Market risks and opportunities as UK construction navigates energy transition

Perhaps unsurprisingly, businesses that embrace the challenges posed along the journey and manage risks effectively will likely be better positioned for growth and success.

Construction organisations navigating the energy transition will require to comply with new and stringent regulations on construction practices and materials for use in construction projects. The regulatory framework for the construction industry is fast evolving, responding to the UK government’s climate change targets.

There will be increasing cost pressures for businesses. Sustainable construction methods and the transition to them often involve higher upfront costs and can be more expensive to implement than more traditional methods. There may also be a need for specialised skills and training, driving up labour costs. These could have a disproportionately high impact on smaller organisations and companies operating on tighter margins.

The energy transition can also bring supply chain disruptions. In addition to the cost pressures, sourcing sustainable materials and technologies may be challenging particularly if demand outstrips supply of satisfactory products. This could lead to potential delays and further costs, impacting project timelines and exposing projects to supply chain disruption.

Businesses should anticipate risks flowing from technical uncertainty. New technologies to support the switch to more sustainable approaches on project delivery in the industry can of course offer potential benefits, but the rapidly-paced technology development processes can bring challenges in integration and alignment with existing processes. The fast-moving nature of technology advancement also means that today’s cutting-edge solutions could become obsolete quickly, potentially reducing the appetite for investment.

Market volatility is another risk facing the industry. As demonstrated by some of the recent and most extreme fluctuations in energy pricing, policy changes and international trade dynamics can create turmoil in the global energy market. The energy transition is influenced by global economic and political factors, and construction organisations must be agile and resilient to navigate that market volatility.

Opportunities in the energy transition

The changes brought about by the energy transition can present construction companies with abundant opportunities too.

Driven by both regulatory requirements and the desire of consumers to participate in efforts to reduce climate change risk, there is a growing demand for sustainable buildings, buildings that are energy-efficient, low cost and environmentally friendly. Organisations that can deliver green construction, regardless of their size, stand to benefit from this demand.

The energy transition is driving innovation in construction technologies. Advances in areas such as the integration of renewable energy, energy storage solutions addressing security of supply and intermittency issues, and smart building systems offer new opportunities for the industry. By adopting these technologies, construction companies can enhance efficiency, reduce costs, and improve project outcomes.

The energy transition process also brings a great opportunity for new business models to be developed in the construction industry. The rise of energy-as-a-service models is a case in point. Models of this type allow construction organisations to offer integrated solutions that include construction, maintenance, and energy management. These new business models can create new revenue streams and significantly enhance customer value, while contributing to reducing harmful emissions risks.

What next for construction companies?

There are certain steps construction companies should consider to embrace the opportunities the UK’s energy transition can offer and mitigate the risks due to the systemic changes the energy transition inevitably involves.

These include investing in training and development, collaborating and forming partnerships, focusing on innovation and monitoring market trends closely.

To keep up with the pace of transition and meet all the requirements, companies need a workforce that is able to operate at a level consistent with what is needed for sustainable construction delivery. Investing in training and development of workers will help them stay ahead of regulatory requirements and technological advancements.

Companies should consider collaboration with other stakeholders, including suppliers, technology providers and government agencies. Stronger stakeholder engagement can mean improved capabilities and reduced risks. Forming partnerships with other industry players can also facilitate access to new markets and resources.

In times of change, such as the energy transition, focusing on innovation is key to staying competitive in the market. Considering investment in research and development to explore new materials, technologies, and processes that can improve sustainability and efficiency will support staying ahead of competitors, as will staying abreast of market trends and critical regulatory developments.