Prateek Jindal, Associate at Synergy Consulting, Inc., shares insights on Rethinking Procurement in Conventional Power Projects Amid Gas Turbine Supply Constraints.
Gas turbine supply is no longer a routine procurement item. With OEM backlogs stretching years ahead, access to manufacturing capacity has become a strategic constraint in conventional power projects.
Historically, while the off-takers defined performance requirements, they did not prescribe the turbine OEM. Each bidder/developer selected its preferred turbine OEM during the bid process before submitting the offer.
Manufacturing slot risk largely sat with the bidder. That allocation is now evolving.
Increasingly, off-takers are now identifying the OEM and entering into Manufacturing Slot Reservation Agreement directly with the OEM during the initial stages itself.
What Does a Slot Reservation Agreement Typically Do?
Based on recent market structures, these agreements:
- Reserve a defined manufacturing slot for specified turbine components
- Lock targeted ex-works delivery timelines
- Require payment of a non-refundable reservation fee
- Make the fee creditable against the final supply contract if executed
- Remain conditional upon signing the formal contract by a defined “Contract Date”
If the final contract is not executed by the agreed date (other than due to OEM default), the OEM retains the reservation fee.
Why Is This Structurally Important?
1. Demonstrates Commitment
The non-refundable reservation fee creates financial skin-in-the-game for the off-taker. It reduces the risk of speculative procurement and signals serious project intent to both bidders and lenders.
2. Preserves Competitive Integrity
Because the OEM does not grant exclusivity to a specific bidder, competition remains intact. Bidders negotiate commercial terms directly with the pre-identified OEM, but turbine access is not distorted in favor of one participant.
3. Strengthens Procurement and Execution Certainty
From a project execution perspective, this model addresses two practical risks:
Supply chain risk: In earlier structures, even after bid submission, bidders faced residual risk that OEM delivery schedules could shift due to slot unavailability or backlog reprioritization, potentially impacting EPC timelines and financial close.
Under the new structure, targeted delivery dates are contractually reserved upfront. This significantly reduces post-bid delivery uncertainty and strengthens execution visibility for sponsors and lenders.
Technology and performance discipline: Where the off-taker defines the OEM upfront, bidders compete within a standardized technology framework, ensuring that the long-term reliability, performance guarantees and operational stability remain central to the project structure.
The Broader Implication
As supply chain constraints persist, early industrial capacity reservation may increasingly define which projects move forward and which remain on paper.
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