Aiming to become the leading European fossil-free energy provider
Swedish state-owned power company Vattenfall wants to be fossil-free in a generation. But it needed to release cash to help move toward that ambition. To become best in class, it needed our hydro benchmark analysis to identify the cost saving potential related to maintenance and refurbishment of the asset base.
Our experts provided this benchmark analysis to identify where Vattenfall stood in the market and to measure the cost-saving potential related to maintenance and refurbishment of its asset base. Any savings could then be redirected to exploring greener means of producing power.
Our team worked with Vattenfall to understand its position in the market as a fossil-free energy producer, evaluate its asset base, identify areas for improvement, and redefine its asset management value chain. We used our hydropower program – underpinned by the largest global hydropower benchmark database – as the foundation of the asset management analysis. Using our proven benchmarking methodology, our team compared Vattenfall’s hydroelectric production costs with its peers in the energy industry and found potential savings of around 20 percent of its annual costs that it could control.
To capitalise on these savings, we partnered with Vattenfall on restructuring its asset management value chain. In particular, we enabled Vattenfall to centralise the function that plans and prioritises maintenance work. Moreover, our team clarified functions, roles, and responsibilities to create accountability through the whole value chain and enable ‘line of sight’. This will mean the most valuable projects get priority and happen at the right time and scope to secure maximum value. It will ultimately mean Vattenfall can focus more resources on boosting its non-fossil fuel infrastructure.
Setting a new ambition
- Spotted cost savings of about 20 per cent a year that Vattenfall has now targeted.
A proven formula
- Applied our energy sector experience and a tried-and-tested benchmarking formula – underpinned by the largest global hydropower database – to analyse operations and identify tangible improvements.
Getting priorities right
- Made decision-making more effective by centralising the team that prioritises maintenance projects.
Bridging the gap
- Based on the findings of the benchmarking analysis, we identified areas where Vattenfall could close the gap on its competitors.
Understanding Vattenfall’s market position
Vattenfall is one of Europe’s biggest energy generators. The Swedish government-owned business has facilities including nuclear power stations, wind, and solar farms, and hydroelectric plants. Its operations extend to Germany, Denmark, the Netherlands, the UK, and Finland.
The business had ambitions to be the leading fossil-free energy producer in Europe. But it needed an expert partner to carry out a benchmarking exercise against its competitors to better understand its current position in the market. Vattenfall drew on its long-standing relationship with our energy team to help complete this.
Vattenfall had done several benchmarking exercises with us over the years and knew our energy industry expertise could help it get clear insights into both costs and the value it could create in the business. This was particularly important as Vattenfall work towards its ambition to be fossil-free in a generation.
To analyse Vattenfall’s costs, our energy and cost experts compared them with its peers in the energy sector. Using our experience in the industry and our own benchmarking formula, we assessed what maintenance should cost across its hydroelectric plants. The results showed that Vattenfall had a cost-saving potential related to maintenance of about 20 percent, compared to the energy producers who were at the top of our benchmark analysis. Vattenfall needed to understand how to bridge the gap.
Analysing and seizing the opportunities
Following the benchmarking, the next phase was to analyse the business’s processes and spot opportunities for cost saving. This enabled Vattenfall and our team to validate the conclusions from the benchmarking, as well as helping the business control costs and realise more value from its spending. Josefin Westman, PA operations excellence expert, said: “It meant working with all levels of the company, through interviews and workshops. By involving everyone, we gave them insights into the issues we found and got them involved in making any changes needed.”
Our business design specialists found that Vattenfall sometimes bypassed parts of its decision-making chain, for instance by green-lighting larger maintenance work before properly assessing what, if any, the risks of not doing the work were. This meant it was not able to optimise the cost to the actual risk. Hence, maintenance and refurbishment were not optimised in time and scope.
“Maintenance and refurbishment were often started sooner and with a bigger scope than was optimal, and so didn’t get maximum value for its investment.” explained Espen Odderbo, PA asset management expert. “By using a bottom-up analysis approach, we helped Vattenfall assess the cost of unavailability and repair cost for both possible failure and for planned repair.”
Rebuilding the decision-making process at pace
With Vattenfall onboard, the joint team focused on every part of the decision-making process, from the most senior levels down, to find ways to improve. Vattenfall’s value chain starts with gathering data about its assets, whether it’s from data sensors or inspections. It then analyses that data in a way that makes risks clear and shows the potential value of any planned refurbishment or maintenance. Others then evaluate the cost benefit of projects and make decisions about which work to do, and in what order, to create an asset strategy and a maintenance plan. Westman explained: “They can only do this well if the cost benefits of the work are clear.”
Vattenfall was making these decisions inconsistently, so we recommended strengthening the central planning function to give a clearer view of priorities. “This will also make clear what information the company needs to make good decisions, which in turn will help other parts of the value chain work better,” said Odderbo.
Positioning for a greener future
This new operating model means Vattenfall can have the right capabilities in place at each stage of the process. “Putting all the decision-making in one place above a certain project size makes it more likely that the company gets the best value for its maintenance investment,” said Odderbo.
The benchmark analysis has set Vattenfall on the way to saving 20 percent of its influenceable costs a year. That will put them in a position to speed up the transition to renewable energy sources and realise its fossil-free ambition.