Growing focus on alternative and renewable energy as oil prices soar

Construction for alternative and renewable energy to be brought into closer focus as soaring oil prices impact economy.

The tense international situation and the prospect of higher oil prices putting margins under further pressure across the industry will bring fresh urgency to investment programmes and construction for alternative and renewable energy.

The value of renewable energy projects started in 2021 reached £5 billion in 2021, up 70% on the previous year. Even before the conflict in Ukraine, the recent Glenigan Build Back Greener report noted that sustained investment will be needed to meet planned rises in offshore capacity and in other renewable technologies to boost low carbon capacity.

Energy security

An era of high oil prices and concerns over energy security will reinforce the case for more investment in nuclear power. It could make a go-ahead for the Sizewell C nuclear power station – with an estimated cost of £20 billion – more likely. The government has recently pledged a further £100 million of funding for the project and a decision from the Planning Inspectorate is due in May with work potentially starting in summer 2024 (Project ID: 01611111).

Today, construction contract opportunities on more modest renewable energy schemes are moving through the pipeline. Detailed plans have recently been submitted for a £5 million facility at Carrick Windfarm in Dumfries involving 13 wind turbines and a 20 MgW energy storage facility (Project ID: 22073256). Meanwhile, Kier Construction is starting work this spring on a £3.5 million solar farm at West Malling in Kent (Project ID: 21393666).

Rising oil prices could also give a further spur to offsite manufacturing in construction. It is notable that Modern Methods of Construction (MMC) are featuring in a growing number of tenders and frameworks.

Three significant public sector MMC new homes frameworks - each worth £200 million and each set to run over 48 months - are currently at the pre-tender stage. They are for the Welsh Procurement Alliance in Cardiff (Project ID: 22046247), for the Scottish Procurement Alliance in Edinburgh (Project ID: 22046243) and for LHC Building Services & Components in Hillingdon (Project ID: 22043766).

The City is understandably worried that the fall-out from war in Ukraine could dent housing market confidence and bring higher mortgage rates. Glenigan data suggests private housebuilders have got off to a rocky start to 2022; project starts in the sector in the three months to January were down 49 per cent compared to the period a year earlier.

Investment at home

But higher energy bills are likely to encourage existing homeowners to spend more on insulation and energy efficiency. This should help sustain investment - and smaller contractors’ workloads - on private housing repair and maintenance & improvement. Output in this sector leapt by 17% last year to historically high levels and further energy price rises lend support to the Construction Product Association’s recent forecast that activity in the sector will be maintained this year.

Commercial landlords will also need to make their office space more energy efficient to attract tenants. This should provide a further spur to the office refurbishment market which is already benefitting as property owners adapt space to new forms of working in the wake of Covid.

The industrial/logistics construction sector is also likely to stay busy in a tense international environment. Businesses may want to stockpile more goods close-by rather than rely on fragile global supply chains.

Meanwhile construction of new industrial/logistics space shows no signs of flagging. Glenigan data shows industrial project starts were up 44% in the three months to January on the period a year ago. Encouraged by strong demand for its space, Segro, the UK’s largest industrial building developer, last month said that it planned to increase its development capital spending in 2022 to £700 million (including infrastructure), up from £649 million last year.

Extra investment on defence-related construction could also be in the pipeline. Ministry of Defence spending on construction was worth around £1,300 million in 2020/21 and that figure may grow given the international situation.

As it is, construction work is set to start on some significant Defence Infrastructure Organisation projects. Tenders are currently being invited for a £270 million redevelopment of military storage units at the MoD’s Ashchurch site near Tewkesbury in Gloucestershire where work is due to start later this spring. The project, where the DIO and Mace Group are clients, will involve both refurb work and new buildings (Project ID: 21191085).

Meanwhile, in the Scottish Highlands, Robertson Group has been appointed main contractor and work is due to start this spring and run for 21 months on a £42 million single living accommodation project at RAF Lossiemouth (Project ID: 21346395).

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