The impact on infrastructure
So, what does this all mean for infrastructure investors?
The energy transition would not be possible without the infrastructure connecting supply and demand.
Energy infrastructure has seen considerable change over the past 100 years but arguably no change has been as significant as the change the industry is facing today.
Change is driven by new technology and rapidly evolving customer preferences. But regulators are often reminded of the dangers of moving too fast. Blackouts in California last year highlight the need for reliability, as does the Texas power crisis which unfolded earlier this year4.
Regulators need to strike a balance between making sure capital is available for new investments and ensuring existing assets do not become stranded.
AMP Capital’s global listed infrastructure team sees five main opportunities for the infrastructure sector from the energy transition in North America:
1. Oil and gas pipelines becoming increasingly strategic
Fossil fuels will be a meaningful source of supply for many decades to come, which means the pipelines connecting supply with demand will continue to play a key role.
Different markets will have different values, but given the difficulty in getting new pipeline infrastructure approved, certain assets already in the ground will be that much more valuable.
2. Repurposing existing infrastructure
Some infrastructure assets could be repurposed for technologies like hydrogen and carbon transport, and storage development. Pipelines and storage assets could be adapted for use by another commodity, although conversion costs could be a barrier.
Canada is using depleted oilfields and saline aquifers to store carbon emitted from refineries, industrial processes and power plants. The related transportation infrastructure has also proven to be a growth area.
3. Electricity transmission for renewables
Transmission for renewable electricity is a large growth driver partly because these types of assets – offshore and onshore wind and solar – are often located well away from demand centres.
This result is the need for a meaningful extension of transmission networks to connect them to the grid.
These opportunities will likely continue for many years.
Similarly, the changing generation mix and the different locations of supply means investment is also needed to adapt networks to cope with the different flows.
4. Electric vehicle (EV) charging and electricity distribution networks
The growth of EVs is requiring an entirely new infrastructure of charging points.
Policymakers recognise the environmental and economic potential from EVs, but range anxiety – the fear of running out of charge and being stranded – is real. It’s also a serious headwind to increased EV market share.
There is no consensus on who should pay for charging stations – there are arguments for and against governments, energy utilities and private enterprise footing the bill.
There’s also no sight of standards across chargers, meaning EV drivers will need to find a charging station compatible with their vehicle.
Estimates in the US suggest only 4 per cent of the chargers needed to support growth to 2040 are operational today, so the opportunity is considerable5.
5. The future of gas distribution networks
Gas remains the cheapest source of supply for heating in the US – and much cleaner than some of the existing alternatives like oil.
However, some cities have banned gas in new buildings putting a question mark over the growth of the industry.
Despite this, the economics of electric heating remain unfavourable and – in the medium term – is unlikely to change.
Gas networks have considerable investment programs available to repair aged and leaking pipes, improve safety and reduce methane emissions.
Ultimately, renewable natural gas – gas manufactured from renewable sources – or hydrogen may take their place in the gas infrastructure.
This article was drawn from Joseph Titmus’s whitepaper, The Energy Transition in North America6.