“It's an exciting time for the energy and infrastructure sectors as new ways are found to deliver strategies.”
Embracing change
It has been a challenging start to the year. Just a few months after the 26th UN Climate Change Conference of the Parties (COP26), extreme weather events have served as a stark reminder of the challenge and necessity to limit temperature rises.
The latest report from the Intergovernmental Panel on Climate Change (IPCC) says that 40 percent of the world's population are highly vulnerable to the climate. The world has reached a "key moment", and "this is the decade of action if we are going to turn things around" to keep the rise in temperature below 1.5C and reduce projected losses.
The time for action has come at the same time as escalating energy rises and cost of living pressures. Energy prices are expected to increase further in the wake of Russia’s invasion of Ukraine, which has caused shock and condemnation worldwide.
Following the launch of the invasion, Brent crude oil surged above $100 per barrel for the first time since 2014. Natural gas prices, which shot up in 2021, also saw renewed increases. The European Union (EU) relies on energy imports and a sizeable proportion of these come from Russia.
The EU, UK and the United States of America (USA) have committed to reducing energy imports from Russia in response to the conflict. Sanctions have also been announced which are impacting global trade patterns.
The situation is changing almost daily; therefore, it is difficult to predict the long-term outcome. The construction industry will need to react quickly to circumstances as they emerge, much as it did successfully during the height of the COVID-19 pandemic.
Commentators expect Russia’s aggression to lead to a reduction in dependence upon Russian gas and the expedition of clean energy transition. While the Ukraine crisis is not being fought over resources, it highlights the impact on economies moving away from fossil fuels — countries with markets that remain reliant on these will need to consider alternatives as the transition to net zero carbon progresses.
Russia’s economy primarily exports fossil fuels, mineral resources and agriculture, and it is anticipated that as the world becomes less reliant on fossil fuels, Russia’s global influence will reduce.
Overall, construction projects are becoming more expensive, with increased energy costs impacting the production of energy-intensive items. Increased construction activity highlights labour issues, particularly a reduction in EU workers following Brexit and an ageing domestic construction workforce.
Further costs will be added as the end of the rebate for red diesel (rebated gas oil) and rebated biofuels approaches, attracting significantly less fuel duty. Energy and infrastructure projects will be particularly impacted due to their requirement for large amounts of plant and machinery.
In our last Energy and Infrastructure Report, 'Holding Your Nerve', we highlighted the importance of commitment to long-term integrated pipelines to allow for investment in skills and innovation. This was recently reiterated by Sir John Armitt, the Chair of the National Infrastructure Commission, in his address to the All-Party Parliamentary Group on Infrastructure.
In his address, Sir John highlighted the challenge of keeping pace with investing for the future at a time when there are concerns over the cost of living. Specifically, if investments are not made now, the desired and needed outcomes will be delayed and overall costs will likely increase.
With such a challenging backdrop, it’s clear that we need new approaches to deliver the necessary outcomes. The COVID-19 pandemic sped up the adoption of new ways of working and delivering projects. The increased endorsement of flexible working will help attract and retain talent to the industry. The use of technology, digital tools and data and modern construction methods will help deliver energy and infrastructure projects more efficiently.
To deliver better value, we need to collaborate more to overcome challenges born from the response to the pandemic. We also need to recognise the benefits of longer-term partnerships in fostering innovation.
Energy and infrastructure underpin our society and are at the heart of the government’s levelling up agenda and net zero targets. Projects will help support social and economic recovery, build sustainable communities and respond to the climate crisis. It is an exciting time for the energy and infrastructure sectors as new ways are found to deliver strategies.
Despite the challenges, it is clear that the time to act is now. Will you join us in Finding a New Way to deliver better outcomes?
DOUGLAS MCCORMICK
GROUP EXECUTIVE DIRECTOR, GLEEDS