Accelerating grid innovation for a clean energy future

Ben Hall (00:07) Welcome to the Nexus podcast where we explore the ideas, innovations and collaborations shaping the future of infrastructure, energy, water and communities. I'm Ben Hall, Global Thought Leadership Manager at GHD. In this episode, we're tackling one of the defining challenges of the clean energy transition, how to modernize and accelerate electricity transmission networks so they can keep pace with our net zero ambitions. Today, we'll unpack what's slowing grid development. why traditional project delivery models aren't always fit for purpose, and how more collaborative project delivery approaches could power a faster, more efficient energy future. Joining me is Carl Palongo, GHD's transmission and distribution leader for Australia and New Zealand. Carl has worked in the transmission and distribution industry for more than 28 years across Australia and internationally. Thanks for joining us, Carl. Carl Parlongo (00:57) Thanks for having me, Ben. Ben Hall (00:59) So The Nexus article you co-authored with Craig Palmer starts with a clear warning. The grid is becoming a bottleneck in the clean energy transition. From your point of view, how urgent is this problem and what's at stake if we don't address it quickly? Carl Parlongo (01:13) Good question. do adequate new electricity transmission infrastructure to be able to support the significant increase in renewable generation that's needed to displace fossil fuel generation. And what's at stake, you know, if we don't do that, well, decarbonisation targets are at stake. Our greenhouse gas reduction commitments are at stake, if we can't connect this new renewable generation, we have to be able to displace, especially the power power generation. If we don't displace it, we're not going to meet those targets. So there's a fair bit at stake without being overly dramatic. And it does come back and we'll talk more about what it means in terms of the transmission infrastructure, which is clearly a bottleneck at the moment and what it actually means in terms of how we actually get over that. Ben Hall (01:55) What are the most significant barriers to accelerating grid development right now and which of those do you think can be overcome the fastest? Carl Parlongo (02:03) Again, massive topic. There are some significant regulatory barriers and obvious environmental land heritage barriers. And I do not wanna understate those. They're probably some of the most significant barriers that we have in terms of developing new transmission infrastructure to be able to meet these targets. yes, it is. They're difficult to overcome. Ben Hall (02:21) getting them built, is that right? Carl Parlongo (02:25) that these challenges, would like to focus more about the on the program and project delivery barriers. So once projects are actually framed up, once we figured out what we actually need to do, how do we overcome those barriers and actual delivery of those projects? So here are some of the key ones. So resource shortages. engineering, design, construction, commissioning. We are short of all those resources globally There's no fast way to develop those skills overnight either. It takes a long time to develop There are some good programs around working on that at the moment, such as the Australian Power Institute, which are helping trying to develop some engineering skills to try and build that up faster. And it's now more difficult to shift people around in the transmission industry. 20 years ago, certain parts of the world had some good transmission builds that could bring people in from other parts of the world, but they weren't so busy. this is happening everywhere at the same time. So moving people around, it's robbing people around the world. Everyone's busy. So people, resources, that's one key challenge. Another one is the traditional procurement mechanisms that procure in a series fashion. So you start off, you do your specifications, design, procurement, construction, commissioning. They do present a barrier to faster delivery. So many require full design, then equipment, procurement, then construction. They have to happen in that way. this can be overcome by working differently and running some of these tasks in parallel, Another challenge is plant and equipment supply. So transmission network build is again happening globally at the same time to support the energy transition and some manufacturers are at capacity. So everyone's trying to access the same resources, the same manufacturers for the same equipment at the same time. I do recognise that some of these manufacturers are now building new facilities. That's also taking some time to be able to do, but they are actually working on increasing capacity as well. But it's still a challenge. Ben Hall (04:12) we're going to dig deeper into the delivery models in a minute. You mentioned this talking about resources, et cetera, and I was going to ask you about the supply chain squeeze. We're seeing that lead times for critical components can stretch into, I think you said seven years in some cases. Is that correct? And how has this changed the way projects need to be planned and delivered? Carl Parlongo (04:15) Sure. Yeah, absolutely it does. This challenge, it emphasises the need to understand the key plant and equipment requirements very early in projects. your specs need to be developed early, orders placed with suppliers, which are usually on the critical path. And now they're definitely on the critical path, some of these key pieces of plant and equipment. So if you don't place those early, whereas before, sometimes they weren't on the critical path. Now, you have to do them very, very early. So it's often difficult to do that because a certain amount of engineering needs to be done to be able to work out the requirements to develop the specifications in the first place. Now, in terms of what some strategies that are in place to get planting equipment ordered early and get it off the critical path or earlier, put it usually still on the critical path anyway. Most transmission utilities have what they call drawdown contracts anyway with suppliers for key plant and equipment. So the suppliers know the specifications and roughly how many of each item will be required under a contract. And there's a bit of flex in that, they can get some more or less over time. But this does speed up delivery if orders are placed early and specifications are already done. So creating period order contracts is a really good way of doing that. And... be able to get them off the critical path or at least reduce the amount of time it takes to procure them. a good example that I've got is the Marinus Link project in Tasmania, which new HVDC cable connection between Tasmania and Victoria. it's an undersea HVDC connection. So you've got undersea cable. and you've got HVDC converter stations, two items of plant that are very highly sought after in the world and only a few manufacturers in the world make them. So very much on the critical path of this project. So what did they do? They actually developed the specifications early and they placed the orders for those two packages very early in the piece. And it is quite bold because it was done pre-financial close. So this is the other thing. some of these orders, you don't at least place them early and there may be penalties, if you don't actually fulfill those orders. But if you don't place them early, then you're not gonna get your project done in the timeframe that you need. It's gonna extend out. So there's a risk there, but sometimes it's a risk that clients are gonna have to take and going forward, if they're gonna meet the project timeframes. So there are some... different ways of actually procuring these days to be able to secure these production line slots that are highly sought after globally. Ben Hall (06:54) so there are highly complex logistics and problems to overcome before you even get started. So it's probably a good time to dig into the delivery models. And I know that you sort of believe that traditional sort of engineering, procurement and construction or EPC models and other conventional project delivery models can often struggle to deliver at the speed and the complexity we discussed to meet transition demands. Are there any situations where they still make sense? Carl Parlongo (07:01) Yes. Yeah, absolutely. There are definitely situations where EPC makes sense So if you've got well-defined scopes, scopes of work and there's adequate time for project delivery and there's good competition in the market for contractors and others that you need to be able to deliver in an EPC fashion, then it does actually make sense. You can get a sharp price. You can get your time frame. can actually push some risk. to the APC contractors. But what we're seeing is with compressed timeframes, it's becoming a bit of an issue to be able to do it fully APC in a serious fashion, because obviously when the market's hot, there's lots of work. There are fewer contractors who can actually bid on it in the first place, and they're gonna gravitate to the projects that are less risky. Or if they're pricing your project, they're gonna price in more risk because they've got more work than they can handle anyway. So the clients are gonna be paying more. there are some issues with the sequential nature, I suppose, of APC when you're trying to go really fast with projects, but they do have their place. And like I said, they will continue to have their place. I'm not here to say, don't do EPC. Absolutely not. It has its place. It's more about choosing the right delivery model and model for your project or your program of work. So the issue... Ben Hall (08:37) And you mentioned that integrated project delivery and alliancing are good alternatives. I think you mentioned you think that they can work and in practical terms, these models can change outcomes, can't that still your case? Carl Parlongo (08:42) Yes. they can and they have their place. when you've to get something done where there hasn't been scoped that well, you need to get it done quickly. It's better to have a more collaborative approach with a client and the delivery partners. And it may be a number of delivery partners, not just a contractor. There might be a designer involved, there might be others So having a more team-based approach then actually works. You can do a number of things in parallel. I think that's the key with the case for collaboration and having alliancing or integrated project delivery teams is that you can actually do a number of functions in parallel. You have to manage the risk as well because whenever you do anything in parallel, there's usually more risk involved to make sure that you actually get the right outputs from each of the phases at the right times. But there are certain things, you don't need to do a full design in most cases go and get price for construction. So with integrated project delivery team, for example, or an alliance, you could do enough design to be able to then get a price from a contractor to be able to do a package for the entire work, depending on your project or program. And then you can move on and in parallel, you can complete the actual detailed design. The contractor may not need that to do the pricing, but they obviously need it later on in the project, but doesn't need it upfront. So you get your contractor on board to take some time. plant and equipment can be ordered early then some of the delivery can start to happen in parallel with that. And you can get things done at the right time as you need it through the project. Ben Hall (10:12) Just quickly explain to us for those that don't know, difference between integrated project delivery or IPD and alliancing. I know they're same same, but they're different, aren't they? Carl Parlongo (10:21) Yeah, they are. There is a continuum of delivery models, really. It's not sort of one or the other, if you know what I mean. It sort of continues all the way through to EPC where you're pushing risk out to a contractor. But integrated project delivery teams may be similar to more of an EPCM, which is engineer, procure, construct management model where a client might get a delivery partner on board, a consultant on board work with them. to maybe do some of the design as well, frame up the designs, order a plant and equipment, produce packages for construction, depending on the project, how many packages you actually need, and then help manage the actual construction part and usually see the whole project through. So whether that's EPCM, whether that's Integrated Project Delivery Team, that's sort of how that works. Alliancing is similar, but it's more of a combined approach where you have a a contractor, say a consulting party, depending on what you're doing and the client themselves all getting together and working out common KPIs, signing up to a common contract under a common charter, often with pain gain mechanisms and risk reward that everyone's in it together. So it's a little bit different to the other approach where you still have a contract for EPCM services. or as an integrated project to the VRI team, the alliance is more of an all-in approach with all parties having a really clear stake under one contract. Ben Hall (11:48) It seems like you're making the point that also the correct delivery model for a project depends on the context. so what factors should decision makers weigh most heavily on when they're choosing an execution strategy, what should they be looking for to decide which project delivery model they want to go for? Carl Parlongo (11:54) does. a good question. It does depend on your actual project delivery model. It really comes down to risk, I think, at end of the day. are your key project risks? we would tend to actually for want of a better term, project delivery mechanism workshops. with the client to actually try and work out which delivery model will be best for that particular project or program, factor in all the risks, factor in all the stakeholder requirements. There's a whole bunch of stuff that goes in. Think of it as a funnel. Everything goes into a funnel. You have a look at all that, perform a multi-criteria analysis based on all those requirements. And you often have a number of different stakeholders in the room for those workshops as well, not just the client. Sometimes you can bring in other stakeholders too. And then what comes out of the funnel is the probably the most beneficial model for that particular project or program or models, depending on what they're doing. That's actually best and suits their requirements. So it is that sort of multi-criteria analysis approach to try and meet all the requirements for that specific project or program. Ben Hall (13:05) And if we were going to fast forward to say 2030 or even beyond that, let's not sort of limit the time frame. What needs to change to solve this big picture problem? Carl Parlongo (13:12) Sure. Yeah, it's a good question. A lot more transmission infrastructure needs to be built and upgraded to support the energy transition. So what does success look like in say 2030 or 2030 is not far away now, probably beyond, because these projects take a long time to deliver. Yeah, it does. So look. Ben Hall (13:29) Yeah, that's what I mean. That's why I said beyond, yeah, because it's gonna hit us pretty hard and fast, isn't it? Carl Parlongo (13:37) Success in the transmission space is about building enough infrastructure and obviously fast enough to enable this transition. So I'm not here to advocate overbuilding transmission either, because if you overbuild transmission, someone's got to pay for it. And it's almost always the consumers at the end of the day, whether it's a one-off consumer that's a mining company that's doing it for themselves, or whether it's done as part of an infrastructure, as part of an integrated network and all customers connected to that network pay for it, someone's got to pay for it. or a government's got to go put money in, guess where that money comes from, comes from taxpayers and consumers. So at the end of the day, someone's got to pay for this. So it's very easy to go and say, we're going to need to go and build all this extra infrastructure and go and build it. The regulatory systems are there for a reason to make sure that we don't overbuild and that consumers pay a fair price for what they're getting. So success is going to be building just enough just in time. it sounds a bit trite. it sounds, simple. Now, now it's not. So what needs to change? I've talked a bit about some of the delivery model challenges and the constraints which we're seeing in the industry. I think the clients and developers of these new renewables projects that include transmission and also new grid build by the utilities and others. they're gonna need to have a good look at some of these different delivery models. Look at other industries that have done it differently. We've had massive mining booms, we've had oil and gas infrastructure built in very short periods of time. They've used different delivery models like Alliance and EPCM integrated project teams. Haven't seen a lot of it in the transmission space yet. We've seen a little bit, but not a lot. So I think looking at different delivery models, that will actually benefit projects and programs in the transmission space to be able to compress the timeframes, because we do need it quicker. We absolutely need it quicker. So how can we do more with less, more in parallel? Because that's what it's all about. We haven't got the resources really, I've mentioned that before, to be able to do What can we do differently? What can we learn from other industries? It's probably the key point from me. Ben Hall (15:19) Yep, absolutely. That's a great summary and it's probably a good way to finish this one off. Carl Palongo, thanks very much for your time there. Carl Parlongo (15:42) No problems at all, Ben. Thanks for having me. Ben Hall (15:44) that wraps up this episode of the Nexus podcast. A big thanks again to Kyle Pelongo for joining us and sharing his views on what's holding the grid back and how we can move faster. Thanks for listening. I'm Ben Hall and this has been the Nexus podcast.