A new report suggests contractors that provide engineering, procurement and construction (EPC) services in the renewable sector will need to adapt to a more competitive market.

While the market is expected to double by 2021, the scarcity of large utility-scale projects will potentially require the largest EPC firms to change their business models, concludes the report, released Oct. 14 from Bloomberg New Energy Finance (BNEF) and Cohn Reznick, a tax and accounting firm with a renewable energy practice.

Michael De Capua, head of analysis in the Americas for BNEF, says, "In an environment in which the easy projects have been done and [tax] incentives are expiring, differentiation and know-how matter more than ever." For example, some EPC firms that have historically focused on wind are starting to broaden their attention to solar, which can offer a more stable policy environment, the report concludes. Firms that can focus on smaller utility-scale solar projects in states with robust incentives may find higher margins than might be gained from large-scale wind.

The market for EPC services for utility-scale solar and wind is expected to peak at $7.2 billion in 2015 before falling 28% to $5.2 billion in 2016 and another 52% to $2.5 billion in 2017, as a number of tax incentives expire or decrease in those years. Estimated EPC prices for photovoltaic solar projects range from $1.38/W for very large desert-based projects using thin-film modules to $1.97/W for projects around 5 MW in size in New Jersey, with labor the most important variable, the report finds.

For wind, EPC costs (excluding costs of turbines) range from $0.41/W in Oklahoma to $0.62/W in New England.

Jacqueline Lilinshtein, Clean Energy Economics analyst at BNEF, said, "On the solar side, downward pressure on margins will likely continue as developers look to EPCs to absorb expected price increases caused by tariffs in Chinese panels. On the wind side, competition with the gas industry for labor and basic commodities will add additional stress."