But inconsistent government intervention risks shorting out the transition

The past 12 months have seen increasingly frequent direct interventions in the energy market. Everything from establishing government-owned corporations to direct investments are increasingly becoming normalised. As the energy transition becomes progressively urgent, government intervention in the energy market is an inevitability. But, with 40 per cent of participants less likely to invest in energy transition infrastructure off the back of recent interventions, the question now turns to how, when, and where government intervention is best placed to provide certainty and direction to the market, without crowding out private investment, inadvertently undermining Australia’s decarbonisation agenda.

The transport pipeline remains strong, but opportunities for private sector participation are declining

The pendulum of private investment is beginning to swing away from traditional investment sectors such as transport – which has been a focal point for private capital over the past two decades – towards social and energy infrastructure. This year, investor preference for every traditional transport infrastructure class – including road and rail – registered their lowest levels of interest in the Australian Infrastructure Investment Monitor’s history. With a number of significant transport projects now at the tail end of opportunities for the private sector to participate, such as Sydney Metro, WestConnex, NorthConnex and Cross River Rail, investors are looking at where the next opportunities in transport will arise.

However, despite many questions being raised in the industry – and within this report – there remains a relatively robust pipeline of publicly-funded transport infrastructure, albeit lower than at its peak. The question now turns to how this forward pipeline can evolve to leverage private capital and alleviate stressed government balance sheets.

The forward pipeline will likely be bolstered with a growing regional pipeline of transport projects, as the energy transition sees a geographical shift of large-scale projects being delivered in regional locations. Regional transport projects will be increasingly required to provide the necessary infrastructure to facilitate the movement of materials and people to these locations, which have not before had to contend with projects of such significant scale.

While the cycle of investment in asset classes is inevitable, governments across the country will need to carefully balance their pipeline priorities to ensure we have the necessary infrastructure to accommodate forecasted population growth. This includes ensuring we provide enough transport services in both urban and regional locations and avoid landing in an infrastructure deficit in 15 years’ time.

Demand pressures and supply constraints continue to weigh in on delivery

Ongoing capacity and supply chain constraints, coupled with skilled labour shortages, have contributed to the Australian infrastructure market hitting a delivery ceiling.

The delivery of the eye-watering energy transition and social infrastructure build – all with the transport ‘megaproject’ tail still wagging – will require coordination and collaboration between government and industry. With 44 per cent of participants agreeing they would like to see the pipeline resequenced, governments will need to ensure they balance delivery timeframes with the sector’s capacity to deliver projects within the current environment of labour and skills shortages.

With pipelines under review and governments reaching their fiscal capacity, we need to look to the other sources of capital

With three wholesale reviews currently underway, and the Inland Rail review completed earlier this year, the Australian infrastructure market is showing signs of uncertainty. Federal and jurisdictional infrastructure programs are facing increased interrogation, with reviews considering a number of infrastructure projects and their remit. Ensuring the infrastructure pipeline remains both sustainable and deliverable over the longterm will require coordinated government effort.

With governments staring down the barrel of soaring debt and an uncertain economic outlook, leveraging private capital to deliver the infrastructure pipeline will be essential. Infrastructure Partnerships Australia has identified 52 greenfield projects across the country – representing $86 billion worth of opportunity – suitable for governments to engage private capital on.

Leveraging this capital will be key to delivering the infrastructure pipeline over the coming decade to avoid landing in a future infrastructure deficit. With governments and industry mobilising on the transition, getting the market settings right will be essential to deliver the best outcomes for taxpayers and ensure we have the social and transport infrastructure we need to cater for Australia’s growing population.

Infrastructure Partnerships Australia thanks each participant for their contribution to the eighth Australian Infrastructure Investment Monitor.

Adrian Dwyer
Chief Executive Officer – Infrastructure Partnerships Australia

David Donnelly
Partner – Allens

Kip Fitzsimon
Partner – Allens