Large-scale power and utility projects in Canada must rein in cost overruns and missed deadlines to better meet future financing requirements, according to a report published by consulting firm EY.
The report, which studied 100 of the world’s largest generation, transmission, distribution and water projects, said that North America has been “among the worst” to run over budget and not reach deadlines. Canadian power and utility projects on average run 39 percent over budget and are delayed by 12 months but typically perform better than those in the US, where average project delay is a little more than three years.
“There’s not been a huge investment in power and utility in the past 10, 20 years, so our view would be some of the capacity in the industry has eroded,” explained Michael Kennedy, EY Canada’s Infrastructure Advisory Leader and one of the report’s authors. “In the last five to 10 years we’ve seen a significant change in the regulatory environment in terms of obtaining environmental permits. That has added a significant new dimension to the front end of projects.”
EY’s report cited Conference Board of Canada projections that C$347.5 billion ($467 billion; €501 billion) in new investments will be required by 2030 just to maintain existing electricity capacity. There were three factors it said will drive Canada’s electricity demand in the coming decades: an increase in GDP, population growth and the need to lower carbon emissions.
The report said there are a number of reasons causing the power and utility industry’s frequent cost overruns and delays. One is the size and complexity of projects. There is also a talent shortage as older technical workers retire, and Canada’s unique environmental and regulatory frameworks that differ across territories.
Kennedy said frequent cost overruns and delays is giving investors of these projects “pause for thought”.
“If [the norm] in the industry is significantly over time and budget, then decision-making around these projects can be delayed,” he said. “Over time, the justification of projects can change.”