Electrical services industry to experience long-term growth

From the rollout of the national broadband network (nbn) to the uptake in renewable energy projects, the electrical services industry is expected to experience market growth in the coming years, according to a report from IBISWorld.

Industry revenue is predicted to increase at an annualised 2.7% over the five years through 2023–24, to $22.8 billion. This is good news, as it follows a challenging past five years that have seen decreasing demand from key building markets and subdued household spending.

Current state of the industry

The report stated that industry revenue is projected to decrease at an annualised 1.4% over the five years through 2018–19, to $19.9 billion. This includes an anticipated 4.4% drop during the current year, due to the decreasing demand from residential building and infrastructure markets.

Anthony Kelly, Senior Industry Analyst at IBISWorld, explained, “Demand for electrical services has deteriorated in recent years due to the adverse trends in the construction of non-building infrastructure, such as mineral and energy developments, electricity generation and transmission, water and sewerage infrastructure.

“The current slump in residential building construction is also likely to have severely affected the demand for electrical wiring work on new housing along with renovations and repairs to existing dwellings.”

He said there was likely a solid demand for the maintenance and upgrade of existing infrastructure and industrial facilities. This, as well as electrical work on the nbn rollout and renewable energy developments, should support the industry’s short-term performance.

According to Kelly, the nbn rollout “generated demand for electricians to work on the connection of cabling to buildings and the optic fibre rollout to nodes and transmission towers. This work tends to be subcontracted through the local Tier 1 contractor and is typically undertaken by larger electrical firms.”

Large industry players such as Downer and UGL (CIMIC) are already involved in the rollout of the nbn and the national 4G network, and it is expected to continue to drive demand for industry services over the next two years.

Future areas for growth

Although demand in the residential building market will likely contract further in the short term, the report said “demand for electrical contracting services is forecast to strengthen across most building and infrastructure markets from 2020–21 onwards”.

During these challenging market conditions, many contractors chose to specialise in niche markets such as IT cabling, renewable energy and home automation to remain profitable.

These are supposedly key areas for growth or increasing demand over the next five years, predicts Kelly. He particularly pinpointed “the supply of home and business automation through C-Bus cabling and sophisticated Wi-Fi systems, and the implementation of energy auditing of existing buildings, industry equipment and processes, with the view to optimising energy consumption and cost savings”.

“There are also some opportunities for firms specialising in the implementation of renewable energy for homes, businesses and communities as well as work on co-generation facilities for industrial and commercial premises.”

More independent operators are also expected to enter the industry in specialist markets, and employment levels will rise. The report found industry employment is projected to increase by an annualised 0.3% over the 10 years through 2023–24.

An employment boom is already being seen across some parts of Australia. For example, a report by Green Energy Markets found that investments in wind and solar farms have provided 5169 job-years of employment in Victoria and 5156 in Queensland.

In terms of employment opportunities in different Australian states, Kelly explained there is a “slight skew in demand for electricians trained for working on high-voltage equipment and instrumentation on mining and resource projects in Western Australia and Queensland. This includes maintenance of existing facilities. Also strong demand for tradespeople specialising in railway infrastructure, including wiring and signalling for the major rail projects in Melbourne and Sydney over the next five years.”

The three most populous states, New South Wales, Victoria and Queensland, account for about 78% of total industry enterprises and 80% of the larger employer enterprises.

Challenges or opportunities?

To ensure a high level of safety and quality, the electrical industry is subject to stringent regulations and standards as well as registration and licensing controls at the state and territory level. These are considered barriers to entry into the industry, especially in terms of specialisation, as this would require a certification to work in each specialist area and it may differ depending on the region.

“Qualification requirements vary between jurisdictions and can be surprising; for example, in Victoria there is special certification to work on high-voltage wiring, but you don’t have to be an electrician!” Kelly said.

Despite these restrictions, regulations can actually stimulate demand in the industry, with the report particularly noting the National Electrical and Communications Association’s (NECA) call to introduce mandatory home safety electrical audits. This would ensure wiring and electrical appliances in existing housing stock comply with the Australian Building Code (ABC) and the Australian and New Zealand Wiring Rules. NECA stated that audits should be carried out by a qualified and licensed electrician, and the Transfer of Title would not occur until a proof of audit was produced.

IBISWorld also highlighted the potential benefits that could come from the requirement for existing buildings to meet energy-efficient standards (NABERS). It stated, “There is a role for electrical contractors to regularly monitor existing electrical appliances and to upgrade installations such as arc fault detection devices (AFDD) that can automatically trip a circuit or safety switches, such as residual current device (RCD) that protects against electrocution.”

The key to success

The report suggested it is becoming more attractive for new operators to enter the market and existing workers to set up their own businesses.

The industry is highly fragmented, with about 98.6% of industry enterprises consisting of a workforce of fewer than 20 people, including 46.8% of businesses with no paid employees. No single company holds more than 5% of the total industry market, but some of the larger diversified construction firms have a significant industry presence. While IBISWorld suggested the industry may become more concentrated over the next five years, it still does not expect any firm to become a major player.

So what is the key to success? 250 key success factors were identified by IBISWorld, but the report narrowed it down to the six most important. These were: the ability to change operations according to market demand; the flexibility to change which market the firm operates in; having a good reputation; quickly adopting new technology; having contacts in key markets; and the ability to compete on tender.

Regarding advice on how to succeed, Kelly stated businesses should aim to “maintain a solid cash flow and ensure the business has systems in place to ensure on-time payments of invoices and purchase orders. To enter a diverse industry such as electrical contracting it may be beneficial to specialise in the higher technology growth markets, such as home automation or industrial instrumentation or auditing.”

The report described the electrical services industry as “one of the largest specialist construction industries” and activities include installing and maintaining basic electrical circuitry on buildings and industrial equipment, installing electric lights, power facilities and instrumentation.

The report can be purchased here.

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