical and Practical Foundation Justification of the research subject in order to decide if the intended research will proceed or change Variable assessment on contribution margin Consequences for aging coal fired power plants of EBX Conclusion: Margin will decrease from 2013 but will stay positive

6. Theoretical and Practical Foundation Justification of the research subject in order to decide if the intended research will proceed or change Maintenance work order growth analyses Conclusion: Increase of preventive maintenance does not show a decrease of the amount of corrective maintenance. Improvement potential by reducing the corrective maintenance (aging)

7. Theoretical and Practical Foundation Justification of the research subject in order to decide if the intended research will proceed or change Risk assessment preventive maintenance strategy (quick scan) Conclusion: A costs saving potential is present by means of canceling or postpone the “nice to have” activities and only keep the “need to have” activities in the scope.

8. Theoretical and Practical Foundation "How to get better grip on Risk Based Scoping of the Aging Coal Fired Power Plants of E.ON Benelux?”

9. Theoretical and Practical Foundation Findings from the business environment • Development of preventive maintenance strategies and project initiations is experienced and do not correlate with the actual performance; • Improvement loops are not embedded; • A substantial costs saving potential by means of cancel or postpone “nice to have” activities and focus on the “need to have” activities is demonstrated to be present; • There is a robust risk evaluation software application available.

10. Theoretical and Practical Foundation Analyses of the literature study • The literature of Cost Effective Management Control of Capital Assets is classified as the most comprehensive approach to use as backbone for RBS, mostly for identification of PKCD’s, transparency and communication; • The literature of ILS and Leidraad RAMS guideline translate failure modes into risks by means of a risk matrix followed by and RCM method; • The risk management literature provide deeper understanding of frameworks in relation to risk management;

11. Theoretical and Practical Foundation Opportunity to improve The risk management knowledge will contribute to increase the AMC related knowledge; The AMC related knowledge will contribute to increase the risk management related knowledge; Implementing the results within the EBX environment will contribute to increase the profitability. • To determine where to spend money and man-hours by means of a structured, transparent and integrated risk based approach which continuously identifies "need to haves" and "nice to haves" and to make these quantifiable to get a better control regarding the decision making of which activities are essential and how to communicate this to stakeholders according to the AMC approach. By combining the theory of risk management, the risk management strategy within EBX and the AMC related literature.

12. Problem Definition Define realistic and relevant RBS objectives which should solve the problem Based on generally accepted, verifiable, and justifiable professional knowledge To tackle the problem and for implementation and integration purposes the 6 get’s approach is adopted. • Better identification of risks and threats; • A rigorous base of decision making; • Continues improvement; • More effective actor allocation; • Better transparency trough clear structure and better documentation; • Better communication;

13. Risk Based Scoping guideline design Risk Based Scoping guideline design Performance Killers Cost Drivers

14. Case Study (implementation) Case Study • Structuring: • Functional decomposition • Logistic process structure • RBS team • Information and communication system

15. Case Study (implementation) Case Study • System analyses • RBS knowledge • Program System definition / characteristics Cost analyses Installation definition / characteristics Reliability, Availability, Capability High level training road map Logistic products, service and actors relations

16. Case Study (implementation) Case Study • Selection of PKCD’s for further analyses • Multiple periods below baseline • Influence on the cost effectiveness • Deviation on performance and costs Risk engineer: From system analyses indicated as PK in the years 2009, 2010, 2011. PT Risk entry MPP00058 for risk assessment and assumptions. Further analyses show prev. vscorrmaint do not correlate. Direction of solution RCM study. ME mechanical check en confirm. • Identification PKCD’s • Determine which need risk assessment • Information and communication system

17. Case Study (implementation) Case Study • Determine risk level • Determine if risks are tolerable • Information and communication system

18. Case study Case Study • How to communicate the message • How to embed RBS in the organization The goal of presenting the guideline was to examine the support of the management and to evaluate the guideline to obtain feedback. Regarding the RBS guideline 2 presentations were given to explain the principles of RBS in relation with AMC to E.ON executives and staff executives. These presentations resulted in positive reactions

19. Empirical research results Evaluation Further implementation within EBX will lead to better control regarding the decision making process on which activities are essential and how to communicate these to the stake holders. This will contribute to a lean and mean maintenance strategy and to a stronger competitive position of EBX. From the case study it appeared that a considerable amount of information is available within the EBX environment but divided in the organization. This proves that applying RBS based on AMC can be implemented within the EBX organization with low effort From evaluation of the research objectives, the main opportunity and the outcome of the case study it is concluded that the guideline meets all objectives

20. Empirical research results Recommendations Further work needs to be performed in order to determine reliable baseline values in the matter of reliability, availability, capability and cost figures on installation and actor level • Procedures which meet the quality standards are to be set up. Also the training program must be developed further, based on the theory as described in this thesis • The RBS meetings, as suggested, must be organized or integrated in the existing communication structure of EBX • In this case study a standalone version of AMICO is used and if decided to further implement the guideline an on line intranet version, as suggested, is advisable • Implement this guideline further within the EBX environment and in a later stadium further in the E.ON steam fleet

21. Public Defense