The total EU capital expenditure for the energy transition could reach €1.7 trillion by 2030, with around 45 percent going towards onshore wind and solar photovoltaic (PV) capacity. Accordingly, between 2023 and 2030, annually installed onshore wind capacity would need to more than double over the levels achieved between 2018— and 2020—and solar PV capacity would need to more than triple. Companies involved in capital projects for these renewables would likewise need to double or triple their project pipeline in a very short time—and do so efficiently. Can the construction industry manage this unprecedented growth? Today, Europe’s renewables construction sector is facing serious challenges. These must be overcome if the region is to meet its energy transition targets. Challenges facing the renewables ramp-up Ramping up organizations quickly often comes at the cost of productivity. Added to this is the fact that onshore wind and solar PV are not yet fully mature industries, with limited examples of successful, quick ramp-ups. To achieve fast scale-up, companies can no longer rely on individual experts to deliver results—instead, they need a more standardized approach so that best practices can be consistently followed in capital project delivery. There is a talent shortage for the scale-up of renewables projects in the European Union (EU).1 By 2030, the full-time equivalent (FTE) requirements for renewable energy sources (RES) in the EU will be triple the 2020 levels. Additionally, the renewables sector faces high competition with other growing infrastructure sectors that have similar FTE skill requirements, such as grids, telco, and rail. Alongside the talent scarcity, there are also land shortages for wind and solar farms, as well as long and unpredictable timelines for obtaining relevant development permits. Large-scale grid
infrastructure is equally important: renewables projects may wait for months or even years before getting connected to the grid.2 The entire supply chain, including original equipment manufacturers (OEMs) and engineering, procurement, and construction (EPC) firms, faces those ramp-up challenges as well as added pressures. Scarcity of hard-to-substitute rare-earth metals—such as neodymium and praseodymium, used in wind turbines—raises prices and slows production. Price spikes for more common materials, such as copper, silicon, gallium, and iron, further strain budgets. For solar in particular, supply constraints add to the complexity of meeting the ever-growing demand.3 In 2020, the EU estimated that China accounted for more than 70 percent of the global value chain for solar components value chain, including 89 percent of global production of solar wafers. Given these challenges and the massive ramp- up in the industry, any expectation that capital expenditure in the industry would decrease as technologies develop appears misplaced. The remaining lever available for companies looking to accelerate profitable growth in renewables is to push further on project delivery performance. In this article, we focus on how to bridge the performance gap between existing and best practices, which recent benchmarking has identified. The performance gap We recently performed an EPC benchmarking analysis that revealed where capital expenditure performance can improve in Europe. Around two gigawatts (GW) of onshore wind and two GW of solar assets were analyzed in detail to assess capital expenditure on a cost-per-megawatt (MW) basis (see sidebar, “Methodology”). Finding the €10 billion opportunity The study, conducted using data from 2020–21 (before the sharp rise in inflation across much
1 “Renewable-energy development in a net-zero world: Overcoming talent gaps,” McKinsey, November 4, 2022. 2 “Renewable-energy development in a net-zero world: Land, permits, and grids,” McKinsey, October 31, 2022. 3 “Building resilient supply chains for the European energy transition,” McKinsey, October 17, 2022.
Accelerating the journey to net zero
142
Made with FlippingBook Online newsletter maker