Paul Harmer, director, conventional generation, Black & Veatch Europe, explores an option that could give energy from waste developers more certainty in delivering their projects
The UK’s pipeline of waste-to-energy projects is potentially very strong. “Energy from waste is generally the best management option for waste that cannot be reused or recycled,” according to the UK government’s Waste Management Plan for England 2021. The report points to significant funding for waste-to-energy projects, especially those forming part of a heat network programme.
Another report, 2020’s No Time to Waste: Resources, Recovery & the Road to Net-Zero – which has cross-party support – found that, “Widespread deployment of energy-from-waste (EfW) plants across UK regions is needed to deliver a coherent circular and sustainable waste policy.”
The growing role of hydrogen in decarbonisation strategies offers another route for waste-to-energy to contribute to renewable power generation. Showing the way are projects like the H2 Créteil collaboration between SUEZ and SIPEnR to build a green hydrogen production and distribution plant at the energy-from-waste unit of the Val-de-Marne Joint Syndicate for the Treatment of Urban Waste in Créteil, near Paris, France.
Gate fee effects
Currently, the gate fee for the waste feedstock, rather than the sale of power, is what makes UK waste-to-energy projects profitable. Viability, for this business model, requires projects to run to schedule and plant performance and availability in line with contractual terms. Programme certainty is also paramount when the business model is reliant on plant being fully operational to deadlines set by government programmes like Contracts for Difference or Ofgem’s Renewable Obligation Certificate scheme.
Achieving this, however, has proved challenging on some UK waste-to-energy projects. Performance issues have arisen due to a combination of factors including incorrect design and the selection of inappropriate or insufficiently mature waste incineration technologies – leaving some owners facing a loss of revenue. In addition, protection against risk afforded by a full engineer, procure, construct (EPC) wrap has – in some instances – been less than anticipated; occasionally leading to litigation.
Performance issues have arisen due to a combination of factors including incorrect design and the selection of inappropriate or insufficiently mature waste incineration technologies
In essence, on some UK waste-to-energy projects, the transfer of risk from owner to contractor associated with an EPC wrap has been less effective than envisaged. The most significant risks affecting owners have been:
- Plant performance – megawatt output, or heat efficiency, is lower than specified
- Schedule – projects subject to significant overruns
- Additional cost burden – revenue lost while plant is unavailable; cost of bringing underperforming assets up to specification.
It is not just on the owner side that, in the context of UK waste-to-energy projects, EPC is not always perceived as the most appropriate contracting model. There are strong market signals that contractors too are becoming less inclined to bid on EPC terms.
The transfer of risk from owner to contractor associated with an EPC wrap has been less effective than envisaged
While the drivers to develop the UK’s waste-to-energy infrastructure remain strong, however, an effective alternative to EPC is necessary to ensure the project pipeline can be delivered.
Engineer, procure, construction management (EpCM) contracting is not new. But in the UK, and not just on waste-to-energy projects, EpCM is finding favour as an effective way to provide execution certainty for both new projects; and as a way of revitalising challenged schemes.
The benefits of EpCM
In our experience, an EpCM approach has led to successful outcomes for both owners and the EpCM contractor, on many UK waste-to-energy projects. The flexible nature of EpCM contracting means that roles and responsibilities can differ between projects. Broadly speaking, however, the EpCM contractor is not directly involved in construction, but is responsible for the detailed design and overall management of the project, on behalf of the owner. Unlike an EPC contract the absence of a construction element makes EpCM a professional services contract.
Supervising, management and co-ordinating construction interfaces in accordance with a detailed schedule is the key responsibility of the EpCM contractor; and the EpCM contractor is also responsible for establishing contractual arrangements on behalf of the owner with other contractors, original equipment manufacturers (OEMs) and sub-contractors. The EpCM contractor is contracted for a construction management role, while the owner is bound to various contractual relationships for construction related works.
Our experience has been that the EpCM approach allows both owner and EpCM contractor to adopt a much more granular approach to risk than an EPC wrap affords. The owner, for instance, has the opportunity to be involved in decisions such as equipment, materials and contractor selection. This has the additional effect of fostering a closer and more collaborative approach to the project.
With an EPC contract there is also the potential for an underperforming contractor to become a single point of failure, placing the entire project at risk in terms of schedule and plant performance. EpCM can help spread risk across numerous contracts, reducing the chance of a single point of failure.
The EpCM contractor is doing the technical thinking for the owner
Significantly, EpCM offers the potential to greatly reduce performance risk for the owner. In essence the EpCM contractor is doing the technical thinking for the owner, the quality of front-end engineering design (FEED) and pre-FEED studies have a significant bearing on operational plant performance. So an EpCM contractor with a highly proven technical pedigree is a prerequisite to achieving as-specified plant performance and availability.
In addition, although the owner places the contract with the OEM, the best EpCM contractors will have the technical knowledge to create a specification, tender and contract that places the performance guarantees and warranties with the OEM. In the context of UK waste-to-energy projects, this means that the party most familiar with plant – rather than an EPC contractor – will have the most significant stake in ensuring plant performance is as specified. This helps ameliorate challenges that have affected a number of recent UK waste-to-energy projects.
Where challenges are manifest or changes of scope deemed necessary, the collaborative approach commonly engendered by EpCM typically extends to a less adversarial resolution process. The need to navigate change orders, for instance, is negated.
EpCM is not a silver bullet insofar as it will not be suitable for all owners’ business models. For some client types, however, it can offer an attractive alternative to EPC. The benefits are most likely to be realised by owners with balance-sheet financed projects, in which the owner is paying directly for the project. Some European and Chinese developers have shown how adopting EpCM can lead to successful projects and, as a result, a successful business.
The benefits are most likely to be realised by owners with balance-sheet financed projects
Where a project is being funded by a special purpose vehicle, set-up by private equity investors for instance, traditional EPC remains the likely delivery method of choice. In the context of UK waste-to-energy projects however – providing the EpCM contractor can demonstrate a high technical pedigree – the EpCM approach looks to offer an attractive way to ensure the desired level of execution certainty.