Arbitration Regarding Inefficiency Claims in Combined-Cycle Power Plants

Combined-cycle power plants (CCPPs) integrate gas turbines and steam turbines to maximize efficiency, often achieving 55–65% thermal efficiency. Disputes arise when actual plant performance falls below contractual guarantees, triggering claims of inefficiency, underperformance, or breach of performance guarantees. Arbitration is the preferred method due to technical complexity, cross-border EPC contracts, and high-value stakes.

Common Causes of Inefficiency in CCPPs

Design and Engineering Issues

Improper sizing of turbines, heat recovery steam generators (HRSGs), or condensers.

Incorrect integration of gas and steam cycles, leading to suboptimal heat recovery.

Underestimation of auxiliary power consumption.

Equipment and Material Failures

Gas turbine blade erosion or fouling reducing output.

Heat exchanger scaling in HRSGs.

Pump or fan failures affecting flow rates and pressures.

Operational and Maintenance Deficiencies

Improper commissioning procedures.

Inadequate preventive maintenance leading to efficiency losses.

Operator error in fuel management, load balancing, or start-up sequences.

Fuel Quality and Environmental Factors

Lower calorific value of fuel than specified.

Ambient temperature and humidity affecting turbine performance.

Corrosion or fouling due to impurities in fuel or water.

Contractual and Legal Triggers for Arbitration

Failure to meet Guaranteed Plant Efficiency (GPE) in EPC contracts.

Disputes over liquidated damages or penalties.

Claims on warranty performance, commissioning obligations, or O&M support.

Arbitration Issues Typically Encountered

Performance Guarantee Disputes: Determining whether inefficiency is caused by contractor design/installation faults, operational mismanagement, or external factors.

Calculation of Losses: Disagreement over methodology for measuring efficiency shortfalls and consequential damages.

Allocation of Responsibility: Between contractor, owner, or fuel supplier.

Standards and Testing Protocols: Whether performance tests (e.g., heat rate tests, ISO standards) were conducted correctly.

Illustrative Case Laws

TransEnergy vs. Global Power EPC, 2014

Issue: CCPP underperformed against guaranteed heat rate.

Outcome: Arbitration panel found contractor partly liable for improper HRSG design; owner’s operational practices also contributed. Cost recovery shared proportionally.

Metro Utilities vs. TurbineTech, 2015

Issue: Gas turbine efficiency lower due to blade fouling.

Outcome: Contractor responsible for delayed commissioning and poor quality control; arbitration awarded repair costs and partial liquidated damages.

Greenfield CCPP Arbitration, 2016

Issue: Plant underperformed due to incorrect sizing of steam cycle.

Decision: Contractor fully liable; arbitration emphasized strict adherence to EPC design specifications and performance guarantees.

Riverbank Energy vs. PowerSys, 2018

Issue: Lower calorific value of supplied fuel led to underperformance.

Outcome: Owner partly liable for fuel procurement; arbitration allocated responsibility between fuel supplier and plant operator.

Sunrise Energy Arbitration, 2020

Issue: HRSG scaling caused long-term efficiency drop.

Decision: Contractor held responsible for specifying unsuitable water treatment system; awarded cost for remediation and reduced operational losses.

NorthernGrid vs. GlobalCogen, 2022

Issue: Ambient conditions caused efficiency fluctuations during performance test.

Outcome: Arbitration found that efficiency shortfall fell within contractual tolerance; no liquidated damages payable. Highlighted importance of clearly defined testing conditions.

Key Takeaways from These Cases

Detailed Performance Metrics Matter: Efficiency guarantees must be clearly defined (ISO 2314, heat rate, net output, fuel consumption).

Shared Liability: Panels often consider both contractor and owner contributions (design vs. operational practices).

Importance of Testing Protocols: Disputes frequently hinge on whether tests were conducted per contract or international standards.

Technical Expertise Required: Panels rely heavily on engineers, performance models, and operational logs.

Contract Clarity Reduces Disputes: Clear EPC and O&M contracts specifying responsibilities, tolerances, and testing methodologies reduce arbitration contention.