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Infrastructure in 2014: The multiplier effect of investment

The positive economic impact of infrastructure has long been recognised. While many agree that the Victorian period was a golden age for investment in infrastructure, the UK is now on the cusp of a similar era of growth and reinvention.

“Infrastructure has always been about moving resources to where they are needed. Today, Britain’s most important resource is people, so the means to move them around quickly, safely and efficiently is more important than ever,” explains URS group managing director for Europe, Middle East and India (EMI) John Horgan.

After nearly seven years of recession, the civil engineering industry is poised to enter a new phase of widespread activity.

Earlier this month the government issued the new National Infrastructure Plan, containing information on more than £377bn of planned public and private sector infrastructure investment, alongside the Infrastructure Pipeline.

Infrastructure Investment infographic

Source: Paul Weston

Infrastructure investment as set out in the National Infrastructure Plan


There is cross-party political consensus that the country’s infrastructure must be modernised and transformed to meet the needs of an increasing population and to support economic growth.

“In 2014 the economy will improve and this will put pressure on the infrastructure that underpins trade, including all forms of transport and power,” says URS EMI senior vice president Jerome Munro-Lafon.

“It will become more obvious that steps need to be taken to foster growth.” He adds that any spare capacity on Britain’s roads and railways, as well as at airports and in the National Grid, will be quickly used up as the country returns to top economic speed. “The public may even start asking why more wasn’t done when the economy was slower,” he says.

Across the country, investment in infrastructure is regenerating communities. Borders Rail is a prime example. Delivered by Network Rail in partnership with Transport Scotland, with URS as the main civil and structural design consultant to contractor Bam Nuttall, Borders is the longest new domestic railway to be constructed in Britain for over 100 years.

Closed in the sixties as part of a wider series of cuts to Britain’s railways, the historic Waverley Line connected the Scottish Borders to the national rail network. More than a restoration of the original route, Borders Rail will include 48km of new track and seven new stations. As well as a driver for local regeneration, it is a catalyst for benefits to the wider Scottish economy, including inward investment, business development and housing opportunities. New communities are developing along the route, and with them numerous opportunities for employment, business, tourism and leisure.

High Speed 2 (HS2) is another important example of how infrastructure can make a profound economic impact. A recent report by KPMG estimates that the overall benefits to the economy of HS2 could be over £53bn.

Similarly, London is witnessing an infrastructure renaissance, with significant projects such as Crossrail already well underway, and the £563M capacity upgrade at Bank Underground station set to transform the passenger experience.

URS is involved with both schemes, as well as the UK’s newest deep-sea container port, London Gateway, which is another example of the economic impact of infrastructure.

According to a study by Oxford Economics, the port will create 36,000 jobs and contribute £3.2bn annually to UK GDP once fully operational.
Described by roads minister Robert Goodwill as “the lifeblood that keeps our economy going”, roads continue to play a dominant role in creating jobs and getting products to markets.

The government last month announced that it would invest more than £1.9bn in Britain’s roads in 2014, as part of a total investment of £4.3bn in 209 schemes, which together are expected to boost the economy by more than £18.8bn. URS is the designer for two of the three managed motorway accelerated delivery pilot projects.

Aviation

With Sir Howard Davies and the Airports Commission due to report later this month on shortlisted options for improving capacity, 2014 is going to be a year of debate in the aviation industry.

A host of proposals have been submitted, including Runway Innovations’ inventive Heathrow Hub concept. It advocates extending Heathrow’s two existing runways so that capacity is almost doubled, with URS as technical advisors. In Italy, meanwhile, the country’s largest airport at Fiumicino, 32km from the centre of Rome, is about to begin a multibillion pound expansion, based on a masterplan by URS.

Fiumincino airport

Fiumincino airport: Investment to boost passenger capacity


The investment will increase capacity to cater for passenger numbers that are predicted to increase from the current 35M a year to 100M by 2044.

“The masterplan includes two new runways, which will take the airport’s total to five, and a brand new 650,000m2 terminal that
will be able to handle 50M passengers per year under one roof,” says URS UK director of aviation Sue Thomas.

“The main driver is tourism,” she explains. “Tourism is vital to the economy and its growth is currently being constrained, inbound and outbound, because Fiumicino is at full capacity. There are also aspirations to create a southern European hub.”

Detailed design is due to start in 2014 and construction work for client Aeroporti di Roma is expected to take seven to eight years.

 

A long-term vision for Britain’s infrastructure is now needed, according to URS UK environment and planning head of strategy Tony Cross. “It is government’s responsibility to dictate what infrastructure it requires to run the country. I am sure the government is close to recognising the need for an apolitical group to set out exactly what that requirement is,” he says. “We need a sequence of activity.” The recently published Labour-commissioned Armitt Review   explores ways to address this through a long term plan for infrastructure, he adds.

Any central plan would have to take into account how various markets actually develop, says URS UK head of infrastructure, economics and planning Rory Brooke.

“It comes down to a matter of judgement, and judgement can sometimes be flawed. Look at some of the inner city tower blocks and urban highways of the 1960s – in hindsight these are seen as poor investment decisions.”

Brooke suggests that what is needed is a flexible framework for infrastructure investment that encourages competition and allows the best – and sometimes unforeseen – solutions to emerge.

“Currently there is a big debate about the future of freight distribution,” he notes.

“Now that London Gateway port has opened, will the UK move towards a more port-centric distribution model rather than the traditional focus on the Midlands golden triangle? It is hard to predict what will happen; the market will decide and this makes it difficult to impose a central plan.”

Munro-Lafon adds: “The fundamental issue is that large, strategically important infrastructure projects – with a long gestation period before delivery – fall outside private finance. The railways were built by the private sector in the Victorian era and the companies all failed. To a great extent, wide scale infrastructure has to be built by a large, central organisation to take account of market failure.”

He adds that we remain hampered by the “20th century aberration” within which decisions are driven by the economics of supply and demand without due consideration of the wider social impact. “That is not what we want now. We don’t buy infrastructure purely on cost; for instance we might want a motorway but we won’t want an aesthetically displeasing one that doesn’t respect the natural environment.

“National infrastructure should be something we are all proud of,” he adds. “Take Hoover Dam for instance. As well as being a transformational piece of infrastructure, it generated huge socio-economic benefits and to this day remains a popular tourist attraction.”

Here in the UK, buildings can also play a powerful role in transforming communities, as evidenced by the award-winning Brent Civic Centre in London, one of the UK’s greenest public sector buildings. A key component of Brent Council’s regeneration programme, the multi-use complex includes a range of facilities that will benefit local residents and attract business to the borough. It is an example of how civil society can provide feedback, local councils can enact sustainable development goals and private sector firms – including URS, Skanska, Hopkins Architects and Turner & Townsend – were able to design and build a truly sustainable building.

This link to widespread buy-in means affordability for the public becomes even more important. If people are asked to pay for infrastructure via increases in taxes, fares or bills, schemes need to be scheduled so that these increases can be planned and managed. The mid to long term benefits to the economy and to the population need to be clearly measurable and well explained.

“It will be about prioritising,” says URS EMI business development director for infrastructure Derek Holden. “Establishing appropriate cost benefit analysis models will be key to determining which future projects get the green light. The ones that will be successful will probably look further ahead than standard analysis dictates. Our railways have been around for almost 200 years; projects on this scale really should be assessed on a longer term horizon. Then the benefit really mounts up.”

As Horgan concludes: “Transformational infrastructure that will secure the nation’s competitive standing and improve the lives of future generations requires a long-term, cross-party vision. Our industry is poised, ready to deliver, but we need a strategic approach to infrastructure that extends beyond the five-year cycle.”

Power

Concerns about energy supply will grow as the UK’s economy improves, increasing the need for new investment in generating capacity.

The developing deal with EDF to build a new nuclear plant at Hinkley Point is a promising step forward for the future of nuclear energy in the UK in general, but it alone will not address the full scope of the capacity margin, particularly in the short term.

The Energy Bill is expected to receive Royal Assent by Christmas, and electricity market reform legislation contained within it should lead to a surge of activity, including investment decisions in 2014 regarding new infrastructure.

The future certainty on pricing that the legislation introduces, particularly for nuclear and renewables, will bolster the market confidence needed to plan and put in place new sources of generation that will replace the old coal fired stations that are being decommissioned.

Until now, uncertainty about pricing has held up new investment and led to concerns, most recently voiced by regulator Ofgem, that there could be power shortages by as early as 2015.

Likewise, the £32bn investment required to update the country’s ageing transmission network, refocusing it to connect up with modern sources of generation, increasingly in coastal locations, is likely to ramp up in the wake of the Bill.

“As we go into recovery we expect demand to increase just as the older power stations are being retired,” says URS Europe, Middle East and India power business line director Martin Land.

“We need to bring the right mix of investment on stream and start to do it quickly.

“The electricity market reform legislation has good cross-party support, and with it the government has created a national policy that will enable investment to go ahead.”

The challenge for the infrastructure sector will be to build the new facilities needed in a cost effective and timely manner so the capacity required can be afforded.

“The market must stop overheating,” Land says.

That means owners, equipment vendors and contractors all working together to good effect, with consultants providing the ‘glue’ to facilitate collaboration. Longer term, new nuclear and more wind, wave and especially tidal sources will provide power for the UK.

The decision to cancel construction of the Atlantic Array offshore wind farm in November should not be taken as an indication that wind power is in trouble, Land adds.

“Government has enabled an excellent set of conditions for nuclear and offshore wind,” he says.

“In terms of offshore wind, eight large schemes have been enabled, but there will be attrition in terms of all the plans put forward. That is normal and not everything mentioned will go ahead.”

Until the new renewables schemes come on stream, however, the focus will have to be on new clean gas stations to tide the
country over in terms of power, with gas provided from the North Sea, via pipeline connections to Norway and continental Europe, and from shale gas.

“This mix of resources will help smooth our future.

“We need to look at increasing power interconnectors too now,” Land says.

“This can create further flexibility for the UK, supporting security of supply, and will give us wider options than relatively expensive liquefied natural gas imports.

“It’s so important that we come together to build a competitive market for power across Europe, which is affordable for both the consumer and UK industry.”

 

 

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