Gas Turbines Technical Report

Willis Gas Turbines Technical Report December 2002 1

Contents

Introduction 2

What is a Gas Turbine? 4

Development of the Gas Turbine 6

Gas Turbine Based Power Plant 8

Advantages of Gas Turbine Based Power Plant 10

Gas Turbine Based Power Plant Hot Topics 11

Insurance Issues 15

Designed by the Willis Global Design Center& printed by The Astron Group plc

2 Willis Gas Turbines Technical Report December 2002

Introduction

Traditionally, the vast majority of the world's electricitysupply has been produced by raising steam throughburning of fossil fuels such as coal, oil and gas andusing this steam to drive a turbine generator toproduce electricity.

This method currently accounts for roughly half of theworld's electricity supply with the remainder providedby nuclear, renewable and other fossil fuel-fired supplies,such as diesel engine and gas turbine based power plants.

Recent deregulation and privatisation of electricity generationindustries throughout the world has also led to a newbreed of generator, ranging from private independentpower producers, to larger integrated energy suppliers.

Electricity is widely used withinindustrial, commercial anddomestic properties throughoutthe world and is essential tomodern day life.

It may be generated by a numberof different means ranging fromsimple renewable supplies, suchas solar and wind power, to theharnessing of energy within fossilfuels and radioactive materials.

This is a vast change from the previous government-owned utilities and since there is now increased competition,such companies are more focused on equipment lifecycle costs, lead times, life time revenues and equipmentavailability, as well as production activities.

Many of the 'new' generators have looked to the gasturbine as a source of electrical power since it offers manyadvantages over the traditional fossil fuel fired power plant,namely relatively low equipment cost and lead time, highfuel to energy efficiency and low emissions. As a result,such equipment has been and continues to be developedby the manufacturers to meet customer demand for larger,more efficient machines.



Advanced technologies have been developed or introducedfrom the aircraft industry to allow such demands to be met.Though it is clear that there are distinct advantages to usinga gas turbine based plant, such equipment is not without itsproblems. All of the leading equipment manufacturers havesuffered from various failures as technological boundariesare pushedto meet new demands and these have led the insuranceindustry to be wary of recently developed and'improved' machines.

Despite all the benefits provided by the use of gasturbines and the increasing normalisation of this leadingedge technology achieved through numerous technicaldevelopments, the machinery breakdown exposureand ensuing business interruption impact are still causingsignificant concerns to both electricity generatorsand underwriters.


This technical report has been prepared to assistmanufacturers, generators, risk managers, brokers andunderwriters alike to understand the current criticalunderwriting issues relating to the use of gas turbines,so to facilitate the future insurance placement of thiswidely-used advanced technology.

This report provides a brief introduction to the gas turbineand its development, an overview of some of the criticalproblems associated with the use of these machines, andrelated insurance issues.


CompressorAir is drawn into the compressor via guide vanes andflows in the direction of the shaft axis through severalrows of stationary vanes (stators) and rotating blades(rotor buckets). Each vane/blade set is known as acompressor stage and serves to progressively increaseair pressure as it passes from stage to stage.

Combustion ChamberWithin the combustion chamber the compressed air ismixed with vaporised fuel and the mixture is burned.This creates products of combustion that are at a highertemperature than the compressed air and is used to domore work than the energy used in compressing the air.

TurbineThe hot, high pressure products of combustion are passedto the turbine where they are allowed to expand throughseveral rows of alternate stationary vanes and rotatingblades. Each vane/blade set is known as a turbine stage,and as the mixture accelerates past each stage, the kineticenergy within the expanding gas is converted intorotational energy using the rotor blades.

Gas turbines may be used for a variety of applications andthese fall within two basic categories:

• for the provision of thrust – as is the case witha gas turbine aircraft engine

• for rotation of a shaft to drive machinery suchas a pump, compressor, generator etc.

All gas turbines comprise three major sections: an aircompressor, a combustion chamber and a turbine,as shown in the diagram below.


In its simplest sense, a gas turbineis a machine that is designed toconvert the energy within a fuelinto some form of usable power.

What is a Gas Turbine?

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FuelsSeveral different types of fuel may be used to fire gasturbines. Natural gas is the most commonly used fuelthough there are facilities that use other gases such assynthesis gas (syngas), a combination of carbon monoxideand hydrogen formed by gasification of residues, or othersolid organic materials or liquids such as light fuel oil.

Some gas turbine installations that are designed to burnsyngas feature an integrated fuel gasification system.These generally use turbine exhaust gases to raise steamwhich may then be used within the fuel gasification plant,and are generally found within refineries or other facilitieswith large amounts of organic waste materials.

It should be noted that turbines are specifically designedfor the fuels they are to burn and as such a gas turbinethat is designed to fire natural gas will not operateeffectively with a syngas fuel stream and vice-versa.This is primarily due to differences in the calorific valuesof the fuels, meaning that different quantities of each fuelwould be required to achieve the same output.

Gas turbines designed to burn more than one fuel arenormally optimised for the main fuel, with a trade-offin performance on the reserve fuel supply. This allowsfor optimum reliability in critical applications withquestionable or problematic fuel supplies and manydesigns allow for on-load change-over of thefuel supply.

Cleanliness of the fuel supply is of utmost importanceas impurities within the fuel supply can lead to chemicaland physical degradation of internal surfaces. As such,purification and filtration systems are provided withinfuel supply systems. Quality control is also vital, as eventrace quantities of certain elements can cause long-termproblems e.g. corrosion associated with sulphur.

Turbine Power OutputIn the case of a gas turbine that is used for the provisionof thrust, most of the energy within the hot gasesexhausted from the turbine is routed through a jet pipeor propelling nozzle to introduce forward movement.Auxiliary power systems may be driven via gearedconnections to the main machine shaft or by a mechanicallyseparate power turbine depending upon the design ofthe machine.

Gas turbines that are arranged to drive a load generallyhave two parts to the turbine section, which are known asthe compressor turbine and the power turbine, thoughthese may be grouped together as a single turbine section.The compressor turbine is arranged to have sufficientpower to drive the air compressor, and the power turbineis arranged to drive the generator.

These may be mounted on the same shaft as in a singleshaft machine, or on mechanically separate shafts as ina dual shaft machine. Certain machines, particularly thosederived from aero engines, feature several shafts to allowperformance optimisation of turbine and compressor sections.


The origins of today's gas turbines may be traced as farback as 1791 when the first patent was granted to aturbine design by John Barber, though it is unlikely that hisdesign was ever manufactured. The next major developmentwas not until 1872 when Stolze obtained a patent for acomplete gas turbine.

In 1939, the first sizeable gas turbine power plant wasbuilt by Brown Boveri to provide emergency power atNeuchatel underground power station in Switzerland.This was a 4MW machine with a fuel-to-electricityefficiency in the region of 16%.

At about that time there was much technological activitythroughout the world, though this was mainly to do withmachines for jet propulsion and flight. It was not untilafter the war that gas turbines really began to be usedas prime movers for rotating machinery, such as pumps,compressors and generators.

The 40s, 50s and 60s saw gas turbines used for a varietyof applications, from simple pumping operations andvehicle propulsion, to power generation. However, the lowfuel to electrical output efficiency associated with powergeneration applications led the machine to be used forpeak shaving or emergency use only, and thus limited itsdevelopment in this field.

By the 70s, simple cycle machines in the 5–25MW rangewith efficiencies in the region of 25–30% werecommonplace, and along with the wider availability ofnatural gas led to gas turbines being scaled up in sizeto 50–100MW to produce base load electrical power.


Development of the Gas Turbine

1791

1872

1939

1940s,1950s,1960s

1970s

1980s

1990s

First Patent for turbine designgiven to John Barber

Patent for complete gas turbinegiven to Stolze

First sizable gas turbine powerplant (4MW) in Switzerland

Variety of applicationsLimited development

Simple cycle machines commonplace,problems became apparent

Major problems began to be solved

Substantial improvements in fuelto electricity efficiencies and airemissions through significanttechnological developments.

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To meet these requirements, the manufacturers have beenresponding by on-going development, using advancedtechnologies associated with increased air flow rates,higher firing temperatures, increased efficiency, higheroutput and reduced emissions.

Many of these technologies have been developed by, andhave been obtained through, agreements with aero-enginemanufacturers and include:

• use of advanced blade coatings• improved methods of applying blade coatings

• advanced blade metallurgy• enhanced blade cooling methods• improved combustion systems

• advanced blade profiles.

In many cases, the reliability of these new technologieshas not yet been proven, and many manufacturers arebeing forced as a result of commercial pressures tocomplete development and long term testing duringcommercial operation. This has led to a limited amount offully proven plant available in the market, especially in thelarger machine sizes.

To keep up with the demands of the equipment operators,development of advanced technology gas turbine basedpower plant is an ongoing process. Manufacturers arecontinually releasing new or modified machines to meetcustomer demand and maintain market share.This is expected to continue into the next decade.

However, some problems that were of a minor natureon the smaller machines became major issues on the largerequipment, and it was not until the 1980s thatmanufacturers began to solve these through the use ofnew technologies, such as computer aided design, advancedmaterials and stricter quality control procedures.

At about the same time, many of the world's boilermanufacturers were working in conjunction with theturbine manufacturers to develop boilers to recover wasteheat from the turbine exhaust gases. This heat could thenbe used to raise steam that might then be used to drive asteam turbine generator, further increasing fuel-to-energyefficiency to over 50%. This made a highly efficient powergeneration plant when compared to conventional coalfired stations with energy efficiencies of 35–38%.

With a gas turbine based power plant becominga viable alternative to provide base load electricity,power generation companies began placing ordersfor such equipment, based principally on their benefits(see later) over conventional fuel-fired power plants.As a result, the late 1980s and 1990s saw a rapiddevelopment of these machines, driven by both thedesire for manufacturers to lead the field, and demandsimposed by commercial pressures on the generatorsoperating in newly deregulated electricity markets.

These developments and commercial pressures havecaused the following trends in the industry:

• to reduce their fleet size and generating costs,the generators have been demanding ever increasingmachine sizes with units in excess of 250MW

• higher efficiencies/combined cycle efficiencies inthe region of 60% are now the norm

• reduced capital costs

• reduced maintenance requirements.


Gas Turbine Based Power Plant

In the simplest arrangement,

the machine is operating in what is

known as the 'simple cycle mode',

whilst in the more complex

arrangement it is known as the

'combined cycle mode.'


Gas turbine based powergeneration systems may be assimple as a single gas turbinedriving an electrical generator,through to a number of gasturbines discharging theirhot exhaust gases into heatrecovery boilers, where steamis generated to driveturbine generators.


Simple CycleWhen a gas turbine is arranged to operate in simplecycle mode, air is drawn in from the atmosphere,compressed, heated by combustion with a fuel andexpanded through the turbine. The mechanical powergenerated as a result of rotation of the turbine is usedto drive an electrical generator and the hot gases areexhausted to the atmosphere.

A brief description of each is provided below.

The connection between the turbine and the drivenmachine may be through direct coupling of the drive/driven machine shafts, or through a speed adjustmentgearbox. Since the electrical generator speed is normallykept constant, the direct coupling is usually used for thelarger power generation machines in order to optimisethe mechanical efficiency.

The simple cycle arrangement is often used for smallinstallations, or in areas where there is a large demandfor power and fuel prices are low. However, owing to itslow fuel to electricity efficiency (30–35%), its use is notcommon in the industry.

Improvements to this efficiency can be made throughrecovering some of the heat in the gas exhaust and usingit to preheat fuel or inlet air. Developments have led toother uses for the hot exhaust gas streams andthe 'combined cycle' arrangement.

There are several different arrangements of combined cycleplants, ranging from single unit stations, to multiple unitsarranged to feed a common steam turbine-generator.The steam and gas turbines may be either mounted on thesame shaft to drive a common generator, or be completelyseparate machines with individual generators in differentareas of the plant.

With a fuel-to-electricity efficiency as high as 60% insome cases, the combined cycle arrangement is the mostcommonly used gas turbine based power plant in recentyears. A variation of the arrangement known as thecombined heat and power plant is also widely used inthe industry, where a user requires large quantities ofelectricity, plus steam for heating or process use.This offers a further improvement in overall thermalefficiency with a subsequent saving on plant fuel costs.

Gas Turbine – Combined Cycle

Combined CycleWithin the combined cycle arrangement the gas turbineis still the heart of the power generation system. Power isproduced in much the same manner as in the simple cyclemode, but the hot exhaust gases are routed to a heatrecovery boiler where they are used to raise pressurisedsteam. This steam is then passed to a conventional steamturbine-generator where the energy is converted intoelectrical power.

Gas Turbine – Simple Cycle

FuelGenerator

Air

Exhaust

ElectricityFuel Generator

Air

Bypass

Electricity

Steam TurbineGenerator Electricity

CondenserExhaust

SupplementaryFuel Firing

Heat RecoverySteam Generator


Advantages

Equipment CostThe basic cost of a gas turbine-based power plant issignificantly less than similar sized alternatives, such asconventional coal or oil fired facilities. As an example,the cost per installed kilowatt (kW) for a gas turbinebased plant is in the region of $200 to $350 comparedwith $750 to $1,000 for a conventional coal-fired plant.

Lead TimeThe time from placement of order to final commissioningof a gas turbine based power plant can be significantlyshorter than similar sized alternatives. As an example,construction of a simple cycle gas turbine based plantcan take as little as 12 months, compared with three tofive years for a conventional coal-fired plant.

EfficiencyGas turbine based power plants can be extremelyefficient depending on the design and arrangement ofthe equipment. Fuel to electricity efficiencies of 55–60%are achievable compared with a norm of 35–38% forconventional coal-fired plant.

Environmental ImpactGas turbine based plant has much less impact on theenvironment than similar sized alternatives. Emissions ofharmful gases and particulates are significantly lower thanconventional coal-fired plants, and their physical size isalso small since there is no need for large civil works,extensive fuel stock piles, ash dumps etc.

Advantagesof Gas Turbine Based Power Plant

Modern gas turbine basedpower plants have manyadvantages over theavailable alternatives.



Some have not manifested themselves until much laterin the initial operating period. As a result, there is muchunease with the newer machines, since the industry doesnot know with any certainty whether the future will beproblem-free, or beset with further failures. Only long termoperating experience has proved the true characteristicsof these machines.

Technical difficulties are not the only issues to affect gasturbines. Experience has also shown that these machines,as with any large rotating equipment, have suffered fromvarious other upsets. These include poor quality assuranceof materials or component parts, failures in start up andoperating procedures, poor maintenance practices andfailures resulting from air and fuel contamination.

Typical technical or design-based difficulties that havebeen encountered by some or all of the leadingmanufacturers include:

Mechanical ProblemsAs machines have increased in size and efficiency,there have been many difficulties with their mechanicalintegrity as a result of the increased workload imposedon components. Manufacturers have moved towards theinstallation of fewer rotor bearing points, putting additionaldemands on rotors and components, which in turn havebeen subject to stress cracking, distortion and rubbing.Such issues have led to failures and significant downtimewhilst repairs take place.

Gas Turbine Based Power Plant Hot Topics

Though modern gas turbinebased power plants have manyadvantages over alternativegeneration methods, they arenot without their problems.

All of the manufacturers havesuffered technical difficultieswith their advanced technologymachines and though all have,and still are, addressing theseissues, such difficulties haveled to significant project delays,equipment downtime andplant modifications in theoperational phase.It should be noted that many of these failures haveoften occurred during the very early stages of operation.


Gas Turbine Based Power Plant Hot Topics – continued

In all cases that have appeared so far, redesign andmodifications have addressed such deficiencies, but thishas still led to extensive downtime, additional inspectionfrequencies and hence loss of capacity.

As an example, a significant failure occurred at a powerplant in the USA in 1995 as a result of a turbine bladingdesign fault. Blading within the gas turbine becamedetached leading to significant imbalance and subsequentdestruction of the machine.

Surrounding auxiliary equipment was also damagedleading to a total property loss of $42 million anddowntime costing $11 million. Another loss in the USAin 2000 occurred at a plant resulting from a crack in thecompressor frame. The crack led to failure of thecasing and subsequent disintegration of the machine.

Thermal ProblemsThe use of increased firing temperatures has led to useof advanced metallurgy, thermal barriers and advancedcooling techniques. Manufacturers have encounteredproblems with all three of these techniques, ranging fromfailure of thermal barriers and their attachment systems,to insufficient blade cooling leading to thermal distress.Again, redesign and modifications have addressed suchproblems in many machines.

There have been many cases of thermal barriers failingthroughout the world and perhaps the most serious ofthese occurred in Chile in 1998. Here a thermal barriertile became detached and passed with the products ofcombustion to the turbine. The tile became lodgedwithin the inlet guide vane assembly upsetting flowpatterns and on eventual release passed through theturbine section causing total destruction of the rotor.Repair costs were in the region of $2.3 million and theplant suffered a significant downtime.

Burner HummingIn a drive to reduce emissions, all of the modern gasturbine machines feature Dry Low NOx or Dry LowEmission-type burners. These represent a new generationof burners that have been developed by the equipmentmanufacturers to move away from the expensivetraditional emission control measures of steam andwater injection.

Some of the leading manufacturers have encounteredproblems with a phenomenon known as combustionchamber, or burner humming. This is a vibration inducednoise that is brought about by flame instabilities withinthe burner area of the combustion chamber.

Though burner humming is not generally a short termthreat to the operation of the machine, it could leadto long term damage as a result of excessive vibrations.Though modifications have been introduced, the problemhas yet to be completely eradicated in some units and isstill the subject of extensive research.

At various power plants within the USA, Canada andSouth America, there have been incidents of damageas a result of cracking within burner transition sections,believed to be attributed to vibrations caused by burnerhumming. Such cracks have led to detachment of partsof the transition sections, which have then becomeentrained within the products of combustion and passedthrough the turbine section causing extensive damage.Repairs have cost from $100,000 to in excess of$1million depending upon the scale of the damage,availability of spare parts and equipment downtime.


Combustion FlashbacksCombustion flashbacks occur when the burner flamefront moves back from its intended location towardsthe burner front. The repositioned flame then impingeson components not designed to accommodate hightemperatures, causing them to melt and becomedetached. The molten metal can then pass through theturbine, causing extensive damage. Though this has beena problem in the past, redesign of affected componentshas led to resolution of the issue.

Quality Assurance IssuesQuality assurance of component parts and materialsis extremely important as gas turbines operate at highspeed with high operating temperatures and pressures,and low tolerances between blades and veins. Failure ofa relatively minor component within the machine cancause extensive damage.

As an example, one manufacturer suffered a problemwith failure of rotor disc tie bolts leading to significantblading and rotor damage to a number of machines.On further investigation, it was discovered that the boltsin all of the affected machines were traced to onesupplier producing substandard components. Improvedquality assurance procedures have now beenintroduced to help prevent reoccurrence.

Operational Issues

Correct operation of these machines is an important issue.Many problems have been caused through poor proceduresleading to failure in communications and important stepsof operations being skipped. Cooling air valves have beenleft in the incorrect position after maintenance activities,lubrication systems have been left out of service priorto start up and pre-start checks have been carriedout incorrectly.

All of these issues may in themselves only seem minorfailings, but it only takes moments of running a highspeed turbine with little or no lubrication to causeextensive damage to bearing surfaces and overheatingof equipment components.

Gas turbine internals are relatively fragile. Cleanliness iscritical to prevent damage to machine blading, burners andother internal areas, as one small foreign particle can havedisastrous consequences.



Maintenance Issues

Improperly controlled maintenance activities can also leadto problems. Bolts can be left untightened, tools can beleft in the machine and auxiliary systems may not berecommissioned correctly. Debris or foreign objects leftfollowing maintenance activities, or loose components canbecome detached, and prevent the correct operation ofmachine controls. In more severe cases, these may bedrawn into the turbine causing great damage as they passthrough the compressor/turbine blading leaving a pathof destruction.

Use of correct components and properly designed spareparts are of equal importance during maintenanceactivities and manufacturer’s guidelines should be properlyadhered to.

In 1997, a gas turbine was fitted with a set ofrefurbished turbine blades and was put back into normalservice. The manufacturer advised that the refurbishedblades had a reduced life-span, but the operator ran themachine to and beyond the recommended service limit.The blades subsequently failed due to a fatigue mechanism,which resulted in the total destruction of the machine.

The Way ForwardIt is a business desire to continue improving and thereare larger risks associated in not doing so. Within thepower generation business arena, the manufacturers ofgas turbines have been forced to remain competitive bypushing the technology barrier to build larger and moreefficient machines to meet customers’ demands.

Historically, the use of any new technology has alwaysbeen beset by failures and upsets in the initial stages, butover time these ‘teething problems’ have been rectified. Inthe case of the gas turbines, these developments haveproved to have come, perhaps, too rapidly, and consequentlyat a high cost.

However, despite all the problems encountered by somegas turbine models, these are continuously being addressedand significant progress has been achieved on manyfronts by the manufacturers.

Drawing from past experiences in other engineeringfields, as efficiencies approach an upper plateau,there is an expectation that a greater normalisationis being achieved in this industry.

Operational Issues – continued

One example of damage caused by debris in the airsupply occurred in 1998 at a power station in Germany.Concrete dust laden air was drawn into the plant’s gasturbine, becoming entrapped in the blade cooling airsystem. The blades were cooled through use of fineinternal cooling passages and these quickly becameblocked with concrete dust. Due to the high temperaturein the affected area the dust became sintered causingcomplete blockage of the cooling passages and lack ofany cooling air supply. The affected blades thenoverheated causing significant damage to the turbine.

Fuel quality is of equal importance as rogue chemicals cancause deposits, erosion or corrosion of machine internalsleading to long term damage. Fuel pulsations as a result ofvarying fuel quality or irregular supply systems can causevibration in combustion systems and turbine areas leadingto mechanical damage that is exacerbated as it is exposedto high temperatures and further operation. Extremely fineparticles in fuel can have an effect similar to a sand blasteron turbine blading or may become embeddedwithin or stuck to blade surfaces leading to a build upof material and subsequent machine imbalances.

One example of debris within the fuel causing damageoccurred in the Dominican Republic at a fuel oil fired gasturbine installation. A fuel pump seal failed and thougha replacement was fitted, the maintenance technicianfailed to remove debris from the failed seal and left itwithin the fuel supply pipe work. On attempted start-up,the rogue material was passed with fuel to the burnerscausing a partial blockage and failure of the machine tostart. Repeated attempts to start the machine led to aninternal fire causing the complete destruction of theturbine and damage to surrounding equipment.

Hopefully all operators, especially those that have beenaffected by such problems, have learned from themistakes and are provided with more strict control overfuture activities. However, human error will always existand will never be able to be fully eliminated as a risk.

Gas Turbine Based Power Plant Hot Topics – continued


Business IssuesAs a result of deregulation in the electricity generationindustry throughout the world, a new kind of electricitygenerator has arisen, known as Independent PowerProducers (IPPs). As their name implies, these are privatelyowned, non-utility generating companies makingextensive use of gas turbine technology.

IPPs fall into two categories:• those that trade under long-term power purchase

agreements (PPAs) with electricity users or off-takers

• merchant power plants, which sell their outputon the open market and/or under short/medium-term contracts.

These create different risks and problems for insurers,especially when it comes to business interruption. A PPAmay contain provision for penalties as a result of failureto supply or unavailability of generation equipment, andmay obligate the IPP to purchase replacement power if itis unable to meet its obligations through its own generation.

For merchant plants, the difficulty will be in proving itsloss in the event of an outage. One of the fundamentalprinciples of business interruption insurance is that theInsured must prove his loss, which in the case of a powerstation means proving when the station would havegenerated and the revenue that would have been earned.While this should not present a problem for plants witha PPA, it is far more difficult for merchant plants, as thesewould have to prove what they would have sold, andthe revenue they would have earned, following alengthy outage.

Equipment IssuesAs mentioned earlier within this report, many of the gasturbine manufacturers are being driven to release larger,more efficient machines as a result of market pressures,which in turn lead to a number of new and improvedmachines being put into commercial operation beforethey have been fully tested.

This has led to mechanical problems occurring duringpower plants’ testing and commissioning and/or earlyoperational phases, which have resulted in claimsagainst insurers. In some cases, the length of thebusiness interruption loss has been increased by theneed for the manufacturers to modify the equipmentto correct design faults.

As a result, it is now standard practice to classify anew model of machine as unproven (or prototype)technology until the first three lead machines of eachdesign type have run trouble-free for at least 8,000equivalent operating hours. A modification to a provenmodel will usually mean the reclassification of thatmodel as unproven, requiring it also to fulfil the 8,000hours test before it can again be considered proven.Much of the latest generation of gas turbine plants hasyet to move from the unproven technology designationto being considered proven, and is therefore subject tosignificant scrutiny by insurance underwriters.

As the equipment manufacturers strive to becomemarket leaders by releasing ‘new improved’ models, it isunlikely that the criterion of 8,000 trouble free operatinghours will ever be met by all of a manufacturers’ models,meaning there will always be unproven technology inthe marketplace.

There are many issues affectingthe insurability of gas turbinebased power plants, not onlyfrom the equipment itself,but as a result of the changingregulatory environment.

Insurance Issues


Both types of IPP may have Take or Pay liabilities underfuel supply agreements (FSAs), which they may seek toinsure. Many FSAs contain a ‘truing up’ mechanism oversubsequent contract years, which extends the period inwhich the business is affected beyond the policy maximumindemnity period, and which further complicates theadjustment of a claim.

Insurance Market PracticeMany insurance carriers are reluctant to underwriteunproven technology equipment based on the mechanicalbreakdown and business interruption risks, partly becausethe lack of historical performance-based information onthe equipment makes it difficult to estimate futureperformance, and partly because of the experience offailures among improved or prototypical equipment.

For most insurers, it is now standard practice to imposea variety of design defects exclusions to the insurance ofunproven technology turbines. While the cost of rectifyingsuch defects may be covered under the manufacturers’warranties, any ensuing damage to non-warranty itemsand the consequential loss of revenue and/or other costs(such as replacement power costs) will be left with thepower station owners.

In addition, it is usual for insurers to cap the indemnityavailable under business interruption policies, especiallyfor merchant plants, to a per diem or per mensem amount,to avoid the possibility of a disproportionate amount ofthe business interruption sum insured being payable duringa relatively short outage, which might otherwise be thecase if the outage coincides with a period of high spotmarket prices.

The minimum business interruption deductible availablefor power generators is (with few exceptions) 60 days,and deductibles of 90 days or more might be applied ifthe technology is unproven.

Insurers also require detailed business interruptionunderwriting information, including worksheets breakingdown revenue and expenses on a month-by-month basisto enable them to identify seasonal variations.

Much progress has been made by manufacturers andoperators of gas turbines, and all sides have learned frommistakes of the early years of development.

In the short and medium terms, we can however continueto expect much unease from insurance and reinsurancecarriers in respect of all the exposures involving the newgenerations of gas turbines.

The provision of very detailed technical information,and the demonstration of thorough quality assuranceprocedures will inter alia remain a key success factor forcompleting the broadest available risk transfer programme.

Insurance Issues – continued

Gas Turbines Technical Report

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