This case study looks at how to avoid execution schedule slip for renewable energy projects by taking time to assess in detail the adequacy of existing agreements and project assurance work.
The Problem: Execution Schedule Slip
When a company acquired a renewables project already under construction, it also acquired the contracts and power purchasing agreements signed by the previous owner with a set effective delivery date. The new owner company for the capital project renegotiated the engineering, procurement, and construction (EPC) contract for the project and power purchase agreements, resetting schedule commitments and adding contingency, but leaving the project’s scope unchanged. However, even though the EPC contract was renegotiated, the project team’s due diligence in approving EPC work was insufficient. Unforeseen environmental conditions, in particular, degraded field productivity, increasing costs. The company was forced to modify the EPC contractor work plan to improve field productivity. Mechanical completion and commencement of power transmission were eventually achieved, but more than 6 months later than planned.
1) No Work Process Gates
Yes, the team went back and renegotiated EPC contracts and power off-take agreements. However, even though some development work was redone, there were no development stage gates for decision makers to ensure the cost and schedule estimates and designs were well defined and aligned with the project’s business objectives. Instead, the next stage of development or phase of construction commenced as soon as deliverables for the previous phase were complete. This is common across the renewables industry.
In most industries, business hands an opportunity to a project team to develop in accordance with the company’s project development and execution work process and practices. However, renewable companies are known to combine business shaping/planning and Front-End Loading (FEL) work in the course of planning asset acquisitions or making a commercial deal. A due diligence process is usually followed before and during the acquisition, and often requires the establishment of clear targets for operation, cost, and schedule at acquisition. Project teams, however, lacking early FEL data must be informed during FEL 2 of important priorities, trade-offs, and constraints affecting project cost, schedule, and operability performance in order for them to build more accurate cost and schedule estimates and improve project definition.
2) Poor Construction Management Integration
Although a development team managed the project’s engineering and cost estimating review when evaluating the viability of the asset purchase and its subsequent sale, the construction management team was not adequately integrated into the project team early enough in FEL to address and potentially head off the execution schedule slip risks that arose during execution. For instance, the owner team should have done constructability reviews before the EPC award and updated before authorization. In practice, constructability reviews are frequently done by the contractor because owner resources are not available or because reviews are already underway at acquisition. A better practice is for the owner team or an independent group to conduct constructability reviews before EPC award (or updates) prior to project authorization. The construction engineering function had some input into EPC work prior to the project’s authorization, but had almost no say after construction began, forcing the adoption of EPC contract improvement plans.
IPA’s Renewables Database
Since 1987, IPA has been a trusted advisor to companies in all energy sectors and has helped clients improve their capital project performance. We have been at the forefront of the energy transition within the capital projects industry.
IPA works with project owners, developers, and investors—including new energy investors, independent power producers, and Fortune 500 companies—as well as governments and vendor firms focused on renewable power generation. We have helped organizations improve their work processes, understand and improve key factors of cost and schedule performance, and invest shareholder capital effectively.