csp cost reduction through contracting strategy · csp cost reduction through contracting strategy...
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07/06/101
CSP Cost Reduction Through Contracting Strategy
Kelly Beninga – Global Director, Renewable EnergyCSP Summit
June 24, 2010
Global Resources
28,800 employees |120 offices | 37 countries
Europe –1,800
Africa – 970
Canada – 6,500
USA – 5,500
Latin America – 600Australia – 5,500
New Zealand – 370
SE Asia – 3,300
China – 1,250
Middle East – 3,000
WorleyParsons Renewables
We Provide engineering services across the entire spectrum of renewable technologies
Current global experience includes 144 projects– Concentrating Solar Thermal Power 35– Solar Photovoltaic 13– Wind (on and off-shore) 45– Biomass power 41– Geothermal 8
currently
9000+MW of utility-scale renewable
energy projects
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CSP Cost Reduction
Up to 30% of costs associated with CSP projects are not actual development, design or construction costs
Risk reserves, contingencies, and fees can make a potentially financially viable project infeasible
Traditional Lump Sum Turn Key - Engineering, Procurement, and Construction (LSTK EPC) contracting model places high risk with the engineering/construction company
Risk contingencies for performance and schedule problems, and material & labor escalation are added by EPC contractor
High profit margins charged to balance risk/reward Developer must pay “worst case scenario” costs, with no
benefit if projects go as planned
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Terminology Definitions
FEED – Front End Engineering & Design– Planning, scope definition and risk assessment required to define project cost, schedule and
performance certainty to sufficient probability to finance. EPCM – “Engineer, Procure, Construction Management”
– Professional services only – cost reimbursable– Multiple, lump sum, specialty subcontracting approach – equipment & construction– All contracts and risks held by Owner
TP EPC – “Target Price Engineer, Procurement, Construct”– Professional and construction services – cost reimbursable– Multiple, lump sum, specialty subcontracting approach – equipment– General contractor construction approach - self perform or JV partner– All contracts held by EPC, risks shared between EPC and Owner
PMC – “Program Management Consultancy”– Professional services only – cost reimbursable– WorleyParsons prepares a detailed FEED (Front End Engineering & Design)– Award single or multiple EPC packages– Provide oversight during EPC execution– Contracts held by Owner and risks held by EPC
LSTK EPC – “Lump Sum Turnkey Engineer, Procurement, Construct”– Professional and construction services – fixed price– Multiple, lump sum, specialty subcontracting approach – equipment– General contractor construction approach - self perform or JV partner– All contracts and risks held by EPC
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EPCM – Contracting Strategy
Owner
WorleyParsons
Equipment
Construction
Materials
Commercial Responsibility
Management Responsibility
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EPCM Approach:The Right Cost Balance
EPCM achieves “The Right Cost Balance” through:– Identification and management of project risks– Up to 90% of total cost will be fixed-priced contracts
l Appropriately timed equipment/materials purchasingl Local Construction contracts – Fixed-price basis
– Executing an integrated project plan– Safe project
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EPCM Attributes
Typical project will have approximately 30-50 firm price equipment procurement contracts and about 10 major firm price construction contracts for a new power plant
Up to 90% of the capital expenditure for the client and the plant are secured in a fixed-price contacts
Eliminates the need for layers of markups (profit and contingency) currently experiencing 30% adder for LSTK
No profit markup on contracts/POs issued on customers paper
Provides early risk assessment and mitigation Unused contingencies are retained by the developer/
financial institution
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Project Risk IssuesRisk
Cost Process Schedule Reliability Availability Commercial
BaseContingencyFee
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LSTK EPC Risk PremiumRisk
Cost Process Schedule Reliability Availability Commercial
BaseEPC ContingencyEPC Fee
Perfect Storm Risk Premium
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Cost Process Schedule Reliability Availability Commercial
BaseOwner ContingencyEPC Fee
EPCM Risk PremiumRisk
Open Book Market Based Risk Premium
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EPC vs EPCM Commitments – Total Project Cost
Total Cumulative Commitments
(Dollars)
0 499 12 24 28 3618
Steam Generator Supply
30%Steam Generator errection, Condensate Supply, Powerblock Foundations, Cooling Tower
45%
65%Transformers, Other Foundations, Superstructure, TG Erection
Mechanical/Piping Install
87%
Electrical Install
EPCM
LSTK EPC
TG SupplyNTP
Schedule (Months)
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Case Study – EPCM vs EPC Cost Comparison
13
18.4% Cost Increase
Unused Contingency Retained by Developer
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EPCM Execution ModelRisk Analysis
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Risk Management Plan
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Issues to Consider for EPCM
No one-stop cost and performance warranty “wrap” from EPC contractor provided to developer or financial institution
Risk and reward is partitioned between EPCM contractor, developer, technology supplier, and potentially the bank, equity partners, or utility
Developer or owners typically must have sufficient size and financial strength to shoulder some financial risk
Banks may be resistant to EPCM contracts No technology improvements required to achieve
substantial cost savings
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Contact Us
WorleyParsons can support all your renewable energy needs
Bill Pietrucha, PEProject Manager
Solar Power+ 916 817 3985
+ 916 719 2521 mobile
Kelly BeningaGlobal Director
Renewable Energy+ 303 928 4242
+ 916 599 9933 mobile