The Department of Energy & Climate Change (DECC) estimates that a fifth of the UK’s current electricity generation capacity will cease by 2020 and that electricity demand will double by 2050. Significant investment is required in the UK’s electricity sector in order to balance supply with demand, thus offering strong opportunities for civil engineering contractors.
Mintel’s Civil Engineering UK 2014 report explores the recent performance of the civil engineering construction market and the prospects for key sectors – including electricity – over the next five years.
The report forecasts civil engineering construction output in the electricity sector to rise from £3.7 billion in 2013 to £9.2 billion in 2018, with the sector increasing its share of total civil engineering construction activity from 25% to 36% during the same period.
Offshore wind is key growth area in electricity sector
Through the Renewables Obligation, the government is committed to generate 15% of electricity from renewable sources by 2020. According to the DECC, in 2012, almost 10% of the UK’s electricity supply came from renewable sources, indicating that further investment in the renewables sector will be required over the next five years in order to meet the Obligation’s target. As such, offshore wind power has been identified as one of the key growth sectors with significant potential for civil engineering activity. Industry projections see a total of around 18GW installed by 2020, when offshore wind is expected to supply between 18% and 20% of the UK’s electricity annually. The UK currently also has the largest amount of installed offshore wind capacity in Europe, accounting for 56% of the total installed base in 2013.
The government’s continued support for offshore wind is also likely to lead to substantial infrastructure work at UK ports over the coming years, as the increased size of next generation designs means that the main turbine components will need to be produced at waterside locations. As such, big port developments are needed for the specific demands of constructing and supporting these wind farms, offering opportunities for the civil engineering sector.
Despite strong growth potential, uncertainties remain on future renewables infrastructure development, despite the government’s support for renewables generation to date, there are concerns within the wind industry about levels of political support and the UK government’s ambition for the sector going forward. Indeed, the Conservatives recently announced that they will not subsidise new onshore wind farms if the party wins the general election in 2015. The Liberal Democrats said they would block such changes made by the coalition, while Labour also remains in favour of onshore wind farm developments. All three main parties continue to back further development of the offshore wind sector. Despite these uncertainties, there is still a healthy level of projects under construction, approved or in planning.
The recent cancellation of a number of major offshore wind farm projects due to technical and financial reasons, including the £5.4 billion Argyll Array and the £4 billion Atlantic Array projects, also highlights the difficulties in forecasting future growth levels in the renewables sector.
New generation of nuclear and gas-fired power stations planned
Within the nuclear sector, the UK government remains committed to the development of a new generation of nuclear power stations, and eights sites have been short-listed for being potentially suitable for the deployment of new nuclear power stations by 2025. However, to date, only one new nuclear power plant has been given the go-ahead by government – the Hinkley Point C plant in Somerset. This will be the first new nuclear plant in a generation and will be developed by an EDF-led consortium. Contractors working on Hinkley expect the final deal to be signed in June next year. Furthermore, the government is committed to developing a new generation of gas-fired power stations, providing additional opportunities for civil engineers.
Opportunities for civil engineers on electricity transmission grid
When the transmission grid was built in the 1960s, coal was the dominant source of energy. This means that the grid is heavily reinforced in former coal mining regions, but there are few high voltage transmission lines in areas suitable for renewable electricity generation, such as North West Scotland. Hence, the grid has to be reconfigured to incorporate increasing generation from renewable sources, in particular on- and offshore wind power. Indeed, transmission grid operators are directing an increasing proportion of infrastructure investment towards the connection of renewable energy to the national transmission grid.
Electricity Market Reform to lead to more certainty in energy infrastructure sector
The Electricity Market Reform (EMR), as detailed in the government’s Energy Bill, aims to attract private sector investment in the UK’s energy supply infrastructure. New Contracts for Difference (CfD) are being introduced as part of the reform. These contracts aim to stimulate investment in low-carbon technologies – including renewables, nuclear and Carbon Capture and Storage (CCS) – by providing predictable revenue streams, reducing risks for investors and making it easier and cheaper to secure finance. The first CfDs are set to be allocated in the second half of 2014 and the market reform is expected to take hold by mid-2015. This should put an end to uncertainty and delays to nuclear and renewable power new-build projects. Nonetheless, there is still a high degree of uncertainty when civil engineering projects will come to fruition and when the predicted boom period driven by the EMR will begin.
