The infrastructure sector is the backbone of the green transition. Transforming our economies to achieve net zero emissions require a massive overhaul of infrastructure. The “Green Transition” theme will likely dominate the European infrastructure market for decades to come, addressing critical environmental issues like climate change and the shift to zero-carbon operations. Additionally, it will support the process to become energy independent. 

Major infrastructure debt megatrends, like the energy transition, and decarbonized industry and mobility, are fuelling this transformation. The energy transition encompasses investments in renewable energy, energy efficiency, district heating, biofuels, battery storage and more – all areas where debt financing plays a crucial role. Decarbonized mobility, meanwhile, includes both established sectors like rolling stock leasing and fleet electrification, and emerging areas like EV charging, gigafactories and smart mobility. These trends highlight the critical importance of infrastructure debt financing in achieving carbon neutrality.

Infrastructure investment is vital for enhancing quality of life, driving economic development and promoting social equity. It fundamentally shapes how we live, how economies function and the inclusivity and resilience of our communities and environment. More specifically with respect to net zero, we believe the renewable energy sector quite clearly has a significant role to play. Average annual investment of around $4.8 trillion is needed between 2024 and 2030 to align with BNEF’s Paris Agreement-aligned Net Zero Scenario. Investment in new renewable energy projects alone accounted for $623 billion in 2023, with around $1.3 trillion per year needed between 2024 and 2030.

In terms of infrastructure debt, over the last few years both large commercial and local specialised banks have gradually increased their exposure to the renewables sector, replacing other sponsors and corporates with more affordable debt solutions. Green infrastructure assets have caught the eye of investors, and the renewables sector remains a tempting choice. It’s largely backed by governments and offers a straightforward path to contribute to the low carbon transition.

We acknowledge concentration risk in sector-specific climate strategies, favouring diversification. However, we believe climate assets can deliver strong returns without dragging on performance. This requires robust origination capabilities to capture the full spectrum of opportunities, with the objective to invest in the most attractive deals selectively and proactively.

Distinguishing between markets and sectors is crucial, as is identifying where in the capital stack risk-adjusted returns are optimised. In some established, oversubscribed markets in Europe, established sectors such opco level financing of wind and solar projects does not deliver attractive credit margins to investors. In such cases, we explore alternative means of gaining the exposure to the asset class such as investing in a structured and protective manner at holdco or corporate level. Furthermore, we see an emergent new frontier of climate impact markets, including for example battery storage, EV charging, gigafactories, carbon capture and sequestration, and hydrogen where risk-adjusted returns remain compelling as investors are properly compensated for the underlying complexity.

Infrastructure debt with a sustainability angle can offer an attractive opportunity for investors. But to deliver both economic returns and positive impact benefits, we advocate a targeted approach. This means selecting investments that align with sustainability goals – such as mitigating climate change – while incorporating robust risk management practices.

Going back to the renewables sector, one of the primary hurdles for lending to renewables today is pricing. The competitive nature of the market and the huge amount of liquidity available have led to thinner margins for lenders, who have been gradually taking on more risks. The experience of the sponsor or asset manager is vital. They will be responsible for optimizing production across subsidized, contracted, and merchant stages, and their expertise can significantly influence the overall success of the investment.

We source deals through a constant dialogue with the market and involve all members of our very diverse investment team which includes more than 10 nationalities and provides us with a vast local network of sponsors with unique access to the European infrastructure financing pipeline, while breadth of sector and asset class experience supports rapid identification of priority transactions and sustained deployment.

Our ability to offer large tickets and experienced deal teams affords Infranity a privileged negotiation position, enabling us to offer single lender solutions to middle market players or be part of a small club of lead lenders on larger transactions. This typically means more access to fees and more influence in structuring the transaction.

Overall, we originate over 400 investment opportunities per year and typically invest in c.20 transactions, as we focus on selecting only the most suitable and attractive transactions for each of our vehicles. 

Along with experience and expertise, one of the most significant factors in sourcing attractive opportunities is strong industry relationships. We have been financing infrastructure debt in Europe for over 15 years, and across that period we have established a comprehensive network of industry relationships, allowing access to a diverse range of deals. We have a dedicated investment team sourcing opportunities and although selecting the right credit is the key starting point, protections are further enhanced through negotiating appropriate covenants, lien position and collateral. For us, structure is critical to limiting downside risk and driving long-term results.