IHS CERA Capital Cost Analysis Forum - North American Power

The IHS CERA Capital Costs Analysis Forum – North American Power helps clients in the North American power industry better monitor, forecast and manage project portfolio costs. The Forum's main purpose is to determine North American construction costs for power project portfolios through the application of a Power Capital Cost Index (PCCI). The Forum uses the PCCI to track the purchase price for a representative portfolio of 30 power projects. The PCCI calculates a weighted value for various inputs that caused power plant project costs to skyrocket and then fall in recent years, accounting for such factors as:

• Engineering, procurement and construction labor scarcity
• Number of current power projects
• Raw materials supply

Armed with this knowledge, clients can achieve a clearer picture of how specific inputs affect total portfolio costs. IHS CERA analysts can also use the PCCI to show how certain costs are interrelated and where savings can occur to offset increased fees. Forum members are privy to comprehensive cost data, including an analysis of the key drivers behind costs, regional cost comparisons and long-term forecasts.

IHS CERA hosts interactive workshops to foster dialogue among members, resulting in supporting subsequent versions of the PCCI.

Forum members receive the following services:

• Quarterly and semiannual reports
• Semiannual workshops
• IHS CERA website access
• Telephone and email access to research staff
• Add-on regulator package
• One-time market briefing

Benefits:

The Forum gives members crucial, timely insights on project costs, movements, and trends and the strategic implications associated with changes in the global and North American cost environment. By developing and monitoring a set of indicators specifically designed to reflect the critical issues in project development, the Forum helps members to answer strategic questions such as :

• How are construction costs changing and is this a continuing trend
• What cost escalation will my project incur
• How do capital costs of different generation technology types compare?

At the core of IHS CERA Capital Costs Analysis Forum—North American Power is the Power Capital Costs Index (PCCI), a tool used for monitoring the current state of the North American construction cost environment. The PCCI is similar in concept to the Consumer Price Index (CPI) in that it consistently measures a fixed basket of inputs associated with the construction of a portfolio of 30 power generation facilities in North America. The virtual portfolio is a balanced representation of all the major North American Electric Reliability Council regions as well as fuels and technologies (coal, gas, wind, nuclear). The Forum also tracks and reports data on individual markets that drive construction costs such as labor, engineering rates, bulk materials, steel, engineered equipment and other factors.

The Forum looks into the future using a structured, scenario-based methodology. IHS CERA experts apply their expertise and industry knowledge to frame changes in PCCI values against larger issues such as shifts in industry fundamentals or regulatory shocks described in IHS CERA’s Global Energy Scenarios and linked to IHS CERA North American Gas and Power Scenarios Industry Forum.

IHS CERA Capital Costs Analysis Forum – North American Power membership is annual, during which IHS CERA delivers two research cycles, each culminating in member workshops. At scheduled times through the year, members receive the following products and services:

Written Reports (four per year)

Power Plant Construction Costs Market Updates (delivered quarterly)

• Track the current state of industry costs using IHS CERA’s proprietary indexes
• Analyze the drivers behind changes in industry costs
• Describe the near- and long-term implications of current and forecasted changes in costs
• Provide comparative analysis of cost trends across regions and development types

Annual forecast of long-term cost trends using a 10 year scenario projection

Special Report on Strategic Issues in Construction Costs (delivered semiannually)

This thought leadership piece provides incisive analysis on a topic critical to understanding the current and future cost environment.

Workshops

In the spring and fall, Forum members convene for a half-day workshop to discuss the most recent Forum research and to debate the factors influencing long-term cost trends. The results of these discussions guide the next round of analysis and modeling.

Website Access

Members have access to the Forum website, which serves as a reference tool and on which we post selected research analysis and findings, workshop proceedings and summaries, projects schedules, and logistics information.

Telephone Access to Research Staff

Forum members have access to IHS CERA research staff for telephone consultation during normal business hours.

Add-on Regulator Package (for an additional fee)

IHS CERA has developed a specific subset of Forum materials suitable for sharing with regulators. Each jurisdiction requires a separate package, and use of each package requires “protective order” treatment by the regulator(s).

IHS CERA Capital Costs Analysis Forum—North American Power relies on a methodology that consistently tracks the individual component costs contained in a representative project portfolio, similar to the way a Consumer Price Index (CPI) measures individual item costs to arrive at a total cost for a basket of goods. As component costs (e.g., steel, insurance, labor rates) rise and fall, so will the cost of a given portfolio. The difference between our Power Capital Cost Index (PCCI) and that of a CPI is that our methodology assigns a ratio and influence for each component, providing a real-world context for total portfolio costs.

The process for deriving our PCCI is as follows:

• A representative portfolio of projects is defined.
• Each project is modeled to the equipment level of definition.
• Each project is then priced using a multiyear database of industry costs.
• Individual project values are then aggregated into indices, with the components compared and analyzed.

Using this methodology, IHS CERA can solve questions involving interrelated component costs and larger issues, such as:

• How would a 10 percent reduction in utility capital expenditures affect total portfolio costs?
• Which demand signals coming out of the recession will indicate a re-start of postponed development projects?

IHS CERA Research Experts

• Roger Kranenburg
• Candida Scott
• Jone-Lin Wang