EPC Contractor

EPC stands for Engineering, Procurement and Construction.

So in the case of a solar or wind farm, for example, an EPC contractor is a firm that will be contracted by a project developer to handle these tasks. Although the specific duties, responsibilities and boundaries between the developer and EPC contractor can vary in their details, generally speaking the latter will take on responsibility for designing the layout of the necessary equipment and infrastructure for the power plant, dealing with the suppliers of this equipment, installing everything and finally commissioning the plant (i.e. making sure it works as promised before going into commercial operation). In other words, once the developer has secured land, permits and other necessary paperwork and legalities to go ahead with a project, they choose to place the hands of physically getting that project on the ground in the hands of their EPC contractor. 

Common variations between the boundaries of different EPC contractor-developer relationships include how much of the design and project specification work the EPC contractor is responsible for and how involved they remain in the post-commissioning phase (for example taking on an O&M, operations and maintenance, service contract roles too).

Developers and their investors (particularly debt-lending banks) like to use EPC contractors because it is a way of reducing risk. These are usually what are known as ‘turnkey’ projects, where the contract agrees that a project be delivered to a specified timescale and at a specified price. If there are equipment supply delays, installation errors or other cost-escalating problems, it is the EPC contractor who will have to cover or compensate for these, not the project investors.

Of course shifting risk doesn’t come for free: it’s priced into the deal by the EPC contractor. However this cost is usually regarded as well worth it by developers, both for their lower exposure to supply chain and construction risks along with benefits like decreased project management, staff and other overheads otherwise associated with self-managing the EPC processes.