21, rue d’Artois, F-75008 PARIS C1-307 CIGRE 2012

http : //www.cigre.org

New Methodology for Whole Life Costing and Risk Assessment

Damien CULLEY (1), John FITCH (1), Amy PYE (2), Paul SCOBIE (2),
Gary STEVENS (2)
1 – National Grid, Warwick Technology Park, Warwick, CV34 6DA. UK
2 – Gnosys Global Ltd., University of Surrey, Guildford, GU2 7XH, UK

SUMMARY

This paper proposes a new methodology to assist asset managers achieve their goal of optimised
decision making. The methodology is illustrated by case studies which show its practical application.

Whole life assessment of the economic, environmental and risk performance of new network assets is
central to good investment decisions. So, understanding likely lifetime cost, environmental impacts
and risk profile is essential. It is also necessary to understand possible future liabilities arising from
potential hazards and risks affecting both assets and people over the life of an asset. Such assessment
methods must capture the uncertainties associated with direct costs and contingent liability costs, as
well as asset failures and other events leading to outage that are inherently probabilistic.

We address the development of a new whole life cost and risk assessment methodology which
addresses whole life costs from original planning, to construction, operation and eventually end-of-life
management with explicit account of uncertainty and probabilistic asset failure. The same method
evaluates the environmental performance and the whole life “carbon account” explicitly.

The approach has been developed to support asset investment and management policy. It enables
optimum solutions to be identified which take into account economic, environmental, health and
safety and social costs with explicit account of risks, including those from asset failure. It is intended
that this approach will inform asset, environmental, and health and safety policies and the cost-benefit
assessment of improved risk management strategies.

Application of the new method to a number of case studies is described. This includes examples from
asset policy studies relevant to transmission and distribution cables co-located in cable tunnels, the
assessment of alternative substation switchgear technologies, and assessment of the benefits of using
composite or porcelain insulators in over head lines with account of the mobilisation costs and
different environmental stress conditions.

KEYWORDS
Whole life network asset assessment
Life cycle assessment
Whole life costing
Risk and uncertainty assessment
Environmental and economic performance
Carbon accounting
Asset and people hazard assessment
Asset failure
Future and contingent liabilities

g.stevens@gnosysgroup.com

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INTRODUCTION
A new integrated life cycle cost (LCC) and risk assessment methodology, which addresses whole life
costs from original planning, to construction, operation (including planned maintenance and
unplanned failures and events) and the management of end-of-life of assets, has been developed. The
approach was developed to support asset investment and management policy decision making. The
goal being to identify optimum solutions which take into account economic, environmental, health and
safety and social costs, with explicit account of risks, including those arising from asset failure.

METHODOLOGY
The LCC methodology is based on life cycle principles and uses many of the concepts and constructs
of conventional LCA and life cycle inventory (LCI) methods for environmental assessment, as
reflected in the SETAC framework [1]. The method makes use of Total Cost Assessment (TCA)
elements [2]. It also uses functions in the LEETS platform for environmental assessment [3] including
carbon accounting. A key part of the integrated LCC-LEETS method is its ability to handle health and
safety related aspects by undertaking asset and human stream analysis in parallel – see Figure 1.

Hold for future review Project Definition and Scoping

Issues not
included in TCA

Conduct Cost Inventory

Impact Assessment

Asset Stream Human Stream

Direct/Indirect cost Contingent cost Direct/Indirect cost Contingent cost

Identify uncertainty Identify risk or probability Identify uncertainty Identify risk or probability

Document Results

Feedback to company’s main decision loop

Figure 1. Overview of LCC methodology

Cost Categories
Since costs can come from a variety of sources, with varying degrees of certainty, accuracy and
methods of quantification, they are divided into five categories. These categories describe the general
source and significance of the costs assigned. The whole-life cost categories are:
Type I – Direct costs e.g. capital investment, labour costs, raw materials and waste disposal, .. etc.
Type II – Indirect or “hidden” direct costs e.g. operational or site overhead costs not assigned to a
single asset or project such as electrical losses
Type III – Contingent future costs and liabilities e.g. compliance costs, fines, compensation payments
or costs associated with unplanned maintenance, failures and other catastrophic events
Type IV – Internal intangible costs such as impact of asset failures on market share, staff morale and
reputation as a result of the project success or failure
Type V – External intangible costs e.g. impact on the environment both locally and globally, or the
impact on society e.g. cost of carbon that could be internalised in the future i.e. carbon trading.

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Cost Elements
In order to construct models and scenarios the cost elements to be used need to be identified and
defined. These cost elements can encompass any relevant cost that needs to be taken into account.

Direct/Indirect costs
These Type I and II costs include all of those known to occur and the only uncertainty is that of the
precise cost; they will definitely arise and will have a value, or range of values, associated with them.

Contingent costs
For Type III contingent costs, the first level of uncertainty is whether the cost will occur or not. This
uncertainty is associated with the risks of asset failure, which in turn may be linked to the Asset Health
Index and operational factors. First evaluation includes hazard assessment applied both to assets and to
people; the corresponding individual asset or person risk is calculated using the following expression:

where,

This method of quantifying risk can be applied to individual risk of fatality or injury and it can also be
applied to risk of damage to a primary failing asset or collateral damage to neighbouring assets from
the incident occurring. Each of the factors in the functions above are described in brief below:

Historic failure rate:

This is used to calculate the probability of incidents and failures occurring. It is expressed in terms of
failures per unit per year. It reflects the historic experience of equipment of similar type, suffering
destructive failure, or equipment removed from service with a defect. The historic failure rate is:

In the absence of good data it may be possible to estimate failure rate from the experience of other
equipment operators (e.g. CIGRE reports) or assume an upper limit based on similar technology.

Weighting Factor:
In the calculation of Probability, the Weighting Factor enables the operator to convert historic rates of
failure into a projected failure rate by assessing the condition of equipment using engineering
judgement. Weighting factors can be applied to the entire population or sub-population of an
equipment type. Where the condition leading to the failure may not be fully understood, a range of
weighting factors may be applied. The can also be modified through the asset health index (AHI).

Exposure and Hazard Zone:

The calculation of risk takes into account the amount of time an individual person or asset spends in
the Hazard Zone of the affected equipment. Exposure is taken to be the fraction of a working year that
an individual is present within the Hazard Zone. Where the Hazard Zone extends outside the site, a
realistic judgement of public exposure based upon local site knowledge must be used.

Figure 2 shows three zones identified surrounding the hazard under review. In the inner zone the
person is at risk of fatality and assets at risk of destruction or severe damage. The cost implications
may be in terms of replacing or repairing the asset, any costs associated with asset “down-time”,
potential contractual losses and labour and mobilisation costs.

In the middle zone, there is risk of serious injury to people and damage to assets, which has similar
cost implications. Repair may have additional impacts on the AHI and expected remaining lifetime.

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 Key: Risk of fatality

Risk of major injury

Hazard under review Risk of minor injury

Figure 2. Example of a Graduated Hazard Zone

In the outer zone, there is a risk to people of minor injury and a risk of slight damage to assets, which
may be realised as an AHI impact. This may have implications for the expected lifetime of the asset
and the potential for subsequent failure, which can be taken into account.

Vulnerability:
This factor represents the likelihood that an individual or neighbouring asset will be affected, and the
severity of the impact, should failure occur. This factor is dependent on mode of failure and has
uncertainty associated with it. This is assessed using engineering judgement which takes into account
the failure mode, any known debris patterns from previous failures, the level of protection given by
surrounding equipment and structures and the percentage of the hazard zone which is accessible.

Handling Uncertainty
Since it is often not possible to specify a fixed value for many of the cost elements identified, the
methodology and the software implementing it can handle uncertainty in cost values.

Uncertain Values:
In some cases uncertainty will exist on the exact value for a cost element, be this a one-off or recurring
cost. This can be handled simply, by specifying a range within which the cost is anticipated to fall. A
modal value (most likely value) can also be specified and the software tool can generate a value for
this cost element, within the given bounds.

Nested Events:
In some cases, the occurrence of an event may lead to a number of other costs being incurred, either
fixed or of an uncertain nature themselves. To handle this, uncertain cost elements can contain other,
nested cost elements. These elements will only be included in the analysis if the parent event actually

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occurs, otherwise the nested element cost contribution will be zero. Therefore, the actual probability of
these events occurring is the probability of the parent element multiplied by one or more of the nested
probabilities of other event elements occurring.

Monte Carlo Analysis

Figure 3 shows a simple Monte Carlo analysis process based on three cost elements with varying
probability distributions and it is possible to define any others. The simulation is run many times, each
time generating new values for any uncertain elements from the assigned probability distributions. The
results from each run can be averaged out to give a set of single most likely cost, or the distribution of
total costs can be obtained to give a probability distribution for the total cost or reported as a
cumulative probability plot showing the cost at which there is an 80/50/20% likelihood of occurrence.

Figure 3. Monte Carlo Analysis

Type IV and V Costs

These are accounted in the case studies but will be described in detail in a future paper. This includes
future carbon trading impacts as part of Type V costs using cap and trade and spot market options.

CASE STUDIES
The method described above has been applied to a number of representative case studies where
decision support is required on asset investment and where new asset policy may require a balanced
examination of possible cost outcomes which may be traded with lifetime environmental impact.
Asset Policy Studies: Cable Tunnel Co-location
This case study was used to inform decision-making on the potential life time costs, and the benefits or
otherwise associated with co-location of 400kV transmission and 132kV distribution cable circuits, in
comparison with single owner/occupier tunnel systems for each cable type. The functional unit for
comparison was: 10km of tunnel and cable system of 2 x 400kV circuits and 3 x 132kV circuits (1
cable per phase in both cases) over 60 years of operation, with account of cable joint performance.

It was found that there is a short-term capital investment saving (37%) and a long-term whole life cost
saving (16%), and significant environmental benefits, from the adoption of a 4m diameter co-located
cable tunnel facility rather than the combined 3m diameter cable tunnels costs, as shown in Figure 4.

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 Figure 4. Total project costs by cost category (I to V and aggregated results)

The climate change benefit in greenhouse gas (GHG) emission terms is typically 194,500 tons of CO2
equivalent with no account of avoided carbon credits. This equates to a saving of around 25% of the
GHG emissions for the combined 3m tunnels. There is also a significant reduction in all global
environmental impacts during construction including tunnelling and spoil management. However, the
local environmental and social impacts close to a 4m tunnel construction will be much higher than that
of a similarly located single 3m tunnel.

Figure 5. Monte Carlo assessment of the impact of cable tunnel fires, with increasing year-on-year
probability of fire (~0.0025% p.a.)

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The level of additional co-location risk must however be carefully considered, particularly in regard to
cable circuit operational factors such as thermal management, cable current ratings and also the
possibility of cable joint failures and tunnel fires. An example of this is shown in Figure 5 where the
consequences of incremental lifetime growth in fire risk, in addition to joint failures, are compared for
single occupied tunnels for both 400 kV and 132 kV circuits and the co-located tunnel. Using
international experience of XLPE cable joint failures (CIGRE data) shows that the TSO will
experience a 1.5 times larger risk of circuit outage in a co-located tunnel compared to a single
occupancy 400kV cable tunnel. In contrast, the DNO could experience a risk which is 3 times larger
than single occupancy 132kV tunnel. This may be compared with, and traded-off against, the much
lower construction and operational costs of one 4m tunnel compared to two separate 3m tunnels.

Asset Investment Studies: Assessment of Alternative Substation Switchgear Technologies

This case study was carried out to assess the economic and environmental benefits and dis-benefits of
utilising either AIS or GIS switchgear in new substations. AIS is seen as the cheaper option, and GIS
is typically reserved only for sites where AIS is not feasible. Examining the whole life costs of the two
options clarified whether previous assumptions were correct and how the environmental costs may
contribute to choice of switchgear technology. The functional unit for comparison was: a new 400kV
substation consisting of 6 switchgear bays, 2 transformers and ancillaries with service life of 40 years.

The LCC-Leets whole-life model includes all construction and operation costs for the two scenarios,
but the 40year lifetime does not include a major refurbishment. Therefore no end of life costs are
considered except those associated with asset failure prior to end-of-life. As shown in Figure 6, for
both GIS and AIS based substations, the type I costs dominate the 40 year lifetime of the scheme, for
both scenarios. Relatively speaking, for normal operation in the absence of faults, the cost of operating
the switchgear is small compared to the capital investment cost. On comparing the two technologies,
GIS is more expensive over the lifetime than AIS in all stages of the lifecycle, i.e. both construction
and operation. However, the difference between the two scenarios is relatively small - 17% of the cost
of the GIS facility - on cost grounds alone, the case for AIS is positive but not overwhelming so.

Figure 6. Total project costs by cost category

When considering the GWP impacts of the two technologies, SF6 leakage dominates GWP for both
cases, with the power losses contributing relatively small amounts. This is particularly clear when
examining the potential effect of future changes in the UK generation mix on the system losses
impacts. There is little effect on the annual GWP impact for the two technologies as the CO2 emission
reduces with the introduction of larger amounts of renewable generation.

Monte Carlo assessments of likely failure routes show very different total GWP impacts - see Figure
7. This suggests that the GIS scheme has a consistently higher environmental impact then AIS when

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potential failures are accounted for, as the impact increases significantly when rare SF6 tank rupture
events occur. While these have a low probability, it is possible they may happen once or even twice
within the lifetime of substation.

Figure 7. Cumulative probability distribution, examining the total GWP of the two scenarios

Additional case studies:

Additional areas of asset investment have been examined such as the choice of insulator type on
overhead lines (OHL). This work was undertaken to weigh the pros and cons of composite insulators
on total OHL costs when compared with traditional porcelain and glass insulators. The balance
between the initial capital investment costs and operational maintenance on lifetime costs is
critical. Different local environmental impacts on insulator life were examined and their effect
on replacement cycles and lifetime costs.

Another study, examined the possible replacement of out-dated air-blast circuit breakers with modern
AIS equipment, which utilises SF6 in relatively small quantities. This study compared the operational
costs for the two switchgear technologies as well as the differences between the reliability of the two
technologies and resulting health and safety implications. GHG emissions, were also explicitly
considered as was the potential impact of the cost of carbon, both as an externalised cost and a
possible future internalised cost. The resulting replacement case is strong.

CONCLUSIONS

The new methodology for whole life costing and risk assessment of assets provides a powerful and
insightful integration of economic, environmental and risk assessment. It is a very useful addition to
existing tools to assist asset managers in making decisions on asset investment, technology selection,
operation and management, overall policy and health and safety issues.

BIBLIOGRAPHY
[1] SETAC, 1991, ‘A Technical Framework for Life Cycle Assessment’
[2] Daryl Ditz, Janet Ranganathan and R. Darryl Banks, ‘Green Ledgers: Case Studies in
Corporate Environmental Accounting: An Introduction to Environmental Accounting as a
Business Management Tool: Key Concepts and Terms’, June 1995
[3] G C Stevens, B Philpot, R Haywood, S Jayasinghe and C Smith, ‘Life cycle Economic and
Environmental assessment of Transmission Systems (LEETS)’, CIGRE 2008, paper C3-205.