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Energy Reports 6 (2020) 1249–1254

www.elsevier.com/locate/egyr

2020 7th International Conference on Power and Energy Systems Engineering (CPESE 2020),
26–29 September 2020, Fukuoka, Japan

The overhauls technical innovation project optimization method of

power grid device based on Life Cycle Asset Management
Na Lia ,∗, Xiaoliang Wangb , Chengqi Lia , Zhenjun Zhanga , Weiwei Zhanga
a State Grid Shandong Electric Power Research Institute, Jinan, 250002, China
b State Grid Shandong Electric Power Maintenance, Jinan, 250000, China

Received 25 October 2020; accepted 8 November 2020

Abstract
In order to realize the precise management of investment in equipment overhauls technical innovation project, this paper
fully analyzed the cost characteristics of equipment in every section of the life cycle and established the actual available Life
Cycle Cost (LCC) model and provided a combination forecasting method to forecast the future costs. Then this paper obtained
the full life cycle cost of the equipment for overhauls technical innovation project. By comparison of the two average annual
LCC costs of overhaul and technical innovation project, the final optimization project with the best economic benefit could be
determined. Case analysis verified the economics of the method, which could provide decision support for precise investment
in the power grid.
⃝c 2020 The Authors. Published by Elsevier Ltd. This is an open access article under the CC BY-NC-ND license
(http://creativecommons.org/licenses/by-nc-nd/4.0/).
Peer-review under responsibility of the scientific committee of the 7th International Conference on Power and Energy Systems Engineering, CPESE,
2020.

Keywords: Overhauls technical innovation project; LCC forecasting model; Optimization decision model

1. Introduction
Along with the deepening of power system reform, the operating environment of power companies was
complicated and changeable. So it has become an important research direction to dig deeply into the operation
potential and made the power grid investment more precisely. During the operation and maintenance period, the
investment of overhauls technical innovation project would not only affect the safe and stable operation of the power
grid, but also affect the profitability output of the company. Based on the goal of technical feasibility and the best
economic benefits, realizing the precise decision of capital investment in equipment overhauls technical innovation
project was an important research direction at the moment.
Refs. [1–3] used the condition assessment model, risk assessment model, life-cycle cost model and asset wall
model, which could provide a basis for planning strategies, bidding and procurement, engineering construction, op-
eration, maintenance and decommissioning. Refs. [4–6] analyzed the investment costs, operating costs, maintenance
∗ Corresponding author.
E-mail address: 273580859@qq.com (N. Li).

https://doi.org/10.1016/j.egyr.2020.11.047
2352-4847/⃝ c 2020 The Authors. Published by Elsevier Ltd. This is an open access article under the CC BY-NC-ND license (http:
//creativecommons.org/licenses/by-nc-nd/4.0/).
Peer-review under responsibility of the scientific committee of the 7th International Conference on Power and Energy Systems Engineering,
CPESE, 2020.
N. Li, X. Wang, C. Li et al. Energy Reports 6 (2020) 1249–1254

costs, breakdown costs and decommissioning costs. Using the established mathematical model, the full life cycle
cost of 220 kV transformer was calculated, which could be compared, selected and decided. Refs. [7–9] built the
power transformer life cycle cost (LCC)calculation model , which considered key factors in all sections of the life
cycle. Sensitivity analysis method was proposed. Practical examples were calculated to obtain the LCC and get the
key factors affecting LCC. Study result could provide theoretical support for reducing LCC and decision support
for transformer management.
This paper fully analyzed the cost characteristics of equipment at all the sections and established the actual
available equipment LCC model. Based on the combination forecasting method, this paper established LCC
forecasting model for overhauls technical innovation project and realized to forecast future costs and obtain the full
life cycle cost. By comparison of the two average annual LCC, the optimization decision with the best economic
benefit could be determined. The case analysis verified the economics of the method and provided decision support
for precise investment in the power grid.

2. The cost structure and cost forecasting

2.1. Establishing the LCC model

The life cycle cost (LCC) of equipment referred to the sum of all costs paid for the development, production,
use, and decommissioning of equipment during its life cycle. For long-term economic benefits of equipment and
projects, all resources consumed by equipment during its life cycle were converted into corresponding monetary
value through quantitative calculation, and then accumulated. This method scientifically listed all the items and costs
of the equipment in the life cycle, and then used statistical data to establish the cost calculation relationship and
cost model, so that the life cycle cost of the equipment could be calculated more accurately according to different
needs. For decision-making and management, the ultimate goal was to select a relatively economical decision to
implement, reduce cost and increase economic benefits.
The equipment life cycle cost (LCC) mainly included input cost (CI), operating cost (CO), maintenance cost
(CM), failure cost (CF) and waste disposal cost (CD), which could be showed as formula (1).
LCC = CI + CO + CM + CF + CD (1)
Taking GIS equipment as an example, its LCC model was showed in Fig. 1.

Fig. 1. The LCC model structure for GIS.

Cost of investment (CI) mainly included equipment configuration fee, installation commissioning fee and
transportation fee. The configuration included equipment fee and supplier transportation fee. The installation and
commissioning fee included the construction fee, electrical installation fee and system commissioning fee. The
impact of input cost on the life cycle cost was mainly reflected in the conversion of depreciation into expense cost,
which was positively related to the total cost and annual depreciation expense.
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Operation cost (CO) mainly included equipment daily inspection fee, daily testing fee and operation fee. The
daily inspection fee was mainly meaning labor cost, which referred to the loss of equipment and materials generated
by the staff inspection equipment, as well as training fee, wages, and subsidies for personal in special positions.
The daily testing fee referred to the cost incurred in testing and repairing the equipment without interrupting the
power supply. The operating fee was the labor cost incurred by the staff performing certain live operations on the
equipment.
Maintenance cost (CM) mainly included the cost of overhaul and daily maintenance cost.
Failure cost (CF) mainly included repair cost, failure cost, also known as punishment cost, which referred to
the cost of replacing the body or parts of the equipment after the equipment failed. It included materials paid to
the equipment supplier, expert commissioning fee, and the power outage period caused by the failure , power grid
companies due to the loss of revenue caused by the lack of power supply and power outage users compensation for
power outages.
Disposal cost (CD) mainly included equipment discard cost. The residual value of equipment was included in
the negative number.

2.2. The LCC forecasting model based on combined forecasting method

(1) ARIMA forecasting method

Time series autoregressive moving average model could be called ARIMA (p, d, q) model. p , d, q were separated
represented the order, difference order and moving average model order of the model.
First of all, non-stationary time series were transformed into stationary time series by d times difference. The
order and parameter estimation was used to get the value of p and q. Then the ARMA(p, q) model was used to
predict and analyze time series.
Assuming that yi was the single sequence with d orders. ARMA(p, q) model could be showed as below.
p q
∑ ∑
ωi = φi ωi−1 + θ j εi− j + εi (2)
i=1 j=1

In the formula, ϕi was the autoregressive coefficient. p was the autoregressive order. θ j was the moving average
coefficient. q was the moving average order. {ε} was the white noise sequence. Forecasting process of ARIMA(p,
d, q) was showed as below.
(1) Sequence preprocessing. A pre-processed time series could be identified as a stationary non-white noise
sequence, indicating that the sequence was a sequence containing relevant information. The model could be used
to build the sequence model.
(2) Model recognition. From the given sequence samples, according to the nature of the sample autocorrelation
coefficient (AC) and partial autocorrelation coefficient (PAC), the appropriate order was selected to fit the ARMA
(p, q) model.
(3) Parameter estimation. According to the identified model and order, the model was subjected to parameter
estimation and significance test.
(4) Model fitting and testing. The initially fitting model was established. The statistical test method was used for
residual test, if the fitted model failed the test, go to step (2) and reselected the model.
(5) Model forecasting. Using the fitted model to predict the future equipment cost f (i).
(2) Extreme learning machine prediction model
The training sample set {xt , ti }i=1
N M
⊂ R M × R M , testing sample set {yi }i=1 , activation function of extreme learning
machine v(x) and number of hidden layer nodes L were given. The specific steps were showed as below.
M
(1) Gray prediction model was established according to training samples {xi }i=1 . The parameters a and b for the
gray prediction model were determined. Calculate the variance of the prediction error ei−1 of the gray prediction
model at time t − i, i = 0, 1, . . . , M, M ≤ N .
(2) Training extreme learning machine according to training samples {xi , ti }i=1 M
⊂ R M × R M . Calculate the
variance ei−1 of the prediction error of the extreme learning machine at time t − i.
(3) According to the result from step (1) and (2), calculate Gev and Eev.
(4) According to the gray prediction model and trained extreme learning machine, calculate the prediction result
M
G(x) and E(x) of the test sampling set {yi }i=1 .
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(5) Based on the calculation formula with unequal weight error combined weight coefficient and the results of
step (3) and (4), calculate the predicting result h(x).
(3) Combined prediction method
Assuming that the weight of ARIMA model and extreme learning machine prediction model were λ1 and λ2 .
The weight could be determined according to the inverse variance method, which was showed as formula below.
∑ m
w j = e−1
j e−1
j (3)
j=1

The prediction result of the combination model based on the ARIMA model and extreme learning machine
prediction model could be showed as below.
∑ m
F(x) = w j f (x j ) (4)
j=1

3. The optimization decision model of overhauls technical innovation project

3.1. The influence factors of overhauls technical innovation project

When the equipment needed to be repaired or transformed, it was in the third stage of bathtub curve, which
was the loss validity period. It usually had some reasons for equipment to be repaired or transformed, such as an
irreparable defect had occurred, or the equipment was overdue service.
The decision of the overhauls technical innovation project should consider some factors. First of all, the reliability
of the equipment should be considered, which could represent the equipment health level and defects. The service
life of equipment should be considered, and the actual service life and design service life of the equipment should
be compared. The use efficiency, the role and position in power system operation should be considered. The cost
of different projects should be considered, which included equipment residual value, transformation cost, expected
benefit after transformation, operation and maintenance cost before transformation, cost of consequences caused by
equipment failure.

3.2. The annual LCC comparison of overhauls technical innovation project

For equipment needing overhauls or technical innovation, the final disposal project could be made according to
the above decision influencing factors. Equipment overhauls needed a lot of people, money, and materials, and the
operating time of the equipment after the overhaul was limited by the remaining years of the equipment. The initial
invest funds of equipment technical innovation project was large, but the new equipment could operate safely for
a longer period of time. Every solving method must meet the premise demand of reliability. Then, according to
the LCC model, the lowest cost project could be decided. Above all, by comparing the annual LCC of overhauls
project and technical innovation project, the final decision could be gotton.
The annual average value of LCC was the ratio between the sum of the initial investment and the present net
value of cost to the remaining service life. The net present value of cost could be converted to the current year. The
remaining service life (overhauls project)=designed life–used life. The remaining service life (technical innovation
project)=designed life.
The average annual LCC value of overhauls and technical innovation project could be showed as below.
C O1 + C M1 + C F1 + C D1
AV LCC1 = [C I1 + ]/(designed li f e−used li f e) (5)
(1 + i)n
C O2 + C M2 + C F2 + C D2
AV LCC2 = [C I2 + ]/designed li f e (6)
(1 + i)n
In the function , AVLCC1 and AVLCC2 separately represent average annual LCC value of overhauls and technical
innovation project. CI 1 was the estimated total equipment investment for equipment overhaul. CI 2 was the total
investment when transforming with new equipment. CO1 , CO2 , CM 1 , CM 2 , CF 1 , CF 2 , CD1 and CD2 were the
operating costs, repair and maintenance costs, breakdown costs, and decommissioning disposal costs for overhauls
or technical innovation project. i was bank interest rate. N was the difference between the future year and the current
year. n was the used years of the equipment.
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4. Example analysis
4.1. Basical data

This paper chose GIS of a 220 kV substation as example. The manufacturer of the GIS equipment was ABB,
and the time for the equipment putting into operation was 2000. The original value of GIS was RMB 800000. The
equipment could be fully loaded when failure. At the current time the equipment had leaked and it needed regular
testing and maintaining. The equipment status, operation times, operation and maintenance cost of the equipment
in the past 5 years could be obtained directly. At the same time, the cost of the equipment with same type and same
manufacturer for different servicing life could be obtained.

4.2. The average annual LCC comparison of different projects

In order to study the impact of overhaul and technical transformation projects on the equipment safety and
economy, this paper established the LCC model according to 2.1 section and choosed 2020 as the initial investment
year, then predicted the LCC of equipment after overhaul or technical renovation according to Section 2.2.
Comparing the annual average LCC after equipment overhaul and technical transformation, the decision of
equipment overhaul or technical transformation could be determined with the goal of economy.
Program 1: Choosing equipment overhaul at the year 2020, and the equipment could continue operate to its’
technical life.
Program 2: Choosing technical transformation at the year 2020, and the new equipment was put into operation
to its’ technical life.
The comparison of the two projects was showed as below.
From Table 1, it was easily to know that the annual average LCC of overhaul was less RMB 12725 compared
to technical innovation. So the most economical decision was overhaul. Further more, calculating annual LCC of
every year, it was showed that the equipment operated to the 25th year, the annual average LCC of overhaul would
exceed the technical transformation cost. Above all, the economic life of the equipment was 25 years. When the
operating years was less than economic life, overhaul project should be chosen, or the technical innovation project
should be chosen.

Table 1. The cost comparison of overhaul and technical transformation projects.

LCC cost Program 1: Overhaul Program 2: Technical innovation
CI 121598 864370
CO 178450 374562
CM 407812 714530
CF 24570 22876
CD 3578 4689
Operating years 20 40
Annual average LCC 36800 49525

5. Conclusion
Based on the theory of Life Cycle Asset Management, this paper refined and established equipment LCC model.
Then this paper proposed a combined forecasting method to predict the LCC of equipment with limited amount of
data. Applying the target of lowest average annual LCC, this paper compared the economy of overhaul and technical
innovation project and decided the final project. The actual case analysis verified the feasibility and economy of the
method proposed in this paper, which could provide decision support for safe operation of equipment and precise
investment of power grid.

Declaration of competing interest

The authors declare that they have no known competing financial interests or personal relationships that could
have appeared to influence the work reported in this paper.
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