CoreLogic data records show a surge in renewable energy projects - and a boost in the mining sector.
Infrastructure projects driven by state and territory governments have dominated construction over the past 12 months. CoreLogic data suggests infrastructure projects driven by state and territory governments have dominated construction over the past 12 months. These large scale projects have offset declines in construction activity, as private sector capital formation has fallen since the collapse of iron ore prices in 2014.
However national accounts data suggests the decline in private capital formation is bottoming out.
In the private sector, CoreLogic construction records show a surge in renewable energy projects. In the year to June, CoreLogic captured $15.5 billion worth of new proposals in wind and solar initiatives. This equates to over 1 in every 10 dollars in Australia’s construction pipeline coming from renewable energy initiatives.
The total construction value of renewable energy projects in the pipeline increased threefold from the year to June 2016, according to CoreLogic construction data.
A proposal captured in June comprised most of this value: an $8 billion windfarm off the coast of Gippsland in Victoria. Led by Offshore Energy PTY LTD, the project is currently undergoing a feasibility study.
There were over 100 solar energy related development applications in the 12 months to June 2017, including nearly 60 new solar farms, including 20 in NSW and 19 in QLD. The largest scale project is a $660 million, 8 million m2 solar farm, located approximately 7km north-east of Port Augusta in South Australia. Even Adani (better known for coal projects) is getting behind renewable energy, with a $250 million solar farm in Whyalla.
Meanwhile, the construction value of mining related projects has increased 30% in value over the year to June. This is against a back drop of a 34.7% annual growth in coal prices in USD terms, and the base metals index increasing 18.6% over the same period.
One of the strongest performing materials over the year has been lithium, with a 21.3% increase in the year to June in USD terms.
Ironically, extraordinary demand in the commodity is largely being driven by speculation around the delivery of lithium ion batteries, which use lithium as a component in the storage of solar-generated energy.
Alongside $6.3 billion in solar project proposals over the year to June, Tesla’s Elon Musk recently won a contract to establish the world’s largest lithium ion battery in South Australia.
Australia produced 74,000 tonnes of lithium in 2016, and had estimated reserves of 2 million tonnes at January 2017. Australia has nowhere near the lithium resources of South America or China, but has other advantages for trade, such as ease of doing business. The construction pipeline saw over $1 billion in lithium related projects over the year, the highest of which was a $400 million processing plant at Kwinana, Western Australia.
Trading in Lithium can be somewhat tricky, because it currently does not exist in major commodity markets. This means it cannot be purchased in futures contracts, where a pre-determined price is agreed, but the commodity is delivered and paid for at a later period. Therefore, renewable energy initiatives may be impacted by price volatility over construction periods. If demand for lithium pushes prices too high, this may present a challenge in project completion for some developers.