The voracious global appetite for energy will continue to grow. As a PwC report observes, there are “…trillions of dollars invested in capital projects around the world” in the energy sector.
Construction of nuclear and fossil power plants, electricity transmission, gas-gathering and processing systems and oil and gas pipelines and storage facilities proceeds apace worldwide. The contributions to the energy mix of renewable resources such as wind, solar and hydro power, though still fractional, are also rising.
Technologies for producing alternative fuels efficiently continue to evolve. Shale, both gas and oil, has come into its own. And increasingly challenging depths are being plumbed in search of conventional fossil fuels.
Much of investors’ interest has focused on energy infrastructure: power plants, utilities, pipelines and like projects. The capital-intensive nature and strategic locations of these assets, along with the long-term nature of supporting contracts, provides stable, reliable cash flows – although returns can vary significantly depending on risk.
Few capital projects are as large and complicated as the construction of energy infrastructure. Project management and oversight, careful strategic planning and enterprise asset management (EAM) are critical success factors and keep managers focused on the asset as a whole – asset management, optimised maintenance, work execution and business performance measurement – from the beginning to the conclusion of the asset’s lifecycle. The acquisition of existing assets requires thorough due diligence.
Utilities’ capital project demands are immense. In the power sector alone, the International Energy Agency estimates the cumulative global investment required from 2010 to 2035 at US$16.6 trillion (in 2009 dollars). Better and smarter grid infrastructure, new transmission networks to integrate renewable energy sources, better interconnectors, and replacement of ageing infrastructure are all pressing concerns, quite apart from investment in new renewable, nuclear and fossil fuel generation capacity.
More and more capital projects are located away from OECD countries, not just in the fast-growing BRIC economies but in the VISTA (Vietnam, Indonesia, Singapore, Turkey and Argentina) and similar high-growth countries, as well as in other emerging markets, including Africa. Many projects in both developed and developing countries entail substantial technological and construction risk as well as extensive support infrastructure. Deepwater offshore wind development in Europe’s North Sea, for example, is now being planned at 50-metre depths with substantial shipping, port, foundation and rig requirements.
– From PwC’s forthcoming utilities-focused publication, “Helping You Get Ahead”