Balance of Power

With Renewables Gaining Ground, Organizations Are Retooling Project Portfolios and Risks for a New Energy Era



Call it a hinge moment in global energy markets. Nearly three years ago, project portfolios were thrown into a tailspin seemingly overnight when the price of oil plunged. Little has changed since then, as the cost of renewable energy projects—especially solar—has steadily dropped. It's all flipping familiar energy sector scripts. With the ROI on wind and solar projects exceeding what some hydrocarbon projects can deliver, major oil and gas companies are projected to plow US$90 billion into renewable initiatives by 2035, according to a June report by consultancy Wood Mackenzie.

Notwithstanding President Donald Trump's move to withdraw the U.S. from the Paris climate accord, the global portfolio shift also is propelled by government-mandated moves toward green energy. For example, Shell Canada Ltd. aims to bid on renewable power projects in Alberta this year as the Canadian province phases out coal-fired power by 2030.

“We are in an energy market revolution at the moment,” says James Stewart, chairman of KPMG's global infrastructure practice in London, England. (KPMG is a PMI Global Executive Council member.) The new global energy landscape is much more fragmented, he says. Utilities will need to partner with an assortment of energy providers sponsoring a diverse portfolio of generation projects—oil and gas, renewables and nuclear. Amid the fragmentation, new risk management approaches for producers and utilities alike will be necessary.



“When you are a big company with a portfolio of projects, it's easier to split the risk.”

—Brad Barkey, Denver, Colorado, USA

“The pace of change in the next five to 10 years will be massive. It's going to affect projects in every energy sector and in every country in the world,” Mr. Stewart says.

As oil companies have reassessed their risk tolerance—stepping back from drilling projects in the Arctic, for example—solar and wind opportunities have exploded. Several countries, including Sweden, Costa Rica, Germany and Denmark, have committed to producing between 90 and 100 percent of their energy from renewable sources in the near future. These targets are translating into significant funds being spent on massive projects, including Denmark's Kriegers Flak, a €470 million offshore wind farm project in the Baltic Sea. Expected to generate energy for 600,000 households, it's scheduled to begin delivering power in 2020.


Projected investment by major oil and gas companies into renewable initiatives by 2035

Source: Wood Mackenzie

The International Energy Agency (IEA) expects onshore wind and photovoltaic (PV) solar to drive the majority of renewable projects through 2020. And over the next 20 years, the average annual global growth rate for all solar and wind power will be 11 percent and 6 percent, respectively, according to Wood Mackenzie. Seventy-five gigawatts (GW) of PV solar were installed last year—bringing total installed global capacity to more than 300 GW.

“The number of these projects keeps getting bigger,” says Sarah Kurtz, research fellow at the U.S. Department of Energy's National Renewable Energy Laboratory in Denver, Colorado, USA. “People are very excited about solar, and that's driving dramatic growth.” The Department of Energy is a PMI Global Executive Council member.


“We are in an energy market revolution. The pace of change in the next five to 10 years will be massive.”

—James Stewart, KPMG, London, England


“The number of these projects keeps getting bigger. People are very excited about solar, and that's driving dramatic growth.”

—Sarah Kurtz, U.S. Department of Energy's National Renewable Energy Laboratory, Denver, Colorado, USA

Enel Green Power Mexico broke ground in March on a US$650 million project in Mexico to build two plants with a combined capacity of 754 megawatts (MW). The same month, Australia's Lyon Group announced plans to build a nearly AU$1 billion combined 330 MW solar farm and 100 MW battery project in Riverland, Australia. It's slated to be completed by the end of this year.

But China, which earlier this year reaffirmed its commitment to the Paris climate accord and became the largest PV market in 2015, is the biggest solar project player. The country's government aims to triple its solar power capacity by 2020, adding at least 15 GW of solar capacity each year—a plausible effort given the country's plans to invest US$361 billion in renewable energy by that year.

11% AND 6%

The average annual global growth rate for all solar and wind power, respectively, over the next 20 years

Source: Wood Mackenzie

Along with getting bigger, solar projects are being completed faster and more efficiently because of improvements in equipment and installation methods, says Brad Barkey, a project manager formerly with Primoris Renewable Energy, Denver, Colorado, USA. A team in Tamil Nadu, India, for example, completed a US$679 million 648 MW solar farm project in just eight months.

But that type of speed can have a downside: added risks. When project teams are pushed to meet shorter deadlines, they either have to add more people, work more hours or figure out other ways to gain efficiencies. The Tamil Nadu project tackled this challenge by bulking up on labor. An average of 8,500 workers were on-site daily, installing 11 MW worth of equipment each day to complete the project in time. But in the U.S., European Union and other areas, a similar approach doesn't work because labor costs are higher, Mr. Barkey says. “You hit a point with labor where it doesn't make financial sense.”

Rapid execution also can lead to mistakes. When Mr. Barkey was working on a solar project in Blue Earth County, Minnesota, USA last November, for example, pressure to meet tight deadlines led the project team to tear up nutrient-rich topsoil, which takes years to rebuild. “It's a major natural resource for that region,” he says. The damage forced a weeklong project shutdown while the teams tried to mitigate the damage and shore up soil protection measures. “When you are overly focused on going faster, you end up causing problems that could have been avoided,” he says.

Other delays are harder to anticipate. When Mr. Barkey was working on the Comanche Solar project in Pueblo, Colorado, USA, which his team completed last year, the project sponsor indicated that an entire shipload of solar panels was lost in transit. “It could have thrown the whole project off for months,” he says. To hedge the impact, sponsor SunEdison spread the impact across multiple projects in its portfolio by rerouting shipments, creating small delays on a number of projects rather than one big delay in Pueblo.

“When you are a big company with a portfolio of projects, it's easier to split the risk,” Mr. Barkey says.


An older source of clean energy—nuclear—seems to only grab headlines when danger strikes. But despite lingering fears caused by disasters, such as what happened in Fukushima, Japan in 2012, nuclear power plant projects are ticking up as countries pivot away from fossil fuels. While representing the smallest proportion of new energy initiatives, nuclear projects completed in 2016 added 10 GW of generating capacity worldwide—the highest annual increase since 1990.




Across the energy sector, innovations in technology and modularization could offset some risks. The use of analytics, drones and tracking sensors is making it possible to improve monitoring of remote equipment, which can allow for better maintenance. That can reduce downtime and improve safety.

“There is a lot of data being leveraged on these projects across the sector,” says Jose Felipe Araujo de Silva, an energy sector project management consultant based in Rio de Janeiro, Brazil. The use of data can help projects streamline deliverables and proactively identify maintenance issues—at least in theory.

Still, Mr. de Silva believes the industry needs to get better at interpreting and responding to the data, not just gathering it. The challenge is figuring out what information in the sea of data collected can actually inform useful decision making. “This is the focus of a lot of new tech projects,” he says.

Since earlier this year, many energy sector organizations have been implementing a series of proof-of-concept projects, according to Mr. de Silva. Teams are using analytics to anticipate maintenance and outage issues and then using prior maintenance data to demonstrate whether the analytics-based approach saved money and prevented downtime. “You have to be able to demonstrate a positive business benefit to justify these kinds of projects,” he says. “Otherwise, when business suffers, they are the first to get cut.”

In the long term, Mr. de Silva believes analytics technologies will revolutionize the energy industry and the way projects are managed. “Whether companies are doing solar, wind, nuclear or conventional energy projects, they need a vision for how technology will enable their business goals,” he says. “There is no way to increase value without embracing this trend.”


“You have to be able to demonstrate a positive business benefit to justify these kinds of projects.”

—Jose Felipe Araujo de Silva, Rio de Janeiro, Brazil


“When you are overly focused on going faster, you end up causing problems that could have been avoided.”

—Brad Barkey


The shift is driven by global demand for clean energy coupled with advances in nuclear technology that make new nuclear power plants safer and cheaper to build than previous projects. The new generation of reactors is more modular and reliable, which can speed project delivery and allow organizations to apply lessons learned across all new projects. These projects also can balance less reliable renewable sources such as solar and wind.

Even with recent advances, however, nuclear projects are still challenging. They take a decade or more to complete and remain very expensive compared to other types of energy projects, which adds risk.

“Any country embarking on a nuclear facility project is making decisions that could take 15 years to play out,” Mr. Stewart says. “By then, the energy market could be completely changed, and the whole project might look like a mistake.”

Some companies can't handle that type of risk. For instance, U.S. nuclear industry giant Westinghouse filed for bankruptcy in March, complicating four reactor projects under construction in the U.S. In July, the utilities sponsoring two of those projects in South Carolina walked away after spending about US$9 billion on them; they were less than 40 percent complete, years behind schedule and billions over budget. One of the two remaining reactor projects is the US$16 billion Vogtle nuclear power plant in Waynesboro, Georgia, USA, which is four years behind the original schedule and billions of dollars over budget due to missed contractor milestones. Earlier this year, the contractor added 1,300 workers to the site in an effort to ramp up productivity. The completion deadline was extended from 2016 to 2020.

Despite such risks, dozens of massive reactor projects are under construction around the world. They include the US$20 billion Barakah project in the United Arab Emirates (UAE), which comprises four reactors and is scheduled for completion in 2020. The decades-long project is part of the UAE's Energy Plan 2050, which looks to cut emissions, increase efficiency and expand clean energy contributions.

It's a bold choice for a country that has never built a nuclear power plant, but it is necessary, says Frederic Casagrande, project management office (PMO) manager at Nawah Energy Co., a subsidiary of Emirates Nuclear Energy Corp. (ENEC), Abu Dhabi, UAE. “There are not that many energy sources that can meet such a high demand.”

Another benefit to this megaproject: The nuclear plant will help free up more of the country's oil and gas to be sold on the international market, says Alexander Matthey, senior PMO manager of Etimad Strategic Security Solutions and a former program management center of excellence manager at ENEC, Abu Dhabi, UAE. “Nuclear power allows us to generate more income from our fossil fuels and to cover more of the ever-increasing energy demand of the nation more cost-effectively.”

But the nation's first nuclear project faces obstacles. Local talent has no experience with nuclear energy, so virtually all workers have been brought in from more than 30 countries. “Staffing the project with expats has a high price, but it's worth the benefit it generates,” Mr. Matthey says.

Tapping experienced global nuclear talent also serves to bolster the project's commitment to safety. “Safety is important in any project environment, but with nuclear energy it is critical,” Mr. Casagrande says. “No matter how low the probability of a disaster is, the impact would be massive.”

Mr. Casagrande's risk management approach includes making sure there is no room for interpretation in any task assignment. His team uses a three-part “I say, you repeat, I confirm” communication approach. “There can be no ambiguity on a project like this,” Mr. Casagrande says. “We are building a legacy for the country, so we have to do it right.”

“Any country embarking on a nuclear facility project is making decisions that could take 15 years to play out. By then … the whole project might look like a mistake.”

—James Stewart


The growth in solar and wind projects, and to a lesser extent nuclear, shouldn't obscure the dominant role oil and gas still play. Yes, portfolios full of fracking and drilling projects were upended by low prices in recent years. But a new normal has set in, with organizations focusing on shorter-term, low-risk projects and avoiding costly projects in far-flung locales.

Global oil project investments could post gains as high as 7 percent in 2017, according to the IEA, after falling by about 25 percent in both 2015 and 2016, to US$433 billion. A turn in U.S. energy policy driven by President Trump could bolster that trend as governments around the world reassess their energy positions, including commitment to the Paris agreement.

But executives in this sector must think carefully before making sudden portfolio updates—especially in publicly traded companies where executives and boards of directors answer to shareholders, says Patrick Allman-Ward, CEO, Dana Gas, Sharjah, UAE. For instance, U.S. policies could be reversed quickly when President Trump leaves office. Although oil prices are above the lows of January 2016, there is continued volatility and a lack of confidence in the market. “It's not a great environment to be making long-term project decisions,” Mr. Allman-Ward says.



A distributed energy grid comprising many different power sources and owners is on the horizon—and it will complicate project ROI calculations, says James Stewart, chairman of KPMG's global infrastructure practice, London, England.

Because there will be so many players contributing energy to the grid, prices will be more unpredictable—changing how utilities and other organizations should approach risk management. “The risk in individual projects won't be that different, but managing a large and diversified portfolio of projects becomes infinitely more complex,” he says.

To adapt, Mr. Stewart recommends a scenario-planning approach to portfolio decision making. Traditionally, he says, companies assess a variety of project options and choose the one that holds the most promise and minimal risk for the single scenario they deem most likely. For example, if a utility assumes solar power will be the lowest cost choice in 10 years, investing in only solar makes sense.



But in reality, no one can predict what the energy market will look like in a decade, he says. Instead, portfolio managers need to consider all likely scenarios and assess each project's benefits and risks independently. With this approach, it might make more sense to choose a project that rates relatively high in all scenarios or a combination of projects to balance risks against an uncertain future, Mr. Stewart says. “It can lead to very different choices.”


303 GW Total installed photovoltaic capacity in 2016—up from about 40 GW in 2010


2016 spending on offshore wind projects in the North Sea—about double the level of spending from 2014



2016 spending on oil projects in the North Sea—about half the spending level of 2014



Number of nuclear reactor projects currently under construction in 15 countries



Anticipated global nuclear power generating capacity growth between 2017 and 2030



Number of new nuclear reactor projects under construction in China


570 GW

Amount of coal power capacity in pre-construction planning in January 2017—down almost 50% compared to January 2016

Sources: Greenpeace; International Energy Agency; World Nuclear Association

Long-term discovery projects have taken a sizable hit over the so-called investment freeze of the last two years, with many planned initiatives being deferred or radically rescaled. A 2016 report from Deloitte estimates that project cancellations through 2020 represent 1.3 million barrels a day of production. Many of the larger projects still moving forward were commissioned when oil prices were more than US$100 a barrel; they're too far along to be stopped.

While Mr. Allman-Ward's public but relatively small organization isn't facing the same level of economic risk as the big multinational oil and gas companies, his projects face their own challenges. Dana Gas is a member of a consortium holding the rights to execute two gas field development projects in Iraq's Kurdistan Region that have large profit potential but a significant amount of risk.

“There are a lot of geopolitical issues associated with doing business in this part of the word,” he says. But his team determined it could mitigate much of the business and security risks through effective contract structures and aggressive safety plans. The major security risk is the Islamic State, or ISIS, which has attacked oil field projects. It took four workers hostage in 2016 on an oil field owned by Iraqi North Oil Co. in Kirkuk, Iraq.

To minimize this threat, Mr. Allman-Ward's project plan included building concentric rings of protection around its project sites to defend the plant and staff, good communications with Kurdistan Regional Government security forces and a detailed evacuation plan. “We monitor the environment constantly and have plans in place to shut the site down and evacuate employees rapidly if needed,” he says.

The Barakah nuclear power plant under construction in the United Arab Emirates



Even if ISIS is defeated, Mr. Allman-Ward believes these kinds of security issues will never go away completely. “They will likely splinter into independent terrorist cells that will operate across the region,” he says. “Hence continued security risk management will remain essential to allow us to move forward with these projects.”

Dana Gas’ projects may be risky outliers among the current crop of onshore oil projects. The big multinational oil and gas organizations have become more short-term-oriented when selecting projects for investment, says David Latin, co-founder and managing partner of private equity firm Alpha Energy Capital LLP, London, England. “With oil prices so low, executives tend to focus on short-cycle rapid-payback projects.” These include continuing to develop remaining onshore assets, which offer two- to three-year returns, while delaying frontier and deep-water discovery projects, which have a longer timeline and higher break-even point. Mr. Latin, a former managing director and senior vice president at oil and gas company OMV Group, worries that in a few years, easy onshore assets will be tapped out, and companies will be years away from bringing new megaprojects to production.

When organizations eventually push these mega-projects forward, he says, they will face risks reminiscent of the 1980s when the oil industry went through a similar downturn. Mr. Latin predicts outdated equipment will delay getting megaprojects up and running smoothly. He also sees talent shortages due to layoffs in recent years, including a lack of experienced project leaders.

“It all adds risk to the program.” PM


“Nuclear power allows us to generate more income from our fossil fuels and to cover more of the ever-increasing energy demand of the nation more cost-effectively.”

—Alexander Matthey, Etimad Strategic Security Solutions, Abu Dhabi, United Arab Emirates



Related Content

  • PM Network

    Forest from the Trees member content open

    By Fister Gale, Sarah Chasing growth at a time of uncertainty takes a daring vision. Amid Brazil's worst recession and a tumultuous political landscape, Fibria Celulose in 2015 launched the largest private project in the…

  • PM Network

    Taking Charge member content open

    By Parsi, Novid The sun doesn't always shine, the wind doesn't always blow. So project teams are advancing technology to cushion against unreliability. With battery costs dropping, grid-scale storage facility…

  • Project Management Journal

    Endogenous Factor Analysis member content locked

    By Tang, Ziran | Li, Lin | Zhu, Shasha | Huang, Zhenyu This study investigates how the endogenous factors of public projects affect carbon performance. Taking the logical framework approach, a research model and hypotheses are proposed to evaluate the…

  • Closing the gap between sustainable strategy and implementation member content open

    By Kohl, Kristina Increasingly, organisations are adopting sustainable strategy as a management approach to build organisational value while protecting natural and social capital. However, a sustainability…

  • PM Network

    Beyond the carbon peak member content open

    By Ali, Ambreen China plans to launch a massive clean-energy portfolio while the United States relies on natural gas expansion and efficiency projects. Whereas in the United States the near-term focus will remain…