Why Specialist Project Management Partners are Needed in The Capacity Market
9th March 2018
Capacity Market is sensitive by nature; the UK government relies on it for providing the gird with electricity when the demand is high. And it 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 per kW per year for T-1 and £8.4 for T-4 (down from £18 - £22.5).
New Build Generating Capacity Market Unites have scored a very small share of the awarded Capacity Agreements with only 11.1% in T-1 for the delivery year 2018/2019 and 1.51% in T-4 for the delivery year 2021/2022.
Gas was the leading awarded fuel type in both auctions with 75.55% in T-1 and 58.74% 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.
New Build Capacity Market projects might seem like any other energy generation project to conventional energy developers. But after analysing the nature of these projects and the existing approaches, Capacity Market Developers (and all other power generation projects such as building substations and DNOs) might realise there is a more effective alternative to handling projects 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 sites variations. Thus, this requires selecting the right level of engineering and creating innovative models to minimise cost with no delays in delivery.
Capacity Market projects are usually granted to OEMs (Original Equipment Manufacturers) or EPCs (Engineering, Procurement, and Construction). 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 being handled.
OEMs are usually specialised in one part of the system (for example, engine manufacturing) with minimum construction expertise, thus, 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 falling in any specifications or compliance risks. This leaves very little room for flexibility and changes the Capacity Market Developer might ask for. Especially, that 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. Keith Robertshaw, Business Development Director of N-ERGY Power Solutions mentions a few advantages for integrating such companies in Capacity Market and other Power Generation projects;
· Fit-for-Purpose Design
Developers tend to fall in one of two traps when designing a project; over-engineering for convenience and to avoid risks, or under-design to minimise expenses in a way to fulfil minimum requirements and meet deadlines.
Standardising 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 scales becomes feasible.
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. Whereas, in reality, this affects the overall project performance.
· Unbiased Procurement Advice
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 an independent and unbiased advice on procurement as it is not tied to any suppliers.
· Exposure to Disruptive Technologies
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 latest innovations.
· Financial Savings
A Specialist Project Management partner can achieve savings more than 10% on Capacity Market power plants 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 projects development helps enhance the design, 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 utilises expertise and ensures consistency, compliance, and effectiveness. This model is not limited to the Capacity Market and can be adopted by other power plants developers and DNOs.
By: Ayah Alfawaris, Energy Research Analyst