Can energy investment help construction weather the storm?

Graham Harle is chief executive of Gleeds

The construction sector is in the midst of a perfect storm, with uncertainty in the wake of the pandemic compounded by the ongoing conflict in Ukraine. As inflation heads towards 11 per cent and the value of sterling takes a nosedive against other currencies, the view of those in the industry is fairly unanimous that recession is imminent.

Certainly, the latest set of figures for construction from the Office for National Statistics (ONS) suggests they are not wrong, with construction output slipping by 0.4 per cent in April, marking the first decline since October 2021.

Slowdown in new projects

The pipeline of new schemes is starting to slow down, with orders falling by 2.6 per cent in the first three months of this year, compared with the last quarter of 2021. And, while output grew by a respectable 2.9 per cent over the same period, this is down from the 3.8 per cent posted in the first quarter. Confidence is certainly being tested, and while things are busy in the short-term it is that dubious pipeline that is a worry for those operating in the commercial property space, for instance.

In London, the value of the Crown Estate’s London portfolio was flat in 2021, underperforming on its investment benchmark as footfall to shops and restaurants on Regent Street sat at only 38 per cent of pre-pandemic levels. To combat this and support its ambitions to become carbon-neutral by 2030, the Queen’s property company is looking elsewhere to boost income – focusing instead on the licensing of renewable energy projects, such as wind farms, carbon-capture storage and floating wind-farm leasing. Energy is the new oasis from which many are hoping to drink.

This has clearly been influenced by the pandemic, which has changed many things, from how people socialise to where and how they work – compressing years of digital and cultural innovation into the space of mere months. Perhaps the greatest change, however, is the energy transition that has taken place alongside it.

Power revolution

Such a phrase underplays the massive revolution in the way we quite literally power economies. What started as a shift away from hydrocarbons seems likely to broaden into a societal and industrial revolution, in much the same way that the move from water to steam power did in the 19th century, and the shift from steam to electricity and hydrocarbons did in the 20th.

If we take the price of onshore wind and solar power, for example, technological improvements have helped to collapse costs, rendering renewables like these cheaper than gas or coal.

“The world is waking up to the potential of renewables, as a study by Imperial College found”

In December 2021, the International Energy Agency estimated that global renewable capacity will rise by 60 per cent by 2026, with total capacity forecast to exceed that of hydrocarbons and nuclear combined, while the value of renewable energy projects, which started work in 2021, jumped by a reported 70 per cent year on year to be worth more than £5bn.

The combination of the development of ‘mini-nuclear’, whereby the government says it will invest in smaller power stations, and the massive expansion in renewables will offer our sector a long and much-needed pipeline of work, as well as helping to revive regions of the UK that have suffered as a result of the decline of heavy industry.

Without doubt, the short-term forecast is far from rosy, but technological advances, a shift in the way we do business and the realities of the climate crisis are changing the structure of the global economy.

The world is waking up to the potential of renewables, as a study by Imperial College found when it revealed that renewables investments in Germany and France yielded returns of 178.2 per cent over a five-year period, compared with -20.7 per cent for fossil-fuel investments. In the UK, returns on investments in green energy were 75.4 per cent, compared with just 8.8 per cent for investment in fossil fuels.

A much-needed surge in investment in the sector will not only help us to overcome the climate crisis and the current energy crisis but could also prove to be the life raft that keeps the construction industry afloat as we navigate the next recession.

Leave a comment