Infrastructure’s lead role in the world’s net-zero journey is well understood. Ahead of the COP26 summit in Glasgow last year, the UN Office for Project Services, the UN Environment Programme and Oxford University co-published a report, Infrastructure for Climate Action, which states that infrastructure is responsible for 79 percent of all greenhouse gas emissions. It is unsurprising, then, that the report directly calls on governments to treat infrastructure as a priority sector in resolving the planet’s biggest crisis.
With the energy transition front and centre of allocation decisions for many private capital investors, technological innovation will be central to decarbonisation efforts across infrastructure, helping accelerate the transition from fossil fuels to renewable energy.
Actis partner and head of sustainability Shami Nissan explains the value-add of harnessing modern technology: “Automated systems, including artificial intelligence, will enable investors to manage assets more efficiently. When it comes to assets like data centres, intelligent systems and machine learning are vital for tracking and adjusting aspects such as server room temperature – heating and cooling, lighting and humidity – making continual micro adjustments to optimise efficiency.”
There are many examples of private investors and asset managers taking a lead on decarbonisation by incorporating emerging technologies into their strategies. In 2017, Macquarie Asset Management led a group of investors to acquire Cadent, the UK’s largest gas distribution network, with the aim of helping the company to drive its decarbonisation strategy. Cadent has since invested £3 billion ($3.7 billion; €3.5 billion) on network upgrades and was responsible for the first demonstration of blending hydrogen with natural gas in homes across the UK.
Macquarie also recently invested in Inspiration Mobility, a sustainable infrastructure platform dedicated to driving the electrification of transport, partnering with companies to finance and operate real assets that power the transition to electric vehicles (EV).
Macquarie’s head of technology and innovation, Peter Durante, says the firm’s approach to infratech investment prioritises deployment across the portfolio over direct investment in the innovators.
“We are more interested in being customers of technological innovation – actually using solar panels and electrolysers and autonomous vehicles and others,” he says.
The firm is preparing an investment strategy that will deploy technologies that further wind and solar power, such as hydrogen, carbon capture and storage (CCS), advanced recycling, battery storage and EVs.
“We are more interested in being customers of technological innovation – actually using solar panels and electrolysers and autonomous vehicles”
Macquarie Asset Management
According to Durante, a growing focus for Macquarie is examining how wind and solar can be coupled with energy storage to move deeper into the power sector. “Sector coupling might involve encouraging particular areas to run on electrons, generated cleanly from renewable energy, such as the electrification of transport,” he says.
“Some parts of the economy cannot be directly electrified, and for those areas molecules are required. Electrolysis using clean electrons to split water into hydrogen and oxygen can provide these clean [hydrogen] molecules, which can be used in a variety of applications.”
Clean molecules can be used to make synthetic hydrocarbons in areas including aviation fuel, industrial heat and shipping, Durante explains. And for sectors where neither clean electrons nor molecules work, Macquarie is looking to invest in blue hydrogen, which requires CCS technology.
Developing alternative technologies to produce clean hydrogen is set to be a crucial component of decarbonisation. British chemicals and sustainable technology company Johnson Matthey, for example, has developed a technology for blue hydrogen that converts natural gas, emitting CO2 in the process, but at very high purity levels, and the CO2 can then be stored underground.
Elsewhere, New Zealand-based alternatives manager Morrison & Co has taken a more direct approach, investing in venture capital platform Clearvision Ventures. The infratech fund invests in software companies that are using big data and security technology to disrupt the energy and infrastructure sectors.
When it comes to integrating engineering-based technologies across assets, there are a number of challenges involved. Cost is an obvious one, but scale can also be difficult to achieve in some infrastructure sectors, says Nissan. Where solutions are nature based, such as forest regrowth, wetland restoration and crop rotation, it will take time to develop and integrate technologies.
In the meantime, Actis is looking to invest in advanced equipment such as batteries and electrolysers, a critical component of green hydrogen, in addition to smart meters and EV charging infrastructure.
But, Nissan explains, there are significant constraints here, too: “Technologies required as part of the whole economy transition – be it batteries, smart meters, EV chargers or electrolysers required for green hydrogen – need to be manufactured in much greater quantities. To achieve this, we will need to significantly increase global availability of raw materials including metals and minerals. Sustainable sourcing of such materials can be a challenge from an ESG point of view.”
Vimal Vallabh, head of energy at Morrison & Co, says that split incentives are a pervasive issue when integrating climate technology into existing assets. When entities that need to invest in energy efficiency and climate technologies are not the financial beneficiaries of certain initiatives, as might be the case with real estate landlords, airports and data centres, conflicts can emerge and create problems, Vallabh explains.
There are also issues with legacy system designs at a micro level. “Existing energy systems and regulations have been designed for electricity to flow from centralised power stations to distributed electricity demands, not for decentralised and behind-the-meter energy supply solutions,” he says.
A further complication is that the law and regulatory governance of the use of technology across infrastructure has a degree of catching up to do. This is an issue highlighted by Stuart McMillan, partner at Bristol, UK-headquartered law firm Burges Salmon, which recently advised on the acquisition of EB Charging, a provider of EV charging sustainable solutions and technologies, by Blink, an owner, operator and provider of EV charging equipment and services.
According to McMillan, a key challenge with decarbonising transport will be how to regulate autonomous vehicles: “There is a lot to think about in terms of how you legislate for that [autonomous vehicles], and what that might look like. Negotiating long-term contracts that embed technology and how one deals with unexpected changes will require a good deal of
While there are obvious challenges across industries, technology obsolescence is a significant added risk for investors. According to a study by the UK’s Office for National Statistics, historically the decline of telecommunication infrastructure stock has been largely due to the rapid acceleration of technologies, causing technology obsolescence. The annual growth rate of telecommunications infrastructure stock was nearly 1 percent in 2020, the study found.
According to Vallabh, infrastructure solutions that were “valid” five years ago may no longer be optimal. “The evolution of large-scale battery storage and renewable generation systems has challenged traditional power delivery solutions, particularly for remote communities,” he says. “Capacity upgrades informed by data analytics, and strategic enhancements, will make a significant impact on overall performance, which can, in turn, reduce the impact of new-build disruptions.”
Vallabh explains that infrastructure investors will need to take a more hands-on approach in handling assets, adding that an “owner-operator mindset” that combines infrastructure design, delivery and operations expertise is crucial.
But obsolescence is a risk not lost on infrastructure investors, who are well used to dealing in long time horizons. “We are a long-term owner of assets. So we take a long view and we sell assets, eventually, to another long-term owner of assets down the road,” says Durante. “We need a 20 or 30-plus-year view on technology and so we are not that concerned about the obsolescence of sectors we are looking at because we are factoring in continuous technological evolution throughout our ownership period.”
Engineering-based solutions will continue to dominate decarbonisation efforts over the coming years, while innovation for nature-based solutions will have to play catch-up. What is clear, though, is that technology will continue to develop at speed – for many managers and owners of infrastructure assets, the biggest challenge will be keeping up with the pace of change.