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Battery storage and renewable energy driving third wave of utilities sector construction boom
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The latest forecasts from our new report, Australian Construction Outlook – Utilities, show that the sector is primed to have its third boom in a ten year period. This note will primarily focus on these three periods of significant construction activity.
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Construction work done for the utilities sector as a whole is forecast to rise by more than 30% over the two years to 2022/23, work done will peak at $33.8 billion, in real terms, a level last seen in mid-2013. This will mark the third wave of extraordinary construction in the last ten years.
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The first utilities boom, which peaked at $35 billion of work done in 2012/13, stemmed from enormous investment across all sectors; major renewal and upgrading of water infrastructure in response to prolonged drought, a resources boom that stimulated construction of gas pipelines, and the beginning of large renewable energy investment in the electricity sector. As projects came to completion, activity dropped sharply, reaching a low point in 2016.
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The second growth phase peaked at $33.2 billion in 2017/18. This was driven by the ramping-up of work on the National Broadband Network (NBN) and the approach of the 2020 Renewable Energy Target (RET) year, which encouraged a surge in wind and solar farms across Australia. Total utilities construction work began to fall at the start of calendar 2019, with further declines in 2019/20 and 2020/21.
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We now expect another, third growth cycle forecast for 2021/22 and 2022/23, prior to another downturn. We expect a 32% rise over two years to 2022/23 and for work done to peak at $33.8 billion, in real terms, returning total activity to the previous high of 2013/14.
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Key drivers of this growth over the next two years are as follows:
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- The next wave of renewable energy related investment, driven by the acceleration in large-scale battery storage, a continued process of decarbonisation that has given impetus for greater demand for renewable electricity generation and transmission route improvements,
- Additional spending on the NBN, including upgrading premises from The Fibre to the Node (FTTN) network to Fibre to the Premises (FTTP) network,
- A slight increase in water security investment, largely facilitated through the $3.5bn National Water Grid Fund,
- A number of new wastewater treatment plants, upgrades and new water recycling projects, and
- A new phase of gas pipeline construction, mainly on the East coast, aimed at increasing sources of gas supply and further development of the coal seam gas industry.
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The construction of electricity generation alone (not including electricity transmission and distribution) is expected to more than double from 2020/21 to 2022/23. We forecast the total investment in electricity generation to reach a peak of $11.4 billion in 2022/23, which will account for a third of all utilities construction in that year.
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As shown in the chart above, wind and solar projects will continue to be a key driver of electricity construction for some years to come. We also expect to see an acceleration in large-scale battery storage and pumped hydro electricity storage, from $150 million in 2019/20 to $3 billion in 2022/23, which will be pivotal in firming capacity in the shift between traditional baseload power and renewable energy sources. 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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From mid-2024 however, strength across all sectors of utilities construction 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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Overall, we are forecasting a 30% decline in construction work done, from peak (2022/23) to trough (2025/26), and lacklustre growth averaging 0%-1% per year in the following five years to 2030/31.
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For more detailed forecasts and analysis, please subscribe to our report - Australian Construction Outlook – Utilities – November 2021.
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