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New Macromonitor Forecasts for Utilities Construction
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We have finalised our construction forecasts for the utilities sector, which encompasses electricity, water, wastewater, telecommunications and gas pipelines. Construction work done for this sector is primed to have its third boom in a ten year period, this time underpinned by the dawn of the large-scale battery age in renewable energy investment, with additional impetus from construction of gas pipelines to meet future demand for gas on the east coast.
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In the last decade, the sector as a whole has undergone three distinct growth cycles. The first utilities boom, which peaked at $35 billion in 2012/13, was partly driven by a prolonged drought, then the 2017/18 peak of $33 billion mostly came from a surge in wind and solar farms motivated by the approach of the 2020 Renewable Energy Target (RET) year. We are on the cusp of the next surge, expected to reach $34 billion in 2022/23, this time featuring large investment in battery storage in the electricity construction segment.
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Utilities construction is expected to rise by more than 33%, in real terms, over the two years (2021/22 and 2022/23). As shown in the chart below, renewable energy projects are the key driver of the looming third wave. This outlook is supported by Australia’s energy transition from a centralised coal generation system to a highly diverse and de-centralised system dominated by renewable generation.
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Investment in solar and wind farms will combine with an extraordinary increase in the construction of battery storage facilities; rising from $230 million in 2020/21 to just under $2 billion in 2022/23.
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In the medium term, we expect some of the focus to shift from battery storage to pumped hydro, both of which will be pivotal in providing firming capacity in the shift between baseload power and renewables.
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We forecast the total investment in renewable energy projects, over the next three years (2021/22 to 2023/24), to be $27 billion. In generation capacity terms, renewables projects under construction during these years will add 25,000 megawatts to annual electricity supply.
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The surge in electricity generation construction will also be joined by small upticks in two other areas of utilities construction –telecommunications and gas pipelines.
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Telecommunications had a strong positive impact over a seven-year period from 2011 to 2017, due to the construction of the NBN. This has been in a sharp downswing, but will have a minor rebound in 2021/22 and 2022/23 as a result of an NBN upgrade plan announced by the Federal Government last year.
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The gas pipelines sector is another source of modest optimism, and is expected to benefit from the need to increase sources of gas supply, mainly on the east coast, and from further development of the coal seam gas industry.
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From mid-2024 however, strength in these three sectors will begin to taper off, causing overall utilities construction to be in decline in each of the 3 years up to and including 2025/26.
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Other types of utilities infrastructure, including water and wastewater, and electricity distribution, operate on a 25 to 30 year upgrading and renewal cycle, and reached a long run peak during the first utilities boom of 2008 to 2013. So the next long-run peak in these areas is expected to be many years away.
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Overall, we are forecasting a 30% decline in construction work done, from peak (2022/23) to trough (2025/26), prior to another rise.
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For more detailed forecasts and analysis, please see our new report - Australian Construction Outlook – Utilities – May 2021.
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Our most recent reports:
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Australian Construction Outlook - Utilities
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This report highlights the main drivers of the imminent upturn in utilities construction – strong focus towards renewable energy investment, additional spending on the NBN and a recovery on the construction of gas pipelines
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Australian Construction Projects Database
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This latest list of projects corresponds with our fully revised set of forecasts published in November 2021.
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Australian Construction Outlook - Non-Residential Building
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This report examines the current downturn underway in the non-residential building sector, describes its causes and forecasts the timing of the coming recovery, by sector and state.
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Australian Construction Cost Trends
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This new report on the Australian construction cost outlook explains how cost growth has slowed in recent quarters, and examines the likely impact of COVID-19.
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Australian Construction Outlook - Transport Infrastructure
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This report provides a detailed picture of the current upturn in infrastructure construction, including the timing of major projects, key drivers, and the expected timing of the peak and next downturn.
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