In its latest report on the Australian utility solar construction sector, independent consultancy Sustainable Energy Research Analytics concludes some players are likely to exit the EPC market despite a surge in projects entering the pipeline.
The Australian utility-scale solar market has gained momentum and real growth potential: SERA tracks 12.7GWac of solar photovoltaic projects of 10MWac or greater, up from just a handful a few years ago.
Some 311MW is operating, with 1GW under construction and 6GW in advanced design stages.
“We estimate 80% of future project capacity is yet to secure an EPC partner,” said SERA director Ben Willacy. “The scale of the opportunity for engineering, procurement and construction (EPC) companies in the Australian solar sector is huge: we estimate existing uncommitted projects to be worth over $14.7 billion to EPC providers.”
SERA’s analysis of EPC players and their project portfolios shows five companies (Downer, RCR Tomlinson, Elecnor, Bouygues and UGL) account for 95% of publicly announced EPC contract volumes.
The key incumbents are a mix of established domestic engineering firms and new-entrant European renewable construction companies.
“Competition will intensify in the near term as new players enter the market, sub-contractors step up as full EPC providers and margins are squeezed to gain market share. But at these returns, the market will enter a ‘survival of the fittest’ phase,” Willacy says.
SERA estimates EPC contracts for projects under construction average around $1.60/watt ac. But a number of upward cost drivers could reverse recent cost improvements.
Trends driving future EPC prices up include panel prices, labour costs and grid connection.
“Ongoing pressures for lower PPAs and cheaper solar combined with upward pressure on costs are squeezing EPC margins,” Willacy said.
“Delivering projects at today’s prices is proving a challenge. Contractors will be taking a hard look at the current crop of projects to identify opportunities for productivity gains.”