“We can save at least 20 pct:” Developers rethink how they build giant wind projects

Giga-scale wind projects combined with ever-lengthening planning timeframes are pushing developers into rethinking how they handle contractors, with some saying they’re seeing major savings from splitting these up. 

“We think we can save at least 20 per cent by going from full EPC [engineering, procurement, construction] to split contracting,” says Windlab’s Nathan Blundell.

“Yes, you need more management on top of that, but it’s far cheaper and more competitive, and in that way, too, you also de-link the need to align to a specific OEM [original equipment manufacturer].”

Blundell told an industry forum last week that opening up every aspect of a project to competition can save 10-20 per cent in costs, as opposed to going with a single OEM.

“Keep it competitive, you’re going to get a better price, and then the consumer is going to do better, and the energy transition will go better if we’re getting a cheaper product to the market.”

In the past, when projects were smaller, developers handed the delivery over to a single company, who promised to handle the engineering work, procurement and construction.

It’s a system that devastated the EPC sector more than a decade ago.

In the 2010s, a number of EPC contractors went under who’d won solar jobs with low-ball bids, and then were unable to handle the extra costs of inevitable grid connection delays and problems arising during commissioning caused by their choice of equipment.

Today, the issue for giant wind projects is around risk, says Westwind Energy managing director Tobias Geiger.

He says the wind sector is “drifting” towards split contracting to save money, but it’s more about size: it wasn’t cost effective to have a “kick-ass” project management team for dozens of smaller projects so they’d turn to an EPC which already had that team in place.

“It’s also about moving the risk to the party that is best placed to manage a risk,” he said at AuWE in Melbourne last week. 

“What we have seen in the past is often development risk, planning risk, environment compliance risks were passed on to an EPC contractor who is not best placed to manage that. 

“The developers developed all the environment management plans, and is much better placed to develop those, for instance. 

“Same when you then look at civil or electrical contracting. If you engage those contractors earlier and let them manage certain risks that are risks for their schedule and their cost, you get a much better outcome.”

It’s a shift that is suited to a uniquely Australian problem, says Alberto Perez Couso, the managing director of the local subsidiary of European wind turbine manufacturer Nordex.

He says the balance of plant, the non-turbine parts of a wind farm needed to get electricity from blade to grid, makes up 40-50 per cent of the cost of a project in Australia.

In other parts of the world where Nordex works, it’s closer to 20 per cent. 

He wants to see contract models that start earlier so those contractors can give feedback earlier in the process on what they believe will work best.

It’s a scenario that could even see fewer turbines in a project as those with “no business case” can be dropped earlier. 

“We’ve been able to drive balance of plant costs down 20 per cent by doing value engineering, just by knowing our turbines, by knowing what we need, by trying to find a best possible way of doing things,” he said at the Melbourne forum. 

“Some of those EPC strategies that might have worked in other parts of the world, where the OEM was the majority and therefore everything else was kind of a sidekick, it perhaps made sense

“But in an industry like we are in here… trying to allocate risk to the right party is the best way you can get an efficient outcome.

“You can ask a civil person to take electrical risk. It’s going to put a risk contingency there… because those guys don’t do electrical.”

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