With Australia’s power networks changing and relationships between utilities, non-traditional asset owners and the adjacent sectors expanding, the Zinfra Group leadership team is working to provide and deliver on larger and more complex infrastructure projects than ever before. ES&D catches up with managing director Steve MacDonald to discuss tapping into new technologies, opportunities in the transport sector and shaking old habits.
For an industry in the midst of unprecedented upheaval, the need to be innovative has never been so important. Nonetheless, keeping up with changes in workforce practices and technologies, as well as flexibility, is among the biggest challenges facing network businesses.
A year into his leadership tenure with Zinfra Group, Steve MacDonald is looking outside the box for answers, eager to grab onto new opportunities within and on the periphery of the energy sector.
“We have to be innovative, we have to be nimble, we have to embrace issues around mobility and technology that can make things happen faster and more efficiently,” he says.
Of course, asset owners don’t always have the luxury of moving quickly, which is where Zinfra Group comes in.
As a services provider to the utility infrastructure sectors, born out of a number of energy and contracting businesses, Zinfra Group doesn’t have to deal with many of the shackles that exist for asset-ownership companies. In turn, it brings key strengths to the table: workforce flexibility, multi-asset solutions and program management that combines power, water, telecommunications and gas capabilities to deliver across multi-utilities.
With a background in construction and infrastructure services, including 26 years with the Transfield group of companies, Steve knows innovation doesn’t happen on its own. Rather, he’s quick to point out industry needs to put in the systems and processes to support useful change.
“Network businesses know they need to evolve, but their efforts are being hampered by a productivity challenge. There are a lot of practices and skills that have been built up over time and gained significant inertia that inhibit change in regard to new systems, processes, technologies and related new equipment and being open to doing things differently,” Steve says.
“This applies to both the government-owned networks and also to the privatised networks. Businesses will need to be more flexible and open to new and different solutions if they are to add real value for money and provide real innovation into the networks.”
Steve is also quick to acknowledge the industry’s buzzword, “prosumer”, saying energy businesses are having to make provision for, and work with, data-rich consumers who want to add assets or join assets into the network. They also have to adapt and be more flexible to those services being part of the network and, most importantly, they have to do so in a competitive way.
“Energy businesses are becoming more flexible on connections to assets that are potentially developed and funded by owners, as a result we are seeing BOO- (build-own-operate) and BOOT- (build-own-operate-transfer) type schemes emerging in the energy marketplace,” Steve says.
“Prosumers will change the network and, as businesses, we need to evolve and understand how we participate in that change early in the transition.”
ES&D: You’re an engineer by trade and oversee Zinfra Group’s engineering services. Are you seeing the role of engineers in the energy sector evolve as more demands are being placed on the network?
Steve: Absolutely. The biggest change we see is the involvement of engineers in the procurement process. Under a traditional process the asset owner develops the concepts, develops the design, packages it all up neatly and says to the market, ‘please build this’. This approach is disappearing. There are still pockets of it that go on, but more often than not we’re getting design concepts that require early design activity to produce a design and construction solution. This approach relies heavily on value engineering. The result is, you need the skill set internally to be able to respond to these opportunities; to look at the concept, pull it apart and rebuild it more efficiently. This is why Zinfra Group has put in place a Solutions Engineering group to work with clients and potential clients during the development phase to assess options and optimise the engineered solution. This happens a lot more now as asset owners see the benefit of “early contractor involvement” and “design and construct” procurement strategies. It certainly puts more pressure on our engineering group to come up with more efficiencies than they would have previously experienced in traditional delivery approaches.
ES&D: Zinfra Group is building strong relationships with non-traditional asset owners, energy clients and stakeholders in adjacent sectors. How important is it to maintain forward-thinking dialogue with these bodies?
Steve: If you look at where money is being spent in the marketplace, including by governments, there has been a shift in the past year or two towards road- and rail-type infrastructure. Our focus is looking at the utility aspects of those investments. There are a number of light rail projects commenced and proposed at the moment, and the impact they have on power, gas, water and telecommunications infrastructure is significant – you need to be able to redesign, relocate and manage the impact of the utilities activities on the local urban environment. In Europe they have a good term for putting rail in an existing infrastructure; “urban insertions”. For instance, the Sydney light rail has more than 3000 utility clashes requiring a significant amount of innovation and creative solutions to minimise the impact on the community from the utility relocation works.
ES&D: How much work is there for an engineering and services provider in the transport sector?
Steve: We’re talking hundreds of millions of dollars of work within transport sector related infrastructure projects in the next two to three years that require utility-related skills to redesign and relocate affected existing utility services and to provide additional power and other utility services to new transport infrastructure. In these situations you need a service provider that understands utility company requirements across all service types. A company like Zinfra Group, which was born out of a utility asset ownership company, is well positioned as it has the ability to design solutions and the capability to be able to execute those solutions across power, water, gas and telco assets in-house. We find the tier-one contractors, who have the broader build responsibilities, need specialists to partner with to work with the utility asset owners. They need a partner who can understand the utility design issues, utility stakeholder management requirements and the complexities surrounding relocations of utility assets to provide a logical solution. Zinfra Group is active in the transport infrastructure sector particularly in the delivery of power upgrade works and solutions. We see power solutions for heavy and light rail networks as an emerging market for us, and one that we’re very keen to be a part of.
ES&D: Looking forward to a network where a lot of the technology that may be used hasn’t yet been invented, how do we get a network that is flexible enough to embrace emerging technologies while ensuring a safe and reliable energy supply?
Steve: This is the million-dollar question! We are involved in the BOO and BOOTS solutions that are out in the marketplace now. We are involved with companies who want to own and develop their own energy solutions and tap them into the existing networks. Part of what we’re doing is working with these companies to develop solutions for them that not only comply and conform with the network, but also bring some efficiency benefit by potentially introducing new products and practices that the network owners themselves would not have the flexibility to replicate or may find a distraction to their core business.
ES&D: Consumers increasingly want clean energy, but industry needs to make a return on investments. How can suppliers find this balance between cost, energy reliability and emissions levels?
Steve: You’ve touched on a subject that’s dear to my heart. Prior to Zinfra Group, I was leading an infrastructure fund, which invested in clean energy infrastructure assets. I was also on the board of the precursor to ARENA, the Australian Centre for Renewable Energy, having been invited as an industry representative by the Federal Government. So I spent a year or two reviewing clean energy proposals that were being submitted for funding to government. I did get to see a lot of clean energy technologies and solutions that were being put forward by various proponents. Fundamentally, clean energy faces significant economic hurdles. Wind and solar is getting cheaper year-on-year, but regardless of how you look at it, without a price on carbon or some help from a government subsidised scheme it’s still significantly more expensive than traditional energy sources. Today we have a massive backlog of clean energy projects waiting on an outcome of the Renewable Energy Target (RET) deliberations. So, for a start, there needs to be some clear and favourable direction from government to enable the development of the more economical energy solutions around wind and solar. Without that happening, clean energy solutions will become niche energy solutions, reliant on someone being prepared to pay a premium compared to getting energy from the grid. Zinfra Group has been involved in a number of wind farm projects and, at the moment, despite the uncertainty in the RET, we are working with a couple of wind farm proponents to develop their power infrastructure solutions. Our part is to drive the most economical solution possible in order to make the wind farm viable.
ES&D: What about opportunities for off-grid renewable solutions?
Steve: There are opportunities off-grid where the competing energy source is expensive, typically diesel. In some of these cases it may be a more viable solution to utilise a wind or solar clean energy solution. This type of energy solution will become more attractive as battery solutions become more affordable enhancing reliability of the energy solution.
ES&D: Which of Zinfra Group’s current projects do you find particularly exciting?
Steve: We’ve got a project in the Pilbara where we’re providing the high voltage reticulation for an LNG plant. The conditions we work under up there this time of year are incredibly challenging. Most days get over 40°C and the site itself is very remote. There is about 4500, soon to be 7000, fly-in-fly-out workers living on site the camp. It’s a huge site and we’re running the power around the entire site resulting in significant interface challenges. Zinfra Group’s participation in transport projects in Melbourne is also exciting. The power upgrades we are delivering there are significant and will support future capacity increases that are desperately needed. Another exciting project we’re working on is the construction of a new sewer system on the outskirts of Sydney, which is being added to the Sydney water network. We’re effectively providing a sewer system to an entire village.
ES&D: That’s an incredibly diverse portfolio
Steve: It means there are a lot of stakeholders we have to deal with and our programs of work are often complex and dependent on a multitude of third party interfaces. That’s been a challenge, particularly in the Pilbara, but the contracts are going very well. A lot of our focus is on utilities in the traditional utility markets, so opportunities to move into the resources and infrastructure markets are very exciting for us.
ES&D: Australia’s gas network is changing. What implications has this already had on Zinfra Group?
Steve: We do provide services for various Australian gas networks. One of the most interesting opportunities we’re involved in at the moment is with a leading Australian oil and gas producer expanding its CSG gas gathering systems. We are looking at providing the associated power supply infrastructure, including transmission lines and substations off its own balance sheet via a BOO arrangement. This involves a 20-year lease back by the company of those assets. This approach by the oil and gas producer – looking at a solution where it effectively sponsors its own power infrastructure to support the gas network – is an interesting change and development in the marketplace. Traditionally, you’ll see owner-developers fund infrastructure themselves and sell it at the end of construction, as occurred recently in Queensland. Many companies are looking at it the other way around; a BOO arrangement where infrastructure is actually owned and built by others, but they procure the long-term rights to the assets.
I think we will see more of this style of delivery by some owners of gas network assets, particular if network ownership is not their core business. This change can only occur when a market has competitive build, own and operate proponents, with substantial balance sheets enabling them to take on the responsibilities and risk associated with these arrangements. In our case we have a natural teaming via our sister company that has the same ownership as us, who is able to step up and be our partner as the asset owner. I believe the BOO approach to utility asset development is going to change the marketplace significantly as it becomes more common.
ES&D: What prompted the company’s recent internal infrastructure changes, including the formation of the Strategy and Market Development Group?
Steve: It’s part of the evolution of Zinfra Group as a company. One of the things I’ve found in my 12-months here is the business is technically very competent. But when it came to actually going out into the market place and finding new opportunities, the transport infrastructure opportunities or the BOO opportunities, for example, the business didn’t have the ability to search that out – it didn’t have the business development skills to search new industries and provide solutions to those owners outside the traditional utility arena. So we formed the Strategy and Market Development Group. It’s where we house the Engineering Solutions team mentioned earlier. We now have a group that’s able to explore the market, find where the opportunities are, outside the traditional markets and, develop engineering solutions that fit the needs of those new markets.
ES&D: As a leader, where do you draw inspiration from?
Steve: I look to the champions of change in government. Good governments can make positive change but they often need a champion of a cause to drive through and make the change happen. It’s these people that I respect although sometimes I don’t necessarily always agree with what they are trying to do. Change we will see going forward in the utility sector will be driven by governments that have the will and the desire to take a risk, and I respect that. I respect the people who have the will, the desire to say, “this is what’s going to happen and I’m going to work through this and make a difference”.
ES&D: What is Steve MacDonald like outside of the office?
Steve: I am a family man with three kids; a 19-year-old girl who is about to start university and two boys in secondary school. We live on the northern beaches in Sydney and I’m a keen surfer and spend as much time in the water as I can. I do some good thinking out there on a quiet day but mostly it’s an opportunity to escape the day-to-day and enjoy the ocean environment. I also follow AFL, an outcome of being brought up in Melbourne. My wife and kids all follow the Sydney Swans, but I inherited my mother’s team, Fitzroy now Brisbane Lions. All in all, I’ve very much enjoyed the move from Transfield where I was for 26 years to the Zinfra Group. The business has a strong shareholder base, good people with great skills and a strong market position. It’s also been very rewarding being part of establishing a new brand in the market place. There is a lot happening in our markets and I look forward to an exciting 2015.