Blog

25thJune
Untangling Cost Estimating for Renewable Energy

In today’s world, the main challenge facing the industries is to meet the needs of an increasing population sustainably. The process and energy industry is responding to this situation by harnessing alternate sources of energy such as solar and wind energy. 

In times of an economic downturn, decision making is mostly influenced by the financial returns of a project despite potential environmental benefits. Therefore, it is paramount to accurately estimate the resources required to improve the prospects of new technologies. This blog aims to highlight some of the challenges faced in this regard and how to overcome them.

On a macro level, cost estimate for renewable technologies follows the conventional pattern with cost components for equipments and facilities, expenses for maintenance and repairs, and labor costs. However, on a micro scale, the estimator faces several challenges in assigning costs due to the following reasons (1): 

  • The technology: It is not yet deployed or available for purchase on a commercial scale
  • The design: The process design is at a preliminary stage
  • The material: There is often the need for components or materials which are not yet manufactured commercially, for instance, third generation solar cells.
  • The data: Non-availability of historical data for benchmarking

How to move forward with cost estimating

In a conventional capital project, the estimated Total Installed Cost (TIC) improves with scope definition. A similar analogy can be drawn for new technologies, i.e. the further away new technology is from commercial reality, the inaccurate its estimated cost is. This creates an element of uncertainty in estimating conceptual technologies. 

However, the perception of this uncertainty is exaggerated since several cost objects are to a great extent known: material balances (raw materials, solvents, catalysts), major pieces of equipment, essential service facilities (e.g. steam generation), and energy balances (use of electricity, power).

These components offer the basis for a reliable preliminary estimate. Information has to be combined from different sources such vendors, suppliers, manufacturers, government statistics offices and others. Significant effort associated with this activity drives the development of centralized databases which contains all necessary information for preparing accurate cost estimates for renewables.

AACE guidelines for process contingency

Additionally, the impact of this uncertainty can be further reduced by adapting contingencies based on the level of technical maturity as shown below by the AACE guidelines for process contingency:

Current Technology status Contingency (% of Cost)
New concept with limited data >40
Concept with bench scale data 30-70
Pilot plant data 20-35
Full-sized modules 5-20
Commercial operation 10

 

In summary, a potentially beneficial approach in estimating novel technologies is to divide it into individual sub-estimates of known entities (such as equipment, utilities, and materials). Strengthening the business case for technology commercialization requires unified cost databases; with increasing software capabilities, the possibilities are endless. 

1. Carbon capture and storage – Stephen A. Rackley

 

If you'd like to talk to someone about our project cost management software, Cleopatra Enterprise or Cost Engineering services, please reach out to us at contact@costengineering.eu.