September 2023 • infrastructureinvestor.

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BROOKFIELD
The unconventional
pioneers
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 Contents

How to contact us

Senior Editor
Bruno Alves
bruno.a@pei.group, +44 20 7167 2031
Deputy Editor
Kalliope Gourntis ISSN 1759–9539 • ISSUE 146 • SEPTEMBER 2023
kalliope.gourntis@pei.group,
+30 6937 230 121
Head of Special Projects
Graeme Kerr
graeme.k@pei.group, +44 20 3862 7491
Americas Editor Insight Cover story

2 22
Zak Bentley
zak.b@pei.group, +1 646 921 1787
APAC Editor
Daniel Kemp
daniel.k@pei.group, +61 452 300 346
Senior Reporter
Decarbonisation Bridging VC
and infra
“I think we’re now
Anne-Louise Stranne Petersen
anne-louise.p@pei.group, +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
isabel.ob@pei.group, +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
hywel.g@pei.group, +44 20 7566 5474
Subscriptions and Reprints Batteries Macquarie charges ahead
subscriptions@pei.group with Eku Energy
Customer Services
customerservices@pei.group 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
company working on projects in
the Middle East and North Africa.
And the technology is quite simple.
It can be as simple as using readily
available equipment to capture the
gas that would otherwise be emitted
and using it for something like steam
generation – replacing diesel for
instance – or producing electricity.
But while the technology is not
very complex – it’s been used
for decades – there remains a
funding gap that we seek to fill
with our capital. This gap is often
due to the projects being located
in jurisdictions that can be a bit
more challenging and incumbent
investors don’t want to be the first
to step in there. So, we’ll fund these
projects to help them get off the
ground and demonstrate that they
can be operated prudently and
safely and provide an attractive rate
of return.
“ Let’s be honest: as
a global community,
we haven’t done
a great job of
ascribing the cost of
emissions to what
we do ”
But if the technology is not
complex and has been around
for decades, it begs the
question: why isn’t it more
widely used, especially when
methane is one of the most
significant contributors to
global warming?
I think historically it was
viewed as a matter of cost.
We are finding more
examples where it is cost-effective.
We have a project in Oman for
instance that is an economic
project. There certainly are places
where the value you get from
capturing the gas may not cover
the cost of doing so. But let’s be
honest: as a global community, we
haven’t done a great job of
ascribing the cost of emissions to
what we do. It’s not free to emit
CO2 and methane. There are costs;
we just don’t see them.
What’s encouraging, however,
is that both companies and
policymakers are recognising
this, according to Mackey, and
are introducing incentives in
various jurisdictions.
There’s also a lot of activity
happening in Iraq right now.
We haven’t invested in the
country yet but we’re hoping to do
so. The level of emissions that are
coming from oil production out of
Iraq are staggering. If we can find
the right way to do it – and it would
be on a consortium level – we can
make a tremendous amount of
climate impact there.
That’s one of the key drivers
in CI’s decision-making
process: invest in jurisdictions
where the firm’s capital can
have the most impact, but
also in jurisdictions where
policies are supportive for
financial investors. Though the
examples Mackey has referred
September 2023
to so far are growth markets,
the majority of CI’s investments
are in North America and
Western Europe.
Shifting from methane to
things like carbon capture
and storage, the US actually
has some of the most encouraging
policies to support carbon capture.
That’s through the 45Q tax credits
that were modelled after the wind
production tax credits. So, the 45Q
policy coupled with the more
recent Inflation Reduction Act has
really led to a lot of growth in the
development of CCS projects.
Another example that further
illustrates CI’s strategy is the
built environment.
The emissions coming from
industries like cement and
steel I think are overlooked;
certainly, more than they should
be. We have a few investments in
the cement and concrete industry
where just reducing the amount of
cement used can make a really big
difference. One thing on the
technology side is these sensors
that allow you to see how the
concrete is curing so that you don’t
have to use as much cement.
But then we also look at the
materials that can be used to
replace some of the cement that
is coming from essentially burning
limestone. One of our portfolio
companies produces some of
these materials, but it needs
production facilities. And so, our
investment team also includes
structured finance expertise to
support those portfolio companies
by providing them with project
finance, being the equity sponsor
for getting these facilities built.
Ultimately, the success of our
efforts will be when on project
three, four, five, or six, we’re
attracting more traditional
investors. n
• Infrastructure Investor 3
 Insight
People OMERS poaches CPP energy
MD as new global infra head
O
MERS Infrastructure has
hired Michael Hill to
become its new global
head of infrastructure following the
departure of Annesley Wallace in
May, Zak Bentley reports.
The Canadian pension group
has hired Hill from compatriot CPP
Investments, where Hill has been
since 2016, serving as managing
director and head of Americas in its
sustainable energies group.
Hill, who starts his new role in
September, was also the head of
CPP’s New York office, where he
will continue to be based, with
the role previously based in
Toronto.
As part of his role at CPP
Investments, Hill sits on the board of
Canada-based Wolf Midstream, US
oil and gas company Encino Energy
and North American renewables
group Cordelio Power. Prior to
his arrival at CPP, Hill was head
of Americas M&A and corporate
finance at Nomura.
Projected growth
Hill will report to OMERS chief
investment officer Ralph Berg,
who said in a statement that
“infrastructure plays a core
role in our global investment
strategy”.
Last year, in an interview with
Infrastructure Investor, Wallace
revealed the group’s plans to
grow its infrastructure allocation
from 20 to 25 percent by 2027,
doubling its asset class assets under
managerment to about C$65 billion
($49.3 billion; €44.8 billion). The
strategy has generated a five-year
average net return of 10.2 percent to
the end of 2022.
4 Infrastructure Investor • September 2023
Wallace herself replaced
Berg as OMERS’ global head of
infrastructure in April 2021 before
her departure in May this year to
become executive vice-president at
TC Energy.
Since then, OMERS has come
under the spotlight in the UK as
the largest shareholder – with a 32
percent stake – of Thames Water,
after it emerged that the
UK government had drawn up
plans for temporary nationalisation
amid the company’s burgeoning
debt levels.
It emerged last month that OMERS
had cut the value of the company in
its accounts by 28 percent at the
end of last year. OMERS and the
other shareholders have agreed
to inject a further £750 million
($963.3 million; €825.5 million),
on the condition this “is supported
by appropriate regulatory
arrangements”, it said in a statement
last month.
Closer to home, OMERS also
recently acquired a minority stake
in Beanfield – a fibre infrastructure
network servicing company
operating across major cities in
Canada, from DigitalBridge.
Also in July, it teamed up with
APG Asset Management to
acquire energy infrastructure
solutions company Kenter,
operating in the Netherlands and
Belgium. n
10.2%
OMERS Infrastructure’s
five-year average net return to the
end of 2022
P I P E L I N E
News flow from our
subscriber-only email
 Keeping Vocus
M&A activity in the telecoms sector
continues apace Down Under,
as TPG Telecom is in talks over
spinning out another of its business
units following the sale of its towers
portfolio to OMERS Infrastructure in
2022.
Now TPG has received a non-
binding, indicative offer worth
approximately A$6.3 billion ($4.1
billion; €3.8 billion), for a sale-and-
leaseback of its non-mobile fixed
fibre assets from Vocus Group, the
firm jointly owned by Macquarie
Asia Infrastructure Fund 3 and Aware
Super.
TPG’s board has granted Vocus
Group a period of exclusive
due diligence that expires on 6
September to firm up its offer.
 Clean energy veteran
Breckenridge calls it a day
John Breckenridge, president
and CEO of Arevon Energy and a
veteran of private markets and clean
energy investing, is retiring. He will
be replaced as CEO by Kevin Smith,
another energy-markets veteran who
was recently the CEO Americas for
Lightsource bp. Breckenridge will
serve as a senior adviser at Arevon
to help with the transition.
With a career spanning nearly
40 years, half of it spent in private
equity investing, Breckenridge was
the global head of clean energy
for Capital Dynamics for close to
eight years, prior to helping set up
Arevon, a clean energy platform.
The latter was founded two years
ago with backing from a consortium
comprising the Abu Dhabi
Investment Authority, APG Asset
Management and the California
State Teachers’ Retirement System. n
 3 ASSET CLASSES
PRIVATE EQUITY PRIVATE DEBT REAL ASSETS

YEARS OF HISTORY COLLABORATORS

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590 companies. With its considerable private equity, private debt, real estate asset and
infrastructure expertise, Eurazeo accompanies companies of all sizes, supporting their
development through the commitment of its nearly 410 professionals and by offering
deep sector expertise, a gateway to global markets, and a responsible and stable foothold
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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
he Biden
administration
opened the US Mid
Atlantic region for
land lease auctions at
the end of July and
will hold auctions for offshore wind
plots in the Gulf of Mexico in the
coming weeks, auctioning at least
7.7GW of capacity, Isabel O’Brien
writes. This is despite the ongoing
PPA troubles in New York, Rhode
Island and Massachusetts that
have threatened to derail several
awarded projects, as well as the
underperformance of the last US
offshore wind auction in California,
which raked in a mere $757.1 million
in December.
The Bureau of Ocean Energy
Management was planning to
auction three areas off the Gulf of
Mexico, promising about 3.7GW of
electricity production capacity, on 29
August. In the Mid-Atlantic, BOEM
was seeking public comment until
the end of August for 4GW-8GW of
potential production capacity.
Why the underperformance last
time around? Michael Bonsignore,
energy and infrastructure partner at
Clifford Chance, says: “I do think it’s
a general view of the market itself.
The PPA discussion with SouthCoast
Wind [in Massachusetts] informed
the auction process out in California.
I think we’re going to have that same
kind of more reasoned approach
towards the investment on these
[Mid] Atlantic projects.”
The issues that informed the
California auction are still ongoing,
but there are some key differences
this time around. First, the proposed
projects in the Gulf of Mexico and
the Mid-Atlantic are not floating
element that may attract investors.
More likely than not, the prices
reached in the New York Bight
auction will not be repeated for US
offshore wind. But are the troubles in
the offshore wind industry enough
to depress prices below what
was seen in California? And how
concerning do industry players find
these issues?
Macroeconomic headwinds
Bonsignore counts himself among
the offshore wind optimists. He
calls issues in PPA negotiations and
environmentalist group backlash
“growing pains” for a still nascent
industry. This most recently occurred
in early August, when Protect Our
Coast NJ and Defend Brigantine
Beach filed a lawsuit against a
tax break awarded to a project
recently approved in the state being
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

6 Infrastructure Investor • September 2023

 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

September 2023 • Infrastructure Investor 7

 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.

8 Infrastructure Investor • September 2023


“Storage is a central element of
the decarbonisation journey and
presents opportunities well beyond
the common lithium-ion battery
storage facilities, Starace says.
“Flexibility assets will be pervasive
in the energy system. Today, we
have a technology that basically is
the result of the automotive industry
developing lithium-ion [batteries]…
but I think you will see other storage
technologies in parallel with them
[presenting longer-term storage
opportunities].”
The amount of money that can
be made from short-term batteries
is currently well above the potential
profits in longer-term storage. But
society needs that longer-term
storage desperately to counter the
intermittency of wind and solar.
“ The digital transformational network
is the key to getting everything to work
in a seamless fashion. The opportunity
for investment here is huge ”
“There’s nothing wrong with
easy money, but there is also the
future easy money, which today
doesn’t appear so easy. You must
have a view of what’s going on in
the system and prepare yourself
for when it comes, but we have
to understand that things cannot
happen all together at the same
time.”
Among those other technologies,
Starace sees potential in thermal
storage, such as molten salt, sand
and rocks. These techniques have
an advantage in that they fulfil an
industrial need, he explains.
“Thermal storage is coming also
because some industries need heat.
They don’t need electricity only, they
also need heat. And heat at below
600 Celcius can be provided by
these technologies already. So that’s
a parallel path that is already starting
to show.”
A mix of solutions
Starace says the important thing to
remember is that an effective energy
storage strategy will require a mix of
solutions, and that this will put stress
on the network and provide new
opportunities. “I don’t think you can
say there is one or two technologies
that will solve the problem. There
will be a complicated array of
different storage media that will
work together. And we will continue
to mix systems on the generating
side too.
“In between these things, we
never talk enough about what needs
to happen to networks, how they
need to adapt to this new reality.
Our networks were installed over
the past 70 years, and they are
not designed for this technology
evolution. However, they can accept
it, provided they are digitised. And
the digital transformational network
is the key to getting everything to
work in a seamless fashion. The
opportunity for investment here is
huge.”
Starace began his career in the
nuclear industry and has a degree
in nuclear engineering. He sees
potential in the new small modular
nuclear power plants being
developed around the world.
“The basic concept [of modular
plants] is to standardise and
September 2023
Insight
assemble in a factory rather than
outside in the middle of a site. The
future belongs more to factories
than to large construction sites
so, yes, this is something that
can happen. I think it is possible
provided that the industry restart
from scratch without trying to put in
the factory all the mistakes we were
making in the field, because then
this would be a disaster.
“I think it would be very useful
for Europe and the world if we
had a safer, less expensive and
non-nuclear-proliferation-exposed
technology available. Time-wise,
if you’re talking about commercial
investments, it will be after 2040.
Before then it’s just [investing in a
prototype rather than a fully-fledged
asset]. For a proper [infrastructure]
investment case, you’re looking at
2040 forward,” he says.
Europe still leads
Looking back over the past decades,
Starace says Europe’s frontrunner
status on the energy transition is
something to be proud of.
“We started all this, we triggered
the interest of the industry and
basically initiated the whole
transition in its industrial phase.
Then, we were able to keep the
wind industry alive and kicking, but
we dropped the ball on the solar
industry and partially on the battery
side of it.
“There’s no reason why we
did that other than probably out
of complacency and a lack of
perspective on the future this
industry had.”
He is optimistic about the future,
which befits a man who has just
chosen to enter new employment at
the age of 67.
“Basically, Europe still has a very
bright future, and I think Europe
remains at the forefront of this huge
transition, notwithstanding these
past mishaps.” n
• Infrastructure Investor 9
 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

10 Infrastructure Investor • September 2023


“ It says to a
developer: ‘If you
want to come and
do something on
our country, you
need to come and
work with us’ ”
Tyronne Garstone
Kimberley Land Council
want to see things rolled out on our
country.”
Garstone says that creating
an equal partnership between
an infrastructure developer and
First Nations groups in this way is
“elevating free, prior and informed
consent to the highest standard”.
“It says to a developer: ‘If you
want to come and do something
on our country, you need to come
and work with us.’ It’s about trying to
shift us from being a stakeholder to
a shareholder, trying to get equity
in the company to get as much
value across the supply chain of the
project as possible, which is a critical
part [of this]. And noting the lack
of capital… that First Nations have
to try and get [to get] this [type of]
project off the ground, it’s going to
need some innovative thinking from
governments.
“The reality is we need to
decarbonise Australia and we need
50,000
Tonnes of hydrogen the East
Kimberley project will produce
annually once completed
renewable energy [to do that]. If
they really want to try and meet
the timelines they’re ambitiously
reaching for, there has to be a
strategy in trying to work with First
Nations groups – and this project is
showing how it can be done.”
Grant echoes this and says that it
was Pollination’s role to help develop
the scheme before connecting
investors with the partnership, once
the project is sufficiently de-risked.
“This is quite different to what
you see in the resources sector,
where a lot of this engagement
is left quite late, it’s drawn out
and it’s distributed. It isn’t a
royalties discussion – in this case,
we have land use agreements or
lease agreements with freehold
landholders who are also
shareholders, and then we all share
in [the distributions of the project we
create].
“Obviously by the time we go
through the capital investment
stage we will be diluted, but we
want to stay as big investors as we
possibly can in our own project as it
progresses.”
Initial funding for the scheme
will be provided by grants from
several organisations as well as from
Pollination’s own balance sheet.
Garstone says the East Kimberley
Clean Energy Project is “unique” but
that the principle of sharing equity
with First Nations groups to create
a true partnership with them can be
replicated elsewhere.
“The critical thing for us is seeing
First Nations people and affording
them the capital resources to
do the initial upfront work like
environmental [and] heritage
consultations and infrastructure
build, because it would be nice for
First Nations groups to be taking
projects to the marketplace instead
of waiting for providers to knock
on our door and tell us what the
project is.” n
September 2023
Insight
AI DigitalBridge
touts aspirations
amid $1.2bn
flagship
fundraise
G
enerative artificial
intelligence took the lead
in DigitalBridge’s Q2 2023
earnings call early last month, as the
group also revealed that fundraising
in Q2 tallied $2.7 billion in total –
exceeding Q1’s total of $700 million,
Isabel O’Brien reports.
The flagship strategy – Digital
Bridge Partners III – raked in an initial
$1.2 billion or 15 percent of its $8
billion target. It also raised $900
million for co-investment strategies,
with another $600 million for core,
credit and liquid strategies.
This comes soon after filings
revealed its new core strategy –
DigitalBridge Strategic Assets Fund
– raised $1.05 billion, just over its $1
billion target. The vehicle is still in
market.
Aside from providing an update
on fundraising – the firm is on track
to meet its targets – CEO Marc
Ganzi also spoke at length about
DigitalBridge’s asset management
plan being aligned with AI.
According to Ganzi, over the next
three to five years, the generative
AI takeover will need “edge data
centres, fibre, cell towers and small
cells”, as well as “things like metro
fibre capacity that are in the order of
magnitude larger from cloud service
providers, which is why you’ve
seen some of our fibre revenues
pick up and the growth in fibre and
enterprise fibre pick up”.
He added that the generative AI
opportunity “is going to be at least
as big as the public cloud market
was over a decade ago”. n
• Infrastructure Investor 11
 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

12 Infrastructure Investor • September 2023


open-end funds. Still, we are seeing
some very interesting funds coming
to the market.”
Fees under pressure
An alternative to an open-end fund
such as NECRI, could have been a
co-investment, except this would
demand more of the LP. For MN,
which has €135 billion in total AUM
and €2 billion invested against a
€2.65 billion target allocation for
infrastructure across MN’s pension
fund clients, this is not feasible at the
moment.
“We are a relatively small team
and don’t have the capacity for
co-investments yet, but we are
€600m
Amount MN has committed
to Glennmont’s NECRI fund
“ We still see funds with a hurdle rate of
5 or 6 percent. In the current market, with
the increased risk-free rate, that is really
not ok ”
Marco van der Geugten
MN
doing some co-investments within
our private equity programme.
And, given the fees that we pay in
infrastructure compared to the fees
that we pay in private equity, private
equity is the more obvious place to
start with co-investments,” van der
Geugten says.
But those lower infrastructure fees
are under pressure as the balance
of power is shifting because there is
less capital available from LPs.
“With the denominator effect,
fundraising is becoming more
difficult, even for renewable
energy. This obviously affects
our negotiating power, and we
find funds are really open to
lowering their fees. Except for the
performance fee, which is still very
difficult to change and remains a key
concern for us,” van der Geugten
says.
He prefers management fees to
be well below 100 basis points and
is very critical of performance fees:
“We still see funds with a hurdle
rate of 5 or 6 percent. In the current
market, with the increased risk-free
rate, that is really not ok”.
He is unapologetically on the side
of keeping costs down: “MN and
our clients are very cost-conscious,
which we should be because we
are not investing our own money
but the money of the pensioners in
the pension schemes. I think that, in
general, Dutch institutional investors
are quite cost sensitive.”
There is very little hope for
newcomers when MN makes
commitments.
September 2023
Insight
“Generally, we don’t work with
first timers. We want an experienced
team – one that has had its share
of errors and been through a
full cycle. So we tend to invest
in later vintages. Performance
and a consistent track record are
important, and the investment
process needs to be repeatable.
ESG is very important for us as well,”
says van der Geugten.
“There are not a lot of high-quality
GPs that fit those requirements.
However, we have been able to
find some good managers that
were willing to work with us,” he
adds.
MN’s previous investments have
included CIP’s flagship funds III
and IV, as well as SUSI Energy
Storage Fund and Luxcara Fund IV.
The absence of mega-funds is no
coincidence. “If we were to commit
to a multi-billion-dollar fund, we
would have limited negotiating
power,” says van der Geugten.
Valuation worries
Aside from looking for low-cost
solutions, one issue that is currently
of particular interest for MN is
valuations, and the LP worries
about what the right price is for an
asset.
“At the moment, we are interested
in valuations and finding out to what
extent sellers have adjusted to the
new normal. Are they incorporating
the higher risk-free rate? Will they sell
at lower prices? We care deeply that
our managers do not pay too high a
price,” says van der Geugten. n
• Infrastructure Investor 13
 Insight
Fundraising Itochu, SMTB reach first close on inaugural
$2bn North American renewables fund
J
apanese firm Itochu, in
collaboration with Sumitomo
Mitsui Trust Bank, has
launched its first-ever North
American renewable energy-
focused fund, named Overland
Capital Partners, targeting a $2
billion final close expected in
one year’s time, Isabel O’Brien
reports.
The first close for the fund was
reached in June 2023, Itochu said in
a statement. It did not disclose the
amount, although Nikkei Asia has
reported a current fund size of $500
million. There will also be a hard-
cap to the fund, the company tells
Infrastructure Investor, but declines
to state the size.
The first close was reached with
commitments from Japanese LPs
Tokyo Land Corporation and Fuyo
General Lease Co, alongside initial
commitments from Itochu and
SMTB.
14 Infrastructure Investor • September 2023
“ We heard that
Itochu was going
to make their North
America business
bigger. So we
thought, ‘This is our
chance to [deepen]
that relationship’ ”
According to Rui Inoguchi, an
investment development officer with
SMTB, the fund will target a net IRR
between 7 and 9 percent in either
operational projects or those under
development. Additionally, the fund
will have a 10-year lifespan, making
six to 10 separate investments.
The fund will be owned and
operated by Itochu’s wholly owned
subsidiary company, Tyr Energy,
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.
For SMTB, Itochu’s track record
was a key factor in the decision
to partner. “We’ve had a deep
relationship with Itochu... In recent
years, we heard that Itochu was
going to make their North America
business bigger. So we thought,
‘This is our chance to [deepen] that
relationship’... And in terms of our
company policy, we have a budget
for impact investment [and carbon
neutral investments].”
But that’s not the only reason.
Inoguchi continues: “Considering
the market opportunity in North
America – the IRA launched last
year – we think that renewable
energy will show a great [amount of]
development in the future.”
At the moment, SMTB has no
plans to increase its investment in
the fund, Inoguchi says. He adds
that the vehicle does have a co-
investment programme for investors
looking to co-invest. n
 We invest
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 Insight
Renewables The heat is on energy
transition investors to ensure
pipelines become reality
Comment
Expert analysis by Zak Bentley
T
he heat is turning up for
energy transition investors.
Quite literally, in fact, with
temperatures in the US reaching 56C
and 49C in Europe this summer. The
climate crisis is escalating.
So it was welcome news when,
mid-July, Copenhagen Infrastructure
Partners announced a €5.6
billion first close for Copenhagen
Infrastructure Partners V, slightly
short of half its €12 billion target.
There’s no shortage of development
opportunities for CIP, with the group
telling a media briefing that there
are currently more than 40 projects
and potential investments of €20
billion in Fund V’s pipeline.
CIP is not alone in having a healthy
pipeline. Finnish outfit Taaleri also
recently clinched a €286 million
first close for its SolarWind III
vehicle and seeded the fund with
50 development projects, which, if
they were all to reach fruition, would
represent 7.7GW of capacity and
require €2.6 billion of equity.
Healthy energy transition pipelines
are not the sole proviso of funds,
either. Spain’s Opdenergy – the IPP
Antin Infrastructure Partners is trying
to take private for €866 million –
reported in May it had a portfolio
16 Infrastructure Investor • September 2023
of 1.9GW of assets under operation
and construction, plus a mammoth
12.7GW portfolio of projects in
“different stages of development”.
Tion Renewables – the German
developer in which EQT’s Active
Core Infrastructure fund acquired
a majority stake in March – has a
development pipeline of 5GW.
Where’s the value?
On the face of it, these examples and
others all seem like great news. The
energy transition has both the supply
and capital to make a meaningful
difference, with greenfield
developments increasingly being
funded by traditionally conservative
infrastructure investors. However,
not everyone is convinced that large
pipelines will deliver the bottom line
required.
“ Not everyone
is convinced that
large [project]
pipelines will deliver
the bottom line
required ”
“When we look at some of the
renewable platform deals that have
been done and paid for, as you peel
back what underlies that valuation,
in many cases, we can only attribute
about 30 percent of the value to
the operating portfolio. Seventy
percent of that value is attributed
to the pipeline of projects,” Brent
Burnett, managing director and
head of real assets at Hamilton
Lane, told Infrastructure Investor,
speaking broadly about the sector’s
valuations.
“As you peel back the pipeline
of projects, we think some of those
are very early stage and in order
for some of those deals to make
sense, you really have to take a
pretty aggressive view on what your
power prices are going to be, where
you can strike PPAs, where your
merchant power you’re going to sell
into [is priced]. You have to take a
pretty aggressive view that you can
convert some of those earlier stage
pipeline projects into operating
ones.”
The climate crisis, the need to
replace ageing generation and
renewed government support –
there are plenty of tailwinds for such
large pipelines, but investors also
need to be pragmatic about this
industry. The supply chain disruption
that has come alongside grid issues
and rising costs in the past couple
of years was only exacerbated in
July when Siemens Gamesa, the
world’s second-largest wind turbine
provider, reported that between 15
and 30 percent of its worldwide fleet
was faulty and needed replacing,
aggravating the generally unhealthy
finances of Siemens and its peers.
For those gigawatt-scale pipelines,
becoming both operational and
profitable is perhaps the biggest
challenge facing energy transition
investors. n
zak.b@pei.group
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 Insight
Geopolitics The race to diversify
supply chains is on
Comment
Expert analysis by Kalliope Gourntis
O
ver the past several
months, there has been
a steady flow of news
underscoring the increasing tension
between China and the West, and
the mounting geopolitical risk that
comes along with it. As a result,
three Canadian institutions – Ontario
Teachers’ Pension Plan, the British
Columbia Investment Management
Corporation and CDPQ – have
paused their investment activities
in the country, to varying degrees.
So too has Singapore’s sovereign
wealth fund, GIC, and Dutch pension
manager APG.
While none of the above examples
directly relate to infrastructure
investment, the growing geopolitical
tension with China over its plans to
reunify Taiwan with the mainland has
direct implications for the energy
transition.
The reason for that, of course, is
that China dominates the rare earth
supply chain, which includes mining,
processing and manufacturing.
According to Marsh McLennan,
China accounts for 60 percent of
global rare earth mined production
and 85 percent of processing
capacity. It also dominates the
production of solar PV modules,
accounting for 75 percent of global
production in 2021, according to
Statista.
The good news is that both
policymakers and the business
community are not only thinking
18 Infrastructure Investor • September 2023
about alternatives to China but are
also looking to build new supply
chains.
“Many manufacturing facilities are
moving down to Southeast Asia or
back to the US,” Gordon Bajnai, head
of global infrastructure at Campbell
Lutyens and former prime minister
of Hungary, told Infrastructure
Investor. The rare minerals that have
been sourced in China until now
“will be replaced partially or entirely
over time, moving over to Australia
or Africa”, he says. “So, there will be
more investment going into mining
funds.”
Enabling infrastructure
While mining is more a target for
private equity investors, the Canada
Infrastructure Bank (CIB) has zeroed
in on the sector for the enabling
infrastructure it requires.
“We’re not in mining, so we don’t
look at exploration and early-
stage development,” Divya Shah,
a managing director at CIB, told
Bloomberg recently.
Instead, the bank is looking to
invest in the access roads and
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
and platinum. “All of these are
examples of critical minerals that
are needed for our energy transition
and our net-zero targets for 2050,”
she added.
“There’s a lot of activity taking
place around the world [in an effort
to diversify supply chains],” Bajnai
said. “Some of it is visible and some
of it isn’t.”
That’s the good news. The
not-so-good news is that building
alternative supply chains will take
many years. If some analysts’
forecasts about China taking control
of Taiwan prove accurate, decoupling
from China’s supply chain altogether
may not be possible.
“Every company should be taking
seriously the potential for militarised
confrontation between China,
Taiwan, and possibly international
players in the next five years,” Tina
Fordham, geopolitical strategist
and founder of Fordham Global
Foresight, said during a webinar.
She wasn’t addressing the
infrastructure investment community
specifically, but infrastructure GPs
and LPs who have invested in
Taiwan’s offshore wind sector – and
there are a number of them – would
do well to heed it. What happens if
China takes control of Taiwan? Could
we expect expropriations such as
the ones the Kremlin carried out in
April when it took control of Russian
subsidiaries of Finland’s Fortum and
Germany’s Uniper?
In our current era of polycrises,
perhaps the best advice would be:
‘Hope for the best, prepare for the
worst.’ n
kalliope.gourntis@pei.group

Energy storage Bankable lithium-ion
batteries may run out of charge
Comment
Expert analysis by Isabel O’Brien
L
ithium-ion batteries are one
technology out of a myriad
of utility-scale energy storage
options on the market. However,
none of its competitors have proven
to be as successful when it comes to
securing bank financing.
For the most part, this can be
chalked up to the electric vehicle
industry. As EVs use batteries with
the same chemical makeup, supply
chains are more robust, at a cheaper
cost. Securing a loan for the lifespan
of the asset can be straightforward
for a sophisticated investor with
good relationships and a decent
business plan.
However, it seems many in the
industry have conflated being able
to get a reasonable ROI in a few
years with lithium-ion’s capacity to
be a long-term, top-tier player in the
energy storage space. The latter is a
questionable assumption.
For starters, lithium-ion batteries
degrade, with some estimating
a useful life of between two to
three years, going up to 10-15
in the most generous cases.
According to Norton Rose Fulbright,
standard warranties for these
batteries are typically just two
years, though extended warranties
can be purchased for up to 10.
This, combined with challenges
in hooking up new utility-scale
buildouts to grids worldwide,
alongside the newborn energy
arbitrage-based business model
that some lithium-ion based BESS
operators have employed, makes for
a risky endeavour indeed.
Negative and positive
Fitch Ratings agrees. According to a
report in July, the risks of arbitrage
and degradation combined have
had an outsized negative impact on
lithium-ion batteries, making them
as risky or even riskier than typical
thermal peaking plants.
“Batteries are subject to fast
degradation with the useful life of
utility-scale lithium-ion versions
far below the estimate for solar
panels. Degradation rates and life
expectancy of battery storage mainly
depend on use (frequency, depth of
discharge and the style of operation),
as well as battery chemistries
and external conditions, such as
temperature,” the report stated.
“Moreover, they require more
frequent replacement than the
main equipment in other energy
“ Many have
conflated being able
to get a reasonable
ROI in a few years
with lithium-ion’s
capacity to be a
long-term player in
energy storage ”
September 2023
Insight
technologies in order to mitigate
potential underperformance.
Operators could add extra capacity
when systems are new, or replace
units later. A high proportion of
arbitrage in revenue could spur
degradation, reducing the visibility
over the pace at which an asset loses
capacity.”
Also important are issues of supply
chain, both from a geopolitical and
an ESG perspective. For example,
China hosts over 60 percent of the
world’s lithium refining capacity;
North America only has four
recycling facilities. Additionally,
there are the widespread labour
and human rights issues attached to
lithium mining, including child labour
violations and allegations of slavery.
Those, coupled with the reality that
the current rate of lithium extraction
worldwide is not nearly enough to
meet projected demand, does not
paint a hopeful picture for the short-
term resolution of these issues.
Finally, what if the primary
advantage lithium-ion sees in the
financing market turns out to be
its Achilles’ heel? While EVs have
helped to ensure a robust supply
chain, they also hold the most sway
over how it operates. Energy storage
players will always take a back seat.
Technologies like sodium-ion
batteries, gravity batteries and
hydrogen as a fuel show immense
promise. Smart investors should
recognise that lithium-ion batteries
will likely act as a placeholder in the
burgeoning energy storage market,
to be replaced by one or more of
these technologies once they reach
maturity.
When all is said and done,
arguably the most attractive
component to lithium-ion batteries
for utility-scale energy storage is
their bankability. For how long will
that be enough? n
isabel.ob@pei.group
• Infrastructure Investor 19
 Insight

Editor’s letter

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with energy
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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
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No statement in this magazine is to
and London to meet with Brookfield’s Sam Pollock, Connor Teskey, Natalie be construed as a recommendation
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20 Infrastructure Investor • September 2023

 European Greenfield
and Brownfield
Infrastructure Specialist
Infracapital invests in, builds and manages
a diverse range of essential infrastructure
to meet the changing needs of society and
support long-term economic growth

For Investment Professionals only. This document does not constitute an offer or solicitation. Past performance is not a guide to future performance. The value
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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
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EX hat’s for
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22 Infrastructure Investor • September 2023

 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

24 Infrastructure Investor • September 2023


W
hen we met
Sam Pollock,
chief executive
of Brookfield’s
infrastructure
business, at the
sprawling Brookfield Place in Toronto,
it was days after wildfires in Québec
had wreaked havoc, spreading smoke
across Canada and into the US, mak-
ing Toronto and New York among the
most polluted cities in the world with
the worst air quality, and cancelling
thousands of flights in the process.
It was a timely reminder that Brook-
field Asset Management, with last year’s
$15 billion closing of its Brookfield
Global Transition Fund I, manages the
world’s largest vehicle focusing on the
energy transition.
It was also a reminder that, with
no airports in its portfolio, Brookfield
is no ordinary infrastructure manag-
er, despite it now boasting the world’s
largest closed-end infrastructure fund,
having revealed to the market in August
it had raised $27 billion for Brookfield
Infrastructure Fund V, with a planned
close later this year after further com-
mitments.
Brookfield’s unconventional infra-
structure approach means it has taken
significant bets in South America (c$20
billion AUM), a much larger presence
in the region than many other global
infrastructure managers. It led it to start
investing in data centres in June 2018,
when few of its peers had done so. And
it is reflected in the unusually high 25
percent GP commitment it makes to
each of its infrastructure funds, through
listed entities Brookfield Infrastructure
Partners and Brookfield Renewable
Partners.
When it is put to Pollock that
Brookfield has built a $161 billion
AUM infrastructure business by being
a contrarian at times, the man respon-
sible for driving that since it began in
2008 delivers a rather more traditional
infrastructure response.
“When we think about when we
make a long-term investment, some-
times being contrarian, the first part
of it is taking a long-term perspective,
to try to make sure that we don’t get
caught up in the negative sentiment of
the day,” he says. “The second thing
that we focus on is the capital flows.
You have to step back and assess: where
is all the capital needed for the next 10-
30 years? And get in front of that tail-
wind. Getting in front of digitalisation
and decarbonisation now obviously
seems like a no-brainer, but not every-
one could see that eight years ago and
how important it was going to be.”
Betting on the energy transition
Brookfield’s much-vaunted BGTF I is
a good example of the manager’s ability
to glimpse the future and then marshal
the resources to go after it.
“Probably around 2015, we began to
see two things changing within our op-
portunity set,” recalls Connor Teskey,
president of Brookfield Asset Manage-
ment and CEO of its renewable pow-
er and transition unit. “One was, with
the growth in renewable power around
the world, the ability to do a lot more
development at very attractive risk-ad-
justed returns. And the second was
that, increasingly, more and more of
our equity deployment went towards
working with a counterparty – almost
always a corporate – to help them reach
September 2023
Cover story
their decarbonisation or energy transi-
tion goals.
“As those two things – develop-
ment and, let’s say, becoming more of
a solutions provider – became more
and more a part of our business, that
was really the impetus to launch BGTF
I. And our LPs were looking for that.
The market opportunity was huge, and
we thought we could be a leader.”
Scale is a big part of the energy
transition. But even if Teskey admits
BGTF I closed “right at the high end”
of Brookfield’s expectations for it, the
point is not “to be big for the sake of
being big”. “What we have found is that
having those large-scale dollars allows
us to execute on not only the most im-
pactful but also the largest and most at-
tractive decarbonisation investments”.
Offering a big fund also allowed
Brookfield to capture the growing LP
appetite for the energy transition, he
says. “Increasingly, we are seeing large
institutional investors have direct allo-
cations – whether those are hard or soft
allocations – to sustainability or transi-
tion or decarbonisation.
“And it’s not solely because every
LP around the world recognises the
need to decarbonise. It’s important
to recognise that many are increasing
allocations towards this space simply
because they think it can offer very at-
tractive, risk-adjusted returns.”
That brings us to an important
point regarding Brookfield’s transition
strategy.
“We are adamant that there is no
return discount because our Transi-
tion fund focuses on decarbonisation,”
Teskey stresses. “We want the decar-
bonisation angle and the value-creation
angle to be completely aligned. That
creates a very actionable investment
thesis. It creates an environment where
you can rally stakeholders, because if
decarbonisation and value creation are
aligned, you completely avoid that po-
tential conflict. It really is an opportu-
nity to do well by doing good.”
Business transformation, which
focuses on transitioning individual
• Infrastructure Investor 25
 Cover story
businesses, is probably the Transition
strategy’s highest-profile investment
theme. The prototypical deal is the ac-
quisition – together with EIG’s LNG
platform MidOcean Energy – of Aus-
tralian energy generator and retailer
Origin Energy. It is large-scale – it has
an A$18.7 billion ($12.5 billion; €11.6
billion) price tag attached – and ambi-
tious in scope, with Brookfield aiming
to spend a further A$20 billion over
the next decade to build 14GW of new
renewable generation and storage facil-
ities, to help decarbonise Origin’s gen-
eration fleet.
“By building that replacement ca-
pacity to shut down coal, we will hope-
fully drive emissions down by more
than 70 percent over the next decade,”
Teskey explains. “To put that into per-
spective, a 70 percent emissions reduc-
tion at Origin is equivalent to an 8 per-
cent reduction of emissions across all
of Australia – that’s not an insignificant
decarbonisation story.”
The other two investment themes
for the strategy are sustainable solutions
– “where we invest in the production
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
0 5
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
26 Infrastructure Investor • September 2023
of a good or service, like biofuels, that potential, whether it’s life extensions
helps decarbonise a large number of existing facilities or new plants, such
of businesses” – and clean energy – as the contracts it recently won for Po-
“that’s renewables development, pretty land’s new nuclear programme.
straight down the fairway”, says Teskey. Another technology that is also key
Clean energy includes nuclear, which to the future is hydrogen. “A large
Brookfield wholeheartedly endorses. In number of people get very excited be-
an indication that nuclear is perhaps not cause hydrogen burns clean, and that’s
as straight down the fairway as other great. The other thing that is very in-
types of clean energy, the Transition teresting about hydrogen is it also rep-
strategy’s first deal in the sector came resents a long-term storage solution, so
through the $8 billion purchase of ser- that excites us.”
vices provider Westinghouse, in part- Mostly, though, Teskey is enthusi-
nership with uranium provider Cameco. astic about how many decarbonisation
“Nothing would stop us from investing solutions are seeing their cost curve
in nuclear power at the generation level,
but it’s always about, ‘Are we getting an
attractive entry point and an attractive
risk-adjusted return?’” Teskey says.
Westinghouse, which has its tech-
nology embedded in 50 percent of the
world’s nuclear power plants, offered
an appealing infrastructure-like cash-
flow and risk profile. “This business
does not take construction risk, does
not take commodity risk, and does
not take nuclear liability risk,” Teskey
explains. It also has plenty of upside
Fund I Fund II Fund III Fund IV Fund V
10 15 20 25 30
 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

September 2023 • Infrastructure Investor 27

 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

28 Infrastructure Investor • September 2023

 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
mid-2018 launch of the open-end vehicle Brookfield
Super-Core Infrastructure Partners was to be the start of
a renewed interest in core infrastructure from some of the
asset class’s major players.
“What we found is there’s many assets out there that
our clients would love to own as an alternative to fixed
income but don’t meet the thresholds of returns that we
get in our more opportunistic funds,” chief executive
Bruce Flatt explained at the time. There was, though,
another motivating factor, as a longing Brookfield gazed at
the market during 2017.
Natalie Hadad, managing partner and co-head of
the fund, says: “In the US, there were a series of
utility transactions that, at that time, if we
would have had the super-core fund, we
would have pursued. Similarly, there
were utilities in Europe that came to
market that we didn’t have the right
vehicle for.”
The initial reception took time, Hadad
admits, although by the end of 2020 it had reached
$4.1 billion and now stands at over $9 billion. And
while BSIP eventually got its hands on those US and
European utilities it coveted, similar assets have also been
acquired in Australia and the Middle East, with around
$17 billion deployed overall in about 15 transactions,
including co-investment. Crucially, they all must fit within
the 8 percent net return target and have overwhelmingly
fixed-rate financing structures.
“[The pillars are] long-term contracted or regulated
revenues, conservative, prudent financing structures,
inflation protection, and a significant portion of the total
return coming from current yield,” says Hadad. “When
we see the other products in the market, we don’t see
those same characteristics.”
That will get tested in today’s macroeconomic
conditions, but Hadad is unconcerned about the impact of
rising interest rates on the product.
“It’s very simple. Our super-core fund is a perpetual
vehicle, and as such, we underwrite investments on
a permanent hold basis, and we look for long-dated
cashflows. Second of all, every single one of the
investments that we have in our portfolio has inflation
protection and we expect new investments to follow that
profile.”
With that in mind and five years into BSIP, Hadad
has a bold prediction for the next five years. “There’s
no reason why this strategy can’t go to $25 billion-$30
billion in the next five years. There’s certainly the pipeline
of opportunities in the market and there’s the investor
appetite for the strategy.”

Act, which authorised $280 billion in
funding to bolster US manufacturing
and passed into law two weeks before
the deal was announced, was “a criti-
cal component of making the project
itself financeable and economic for
Intel”.
Powering future homes
A few months before the Intel deal last
year, Brookfield went a little closer
to home than the onshoring of semi-
conductors with the £4.1 billion ($5.3
billion; €4.8 billion) take-private of
Homeserve. Another route that few
infrastructure GPs have taken, Home-
serve is a UK-based home repair com-
pany, with significant operations also in
the US, Canada, Spain and France.
A new subsector for the ever-wid-
ening infrastructure landscape, then?
Not for Pollock, who says Homeserve
is actually a “tuck-in” acquisition to a
deal Brookfield secured in 2018 to buy
Enercare, a residential energy leasing
business. And it’s all under the decar-
bonisation banner, he says.
“We call it a demand-side decarbon-
isation business where we effectively
finance various utilities and appliances
inside a home,” he says. “There’s a huge
secular trend towards more energy-ef-
ficient appliances and equipment inside
the house, but also, because of their
high upfront cost, consumers need in-
novative ways to get financing. So pro-
viding a rental or financing product for
them allows us to effectively create a
long-term cashflow stream that’s highly
secure, that’s essential for the home and
that’s where Homeserve fits in.”
There are the infrastructure buz-
zwords again, but Pollock admits that
LPs needed questions answered. “Effec-
tively, think of our long-term cashflow
stream as a regulated asset base that
we’re building. Once we explain exact-
ly what we’re trying to do to investors
and what the cashflow profile looks like,
they understand why these demand-side
decarbonisation businesses are attract-
ing infrastructure companies.”
The cautious pioneer
For all its less conventional bets, one
might be surprised to find that Brook-
field’s returns are neither outsized nor

September 2023 • Infrastructure Investor 29

 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.
“We found that we do pull from the fixed-income
bucket and the alternatives bucket, but the fixed-income
bucket is interesting because from that segment it is hard
to get exposure to infrastructure,” Hadley Peer Marshall,
managing partner and co-head of the business, tells us.
“That diversification becomes quite interesting when you’re
looking at the portfolio construction, and pulling from
there is quite advantageous.”
The strategy, investing across transport, renewables,
utilities, data and midstream spaces is certainly flexible,
with Peer Marshall stating that the fund can offer loans
from $50 million to $500 million. In the case of Altitude
Infrastructure, a fibre provider in France, it loaned an initial
$245 million in 2020, before adding a further $350 million
the following year.
Peer Marshall shrugs off any concerns of future
deployment in a dislocated debt market. “We are seeing
an opportunity set that is really looking to find capital in
a scarcer environment than there was before, so we are
viewed as
more valuable
now than ever.
And then of course,
you’ve got the overall debt
capital markets and more
disruption, so both of those
added together have allowed us to
see an opportunity set that has been
expanded further and where we are viewed
as more valuable.”
The opportunity set aside, nothing has
changed for the infrastructure debt team from
launch in 2015 to 2023, Peer Marshall insists.
“We have always had covenants so that we have early
warning signals, and for that nothing has changed. A
tighter credit market doesn’t necessarily mean we all of a
sudden are getting more restrictive, because we were always
consistent in how we saw credit and what we thought was
appropriate from a structuring perspective.”

abnormal. All of its four closed in-
frastructure funds are generating net
IRRs of 11-14 percent, as of the end of
Q2 2023, with a 10 percent net return
targeted by the series.
Pollock is unapologetic about this
and points out a key reason: “I think
where others might have some outper-
formance can often be attributed to a
shorter investment time frame where
they sell things quickly. Shorter time
frames can enhance your IRRs, but re-
duce your multiple of capital.
“We tend to hold on to our invest-
ments longer than some others, and
so that will naturally bring down your
IRRs over time because you’re not
taking advantage of those quick wins,
but we benefit from a much-improved
multiple of capital. I think our perfor-
“A tighter credit mance has been excellent.”
Having widened the strategy to
market doesn’t credit, core and energy transition in-
frastructure, Pollock does not rule out
necessarily mean further segmentation.
“The things that we will evaluate
we all of a sudden will be whether or not we have regional
funds for certain areas that have out-
are getting more sized deployment opportunities,” he
says.
restrictive, because we “Sector-wise, the data sector today
were always consistent is a possibility. We have outsized op-
portunities relative to what we put into
in how we saw credit” our fund, but we’ll have to monitor that
to see if it levels off or if it continues to
HADLEY PEER MARSHALL
go up.”
To end on a contrarian note, Brook-
field is, as ever, the cautious pioneer. n

30 Infrastructure Investor • September 2023


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
time, energy storage developer
Eku Energy has gained a foot-
hold in several major battery mar-
kets, and it sees demand as only
growing.
“The whole of Europe is hotting
up for battery storage,” Chris Morri-
son, head of emerging technology at
Macquarie Asset Management’s Green
Investment Group – the owner of Eku
– tells Infrastructure Investor.
“There is a lot of activity and
many developers in the markets. Ita-
ly is particularly interesting because
of the inherent transmission con-
straints with PV being generated in
the south, while the demand is in the
north. Germany is a big market be-
cause there is so much renewable ca-
pacity, and also Poland is decarbonis-
ing. Spain is a very interesting market
too, but has some regulatory develop-
ments required before being a viable
market.”
Eku Energy is jointly owned by
the Macquarie GIG Energy Transi-
tion Solutions Fund – launched a year
ago targeting $2 billion – and British
Columbia Investment Management
Corporation.
Morrison served as Eku’s first CEO,
launching the company into multiple
jurisdictions, before returning to GIG
3.9GW
Energy storage capacity needed to
meet the UK’s current need for power
system flexibility, based on a peak
hourly load of 53GW, and solar and
wind energy accounting for 31.2
percent of the UK’s energy mix…
10-19GW
...if the intermittent share doubles,
per research hub Storage Lab
September 2023
Analysis
and handing over to former Vattenfall
executive Sandra Grauers Nilsson this
summer.
Arbitrage in energy storage
Eku Energy develops, builds and man-
ages energy storage assets and has a
2.2GWh pipeline of battery energy
storage system projects in delivery.
In July, the company announced
a partnership with European con-
sulting, trading and develop-
ment group Renera Energy on the
development of no less than 1GW of
battery energy storage system (BESS)
projects in Italy, as well as 130MWh of
battery storage projects in the UK.
The platform has homed in on mar-
kets in areas with congested grids and
limited access to relief. In addition to
the UK and Italy, it has also gone to
Australia, Japan and Taiwan.
“We have gone to those countries
because they are – probably – the largest
electricity consumer islands,” Morrison
• Infrastructure Investor 31
 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
As ever more intermittent power is add-
ed to the grid, the demand for ways to
store surplus energy for when it is dark
and/or the wind doesn’t blow is grow-
ing fast.
At the moment, lithium-ion batteries
present the best way for infrastructure
funds to address this issue, according to
Morrison: “We have looked at pretty
much every other type of storage: com-
pressed air, liquid air, carbon dioxide
and pumped hydro. But pumped stor-
age is a long-build cycle and does not fit
our typical fund term.
“Other assets typically have much
higher fixed costs and only become
cheaper than lithium-ion batteries
when you get to six or eight hours of
duration. Crucially, this is too long for
arbitrage opportunities as these de-
crease significantly as the duration ex-
tends. Lithium-ion hits the sweet spot,
and it has an extremely strong supply
chain so it is easy to develop.”
Lithium-ion batteries can ramp up
in less than a second, which means that
they can fulfil the increasingly impor-
tant function of balancing supply and
demand. This provides an important
alternative revenue stream to wholesale
power trading, according to Morrison.
Still, having the opportunity to trade
power directly is important, as con-
tracts for grid services may not be as
easy to come by in the future.
“Things like grid services get canni-
balised very quickly, and the UK mar-
ket for frequency regulation is already
saturated. This is why we always look
for underlying arbitrage opportunities.
Also, there will be no material cannibal-
isation of arbitrage until quite high lev-
els of penetration, perhaps as much as
tens of GWs. By then, we would hope
that people have started to ease off on
investments in battery storage,” says
Morrison.
According to Storage Lab, a re-
search hub for electrical energy stor-
age, around 3.9GW of energy storage
capacity would meet the UK’s current
need for flexibility, based on a peak
hourly load of around 53GW and solar
and wind energy accounting for 31.2
percent of the UK’s energy mix. If the
intermittent share doubles, modelling
shows a need for between 10GW and
19GW of storage.
But the path from idea to commis-
sioned BESS project is often obstruct-
ed; battery farms need grid connec-
tions, and these are hard to come by
despite batteries providing flexibility
and stability to the grid.
“Transmission is the biggest con-
straint,” explains Morrison. “UK net-
work operators view battery storage
as a ‘worst case situation’, and model

32 Infrastructure Investor • September 2023


whether the system can cope if batter-
ies provide power during peak supply
and withdraw at peak demand, when
in reality batteries do just the opposite.
There is an accelerated programme of
reform led by National Grid in the UK
to review this issue, and we are hope-
ful that things will change. And we are
starting to see more thinking like that
in Europe and elsewhere.”
Conquering Australia
On the other side of the globe, the Aus-
tralian electricity short-term market is
settled on a real-time basis, rather than
power being sold forward. For an en-
ergy storage provider, this provides a
particular set of challenges and oppor-
tunities.
“In Australia, we see demand from
electricity retailers who sell to retail
customers on a fixed-term basis and
buy power in the short-term wholesale
market,” says Morrison. “This makes
them very exposed to short-term vol-
atility, so they look to batteries as a
physical hedge; if the price spikes in the
wholesale market, they can discharge a
battery rather than buy power at a pre-
mium. That was what drove the Range-
bank Battery financial case, which has
recently reached financial close.”
The 200MW/400MWh Rangebank
BESS project is a joint venture with
Shell whereby the Dutch energy giant
provides a 20-year offtake agreement
and will take full ownership of the rev-
enue streams of the battery.
In Australia, grid services again
provide an alternative source of reve-
nue. “We recently won a tender with
the Australian Capital Territory for the
Big Canberra Battery; it is a 250MW/
500MWh project where the ACT will
pay us a fixed fee for 50 percent of the
revenue generated by the battery for
the first 15 years and, in return, we
will provide grid service,” Morrison
explains.
As Australia adds more intermittent
power to its grid, batteries will be a vi-
tal part of the system. And one that Eku
will take advantage of.
“Australia and the UK will remain
the key markets for us in terms of oper-
ating assets for the first couple of years,
and then we will bring capacity on in
Japan and elsewhere,” says Morrison.
And he is nothing if not bullish on
the asset class: “I see the 2020s as being
to batteries what the 2010s were to so-
lar and wind. By 2030, I believe we will
see tens, if not hundreds, of gigawatts
of batteries on the global system.”
Batteries and sustainability
Despite battery farm batteries being less
dense and using less nickel, manganese
and cobalt than those used for electric
vehicles, they are a drain on the plan-
et’s limited lithium resources. At least,
the battery farms are being put to good
use. “Overall, batteries will be used in
the UK potentially up to three times a
day,” says Morrison, “though a charge
and discharge will more often happen
one and a half to two times a day.”
However, every charge and dis-
charge cycle will slightly degrade the
batteries’ ability to hold charge; this
leads to a significant difference in the
lifetime of the various components of a
typical 25-30-year project.
“The transformers and grid connec-
tion have an asset life of 30 to 40 years,
“I see the 2020s as
being to batteries what
the 2010s were to solar
and wind. By 2030,
I believe we will see
tens, if not hundreds, of
gigawatts of batteries
on the global system”
CHRIS MORRISON
Macquarie Asset Management’s
Green Investment Group
September 2023
Analysis
while the duration of the batteries de-
grades with each cycle. We replace a
battery once it has degraded by 30 per-
cent, and this could be 10 or 15 years in
the UK. In Australia, batteries are typ-
ically cycled fewer times and therefore
have an expected life of 20 years,” says
Morrison.
Another factor to consider is that
batteries are a good-but-not-perfect
storage solution for energy and that
around 15 percent of the energy that
goes into a battery cannot be re-couped.
Also, to optimise performance, the bat-
teries need to be kept cool, so each
battery container has air conditioning,
which counters excessive ambient tem-
perature as well as the heat generated
during the charging and discharging
cycle. And then there is the question of
re-using the batteries, which is not only
premature but also problematic from a
financing perspective.
“When you are building from a pro-
ject finance perspective, you need war-
ranties, and these are a lot more chal-
lenging with second-life batteries,” says
Morrison. “Furthermore, the ramp-
up in battery storage and EVs is only
just beginning and, as batteries have
a lifespan of 10-15 years, it will take a
while before there is anything much to
recycle. The recycling of batteries will
become a big industry, but it is a ques-
tion of timing for that investment.”
Still, with lithium being a chemical
element there is hope that eventual-
ly every lithium atom – no matter its
provenance – will be considered equal-
ly creditworthy.
Looking ahead, Eku Energy will
participate in a forthcoming long-term
low-carbon auction in Japan. “This
could provide a 20-year guaranteed
return on investment for storage assets
and flexible assets provided by the gov-
ernment,” says Morrison. There will
probably be some arbitrage opportuni-
ties too, if the company follows its usual
playbook.
For this GIG platform, the business
case for battery storage is clear and the
2020s are fully underway. n
• Infrastructure Investor 33

Energy
storage goes
beyond
lithium-ion
In the energy world, storage has somehow
become synonymous with the lithium-
ion battery. But what other opportunities
are out there for investors? Six guests –
including developers, startups and infra
GPs – discuss them with Isabel O’Brien
I
n July Infrastructure Investor spoke with six industry
experts from Spearmint Energy, UBS Asset Management,
Mitsubishi Power, North Sky Capital and two energy
storage start-ups – Caldera and Gravitricity – to explore the
energy storage solutions that exist beyond the lithium-ion
battery, and where investors might seek to put their money
in the coming years. Their responses have been edited for
brevity and clarity.
34 Infrastructure Investor • September 2023
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
infrastructure franchise that covers private equity,
private debt, and also specific strategies such as
energy storage.
Leung: We’ve seen announcements of
them being used as well. So, there’s
definitely a role for them. And from
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.
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
purchase of 700MWs worth of lithium-ion
battery storage in ERCOT. Whether or not
this was the first investment of the fund remains
unconfirmed.
Leung: I know I sound like a
technophobe, but I’m just trying to
point out all the hurdles that the
non-lithium-ion technologies have to tackle
before they can become more mainstream.
For flow batteries, these concerns include
the space they take up due to having less energy
density, the higher insurance costs, the issues
securing bank financing and the less-developed
supply chains – when compared with their
lithium-ion counterparts.
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.

They’re supposedly easier to maintain.
You can update that electrolyte solution in a
flow battery and it’s as easy as changing the
oil in a car.
And the term “flow batteries” is quite
broad, [including] a lot of other chemistries
– zinc, iron, vanadium. There are so many of
them. But I think one actually non-lithium-
ion battery that looks interesting is the
sodium-ion battery; there were
announcements that giant battery companies
like CATL and BYD are getting into this
technology. And I certainly trust their
judgment.
Ying Lucy Fan, an investment principal at North
Sky Capital, also sees the benefits.
Fan: For some of the augmentation
projects where we’re looking to deploy
solar plus storage at industrial sites,
there might be occasions where we would
explore other technology types, such as flow
batteries for depth of discharge, less thermal
runaway risk.
Speaking of thermal, some battery
technologies – such as thermal heat batteries –
aren’t chemical at all. Here’s James Macnaghten,
chief executive of Caldera, a thermal battery
storage developer.
Macnaghten: It’s anywhere between
eight and 24 hours of discharging,
depending on what you’re matching it
with. You normally want to charge it faster
than you discharge – so, most breweries,
distilleries, companies doing plastic
moulding. A lot of these large companies,
the heat load is 24 hours, so they’re looking
to charge in short bursts when there’s surplus
generation. And then we want to feed the
heat out slowly. We’re interested in this
space because when we compete against
lithium-ion, it’s a straight capital cost, and
the cost of our material is significantly below
lithium-ion. It’s not flammable. It’s
recyclable. It’s non-toxic.
Outside of industrial purposes, there is room
on the grid for thermal battery storage, though
the efficiency losses are significantly higher than
those of lithium-ion.
Analysis
Macnaghten: We’re very keen to talk
to either wind and solar developers or
end users of industrial heat in the [80 to
200 degrees Celsius] temperature range that
[Caldera heat batteries can provide]. That’s
our core focus.
There is going to be this very large
CHARLIE BLAIR
surplus in all sunny parts of the world from Former managing
solar generation at the middle of the day and director, Gravitricity
there will be excess generation. And that’s
where we come in and we go, it’s not worth
putting an electric battery in to store
electricity for two hours, but it is worth
putting in a heat battery.
But when it comes to utility-scale, Fan
probably put it best.
ALEX LEUNG
Fan: For the most part, what we’re Infrastructure
seeing in terms of commercial analyst, research
deployments, they don’t really require and strategy,
durations above four hours. At that range, UBS Asset
Management
lithium-ion reins.
Medium- and long-term energy storage is a
different ballgame, though. Gravitricity operates
in the medium-term space. Here’s Charlie Blair, a
former managing director of the firm.
Blair: We lift a very heavy weight to
store energy. We’re putting energy into
the system by lifting the weight. It has YING LUCY FAN
gravitational potential energy. And then we Vice-president,
lower that weight back down again with the North Sky Capital
electrically driven winches running as
generators to discharge electricity back to
the grid. So that’s a charge-discharge cycle,
very equivalent to charging a battery and
discharging a battery.
And that system is cost-optimised for very
low levelised cost of storage for a, say,
four-to-six-hour system. We can build a
system that has a 12-hour output duration. JAMES
There’s nothing stopping us doing it, but at MACNAGHTEN
CEO, Caldera
the moment, we’re not seeing a clear market
opportunity for anything above about six
hours.
Gravitricity aims to operate in abandoned
mine shafts, which – while abundant – are in
finite supply. Other similar startups aim to deploy
gravity-based storage technologies via raising a
train on a hill or building a tower for a weight to
September 2023 • Infrastructure Investor 35
 Analysis
fall down. While not yet commercially deployed
on a large scale, technologies like these, stand to
solve both degradation and efficiency loss issues.
There are other forms of gravity-based
storage that are in commercial use, though
they’re long-term storage solutions. Pumped
hydro is the most widespread. At the moment,
over 90 percent of all energy storage in the world
uses gravity.
The way it works is quite simple: when the
grid is in excess or energy is generally cheaper or
more abundant, water is pumped up a hill to sit
in a basin. When that energy is needed during a
grid shortage, the water is let out of the reservoir.
Typically, such facilities are quite large and have
been undertaken by governments.
Other gravity-based storage solutions include
compressed air and liquified air energy storage,
which are the more burgeoning technologies in
long duration mechanical energy storage.
Even alternative battery technologies have
thrown their hat in the ring for long-term
storage. CATL, the world’s largest EV battery
manufacturer, recently made a breakthrough
in its battery density technology that promises
to provide up to 500MWh of energy storage –
enough to power a commercial, medium-haul
flight.
Andrew Waranch is the founder of Spearmint
Energy, a renewable energy and battery storage
developer.
Waranch: What gets a lot of press and
talk in the community now is some of
these longer-term iron flow batteries
which might be, “seasonal” or “weekly
batteries”. They have their own challenges
because if you think about it, the price of
daytime power and nighttime power, it varies
quite a lot. And so, if I’m going to buy power,
let’s just say in October when it’s cheap and
try and save it till December when it’s more
expensive, that has a lot of carrying cost.
It’s a phenomenon that Fan has noticed too.
Fan: Liquid metal batteries and
compressed air technology… both of
those we are watching as lead horses for
longer term duration applications. And then
there’s also the potential to store electricity
in other forms. So, we always talk about
36 Infrastructure Investor • September 2023
batteries, but something that’s getting a lot
of attention here in Colorado, where I’m
based, is hydrogen. Of course, anytime
you’re talking about changing the form of
the energy, you lose efficiencies, especially if
you’re going to convert it back. But
HARI hydrogen is interesting because it can also be
GOPALAKRISHNAN used as a direct fuel itself in power plants and
Manager, market also in hydrogen-powered vehicles.
intelligence and
strategy, Mitsubishi
Power America
Golpalakrishnan: Green hydrogen
offers you the ability to shift energy
seasonally, or what’s also called seasonal
energy arbitrage.
Hari Gopalakrishnan is a manager in the
market intelligence and strategy group at
Mitsubishi Power Americas, a provider of
energy and power generation technologies.
ANDREW WARANCH Mitsubishi Power is developing the ACES
Founder, Delta project in Utah – the world’s largest green
Spearmint Energy
hydrogen platform – alongside partner Magnum
Development.
Golpalakrishnan: What we are starting
to see is a surplus of this renewable
availability during the shoulder seasons.
The shoulder seasons in North America
typically happen between February to May
and also between October to December.
Now this surplus energy, which is available in
the shoulder season currently is being left on
the table and it’s also referred to as
curtailments. Hydrogen, what it does is it
gives you that ability to shift that to your
peak load season, which typically in North
America happens between July and August.
There are a myriad of energy storage
technologies coming to market, some of which
still reside in the venture capital space. But as
they mature they will present new opportunities
for infrastructure investors. n
Listen to
the full
podcast
here:
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 Analysis
I
n October 2006, infrastructure
funds managed by Macquarie Asset
Management led a consortium to
acquire UK utility Thames Water
in a deal with an enterprise value of
£8 billion ($10.3 billion; €9.3 bil-
lion). It was the beginning of a wave of
global infrastructure funds investing in
the sector.
After a series of gradual sales, MAM
eventually divested its final stake in the
company in March 2017, but faced
criticism over Thames Water’s lever-
age levels and record on leakage and
pollution. Those criticisms re-emerged
recently after it was revealed the com-
pany was struggling with a debt burden
which had increased to £14 billion,
prompting talk the UK government
was drawing up plans for a temporary
nationalisation.
‘There’s nothing
in our returns that
I’m embarrassed
about’
Martin Bradley, Macquarie’s European
head of infrastructure, walks Bruno Alves and
Zak Bentley through the manager’s ownership
of embattled UK utility Thames Water
38 Infrastructure Investor • September 2023
Infrastructure Investor recently sat
down with Martin Bradley, European
head of infrastructure for MAM, for an
in-depth discussion of MAM’s owner-
ship of Thames, including its reasons
for re-entering the sector in 2021 with
the acquisition of Southern Water. Our
conversation, abridged and edited for
clarity, can be found below.
Q Financial sustainability
is at the heart of Thames
Water’s current problems.
During your ownership,
Thames’ debt increased from
circa £3.5 billion to £11 billion.
What portion of that debt was
used solely to maintain and/or
expand Thames’ infrastructure?
When a MAM-led consortium stepped
into the company, the level of debt at
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
company and leveraged at the holding
company.
That consortium bought the com-
pany for about £8 billion. There was
£3.5 billion of debt in the business,
so they received £4.5 billion of cash,
of which £2.3 billion was funded with
equity and £2.2 billion with debt. So,
debt increased by £2.2 billion and that
was paid to RWE as proceeds – it didn’t
come out to Macquarie investors. And
then moving forward, we invested
more money in the business.
Over the period of our part owner-
ship, the company generated a cumu-
lative EBITDA of about £11 billion,
and it incurred about £4.5 billion of
debt. So that’s about £15 billion to £16
billion of total funding. The company
invested £11 billion of capex over the
same period, paid £4 billion of interest
and £1 billion of dividends.
This investment, by any metric –
whether investment per customer, in-
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
Thames Water before or since.
Q That £1.1 billion in
dividends paid to MAM
and Thames Water’s other
shareholders – how much of
that total was funded with the
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-
essary for the company to use debt to
pay distributions. The investors could
have invested less capex, but they didn’t.
When you look at total distribu-
tions, you get to £1.1 billion. That’s a

big number in total. But it’s cumulative
across 11 years. So, £100 million a year
on £2.3 billion of original acquisition
equity, you’re getting down to a sub-5
percent yield on that original amount
of equity.
If you look at a listed utility over
the same period, they were trading at
a 10 to 20 percent premium and would
have about 60 percent leverage. If we
compare distributions to revenue, or
distributions to asset base, we are able
to compare across companies. So, on
that basis, a pension fund investing
with MAM funds in Thames Water
over 10 years got half the distribu-
tions that they would have got if they
put their money into a basket of listed
utilities.
Q Was the dividend
disbursement each year
based on performance that was
being generated that year?
In MAM funds’ 11 years of ownership,
Thames Water experienced a level of
improvement in its three key KPIs that
was remarkable, not just for Thames,
but for the sector as a whole.
On security of supply, Thames went
from 22 to 100. In treatment-works
compliance, it moved up to high-quar-
tile performance. In leakages, the com-
pany had the industry’s second-highest
September 2023
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
was less than what they could get from
listed utilities in the stock market over
a similar period.
Q You mention the leakage
turnaround, but in 2016-
17, the company missed its
leakage targets and was fined
£8.5 million.
The reason we reference 2016 [in
terms of peak performance] is that
MAM funds’ exit process started to-
wards the end of 2016 and from that
point on our ability to affect opera-
tions was reduced. The remaining key
shareholders were understandably keen
to take charge of the transition. The
• Infrastructure Investor 39
 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
this period and we had less influence
as a minority shareholder. The prac-
ticalities of transitioning are such that
your voice is understandably muted,
and that can be doubly true if you were
previously the dominant voice at the
table.
Q More than 50 percent of
Thames’ debt is variable
rate, RPI-linked debt. How
much of that was put in place
during your ownership? And
did it occur to you this could
be a problem in the event of
an inflation and interest rate
shock?
We own the majority of the decisions
around the adoption of the original
debt structure. The financing structure
40 Infrastructure Investor • September 2023
at Thames Water is not
as common today. But pre-
GFC, water company WBS [whole
business securitisation] was very com-
mon. The debt structure itself, used
in the Thames acquisition, was a UK
water utility product that was invent-
ed, advised and constructed by UK
banks.
The regulatory guidance at the time
was to have a strong investment-grade
rating. Without the WBS, the debt
structure would probably have been
rated BBB; with the WBS, the initial
rating was BBB+ and it increased to
A-, having made operational improve-
ments in the first three years. Alongside
that rating improvement, the debt was
converted into long-term, fixed-rate
debt because we thought it was a more
stable funding structure.
At the time, a 6.5x debt-to-EBITDA
ratio was a high level of corporate lev-
erage, but it was no different to what
we were seeing in the utilities sector
more generally. Interest rates today
are no different to interest rates back
then. Inflation hedging is interesting,
though. The wisdom being at the time
that the regulator [Ofwat] assumed
long-term inflation of 2.5 percent, so
if you could get long-term inflation
hedges for 3 percent, the company was
going to perform better than expecta-
tions. And actually, because of the high
inflation linkage of the cashflows, tak-
ing some of that volatility out of infla-
tion would be good, particularly if you
can lock that in slightly higher. That
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 Analysis
was just logical thinking in an attempt
to have long-term financial planning.
We’ve moved to an inflation rate of
10 percent. That’s unprecedented. This
creates liquidity issues. A company
should get catch up on that, but liquid-
ity issues arise because there is a lag. If
you are expecting interest rates to move
within a volatility of 2-3 percent, maybe
even 3.5 percent short term is managea-
ble. The liquidity does become an issue
when inflation moves to 7-8 percent
and that continues over multiple years.
That is what’s happening in the indus-
try at the moment. The investment
challenge is no more Machiavellian
than a simple liquidity squeeze.
Q You say that
today’s inflation is
unprecedented. But is it not
the point of these water assets
and similar regulated assets to
withstand these shocks? That’s
the way they’re always sold to
investors.
What is actually happening, sectorally,
is around affordability of investment.
If a utility isn’t able to pay dividends
and struggles to cover 85 percent of
debt-funded capital investments in an
interest rate environment that isn’t
unusual relative to history, it is hard to
attract new investment.
Macquarie and its shareholders received a total of £1.1bn in dividends, amounting to a circa 5%
yield (£m, inc shareholder loans)
250
200
150
100
50
0 an acceptable market return and was in
2007 2008 2009 2010 2011
Distributions and shareholder loans were paid to shareholders in 2017 of £100m, but the
Macquarie funds were not entitled to the economic benefit of it under the Sale and Purchase
Agreement.
Source: Macquarie
42 Infrastructure Investor • September 2023
If we talk about the leverage struc-
ture in 2006 to 2008, pre-GFC, it
didn’t look concerning that Thames
had 95 percent gross debt-to-asset
base. Post-GFC, shareholders looked
at this WBS and we said: ‘You know
what? We need to take that down a
little bit.’ So, we started deleveraging
the structure. Now, what you actually
see is the debt-to-asset base came down
from 95 percent to about 88 percent
during MAM funds’ ownership. Debt-
to-EBITDA stayed constant at around
6-7x the whole way through until the
last regulatory period, when it jumped
to 10x. That means the quantum of
debt relative to the asset base did not
increase – in fact, it’s decreased, but the
cashflow generation of the asset base
has changed dramatically.
What has changed in that cashflow
generation? One, the regulatory return
on capital has come down from 6-7
percent to around 3 percent. That’s one
component of EBITDA. The regulato-
ry settlement for what things cost has
been squeezed. Second, the expectation
on the company to provide operation-
al excellence around environmental
issues has gone up. Third, which I am
surmising from statistics around KPIs,
is more operational cost, which may be
just an impact from inflation, or it may
be operational efficiency.
2012 2013 2014 2015 2016 2017
So, you have a combination of
things hitting EBITDA: lower regula-
tory returns, a higher cost base, more
fines and more penalties. That has
squeezed EBITDA by half and pushed
up the debt-to-EBITDA ratio.
Q In a 2018 presentation
to the South Carolina
Retirement System, a gross
12 percent IRR and gross 2.7x
total return is attached to your
equity investment in Thames
Water. Do you think a 2.7x total
return is a fair return for critical,
monopolistic assets where
consumers have no choice?
The cost of equity tightened post-
GFC but pre-GFC, when this asset
was bought, investors were seeking a
10-12 percent return, which was low
relative to private equity returns at 20
percent.
The investors in MEIF2, which
exited in 2017, saw a gross return of
around 12-13 percent on Thames. In-
cluded in that was a circa 4-5 percent
cash yield. At the same time, regulato-
ry guidance in 2005 and 2009 pointed
to a 10 percent nominal return for the
average operator. Now, if you look at
the company’s outperformance, the
fact that shareholders made an extra
2 percent, I think, is justified. The
return is driven by good operational
performance and high levels of invest-
ment, with customers experiencing the
third-lowest bills in the sector.
So, on our returns, there’s nothing
to hide. There’s nothing in our returns
that I’m embarrassed about.
Now, the public might say: ‘I don’t
get that’. Twelve percent looked high
in 2017, but MAM funds entered in
2006. £1.1 billion is a lot of money
but it is aggregated over 11 years and
Thames required a lot of equity. So, I
understand their frustration, but that is
line with the regulatory guidance.
Q During your ownership
period, how would you

assess the regulatory regime?
Did it and does it allow for the
actual opex and capex needs of
UK water companies?
My personal view is the regulator is
there to fulfil a social mandate. Their
mandate has always been financeabili-
ty, affordability and security of supply.
Now, they can’t serve all of those ob-
jectives at the same time equally. And
post-GFC, the focus was on afforda-
bility.
Water resilience needs investment.
I think that’s the biggest priority for
the sector. The sector cannot get this
wrong, and at present we all need to
challenge whether we would accept a
failure or shortfall that could take mul-
tiple years of shortages before it gets
rectified. I worry about that reality and
who would explain that to the public.
Water purity also needs to be invest-
ed in, and that goes with water resil-
ience in terms of importance. And then
pollution. And the reason I mention
pollution separately is not to play down
the importance of pollution issues, but
I am focused on what the water compa-
nies can control.
If we take Southern Water as an ex-
ample, there are 20,000 pollutions per
year in the company’s region. If South-
ern fixes every single problem within
its control, everyone does everything
perfectly, every single day, there will
still be 19,700 incidents in the region.
By contrast, if caps were put on all
the storm drains owned by the highway
agency and Southern operates as it does
today, there’ll be 300 pollutions, and a
very small number of serious pollu-
tions. The highway and urban drainage
surface water issue is what the public
mostly see coming out of pipes. That’s
why we call them combined sewage
overflows. In simple terms, it rains. In
the majority of cases of heavy rain, it
does not pass through the treatment
sites unless it is caught in storage tanks
to try to reduce the damage, otherwise
it comes out onto beaches.
Now, Southern can look to address
more storm water in treatment sites.
Analysis
Growth in asset base, followed by cost of debt outperformance, drove Macquarie’s total return
(Gross MOIC (x))
0 0.5 1 1.5 2 2.5 3
Initial equity
Growth in asset base
Operating cashflow
outperformance
Cost of debt
outperformance
Other, including multiple
on exit
Total return
Source: Macquarie presentation to South Carolina Retirement System Investment Commission,
June 2018
But for a water-constrained area that ownership of Thames Water
feels sub-optimal when we could be to your current ownership of
trying to absorb more rain into the Southern Water? What would
ground. Ultimately, there’s a need to you do differently?
prioritise but first we all need to engage When MAM funds went into Thames
customers on the facts, without the hy- the focus was on big KPIs, big im-
perbole, to explain what’s needed. Try- provements. We’ve taken the same ap-
ing to do everything will take quite a proach with Southern.
bit of money. Southern was not a great perform-
ing company. In the next three years,
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-
mance on key drivers. That’s the am-
bition. We’re not excusing failures; we
will keep pushing to make the change
needed. Interestingly, Southern has the
“People focus on same securitisation WBS – it put it in
place ahead of Thames – same infla-
the fine awarded to tion, we have all the same issues. But
we know we own these issues as soon as
Thames Water in we made the decision to buy it.
2017 – and rightly so. When we went into Southern, the
first thing we did was tackle the capital
It was a mistake made structure. And before this recent noise
came up, we were already on a pro-
within the company, gramme with them for a second equity
raise to do more in that because of the
and the board and cost expansion and that liquidity crisis
that would need to be funded. We saw
shareholders own that that coming.
Have we learned from leverage
mistake” structures? Yes, we have. We have ma-
tured in our thinking around that. n
September 2023 • Infrastructure Investor 43
 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-
ing in popularity as in-
vestors look to minimise
the negative impacts of
a punishing economic
environment and access
some of the most disruptive and trans-
formative infrastructure trends.
“Investors are proactively looking
to increase their mid-market expo-
sure. Part of that is driven by a more
sophisticated approach to portfo-
lio construction,” says Tom Maher,
managing director, infrastructure at
PATRIZIA.
“If you are already invested with
three mega-managers, investing in a
fourth is not going to add anything dif-
ferent to your portfolio. Investors are
also looking at the drivers of the infra-
structure of tomorrow and recognising
that themes such as decarbonisation
are going to result in smaller, distrib-
uted assets, best suited to a mid-market
approach.”
Furthermore, investors are looking
more closely at how value is created,
given persisting high interest rates.
“Large-cap core infrastructure is
likely to command a return of around
6 to 7 percent. You are better off buy-
ing government bonds,” says Maher.
“The mid-market offers a much bet-
ter risk-adjusted return. Whether you
are looking at core-plus, value-add
or opportunistic strategies, the re-
turn you get for the risk you take in
the mid-market is always going to be
better than in the mega-cap space
and investors increasingly understand
that.”
Latifa Tefridj-Gaillard, head of cap-
ital formation and investor relations
at Infracapital, agrees that the po-
tential for value creation is key to the
mid-market’s appeal. “LPs understand
that there are more levers to be pulled
with small and mid-cap assets. They
also recognise that there is an easier
route to exit, while in the mega-market
you are largely reliant on the IPO win-
dow being open.”
Laurent Chatelin, partner and head
of infrastructure at Eurazeol, adds: “In
the mid-market, we are not simply re-
lying on leverage, we are providing
growth capital to create and develop
platforms, we are building to core and
generating value when we sell to larger
GPs.”
In addition, dealflow for smaller
ticket sizes is also more robust. “The
opportunity set is simply much larger,
while at the same time, many managers
have drifted away from the mid-market
over the past five to 10 years, raising
ever bigger funds, which has resulted
in attractive supply-demand dynam-
ics,” Tefridj-Gaillard explains.
A further benefit provided by the
mid-market is the ability to source op-
portunities on a bilateral basis, accord-
ing to Roger Pim, senior investment
director at abrdn. “The majority of
deals that we look at are also primary

44 Infrastructure Investor • September 2023

 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.

September 2023 • Infrastructure Investor 45

 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

46 Infrastructure Investor • September 2023


Greenfield vs brownfield...
... or maybe olive or yellow. Which plan works best for you?
Greenfield investing in the mid-market has inevitably
been impacted by soaring inflation, but appropriate
structuring can mitigate many of these risks.
“We have a separate greenfield infrastructure
platform run by a team with project finance and
construction finance backgrounds. That team spends a
lot of time drilling into the detail of the cost component
of construction and negotiating with suppliers to ensure
additional protections in contracts,” says Infracapital’s
Latifa Tefridj-Gaillard. “Innovative structures
such as earn outs, where contingency payments are
made to sellers when projects come to fruition and
hedging around energy costs and FX are important as
well.”
Eurazeo’s Laurent Chatelin adds that greenfield
investing has always been about how you hedge yourself
against what could go wrong. “Today, the emphasis on
mitigating the risk of capex overrun and delays through
structuring is higher given the macro environment.
However, in my experience, that risk is more perceived
than real when you have the right mitigants and structure
in place and is counterbalanced by the value that can be
captured once an asset becomes operational.”
“Large-cap core infrastructure
is likely to command a return of
around 6-7 percent. You are better
off buying government bonds”
TOM MAHER
PATRIZIA
Analysis
Others believe a blend of brownfield and greenfield
provides the optimal risk/reward profile. “There are a
number of ways in which you can add value. You can buy
cashflow through M&A or you can build cashflow through
greenfield,” says Ian Harding of Arcus Infrastructure
Partners. “In a low-cost environment, building the
cashflow through greenfield adds more value because you
are not having to pay a premium for buying an existing
business. But, in an inflationary environment, at some
point it will become cheaper to buy than to build. We
have what we call an olivefield strategy – a combination of
brown and green. We buy operational brownfield but then
grow those assets either organically or through M&A.”
Roger Pim of abrdn says: “It can be quite difficult to
discern what proportion of our portfolio is brownfield
and what proportion is greenfield given that we are
always looking for accretive opportunities.”
“We refer to the blend of brownfield and greenfield
as yellowfield,” adds Tom Maher of PATRIZIA. “We
often supplement brownfield investing with bolt-ons
or growth capex. That means you get all the benefits of
greenfield investing but with downside protection. You
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
recognition that buyers have a higher
cost of debt to factor into their finan-
cial models. However, over the past six
to nine months we have observed that
deliverability and credibility are almost
as important as price,” says Harding.
“Family-owned businesses and en-
trepreneurs want to know they are
working with someone they can trust to
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
September 2023 • Infrastructure Investor 47
 Analysis

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

48 Infrastructure Investor • September 2023


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
longer to flow through to mid-market
valuations because there is typically less
leverage in these businesses. “For exist-
ing assets, debt is based on long-term
fixed rates and for new assets, leverage
is still a relatively small component of
the capital stack and so the cost of fi-
nancing has not materially impacted
mid-market valuations,” says Maher.
Tefridj-Gaillard, meanwhile, com-
ments that while rates have increased,
credit spreads have not changed signif-
icantly. “In sectors such as energy tran-
sition, it is still easy to access financing,
and while in other sectors such as fibre
it has become more challenging, over-
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
like buyers are, but financing is still
there.”
Hot opportunities
Inevitably, the energy transition and
digital infrastructure are among the
most popular sectors with stubborn
valuations for the most hotly contest-
ed assets. But mid-market investors see
pockets of opportunity, nonetheless.
“The electrification of transport is
a sector we really love, whether that
involves EV charging or shifting the
movement of merchandise from road
to rail and electrifying fleets of trains,”
says Tefridj-Gaillard. “Digitisation is
obviously another hot theme. Given
our target returns, we are not focused
on towers or hyperscale data centres,
but we do see regional co-location data
centres as an attractive space. A lot of
businesses are moving data storage and
computing power off premises but are
not willing to fully rely on public cloud
solutions and regional co-location is
“Rather than
experiencing any
slowdown, for us the
bigger challenge is being
sufficiently selective
given the number of
opportunities we are
seeing in the market”
ROGER PIM
abrdn
poised to pick up some of that demand.
We are also seeing MNOs [mobile net-
work operators] struggling with the
capex required to invest in 5G roll-out,
for example, which is creating oppor-
tunities to invest in neutral host pro-
viders.”
Harding agrees that demand for dig-
ital assets has grown to such an extent
that the prices being paid for hyper-
scale data centres have become astro-
nomical. “We have therefore changed
our approach and are looking to build
a platform of regional colocation data
centres, while adding a bit of greenfield
in a modular fashion. We are building
cashflow rather than buying.”
Chatelin adds: “The mid-market
is all about creating value through ex-
panding platforms and building out
your assets so that in five to seven years’
time they will have reached a scale
where the big funds are competing for
them in auctions.
“That is particularly true of all the
transitioning themes including the
September 2023
Analysis
decarbonisation of energy generation,
the electrification of transport and in-
dustrial processes and energy efficien-
cy. There is also a lot that can be done
around the transition of waste manage-
ment from incineration to recycling
and the circular economy. The big
incumbents are making lots of money
out of the old ways of doing things. It
is small and medium-sized businesses
that are leading the transition. We can
provide capital to support their growth
and deliver value for our investors.”
Pim agrees: “The transition space is
providing a lot of opportunities wheth-
er that’s around waste, new alternative
fuels or associated storage services.
There are also some really interesting
consolidation plays – rolling up sub-
scale assets into sizeable platforms.
Almost irrespective of geography or
sector, we believe you can find more
attractive risk-return profiles in the
mid-market than you can in the large-
cap space. The mid-market really does
have it all.” n
• Infrastructure Investor 49
 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

50 Infrastructure Investor • September 2023


Capital that began with the negative
headlines affecting parent company
AMP Ltd after the 2019 final report of
the Royal Commission into Miscon-
duct in the Banking, Superannuation
and Financial Services Industry. There
was further controversy surrounding
the appointment of London-based Boe
Pahari as AMP Capital’s CEO in June
2020.
Pahari’s appointment swiftly un-
ravelled, impacting the AMP Capital
business despite the underlying per-
formance of its Australian fund assets
holding up well throughout the ensu-
ing covid-19 pandemic.
AMP Ltd attempted to spin out its
high-performing AMP Capital busi-
ness, with the intention to rebrand it
as Collimate Capital. It pursued a de-
merger and a separate stock market
listing to create value for shareholders.
But it became apparent that a range of
buyers were keen to cherry-pick differ-
ent parts of the business.
Ares Management bought the in-
frastructure debt division for A$428
million in February 2022, after separate
attempts to acquire the whole of AMP
Ltd and take a 60 percent stake in AMP
Capital, before the demerger plans were
announced. Then, US-headquartered
asset manager DigitalBridge bought
AMP Capital’s international infrastruc-
ture equity business, with Dexus taking
ownership of the domestic real estate
and infrastructure operation.
It’s been one of the longer-running
sagas in Australian corporate circles
over the last few years, so it must be
something of a relief to see the back
of it?
“It’s really exciting to be part of an
organisation that really wanted this
“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
for investors”
MICHAEL CUMMINGS
September 2023
Analysis
business,” Bessell says. “That’s a real
refreshing change – we’ve gone to an
organisation that’s got ambitions to
grow and diversify its product mix and
businesses. Dexus has always been just
a real estate business and now it wants
to be a real assets business, and it comes
from the top down.
“People like [Dexus CEO] Darren
Steinberg and [CIO] Ross Du Vernet
worked at Colonial First State [now
First Sentier Investors], and they had
both real estate and infrastructure
funds. So they’re knowledgeable and
are keen to grow infrastructure.
“It’s great to be part of an organi-
sation where that’s a real focus and we
can look forward, rather than looking
over our shoulder.”
On the same theme, Cummings says
that being part of Dexus has provided a
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
for investors.”
Cultural fit
Where will that growth come from?
The team sees an opportunity in real
assets as an overarching theme, encom-
passing both real estate and infrastruc-
ture, with the chance to share knowl-
edge and leverage synergies between
the two business units.
Before discussing that, though,
Cummings says it was a “sensible evo-
lution” for Dexus to expand its client
offering into infrastructure, as well as
adding further real estate funds to its
portfolio, through the AMP Capital
acquisition. He says he and Bessell felt
• Infrastructure Investor 51
 Analysis
Dexus has expanded into infrastructure with the acquisition of part of AMP Capital – but real
estate remains the larger part of its business by AUM (A$bn)
Pooled funds
20
15
10
5 frastructure Fund combined to acquire
0
Real estate
In addition to third-party funds under management shown above, Dexus has made
investments worth approximately A$17.8bn via its balance sheet.
Source: Dexus
their team would find a good cultural
fit at Dexus, having been in discussions
over the acquisition for well over a year
before it closed.
“We knew that Dexus had a very
strong reputation in the market for
governance and performance, and for
having in-depth knowledge of the ar-
eas in which it plays, and we saw that
as good alignment,” says Cummings.
“And in terms of ambition and capabil-
ity, Dexus has been on a growth path…
which we saw as very attractive and a
good fit for our business.”
Dexus has its roots in Deutsche
Bank, effectively spinning out of the
bank in 2004 when the firm acquired
50 percent of the management rights
to several property trusts before re-
branding as Dexus and securing the re-
maining management rights from DB
in 2008. Since then, it has continued
to grow both organically and through
M&A.
52 Infrastructure Investor • September 2023
JV/Mandates Listed/Retail
Infrastructure
“They’d been sniffing around AMP
Capital, like a lot of managers had
been, for a while,” Bessell says. “For us,
this bolsters our capability across retail
and wholesale fundraising, as well as
the institutional market. Bringing that
all together in a single-purpose real as-
sets business has been quite powerful.”
On the topic of culture, Bessell re-
flects on how his team was previously
part of a “multi-faceted manager” that
also invested in fixed-interest assets and
listed equities, arguing that investment
teams in the real assets space have a dif-
ferent mindset to their counterparts in
other asset classes. “Now we’re work-
ing in a house that’s just doing real as-
sets,” he says, implying the benefits of a
narrower focus.
The firm’s LPs appear to have re-
sponded well so far. Dexus has a strong
reputation within the Australian mar-
ket, including in the institutional sec-
tor, and many investors are happy to
work with a manager that operates on
both sides of the real assets divide.
“We’re seeing increasingly that a lot
of investors are managing infrastruc-
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
relationships together.”
This is an important part of the ra-
tionale behind Dexus’s desire to expand
into infrastructure: the ability to realise
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-
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.
The deal took the total stake in Celsus
held by Dexus funds to 72.79 percent
and was held up by the firm as an ex-
ample of how the two halves of the
business can combine effectively on
deals.
Going further, Bessell outlines an
example of a potential investment in a
broader health precinct, where a hos-
pital owned by Dexus’s infrastructure
funds might see value uplift created by
Dexus’s real estate vehicles investing in
residential or commercial property ad-
jacent to the site that can enhance its
operations. Not only could it increase
the value of assets, but it provides an
opportunity for clients to invest in both
parts of a project with different risk-­
return profiles.
Cummings says: “The ability to
look at large precincts from both a real
estate and infrastructure point of view –
if you think about it today, the amount
of touch points that individuals have
with Dexus-controlled assets, such as
arriving at Melbourne Airport, or get-
ting on a train owned by Reliance Rail
in Sydney, to get to their office or go to
the shops – the breadth of that oppor-
tunity is very large.”

“For us, this bolsters
our capability across
retail and wholesale
fundraising, as well
as the institutional
market. Bringing
that all together in
a single-purpose real
assets business has been
quite powerful”
MICHAEL BESSELL
When it comes to offshore investors,
both Dexus and what was then AMP
Capital had LPs from outside Austral-
ia, particularly Asia, which can now be
strengthened with the teams combin-
ing platforms and all the cross-selling
opportunities that brings. To capitalise
on this, the firm has just opened a new
office in Singapore.
The firm’s broad strategy in infra-
structure is one thing that isn’t chang-
ing under the new Dexus ownership,
with a continuing focus on four main
sectors.
These four sectors are: transport,
with investments including Melbourne
Airport, London Luton Airport, Port
Hedland International Airport and
Reliance Rail; energy transition, with
investments in PowerCo New Zea-
land, Macarthur Wind Farm and En-
deavour Energy; social infrastructure,
where assets include Optus Stadium
in Perth, NSW Schools, and student
accommodation at the University of
Melbourne and the Australian Na-
tional University in Canberra; and
health, including investments in the
Royal Adelaide Hospital, Victorian
Comprehensive Cancer Centre, and
Opal Aged Care.
The firm’s funds are generally
open-end and the team has been out
on the fundraising trail recently to se-
cure capital that will fund new invest-
ments. As well as the aforementioned
Community Infrastructure Fund and
Core Infrastructure Fund, it also man-
ages the Dexus Diversified Infrastruc-
ture Trust, among other vehicles and
SMAs.
Cummings says that, globally, fund-
raising was “very good” over the last
few years, but this has slowed over the
first half of 2023.
“It’s important for all investment
managers to have a clear point of dif-
ferentiation and be clear what their
products are about and where their ex-
pertise is. In the last six months, we’ve
been focusing on integration – but that
doesn’t mean we aren’t out speaking
to clients, discussing the story around
why we continue to believe strongly in
Australian infrastructure.”
Australian focus
Bessell says the team is solely focused
on Australia, free of the AMP Capi-
tal international business that raised
money internationally for global in-
vestments and funds. “We didn’t do a
huge amount of fundraising offshore
[previously] – but Australia is still seen
as a really attractive market to invest in
because, unlike a lot of other developed
economies, we still have a high popula-
tion growth rate,” he says, which makes
a compelling story when combined
with a stable government and proxim-
ity to growth economies in the wider
Asia-Pacific.
“If you look at the top investors,
a number are shifting away from in-
vesting in global funds that can invest
anywhere, to being more region-spe-
cific. Most investors are investing in
September 2023
Analysis
infrastructure now, but when they first
went in, they went into global funds as
it was easier to get approval. Now they
have become more set, we hear they
are looking to evolve their thinking a
bit more, and be more targeted and
specific.”
The team is also keen to expand its
base of wholesale and retail investors,
a network to which Dexus gives them
good exposure. This arm of the strat-
egy has got off to a flying start, with a
new Wholesale Airport Fund closing
oversubscribed at more than A$130
million in June. The WAF owns 1 per-
cent of Australia Pacific Airports Cor-
poration, the unlisted holding company
of Melbourne Airport and Launceston
Airport, and was the first fund brought
to market by Dexus following its AMP
Capital acquisition.
Cummings emphasises repeatedly
during our discussion that the business
is in an integration phase, focusing on
its existing funds and long-held invest-
ment thematics. But there is an eye on
the future, too.
“We’re not going to rule anything
in or out at this stage,” he says. “As we
look to grow further, we’ll look at new
products – is there market appetite for
a real asset product? That’s something
that’s worth exploring.”
On being asked if they hope that
Dexus’s new infrastructure business
might outgrow its real estate arm one
day, Cummings replies: “The ambition
is to integrate and grow – maybe come
back and ask me that in 12 months. If
you look at the pipeline of opportu-
nities, I think infrastructure would be
larger in Australia at this stage – but
we’re just focused on what’s in front
of us at the moment and dealing with
that.”
It’s clear that the team is focused on
new opportunities amid what must feel
like a fresh beginning. With a more fo-
cused leadership team in support and
fewer distractions around them, the
Australian infrastructure equity team at
Dexus will hope they can move on and
leave the past behind them. n
• Infrastructure Investor 53
 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

54 Infrastructure Investor • September 2023


failure to comply – imposing a posi-
tive obligation that is expected to set
the tone for future legislation in other
countries.
For organisations whose supply
chains run through less transparent ju-
risdictions, the proliferation of tougher
supply chain legislation is a significant
issue that needs to be addressed, and
carries the threat of disputes where
problems arise due to a failure to com-
ply with legal obligations.
Increased state involvement
Soaring energy prices as a conse-
quence of the global energy supply
crisis in 2022/early 2023, particularly
in gas markets, have fuelled discussions
around so-called windfall taxes on en-
ergy company profits.
A number of European countries,
including Germany, Spain and Italy,
have introduced local windfall taxes,
while the UK increased its Energy
Profit Levy on North Sea oil and gas
firms from 25 percent to 35 percent
in January 2023, to last until March
2028. These changes are anticipated
to trigger disputes between companies
impacted by the taxes and the impos-
ing governments, often in host juris-
dictions where international operators
invested in energy projects prior to the
imposition of windfall taxes.
In December 2022, US oil and gas
major ExxonMobil launched a legal
challenge, filed through subsidiaries
in Germany and the Netherlands, to
the European Commission’s proposal
to levy a windfall tax on excess profits
from oil and gas companies operating
in the EU.
Energy price volatility has also led
to a concerted but controversial push
to develop nuclear energy, even in ju-
risdictions where nuclear power gener-
ation had fallen decidedly out of favour,
potentially creating a new growth area
for disputes.
Meanwhile, Brexit has proved to be
a tangible energy supply chain disrup-
tor thanks to increased administration
for UK imports and exports. The UK’s
“The UK’s threatened
bonfire of EU
regulations… would
likely result in
diverging standards
between the UK and
EU, laying the ground
for further disputes”
threatened bonfire of EU regulations
(which is currently on hold) would like-
ly result in diverging standards between
the UK and EU, laying the ground for
further disputes between corporate ac-
tors caught in the middle.
By contrast, regulations such as
carbon taxes and sanctions – which
also impact supply chains – appear less
likely to generate wholesale disputes,
as corporate actors have largely learned
to adapt to these types of regulation,
which may provide a lesson for gov-
ernments on how to communicate and
implement targeted legislation.
Resolving issues before a
dispute arises
While there are signs that the glob-
al energy sector is entering a more
September 2023
Analysis
litigious phase, there are still ways to
avoid disputes reaching full-blown lit-
igation.
Energy market actors are advised to
build flexibility into their contracts to
allow for changes in circumstances.
This might include price review
mechanisms, options to use more
than one supplier, and carefully draft-
ed representations and warranties.
Stress testing can help reveal potential
glitches.
Force majeure provisions continue
to generate regular disputes, due to
different interpretations of the term,
depending on where a party sits in the
supply chain.
The English Court of Appeal’s de-
cision in MUR Shipping BV v RTI Ltd
in November 2022 shocked many in
the international trade community,
due to its interpretation that despite
an effective force majeure event having
taken place, a contractual obligation to
use reasonable endeavours to overcome
a force majeure event does impose
extra-contractual obligations on the
­
party.
This case illustrates the difficulty
in drafting clear force majeure clauses,
and to predict how these clauses will
be viewed by an arbitration tribunal or
(English) court.
Aside from contract drafting, there
is also the practical issue of how cor-
porate actors decide to staff their legal
functions.
Moves by multinational corpora-
tions to centralise their legal depart-
ments in single jurisdictions are start-
ing to be reversed with the advent of
more international disputes, as com-
panies realise the benefit of having
lawyers in different jurisdictions who
can understand and help resolve local
issues. n
This article was authored by Fieldfisher
international arbitration partners Simon
Sloane and Ania Farren, based on a panel
discussion entitled ‘Too much tension in the
chain? Resolving energy arbitration disputes
impacted by supply chain constraints’, hosted
by Fieldfisher as part of London International
Disputes Week 2023
• Infrastructure Investor 55
 Analysis
How to tap the UK’s
decommissioning
sector
Guest comment by Glenn Kangisser and Shu Shu Wong
Two experts from Haynes & Boone discuss the challenges
and opportunities that decommissioning the oil and
gas industry presents, and explain why the UK is well
placed to become a world-leading hub for such projects
D
ecommissioning is a
key driver in the UK’s
plans to achieve net
zero by 2050. The
sector focuses on
emission reductions
during operations, repurposing exist-
ing infrastructure for CO2 storage,
identifying reuse opportunities during
onshore disposal, and supporting the
offshore wind industry, and is antic-
ipated in the UK to be worth around
£20 billion ($25.7 billion; €23.1 billion)
by 2031, according to trade association
Offshore Energies UK.
With the ongoing development
of the offshore wind sector (among
other less carbon-intensive sources of
­energy), coupled with the lack of politi-
cal consensus around supporting the oil
and gas industry in recent years, there
is a renewed focus on decommission-
expected to be decommissioned
ing activity, particularly in the North
Sea.
56 Infrastructure Investor • September 2023
In OEUK’s recently published De-
commissioning Insight 2022, the trade
body anticipates that about 2,100 wells
will be decommissioned over the next
decade. Around £1.2 billion was spent
on decommissioning in 2021, accord-
ing to the report, and this is expected
to reach £2.5 billion per year over the
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-
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-
ence future decommissioning spending.
Indeed, the extension of its application
from 2025 to March 2028 has created a
significant barrier to investment, as ev-
idenced by TotalEnergies, the French
energy giant, announcing that it would
cut investment in the UK North Sea by
a quarter (approximately £100 million)
in response to the expanded EPL.
Following months of lobbying from
the energy sector arguing that the EPL
deterred investment and put jobs and
energy security at risk, the UK govern-
ment recently announced a change to
the policy that would mean the EPL
would end if oil and gas prices fall be-
low $71.40 per barrel of oil, and £0.54
per therm (100 cubic feet) of gas, for
two consecutive quarters.
Despite the policy change, Apache,
operator of the Forties oilfield for the
last two decades, said it would halt
drilling in the UK North Sea citing the
“challenging UK macro environment
with its increasingly costly and burden-
2,100
some tax and regulatory regime”.
On 19 June, leader of the UK op-
position Keir Starmer outlined plans
to end new North Sea oil and gas ex-
Number of oil and gas wells ploration as part of Labour’s vision to
over the next decade
make the UK a clean energy superpow-
er. However, according to the Climate

Change Committee in the UK, oil and
gas is still expected to meet 50 percent
of the UK’s energy needs in the mid-
2030s, falling to 22 percent by 2050.
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
life, OEUK’s chief executive, Deirdre
­Michie, warned that as we build the low
carbon systems of the future, “there is
no simple choice between oil and gas
on the one hand and renewables on the
other. The reality is that to keep the
lights on and grow our economy, we
need both”, as otherwise, the UK will
become increasingly reliant on imports.
It is also worth noting that certain
expenditure incurred by oil and gas
companies on decommissioning plant
and machinery prior to the approval of
an abandonment programme qualifies
for decommissioning tax relief.
With this said, the expected in-
crease in global decommissioning ac-
tivity means the UK is well placed to
become a world-leading hub for de-
commissioning work. For instance, as
one of the first offshore basins, the UK
North Sea is ahead of other locations in
terms of decommissioning – this means
the skills, competency, techniques and
knowledge gained now have exportable
value in markets around the world.
IHS Markit forecasts that the major-
ity of offshore global decommissioning
spend from 2021 to 2030 will be in Eu-
rope (33 percent), followed by APAC
(23 percent), North America (17 per-
cent) and Latin America and the Car-
ibbean (13 percent). Therefore, there is
much scope for the UK to identify (a)
exportable supply-chain strengths, (b)
markets where UK expertise and tech-
nology can be exported, and (c) actions
and enablers that will encourage the
UK supply chain to export its expertise.
There is also scope for there to be
cross-collaboration with new energies.
Due to the shared requirement for
heavy lift assets, the offshore wind in-
dustry is expected to have the biggest
impact on oil and gas decommissioning.
£20bn
Expected value of UK’s
decommissioning
sector by 2031
Compared with short, technically chal-
lenging decommissioning projects, long
campaigns for multiple wind farm in-
stallations have been a more attractive
opportunity for companies operating in
this space. As a result of the shortage of
equipment and personnel, cross-collab-
oration between the two industries has
been encouraged as a means of increas-
ing efficiency and co-operation, as well
as reducing costs.
For example, at least 209 offshore
wind farms are expected to be con-
structed over the next decade. To help
ensure that offshore wind infrastructure
is designed for decommissioning at the
outset, OEUK’s new Offshore Wind
Decommissioning Network is expect-
ed to create a platform for offshore
wind developers to present their de-
commissioning programmes to OEUK
members before the construction of
offshore wind farms. This is expected
to allow operators and the supply chain
to share lessons learned with develop-
ers and will help ensure that offshore
wind infrastructure is designed for de-
commissioning at the outset.
Economies of scale and reduced
costs are likely to be achieved through
compressed schedules and shared
campaigns. For instance, according to
OEUK, execution efficiency across the
operator and supply-chain communities
enabled a 25 percent cut in costs, despite
the difficult operating environment.
Over the next decade, data from
OEUK shows there will be an increase
September 2023
Analysis
year on year on topsides, substructures
and subsea infrastructure tonnage
coming ashore, reaching a peak of over
250,000 tonnes in 2027.
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
Lawrie Metals (one of the largest scrap
metal recyclers in northeast Scotland);
these have been used as piling posts in
the foundations of P&J Live, a mul-
ti-purpose indoor arena in Aberdeen.
Risk sharing
Exploration and production of oil and
gas has been on the decline in the UK
North Sea. Within the UK continental
shelf, decommissioning is expected to
cost around £2.5 billion per year in the
next two decades as valued by the North
Sea Transition Authority. As the coun-
try moves towards a low-carbon econ-
omy, the volume and complexity of de-
commissioning is expected to increase.
On the legal and contractual side,
with the fast-paced developments in
the sector and expected increase in
cross-collaboration between industries,
it will be important to ensure that the
agreements entered into between dif-
ferent counterparties (for example, be-
tween the decommissioning contractor
and the operator, and/or the decom-
missioning contractor with its sub-
contractors) reflect the commercially
agreed risk allocation. This will include
careful negotiation and drafting of key
provisions, including indemnities, du-
ration of the contract, cost of works
and limitation of liability caps.
In light of this, it may be beneficial
for all parties within the decommis-
sioning sector to collaborate on pro-
ducing a standard form decommission-
ing contract, which would streamline
the contract negotiation process, and
reduce associated time and costs. n
Glenn Kangisser is a partner specialising in
energy projects and disputes; Shu Shu Wong
is an associate in the Energy, Power and
Natural Resources practice group. Both are
based in Haynes and Boone’s London office
• Infrastructure Investor 57
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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

September 2023 • Infrastructure Investor 59

 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!

60 Infrastructure Investor • September 2023
 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

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Transition Investing at Brookfield

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