The TCO Survival Guide

00:00:00 Intro

Welcome to the Power Bytes Podcast, brought to you by Caterpillar Electric Power, with your host, Ryan Karlin. Each month we deliver the latest insights, trends and cutting-edge tools to keep you ahead in the dynamic energy industry. Whether you're streamlining operations, embracing new technologies, or want to stay informed, Power Bytes is your go-to source. Join us as we explore innovations shaping the future and the resources you need to succeed. Welcome to Power Bytes, where energy meets innovation.

00:00:28 Ryan Karlin

Good morning, good evening, good afternoon – wherever you are listening today, we appreciate you tuning in for another episode of the Power Bytes Podcast. I'm your host, Ryan Karlin, and today we're going to explore why understanding the total cost of ownership (we love acronyms, so we call it TCO: Total Cost of Ownership) is critical for businesses to rely on generator sets for prime power. From fuel efficiency and maintenance strategies to predictive technology and regulatory compliance, we break down hidden costs that impact long-term performance and profitability. Let's learn how smart planning and life cycle analysis can help you make power decisions that pay off.

To discuss this topic, I want to bring in a good friend of mine, Brendan Egan. Brendan is the Director of Aftermarket Sales for Electric Power. Thanks for joining us, Brendan.

00:01:15 Brendan Egan

I'm very happy to be here. Thank you, Ryan.

00:01:17 Ryan Karlin

So, Brendan, we always like to start off these episodes with an introduction around what your role is and kind of a quick snapshot about how you got to this position in your career. Could you give us a quick introduction?

00:01:28 Brendan Egan

Yes, absolutely, Ryan. You said it: I'm the director of Aftermarket Sales for the Electric Power Division. In terms of my career, I've been with Caterpillar nearly 20 years now. All of that experience has been on the Electric Power side. I'm aware we sell things that have GET or tracks or things like that on them, but unfortunately, I haven't had any time to spend with that. What that does mean is I spend a lot of time in Electric Power. I've held roles in product support, new sales, business development, aftermarket sales, all focused on Electric Power and Electric Power customers globally.

00:02:00 Ryan Karlin

Love that breadth of experience there. I want to dive in. You said you're the Director of Aftermarket Sales for Caterpillar Electric Power. We often associate aftermarket with parts and services after the initial sale. So I'm wondering – I'm sure our listeners are wondering – why are we bringing Brendan on the episode to talk about the total cost of ownership? Can you help us understand how aftermarket and TCO are connected?

00:02:26 Brendan Egan

Absolutely, Ryan. Let's take a pause. You did a good job talking about TCO in the beginning. But really, when we say TCO, or total cost of ownership, we're looking at the total cost of a project through its lifespan. There're a lot of parts of that having to do with equipment costs, cost and maintenance, operational costs, but also costs associated with downtime. So the way that we like to think about it is the decisions that are made when a new product is specked and purchased for a program. It's really up to the aftermarket to deliver that and, in some cases, exceed it.

00:02:57 Ryan Karlin

No pressure. So when business development people like me put a number out there, the aftermarket teams have to go make that.

00:03:02 Brendan Egan

Yep, you give us the bogey, and our job is to deliver that or do better!

00:03:05 Ryan Karlin

That's right. So talking about prime power, we've mentioned that a couple of times. Why is prime power so important and connected to TCO when we're having these conversations?

00:03:15 Brendan Egan

That's a great question. When we look at any sort of project – when we say prime power versus standby – the way we'll define it in most of this discussion is prime power really means it's the normal power source, or it's interacting with the normal power source, for a given site. Standby really means that it's acting as a backup in case whatever that normal power source is fails. We can do TCO calculations for either. But if you look again over the full length of a project, standby is dominated by the capital cost of the equipment. You're talking about 80-90% of what the overall cost of that project is. Prime is exactly the opposite. It's really fuel and maintenance that makes 65% to even up to 80% of the total cost of that project over a decade long project.

00:03:56 Ryan Karlin

Now, when talking about TCO, sometimes that decision can be pretty straightforward when you're considering a gas or a diesel genset like you talked about. Typically, diesel is standby, but we talked about prime power, and there are instances where diesel may be the most realistic use for prime power.

For example, there's a project that someone on our team executed recently in the north slopes of Alaska. When you think prime power, you mainly think gas, because fuel cost and total cost of ownership. Well, this customer being on the north slopes of Alaska, you only can get out to the north slopes a couple of months a year given the ice blockage pass. So it's hard to liquefy natural gas, ship it up, store it for a couple of months out of year, and then regasification that. That would be an expensive total cost of ownership when looking at gas. Diesel, its storability, made it kind of the go-to choice for that application. But when we're looking at considerations in a normal context, that's maybe the extreme there, but a normal context, what considerations should a customer make when looking to purchase a new product?

00:05:15 Brendan Egan

Yeah, absolutely. So when it comes to the considerations or the things that have to be done when figuring out a new prime product application, as you're referencing in this, number one: gas or diesel, to your point, is really consideration number one. If we look at our over 100-year history now as Caterpillar, we've been in the electric power business a long time. If we rewind the clock back to 1940, when we started doing electric power, it was diesel. Gas infrastructure was infantile here. It wasn't really sized for this. What we've seen is gas has become more available globally. So as we look at the two sources, number one, you said it well with that great example with a remote site in Alaska, diesel can go anywhere. We can realistically bring it to almost any sort of side of this. If a site has to run eyelid mode, meaning it's not dependent on anything outside of that for some given period of time, diesel allows that. Diesel also does come with some added considerations just because of the fuel. It has higher power density with it, which means we can create more power in less space. It has much better transient response without any sort of support when compared to considering similarly sized generator sets.

Diesel does come with some considerations, such as maintenance costs. Diesel has changed over the years, so diesel fuel has to be continuously treated to make sure that it stays stable. It also does come with a lot of emissions considerations as well, depending on where it is.

In terms of gas: higher initial upfront costs. First of all, the gas has to be there, yes or no. Your comment there of transporting gas in mass for sites – that really can damage TCO calculations when compared to diesel. With this there can be higher costs because of the infrastructure. I mentioned here on the diesel stuff, it's not as good as transients. It takes a larger engine to create the same amount of power just because of the nature of the gas. However, if it is available, it really does globally give the lowest cost in terms of overall TCO when it is available.

00:07:17 Ryan Karlin

You mentioned a couple of great points there around understanding your site and the infrastructure around it, and you mentioned how there's a lot more gas availability in a lot of different parts of the world, different geographies that maybe weren't rewinding the clock when 15-10 years ago, there wasn't gas available. So this life cycle cost analysis is becoming a lot more important. When we talk about life cycle cost analysis, can you maybe break apart what we mean by that and what components go into a life cycle analysis framework or structure?

00:07:51 Brendan Egan

Yeah, absolutely. So when we talk about a life cycle cost analysis, that’s capital cost of the equipment, the cost of the maintenance, operational cost (that means the operation of manpower), the cost of fuel, and then any cost associated with downtime with that as well.

You brought up a good point here about, hey, technologies are changing. Do we always need to look at this? Back when I started with Caterpillar, we still had our 3516As, which were one of our newest product lines at that point. And we are touting like a low 30% electrical efficiency, and we now have our new Ks that are coming out at 40-plus. That is actually a really big gain. It might not sound like a lot, but tenths of a percentage point of electrical efficiency can really mean thousands in savings of fuel per year. So really understanding that and then also sizing that product correctly for that application, really every generator set has a sweet spot where it is running at its peak electrical efficiency. The better we can size a project to that, the more efficient we will be and the better the TCO of the project.

00:08:52 Ryan Karlin

And you talked about, again, prime power – if you're thinking prime power, you may be running 8,000 hours a year, you may be running that one unit with operation and maintenance up to upwards of 80,000 hours. You do that multiple times; some of these projects are years and years – 10% efficiency, 1% efficiency. You know, you do the math and that would be a big change to the bottom line when you're looking at total cost of ownership, right?

00:09:17 Brendan Egan

Absolutely. So we recommend as you're considering a new project looking at a life cycle cost analysis for any of these projects. What that's going to do, Ryan, is really look at saying, okay, for all of these considerations, what is the dollars per kilowatt hour it's going to cost us to run? Something that's really critical, as we do see some sites that just try to compare that value across: How long is this project going to run? There's a time constraint on all of this. In the aftermarket space, we still work and support customers who have sites that have been running for decades. We have rebuilt these generator sets 3-4 even five times over those lifespans for that. So it's important to consider the time constraint of how long a project will be along with what the dollar per kilowatt hour (kWh) would be.

00:10:06 Ryan Karlin

I think a great simple question for listeners when they hear an OEM or manufacturer talk about TCO is just asking “what assumptions are baked into that TCO number?” Because, as you mentioned, are overhauls included into that? Whether that's inline overhauls, major overhauls – how many hours to get to that TCO number? What assumptions are baked in? That way, when you compare TCO to TCO across manufacturers you know, if you want to get 80,000 hours out of your site, are you getting up to that 80,000 hours? And what is that TCO on a dollar per kWh basis.

We talked a lot about life cycle cost analysis and doing a robust process to understand your TCO for your expected duration of your project. One area we haven't really discussed, Brendan, and that I want to transition us into is, okay, you make that initial purchase of the genset, you have a plan. What are some aftermarket, after initial sale steps that you can take as a customer to lower your total cost of ownership and be happy at the end of the day when you look years into the future about that genset purchase?

00:11:17 Brendan Egan

When we look at the overall of a project, Ryan, that can take a year to even take a couple of years. Really, TCO is best delivered over the ownership of that project, which can last decades. In that space that really requires a maintenance strategy for a customer to have on this. A couple of keys that we see in terms of maintenance strategies overall for this are, number one, avoiding unplanned downtime. When customers run things to failure, things get very expensive very quickly. This is not only because of things like emergency freight or emergency labor, because these things happen whenever and we were not ready for them. It can do subsequent damage to the site. It also causes them downtime that wasn't calculated into their TCO.

00:12:07 Ryan Karlin

How do you avoid that unplanned downtime? Is that just being regimented with your proper maintenance schedules and not trying to be like me when I was 16 years old, avoiding the oil change and trying to get that extra 5,000 miles out of my truck? What does that kind of look like, to avoid that unplanned downtime?

00:12:25 Brendan Egan

It's a good question. Every manufacturer has their expected maintenance that we can adhere to. Additionally, there are things that can be done at sites to see if oil is holding up, if pieces need to be replaced to continue to perform as expected, that can be part of regular maintenance. With technologies as they've developed for the power generation industry, many units can now be connected, which allows us to look at things real time,  24/7,  to really help customers closely monitor how their sites are performing.

00:12:59 Ryan Karlin

And what are some of the data points that they're monitoring? Liquid coolant levels, oil levels? Can you give me a sense of what they're checking?

00:13:12 Brendan Egan

Yeah, it's kind of all of the above. What we find to be best for a maintenance schedule is mixing in things like looking at oil samples on a unit, looking at it through the lens of just unit inspections along with some of these digital data points coming through, looking for hotspots on the engine or if the generator end is performing as expected on all phases. Really the combination of this allows for true condition monitoring of the site, which really allows it to tailor the maintenance needs for this specific product in this specific application at this specific time.

00:13:49 Ryan Karlin

This may be kind of a simple question, but if you're running for 8,000 hours and unplanned downtime is, let's say, a week, so 40 hours – 40 hours out of 1,000 hours, that's a small percentage. Someone may think that's not that big a deal. But why is unplanned downtime so critical in helping achieve that TCO number?

00:14:15 Brendan Egan

So, Ryan, not even considering what the cost is to a site of that unplanned downtime (if that unit's up and running, what that's costing that site), unplanned downtime costs on average about two and a half times more. Since it's not planned there could be emergency freight, emergency labor. There can be consequential damage or additional inspections that have to be done to really understand what has happened to that product, and what needs to be done to bring it up back to its expected performance.

00:14:43 Ryan Karlin

There's kind of two pieces there: there's the more expensive, getting that generator up and running; you mentioned the two and a half times, but then also you briefly touched on the downtime of their operations. So there is a story someone told me about a meat packager in Spain with the recent outage out there. They heard from someone else that with the downtime associated with their facility of the generator going out, they had to throw out all the meat that they had. Millions of dollars lost. Again, going back to my 40 hours – you have that piece along with getting your equipment up and running again. That downtime, even though it's a small window of the year, can be a big outlier in your end-of-year analysis of how you did as a customer.

00:15:38 Brendan Egan

Speaking in general, Ryan, with a prime running product, it is creating money for a customer, whether it is supporting a manufacturing process or something else like you're referencing here or truly as a money generating, they're already into their maintenance phase and they've been installed. Many customers will just focus on the cost of a maintenance step. The better ones will look at the cost of a maintenance step versus how long that maintenance will protect them or provide them additional running time before it has to be performed again. The absolute best sites, Ryan, on these, look at also what is the cost associated with doing that maintenance? With almost every maintenance step there are multiple different ways that that they can be done. They provide different amounts of downtime with this. Really, customers understanding what the cost of my downtime is and really matching the best repair option for that maintenance step is really a great way to unlock TCO of the site.

00:16:34 Ryan Karlin

So everyone wants to be the best of the best here, myself included. It's often imitating what others do before you. And so, you mentioned the best of the best. They look at a full life cycle cost to get that lowest TCO. Can you give us an example of where a customer was able to take some of the steps we talked about and implement it to get that low TCO?

00:16:54 Brendan Egan

Yeah, absolutely. Let me talk through a couple examples of where there's been actions we've seen customers do that helped improve their regular maintenance, things they've done to help them in an overhaul space when considering their downtime. And finally, in a couple of ways we've seen customers actually increase their TCO expectations off of products that were already installed.

Starting with regular maintenance: maintenance intervals are very important to talk about in these types of spaces, as is matching those as closely as possible to remove as much downtime for specific sites. Looking at regular maintenance, Ryan, we had a prime running gas customer who was really looking at their maintenance intervals for their spark plugs and their oil. With this specific site, those were two different intervals, so they had to take down their unit to change spark plugs and then take down their unit to change oil. The customer looked at this, they chose albeit a slightly more extensive spark plug, but the real benefit to the site was the reduced maintenance downtime associated using that spark plug. They were able to match their oil interval, which meant that they were experiencing 50% less downtime associated with regular maintenance.

Overhaul space: We talked a little bit before about considering how much that cost of downtime costs for a specific site. An overhaul is when we're going into an engine to change out major components or bearings through its life cycle. It is a large consideration in terms of downtime. We had a site where they had multiple prime running generator sets that were coming up on a large overhaul cycle that was going to cost them a lot of downtime. They were looking at spending about a month on major overhaul for each of these generators sets using just piece parts to do the work. Instead of doing that, they used a slightly more expensive repair option; we call it a short block. This is a short block that comes from the factory with pistons and a crank in it, which shortens the interval that it takes to do a major overhaul. The downtime for a major overhaul for that site is down from one month to one week. They were able to do all their overhauls much more quickly, but more importantly, the downtime associated for each of those material overhauls was cut down by 75%.

The final example on upgrades: Projects lasts for decades, and technology continues to get better and better. What we find is that there are opportunities that customers can take advantage of to utilize new technologies that have come out since their product was installed that can help them perform better. As an example with one customer that we had in a prime generator set application, when they were doing their major overhaul, they installed an upgraded fuel system. This helped them increase their fuel efficiency by 6%, which resulted in thousands of dollars of fuel savings for that site per year. That was not part of their original TCO calculation and brought additional benefit to that customer with that site.

00:19:47 Ryan Karlin

Awesome. Well, I know we're coming up on time here. I'm going to wrap up the conversation, but Brendan, I just want to say thank you for coming on. It's been great understanding what TCO is, how we can go back to that best of the best category, what customers can do to help lower their TCO, and it's been insightful for me and I'm sure it has been for the audience, so thanks again.

00:20:10 Brendan Egan

Its been a lot of fun. Thank you very much for the opportunity.

00:20:12 Ryan Karlin

All right, that's it for another episode of the Power Bytes Podcast. I'm your host, Ryan Karlin. Thank you for listening, and I look forward to talking to you all next time.

00:20:20 Outro

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