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Steve Hays
Oct 35 min read

Investors Eye "Greatest Investment Opportunities Since the Industrial Revolution" at IPE's Infrastructure 'Oscars'

By Steve Hays, Bellier Communication, a Member of the Global Communication Partners (GCP) Network 


The grey and dreary weather in Munich in mid-September, a harbinger of the catastrophic flooding to hit Central Europe in following days fuelled by record Mediterranean Sea temperatures, did not reflect the upbeat mood of delegates who attended IPE Real Asset's Infrastructure & Natural Capital Global Conference and Awards 2024 – the industry's 'Oscars' for top investor performance, in the Bavarian capital.



The energy transition and the digitalisation of economies, with the vast investment in data centres needed to enable this transformation, are major drivers for seemingly insatiable infrastructure investment. Aggregate assets under management in the Top 100 global managers, led respectively by Macquarie, Brookfield and Global Infrastructure Partners' merger with BlackRock, rose by €240 billion, or 12% year-on-year, to €2.4 trillion in 2023, according to IPE's annual survey.


"We haven't seen this level of capex needs for infrastructure since the Industrial Revolution," said Thomas van der Meij, Senior Portfolio Manager Infrastructure at APG, the manager for Dutch ABP, which with €600 billion in AUM is Europe's largest pension fund. 

 

“ABP expects to raise its allocation to infrastructure to around 7% of its total portfolio.”

 

He told the conference that ABP expects to raise its allocation to infrastructure to around 7% of its total portfolio, from 5% currently, due to the attractive investment characteristics of the asset class -- ranging from its powerful demand drivers, sustainability credentials and high barriers to market entry, to a compelling risk/return profile, stable cashflows, diversification benefits and inflation hedging performance.


Van der Meij added that infrastructure had proved its worth in the last couple of years of high inflation due to its operational gearing, particularly relative to real estate investments which tend to be more financially geared and sensitive to interest rate moves.


Tom Maher, Managing Director, Infrastructure at Patrizia, said that great strides had been made in investing in renewable energy with around 30% of global electricity now being produced from these sources, which is projected to rise to 42% by 2028, and with much of the new supply coming from China. But he added that renewable energy output would need to triple by 2030 for the world to get anywhere near its 'net zero' climate target and this represented a $3 trillion investment gap.


UK Government Lays Out Infra Welcome Mat for Investors


Julia Prescot, Deputy Chair of Britain’s National Infrastructure Commission told the conference that the UK's new Labour government was committed to private investment in funding the country's energy transition and had outlined a 10-year national infrastructure strategy that represented an enormous opportunity for investors.


She said that in place of the UK's classic five-year regulatory policy, the government was targeting a 20-year period to provide investors with the stability needed for large infrastructure projects with typically long-term investment horizons. But a balance also needed to be struck between covering investors' cost of capital and risk-taking and ensuring a fair price for consumers.

Prescot added that new technologies didn't need complex new business models and standard tried and tested 'contracts for difference' were usually perfectly adequate.

"We need pace not perfection on the road to net zero," she concluded.

 

"We need pace not perfection on the road to net zero"

First New Nuclear Site in a Decade has Laser-Focus on Costs

The UK's first new nuclear power plant site to be licensed in over a decade, Sizewell C (SZC) on England's Suffolk coast, with an estimated total investment of £20 billion required, has a strong focus on containing costs in an energy sector notorious for cost overruns, Joseph Rippon, Head of Financing at Sizewell C said. He told the conference that the cost of capital typically comprises around two-thirds of the total costs of nuclear power projects.


Sizewell C is a design replica of the Hinkley Point C (HPC) nuclear plant being constructed in the western county of Somerset, the first to be built in the UK for a generation, which means it will benefit from the skilled workforce, efficiencies and lessons learnt at HPC. Both projects are managed by French nuclear giant EDF.


SZC will be a 3.2-gigawatt power station generating low-carbon electricity for around six million homes, roughly equivalent to the renewable energy supply from the world's largest offshore wind project – the £11 billion Dogger Bank wind farm off the coast of northeast England in the North Sea.


Rippon said that around two-thirds of the heat energy produced in the nuclear process typically goes to waste. SZC will harness this waste energy in innovative ways including the production of hydrogen fuel – that will also supply a fleet of hydrogen-powered buses -- power energy-guzzling data centres and residential district heating. Carbon-capture technology will also offset 1.5 million tonnes of CO2 emissions -- equivalent to those generated by the entire UK rail network, he added.

 

“Carbon-capture technology will also offset 1.5 million tonnes of CO2 emissions -- equivalent to those generated by the entire UK rail network”

 

Energy, Digitalisation and EV Challenges for Germany 


German renewable energy supply will have to increase by 90% from current levels for the country to reach a net zero target by 2050 and demand will also double over this period, Hans Jonk, Director, Energy Development at Dutch Gasunie, told the conference.


He added that the country's energy transition wouldn't be possible without hydrogen, which utilizes the natural gas pipeline distribution network and where two-thirds of market demand comes from the power sector.


Gasunie is aiming to transform from a gas transmission company to an "energy transmission company" by 2030 and manages around 10% of Germany's core gas distribution network, with hydrogen supply capacity coming from underground storage caverns.


Digi boom, Fibre gloom


Valuations for data centres have risen 20% over the past two years, making digital infrastructure among the most popular of infra sectors for investors today, but the fibre-optic cable and towers businesses have gone down 50%, due to overcapacity in the industry, Matteo Colombo, Managing Director Real Assets Investments at Legal & General Group and moderator of the 'Digital Transition' panel at the conference, noted.

 

Fibre-optic cable and towers businesses have gone down 50%, due to overcapacity

 

Serkan Bahçeci, Partner and Head of Research at Paris-headquartered Arjun Infrastructure Partners which has 10% of its €6.0 billion AUM in digital assets, said the German government had failed abysmally in the creation of a fibre-optic market.


"Fibre is a utility. The marginal cost is zero, everything is fixed cost. There is no point in competing when consolidation is coming to this market…the UK and Germany have lost a lot of money through bad market design," he said.


The panel noted that the availability of clean power generation is increasingly driving data centre location for the tech giants that are the main users of these assets and investment managers that can't answer the question on the sustainable energy supply issue, along with the real estate, would increasingly struggle to attract capital in the sector. (A week after the IPE conference Constellation Energy announced it will re-open the Three Mile Island nuclear plant in Pennsylvania to provide power to Microsoft under a 20-year supply deal to satisfy the tech company's soaring energy demand, while keeping its emissions in check).



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