The issue of cost overruns and project delays in renewable energy projects in Latin America

Summary: Latin American renewable energy projects suffer fairly normal completion delays compared to other regions, but are far more likely to incur project cost overruns. A brief analysis of the problem — and a call to action to remedy.

About the publisherCarlos St. James is a leading advisor to energy investors, bankers and developers in emerging markets at Wood Group’s Sgurr Energy. He is also a board member of the Latin American & Caribbean Council on Renewable Energy (LAC-CORE) and publishes the Latin American Energy Review to help generate debate on the industry’s issues. His upcoming speaking engagements include:


A few years ago an academic study was published that analyzed delays and cost overruns of over four hundred nuclear, large hydro, thermal, wind and solar power projects globally. The comparatively much larger nuclear and large hydro projects had the biggest costs overruns and delays and I’m excluding them from this brief: they had separate and distinct issues affecting their timeliness and costs such as never-ending regulatory changes (nuclear) and significant public sector involvement (hydro dams).

But over 100 of the power projects were either thermal (mostly coal but also natural gas, oil and biomass), wind (onshore as well as offshore), and solar (concentrated solar power/CSP and photovoltaic/PV). Thermals proved to have the longest construction periods overall, and were also most likely to deviate from the plan: they had the highest average cost overruns and highest percentage of projects affected by cost overruns. In comparison, wind and solar projects appear to be a breeze. (See Table below.)

It’s generally understood that project timeline delays — from initial feasibility to commercial operation date (COD) — should be avoided like the plague: they lead to increased risks of rising construction costs, political events and tax changes occurring, inflation being higher than expected, and other exogenous factors. These can happen anywhere but are especially damaging in emerging markets like Latin America where returns on investment are already hard to determine and capital doesn’t flow as easily.

Of the three technologies (thermal, wind, solar), the latter proved the most efficient overall among this group worldwide, with the smallest average cost overruns in both percentage terms as well as in actual dollar terms – and actually showing negative average cost overruns.

How can this be?

The study included solar projects operational in 2014; solar technology began to experience dramatic costs declines beginning in 2011. So actual solar project cost overruns were hidden and offset by declines in solar panel prices. Further proving this point is that the largest cost overruns were experienced in CSP and not PV projects. (Click on the following table and remaining graphs and maps to enlarge).

Table: Summary cost overrun data for electricity projects. Source: An international comparative assessment of construction cost overruns for electricity infrastructure. Sovacool, Gilbert and Nugent; Institute for Energy & the Environment, Vermont Law School, 2014

The knowledge of those dropping solar panel prices have been noticed in Latin American energy auctions to good effect. For example, Argentina’s Rounds One and 1.5 last year included a bidding variable on COD. One group won a number of solar projects at an average price of $53/MWh — but bid the maximum allowable 900 days (30 months) to reach COD. While solar panel prices are unlikely to drop as much as they did between 2011-14, that group has enough room to maneuver, find financing – the hardest stakeholder to bring to the table in Argentina – and maximize investor returns. An analysis of the Argentine auctions can be found here.

But back to the academic study. Cost overruns affected a surprisingly large percentage of the projects from all over the world:

  • Solar had the lowest: yet 40% of them had cost overruns
  • 57% of the wind projects experienced cost overruns, which averaged 7.7% of the total project cost.
  • Thermal projects, much larger on average than the two renewables in the study, had cost overruns in two-thirds of the projects and average cost increases reached 12.6%.

However, as per the following graph, the renewable energy projects had the least delays in months. Bear in mind these are global figures, not specific to Latin America.

Graph: Average project overruns in months. Source: An international comparative assessment of construction cost overruns for electricity infrastructure; Sovacool, Gilbert and Nugent; Institute for Energy & the Environment, Vermont Law School, 2014

How Latin America stacks up in cost overruns and construction delays

More recently, Ernst & Young (EY) completed a survey of 100 large power generation, transmission and distribution projects across all asset life cycles: pre-financing through decommissioning. These projects were typically large hydro, nuclear, coal- and gas-fired plants as well as offshore wind – not a perfect fit given our primary interest in utility scale renewables like solar PV and onshore wind, but can just the same extrapolate valuable information and perform a comparative analysis.

The conclusion: Latin America has a bigger problem staying on budget than it does in keeping to timely schedules, at least when compared to the rest of the world.

Map graph: Megaproject delivery: Average delays in months and overspend as percent of budget. Source: Spotlight on power and utility megaprojects – formulas for success; Ernst & Young, 2016

Staying on Schedule

As per the above map graph, megaproject delays went from as little as 17 months over schedule (in Europe) to 31-33 months (in Asia and North America). North America’s seemingly unusual inability to stay on schedule is mostly due to numerous nuclear projects that got caught in addition regulations that spun out of control. Latin America appears somewhere in the middle, with project delays of an average of two years – but still worse than Africa with 22 months average delays. The world average was 25 month delays in this survey.

Cost overruns

However, on cost overruns Latin America has the worst record, with megaprojects going 58% over budget on average. The lowest was Europe once again with an average 29% over budget, while the rest of the world was between 31-38%. Within technologies, offshore wind projects had the lowest budget overruns but that didn’t help Latin America’s stats since there are no offshore wind farms to speak of at this time. Some of these project were owned by the public sector which doesn’t have a particularly attractive record of staying on budget.

The survey revealed that management’s their top concern across the board was delivering projects on time and budget, followed closely by a concern about securing financing. So what exactly are the key challenges that emerge – especially in a Latin American context? Here is a summary of EY’s suggestions:

EY’s Financeability Concerns & Insights

  • Not focusing on commercial structure early enough: The most successful projects develop a robust, executable plan early on, with a detailed understanding and mitigation of key risks in order to attract financing and lower cost of capital
  • Misaligned delivery model and execution strategy: To avoid contractual problems, cost increases and delays, successful projects need a detailed and accurate delivery strategy and execution plan – incorporating appropriate staffing and skills capabilities
  • Inadequate understanding of project risks: Complex projects will only succeed if they have an active, robust capability with aligned processes, systems and reporting fully integrated across the entire project – from initial concept to decommissioning

EY’s Deliverability Concerns & Insights

  • Inadequate project performance insight: The leading practice is to have a project performance management approach that creates a “single version of the truth”, providing timely insights that allow project steering groups to intervene early
  • Project not set up for delivery: Embed robust project performance to provide timely, actionable insight for project leaders, creating that single version of the truth, available to all and enabling collaboration so steering groups can take action
  • Immature project design: Lack of collaboration between project phases leads to delays. Remedies include implementing a virtual “digital asset” capable of modeling costs, involving contractors early and working with operations

What can LatAm do?

Latin America is overdue for another step up in levels of professionalism if it is to continue to provide investors with good returns. Knowledge transfer is key and goes in both directions: attendance at relevant conferences, seminars and workshops is a great way to learn and standardize knowledge; I’ve listed above where I’ll be speaking in the next couple months and welcome the chance to discuss how we can go about it.

Stakeholders with long and global experience are increasingly betting on the region. One example is the Wood Group’s renewable energy engineering consultancy, Sgurr Energy. Post-investment appraisals confirm that Sgurr’s predictions lie within quoted uncertainty limits, and that predicted production is typically within 5% of actuals. That is far better than the cost overruns highlighted above. I’m very glad to announce that I was recently given the opportunity to join their Americas team and jumped at the chance to join a team of such renowned caliber.

Please wish me luck! And by all means let me know how I may be of help to your organization in my new role.

© Latin American Energy Review 2017

This report has been prepared by Carlos St. James for The Latin American Energy Review. The views expressed on this site are his own and do not reflect the views of Wood Group, its affiliates or business partners. This report has no regard to the specific investment objectives, financial situation or particular needs of any specific recipient. It is published solely for informational purposes and is not to be construed as a solicitation or an offer to buy or sell any securities or related financial instruments. The report is based on information obtained from sources believed to be reliable but is not guaranteed as being accurate, nor is it a complete statement or summary of the securities, markets or developments referred to in the report. The report should not be regarded by recipients as a substitute for the exercise of their own judgment. Any opinions expressed herewith are subject to change without notice and The Latin American Energy Review is not under any obligation to update or keep current the information contained herein. The Latin American Energy Review accepts no liability whatsoever for any loss or damage of any kind arising out of the use of all or any part of this report. Additional information will be made available upon request.



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