For almost a long time, US$ 1.0 Million was adopted as a good “rule of thumb” or the approximate US dollar per MW of investment in constructing a new power plant. However, due to the surging price of raw materials and inflation rate, the cost of building a plant also increased. In the Philippines, for example, building coal-fired plants have actually risen to a range of $1.6 million to $2.0 million per megawatt from what was previously estimated at $1.0 Million per MW.
This new US$ per MW estimate is also consistent to some foreign EPC contractors’ estimate that we have talked with for some of our projects. And since most of the component of the plant construction is sourced outside of the Philippines, this estimate should be almost similar to other foreign countries.
Here is an excerpt of a news article about this;
For various technologies that could be utilized for power plant projects, it was shown from international studies that installation and construction costs also have gone up between 65 percent to 95 percent in 2005 and 2006 from their 2000 cost levels.
US consulting firm The Brattle Group, in its recent study, Indicated that the recent increases in construction costs of utility infrastructure (such as power plants, transmission lines and power distribution facilities) may “translate to higher rates that consumers might face as a result of required infrastructure investment
It stressed that the steep increases in the prices of raw materials, primarily steel and cement, have triggered recent increases in construction costs for power projects.
”These cost increases have primarily been due to high global demand for commodities and manufactured goods, higher production and transportation costs (in part owing to high fuel prices) and a weakening US dollar”, the consulting firm has noted.
Meanwhile, the increases in labor cost is also seen as a forthcoming problem, given growing backlog of project contracts, which may substantially jack up demand for specialized and skilled labor.
The study further cautioned that the rising cost for construction have been raising significant concern that “the next wave of utility investments maybe imperiled of the high cost environment.”
For instance, it was noted that the cost of building coal-fired plants in Philippine have actually risen to a range of $1.6 million to $2.0 million per megawatt from what was previously estimated at $1.0 per MW. In fact, this has been the estimate of project sponsors expanding their coal -fired facilities, which means that they can somehow gain economy of scale from the use of common facilities with their existing units.
For wind power projects, it was culled from the experience of other countries that there has been a. substantial rise in their costs in the last two years.
In the US in particular, the cost of putting up wind power projects was seen inching up from $1,150 per kW to a range of $1,300 to $1,700 per kW.
Rising costs to hinder new power investments:
By MYRNA M. VFLASCO, Manila BUlletin, Feb. 19, 2008