MRO Magazine

News

Power plants to overhaul operations and outsource services in search of profits, says study

San Jose, Calif. -- Fluctuating fuel prices, falling capital costs, emergence of a "dispatch based" power market an...


San Jose, Calif. — Fluctuating fuel prices, falling capital costs, emergence of a “dispatch based” power market and changing operating paradigm have necessitated the outsourcing of a vast array of post-commissioning service activities by power plant owners.

New analysis from Frost & Sullivan, reported in the North American Power Plant Services Market study, reveals that this market totaled revenues worth $5.05 billion in 2002 and is poised to expand to $7.36 billion by 2009. It covers maintenance, repair and overhaul (MRO) and turnkey operation and maintenance (O&M) of plant and equipment, including boilers, steam turbines, gas turbines, generators and other auxiliaries.

Stringent new environmental regulations stipulating regular service and maintenance checks of power plants are adding impetus to the growth.

Excess installed capacity combined with economic recession has led to drying up of new build opportunities so that the OEMs are increasingly turning to the services market to sustain revenues. By using aggressive strategies, these companies are trying to build up large order backlogs.

On the other hand, the entry of many more demand-side affiliates, including utility-connected and non-regulated service companies in the power plant services market, is also escalating competition levels. Given their unmatched operational experience and high credentials, utility companies are on the same level as OEMs or other independent operators.

Standalone small participants are compelled to form alliances with larger manufacturers and suppliers of spare parts to offer complementary services and remain cost competitive.

“To survive competition from OEMs and larger competitors, many independent, specialized service businesses may let themselves be acquired by global majors out shopping for international presence,” says Frost & Sullivan Industry Analyst Ravi K.

“Skepticism about the serviceability of combustion turbines by non-OEMs had forced plant owners to go with the less risky, but expensive option of long-term service agreements (LTSA) with OEMs,” adds Ravi. “Non-OEMs in the process of developing compatible replacement parts with advanced metallurgy and distinct repair procedures may offer a long-term alternative to rigid LTSAs.

“To tackle reservations about adopting full operations, maintenance contracts and LTSAs, service providers must offer flexible and more transparent contracting procedures,” says Ravi. “As customers are increasingly showing preference for a ‘one-stop-shop’ service contractor, participants need to broaden the scope of their services.”

Frost & Sullivan specializes in strategic growth consulting. Information on how to obtain this study can be found at www.power.frost.com.