Asset Optimization Explained

To the editor: In the Oct. 1, 2002 issue ("The Fourth Wave," Frontlines, p. 4), executive editor Richard Stavros discusses how the term "asset optimization" has been used ambiguously to describe a tactical means of extracting more value from generating assets. Today, the need to define clearly the activity of "asset optimization" will be crucial as Wall Street is now skeptical of ambitious growth plans, and power companies are looking for safe options that will keep analysts happy and yet generate sufficient profit for shareholders. Many companies are getting back to basics-divesting non-core business activities and focusing on their physical assets as drivers of income. This could be viewed as a shrewd move, as there is a vast amount of value to be extracted from power plants. Of course, some equate asset optimization with cost reduction. But profit is not always achieved by reducing costs. Rather, "true asset optimization" encompasses not only costs, but also expenditures and several other considerations. Optimizing Expenditures. Consider, for example, a plant running at baseload. A baseload tactic is correct if that is what the market demands. However, even if this is the optimal maneuver, there are usually at least a few hours within a 24-hour period where the price per kilowatt hour is less than the total cost of the fuel-to-power conversion process.