Power Engineering - Report outlines trends in power equipment servicing

31 July 2006 - Services markets in the power generation equipment sectors across Europe are contributing to increased growth potential for turbine manufacturers, according to a new report from Frost & Sullivan. The report sees the growing services markets, particularly in the gas turbines arena, as offering enhanced scope to service providers, as profit margins continue to outpace those in the new equipment business.

The recent Frost & Sullivan end-user study was based on primary research among nearly 200 power plant managers as well as operations and maintenance managers. The analysis focused on the maintenance repair and overhaul (MRO) requirements/strategies of utility and independent power producer (IPP) plants in western Europe.

"The role of independent service providers in the market continues to increase, perhaps more slowly than anticipated," states Frost & Sullivan Research Manager Mr. Harald Thaler. "Original equipment manufacturers (OEMs) are competing with independent service providers by continually adapting their pricing and maintaining their technological advantage over their third-party rivals."
Moreover, new entrants such as utility affiliates and specialist companies that have traditionally been active in the servicing of other power generation equipment such as steam turbines, are focusing on the gas turbines markets, which offer high profit margins.

"Despite these growth opportunities, the trend towards outsourcing of services is not universal," notes Mr. Thaler. For instance, while outsourcing of operation and maintenance of power plants is widely prevalent in the privatized Italian electricity generation sector, German power plant operators prefer in-house operations, with some German utilities also offering their in-house expertise to third parties through their own dedicated service affiliates.
Quality of work, value for money, lead time/speed of response, technical know-how and customer service were found to be crucial factors that influenced supplier rating. However, across the regions surveyed, customers' decisions in the selection of suppliers were determined by the industry experience, OEM license, local presence and brand name of the suppliers.

In the context of buying practices, nearly 50 per cent of the respondents stated that periodic maintenance as well as upgrade and modernization decisions were determined jointly by the headquarters and the power plant. Overall, while high satisfaction levels were indicated for different OEMs, smaller OEMs were preferred in comparison to those with greater market presence.
Yet another crucial factor, lead times for critical spare parts, was shown to differ broadly across OEMs. However, persistent problems related to lead times appear to have diminished.

"The increasing proliferation of long-term service agreements, especially in gas turbine plants should provide secure and stable revenues over a long period of time," said Mr. Thaler. "Opportunities for full service contracts are likely to be limited in boiler and steam turbine plants, where the incidence of such contracts remains significantly lower."

Full maintenance contracts are particularly prevalent in Italy and Spain, where the gas turbine fleet is rather young and therefore, more likely to become associated with contractual service agreements. Also, with nearly three quarters of respondents exhibiting their lack of interest in performance-based maintenance contracts, service providers will need to promote the benefits of these contracts and adapt to the needs of individual customers.

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