Why your power plant needs the right LTSA

By Herbert Lam | August 31, 2018

Gas turbine or combined-cycle power plants are immense, complex machines with many moving parts. They are in a special class of expensive investments, ones that need maintaining, upgrading, and replacing over time. It's crucial that they're able to operate with a high degree of reliability when they’re needed.

The right LTSA can be one of the best investments in making that happen.

A long-term service agreement (LTSA) is a contract between the plant’s original equipment manufacturer (OEM) and the owner. A common risk mitigation tool used by plant developers and owners around the world, LTSAs ensure that an owner doesn’t bear the entire financial and liability burden of maintaining their plant.

It works like this. The OEM agrees to be responsible over a period of time for planned maintenance activities of the major equipment in a thermal power plant—gas turbines, steam turbines, reciprocating engines, and so on. A typical LTSA covers both parts and service, and can include performance guarantees for the service provider.

An LTSA can be beneficial to an owner, but it’s also a complex agreement that needs careful scrutiny to maximize the value and protection it can offer. An experienced partner can help an owner navigate the complexities of an LTSA, and evaluate the agreement against a set of potential alternatives.

What an LTSA can and can’t do

It’s prudent to start by understanding the purpose and benefits of LTSAs, as well as what they can and can’t offer. Usually, an LTSA provides specialized labor and expertise for activities that are crucial to the operation of a power plant.

What it doesn't do is replace your own normal day-to-day operation and maintenance (O&M) activities for major equipment. And it is not a substitute for the prudent operating and maintenance practices at your facility.

Important costs to consider up front

Savvy owners will compare the LTSA costs of different OEMs before selecting their gas turbine technology for a new power plant. Doing so can save you unexpected and unavoidable costs that may arise only after you have already selected the technology.

Comparisons can be challenging because different OEMs use different terminology and have different maintenance philosophies. So pay close attention to wording and ask for clarification about anything that isn’t adequately explained. It’s the only way to ensure an apples-to-apples comparison of the costs.

Alternatives to LTSAs from service providers other than the OEM should also be considered, depending on the maturity and size of the gas turbine technology you have. This could be an effective solution for balancing costs with the benefits of an LTSA. Many LTSAs allow you the option of self-performing services. This is something you should also consider when comparing alternatives.

Understanding maintenance requirements and the limits of performance guarantees

Service providers often include a suite of performance guarantees in an LTSA. Not all of these guarantees provide value to the owner.

To properly assess the value of an LTSA, you need a good understanding of the maintenance requirements of the equipment it covers, and how that equipment operates in the plant. You can then determine the relative value and merits of LTSA performance guarantees against the possible downside scenarios. These can also be useful tools for aligning the incentives of the service provider with the owner.

Benefiting from future technology

An OEM’s research and development doesn’t cease once you’ve purchased their gas turbine. One of the biggest ways to benefit from an LTSA is to ensure any improvements from future technology developments are passed on to you. But this should be done without you having to assume unreasonable risks for new, unproven technology before it’s installed at your site. Make sure this is explicitly detailed in the agreement. 

You don’t have to do this alone. Bringing in an experienced partner who understands the details of the gas turbine power plant life cycle and the pros and cons of LTSAs can be invaluable. Experienced, expert advice more than pays for itself when it helps you determine when and if an LTSA makes sense, and how best to balance the costs and risks to maximize value.