Major projects board

Summary

The request sought agendas, minutes, and project documents regarding onshore renewables from the Major Projects Board, resulting in partial disclosure where specific meeting details were released but other items were withheld under exemption s.25.

Key Facts

• A Major Projects Board meeting was held on Thursday 27th June 2024 via MS Teams.
• Barry O'Driscoll served as the Chair of the meeting.
• The agenda included a discussion on MUA Onshore Wind which was marked as out of scope.
• Turbine lead times are estimated at 14 months based on the Prior Information Notice process.
• The proposed contracting structure involves at least 2 or 3 key contractors rather than a single EPC contractor.

Data Disclosed

• 27th June 2024
• 14:00 – 15:30
• 12 months
• 3 months
• 6 months
• 33 months
• 1 April 2024
• December 2026
• 14 months
• January 2023
• 06 June 2024
• 04 June 2024
• s.25

Exemptions Cited

• s.25

Original Request

Copies of all agendas and minutes of the Major Projects Board meetings since inception concerning onshore renewables . All business cases, reports, risk assessments or project evaluation documents submitted to or discussed by the Major Projects Board in relation to onshore renewables

Data Tables (12)

Full Response Text

Major Projects Board

Meeting to be held Thursday 27th June 2024 Via MS- Teams 14:00 – 15:30

Attendees

Barry O’Driscoll - Chair

Andrew Sidebottom

Sarah D-Yoxall

Elizabeth Smith - Minutes

AGENDA



 MUA Onshore Wind

Out of scope s.25

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1. One of the challenges with any process we may adopt is the timescale needed to eventually realise the gains. For example, 12 months is being allowed for a planning determination to be secured, Tynwald funding approval may take 3 months, procurement 6 months and construction 12 months, giving a total of 33 months. This would mean an earliest date of operations from 1 April 2024 of December 20261. However; extending the time allowed for this project wouldn’t change the recommended sequence of activities for the programme.
2. It is also highly desirable for the manufacturer and civils contractor to provide input into the design and planning application, in order that the design is as specific as possible to minimise the risks of challenge to the planning consideration process and the planning determination made. This means that these key suppliers should be appointed prior to the planning application being made and with reference to the standard approach some I3 activities need to take place during the I1 stage. In affect, we have to balance a procurement risk versus a delivery risk and associated later realisation of project benefits.

CURRENT STATUS AND PROPOSALS 6. The lead time on ordering turbines2 is 14 months (based on the Prior Information Notice (PIN) process already undertaken) meaning either the turbines need to be ordered ahead of planning approval being secured or the first operating date will be later than 2026. As such, it has been proposed to undertake a procurement exercise to ascertain the lead times and contractual terms that may be offered by suppliers prior to a planning determination.
7. The proposed contracting structure3 for the scheme was as follows:

1 Note that installation and commissioning of wind turbines is considered only possible over the summer period. 2 Lead times on transformers and blade lifters is also understood to be more than 12 months. 3 Bird and Bird ‘Isle of Man Onshore Renewals Project’ report dated January 2023. The report’s considerations included the optimal contractual structure and procurement approach. The report recommended the publicly owned structure recommended this should be the quickest route to commencing work on the project.

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1. The above structure recommended a single Engineering, Procurement and Construction (EPC) contractor. The PIN process identified that securing a single EPC contractor was unlikely to be possible, with credible turbine manufacturers unlikely to engage in undertaking civil works in the Isle of Man. It is also uncertain if a manufacturer will deliver the turbine components to site, and therefore a potential separate transportation contractor may need to be engaged.
   As such, a least 2 or 3 key contractors are likely to be involved in the scheme, and likely to be contracted to Manx Utilities (as opposed to being sub-contractors of a ‘main contractor’).
2. This presents a challenge of sequencing the appointments. It is currently proposed that a turbine manufacturer will be appointed first, followed by a civils construction contractor and followed by transportation contractors4 (marine and onshore, as required).
3. The Bird and Bird report also considered the procurement process. Their recommendations generally followed the Isle of Man Government tendering process but consideration was also given to including commercial negotiations within the tender process. The overall procurement process assumed a single EPC contractor and so did not consider the potential interactions between Manx Utilities and multiple contractors.

4 It may be possible and/or appropriate to place both civils contractor and transportation contracts concurrently depending on the manufacturer selected.

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1. It is currently considered that single-stage contracts be entered into with suppliers, with break clauses included in the event that either planning approval or Tynwald funding is not secured for the scheme. This means that Manx Utilities will be able to terminate the contracts in the event the scheme is not approved but also means that a contracted price will need to be agreed at this stage, with any changes to the scheme being chargeable to Manx Utilities as Compensation Events.
2. Consideration has been given to a two-stage Early Contractor Involvement (ECI) approach. This would allow a contractor to be engaged under contract to support the design and planning process, with a second contract for the manufacture/construction phase negotiated and agreed following confirmation of planning and funding approval. However, the two contract approach means that the supplier would not be contractually bound at this stage for the second contract, and there is a risk that the contractor does not wish to proceed with the second contract and therefore Manx Utilities needs to repeat design and planning work following funding approval.

KEY PROJECT RISKS 13. Undertaking a procurement process prior to completion of surveys and design work gives risks that contractual costs may not be an accurate reflection of costs.
a. Planning risk – risk that planning approval is not secured and goods (eg. turbines and electrical components) and services (eg. survey and design works) purchased cannot deliver the same value at an alternative site. b. Lack of Scope5 definition and/or Scope change, and gaps in information at the tender stage – can result in higher than anticipated costs through Compensation Events being raised by contractors in response to new information later in the development process. The contracts (and therefore Scopes) must be confirmed prior to each contract being signed, with any further changes being chargeable to Manx Utilities by the contractor as a Compensation Event.
c. Cost effective design – risk of design changes being required following receipt of new information resulting in a less optimal design6 than had fuller information been available earlier in the development process.

5 Scope, as defined for NEC4 contracts. The Scope is a critical document as it defines precisely what a supplier will deliver for the agreed cost; any incorrect items within the Scope or items omitted from the Scope result in additional contractual costs for Manx Utilities. 6 For example, it may that turbine placement assumptions are found to be incorrect later in the process and a turbine must be foregone, as opposed to reconfiguring the placement to retain the proposed number of turbines.

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d. Programming risks – it is likely that multiple key suppliers will be required for the scheme. For example, the road transport route will require preparation but this will be dependent on the road transport provider, which will be dependent on the manufacturer. This can lead to a delay with one contractor resulting in multiple delay costs being incurred by Manx Utilities to other contractors.
e. Principle Contractor risks – the proposed contract structuring is that Manx Utilities will contract directly and separately with the manufacturer and civils contractor (and possibly transportation contractors). This can result in a lack of clarity in respect of liabilities (including health and safety and warranties) through the scheme.
f. Outstanding information for the tender (see below). 14. Outstanding information for the tender currently includes: a. Pre-tender Health & Safety plan. b. Pre-tender cost consultants report – cost information has been received but scheme uncertainties mean that some aspects of the scheme have not been costed currently.
c. Site information documentation, including survey results. For example, ground conditions reports will not be available until later in the year and so there is a risk that construction costs will increase materially once surveys have been completed.
d. Interface definitions – it is possible that separate contractors will be used for each of manufacture of turbines, marine transportation, onshore transportation, civil works, installation of turbines, electrical and mechanical ‘balance of plant’, grid connection and commissioning. Each contract must state where the responsibilities of a contractor begin and end; multiple contractors mean that there is a heightened risk of gaps between responsibilities or overlaps in works (and overlap of costs).
15. Planning risk is considered to be the key project risk in that both the decision and timing of a final decision are uncertain, and these risks cannot be fully mitigated.
In order to meet the 2026 target it is necessary to select a manufacturer, a civils construction contractor and transportation contractors during 2024. This is so that finalisation of the design and the planning application can be based on a specific turbine design and the risk of changes following a planning approval decision is minimised.

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1. However, this also means that procurement activities to appoint key suppliers need to take place ahead of a planning determination. In the event that a planning decision is rejected then it is possible that costs will have been expended for goods and services that cannot be applied to an alternative scheme. These costs will include the design and survey work undertaken at Earystane, any potential costs with engaged contractors (such as any non- refundable deposits to book manufacturing slots or specialist installation equipment; the proposed tender is to ascertain if such non-refundable deposits would be required) and any route adaptions for the onshore transportation (it may not be possible to delay the commencement of this work until planning approval has been secured and still achieve the 2026 target date).
2. The contractual risks arise due to imperfections in information required for a robust tendering and contracting process. Once the scheme is committed to, a single stage contract placed at this stage will mean that any variations to the works proposed (as defined by either Manx Utilities or the contractor) will be subject to Compensation Events, and gives rise to the risk of unbounded cost increases. Future Compensation Events are not necessarily an issue where the probability and impact (including financial impact) can be estimated in advance but sufficient information needs to be available to make reliable estimates prior to contracting to understand the potential cost range for the scheme before contracts are signed.

IMPACT OF STANDARD APPROACH 18. It is possible to more closely follow the Government procurement approach for capital schemes. This would require survey and design work to be completed prior to a planning application being submitted. Should this be successful, an application for funding would then be made to Tynwald. Tendering exercises would be undertaken for scheme delivery once planning and funding approvals were successful.
19. There does not currently appear to be a viable programme that would follow this approach and still achieve the 2026 target. 20. Whilst the planning risks above would appear to be mitigated by this approach, there is a different planning risk that a generic turbine design would need to be used for the planning application and a subsequently tendered manufacturing contract may not be sufficiently close to the approved planning application design, and so would require a further planning application to be made.
21. This risk also applies to the civils construction works in that a different turbine design may require a different civils design. It should also be noted that the Environment Impact Assessments (EIA) and subsequent mitigation measures submitted as part of a planning application may be dependent on the turbine and civils designs.
22. The timing and decision risks associated with this may be lower than for the initial application, but the risks remain and it may also be that survey results become time-expired and new surveys are required before a new application can be submitted.

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1. The tendering and contracting risks would appear to be mitigated with this approach. However, it is expected that demand for onshore wind turbines will increase in the coming years (based on recent UK Contract for Difference awards) and therefore costs and availability for the Isle of Man may be higher as a result.
2. Manx Utilities is currently budgeting to have power station fuel supply costs for 2024-25 of £33 mil

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