Infrastructure companies face several significant external risks at present, including mounting inflation, higher interest rates, elevated energy prices, labour shortages, government intervention to control energy prices, natural gas and energy shortages, shortages of critical renewables components, Russian sanctions and supply chain failures. Not to mention COVID.
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As opposed to oil or other carbon-based energy sources, natural gas, in its basic form, is not easily transportable. This is problematic as the largest producing countries of oil and gas historically tend not to be the major users of these products. This is especially true for Europe, most of Asian countries, and up until recently, the United States.
Our economies are in the process of transitioning to a low-carbon or at least significantly reduced emissions model. This movement has been underway long enough for investors, politicians and citizens to make demands on the various players, first and foremost the large listed companies.
In 2021, the 27 EU member states and the European Parliament agreed to enshrine the goal of carbon neutrality by 2050 in a “climate law”. And this “Green New Deal” is much more than just wishful thinking, as it not only sets ambitious targets but more importantly provides for massive investments, particularly in infrastructure. So to make the most of it, the biggest winners could be direct investments in infrastructure projects.
Following March 2020 world-wide lockdowns, global inflation collapsed only to rebound once COVID-related restrictions were gradually lifted. While inflation (and the increase in interest rates it triggers) could spell bad news for stock markets in the short term, rising prices are normally positive for infrastructure companies, as most enjoy price escalators embedded in their contracts.
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The COP is usually presented as a major catalyst for the Clean Energy sector. After Glasgow, we believe it is fair to ask whether this is still the case.Read more
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