How can power generation companies protect themselves from loss?

Jon Lawson

Adriano Lanzilotto looks at fire risk and risk mitigation for the power generation sector

The power-generation industry presents many unique challenges, from both an operational and a risk management perspective.

These challenges are often caused by the requirement for the generating assets to respond to an increasingly competitive and volatile marketplace.

Notable trends include renewable energy sources becoming both cheaper and more efficient (as shown by the recent announcement in the BBC that offshore wind power has become cheaper than nuclear energy for the first time).

Technological advances are pushing the boundaries in terms of stress on components and materials, the trend for traditional power assets to operate in a cyclical mode to take care of peak demands, an ageing specialised workforce and the emergence of new risks such as cyber.

Predictive analytics

The increasing use of ‘two-shifting’ of plants and equipment to minimise costs in less profitable periods can be extremely aggressive on machinery that was originally designed for base-load generation.

This operating regime can quickly cause ‘fatigue’, increasing the likelihood of losses at lower stress levels.

Power-generation companies need to consider the potential for considerable loss of production and profits that could result from fatigued equipment failing and potentially causing expensive outages.

Through the enhancement of risk management practices with predictive analytics, power-generation companies can more effectively evaluate the likelihood of equipment failure and therefore implement timely action plans before a loss occurs.

If a loss due to equipment failure is likely, companies should enhance their maintenance procedures, extending the lifetime of equipment, purchase spares or if necessary replace the equipment.

A company’s reputation could be safeguarded through correct action in advance, rather than waiting for an unexpected loss.

When it comes to risk management, it is better to be proactive rather than reactive.

Human element

The increasing complexity of the power-generation industry also introduces an element of human risk. This risk has arisen due to the multiplication of small, municipal size generators that need to be managed and run as mini-power plants.

Due to a relative lack of experienced personnel, new projects and start-ups could be vulnerable to a high frequency of human-error related losses.

Companies should make the appointment of management and staff with power generation backgrounds and skills a priority, and couple these hires with adequate scenario-based operator training programmes, to ensure that human-error related losses are minimised.

In my experience, this aspect is handled well in the UK, especially in the waste-to-energy sector where market leaders tend to invest heavily in hiring power generation content.

Power generation companies ought to also be wary of sub-contracting employees. If sub-contractors are used within a facility, it is vital they that they have the same rigorous operational training and standards as full-time employees.

The emerging threat of cyber

The use of high energy, high-value machinery makes the power-generation industry increasingly vulnerable to disruption caused by cyber-attacks, especially where the infrastructure and control systems were not originally designed to cope with this rapidly developing risk.

Power generation companies need to be aware of the threat that cyber poses to their operation, from an external entity gaining unauthorised access to a facility, to industrial control systems or remotely controlled equipment being hacked, potentially resulting in widespread damage such as turbine over-speed and service interruptions.

Companies should work to increase their resilience on multiple levels, including employee training, controlled access to corporate networks and data rooms, encryption of portable devices, and through the use of more sophisticated safeguards such as firewalls and other high-quality cyber protections.

Ultimately, risks need to be transferred to an insurance policy capable to cover not only the data disruption, but also any potential resulting physical damage and business interruption.

An effective partnership with insurers

Partnership with insurers that understand the power generation industry is also of paramount importance, as they can advise on a series of physical and behavioural changes to enable companies to build what we call ‘business resilience’.

A broad PD/BI insurance policy tailored to meet the specific needs of a generator is essential, especially considering the complexities of the power market, but insurance coverage alone is not always enough.

Organisations operating in all high-risk industries, where reputation and 100% reliability are vital, must be proactive in managing the risks that they face.

By working with insurance companies, such as FM Global, that are able to advise on practical engineering solutions based on sound data and research, will organisations be better equipped to build resilience to the risks that they face.   

Traditional property risks

Finally, it’s also important that power generation companies do not lose sight of the more ‘traditional’ property risks that could still represent a threat to their operations.

Could a flood strike a facility as extreme weather events become more common?

Have unnecessary combustible panels been used for the construction of the plant? Is all the fuel, hydraulic and lube oil pipework provided with adequate containment and protected by automatic sprinklers?

Even for these traditional risks, innovative tools such as the FM Global Flood Map are continuously being developed to help companies prepare and mitigate them.

Adriano Lanzilotto is Vice President - Client Service Manager, London Operations, FM Global.

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