Discover more from The Energy Mix Weekender
Here’s Why Fossil Fuel Projects Are Too Big to Succeed
Fossil fuel megaprojects like the Trans Mountain and Coastal GasLink pipelines are built to fail. The epic delays and cost overruns are a feature, not a bug.
If you could choose between an energy project that was reasonably sure to incur epic delays and cost overruns or a second one that just snapped together like LEGO bricks, which one would you choose?
And as we face down a global climate emergency that demands a quadrupling of clean energy investment in a very short time, which path gives us a better chance of achieving the faster, deeper carbon cuts we need?
The answers to our skill-testing questions should be pretty obvious to anyone who’s followed the tortured trajectories of the Trans Mountain and Coastal GasLink pipelines, the Site C and Muskrat Falls hydro dams, and just about any nuclear or carbon capture and storage plant built anywhere, ever.
But what’s just becoming clear is that those costly, embarrassing errors are a feature, not a bug, for projects of a certain size. An emerging field of research shows how energy megaprojects are often built to fail, wasting scarce time on the road to our 2030 emission targets, along with tens or hundreds of billions of dollars that need to be put to better use.
The baked-in inefficiency of energy megaprojects won’t be at the top of your mind when you’ve lived through a killer heat wave or deadly flood, had to evacuate ahead of a raging wildfire, or tried to imagine surviving a 10-day cyclone or hurricane. But if you’re a taxpayer, pensioner, or private investor whose money is getting tied up in these projects, it’s an area where climate science, government priorities, and energy investing should be able to join hands.
The Iron Law of Megaprojects
Bent Flyvbjerg, co-author of the business bestseller How Big Things Get Done, used to call it the “iron law of megaproject management”.
In his introductory chapter [pdf] to an Oxford University Press handbook published in 2017, Flyvbjerg states that megaprojects “are large, they are constantly growing ever larger, and more and more are being built in what has been called the biggest investment boom in history.” They’re “increasingly used as the preferred delivery model” for everything from energy projects to disease and poverty programs, from IT installations to the Olympic Games.
When Flyvbjerg wrote his chapter six years ago, megaproject activity was estimated at US$6 to $9 trillion per year, making it a global business that “affects all aspects of our lives, from our electricity bill to what we do on the Internet to how we work and shop and commute.” Some of the largest individual investments “are as big as the GDP of many nations,” he added, and “when projects of this size go wrong, whole companies and national economies are affected.”
But that doesn’t mean anyone has figured out how to consistently run them well. Nine out of 10 of them run over budget, many of them massively so.
“Conventional megaproject delivery—infrastructure and other—is highly problematic,” he writes, “with a dismal performance record in terms of actual costs and benefits.” So after missing their deadlines and blowing through their budgets, the projects don’t even deliver the goods they promised—but usually, after they’ve soaked up so much cash and garnered so much attention, they’re impossible to cancel.
Sometimes, the result is a project like the tunnel beneath the English Channel that looks great to everyday users, but only survived after the original builder filed for bankruptcy and left its original investors out in the cold. Now, the fossil industry and the federal government want to make projects like Trans Mountain or the Cedar LNG terminal more socially acceptable by working with Indigenous investors.
When the plummeting cost of renewable energy turns those projects into stranded assets, won’t that be exactly what we always meant by “reconciliation”?
Garbage In, Garbage Out
Flyvbjerg attributes megaprojects’ routine failure to a technological, political, economic, and even aesthetic “rapture” that convinces engineers and technologists, politicians and financiers that nothing could possibly go wrong with the plan…until everything does.
His list of common problems in megaproject management contrasts sharply with the mass manufacturing that is beginning to take hold in the renewable energy space. It includes:
• Long project lead times;
• Inexperienced project management;
• Complex decisions involving stakeholders with conflicting interests;
• Early lock-in of flawed project concepts;
• An inability to draw lessons learned from one-off projects that will never be repeated in exactly the same way.
The gap between those “large cost overruns and benefit shortfalls” and the developers’ early business plans and impact statements means their early, optimistic projections “can generally not be trusted,” Flyvbjerg declares. ‘With errors and biases of such magnitude in the forecasts that form the basis for business cases, cost-benefit analyses, and social and environmental impact assessments, such analyses will also, with a high degree of certainty, be strongly misleading. ‘Garbage in, garbage out,’ as the saying goes.”
Missed deadlines are pretty much inevitable on a complex megaproject, and they’re incredibly expensive: an Oxford study showed that a one-year delay drives up the cost of the average project by nearly 5%, often adding billions of dollars per year or millions per day to the final tab.
But “this should not be seen as an excuse for fast-tracking projects,” he stresses. “All you do if you hit the ground running is fall, in the case of megaprojects. Front-end planning needs to be thorough before deciding whether to give the green light to a project or stopping it.”
The italic on that last bit is mine, not Flyvbjerg—because it’s worth noting that an academic who’s written extensively on how to do megaprojects right wants them cancelled if they’re destined to go wrong. That’s even more important in light of a profound change that has hit centre stage in the six years since the Oxford handbook was published: fossil fuel projects now routinely come in more expensive than renewable energy developments that are faster to build, more likely to stay on time and on budget, cheaper to run, and often closer to the communities they serve.
How Smaller Success Scales Up
The problems that Flyvbjerg identifies aren’t exclusive to megaprojects. We’ve all heard of or experienced a $25,000 home renovation that went catastrophically over budget. The kind of project where you set out to replace some old windows, then find mould in the wall, then trace the moisture to a leaky roof or a cracked foundation…and three months later, you’re still living in a construction zone.
Are we having fun yet?
But there are important differences between those small, individual projects and a multi-billion-dollar piece of public infrastructure.
• You’re paying more than you planned for a home project that never ends, and that’s bad enough if you’re in the midst of it. But you aren’t leaving thousands or millions of taxpayers or pensioners on the hook for a project that was doomed from the start.
• Most home renovations don’t do massive harm to species, ecosystems, cultures, or the global climate.
• The sheer size of a home reno gone wrong doesn’t divert, time, attention, and dollars from the need to focus on a big-picture crisis like climate change.
• And most important, a renovation from hell is a chance for the next project to learn from experience. Efficiency Canada’s climate retrofit mission report, now nearly two years old, emphasizes learning at all levels to make mass, deep energy retrofits affordable and possible, particularly for specialist teams “in areas such as air sealing, insulation, and heat pump installation, where quality of work significantly impacts performance.”
‘Like Giant Sets of LEGOs’
Flyvbjerg observed exactly that kind of evolution in offshore wind, beginning with the team that completed a 630-megawatt, 175-turbine wind farm in the UK’s Thames Estuary in 2013. The big drama around the project was that there was…no drama.
“Construction began in March 2011, electricity production in October 2012, and all turbines were confirmed fully operational by April 2013, just two years and a month after construction started,” he recalled last year. Then in 2017, Danish Oil and Natural Gas (DONG)—the predecessor to Danish offshore wind giant Ørsted—“sent shock waves through the global energy industry” with plans to build two German wind farms without subsidies, the first time offshore wind had come in cheaper than fossil fuels.
“The low prices were made possible by two decades of relentless efforts by the wind industry to standardize, modularize, and enlarge wind turbines to a degree where multi-billion-dollar mega-farms could be installed in a matter of months, like giant sets of LEGOs—click, click, click—driving down the cost of producing electricity to levels never seen before,” Flyvbjerg wrote. “In comparison, multi-billion-dollar coal, gas, hydro, and nuclear power plants are widely bespoke and take years—sometimes decades—to build, leaving costs non-competitive and Big Energy open to disruption.”
So in the end, Flyvbjerg’s quest for megaprojects that work brought him to one of our best options for delivering the fastest emission reductions at lowest cost, according to the latest analysis from the Intergovernmental Panel on Climate Change. It shows we can get the big, sweeping action the climate emergency demands, but only if we stop throwing fuel on the fire with new fossil fuel projects that don’t even make sense on their own terms.
It's not the first or best reason to decarbonize. But it’s an argument that investors need to hear much more widely. And that climate scientists, policy-makers, and advocates need to get much more comfortable putting forward.
The Energy Mix Weekender is a reader-supported publication. To receive new posts and support our work, consider becoming a free or paid subscriber.
Mitchell Beer traces his background in renewable energy and energy efficiency back to 1977, in climate change to 1997. Now he scans 1,200 news headlines a week to pull together The Energy Mix and The Energy Mix Weekender.
You can also bookmark our website for the latest news throughout the week.