Ever increasing energy costs, climate change, sustainability and resource depletion…these are just a few reasons why the renewable energy industry has been growing rapidly for the last decade or so. Because of their very nature, however, renewable energy projects face many challenges and risks. However, project management can help mitigate some of these risks.
In this first part we will explain the role renewables play in the energy industry and the importance of project management for renewable energy projects to overcome schedule and cost challenges for a successful project completion.
What is renewable energy and why is it becoming so important?
Renewable energy, also called “renewables”, is generated from non-fossil fuels. Some examples are solar, wind and geothermal energy. In their Statistical Review of World Energy 2014, BP has found that the consumption of renewable energy grew by 16.3% globally in 2013 and is now providing 5.3% of the world’s electricity. This might not sound impressive on its own, but if you compare it to 2.7% in 2008, the share has almost doubled.
There are many reasons why renewable energy has grown so fast in such a short time. There are environmental concerns, but mostly the reasons are economical. Fossil fuel reserves are quickly diminishing. While coal is expected to last 113 more years globally, oil reserves are only sufficient to meet 53.3 years of global production. This scarcity leads to rising energy costs and the wish to achieve some kind of independence from fossil fuels. Investing in renewable energy sources and implementing renewable energy projects is one of those measures.
Why is PM important for renewable energy projects?
Project management is important for any kind of project to be successful and for organizations to gain a competitive advantage. Renewable energy is one of the fastest growing industries nowadays and it is very competitive. This means that there are many opportunities, but also risks to consider starting from the planning to the completion and operation of the project.
Renewables project managers face specific challenges in addition to those of “normal” projects, namely the triple constraints of cost, schedule and scope (quality). Or rather the challenges are magnified. Project managers require significant technological know-how to be able to anticipate and mitigate the unique risks and challenges in this industry. A few examples are the uncertainty of governmental support and whether there are sales opportunities for renewable energy projects. This means that there has to be a lot of risk and change management.
Risks and Challenges of Renewable Energy Projects and how to overcome them
Time occupies one corner of the project management triangle and any schedule changes have an impact on the other two constraints, cost and scope. In renewable energy, the effect is even more heightened, because many projects deal with new and complex technology or technology that is constantly evolving. So a project manager needs to factor in the additional time needed for research, development and testing.
The project manager also needs to take into account other factors, such as permission and licensing issues or natural events that cannot be influenced or anticipated, when estimating the schedule for a renewable energy project. Implementing project management methods from the very beginning can help identify possible risks that might arise during the project execution and devise alternative strategies so that the project stays on schedule. Renewable energy projects are usually large-scale undertakings that take several years to be completed. The project plan should break the whole process down into smaller increments with their own objectives. The process should be constantly updated, especially if there are any changing market or political conditions or any kind of unexpected events that might impact the project’s schedule.
Because of their scarcity, fossil fuel prices are rising and as a consequence, energy costs, too. Many see renewable energy as a more sustainable and more cost-efficient alternative. There will be cost benefits in the long run, but organizations that want to invest in this technology need to be aware of the initial costs of starting such a project.
The initial capital costs often exceed all other costs and thus, have a significant impact on the profitability of a renewable energy project. Often the devil is in the details. Wind farms for example are often located in areas that are difficult to reach, particularly for large trucks, so roads need to be built, which requires getting permission from the authorities etc. This all leads to additional costs that can add up very quickly. A renewable energy project manager needs to be able to calculate and control the costs carefully and should have the necessary forecasting skills. Budget allocation and project cost estimation and control are vital for a project’s success.
Read more in part 2 about further risks and challenges that renewable energy projects face and how to deal with them.