Generating interest

After a long hiatus, nuclear energy is undergoing a renaissance in the US – putting pressure on power production facilities to improve the plant construction and operation process. Power & Energy talks to Dan Krueger, Global Generation and Energy Markets Lead at Accenture, to find out more.

PE. What are the key trends facing the generation industry?
DK. There are certainly a number of issues and trends we see at Accenture that are influencing generation. The first is that global demand for electricity continues to outstrip supply. While the public may not fully realize it, reserve margins have dropped globally in terms of excess power generation and general speaking in virtually every market we have to build capacity.

Second, we have to recognize the impact of the power plant construction programs in general and the strain this puts on the industry. Prices for materials are rapidly escalating and operators are having to pay more for their plants, therefore their power is more expensive.

The final issue – one that’s garnered a lot of attention – is the ‘aging’ workforce. Is it really aging? It’s certainly changing. A few years back, across many industries, there was a simultaneous confluence of mechanical advances and process improvements that made for large workforce reductions. Perhaps we no longer need to shed those workers who say retirement age is 50. We need workers to stay on longer, and we need to find ways in the generation sector to make the industry more appealing and encourage younger engineers and technicians to come in. There are many parts of the generation business that are just not very attractive to a younger person.

PE. Will the American public ever accept nuclear?
DK. Nuclear is political, for sure. A now deceased US House Speaker Thomas ‘Tip’ O’Neill famously coined the phrase ”all politics is local”, and the acceptance of nuclear is a highly local issue. In the US, acceptance of nuclear seems to depend on two things. First, in most regions (with the exception of the northeast), public opinion surveys find residents in favor of nuclear. Some of those plants in the NE were amongst the earliest built and they are close to population centers and people are uncomfortable. One can understand that logic. In the US, if you look at the polling numbers outside of the NE for proposed new-build sites – really expansions of existing units – the public numbers are phenomenally high in terms of support. I have seen 80-90 percent of local residents supporting them in some cases. They’ve come to trust the plant, they understand how safe it is, many of their neighbors work there, and the tax benefits to the local communities are massive.

The French are and will continue to be the world’s foremost thinkers in nuclear power. They’ve long understood nuclear’s benefits. For example the design of the French EPR, their reactor design, has a double thick retention area around the reactor that can withstand a direct hit by a large plane. The French have thought of these things and they are largely accepting of nuclear power.

PE. How can the industry handle the construction boom?
DK. We have to recognize that the commodities cycle is currently in a challenging phase. When you look at things like heavy forging and high-tensile steel, right now there is a very limited supplier base. But we’re confident that the supplier base issue will correct itself.

The industry average for budget and schedule overruns on build jobs in the oil, chemicals and power sectors is around 30 percent. To address this, the industry needs to form consortiums of traditional and non-traditional companies. Not to sound like a commercial for Accenture, but I will say in the oil and mining sectors we have long-provided project and program manager support for massive build programs. We predict in this time of tight talent resources, many of our clients will focus their scarce people in areas like engineering and direct involvement with the plant builders. They will and should turn to third parties like Accenture whose core expertise is project and program management.

PE. Will the federal loan guarantees be enough to jump start nuclear?
DK. Absolutely. There are at least 30 combined construction permits and operating license applications for reactors before the NRC and DOE – the number increases every time I look. I am quite certain that if the federal loan guarantee is activated now that it has been approved in legislation, then it will jumpstart the nuclear industry’s build program. Moreover, the Bush Administration has been promoting a plan that also includes preferential tax treatment for the first 6000MW committed in 2008.

PE. How can the construction programs be completed more effectively this time around?
DK. I would emphasize three practices for greater utilization: standardization, program management and lifecycle management.

Let’s talk about standardization first. The great fault of the power industry is not replicating designs. If you look at Intel, everyone of their chip factories is absolutely the same – it’s amazing, they face the same way to the horizon, the have the same colors, they have the exact same layout and after they are built they operate the same way. Many in the industry will agree we have done a poor job of attempting to standardize our build and operating programs. A number of clients that we are working with recognize this and are absolutely trying to do precisely that.

Another practice area lacking attention is what I call the ‘siloing’ effect of construction and operations. Historically, builders only designed plants to be built and did not design with plant operation in mind (unlike, say, Boeing or Airbus plants). So when the plant is ready for commissioning, there are many seemingly minor technical matters on the construction side that impact on operations. We thus have gaps in our ability to fully commission the plant and we have to spend years and huge amounts of money reconstituting the design basis of the plant. It’s an unnecessary occurrence that should be avoided.

Finally, program management – there is just no reason that we should not leverage companies whose core capabilities are in program management. The oil industry has made really great strides, specifically in offshore platforms, with companies like Accenture managing it for them while they handle the engineering and some of their relationships.

PE. Why not just outsource all this plant construction? Won’t turnkey work?
DK. Actually, turnkey is part of the problem. Turnkey is not a solution. The world’s greatest construction companies, and I’ve met with them for my clients, will tell you they will design and construct that plant to get it built; they don’t by their nature construct it to operate it and there is a fundamental difference there.

First, the incentives for the plant turnkey construction company are almost always different to the incentives of the eventual owner/operator. Turnkey construction people think this means fixed price – it never means fixed price. In fact, all of those builders have ways in which they make sure they carefully track and charge for all of their changes. It never, ever means turnkey in terms of fixed priced.

Second, when you are building a plant you are trying to manage several risks. You want to manage risk to schedule, to price, to operability and to safety. When the plant is commissioned, is the plant operating at full capacity at the efficiency that was expected? The answer is not always what we would expect it to be and that is often because the turnkey vendors are not equipped to keep the eventual operations in mind.

PE. What is really left to improve in core plant operations?
DK. I would emphasis two areas ripe for core operations improvements. First, I am not sure that IT has been maximized in power plants as many companies are saddled with legacy infrastructures that don’t allow rapid implementation of new technologies or changes in process. So in the core operations of the plant, there is an entire wave of efficiency, productivity and cost improvements that could be obtained if we had flexible technical architectures that could let us implement new devices. Operators need to invest in SOA. The impact of SOA on power plant operations could be remarkable.

The other area where the industry can improve is in what is called equipment reliability and performance. Only a few large players in the industry effectively analyze all of their plants on a fleet basis and apply the operating efficiencies of one plant to others in the fleet. If you had a fleet of power plants, wouldn’t you want to be able to monitor all of them on a 24/7 basis from a command center? Wouldn’t you want to be able to predict if something was amiss at a plant? And if you could predict something was failing or not working properly, wouldn’t you want to link in the other parts of the organization like the outage team or the procurement officers and really optimize how well that plant is run? That would reap quantifiable improvements: a two percent improvement in capacity factor is completely reasonable; significant improvements in thermal efficiency are completely reasonable; a significant improvement in spend on maintenance and contractors is completely reasonable. It is a fundamental shift the industry is just starting to take up.

Tackling the skills shortage
An aging workforce could lead to skills shortages in the electricity industry in the future. So is it time to panic? Not necessarily…

“Although the workforce is aging, this doesn’t necessarily mean they are all leaving,” argues Krueger. “If we could apply all their knowledge to the incoming workforce we will have a much brighter future, and I’m confident we will. We hear a frequent refrain from candidates or recruits: ‘not something I ever thought of’, ‘doesn’t seem glamorous’, ‘not high-tech enough’. So the industry needs to realize that this is their image. It’s important to understand this reputation and impact upon their ability to recruit. I don’t know too many young folks that would be interested in using 1980s approaches to building power plants that include fax and redlining documents when they could go look at Boeing and use state-of-the-art PLM systems. So I think the industry needs to realize the importance of technology when recruiting younger folks.

“Retraining is also an important human resource area. Think about Michigan, a state where 400,000 manufacturing jobs have been lost in the last seven years. Many of those people will have found new jobs, but there are still a lot of people with manufacturing skills that we can employ. We need to have a focused effort on retraining people as industrialized economies shift to more service-oriented economies. There is an enormous pool of people and some in the industry react inappropriately. I broached this subject with a client recently who said “they won’t want to move.” Says who? Who says if you offer them retraining and a 10-year, 20-year long job helping to build and operate a power plant, that they wouldn’t want to move? Utilities have always taken their social responsibilities to the communities they serve very seriously. We’re helping our clients understand that filling the worker needs in these power plants is a great chance to anchor themselves in the communities they operate in.”

About Dan Krueger
Dan is a Partner in Accenture’s Utilities Industry Group and leads the Global Generation and Energy Markets practice area, which encompasses fuels, generation, portfolio optimization, marketing and trading and energy market operators. He has spent the last several years leading some of Accenture’s most innovative engagements in the corporate and wholesale sectors, directing projects to improve business performance at the corporate, portfolio, commodities and asset levels. Dan joined Accenture in 1987 and has worked almost exclusively in the utilities and energy industry. He is based in Chicago.