The infrastructure sector has been extremely resilient during the current Covid-19 pandemic. It has admittedly been affected by the crisis – just like all sectors – and some segments have been hit by its negative repercussions i.e. decrease in energy use, collapse in rail and air passenger transportation as a result of lockdown and social distancing measures, 75% plunge in hotel reservations in France between June 2019 and June 2020. Yet the sector as a whole has held up extremely well over 2020 and has truly confirmed its role as a safe haven for investors, as shown by hefty fund-raising with investors.
From a more structural standpoint, the Covid-19 crisis has further driven forward so-called mega-trends, which are sparking an extensive transformation across the entire economy. Three of these movements involve infrastructure more specifically i.e. energy transition, technological disruption and social changes. The roll-out of home working, soaring e-commerce, and the health emergency have increased requirements in the telecoms, care, logistics, and public infrastructure sectors, and provide fresh scope for infrastructure funds.
Energy transition at the heart of the recovery
Environmental protection sits at the very center of stimulus programs, with the European Green Deal at the heart of the EU €750bn plan, while France is allocating €30bn to the energy transition. The United States’ new president-elect Joe Biden is to allocate $ 2 trillion to fund efforts to combat climate change, marking a dramatic shift away from his predecessor’s strategy, who heavily promoted fossil fuels. This transition is partly based on the increase in renewable energy infrastructure i.e. wind and solar. However, this virtuous trend is fueling stronger competition between sector stakeholders, and the risk related to growth in a new sector or business area.
In this respect, the energy transition is also fundamentally based on the gradual transformation of the fossil fuel-dependent system. Oil and gas producers have announced ambitious green energy programs, with Total planning to reduce the proportion of sales derived from oil products from 65% currently to 35% in 2030, while it also targets gross renewable energy capacity of 25 GW in 2025. Meanwhile, BP is working towards wind-generated capacity of 25 GW out to 2025.
The European deal – as well as the French program – seek to draw on the massive development of green hydrogen, which is generated by green electricity-powered electrolyzers. Natural gas has a role to play in this shift towards a low-carbon economy as it operates as a facilitator, actively supporting the development of intermittent renewable sources such as wind and solar through the use of flexible power generation units referred to as “gas peakers”, and reducing stranded costs for current infrastructure owners.
Lastly, building insulation is another key step in moving towards a low-carbon economy, along with the development of rail transportation: with an equivalent cargo load, rail freight emits “only” 25% of the CO2 produced by road haulage. In an economy where transport is the third largest CO2 emitter after energy and industry, will 2021 be the year of rail?
The digital revolution
Massive roll-out of telecoms capabilities – data centers, towers, fiber – is one of most visible signs of technological disruption in the infrastructure sector. The Covid-19 crisis has underscored the importance of access to high-quality digital services, with increased working from home and e-commerce, so digital has become a key service now more than ever. Network access quality has become a decisive criterion in selecting a residence or business location, and local authorities are realizing the urgent need to roll out fiber and narrow the digital divide to keep their regions attractive for both residents and businesses. This structural increase in requirements is driving mergers between companies, particularly cross-border moves between America, Europe and Asia, while investment funds are on hand to fund infrastructure, as they reallocate their portfolios to support the telecoms sector.