A new report estimates that US renewable energy capacity (excluding hydropower) is expected to double by 2021, and this will force the firms that provide engineering, procurement, and construction (EPC) services for solar and wind projects to adapt to the economic realities of this changing industry.
A CHANGING RENEWABLE ENERGY MARKET FOR EPC SERVICES
The report, researched by Bloomberg New Energy Finance (BNEF) and commissioned by CohnReznick, also demonstrates how the expiration of federal tax incentives will impact the overall growth of the industry. The market for EPC services for utility-scale solar and wind is forecasted to peak at $7.2 billion in 2015 before falling 28% to $5.2 billion in 2016, and then falling again by 52% to $2.5 billion in 2017. As large utility-scale projects become scarcer and profit margins continue to shrink, the largest EPC firms will be forced to look at new opportunities or change their business models to avoid disappointing returns.
Indeed, EPC costs have continued to fall as the US solar and wind industries have increased in scale and maturity, thereby driving total project costs down. The exception to this can be found in those regions where competition with the oil and gas sector for resources exists.
EPC SERVICES COMPANIES REACT
How will EPC firms react? For one, the report states that some EPC firms which have historically focused on wind are broadening their attention to solar, which offers a more stable policy environment. Firms that focus on smaller utility-scale solar projects, such as those in the 1-10MW range, in states with robust incentives may find higher margins than might be gained from large-scale wind.
The report also notes that, as major EPC firms have bolstered their experience and expertise in US renewable energy, they have increasingly begun providing their clients with key information such as financing obstacles, development trends, and technology advancements. Many are becoming involved in areas such as permitting and securing the point of interconnection, while others are providing their clients with financing or alternative payment methods in order to get projects completed.
Still other firms have begun investigating other “adjacent” technologies such as advanced energy storage.
The report further discusses how EPC firms across the country differentiate themselves through factors such as company size and financial health, geographic focus, and unique client services.
Michel Di Capua, Head of Analysis in the Americas, for BNEF, said: “From afar, the various firms that provide these services might appear to be indistinguishable. But some firms have carved specialized niches or developed impressive track records. In an environment in which the easy projects have been done and incentives are expiring, differentiation and know-how matter more than ever.”
Download the full report here.