It is important not to underestimate the scale of the task facing infrastructure investors as they target net zero. “Solving the world’s energy and climate crisis requires… an energy transition in a matter of two to three decades [when]… most energy transitions take 50 years or more,” says Bryn Gostin, head of strategy at Swiss asset manager Capital Dynamics.
Citing LED lights, smart thermostat and temperature controls, battery technology to solve clean energy’s intermittency problem, and new clean technology such as green hydrogen, Gostin argues that “the only path to accelerate this transition is through technological innovation”.
“Technological change is an increasingly important value creation tool in the toolkit of infrastructure funds”
In the sphere of energy efficiency, where the International Energy Agency estimates that improvements could represent more than 40 percent of carbon emission reductions, “much of this can be supported by technology developments… such as smart grids and smart meters”, notes Minesh Mashru, head of infrastructure at Boston-based manager Cambridge Associates.
This is important operationally. According to Susanne Marttila, ESG officer at German asset manager KGAL, “progressive infrastructure digitalisation [can allow]… energy demand and generation to be matched in real time and be combined with incentive systems for customers”.
Scott Auty, managing director, infrastructure at Frankfurt-headquartered DWS, agrees. “The development of relatively cheap sensors, combined with advanced data analytics, has allowed real-time monitoring and control of assets to reduce power consumption.” He talks of “behind-the-meter energy management systems”, and upgrading “captive CHP [combined heat and power], HVAC [heating, ventilation and air conditioning] and refrigeration systems and onsite renewable energy generation”.
When it comes to onsite renewables, a major issue is battery storage. In this regard, the recent provisions in the Inflation Reduction Act are significant. US President Biden’s legislation will see $369 billion invested in combatting climate change and bolstering energy security, with energy storage a key focus – the introduction of an investment tax credit will lower the cost of equipment and attract more investors to the sector.
“The adoption of battery technology [is vital]… to infrastructure’s decarbonisation journey,” says Paul Buckley, chief executive and managing partner at placement agent FIRSTavenue Partners.
Moving beyond power
Looking ahead, decarbonising the non-power supply chain will be just as important as power generation. Auty sees a number of interesting technologies that could drive this, ranging from green concrete to advanced recycling technologies. Mashru agrees: “The need to reduce carbon from industrial processes is clear, and significant promising developments are already apparent.”
This, of course, includes green hydrogen and its derivatives (such as green ammonia), which are incidentally becoming more attractive as natural gas prices rise.
Carbon-reduction technologies are also important for Christian Schütz, director, ESG at manager Golding Capital Partners. “Fugitive emissions management [is a crucial] way in which technology can enable decarbonisation in infrastructure assets,” he says.
Fugitive emissions, where gases or vapours leak from industrial systems and pipelines, are difficult to measure and quantify, but various sources attribute them to around 5 percent of total global greenhouse gas emissions. Technologies ranging from gas monitors to infrared-camera-wielding drones are helping operators to reduce leaks and improve emissions reductions.
Schütz also feels that technology is “indispensable” in the transportation sector: “Alternative fuels and power sources promise to significantly lower CO2 emissions going forwards.”
For DWS, advances in electric vehicle technology have enabled the firm to start switching operational vehicle fleets towards zero emissions. “The emergence of viable hydrogen technologies is also expected to play a role in longer-distance public transport applications and in some of our rail investments,” adds Auty.
In DWS’s regulated water company, advances in technology have even enabled switching “from incineration of sludge to anaerobic digestion which produces power for the treatment works”. DWS’s waste management business plans to make use of this technology to achieve a carbon-negative waste disposal solution.
In many an infrastructure subsector, the capacity for technologically minded thinking to clear a viable path to net zero is well understood. And with the climate emergency rumbling loudly, sustainability is more valuable for investors than ever before. “Technological change is an increasingly important value creation tool in the toolkit of infrastructure funds,” says Buckley.
No wasted opportunity
One advanced recycling company hopes its innovative technology will boost the circular plastics economy
Founded in 2016 by Steve Mahon, London-based Mura Technology intends to revolutionise the recycling of plastics. Around 100 million tonnes of plastic are burned in residual waste streams every year by companies such as Veolia, Suez and EDF as part of energy extraction from waste materials. About 20 percent of residual waste around the world is currently made up of plastic.
“Burning plastic is as bad as burning coal. It may be recovering energy, but it is not recycling the plastic,” says Mahon. For every tonne of plastic burned, 2.5 tonnes of CO2 are generated.
Mura Technology has a proprietary technology known as HydroPRS™ (hydrothermal plastic recycling solution). Water is heated up to 400C, at which point it behaves like an aggressive solvent and breaks down the polymer chains within plastics. At the same time, it also behaves like a gas, meaning the process is more efficient and innately scalable.
Mura Technology has so far secured around $365 million in private debt. “My intention is to build a series of HydroPRS™ plants across Europe and the United States,” Mahon says. Each modular plant will deal with about 20,000-50,000 tonnes of plastic each year and incorporate the design and construction experience gained from the first commercial plant Mura is constructing in Teesside, UK. Some of the larger plants planned for the US will be able to cope with 100,000 tonnes of plastic or possibly even 300,000 tonnes. Mura is currently working on a major project in Washington state just north of Seattle.
“I’m looking for private equity investors who are focused on infrastructure projects and appreciate the ESG angle that we are able to offer to deliver both circularity and decarbonisation,” Mahon says. “We are working to create an investment solution which addresses the two main risks which private equity investors raised with me: construction risk and merchant risk.”
Mura has partnered with US petrochemical engineering company KBR to ensure smooth construction, and with Dow Chemical to reduce merchant risk.
Over the next few years Mura anticipates several billion dollars of private equity or private debt investments. “We are looking for partners in the infrastructure community,” says Mahon.