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01/07/22

The ecological transition...

The ecological transition

...An accelerator for contract management adoption

During the UN Climate Change Conference (COP 26) held a few months ago in Glasgow, the attending countries were asked to come forward with ambitious 2030 emissions reduction targets in order to achieve carbon neutrality before 20501, which is, understandably, a huge challenge in light of the recent gas and electricity price increases.


Authors: Marine Maffre Maucour & Antoine Clouet, Operations Directors, Driver Trett France.


Europe has never felt more fragile and vulnerable than now, as it emerges from the midst of a health crisis and faces geopolitical tensions for its energy supply, especially gas.2

The confrontations in Ukraine have increased pressure on raw materials in an unprecedented way, with the sanctions of the international community against Russia having precipitated measures aimed at alleviating the dependence of Europe on Russian hydrocarbons.

From a French perspective, the energy mix is based on a significant contribution from nuclear power. This specificity is often perceived as a means to attenuate both the country's energy dependence, and the impact of fluctuations in energy prices.

However, this did not prevent France from feeling the effects of global price-hikes. Back in October 2021, France increased gas tariffs for the second consecutive month to reflect a global rise in gas prices as a result of low storage levels and the reduction in Russian supplies. France will also face the global increases on electricity tariffs alongside consumers having already suffered from a price-hike in February 2022. The new government recently announced that it would maintain its support until the end of the year. But this is only a reprieve.3

Despite a very low-carbon electricity mix, part of France's electricity is indexed to the wider European market. These unprecedented increases put the question of the day's energy strategy back on the table. France has committed, via the Energy Transition Law, to reducing its greenhouse gas emissions by 40% and its consumption of fossil fuels by 30% by 2030.

In September 2020, the French government announced that one third of the France Relaunching Plan budget will be allocated to the green energy sector, not only wind and solar, but also the hydrogen sector. The French government recently made a decision that small nuclear reactors will supplement the supply of renewable energy. 

These two key areas of focus and development are driven by mega projects at a national level, but also supported by local initiatives: Driver Trett France works alongside the players, and can assist and support these challenges from a contract management perspective.

The continued decline in oil prices, under the influence of global containment measures, had raised fears of a slowdown in renewable projects, although this has not been the case in France.

France has nearly 8,000 onshore wind turbines and there are no less than 16 active offshore wind projects.4 The first batch of new offshore wind farms, with a total capacity of around 3,900 MW, must be commissioned between 2022 and 2027, with these projects relying on new connections and an existing network that RTE – France’s transmission system operator – is committed to maintaining and renewing.

Among the challenges, one can note a dichotomy between national wills and local resistance to those mega projects - which are (to an extent) reshaping some territories - resulting in potential difficulties to achieve project objectives, in particular to time scheduling.

Any contract manager involved on those mega projects driven at a national scale can see that Liquidated Damages (LDs) are usually set to a level which is equivalent to the nuclear dissuasion effect. No 'slow-cooking' here, as company balance sheets are at stake from the first week, in case of delays. Therefore, it is not a surprise to see such projects mostly managed by time schedule rather than costs.

When it comes to requesting an extension of time, one can be certain that the Contractor will raise it as soon as possible, in order for the Client to analyse and instruct on a contemporaneous basis, meaning it is as close as possible to the delay events – following SCL protocol recommendations – because they couldn't afford to risk waiting until the end of the project to receive their fate.

Nuclear dissuasion

The ambition of the nuclear power industry is to design small nuclear reactors from 10 to 300 megawatts of electricity production, with improved waste management. EDF, Orano, CEA, Framatome and the Naval Group will all have a part to play in this new challenge.5 Outside of France, nuclear dissuasion is also a topic of interest, with reports suggesting that the marketplace will reach $18.8 billion by 2030.

The European Pressurised Reactor (EPR) is the third generation of pressurised water reactor (PWR) design that was promised alongside the increase in size, cost containment. Feedback from plants constructed, or being constructed, in Finland and France, show that on the contrary, this resulted in increased complexity, generating additional delays and costs. Olkiluoto 3, in Finland, was completed 12 years late, and Flamanville, in France, is already 9 years late. Nuclear project Contract Managers understand that beyond the technical challenge of increased complexity, is the challenge of dealing efficiently with third parties, such as the nuclear safety authority, who, despite being a state body, are completely independent and are not adept at recalibrating between performance, safety, and costs. Safety (quite justifiably) always comes first, but measures can have an impact on costs and the time schedule. This is basically the story of the French EPR showcase project in Flamanville, even if the most recent report about this industrial fiasco concluded that delays and cost overruns find their roots in the loss of 'know-how' between the last nuclear plants built in the 80's/90's and the 2000's/10's. Every mega project is by nature a prototype, which is contractually speaking, a riskier object than anything else. This design, or a variant of this design is being used at Hinckley Point in the UK – watch this space!

With reactors of small sizes, the players would count on a technology whose progress can be based on the mass production of small objects. In addition, these power plants will be able to adapt to smaller and less developed networks (due to their production being lower), making them a strong option for export markets. Last but not least, they would also have significant advantages from a safety and waste management perspective. From a contract management point of view, we know that mega project is a synonym of prototype – which is more difficult to manage than any large series on which you get the opportunity to digest and improve processes.

Following France's path, the EU announced its intention (in January 2021) to spend €550bn on nuclear to meet their climate goal by 2050. The Union Commissioner indicated, "to achieve carbon neutrality, it is really necessary to move up a gear in the production of carbon-free electricity in Europe, knowing that the demand for electricity itself will double in 30 years."6 Germany, however, has decided to abandon its nuclear programme and will have decommissioned all of its nuclear power plants by the end of 2022. 

Beside these European and national initiatives, local authorities (municipalities and groups of municipalities for the most part) also organise local public services for transformation of electricity, natural gas, district heating and cooling supplies. These initiatives cover both distribution of electricity, natural gas, district heating and cooling supplies, and the supply of energy. Less visible than any mega project, these initiatives are of a prime importance to achieve national commitments for ecological transition and are significantly improving the performance of local industries. 

Local authorities often give mandates to companies through a public service delegation contract, which is, from a contract manager’s perspective, a call for tight management of the contract’s performance to ensure that the project will deliver as per its planned scenario. Such companies will be responsible for the production and distribution of a service for decades.

For instance, we have seen a fair amount of private initiatives in different parts of the French national territory to improve waste management by recycling the output of this process, through the production of solid recovered fuel (SRF), or directly, by interconnecting a waste incinerator to the public heating or industrial network.

For new construction projects, new processes are implemented as well. For the heating, there are many solutions based on last generation power stations, using biomass or energy from recovery units. In France, we are also witnessing the use of energy loops as new city districts are developed, and these are often coupled with geothermal sources of energy. The cooling process is then complemented with ice storage, which provides flexibility and enhances the reliability of energy systems. Another example of a change in mentality is that the heating oil solution will soon be prohibited for new constructions.

Behind these interesting technical solutions, contract managers will have to work with public service delegation agreements, connection agreements, heat supply agreements…

Bound by the obligation to provide an essential public service, such companies are responsible for managing not only the connection to the network, but also its renovation, extension, and maintenance; combined with the challenge of the evolving size of installations, and the greater number of consumers depending on them. This position rises to a myriad of players and interfaces, mixing public contracts and private works contracts.

Projects with a positive impact on the environment are usually eligible for finance via European or National grants. However, when organisations start a project on the assumption that financial support will be granted, without previously securing it, they place the ball firmly back into the court of the contract and project manager, who then face dealing with a very cost-stressed project.

In the case of the Grand Paris Express (arguably the largest transport project in Europe)7 for the 2024 Paris Olympics, renovation challenges are coupled with extension opportunities, meaning the business plans will become even more complex. Where time is of the essence, project and contract management is key, and public contracting authorities will no longer hesitate to invest in the construction industry.

Conclusion

As we have demonstrated, projects varying in nature – all aimed at reducing the rate of climate change – pose a significant challenge to a contract manager, in terms of the number of stakeholders involved; the interfaces at play; and the financial and time constraints to consider. No doubt, the increase in demand for sustainable development could well give rise to the mantra, that, “failure is not an option”, when it comes to the review and lessening of a project's environmental impact. 


For contract management support, please don't hesitate to get in touch with us. The team at Driver Trett France would be happy to support, or for further contact information about our global offices, please go to contact us. 

Driver Trett | Paris
T: +33 (0) 1 73 79 58 68
E: paris@driver-group.com


https://ukcop26.org/cop26-goals/

https://www.lesechos.fr/industrie-services/energie-environnement/energie-le-regulateur-tire-les-lecons-de-la-crise-sans-precedent-des-prix-du-gaz-et-de-lelectricite-1372810

https://www.rfi.fr/en/france/20211001-france-increases-gas-tariffs-but-promises-no-furtther-hikes-before-april-2022

https://www.ecologie.gouv.fr/eolien-en-mer-0 and https://www.edf.fr/groupe-edf/espaces-dedies/l-energie-de-a-a-z/tout-sur-l-energie/produire-de-l-electricite/l-eolien-en-chiffres

https://www.lemonde.fr/idees/article/2021/10/25/les-petits-reacteurs-nucleaires-sont-un-atout-pour-la-france_6099767_3232.html

https://www.lejdd.fr/Economie/thierry-breton-il-faudra-investir-500-milliards-deuros-dans-les-centrales-nucleaires-de-nouvelle-generation-4086762

https://www.societedugrandparis.fr/info/grand-paris-express-largest-transport-project-europe-1061

Articles  /  Digest  /  Europe  /  Global

Articles  /  Digest  /  Europe  /  Global

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