Investments in infrastructure boosted by the energy crisis

The energy crisis has boosted investments in infrastructure, experts agreed at Real Asset Media’s Infrastructure Outlook 2023 – Investing in new energy briefing, which took place online recently on the REALX.Global platform.

“Infrastructure platforms are really growing in importance,” said Tania Tsoneva, senior director, global infrastructure research, CBRE Investment Management. “Fundraising has reached €150 billion this year, 50% higher than in 2020, which shows the appeal of infrastructure in a downturn.”

As macro-economic conditions are challenging due to high inflation, rising interest rates and looming recession, dark clouds are gathering but infrastructure can be seen as a way to look beyond them.

“The move from the pandemic through the energy crisis has been a real test for infrastructure, which has shown how resilient it is,” said Tsoneva. “We’re very confident about the performance of this asset class, which is very diverse. Also, the renewables sector is less exposed to the economic cycle and to commodity price fluctuations.”

Private capital has a big role to play. “We’re already seeing the behemoths of US private equity invest in infrastructure assets in a big way,” said Jim Wright, listed infrastructure fund manager, Premier Miton Investors.

There is a lot of dry powder in the sector, which offers more sophistication and more diversification now. “It’s value-add as well as core, and it’s a good thing for investors who can differentiate,” said Tsoneva. “You can invest in a platform that includes electrification, renewables and storage and get a good return on the entire value chain now. Prospects are very positive for the year ahead.”

There are a lot of moving parts to this transition phase. The risk of stranded assets is ever-present, as no one knows if a gas pipeline or a solar power plant will be needed in the future.

“We’re trying to work out what is low-risk,” said David Bentley, partner, Atlas Infrastructure. “The secular trend is a massive increase in the use of electricity, which implies a fundamental change in our energy system. Huge investments are needed in the grid, so that’s the safest place to find good returns.”

In the energy market three competing factors need to be balanced: the affordability of energy, security of supply and carbon reduction and the need to tackle climate change.

“It is a trilemma,” said Wright. “The decarbonisation agenda had been strong before the invasion of Ukraine, while we had been a bit complacent about affordability and security. The war has been a game-changer and has refocused minds, leading to a realisation that those needs will only be met through the increased and better use of renewables.”