Labor Crunch Complicates the Gas Turbine Arms Race

The rate of introduction of new gas turbine products has accelerated, and the speed of change creates challenges for engineering, procurement, and construction (EPC) contractors who are also coping with a more-demanding labor market.

Consumers are the ultimate beneficiaries of gas turbine improvements in efficiency, flexibility, and power density, and power plant owners are trying to keep up with the changing technology in order to offer affordable and reliable electricity with ever-more-stringent emission constraints. Implementation of new advanced technology often falls on the EPC contractor, who is pressured for price and schedule certainty while integrating the new technology, often for the first time. The stakes are often high, and it is not a game for the meek.

Continued Technology Change Ahead

Improvements in gas turbines have historically been evolutionary, with only an occasional revolutionary product change. Improvements in alloys, thermal barrier coatings, and aerodynamics resulted in better efficiency and greater output from the same frame and footprint.

More recently, the drive for larger, more-efficient, and more-flexible gas-fueled power plants has led to more-rapid revolutionary changes and essentially new products, regardless of manufacturer naming conventions. Compressor changes, turbines with more power stages, and new packaging concepts are a few of the significant changes leading to larger units and higher power density. Most manufacturers have recently introduced or announced new gas turbine designs, each one larger, more efficient, or more flexible than their competitors’. The gas turbine arms race is evident.

Managing the Risk of Technology Change

Buying the next evolution of a product has inherent risks, depending on the extent of the improvements. Buying the first of a new high-technology product is sometimes a leap of faith and often comes with commercial benefits to offset the risks. Once the technology decision is made, the owner usually turns to the EPC contractors to share in some of the risks of integrating the advanced technology turbines into an overall plant design, accentuating all of the design enhancements in starting times, faster ramp rates, and lower minimum output while maintaining full emissions compliance.

Power plant design and construction with a new technology unit involves greater uncertainty that is difficult for the EPC contractor alone to manage. It is critical to ensure that the performance risks that are specifically related to new technology remain with original equipment manufacturers, because only they can manage these risks through design and manufacturing margins and commercial assurances. The parameters of the supporting balance-of-plant systems are usually understood, but some of the detailed metrics of the new unit itself are not finalized until manufacturing and shop details are quite far along. Sequencing the flow of information creates challenges from the very beginning of EPC estimating, scheduling, and bidding. Some owners recognize the risks and prefer to share them through qualification-based negotiation rather than pay for them through firm price EPC bidding.

Schedule risks associated with the implementation of new technology hinge mostly on the manufacturer’s ability to predict and meet planned equipment production and deliveries. There are often surprises during final design and manufacturing of a new technology unit, some of which spawn changes in dimensions or arrangements of equipment packages on the unit base and in supporting equipment. Changes in the factory can result in changes in the field or delays in production and shipment of key components.

Tightening Labor Market

On top of technology advancements, EPC contractors must also manage risks associated with the current tightening labor market. Industrial labor demand is expected to increase significantly through 2018, with labor escalation rates more than double the previous four years. Much of the increased demand is due to many large industrial projects already under construction, with more planned, particularly along the U.S. Gulf Coast. The number of trained and experienced craft workers, as well as their productivity and quality of workmanship, will have a dramatic impact on the success of EPC power plant projects.

Utilizing a direct-hire open shop model enables Zachry to safely and effectively manage large power plant projects. Although the emphasis is on hiring locally to a project site, Zachry’s loyal following also attracts craft workers from other regions, especially those with previous Zachry experience. A nationwide network of recruiters and employment offices also brings experienced craft workers to Zachry projects.

Minimizing the number of subcontractors provides clear guidance and direction from a single project entity throughout construction. A single project safety program results in better and safer performance during the job. Changes or workarounds that occur on new technology applications can be achieved effectively through a single company coordinating the site labor and collaborating with the owner and manufacturer.

The gas turbine arms race and a tight industrial labor market will continue to create challenges for owners and EPC contractors in the coming years, but experience and the right processes enable contractors to provide successful new technology power plants and to mitigate risks on several fronts. ■

— Michael Kotara ([email protected]) is vice president of Zachry Industrial Inc., and Mike Morris ([email protected]) is vice president, Zachry Engineering Corp. Industrial labor demand is expected to increase significantly through 2018.