EPC vs EPC-M?

As we transition out of a bloated, subsidy supported period where solar developments went through the hands of multiple discrete service providers, there has been a trend towards vertically integrated solar organisations. Whereas historically developers have only developed and EPC’s have only built solar farms. Now we have seen the rise of the integrated organisation who develops, builds and operates solar farms. This means that profit margins along the supply chain remain internal and within reason project risks can be somewhat reduced, or at least shared.

We are also seeing that project owners are now looking to supply major components into new build solar farm projects, mainly modules to the EPC ‘free-issue’. This creates a significant saving on EPC margin on a component which usually costs over 50% of the entire CAPEX budget. The EPC will then wrap and deliver everything else. We see this happening more and more as the educated project owners are starting to invest in end-to-end quality management services of solar components. By the way, this concept although is better for the project owner, doesn’t necessarily sit very well with the EPC. Some EPC’s will not be able to generate enough profit from the project if modules or major components are provided free issue and will strategically decide to not take part in these tenders, and focus on less sophisticated and lucrative markets.

The next step will develop this concept further and moves from a traditional EPC build model (Engineer, Procure & Construct), to more of an EPC-M model (EPC Management). This strategy involves a more educated and adventurous developer/investor breaking up the project into discrete supply and work packages, they take the risk on procuring these directly (and possibly even take a small profit themselves), as well as design and performance risk and then they employ a technical project management company to provide over-arching project delivery, package construction management, and possibly delivery of balance of plant auxiliary systems. This is something that 2DegreesKelvin is investing a lot of time developing our systems and practices to deliver as a service, but it will take time.

This approach is happening right now in more mature markets such as Energy from Waste, Biomass plants etc, and seems to be working. CAPEX is lowered and a good quality build is achieved. Executing this strategy will bring significant savings for project owners which will in turn positively affect the project ROI and, in some cases, will make projects viable. However, this is not for the faint-hearted project owner, they need to have a strong technical team and pedigree in solar design and construction and need to have investors who are open to a slightly higher risk level, but with the potential of higher returns.

So what are others seeing in the UK and Irish markets? Is this starting to happen, what are the biggest risks involved and how can we put our heads together to make this work. If this is lowering the LCOE, then surely that’s a good thing right?