Energy Transition Drives Capital Project Surge: Bain & Company

The global energy transition requires a transformation of the energy system, prompting energy and natural resource (ENR) companies to undertake many capital projects in the coming years, according to Bain & Company. These projects encompass various technologies, such as solar power, liquefied natural gas, copper mining, and battery storage, requiring companies to efficiently manage operations and costs.

According to Bain & Company, vast areas of land must be transformed to build renewable energy assets and upgrade energy systems. This effort will require a large workforce to update machinery and equipment, as well as to develop the necessary mines and supply chains.

The scale and speed of this transition are unprecedented, requiring companies to double or triple their capital deployment levels within a few years. Simultaneously, project costs are driven up by high interest rates and inflation, while limited supplies of equipment, materials, and talent are stretching lead times and costs. The regulatory environment is also becoming more complex, with varying policies across the globe. These conditions expose ENR companies to significant risks.

Bain & Company’s analysis notes that, under this environment, large projects often run 15% to 20% over budget, placing about US$1.5 billion of capital at risk annually among energy, oil and gas, and mining companies through 2030. This has serious implications for the global timeline to achieve net-zero carbon emissions and for each company’s return on capital deployed, intensifying pressure from shareholders, governments, and local communities.

To navigate these challenges, companies are rethinking their approach to capital delivery. Although historically effective in managing risk and generating returns, the traditional stage-gate process has limitations that can hinder projects. Its rigid decision-making can delay critical decisions, and project teams may proceed without sufficient input from leaders with a cross-portfolio view. Leading companies are now adopting a more systematic portfolio management approach, viewing projects as interconnected systems across the entire value chain. This comprehensive understanding of challenges and synergies allows for more strategic planning and risk management, Bain & Company highlights.

Realigning operating models is another crucial adaptation. Companies are mapping out critical decisions across project, program, and portfolio levels to clarify decision-making processes. This involves adapting governance, forums, operating rhythms, and top-level structure and accountability protocols better to manage the complexity and scale of the energy transition. 

Digital technology plays a pivotal role in this transition. By leveraging digital solutions, automation capabilities, and artificial intelligence (AI) tools, companies can eliminate friction and delays in the stage-gate process. These technologies offer immediate efficiency gains in areas like processing documents and invoices, identifying quality flaws, improving project schedules, and monitoring project metrics for risk signals.

The shift to a more systematic and technologically integrated approach may be uncomfortable for many leadership teams accustomed to traditional models, says Bain & Company. However, failing to prepare for this increased demand will make it difficult to meet performance goals. “Companies that fail to prepare their organizations for a step change in demand will find it even more difficult in the future to meet their performance goals. The number and size of capital projects needed to meet society’s climate goals will overload companies that are not prepared to manage them more efficiently,” reads the report. 

The Mining Context

Ensuring process efficiency is essential for mining projects, as minerals like silver, copper, and zinc are crucial for the energy transition. Mining, being a capital-intensive industry, has seen a decline in investor interest in recent years. “The upsurge in interest rates coupled with the challenging global economic environment, has created a challenging environment, especially for equities markets. This difficulty is not limited to our listed mining companies, it extends to all mining and corporations focused on other sectors as well,” said Dean McPherson, Head of Business Development for Global, TSX and TSXV in an interview with MBN. 

In this context, experts have called for the implementation of new technologies in the mining sector like predictive analytics, remote monitoring, remote control, virtual environments, robotics, and automation, as they are well known for optimizing processes and mitigating human error, streamlining processes, and consequently, mitigating potential cost overruns. “Embracing these technologies allows us to leverage data-driven insights. Organizations can proactively identify areas for improvement, address potential issues, and refine operations to minimize the chance of mistakes occurring or their outcomes,” Jorge Cristerna, Operations Director, MULTILED told MBN.