Bid Evaluation

Biomass Power Plant Benchmarking (Open-Source Example)

Vikas KhaitanLeave a comment

In one of my past blogs, I developed and shared an open-source benchmarking example for gas and coal fired power plants. I have now developed another open-source benchmarking graph, using internet-based data, for a typical biomass power plant project. I have mostly used news articles giving the total value of the contract and capacity in Megawatt (MW) of the power plant.

20240622 Biomass Power Plant Benchmarking (Open Source)-Rev0 (free Resource)Download

The data is tabulated (in the attached Excel file) with links to the various websites for cross-checking purposes. Within the file I have also escalated the contract values to the current year using a nominal escalation factor (which will vary depending on the market conditions). This can be modified to any future year when needed. This gives a feel of what the market has paid for a typical biomass power plant. These are not out-turn costs but initial awarded values and thus should be treated as such. This is not exact but gives an idea.

No two projects are similar in scope, but what this does is to give an opportunity to the reviewers to understand any special / specific requirements of a project which might make the current project estimate different (like additional fuel conditioning, remote location, additional transmission lines, piling requirement, etc.). The overall plant cost will also vary based on the technology used, quality of fuel used, efficiency of the plant etc.

Also to be noted is that this is only an EPC cost and any Pre-FEED, FEED, other Owner’s costs, service agreements, operation & maintenance costs are to be added separately as needed.

This can be used in addition to or in the absence of any in-house or any third-party benchmarking data. This can be easily shared with anybody and can be used as a cross-check of the detailed biomass power plant estimate at a $/MW level.

The graph is also suitable for coming up with quick order of magnitude estimates for bid / no-bid analysis, initial project sanctions, bid evaluations, etc.

The graph shows the typical trend of reducing unit cost for larger capacity plants.

I have just done some research to show what can be possible with freely available data and so the graph is not considered comprehensive and can be enhanced with more data points if further research is undertaken. Location / area specific graphs can also be generated if enough data points could be gathered.

Feel free to use this as you see fit with or without modifications.

Special Notes:

Note1: Various studies show that depending on how the estimate was performed, the actual out-turn cost could potentially be much higher. For this reason, note that in this graph, I have also indicated a 75% cost overrun (as an example) to show how the actual out-turn cost might look like. This percentage can be varied within the Excel file to see various sensitivities.

Note2: I have also plotted some additional data points on the graph using cost data published by IRENA (Renewable Power Generation Costs in 2022), suitably escalated to the current year. I have used the high data for North America (see page 181 of the IRENA report) as an example for comparison with my internet based open-source data. I am suggesting that this can be used as another cross-check.

Note3: For some projects, O&M for number of years was included within the award value, which I have subtracted (using a nominal O&M cost per year). This can also be modified as needed within the Excel file.

Difference in Estimate Vs Bid Price

Vikas KhaitanLeave a comment
2–3 minutes

Sometimes we receive very different commercial bids for the same scope of work and it becomes difficult to ascertain which bid is right. The important point to note here is that the price quoted may not always be explained by scope or estimating. It may be purely a management decision with no bearing on the estimated costs.

For example, even if all costs are assumed to be same for the different bidders, they could still quote different prices for the same scope of work.

The table below illustrates the point:

Note:

  • Different bidder could have a different perception of risk and could end up adding different contingencies to their bid price (or sometimes even none).
  • Bidders could have different management requirement of the expected margins from future business. These could be a function of the market condition, current workload, expected workload and repeat business, etc.
  • For exactly the same scope it is a very possible situation when one bid is around 50% more than the other bid. (See illustrative table above). And this can be easily explained by the amount of contingency and profit added to the base estimate in the pricing.

Case in Point: One management decided to bid “at cost” without adding any contingency or profit. Market was bad, the company had not won new business for a considerably long time, option was to downsize and wait for the market to improve. But the management decided to win new business at bare costs, to at least pay off the salaries but also to gain entry into new markets and develop their reference list and new customers. The strategy worked and the company actually made some profit as they put their best people to work on those projects. And they won new business at better margins on the back of those projects.

Furthermore there definitely could be differences in the base costs of different bidders based on the following factors:

  • Material supplier base
  • Supply chain management
  • Labour availability
  • Other resource availability
  • General overheads

These factors could sometimes reduce the base cost for some bidders and depending on their pricing strategy could increase the differences between the bids even further.

I personally do not see any harm in awarding the contract to the lowest bidder if they are considered technically suitable by the team. Higher pricing does not necessarily mean better quality. We should always be evaluating bids on their technical and execution strength first. The commercial evaluation team should not get alarmed with the huge variation in pricing between the bids. An internal check estimate of the bare costs could help during these times to ascertain the bare costs for the scope of work.