Indirect costs, including permitting and contingency fees, significantly affect the total cost of pumped hydro storage (PHS) projects. These costs are essential components in the project’s overall budget and can vary based on several factors.
Impact of Indirect Costs
- Definition and Components:
- Indirect costs typically include expenses such as project management, engineering and design services, permitting and licensing fees, site acquisition costs, and contingency fees for unexpected expenses.
- These costs are not directly tied to the physical construction materials or equipment but are crucial for project execution.
- Quantification:
- Indirect costs can range from 15% to 33% of the direct construction costs, depending on the complexity of the project and the specific requirements of the site.
- A study cited an example where indirect costs were approximately 24% of the direct cost.
- Effect on Total Cost:
- The inclusion of indirect costs increases the total project cost, which can influence financial feasibility and investment decisions.
- Higher indirect costs can result from more complex site conditions, stringent regulatory requirements, or higher-than-expected contingency needs.
- Comparison to Direct Costs:
- While direct construction costs are more straightforward, indirect costs can introduce variability in the total cost estimate due to their less predictable nature.
- NREL’s cost model highlights that while direct construction costs can be lower than comparable projects, conservative assumptions for indirect costs can result in overall higher cost estimates.
Conclusion
Indirect costs such as permitting and contingency fees are critical considerations in determining the total cost of pumped hydro storage projects. They add significant variability and complexity to cost estimations, making project planning and financial analysis more challenging. Efforts to streamline regulatory processes and optimize contingency planning can help mitigate these costs, enhancing the project’s economic viability.
Original article by NenPower, If reposted, please credit the source: https://nenpower.com/blog/how-do-indirect-costs-such-as-permitting-and-contingency-fees-affect-the-total-cost-of-pumped-hydro-storage-projects/
