Digging into the hidden cost of electrical equipment
In a recent survey of primarily Canadian mining and oil sands professionals, 70 per cent of respondents estimated that hidden costs typically add 10-30 per cent to the purchase price of their power distribution equipment. Surprisingly, fewer than half even track total cost of ownership (TCO), and at least two-thirds fail to account for hidden costs such as repair, downtime, late delivery, reconfigurations and consulting costs.
Electrical infrastructure represents 15 per cent of capex for a typical mine or oil sands application. As operations strive to control costs, they are increasingly using centralized purchasing agents to select their vendors of electrical equipment. This works well for off-the-shelf products, but for custom products the vendor’s engineering team should have at least an equal share in the selection process.
Compared to stock products, custom electrical equipment is more complex and has a compressed design and manufacturing cycle, and that’s why vendor experience and capabilities are important considerations when selecting a supplier for portable power distribution centres, mine electrical substations and other modules for protection and control.
Consider these stories: a vendor promises an unrealistic delivery date to an operation in Northern Canada and subsequently misses the seasonal ice road and the equipment had to be delivered by air, at a cost of $35,000.
Or, a potash mine receives equipment with cable connectors located in the same spot where the loader would contact the equipment in order to push it into position. Maintenance workers are required to drill out and move the connectors thus adding an unexpected $8,000 to the cost of the equipment.
And even worse, a situation where an open-pit operator learns the power distribution centre was precisely built to U.S. standards rather than the needed Canadian standards. The inspector would not approve it and it ended up in the scrap yard as a $250,000 storage closet.
Each of these stories are true stories of what happens when managers put too much emphasis on the initial equipment purchase price. They may have thought they would save money by selecting a low bidder but in the long run, the true cost was much higher.
The discipline of considering all the costs of a purchase, including its maintenance and service life, is called Total Cost of Ownership (TCO).
To better understand the role of TCO in organizations, our company conducted a survey in 2014 of engineers, purchasing agents, electricians, and managers in mining, oil sands, and oil & gas companies. Here’s some of what we leaned.
Organizations do not pay enough attention to TCO
Two out of three respondents failed to include one or more hidden costs, such as repair, downtime, late delivery and outside consulting costs.
Hidden costs are significant
In the survey, 70 per cent of respondents estimated that hidden costs add 10-30 per cent to the purchase price of equipment. Some respondents (14 per cent) put the figure as high as 30 to 40 per cent.
Half don’t track TCO
Only about half of the respondents said that their organizations track TCO, and of those who do, fewer than 5 per cent use TCO tracking software. This finding suggests that for many companies, TCO is an informal process that may not be robust enough to inform decision makers during the vendor selection process.
Downtime is a costly part of TCO
Mining and oil sands operations are particularly sensitive to the cost of downtime. Because the value of their output varies with market prices, these industries strive to operate as efficiently as possible. However, production is efficient only when it can continue without interruption. When survey respondents were asked to rate factors in vendor selection, they ranked downtime costs number two, after equipment purchase price. In these industries, the cost of downtime can be as high as tens of thousands of dollars per hour.
Gaps in gound fault protection can add cost
One particular example of equipment failure is an electrical ground fault. Ground faults, if left undetected, pose a shock hazard to workers and can cause costly equipment damage and downtime. If a ground fault damages an electric motor resulting in a machine, fan, pump or other equipment failure, it can have serious impact on production. It’s even worse if a power distribution centre fails: all equipment powered by that centre is idled, and a spare may not be readily available. That’s why critical equipment is usually protected by a relay that will report a ground fault (while equipment keeps operating) and will trip if the ground fault reaches a high value.
The challenge comes with the increased use of variable-frequency drives (VFDs) used to control motors more efficiently and reduce energy consumption. VFDs come with built-in ground fault protection, so operators think that the equipment and workers are safe from ground faults. Actually, because mines and oilfields operate on resistance-grounded electrical systems, the ground fault current is limited to a few amps, not enough current to trip the ground fault protection that is typically provided on VFDs.
Few managers are aware of this problem, and wrongly assume that workers and motors are protected, when in fact they are placing both at risk. According to the survey results, 76 per cent of respondents use ground fault protection built-in the drive, and 16 per cent of respondents don’t use any ground fault protection on drives.
An ancillary ground-fault relay costs more initially, but it could save thousands of dollars in downtime, replacement parts and liability costs. Engineers and purchasing agents need to consider the value of this protection when reviewing equipment bids.
Electrical safety is also part of TCO
The cost of an electrical accident should be considered during vendor selection. Worker injury or death means medical costs, lawsuits, fines and downtime. Total costs per electrical incident can exceed $15 million.
Electrical shock is amazingly common. It is estimated that 30,000 workers are shocked each year, and electrocutions are the fourth leading cause of traumatic occupational fatalities in the United States. In mines, a harsh work environment and relatively high voltage make shock a particular safety concern. A good example is a dewatering pump. These have long power cables, operate at 600 volts, and work in wet environments. In many applications the pumps must be manually repositioned, which puts workers at special risk of shock.
Fortunately, there is a new UL standard for industrial ground-fault circuit interrupters (GFCIs) that trip at 20mA instead of the 6mA trip setting of residential GFCIs. This makes their use practical in mines and oil sands operations, where a high trip setting is needed to prevent nuisance tripping.
The majority of survey respondents (61 per cent) said they don’t use GFCI protection on pumps. This suggests that either respondents do not know about the new standards, or they do not include shock protection in their TCO analysis.
Electrical arc flash is another hazard that should be considered. An arc flash is an explosion caused by a sudden release of electricity. It can release as much energy as detonating a charge of TNT and produce extremely high temperatures. Medical costs per person can exceed $4 million for severe electrical burns.
Arc flash risk is a concern in mines, not just in general but because accumulated dusts bearing coal, metals or salts that can increase the risks of arc flash by providing an unintended path around insulators. Electrical equipment needs to be sealed and any vents filtered to prevent dust accumulation. Not all equipment vendors take this step.
Fortunately, high-resistance grounding prevents an arc flash from forming if the fault involv
es a ground fault, and ground faults constitute 95 per cent of arc flash incidents. However it cannot stop an arc flash caused by phase-to-phase faults, which can be caused by a dropped tool, a misplaced test prod or a slipping component. Because many phase-to-phase faults occur when electricians or maintenance personnel are working in an electrical cabinet, they are particularly dangerous.
Arc flash relays are available that detect light from an emerging arc in 1ms and quickly interrupt the circuit. They are easily retrofitted into existing electrical enclosures. Nevertheless, the survey shows that more than half of respondents don’t use arc flash relays, and 10 per cent don’t have any arc flash protection. A large majority (74 per cent) does use some kind of arc flash mitigation, but only arc flash relays stop phase-to-phase arc faults. The application of arc flash relays is a small investment compared to the costs of an electrical accident.
Moving beyond TCO: the best value model
To conclude, industry professionals could do a better job of accounting for hidden costs when they purchase electrical equipment. To obtain the best return on investment, companies should move beyond simple TCO and embrace a more sophisticated approach by rating prospective bids/vendors across 11 categories, such as reputation for on-time delivery, engineering capability, and relevant industry experience.
Tyler Klassen, P. Eng. is Sales Engineering Manager, Custom Products, Littelfuse Startco, a Saskatoon-based company supporting the electrical distribution needs of mining and oil & gas operations.
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