Large power plant construction cost are the backbone of the energy system, providing uninterrupted power supply to residential buildings, industrial consumers and infrastructure.

Despite its high social importance, large power plant construction should be profitable and attractive to investors.

This takes into account both the initial investment costs associated with the construction and the operating costs that the owners of the facility will incur over the years.

Any power plant, be it a wind farm, a hydroelectric power plant or a solar power plant, is a multifaceted and technically complex project that requires the use of customized engineering and financial solutions to ensure its viability. The type of power plant, the choice of technologies and equipment, the scale of the project, location and other factors have a significant impact on investment costs.

The cost of building a large power plant construction is a critical factor in this equation that influences the final decision of the stakeholders.

How much does it cost to construct large power plant of different types?

The type of power plant is the main factor influencing the cost of an investment project and determining its economic viability.

However, investors must evaluate not only the cost of construction, but also other costs that will accompany a particular project throughout its life cycle. Construction costs for a wind farm and a solar power plant are typically significantly higher compared to combined cycle thermal power plants, while operating costs due to fuel costs in the latter case are many times higher than in most renewable sources.

Technical constraints, projected demand, environmental requirements, fuel consumption, maintenance, equipment modernization and other factors should be considered when planning investments in energy facilities in the long term.

Most important, however, are capital expenditures, which include the cost of all phases, from the draft to connecting the power plant to the grid.

Access to energy infrastructure, labor costs, legal frameworks, environmental restrictions, bank policies and many other factors should be taken into account in order to predict the final figure as accurately as possible. But even this does not give confidence that the project participants will be able to avoid budget overruns and construction schedule delays.

For example, the recent pandemic and geopolitical crisis in Europe came as an unpleasant surprise for numerous companies around the world, increasing the cost of some projects and calling into question the viability of others. Adding volatile prices for materials and equipment to supply chain problems, we can get a rough idea of the risks that await any company in the early stages of the energy project.

Our customized financial models, project finance services and flexible refinancing solutions can reduce the cost of capital for your project and get you through a difficult period.

Comparison of available cost options

The cost of construction is not the only criterion taken into account when choosing from several energy alternatives.

To justify the economic efficiency of different options for power plants, the method of comparative efficiency is usually used.

For the economic comparison of options, the so-called integral economic effect is used, the maximum value of which determines the most effective of them. Auxiliary criteria for comparing alternative projects are the internal rate of return, the return on investment, the payback period, financial incentives, utilization ration and others.

The integral economic effect is defined as the difference between the result of activity and costs for a certain period. The result is the proceeds from the sold electric and thermal energy, while the annual costs include the costs of building and operating a power plant of a certain type.

All compared projects are brought to an equal energy effect. In this case, this is an equal annual supply of electricity throughout the entire period of operation or the analyzed period.

As a criterion for the effectiveness, experts suggest using the total costs or the average cost of electricity supplied.

For most power plants, when determining the costs for the entire period (including the construction stage and the estimated operating life), the following is taken into account:

• capital investments;
• fuel costs (if applicable);
• modernization, major and current repair costs;
• staff salaries and services of third-party specialists;
• equipment maintenance costs;
• emission charge (if applicable);
• the cost of buying or renting land;
• land tax and other taxes and fees;
• annual payments on loans and so on.

When planning a large power plant construction, participants must clearly understand the business needs, on the basis of which technical requirements are developed and the most suitable financial models are selected.

For example, the most expensive solar power plants cost up to 1.5-2 billion euros, and the final cost of such a facility may differ significantly from the expectations of investors at the initial stage. Given the scale of construction, mistakes can cost hundreds of millions.

Construction costs for solar power plants

Modern solar power generation is based on two technologies.

Firstly, it is simple and affordable photovoltaics, which directly converts solar energy into direct current.

Secondly, it is an indirect method of concentrating solar energy using reflectors to heat a thermal transfer medium such as molten salt or a thermal oil, which then drives a turbine and generates electricity even in the absence of solar radiation.

How much does a solar PV power plant cost?

The cost of building photovoltaic systems depends on many factors, with a clear trend towards decreasing cost per megawatt of installed capacity as the scale of an investment project increases.

How much does a 1 MW solar farm cost?

This question usually starts the discussion of photovoltaic investments.

The total cost of building a photovoltaic power plant ranges from 600 thousand to 1.2 million euros per MW, depending on the project and the components used.

The cost of building solar power plants is decreasing every year due to scientific progress, the political will of leading countries and economies of scale affecting the production of equipment. The EU and most of the developed countries of the world require an increase in the production of energy from renewable sources every year, so government policies will favor investors in building more photovoltaic systems.

The emergence of more efficient photovoltaic cells and sustainable reduction in prices for photovoltaic equipment are leading to an ever faster return on investment.

In 2010, the average cost of building solar PV power plants in the world was about 4.8 million euros per megawatt of installed capacity. In 2022, this figure dropped to 800 thousand euros per MW, showing an impressive sixfold reduction in construction costs over the past 12 years.

When deciding to build a photovoltaic farm, in addition to buying inverters and panels, you need to consider land costs, construction, installation, connection, fencing and monitoring costs.

In terms of performance, an average 100 MW solar power plant located at the latitude of Northern Germany, for example, produces about 100 GWh of green energy annually.

According to studies, 1 MW of PV panels, including auxiliary equipment, require approximately 2.6-2.9 hectares of land.

Therefore, a solar power plant with an installed capacity of 50 MW will require at least 130 hectares of land, not counting administrative buildings and infrastructure. A long-term lease of land for building a solar power plant can cost from a few hundred euros to 1,000 euros or more per hectare of land annually, depending on the type of area.

It is important to take into account the costs that arise at all stages of an investment project, including the cost of operation and maintenance, the cost of financing, as well as the potential reduction in generation as a result of the natural decrease in the efficiency of photovoltaic modules.

Thanks to the rapid development of photovoltaic technology, the market offers durable PV panels, the productivity of which decreases linearly by about 15% after 25 years of operation.

The payback period of a modern photovoltaic farm reaches 8-10 years with a life cycle of about 25 years.

The cost of concentrated solar power plants (CSP)

An important advantage of such systems is the storage of energy in the form of a heated molten salt for long hours, which makes it possible to accumulate excess energy falling on reflective surfaces during daylight hours. This is very important for regions such as the Middle East and North Africa, where the intensity of solar radiation during the daytime is very high.

The largest operating power plants of this type, such as the Noor Complex Solar Power Plant (Morocco), are located in regions with the highest intensity of solar radiation, due to rational technical reasons.

Unlike photovoltaic systems, concentrated solar power plants have not shown a significant reduction in capital costs over the past decade. These are very expensive and technically complex projects based on the so-called Thermal Energy Storage technologies (TES), which are still quite capital intensive. In 2010-2011, industrial-scale CSP systems cost an average of 10 million euros per 1 MW of installed capacity, while in 2019-2020 this figure varied from 5 to 8 million euros.

Photovoltaic systems are much easier to build and install.

But like other solar power plants, CSP projects require huge land plots for the installation of reflectors, so the cost of buying / renting land plots is also high in this case.

It should also be remembered that the operation and maintenance of concentrated solar power plants is very expensive due to the use of chemical heat transfer fluids and special operating modes.

Moreover, some chemicals create certain environmental risks, which affects the cost of the project and its investment attractiveness.

Looking to the future, new research aims to transform excess carbon dioxide from atmospheric air with the help of light. In this context, CSP projects may become industrial CO2 harvesting plants over the next decades. This will start the global process of atmospheric decarbonization and open up a new source of income for the owners of next-generation concentrated solar power plants.

Construction costs for wind farms

There are many advantages of wind power, including environmental and economic ones.

The total kinetic energy of the wind in the world is estimated to be about 80 times higher than the total energy consumption of the world economy. Although only a certain percentage of this total can be used for energy needs, the future development of this technology has enormous potential.

Regardless of the type of project, building a large industrial scale wind farm is a significant investment that can require hundreds of millions of euros in the early stages. However, given the rising cost of electricity and significant advances in wind power generation, successful wind farms demonstrate payback periods of less than 10 years under favorable conditions.

For small wind power plants intended for autonomous generation, the payback period can be up to 12-15 years, depending on the type of equipment, wind speed, mode of use and other factors.

The average time required from the final investment decision to the construction of a wind farm is approximately 1 year for an onshore project and approximately 3 years for an offshore wind farm. This is largely determined by local legislation and regulatory procedures, which vary widely not only in different countries of the world, but even within the EU.

Onshore wind farms: When we talk about onshore wind projects, we mean a wide range of technological solutions of various sizes, designed both for autonomous generation and for power supply of entire cities and regions.

Economies of scale largely determine the cost of building onshore wind farm and large power plant construction

Experts estimate that the installation of a small wind turbine will cost approximately 4,500-5,000 euros per kilowatt of installed capacity. In contrast, large wind power plants cost on average €1.2 million per megawatt installed. The cost of building large wind farms is rapidly declining, primarily due to the introduction of ever more powerful wind turbines.

According to European experts, the cost of building wind farms has decreased by an average of 20-25% between 2015 and 2022, depending on the type of project and the technology used.

Spain has the lowest installed capacity cost per megawatt, while Germany and France show the highest cost of wind projects in Europe (the difference can be up to 35% for similar projects).

Despite technological advances, onshore wind energy experts expect an end to the further decline in the cost of wind farms in the near future.

This is due to factors such as inflation, rising global building material prices and natural size limits for onshore wind turbines.

Offshore wind farms: As far as offshore wind projects are concerned, they have always been more attractive to maritime countries due to the wide availability of suitable construction sites.

The sea shelf, which is not used economically, opens up unlimited opportunities for generating green energy. Another very important advantage of offshore wind turbines is the absence of strict requirements for maximum height, rotor diameter and noise level, which are serious obstacles for the development of onshore projects in densely populated areas, for example, in Europe.

The disadvantage of this technology is the relatively high cost of building offshore wind farms, which is 3-4 times higher than the cost of similar onshore projects. Huge offshore installations are difficult to transport, assemble and install both on the seabed and on floating platforms.

The initial costs associated with the development of such projects can be very high.

At the same time, rapid progress in this area allows energy companies to achieve competitive LCOE.

Over the past 12 years, the cost of an installed megawatt of offshore wind power globally has almost halved, from about 6 million euros to 3-3.5 million euros.

This progress is due to significant improvements in offshore wind power generation technology and the introduction of larger turbines reaching 16-18 MW. In particular, the latest offshore turbine Haizhuang H260-18MW from CSSC (China) was the largest in the world at the beginning of 2023.

One such unit with a 260-meter rotor diameter capable of generating about 74 GWh of electricity every year. The evolution of offshore wind turbines from standard 3-5 MW to 18 MW industrial monsters clearly demonstrates the impact of economies of scale on the cost of building and operating offshore wind farms.

Construction costs for thermal power plants

In 2023, the cost of building traditional thermal power plants will start from 600-800 thousand euros per 1 MW of installed capacity.

In most cases, energy companies have to deal with capital expenditures ranging from 1.2-1.5 million euros per megawatt and even more, depending on the chosen technology, facility location and other factors.

When choosing investment alternatives, the following types of thermal power should be considered:

• steam power plants;
• combined cycle power plants;
• gas turbine power plants.

Combined cycle thermal power plants have a high level of efficiency compared to other types of thermal power plants.

This means better performance in the long term. These power plants are usually built to meet baseline loads. However, the construction of power plants with two cycles of thermal energy requires additional costs, so CCPPs are considered to be much more expensive than traditional steam power plants. Another disadvantage is the long construction period.

The average cost of single shaft combined cycle thermal power plants without advanced emission minimization technologies is about 1-1.3 million euros per megawatt.

When it comes to installing carbon capture and sequestration equipment, the cost of the project could skyrocket to 2.5-2.8 million euros per megawatt of installed capacity.

Following the path of increasing efficiency, some companies are now focusing on building advanced ultra-supercritical coal-fired power plants (AUSC). These power plants with special technologies for burning finely dispersed coal produce steam at a temperature of 700-750 C, reaching net efficiency rates of 49-50%.

These impressive figures require the use of expensive equipment and heat-resistant materials, which increases the cost of building typical AUSC power plants to 3 million euros per megawatt of installed capacity.

The introduction of carbon capture and sequestration (CCS) technologies increases the cost of such power plants to 5-6 million euros per megawatt.

Equipment, building materials (eg steel and aluminium) and labor are important factors influencing the final cost of thermal power plants.

Most projects of this type take at least 3-5 years, so fluctuations in variable costs are important to consider when planning investment projects and large power plant construction.

Construction costs for hydropower plants

In 2022, the average cost of building hydroelectric power plants and large power plant construction in the world was about 1.9 million euros per megawatt of installed capacity.

There are no signs of price declines in this segment as the hydropower sector relies heavily on available land and civil works costs rather than on changing technologies. Today it is one of the most expensive power generation technologies in the world.

Moreover, the rising cost of labor and building materials are making this type of power plant increasingly expensive for investors.

For example, between 2010 and 2022, the average cost of hydroelectric power plants increased by 30-50%, depending on the region and project type.

Despite high construction costs, hydropower plants remain the backbone of low-carbon power generation. These facilities do not require significant operating and maintenance costs, which makes the generated electricity affordable and competitive.

In addition to large powerful hydroelectric power plants, which have been actively built in East Asia in recent years, business is interested in mini-hydroepower plants.

These are small facilities with an installed capacity of no more than 10-30 MW (classification depends on the country), capable of providing cheap electricity to plants, factories and remote settlements that do not have access to the power grid.

The cost of such power plants per megawatt will be higher compared to large projects, but the potential for local power generation is huge, especially in countries with numerous small rivers (eg UK, Canada, Brazil, Poland, Romania and others).

Construction costs for geothermal power plants

Geothermal facilities are characterized by a wide variety of technologies used, which explains the differences in project costs of large power plant construction.

Much depends on the type of project, location, depth and temperature of the geothermal source and a number of other factors. On average, the cost of geothermal power plants in 2023 varies from 3 to 5 million euros per megawatt.

Dry steam, binary cycle or other engineering decisions largely determine the financial aspects of a particular project. Obviously, the direct use of hot water available close to the ground requires a much lower investment compared to drilling deep wells. Moreover, exploration work in the early stages of a project may require millions of euros of investment, and these funds must be raised by the owners in an environment of economic uncertainty and risk.

Unlike large power plant construction as solar or wind energy, geothermal projects have not fallen in price over the past decade.

Investment costs of large power plant construction are affected by the high cost of drilling equipment, as well as the rising cost of labor and building materials, which account for a large share of the total cost of such projects.

According to Fitch Solution, construction costs for geothermal power plants have increased from 2.6 million euros per megawatt in 2010 to 4.4 million euros per megawatt in 2020. Due to technical constraints and high capital costs, the levelized cost of electricity generated from geothermal sources, also remains relatively high, which hinders the further development of this sector.

Not surprisingly, geothermal power plants remain the second choice for a limited number of countries with favorable geological conditions.

These include the United States, the Philippines, Indonesia, Mexico, Turkey, Japan, Italy, New Zealand and a number of other countries that are developing geothermal power generation despite the difficulties.

If you are interested in financing a major energy project, please contact the CP Finance UK FINANCE LIMITED for details.

We offer long-term loans starting from 50 million euros, and we also develop customized project finance solutions for the construction of large power plants, electrical substations and other energy infrastructure.

CP Finance UK FINANCE LIMITED
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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

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