How are Capacity Market projects managed, what are the important distinctions between OEMs and EPCs, and why could the appointment of a specialist project management partner be crucial? David Bowman offers his perspective
The UK Capacity Market has been more competitive than ever with the latest T-1 and T-4 auctions provisional results.
The clearing prices have hit an all-time low, reaching £6.00 ($8.00) per kW per year for T-1 and £8.4 for T-4 (down from £18 – £22.5).
New Build Generating Capacity Market Units have scored a very small share of the awarded Capacity Agreements with only 11.1 per cent in T-1 for the delivery year 2018/2019 and
1.51 per cent in T-4 for 2021/2022.
Gas was the leading awarded fuel type in both auctions with 75.55 per cent in T-1 and 58.74 per cent in T-4. Thus, new generating Capacity Market units need to be developed in the most efficient and cost-effective way possible to increase the bidders’ chances of winning agreements and actually making a profit.
To many conventional energy developers, New Build Capacity Market projects might seem like any other energy generation project.
But when you truly analyze the nature of these projects and the existing approaches, you will quickly discover that there is a much more effective alternative to handling them, from design through to delivery.
Capacity Market projects typically include a number of energy generation sites that are more or less similar, with minor differences relevant to construction site variations. Developing these projects requires selecting the right level of engineering and creating innovative models to minimize cost, with no delays in delivery.
Capacity Market projects are usually granted to OEMs or EPCs. These two models handle projects differently and deliver the project within the allocated budget and timeframe.
However, developers should pay closer attention to the way Capacity Market projects are handled by each.
OEMs are usually specialized in one part of the system, such as engine manufacturing, with minimum construction expertise, therefore they tend to outsource the construction part. Procuring other parts of the project is usually left to suppliers along with setting up the components. Suppliers tend to enable all product features regardless of the required specifications. This and other issues might arise when the construction, procurement and build are being handled by different bodies.
EPCs handle Capacity Market projects from design to construction. The downside to conventional EPCs is the long contractual procedures they follow to avoid any issues relating to compliance. This leaves very little room for flexibility and changes the Capacity Market developer might ask for, especially if the construction lacks transparency and does not tend to engage Capacity Market developers.
The ideal solution to these problems is to engage a specialist project management contractor and consultancy throughout the entire project lifecycle.
Here are a few advantages for integrating such companies in Capacity Market projects:
Developers tend to fall into one of two traps when designing a project: over-engineering for convenience and to avoid risks, or under-designing to minimize expenses in order to fulfil minimum requirements and meet deadlines.
Standardizing the design of generation sites by creating a modular solution helps cater to site variations with minor differences and drives the cost down as the economy of scale becomes feasible.
The contact point for the design between OEMs and contractors is usually the sales team, not engineers, and they usually have minimum technical experience to spot issues in design (if they exist). Solely relying on suppliers to set up different system components (such as switchgear) results in having all features enabled. In reality, this affects the overall project performance.
The traditional procurement process involves choosing from an existing list of suppliers built over the years. This approach eliminates exploring alternatives more fit for the project. A specialist project management partner provides independent and unbiased advice on procurement as it is not tied to any suppliers.
Specialist project management partners with consultancy experience are more likely to use their resources to explore disruptive technologies fit for the project to enhance the overall performance and to increase return on investment. Not having a vested interest in the technology or brand used increases the exposure to the latest innovations.
A specialist project management partner can achieve savings of up to 10 per cent on Capacity Market power plant development. This can be reached by effectively having a fit-for-purpose design with modular solutions, on-time delivery and an independent unbiased procurement with exposure to disruptive technologies.
This approach of having a specialist project management partner with consultancy experience as an integrated part of Capacity Market project development helps enhance the design and construction.
If taken into consideration from the bedding stage, a specialist project management consultancy can increase the competitiveness of the bidders.
It is a healthy alternative to conventional power plants developers that utilizes expertise and ensures consistency, compliance and effectiveness.
And this model is not limited to the Capacity Market, but can be adopted by other power plants developers and DNOs.
David Bowman is the founder of N-ERGY Power Solutions