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Infra’s post-pandemic reality is a bigger threat than the pandemic itself

Supply chain issues in a post-pandemic world are stalling the energy transition and causing significant cost overruns on infrastructure projects.

“It’s a bit of bright news in an otherwise fairly gloomy news environment at the moment for the solar sector. We’re fortunate that we locked in a lot of our equipment prior to the more recent supply chain and inflation issues and module availability that we’re seeing in the market.”

This was no grandstanding from David Scaysbrook, co-founder of Quinbrook Infrastructure Partners, when he spoke to us recently following the conclusion of the largest tax equity financing for a single renewables project in the US. Rather, it was a success of timing and an assessment of some of the troubles facing infrastructure operators today, particularly pronounced in the North American market.

Supply chain issues in the US solar industry have been exacerbated by the recent decision by the US Department of Commerce to investigate the dodging of tariffs placed on solar panels coming from Chinese manufacturers through southeast Asia, where about 80-90 percent of US panel supply comes from. The investigation could, to the despair of many, extend into mid-2023.

In addition, industry experts have pointed out the issues impacting solar panel supply are also affecting battery storage deployment in the US, where economic and regulatory models mean standalone storage sites are predominantly unfeasible and require coupling with solar, as demonstrated by Quinbrook. With a growing solar project backlog, there’s a natural knock-on effect for the next stage of the energy transition. Indeed, a $3.1 billion injection from the Biden administration announced last week to address supply chain issues in battery manufacturing will only go so far if solar continues to be disrupted.

However, this isn’t just a solar problem. Take the recent second financial closing of the Purple Line light rail project in Maryland. The new design-build contract on the Meridiam-led project has increased from an original $1.9 billion to $3.4 billion, a result of “post-pandemic” increases in “rising material costs across the industry, material shortages due to supply-chain challenges, a smaller labour force, increases in the insurance market and other factors”, according to Maryland’s Department of Transportation.

That “smaller labour force” element is one also identified by Marc Ganzi, chief executive of DigitalBridge, who told our Global Summit in Berlin in March that digital infrastructure “is getting absolutely crushed with labour shortages”.

“The money isn’t the problem; the problem is getting people back to work to build digital infra,” he told attendees.

The post-pandemic realities, be that in construction materials or the people using them, are biting hard, not that – if our Q1 fundraising statistics are anything to go by – investors are noticing. That money will find a home in brownfield infrastructure and as always, assets that truly stretch what we know to be infrastructure.

The market has patted itself on the back following a two-year period in which, by and large, infrastructure stuck to its resilience label and weathered the covid-19 pandemic. But it now faces a challenge that could dwarf the threats the pandemic posed. While solutions wait, so does the energy transition, digital connectivity and the growing lines at ports.