A new global paradigm driving the future of infrastructure development
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In the face of global inflation, high interest rates, surging energy prices, energy security concerns and looming climate issues, on all continents, policies such as the US’ Inflation Reduction Act (IRA) or its European counterpart Net Zero Industry Act (NZIA), have been put in place to reduce carbon emissions and stimulate a green economy.
Tax incentives or mandatory energy standards aim to fight two battles at once; drive the world towards a more decarbonized and digitalized economic model supporting sustainable economic growth on the one hand, whilst creating jobs and ensuring future competitiveness, on the other.
Infrastructure is at the heart of this digital and energy transition. The sector is forecasted to grow at a 6.3% annual pace between 2023 and 2028. A colossal investment necessity, and opportunity, lies ahead, requesting the joint efforts of all stakeholders, including governments and the commitment of the private sector to infrastructure, research and innovation.
"New types of infrastructures are emerging in the social, digital and energy fields."
Stéphanie Paix, Chief Executive Officer at Natixis
As a result, the sector is undergoing major structural transformations. “To tackle the mega trends led by the demographic, environmental and digital revolutions, new types of infrastructures are emerging in the social, digital and energy fields”, Stéphanie Paix, Chief Executive Officer at Natixis, declared in opening the 12th edition of the Natixis CIB Infraday on October 10th in Paris. The full replays of the conference are available at the end of this article.
Get an overview of the Infraday 2023 edition
“The question today is to know where to invest, how to invest, what is infrastructure and what is not.” Bénédicte de Giafferri, Global Head of Real Assets, summed-up in closing the event, providing her analysis grid: “Every essential asset, that, because it is essential, provides a good visibility of cash flow, could be considered an infrastructure. Electrical grid, data center, metals and mining, gigafactories, EV charging… all these are essential infrastructures that create new asset classes in the infrastructure landscape.”
"The question today is to know where to invest, how to invest, what is infrastructure and what is not.”
Bénédicte de Giafferri, Global Head of Real Assets
Another question arises: can the market liquidity absorb this booming demand for infrastructure financing? “Market liquidity is actually much better - if not the best - for infrastructure than for many other asset classes.” Benedicte de Giafferri added. “The sector proves resilient in tough market conditions as it offers inflation protection, it is well rated and profitable, as the cost of risk is very low.”
Nevertheless, investments by institutional investors - notably asset managers - remain constrained by internal allocation policies, highlighting the mission of infrastructure banks like Natixis CIB to provide “affordable, innovative and bankable solutions to take up the challenge of the century, if not the decade”, as Mohamed Kallala, Global Head of Natixis CIB, named in his introductory speech.
“We are selective and rigorous on structuring.”, he added. “Our role is to ensure that liquidity is allocated to the most important projects, to the safest ones, because they are the most important ones. Infrastructure represents a key sector for Natixis CIB, encompassing not only lending facets, but also investment banking and markets.”
"Our role is to ensure that liquidity is allocated to the most important projects, to the safest ones."
Mohamed Kallala, Global Head of Natixis CIB
These challenges were high on the agenda of the event, which gathered more than 300 Infrastructure professionals from across the globe for round tables and open stage discussions.
Panelists, senior representatives of Equity and Debt Infrastructure Funds, Industrials and Public Authorities, provided insight into the electrification of energy-intensive infrastructures and the role of gas and new energies to meet the increasing demand for energy.
They debated the latest trends observed in the infrastructure debt and equity markets and expectations for liquidity and valuations going forward, in light of macroeconomic views shared by our Chief Economist.
They also discussed the impact of generative artificial intelligence on the infrastructure market and went through the opportunities offered by both the H2 supply chain globally and the EV value chain, from upstream mining to gigafactories, EV charging and recycling.
A “new normal” for rates and energy prices, massive investment in renewable, regionalization
In his macroeconomic outlook, Jean-François Robin, Global Head of Natixis CIB Research, explained that he sees the energy market moving towards a new normal, as gas prices have been divided by 10 and oil prices are set to remain at around $90 a barrel. This analysis left aside any assumption of the consequences of the ongoing tragic events in the Middle East and the risk of a conflagration in the region, which concentrates 1/3 of global oil production.
He also emphasized high rates and inflation as a massive game changer over the last 18 months. The world embraced the sharpest interest rate hike since the 70’s, by as much as 450 basis points by the ECB, for instance. Central banks drastically tightened financial conditions in an effort to curb galloping inflation, which reached 9.2% worldwide in 2022. With inflation decelerating – it will be close to 6% in 2023 and probably 4.5% in 2024 – Jean-François Robin foresees the end of the rate hike sequence and predicts 90% of major central banks we follow will cut rates in 2024.
When addressing more specifically issues affecting the infrastructure sector, Jean-François Robin highlighted the massive investment required, especially in renewable energy. “We need to triple the renewable capacity in the next decade; this amounts to 80 billion euros a year only for the greed in Europe, as an illustration.”.
He concluded with another significant structural trend, the regionalization and the deceleration of global trade. “Investments from US to China have been divided by two in the last decade”, he gave as an example.
Energy-intensive infrastructures: how to deal with the increased demand of electricity?
The electrification of our economies appears as a key lever to achieve the world’s strong decarbonization targets. Demand for electricity is therefore due to increase substantially over the next decade.
Electrification is a dual process. On one side, it addresses electricity supply, keeping in mind that if we want to achieve the full decarbonization benefits of electrification envisioned in the Net Zero pathway, electricity generation needs to shift from fossil fuel to low-carbon sources of power, such as renewables and nuclear. Power grids will also need to expand their capacity and flexibility to accommodate the growing demand for electricity.
On the other side, it addresses booming electricity demand. In mobility the penetration of electric vehicles (EV) is happening faster than expected; 1 in every 5 cars sold in 2023 was electric, according to the International Energy Agency in its Net Zero Roadmap 2023 update.
In addition, the digitalization of our economies increases the need for energy-intensive infrastructure: by 2025, data centers are set to consume 20% of the world's power supply. The electrification of industrial processes, low-carbon hydrogen production and heat pumps are other electricity consumption items.
What is the role of nuclear power, of gas, and of new energies to deal with the increased demand for electricity? How can we make energy intensive infrastructure - such as digital infrastructure - more efficient and sustainable? How can we use technology and artificial intelligence to optimize power usage and how important is it to support further electrification? These were all topics Lara Khatib, Head of Infrastructure & Energy Finance, Middle East, North Africa, Turkey, Central Asia & Caucasus and
Frank Pluta, Global Head of Energy Transition & Natural Resources discussed with Jean-Paul Aghetti, President of Exeltium, Hadrien Bown, Business Development Director of Exmar, Tom Teerlynck, Chief Growth Officer of DataVolt and Julien Touati, Chief Executive Officer of Reed Management.
The impact of the meteoric rise of the generative artificial intelligence on the infrastructure and energy asset class
In an open stage discussion moderated by Pascal Soldaini, Head of Infrastructure & Energy Finance UK & Nordics, on the impact of generative artificial intelligence on the infrastructure and energy asset class, Eric Benoist, Tech & Data Research Specialist, explained the potential revolution this technology brings to whole swathes of the economy across a very wide range of sectors. Nevertheless, he qualified the long-term productivity gains associated with it, which should not be overestimated in light of past technological developments.
Generative AI has been a focused field of AI research since 2014 and relies heavily on the powerful Transformer technology designed by Google in 2017 to outperform previous neural network configurations and extract meaning and context from all kinds of input material.
Transformer models are extremely computer - memory - and bandwidth-intensive. This will lead to strong demand for data center infrastructure in the years to come but will also require further reflection on the notion of energy efficiency. Thankfully, several promising trends are emerging, from immersion cooling to 3D microchips architectures and photonic transport that will keep the industry on a sustainable trajectory.
Dominic Ward, CEO of Verne Global, concluded the key note with an interview on the topic.
A turnaround in market and liquidity for infrastructure financing?
Fund raising for both equity and debt funds has become more challenging over the last 9-12 months. What is the impact on the liquidity for the infrastructure financing? Are we going to see funds running out of dry power soon, and thereby draining liquidity from the market?
Juan Angoitia, co-Head Infrastructure Europe at Ardian, Bruno Candès, Partner at Infravia, Alban de la Selle, Chief Investment Officer & Managing Partner at Infranity discussed the current challenging momentum on market and liquidity for infrastructure financing, in a rich debate moderated by Moritz Bloch, Head of Infrastructure & Energy Syndication Europe, Middle East & Africa at Natixis CIB, and Tomas Gomez, Managing Director at Natixis Partners Iberia.
Panelists agreed that sponsors will have to be more selective in the projects they initiate and foresee a portfolio rebalancing into value-add strategies. At the same time, the current rising interest rate environment has rendered the fixed income market more attractive than at any time since 2008, with public debt becoming more significantly expensive over the last year. Does this create a funding scarcity on the infrastructure markets? Panelists pointed out that some segments, in particular those with a very “green” angle to them, may be less impacted.
Nevertheless, they observe that the M&A market has begun to reprice assets at higher returns (IRRs). In addition, over 2022 and 2023, many market participants hoped for, and expected, a repricing upwards of infrastructure debt, in line with the repricing in public markets, but it never came. Speakers concluded that many investors will most likely continue to be very selective in their approach and invest only in those projects that show superior debt pricing.
Investing in infrastructure assets across the EV chain, from mining to giga-factories and EV charging
12% of the world’s CO2 emissions are derived from road transport, firmly placing the electrification of mobility as one of the major pillars of environmental policies, as reflected in encouraging regulations towards electric vehicles (EV) especially in the US and EU.
Yet, electric vehicles are five times more metal intensive than internal combustion engines vehicles. The EV value chain therefore includes mining project linked to critical metals (Li, Ni, Cu, graphite), as well as metal processing refineries.
It also includes cathode and active material plants, where the components of the batterie cells are produced. At the end of the chain are giga factories, where cells or modules are manufactured to be sold mainly to EV equipment manufacturers (OEM). The EV value chain also includes charging stations, which are essential assets, as well as recycling facilities.
The EV value chain therefore stands at the crossroad of commodities, infrastructure, automotive and clean-tech, and requires huge capital needs. This new asset-class calls upon new investor types, providing a prominent investment opportunity for equity investors and project debt financier.
To successfully participate in this transport revolution, it is key to identify the success criteria and precisely circumscribe the challenges. Claire Blanchelande, Head Lithium Trader at Trafigura, Jean-Luc Brossard, Vice President of Research & Innovation of Stellantis, Ludovic Laforge, Managing Director of ICG and Enzo Ribeiro, Chief of Staff & Head of Financing of Verkor, provided their insights on the different component of the value chain, the technology risk, the regulatory aspects, the access to capital, in a passionate discussion moderated by Natixis CIB’s Adam Hendley, Head of Metals & Mining, Transportation & Environment Coverage Americas and Simon Marielle, Executive Director Infrastructure & Energy Finance.
Investing across the H2 supply chain: overview of opportunities for APAC, Americas and EMEA
Antoine Saint Olive, Global Head of Infrastructure & Energy Finance, rounded off this insightful afternoon with Natixis CIB infrastructure regional experts for North and Latin America, APAC and EMEA, on one last important piece of the power-mix jigsaw: hydrogen, which is planned to supply 15 to 20% of the energy demand by 2050.
Antoine Saint Olive indeed emphasized the global nature of the hydrogen economy, which is “a common priority for 40 countries that have issued H2 strategies, to complement electrification, in order to decarbonize their economies and ensure their energy security”. In addition, its deployment requires infrastructures on various locations to interconnect the different pieces of the ecosystem of the value chain.
€700 billion in capital expenditure, provided by infrastructure equity and debt investors, is expected by 2030. As the sector is still experiencing a slow roll out of projects, the open stage discussion aimed at giving key takeways on the key trends on the five continents and identifying the concrete opportunities that are arising.
“Latin America is not the most developed region when it comes to H2”, Aitor Alava admitted. However, the region boasts large tracts of land and abundant amounts of renewable resources to produce the necessary renewable energy to power electrolyzes. Two countries have already taken some initial steps with hydrogen, Chile and Brazil. Amit Roy highlighted unprecedented development efforts taking place in the North America, supported by national hydrogen strategies, including significant tax incentives in the US under Inflation Reduction Act (IRA) and similar investment tax credits in Canada. The US is targeting clean hydrogen production to reach 10 million ton per annum by 2030, 20 million tons per annum by 2040 and 50 million tons by 2050.
In Europe, Marie-Anaïs Esprit stressed that hydrogen is also critical and a key lever of energy transition, energy security and economic revival, as part of the Green Deal. In the Middle East, she explained that Saudi Arabia, the UAE, Oman and Egypt are positioning to become major exporters of hydrogen, notably as they benefit from exceptional renewable resources, from a strategic location for exportation, and from existing O&G infrastructure that can be retrofitted. Same advantages for Africa, which is lagging behind but has a big export potential, in particular for exports to Europe. The frontrunners are Morocco, Namibia, Kenya, Mauritania and South Africa.
In Asia Pacific, Kwong Wing Law focused on Japan, Korea, India, Australia and China. Japan and Korea will become the major demand centers whilst Australia and India are expected to become key exporters. Japan, for instance, under its Revised Basic Hydrogen Strategy revised its ambitions upwards with hydrogen supply to reach 3 million tons per annum by 2030, 12 million tons by 2040 and 20 million tons by 2050. In a similar vein each country has their own plan, Korea is implementing its Hydrogen Economy Roadmap, India its National Green Hydrogen Mission, and Australia its National Hydrogen Strategy, to which the country has committed AUD 2 billion.
We warmly thank our panelists for their insights, helping the whole community to support the transformation of infrastructure and meet the challenges of the digital and environmental transitions.
Watch all the replays of the event