frankfurt (germany), 6-9 june 2011 dr david hughes and paul barnfather ea technology uk david hughes...
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Frankfurt (Germany), 6-9 June 2011
Dr David Hughes and Paul Barnfather
EA Technology
UK
David Hughes – UK – Session 6 – Paper 0088
Building Risk Based Investment Programmes
Frankfurt (Germany), 6-9 June 2011
Approaches to defining/quantifying RISK
1. High level, top down
2. Asset based, bottom up
Frankfurt (Germany), 6-9 June 2011
High level, top down risk processes Define risk categories – network performance, safety,
financial, environmental, reputation etc Create ‘probability v severity’ matrices in each
category Build a risk register
Relatively easy – achieved quickly involving a few people
Useful – defines corporate values/priorities and identifies significant areas of risk
Frankfurt (Germany), 6-9 June 2011
Asset based, bottom up risk processes
Use of detailed engineering knowledge, experience and asset data to build asset specific risk models
Reference and refine corporate values Evaluate specific investment programmes down
to individual asset level Enables comparison of cost/benefit across wide
range of investment programmes Leads to financial optimisation of investment
plans
Frankfurt (Germany), 6-9 June 2011
Building an asset based risk process
Requires more work than a high level, top down model
Engage with a wide range of engineers, asset managers within a DNO
Access, qualify and use information from (disparate) various sources
But it is quite possible Inclusive, engaging, empowering process
Frankfurt (Germany), 6-9 June 2011
Application to condition based replacement
Condition Based Risk Management (CBRM)(papers in CIRED 2003,2005,2007&2009)
Practical process developed and applied with 40plus Electricity Companies worldwide
Define and quantify current and future condition, performance and risk of individual assets – built from detailed engineering knowledge
Risk – multiple categories all expressed in monetary terms - £, €, $
Frankfurt (Germany), 6-9 June 2011
Output from a CBRM model
Current and future condition linked to POF
Current and future risk with different investment programmes
Breakdown of Risk by Category
$0
$100,000
$200,000
$300,000
$400,000
$500,000
$600,000
$700,000
$800,000
$900,000
$1,000,000
Year 0 Risk Profile Year 10 Risk Profile, nointervention
Year 10, 3% Replacement Year 10, TargetedIntervention
Val
ue
of
Ris
k
Netw ork Performance Safety Opex Capex Environmental
Frankfurt (Germany), 6-9 June 2011
Optimising investment, balancing cost against risk (both expressed as £, €, $)
Define optimum investment for a single asset group or across multiple groups
Demonstrate major savings for same overall outcome
Individual asset
$0
$50,000
$100,000
$150,000
$200,000
$250,000
$300,000
$350,000
$400,000
$450,000
$500,000
$550,000
$600,000
0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20
Year
Discounted investment
$0
$50,000
$100,000
$150,000
$200,000
$250,000
$300,000
$350,000
$400,000
$450,000
$500,000
$550,000
$600,000
0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20
Year
Discounted investment
Discounted delta risk
$0
$50,000
$100,000
$150,000
$200,000
$250,000
$300,000
$350,000
$400,000
$450,000
$500,000
$550,000
$600,000
0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20
Year
Discounted investment
Discounted delta risk
Total cost of replacement
Optimum replacement
period
$0
$50,000
$100,000
$150,000
$200,000
$250,000
$300,000
$350,000
$400,000
0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20
Year
Discounted delta risk Discounted investment
Total cost of replacement
$0
$200,000
$400,000
$600,000
$800,000
$1,000,000
$1,200,000
$1,400,000
$1,600,000
$1,800,000
0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20
Year
Discounted delta risk Discounted investment
Total cost of replacement
Asset with life remaining
Asset due for replacement
Replacement Profile for Years 1-20
0
10
20
30
40
50
60
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20Year
Nu
mb
er
rep
laced
Future investment plan
Asset group
$0
$2,000,000
$4,000,000
$6,000,000
$8,000,000
$10,000,000
$12,000,000
$14,000,000
$16,000,000
$18,000,000
CBs Txs RMUs OHLs Cables
Current risk
Optimum future risk Yr10
Frankfurt (Germany), 6-9 June 2011
Extending the approach to LOAD related investment
Quantify; The consequences of increasing load – network performance
consequences/risk The benefits (reduction in network performance risk) of investment
options
Enable; The clear expression of the synergies between load and non load
related issues Provides a direct means of optimising plans
across the 2 major investment streams
Frankfurt (Germany), 6-9 June 2011
Further development/opportunitiessmart grids and low carbon networks The same approach can be used to
evaluate investment options in any area e.g. ‘smart grids’ and ‘low carbon networks’
This is not rocket science, it requires a structured approach to quantifying benefits in well defined, tangible terms
Frankfurt (Germany), 6-9 June 2011
Conclusions
Asset based, bottom up approaches to risk Are viable and very effective (see CBRM) Are being extended to include load related investment Offer the opportunity to prioritise, justify, optimise programmes
across all investment streams
If you want build effective risk based processes-:Engage with and trust engineering knowledge and
experience(Its one of your most significant assets)
Frankfurt (Germany), 6-9 June 2011
Thank you for your attention
For further information please contact me via the EA Technology stand (D69) in the
exhibition hall