3 min read 24 May 22
The ongoing conflict in Ukraine combined with the current cost of living crisis has both impacted market dynamics and heightened the impetus of the energy transition on European nations. It’s critical that renewable power is ratcheted up at scale in order to meet future demand at an affordable price. Investors in energy-related assets can play a pivotal role in providing capital to meet clean energy demands.
“Governments have been pointing to infrastructure investment as the road to recovery post-Covid-19,” says Mark Chladek, Head of Brownfield at Infracapital. “That’s going to require significant private sector support which is definitely there.”
Infrastructure plays an important role in the energy transition, with European-focused infrastructure funds raising a record $68 billion in 2021 and £19 billion thus far in 2022, according to data from Preqin2. However, looking beyond traditional renewables such as wind and solar, where can infrastructure investors deploy capital to drive affordable and clean energy?
As Europe seeks to transition past gas heating, countries like the Netherlands have taken concrete measures by announcing that as of 2026, hybrid heat pumps will be the standard for heating homes3. “A combination of the market, regulation and policy changes pushes people to use solutions that is then generating new investment opportunity,” says Chladek.
Staying alive to policy changes can unlock opportunities in emerging sectors and fast-evolving energy transition technologies, as well as being cognisant of pricing dynamics in mature markets i.e. wind and solar renewables, he adds.
As part of its proposals to decarbonise all sectors of the UK economy to meet the net zero target by 2050, the UK Government has set an ambition that by 2030, no new gas boilers will be sold.
Infracapital has partnered with Last Mile Infrastructure Group, which designs, installs, owns and operates multiutility networks as well as smart meters connecting new build properties across the UK. As the UK shifts away from gas, investors are increasingly alive to the demand from customers and developers who are seeking alternative sources of renewable energy. Last Mile has signed up to a ground source and water source heat pump infrastructure joint venture4 to supply cleaner energy.
“We are very focused on the drive to reduce gas and recognise changing standards,” says Chladek. “Making these sort of structural changes are very capital intensive so our role is to facilitate policy makers in achieving ambitious targets which ultimately deliver a societal benefit and generate good returns for our investors at the same time.”
Infrastructure has traditionally offered inflation protection – but investors must keep an eye on changing dynamics and assess on a sector-by-sector basis.
“With some of the new and emerging sectors we see, ensuring that the investment is resilient, essential, infrastructure-like, and ultimately still delivers our investment thesis is key. Providing investors with strong inflation protection is important, whether through inflation-linked contracts or assets that benefit from high barriers to entry ” says Chladek.
The value of investments will fluctuate, which will cause prices to fall as well as rise and investors may not get back the original amount they invested. Past performance is not a guide to future performance. The views expressed in this document should not be taken as a recommendation, advice or forecast.