Australia stands out as a premier choice for investors in renewable energy. As the nation takes a proactive stance in addressing climate change, it concurrently faces formidable challenges posed by engineering, procurement, and construction (EPC) contractors, a topic we previously explored in our article titled “The Challenges for EPC Contractors in Renewable Energy Projects in Australia.”
The primary issues encompass a multitude of risk factors, including but not limited to:
- Access and Landowner Relations
- Regulatory Approvals
- Climate-Related Challenges
- Contractual and Commercial Complexities
- Transport and Logistics Hurdles
- Design Challenges
- Labor and Productivity Issues
- AEMO (Australian Energy Market Operator) and Commissioning Challenges
In this latest article, we delve into potential solutions aimed at overcoming these obstacles, shedding light on the strategies essential for mitigating risks when entering the Australian renewable energy market.
Contracting Strategy
The choice of contracting strategy is a pivotal determinant of success in renewable energy projects, and a clear understanding of risk allocation within contracts is paramount. Numerous risks inherent to solar and wind projects fall beyond the EPC Contractor’s reasonable control, exemplified by the AEMO connection risk. In instances where the EPC Contractor assumes these risks, it is imperative to allocate sufficient contingency within the project budget. This contingency should be rigorously assessed using robust estimating and risk analysis principles to ensure comprehensive coverage.
Float management within the EPC, subcontract, and supplier schedules warrants meticulous consideration. Incorporating notice-to-proceed mechanisms empowers the EPC Contractor to adjust commencement dates as needed, fostering flexibility in project timelines. Furthermore, it is worth noting that renewable project developers in Australia often have limited appetite for project risk, which can result in stringent adherence to contractual terms. Thus, strict compliance with notice requirements under the contract is recommended to preserve rights and mitigate disputes.
Additionally, when engaging local contractors, it’s essential to acknowledge their capacity limitations to withstand significant project losses. In such cases, EPC Contractors may face the challenging decision of paying subcontractors or risking insolvency and project delays. Implementing panel arrangements, where work can be distributed to better-performing contractors, offers a strategic solution that also serves as a risk mitigation strategy in cases of subcontractor difficulties or insolvency.
Local Expertise
Local experts have a deep understanding of regional dynamics, allowing them to proactively address Development Application objections and engage effectively with communities and stakeholders. Their expertise is essential for navigating indigenous engagement and cultural heritage requirements, ensuring culturally sensitive project development. They also provide valuable insights into the local labor market, enabling informed decisions on labor allocation. Furthermore, they contribute to precise estimating assumptions, conduct productivity factor analysis tailored to local conditions, and address environmental nuances for effective impact control. In addition to their knowledge of state and broader regulatory frameworks, they offer specialized expertise on the Australian Energy Market Operator (AEMO) and the Network Service Provider (NSP) within the Australian context.
These experts also help mitigate local union risks. For example, they can advise on the suitability of project locations, preventing labor productivity shortfalls, highlighting their crucial role in renewable energy project success. An illustrative example of the significance of local insights lies in the choice of project location. With local knowledge, it becomes evident that a picturesque beach city, albeit attractive to backpackers seeking leisure, may not be the most judicious site for low-cost labor. Consequently, a project’s labor productivity factor can fall significantly short of initial expectations, emphasizing the critical role of local expertise in the success of renewable energy projects.
Design Development
Design developments play a pivotal role in the landscape of renewable projects, with their impact often amplified due to the intricate web of third-party interfaces and stakeholders involved. Our analysis indicates that design changes frequently stem from diverse sources, encompassing landowner requirements, developer approvals, environmental and cultural heritage conditions, AEMO and Network Service provider prerequisites, input from local authorities such as Transport and Main Roads, site investigations, infrastructure upgrades, and even shifts in Australian Standards.
To address these complexities effectively, engaging a local design consultant with area-specific expertise is essential. They streamline the design process and reduce the risk of disruptive changes. Proactive project planning is crucial for managing design delays. Using contingency float and a phased approach to separate design from construction helps mitigate potential issues. Ensuring a robust, finalized design before seeking approvals is paramount, as we’ve seen substantial delays, such as a six-month setback in one solar project, due to changes during the approval process. This highlights the importance of mature design in successful renewable energy projects.
Planning / Estimating Assumptions
Flawed cost and planning assumptions are significant contributors to project losses. Common oversights, like neglecting essential access road upgrades, have been observed. Understanding installation times and meticulously measuring downtime due to site size and travel is crucial. For large-scale solar projects, logistics involving moving and storing numerous panels require intricate planning, resembling logistics more than straightforward construction. Additionally, estimating assumptions should account for commodity price fluctuations, especially in materials like polysilicon for photovoltaic module pricing.
Lessons have shown that PV manufacturers may not honor fixed-price contracts during material price surges, so including contingency allowances is wise. A well-structured project schedule can mitigate delays by managing float at key points, emphasizing the importance of planning and estimating assumptions for project success.
Resourcing
Effective resourcing is a cornerstone of project success, and our evaluations have consistently revealed the critical importance of skilled resources. To optimize project performance, it’s highly advisable to formulate a strategic plan aimed at retaining skilled labour in every geographic location where projects are slated to take place. Projects that heavily rely on non-specialist local labour have often encountered subpar outcomes. Additionally, when introducing new labour into the equation, comprehensive training in detailed construction processes becomes imperative. Conducting time and motion studies to validate adherence to estimating assumptions is a recommended practice. Leveraging LW’s ‘SMART’ platform for in-field coordination management can further enhance productivity and streamline project execution.
Furthermore, we advocate for the sourcing of specialist resources to handle estimate development, project scheduling, and contract administration. This approach is rooted in the understanding that output rates and legal frameworks can vary significantly from one state to another. Deploying specialist resources from the project’s outset is crucial for ensuring adherence to EPC contract terms and proactively averting contractual issues, such as time bar-related complications. In the realm of contractual and commercial considerations, early mobilization of contract staff well-versed in Australian common law systems is essential for seamless project initiation and management.
This article outlines a strategic approach for managing identified risks. It aims to reduce the risk exposure of EPC renewable projects when operating in Australia. While Australia presents significant opportunities in renewable energy, it also presents challenges that can affect project timelines and budgets. By proactively addressing these challenges through strategic measures, stakeholders can enhance their prospects for success in the dynamic and evolving renewable energy sector.
To gain insights into effective project management in the renewable energy sector, consider consulting Lewis Woolcott for expert guidance on risk mitigation strategies, project management or scheduling, and contract administration.