Michael Pascoe: Renewables construction about to double in another inflationary pressure

Construction of renewables in Australia will stretch the existing workforce, Michael Pascoe writes.

Construction of renewables in Australia will stretch the existing workforce, Michael Pascoe writes. Photo: Getty

The good news is that renewable energy construction, already flying, will have a rocket under it over the next three years, doubling in size and becoming the biggest growth contributor in the Australian construction industry. 

The bad news is the same as the good news as the surging demand for renewables skills and materials will be competing with increased resources industry and transport construction. 

That means already sharply higher prices will continue to rise, even though residential construction inflation is finally calming.

The most obvious immediate question is where the workers might be found. Talk of reducing immigration doesn’t gel with the need to get the job done. 

A new report by industry forecasting company Macromonitor finds renewable energy construction soaring from about $10 billion this financial year to $20 billion in 2026-27.

And that is in constant 2021-22 dollars. Add on your guess of the construction inflation rate to get nominal dollars. 

In percentage terms, renewable construction growth has been faster over the past three years, jumping from $4 billion in 2020-21 to $10 billion this year, creating strains along the way, but the much bigger scale of the next three years will have sharper repercussions for labour costs. 

Macromonitor sees wind energy construction taking the most dollars over the three years, but there is a sharp rise in spending on batteries, solar and transmission as Australia deals with closing coal-fired power plants and reducing energy emissions. 

The near-doubling in renewables activity comes at the same time Macromonitor is counting a three-year upturn in resources construction “with a particularly large increase in gas construction”.

The resources construction peak of about $36 billion (constant dollars) is expected in 2025-26, the upturn having started last financial year with $25 billion.

Meanwhile transport infrastructure spending is still growing with a real increase of 6 per cent over the next two years, according to Macromonitor director Nigel Hatcher. 

“The saving grace, in our forecasts, is that we expect a decline in non-residential building work, and we also don’t expect much more growth in transport infrastructure from here,” he said. 

Mr Hatcher is hopeful construction inflation will slow to about 2.5 to 3 per cent per annum over the next two years. 

“The problem is that costs are already very high after the spike of 2021 to 2023. So, it’s increasing further from a high base.”

Residential construction is flat – as shown in both Reserve Bank and Treasury forecasts for the year ahead.

Those two bodies diverge sharply in their forecasts for the following year, though, the RBA tipping meagre 1.8 per cent growth while Treasury is guessing a brave 6.25 per cent. 

Macromonitor expects the value of non-residential building work done to drop 10 per cent next calendar year and a bit more in 2026.

“This is due to project completions and the effects of high interest rates and a slower economy – affecting demand for commercial and industrial space,” Mr Hatcher said.

That should provide some relief from inflationary pressure, but the growth elsewhere in construction swamps that decline, resulting in 11 per cent growth in real terms to the peak in 2027. 

Now, if we can just find the workers …

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