Rising fuel prices vs operational efficiency – how important is operational efficiency now?

Covid-19 pandemic caused challenges in many businesses during 2020-21 to customary and trusted supply chains either due to longer delivery times or even availability of materials and components. In global energy business, rising fuel prices and availability of fuels, especially natural gas, have forced the operators to change their approach to secure continuity of the business.

 

Kari Muhli comments: “According to our study, issues like security of supply, ensuring and in some cases rebuilding supply chains, increasing the level of fuel and critical spare part inventories, and maintaining high efficiency in production have moved to the top of the to-do list. Instead of minimizing amount of working capital (for example fuel and spare part inventories) and relying on outsourced services on a short service time, the operators seem to have gone back to the basics).”


As prices of some fuels like fuel oil and natural gas have tripled or quadrupled in few months, importance of keeping operational efficiency at the highest possible level has increased hugely. It is evident that consequences of an unexpected outage of your primary production unit (boiler) would most likely lead to larger and possibly longer lasting problems and cost far more than previously.

 

Case Study – Primary boiler outage (50 MW heat, wood chips)

 

Object

Heat and power producers with 50 MW production units

 

Challenges and project goal

In heat and power industry, unexpected stoppages are a real threat that today’s fuel prices highlight. It can be difficult to evaluate, what kind of financial impact a single breakdown of a key component can have to businesses operations. To showcase this impact, we partnered with Kari Muhli with a goal to create a simplified example on how changes in fuel and other prices could have affected the costs from a 3-day (72 hours) outage of the primary boiler (woods chips, 50 MW heat) because of a machinery breakdown, when heat needs to be produced by light fuel oil during the outage.

 

Result

June 2021          Dec. 2021          June 2022

Fuel price difference (in Finland incl. fuel tax)                     70 €/MWh          85 €/MWh           115 €/MWh

Additional fuel costs                                                             252 000 €          306 000 €            414 000 €

Price of CO2 emission right                                                  55 €/tn               85 €/tn                 80 €/tn

Costs for emission rights                                                      27 500 €            42 500 €              41 000 €

Other costs                                                                           45 000 €            50 000 €              55 000 €

Total cost of the breakdown                                                 324 500 €          398 500 €            510 000 €

In some cases, insurance for machinery breakdown might cover part of the expenses (like above-mentioned other costs), but it is very likely that majority of the total costs cannot be reclaimed.

As we know, it is practically impossible to prevent all accidents from happening, but it is also fair to ask, could efficient proactive maintenance work, condition monitoring of production machinery enabling swift responses to early problem signals be Your (financially) most productive game plan?

 

CEO from heat industry stated us that: “Due to the recent substantial price increases and longer deliveries for spare parts, pay-back times for investments into operational reliability and condition monitoring have shortened essentially”.

Antti Leskinen CEO APL Systems says, “We have been involved for a decade in supporting our partners in business continuity and typically it has been the like Kari says that minimizing spare part inventories has been one of the priorities, but the “game” has been altered and it is now of essence to gain more foresight of the assets as well as optimizing production processes with predictive data.”

“For example, we work together with combined heat and power production where one of the key elements is safe and sound fuel supply. Typically, there has been a challenge to have and acquire predictive data and visibility of fuel supply. For example, we are following vibrating conveyor functioning with predictive advance alarms on malfunctions. Malfunctions can typically be detected days or months before serious risks can occur for heat and power production. This means avoiding serious risks, especially in those facilities where there are no double fuel supply lines”.

Kari Muhli points out: “With my experience working on business continuity and recovery plans it has become evident that evaluation of losses and consequences even from a short-term total or partial production stoppage before something happens gives you a clearer and more transparent perspective to the risks involved. Converting risk scenarios to monetary values with even a simplified calculation method/tool (bearing in mind the likelihood of risk events) gives a solid indication of which risks need to be taken care of and in which order”.

 

Kari Muhli

 

Antti Leskinen