Strategies for Managing Renewable Energy Projects

Common Contracting Models for Renewable Energy Projects

Choosing the right contracting model is key to managing risks in renewable energy projects. Each model presents different levels of risk for the employer, ranging from low to high.

In the BOOT model, the contractor handles financing, design, construction, operation, and maintenance before transferring the asset back to the employer. This shifts the bulk of the risk onto the contractor.

Risk Profile: Minimal employer risk, with the contractor assuming operational and financial risks.

In an EPC contract, the contractor assumes responsibility for delivering a fully operational facility, minimising the employer’s exposure to design and construction risks.

Risk Profile: Low risk for the employer; the contractor bears responsibility for performance, delays, and quality.

In a D&C contract, the contractor manages both the design and construction. The employer, however, retains some responsibility for defining requirements and managing scope changes.

Risk Profile: Moderate risk to the employer, who shares responsibility for any design-related issues.

Build, Own, Operate, Transfer (BOOT)

Engineering, Procurement, and Construction (EPC)

Design and Construct (D&C)

Early Contractor Involvement (ECI)

ECI brings the contractor into the project early to provide input on buildability and risk management during the design phase. This collaboration minimises construction risks but requires ongoing employer involvement.

Risk Profile: Medium risk, as the employer remains involved in decision-making, with potential for scope creep.

Engineering, Procurement, Construction, and Management (EPCM)

In EPCM, the contractor manages procurement and construction, but the employer retains decision-making authority and more risk, especially regarding cost overruns.

Risk Profile: Higher risk for the employer, who must manage costs and performance.

Managing Contractor / Construction Management

In the Managing Contractor model, the employer hires a contractor to oversee multiple subcontractors but retains ultimate responsibility for the project.

Risk Profile: High risk due to the employer’s role in coordinating and managing decisions.

Cost-Plus Contracts

In a Cost-Plus contract, the employer agrees to cover all project costs plus an additional fee for the contractor’s profit. This model offers flexibility but exposes the employer to potentially significant cost overruns.

Risk Profile: The highest risk, as cost uncertainties and overruns fall on the employer.

The Role of Front-End Engineering and Design (FEED) in Mitigating Risks

The FEED stage is crucial in addressing potential risks before construction begins. It helps ensure the project’s feasibility by incorporating site assessments, design validation, and regulatory compliance.

Site Assessments

Comprehensive site assessments are necessary for determining project viability, particularly for offshore or solar projects. Considerations like wind speeds, solar irradiance, and environmental conditions must be factored in to avoid operational disruptions.

Design Risks

Design risks arise from improper technology selection or underestimating environmental impacts. Addressing these risks early ensures equipment reliability, avoiding disputes over performance guarantees.

Regulatory Compliance

Meeting local and international regulatory standards early in the FEED process reduces the risk of project delays. Navigating complex regulations across different jurisdictions is essential for staying on schedule and avoiding legal disputes.

Risk Mitigation Strategies in Renewable Energy Projects.

Reducing Risk Through Design

Effective design can eliminate many operational risks. For example, choosing materials that withstand extreme weather can mitigate risks in solar and wind farms. Incorporating redundancy into grid connections ensures failures don’t halt operations.

Insurance

Comprehensive insurance coverage is vital. Policies such as construction all-risk insurance protect against equipment failure, environmental damage, and unforeseen events, ensuring that financial risks are mitigated.

Passing the Risk to Others via Contracts

Transferring risk through carefully structured contracts protects the employer. In EPC contracts, for example, the contractor assumes responsibility for delays and performance, reducing the employer's exposure.

Reducing Operational Risks with Procedures

Well-defined operating procedures, including routine inspections, maintenance schedules, and safety protocols, help minimise operational risks. For instance, regular checks on wind turbines can prevent breakdowns and performance issues.

Human Resources to Manage Risks

When part of the project scope is retained by the employer, interface risks arise between retained and contracted scopes. Assigning dedicated resources to manage these interfaces ensures smooth coordination. For example, if the employer retains responsibility for grid connection, project managers should ensure seamless integration with the contractor’s scope, reducing delays or design misalignment.

Choosing the Right Model for the Energy Transition

Successfully managing renewable energy projects requires selecting the right contracting model based on the employer’s risk appetite, ensuring thorough FEED assessments, and implementing proactive risk mitigation strategies. By leveraging these methods, project managers can ensure projects are delivered on time and within budget while minimising cost overruns and the potential for disputes.