Energy transition infrastructure - Three key areas of opportunity
By Minal Patel, Global Head of Infrastructure at Schroders Capital, and others.
Mid-market platforms, data centre hyperscalers and other renewable power demand drivers, and emerging technologies such as green hydrogen will be valuable additions to energy transition infrastructure portfolios.
Renewable energy accounts for between 50% and 60% of all completed infrastructure transactions consistently since 2018, and in aggregate half of total infrastructure deal volume over the past 15 years.
Global investment in energy transition infrastructure has been increasing exponentially over the past five years, reaching €2 trillion in 2024. And the demand for capital to support the drive to a low-carbon global economy is only growing, with $28 trillion of investment implied over the next three decades under current government policies worldwide – and a need to invest more than double that to meet the target of reaching net zero by 2050.
All of this speaks to a vast investment need and a very broad and deep universe. This then begs the question; where within this universe might an investor concentrate their capital in order to most effectively capture the performance and portfolio resilience potential of the global energy transition?
Evolution, not revolution
From a top-down perspective, we see the investment need across the energy transition continuing to translate to a wide range of investment opportunities that can meet the needs of investors across the full spectrum of risk-return appetite. These include everything from core renewable energy assets that have become a fixture of the infrastructure investment and energy provision landscape, to the growing array of emerging adjacent and climate technologies.
This also speaks to a landscape that is constantly evolving. While the direction of travel is generally accepted, the path to realise the global energy transition is likely to be anything but a straight line. Navigating that path – and identifying and then executing on the opportunities it creates – will require specialist skills, understanding and expertise. Our belief and experience is that this specialism will both help to manage risks and, importantly, drive potential portfolio outperformance.
As we move into the next phase of the energy transition, there are several emerging areas that we believe offer compelling access points to maximise the future return opportunities across this dynamic and rapidly-evolving sector.
Schroders sees three complementary and specialist opportunities around which we have especially high conviction within energy transition infrastructure, a sector in which we are a recognised pioneer and on which have maintained a dedicated focus for over 15 years. These are:
- Lower and mid-market developer and platform investments that suffer from a shortage of growth capital, and which can be scaled through both organic expansion and strategic acquisitions.
- Driving market growth of green hydrogen to support the development of this key fuel, as well as of nascent derived technologies.
- Leveraging broader energy transition and power expertise to enable and grow new renewable energy demand drivers, including for example data centre hyperscalers.
We believe that investing in these specific areas provides compelling growth opportunities through which investors can potentially achieve outsized returns. In the process, they can capitalise on the progressive stages of the journey to net zero: 1. decarbonising power generation, 2. electrification of power demand, and 3. enabling the decarbonisation of hard-to-abate segments of the economy (e.g. heavy industrial sectors).
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