Power infrastructure projects around the world go over budget by an average of 35 per cent
Large power infrastructure and utility projects are delivered with a 35 per cent cost overrun and a two-year delay on average, a study by Ernst and Young has found.
Professional services firm Ernst and Young conducted an analysis of the performance of 100 of the world’s largest megaprojects, including nuclear power plants, hydropower projects and offshore and onshore wind farms. It found that the majority of them were running wildly over budget, with the average value being $2bn. The analysis included all phases of the projects’ lifespan, from pre-financing to decommissioning.
“Large and complex power and utility megaprojects are under massive pressure to come in on time and budget,” said Ernst and Young's Safia Limousine, “and yet the majority of all megaprojects in the sector don’t. This worldwide phenomenon often comes with a large price tag for overrunning costs that companies can’t afford any longer.”
The survey found that 64 per cent of the projects experienced delays, while 57 per cent were over budget.
North American projects tend to have the longest average delays - almost three years - while South American projects reported the highest cost overruns at nearly 60 per cent.
Almost three quarters of all hydropower, water, coal and nuclear infrastructure projects were over budget by 49 per cent on average, with hydropower and nuclear projects typically suffering the greatest cost overruns at $4.6bn and $4bn, respectively.
Project delays were longest for coal and hydropower technologies, at nearly three years on average. Meanwhile, offshore wind and gas-powered generation projects saw significantly less delays and cost overruns.
The firm also found that 80 per cent of executives at large utility and power companies find delivering projects on time and within budget to be extremely challenging.
“Cost overruns and late delivery are symptoms of greater underlying problems in the power and utilities sector,” said Limousin. “Companies must address these issues head-on in the next wave of infrastructure investment or risk sacrificing the full economic and social benefits megaprojects offer.”
Investment in power sector infrastructure is expected to be close to $20 trillion from 2016 to 2040.
Ernst and Young believes digital innovation, such as Big Data analysis to support decisions, is the key to more efficient delivery and operation of infrastructure megaprojects.