From risk transfer to risk partnership: modernising contracting for Australia’s renewable energy future

Australia’s energy transition is entering a critical phase. The outcome of the federal election, decarbonisation targets, market dynamics, and consumer expectations are driving an unprecedented pipeline of renewable energy investment. Yet, the delivery models underpinning these projects have not evolved at the same pace. Many continue to rely on traditional, highly risk averse contracting practices developed for a different market era.

These outdated models are increasingly at odds with the realities of today’s energy projects: fast-evolving technologies, constrained supply chains, volatile costs, and new operational risks. To meet the scale and urgency of the transition, the sector must rethink how project risks are allocated, and how contracts can balance commercial certainty with the flexibility needed to deliver complex infrastructure at pace and scale.

Traditional EPC structures, long used to support bankability, are increasingly driving higher costs, more frequent disputes, and deterring market participation. When structured well, collaborative contracting can still meet financiers’ and asset owners’ needs for milestone certainty, risk transparency, and project bankability, while reducing the need for inflated risk contingencies that ultimately feed into LCOE and wholesale prices. 

Australia’s large scale energy projects have traditionally been delivered under EPC (Engineering, Procurement, and Construction) contracts, reflecting a desire for simplicity, certainty, and single-point accountability. This model became entrenched in the early 2000s, as renewable energy projects sought to secure non-recourse project financing, with banks demanding structures that minimised their exposure to construction and performance risks.

Under a typical EPC contract, the contractor bears fixed price and schedule obligations; design, procurement, construction, and commissioning are bundled into one scope; and contractors assume extensive liability for risks outside their control, including grid connection issues, approvals delays, and supply chain volatility.

This approach worked when projects were relatively simple and market conditions were stable. However, with grid congestion, storage integration, hybrid generation models, and evolving regulatory requirements, forcing all risks onto contractors can lead to inflated pricing, defensive project behaviours, and contractor withdrawal from large scale renewables. 

Renewable energy projects in Australia typically underpin their financial viability through Power Purchase Agreements (PPAs) that secure long term offtake at agreed prices, and merchant exposure, selling into the spot market, increasingly supplemented by financial hedging instruments.

PPAs provide the certainty needed to finance projects, but they also come with tight commercial conditions: guaranteed delivery dates, minimum performance thresholds, and liquidated damages for failure to meet contract terms. Sponsors therefore seek contracting models that fix costs and timelines to meet PPA obligations, reinforcing the dominance of EPC.

However, longer development timelines (planning and grid access delays), higher variability in equipment delivery and construction costs, and greater operational uncertainty (e.g., grid performance and marginal loss factors) have exposed the limitations of rigid contracting. Merchant projects, where risk is inherently higher, are particularly ill-suited to traditional EPC frameworks.

Australia’s major banks have historically embedded conservative contracting requirements into loan covenants, including single-point accountability under EPC, firm fixed-price and date-certain commitments, and completion security instruments (e.g., performance bonds and parent company guarantees).

While this reduced lenders’ technical risks, it pushed risks downstream, often to contractors ill equipped to manage events such as supply chain disruption, grid connection delays, or extreme weather. The unintended consequences are clear: larger risk premiums, fewer viable bidders (especially mid tier contractors), and rising disputes and litigation.

Unless financiers adjust risk appetite, supported by more transparent risk management and shared ownership of outcomes, Australia’s project pipeline will struggle to deliver at the necessary speed and scale. 

Collaborative contracting models can deliver both flexibility and commercial certainty when they embed clear, verifiable project controls and risk management processes. Practical mechanisms include staged funding and delivery milestones, joint risk registers maintained transparently, performance-based incentives and penalties, and contingency budgets held with clear drawdown rules and accountability. 

By increasing transparency and aligning incentives across all parties, collaborative models can reduce the likelihood of unexpected claims, disputes, and cost blowouts, making them attractive to sophisticated lenders and asset owners seeking sustainable delivery models. 

Contracting choices directly influence the cost of energy delivered to consumers. Under rigid EPC models, contractors often include significant risk premiums, typically adding 10–20% to baseline construction costs. These premiums feed into the project’s capital base, raising the levelised cost of electricity (LCOE). 

Higher LCOE can raise wholesale prices, reduce competitiveness, and slow the pace of transition by making new projects harder to finance. Collaborative models support earlier joint risk identification and mitigation, reducing the need for inflated risk pricing and enabling more competitive electricity pricing. 

Australia is an export-driven economy, and two of the most significant input costs shaping competitiveness are labour and energy. As global markets push toward cleaner supply chains, energy-intensive industries (aluminium, mining, hydrogen, advanced manufacturing) increasingly need reliable, low cost renewable energy.

Project delivery efficiency is therefore a critical lever. By shifting away from adversarial, risk-loaded contracting models that inflate costs through conservative contingencies and litigation risk, collaborative models can reduce transaction costs, minimise productivity waste, shorten delivery schedules, and unlock innovation in design, procurement, and construction.

In short, collaborative contracting is not just a project delivery reform; it is a competitiveness initiative that can improve Australia’s global price position in renewable-powered exports. 

Global renewable energy leaders are shifting toward more collaborative, flexible contracting models. In the United Kingdom and Europe, alliancing is used for complex offshore wind, grid, and hydrogen projects. In the United States, progressive EPC and Integrated Project Delivery (IPD) models align owners, contractors, and key suppliers under shared incentives. In parts of Asia, modular contracting and staged risk transfer approaches are enabling greater participation and faster delivery. 

Modified versions of traditional EPC contracts are also being adopted, rebalancing risk allocation and embedding more realistic provisions for uncontrollable events (such as price adjustment clauses, grid delays, and climate impacts). 

Other sectors facing similar delivery challenges have developed models that can be adapted to renewable energy: alliance contracting (joint ownership of risks and outcomes), GMP contracts with shared savings (cost discipline with aligned incentives), NEC-style early warning frameworks (collaborative problem solving), and progressive EPC/ECI (design and risk development before fixed-price commitments).

Adopting these models, adapted to the realities of energy market regulation and financing, can unlock a larger contractor market, improve delivery certainty, and reduce systemic risks that inflate project costs.

Australia’s energy transition will not be delivered successfully using yesterday’s contracting models. The EPC-first, risk-transfer mindset that has dominated for decades must give way to more collaborative, transparent, and realistic approaches to project delivery. 

Smarter contracting, balancing flexibility with discipline, and shared risk with commercial certainty, is now a strategic imperative. By embracing collaborative models, Australia can accelerate the energy transition, lower delivered project costs, expand market participation, and keep wholesale electricity prices competitive for generations to come.