Every year, co-incidentally around the same time, two key infrastructure and energy industry events, namely the Infrastructure Investor Global Summit (IIGS) in Berlin and CERAWeek in Houston gather leading investors and operators. InfraNEDs actively contribute to each of these conferences and would like to share some key takeaways.
Infrastructure as an investable asset class has grown exponentially since its emergence in the early 2000s, the asset class representing in excess of $1Trn in private markets alone. That growth is also reflected in the numbers attending the IIGS conference with c. 3,000 attendees of whom c.700 were investors. CERAWeek, where energy investors and operators have gathered since 1983, welcomed over 7,000 attendees and is dubbed the “Super Bowl of energy”!
The IIGS brings distinguished commentators and thinkers to stimulate outside-in thinking amongst the attendees. This year in Berlin, Zanny Beddoes, Editor-in-Chief of The Economist, and Professor Peter Frankopan, writer and Global History professor at Worcester College, Oxford presented their ideas and created an engaging discussion. Three key takeaways from these segments of the conference and the lively discussion that followed in the corridors that we would like to share with you are:
i) Geopolitics – In an increasingly polarised environment, there has been a lot of commentary around the fact that more than half of humanity lives in countries with elections in 2024. However, more and more people are also realising the Global South will play a major role in the energy transition and their priorities may not exactly match those in Northern Hemisphere. For a just energy transition to occur, technological advances in renewables and grid technologies should be shared around the world.
ii) Demography matters – The “Asian Century” has begun. Much has been written about China already and India is forecast to have the world´s second largest economy by 2075 (after China). Thereafter, by 2100, Africa will be the second most populous continent in the world. Debate in the corridors afterwards suggested that there may not be enough consistent renewable power to meet increasing demand for electrical power and that fossil fuels, particularly LNG, may still play a role in the energy mix of the Global South for the foreseeable future.
iii) Climate change is happening. In fact, there are already significant consequences, for example, the scarcity of fresh water, food shortages (crop failures and destruction), extreme weather events and fundamental changes to the planet such as ice-free summers in the Arctic by 2035. This is also having a major impact on infrastructure investment. For example, at $48Bn the largest infrastructure project in the world currently underway designed to transport 44.8 billion cubic metres of fresh water over 1,000 kms in China.
InfraNEDs main takeaways from both conferences were:
1) At IIGS, the major market trends powering the “infrastructure of the future” were identified as Digitalisation and Decarbonisation (or “Transition Investing”) and they are intertwined.
Infrastructure matters in delivering a just transition across the globe.
The energy transition was always going to be electricity-heavy and electrical power is the centre of the infrastructure investment question right now. The shift to EVs, the move towards heating and cooling electric, and digitalisation – A.I. and data transmission, storage and analysis are all driving demand for power that is unprecedented and where A.I. is concerned somewhat unexpected (one Google search requires 0.2Wh whereas just one A.I.-powered search currently requires 9Wh per request)
Keynote speaker Mark Carney from Brookfield made an interesting point about “Transition Investing” namely that decarbonising existing businesses makes an attractive and scalable investment opportunity and allows investment into renewable and/or digital technology to drive attractive future returns as well as positive outcomes for the planet whilst still delivering investment yield today.
“Transition infrastructure” extends beyond renewables and increasingly overlaps with Impact Investing, a fast-growing market which recently passed the $1Trn mark [4].
Large numbers were quoted at the IIGS, global investment in energy transition was $1.7Trn in 2023[1], to grow to a cumulative of c.$35Trn by 2030[2], to cumulative c.$250+Trn by 2050 [3]. With only c.15% of world energy supply coming from renewable sources[1], the decarbonisation challenge across power, transport, industry and agriculture requires unprecedented change. We note there is, however, some cause for optimism as renewables generated over 30% global electricity in 2023 [1], over 80% of new generation capacity being built is renewable [5]. Moreover, modern technology such as EVs and heat pumps use power much more efficiently than their fossil fuel equivalents and thus decarbonisation is not an insurmountable challenge.
2) From A.I. to Oil, the challenge of balancing energy demand and supply dominated the talk at CERAWeek…
The continuing need for accelerated growth of clean energy was a key theme, especially at the Innovation Agora, across the bridge from the oil and gas focussed CERAWeek. That included broad discussions around tripling renewables by 2050, as well as new sources of clean energy supply. Advanced geothermal was a key topic, whether it was the recent evidence of material cost reductions or significant FOAK (First of a Kind) type fund raise.
Lively conversations on energy transition included a session exploring whether the 1.5 ºC climate target is still relevant. Is it time to shift the conversation to other, more practical targets to reach Net Zero? There was also a pragmatic discussion about how to raise finance to invest in much needed infrastructure investment. Bruce Raw, Chief Strategy Officer from Green Cape was insightful on how Cape Town has focused its investment since the “Day Zero” crisis in 2018 when the city nearly ran out of water due to drought! The water saving gains achieved from investing in fixing leaks and improving consumer water efficiency were used to build the case for larger more medium-term investments such as new water storage options. The “in it together mentality” is a valuable lesson for us all as we navigate similar challenges going forward.
Still at CERAWeek, InfraNEDs highlight a session on powering the Global South where Mahesh Kolli of Greenko shared key factors which have helped them to build 100 GW of solar capacity in India the last 5 years. Mahesh highlighted the critical importance of the Indian Government´s 5-year plan launched in 2018 to ensure infrastructure investments were being built to support the roll out of solar power production, at the same time as consciously investing in local manufacturing / supply chain and skills to ensure that India is not dependent on imports and talent migration to underpin their growth.
Having noted that, only 15% of climate finance is flowing to emerging markets (excl. China) [1], with less than 2% being for Africa even though Africa accounts for 18% of the world´s population. In spite of being the sunniest continent and therefore with great potential, Africa currently generates only 3% of the world´s electricity [6].
3) Finally, the key takeaway from both conferences is that the infrastructure risk / return profile is changing, particularly as regards energy.
In the past, long-term contracts for transmission or generation / purchase were the norm. This provided investors with a stable income stream that was readily financeable and returns were bid down to very low “core” levels (at historically low interest rates, until the recent shift of “higher for longer” rates). Many infrastructure investors today are seeking returns that are higher than what is available in the fixed-income markets. To achieve that, investors have to be open to innovation and taking on more risk, for example, being prepared to make investments with more technological or entrepreneurial risk such as in grid infrastructure technology or more “merchant” risk in terms of power generation and supply.
Conclusion
Investors, senior executives and Board NEDs are essential in the stewardship of infrastructure and energy and should flip the conversation from short term “operating cost savings” or near-term returns to the long-term outlook and opportunities. Managing impact and climate risk is vital.
The pace of the green transition markets must continue to accelerate, spurred by technological evolution. The key to energy security means speeding up the transition to clean energy. However, a one- size-fits all approach does not seem to work and the Global South has a critical role to play.
Overall, our experiences at IIGS and CERAWeek highlighted the critical importance of collective action to drive Energy Transition and Infrastructure Investment and the need for joined-up thinking (and actions) on government policy and regulation to facilitate and accelerate investment in the right infrastructure to get to the planned objectives.
Authors:
Patricia Rodrigues Jenner PhD., Emma Fitzgerald, Laurence Monnier, Susan Kish
Disclaimer:
The views and opinions expressed in this article are those of the authors and contributors and do not necessarily reflect the official policy or position of any agency, organisation, employer, or company they are associated with. The content provided is the authors' personal perspective and is intended for informational purposes only. All information is provided on an as-is basis, and readers are encouraged to form their own judgments.
Sources:
[1] International Energy Agency (IEA). [2] International Renewable Energy Agency (IRENA). [3] McKinsey and Company. [4] Global Impact Investing Network (GIIN). [5]Bloomberg. [6] Ember.
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