Long-Term Service Agreements: A Power Industry Overview

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Researched by Industrial Info Resources (Sugar Land, Texas)--A long-term service agreement (LTSA) is a way for a power plant owner to reduce risk on an investment, lower operating costs and maintain plant efficiency. Also called "maintenance agreements," "service agreements" and "service contracts," LTSAs typically cover parts, or parts and labor, over a planned range of turbine maintenance and inspection activities for a certain period of time or a certain number of major outages. They are available from the original equipment manufacturer (OEM) or other third-party providers.

Non-OEM service and maintenance companies typically service older, established combustion turbine models instead of newer F, G and H class machines. The companies are unable to support services and delivery for the single-crystal turbine and compressor blades that are used in the newer machines that would guarantee timely supply of the parts used in the advanced blading.

The main benefits of a long-term services agreement are:

• Owner knows in advance how much maintenance will cost
• The cost of maintenance can be linked to the annual production level (kilowatt-hours) of the facility
• Maximum production levels and the highest efficiency can be maintained at the plant through updating technology and eliminating obsolescence
• Operations personnel are kept informed of the latest technologies and training for operations and maintenance
• No spare parts are required to be kept on hand by the facility owner

LTSAs can be adapted to the plant owners' requirements and customized to the needs of the operations and maintenance personnel. This is beneficial at a time in the industry when there are ongoing retirements of older and more experienced plant employees, as well as an influx of younger, less experienced staff.

With combustion turbine parts also a critical area of any service agreement, the power plant owner can specify whether only original parts are acceptable or if replacement parts are allowed to be used on their machines. This could increase or decrease costs.

Adequate supply of turbine parts, as well as cost, is an important area of concern that could account for up to 80% of maintenance expenses at a generating plant, affecting the market competitiveness and efficiency of the facility.

Another way for power plant owners to leverage an LTSA is in the planning stages for a new plant, in which an LTSA is negotiated before purchase of a combustion turbine as leverage in the selection of that machine over a competitor.

Power plant owners believe the benefits of LTSAs on older combustion turbines are available at a lower cost from aftermarket vendors--but for newer peaking combustion turbines, owners are leaning toward shorter-term LTSAs of three to five years. For baseload advanced technology, machines owners may want LTSAs of 10 or more years.

Finally, the power plant owner wants to optimize reliability and availability while also maximizing revenue, while the LTSA provider seeks to stay within the contracted agreement in order to maximize profit margins.

Plant and unit long-term service agreements are just one of the many products tracked by Industrial Info to help meet our clients' needs.

Industrial Info Resources (IIR), with global headquarters in Sugar Land, Texas, and eight offices outside of North America, is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy markets. Industrial Info's quality-assurance philosophy, the Living Forward Reporting Principle™, provides up-to-the-minute intelligence on what's happening now, while constantly keeping track of future opportunities.