Our new “Report on Energy Transition & implications on Infrastructure  investors”, argues that Infrastructure investors are ready to turbocharge the Energy Transition.

Described as the “biggest investment theme of our generation” , investments in the global energy transition are already becoming a defining feature of the market. In 2022, such investments topped the USD 1tn mark, overtaking investments in fossil fuels for the first time. But average annual investments in the energy transition must grow three-fold by 2030 if we are to get on track for net zero. This is an enormous challenge, which investors in infrastructure must respond to by scaling up their act.

The LTIIA working group, drawing from concrete experiences and feedback from its members reviewed and analysed these trends and their implications for Institutional Investors in Infrastructure, both sector-wise and in terms of business models and allocation strategies. The report integrates qualitative and quantitative research and provides guidance, as well as policy proposals and recommendations for policymakers, regulatory authorities, for investors and asset owners, and for fund managers. Recommendations cover the need for Governments’ roadmaps and commitments, public financial support when technology or market risks are too high, adapted sectoral and prudential regulations as well as enhancing technical and market expertise for Fund managers.

Main takeaways:

  • Increase in infrastructure funding: increase in infras AuM (Assets under Management) = unique opportunity to channel more private investments to projects aligned with energy transition (ET).
  • A shift towards Energy Transition investments: over the last 3 years, infra funds focused on renewable energy raised more capital than those without such exposure,
  • Energy Transition increasingly addressed through Infrastructure lens: AuM of renewable energy funds skyrocketed with Infra funds accounting for the lion’s share
  • Share of fundraising by Infra funds linked to renewable energy has grown to 92% of total USD 144bn in 2022.
  • Investors sentiment towards Energy Transition investing: LTIIA survey respondents consider ET to be part of their fiduciary duty, as well as a new investment opportunity.
  • As the energy transition ramps up, renewable energy is taking on more risk than investors & lenders in infrastructure have historically assigned in terms of risk premium; those risks have yet to be reflected in the investors’ return requirements/business models
  • A huge new market is opening to investors with the need to upgrade and extend the grids (transmission and distribution ) in order to adapt to the new energy mix.
  • Investors can also contribute – particularly in social infra – to educating end-users on responsible management of their energy consumption. By promoting better and smarter energy use, investors stand to improve their reputational risk & social license to operate as well as achieve their financial objectives.

Report available on https://www.ltiia.org/library/