Australian Construction Outlook – Utilities

Construction in the utilities sector has rebounded over the past two and a half years, following a sharp downturn which occurred during 2014 to 2016. The current financial year (2019/20) is expected to be peak of the cycle.

The current growth is almost entirely due to a boom in renewable energy investment, driven by the 2020 Renewable Energy Target, and by improved commercial viability of renewable energy projects. If we excluded renewable energy investment, construction in the utilities sector would be in decline.

Telecommunications construction made a strong contribution to growth over a seven-year period from 2011 to 2017, due to the construction of the National Broadband Network (NBN), but this work has now passed its peak.

While big falls in the cost of renewable energy have shifted the expected long run level of investment higher than previously expected, there will still be investment cycles, much like any other asset class. The large additions being made to renewable electricity generation capacity (particularly solar) have already caused substantially lower wholesale prices during the daytime hours, and this will undermine the financial feasibility of new renewables projects, as well as placing pressure on coal power stations.

We are forecasting a downturn in renewable energy investment, and hence also in total utilities sector construction, beginning in 2020/21 and last four or five years.