A new approach to managing evolving risks in gas turbine technology

by Terence Lee, FM Global

New gas turbine technology is on the rise and with it comes new risks. While the technology may hold promise for filling the renewable energy gap and comes with impressive efficiency gains, these benefits can easily lead to losses if risks are not properly understood and managed.

As Australia drives towards 24 per cent renewable energy generation this year and up to 50 per cent by 2030, this challenge is becoming more urgent. We expect to see even more gas turbines modified or upgraded to cater for this change in the generation mix. New gas turbine technology coming to market is increasing resilience by allowing existing turbines to be operated in peaking mode, cycling mode and fast starting mode.

In the US, the driver is different but the end result is the same. New gas turbine installation is on the rise thanks to an abundance of shale gas and the increasing operational costs of coal or liquid fuel sites. Advanced class gas turbine technology has well-promoted efficiency and heat rates, fast ramp up times and guaranteed outputs that far surpass older technologies.

Different insurers have traditionally taken different approaches to assessing and costing risk in turbines. Most insurers and owners relied on the lead unit operating without failure for 8000 hours as proof of new gas turbine technology’s maturity.

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For a long time, FM Global took the same approach to risk and maturity. The difficulty this presents for users is that this is a fairly long period during which there may be challenges for gas turbine owners in securing insurance for their fleet, which ultimately affects the total cost of risk.

This approach has become more problematic given the rising interest in modified gas turbines in Australia. Based on their current mode of operation, where units are run for short periods each day or even less frequently, it could take many years to get to the 8000 hour mark.

These are not the only considerations that may lead to a reconsideration of risk evaluation. It is common today for manufacturers to continually introduce enhancements to their turbines, further complicating matters.

Another challenge faced from an insurance perspective is that the individual pieces of turbine technology involved may be considered “proven” but when you put them all together, their reliability becomes more debatable.

In addition, the historical method of validating gas turbine technology by operating the fleet leader at base load for a certain period does not represent the cyclic loading that gas turbines today are frequently subject to.

A new approach to risk evaluation is needed. As the insurer for seven per cent of the global power generation assets, including six per cent of those in Australia, New Zealand and Oceania, FM Global has a big stake in this.

Each year over the past decade, our clients have experienced around 20 gas turbine failures, at an average cost of USD$100 million. The leading cause of failures is the compressor and turbine blades, which account for well over three quarters of all turbine losses.

While some manufacturers have constructed testing facilities where they can put new gas turbine models and technologies through a program to validate the design, these facilities are few and far between. There have also been cases where new gas turbine technology tested in these facilities has still failed in service, further complicating matters.

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Today FM Global believes the best approach is close collaboration between an insurer an original equipment manufacturer (OEM) and a client to understand new gas turbine models and technologies, and how these will be used, so that the most appropriate method of validating the technology’s risk can be adopted on a case-by-case basis.

We strongly encourage those installing new turbine technologies to work with their OEM to come up with practical solutions for managing the risk of new gas turbine technology, rather than assuming that insurance alone is adequate. By going beyond immediate solutions to understand how and why units fail, you can stand a better chance of preventing another occurrence from happening – and of keeping costs to a minimum in the long term.

We believe everyone could benefit from customers and OEMs agreeing that OEMs take on more loss liability, including loss of a client’s income, where new technologies have not been fully validated or are in the process of being validated at a client’s location.

Insurable losses as these are only the tip of the iceberg when it comes to what’s at stake. Other costs include loss of market value, market share, reputational damage, legal cost, environmental penalties, loss of investor confidence and management time and distraction, to name just a few.

Failures in new gas turbine technology will continue to impact the bottom line of OEMs, customers and insurers alike. Finding a sustainable way to get this right and reduce costs across the spectrum benefits everyone long term – so let’s work together in good faith to get to the root of the matter.

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