Featured Sector: Utilities

High levels of investment have buoyed the level of utilities work in recent years, and the need to replace ageing power stations and meet renewable energy targets will ensure a continued flow of funds into the sector. The value of underlying project starts more than doubled between 2007 and 2011. 2012 saw underlying starts decline as the flow of projects dipped from the 2011 peak, but remained above any year prior to 2011.

Despite falling starts over the first half of 2013, the full year saw a return to growth in underlying utilities projects, the value of which rose by 5% over the year. New activity has accelerated, with starts in the final quarter of 2014 44% higher than a year before.

Government actions in 2013 have removed some of the uncertainty around energy policy. The government has agreed to a guaranteed price for energy from EDF’s planned Hinkley Point C nuclear power station, though this is currently subject to a state aid investigation by the European Commission. The government has also agreed in principle a guarantee for the construction of a second new nuclear station, Horizon’s Wylffa Newydd in Wales.

The government has also released further details about the Contracts for Difference mechanism, whereby the UK government will guarantee certain strike prices for electricity from different forms of renewable generation. Renewables have been the strongest driver in the long run upturn in utilities starts, but remained flat in 2013, potentially due to uncertainty before the final announcement of the government policy in December. The flow of potential projects has continued to strengthen, and we now expect growth to resume as these progress to start on site, driving further gains in the utilities sector.

April saw government approval of the first eight renewable energy projects to receive backing under this new mechanism. The eight projects include five offshore wind and three biomass plants. The investment contracts were expected to gain parliamentary approval within a month of the initial announcement. In total there were 57 projects that applied for government backing, highlighting the UK’s strong pipeline of potential renewable energy projects.

This high level support for major projects should fuel further growth in the renewables sector. Growth in renewable schemes worth less than the £100m major project threshold helped fuel a 47% rise in utilities projects starting on site in the three months to April relative to a year earlier.