I am coming up for air after a crazy and intense year of maternity leave. Thanks to all who have kept in touch and apologies to those who were expecting the newsletters to continue.
My big news is that four months ago I started working for an engineering firm in Melbourne, in their renewable energy team. I am back in the world of consulting, working as technical advisor on a number of solar projects around Australia. It’s very similar to the work I was doing back in South Africa so it’s familiar ground.
This market is booming at the moment, and there are a lot of little interesting topics floating around that could use a bit of discussion. What’s of clear interest to me is the number of South Africans moving over here with experience in renewables. The slow down of the REIPPP programme in SA has had many people looking further afield for work. Not including myself I can think of five people who were consulting in Cape Town while I was there, who are now based in Australia. And that’s just within consulting. There will be a whole heap more working for the other project players.
I’m slowly getting my head around the grid connection space. It’s complicated, with uncertainties that seem to be driving developers around the bend. Marginal and Distributed Loss Factors deserve their own youtube channel, and the Generator Performance Standards are tying people in knots.
Each state has its own planning rules. The country is enormous with long tentacled electrical infrastructure. The politics is political and the leaders love to leave.
It’s a big mish mash and a bit wishy washy. And it’s a lot to get your head around.
So watch this space. Perhaps all that I can promise is that you learn along the way with me.
In August 2016 we left Singapore by bus and landed in Johor Bahru, a city that seems to exist solely for the purpose of supplying Singapore with goods by truck. We spent one night there before heading to Melaka (also sometimes referred to as Malacca.) Here we found a small city rich in history, diversity, personality, beauty and with a lot of character.
Part of its history is that it was under Dutch occupation or control for a long time, and there is evidence of this throughout the city. In the architecture and the way things are named (like the Stadthuys or city hall in the middle of town.) I found myself wondering if this is the part of the world that so many Cape Malay people in South Africa can trace their heritage back to. And it turns out that there were slaves sent from Melaka to Cape Town. I found the experience that much more personal to think on it; that there was such a distant and yet very real link between this city that I had stumbled upon, and my home town.
The 100 Resilient Cities initiative lists the following as Melaka’s resilience challenges:
Declining or ageing population
Overtaxed/ under developed/unreliable transportation system
Poor air quality/pollution
Rising sea level and coastal erosion
Coastal flooding/Rising sea level and coastal erosion/Rainfall flooding
These concerns are easy to understand. The city is centred around the Melaka river, which winds its way around the city and flows out to the ocean. It flows right through the heart of the touristy section of the city, and buildings and infrastructure are built right up to the water’s edge.
There is clearly a lot of history connected to the river. A beautiful water wheel, ship exhibition, and tourist attractions and activities are set up around the river. It is therefore not hard to imagine that the city is vulnerable to the effects of flood and sea level rise.
Overtaxed/ under developed/unreliable transportation system
We stayed in the city centre. We had arrived by bus from Johor Bahru and had used a bus to get from the main bus terminal to the hotel where we were staying. This worked well and was very cheap. But that is as far as our experience of the public transportation system went. For the rest of our time, we walked around the city. We didn’t brave the brightly coloured and adorned tourist tricycles. But it’s not hard to imagine that the transport system is stretched and stressed.
I’m not really sure what diseases they are referring to with this, but this was one of my favourite signs in Melaka. My guess is that they’re more worried about non-STD related diseases, but still, play safe folks.
Bangkok is an incredible monster of a city. We spent ten days there at the beginning of 2016 and saw a tiny fraction of it. A friend of ours was staying in an apartment block where the roof was accessible on the 45th floor, with panoramic views of the city. It goes on and on and on. High rises as far as you can see. Shining lights, the constant buzz of traffic.
The 100 Resilient Cities initiative describes Bangkok’s resilience pictures as the following:
“In addition to a bustling tourism industry, Thailand’s capital city is home to 10 million residents within 1,500 square kilometres. Nearly half the population comes from other provinces and countries, seeking better opportunities, and many are considered poor and vulnerable. In 2011, Bangkok experienced a severe flood with estimated damages of $45 billion to global supply chain, out of which only $10 billion were insured. This sparked the development of a manual for flood management that includes lessons for resilience building. However, technical expertise and financial resources for creating and executing resilience strategies remain limited.
Overtaxed/ under developed/unreliable transportation system
Pollution or environmental degradation
Poor transportation system
Riot or civil unrest”
Sounds like a lot of cities. Here is what I found, in my short stay there.
The smell of Bangkok is not for the faint of heart or nose. On one particularly smelly day, we walked over a stormwater drainage line and it smelled like an open sewer. There are a number of channels running through the city and they also smell. I’m not sure if this is linked to the age of the infrastructure, but it seemed to me that the city was not adequately equipped to manage its wastewater or its stormwater. There is water all around and through Bangkok. It is not hard to imagine that flooding can happen quickly and that its impact could be quite severe.
As with a number of Asian cities, the electrical and communications infrastructure looks like a real challenge. A bird’s nest or spider’s web of cables.
Thailand is not poor though. There was a stark contrast between Bangkok and the cities in Vietnam and the Philippines that we had just been in. We experienced one power outage while I was there, but that appeared to be from maintenance work on the local grid. Not from capacity issues.
We stayed in Chit Lom. It’s an easy, if a bit long, train journey from the airport into the city centre. Our apartment was within easy walking distance to the train station, and the elevated walkways that link one shopping centre with another (shopping is not taken lightly in Bangkok…) On one particularly touristy day, we took the train to the water’s edge, and then caught a boat to one of the temples. That was my experience of Bangkok’s public transport. Fast, regular, air-conditioned and predictable trains, and boats.
On one day we tried to take a taxi from Chit Lom to a neighbouring suburb, but the driver turned us away, and recommended taking the train as it would be faster. On another day we took a taxi to their secondary airport, to go to Chang Mai, and we crawled through the traffic. From this one taxi ride, and from our walking around the city, it’s clear that traffic is an issue. I am not sure what the public transport system is like once you are out of the city centre. There are a number of bus routes operating, some of which run all night but the city is enormous, with millions of people needing to move around every day, all day.
So when 100RC lists poor transportation as a challenge, I can understand why. The train system is set up for people to move from the airport to major hubs easily. It can’t possibly handle 10 million people. It’s monstrous infrastructure running through the city. It can’t have been easy or cheap to build, and any expansion to it must be a gigantic undertaking. The city is hot, and it’s not easy or comfortable to walk around.
The city is hot, and it’s not easy or comfortable to walk around.
Plastic is the tragedy of Asian cities (with Singapore the major exclusion – possibly Seoul too, but I’m yet to go there). It’s everywhere and it’s heartbreaking. No stretch of road, or expanse of water, is free from it.
The air quality was also not great. Our friends who live there have commented that at times they have to stay indoors because the air quality is too bad to be outside, particularly as they have a young child.
The SkyTrain is built above roadways, and this infrastructure naturally traps vehicle exhaust fumes. I was four months pregnant while we were there and it made me feel quite conscious of what air I was breathing in.
This was not our first time in Bangkok. We spent a day there in December 2013. It was around the time of civil riots in the city, and we were quite conscious of this as we made our plans for the day. In August 2015, the Erwaran Shrine, located within the city centre, and a short ten-minute walk from where we were staying in Chit Lom in 2016, was bombed.
Then in October 2016 the national monarch, King Bhumibol Adulyadej, died at the age of 88, after reigning for 70 years. This has led to more concerns regarding civil unrest in the country.
For all of these threats and the knowledge in the back of our minds that the country, and therefore its capital, was experiencing this discontent, we never came face to face with it. We were conscious while we were there that it’s recommended that tourists avoid talking about the king, the military junta or politics in general with local Thai people. It’s difficult to get a sense of what local people are struggling with, or living with if you aren’t really able to talk to them about it openly. That says a lot itself I suppose.
While we were in the Philippines I saw a sign which broke my heart a little bit. It was in a public lavatory, and said something to the effect of ‘Our children are precious, please protect them’ and made reference to child trafficking. I was reminded of that sign when walking around Bangkok. Old white males sitting at tables being served by young, beautiful Thai women or men dressed as women. Viagra (or a cheap knock-off) for sale by street vendors. The sex industry seems to be alive and well in Bangkok.
It’s hard to see this and not feel that local Thai people are being exploited by wealthy westerners. Surely this has an impact on a place’s resilience? If your people are objectified and targeted by a certain demographic of tourist, it must have a knock-on effect.
Last week I went to a talk hosted by Melbourne Conversations and the Resilient Melbourne Initiative. The president of Rockefeller Foundation’s 100 Resilient Cities (100RC) programme was the main speaker, and it led to an interesting discussion on the challenges that Melbourne is facing.
I was involved in the development of the Cities Resilience Index (CRI) when I was in Cape Town and I’ve written a bit about this before. The CRI is a tool that can be used to assess a city’s resilience, and help to highlight where they may be vulnerable, and it was a project that was running in parallel to the 100RC programme. So this is close to my heart.
It became even more personal this morning when I had a look through the 100RCs and realised that I had been to 15 of them. So over the next while I will be casting my mind back to these 15 cities, talking about my experience (where I can remember them) and what kind of resilience priorities these cities have.
Once this is done, perhaps I will carry on, and look at some of the cities I haven’t yet been to. Maybe starting with cities where those close to me have travelled.
So far, my travels have taken me to these cities looking to improve their resilience:
This post is the last (for now at least) in a three part series looking at some of the things that can go wrong during the construction of a solar PV facility. Part 1 of this topic looked at design, programme, labour and environmental conditions that could impact construction. Part 2 focused on the importance of effective onsite management, including quality control, equipment management, housekeeping and safety.
“The best laid plans of mice and men often go awry.” No matter how carefully planned out a project is, progress will always be at the mercy of external events, outside the control of project teams. Some events are possible to predict, and contingency plans, or mitigating plans can be created. Other events come out of the blue, are totally unforeseen.
The contractor should be responsible for completing the project to the extent that they are able to control, or perhaps even influence, what is taking place. But contracts will have ‘force majeure’ clauses included, to address what happens if something happens which is totally outside of the contractor’s control.
Regardless of who is responsible, works need to get back on track, and repair works or accelerated catch-up works may be required.
Weather conditions, like floods, heavy winds, lightning and hail, can lead to facility and equipment damage. Material or equipment supply chain hold ups or shortages may occur (by way of example, a project that I worked on had their steel supplier’s factory burn down). Permission to connect to the electrical grid can be delayed, through no fault of the contractor or employer. Third party works may need to take place (for instance transmission lines, substations or access roads). Third party inspections and/or approvals may be required.
Storm water management/drainage
This is closely linked to external events – as heavy rain is clearly a weather event. And it is linked to the appropriateness of the design (which is discussed in Part 1. But it’s important enough to merit its own mention. Solar facilities are covered with impermeable, smooth, titled panels. They act like a roof, without a gutter. Rain runs off them easily, and, over time, this leaves little grooves in the ground beneath the bottom edge. This water accumulates and then runs downhill. Depending on the ground type (permeability), the facility slope and the amount of rain received, stormwater management can become an issue. Moving water can erode away at ground, roads and earth surrounding the mounting structure base. This is clearly an issue over the life of the plant, but the management of stormwater can also be a problem during construction if water rushes into trenches, washes away civil works, or affects other aspects of work.
It’s therefore important that the contractor is aware of rainfall patterns, and considers how stormwater will behave onsite. Plans should be in place to manage the water, and drainage designs should consider protecting the facility both during construction, and over its operational life.
Access road degradation
For any equipment, people or materials to reach the site, it is naturally important that the facility can be accessed. There is typically a portion of road, of varying length, linking public roads to the facility’s boundary. It’s important that the responsibility for building and maintaining this road is clearly defined. But regardless of who is responsible, this road will take quite a beating over the course of construction. Trucks carrying modules, mounting structures, inverters, switchgear, concrete, and other components and materials will be travelling backwards and forwards for months.
If the road isn’t built properly, it will end up being heavily corrugated and can turn into a swamp with heavy rains. This then affects the delivery of components and materials, and the accessibility of the site for people working there. Because it’s outside of the site boundary, it can be overlooked, but can result in a logistical nightmare if it’s not built properly.
A problem for a number of projects in South Africa was in the power quality at the point of export. Different countries have different connection requirements, which will be set out in the relevant codes, regulations and standards. Equipment may be brought in from other countries, and designs carried out by foreign engineering professionals. This can result in the facility not complying with the specified requirements. Design adjustments, equipment tweaking or reprogramming and/or possible additional equipment may be required, and these may end up delaying the project.
It’s therefore clearly important that the designers are aware of local conditions and requirements, and design the facility appropriately. Sufficient time for testing is also required, in case there are hiccups along the way.
The contract should define whether or not the contractor is liable for any sneaky surprises that may be lurking underground. They will be develop their design according to the conditions that they have observed onsite. The mounting structures, electrical equipment housing units and cable routing designs will all have been selected and developed accordingly. If the actual conditions are different from than what was expected it can have an impact on the suitability of the design. It’s therefore incredibly important that a thorough geotechnical assessment is carried out.
Solar PV facilities should be fairly easy to build; the technology is not overly complicated, and the installation process should be a series of lego-like assembly. So why does so much go wrong? Part 1 of this topic looked at design, programme, labour and environmental conditions that could impact construction. This post will look at the importance of effective onsite management.
Quality inspections / quality control
What should be included in the contractor’s contract is that all works are to be done to an acceptable level of quality, and that the contractor should be implementing a comprehensive quality assurance plan. But PV facilities are made up of millions of components being installed, in addition to vast stretches of trenching being dug and filled, and other civil works taking place. LV, MV and HV electrical works are on the go, and multiple teams are all working simultaneously, often within the same zone. If the contractor doesn’t have their proverbial ducks in a row, construction works can be done sloppily, and without due care.
Step one is to ensure that before an activity begins the contractor makes sure that everyone has the right information. Documentation control is incredibly important. Have drawings and method statements been reviewed? Is the document register updated? Do all sub-contractors have the right plans? Does everyone know what they’re supposed to do and how they’re supposed to do it?
If this important control is not in place, and people are working to the wrong plans or designs, trenches can go in the wrong place, concrete pours may need to be redone, modules may need to be removed and replaced, and so on. An entire site can spiral into chaos if people don’t know what they’re meant to be doing.
But let’s assume that people have the right information. There should then be detailed inspections and checks by the contractor’s quality team to make sure that the works delivered match the design. Have cables been securely fastened? Are bolts tightened? Have all components been installed in accordance with the original equipment manufacturers’ requirements? Are the pyranometers facing the right direction?
All of these tiny checks add up to two big important questions – is the facility safe to operate and can it operate as intended?
There should be a whole room full of files containing evidence of inspections. Well, not quite, but the evidence should be there. If the contractor isn’t recording their inspections and test results, it’s very difficult to be confident that they’re really in control of the facility’s overall quality.
If the employer is dissatisfied with the facility presented to them it can impact on whether milestone payments are made to the contractor, or whether the contractor can achieve practical completion (or whatever completion milestone is defined in the contract.)
This impacts on the project’s completion date, and if quality issues are not identified and then resolved, it can affect the facility’s operational efficiency and safety. Not good.
Storage and handling of equipment
Some components, of the millions of components being used, will have requirements relating to the handling of equipment that could impact their warranties or how they perform in operation. The importance of complying with these requirements cannot be overstated.
Equipment should be transported correctly, unloaded and then stored correctly. It should be packaged suitably, and then, when the time comes to install it, it should be installed properly. The facility design should ensure that the operational or environmental conditions will be within a range considered acceptable by the manufacturer.
If the contractor isn’t aware of these requirements, they won’t handle the equipment correctly and they run the risk of voiding warranties and affecting facility operation. They also run the risk of damaging equipment so that replacements need to be ordered. Some of the components on a PV site, especially made-to-order items, can have a very long lead time.
This can throw the project schedule off course.
The condition of the site in general can be a good indicator of the contractor’s overall control of onsite activities. Rubbish and litter lying around, concrete splatters, broken glass and piles of sand and rocks all provide an indication that small, but important, controls are not in place. Inadequate housekeeping can also raise flags for the environmental officer or manager, who should be monitoring construction activities in accordance with the relevant environmental authorisation and/or environmental management plan. Non-compliance with the EMP can result in onsite activities being stopped until the issue is corrected.
The contractor’s level of control of onsite activities will also have an impact on the safety of all persons working there. There are multiple ways in which someone could really hurt themselves, or others.
PV modules sitting in the sun will be live. Any person fiddling with the module, or with connectors, who may not know what they are doing could really injure themselves.
The same risk exists with other electrical equipment being used throughout the facility.
Heavy drilling and trenching machines may be operating and these naturally have the potential to injure someone quite seriously.
Anyone working near loud machinery should be wearing ear protection.
Fire is a concern on any PV facility. Electrical fires or bush fires (particularly in drier climates) can occur.
Then there is a risk of other accidents happening. People dropping equipment or material, or falling in holes, or misusing a tool, or even sunburn or heatstroke.
Injury or even death is a real risk, and it is up to the contractor to ensure that
safety considerations are emphasised during toolbox talks,
emergency procedures are in place and emergency equipment (like fire extinguishers) are available,
access controls are in place to prevent unauthorised persons from entering electrically active zones and
all workers are adequately trained before carrying out any activities.
There should be an appointed health and safety control officer, who is tasked with developing and implementing H&S procedures. Any incidents or non-compliances should be taken seriously, and it’s important that safety is instilled within the site culture from the start of construction activities.
I gave a talk on EPC contracts at the All-Energy conference in Melbourne earlier this month. The other speakers talked on the role of the lender’s independent engineer, the commercial & industrial solar PV sector and the transition from fossil fuels to renewables from an environmental management perspective.
One of the questions that was asked of us all right at the end was to do with large scale solar PV installations. If solar PV facilities are effectively like large assemblies of lego pieces, what could possibly go wrong during construction?
It’s true, they should be fairly straight forward to construct, so why is it that some facilities are completed so much later than planned?
Solar PV facilities aren’t complicated to design for, but if the design is inappropriate, there are a myriad of issues that can result. For example:
Overcomplicated mounting structures can be difficult to assemble, and may not handle slopes or undulations in the ground very well
Lightning may be more frequent and more severe than the electrical design allowed for
Geological conditions may make trenching and piling activities more difficult than expected
Electrical equipment selection may not comply with grid connection/code requirements
Programme of works – sequencing of activities
Constructing a PV facility means tracking and controlling the movement of millions of components, and managing the activity of hundreds of workers. If the programme of works, or project schedule, is not well thought out, logical and comprehensive, the project risks onsite activities descending into chaos.
The project schedule should result in the efficient flow of components and equipment; be that the delivery of goods and machinery to site, the order and layout of any storage or laydown areas, and the timing of movement of components from storage to installation zones.
Installation activities should also be carried out efficiently, and in the right order. Modules cannot be installed by the module installation teams if the mounting structure assembly teams have not completed their works. If the mounting assembly teams are not working efficiently, the module installation teams will be sitting on their hands. Modules (or other sensitive equipment) should not be installed if there are heavy duty civil works still to be done (like trenching) in the nearby areas.
Trenching activities can only be done if the trenching machines are available. The availability of machinery becomes very important in sticking with the project programme. And if there are lots of projects going on at the same time, in fairly remote areas, the availability of such equipment is not necessarily a given.
Where is your contractor from? Are they originally a foreign organisation who ran out of work in their home country so came to your shores seeking more opportunity? And if so, have they hired local people to work on your project?
Each country, and indeed each region within each country, has its own labour environment, bringing its own set of issues and challenges. If the contractor doesn’t have local capacity, they may not have a good understanding of what these issues and challenges are, or how to overcome disputes if they arise.
Strikes, go-slows or the downing of tools has an enormous impact on project execution, and the contractor needs to know how to find a resolution to labour issues as soon as possible.
Also, there may be expectations as to local working conditions, or assumptions around working practices that may not necessarily be written anywhere, but which the contractor may be expected to know. The contractor could very well go through nasty culture shock on site, and throwing hands up in the air and stomping away from the workforce won’t really get things done.
Local knowledge and capacity is critical.
Compliance with environmental authorisations/management plan
Depending on the size of the facility, there is likely to be some form of environmental permit or authorisation, which is the result of an environmental impact assessment. This permit may outline constraints that apply to the project (such as no-go areas around wetlands or areas of heritage significance) and it will likely require the project to have an environmental management plan that is implemented as the project progresses.
Compliance with the permit and the associated EMP is very important. Non-compliance may result in delays, or perhaps even the withdrawal of granted permits.
Any new site findings can throw a real spanner in the project works. Unearthing a burial site, for instance, can close down an entire section of a facility.
A few weekends ago I took a drive along the coast to the south east of Melbourne, towards Wilsons Promontory. It is such beautiful country out there, with rolling green hills and dramatic coastlines. There are two wind farms out that way, and I saw the first from across the bay, and the other up close and personal.
From Duck Point (just north of Wilsons Prom), you can see Toora Wind Farm across the bay. This is a 21MW facility, made up of 12 x 1.75MW turbines.
But from there it was back towards Melbourne, where the journey took me right past the foot of the Bald Hills turbines.
The Bald Hills Wind Farm [consists] of 52 wind turbines, each with an electricity generating capacity of 2.05 megawatts (MW) giving the project a total capacity of 106.6MW.
The Victorian government recently announced a policy to decisively increase the amount of renewable generation in Victoria. The rationale for this policy is that existing federal policies are failing to provide investment certainty in the expansion of renewable production capacity.
The government estimates that meeting its policy will require up to 5,400 MW of new renewable generation to be built over the next nine years. This is equivalent to about 60 per cent of Victoria’s peak demand on the power grid.
Assuming an all-in capital outlay per MW of $2.5 million, meeting this policy could require $13.5 billion of new money. Some significant investment in transmission infrastructure is also likely to be needed. After residential rooftop solar, this will be, by far, the largest investment in new generation capacity in Australia since the creation of the National Electricity Market.
Last month a consultation paper from the Department of Environment, Land, Water and Planning sought responses on various issues (identity of the counter-party, specification of the payment instrument, technology selection, treatment of other subsidies, contract duration and auction design). The Department is currently focusing on the preparation of enabling legislation with a view to conducting its first tender next year.
South Africa’s Renewable Energy IPP Procurement Program (REIPPPP) is an interesting point of reference, of comparable scale, to the Victorian policy. Though there are many differences, many of the important issues are similar and much can be learned from the South African experience. At the least, a quick look at their program we might give a sense of what lies in store for Victoria.
Under the REIPPPP program 6,327MW (of which 3,357 MW of wind in 34 projects, 2,292 of PV in 45 projects, 600 MW of concentrated solar in 7 projects and several much smaller biomass and small hydro projects) have been awarded PPAs. Total capital outlays of around $19bn are expected, to complete these projects. As a result of this, since 2012, South Africa has ranked among the top ten countries globally in terms of renewable energy independent power producer investment.
In the first tender in November 2011, 28 projects offering 1,416 MW in total were selected. In the second round in May 2013, 19 projects offering 1,040 MW were selected. A third round in August 2013 selected 15 projects for 1,321 MW. A fourth round in August 2014 selected 26 projects for 2,207 MW. A fifth round is expected to commence shortly.
The bidders offer prices for 20 year Power Purchase Agreements with Eskom, the government owned national power monopoly. Two additional agreements with the Government underwrite Eskom default risks, provided step-in rights to lenders in the case of default and ensure contractual obligations for delivery of up to 17 economic and social development obligations. Community ownership (at not less than 2.5% of the total project cost) is mandatory and the developer have to come up with ways, such as community trusts, to comply with this. Contract evaluation is based 70% on price and 30% on socio-economic factors.
The contracts are not negotiable and bidders are required to submit bank letters to the effect that financing is locked-in. This effectively outsources due diligence to the lenders. The lenders in turned passed this on to developers but in a way that ensured the duty of care was to lenders.
The 64 successful projects in the first three rounds involved over a 100 different shareholder entities, 46 of these in more than one project. Banks, insurers, development banks, international utilities and direct foreign investors have all participated in the program. The most common financing structure has been project finance, although about a third of the projects in the third round used corporate finance.
The majority of debt funding has been from commercial banks with the balance from development banks, pension and insurance funds. Eighty-six percent of debt has been raised from within South Africa on 15-17 year loans (from Commercial Date of Operation). Debt risk premia in bank loans have been around 450 basis points on top of the South African equivalent to Australia’s 90 day bank bill swap rate.
Forty-nine Engineering, Procurement and Construction (EPC) contractors have been involved in the 64 projects during the first three rounds, the majority in more than one project either as the primary or secondary contractor.
Prominent EPC contractors with three or more projects include Vestas (Danish), Acciona (Spanish), Consolidated Power Projects (South African), Group Five Construction (South African), Juwi Renewable Energies (German), Murray and Roberts (South African), Abengoa (Spanish), ACS Cobra (Spanish), Iberdrola Engineering and Construction (Spanish), Nordex Energy (Germany), Scatec (Norwegian), Suzlon (India), and Temi Energia (Italian). Many of these EPC contractors have set up subsidiary companies in South Africa.
The main suppliers of wind turbines and PV equipment include Vestas, Siemens, Nordex, ABB, Guodian, Suzlon, Siemens, SMA Solar Tech, BYD Shanghai, Hanwha Solar, 3 Sun, AEG and ABB. A local wind tower manufacturing facility and at least five PV panel assembly plants have been established in South Africa.
Over the period of the four bidding rounds, offered prices per MWh halved for wind and concentrated solar and declined by 75% for solar PV. Global technology development, local economies of scale, improving investor confidence and lower transaction costs explain this stunning progress.
As the volume of renewable capacity has increased, transmission connection has been become an increasing concern. Bidders are responsible for connection to the nearest major substation, but augmentation of the shared network is lagging behind and this has become a particular issue for the most recently awarded projects.
The World Bank suggests the most important lesson to transfer from the REIPPPP is the benefits of a well-designed and transparent procurement process. They say that the Department of Energy recognised that it had little capacity to run a sophisticated multibillion-dollar competitive bidding process for renewable energy.
As a consequence, it sought the assistance of the National Treasury’s Public-Private Partnership (PPP) Unit to manage the process. A small team of technical staff from DOE and the PPP Unit established a project office which functioned effectively outside of the formal departmental structure of national government. It was led by a senior manager from the National Treasury PPP Unit and other legal and technical experts were brought on board to form a tightknit team.
This was viewed favorably by both the public and private sector as a professional unit with considerable expertise in closing PPP contracts and a reputation as problem solvers and facilitators rather than regulators. The credibility of this team with the bankers, lawyers, and consultants involved in such projects in South Africa generated enthusiastic participation by private sector players.
The World Bank reports that high standards were set and maintained throughout the bidding process, including security arrangements and transparent procurement procedures. Documentation was extensive, high quality, and readily available. Domestic and international advisers were extensively involved in the design and management of the program, in reviewing bids, and in incorporating lessons learned into the program as it progressed through the bid rounds.
To fund the procurement process, in 2011 the National Treasury provided R100 million (around $10m). The World Bank provided a further US$6m and various bi-lateral donor agencies from Denmark, Germany, Spain and the UK contributed funding for technical assistance. This funding saw the program through the first round and part of the second. Subsequent to that, the program relied on bidder registration fees and fees paid by successful IPP project companies.
Successful project companies must pay a project development fee of one percent of total project costs to a Project Development Fund for Renewable Energy projects managed by the Department of Energy. The fund covers current and future costs associated with procurement of renewable energy and oversight of the program. These funding arrangements have helped the program remain off the formal government budget in subsequent bidding rounds.
Coming back home again, the Victorian Government’s policy marks a major departure in the state’s energy policy. Since privatising the industry a little under twenty years ago, the Government has had a watching brief with some intervention around the edges – most significantly in smart meters. The Government is now getting back into the business of electricity production.
Even if it does not intend to own or operate generators, it is the Victorian Government that will under-write what will be a massive investment program. Surely every large new renewable generator developed in Victoria for the next nine years will be part of its program. If the Government legislates its policy as expected, the Victorian Government will become the most important player in the Victoria’s electricity generation sector.
We all, including the Government, have yet to discover how its policy will unfold in practice.
The South African experience can provide some feeling for what goes into the competitive procurement and development of 6,000 MW of renewable capacity. Their apparent success in this endeavor is encouraging. It would be good to learn from this what we can.
Bruce Mountain is an energy economist and Director of consultancy, CME. Vivienne Roberts is an engineer and accountant and was a technical advisor on a number of projects in South Africa.
This post is part three of a three part series on project planning within the energy sector. Part one provides an introduction and some context, and bit on why project planning is important. Part two looks at some of the considerations when planning a project within the public sector; mostly about how to go about procuring consultants to carry out the works. This post looks at project planning within the private sector; from the perspective of an energy consultant. Similar principles apply for contractors or suppliers responding to a request for proposals, but I typically wear a consultant’s hat.
Private sector project planning
While there are overlaps between project planning principles in the public and private sector, the focus of a consultancy (in particular) is very different from that of a project manager procuring the services of a contractor. In general, a consultant is responding to the specifications developed by the client – outlined in a request for quotations, tenders, proposals etc. They sit on the other side of the fence, and are now looking at the statement of works that someone else has developed, with a critical eye.
Deciding to go ahead with a project
Depending on how much work is out there, projects will typically be pursued if they are deemed to be sufficiently low risk with a good probability of making a profit. The organisation should be capable of carrying out the stated statement of works, they should have resources available to do the works, be familiar with working in the project location (particularly if the project is to be carried out somewhere remote and/or in a different country) and the overall project focus should align with their corporate strategy. The client should have a decent reputation, and should be likely to be able to pay invoices.
Responding to tender or proposal requests, or even short quotation requests, can be incredibly time consuming and therefore costly for a consultancy, and so this initial assessment of the call for submissions is very important. How long will it take to prepare a bid submission? Who is going to prepare the bid and how much does their time cost? Does the overall project revenue potential merit preparing and submitting a bid? And is the consultancy likely to win the bid? Are there likely to be loads of competing bids? All of these factors should be considered, and if the result of this go/no-go assessment comes out with an answer of ‘go’, you then move on into the preparation of bid submission.
Preparing the scope of works and associated quotation and schedules
Projects differ; there’s no getting around that, and this post would be infinitely long if I tried to cover all project types and permutations. So I assume here that the client requires the services of a consultant, and that the consultant is required to provide a scope of works, for a fairly fixed or predictable price. Other projects may allow the consultant to work on a time basis, which moves a lot of the scope risk onto the client, but for the purposes of this post, we’ll assume that the consultant is expected to give some sort of assurance as to how much the services for a piece of work will cost.
With that in mind, a client’s request for quotations/tenders etc will typically include a required statement of works, that may or may not be at a fairly high level of detail. They will generally ask for the consultant to provide a methodology that will be followed, with the associated price, and expecting completion date(s).
Some clients may not have prepared this at all or (unfortunately) don’t really know what they are asking for, and will request the consultant to develop this on their own scope of works, based on their experience in the sector, their understanding of the overall project requirements and intended project outcomes. There should have been some discussion with the client at least, to inform this understanding.
Regardless of how much information is forthcoming from the client, this means is that the consultant is typically required to drill down into the detail of what tasks and activities need to be completed during the project’s execution, when this should be done by and by whom, and how much this will cost.
Defining the assumptions and exclusions
If the required statement of works has been thoroughly thought out by the client and is fleshed out in the procurement documents then developing the scope and methodology in the bid can be fairly straight forward. Each task is included and costed accordingly, and laid out in a proposed project schedule. If there is no statement of works provided, the consultant will need to give more time to developing the tasks and activities that need to be carried out, and costing these.
Regardless, the scope of work provided to the client should be clear, unambiguous and logical. And what becomes increasingly important, particularly in bids that have a fixed price attached, or penalties associated with missed deadlines, are the associated assumptions and constraints. This is where I’ve ended up spending a lot of my time on bid submissions, and they can make all the difference.
Spelling out your assumptions helps the client to understand how you have interpreted what they require, what kind of information or input you’ll require from the during project execution, how much information or documentation you’ll be required to review, what other external dependencies exist (e.g. receiving consents or comments from project stakeholders), how much time has been allocated to tasks outside of the consultant’s control, etc. The consultant’s contract price and project schedule is developed accordingly, and any change in the assumptions may lead to a change in the price or completion date. These assumptions are not necessarily fixed, they can be discussed further or negotiated with the client, but they give a basis of understanding for the tasks and activities listed in the scope of work, and protect the consultant from disputes arising from a lack of information or clarity.
Similarly, the consultant should also be explicit in what activities or functions are not included in their scope of works. For example, the consultant may state that they are not responsible for any activities relating to the preparation or submission of any applications for project licences or consents. This means that this activity has not been included in the overall project price, and if the client requires that the consultant carry out this work, it will be in addition to the stated scope of works. There should also be a blanket statement somewhere saying that if it’s not in the scope of works, it’s considered to be an exclusion.
Exclusions, as with assumptions, protect the consultant from the client misunderstanding the intention of the stated scope of works, and protect the consultant from the dreaded scope creep.
A good amount of time should be given to thinking about what is not included. If the consultant has a good understanding of the sector, and of the tasks and activities that are required for the type of project, they will have a good idea of what type of additional activities could be required that may not be listed in the statement of works, but may be expected by the client regardless.
Besides the above, other important project planning activities would apply. Who will work on the project, and what kind of rate are they on? What type of quality control activities will be in place to ensure the work is carried out properly? What risks exist in the project and how will they be avoided or mitigated?
project planning upon appointment
If the bid is successful, and you are appointed, the next stage of project planning begins. A kick off meeting with the client is always a good idea. You contact your team to let everyone know how much of their time will be required and when. You may receive project documentation and information from the client and you’ll probably set up the system for managing and filing said documentation and communications.
A pause here, before you set off on actually carrying out the project work, to confirm with the client as to the overall methodology, project tasks, communication strategies, reporting expectations etc, is recommended. Particularly if all communication to date been limited to the content of your bid submission. Any questions before we kick off? Anything unclear in our scope? Anything unreasonable in our assumptions? Do you need any activities listed in our exclusions put back in (with an associated price adjustment)? Have we misunderstood anything you’ve expected of our us in your statement of works?