The term infrastructure has been typically associated with streets, bridges, power plants, hospitals, schools and airports. Today, however, the range of infrastructure projects is much broader. The digital revolution and climate change are opening up investment opportunities that didn’t exist only a few years ago. Global capital requirements are steadily increasing. Investors could benefit from some guidance here.
Growth in data traffic
Driven by cloud computing and the new 5G wireless standard, digitalization and data traffic are becoming increasingly important drivers of growth in the infrastructure asset class. Data centers have benefited from the rise in video conferences in the wake of so many more people working from home, and from hybrid multi-cloud architectures as well. It has become apparent that even in the most technologically advanced regions, the existing potential has not yet been exhausted.
In the United States, President Biden’s infrastructure plans will doubtless stimulate further growth in data traffic. China is pressing ahead with the technological development of rural areas. India, too, and certain regions in Africa have recognized that they need to catch up, and will be moving ahead with relevant projects.
The energy industry and decarbonization
If we are to reduce the CO2 emissions caused by power generation, there is no way to avoid renewable sources of energy. With the costs of wind energy and solar technology falling and efficiency increasing, renewables are becoming the most affordable sources of new electrical power. They are also benefiting from political support – for example, the infrastructure plans put forward by President Biden and the EU’s climate goals.
As part of its Green Deal, the EU wants to achieve climate neutrality by 2050 through the European Climate Law. To reach that goal, greenhouse gas emissions need to decrease significantly in the coming decades. As an interim step, the EU has committed to reducing its emissions by at least 55% by 2030. In an effort to adapt its regulations to the goals for 2030 and 2050, the EU is currently engaged in revising its legal provisions addressing the climate, energy and traffic within the framework of the Fit for 55 package.
The challenges are enormous, as we are only at the beginning of a huge stretch of growth.
Cash flows resulting from power prices are of particular interest to investors. These cash flows are negotiated in advance during the initial investment phase with the operators of solar or wind farms – much as in regulated power markets.
RE × 10
The installed production capacity of renewable sources of energy (RE) needs to increase nearly tenfold by 2050, relative to 2018. According to calculations by the International Renewable Energy Agency (IRENA), this means, in absolute numbers, that the annual newly installed production capacity – 2,800 gigawatts (GW) in 2020 – needs to expand to 27,700 GW by 2050. Approximately half of this capacity is likely to come from solar photovoltaic systems, with wind power accounting for an additional 8,100 GW by 2050.