Infrastructure Investor Sept23

September 2023 • infrastructureinvestor.
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Contents
How to contact us
Senior Editor
Bruno Alves
[email protected], +44 20 7167 2031
Deputy Editor
Kalliope Gourntis ISSN 1759–9539 • ISSUE 146 • SEPTEMBER 2023
[email protected],
+30 6937 230 121
Head of Special Projects
Graeme Kerr
Americas Editor Insight Cover story
2 22
Zak Bentley
APAC Editor
Daniel Kemp
Senior Reporter
Decarbonisation Bridging VC
and infra
“I think we’re now
Anne-Louise Stranne Petersen
[email protected], +44 20 3953 8632 People OMERS’ new infra head 4
in a 10- to 20-year
Reporter
Isabel O’Brien US New offshore wind auctions 6 period where
[email protected], +1 646 545 3322 ext 176
Contributor: Amy Carroll
Interview EQT’s Francesco countries reshore”
Starace 8
Managing Editor, Production: Mike Simlett Brookfield now manages the largest
Production Manager: David Sharman Australia A novel hydrogen closed-end infrastructure fund, but
Senior Production Editors: Tim Kimber, scheme 10 there’s much more to the story than
Adam Koppeser
its flagship fund series. Sam Pollock,
Production Editors: Helen Burch,
Nicholas Manderson, Jeff Perlah
CEO of Brookfield’s infra business,
Copy Editor: Khai Ojehomon and members of his team discuss
Art Director: Mike Scorer their infra strategy
Head of Design: Miriam Vysna
Art Director – Americas: Allison Brown
Senior Designers: Denise Berjak, Lee Southey Analysis
31
Designers: Shanzeh Adnan, Ellie Dowsett
Marketing Solutions Manager
Hywel Grimmett
Subscriptions and Reprints Batteries Macquarie charges ahead
[email protected] with Eku Energy
Customer Services
[email protected] Podcast Beyond lithium-ion
Editorial Director, US: Rich Melville batteries 34
Editorial Director: Philip Borel
Interview Macquarie’s Martin
Director, Product Management: Amanda Janis
AI DigitalBridge’s aspirations 11 Bradley on Thames Water 38
Director, Research and Analytics: Dan Gunner
Operations Director: Colm Gilmore Investors MN’s bespoke Roundtable Five infra professionals
Managing Director, US: Bill O’Conor approach 12 discuss the mid-market 44
Managing Director, Asia: Chris Petersen
Fundraising Itochu, SMTB’s first Australia Dexus’s Michael Bessell
Chief Commercial Officer: Paul McLean
North America-focused and Michael Cummings on life after
Chief Executive Officer: Tim McLoughlin
renewables fund 14 AMP Capital 50
Renewables Ensuring pipelines Arbitration Fieldfisher partners
become reality 16 on supply chain disputes 54
Geopolitics Diversifying supply Oil & gas Decommissioning
For subscription information visit chains 18 opportunities 56
infrastructureinvestor.com
Energy storage Lithium-ion’s Getting Technical Long-term
challenges 19 storage through rusting batteries 59
EDITOR’S LETTER 21 Agenda 60
September 2023 • Infrastructure Investor 1

Decarbonisation How Climate Investment
enables the transition from VC to infra
W
ith more than two-thirds of its $1 billion climate fund
invested in venture-type assets, it would be easy
to classify Climate Investment as a venture capital
firm. But roughly one-third of that $1 billion plays a
critical role not only in closing the distance between
venture, growth equity and infrastructure, but also
in decarbonising heavy-emitting sectors, Kalliope Gourntis discovers.
James Mackey – managing director, project capital at Climate
Investment, an independent investment firm founded by Oil and
Gas Climate Initiative – explains how.
We provide what we call An example

enabling or catalytic capital to of what that looks
advance innovative solutions like in practice is
with the potential to be several investments
transformational platforms and Climate Investment
projects. has made focusing
on methane
While CI’s ventures team abatement.
takes on technology risk, We have a
Mackey’s team focuses on the number of
deployment of commercially investments
ready technologies. across the methane
We might look at a first- or space that started with
second-of-a-kind deployment technology companies
and for things that will that are doing
ultimately be infrastructure assets, measurement and
but which don’t yet have the detection. And now we
infrastructure risk profile. We see a have a couple of
gap in funding for these types of companies that are
deployment, so that’s where we enabling the actual
come in. mitigation.
2 Infrastructure Investor • September 2023

One of these investments is a But if the technology is not to so far are growth markets,
company working on projects in complex and has been around the majority of CI’s investments
the Middle East and North Africa. for decades, it begs the are in North America and
And the technology is quite simple. question: why isn’t it more Western Europe.
It can be as simple as using readily widely used, especially when Shifting from methane to
available equipment to capture the methane is one of the most things like carbon capture
gas that would otherwise be emitted significant contributors to and storage, the US actually
and using it for something like steam global warming? has some of the most encouraging
generation – replacing diesel for I think historically it was policies to support carbon capture.
instance – or producing electricity. viewed as a matter of cost. That’s through the 45Q tax credits
But while the technology is not We are finding more that were modelled after the wind
very complex – it’s been used examples where it is cost-effective. production tax credits. So, the 45Q
for decades – there remains a We have a project in Oman for policy coupled with the more
funding gap that we seek to fill instance that is an economic recent Inflation Reduction Act has
with our capital. This gap is often project. There certainly are places really led to a lot of growth in the
due to the projects being located where the value you get from development of CCS projects.
in jurisdictions that can be a bit capturing the gas may not cover
more challenging and incumbent the cost of doing so. But let’s be Another example that further
investors don’t want to be the first honest: as a global community, we illustrates CI’s strategy is the
to step in there. So, we’ll fund these haven’t done a great job of built environment.
projects to help them get off the ascribing the cost of emissions to The emissions coming from
ground and demonstrate that they what we do. It’s not free to emit industries like cement and
can be operated prudently and CO2 and methane. There are costs; steel I think are overlooked;
safely and provide an attractive rate we just don’t see them. certainly, more than they should
of return. be. We have a few investments in
What’s encouraging, however, the cement and concrete industry
is that both companies and where just reducing the amount of
policymakers are recognising cement used can make a really big
this, according to Mackey, and difference. One thing on the
are introducing incentives in technology side is these sensors
various jurisdictions. that allow you to see how the
There’s also a lot of activity concrete is curing so that you don’t
happening in Iraq right now. have to use as much cement.
We haven’t invested in the But then we also look at the
country yet but we’re hoping to do materials that can be used to
so. The level of emissions that are replace some of the cement that
coming from oil production out of is coming from essentially burning
Iraq are staggering. If we can find limestone. One of our portfolio
the right way to do it – and it would companies produces some of
be on a consortium level – we can these materials, but it needs
make a tremendous amount of production facilities. And so, our
“ Let’s be honest: as climate impact there. investment team also includes
structured finance expertise to
a global community, That’s one of the key drivers support those portfolio companies
we haven’t done in CI’s decision-making
process: invest in jurisdictions
by providing them with project
finance, being the equity sponsor
a great job of where the firm’s capital can for getting these facilities built.
have the most impact, but Ultimately, the success of our
ascribing the cost of also in jurisdictions where efforts will be when on project
emissions to what policies are supportive for
financial investors. Though the
three, four, five, or six, we’re
attracting more traditional
we do ” examples Mackey has referred investors. n

Insight
People OMERS poaches CPP energy P I P E L I N E
MD as new global infra head News flow from our

subscriber-only email
 Keeping Vocus
O
MERS Infrastructure has Wallace herself replaced M&A activity in the telecoms sector
hired Michael Hill to Berg as OMERS’ global head of continues apace Down Under,
become its new global infrastructure in April 2021 before as TPG Telecom is in talks over
head of infrastructure following the her departure in May this year to spinning out another of its business
departure of Annesley Wallace in become executive vice-president at units following the sale of its towers
May, Zak Bentley reports. TC Energy. portfolio to OMERS Infrastructure in
The Canadian pension group Since then, OMERS has come 2022.
has hired Hill from compatriot CPP under the spotlight in the UK as Now TPG has received a non-
Investments, where Hill has been the largest shareholder – with a 32 binding, indicative offer worth
since 2016, serving as managing percent stake – of Thames Water, approximately A$6.3 billion ($4.1
director and head of Americas in its after it emerged that the billion; €3.8 billion), for a sale-and-
sustainable energies group. UK government had drawn up leaseback of its non-mobile fixed
Hill, who starts his new role in plans for temporary nationalisation fibre assets from Vocus Group, the
September, was also the head of amid the company’s burgeoning firm jointly owned by Macquarie
CPP’s New York office, where he debt levels. Asia Infrastructure Fund 3 and Aware
will continue to be based, with It emerged last month that OMERS Super.
the role previously based in had cut the value of the company in TPG’s board has granted Vocus
Toronto. its accounts by 28 percent at the Group a period of exclusive
As part of his role at CPP end of last year. OMERS and the due diligence that expires on 6
Investments, Hill sits on the board of other shareholders have agreed September to firm up its offer.
Canada-based Wolf Midstream, US to inject a further £750 million
oil and gas company Encino Energy ($963.3 million; €825.5 million),  Clean energy veteran
and North American renewables on the condition this “is supported Breckenridge calls it a day
group Cordelio Power. Prior to by appropriate regulatory John Breckenridge, president
his arrival at CPP, Hill was head arrangements”, it said in a statement and CEO of Arevon Energy and a
of Americas M&A and corporate last month. veteran of private markets and clean
finance at Nomura. Closer to home, OMERS also energy investing, is retiring. He will
recently acquired a minority stake be replaced as CEO by Kevin Smith,
Projected growth in Beanfield – a fibre infrastructure another energy-markets veteran who
Hill will report to OMERS chief network servicing company was recently the CEO Americas for
investment officer Ralph Berg, operating across major cities in Lightsource bp. Breckenridge will
who said in a statement that Canada, from DigitalBridge. serve as a senior adviser at Arevon
“infrastructure plays a core Also in July, it teamed up with to help with the transition.
role in our global investment APG Asset Management to With a career spanning nearly
strategy”. acquire energy infrastructure 40 years, half of it spent in private
Last year, in an interview with solutions company Kenter, equity investing, Breckenridge was
Infrastructure Investor, Wallace operating in the Netherlands and the global head of clean energy
revealed the group’s plans to Belgium. n for Capital Dynamics for close to
grow its infrastructure allocation eight years, prior to helping set up
10.2%
from 20 to 25 percent by 2027, Arevon, a clean energy platform.
doubling its asset class assets under The latter was founded two years
managerment to about C$65 billion ago with backing from a consortium
($49.3 billion; €44.8 billion). The comprising the Abu Dhabi
strategy has generated a five-year OMERS Infrastructure’s Investment Authority, APG Asset
average net return of 10.2 percent to five-year average net return to the Management and the California
end of 2022
the end of 2022. State Teachers’ Retirement System. n

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Insight
US Government proceeds with wind projects, a technology shift in

the auction that some attribute to
offshore wind auctions despite the reduced interest. Additionally,
‘growing pains’ Bonsignore sees the Mid Atlantic

projects’ proximity to large East
Coast urban hubs as another
T
element that may attract investors.
he Biden electricity production capacity, on 29 More likely than not, the prices
administration August. In the Mid-Atlantic, BOEM reached in the New York Bight
opened the US Mid was seeking public comment until auction will not be repeated for US
Atlantic region for the end of August for 4GW-8GW of offshore wind. But are the troubles in
land lease auctions at potential production capacity. the offshore wind industry enough
the end of July and Why the underperformance last to depress prices below what
will hold auctions for offshore wind time around? Michael Bonsignore, was seen in California? And how
plots in the Gulf of Mexico in the energy and infrastructure partner at concerning do industry players find
coming weeks, auctioning at least Clifford Chance, says: “I do think it’s these issues?
7.7GW of capacity, Isabel O’Brien a general view of the market itself.
writes. This is despite the ongoing The PPA discussion with SouthCoast Macroeconomic headwinds
PPA troubles in New York, Rhode Wind [in Massachusetts] informed Bonsignore counts himself among
Island and Massachusetts that the auction process out in California. the offshore wind optimists. He
have threatened to derail several I think we’re going to have that same calls issues in PPA negotiations and
awarded projects, as well as the kind of more reasoned approach environmentalist group backlash
underperformance of the last US towards the investment on these “growing pains” for a still nascent
offshore wind auction in California, [Mid] Atlantic projects.” industry. This most recently occurred
which raked in a mere $757.1 million The issues that informed the in early August, when Protect Our
in December. California auction are still ongoing, Coast NJ and Defend Brigantine
The Bureau of Ocean Energy but there are some key differences Beach filed a lawsuit against a
Management was planning to this time around. First, the proposed tax break awarded to a project
auction three areas off the Gulf of projects in the Gulf of Mexico and recently approved in the state being
Mexico, promising about 3.7GW of the Mid-Atlantic are not floating developed by Denmark’s Ørsted.
“ Even if you expect

a problem, it’s still
a problem that you
have to deal with.
This results in the
factors that have led
to the renegotiation
of the PPA [for the
SouthCoast Wind
project] ”
Michael Bonsignore
Clifford Chance

Insight
“None of those growing pains are

unexpected. But even if you expect
The big numbers
a problem, it’s still a problem that
you have to deal with. This results
 Statistics can also tell a story.
Here are some worth noting
in the factors that have led to the
renegotiation of the PPA [for the
SouthCoast Wind project].” The generative
€8.5bn
AI opportunity
He also counts problems with
“is going to be
supply chains, rising construction
at least as big
costs and labour shortages among as the public
these short-term issues. Interest cloud market Amount Antin Infrastructure Partners had
rates, too, fall into this category. was over a raised for its fifth flagship fund as of the end
“The cost of capital has risen as of H1
decade ago”,
interest rates have continued to
rise. These projects are borrowing
substantial money. Because these
are such massive projects, making
DigitalBridge’s
Marc Ganzi said
during
the company’s
$3.9bn
Amount Global Infrastructure Partners
Q2 2023 paid to acquire a 40% stake in TC Energy’s
sure you have enough capital at Columbia Gas Transmission and Columbia
earnings call Gulf Transmission
the outset, enough capital to do
56.16%
tax equity investing and term loan
construction [is difficult].”
And of course, there is the ever-
present issue of the grid, an area
where some investors are getting
Ups Percentage by which demand for
&
52%
electricity cabling is expected to
inventive. “Getting onshore and increase by 2035, according to energy
into the grid is another issue,” downs consultancy Xodus
Bonsignore says. “I’ve seen some
Percentage of
companies evaluate buying up investors who would
battery plants as storage plants, just consider abandoning
£469.8m
“Or maybe they an M&A deal if ESG
offshore, where they could store criteria aren’t met, a
are responding
their projects’ energy once it comes to pressure
KPMG study found
onshore.” from attorneys
Enterprise value of Gresham House based
But there are still existential threats general and on the 1,105 pence/share Searchlight Capital
to the offshore wind industry that other people Partners offered to acquire the firm
go far beyond the title of “growing who are anti-
pains”. Take security – across the
$7.6bn
ESG,”
pond, Europeans are seeking to
beef up security on offshore sites David Larcker,
in the North Sea, as war on the a professor Infrastructure’s fundraising total
at Stanford’s in H1
Continent has made them likely
300,000
Graduate
targets for attack. But Bonsignore is
School of
not so sure that these risks are being Business told the
talked about. The proposed Mid Financial Times,
Atlantic projects would service the commenting on Number of hours untreated sewage was discharged from storm
Washington, DC area. overflow pipes into protected areas across England and Wales,
S&P deciding
according to Greenpeace
“In terms of the security itself to drop its
for [these Mid Atlantic offshore ESG numerical
4bn yuan
wind] projects, I haven’t had those ratings
discussions; I haven’t really seen
too much chatter on that from the
people we talk to,” Bonsignore
 Total Singapore-based GLP Capital Partners has raised for its
says. n GCP China New Energy Fund I, its first renewable energy vehicle

Insight
I
t isn’t perhaps the most
obvious of pairings: the
former chief executive of
Italian utility giant Enel, who
is arguably one of Europe’s
energy transition pioneers,
and EQT, which has €119 billion
in AUM across the world but not a
particularly strong energy profile.
However, Francesco Starace sees
his entry into private infrastructure
as a natural one following on from
Enel, he tells Anne-Louise Stranne
Petersen.
Enel Green Power manages
59GW of renewable energy capacity
and may be the world’s largest
renewable energy company. Starace,
who led Enel Green Power since
its founding in 2008 until 2014,
when he became CEO and general
manager of Enel, has therefore
not just had a front-row seat to the
energy transition but taken part in
shaping it. He sees opportunities
for infrastructure investors in the
continued addition of renewable
capacity and the development of the Interview
grid.
“Every year, Europe is connecting
Transition needs
to its networks 50,000MW to ‘complicated’ mix of
60,000MW of renewables that
start generating and displacing solutions, says EQT’s Starace
an equivalent amount of energy
produced by thermal generation,”
he says. “This will continue for at
least a decade, I think, before you planning and much more follows appliances and heating solutions
hit the last difficult replacement the interest [that] factories and the that will consume a lot less and so
regions. Then there is a huge economy have in disengaging from forth.
need for additional investment in this dependence [on Russian fuel]”.
high-, medium- and low-voltage The sudden lack of gas also put The importance of storage
networks, [as well as] in the digital the finger on the need for improved “[With the onset of the war in
transformation of these networks, energy efficiency, and this will Ukraine] I think we all discovered
which is necessary if you want help keep the demand for new how much energy we were wasting
to electrify consumption around generation capacity down. “So far, without knowing it. Europe all of a
Europe.” we have seen that the efficiency sudden saved 15-20 percent of its
Starace mentions how the shock you throw into the system more or gas consumption just because gas
to the supply of fuel following less offsets the additional demand became so expensive that people
the Russian invasion of Ukraine for electricity. Going forward, when stopped wasting it. We have an
in 2022 is an example of how millions of cars turn electric, demand incredible [amount of] waste in the
decarbonisation “follows its own growth might prevail. But there will systems that we really need to be
strange pattern, which eludes central be millions of more efficient home conscious of.

Insight
“Storage is a central element of 600 Celcius can be provided by assemble in a factory rather than
the decarbonisation journey and these technologies already. So that’s outside in the middle of a site. The
presents opportunities well beyond a parallel path that is already starting future belongs more to factories
the common lithium-ion battery to show.” than to large construction sites
storage facilities, Starace says. so, yes, this is something that
“Flexibility assets will be pervasive A mix of solutions can happen. I think it is possible
in the energy system. Today, we Starace says the important thing to provided that the industry restart
have a technology that basically is remember is that an effective energy from scratch without trying to put in
the result of the automotive industry storage strategy will require a mix of the factory all the mistakes we were
developing lithium-ion [batteries]… solutions, and that this will put stress making in the field, because then
but I think you will see other storage on the network and provide new this would be a disaster.
technologies in parallel with them opportunities. “I don’t think you can “I think it would be very useful
[presenting longer-term storage say there is one or two technologies for Europe and the world if we
opportunities].” that will solve the problem. There had a safer, less expensive and
The amount of money that can will be a complicated array of non-nuclear-proliferation-exposed
be made from short-term batteries different storage media that will technology available. Time-wise,
is currently well above the potential work together. And we will continue if you’re talking about commercial
profits in longer-term storage. But to mix systems on the generating investments, it will be after 2040.
society needs that longer-term side too. Before then it’s just [investing in a
storage desperately to counter the “In between these things, we prototype rather than a fully-fledged
intermittency of wind and solar. never talk enough about what needs asset]. For a proper [infrastructure]
investment case, you’re looking at
2040 forward,” he says.
“ The digital transformational network Europe still leads

is the key to getting everything to work Looking back over the past decades,
Starace says Europe’s frontrunner
in a seamless fashion. The opportunity status on the energy transition is
for investment here is huge ” something to be proud of.

“We started all this, we triggered
the interest of the industry and
basically initiated the whole
“There’s nothing wrong with to happen to networks, how they transition in its industrial phase.
easy money, but there is also the need to adapt to this new reality. Then, we were able to keep the
future easy money, which today Our networks were installed over wind industry alive and kicking, but
doesn’t appear so easy. You must the past 70 years, and they are we dropped the ball on the solar
have a view of what’s going on in not designed for this technology industry and partially on the battery
the system and prepare yourself evolution. However, they can accept side of it.
for when it comes, but we have it, provided they are digitised. And “There’s no reason why we
to understand that things cannot the digital transformational network did that other than probably out
happen all together at the same is the key to getting everything to of complacency and a lack of
time.” work in a seamless fashion. The perspective on the future this
Among those other technologies, opportunity for investment here is industry had.”
Starace sees potential in thermal huge.” He is optimistic about the future,
storage, such as molten salt, sand Starace began his career in the which befits a man who has just
and rocks. These techniques have nuclear industry and has a degree chosen to enter new employment at
an advantage in that they fulfil an in nuclear engineering. He sees the age of 67.
industrial need, he explains. potential in the new small modular “Basically, Europe still has a very
“Thermal storage is coming also nuclear power plants being bright future, and I think Europe
because some industries need heat. developed around the world. remains at the forefront of this huge
They don’t need electricity only, they “The basic concept [of modular transition, notwithstanding these
also need heat. And heat at below plants] is to standardise and past mishaps.” n

Insight
A
proposed
green hydrogen
project in remote
Western Australia
represents a
“different way” of
developing infrastructure projects
with the consent and involvement of
indigenous people, according to its
shareholders, Daniel Kemp reports.
The East Kimberley Clean Energy
Project is being developed by the
Aboriginal Clean Energy Partnership
(ACEP), an organisation that is
equally owned by the traditional
owners of the land, MG Corporation
and Balanggarra Aboriginal
Corporation, as well as the
Kimberley Land Council and climate
change investment firm Pollination.
The four partners are equal Australia Aboriginal groups go ‘from
shareholders in ACEP, which
oversees the development of the
stakeholders to shareholders’ in
project, billed as Australia’s first green hydrogen scheme
hydrogen and ammonia production
hub that will be 100 percent
powered by renewable energy.
The team has completed project the project will require capital while Pollination provided the
scoping. Stage one involves expenditure of around A$3 billion technical expertise, the involvement
building a 900MW solar farm, which ($2 billion; €1.8 billion). of KLC and the two landholding
would be the largest in Australia, “We’re entering a feasibility entities would help to de-risk the
and a 50,000-tonne-per-year phase now, having done a scoping project from an early stage thanks
hydrogen production facility on study over the last eight months, to the ability of Aboriginal groups
MG Corporation freehold land near to take the project through to influence the process and help
Kununurra, WA (pictured). Solar an integrated environmental, ensure appropriate approvals are
energy will power electrolysers to engineering, heritage, native title, in place before any potential equity
produce green hydrogen that will approvals development process. partners come on board.
be transported to the existing Port of Then we will come to market later “It also mitigates the risk for First
Wyndham via a new 120km pipeline. this year or early next year with an Nations, ensuring that infrastructure
In addition, Ord Hydro, an investable product that has all the is built in appropriate areas, and
existing hydro scheme initially built indigenous land use agreements there is no potential damage to
to power the now-closed Argyle in place, marketing it to large-scale cultural heritage, no environmental
diamond mine as well as the local institutional and strategic investors.” concerns and making sure
towns of Wyndham and Kununurra, Following a targeted final employment and procurement
will provide baseload power to investment decision around October outcomes are built into the planning
an ammonia production facility in 2025, the scheme aims to be of the project,” he says.
Wyndham. That facility will produce operational from the start of 2029. “There’s a notion that First
around 250,000 tonnes of green Nations people are impediments to
ammonia each year, to be used both A different approach development, but we just haven’t
locally and exported via the port. Also speaking to Infrastructure been afforded the time to try and
Pollination head of projects Rob Investor, Kimberley Land Council have equity in projects or negotiate
Grant tells Infrastructure Investor CEO Tyronne Garstone says that equal terms, and [influence] how we

Insight
“ It says to a renewable energy [to do that]. If AI DigitalBridge

they really want to try and meet
developer: ‘If you the timelines they’re ambitiously touts aspirations
want to come and
reaching for, there has to be a
strategy in trying to work with First
amid $1.2bn
do something on Nations groups – and this project is
showing how it can be done.”
flagship
our country, you Grant echoes this and says that it fundraise
was Pollination’s role to help develop
need to come and the scheme before connecting
work with us’ ”

G
investors with the partnership, once enerative artificial
the project is sufficiently de-risked. intelligence took the lead
Tyronne Garstone
Kimberley Land Council
“This is quite different to what in DigitalBridge’s Q2 2023
you see in the resources sector, earnings call early last month, as the
where a lot of this engagement group also revealed that fundraising
is left quite late, it’s drawn out in Q2 tallied $2.7 billion in total –
and it’s distributed. It isn’t a exceeding Q1’s total of $700 million,
royalties discussion – in this case, Isabel O’Brien reports.
we have land use agreements or The flagship strategy – Digital
want to see things rolled out on our lease agreements with freehold Bridge Partners III – raked in an initial
country.” landholders who are also $1.2 billion or 15 percent of its $8
Garstone says that creating shareholders, and then we all share billion target. It also raised $900
an equal partnership between in [the distributions of the project we million for co-investment strategies,
an infrastructure developer and create]. with another $600 million for core,
First Nations groups in this way is “Obviously by the time we go credit and liquid strategies.
“elevating free, prior and informed through the capital investment This comes soon after filings
consent to the highest standard”. stage we will be diluted, but we revealed its new core strategy –
“It says to a developer: ‘If you want to stay as big investors as we DigitalBridge Strategic Assets Fund
want to come and do something possibly can in our own project as it – raised $1.05 billion, just over its $1
on our country, you need to come progresses.” billion target. The vehicle is still in
and work with us.’ It’s about trying to Initial funding for the scheme market.
shift us from being a stakeholder to will be provided by grants from Aside from providing an update
a shareholder, trying to get equity several organisations as well as from on fundraising – the firm is on track
in the company to get as much Pollination’s own balance sheet. to meet its targets – CEO Marc
value across the supply chain of the Garstone says the East Kimberley Ganzi also spoke at length about
project as possible, which is a critical Clean Energy Project is “unique” but DigitalBridge’s asset management
part [of this]. And noting the lack that the principle of sharing equity plan being aligned with AI.
of capital… that First Nations have with First Nations groups to create According to Ganzi, over the next
to try and get [to get] this [type of] a true partnership with them can be three to five years, the generative
project off the ground, it’s going to replicated elsewhere. AI takeover will need “edge data
need some innovative thinking from “The critical thing for us is seeing centres, fibre, cell towers and small
governments. First Nations people and affording cells”, as well as “things like metro
“The reality is we need to them the capital resources to fibre capacity that are in the order of
decarbonise Australia and we need do the initial upfront work like magnitude larger from cloud service
environmental [and] heritage providers, which is why you’ve
50,000
consultations and infrastructure seen some of our fibre revenues
build, because it would be nice for pick up and the growth in fibre and
First Nations groups to be taking enterprise fibre pick up”.
projects to the marketplace instead He added that the generative AI
Tonnes of hydrogen the East of waiting for providers to knock opportunity “is going to be at least
Kimberley project will produce on our door and tell us what the as big as the public cloud market
annually once completed
project is.” n was over a decade ago”. n

Insight
R
ising interest to enter the fund, which is likely and cheaper to administer and this
rates and inflation to take until the first half of 2024, new fund setup has such obvious
have presented according to van der Geugten. benefits in the eyes of van der
a challenge to He describes the situation as a Geugten that he is surprised there
dedicated core win-win for LP and GP alike: “We get are not more available in the
infrastructure very competitive fees because €600 market.
investors, and persistently high million is a big ticket, but Nuveen “The development has been
fund fees have not helped. To get benefits by putting a large fund in relatively slow. One reason is
a perfect fit, Dutch pensions asset the market that hopefully will grow that other investors, like German
manager MN found that the solution to be a renowned fund within the insurers, still prefer closed-end
to their needs was a tailor-made renewable energy space.” funds for regulatory reasons. This
open-ended fund, Anne-Louise Having just one LP to deal with makes it more difficult to persuade
Stranne Petersen writes. should make things a lot easier investment managers to set up
MN manages assets for eight
Dutch institutional clients, among
them pension funds PMT, PME and Investors Why Dutch pension
Koopvaardij.
“Along with PMT, we developed manager MN decided to go bespoke
a strategy three years ago focused
on low-risk, stable cashflows and
operating yield – and low fees,
particularly no performance fees.
As we found nothing that suited our
needs, we decided to look
for a partner to implement our
strategy. In Glennmont Partners,
we found an excellent partner to
start a tailor-made open-end fund,”
says Marco van der Geugten,
MN’s senior portfolio manager,
infrastructure.
The solution was the Nuveen
European Core Renewable
Infrastructure (NECRI) fund,
launched last September. Now
up and running, NECRI clinched
its second deal in July, when it
announced the acquisition of
a 15 percent stake in the fully
commissioned Dutch 731.5MW
Borssele III & IV wind farms
from Swiss manager Partners
Group.
MN – on behalf of PMT – is by
design the only external LP in NECRI
with a €600 million commitment.
NECRI’s only other investor is TIAA,
which owns Glennmont/Nuveen
and backed the fund with €100
million. Seventy-five percent of
PMT’s money must be called before
other external investors are allowed

Insight
open-end funds. Still, we are seeing

some very interesting funds coming “ We still see funds with a hurdle rate of
to the market.”
5 or 6 percent. In the current market, with
Fees under pressure the increased risk-free rate, that is really
An alternative to an open-end fund
such as NECRI, could have been a not ok ”
co-investment, except this would Marco van der Geugten
demand more of the LP. For MN, MN
which has €135 billion in total AUM

and €2 billion invested against a doing some co-investments within “Generally, we don’t work with
€2.65 billion target allocation for our private equity programme. first timers. We want an experienced
infrastructure across MN’s pension And, given the fees that we pay in team – one that has had its share
fund clients, this is not feasible at the infrastructure compared to the fees of errors and been through a
moment. that we pay in private equity, private full cycle. So we tend to invest
“We are a relatively small team equity is the more obvious place to in later vintages. Performance
and don’t have the capacity for start with co-investments,” van der and a consistent track record are
co-investments yet, but we are Geugten says. important, and the investment
But those lower infrastructure fees process needs to be repeatable.
are under pressure as the balance ESG is very important for us as well,”
of power is shifting because there is says van der Geugten.
less capital available from LPs. “There are not a lot of high-quality
“With the denominator effect, GPs that fit those requirements.
fundraising is becoming more However, we have been able to
difficult, even for renewable find some good managers that
energy. This obviously affects were willing to work with us,” he
our negotiating power, and we adds.
find funds are really open to MN’s previous investments have
lowering their fees. Except for the included CIP’s flagship funds III
performance fee, which is still very and IV, as well as SUSI Energy
difficult to change and remains a key Storage Fund and Luxcara Fund IV.
concern for us,” van der Geugten The absence of mega-funds is no
says. coincidence. “If we were to commit
He prefers management fees to to a multi-billion-dollar fund, we
be well below 100 basis points and would have limited negotiating
is very critical of performance fees: power,” says van der Geugten.
“We still see funds with a hurdle
rate of 5 or 6 percent. In the current Valuation worries
market, with the increased risk-free Aside from looking for low-cost
rate, that is really not ok”. solutions, one issue that is currently
He is unapologetically on the side of particular interest for MN is
of keeping costs down: “MN and valuations, and the LP worries
our clients are very cost-conscious, about what the right price is for an
which we should be because we asset.
€600m
are not investing our own money “At the moment, we are interested
but the money of the pensioners in in valuations and finding out to what
the pension schemes. I think that, in extent sellers have adjusted to the
general, Dutch institutional investors new normal. Are they incorporating
are quite cost sensitive.” the higher risk-free rate? Will they sell
Amount MN has committed
There is very little hope for at lower prices? We care deeply that
to Glennmont’s NECRI fund
newcomers when MN makes our managers do not pay too high a
commitments. price,” says van der Geugten. n

Insight
Fundraising Itochu, SMTB reach first close on inaugural

$2bn North American renewables fund
which has been in operation for four
years. According to a press release
from Itochu, Tyr Energy owns and
operates over 30 power plants in the
US and has a pipeline of 2GW (or 20
separate assets) of solar. However,
these investments were not made
via a fund.
New opportunities
Itochu has previously fundraised
in sectors such as real estate,
technology and venture capital, but
until now, had not yet stepped into
renewable energy.
“The core assets [the fund will
seek] will be solar and wind farms.
The fund is also targeting hydro
and storage [not standalone, but
coupled with solar plants],” says
Inoguchi. He says the regions of
most interest to the fund will be the
PJM and MISO networks.
J
apanese firm Itochu, in “ We heard that For SMTB, Itochu’s track record
collaboration with Sumitomo was a key factor in the decision
Mitsui Trust Bank, has Itochu was going to partner. “We’ve had a deep
launched its first-ever North
American renewable energy-
to make their North relationship with Itochu... In recent
years, we heard that Itochu was
focused fund, named Overland America business going to make their North America
Capital Partners, targeting a $2 business bigger. So we thought,
billion final close expected in bigger. So we ‘This is our chance to [deepen] that
one year’s time, Isabel O’Brien
reports.
thought, ‘This is our relationship’... And in terms of our
company policy, we have a budget
The first close for the fund was chance to [deepen] for impact investment [and carbon
reached in June 2023, Itochu said in neutral investments].”
a statement. It did not disclose the that relationship’ ” But that’s not the only reason.
amount, although Nikkei Asia has Inoguchi continues: “Considering
reported a current fund size of $500 According to Rui Inoguchi, an the market opportunity in North
million. There will also be a hard- investment development officer with America – the IRA launched last
cap to the fund, the company tells SMTB, the fund will target a net IRR year – we think that renewable
Infrastructure Investor, but declines between 7 and 9 percent in either energy will show a great [amount of]
to state the size. operational projects or those under development in the future.”
The first close was reached with development. Additionally, the fund At the moment, SMTB has no
commitments from Japanese LPs will have a 10-year lifespan, making plans to increase its investment in
Tokyo Land Corporation and Fuyo six to 10 separate investments. the fund, Inoguchi says. He adds
General Lease Co, alongside initial The fund will be owned and that the vehicle does have a co-
commitments from Itochu and operated by Itochu’s wholly owned investment programme for investors
SMTB. subsidiary company, Tyr Energy, looking to co-invest. n

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Insight
Renewables The heat is on energy “When we look at some of the

renewable platform deals that have
transition investors to ensure been done and paid for, as you peel
pipelines become reality back what underlies that valuation,

in many cases, we can only attribute
about 30 percent of the value to
the operating portfolio. Seventy
Comment percent of that value is attributed
to the pipeline of projects,” Brent
Burnett, managing director and
Expert analysis by Zak Bentley head of real assets at Hamilton
Lane, told Infrastructure Investor,
speaking broadly about the sector’s
T
he heat is turning up for of 1.9GW of assets under operation valuations.
energy transition investors. and construction, plus a mammoth “As you peel back the pipeline
Quite literally, in fact, with 12.7GW portfolio of projects in of projects, we think some of those
temperatures in the US reaching 56C “different stages of development”. are very early stage and in order
and 49C in Europe this summer. The Tion Renewables – the German for some of those deals to make
climate crisis is escalating. developer in which EQT’s Active sense, you really have to take a
So it was welcome news when, Core Infrastructure fund acquired pretty aggressive view on what your
mid-July, Copenhagen Infrastructure a majority stake in March – has a power prices are going to be, where
Partners announced a €5.6 development pipeline of 5GW. you can strike PPAs, where your
billion first close for Copenhagen merchant power you’re going to sell
Infrastructure Partners V, slightly Where’s the value? into [is priced]. You have to take a
short of half its €12 billion target. On the face of it, these examples and pretty aggressive view that you can
There’s no shortage of development others all seem like great news. The convert some of those earlier stage
opportunities for CIP, with the group energy transition has both the supply pipeline projects into operating
telling a media briefing that there and capital to make a meaningful ones.”
are currently more than 40 projects difference, with greenfield The climate crisis, the need to
and potential investments of €20 developments increasingly being replace ageing generation and
billion in Fund V’s pipeline. funded by traditionally conservative renewed government support –
CIP is not alone in having a healthy infrastructure investors. However, there are plenty of tailwinds for such
pipeline. Finnish outfit Taaleri also not everyone is convinced that large large pipelines, but investors also
recently clinched a €286 million pipelines will deliver the bottom line need to be pragmatic about this
first close for its SolarWind III required. industry. The supply chain disruption
vehicle and seeded the fund with that has come alongside grid issues
50 development projects, which, if and rising costs in the past couple
they were all to reach fruition, would
“ Not everyone of years was only exacerbated in
represent 7.7GW of capacity and is convinced that July when Siemens Gamesa, the
require €2.6 billion of equity. world’s second-largest wind turbine
Healthy energy transition pipelines large [project] provider, reported that between 15
are not the sole proviso of funds, and 30 percent of its worldwide fleet
either. Spain’s Opdenergy – the IPP
pipelines will deliver was faulty and needed replacing,
Antin Infrastructure Partners is trying the bottom line aggravating the generally unhealthy
to take private for €866 million – finances of Siemens and its peers.
reported in May it had a portfolio required ” For those gigawatt-scale pipelines,
becoming both operational and
profitable is perhaps the biggest
challenge facing energy transition
investors. n
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Insight
Geopolitics The race to diversify Instead, the bank is looking to

invest in the access roads and
supply chains is on transmission lines that these projects
require. But “these projects have to
be on the critical minerals list”, Shah
stressed, referring to minerals like
lithium, graphite, cobalt, manganese
Comment and platinum. “All of these are
examples of critical minerals that
are needed for our energy transition
Expert analysis by Kalliope Gourntis and our net-zero targets for 2050,”
she added.
“There’s a lot of activity taking
O
ver the past several place around the world [in an effort
months, there has been to diversify supply chains],” Bajnai
a steady flow of news said. “Some of it is visible and some
underscoring the increasing tension of it isn’t.”
between China and the West, and That’s the good news. The
the mounting geopolitical risk that not-so-good news is that building
comes along with it. As a result, alternative supply chains will take
three Canadian institutions – Ontario many years. If some analysts’
Teachers’ Pension Plan, the British forecasts about China taking control
Columbia Investment Management of Taiwan prove accurate, decoupling
Corporation and CDPQ – have from China’s supply chain altogether
paused their investment activities about alternatives to China but are may not be possible.
in the country, to varying degrees. also looking to build new supply “Every company should be taking
So too has Singapore’s sovereign chains. seriously the potential for militarised
wealth fund, GIC, and Dutch pension “Many manufacturing facilities are confrontation between China,
manager APG. moving down to Southeast Asia or Taiwan, and possibly international
While none of the above examples back to the US,” Gordon Bajnai, head players in the next five years,” Tina
directly relate to infrastructure of global infrastructure at Campbell Fordham, geopolitical strategist
investment, the growing geopolitical Lutyens and former prime minister and founder of Fordham Global
tension with China over its plans to of Hungary, told Infrastructure Foresight, said during a webinar.
reunify Taiwan with the mainland has Investor. The rare minerals that have She wasn’t addressing the
direct implications for the energy been sourced in China until now infrastructure investment community
transition. “will be replaced partially or entirely specifically, but infrastructure GPs
The reason for that, of course, is over time, moving over to Australia and LPs who have invested in
that China dominates the rare earth or Africa”, he says. “So, there will be Taiwan’s offshore wind sector – and
supply chain, which includes mining, more investment going into mining there are a number of them – would
processing and manufacturing. funds.” do well to heed it. What happens if
According to Marsh McLennan, China takes control of Taiwan? Could
China accounts for 60 percent of Enabling infrastructure we expect expropriations such as
global rare earth mined production While mining is more a target for the ones the Kremlin carried out in
and 85 percent of processing private equity investors, the Canada April when it took control of Russian
capacity. It also dominates the Infrastructure Bank (CIB) has zeroed subsidiaries of Finland’s Fortum and
production of solar PV modules, in on the sector for the enabling Germany’s Uniper?
accounting for 75 percent of global infrastructure it requires. In our current era of polycrises,
production in 2021, according to “We’re not in mining, so we don’t perhaps the best advice would be:
Statista. look at exploration and early- ‘Hope for the best, prepare for the
The good news is that both stage development,” Divya Shah, worst.’ n
policymakers and the business a managing director at CIB, told
community are not only thinking Bloomberg recently. [email protected]

Insight
Energy storage Bankable lithium-ion technologies in order to mitigate

potential underperformance.
batteries may run out of charge Operators could add extra capacity
when systems are new, or replace
units later. A high proportion of
arbitrage in revenue could spur
Comment degradation, reducing the visibility
over the pace at which an asset loses
capacity.”
Expert analysis by Isabel O’Brien Also important are issues of supply
chain, both from a geopolitical and
an ESG perspective. For example,
L
ithium-ion batteries are one operators have employed, makes for China hosts over 60 percent of the
technology out of a myriad a risky endeavour indeed. world’s lithium refining capacity;
of utility-scale energy storage North America only has four
options on the market. However, Negative and positive recycling facilities. Additionally,
none of its competitors have proven Fitch Ratings agrees. According to a there are the widespread labour
to be as successful when it comes to report in July, the risks of arbitrage and human rights issues attached to
securing bank financing. and degradation combined have lithium mining, including child labour
For the most part, this can be had an outsized negative impact on violations and allegations of slavery.
chalked up to the electric vehicle lithium-ion batteries, making them Those, coupled with the reality that
industry. As EVs use batteries with as risky or even riskier than typical the current rate of lithium extraction
the same chemical makeup, supply thermal peaking plants. worldwide is not nearly enough to
chains are more robust, at a cheaper “Batteries are subject to fast meet projected demand, does not
cost. Securing a loan for the lifespan degradation with the useful life of paint a hopeful picture for the short-
of the asset can be straightforward utility-scale lithium-ion versions term resolution of these issues.
for a sophisticated investor with far below the estimate for solar Finally, what if the primary
good relationships and a decent panels. Degradation rates and life advantage lithium-ion sees in the
business plan. expectancy of battery storage mainly financing market turns out to be
However, it seems many in the depend on use (frequency, depth of its Achilles’ heel? While EVs have
industry have conflated being able discharge and the style of operation), helped to ensure a robust supply
to get a reasonable ROI in a few as well as battery chemistries chain, they also hold the most sway
years with lithium-ion’s capacity to and external conditions, such as over how it operates. Energy storage
be a long-term, top-tier player in the temperature,” the report stated. players will always take a back seat.
energy storage space. The latter is a “Moreover, they require more Technologies like sodium-ion
questionable assumption. frequent replacement than the batteries, gravity batteries and
For starters, lithium-ion batteries main equipment in other energy hydrogen as a fuel show immense
degrade, with some estimating promise. Smart investors should
a useful life of between two to recognise that lithium-ion batteries
three years, going up to 10-15 “ Many have will likely act as a placeholder in the
in the most generous cases. burgeoning energy storage market,
According to Norton Rose Fulbright, conflated being able to be replaced by one or more of
standard warranties for these
batteries are typically just two
to get a reasonable these technologies once they reach
maturity.
years, though extended warranties ROI in a few years When all is said and done,
can be purchased for up to 10. arguably the most attractive
This, combined with challenges with lithium-ion’s component to lithium-ion batteries
in hooking up new utility-scale
buildouts to grids worldwide,
capacity to be a for utility-scale energy storage is
their bankability. For how long will
alongside the newborn energy long-term player in that be enough? n
arbitrage-based business model
that some lithium-ion based BESS energy storage ” [email protected]

Insight
Editor’s letter
Full to the brim New York

130 West 42nd Street
Suite 450
with energy
New York
NY 10036
T: +1 212 633 1919
London
100 Wood Street
London
EC2V 7AN
T: +44 20 7566 5444
Kalliope Gourntis Hong Kong
[email protected] Room 1501-2, Level 15,
Nexxus Building,
No. 41 Connaught Road, Central,
Hong Kong
T: +852 2153 3240
T
hat title could apply to many things related to our September issue, Infrastructure Investor
Published 10 times a year by
beginning with our cover story. We may have taken a ‘break’ from our print PEI Group. To find out more about
publication, but our team has expended lots of energy to ensure that we PEI Group visit pei.group
would welcome you back with a magazine full of insightful and thought-provoking © PEI Group 2023
content. It’s why members of our editorial team travelled to Toronto, New York
No statement in this magazine is to
and London to meet with Brookfield’s Sam Pollock, Connor Teskey, Natalie be construed as a recommendation
Hadad and Hadley Peer Marshall. Turn to p. 22 to find out why “unconventional to buy or sell securities. Neither
this publication nor any part of it
pioneers” is an apt description for one of the industry’s heavy hitters. may be reproduced or transmitted
Another reason energy applies to in any form or by any means,
electronic or mechanical, including
this issue is because of the numerous
articles dedicated to energy storage, “ Our team expended photocopying, recording, or
by any information storage or
from an in-depth look at Macquarie’s lots of energy to retrieval system, without the prior
permission of the publisher.
battery platform Eku Energy (p. 31) Whilst every effort has been
to a detailed conversation with six ensure... a magazine made to ensure its accuracy, the
publisher and contributors accept
industry experts on a range of energy full of insightful and no responsibility for the accuracy
of the content in this magazine.
storage technologies (p. 34). Batteries
are also the topic of our Getting thought-provoking Readers should also be aware
that external contributors may
Technical column (p. 59), where we content ” represent firms that may have
an interest in companies and/or
look at iron-air batteries that make their securities mentioned in their
contributions herein.
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And speaking of innovation, on p. 2, James Mackey of Climate Investment, Cancellation policy You can
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European Greenfield
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Brookfield has a vision
for the future – and
it’s building it
Senior execs Sam Pollock, Connor Teskey,
Natalie Hadad and Hadley Peer Marshall
take Bruno Alves and Zak Bentley
through some of the manager’s less
conventional choices, and how
it’s expanded to – cautiously –
embrace them
Se
pt
em
be
r 20
23
•
in
fra
st
ru
ct
ur
ei
nv
BR e un eers
es
to
r.c
om
OO con
Th ion
p
KF ve
IEL ntio
D na
l
EX hat’s for
W ore ttery e?
TR in
st a g
A
b ora
st
Co
v er
st
or
y

Cover story
:
ER
PH
K
EI
RA
TH
G
BA
TO
RR
O
PH
A
C
LO
U
G
H
Infrastructure Investor 23
Cover story
“I think we’re now in

a 10- to 20-year period
where countries will
reshore or realign critical
manufacturing and critical
energy infrastructure”
SAM POLLOCK

Cover story
in the region than many other global their decarbonisation or energy transi-
infrastructure managers. It led it to start tion goals.
investing in data centres in June 2018, “As those two things – develop-
when few of its peers had done so. And ment and, let’s say, becoming more of
it is reflected in the unusually high 25 a solutions provider – became more
percent GP commitment it makes to and more a part of our business, that
each of its infrastructure funds, through was really the impetus to launch BGTF
listed entities Brookfield Infrastructure I. And our LPs were looking for that.
Partners and Brookfield Renewable The market opportunity was huge, and
Partners. we thought we could be a leader.”
When it is put to Pollock that Scale is a big part of the energy
Brookfield has built a $161 billion transition. But even if Teskey admits
AUM infrastructure business by being BGTF I closed “right at the high end”
a contrarian at times, the man respon- of Brookfield’s expectations for it, the
sible for driving that since it began in point is not “to be big for the sake of
2008 delivers a rather more traditional being big”. “What we have found is that
infrastructure response. having those large-scale dollars allows
“When we think about when we us to execute on not only the most im-
W
make a long-term investment, some- pactful but also the largest and most at-
hen we met times being contrarian, the first part tractive decarbonisation investments”.
Sam Pollock, of it is taking a long-term perspective, Offering a big fund also allowed
chief executive to try to make sure that we don’t get Brookfield to capture the growing LP
of Brookfield’s caught up in the negative sentiment of appetite for the energy transition, he
infrastructure the day,” he says. “The second thing says. “Increasingly, we are seeing large
business, at the that we focus on is the capital flows. institutional investors have direct allo-
sprawling Brookfield Place in Toronto, You have to step back and assess: where cations – whether those are hard or soft
it was days after wildfires in Québec is all the capital needed for the next 10- allocations – to sustainability or transi-
had wreaked havoc, spreading smoke 30 years? And get in front of that tail- tion or decarbonisation.
across Canada and into the US, mak- wind. Getting in front of digitalisation “And it’s not solely because every
ing Toronto and New York among the and decarbonisation now obviously LP around the world recognises the
most polluted cities in the world with seems like a no-brainer, but not every- need to decarbonise. It’s important
the worst air quality, and cancelling one could see that eight years ago and to recognise that many are increasing
thousands of flights in the process. how important it was going to be.” allocations towards this space simply
It was a timely reminder that Brook- because they think it can offer very at-
field Asset Management, with last year’s Betting on the energy transition tractive, risk-adjusted returns.”
$15 billion closing of its Brookfield Brookfield’s much-vaunted BGTF I is That brings us to an important
Global Transition Fund I, manages the a good example of the manager’s ability point regarding Brookfield’s transition
world’s largest vehicle focusing on the to glimpse the future and then marshal strategy.
energy transition. the resources to go after it. “We are adamant that there is no
It was also a reminder that, with “Probably around 2015, we began to return discount because our Transi-
no airports in its portfolio, Brookfield see two things changing within our op- tion fund focuses on decarbonisation,”
is no ordinary infrastructure manag- portunity set,” recalls Connor Teskey, Teskey stresses. “We want the decar-
er, despite it now boasting the world’s president of Brookfield Asset Manage- bonisation angle and the value-creation
largest closed-end infrastructure fund, ment and CEO of its renewable pow- angle to be completely aligned. That
having revealed to the market in August er and transition unit. “One was, with creates a very actionable investment
it had raised $27 billion for Brookfield the growth in renewable power around thesis. It creates an environment where
Infrastructure Fund V, with a planned the world, the ability to do a lot more you can rally stakeholders, because if
close later this year after further com- development at very attractive risk-ad- decarbonisation and value creation are
mitments. justed returns. And the second was aligned, you completely avoid that po-
Brookfield’s unconventional infra- that, increasingly, more and more of tential conflict. It really is an opportu-
structure approach means it has taken our equity deployment went towards nity to do well by doing good.”
significant bets in South America (c$20 working with a counterparty – almost Business transformation, which
billion AUM), a much larger presence always a corporate – to help them reach focuses on transitioning individual

Cover story
businesses, is probably the Transition of a good or service, like biofuels, that potential, whether it’s life extensions
strategy’s highest-profile investment helps decarbonise a large number of existing facilities or new plants, such
theme. The prototypical deal is the ac- of businesses” – and clean energy – as the contracts it recently won for Po-
quisition – together with EIG’s LNG “that’s renewables development, pretty land’s new nuclear programme.
platform MidOcean Energy – of Aus- straight down the fairway”, says Teskey. Another technology that is also key
tralian energy generator and retailer Clean energy includes nuclear, which to the future is hydrogen. “A large
Origin Energy. It is large-scale – it has Brookfield wholeheartedly endorses. In number of people get very excited be-
an A$18.7 billion ($12.5 billion; €11.6 an indication that nuclear is perhaps not cause hydrogen burns clean, and that’s
billion) price tag attached – and ambi- as straight down the fairway as other great. The other thing that is very in-
tious in scope, with Brookfield aiming types of clean energy, the Transition teresting about hydrogen is it also rep-
to spend a further A$20 billion over strategy’s first deal in the sector came resents a long-term storage solution, so
the next decade to build 14GW of new through the $8 billion purchase of ser- that excites us.”
renewable generation and storage facil- vices provider Westinghouse, in part- Mostly, though, Teskey is enthusi-
ities, to help decarbonise Origin’s gen- nership with uranium provider Cameco. astic about how many decarbonisation
eration fleet. “Nothing would stop us from investing solutions are seeing their cost curve
“By building that replacement ca- in nuclear power at the generation level,
pacity to shut down coal, we will hope- but it’s always about, ‘Are we getting an
fully drive emissions down by more attractive entry point and an attractive
than 70 percent over the next decade,” risk-adjusted return?’” Teskey says.
Teskey explains. “To put that into per- Westinghouse, which has its tech-
spective, a 70 percent emissions reduc- nology embedded in 50 percent of the
tion at Origin is equivalent to an 8 per- world’s nuclear power plants, offered
cent reduction of emissions across all an appealing infrastructure-like cash-
of Australia – that’s not an insignificant flow and risk profile. “This business
decarbonisation story.” does not take construction risk, does
The other two investment themes not take commodity risk, and does
for the strategy are sustainable solutions not take nuclear liability risk,” Teskey
– “where we invest in the production explains. It also has plenty of upside
Brookfield manages the largest closed-end flagship and core infrastructure equity offerings, the world’s largest transition fund and one of the largest
infra debt funds
Fund I Fund II Fund III Fund IV Fund V

0 5 10 15 20 25 30
Flagship
Debt
Transition
Super-core
*Flagship Fund V, Debt Fund III and Transition Fund II all still in market (targets displayed)
Source: Brookfield Asset Management, 31 March 2023

Cover story
drop dramatically. Given that the ener-

gy transition will need a mix of solu-
tions and different technologies, “the
more of these that pop up that become
commercial, cost effective and have the
right impact, that’s fantastic because
they all represent investment opportu-
nities for ourselves”, he says.
Latching on to deglobalisation
If decarbonisation and digitalisation –
two of the three themes driving Brook-
field’s infrastructure strategy – are also
heartily embraced by its peers, the third
– deglobalisation – is arguably where
the manager really strays from the pack.
Brookfield first started publicly talk-
ing about this theme in early 2022, ob-
serving the onshoring of critical supply
chains and industries, with a lens fo-
cused on the energy, data and transport
sectors. Pollock, however, tracks these
conversations back a little earlier.
“The trend towards deglobalisa-
tion probably accelerated during the
previous US administration, when we
saw protectionism starting to build up
a bit more, and governments focused
even more on where they sourced their
goods. That really precipitated with the
tensions with the two major economies
“We are adamant that

there is no return discount
because our Transition
fund focuses on decarbonisation”
CONNOR TESKEY

Cover story
– the US and China. I think we’re

now in a 10- to 20-year period where
countries will reshore or realign critical
manufacturing and critical energy in-
frastructure.”
He adds that Brookfield has “a num-
ber of LNG businesses where we’re
now looking to expand our footprint
significantly and so that will require
billions of dollars”, while also predict-
ing a new wave of ports investment.
“As manufacturing diversifies away
from China to other parts of the world,
everyone has a China-plus-one or Chi-
na-plus-two strategy.
“For instance, we are witnessing
manufacturing moving to India, where
we’re now seeing a lot more compo-
nents of iPhones being built. Vietnam from its early days and prior to the
is another big area where you’ll see a Russian invasion of Ukraine, invest-
lot of manufacturing move to. All those ing in deglobalisation is in full swing,
countries are going to need new ports marked most notably by the August
to deal with the additional capacity and 2022 announcement of up to $15 bil-
it will change the flow of goods and lion in funding for Intel to build a $30
where they enter countries. In the US, billion semiconductor manufacturing
there may be more investments into facility in Arizona.
expanding the capacity in ports on the
East Coast as well as Canada, where
It was an unprecedented infrastruc-
ture transaction, which raised eyebrows
“There’s
historically it’s primarily been on the
West coast.”
among some of its own LPs and fellow
GPs, per a variety of people we spoke no reason
Helping move goods along is Triton
why this
to. But Pollock says Brookfield was In-
International, the world’s largest own- tel’s “natural partner” to onshore man-
er of intermodal shipping containers ufacturing of one of the most critical
and the subject of a take-private offer
in April from Brookfield, valuing it at
components of the modern world. Cru-
cially, 60 percent of the world’s semi-
[super core]
$13.3 billion. First and foremost, Pol-
lock hails the cashflow of the business,
conductors are manufactured in Taiwan
and would therefore be at the centre of strategy can’t
but he also has other ideas for Triton.
go to $25
any conflict between Taiwan and China.
“Because they are interacting with “We looked at [Intel] and this
all the major shipping companies, they structure [as] not dissimilar to how we
have a great database of where the
boxes are going. As a result, it gives us
looked at the data sector a number of
years ago, where hyperscale companies
billion-$30
unique intelligence to make decisions
on where we should be supporting in-
were looking to have people build and
finance data centres,” says Pollock, who billion in
frastructure around the world, as well reveals the deal took about a year from
as where the future trends are leading origination to agreement. “Construc- the next five
towards. I think it has that dual impact: tion, production and commercialisation
good cash returns and that informa-
tional benefit. It’s going to be huge for
risk stays with Intel. That was their
choice – to retain certain risks to bring
years”
our transportation business.” down the cost of capital.”
NATALIE HADAD
Ports and LNG aside, which Brook- Speaking of critical components,
field had already been leaning into Pollock says the CHIPS and Science

Cover story
Core: the $30bn dream

In between the closing of the $14bn Brookfield Infrastructure Fund III and the launch of its
successor, the manager added another string to its bow
Brookfield may not have known it at the time, but the $17 billion deployed overall in about 15 transactions,
mid-2018 launch of the open-end vehicle Brookfield including co-investment. Crucially, they all must fit within
Super-Core Infrastructure Partners was to be the start of the 8 percent net return target and have overwhelmingly
a renewed interest in core infrastructure from some of the fixed-rate financing structures.
asset class’s major players. “[The pillars are] long-term contracted or regulated
“What we found is there’s many assets out there that revenues, conservative, prudent financing structures,
our clients would love to own as an alternative to fixed inflation protection, and a significant portion of the total
income but don’t meet the thresholds of returns that we return coming from current yield,” says Hadad. “When
get in our more opportunistic funds,” chief executive we see the other products in the market, we don’t see
Bruce Flatt explained at the time. There was, though, those same characteristics.”
another motivating factor, as a longing Brookfield gazed at That will get tested in today’s macroeconomic
the market during 2017. conditions, but Hadad is unconcerned about the impact of
Natalie Hadad, managing partner and co-head of rising interest rates on the product.
the fund, says: “In the US, there were a series of “It’s very simple. Our super-core fund is a perpetual
utility transactions that, at that time, if we vehicle, and as such, we underwrite investments on
would have had the super-core fund, we a permanent hold basis, and we look for long-dated
would have pursued. Similarly, there cashflows. Second of all, every single one of the
were utilities in Europe that came to investments that we have in our portfolio has inflation
market that we didn’t have the right protection and we expect new investments to follow that
vehicle for.” profile.”
The initial reception took time, Hadad With that in mind and five years into BSIP, Hadad
admits, although by the end of 2020 it had reached has a bold prediction for the next five years. “There’s
$4.1 billion and now stands at over $9 billion. And no reason why this strategy can’t go to $25 billion-$30
while BSIP eventually got its hands on those US and billion in the next five years. There’s certainly the pipeline
European utilities it coveted, similar assets have also been of opportunities in the market and there’s the investor
acquired in Australia and the Middle East, with around appetite for the strategy.”
Act, which authorised $280 billion in A new subsector for the ever-wid- long-term cashflow stream that’s highly
funding to bolster US manufacturing ening infrastructure landscape, then? secure, that’s essential for the home and
and passed into law two weeks before Not for Pollock, who says Homeserve that’s where Homeserve fits in.”
the deal was announced, was “a criti- is actually a “tuck-in” acquisition to a There are the infrastructure buz-
cal component of making the project deal Brookfield secured in 2018 to buy zwords again, but Pollock admits that
itself financeable and economic for Enercare, a residential energy leasing LPs needed questions answered. “Effec-
Intel”. business. And it’s all under the decar- tively, think of our long-term cashflow
bonisation banner, he says. stream as a regulated asset base that
Powering future homes “We call it a demand-side decarbon- we’re building. Once we explain exact-
A few months before the Intel deal last isation business where we effectively ly what we’re trying to do to investors
year, Brookfield went a little closer finance various utilities and appliances and what the cashflow profile looks like,
to home than the onshoring of semi- inside a home,” he says. “There’s a huge they understand why these demand-side
conductors with the £4.1 billion ($5.3 secular trend towards more energy-ef- decarbonisation businesses are attract-
billion; €4.8 billion) take-private of ficient appliances and equipment inside ing infrastructure companies.”
Homeserve. Another route that few the house, but also, because of their
infrastructure GPs have taken, Home- high upfront cost, consumers need in- The cautious pioneer
serve is a UK-based home repair com- novative ways to get financing. So pro- For all its less conventional bets, one
pany, with significant operations also in viding a rental or financing product for might be surprised to find that Brook-
the US, Canada, Spain and France. them allows us to effectively create a field’s returns are neither outsized nor

Cover story
Expanding with credit

While chief executive Bruce Flatt may have pointed in
2018 towards super-core as an alternative for fixed-
income investors, Brookfield had already created
such a product within its infrastructure suite
Brookfield closed its Infrastructure Debt Fund I on $885

million in December 2017, having launched the product
with a $700 million target in June 2016. The third of the
series, which targets net returns of between 6-7 percent for
its mezzanine strategy, has exceeded its $4 billion target. viewed as
“We found that we do pull from the fixed-income more valuable
bucket and the alternatives bucket, but the fixed-income now than ever.
bucket is interesting because from that segment it is hard And then of course,
to get exposure to infrastructure,” Hadley Peer Marshall, you’ve got the overall debt
managing partner and co-head of the business, tells us. capital markets and more
“That diversification becomes quite interesting when you’re disruption, so both of those
looking at the portfolio construction, and pulling from added together have allowed us to
there is quite advantageous.” see an opportunity set that has been
The strategy, investing across transport, renewables, expanded further and where we are viewed
utilities, data and midstream spaces is certainly flexible, as more valuable.”
with Peer Marshall stating that the fund can offer loans The opportunity set aside, nothing has
from $50 million to $500 million. In the case of Altitude changed for the infrastructure debt team from
Infrastructure, a fibre provider in France, it loaned an initial launch in 2015 to 2023, Peer Marshall insists.
$245 million in 2020, before adding a further $350 million “We have always had covenants so that we have early
the following year. warning signals, and for that nothing has changed. A
Peer Marshall shrugs off any concerns of future tighter credit market doesn’t necessarily mean we all of a
deployment in a dislocated debt market. “We are seeing sudden are getting more restrictive, because we were always
an opportunity set that is really looking to find capital in consistent in how we saw credit and what we thought was
a scarcer environment than there was before, so we are appropriate from a structuring perspective.”
abnormal. All of its four closed in- multiple of capital. I think our perfor-
frastructure funds are generating net “A tighter credit mance has been excellent.”
IRRs of 11-14 percent, as of the end of Having widened the strategy to
Q2 2023, with a 10 percent net return market doesn’t credit, core and energy transition in-
targeted by the series. frastructure, Pollock does not rule out
Pollock is unapologetic about this necessarily mean further segmentation.
and points out a key reason: “I think “The things that we will evaluate
where others might have some outper- we all of a sudden will be whether or not we have regional
formance can often be attributed to a funds for certain areas that have out-
shorter investment time frame where
are getting more sized deployment opportunities,” he
they sell things quickly. Shorter time says.
frames can enhance your IRRs, but re-
restrictive, because we “Sector-wise, the data sector today
duce your multiple of capital. were always consistent is a possibility. We have outsized op-
“We tend to hold on to our invest- portunities relative to what we put into
ments longer than some others, and in how we saw credit” our fund, but we’ll have to monitor that
so that will naturally bring down your to see if it levels off or if it continues to
IRRs over time because you’re not HADLEY PEER MARSHALL
go up.”
taking advantage of those quick wins, To end on a contrarian note, Brook-
but we benefit from a much-improved field is, as ever, the cautious pioneer. n

Analysis
Charging ahead
in the battery business
Macquarie’s battery platform looks for arbitrage opportunities as well as contracts,
and sees strong potential where constricted grids create price volatility and increase
the need for grid services, writes Anne-Louise Stranne Petersen
I
n a comparatively short span of Eku Energy is jointly owned by and handing over to former Vattenfall
time, energy storage developer the Macquarie GIG Energy Transi- executive Sandra Grauers Nilsson this
Eku Energy has gained a foot- tion Solutions Fund – launched a year summer.
hold in several major battery mar- ago targeting $2 billion – and British
kets, and it sees demand as only Columbia Investment Management Arbitrage in energy storage
growing. Corporation. Eku Energy develops, builds and man-
“The whole of Europe is hotting Morrison served as Eku’s first CEO, ages energy storage assets and has a
up for battery storage,” Chris Morri- launching the company into multiple 2.2GWh pipeline of battery energy
son, head of emerging technology at jurisdictions, before returning to GIG storage system projects in delivery.
Macquarie Asset Management’s Green In July, the company announced
Investment Group – the owner of Eku a partnership with European con-
3.9GW
– tells Infrastructure Investor. sulting, trading and develop-
“There is a lot of activity and ment group Renera Energy on the
many developers in the markets. Ita- development of no less than 1GW of
ly is particularly interesting because Energy storage capacity needed to
battery energy storage system (BESS)
of the inherent transmission con- meet the UK’s current need for power projects in Italy, as well as 130MWh of
straints with PV being generated in system flexibility, based on a peak battery storage projects in the UK.
hourly load of 53GW, and solar and
the south, while the demand is in the wind energy accounting for 31.2
The platform has homed in on mar-
north. Germany is a big market be- percent of the UK’s energy mix… kets in areas with congested grids and
10-19GW
cause there is so much renewable ca- limited access to relief. In addition to
pacity, and also Poland is decarbonis- the UK and Italy, it has also gone to
ing. Spain is a very interesting market Australia, Japan and Taiwan.
too, but has some regulatory develop- “We have gone to those countries
...if the intermittent share doubles,
ments required before being a viable per research hub Storage Lab
because they are – probably – the largest
market.” electricity consumer islands,” Morrison

Analysis
says. “They have few interconnectors

and are deregulated, except for Taiwan,
which is deregulating, and this creates
the opportunity to arbitrage volatile
power markets. We look for markets
with a disconnect between where en-
ergy is generated and the demand.” As
the business model is partially based on
arbitrage, it requires a route to market
that usually includes trading desks ca-
pable of buying and selling in hourly
slots.
In the UK, the arbitrage play would
typically involve energy being bought
at night when demand is low and sold
at peak hours in the morning and/or
evening when the lack of sun sends
supply lower.
Chasing arbitrage is not exactly the
typical infrastructure investment, and
Morrison explains that this had to be
addressed internally: “We aim to get a
certain proportion of the portfolio con-
tracted but are looking for exposure to
merchant pricing too where there is
significant opportunity for upside. As
an infrastructure investor, it has taken
us some time to get the team in Mac-
quarie more comfortable with that.”
Electricity storage sweet spot and it has an extremely strong supply investments in battery storage,” says
As ever more intermittent power is add- chain so it is easy to develop.” Morrison.
ed to the grid, the demand for ways to Lithium-ion batteries can ramp up According to Storage Lab, a re-
store surplus energy for when it is dark in less than a second, which means that search hub for electrical energy stor-
and/or the wind doesn’t blow is grow- they can fulfil the increasingly impor- age, around 3.9GW of energy storage
ing fast. tant function of balancing supply and capacity would meet the UK’s current
At the moment, lithium-ion batteries demand. This provides an important need for flexibility, based on a peak
present the best way for infrastructure alternative revenue stream to wholesale hourly load of around 53GW and solar
funds to address this issue, according to power trading, according to Morrison. and wind energy accounting for 31.2
Morrison: “We have looked at pretty Still, having the opportunity to trade percent of the UK’s energy mix. If the
much every other type of storage: com- power directly is important, as con- intermittent share doubles, modelling
pressed air, liquid air, carbon dioxide tracts for grid services may not be as shows a need for between 10GW and
and pumped hydro. But pumped stor- easy to come by in the future. 19GW of storage.
age is a long-build cycle and does not fit “Things like grid services get canni- But the path from idea to commis-
our typical fund term. balised very quickly, and the UK mar- sioned BESS project is often obstruct-
“Other assets typically have much ket for frequency regulation is already ed; battery farms need grid connec-
higher fixed costs and only become saturated. This is why we always look tions, and these are hard to come by
cheaper than lithium-ion batteries for underlying arbitrage opportunities. despite batteries providing flexibility
when you get to six or eight hours of Also, there will be no material cannibal- and stability to the grid.
duration. Crucially, this is too long for isation of arbitrage until quite high lev- “Transmission is the biggest con-
arbitrage opportunities as these de- els of penetration, perhaps as much as straint,” explains Morrison. “UK net-
crease significantly as the duration ex- tens of GWs. By then, we would hope work operators view battery storage
tends. Lithium-ion hits the sweet spot, that people have started to ease off on as a ‘worst case situation’, and model

Analysis
whether the system can cope if batter- “Australia and the UK will remain while the duration of the batteries de-
ies provide power during peak supply the key markets for us in terms of oper- grades with each cycle. We replace a
and withdraw at peak demand, when ating assets for the first couple of years, battery once it has degraded by 30 per-
in reality batteries do just the opposite. and then we will bring capacity on in cent, and this could be 10 or 15 years in
There is an accelerated programme of Japan and elsewhere,” says Morrison. the UK. In Australia, batteries are typ-
reform led by National Grid in the UK And he is nothing if not bullish on ically cycled fewer times and therefore
to review this issue, and we are hope- the asset class: “I see the 2020s as being have an expected life of 20 years,” says
ful that things will change. And we are to batteries what the 2010s were to so- Morrison.
starting to see more thinking like that lar and wind. By 2030, I believe we will Another factor to consider is that
in Europe and elsewhere.” see tens, if not hundreds, of gigawatts batteries are a good-but-not-perfect
of batteries on the global system.” storage solution for energy and that
Conquering Australia around 15 percent of the energy that
On the other side of the globe, the Aus- Batteries and sustainability goes into a battery cannot be re-couped.
tralian electricity short-term market is Despite battery farm batteries being less Also, to optimise performance, the bat-
settled on a real-time basis, rather than dense and using less nickel, manganese teries need to be kept cool, so each
power being sold forward. For an en- and cobalt than those used for electric battery container has air conditioning,
ergy storage provider, this provides a vehicles, they are a drain on the plan- which counters excessive ambient tem-
particular set of challenges and oppor- et’s limited lithium resources. At least, perature as well as the heat generated
tunities. the battery farms are being put to good during the charging and discharging
“In Australia, we see demand from use. “Overall, batteries will be used in cycle. And then there is the question of
electricity retailers who sell to retail the UK potentially up to three times a re-using the batteries, which is not only
customers on a fixed-term basis and day,” says Morrison, “though a charge premature but also problematic from a
buy power in the short-term wholesale and discharge will more often happen financing perspective.
market,” says Morrison. “This makes one and a half to two times a day.” “When you are building from a pro-
them very exposed to short-term vol- However, every charge and dis- ject finance perspective, you need war-
atility, so they look to batteries as a charge cycle will slightly degrade the ranties, and these are a lot more chal-
physical hedge; if the price spikes in the batteries’ ability to hold charge; this lenging with second-life batteries,” says
wholesale market, they can discharge a leads to a significant difference in the Morrison. “Furthermore, the ramp-
battery rather than buy power at a pre- lifetime of the various components of a up in battery storage and EVs is only
mium. That was what drove the Range- typical 25-30-year project. just beginning and, as batteries have
bank Battery financial case, which has “The transformers and grid connec- a lifespan of 10-15 years, it will take a
recently reached financial close.” tion have an asset life of 30 to 40 years, while before there is anything much to
The 200MW/400MWh Rangebank recycle. The recycling of batteries will
BESS project is a joint venture with become a big industry, but it is a ques-
Shell whereby the Dutch energy giant tion of timing for that investment.”
provides a 20-year offtake agreement
“I see the 2020s as Still, with lithium being a chemical
and will take full ownership of the rev- being to batteries what element there is hope that eventual-
enue streams of the battery. ly every lithium atom – no matter its
In Australia, grid services again the 2010s were to solar provenance – will be considered equal-
provide an alternative source of reve- ly creditworthy.
nue. “We recently won a tender with and wind. By 2030, Looking ahead, Eku Energy will
the Australian Capital Territory for the participate in a forthcoming long-term
Big Canberra Battery; it is a 250MW/ I believe we will see low-carbon auction in Japan. “This
500MWh project where the ACT will could provide a 20-year guaranteed
pay us a fixed fee for 50 percent of the tens, if not hundreds, of return on investment for storage assets
revenue generated by the battery for and flexible assets provided by the gov-
the first 15 years and, in return, we
gigawatts of batteries ernment,” says Morrison. There will
will provide grid service,” Morrison on the global system” probably be some arbitrage opportuni-
explains. ties too, if the company follows its usual
As Australia adds more intermittent playbook.
CHRIS MORRISON
power to its grid, batteries will be a vi- For this GIG platform, the business
Macquarie Asset Management’s
tal part of the system. And one that Eku Green Investment Group
case for battery storage is clear and the
will take advantage of. 2020s are fully underway. n

First and foremost, lithium-ion batteries are
used for short-term storage today. In a market
where they already dominate, are there other
technologies that could take their place?
Leung: We’ve seen flow batteries in

some transactions in the market.
Alex Leung is an infrastructure research

analyst at UBS Asset Management, which has an
Energy infrastructure franchise that covers private equity,

private debt, and also specific strategies such as
energy storage.
storage goes Leung: We’ve seen announcements of

them being used as well. So, there’s
definitely a role for them. And from
beyond
what I’ve seen and heard, the flow battery
market is growing rapidly. There are reports
saying they will become a multibillion-dollar
industry over the next decade.
lithium-ion According to SEC documents, UBS launched

a bespoke energy storage fund – UBS Storage
Investment Fund I – earlier this year, though
Leung couldn’t comment on it.
In August of last year, the asset manager
launched its energy storage strategy with a
In the energy world, storage has somehow purchase of 700MWs worth of lithium-ion
become synonymous with the lithium- battery storage in ERCOT. Whether or not
this was the first investment of the fund remains
ion battery. But what other opportunities unconfirmed.
are out there for investors? Six guests –
Leung: I know I sound like a
including developers, startups and infra technophobe, but I’m just trying to
GPs – discuss them with Isabel O’Brien point out all the hurdles that the
non-lithium-ion technologies have to tackle
before they can become more mainstream.
I
n July Infrastructure Investor spoke with six industry For flow batteries, these concerns include
experts from Spearmint Energy, UBS Asset Management, the space they take up due to having less energy
Mitsubishi Power, North Sky Capital and two energy density, the higher insurance costs, the issues
storage start-ups – Caldera and Gravitricity – to explore the securing bank financing and the less-developed
energy storage solutions that exist beyond the lithium-ion supply chains – when compared with their
battery, and where investors might seek to put their money lithium-ion counterparts.
in the coming years. Their responses have been edited for
brevity and clarity. Leung: But at a high level, flow
batteries have longer duration. There’s
little or no degradation. They’re not
flammable. As I said, they take up a little bit
more space, but that’s not as much of a
concern.

Analysis
They’re supposedly easier to maintain. Macnaghten: We’re very keen to talk

You can update that electrolyte solution in a to either wind and solar developers or
flow battery and it’s as easy as changing the end users of industrial heat in the [80 to
oil in a car. 200 degrees Celsius] temperature range that
And the term “flow batteries” is quite [Caldera heat batteries can provide]. That’s
broad, [including] a lot of other chemistries our core focus.
– zinc, iron, vanadium. There are so many of There is going to be this very large
CHARLIE BLAIR
them. But I think one actually non-lithium- surplus in all sunny parts of the world from Former managing
ion battery that looks interesting is the solar generation at the middle of the day and director, Gravitricity
sodium-ion battery; there were there will be excess generation. And that’s
announcements that giant battery companies where we come in and we go, it’s not worth
like CATL and BYD are getting into this putting an electric battery in to store
technology. And I certainly trust their electricity for two hours, but it is worth
judgment. putting in a heat battery.
Ying Lucy Fan, an investment principal at North But when it comes to utility-scale, Fan
Sky Capital, also sees the benefits. probably put it best.
ALEX LEUNG
Fan: For some of the augmentation Fan: For the most part, what we’re Infrastructure
projects where we’re looking to deploy seeing in terms of commercial analyst, research
solar plus storage at industrial sites, deployments, they don’t really require and strategy,
there might be occasions where we would durations above four hours. At that range, UBS Asset
Management
explore other technology types, such as flow lithium-ion reins.
batteries for depth of discharge, less thermal
runaway risk. Medium- and long-term energy storage is a
different ballgame, though. Gravitricity operates
Speaking of thermal, some battery in the medium-term space. Here’s Charlie Blair, a
technologies – such as thermal heat batteries – former managing director of the firm.
aren’t chemical at all. Here’s James Macnaghten,
chief executive of Caldera, a thermal battery Blair: We lift a very heavy weight to
storage developer. store energy. We’re putting energy into
the system by lifting the weight. It has YING LUCY FAN
Macnaghten: It’s anywhere between gravitational potential energy. And then we Vice-president,
eight and 24 hours of discharging, lower that weight back down again with the North Sky Capital
depending on what you’re matching it electrically driven winches running as
with. You normally want to charge it faster generators to discharge electricity back to
than you discharge – so, most breweries, the grid. So that’s a charge-discharge cycle,
distilleries, companies doing plastic very equivalent to charging a battery and
moulding. A lot of these large companies, discharging a battery.
the heat load is 24 hours, so they’re looking And that system is cost-optimised for very
to charge in short bursts when there’s surplus low levelised cost of storage for a, say,
generation. And then we want to feed the four-to-six-hour system. We can build a
heat out slowly. We’re interested in this system that has a 12-hour output duration. JAMES
space because when we compete against There’s nothing stopping us doing it, but at MACNAGHTEN
CEO, Caldera
lithium-ion, it’s a straight capital cost, and the moment, we’re not seeing a clear market
the cost of our material is significantly below opportunity for anything above about six
lithium-ion. It’s not flammable. It’s hours.
recyclable. It’s non-toxic.
Gravitricity aims to operate in abandoned
Outside of industrial purposes, there is room mine shafts, which – while abundant – are in
on the grid for thermal battery storage, though finite supply. Other similar startups aim to deploy
the efficiency losses are significantly higher than gravity-based storage technologies via raising a
those of lithium-ion. train on a hill or building a tower for a weight to

Analysis
fall down. While not yet commercially deployed batteries, but something that’s getting a lot
on a large scale, technologies like these, stand to of attention here in Colorado, where I’m
solve both degradation and efficiency loss issues. based, is hydrogen. Of course, anytime
There are other forms of gravity-based you’re talking about changing the form of
storage that are in commercial use, though the energy, you lose efficiencies, especially if
they’re long-term storage solutions. Pumped you’re going to convert it back. But
hydro is the most widespread. At the moment, HARI hydrogen is interesting because it can also be
over 90 percent of all energy storage in the world GOPALAKRISHNAN used as a direct fuel itself in power plants and
uses gravity. Manager, market also in hydrogen-powered vehicles.
The way it works is quite simple: when the intelligence and
strategy, Mitsubishi
grid is in excess or energy is generally cheaper or
Power America
more abundant, water is pumped up a hill to sit Golpalakrishnan: Green hydrogen
in a basin. When that energy is needed during a offers you the ability to shift energy
grid shortage, the water is let out of the reservoir. seasonally, or what’s also called seasonal
Typically, such facilities are quite large and have energy arbitrage.
been undertaken by governments.
Other gravity-based storage solutions include Hari Gopalakrishnan is a manager in the
compressed air and liquified air energy storage, market intelligence and strategy group at
which are the more burgeoning technologies in Mitsubishi Power Americas, a provider of
long duration mechanical energy storage. energy and power generation technologies.
Even alternative battery technologies have ANDREW WARANCH Mitsubishi Power is developing the ACES
thrown their hat in the ring for long-term Founder, Delta project in Utah – the world’s largest green
Spearmint Energy
storage. CATL, the world’s largest EV battery hydrogen platform – alongside partner Magnum
manufacturer, recently made a breakthrough Development.
in its battery density technology that promises
to provide up to 500MWh of energy storage – Golpalakrishnan: What we are starting
enough to power a commercial, medium-haul to see is a surplus of this renewable
flight. availability during the shoulder seasons.
Andrew Waranch is the founder of Spearmint The shoulder seasons in North America
Energy, a renewable energy and battery storage typically happen between February to May
developer. and also between October to December.
Now this surplus energy, which is available in
Waranch: What gets a lot of press and the shoulder season currently is being left on
talk in the community now is some of the table and it’s also referred to as
these longer-term iron flow batteries curtailments. Hydrogen, what it does is it
which might be, “seasonal” or “weekly gives you that ability to shift that to your
batteries”. They have their own challenges peak load season, which typically in North
because if you think about it, the price of America happens between July and August.
daytime power and nighttime power, it varies
quite a lot. And so, if I’m going to buy power, There are a myriad of energy storage
let’s just say in October when it’s cheap and technologies coming to market, some of which
try and save it till December when it’s more still reside in the venture capital space. But as
expensive, that has a lot of carrying cost. they mature they will present new opportunities
for infrastructure investors. n
It’s a phenomenon that Fan has noticed too.
Fan: Liquid metal batteries and Listen to

compressed air technology… both of
those we are watching as lead horses for
the full
longer term duration applications. And then podcast
there’s also the potential to store electricity
in other forms. So, we always talk about
here:

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Analysis
the operating company level was £3.5

billion. It was owned by RWE, and,
because they own more than one as-
set, they borrow money at the holding
company level. So RWE, classically,
was under-levered at the operating
I
company and leveraged at the holding
n October 2006, infrastructure Infrastructure Investor recently sat company.
funds managed by Macquarie Asset down with Martin Bradley, European That consortium bought the com-
Management led a consortium to head of infrastructure for MAM, for an pany for about £8 billion. There was
acquire UK utility Thames Water in-depth discussion of MAM’s owner- £3.5 billion of debt in the business,
in a deal with an enterprise value of ship of Thames, including its reasons so they received £4.5 billion of cash,
£8 billion ($10.3 billion; €9.3 bil- for re-entering the sector in 2021 with of which £2.3 billion was funded with
lion). It was the beginning of a wave of the acquisition of Southern Water. Our equity and £2.2 billion with debt. So,
global infrastructure funds investing in conversation, abridged and edited for debt increased by £2.2 billion and that
the sector. clarity, can be found below. was paid to RWE as proceeds – it didn’t
After a series of gradual sales, MAM come out to Macquarie investors. And
eventually divested its final stake in the
company in March 2017, but faced
criticism over Thames Water’s lever-
Q Financial sustainability
is at the heart of Thames
Water’s current problems.
then moving forward, we invested
more money in the business.
Over the period of our part owner-
age levels and record on leakage and During your ownership, ship, the company generated a cumu-
pollution. Those criticisms re-emerged Thames’ debt increased from lative EBITDA of about £11 billion,
recently after it was revealed the com- circa £3.5 billion to £11 billion. and it incurred about £4.5 billion of
pany was struggling with a debt burden What portion of that debt was debt. So that’s about £15 billion to £16
which had increased to £14 billion, used solely to maintain and/or billion of total funding. The company
prompting talk the UK government expand Thames’ infrastructure? invested £11 billion of capex over the
was drawing up plans for a temporary When a MAM-led consortium stepped same period, paid £4 billion of interest
nationalisation. into the company, the level of debt at and £1 billion of dividends.
This investment, by any metric –
whether investment per customer, in-
‘There’s nothing
vestment as a percentage of revenue
or asset base or investment in absolute
terms adjusted for inflation – exceed-
ed any other period of ownership at
in our returns that

Thames Water before or since.
Q That £1.1 billion in

dividends paid to MAM
I’m embarrassed and Thames Water’s other

shareholders – how much of
that total was funded with the
about’
debt Thames took on?
The profitability of Thames Water
outweighed the distributions by 10 to
one. The company’s resources, over a
decade, in terms of cash generated by
the business and external debt was circa
£15 billion to £16 billion. It wasn’t nec-
Martin Bradley, Macquarie’s European essary for the company to use debt to
head of infrastructure, walks Bruno Alves and pay distributions. The investors could
have invested less capex, but they didn’t.
Zak Bentley through the manager’s ownership When you look at total distribu-
of embattled UK utility Thames Water tions, you get to £1.1 billion. That’s a

Analysis
leakage improvement ever. When

MAM funds went in, Thames leaked
860 million litres of water a day and that
came down by over 200 million litres.
Pollution also improved by 75 per-
cent. What actually happened with
pollution is, the improvement plan was
very focused on leakage, in a general
environment which was less focused
on pollution. In 2012-13, Thames
had a number of pollutions at a single
site that individually didn’t register at
a board level. So those incidents were
operationally being dealt with, but they
were not something we had visibility or
transparency on as a shareholder. That
changed in 2013. This series of events
became clear. The Environment Agen-
cy got involved, and the board sudden-
ly registered there was a problem.
People focus on the fine awarded to
Thames Water in 2017 – and rightly
so. It was a mistake made within the
company, and the board and sharehold-
ers own that mistake. But what I would
ask for people to also appreciate is that,
between 2013-16, the company record-
ed top quartile performance in terms
of pollution incidents with a material
turnaround in pollution stats.
So, if I can come back to that £1
billion of distributions, did we think
we justified it? We felt the level of in-
vestment in the company and its per-
formance was evident and our investors
deserved their 5 percent yield, which
big number in total. But it’s cumulative put their money into a basket of listed was less than what they could get from
across 11 years. So, £100 million a year utilities. listed utilities in the stock market over
on £2.3 billion of original acquisition a similar period.
equity, you’re getting down to a sub-5
percent yield on that original amount
of equity.
Q Was the dividend
disbursement each year
based on performance that was Q You mention the leakage
turnaround, but in 2016-
If you look at a listed utility over being generated that year? 17, the company missed its
the same period, they were trading at In MAM funds’ 11 years of ownership, leakage targets and was fined
a 10 to 20 percent premium and would Thames Water experienced a level of £8.5 million.
have about 60 percent leverage. If we improvement in its three key KPIs that The reason we reference 2016 [in
compare distributions to revenue, or was remarkable, not just for Thames, terms of peak performance] is that
distributions to asset base, we are able but for the sector as a whole. MAM funds’ exit process started to-
to compare across companies. So, on On security of supply, Thames went wards the end of 2016 and from that
that basis, a pension fund investing from 22 to 100. In treatment-works point on our ability to affect opera-
with MAM funds in Thames Water compliance, it moved up to high-quar- tions was reduced. The remaining key
over 10 years got half the distribu- tile performance. In leakages, the com- shareholders were understandably keen
tions that they would have got if they pany had the industry’s second-highest to take charge of the transition. The

Analysis
“At the time, a 6.5x debt-

to-EBITDA ratio was
a high level of corporate
leverage, but it was no
different to what we
were seeing in the
utilities sector more
generally”
management team was changed during at Thames Water is not

this period and we had less influence as common today. But pre-
as a minority shareholder. The prac- GFC, water company WBS [whole
ticalities of transitioning are such that business securitisation] was very com- At the time, a 6.5x debt-to-EBITDA
your voice is understandably muted, mon. The debt structure itself, used ratio was a high level of corporate lev-
and that can be doubly true if you were in the Thames acquisition, was a UK erage, but it was no different to what
previously the dominant voice at the water utility product that was invent- we were seeing in the utilities sector
table. ed, advised and constructed by UK more generally. Interest rates today
banks. are no different to interest rates back
Q More than 50 percent of

Thames’ debt is variable
rate, RPI-linked debt. How
The regulatory guidance at the time
was to have a strong investment-grade
rating. Without the WBS, the debt
then. Inflation hedging is interesting,
though. The wisdom being at the time
that the regulator [Ofwat] assumed
much of that was put in place structure would probably have been long-term inflation of 2.5 percent, so
during your ownership? And rated BBB; with the WBS, the initial if you could get long-term inflation
did it occur to you this could rating was BBB+ and it increased to hedges for 3 percent, the company was
be a problem in the event of A-, having made operational improve- going to perform better than expecta-
an inflation and interest rate ments in the first three years. Alongside tions. And actually, because of the high
shock? that rating improvement, the debt was inflation linkage of the cashflows, tak-
We own the majority of the decisions converted into long-term, fixed-rate ing some of that volatility out of infla-
around the adoption of the original debt because we thought it was a more tion would be good, particularly if you
debt structure. The financing structure stable funding structure. can lock that in slightly higher. That

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Analysis
was just logical thinking in an attempt If we talk about the leverage struc- So, you have a combination of
to have long-term financial planning. ture in 2006 to 2008, pre-GFC, it things hitting EBITDA: lower regula-
We’ve moved to an inflation rate of didn’t look concerning that Thames tory returns, a higher cost base, more
10 percent. That’s unprecedented. This had 95 percent gross debt-to-asset fines and more penalties. That has
creates liquidity issues. A company base. Post-GFC, shareholders looked squeezed EBITDA by half and pushed
should get catch up on that, but liquid- at this WBS and we said: ‘You know up the debt-to-EBITDA ratio.
ity issues arise because there is a lag. If what? We need to take that down a
you are expecting interest rates to move
within a volatility of 2-3 percent, maybe
even 3.5 percent short term is managea-
little bit.’ So, we started deleveraging
the structure. Now, what you actually
see is the debt-to-asset base came down
Q In a 2018 presentation
to the South Carolina
Retirement System, a gross
ble. The liquidity does become an issue from 95 percent to about 88 percent 12 percent IRR and gross 2.7x
when inflation moves to 7-8 percent during MAM funds’ ownership. Debt- total return is attached to your
and that continues over multiple years. to-EBITDA stayed constant at around equity investment in Thames
That is what’s happening in the indus- 6-7x the whole way through until the Water. Do you think a 2.7x total
try at the moment. The investment last regulatory period, when it jumped return is a fair return for critical,
challenge is no more Machiavellian to 10x. That means the quantum of monopolistic assets where
than a simple liquidity squeeze. debt relative to the asset base did not consumers have no choice?
increase – in fact, it’s decreased, but the The cost of equity tightened post-
Q You say that

today’s inflation is
unprecedented. But is it not
cashflow generation of the asset base
has changed dramatically.
What has changed in that cashflow
GFC but pre-GFC, when this asset
was bought, investors were seeking a
10-12 percent return, which was low
the point of these water assets generation? One, the regulatory return relative to private equity returns at 20
and similar regulated assets to on capital has come down from 6-7 percent.
withstand these shocks? That’s percent to around 3 percent. That’s one The investors in MEIF2, which
the way they’re always sold to component of EBITDA. The regulato- exited in 2017, saw a gross return of
investors. ry settlement for what things cost has around 12-13 percent on Thames. In-
What is actually happening, sectorally, been squeezed. Second, the expectation cluded in that was a circa 4-5 percent
is around affordability of investment. on the company to provide operation- cash yield. At the same time, regulato-
If a utility isn’t able to pay dividends al excellence around environmental ry guidance in 2005 and 2009 pointed
and struggles to cover 85 percent of issues has gone up. Third, which I am to a 10 percent nominal return for the
debt-funded capital investments in an surmising from statistics around KPIs, average operator. Now, if you look at
interest rate environment that isn’t is more operational cost, which may be the company’s outperformance, the
unusual relative to history, it is hard to just an impact from inflation, or it may fact that shareholders made an extra
attract new investment. be operational efficiency. 2 percent, I think, is justified. The
return is driven by good operational
performance and high levels of invest-
Macquarie and its shareholders received a total of £1.1bn in dividends, amounting to a circa 5%
yield (£m, inc shareholder loans) ment, with customers experiencing the
250
third-lowest bills in the sector.
So, on our returns, there’s nothing
to hide. There’s nothing in our returns
200
that I’m embarrassed about.
Now, the public might say: ‘I don’t
150
get that’. Twelve percent looked high
in 2017, but MAM funds entered in
100 2006. £1.1 billion is a lot of money
but it is aggregated over 11 years and
50 Thames required a lot of equity. So, I
understand their frustration, but that is
0 an acceptable market return and was in
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 line with the regulatory guidance.
Distributions and shareholder loans were paid to shareholders in 2017 of £100m, but the
Q During your ownership

Macquarie funds were not entitled to the economic benefit of it under the Sale and Purchase
Agreement.
Source: Macquarie period, how would you

Analysis
assess the regulatory regime? Growth in asset base, followed by cost of debt outperformance, drove Macquarie’s total return
(Gross MOIC (x))
Did it and does it allow for the 0 0.5 1 1.5 2 2.5 3
actual opex and capex needs of
UK water companies? Initial equity
My personal view is the regulator is
there to fulfil a social mandate. Their Growth in asset base
mandate has always been financeabili-
ty, affordability and security of supply. Operating cashflow
outperformance
Now, they can’t serve all of those ob-
jectives at the same time equally. And Cost of debt
outperformance
post-GFC, the focus was on afforda-
bility. Other, including multiple
on exit
Water resilience needs investment.
I think that’s the biggest priority for Total return
the sector. The sector cannot get this
wrong, and at present we all need to Source: Macquarie presentation to South Carolina Retirement System Investment Commission,
challenge whether we would accept a June 2018
failure or shortfall that could take mul-
tiple years of shortages before it gets
rectified. I worry about that reality and But for a water-constrained area that ownership of Thames Water
who would explain that to the public. feels sub-optimal when we could be to your current ownership of
Water purity also needs to be invest- trying to absorb more rain into the Southern Water? What would
ed in, and that goes with water resil- ground. Ultimately, there’s a need to you do differently?
ience in terms of importance. And then prioritise but first we all need to engage When MAM funds went into Thames
pollution. And the reason I mention customers on the facts, without the hy- the focus was on big KPIs, big im-
pollution separately is not to play down perbole, to explain what’s needed. Try- provements. We’ve taken the same ap-
the importance of pollution issues, but ing to do everything will take quite a proach with Southern.
I am focused on what the water compa- bit of money. Southern was not a great perform-
nies can control. ing company. In the next three years,
If we take Southern Water as an ex-
ample, there are 20,000 pollutions per
year in the company’s region. If South-
Q What lessons have you
taken away from your
the company set itself the objective
of meeting its regulatory targets and
thereafter targeting top-half perfor-
ern fixes every single problem within mance on key drivers. That’s the am-
its control, everyone does everything bition. We’re not excusing failures; we
perfectly, every single day, there will will keep pushing to make the change
still be 19,700 incidents in the region. needed. Interestingly, Southern has the
By contrast, if caps were put on all “People focus on same securitisation WBS – it put it in
the storm drains owned by the highway place ahead of Thames – same infla-
agency and Southern operates as it does the fine awarded to tion, we have all the same issues. But
today, there’ll be 300 pollutions, and a we know we own these issues as soon as
very small number of serious pollu-
Thames Water in we made the decision to buy it.
tions. The highway and urban drainage
2017 – and rightly so. When we went into Southern, the
surface water issue is what the public first thing we did was tackle the capital
mostly see coming out of pipes. That’s It was a mistake made structure. And before this recent noise
why we call them combined sewage came up, we were already on a pro-
overflows. In simple terms, it rains. In within the company, gramme with them for a second equity
the majority of cases of heavy rain, it raise to do more in that because of the
does not pass through the treatment and the board and cost expansion and that liquidity crisis
sites unless it is caught in storage tanks that would need to be funded. We saw
to try to reduce the damage, otherwise shareholders own that that coming.
it comes out onto beaches. Have we learned from leverage
Now, Southern can look to address
mistake” structures? Yes, we have. We have ma-
more storm water in treatment sites. tured in our thinking around that. n

Analysis
R O U N D T A B L E
SPONSORS
ABRDN • ARCUS INFRASTRUCTURE PARTNERS • EURAZEO

INFRACAPITAL • PATRIZIA
The march of the

mid-market
Promising proprietary origination, value creation and reliable exits against a volatile
macroeconomic backdrop are the reasons why the mid-market has come into its own,
five infrastructure investors tell Amy Carroll and Kalliope Gourntis
T
he mid-market is soar- Furthermore, investors are looking you are largely reliant on the IPO win-
ing in popularity as in- more closely at how value is created, dow being open.”
vestors look to minimise given persisting high interest rates. Laurent Chatelin, partner and head
the negative impacts of “Large-cap core infrastructure is of infrastructure at Eurazeol, adds: “In
a punishing economic likely to command a return of around the mid-market, we are not simply re-
environment and access 6 to 7 percent. You are better off buy- lying on leverage, we are providing
some of the most disruptive and trans- ing government bonds,” says Maher. growth capital to create and develop
formative infrastructure trends. “The mid-market offers a much bet- platforms, we are building to core and
“Investors are proactively looking ter risk-adjusted return. Whether you generating value when we sell to larger
to increase their mid-market expo- are looking at core-plus, value-add GPs.”
sure. Part of that is driven by a more or opportunistic strategies, the re- In addition, dealflow for smaller
sophisticated approach to portfo- turn you get for the risk you take in ticket sizes is also more robust. “The
lio construction,” says Tom Maher, the mid-market is always going to be opportunity set is simply much larger,
managing director, infrastructure at better than in the mega-cap space while at the same time, many managers
PATRIZIA. and investors increasingly understand have drifted away from the mid-market
“If you are already invested with that.” over the past five to 10 years, raising
three mega-managers, investing in a Latifa Tefridj-Gaillard, head of cap- ever bigger funds, which has resulted
fourth is not going to add anything dif- ital formation and investor relations in attractive supply-demand dynam-
ferent to your portfolio. Investors are at Infracapital, agrees that the po- ics,” Tefridj-Gaillard explains.
also looking at the drivers of the infra- tential for value creation is key to the A further benefit provided by the
structure of tomorrow and recognising mid-market’s appeal. “LPs understand mid-market is the ability to source op-
that themes such as decarbonisation that there are more levers to be pulled portunities on a bilateral basis, accord-
are going to result in smaller, distrib- with small and mid-cap assets. They ing to Roger Pim, senior investment
uted assets, best suited to a mid-market also recognise that there is an easier director at abrdn. “The majority of
approach.” route to exit, while in the mega-market deals that we look at are also primary

Analysis
Roger Pim
Senior investment director and head of
strategy, business development, abrdn
Roger Pim has over 20 years’ experience

in private markets and been involved
in abrdn’s infrastructure business
since its inception. He is a member
of the investment and management
committees. Prior to joining in 2002, Pim
worked in Goldman Sachs’ corporate
finance team.
Tom Maher
Latifa Tefridj-Gaillard Managing director, infrastructure,
Head of capital formation and investor PATRIZIA
relations, Infracapital
Tom Maher is a member of
Latifa Tefridj-Gaillard joined Infracapital the investment committee for
in 2022. She is a member of the firm’s PATRIZIA’s mid-market European
investment and responsible investment infrastructure fund series as well as
committees. Tefridj-Gaillard was previously serving on a number of investee
head of European capital formation at company boards. Maher joined
DigitalBridge. She also spent more than PATRIZIA in 2022 as part of the
16 years at Goldman Sachs International acquisition of Whitehelm Capital.
in global markets and investment banking, Maher previously led Whitehelm’s
managing the formation of over $40 billion in business development and capital
funds across the capital structure. raising initiatives globally across
the infrastructure equity, high-
yield infrastructure debt and listed
infrastructure markets.
Laurent Chatelin
Partner and head of
infrastructure, Eurazeo
Prior to joining Eurazeo

as partner and head of
infrastructure, Laurent
Chatelin was a partner
at Marguerite where
he originated principal
investments, primarily in the
digital and energy space.
Chatelin also spent seven
years as a principal investor Ian Harding
in the European greenfield managing partner, Arcus Infrastructure Partners
and brownfield infrastructure
space at ABN Amro and Ian Harding was part of the team that founded Arcus in
Macquarie Capital. He began 2009. Prior to joining Arcus, Harding was part of Babcock &
his career at Nokia (formerly Brown’s European infrastructure team and also worked with
known as Alcatel-Lucent). Citigroup’s infrastructure advisory group and NM Rothschild
& Sons’ natural resources team.

Analysis
transactions and are typically priced

much more attractively than large-cap
deals.”
Investor appetite for the mid-market
does vary by region, however. “Many
of the large Middle Eastern, Japanese
and South Korean investors still appear
to favour global mega-funds. They
find scale benefits given the large tick-
ets they have to put to work,” says Ian
Harding, managing partner at Arcus
Infrastructure Partners.
Meanwhile, European mid-mar-
ket infrastructure, in particular, holds
most appeal among European inves-
tors, adds Harding. “North American
investors’ appetite has declined as a
result of the crowding-in effect caused “It isn’t always
by the Inflation Reduction Act. Many
US investors are keen to get money
about getting the last
back into North American infrastruc- euro out of the buyer.
ture as a result of Biden’s regulatory
programme.” Deliverability and
Tefridj-Gaillard, however, says that
while historically most investors in in- credibility become
frastructure funds have tended to stay
close to home, a shift has been tak- more important than
ing place over the past 18-24 months.
“Some of those large Middle Eastern ever in an uncertain
LPs, for example, are starting to reach
capital allocation restraints and so are
environment”
not as focused on getting big tickets out
of the door. As a result, they are start- IAN HARDING
Arcus Infrastructure Partners
ing to see more value in mid-market
strategies. We have also observed Asian
and North American investors gaining
appetite for Europe in recognition that
the region is leading the way in certain
fields such as decarbonisation.”
Maher found himself in Texas meet-
ing with a large American LP recently
that has made a specific commitment to
European mid-market infrastructure. the pre-deal phase is helping bridge the a bid according to a pre-determined
“Some of these investors are unable to gaps between buyers and sellers that timeline. That can result in a discon-
invest in the mid-market themselves have been pervasive in private markets nect in terms of information and re-
because of their minimum cheque sizes over the past year. “It may take six to 12 lationships. In contrast in proprietary,
and concentration limits but are work- months to develop a transaction in the mid-market transactions you have the
ing with funds of funds and consultants mid-market. It can even take multiple opportunity to build a relationship with
instead in order to build a mid-market years,” says Pim. the other party which means that issues
portfolio.” “In a typical large-cap auction pro- get discussed and expectations can be
Meanwhile, an emphasis on build- cess, a buyer will be presented with managed. This includes developing
ing relationships with counterparties in information and then asked to submit a relationship with the management

Analysis
Greenfield vs brownfield...
... or maybe olive or yellow. Which plan works best for you?
Greenfield investing in the mid-market has inevitably Others believe a blend of brownfield and greenfield
been impacted by soaring inflation, but appropriate provides the optimal risk/reward profile. “There are a
structuring can mitigate many of these risks. number of ways in which you can add value. You can buy
“We have a separate greenfield infrastructure cashflow through M&A or you can build cashflow through
platform run by a team with project finance and greenfield,” says Ian Harding of Arcus Infrastructure
construction finance backgrounds. That team spends a Partners. “In a low-cost environment, building the
lot of time drilling into the detail of the cost component cashflow through greenfield adds more value because you
of construction and negotiating with suppliers to ensure are not having to pay a premium for buying an existing
additional protections in contracts,” says Infracapital’s business. But, in an inflationary environment, at some
Latifa Tefridj-Gaillard. “Innovative structures point it will become cheaper to buy than to build. We
such as earn outs, where contingency payments are have what we call an olivefield strategy – a combination of
made to sellers when projects come to fruition and brown and green. We buy operational brownfield but then
hedging around energy costs and FX are important as grow those assets either organically or through M&A.”
well.” Roger Pim of abrdn says: “It can be quite difficult to
Eurazeo’s Laurent Chatelin adds that greenfield discern what proportion of our portfolio is brownfield
investing has always been about how you hedge yourself and what proportion is greenfield given that we are
against what could go wrong. “Today, the emphasis on always looking for accretive opportunities.”
mitigating the risk of capex overrun and delays through “We refer to the blend of brownfield and greenfield
structuring is higher given the macro environment. as yellowfield,” adds Tom Maher of PATRIZIA. “We
However, in my experience, that risk is more perceived often supplement brownfield investing with bolt-ons
than real when you have the right mitigants and structure or growth capex. That means you get all the benefits of
in place and is counterbalanced by the value that can be greenfield investing but with downside protection. You
captured once an asset becomes operational.” have something there to fall back on.”
team and ensuring you fully under-

stand and diligence any issues.”
The quality of the relationship is
increasingly a key determinant of deal-
making success. “Sellers are starting
to adjust their price expectations in
“Large-cap core infrastructure recognition that buyers have a higher
cost of debt to factor into their finan-
is likely to command a return of cial models. However, over the past six
around 6-7 percent. You are better to nine months we have observed that
deliverability and credibility are almost
off buying government bonds” as important as price,” says Harding.
“Family-owned businesses and en-
trepreneurs want to know they are
TOM MAHER
working with someone they can trust to
PATRIZIA
look after their people and who will de-
liver on what they have promised. It isn’t
always about getting the last euro out of
the buyer. Deliverability and credibility
become more important than ever in an
uncertain environment.”
“Relationships are key in the
mid-market,” agrees Chatelin. “We

Analysis
were involved in a management buy- the management team valued. In the As a result, mid-market dealflow
out process recently where we didn’t mid-market, what you bring to the ta- remains robust. “Rather than experi-
proceed to the next round because our ble is more than just capital.” encing any slowdown, for us the bigger
bid was too low. But six weeks down Meanwhile, in terms of closing the challenge is being sufficiently selective
the line the company called us to say bid/ask spread that has inhibited deal- given the number of opportunities we
that the other parties didn’t understand flow in many markets, relationship are seeing in the market,” says Pim.
what they were trying to achieve, and building provides the opportunity to “Furthermore, we have not seen a ma-
they wanted to work with us as we create structural solutions that work for terial shift in valuations. The reality is
shared a common vision in develop- all parties, according to Maher. “Over that valuations of our existing invest-
ing the business. Within a day we had the course of the relationship build- ments are typically based on discount-
come to an agreement based not only ing period, it is usually possible to find ed cashflows and most financing is fixed
on value but also on the way the invest- mutually beneficial outcomes including for the long-term and fully hedged.
ment was to be structured to enhance earn outs and long-term incentive ar- “Yes, rising rates have had an im-
downside protection. rangements that ensure our risk on entry pact on the pricing of new investments
“As the manager of an Article 9 is minimised while value created collec- but this can be factored into the price
fund, we were also able to provide a lot tively on the journey is shared, thereby and given our long-term horizon has
of expertise in the area of ESG, which maximising alignment of interest.” been relatively modest. In contrast,
rising inflation has had a positive effect
for many assets offsetting some of the
increased financing costs. Some less
experienced investors seem to believe
that this has suddenly become a buy-
er’s market and that we should be able
“The big incumbents are to buy assets on the cheap. In reality, if
you are buying high-quality businesses,
making lots of money out that is definitely not the case and the
impact is more nuanced.”
of the old ways of doing Harding adds: “Public markets re-
act quickly to shocks but we are long-
things. It is small and term investors. Macro factors tend to
medium-sized businesses
that are leading the
transition”
LAURENT CHATELIN
Eurazeo
“In a volatile market,

lenders are likely to reprice
risk and place greater
scrutiny on business plans,
just like buyers are, but
financing is still there”
LATIFA TEFRIDJ-GAILLARD
Infracapital

Analysis
average out over the cycles. Interest

rates and inflation will normalise, so
there is no pressure to adjust valuations
on a knee-jerk basis.”
Increases in the cost of debt also take “Rather than
longer to flow through to mid-market
valuations because there is typically less experiencing any
leverage in these businesses. “For exist-
ing assets, debt is based on long-term slowdown, for us the
fixed rates and for new assets, leverage
is still a relatively small component of bigger challenge is being
the capital stack and so the cost of fi-
nancing has not materially impacted
sufficiently selective
mid-market valuations,” says Maher. given the number of
Tefridj-Gaillard, meanwhile, com-
ments that while rates have increased, opportunities we are
credit spreads have not changed signif-
icantly. “In sectors such as energy tran- seeing in the market”
sition, it is still easy to access financing,
and while in other sectors such as fibre ROGER PIM
it has become more challenging, over- abrdn
all, there is still appetite for mid-mar-
ket infrastructure amongst debt funds,
institutions and banks. Processes can
take longer. In a volatile market, lend-
ers are likely to reprice risk and place
greater scrutiny on business plans, just poised to pick up some of that demand. decarbonisation of energy generation,
like buyers are, but financing is still We are also seeing MNOs [mobile net- the electrification of transport and in-
there.” work operators] struggling with the dustrial processes and energy efficien-
capex required to invest in 5G roll-out, cy. There is also a lot that can be done
Hot opportunities for example, which is creating oppor- around the transition of waste manage-
Inevitably, the energy transition and tunities to invest in neutral host pro- ment from incineration to recycling
digital infrastructure are among the viders.” and the circular economy. The big
most popular sectors with stubborn Harding agrees that demand for dig- incumbents are making lots of money
valuations for the most hotly contest- ital assets has grown to such an extent out of the old ways of doing things. It
ed assets. But mid-market investors see that the prices being paid for hyper- is small and medium-sized businesses
pockets of opportunity, nonetheless. scale data centres have become astro- that are leading the transition. We can
“The electrification of transport is nomical. “We have therefore changed provide capital to support their growth
a sector we really love, whether that our approach and are looking to build and deliver value for our investors.”
involves EV charging or shifting the a platform of regional colocation data Pim agrees: “The transition space is
movement of merchandise from road centres, while adding a bit of greenfield providing a lot of opportunities wheth-
to rail and electrifying fleets of trains,” in a modular fashion. We are building er that’s around waste, new alternative
says Tefridj-Gaillard. “Digitisation is cashflow rather than buying.” fuels or associated storage services.
obviously another hot theme. Given Chatelin adds: “The mid-market There are also some really interesting
our target returns, we are not focused is all about creating value through ex- consolidation plays – rolling up sub-
on towers or hyperscale data centres, panding platforms and building out scale assets into sizeable platforms.
but we do see regional co-location data your assets so that in five to seven years’ Almost irrespective of geography or
centres as an attractive space. A lot of time they will have reached a scale sector, we believe you can find more
businesses are moving data storage and where the big funds are competing for attractive risk-return profiles in the
computing power off premises but are them in auctions. mid-market than you can in the large-
not willing to fully rely on public cloud “That is particularly true of all the cap space. The mid-market really does
solutions and regional co-location is transitioning themes including the have it all.” n

Analysis
I
n Sydney’s central business district,
Dexus’s infra
a couple of streets south of the Op-
era House and the Harbour Bridge,
is Quay Quarter, a gleaming new
office tower that opened in 2022
co-heads on life
as a redevelopment of the existing
AMP Centre.
It’s the new home of, among oth-
ers, Dexus, the real estate investment
after AMP Capital

firm listed on the Australian Securities
Exchange. The firm is moving in fol-
lowing its acquisition of the domestic
infrastructure equity business of funds
manager AMP Capital.
While the name of previous parent
company AMP still adorns the outside
of the building as a reminder of its past, The two Michaels – Bessell and Cummings –
an open-plan client space with pano-
ramic views of Sydney Harbour feels
talk to Daniel Kemp about integration,
like a good place to begin looking for- the synergies between infra and real estate,
ward.
The firm welcomed Infrastructure
and the strength of the Australian market
Investor into this space to meet with co-
heads of infrastructure Michael Bessell
and Michael Cummings. On the table
was the team’s status under new owner-
ship, its plans for the future, and what
opportunities could arise now it is part
of a dedicated real assets investment
house.
The AMP saga

Infrastructure Investor is sitting down
with the two Michaels shortly after
Dexus reached a first completion in its
deal to acquire AMP Capital’s Austral-
ian real estate and infrastructure equity
business (at time of publication, a final
completion is still pending the trans-
fer to AMP of the stake in China Life
AMP Asset Management that Dexus
has acquired under the transaction, ex-
pected to be resolved in due course).
While the two share responsibility
for the infrastructure business, they
have slightly different remits: Bessell
focuses particularly on origination,
separately managed accounts and the
firm’s PPP investments, while Cum-
mings leads on asset management and
commingled funds.
The acquisition by Dexus followed
a period of uncertainty for AMP

Analysis
Capital that began with the negative But it became apparent that a range of business,” Bessell says. “That’s a real
headlines affecting parent company buyers were keen to cherry-pick differ- refreshing change – we’ve gone to an
AMP Ltd after the 2019 final report of ent parts of the business. organisation that’s got ambitions to
the Royal Commission into Miscon- Ares Management bought the in- grow and diversify its product mix and
duct in the Banking, Superannuation frastructure debt division for A$428 businesses. Dexus has always been just
and Financial Services Industry. There million in February 2022, after separate a real estate business and now it wants
was further controversy surrounding attempts to acquire the whole of AMP to be a real assets business, and it comes
the appointment of London-based Boe Ltd and take a 60 percent stake in AMP from the top down.
Pahari as AMP Capital’s CEO in June Capital, before the demerger plans were “People like [Dexus CEO] Darren
2020. announced. Then, US-headquartered Steinberg and [CIO] Ross Du Vernet
Pahari’s appointment swiftly un- asset manager DigitalBridge bought worked at Colonial First State [now
ravelled, impacting the AMP Capital AMP Capital’s international infrastruc- First Sentier Investors], and they had
business despite the underlying per- ture equity business, with Dexus taking both real estate and infrastructure
formance of its Australian fund assets ownership of the domestic real estate funds. So they’re knowledgeable and
holding up well throughout the ensu- and infrastructure operation. are keen to grow infrastructure.
ing covid-19 pandemic. It’s been one of the longer-running “It’s great to be part of an organi-
AMP Ltd attempted to spin out its sagas in Australian corporate circles sation where that’s a real focus and we
high-performing AMP Capital busi- over the last few years, so it must be can look forward, rather than looking
ness, with the intention to rebrand it something of a relief to see the back over our shoulder.”
as Collimate Capital. It pursued a de- of it? On the same theme, Cummings says
merger and a separate stock market “It’s really exciting to be part of an that being part of Dexus has provided a
listing to create value for shareholders. organisation that really wanted this chance to work under a leadership team
with a narrower focus, better suited to
fostering growth and ensuring positive
returns for investors.
“[AMP had] multiple products – and
you tend to find management distracted
to areas of the business that are under
performing rather than performing
strongly, and I think that was definitely
the case coming out of the Royal Com-
mission in particular,” he says.
“It’s been a relief from the point of
view that we can now finally put all the
distractions in the past, and get the
team focused on growth and delivering
“It’s been a relief from for investors.”
the point of view that Cultural fit

Where will that growth come from?
we can now finally The team sees an opportunity in real
assets as an overarching theme, encom-
put all the distractions
passing both real estate and infrastruc-
in the past, and get ture, with the chance to share knowl-
edge and leverage synergies between
the team focused on the two business units.
Before discussing that, though,
growth and delivering Cummings says it was a “sensible evo-
lution” for Dexus to expand its client
for investors” offering into infrastructure, as well as
adding further real estate funds to its
MICHAEL CUMMINGS portfolio, through the AMP Capital
acquisition. He says he and Bessell felt

Analysis
Dexus has expanded into infrastructure with the acquisition of part of AMP Capital – but real work with a manager that operates on
estate remains the larger part of its business by AUM (A$bn)
both sides of the real assets divide.
“We’re seeing increasingly that a lot
Pooled funds JV/Mandates Listed/Retail
of investors are managing infrastruc-
20 ture and real estate out of the same
unlisted bucket,” says Bessell. “For a
lot of our clients, there’s a single per-
son at the top in charge of both – so
it’s been really beneficial to bring those
15
relationships together.”
This is an important part of the ra-
tionale behind Dexus’s desire to expand
into infrastructure: the ability to realise
10
synergies between the two asset classes.
This was in evidence in May, when
the Dexus Community Infrastructure
Fund, the Dexus Healthcare Property
Fund and the AMP Capital Core In-
5 frastructure Fund combined to acquire
a 30.58 percent stake in Celsus Hold-
ing, the consortium that manages and
maintains the Royal Adelaide Hospi-
tal under a public-private partnership.
0
The deal took the total stake in Celsus
Real estate Infrastructure
held by Dexus funds to 72.79 percent
and was held up by the firm as an ex-
In addition to third-party funds under management shown above, Dexus has made
investments worth approximately A$17.8bn via its balance sheet. ample of how the two halves of the
Source: Dexus business can combine effectively on
deals.
their team would find a good cultural “They’d been sniffing around AMP Going further, Bessell outlines an
fit at Dexus, having been in discussions Capital, like a lot of managers had example of a potential investment in a
over the acquisition for well over a year been, for a while,” Bessell says. “For us, broader health precinct, where a hos-
before it closed. this bolsters our capability across retail pital owned by Dexus’s infrastructure
“We knew that Dexus had a very and wholesale fundraising, as well as funds might see value uplift created by
strong reputation in the market for the institutional market. Bringing that Dexus’s real estate vehicles investing in
governance and performance, and for all together in a single-purpose real as- residential or commercial property ad-
having in-depth knowledge of the ar- sets business has been quite powerful.” jacent to the site that can enhance its
eas in which it plays, and we saw that On the topic of culture, Bessell re- operations. Not only could it increase
as good alignment,” says Cummings. flects on how his team was previously the value of assets, but it provides an
“And in terms of ambition and capabil- part of a “multi-faceted manager” that opportunity for clients to invest in both
ity, Dexus has been on a growth path… also invested in fixed-interest assets and parts of a project with different risk-
which we saw as very attractive and a listed equities, arguing that investment return profiles.
good fit for our business.” teams in the real assets space have a dif- Cummings says: “The ability to
Dexus has its roots in Deutsche ferent mindset to their counterparts in look at large precincts from both a real
Bank, effectively spinning out of the other asset classes. “Now we’re work- estate and infrastructure point of view –
bank in 2004 when the firm acquired ing in a house that’s just doing real as- if you think about it today, the amount
50 percent of the management rights sets,” he says, implying the benefits of a of touch points that individuals have
to several property trusts before re- narrower focus. with Dexus-controlled assets, such as
branding as Dexus and securing the re- The firm’s LPs appear to have re- arriving at Melbourne Airport, or get-
maining management rights from DB sponded well so far. Dexus has a strong ting on a train owned by Reliance Rail
in 2008. Since then, it has continued reputation within the Australian mar- in Sydney, to get to their office or go to
to grow both organically and through ket, including in the institutional sec- the shops – the breadth of that oppor-
M&A. tor, and many investors are happy to tunity is very large.”

Analysis
accommodation at the University of infrastructure now, but when they first

“For us, this bolsters Melbourne and the Australian Na- went in, they went into global funds as
tional University in Canberra; and it was easier to get approval. Now they
our capability across health, including investments in the have become more set, we hear they
Royal Adelaide Hospital, Victorian are looking to evolve their thinking a
retail and wholesale Comprehensive Cancer Centre, and bit more, and be more targeted and
Opal Aged Care. specific.”
fundraising, as well The firm’s funds are generally The team is also keen to expand its
open-end and the team has been out base of wholesale and retail investors,
as the institutional on the fundraising trail recently to se- a network to which Dexus gives them
cure capital that will fund new invest- good exposure. This arm of the strat-
market. Bringing ments. As well as the aforementioned egy has got off to a flying start, with a
that all together in Community Infrastructure Fund and new Wholesale Airport Fund closing
Core Infrastructure Fund, it also man- oversubscribed at more than A$130
a single-purpose real ages the Dexus Diversified Infrastruc- million in June. The WAF owns 1 per-
ture Trust, among other vehicles and cent of Australia Pacific Airports Cor-
assets business has been SMAs. poration, the unlisted holding company
Cummings says that, globally, fund- of Melbourne Airport and Launceston
quite powerful” raising was “very good” over the last Airport, and was the first fund brought
few years, but this has slowed over the to market by Dexus following its AMP
MICHAEL BESSELL first half of 2023. Capital acquisition.
“It’s important for all investment Cummings emphasises repeatedly
managers to have a clear point of dif- during our discussion that the business
ferentiation and be clear what their is in an integration phase, focusing on
products are about and where their exits existing funds and long-held invest-
pertise is. In the last six months, we’ve ment thematics. But there is an eye on
been focusing on integration – but that the future, too.
doesn’t mean we aren’t out speaking “We’re not going to rule anything
to clients, discussing the story around in or out at this stage,” he says. “As we
When it comes to offshore investors, why we continue to believe strongly in look to grow further, we’ll look at new
both Dexus and what was then AMP Australian infrastructure.” products – is there market appetite for
Capital had LPs from outside Austral- a real asset product? That’s something
ia, particularly Asia, which can now be Australian focus that’s worth exploring.”
strengthened with the teams combin- Bessell says the team is solely focused On being asked if they hope that
ing platforms and all the cross-selling on Australia, free of the AMP Capi- Dexus’s new infrastructure business
opportunities that brings. To capitalise tal international business that raised might outgrow its real estate arm one
on this, the firm has just opened a new money internationally for global in- day, Cummings replies: “The ambition
office in Singapore. vestments and funds. “We didn’t do a is to integrate and grow – maybe come
The firm’s broad strategy in infra- huge amount of fundraising offshore back and ask me that in 12 months. If
structure is one thing that isn’t chang- [previously] – but Australia is still seen you look at the pipeline of opportu-
ing under the new Dexus ownership, as a really attractive market to invest in nities, I think infrastructure would be
with a continuing focus on four main because, unlike a lot of other developed larger in Australia at this stage – but
sectors. economies, we still have a high popula- we’re just focused on what’s in front
These four sectors are: transport, tion growth rate,” he says, which makes of us at the moment and dealing with
with investments including Melbourne a compelling story when combined that.”
Airport, London Luton Airport, Port with a stable government and proxim- It’s clear that the team is focused on
Hedland International Airport and ity to growth economies in the wider new opportunities amid what must feel
Reliance Rail; energy transition, with Asia-Pacific. like a fresh beginning. With a more fo-
investments in PowerCo New Zea- “If you look at the top investors, cused leadership team in support and
land, Macarthur Wind Farm and En- a number are shifting away from in- fewer distractions around them, the
deavour Energy; social infrastructure, vesting in global funds that can invest Australian infrastructure equity team at
where assets include Optus Stadium anywhere, to being more region-spe- Dexus will hope they can move on and
in Perth, NSW Schools, and student cific. Most investors are investing in leave the past behind them. n

Analysis
I
nternational energy supply chains
have experienced a series of major
shocks over the past four years.
The covid-19 pandemic, Russia’s
invasion of Ukraine and the result-
ing sanctions, and complications
from Brexit, have caused overlapping
problems for the production and move-
ment of energy supplies around the
world.
Curtailed energy supply and limit-
ed availability of raw materials have in
turn resulted in global price inflation
that is having a ‘whiplash’ effect across
supply chains, as parties try to protect
their balance sheets by either hoard-
ing materials or terminating contracts
to limit their exposure to unforeseen
price hikes.
While threats to global energy sup-
ply chains are nothing new, this cu-
Life in the slow chain
mulative barrage of disruption has the
unique twist of coinciding with inter-
national efforts to meet aggressive de-
carbonisation goals.
Achieving net-zero carbon emis-
sions and halting the worst effects of
climate change rely heavily on the abil- Guest comment by Simon Sloane and Ania Farren
ity of public and private actors to access
the raw materials, equipment, distribu-
tion systems and skilled labour needed
for renewable energy technologies. With energy supply chains under acute pressure,
These combined pressures are al- the potential for clashes between contracting parties
ready giving rise to significant cross-
border disputes as parties involved in looking to discharge liability for failures and delays is
major energy projects disagree over increasing significantly
where the burdens of risk and cost
should fall when supply chains are in-
terrupted.
However, the sheer number and Some jurisdictions have already leg-
Better ESG, tougher obligations often convoluted sequence of links in- islated to take this decision out of the
The welcome but challenging drive for volved in many international energy hands of corporate actors.
better environmental, social and gov- supply chains raises complex contrac- In Germany, for example the Lief-
ernance standards in the energy sector tual issues, especially where the parties’ erkettensorgfaltspflichtengesetz [Lief-
is shifting the responsibility for polic- liabilities are not written back-to-back erkettengesetz or LkSG – known in
ing supply chains from governments (referring to the replication of contrac- English as the German Supply Chain
onto corporate actors. Sophisticated tual terms through the supply chain), Due Diligence Act (SCDDA)] – came
corporate actors are largely on top of leaving one party in the chain more ex- into effect on 1 January 2023.
their obligations, with most having posed than its counterparties. This new law requires companies
succeeded in making their operations This poses a thorny question for re- with operations in Germany to con-
cleaner as well as more transparent and sponsible operators about what to do if duct due diligence on their supply
accountable than they were even five they cannot fully stress test and audit chains to protect human rights and the
years ago. their supply chain. environment, with strict penalties for

Analysis
failure to comply – imposing a posi- litigious phase, there are still ways to
tive obligation that is expected to set “The UK’s threatened avoid disputes reaching full-blown lit-
the tone for future legislation in other igation.
countries. bonfire of EU Energy market actors are advised to
For organisations whose supply build flexibility into their contracts to
chains run through less transparent ju- regulations… would allow for changes in circumstances.
risdictions, the proliferation of tougher This might include price review
supply chain legislation is a significant likely result in mechanisms, options to use more
issue that needs to be addressed, and than one supplier, and carefully draft-
carries the threat of disputes where
diverging standards ed representations and warranties.
problems arise due to a failure to com- Stress testing can help reveal potential
ply with legal obligations.
between the UK and glitches.
EU, laying the ground Force majeure provisions continue
Increased state involvement to generate regular disputes, due to
Soaring energy prices as a conse- for further disputes” different interpretations of the term,
quence of the global energy supply depending on where a party sits in the
crisis in 2022/early 2023, particularly supply chain.
in gas markets, have fuelled discussions The English Court of Appeal’s de-
around so-called windfall taxes on en- cision in MUR Shipping BV v RTI Ltd
ergy company profits. in November 2022 shocked many in
A number of European countries, the international trade community,
including Germany, Spain and Italy, due to its interpretation that despite
have introduced local windfall taxes, an effective force majeure event having
while the UK increased its Energy taken place, a contractual obligation to
Profit Levy on North Sea oil and gas use reasonable endeavours to overcome
firms from 25 percent to 35 percent a force majeure event does impose
in January 2023, to last until March extra-contractual obligations on the

2028. These changes are anticipated party.
to trigger disputes between companies This case illustrates the difficulty
impacted by the taxes and the impos- in drafting clear force majeure clauses,
ing governments, often in host juris- and to predict how these clauses will
dictions where international operators be viewed by an arbitration tribunal or
invested in energy projects prior to the (English) court.
imposition of windfall taxes. threatened bonfire of EU regulations Aside from contract drafting, there
In December 2022, US oil and gas (which is currently on hold) would like- is also the practical issue of how cor-
major ExxonMobil launched a legal ly result in diverging standards between porate actors decide to staff their legal
challenge, filed through subsidiaries the UK and EU, laying the ground for functions.
in Germany and the Netherlands, to further disputes between corporate ac- Moves by multinational corpora-
the European Commission’s proposal tors caught in the middle. tions to centralise their legal depart-
to levy a windfall tax on excess profits By contrast, regulations such as ments in single jurisdictions are start-
from oil and gas companies operating carbon taxes and sanctions – which ing to be reversed with the advent of
in the EU. also impact supply chains – appear less more international disputes, as com-
Energy price volatility has also led likely to generate wholesale disputes, panies realise the benefit of having
to a concerted but controversial push as corporate actors have largely learned lawyers in different jurisdictions who
to develop nuclear energy, even in ju- to adapt to these types of regulation, can understand and help resolve local
risdictions where nuclear power gener- which may provide a lesson for gov- issues. n
ation had fallen decidedly out of favour, ernments on how to communicate and
potentially creating a new growth area implement targeted legislation. This article was authored by Fieldfisher
for disputes. international arbitration partners Simon
Sloane and Ania Farren, based on a panel
Meanwhile, Brexit has proved to be Resolving issues before a discussion entitled ‘Too much tension in the
a tangible energy supply chain disrup- dispute arises chain? Resolving energy arbitration disputes
impacted by supply chain constraints’, hosted
tor thanks to increased administration While there are signs that the glob- by Fieldfisher as part of London International
for UK imports and exports. The UK’s al energy sector is entering a more Disputes Week 2023

Analysis
In OEUK’s recently published De-

commissioning Insight 2022, the trade
How to tap the UK’s body anticipates that about 2,100 wells
will be decommissioned over the next
decade. Around £1.2 billion was spent
decommissioning on decommissioning in 2021, accord-

ing to the report, and this is expected
to reach £2.5 billion per year over the
sector next two decades.
Investment deterrent
There are numerous opportunities pre-
sented by the continued development
and growth of the decommissioning
sector. However, there are also a num-
ber of challenges to overcome.
The first of these relates to uncer-
Guest comment by Glenn Kangisser and Shu Shu Wong tainties surrounding the Energy Profits
Levy, which puts a marginal tax rate of
75 percent on profits from UK oil and
gas activities. This is expected to influ-
Two experts from Haynes & Boone discuss the challenges ence future decommissioning spending.
and opportunities that decommissioning the oil and Indeed, the extension of its application
from 2025 to March 2028 has created a
gas industry presents, and explain why the UK is well significant barrier to investment, as ev-
placed to become a world-leading hub for such projects idenced by TotalEnergies, the French
energy giant, announcing that it would
cut investment in the UK North Sea by
D
a quarter (approximately £100 million)
ecommissioning is a in response to the expanded EPL.
key driver in the UK’s Following months of lobbying from
plans to achieve net the energy sector arguing that the EPL
zero by 2050. The deterred investment and put jobs and
sector focuses on energy security at risk, the UK govern-
emission reductions ment recently announced a change to
during operations, repurposing exist- the policy that would mean the EPL
ing infrastructure for CO2 storage, would end if oil and gas prices fall be-
identifying reuse opportunities during low $71.40 per barrel of oil, and £0.54
onshore disposal, and supporting the per therm (100 cubic feet) of gas, for
offshore wind industry, and is antic- two consecutive quarters.
ipated in the UK to be worth around Despite the policy change, Apache,
£20 billion ($25.7 billion; €23.1 billion) operator of the Forties oilfield for the
by 2031, according to trade association last two decades, said it would halt
Offshore Energies UK. drilling in the UK North Sea citing the
With the ongoing development “challenging UK macro environment
of the offshore wind sector (among with its increasingly costly and burden-
2,100
other less carbon-intensive sources of some tax and regulatory regime”.
energy), coupled with the lack of politi- On 19 June, leader of the UK op-
cal consensus around supporting the oil position Keir Starmer outlined plans
and gas industry in recent years, there to end new North Sea oil and gas ex-
is a renewed focus on decommission- Number of oil and gas wells ploration as part of Labour’s vision to
expected to be decommissioned
ing activity, particularly in the North over the next decade
make the UK a clean energy superpow-
Sea. er. However, according to the Climate

Analysis
Change Committee in the UK, oil and year on year on topsides, substructures
gas is still expected to meet 50 percent and subsea infrastructure tonnage
of the UK’s energy needs in the mid- coming ashore, reaching a peak of over
2030s, falling to 22 percent by 2050. 250,000 tonnes in 2027.
Against the backdrop that more
than half of the UK’s active oil and gas
fields are due to shut down by 2030
as they reach the end of their design
£20bn As a result of the removal of infra-
structure, there are opportunities for
dismantling and reuse. An example
is the well casings supplied by John
life, OEUK’s chief executive, Deirdre Lawrie Metals (one of the largest scrap
Expected value of UK’s
Michie, warned that as we build the low decommissioning metal recyclers in northeast Scotland);
carbon systems of the future, “there is sector by 2031 these have been used as piling posts in
no simple choice between oil and gas the foundations of P&J Live, a mul-
on the one hand and renewables on the ti-purpose indoor arena in Aberdeen.
other. The reality is that to keep the
lights on and grow our economy, we Risk sharing
need both”, as otherwise, the UK will Compared with short, technically chal- Exploration and production of oil and
become increasingly reliant on imports. lenging decommissioning projects, long gas has been on the decline in the UK
It is also worth noting that certain campaigns for multiple wind farm in- North Sea. Within the UK continental
expenditure incurred by oil and gas stallations have been a more attractive shelf, decommissioning is expected to
companies on decommissioning plant opportunity for companies operating in cost around £2.5 billion per year in the
and machinery prior to the approval of this space. As a result of the shortage of next two decades as valued by the North
an abandonment programme qualifies equipment and personnel, cross-collab- Sea Transition Authority. As the coun-
for decommissioning tax relief. oration between the two industries has try moves towards a low-carbon econ-
With this said, the expected in- been encouraged as a means of increas- omy, the volume and complexity of de-
crease in global decommissioning ac- ing efficiency and co-operation, as well commissioning is expected to increase.
tivity means the UK is well placed to as reducing costs. On the legal and contractual side,
become a world-leading hub for de- For example, at least 209 offshore with the fast-paced developments in
commissioning work. For instance, as wind farms are expected to be con- the sector and expected increase in
one of the first offshore basins, the UK structed over the next decade. To help cross-collaboration between industries,
North Sea is ahead of other locations in ensure that offshore wind infrastructure it will be important to ensure that the
terms of decommissioning – this means is designed for decommissioning at the agreements entered into between dif-
the skills, competency, techniques and outset, OEUK’s new Offshore Wind ferent counterparties (for example, be-
knowledge gained now have exportable Decommissioning Network is expect- tween the decommissioning contractor
value in markets around the world. ed to create a platform for offshore and the operator, and/or the decom-
IHS Markit forecasts that the major- wind developers to present their de- missioning contractor with its sub-
ity of offshore global decommissioning commissioning programmes to OEUK contractors) reflect the commercially
spend from 2021 to 2030 will be in Eu- members before the construction of agreed risk allocation. This will include
rope (33 percent), followed by APAC offshore wind farms. This is expected careful negotiation and drafting of key
(23 percent), North America (17 per- to allow operators and the supply chain provisions, including indemnities, du-
cent) and Latin America and the Car- to share lessons learned with develop- ration of the contract, cost of works
ibbean (13 percent). Therefore, there is ers and will help ensure that offshore and limitation of liability caps.
much scope for the UK to identify (a) wind infrastructure is designed for de- In light of this, it may be beneficial
exportable supply-chain strengths, (b) commissioning at the outset. for all parties within the decommis-
markets where UK expertise and tech- Economies of scale and reduced sioning sector to collaborate on pro-
nology can be exported, and (c) actions costs are likely to be achieved through ducing a standard form decommission-
and enablers that will encourage the compressed schedules and shared ing contract, which would streamline
UK supply chain to export its expertise. campaigns. For instance, according to the contract negotiation process, and
There is also scope for there to be OEUK, execution efficiency across the reduce associated time and costs. n
cross-collaboration with new energies. operator and supply-chain communities
Due to the shared requirement for enabled a 25 percent cut in costs, despite Glenn Kangisser is a partner specialising in
heavy lift assets, the offshore wind in- the difficult operating environment. energy projects and disputes; Shu Shu Wong
is an associate in the Energy, Power and
dustry is expected to have the biggest Over the next decade, data from Natural Resources practice group. Both are
impact on oil and gas decommissioning. OEUK shows there will be an increase based in Haynes and Boone’s London office

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Getting technical
Getting technical
Long-term
energy storage Standfirst going in here centred with coloured Name
Namehere standfirst and explainer copy to run over
through rusting
three lines standfirst and running over three lines
batteries
L
ong-term energy storage is into iron when charged, releasing
$800m
sorely needed to even out the oxygen.
supply of energy and provide NASA looked at iron-air
less volatile and consistently lower technology 45 years ago in the
energy prices. And while less form of a flow battery, and the
volatility may not benefit owners Amount Form Energy technology is now being revived
of lithium-ion-based battery farms, by start-up Form Energy.
it would greatly benefit society
has raised to date Supported by the Inflation
as a whole and aid the energy Reduction Act, Form Energy is
transition. building the first iron-air battery
Perhaps due to the slightly less obvious business case factory in a former West Virginian steel industry town and
provided by long-term storage, solutions to the problem hopes to start production in 2024.
have been few and far between, usually involving water and With backers including Breakthrough Energy Ventures, a
pumps and a very long construction time. company whose investors number Messrs Gates and Bezos,
Now, this could all be about to change, with ‘iron-air Energy Impact Partners, Macquarie, NGP, CPP Investments
batteries’ promising to provide a useful and scalable storage and ArcelorMittal, Form Energy is betting that the world is
solution based on iron with no rare metals involved. And no ready for a simpler, slower, much-longer duration battery – a
lithium in sight. solid, reliable workhorse to supplement the ultra-fast and all-
Such iron-air batteries should be capable of providing too-easily depleted lithium batteries.
energy for several days, which would be immensely useful at ArcelorMittal is involved in developing the iron for the
times of high demand and low intermittent supply. batteries, and Form Energy has raised in excess of $800
Dunkelflaute is the German word for an overlapping lull million well ahead of first delivery. Already, two American
in solar and wind-generated energy, and while dunkelflautes utilities have signed contracts for Form Energy’s batteries
can last several days, a common lithium-ion battery will and utilities and independent renewable power producers
last perhaps four to six hours at most. Iron-air batteries can might well see the benefit of being able to provide a reliable
discharge over four to six days. flow of energy. On the other hand, such a stabilising factor
Made of solid iron, a water-based conductor of electricity would likely make energy markets less volatile and reduce the
(an electrolyte) and a membrane that allows air to flow in money that can be made trading energy.
and out, the battery uses oxygen from the air to convert iron If iron-air batteries actually deliver, this could be an
into rust when it discharges. It then converts the rust back energy transition game changer. n

Agenda
Changing course
Near-shoring, friend-shoring, re-shoring – all
these terms essentially mean the same thing
and indicate a trend towards deglobalisation,
as does the relocation and build-out of
alternative supply chains. Whether good or
bad, it is happening, which is why next month
we’ll be exploring what it means for the
infrastructure investment industry.
Don’t miss our October issue!

Managing Risk in
Infrastructure Investments
Qualifying and quantifying the impact of external
risk factors and strategies for mitigating them
Content highlights:
• Practical advice for managing regulatory, political, social and technological risks
• Comprehensive overview and analysis of key regulations impacting the sector by region
• Case studies from market participants showcasing how investors handle regulatory interventions
and important lessons learned; plus much more
AVAILABLE NOW
Order this essential title today at:
privateequityinternational.com/managing-risk-infrastructure-investments
Special offer to subscribers:
Order your copy today quoting SUBBK15 and receive a 15% discount
Entropy Inc. — Calgary, Alberta
Less Carbon +
More Value
Transition Investing at Brookfield
Make progress, without sacrificing gains. As one of the world’s

largest decarbonization investors focusing on renewable
power and transition assets, we have the operating capabilities,
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September 2023 • infrastructureinvestor.

THE VALUE OF INVESTING

September 2023 • Infrastructure Investor 1

We provide what we call An example

2 Infrastructure Investor • September 2023

September 2023 • Infrastructure Investor 3

People OMERS poaches CPP energy P I P E L I N E

MD as new global infra head News flow from our

4 Infrastructure Investor • September 2023

YEARS OF HISTORY COLLABORATORS

New York Seoul

OUR MAIN FIELDS OF EXPERTISE

US Government proceeds with wind projects, a technology shift in

‘growing pains’ Bonsignore sees the Mid Atlantic

“ Even if you expect

6 Infrastructure Investor • September 2023

“None of those growing pains are

September 2023 • Infrastructure Investor 7

8 Infrastructure Investor • September 2023

“ The digital transformational network Europe still leads

for investment here is huge ” something to be proud of.

September 2023 • Infrastructure Investor 9

10 Infrastructure Investor • September 2023

“ It says to a renewable energy [to do that]. If AI DigitalBridge

work with us’ ”

September 2023 • Infrastructure Investor 11

12 Infrastructure Investor • September 2023

open-end funds. Still, we are seeing

which has €135 billion in total AUM

September 2023 • Infrastructure Investor 13

Fundraising Itochu, SMTB reach first close on inaugural

14 Infrastructure Investor • September 2023

We are committed to a Net Zero target

www.arcusip.com DIGITAL | ENERGY | TRANSPORT | LOGISTICS & INDUSTRIALS

Renewables The heat is on energy “When we look at some of the

pipelines become reality back what underlies that valuation,

16 Infrastructure Investor • September 2023

Geopolitics The race to diversify Instead, the bank is looking to

18 Infrastructure Investor • September 2023

Energy storage Bankable lithium-ion technologies in order to mitigate

September 2023 • Infrastructure Investor 19

Full to the brim New York

Printed by Stephens & George Ltd

20 Infrastructure Investor • September 2023

22 Infrastructure Investor • September 2023

“I think we’re now in

24 Infrastructure Investor • September 2023

September 2023 • Infrastructure Investor 25

Fund I Fund II Fund III Fund IV Fund V

26 Infrastructure Investor • September 2023

drop dramatically. Given that the ener-

“We are adamant that

September 2023 • Infrastructure Investor 27

– the US and China. I think we’re

28 Infrastructure Investor • September 2023

Core: the $30bn dream

September 2023 • Infrastructure Investor 29

Expanding with credit

Brookfield closed its Infrastructure Debt Fund I on $885