The FINANCIAL — A new report from EY, Spotlight on power and utility megaprojects — formulas for success, reveals power and utility megaprojects run 35% (US$2b) over budget and behind schedule by two years on average.
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% of these projects experienced delays and 57% were over budget.
Safia Limousin, EY Global Power & Utilities, Capital & Infrastructure Leader, says:
“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%.
Almost three quarters (74%) of hydropower, water, coal and nuclear infrastructure projects were over budget by 49% on average, with hydropower and nuclear projects typically suffering the greatest cost overruns at US$4.6b and US$4b, respectively. Project delays were longest for coal and hydropower technologies, at nearly three years on average. Meanwhile, offshore wind and gas-powered generation projects saw significantly less delays and cost overruns.
Eighty percent of executives surveyed identified financing and delivering projects on schedule and on budget as a top challenge. And the majority also believe project financing (64%) and delivering (70%) challenges will continue in the future. Investment in power sector infrastructure is expected to be close to US$20t from 2016 to 2040.
Limousin says: “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.