In the current market, executing large-scale energy projects poses significant risks to developers, engineering partners, and contractors, especially when the margins for success are slim.
The maturity of organisations (and particularly developers) in recognising and addressing risks is critical.
Understanding the potential risks involved in energy infrastructure projects and allocating those risks to parties equipped to manage them can ultimately make or break a project
The ‘amber flags’
The Fyfe team has significant experience as an owners’ engineer, working on conventional and renewable energy projects. We’ve handled the Snapper Point Power Station and the Mannum Solar Farm and are part of the contractor’s team on SA Water’s Zero Cost Energy Future Project.
Through these projects and others, we’ve developed a comprehensive set of ‘amber flags’ to assess project risks.
Poor risk management can cause significant value erosion in any large scale, multi-discipline project. Risks span the entire project lifecycle, from initiation through development, construction, and commissioning, with ‘amber flags’ found at each stage.
A fundamental part of risk management in a large-scale project is how major and minor contracts are structured. A well-planned contracting strategy means project risks are appropriately apportioned. A poor strategy, on the other hand, can result in delays, interfacing issues, increased costs, and reduced project value.
Contracting strategies and engineering considerations
Over the past 15 years, we’ve helped clients structure fit-for-purpose technical and contracting solutions. These structures have resulted in successful project delivery and preserved project value, and we’ve learned valuable lessons along the way.
Each contracting model (EPCM, EPC, PMC, and others) has pros and cons, and each should be considered against a risk versus reward matrix as it applies to a project.
Another important part of developing an appropriate contracting strategy is addressing a project’s engineering aspects. In this context, engineering refers to all the technical aspects that may impact the business case and, ultimately, the value of a particular endeavour to a project developer.
Early in a project’s development phase, it’s critical to consider the various technical aspects and their relationship to the contracting strategy.
Projects vary in size, geographical area, equipment complexity, tech maturity, supplier maturity, and several other key considerations.
A smaller project that’s appropriately located and uses repeatable and demonstrated technology might suggest a particular contracting strategy, typically one that allows most of the risks to pass to the contracting partners. However, a much larger project that uses new or novel technology in a challenging location may require a contracting strategy where project risk is distributed appropriately between parties.
Of course, no equation or logic table provides answers to the complex question of what an appropriate strategy looks like. Each client has its own decision trees and risk profiles that help define appropriate strategies for each project.
To discuss different contracting models and strategies for an energy project with a member of Fyfe’s engineering team, please get in touch.
