Thursday, February 29, 2024

Q&A: Digital transformation and energy transition constrained by lack of infrastructure – Digital Journal

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China is the world’s top producer of wind and solar energy – Copyright AFP/File GREG BAKER

Energy transition, digital transformation and the need for civil infrastructure including buildings is placing the global economy in a state of change that we have not seen since the (first) industrial revolution. The amount of engineering and construction work needed by these efforts is considerable. However, a fully digital economy and related net zero goals may never see the light of day if the construction industry does not fundamentally change the way it functions.

To better understand the situation and provide some insight into how to address this challenge, Digital Journal sat down with Todd Zabelle, author of “Built to Fail: Why Construction Projects Take So Long, Cost Too Much and How to Fix It” (Forbes Books) to learn more.

Digital Journal: How would you describe the scope of digital transformation and energy transition from a capital project perspective?

Zabelle: To get the world to net zero carbon by 2050, BloombergNEF in its ‘New Energy Outlook 2022’ estimates required expenditure of over $5.5 trillion per year up to 2030, increasing to $7.4 trillion in the 2040s. During COP28 McKinsey & Company announced that we are not moving fast enough and have increased the amount of investment needed to achieve net zero to $9 trillion per annum from now until 2050.

This is in addition to a recent study from the International Energy Agency that revealed between now and 2060 the global building floor area will double, and just the amount of building floor space required will be equivalent to building an entire New York City every month for the next 40 years.

DJ: Those numbers are staggering. Why is so much infrastructure required, and why will it cost so much?

Zabelle: Well, for starters, the construction industry is known to be stuck in the past, slow to change and show little if any gains in productivity since the early 1900’s. More about that later. For now, let’s explore the interrelationship between digital transformation and energy transition.

Achieving digital transformation – including the use of recent developments in AI – requires massive computing power and storage capacity. To achieve this, we must construct an astounding amount of physical infrastructure, such as communications networks and data centers, at a quantity and pace never attempted before. We must also provide the electricity to power this infrastructure. So, we need to build a massive amount of power generation and transmission capacity, while at the same time navigating a transition from hydrocarbons to greener sources of energy.

Which brings us to significant increases in demand for basic materials such as copper, steel, concrete, glass, fibers, plastics, and the skilled labor that will be required to do the work. By any estimate, the available supply of building block materials such as lithium, copper, iron ore and rare earths cannot meet the projected demands. So, new mines and refining facilities will also be needed.

For example, the recent World Bank’s Climate Action report charts the 2050 demand for 15 minerals from energy technologies as a percentage of 2020 production. At the top of the chart are increases in demand for lithium (500%), Cobalt (460%), Graphite (400%) and Indium (192%). Therefore, we not only need to build the infrastructure needed for digital transformation and energy transition, but we also must build the mines needed to extract the materials to support these initiatives.

DJ: Aren’t there major issues relating to the supply chains of those commodities and rare minerals? What other issues are at play?

Zabelle: Yes, and supply chain issues are still a major challenge, but they are not limited to the raw materials. We also need to consider the availability of equipment required by both digital transformation and energy transition. And even if you can get it, (the lead time has quickly gone from weeks or months to years of backlogged orders), there is now growing resistance to having these assets – like data centers – built in “my” community aka NIMBY (not in my backyard), as well as increased cost of capital and skilled labor shortages.

All of this is leading to a drastic increase in cost and schedule overruns across all aspects of construction.

DJ: I thought project cost and schedule overruns are common and at this point almost expected. Is there more to this story?

Zabelle: The construction industry operates using an outdated model – created at the turn of the last century – compounded by a huge emphasis on administration rather than how to design, make and build things. The technical framework of Scientific Management developed in the 1910’s by Frederick Taylor and translated to construction by Daniel Hauer remains the primary mode of thinking. The widespread adoption of idealistic “project management” has occurred at the cost of understanding the more practical aspects of delivering a capital project: technical design, fabrication and assembly, logistics, site construction and commissioning.

This oversight limits the ability to use emerging technologies including IoT, robotics and autonomous vehicles, to name a few. Being unable to leverage these technologies reduces the skilled labor pool as construction remains hard work with little if any innovation. Why work in construction when you can work for a tech company?

DJ: Hasn’t the industry recently turned to pre-fabricating components and modules offsite?

Zabelle: Like many industries, construction finds itself looking for a “silver bullet” to address its challenges, and some believe it to be moving work offsite – now known as “industrialized construction.” In response, investors, owners and contractors are working hard to leverage this opportunity. But these efforts often suffer their own demise. We only need to look at Katerra which failed after over $2 billion in investment, and Westinghouse, which had to file for bankruptcy due to cost overruns at two nuclear projects that bet on moving work offsite to reduce cost and schedule duration.

DJ: So, if that’s not the silver bullet, what recommendations do you offer to owners, contractors and others involved in the design and construction of digital transformation and energy transition infrastructure?

Zabelle: The engineering and construction industry must rethink the current framework about how to deliver the projects needed to enable digital transformation and energy transition. These include all of the players in the value chain starting with owners, developers, their design firms, manufacturers and contractors as well as academia and even government.

If we are going to achieve digital transformation and energy transition, the construction industry needs to 1) relax its over-reliance on administration and 2) address its under-investment in managing actual work (the production) and 3) leverage available technologies developed and used by other industries. Owners will benefit from more collaborative forms of working with contractors and suppliers, contractors must find ways to transform their mental and business models to focus on managing production while academia must align their curriculum to the new paradigm.

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