Disruption in the Infrastructure Sector: Challenges and Opportunities for Developers, Investors and Asset Managers PDF
Preview Disruption in the Infrastructure Sector: Challenges and Opportunities for Developers, Investors and Asset Managers
Future of Business and Finance Stefano Gatti Carlo Chiarella Editors Disruption in the Infrastructure Sector Challenges and Opportunities for Developers, Investors and Asset Managers With Forewords by Mark Crosbie, Alain Rauscher and Angelika Schöchlin Future of Business and Finance TheFutureofBusinessandFinancebookseriesfeaturesprofessionalworksaimedat defining,describingandchartingthefuturetrendsinthesefields.Thefocusismainly onstrategicdirections,technologicaladvances,challengesandsolutionswhichmay affect the way we do business tomorrow, including the future of sustainability and governance practices. Mainly written by practitioners, consultants and academic thinkers, the books are intended to spark and inform further discussions and developments. Moreinformationaboutthisseriesathttp://www.springer.com/series/16360 (cid:129) Stefano Gatti Carlo Chiarella Editors Disruption in the Infrastructure Sector Challenges and Opportunities for Developers, Investors and Asset Managers Editors StefanoGatti CarloChiarella DepartmentofFinance CUNEF(ColegioUniversitariodeEstudios BocconiUniversity Financieros) Milano,Italy Madrid,Spain ISSN2662-2467 ISSN2662-2475 (electronic) FutureofBusinessandFinance ISBN978-3-030-44666-6 ISBN978-3-030-44667-3 (eBook) https://doi.org/10.1007/978-3-030-44667-3 #SpringerNatureSwitzerlandAG2020 Thisworkissubjecttocopyright.AllrightsarereservedbythePublisher,whetherthewholeorpartofthe materialisconcerned,specificallytherightsoftranslation,reprinting,reuseofillustrations,recitation, broadcasting,reproductiononmicrofilmsorinanyotherphysicalway,andtransmissionorinformation storageandretrieval,electronicadaptation,computersoftware,orbysimilarordissimilarmethodology nowknownorhereafterdeveloped. Theuseofgeneraldescriptivenames,registerednames,trademarks,servicemarks,etc.inthispublication doesnotimply,evenintheabsenceofaspecificstatement,thatsuchnamesareexemptfromtherelevant protectivelawsandregulationsandthereforefreeforgeneraluse. The publisher, the authors, and the editorsare safeto assume that the adviceand informationin this bookarebelievedtobetrueandaccurateatthedateofpublication.Neitherthepublishernortheauthorsor theeditorsgiveawarranty,expressedorimplied,withrespecttothematerialcontainedhereinorforany errorsoromissionsthatmayhavebeenmade.Thepublisherremainsneutralwithregardtojurisdictional claimsinpublishedmapsandinstitutionalaffiliations. ThisSpringerimprintispublishedbytheregisteredcompanySpringerNatureSwitzerlandAG. Theregisteredcompanyaddressis:Gewerbestrasse11,6330Cham,Switzerland Foreword Thisisaverytimelybook.Overthepastdecade,wehaveseenastrongincreasein boththedemandforandsupplyofinfrastructureinvestments.Althoughinfrastruc- tureremainsarelativelyyoungassetclass,investorsare“sold”onitskeyfeaturesof resilienceandcashgenerationwithamoderateriskprofile. At Antin, we eagerly supported the research that constituted the basis for this book.Wefeelitisagoodmomenttoprovideanswerstosomeofthekeyquestions theindustryisfacingtoday.Whatarethekeydriversofinfrastructure?Whatarethe long-term trends? And most importantly: what are the key challenges of the asset class? Whilst we would havesome answers from a day-to-day perspective, we felt nobody was better placed than the renowned team at Bocconi to find answers to thesequestionslookingdecadesaheadintothefuture. Disruptionisakeytopicwehavebeenobservingininfrastructureinrecentyears. Whereas 15 years ago it was a safe “bet” to invest into car park, the arrival of driverlessvehicles,agenerationinwhichsharingcountsmuchmorethanownership andanincreasedawarenessofenvironmentalmattersallcombinetochangetoday’s equation.Long-heldtruthsof“safe”assetscansuddenlybecome“strandedassets”. Wefeelitiskeytothoroughlyunderstandthechangingmarketenvironmentwelive intodayanditsimplicationsforinvestingininfrastructure. This publication fills a gap both for practitioners in the field and for future infrastructure professionals. We hope that the interest in the asset class will persist andthatitwillcontinuetoattractbrightstudentsashumancapitalismoreimportant thanever. From a personal perspective, I would like to thank Prof. Gatti for leading this researchandforthevaluablecontributionsheandhisteamofresearchersaremaking to the infrastructure industry in general and to the Investment Team at Antin in particular. AntinInfrastructurePartners AngelikaSchöchlin Paris,France vv Foreword Autonomous vehicles. Beyond Meat. Bitcoin. Drones. 3D printing. Netflix. Smart homes. The Green Revolution. Uber. Universal Basic Income. These are all examples of technologies, companies and concepts which have only very recently become mainstream. If we look back only a decade ago, these were very much nascentconcepts,someofwhichwouldhavebeeninconceivable. The world population is forecast to reach over ten billion by 2057.1 Global temperatures are rising and an overall two degrees Celsius increase by 2050 is forecast.2 Studies predict that 47 per cent of occupations in advanced economies areathighriskofbeingautomatedby2034.3Ourworld’spaceofdevelopmenthas increasedexponentially. Wherewillwebein20years’time?Whataretheunknownunknownsthatwill dominate our world? How should investors assess and monetise these risks and opportunities? Professor Gatti’s book is timely. Disruption is a prevalent theme in the wider economy and in particular infrastructure with the advent of new technologiesalliedwithchanginghabitscreatingbothnewrisksandnewinvestment opportunities. At Antin, we like to say that there were no airports before airplanes were invented. Infrastructure businesses play a key role in enabling many of the trends outlinedabove.Wefocusoninfrastructurebusinesseswhereweseeanopportunity to create value during our ownership by transforming and growing our portfolio companies. To create value you need to understand what is important for stakeholders, both today and, more importantly, tomorrow. We typically hold businesses for 7 years andwill then sell to new ownerswith atleast a similar time horizon. A lot can change in this kind of time period. Therefore, we pay close attentiontodisruptivetrendsandaimtopredicthowaparticularindustrymightlook 10–15 years from now. Many of the chapters in this book delve further into these themes. 1https://www.worldometers.info/world-population/ 2https://www.un.org/en/sections/issues-depth/climate-change/ 3Thefutureofemployment:howsusceptiblearejobstoComputerisation?CarlBenediktFrey& MichaelA.Osborne,OxfordMartinSchool,UniversityofOxford,September2013. vii viii Foreword Transport, the exchange of data and the food supply chain are all areas of infrastructure where we have seen disruption in recent times, and this is the heart of our Investment Committee’s debates. For example, travel retail is an interesting transport infrastructure sector which is growing strongly due to an ever-growing trend,partlylinkedtourbanisationandthedeclineofcarusageincities.Consumers havemovedawayfromtheoldmodelofdrivingtoalargeout-of-townhypermarket everyfewweeksinfavourofsmallerscalebutmoreregular“shopping-on-the-go”in placesliketrainstations,enroutetoorfromtheworkplace.In2016,Antininvested inGrandi StazioniRetail, whichoperatesthelong-termleasehold providing exclu- siverightstothecommercialleasingandadvertisingspacesofthe14largestItalian railwaystations,serving750millionvisitorsperyear.4Havingstudiedtheshopping trendsandtheincreasingpassengerflowsduetoimprovementsinhigh-speedrailin Italy,wedecidedthatitrepresentedanattractiveinvestmentopportunity.Disruption in the transport infrastructure sector is further explored by Oliviero Baccelli in Chap.3. Theexponentialincreaseindataflowsaroundtheworldneedstobesupportedby certain infrastructures such as fibre-optic cable. Fibre is disrupting the old copper technologyandthuswehavebackedthetrendbyinvestinginfourfibreproviders, serving both businesses and providing fibre to the home across the Netherlands, Belgium,France,Spain,theUKandtheUSA.Thealmostlimitlesscapacityoffibre makesitparticularlysuitedtosupportinglargedataflowsandenablingthetake-upof 5Gtechnologies. The transition to clean energy, explored by Di Castelnuovo and Biancardi in Chap.2,isatrendwehavefocusedonforalongtime.Wemadeaninitialacquisition with our 2018 acquisition of Idex in France and then followed up with our 2019 acquisition of Veolia’s District Energy business in the USA. These companies provide district heating and cooling and are well-placed to benefit from the strong trendtowardscleanenergy. In the media we often read about different demographic groups, such as baby boomers, Generation X and Millennials. Each of these groups has different needs andwantswhichcreatebothchallengesandopportunities.Inthesocialinfrastructure realm,weexpecttoseeanincreaseddemandforservicesrelatedtooldagesuchas elderly care and the prevalence of particular diseases and more chronic conditions duetotheageingpopulation. Antin hasdeveloped strong links with Bocconi University since its inceptionin 2007.Wehavenumerouscolleagues who studied atBocconi andhavesincemade important contributions to our firm. In 2018, we started sponsoring the Antin IP AssociateProfessorshipinInfrastructureFinance,heldbyProfessorGatti.Asafirm we benefit from the academic research led by Professor Gatti and his world-class team,whilstinthespiritofknowledge-sharing,mostoftheAntinPartnerteamhas lectured to students at the university. Allying with one of the world’s leading 4GSRestimate Foreword ix universities enables us to maintain an edge, by benefiting from the results of research,gettingaccessandexchangingviews. Wehopeyouenjoythisinsightfulpublicationwhichservesasausefulcompen- diumforthechallengesandopportunitiescreatedbydisruptionintheinfrastructure sector. AntinInfrastructurePartners AlainRauscher Paris,France AntinInfrastructurePartners MarkCrosbie Paris,France Contents 1 Introduction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 StefanoGattiandCarloChiarella 2 TheFutureofEnergyInfrastructure. . . . . . . . . . . . . . . . . . . . . . . . 5 MatteoDiCastelnuovoandAndreaBiancardi 2.1 Introduction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 2.2 AnOverviewoftheGlobalEnergyBalance. . . . . . . . . . . . . . . . . 6 2.2.1 Oil. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 2.2.2 NaturalGas. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 2.2.3 Renewables. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 2.2.4 Electricity. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 2.3 KeyTrendsintheElectricityIndustry. . . . . . . . . . . . . . . . . . . . . 15 2.3.1 Decarbonization. . . .. . . .. . . .. . . .. . .. . . .. . . .. . . .. 16 2.3.2 Electrification. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 2.3.3 Decentralization. .. . . . . . .. . . . . . .. . . . . . . .. . . . . . .. 21 2.3.4 CustomerActivation. . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 2.3.5 Digitalization. . . .. . . . . .. . . . . .. . . . .. . . . . .. . . . . .. 23 2.3.6 ConvergenceofIndustries. . . . . . . . . . . . . . . . . . . . . . . . 24 2.4 TheEconomicsBehindtheR-Evolution. . . . . . . . . . . . . . . . . . . . 26 2.4.1 TheCompetitivenessofRenewables. . . . . . . . . . . . . . . . . 26 2.4.2 TheMeritOrderEffect. . . . .. . . . . . . . . .. . . . . . . . . .. . 29 2.4.3 NegativePrices. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 2.5 SomeTrendstoLookOutfor,intheComingYears. . . . . . . . . . . 33 2.5.1 WatchthisSpace:OffshoreWind. . . . . . . . . . . . . . . . . . . 34 2.5.2 TheNeedforFlexibility:Storage. . . . . . . . . . . . . . . . . . . 35 2.5.3 EnergyNetworksasBothEnablersandConstraints. . . . . . 36 2.6 TheImpactoftheR-EvolutiononEuropeanUtilities. . . . . . . . . . 38 2.6.1 Utilities’RevenueModel. . . . . . . . . . . . . . . . . . . . . . . . . 38 2.6.2 Utilities’FinancialPerformance. . . . . . . . . . . . . . . . . . . . 40 2.7 Conclusions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47 References. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49 xi
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