Energy & Infrastructure Investment – What Now for Greenfield Projects? (2022)

Energy & Infrastructure Investment – What Now for Greenfield Projects? (1)

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March 21, 2022

Over the past 2 years, our Energy & Infrastructure Team has seen first-hand the impact COVID-19 has had on greenfield infrastructure projects both in the UK and more globally from the US to the Middle East; from impact on cashflows to operational uncertainty in supply chains; from delays in government approvals to Government mandated shutdowns.

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Since this article was first written, there has been the significant impact of the Russian invasion of Ukraine and the resultant disruptions, commodity price volatility, far-reaching sanctions and indeed broader geo-political uncertainty to contend with. If anything, the forces unleashed by the invasion will only compound the trends for infrastructure that we see over the next few years as the world moves from pandemic induced lockdown to the need to live with the virus.

Below, we look at some of the key emerging trends that we believe will shape the post Pandemic infrastructure landscape over the next few years.

Macro-economic forces

The need for investment in infrastructure was widely recognized even before the Pandemic set in and it is important to understand the macro-economic context against which there is an increasing demand for infrastructure spending which addresses changes in (i) demography (a growing population that is living longer), (ii) the climate (the impact of which will pose a significant challenge) (iii) technology (which is driving the replacement of existing infrastructure) and (iv) urbanization (leading to amongst other things increased waste and pollution).

The pressure COVID-19 has brought to bear on the global economy takes this need into uncertain territory. And, whilst is too early to assume that forced changes during the Pandemic will result in long-term shifts in the general public’s behavior, what is certain is that governments around the world have a lot less money to spend on infrastructure than they had pre-pandemic.

At the same time, the need to adapt national energy policies to address climate change has been compounded by the crisis in energy supplies arising from the Russian invasion of Ukraine. Europe in particular now realizes that relying on supplies of oil and gas from Russia is not a sustainable policy and the need for far greater energy self-sufficiency (already implicit in some of the emerging strategies to address climate change) is if anything much more apparent. At the same time, the emerging trend of globalization of supply chains being weakened and beginning to split along geo-political lines continues.

Funding Challenges

Pressure on government budgets will be a particular challenge for public infrastructure spending and it is likely that the full impact of the pandemic will take years to play out. Yet, in the short term, we expect to see a shifting of funding sources away from public finance - as increasingly constrained governments tighten belts post-Pandemic - to private finance, with government support focused more narrowly on those strategically significant projects that would otherwise struggle to raise funding, for example to support emerging technologies.

We think there are likely to be more revenue supporting and end-user based revenue projects (such as user fees in water, power purchase agreements in energy) and less availability based contracts. This in turn is likely to lead to innovative forms of finance to leverage investments which - it is hoped - will unlock spending.

Spur on Economic Recovery

Recognizing the importance of infrastructure to boost economic growth, many governments (including the UK and US) see the revitalization of infrastructure as a priority. However, in our view, governments will need to prioritize and where relevant, facilitate the “right” projects to tackle macro-economic drivers and attract private investment. We expect there to be an ongoing shift in sectors, again driven by macro-trends to more of a focus on digital (fixed line and data centres) and renewable energy infrastructure. Some “challenged” sectors where demand has taken a significant hit post-pandemic such as toll-roads and airports are likely to struggle to attract investment in the short term.

The Pandemic is leading many to reconsider the viability of such projects and whether or not they continue to serve a purpose in a rapidly changing post-COVID world. Although the UK government eventually gave the go-ahead to the HS2 rail project from London to Birmingham, it is still scheduled to be completed at least seven years later than planned and significantly over budget. And, whilst transport will remain significant, the sub-sectors and methods of supporting these will change (for example, a move away from toll roads to more electric vehicle charging and cycling infrastructure schemes).

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Direct Government Intervention

Where they can, we expect governments can and should play a role is in facilitating “shovel ready” projects that can be delivered quickly for short-term stimulus. Planning and improving the efficiency of procurement remain critical however, from an energy perspective, upgrading grid networks to enable intermittent forms of energy supply such as wind and solar is an increasing priority. Similarly greater investment in both short term (battery) and longer term (natural gas and hydrogen) storage solutions are likely.

But not all of these can be financed through the private sector/end users alone. To this end, in the Summer of 2021, the UK Government opened the doors of the Infrastructure Bank (headquartered in Leeds), which aims to fund projects that are less attractive to the private markets and help spur economic recovery in the wake of the Pandemic. The bank will have a focus on capital projects that include clean energy, digital, transport, water and waste.

Impact on Global Supply Chains

In the UK, the double impact of a global Pandemic and Brexit has hit the construction industry hard. This has now been compounded by the crisis in Ukraine. Whilst we would have expected post-pandemic impacts on supply chain management (eg the delivery of materials and contractor solvency) and labour (eg availability of workforce due to lockdown or travel restrictions) to begin to ease over the next year, the crisis will inevitably cause further delays and disruption and mean these issues are likely to continue to impact for longer. Similarly, construction costs and inflation will continue to rise in part because of issues with workforce, supply chain and of course commodity price increases.

Road to Recovery

Our experience in the UK is that Net Zero and the importance of ESG for investors mean appetite for Renewable Energy deals will continue. We are seeing a lot of interest in battery storage, electric vehicles and hydrogen projects and the importance of green infrastructure is a key theme in in the UK Government’s ‘build back better’ message. Again this is a trend that can only be reinforced as a result of the Russian invasion. Whilst governments around the world are desperately looking at alternatives to Russian gas and oil (including further investment in fossil fuels such as LNG and pushing for increased production from other big exporting countries), in practice we think renewables (particularly wind) will likely see the largest amount of investment in the coming years. In addition, renewed appetite for nuclear power, particularly the smaller modular reactors currently being developed (for example by Rolls Royce), is also likely.

Meanwhile in the US, it is hoped that the Infrastructure Investment and Jobs Act (aimed not only at re-building America’s crumbing transport infrastructure but at expanding access to clean water, upgrading internet speed and tackling the climate crisis) will create jobs and grow the economy sustainably.

There are huge opportunities for developers and funders that adapt to a post-COVID world and new sectors; for those that do so, the outlook over the next couple of years is increasingly positive. And, whilst the last two years has seen a significant shortfall in greenfield projects closing because of the Pandemic, demand and need for infrastructure has if anything grown.

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For more information, please contact the professional(s) listed below, or your regular Crowell & Moring contact.

Meagan T. Bachman
Partner – Washington, D.C.
Phone: +1.202.624.2722
Email: mbachman@crowell.com

(Video) Opportunities in energy infrastructure within Europe’s long-term energy re-orientation

Robin Baillie
Partner – London
Phone: +44.20.7413.0011
Email: rbaillie@crowell.com

(Video) Infrastructure Investment: Insights for tomorrow's decision

Stefanie Atchinson
Counsel – London
Phone: +44.20.7413.1315
Email: satchinson@crowell.com

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FAQs

Why infrastructure investment is important? ›

Thus, quality infrastructure investment is essential for promoting quality growth, building wealth, and improving well-being. For that reason, Japan and the World Bank created the Quality Infrastructure Investment (QII) Partnership to support infrastructure investment to promote quality growth.

How do I invest in infrastructure projects? ›

Anyone who fulfills the project requirements decided by the Line Ministries and the Department of Economic Affairs, (DEA) can invest in NIP projects. Each project will have a different process for investment and investors can connect with the IIG team or the promoter directly to find out more details.

How do infrastructure investors make money? ›

In the case of infrastructure stocks, the income comes via dividends and capital appreciation over time. Historically, the yield on infrastructure investments has typically outperformed both equities and bonds.

What is the infrastructure investment? ›

What are Infrastructure Investments? Infrastructure investments are a form of “real assets,” which contain physical assets we see in everyday life like bridges, roads, highways, sewage systems, or energy. Such a type of asset is quite crucial in a country's development.

How does infrastructure investment help the economy? ›

Summary: Public infrastructure investment boosts the productivity of private capital and labor, leading to higher output, but this positive effect can be offset if the investment is financed with additional government borrowing.

How can infrastructure be improved? ›

Modernize and streamline regulatory burdens to reduce duplication and maximize the public benefit. Improve private-sector involvement through greater use of public-private partnerships. Explore alternative approaches for utilizing private investment resources to advance public infrastructure goals.

What are the benefits of infrastructure development? ›

It helps transport goods and services and enables people to access work, schools and recreational activities, which also play a role in the economy. Without any improvement, the transport system will hinder continuous economic growth, especially in rural areas.

Is it a good time to invest in infrastructure funds? ›

Investment in infrastructure is considered to be key to future economic growth. While more such investment can help the country in the long run, it makes sense to see if investing in infrastructure funds can help beef up your earnings as well.

What are the methods of financing infrastructure projects? ›

There are essentially two ways to finance infrastructure through private investment: stand-alone infrastructure projects, or through corporate balance sheet finance and other balance sheet-based structures.

Which infrastructure fund is best? ›

Which are the best Sectoral-Infrastructure Mutual Funds to invest in 2022?
Fund NameFund Category5 Year Return (Annualized)
Kotak Infrastructure and Economic Reform FundEquity11.77 % p.a.
Tata Infrastructure FundEquity12.54 % p.a.
Canara Robeco Infrastructure FundEquity11.47 % p.a.
2 more rows

What types of companies invest in infrastructure? ›

What are infrastructure investment companies?
  • social infrastructure funds operating facilities such as hospitals, schools, prisons and garrisons as well as toll roads; and.
  • renewable energy funds running wind and solar farms and green energy storage systems.

What are the two types of infrastructure? ›

Two main categories of infrastructure are hard and soft infrastructure. Soft infrastructures are the institutions that make up an economy, like healthcare systems, law enforcement, financial institutions and educational systems.

What is infrastructure in simple words? ›

Infra- means "below;" so the infrastructure is the "underlying structure" of a country and its economy, the fixed installations that it needs in order to function. These include roads, bridges, dams, the water and sewer systems, railways and subways, airports, and harbors.

Why is good infrastructure important for business? ›

The economy needs reliable infrastructure to connect supply chains and efficiently move goods and services across borders. Infrastructure connects households across metropolitan areas to higher quality opportunities for employment, healthcare and education.

Is infrastructure important for economic growth? ›

Infrastructure affects growth through several supply and demand-side channels. Investments in energy, telecommunications, and transport networks directly impact growth, as all types of infrastructure represent an essential input in any production of goods and services.

Why is infrastructure key to sustainability? ›

Sustainable and quality infrastructure plays a crucial role in society and economy. It is indispensable for delivering better and more inclusive economic, social and environmental conditions, and for supporting growth by expanding access to vital services and improving economic opportunities for all.

How does infrastructure improve quality of life? ›

High-quality infrastructure provides direct positive impacts, including higher efficiency, increased safety, decreased environmental impact, and more effective delivery of public goods and services. In most cases, it's easy to appreciate the value delivered by quality infrastructure.

How does infrastructure enhance quality of life? ›

Infrastructure plays a crucial role in the global economy. The availability of transport, communication, electricity, safe water and sanitation, health infrastructure and other basic facilities has a tremendous impact on improving the quality of life and well-being.

Is there a need for infrastructure improvements? ›

Every state needs infrastructure improvements that can pay off economically in private-sector investment and productivity growth. The condition of roads, bridges, schools, water treatment plants, and other physical assets greatly influences the economy's ability to function and grow.

Why should the government spend more on infrastructure development? ›

Spending on economic infrastructure, mainly by State-owned companies, accounts for 78.2% of the medium-term estimate. These funds are used to expand power-generation capacity, upgrade and expand the transport network, and improve sanitation and water services.

How can the government develop infrastructure? ›

To achieve this goal, governments should base the selection of projects on reliable data and analytics, robust financial models, and designs that meet the needs of citizens. They should consider both the direct impact of an infrastructure project and the indirect effects on the rest of the economy and society.

What is the most important infrastructure of development? ›

The following are the important constituents of infrastructure:
  • Power and the source of its production such as coal and oil;
  • Roads and road transport;
  • Railways;
  • Communication, especially telecommunication;
  • Ports and airports; and.
  • For agriculture, irrigation constitutes the important infrastructure.

How infrastructure development helps in growth of nation? ›

Infrastructure provides the most basic facilities that help serve different economic activities and thereby help in the facilitation of the growth of the country, development of the country, education, communication, transport, banking and insurance, health, technology.

What is an example of infrastructure? ›

Examples of infrastructure include transportation systems, communication networks, sewage, water, and school systems.

Is infrastructure an alternative investment? ›

Alternative investments include investments in five main categories: hedge funds, private capital, natural resources, real estate, and infrastructure.

What do infrastructure funds invest in? ›

Infrastructure funds invest in public assets and services that are essential for a functioning society, such as power, transport, water and waste.

Is infrastructure an asset class? ›

Infrastructure is an asset class that emerged in the mid-1990s and has continued to gain greater acceptance from institutional investors over time. The market is now over US$100 billion strong in terms of capital raised per year, with more than 100 funds closed annually.

How do you finance a large infrastructure project? ›

Capital finance, term loan, project loan, shares are acquired as a part of the project finance package. The banks are involved in the following types of financing for infrastructure projects: Takeout financing - Banks enter into takeout financing arrangements with the help of institutions like IIFCL.

How do you fund large infrastructure projects? ›

First, an investor can buy securities of an infrastructure investment company. Secondly, a financial institution can provide an investment loan for the construction or expansion of the related infrastructure. Finally, it can be subsidies and grants for strategic projects.

What are the issues and policies in financing infrastructure development? ›

Key Issues in Infrastructure Financing in India

However, there are competing demands for government funds, such as education, health, and job creation, to name a few. Asset-Liability Misalignment of Commercial Banks: The ability of commercial banks to extend long-term loans to the infrastructure sector is limited.

What is the best energy mutual fund? ›

Here are the best Equity Energy funds
  • Cavanal Hill World Energy Fund.
  • Fidelity® Select Energy Portfolio.
  • Fidelity Advisor® Energy Fund.
  • Fidelity® Natural Resources Fund.
  • Invesco Energy Fund.
  • BlackRock Energy Opportunities Fund.
  • Guinness Atkinson Global Energy Fund.

What is a global infrastructure fund? ›

IFC Global Infrastructure Fund makes equity and equity-related infrastructure investments in companies focused on power, transportation, water, telecommunications, oil and gas midstream and downstream sectors.

Is infrastructure a real asset? ›

Infrastructure and real estate exemplify these types of income-producing real assets. These companies commonly own or operate location-specific hard assets that garner a fee for use through long-term contracts, concessions or leases. Commodities rely solely on capital appreciation and offer no income component.

What are the characteristics of infrastructure projects? ›

Investors seeking core infrastructure look for five different characteristics: income, low volatility of returns, diversification, inflation protection, and long-term liability matching.

Which country has best infrastructure in the world? ›

  • Germany. #1 in Well-developed infrastructure. ...
  • Japan. #2 in Well-developed infrastructure. ...
  • United States. #3 in Well-developed infrastructure. ...
  • United Kingdom. #4 in Well-developed infrastructure. ...
  • France. #5 in Well-developed infrastructure. ...
  • South Korea. #6 in Well-developed infrastructure. ...
  • Canada. ...
  • Denmark.

What is a good infrastructure stock? ›

Brookfield Infrastructure Partners (NYSE:BIP) Caterpillar (NYSE:CAT) Crown Castle International (NYSE:CCI) Enterprise Product Partners (NYSE:EPD)

What is infrastructure and why is it important? ›

What is infrastructure and why is it so important? Infrastructure makes up our roads and transit systems, water pipes and water treatment, as well as our parks and waste facilities, to name just a few. Most people don't typically think about infrastructure unless, of course, it's not working.

Why is infrastructure important for development? ›

Infrastructure connects households across metropolitan areas to higher quality opportunities for employment, healthcare and education. Clean energy and public transit can reduce greenhouse gases. This same economic logic applies to broadband networks, water systems and energy production and distribution.

What are the advantages of infrastructure? ›

The main advantages of Infrastructure as a Service are scalability, cost-effectiveness, pay-on-demand for utilities, location independence, redundancy and the security of your data. With these factors in mind, you need to weigh if Infrastructure as a Service is a more cost-effective solution for your business.

Are infrastructure funds a good investment? ›

As is the case with any thematic fund, an infrastructure fund too is ideally suited only for those with a high risk appetite. To minimise your risk, it's best to cap your exposure to 5-10 per cent of your equity allocation.

What is infrastructure in simple words? ›

Infra- means "below;" so the infrastructure is the "underlying structure" of a country and its economy, the fixed installations that it needs in order to function. These include roads, bridges, dams, the water and sewer systems, railways and subways, airports, and harbors.

How does infrastructure improve quality of life? ›

High-quality infrastructure provides direct positive impacts, including higher efficiency, increased safety, decreased environmental impact, and more effective delivery of public goods and services. In most cases, it's easy to appreciate the value delivered by quality infrastructure.

How can investment infrastructure contribute to sustainable growth? ›

Protecting the natural environment

12 Sustainable infrastructure assets can help to address climate and natural disasters, reduce greenhouse gas emissions and contamination, manage natural capital, and enhance resource efficiency.

How does infrastructure improve economic growth? ›

Infrastructure drives economic growth by facilitating trade and investment, stimulating enterprise opportunities, generating employment and providing poor people with access to basic services.

What is the most important infrastructure of development? ›

The following are the important constituents of infrastructure:
  • Power and the source of its production such as coal and oil;
  • Roads and road transport;
  • Railways;
  • Communication, especially telecommunication;
  • Ports and airports; and.
  • For agriculture, irrigation constitutes the important infrastructure.

How does infrastructure help in business growth? ›

Strong IT infrastructure helps optimize IT operations and enhance security. Just like countries depend on physical infrastructure to offer citizens access to basic resources such as roads and railroads, businesses depend on IT infrastructure to let employees use technology effectively to do their jobs.

Why is infrastructure key to sustainability? ›

Sustainable and quality infrastructure plays a crucial role in society and economy. It is indispensable for delivering better and more inclusive economic, social and environmental conditions, and for supporting growth by expanding access to vital services and improving economic opportunities for all.

Why is infrastructure important for business? ›

The importance of infrastructure

An efficient transport network enables staff to get to work easily. It also allows supplies to be brought in from far afield and permits finished products to be moved to market cheaply and quickly.

Which sector will perform better in 2022? ›

The consensus seems to be that the financial sector, industrial sector, capital goods will do well in 2022. Pharmaceuticals are also looking to make a mark, and a few experts have placed their bets on real estate and automobiles while others have advised against them.

Which is the best infrastructure fund? ›

Which are the best Sectoral-Infrastructure Mutual Funds to invest in 2022?
Fund NameFund Category5 Year Return (Annualized)
Kotak Infrastructure and Economic Reform FundEquity11.8 % p.a.
Tata Infrastructure FundEquity12.62 % p.a.
Invesco India Infrastructure FundEquity14.58 % p.a.
2 more rows

Is infrastructure an alternative investment? ›

Alternative investments include investments in five main categories: hedge funds, private capital, natural resources, real estate, and infrastructure.

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