Energy Report 2022

Overcoming challenges

How can the energy sector overcome challenges and speed up delivery?

There are many threats to delivering much-needed energy projects in the current climate.

In our survey, changes in political strategy/policy were ranked as the top threat. As highlighted previously in the report, it is challenging to deliver projects without government support.

Labour availability was considered the second highest threat — a large amount of resource is needed to deliver energy projects. There are also commitments for large infrastructure projects such as HS2, and demand from other sectors, the majority of which are also trying to adapt to meet net zero carbon targets.

Ranked as the third biggest threat was materials and labour cost escalation. Data from the Department for Business, Energy and Industrial Strategy (BEIS) and the ONS shows significant price increases — with a 45.8% increase to the BEIS ‘All work’ Construction Materials Price Index between February 2020 (pre-pandemic) and July 2022. Of this rise, 14.3% has been seen since Russia’s invasion of Ukraine in February.

Cost escalation is adding pressure to budgets and may lead to scope reduction. A story by the Financial Times on 15 September highlighted that construction cost inflation is leading some councils to pause, delay or cancel some construction projects and move away from new build to cover the rising cost of repairs and maintenance.

Going forward, respondents thought that the biggest challenges to delivery aspirations were government support and subsidies, the capacity of the supply chain, predictability of cost and outcomes, the skills gap and lack of diversity in the sector.

Overall, the inflationary backdrop demonstrates the importance of establishing the real cost of constructing, operating, maintaining and decommissioning facilities so that the correct level of funding can be arranged.

Underlying assumptions used to estimate the costs should be well-determined and understood, with all risks identified, tracked and managed.

The Construction Skills Network report published in June by the Construction Industry Training Board (CITB) highlighted that at least 250,000 additional construction workers will be needed by 2026.

Record numbers of job vacancies have been seen during 2022, with unemployment at its lowest level in 50 years. Going forward, building and recruiting a highly skilled workforce is a key issue for the construction industry. To achieve this, perceptions of the industry will need to be changed to attract new entrants. Diversity will be essential to shaping thinking and innovation.

An article in The Economist recently raised concern about whether the UK is geared up to meet the massive demand for construction projects — highlighting that Britain has not built a reservoir since 1991 or finished a new nuclear power station since 1995. HS2 is the first new line connecting large British cities since the 19th century but failures in the planning system mean a lack of housing infrastructure and renewables.

A new obstacle to building much-needed homes in London has appeared: the electricity grid can’t supply enough power, as data centres are reported to be using up output. According to the Financial Times, housing developers in West London were told by the Greater London Authority that it may take more than a decade to build out the needed capacity, halting plans for new housing projects in the London boroughs of Hillingdon, Ealing and Hounslow.

However, the benefits of energy investment are well-understood. Boris Johnson highlighted in his last speech as Prime Minister that “if Hinkley Point C were already running this year…it would be cutting fuel bills by £3 billion”.

There has also been intention signalled to speed up approval for major infrastructure projects, particularly to enhance energy security.

Greg Clark, the former levelling up secretary, said, “Particularly in a time of high inflation, things need to be done more quickly or costs of major infrastructure will rise. These changes will help deliver new infrastructure more quickly by speeding up the planning process, which often moves too slowly”.

In July, the government approved six fixed offshore wind projects to generate electricity for more than seven million homes. To help to achieve the UK’s energy targets, amendments are planned to the upcoming Energy Bill to support the government’s ambition of 50GW of energy from offshore wind by 2030.

Essentially, for priority cases where quality standards are met, examination timescales for project approval by the relevant secretary of state could be set shorter due to an amendment to the Planning Act 2008.

The government hopes this measure will reduce the time taken to get planning consent down to just one year, as it can currently take up to four years. This is a bold aspiration as the government does not have overall control of the complete process — decisions could still be referred to judicial review.

Plans were also reported in The Telegraph to expedite the building of new nuclear power plants. However, there are questions about how much time can realistically be reduced, given all the processes and approvals needed.

As part of the mini budget, Kwasi Kwarteng also announced plans to accelerate new roads, rail and energy infrastructure. By introducing new legislation and streamlining environmental assessments and regulations, it's hoped that approval times will be reduced — in 2021 it took 65% longer to get consent for major infrastructure projects than in 2012.

Will the adoption of data analytics and digital transformation help the energy sector?

The digital transformation of construction and increased use of data analytics can help the energy sector speed up the delivery of projects whilst ensuring quality isn’t compromised.

Data analytics can support teams to understand risks better, allowing mitigation as well as helping to harness previous experience to set more-informed budgets.

Modern methods of construction/offsite manufacture can enhance quality and decrease on-site labour requirements. This may be particularly beneficial to the energy sector, where projects are often in remote locations. Robotics and other on-site technology can also support this, reducing labour requirements during construction and helping to overcome worker and skills shortages.

Automated processes can make design times more efficient, focused and help find the optimum design solution.

Lastly, technology can also assist with inspections and health and safety procedures, improving efficiency and making processes safer. This may be especially useful for components that are hard to access or are in challenging environments, such as offshore.

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