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IPW: New Zealand delivery costs, and global renewable energy set to accelerate

24 January 2023

In this week’s Infrastructure Policy Watch, New Zealand targets lower infrastructure costs, while the IEA forecasts huge rise in renewables. 

IPW: New Zealand delivery costs, and global renewable energy set to accelerate
Concerns about energy security will mean ‘unprecedented’ growth in renewable energy. Image credit: Shutterstock

New Zealand targets productivity gains

It costs more to deliver complex, large-scale infrastructure projects in New Zealand than other comparable countries.

A new report by the New Zealand Infrastructure Commission/Te Waihanga, makes recommendations for improving efficiency in its infrastructure sector.

Peter Nunns from Te Waihanga explained for the ICE why the commission launched the research.

New Zealand faces a large infrastructure deficit. It has a long-term strategy to close that gap and plans for particular challenges, such as climate resilience.

However, it will need to deliver major projects at a lower cost to meet those objectives.

The new report explores why infrastructure costs vary between countries. Factors include input costs, construction productivity, physical environment and policy and institutions.

New Zealand, for example, has a challenging geology. This makes motorways, tunnels and underground rail particularly difficult to deliver efficiently.

However, the commission says the government also needs to be more sophisticated when making investment decisions.

It says solutions to raise productivity and reduce costs should include:

  • strengthening independent advice for prioritisation;
  • establishing a pipeline of future investment;
  • being open to new technologies and methods;
  • more efficient planning and consenting systems; and
  • ongoing infrastructure delivery cost benchmarking.

ICE’s view:

Getting value for money in infrastructure delivery has been a long-term challenge for New Zealand.

The need to improve efficiency has become more critical as rising inflation has driven up construction costs worldwide.

The ICE and Te Waihanga discussed global solutions to this problem in a recent presidential roundtable.

New Zealand has ambitious investment plans as it seeks to reduce its infrastructure deficit.

How the government responds to Te Waihanga’s recommendations will be crucial for how effectively it can deliver those objectives.

But rising costs are a global issue and there are important lessons to help other countries identify problems and put in place solutions.

The ICE will be monitoring the report’s impact as part of our Enabling Better Infrastructure programme.

The world set for ‘unprecedented’ renewable energy growth

Concerns about energy security will mean ‘unprecedented’ growth in renewable energy deployment over the next five years, according to the International Energy Agency (IEA).

The IEA’s latest forecasts suggest:

  • renewables will grow by almost 2,400GW between 2022-2027, equal to the entire installed power capacity of China today;
  • the world will add as much renewable power in the next five years as it did in the whole of the past 20 years;
  • China, India and the US will all double capacity in the next five years, accounting for two-thirds of global growth; and
  • renewables will replace coal as the largest source of global electricity generation in 2025.

This builds on analysis in the IEA’s annual World Energy Outlook Report. The IEA’s Simon Bennett outlined its findings for the ICE last year.

Many countries have strengthened policies and investment in renewable energy over the last year.

The acceleration is being driven by the energy crisis caused by Russia’s invasion of Ukraine. Governments are also stepping up their decarbonisation targets.

Key drivers have been China’s 14th Five-Year Plan and market reforms, the REPowerEU plan and the US Inflation Reduction Act.

However, the IEA’s analysis suggests global renewable capacity could grow by an additional 25% if governments fixed current policy and financing challenges.

In advanced economies the barriers are typically implementation related, particularly permitting for new projects and expanding grid infrastructure.

Elsewhere, obstacles include policy uncertainty, weak grid infrastructure and limited access to affordable finance.

ICE’s view:

The current energy crisis is an opportunity for governments to accelerate the push towards low carbon energy systems.

Research by the International Renewable Energy Agency (IRENA) has highlighted the falling cost of renewables in recent years.

The IEA’s forecasts show the benefits of when governments set ambitious targets and back them up with long-term policy visibility.

This is helping to drive public and private investment to capture the opportunities of renewable energy.

These include long-term energy security, lower consumer costs and mitigating the impact of climate change.

Last year the UK held its largest ever renewables auction, allocating 11GW of new renewable power projects.

However, there is still more that governments could do to accelerate deployment of renewable technology.

In case you missed it:

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  • David McNaught, policy manager at ICE