|
|
On April 14, CERA held a multimedia webconference call to introduce this important new initiative. On the call, our Capital Cost Analysis Forum -- European Power team discussed the following themes:
- The recent dramatic escalation in power plant construction costs above long-term averages
- How the IHS/CERA Power Capital Costs Index (PCCI) tracks and forecasts the costs associated with the construction of a portfolio of 30 different power generation plants
- Review of CERA's research methodology, Forum product deliverables, and membership pricing
To view a replay of the call, please complete the following form:
|
|
|
To request a copy of the Capital Costs Analysis Forum for European Power prospectus, please complete the following form:
During the commodities bubble that emerged in 2007–08, generating plant development costs in the power industry escalated dramatically above long-term averages—driven by both regional and global forces. Scarcity of labor in engineering, procurement, and construction led to increased project management rates. Steel market costs soared. Basic commodities such as cement, copper, and diesel fuel became tight in many regions as a result of the unexpectedly rapid expansion of the Asian economies. After the recession took hold, costs in these markets began to fall back.
Though the immediate impact of these changes is reflected in the price of equipment and raw materials, the longer-term effect on power generation portfolios and strategy is notably less clear. Projects that had previously been economically viable may no longer be attractive. Corporate planners, executives, regulators, and investors need to understand how trends will evolve, how the path of the economic recovery will affect costs, and whether signals point to a period of heightened volatility.
IHS CERA’s Capital Costs Analysis Forum—European Power helps utilities and power generators to better monitor, forecast, and manage costs within their portfolio of projects and to discuss costs from a strategic point of view with regulators and investors.
|
|
|
At the core of IHS CERA’s Capital Costs Analysis Forum—European Power is the Power Capital Costs Index (PCCI), a tool used for monitoring the current state of the European construction cost environment. Similar to the Consumer Price Index (CPI), the PCCI consistently measures a fixed basket of inputs—in the PCCI’s case those associated with the construction of a portfolio of power generation facilities.
The European portfolio is a balanced representation of all the major regions as well as fuels and technologies. The Forum also tracks and reports data on individual markets that drive construction costs such as labor, engineering rates, bulk materials, steel, engineered equipment, and other factors.
The Forum looks into the future using a structured, scenario-based methodology. IHS CERA analysts apply their expertise and industry knowledge to frame changes in PCCI values against larger issues such as shifts in industry fundamentals or regulatory shocks, as described in IHS CERA’s long-term Global Energy Scenarios.
|
|
|
The Capital Costs Analysis Forum for European Power delivers value through two main components.
Written Reports (four per year)
Power Plant Construction Costs Market Updates (semiannual)
-
Track the current state of industry costs using unique indices
-
Analyze the drivers behind changes in industry costs
-
Describe the near- and long-term implications of current and forecasted changes in costs
-
Provide comparative analysis of cost trends across regions and development types
-
Forecast long-term cost trends using a scenario-based process
Special Report on Strategic Issues in Construction Costs (semiannual)
A thought leadership piece offering incisive analysis on a topic critical to understanding the current and future cost environment.
Workshops
In the spring and fall, Forum members convene for a half-day workshop to discuss the most recent Forum research and to debate the factors influencing long-term cost trends. The results of these debates guide the next round of analysis and modeling.
Web Site Access
Participants have access to the Forum Web site, which will serve as a reference tool and on which will be posted selected research analysis and findings, summaries and workshop proceedings, projects schedules, and logistics information.
Telephone Access to Research Staff
Forum Members have access to IHS CERA research staff for telephone consultation during normal business hours.
|
|
|
The main benefit of Forum membership is access to unique, timely insights concerning project costs, their direction, and the strategic implications associated with changes in the global and European cost environment. By developing and monitoring a set of indicators specifically designed to reflect the critical issues in project development, forum members will be able to better understand strategic issues such as
- What is the actual versus estimated rate of inflation for large projects?
- What is the variation in development costs by European country?
- How do different generation technology types compare?
- How does a firm’s specific portfolio of projects compare to the IHS CERA Capital Costs Analysis Forum indexes?
|
|
|
Members receive strategic reports that address questions of critical importance to companies in the region:
- How will the path of the economic recovery affect demand for electricity, new power plant construction demand, and equipment pricing? What will be the shape of construction pricing trends as the recession concludes as well as the timing in relation to the economic recovery?
- What will be the lasting impacts of the recession on capital investments and costs?
- How does the future demand landscape for equipment vary by generation fuel, and what are the signposts to look for?
- How strongly will major equipment prices rebound from their latest declines? How will global factors, such as the stronger emerging market recovery and fuel choice economics and policies, vary the recovery by fuel and hence affect investment-timing decisions?
- Who will supply future construction labor and engineering talent, and how will this affect charge-out rates in relationship to productivity?
- What can be done to reduce costs rather than just cut them?
|
|
|
CERA’s Capital Costs Analysis Forum for European Power is based on a methodology that derives meaning through the tracking of the “purchase price” of a portfolio of projects. As component costs (e.g., steel, insurance, labor rates) rise and fall, so will the cost of a given portfolio. However, this portfolio-based methodology provides a unique real-world context for the cost picture. This approach can be likened to that of a consumer price index (CPI), which tracks a basket of component costs over time. What differentiates our approach from a simple basket of components costs is the methodology for calculating the ratio and influence of each component, as follows:
-
A representative portfolio of projects is defined.
-
Each project is modeled to the equipment level of definition.
-
Each project is then “priced” using a multiyear database of industry costs.
-
Individual project values are then aggregated into indices, with the components compared and analyzed.
Using this methodology, CERA answers questions such as
and other questions requiring an in-depth understanding of the actual relationship between cost components.
|
|