By Unnur M. Thorvaldsdottir and Boudewijn Neijens
Landsvirkjun, National Power Company of Iceland is Iceland’s largest electricity producer and it offers 100% renewable energy. Landsvirkjun operates 14 hydropower stations, two geothermal stations and two wind turbines. It delivers energy wholesale both to distribution companies and directly to large industrial customers.
Correct decisions at the correct time
Sustaining and monitoring existing assets, and investing in new infrastructure requires efficient systems. In 2012, Landsvirkjun established an Asset Management Group to develop 3-year short-term and 20-year long-term investment plans for equipment renewal.
“Landsvirkjun’s role is to ensure electricity generation and delivery is secure and efficient, and fulfils the terms of the agreements signed with our customers,” said Einar Mathiesen, executive vice president of Landsvirkjun’s Energy Division.
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| The 270 MW Burfell hydroelectric facility, originally commissioned in 1969, is on the River Thjorsa in southern Iceland. |
“Even with effective maintenance practices, assets need to be renewed or refurbished before they reach the end of their useful life. The company needed a more holistic asset management strategy – one that could help us make the right decisions at the right time, to maximize the value of the assets, as well as the natural resources with which we have been entrusted.”
Landsvirkjun had been using an internal system to manage investment planning, but increased organizational demands began outpacing the home-grown system, which was originally designed only for short-term planning. The company needed an updated, robust, system-wide asset management program to support infrastructure investment decision planning processes, develop a strategy to help prioritize projects and manage potential risk.
Initial challenges
The newly formed Asset Management Group began by documenting the company’s current asset position versus future goals. Although equipment condition assessments were conducted, the assessments were not based on numerical index scores that quantified general asset condition. Landsvirkjun needed a company-wide standardized process to capture investment data, evaluate projects and document decisions. The challenges included getting buy-in from internal and external stakeholders within or connected to Landsvirkjun and clearly conveying the long-term goal of everyone working toward prioritizing projects while managing risk.
Additionally, Landsvirkjun could no longer continue to invest in an internal system that neither provided needed visibility to manage critical asset risks nor defined and selected the measures to mitigate risks. All of these factors combined led to seeking external Asset Investment Planning and Management (AIPM) guidance, to guide the company through the exercise and remain on track.
Phased approach
It began with a workshop in 2012 where the Landsvirkjun Asset Management Group started evaluating the company’s current asset investment planning processes, and mapping out where they wanted to go in the future. After taking some time to digest and analyze the outcomes from these discussions, Landsvirkjun decided to move forward with an AIPM solution from a private consulting firm.
Vancouver, Canada-based consulting firm Copperleaf developed its C55 AIPM (C55) proprietary technology as a platform to develop asset management systems for large utility companies to integrate real-time data to identify and analyse alternative long-term investment strategies.
The system Landsvirkjun used includes a tracking system, an investment decision optimization and predictive analytics.
Landsvirkjun implemented the system in two phases:
– Replacing the legacy in-house project tracking system with the C55 platform; and
– Established a new process to capture consistent business case information – from project to project, across the organization.
Assessing investment scenarios
After standardizing a means to evaluate projects in place, Landsvirkjun wanted the ability to analyze how different levels of investment would affect future risk factors.
To accomplish this, Landsvirkjun implemented C55’s Investment Decision Optimization capability to help select the optimal set of projects based on the available budget, and overall value of each project to the company. The focus in phase 2 was to implement predictive analytics to provide a long-term view of spend requirements to sustain the infrastructure and assist in the strategic and long-term financial company planning.
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| Landsvirkjun headquarters building located in Reykjavàk, Iceland. |
A core team of people with extensive experience running the company’s power plants held three workshops with representatives from finance, operations and other departments across the Landsvirkjun organization to ensure all stakeholders had a say in defining the new processes.
The company has been using the system since installing the software in April 2013.
The results
The benefits that an Asset Investment Management Platform solution brings to an organization include a combination of both tangible and intangible benefits. For Landsvirkjun, the biggest benefit is that the company now has greater oversight on all investments under consideration than ever before, whereby:
– Long-term investment needs are identified on the basis of risk, age and condition. Critical risks are clearly identified so that activities can be undertaken to mitigate those risks before an unplanned outage occurs, and the company can see the extent to which the investment plan will address those risks;
– Short-term investment needing proposals are collected in a comprehensive database and assembled in portfolios which are then optimized based upon risk assessments, the objectives of the company and the budgetary and resource constraints at any given time. Project owners can easily present their budget proposals to internal stakeholders in a transparent and well-structured way.
Better, faster, decisions
With more complete data that includes recording all types of spend and more accurate data by eliminating version control issues, Landsvirkjun can make better decisions on how to control spend for the entire Energy Division.
Having the ability to compare different investment scenarios enables the company to conduct sensitivity and what-if analysis easily for informed decision-making.
Moving from multiple Microsoft Excel-based spreadsheets to a single, centralized, multi-user system has enabled more interaction between departments than ever before.
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| Vatnsfellsstod hydroelectric power station, located in the Highlands of Iceland, at the south end of lake àžórisvatn. |
Having one source of accurate data ensures employees are using the correct information and are not wasting time searching for data. Documentation has improved considerably because all project owners have to provide data to support their arguments for the need and timing of each investment.
By placing a big focus on change management, and taking extra measures such as translating the system into Icelandic, the rollout and adoption has been a success.
Powerful drivers for AIPM
Landsvirkjun’s experiences in adopting AIPM techniques are not unique. Some of the most commonly heard benefits include better decisions, compelling business cases and improved execution.
Better decisions
Comparing dozens or hundreds of candidate projects and options can be daunting. Programmatic optimization generally leads to higher value portfolios, unlocking up to 30% in extra value.
Compelling business cases
Building well documented, bottom-up, transparent investment plans improves the probability of acceptance by regulators and other stakeholders. Being able to demonstrate the cost of not investing has rewarded some utilities with budget increases in the order of 20%.
Improved execution
Most plans and budgets are out of date the very moment they are approved. The ability to quickly adjust project portfolios based on external or internal changes has allowed utilities to improve their overall project execution rate up to 10%.
Higher productivity
Much time is wasted searching for information and updating spreadsheets but enterprise class AIPM solution users report they have experienced productivity gains of up to 20%.
“Quantifying the benefits in terms of hard numbers is not an easy task. How exactly can you measure how much risk has been avoided?” Mathiesen asks.
“What we do know is this: We’ve aligned our procedures with best practices outlined in the ISO 55000 asset management standard. We now have a transparent picture of all of our major asset classes, and can compare different investment scenarios for both short-term and long-term planning to help us make the best use of our resources. Overall, it’s given us greater confidence in our decision making, and our ability to plan for the future.”
Lessons learned
Having an external, specialized consultant firm review Landsvirkjun processes, goals and financial plans and guide the company through process-mapping was a concept that worked very well. It helped Landsvirkjun identify a quantifiable starting point and measurable, definable future goals. It is very important to keep on developing, and continuously improve and review the processes and tools with which Landsvirkjun works.
Unnur M. Thorvaldsdóttir is asset manager for Landsvirkjun National Power Company of Iceland. Boudewijn Neijens is chief marketing officer at Copperleaf Technologies.
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