The next decade looks like it could be a golden age of development for high-voltage direct current (HVDC) transmission projects. The combination of significant fossil-fueled power plant retirements with a major governmental push for renewable generation means that more generation is moving to remote locations. The greater distances between these large renewable resources —hydropower, solar power, and on-land and offshore wind — and load centers is making HVDC technology a more economical choice.
There’s a catch, though. Because the technology has seen relatively little implementation in the past 20 years, especially in North America, there are few original equipment manufacturers (OEMs) who can supply the necessary equipment for HVDC converter stations. There is also a relative lack of experienced professionals who have practical experience and understand the differences between HVDC and traditional HVAC projects.
The expected increase in demand for HVDC equipment over the next 10 years could run into significant limitations in the supply chain as well as the availability of personnel with experience in installation. Knowing where to expect challenges to HVDC projects will be critical to successful project execution.
Overwhelming Suppliers
Given the limited number of individuals experienced in HVDC project execution, developers have often leaned heavily upon their suppliers in executing projects from a design and oversight perspective. These suppliers have developed their manufacturing capabilities, engineering standards and construction processes to accommodate a certain number of projects per year. A big shift in demand for HVDC will strain those systems, which must become increasingly dynamic to meet the level of demand anticipated over the next five to 10 years.
Procurement processes will likely need to change as well. Owners who rely on suppliers often find that the OEMs don’t have enough time to work with them to develop the scope appropriately. If a developer accepts a low bid for a system that didn’t specify critical performance parameters, the price is likely to go up as the details get worked out. And these purchase order changes happen late enough in development that the owners are left with little choice. Performing proper procurement with performance-level specifications to get quotes is critical to achieving better cost certainty.
Cascading Constrictions
In the past, owners have bought a full EPC product from suppliers, including everything from engineering and procurement through construction and testing/commissioning. With increasing demand placing strain on existing processes and timelines, adaptation will be essential as suppliers have to move away from proven processes relating to the execution of the project:
- Engineering: When OEMs were pursuing projects in the past, their business had to grow and evolve to support the need. More projects will increase pressure on those timelines, forcing further evolution.
- Procurement: More projects will drive higher manufacturing output. Project teams will have to find ways to expand their manufacturing throughput, which could include new facilities and locations to engineer and manufacture the additional equipment.
- Construction: While the OEMs have been used to working with specific partners, they will need a step change in process and partners to construct everything the market will need. Building new relationships will take time.
- Testing/commissioning: This step often requires experts from the supplier to come to the job site. This represents another resource requirement that suppliers will need to figure out as their workload increases.
Owners and developers need to prepare themselves for the impacts of the new demand. Greater pressure on suppliers could impact quality and responsiveness, while project timelines could extend from the current industry-typical four years to six or seven years. Changing parameters and requests for customized requirements will increase uncertainty and risk, resulting in cascading impacts for HVDC transmission developers.
Experienced partners can help purchasers of HVDC systems ask the right questions of the suppliers. A few small assumptions can have substantial repercussions: Some projects have changed substantially from the feed study to the time of awarding the purchase order because the most relevant questions were not asked initially, not to mention any change orders over the life of the contract.
Pricing adjustments of some 10% on massive projects pose a serious risk. So does dwell time, during which personnel costs are incurred while the OEM catches up on any project delays. Another indirect financial risk can come if in-service dates for the transmission line are delayed, putting at risk the owner’s ability to claim tax credits.
Upfront Adjustments
The crucial takeaway for purchasers is that having an experienced HVDC team working with you can be very beneficial. Utilizing an experienced team to develop a good specification is strongly recommended. This may require some upfront spend but can result in enormous benefits throughout the life of the project. Spending a few dollars upfront can save millions before project completion.
Until more people, businesses and consultants gain that practical experience, the pressures of the burgeoning HVDC market will put a premium on those who can identify and manage the critical details and smooth the road to successful execution.
The increasing application of HVDC has resulted in strains on the suppliers’ resources, increasing project risk. Explore some lessons learned from three successful HVDC projects, covering the entire life cycle of project execution.
