The “Real” Capital Expenditures

How Various Risk Events Will Change Your Project Costs

Company / Unternehmen: GL Garrad Hassan
Speaker / Referent: Wilhelm Heckmann
Position: Senior Offshore Engineer

Within the complex process of financing an offshore wind farm the total capital expenditure (CAPEX) finally spent on the project is one of the crucial questions, to estimate the total CAPEX upfront is a complicated problem. The preliminary CAPEX analysis can be achieved through consideration of the fixed and variable elements within each of the main contracts. Major steps in this process as being presented in this paper are:

– Identification and assessment of commercial and time key risks which are owned by the developer (multi-contracting) or the EPC contractor,
– Initiation of an initial risk register process together with the developer and the package managers of all major design and construction packages,
– Design of a risk register with a number of characteristics presenting the fixed price and principle risk items for each work package based on up-to-date contractual information, – Incorporation of the key risks from those series of interviews into a Monte-Carlo analysis and the following stochastic analysis,
– Inclusion of additional related risks such as weather uncertainties, programme interfaces and volatile pricing elements within the contracts. The main focus of this paper will be on the impact of risks which if occurring will have a knock-on impact on other risk items, often located within other contracts. Oversight and/ or misallocation of such risk items represent the highest loss potential within the project financing. The incorporation of these impacts into the stochastic analysis is an important mechanism as it simulates the ‚chain-reaction‘ that occurs on the critical path of the construction programme, should one or more contractors be late in finishing their works. Quantifying these risks with their probability and impact of occurrence most accurately advances the quality of the budget calculation for the total capital expenditure.