Itemized sourcing: everybody else is doing it, so why can't we?

Itemized sourcing is the new mantra in the business. Basically, it means that you should split the BoP (Civil and Electrical works) in as many lots as possible, in order to achieve substantial savings. This strategy is the opposite of the “single subcontractor” approach, where you give the full package to a unique contractor or at least few of them.

What are the benefits of itemized sourcing? In addition to the possibility of achieving a lower price you also have more control on the purchase of critical items (for instance the main transformer).

Additionally, our friends in Procurement (for instance my role model Ignacio) can create PowerPoint slides showing huge savings to the rest of the organization.

The untold story is that there is no free lunch. What you are achieving is simply a different risk profile for your project: if the truck driver destroy your transformer against a bridge that is a few centimeters too low or if the foundations are build in the wrong place (believe me, both example are from real projects) you will have an hard time to recover your losses - because you purchased the transformer by yourself, or because you have in your pocket many small contracts with low liquidated damages.

Let’s assume that you split a 10 ML USD contract in 5 smaller contracts worth 2 ML USD each.

You will be able for sure to achieve substantial savings. However several other things will happen as well:

  • You should tender every smaller contract separately. Therefore an additional effort is needed from the Tendering Department and from Procurement.
  • Some big subcontractors will decline the job, because the size of the job is too small for them.
  • You will need to discuss the contract (at least) 5x times – 10x if you have more than one option on your table.
  • Unless the applicable law for your contract is something like Sharia (with dispute resolution in Riyadh) you will not be able to claim more than 100% of the value of the contract (2ML) from them. However your exposure toward the customer will be 10ML plus the value of the turbines. If one of them has a problem your risk will be huge.
  • In the real world is often not so easy to understand who is causing a delay. Sometimes there are concurrent delays, sometimes it was not clear who was expected to do a job, other time a finger pointing game start. The more the subcontractor, the more the risk.
  • Lastly, during construction you will need (at least) 5x more effort from the Contract Manager – and for the Site Manager, Project Manager and all people on site.

Don’t get me wrong – I understand that sometime there is no real alternative to make the project fly. However, before you embrace the itemized sourcing of the BoP as the solution for all your problems, you should keep in mind the additional work (try to negotiate 10 contracts in parallel) and risk that you are taking on board.

I can’t believe they invented it: “factual” vs “interpretative” geotechnical report

One of the things I’d like the most about my job is the fact that I still learn new things, even on topic were I wrongly believe there is not much more new to see.

This week during a telco with my accomplice in crime Eduardo I’ve discovered a new trick that I suspect has been invented by someone in the US (or possibly in the UK) – the split between “factual” and “interpretative” geotechnical report.

In the countries were I’ve worked until today, the geotechnical survey is usually a huge package of documents full of formulas, picture, diagrams and numbers. I’ve been never touched by the idea that part of the content was somehow different.

However, I’ve discovered that somebody (I bet a lawyer) introduced this categorization.

The Geotechnical Data Report (AKA the “Factual stuff”) would be the part including things like:

  • Pictures
  • Boring logs
  • Trial pits logs
  • Field test (SPT, cone penetration, etc.)
  • Laboratory data (water test, CBR, etc.)

This is the type of things that could safely land in a contract and that should be shared and used by the subcontractor.

However, a civil engineer would like to see other information to do his work. He would expect the type of information that should appear in the Geotechnical Interpretative Report (AKA the “don’t rely on me stuff”), with things like:

  • Ground behaviour of geotechnical units
  • Slope stability
  • Seismicity
  • Geotechnical cross sections
  • Construction methods and proposed technical solutions

Basically, nothing connected with design and construction.

Know you know that, wherever possible, you should ask to the geotechnical survey company for the full package (factual + interpretative) but keep them separate – at least if you face a big project with a high geotechnical risk.

Said that, I also want to reiterate my opinion that a good geotechnical survey can make the difference between a successful project (at least for roads and foundations) and a nightmare project with claims and over cost.

It might be difficult to find the budget for this kind of investigation in the early phases of the project but believe me, it’s worth every euro that you will spend on it.

Financial securities: what's that all about?

A financial security is an instrument to give a party (for instance, the buyer of a wind turbine foundation) an assurance that the seller (in this case, the company that build the foundation) will perform according to his obligation (that is, will comply with the technical and commercial requirements).

They can have different names – the most usual are “Bonds” and “Guarantees”.

The main difference between the 2 is that a bond is stronger – you can draw upon a bond simply asking the money to the bank, while with a guarantee you need to demonstrate that there is a breach of contract before getting the money.

An additional problem with guarantees is that they are linked to the specific contract in place. Therefore changes to the contract (and changes during construction happen really often) could potentially invalidate the guarantee.

There are quite a few bonds / guarantees that are usually used in a wind farm construction contract.

The most frequents are usually linked to the following  topics

  • Advance Payment: the subcontractor receive money upfront to start the works, but he has to give a bond in exchange.
  • Performance: this bond is draw upon if something goes wrong during the execution of the contract.
  • Warranty: this will cover the obligation of the subcontractor after the execution of the project.

There are other Guarantees frequently seen in the business – one is the Parent Company Guarantee, that  you are going to ask if you are working with a small company that belongs to a greater industrial group with a more solid mother company and the other is the Letter of Credit, that you are normally asking to a bank to confirm that the buyer of your product (for instance, expensive wind turbines) will pay for it.

Bonds, warranties and similar stuff are not free – you have to ask them to your bank and they will cost money, and obviously the bigger the bond the higher the price. Therefore the value of each security, normally expressed as a percentage of the contract, is usually subject of never ending discussions and negotiations between the parties.

Environmental impacts of wind farms

When I talk about my job with people coming from different businesses I receive often question linked to the “environmental impact” of wind turbines.

This term include various effect related to the construction of a wind farm. They can be summarized in the following categories:

Visual impact

Are wind turbines ugly or not? This is a difficult question. Probably I’m biased, but I think they are beautiful – or at least, better than a nuclear plant, unless you like concrete cooling towers. Some nacelles shape have been designed by artist (like the first Acciona models) or architects, like Enercon’s egg shaped solution. It has been designed by Sir Norman Foster and has been awarded with the Design Council Millennium Products Award, the same prize given to beautiful stuff like the Lotus Elise.

However in several countries a specific study is done to evaluate the visual impact of the turbines. There are several indicator and methodologies, however this is usually done considering the “weighted” average height of the horizon before and after the construction of the wind farms.

Noise generation

New generation turbines use a lot of tricks to keep noise low. Noise is coming above all from the tip of the blade, being the rotating equipment in the nacelle only a secondary source. The “easy” way to limit noise is limit the tip speed of the blade. Other strategies involve special profiles for the blade and software control of the machine to limit noise emission when needed (usually during the night, and/or when the wind is blowing from specific directions).

Electromagnetic interferences

This is easy to measure. In general electricity is generated at a low voltage (around 700 Volt) and MV cables are buried, so this impact is negligible.

Shadow flickering

This is the risk that someone living near the wind farm could experience, for a prolonged length of time, the intermittent shadow of the blades passing in front of the sun. This impact is relatively easy to simulate: there are software that, given the position of the turbines and the meteorological parameters (wind direction, percentage of sunny days) calculate the amount of time an observer located somewhere near the turbine would experience the flickering.

Bird strikes

One of the most discussed issues. You will find quite a lot of studies online, done in countries were wind energy and environmental sensibility is well developed (US, Germany, Spain, etc.). In general my impression is that, compared with other causes of bird death (hunt, high buildings, traffic, etc.), impact with turbine is accountable for a very small percentage.

Additionally modern wind turbines can be equipped with a lot of technology that minimize this risk (bat detectors, LIDAR systems, artificial vision, etc.). I had the pleasure of working at projects were the space between machine was large enough to lower the risk of impact, and additionally the turbines were stopped when migrating birds approaching the wind farms were detected.

 

Key milestones in wind farm development

The development of a wind farm project is characterized by several milestones linked to contractual obligations of the parties.

The most relevant milestones are marked below. They are in chronological order, and some of them could not appear in a specific project (for instance, not all projects have a limited notice to proceed or the payment milestones can vary a lot from project to project).

Limited notice to proceed (LNTP): in this milestone an agreement is reached between the party to perform some works (for instance, to purchase some long lead time item, such as the substation main transformer). It makes sense when it’s necessary to accelerate the project for some reason.

Advance payment: this is a down payment paid by the customer before the start of the works. It is usually done to secure the production slot of the turbines

Commencement date: in this milestones, all condition precedents are met and the contract is activated.

Payment milestones: every contract has different payment milestones (and different percentage of payment associated with each milestone). However, some “standard” milestones are marked below to give you an idea of how they could look like:

  1.                WTG ex works
  2.                WTG shipped
  3.                WTG erected
  4.                WTG commissioned

Mechanical completion: in this milestone, a certificate is issue stating that the wind turbine has been erected following the relevant technical specifications and it’s ready to start Commissioning

Commission certificate: at the end of commissioning (a set of test done to confirm that the turbine is ready for production) the turbine is ready to start trial operations. A certificate is issued to formalize this fact.

Taking over certificate (TOC): this milestone is usually linked to transfer of risk and beginning defects liability period for a specific turbine (the “defects notification period”).

Provisional acceptance: from this point in time, usually an Operation and Maintenance contract for the wind farm start.

Final acceptance: in this milestone the customer formally accept that the wind farm is complete, fully operational and compliant with the relevant technical specifications.

Strength in Numbers: the multi rotor, 12 blades turbine concept

Picture courtesy of wind-turbine-models.com

The idea is not new: for instance around 1800 some “twin” mills have been used to pump water in Denmark and there are quite a few similar concepts and international patents dating the first half of 1900 - see for instance the drawing  below.

What is interesting here is the size of the company testing the idea – Vestas has installed approximately 1 year ago a multi rotor wind turbine, using old refurbished V29 nacelles equipped with new sensors and electronics. Blades tip distance is less than 2 meters.

I’m sure that people who think that wind turbines are ugly will think that this solution is atrocious. For me it’s a quite interesting “out of the box” exercise in a business where rotor diameter has been relentlessly growing in the last decades (V29 is from the ’90… twenty-something years later we have V112 and bigger models).

The benefits are self-evident: greater swept area, saving in tower and foundation, less land use, etc.

The challenges are equally impressive: a whole new set of loads to consider, a system that can easily become unbalanced, increased turbulence and so on. It's early to say if it will ever become commercially viable but it is for sure an interesting experiment.

Characteristics of wind turbine blades

Maintenance of a wind turbine blade

The most elegant element of the wind turbine is, at least for me, the blade.

Blades are currently reaching incredible lengths (onshore we are almost at 70 meters, offshore they can be even bigger) and, as I discussed in this post, can be made of several materials.

The cheap solution is fibreglass, more heavy, while the technological advanced, lighter (and more expensive) solution is carbon fibre. They are submitted to several loads of different origin – not only aerodynamics but also inertial, gravitational and other loads induced for instance by ice.

The main design drivers are aerodynamics, aeroelasticity (the correct damping of the blade) and fatigue behaviour.

But there are other technical requirements, and more technology hidden in the blade:

They must resist lightning. For this reason they often incorporate metallic elements to conduct the electricity to the tower and from there down to the ground. Lightning strikes are a relatively frequent – so frequent that there is a specific norm on the topic (IEC 61400-24). They usually hit the nacelle or the blades. The surprising part is that many lightning striking the turbines are upwards – that is, they go from the turbine to the sky. The metal conductor, usually in copper or steel, can be embedded in the surface of the blade or can be inside it.

They must resist ice. Some models include a mechanism (usually fan heaters or resistors) to warm them and avoid the accumulation of snow and ice, pernicious for stability, production and potentially even dangerous for people working in the area. There are also microwaves solution, that have a low energy consumption, and “defensive” (or preventive) solutions, such as hydrophobic foils. Basically, the ice will not stick to the blade.

They must resist erosion. 20 years of UV, sandstorms can seriously damage the surface of the blade, impacting production. Several solutions have been developed, such as special paints and epoxy or acrylic materials.

They must resist strong winds. During the life of the turbine, the blade can (and it probably will) be exposed to extreme winds.

They must be silent. A relevant percentage of the wind turbine noise is generated by the blade  - usually around the tip. In several countries it’s compulsory to reduce the noise level under a certain dB threshold.

One of the most intriguing characteristics of the blades (at least for me) is the fact that  they are “twisted”.

Conceptually, wind turbines blades works like the wings of a plane.

But on the wings of a plane, the speed is the same from the root to the tip, while on the blade increase from the root (where the blade is moving relatively slowly) to the tip (where speed is maximum).

Therefore, in order to have the correct angle of attack and keep constant the mechanical torque in each section of the blade, the angle of attack decrease from root to tip.

 

The gentle art of EPC wind farms: design responsibility

In the ideal FIDIC world there is little space for the discussion about design responsibility.

Either the Employer (FIDIC Red) or the Contractor (FIDIC yellow & silver) is going to do all (or almost all) the design.

Unsurprisingly, real life is more complicate than this. You will have an hard time trying to get reasonable offers from subcontractors without providing at least a preliminary design: subcontractors are usually bidding on many project at the same time, and their engineering department is often quite busy with running projects.

There are basically several different scenarios:

Employer provide the design, contractor build the wind farm. This happen often. In this situation, you will have a tight control over what it’s build. However, if something goes wrong it can be a problem to prove that the problem has been the construction and not the design – that is, you are left with an interface risk.

Employer provide the preliminary design, contractor provide the constructive project. This second option is very common as well. The gentle art here is to force the subcontractor to take full responsibility on the existing design.

Design “started” by employer and completed by the subcontractor. The main difference with the previous point (preliminary design for tender) is that something more detailed than a preliminary design but less detailed than a ready for construction project. Same story, you will usually want the subcontractor to warrant the existing documentation to avoid disputes.

Both design and construction provided by the contractor. This would be the “pure” EPC. In the wind energy business is not as frequent as you might think.

In general, the employer will try to retain some control on the design process and at the same time unload the risk and responsibility on the subcontractor. The gentle art consist in incorporate in the contract provision for design review.

Additionally, the employer will need to drive the subcontractor in the right direction using the proper mix of technical specification, quality requirements, industry standard and a properly drafted scope of work.

Last but not least, sometime the employer has a “main employer” or commitments with other parties (e.g. lenders) – all this obligation that can (and usually will) impact the design must be passed down as back to back as possible.

Gearbox in wind turbines

Why do you need a gearbox in a wind turbine?

The short answer is that you don’t need one – if you are using a direct drive WTG. But even if the solution without gearbox is used by several manufacturers (e.g. the Goldwind 2.5 PMDD, Enercon models, etc.) the majority of makers decided to include this technology.

Purpose of the gearbox is to increase the rpm (revolutions per minute). The blades rotate very, VERY slowly. It is also important to mention that the longest the blade, the lower is the tip speed of the blade: you do not want to increase it to avoid generating noise and to lower the loads on the blade itself.

In order to reach the correct rotational speed and generate power at the frequency needed by the grid you will need to use a gearbox between the main shaft (connected to the blades) and the secondary, “high speed” shaft linked to the rotor in the generator. The conversion ratio depend on the WTG model, but can be around 1:100.

The gearbox must survive over 20 years with very high, cyclical loads. Torque can be extreme during emergency shutdown, and is usually high during start ups. The failure of a gear box is a very big problem, as you will have a long production downtime and you will need a crane to disassembly the broken component and install the new one.

Additionally, gearboxes should be as silent as possible, have low vibrations and dissipate quickly the heat produced by the internal mechanisms. Therefore lubrication systems and vibration absorber mechanism are crucial in their design.

Gearboxes are usually built using planetary gearing system, and are equipped with several  auxiliary system. For instance, it is possible to analyse the density of particles dissolved in the lubricant oil and the way the gearbox vibrate to detect problems and predict possible failures.