WHAT IS ENERGY DEVELOPMENT

In the traditional scheme of interaction among participants in each investment-construction project, the construction of heat and power generation facilities is precisely defined, with roles and functions of participants in the process being sequential, clearly divided, and mutually complementary.

The client for the development of biomass or RDF (Refuse-Derived Fuel) power plant projects acts as both an investor and a developer in one person. They are the initiator, investor, and owner of the project, overseeing the construction of heat generation facilities.

The client sets project goals, sets the tone for the entire work, selects an appropriate ENERGY DEVELOPER for the project, and, if necessary, adjusts the project goals.

The ENERGY DEVELOPER for the specific project is the central link in the project, determining the next two participants in the project – the Designer and the General Contractor. The ENERGY DEVELOPER sets tasks for them and oversees their work. This figure interconnects investment goals, volumetric-planning decisions, and construction implementation, organizes the training of operational personnel, launches the facility into commercial operation, and monitors the entire process of implementation.

The ENERGY DEVELOPER is the focal point where all the threads of the construction project converge.

Such companies possess a robust resource base of specialized professionals, well-developed strategies, and lobbying capabilities for project approval (coordination of project documentation with relevant authorities). Their extensive experience in project implementation allows them to effectively manage all stages of realization.

For an investor-client with ambitious goals in the implementation of heat generation projects, requiring the fastest start and accelerated pace of implementation, establishing their own CLIENT’S SERVICE poses a risk of prolonging the implementation in time. The formation of such a service with the necessary, competent specialists and organizing their work takes a considerable amount of time, and finding them can become a key issue.

Therefore, the chosen strategy of involving an ENERGY DEVELOPER with successful experience in heat generation projects is correct and allows for an immediate start of implementation.

The ENERGY DEVELOPER is a department that organizes construction from obtaining documentation to putting the facility into operation. The ENERGY DEVELOPER can work either as an in-house department of the enterprise or be outsourced to an external organization under a contract.

ENERGY DEVELOPER AS THE CLIENT’S SERVICE IN-HOUSE AT THE ENTERPRISE IS COMPLEX:

For the investor, managing the construction project becomes a truly challenging organizational task.

The company’s management and managers will have to deal with the following nuances:

the procedure for obtaining permits, certificates, and technical specifications, the procedure for putting the facility into operation, etc;
select a general contractor/designer;
monitor the use of modern technological solutions in the project;
constantly check the construction process and assess the reliability of information:
build contractual relations with the general contractor, material suppliers, designers, state supervisory authorities, etc;
make decisions without fully understanding the importance, urgency, and impact on the final cost of the facility
Conclusion: it is better to outsource construction management to specialists – an engineering organization.

THE VOLUME AND COMPLEXITY OF BUSINESS PROCESSES ARE DESCRIBED IN DETAIL HERE:

ENERGY DEVELOPER UNDER CONTRACT – AN EFFECTIVE APPROACH:

Construction is a complex and responsible process involving many individuals whose professionalism and competence directly impact the comfort and safety of users. Ensuring professional construction technical supervision is a crucial condition for the creation of reliable and durable structures. To optimize this process, specialized organizations have been established.

Outsourcing ENERGY DEVELOPER functions to an external organization will allow:

Conducting business without diverting internal resources.
Reducing the risks of unqualified decisions.
Saving time and earnings on the recruitment of qualified specialists.
Saving money by avoiding the creation of an expensive in-house team.
More effectively controlling the project execution processes.

Typically, such a service includes specialists in the following areas:

Engineers responsible for technical supervision of construction work (technical supervision).
Designers who develop technical specifications and monitor their implementation.
Lawyers dealing with the formalization of official documents.
Economists capable of effectively addressing all financial matters.

ENERGY DEVELOPER FUNCTIONS

In construction, an ENERGY DEVELOPER has experience working on projects of various complexities and functional orientations.

The functions of a technical customer involve carrying out construction control at the following stages of project development:

Pre-design stage;
Stage of development of project-budget documentation;
Construction;
Obtaining the full set of permit documentation required for project operation;
Establishing official agreements with potential raw material suppliers;
Handover for operation.

During the initial stage, the following actions are taken:

Site investigation. Obtaining urban planning conditions and restrictions is done to determine if the territory complies with necessary environmental and technical standards.
Obtaining technical conditions from municipal services for water supply, electrical equipment, sewage, heating, television connection, telephone communication, and internet.
Preparation of essential documentation: land plot plan, privatization or lease certificates, reports on technical support and compliance with environmental standards, etc.
Setting technical tasks, and forming a project implementation strategy.
Financial scheme calculation.

The next stage involves the development of project documentation, where the functions of a technical customer include the following actions:

Final verification and approval of the official project documentation.
Coordination of all issues with local services.
Preparation of tender packages, and searching for potential contractors.
Conducting a tender and analyzing proposals.
Selection of the winner.
Drafting a construction work execution contract.
Compiling a final budget, including financing for all stages of construction and technical equipment.
Setting deadlines for work completion.
Conducting expertise in project-budget documentation.
Incorporating changes based on the expert committee’s comments and final approval of project documentation.
Obtaining a construction permit.

At the stage of creating the object, the ENERGY DEVELOPER conducts technical supervision of construction works. Technical control by the customer (customer’s construction control) is carried out through the implementation of relevant activities:

Monitoring the quality of execution;
Controlling the pace of work following approved timelines;
Technical supervision for construction;
Checking the quality of materials and technical equipment;
Monitoring compliance with the financial expenditures of the approved budget;
Project management in construction, interaction with workers;
Conducting necessary tests;
Organizing the commissioning of the facility.

The technical customer service identifies responsible suppliers of materials, technical devices, and necessary equipment. Quality and environmental checks are conducted, and supply contracts are formalized.

After verifying the object for compliance with technical specifications, sanitary-hygienic norms, safety requirements established by the current legislation of Ukraine, the completed facility is handed over for operational use according to its intended purpose.

ADVANTAGES OF COLLABORATING WITH AN ENERGY DEVELOPER:

The main goal of the mentioned organization is to prevent quality and production schedule violations, organize coordinated work at each level and stage of construction, and obligate partners to fulfill the duties specified in the contract.

To achieve the best results, the company employs individuals with specialized education and experience in this field.

Advantages of an external customer service:

Quality;
Reliability;
Safety;
Professionalism;
Individual approach;
Timely completion of assigned tasks;
Economic profitability;
Effective collaboration with contractors;
Compliance with state standards and legislative norms;
Use of quality equipment;
Regular reporting;
Adherence to construction technology;
Full contract fulfillment within the established timeframe.

The company should have the necessary permits and certificates to perform the functions of a customer service in the construction of objects (construction supervision) of various functional purposes and complexity levels.

GUARANTEES:

Prompt preparation of the necessary document package to expedite the commencement of planned work.
Monitoring of the design process.
Identification of responsible and reliable contractors with a good reputation in the market and only positive reviews.
Obtaining permits from government authorities without the need for extensive waiting queues.
Collaboration with suppliers of quality and environmentally friendly raw materials that comply with state standards and global requirements.
Construction supervision conducted by a qualified engineer overseeing the construction work (customer service engineer).
Cost optimization during budgeting.
Quality control of materials, technical resources, and completed work. Continuous monitoring of the project status and regular documentation checks enable efficient work without unnecessary efforts and expenses.
Imposition of penalty sanctions on partners who fail to meet contract requirements.
Complete management of construction projects, allowing the customer to observe the process remotely.
Monitoring compliance with task deadlines.
Independent and detailed safety, quality, and functionality checks of the building.
Handover of a fully completed facility for use, meeting both customer requirements and state building standards.

WHY NOT EPC, BUT WORK THROUGH ENERGY DEVELOPER

Hybrid nature of EPC contracts. From the perspective of Ukrainian law, an EPC contract constitutes a mixed contract, containing terms from several agreements: engineering services, construction subcontract, project work, and supply. Thus, if an EPC contract is subject to Ukrainian law, essential terms of these contracts must be reflected in the text of the EPC contract. Given the hybrid nature of EPC contracts, disputes may arise between parties regarding the content of these contracts and the EPC contract as a whole.
Bank guarantee. A guarantee is a mandatory condition to secure performance under an EPC contract and is a primary factor in increasing the construction project’s cost due to the expenses associated with obtaining it. Under certain circumstances, such as a significant contract amount, banks may require the contractor to provide a bank guarantee, which the contractor may lack (insufficient funds).
Onshore and offshore components of the contract. Relations related to the production and supply of goods or equipment under an EPC contract may be governed by the laws of another country as the “offshore” part of the contract. However, for capital construction, parties must foresee the application of imperative norms of national legislation, as it will be carried out directly on the territory of Ukraine (the “onshore” part of the contract). Due to the absence of terms specified in the EPC contract in current legislation, there are risks that, in case of a legal dispute, such as claiming “agreed damages,” it will be impossible or very difficult to prove.
Sanctions. If the part of the EPC contract regulating relations between parties regarding the supply of equipment can apply the laws of another country, compliance with Ukrainian building standards, organization of construction production, general terms of conclusion and performance of construction contracts, etc., becomes impossible, leading to difficulties in implementing the contract and completing construction work.

It is important to understand that sanctions in the standard form of an EPC contract, which have a mirrored character for both supply and installation of equipment (construction and installation work and commissioning work), cannot be analogous to construction within the territory of Ukraine.

WHY AN INTERNATIONAL COMPANY AS AN ENERGY DEVELOPER IS A RISK:

Political risk. Considering the current complex political situation in Ukraine, a foreign company can always speculate on the country’s political situation, delaying project implementation and citing force majeure circumstances. This can lead to project delays, increased costs, and the inability to impose sanctions on the foreign company. Additionally, the foreign company will constantly be influenced by external ratings and may, in certain situations, even terminate the agreement.
Operational risk. A foreign company is unfamiliar with the local market and its peculiarities, mentality, and the specifics of operating in Ukrainian realities. This may slow down decision-making and result in additional costs. Typically, managing foreign companies involves a bureaucratic decision-making system within the company, which can hinder project implementation.
Legislative risk. Project implementation requires knowledge of Ukrainian legislation and procedures for project implementation and facility commissioning, as well as the specifics of various procedures, including procurement of third-party services, etc. Foreign companies will still need to hire Ukrainian performers, who may not always have the necessary experience and qualifications. This, in turn, will increase the cost of services from the foreign company and prolong decision-making and project implementation processes.
Legal risks. A foreign company will sign a service agreement only if disputes or discrepancies between companies are resolved not under Ukrainian law and the judicial system but under foreign legislation (usually from third countries). This can affect additional costs for the national company for international lawyers and legal expenses.
Currency risk. The implementation of a large-scale project will take several years, during which the exchange rates of the national and foreign currencies will fluctuate, and there may be a significant devaluation of the national currency, affecting the project’s cost and procurement of services in foreign currency. Therefore, if a foreign company is chosen as the managing company, it may want to receive payment for services in foreign currency (euros, US dollars) or link payment under the contract to the exchange rate on the date of receipt. In this case, the national company faces risks of increasing the contract cost in the national currency and increasing the overall project cost.