Contracting models for renewable energy projects

Successful delivery of renewable energy projects - particularly utility‑scale solar, storage, and wind - depends heavily on selecting the most appropriate contracting model.  Each model allocates responsibility, risk, control, and cost differently, shaping the project’s commercial, technical, and operational outcomes.

This article provides a detailed examination of the advantages and disadvantages of four major delivery structures found in the Australian market:

• Engineering, procurement, and construction
• Split Scope
• Engineering, procurement, and construction management
• Project management contracting / managing contractor

Our Power infrastructure design, engineering, delivery, and operations services enable us to utilise any of these contracting models to best meet the Owner’s requirements.

Engineering, Procurement, and Construction (EPC)

EPC contracting is a turnkey model in which a single contractor undertakes full responsibility for engineering, procurement, construction, commissioning, and delivery of an operational facility. The EPC contractor provides a single point of accountability, integrating design, and execution through a single commercial interface.

Advantages

• Single point of responsibility: The contractor is accountable for delivering the project end‑to‑end, reducing management, and coordination burdens on the owner
• ‍Cost and schedule certainty: EPC contracts are typically executed on a fixed‑price, lump‑sum basis, giving the owner predictable capital commitments
• Full risk transfer: All major technical, construction, and performance risks are transferred to the contractor
• ‍Robust performance guarantees: the contractor provides warranties, liquidated damages, and performance guarantees, enabling strong recourse in the event of under‑delivery
• ‍Financier-preferred model: High degree of risk transfer makes EPC an attractive choice for projects requiring bankability

Disadvantages

• Highest overall cost: Contractors incorporate a substantial “turnkey premium” to cover design, schedule, cost, and performance risks, as well as the cost of facility-wide guarantees
• ‍Limited flexibility: Technology choice and OEM selection are constrained by what the contractor is willing to integrate, reducing transparency, and creating a “black‑box” approach to cost allocation
• ‍Minimal Owner control: The owner has reduced visibility into changes, supplier pricing, and design decisions
• ‍Scope rigidity & high potential for claims: EPC contracts encourage strict change‑control mechanisms, with scope changes leading to delays, disputes, and variations

Best use case

Projects prioritising lender confidence, cost certainty and turnkey simplicity, where the owner is prepared to pay a premium to minimise direct involvement.

Split Scope

Split Scope contracting involves the owner dividing the project into multiple discrete contracts, for example: separate agreements for the power block supply (ie. batteries and PCS), and the supply balance of plant, and overall construction. This structure has become increasingly common in renewable energy projects due to increasing project size, rising EPC turnkey premiums and the need for direct OEM engagement.

Advantages

• Cost optimisation: The owner is able to competitively procure each package and avoid the EPC contractor’s turnkey premium
• ‍Direct access to best‑in‑class suppliers: OEMs and contractors are selected independently based on capability and value
• ‍Material risk transfer: most major technical, construction, and performance risks are transferred to the OEMs and contractors (but interface risks are borne by the owner)
• ‍Reasonable performance guarantees: Each OEM and contractor provides warranties, liquidated damages, and performance guarantees for their own scope, enabling reasonable recourse in the event of scope under‑delivery
• ‍Improved communication and alignment: By eliminating layers of contractual hierarchy, the owner can influence design and execution decisions more effectively

Disadvantages

• High integration and interface risk: The owner bears responsibility for ensuring that equipment packages and construction activities are technically and operationally aligned, and scope gaps eliminated
• ‍Greater project management complexity: Coordinating multiple contractors can lead to schedule conflicts, scope gaps, and disputes
• Higher demands on owner’s expertise: Successful split contracting requires experienced project management teams (internal or external) and robust contractual frameworks
• ‍Moderate financing challenges: Lenders prefer single‑point accountability structures such as EPC, and may view partially unwrapped delivery as higher risk compared to EPC

Best use case

Very large projects that are unable to attract a single EPC contractor, or projects with complex technology requirements or supply chain constraints that require direct OEM engagement, and where the owner can deploy strong project management and technical capabilities (internal or external).

Engineering, Procurement, and Construction Management (EPCM)

EPCM contracting is a professional services model in which the EPCM contractor manages engineering, procurement support, contract administration, construction oversight, and commissioning on behalf of the owner. Unlike EPC, the EPCM contractor does not take responsibility for construction or performance outcomes; the owner contracts directly with suppliers and builders.

Advantages

• Lower overall cost: Due to the absence of the risk premiums associated with EPC and Split Scope contracts
• ‍High degree of transparency and control: The owner maintains visibility of into all technical, procurement, scheduling, and construction decisions
• ‍Well suited to technically complex, multi‑vendor projects: EPCM’s flexibility across design and execution stages enable iterative design refinements and tailored procurement strategies whilst enabling earlier commencement (useful for integrating new technology or rapidly changing market conditions)

Disadvantages

• Owner retains the majority of project risk: Cost, schedule, integration, and facility performance responsibility all remain primarily with the project owner (although scope-based performance risk can be transferred to the relevant party)
• ‍Higher management burden: Requires experienced management teams (internal or external) capable of managing complex construction and procurement environments‍
• Weaker security package: EPCM contracts typically do not include strong facility‑level guarantees, offering instead only professional negligence liability relating to services performed, whist the OEM’s and contractors provide guarantees for their own scope only
• ‍Material financing challenges: Lenders prefer single‑point accountability structures such as EPC, and may view fully unwrapped delivery as higher risk compared to EPC or Split Scope

Best use case

Projects requiring high flexibility, competitive procurement and strong owner oversight, especially where multiple technology providers are involved. An established relationship between the owner and EPCM contractor is beneficial.

Project Management Contracting (PMC)

PMC models involve the owner appointing a project management contractor to manage the entire project lifecycle - planning, procurement oversight, construction sequencing and integration - without assuming responsibility for construction execution. The PMC contractor supervises trade contractors, provides coordination and planning, and acts as the owner’s agent.

Advantages

• Leverage the professional capability of project management experts: Enabling unified oversight of design, procurement, and construction, thereby improving coordination across multiple contractors and reducing disputes
• ‍Flexibility in packaging and procurement: PMC models allow owners to split the project into multiple packages and stages whilst still having one party coordinating the whole delivery, enabling early works, long‑lead procurement and rolling tendering
• ‍Owner retains strategic and technical control: The owner maintains a high degree of control over engineering decisions, technology choice, and procurement strategies whilst benefiting from specialist project management support

Disadvantages

• Owner retains the majority of project risk: Cost, schedule, integration, and facility performance responsibility all remain primarily with the project owner (although scope-based performance risk can be transferred to the relevant party)
• ‍PMC requires strong owner involvement and governance: PMC is less suitable for organisations with limited internal expertise that is capable of making timely decisions and engaging in oversight
• ‍Material financing challenges: Lenders prefer single‑point accountability structures such as EPC, and may view fully unwrapped delivery as higher risk compared to EPC or Split Scope

Best use case

Large, complex renewable energy projects, funded off the owner’s balance sheet, and where the owner wishes to retain control, stagger procurement and utilise strong project management systems, but is prepared to carry substantial risk. An established relationship between the owner and PMC contractor is beneficial.

Conclusion

EPC, Split Scope, EPCM, and PMC contracting models each offer distinct benefits and trade‑offs. EPC provides maximum certainty at the highest cost; EPCM and Split Scope offer flexibility and cost optimisation but shift risk and burden to the owner; and PMC provides expert oversight while requiring strong internal capability and acceptance of significant owner‑held risk.

Renewable energy developers should select the delivery model that aligns with their internal resources, financing strategy, technology mix, and appetite for risk. As renewable energy technologies continue to evolve, models offering flexibility, transparency, and multi‑vendor integration – such as EPCM and Split Scope – are likely to play an increasingly central role in project delivery.

nxzen can assist owners to select the contracting model that best suits their delivery requirements and constraints.