The four factors responsible for the retrofit trend

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What do you do if you need to upgrade your operations, but it might place a huge dent in the budget? In 2008, ArcelorMittal found itself faced with this exact situation.

The mining and metals conglomerate launched an ambitious plan to upgrade a 1940s era iron ore complex in Nova Scotia by increasing annual production from 16 million tons to 26 to 30 million tons. Soon after, iron prices skyrocketed, which placed massive pressure on budgets. To top it off, the company realized the port couldn’t be easily retrofitted to fit newer, larger ships: it was dug directly out of bedrock.

Instead of letting this stop them, ArcelorMittal moved forward with what you could call “Extreme Makeover: The Industrial Edition” focusing on ways to increase production rather than concentrate on new capital investments or construction projects. They did this by synchronizing mining, grinding, and logistics activities to see if it could squeeze more efficient production out of existing operations.

By 2015, the Mines Canada facility was producing 10 million more tons a year, the equivalent of $120 million in annual revenue. In one year alone, production increased from 23 to 26 million tons by fine-tuning process steps—accomplishing that same 13  increase through capital could have cost up to $75 million, according to Michel Plorde, Director of Systems.

ArcelorMittal isn’t the only industrial company with a story like this one. Paper manufacturers like Verso and Fortress are modifying paper mills from the 1960s and turning them into facilities for specialized packaging and materials. Pasta makers, chemical reactors and other pieces of equipment (that are likely older than the median age of people reading this article) are getting solid-state drives and WiFi nodules grafted onto their side.

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There are four factors largely responsible for the retrofit trend:

Number One: Moore’s Law and the economic impact is still alive and well. Processors, sensors and other hardware continue to dramatically, steadily decline in price while increasing in performance. This has paved the way for better uptime and predictive maintenance. The pitch bearing—a set of bearing that angle wind turbine blades to maximize output—is often the cause of failures and shutdowns. Without the ability to detect cues, just waiting until it fails can lead to repair costs of $150,000 or more. Monitoring ongoing performance and predicting failures, Sempra Energy estimates costs associated with downtime and repairs by 90%. Orsted uses similar techniques to halve the number of boat trips necessary to service its offshore wind turbines, saving 20 million Euros a year.

Number Two (and the most important): Retrofitting equipment can save customers money and simultaneously serve as a revenue driver for manufacturers to use new technologies that attach aftermarket value-added services to new or previously-existing equipment.

For example, Caterpillar’s CAT Connect services save one shipping company $1.5 million per ship each year by sending data on fuel consumption and recommendations on operational improvements. Customers save money while Caterpillar and its dealers increase their revenue.

Number Three: The financial sector has more power than it had years ago. Nobody wants to invest money in new capital unless they have to. Retrofitting old equipment with software delivers more rapid ROI than new equipment does.

And Finally, Number Four: It’s simple—old equipment still works well! The average age of a transformer on the U.S. electrical grid is now 40+ years old. Tens of thousands of transformers are scattered across the U.S., ranging from $2 to $7 million. It’d be difficult to find any piece of equipment inside a data center that is 40 years old, let alone a full data center that old.

Itaipu operates the world’s largest renewable power facility in the world, with a hydroelectric dam that produced 103 terawatts in 2016—and is several decades old. To prolong its life, Itaipu invested in sensor systems that detect potential mechanical and structural issues early in their lifecycle, as well as systems for improving output.

We’re seeing interesting results on smaller scales too. J.D. Irving didn’t want to replace a saw that cut 60-ft-long spools of paper into 6-in. rolls of toilet paper, but it also wanted to begin collecting data from the 1970’s era system. With a wireless gateway and other technology, it developed a relatively quick, and inexpensive, bypass.

Not every situation requires, or makes sense to, retrofit equipment. There is a solid percentage gain in energy efficiency in homes and buildings over the past decade have come because new equipment is substantially better. Although turning old into new doesn’t solve every problem, it’s often the best place to start.

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