Companies dealing with engineering, procurement, and construction — handily shortened to EPC — will need to adapt to the new economic realities of the renewable energy industry or face lacklustre returns, according to a new report published by Bloomberg New Energy Finance and commissioned by CohnReznick.
The new report (PDF), The Evolving Landscape for EPCs in US Renewables, stems from the ever-shifting US renewable energy industry, which according to Bloomberg, faces “a scarcity of large utility-scale projects and shrinking profit margins.”
Though the costs for EPC are falling, the industry still has several concerns ahead of it — including a lack of utility-scale projects, a scarcity of engineering talent, and governmental policy decisions. But in an environment where downstream input is sometimes not as necessary, and the surge of small-scale projects make up a majority of the quantity of new projects, EPC firms need to determine the role they will play.
“To stand out, EPC firms must offer credibility and financial stability,” said Tim Kemper, Co-National Director of CohnReznick’s Renewable Energy Industry Practice. “As the renewable energy industry continues to develop and grow, it is clear that the EPC sector will become a more critical element of the financing aspect of projects.”
Several key findings from the report provide an insight into the current EPC market:
- A number of EPC firms which have traditionally focused on developing wind are broadening their horizons to include solar, due to its more stable policy environment. Accordingly, US states which provide incentives may allow EPC firms to find higher margins in their business if they focus on smaller utility-scale projects.
- EPC firms with experience and expertise as general contractors are offering more than their more narrow-band siblings. With keen insights into the US renewable energy industry, its financing and development trends, and a fast track to technological advancements, these firms are likely to have a head start on the competition.
- These same companies are also stepping up their roles, by organising financing, permitting, and even securing the point of interconnection.
“From afar, the various firms that provide these services might appear to be indistinguishable,” said Michel Di Capua, Head of Analysis in the Americas, for BNEF. “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.”
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