The Challenges of Delivering Energy Transition Projects

There has been extensive and justified coverage on the advancements in technology and engineering that are fundamental to Energy Transition projects both in the UK and globally. These are leading efforts to fulfil several government pledges to address climate change and attain the Net Zero 2050 target and other interim goals.

At COP 27 (8 to 16 November 2022), Christian Bruch (President and CEO, Siemens Energy) noted

“…We have less than a decade to stop the irreversible effects on our planet. We need to act now to achieve rapid change.…” and “…For the energy transition to succeed, the use of renewable energies must be massively increased worldwide…”.

In the past year and a half there has been a noticeable increase in the commitment to, investment in and development of Energy Transition projects globally.

However, the barriers to realising Energy Transition projects, especially those delivering renewable energies have also been reported. For example, during July 2024 alone, Emma Powell (The Times, Acting Energy Editor) has provided, in five articles, informed snapshots of some of the current issues that have the potential to derail the rapid change and increase in renewable energies needed for successful Energy Transition globally.

Committed to achieving net zero 2050

On 28 June 2024 it was reported that BP had halted bidding on new offshore wind projects as part of a cost cutting exercise in order to close the valuation gap with peers in the oil and gas sector. Conversely, it was reported on 3 July that Shell had temporarily paused construction of its sustainable jet fuels plant in Rotterdam as a result of design, complexity and expansion in the scope that have given rise to delay and impacted productivity at the site. However, it was also reported that Shell remained committed to achieving net zero 2050 by developing low carbon energy solutions. On the same day, it was reported that Northvolt, Europe’s most important battery maker, is considering scaling back its expansion plans and that it is re-evaluating timelines and capital allocation to ensure that they are pursuing the most effective build-out of capacity possible. Clearly, from an investor perspective, the economic and commercial viability of delivering Engineering Transition projects is crucial.

The situation of the UK offshore wind farm industry is not dissimilar. On 22 July 2024 it was stated by Siemens Energy UK – a major provider – that for Britain to quadruple its green energy output by the end of the decade, greater Government clarity over its Energy Transition investment policy for offshore wind was required, since Siemens also needed to understand the improvements required to support this growth.

Based on opinion gained from energy experts (Cornwall Insight), it was reported on 23 July 2024, that Britain is likely to miss the government target to fully decarbonise the electricity system by the end of the decade because the country is not on track to build enough wind and solar farms due to;

• Insufficient funding for subsidy schemes
• Supply chain material shortages
• Grid connection delays
• Insufficient electricity storage
• International competition for project development

Work needs to be undertaken in an extremely short space of time

The Department for Energy Security and Net Zero stated that investing in clean power is the only way to guarantee our energy security and protect our bill-payers permanently, which is why we will double onshore wind, treble solar and quadruple offshore wind by 2030. Really – in five years? Conversely, the Institute for Public Policy Research suggests the country will not meet the target until 2048, based upon the present pace of new wind farms being built.

In the UK and globally, the situation is simple: a very significant amount of work needs to be undertaken in an extremely short space of time, against international competition, uncertain and unsecured supply chains and an acute lack of resources that have to be shared substantially with continuing investments in oil/gas related projects. Against this background, owners and investors in Energy Transition require reliable predictability as to project outcomes.

The conditions for delivering most Energy Transition projects can certainly be seen as be VUCA (volatile, uncertain, complex, ambiguous) if we consider in this context, development approvals, new and untested technology at scale, investors not familiar with the engineering construction industry, multiple delivery stakeholders, political turmoil, wars and conflicts, etc.

I have neither heard nor read anything so far about how the UK Government’s 2030 objectives are to be achieved by industry, especially with regard to delivery methodologies and contracting arrangements. Clearly, given the delivery challenges, now is the time to dispense with conventional multi-layered ineffective and inefficient delivery methodologies that are not conducive to VUCA conditions and in any case have frequently and demonstrably failed in terms of delivery to budget and time.

It is now essential for all parties involved in project delivery, including owners/investors, financial backers, engineers, contractors, suppliers, and specialists, to come together from the outset as one integrated team. The goal is to eliminate waste, boost productivity, and optimize the use of available resources in a cost-effective and timely approach. This collaboration should take place within an environment where achieving project objectives takes precedence over the financial motives of individual parties.

The publication “Contracting For Success In Complex Projects” by the IACCM (now the WCC) suggests that when engaging in traditional contracting for a complex project, the contract attempts to define certainty within an uncertain context, which can restrict the contract’s effectiveness and frequently results in poor outcomes.

So far it seems that many investors and owners mistakenly believe that conventional contracting in projects preserves and protects their interests.  Whereas what is needed is a multi-party collaborative contracting arrangement that brings together the project delivery stakeholders in a single agreement in which risk and reward is shared and leads to success and win-win for all project delivery stakeholders.

John Fotherby – Chair – European Construction Institute / Partner – Kingsfield Academy