Report reveals multi-billion power project cost over-runs

A new report reveals that on average, power and utility megaprojects run $2bn over budget and two years behind schedule.

In the study, called Spotlight on power and utility megaprojects — formulas for success, EY analyzed 100 of the world’s largest – by capital expenditure – power generation, transmission and distribution and water projects across all asset life cycle stages, from pre-financing through to decommissioning, and found that 64 per cent experienced delays and 57 per cent were over budget.

Safia Limousin, EY Global Power & Utilities’ capital & infrastructure leader, said: “Large and complex power and utility megaprojects are under massive pressure to come in on time and budget – and yet the majority of all megaprojects in the sector don’t. This worldwide phenomenon often comes with a large price tag for overrunning costs that companies can’t afford any longer.”

The highest reported average delays occurred in North America (a little under three years), while South America reported the highest average cost overruns at nearly 60 per cent.

Almost three quarters (74 per cent) of hydropower, water, coal and nuclear infrastructure projects were over budget by 49 per cent on average, with hydro and nuclear typically suffering the greatest cost overruns at $4.6bn and $4bn respectively.

Project delays were longest for coal and hydropower technologies, at nearly three years on average. Meanwhile, offshore wind and gas-fired powered generation projects saw significantly less delays and cost overruns.

Some 80 per cent of executives surveyed identified financing and delivering projects on schedule and on budget as a top challenge. And the majority also believed that project financing and delivering challenges will continue in the future.

EY states that investment in power sector infrastructure is expected to be close to $20 trillion between now and 2040.

Limousin added: “Cost overruns and late delivery are symptoms of greater underlying problems in the power and utilities sector. Companies must address these issues head-on in the next wave of infrastructure investment or risk sacrificing the full economic and social benefits megaprojects offer. That means leveraging leading practices and innovations to enhance value.”

The report outlines how harnessing digital innovation is an important step toward more effective control and enhanced project performance. Embracing innovations in project fitness assessment, big data management and decision support management methods, for instance, can improve power and utilities companies’ ability to formulate a holistic view of projects and accurately anticipate and address time and cost overruns to keep them on track.

For more details on the report click here

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