Strategizing Cost Estimation in Today’s Novel Technology Projects

Global is at the forefront of adopting new technologies, with initiatives such as large-scale green hydrogen production, carbon capture technologies, and the development of bio fuels, synthetic fuels, and other alternative fuels. Cleopatra Enterprise has a dedicated estimating team that supports the creation of estimates for renewable energy projects like these.

However, the task remains challenging due to the novel nature of these technologies. Estimators often face difficulties in predicting costs accurately because these technologies are still in their infancy and lack historical data.

The Need for Reliable Early Phase Cost Estimates

Many technologies have progressed from laboratory and pilot plant scales to industrial-scale commercialization. Companies, governments, and other institutions face the risk of making poor investment and subsidy choices, potentially funding non-viable projects at the expense of more promising ones. Therefore, reliable early-phase cost estimates are crucial for making informed decisions and securing investments in the most attractive projects. Unfortunately, estimators often miss a reference framework for projects involving novel technology. This absence makes it difficult to benchmark costs and accurately assess new technologies’ financial viability.

The Rise of SAF and E-SAF Technologies

Sustainable Aviation Fuel (SAF) is gaining traction in Europe, yet there is a lack of information sharing on costs and labor for proprietary or licensed scopes. This technology can be further divided into SAF and E-SAF, each with its own set of challenges for cost estimation. The lack of detailed cost data and labor requirements for these emerging technologies complicates the estimation process. Estimators should incorporate and adjust the limited available cost data by drawing on their prior experiences.

Distinguishing Core Technology from Balance of Plant

A key strategy is distinguishing between Core Technology (which lacks a reference framework for estimators) and Balance of Plant (which includes recognizable and known scopes). For example, special pre-treatment, HEFA/HVO, and electrolysis units fall under Core Technology.  Utility systems, storage, water treatment, and general facilities are part of the Balance of the Plant.

This distinction helps estimators focus on the more uncertain aspects of the project while leveraging existing knowledge for the more conventional components. By breaking down the project into these two categories, estimators can better manage the uncertainties associated with novel technologies.

Peeling Down the Scope of Core Technology

The goal is to break down the scope of Core Technology as much as possible to make it recognizable. Licensors might share some columns’ sizes, allowing estimators to create a counter estimate, which is better than having no estimate at all. A solid cost and labor database, such as CESK, can be beneficial in this regard. By obtaining even partial data from licensors, estimators can develop preliminary estimates that provide a starting point for further refinement. This iterative process helps gradually improve the accuracy of cost predictions.

In conclusion, historical cost data is essential for most conceptual estimating methods. Isolating Core Technology components from the project and applying a hybrid estimating method has proven effective. Early involvement of cost engineers in design optimization and value engineering helps find the most cost-effective project solutions. By integrating estimators into the project team from the early project phase, organizations can ensure that cost considerations are accounted for in every project stage, leading to better financial outcomes and more successful project executions.