Developing next generation or first-commercial fuels, chemicals or power plants is a multifaceted endeavor with many moving parts. Although operations and maintenance (O&M) is but one issue of many, companies that embrace the criticality of early O&M planning, in conjunction with a capabilities assessment, will shorten the development cycle, achieve financing quicker and improve their chances of commercial operations success. Did you know?
• Over the life of a typical project, O&M costs will exceed CAPEX.
• Approximately three out of four projects fail to achieve pro forma estimates.
• Sub-standard O&M accounts for two of the top five reasons commercial plants fail.
• Investment-based O&M yields significantly better results than cost-based O&M.
Penny wise, pound foolish
Most of us have heard the old English saying, “penny wise and pound foolish,” and probably have an image of someone who, by fussing over trivial amounts of money to such an extent, misses much more significant opportunities. The commercial operation of a greenfield power or biofuels facility represents a great example. Does it make more sense to focus on scrutinizing O&M costs to save tens of thousands of dollars or to invest in an industry-leading operations practice to boost the bottom line by hundreds of thousands or even millions?
Investment-based approach to O&M
Most developers and future plant owners face so many challenges on the road to commercialization that plant O&M is often an afterthought. So much time, effort and resources are expended to ready a project for construction that what happens next is often a surprise. And yet, all roads ultimately lead to commercial operations. If the plant performs well, sales will be robust, cash flow will be stable, debt will be paid down and equity shareholders will earn a return.
Ultimately, investing tens of millions of dollars into a production asset demands an investment-based approach to O&M rather than a cost-based approach. An investment-based focus builds the plant operations organization according to the required oversight, staff, programs and training to optimize safety, compliance, cost-effectiveness and performance within the expectation of a dynamic environment. A cost-based approach seeks merely to minimize costs within a steady-state environment.
The benefits of a strategic O&M partner
Developers and owners that do not possess the experience base or organizational structure to support commercial operations would benefit from the addition of O&M expertise via a creditworthy, third-party O&M contractor. As part of the development team, an O&M contractor can add tremendous value to the project financing route by possessing the experience, management, technical talent and a programmatic approach necessary to mitigate start-up, scale-up and commercial operations risks. “Third-party” and “independent” designations are important to ensure a contractor is 100 percent aligned with the project and committed to implementing an operating plan designed to meet owner objectives.
The following are just a few of the many tangible benefits potentially gained by employing an experienced third-party operator:
• Greater safety and compliance
• Revenue and performance optimization
• Cost effectiveness and cost avoidance
• Professional project oversight and commercial plant support
• Recruit, train and retain top talent
• Enhance financeability and mitigate commercial and technology risk
For more information, visit www.naes.com or call (425) 961-4700.