Contingency fees significantly impact the initial cost estimates of Pumped Storage Hydropower (PSH) projects by adding a substantial markup to the direct and total project costs. Specifically:
- Contingency fees are typically applied as a percentage of the direct costs or the total installed cost of the project. For PSH projects, a commonly used contingency fee is around 33% of direct costs, which corresponds to about 25% of the total project cost.
- These contingency fees cover uncertainties and potential cost overruns in construction and engineering, reflecting risks associated with excavation, tunnels, structures, and electromechanical equipment, which collectively form a large portion of the project budget.
- In detailed cost breakdowns, contingency fees are added on top of direct costs (materials, labor, equipment) and indirect costs (engineering, project management), thereby increasing the initial cost estimate by a significant margin to accommodate unforeseen expenses and ensure financial feasibility.
- For example, if the direct costs of a PSH project are estimated at $100 million, a 33% contingency fee would add an additional $33 million, increasing the initial cost estimate to $133 million before other indirect costs are factored in.
Thus, contingency fees act as a critical buffer in the budget planning of PSH projects, increasing initial cost estimates to provide a more realistic and risk-adjusted financial outlook for project developers and stakeholders.
Original article by NenPower, If reposted, please credit the source: https://nenpower.com/blog/how-do-contingency-fees-affect-the-initial-cost-estimates-of-psh-projects/
