Right now, two trends are impacting infrastructure investors:

  • the global push for the creation of megacities; and
  • the growing threat of climate change.

“Urbanization is still a big theme, particularly in emerging markets,” says Richard Elmslie, a founder and co-CEO of RARE Infrastructure in Sydney, Australia.

Take China, which is expected to have some of the world’s most prominent megacities—urban areas with populations exceeding 10 million people—by 2030. Even though economic activity has pulled back in many emerging markets, Elmslie says the push for urbanization remains strong.

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Further, the demand for high-quality infrastructure is now stabilizing. Whereas people in these regions once tolerated rolling blackouts, they now are no longer common; and water and gas is expected to be readily available on both the residential and industrial fronts. But, for this to continue, it will require “the refurbishing of current infrastructure.”

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In the U.S. market, he explains, there’s a focus on infrastructure tied to transportation. But, “the airports and roads that continue to be owned by government still need a lot more capital, and governments around the world don’t have a lot of capital. So they’re going to rely on the private sector [for] help.”

Also, for the world to meet growing energy demand, the International Energy Agency predicts cumulative investment of $48 trillion in energy supply and efficiency measures by 2035, says Elmslie. Of that total, about $6 trillion will be in renewables and about $7 trillion will be in energy transmission and distribution.

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Impact of climate change

It’s a good time to capitalize on the push for new energy sources, says Elmslie. “Today, we own three of the world’s largest renewable companies in our portfolio. Those are NextEra Energy Resources, Iberdrola Renewables and EDP Renewables.”

That’s because environmental initiatives are impacting many sectors and businesses. “[They’re] actually having quite a significant bearing on infrastructure and the companies we invest in, and what [those] might look like in the future,” he adds.

For instance, evolving battery technology is changing how electricity is being stored. And, the operations of traditional power plants are being affected by the rise in popularity of renewable energy sources such as wind and solar.

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“In all of the utilities used in everyday life, we’re seeing a switch from coal to renewables or natural gas, and that’s affecting the conventional networks and how they charge and operate,” says Elmslie. “We need to look at how these businesses [will] operate in the future, and at how they’re going to earn income. Climate change affects our lives and the infrastructure we use.”


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