EPC services of financing and construction of solar power plant in the UAE
When implementing an investment construction and financing of solar plant in the UAE in the early stages, it is important to choose a contractual structure (types of contractors, the sequence of signing and the relationship of contracts).
This will allow the project to be implemented as soon as possible with the lowest cost and with the most efficient risk management.
It is important to remember that when assessing the effectiveness of a contractual strategy, timing, cost and risks must be assessed inseparably from each other. For example, the higher cost of building a solar power plant under an EPC contract may be more profitable due to the early commissioning of the facility.
When determining the contract strategy for the construction and financing of solar plant in the UAE and other of large energy facilities, many factors are taken into account:
• Location of the construction site.
• Special requirements for a specific type of object.
• Selected source of financing (investor’s own funds, construction loan, project financing).
• Type of construction (greenfield, brownfield, reconstruction, expansion or modernization).
• The current situation in the market of contracting services, the ratio of the competence of the customer and the contractor in the field of construction management, the advantages and disadvantages of potential contractors and much more.
The importance of timely and comprehensive analysis of all these factors can hardly be overestimated.
What happens if a customer tries to build a solar power plant with a large foreign EPC contractor and announces a tender without prior market research?
It is highly likely that none of the contractors desirable for the customer will submit bids – large international engineering companies are skeptical about such poorly prepared deals.
There are the following types of contracting in UAE solar energy sector:
• Signing contracts with many individual contractors and managing them by the internal division of the client company (the so-called “multi-lot”).
• Construction of a solar power plant based on an EPC (M) contract and numerous direct contracts with individual contractors.
• Construction of a power plant based on an EPC contract.
EPC contract: EPC is an abbreviation for engineering, procurement, construction and is a so-called “full cycle” contract.
Under the terms of the EPC contract, a single contractor is responsible for design, supply, construction, testing and commissioning of the facility.
The EPC contract is widely used in energy engineering around the world, including the construction of solar power plants in the United Arab Emirates. This type of contract is often used in cases where the customer does not have its own service to manage the construction project, or the customer does not want to intervene in such management and assume the corresponding risks.
Also, EPC is one of the main contractual forms in energy projects that are financed by banks or other financial institutions (in particular, this applies to project financing). The reason is obvious: when providing loans, banks strive to ensure that the customer bears as little risks as possible.
The general features of EPC contracts are listed below:
• Full cycle of work performed by a single professional contractor, including preliminary technical studies, engineering design, supply, construction and commissioning.
• A pre-determined cost, which in most cases can be a lump sum. It should be noted that the presence of a lump-sum price in the contract does not exclude the possibility that a detailed estimate may appear in the process of engineering design. Any excess of the cost of work, equipment or materials over the contract price is transferred to the EPC contractor. The only exceptions are changes initiated by the customer, force majeure, and the customer’s failure to fulfill his obligations.
• High contractor liability limit. Usually the limit of liability is limited to the size of the contract price, although in some cases the liability of the EPC contractor is limited only to a percentage of the contract price.
• The EPC contractor has more independence in the implementation of the construction process, and the customer has a minimum of opportunities to manage the construction of a solar power plant and without significantly influencing subcontractors.
• Most of the risks, including the risks of unexpected costs and delays, are borne by the EPC contractor. With the right choice of a contractor, an EPC contract is the most convenient and reliable solution for the customer. With this form of relationship, the customer only needs to conclude one contract; all responsibility for the timing, quality and performance of the facility is based on the “one window” principle. Violations by one of the subcontractors do not give the EPC contractor the right to an extension or exemption from liability.
It should be noted that EPC is also the most expensive solution: the EPC contractor analyzes all of the above risks and adds to the price.
If we talk about the construction of solar power plants in the UAE, the cost of an EPC contract can be 15-30% higher compared to a multi-lot contract.
At the same time, transferring risks and reducing construction time gives the customer significant benefits. Early commissioning of a power plant is often possible due to the fact that the EPC contractor, being the only person responsible to the customer, can develop technical documentation in parallel with the procurement of materials and equipment, as well as construction work.
For example, an EPC contractor may not have to wait for the development and approval of all project documentation in order to start ordering equipment with a long manufacturing cycle. Effective use of parallel design can significantly reduce the overall construction time. This is especially true for energy projects that are tied to obligations to multiple consumers. In such cases, it is justified to use the EPC model of project implementation, which, despite the higher cost, allows the construction to be completed in a shorter time frame.
Each contractual strategy, both the “traditional” model of managing the customer’s forces and the EPC model, has its own strengths and weaknesses.
Choosing EPC contractor for financing of solar plant in the UAE in: CP Finance UK advantage
When preparing a tender, the customer should first carefully analyze the market of engineering service providers and identify companies with the necessary experience and sufficient resources to implement the project.
The analysis of proposals can be carried out in three stages. At the first stage, engineering firms that do not have the necessary experience, qualifications and resources, as well as companies with high risks of financial and operational stability, are screened out.
Next, you need to compare the companies according to a number of predefined criteria:
• Experience in implementing solar projects in the UAE.
• Experience in designing a specific type of power plant.
• The professional level of the main staff.
• History of completed projects, etc.
Such a qualitative comparison helps to identify 3-4 companies with the most attractive offers.
Finally, at the third stage, negotiations are held with the finalists on the cost, timing and other terms of the contract.
Price only matters if it is made by a contractor with sufficient qualifications.
When choosing an investor for the construction and financing of solar plant in the UAE, there are a number of criteria to consider.
The most important of them is the history of completed projects, similar in terms of technology and scale. By entrusting a solar project to a contractor without relevant experience, the customer is taking a high risk.
Are you ready to make your multi-million dollar project a training ground for a contractor?
The financial responsibility of the contractor for the result of the project almost never covers the lost profit and all costs incurred by the customer.
Experience of working with local subcontractors in the United Arab Emirates and knowledge of local building regulations are also important. It is no secret that foreign engineering companies are often unable to complete the entire list of works, including the preparation of part of the project documentation or the approval of technical conditions.
Finally, it should be considered that the contractor has experienced staff, both engineers and project management specialists. A qualified project team is essential for large scale solar energy projects. According to our observations, the success of a project depends on the effective work of managers more than on any other factor. Neither the reputation of the company nor the size of the project team can match the value of the professionalism of the project manager.
Choosing an EPC contractor is the most critical stage in the implementation and financing of solar plant in the UAE.
The professional knowledge, technology, financial resources and experience of the contractor is a decisive factor for the successful implementation of large investment projects.
At this stage, many customers make the following typical mistakes:
• The list of services and the responsibility of the contractor are not clearly formulated.
• The tender is not held transparently enough, without the admission of all interested parties.
• The selection of the contractor is based on criteria not related to the success of the project.
• The customer does not conduct additional negotiations with contractors aimed at reducing the cost of work and improving other conditions.
It is important to clearly define the scope of work and boundaries of responsibility.
To be sure of the result, it is useful to conduct a series of consultations with experienced EPC contractors and ensure the completeness and clarity of the terms of reference.
It is also very important to give candidates sufficient time to prepare bids. As a rule, engineering companies need from several weeks to several months for preparation in order to assess the cost of a turnkey EPC project. If there is not enough time to prepare proposals, then potential contractors are forced to make very rough calculations and include additional cost in their bids.
We are always ready to offer alternative options, so it is easy to discuss with us any details of projects: from individual components to budgets. We are constantly learning, keeping our finger on the pulse of modern technology.
Having a wide range of suppliers, we guarantee high-quality, original and reliable technical solutions for each project.
Our advantages for customers:
• Advanced European technologies.
• Impeccable quality of work and strict adherence to deadlines.
• All projects being carried out comply with modern international standards.
• Using photovoltaic equipment from industry leaders.
• Support at all stages of the project.
We really does more for the customer than he expects to get.
The construction of solar power plants in the UAE is growing
In early 2020, the United Arab Emirates began construction of a 2 GW solar power plant, which will be located in the emirate of Abu Dhabi.
It is stated that the electricity it generates will cost only 1.35 cents per kWh. In addition, there is a basic agreement for the establishment of a facility with an installed capacity of 2.6 GW in Mecca.
Recent megaprojects in the sector, such as Mohammed Bin Rashid Al Maktoum Solar Park, have exemplified how cheaper technology, natural resources, and the government’s commitment to renewable energy can transform the economy. The UAE’s rapid transition from oil and gas to solar energy is impressive. With solar energy booming, demand for engineering services and project management in the United Arab Emirates is growing.
In addition to technological progress, the cheap solar electricity in the UAE is explained by several factors:
• A large number of sunny days a year.
• Low cost of land (huge areas are rented out practically free of charge).
• Low wages for builders and equipment maintenance specialists.
• Affordable construction loans at low interest rates.
• Favorable government policy.
For comparison, the average cost of solar energy in the United States is now about 12 cents per kWh, while in Germany this figure reaches 30 cents per kWh.
In 2019, Emirate Water and Electricity began operating the world’s largest private solar project. The new facility, with an installed capacity of 1.2 GW, was twice the size of Solar Star, the largest solar power plant in the United States.
Although there was no PV system in the country until 2013, by 2050 the United Arab Emirates plans to cover most of its energy needs from carbon-free sources, mainly solar and nuclear energy.
The role of project management in the UAE energy sector
The energy sector in the United Arab Emirates has seen intensive investment in recent decades.
New facilities are being built throughout the country, new technical solutions are being introduced.
During this time, three main types of participants in project management have developed in the energy sector, which can be associated with their roles in a project: a customer, a general contractor or an engineering company, and subcontractors, i.e. performers of certain types of work.
The customer is focused on achieving the target parameters of the created or modernized energy system in the shortest possible time while maintaining its planned cost. The general contractor manages the implementation of the project, including determining the technology for carrying out the work, coordinating the engineering design, supplies, construction work, installation and commissioning of equipment.
Subcontractors are focused on the optimal use of their resources to carry out the work contracted by them. This work is carried out at the level of individual engineers, assembly teams, construction equipment, mechanisms and measuring equipment.
The role of effective project management in the energy sector today is difficult to overestimate.
We are talking about potential savings of tens and hundreds of millions of dollars at various stages of the construction of large solar power plants.
The leader in project management in the UAE is undoubtedly thermal energy and the newly emerging nuclear energy.
Many solutions have been worked out in these sectors and have spread to other industries. Here, multilevel planning is adopted, and the customer can fully control almost all the resources used.
CP Finance UK offers customers financing of solar plant in the UAE alongside innovative approaches to project management in the energy sector, which have proven their high efficiency around the world.
To find out more about our offers, contact us and schedule a consultation at any convenient time.
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