- The Energy Transition would continue to offer the greatest scope for infrastructure investors to deploy capital over the coming years as Europe looks to improve the security, affordability and sustainability of its energy supply.
- In light of strong policy making over 2022 in particular, there are a growing number of energy sectors which have become more attractive with the potential to provide investors with infrastructure-style returns. The trajectory of solar and wind sectors provides a potential pathway for newer, smaller energy sources to scale, de-risk and form part of infrastructure portfolios in the same way.
- Hydrogen and biomethane represent two of the crucial alternative fuel types which present long-term opportunities in Europe. While hydrogen has some way to go in terms of becoming a market that infrastructure investors can feel comfortable operating in, we believe that biomethane presents an immediately attractive entry point into alternative, lowcarbon energy sources.
1 / Energy Security, Resilience & Decarbonisation
1.1 Energy Transition To Remain Key For Infrastructure Investors
DWS’s major report on European Transformation concluded that a deep transformation is needed to maintain Europe’s sustainable prosperity. The need for energy security and decarbonisation is at the centre of the need to transform the European economy into a sustainable, digitised and – crucially – resilient, market.
Europe has led the way in the roll out of key renewables technologies and there is now significant scope for the region to again take global leadership across other alternative energy sources and fuels. This presents significant opportunities for investors in most major asset classes and our report focuses on the opportunity for infrastructure investors.
The Energy Transition is the most active area of the global infrastructure market. Private market infrastructure transactions across the Power, Renewables and Energy sectors totalled over EUR600bn in 2022 and represented 67% of total transaction volume. Despite a tremendous amount of activity already, the global transition to alternative energy sources we believe will remain the main focus for infrastructure investors over the long-term. This market already boasts an actively growing pipeline of opportunities as well as providing one of the most direct routes for investors to facilitate decarbonisation through the development and operation of assets, while meeting their own low-carbon targets.
There has been a continued improvement in the policy environment surrounding the energy transition, particularly in 2022 with the introduction of REPowerEU, part of Europe’s response to the energy crisis stemming from the loss of Russian gas supplies. Previously peripheral energy sectors now have a pathway to enjoy a similar scaling up of investment as seen in solar and wind sectors. To date, most private capital deployed has flown into wind and solar technologies, which have consequently enjoyed dramatic annual growth rates in markets around the world, with Europe leading the way with regard to subsidising and encouraging the scaling and de-risking of those sectors.