23 March 22

Investing In Infrastructure To Solve Societal Challenges

This article was originally published in Raconteur's "Future of Infrastructure" report.  

Energy efficiency and digital inequality are very different challenges, but they both present an investment opportunity to create sustainable income while contributing to a better society for all. 

The pace of societal change is faster than ever, yet it’s not currently fast enough to overcome the major barriers standing in the way of creating a cleaner, greener and more equal planet and economy. Technology is powering widespread progress, but better infrastructure is required to accelerate the transition to a zero-carbon digital economy, while closing a damaging digital divide. Fortunately, investors today are as conscientious as they are savvy to the opportunities.

The government’s ambition to cut emissions to net zero by 2050 is well understood, but the challenges are less so. Demand for solutions and systems to decarbonise the UK power system continues to surpass supply, and renewable energy is limited by intimacy and curtailment. The wind doesn’t always blow, which creates volatility in the grid; even when it does blow, sometimes renewable energy has to be switched off due to a lack of demand at that moment.

Improving energy efficiency is key. Along with wind and solar power, it will provide half the emissions savings in the next decade and without those gains renewables will struggle to displace fossil fuels in electricity generation, according to the International Energy Agency.

A symbiotic relationship is needed between renewables and battery storage to deal with any instabilities that arise within the grid. Carbon renewable sources accounted for 22% of the UK energy supply in 2020 and this is predicted to grow significantly over thenext two decades. The UK’s battery storage capacity, meanwhile, is expected to double by 2027 and then again by 2035, driving an exponential increase in the amount of battery storage required.

The capital investments needed to create this infrastructure are not only crucial to meeting net-zero goals but also present an opportunity for strong long-term income. Triple Point Energy Efficiency Infrastructure Company plc (TEEC), an investment trust that focuses on energy efficiency assets in the UK covering generation, distribution and consumption, has secured under exclusivity a near-term pipeline of £108m of grid-scale battery energy storage assets.

“This will greatly improve the efficiency of the UK electricity system while creating jobs, driving innovation and saving consumers, businesses and governments money,” says Jonathan Parr, partner and head of energy at Triple Point. “Amid all of that, we can generate sustainable income for our investors and contribute to a solid portfolio amongst our other investments.

“The UK urgently needs to upgrade its energy infrastructure and the government has a big part to play through funding projects and policy mechanisms such as the Public Sector Decarbonisation Scheme and Green Heat Network Fund, which Triple Point was appointed to deliver in March 2022. However, private capital is also absolutely key to a cleaner, greener future. Energy efficiency projects offer an exciting way for investors to be part of that important purpose, while also benefiting financially from very profitable outcomes.”

Technology is not only transforming energy generation, distribution and consumption, but every other industry too. The internet is the window to opportunities, knowledge and skills in this increasingly digital world, driving economic growth and development globally. As such, a fast and reliable internet connection is now more than just a luxury – it’s a 21st century human right.

Yet more than a third of the world’s population has no ready access to the internet, risking the crass formation of a two-tier society divided by the haves and have-nots of digital connectivity. This digital divide is most pronounced in developing countries, where only 35% of people have access to the internet. Increasing this to 75% would add as much as $2tn to the collective GDP of these nations, creating more than 140 million jobs, according to the UN.

That’s not to say the problem isn’t also brewing closer to home. Children from lower income families are already disadvantaged, with those eligible for free school meals or who had been in care half as likely to achieve a sufficient pass grade in GCSE English and Maths in 2019. The internet has the power to level playing fields, but only if access is there. ONS research found that only 51% of households earning between £6,000 and £10,000 had home internet access.

Divisions were amplified during the Covid-19 lockdowns, when the government tried to distribute laptops and 4G routers to low-income families so their children could keep up with online lessons. With education systems, and even healthcare organisations, on their own digitisation journey towards more virtual modes of delivery, the knock-on impacts of the pandemic offered a worrisome glimpse into future inequality issues should the digital connectivity gap not be closed.

In 2020, almost $400bn was spent on new digital infrastructure across fibre, data centres and wireless networks. But this kind of annual capital investment will need to increase in order to better prepare the digital infrastructure for the future. This is whereTriple Point is seeking to move the dial with Digital 9 Infrastructure plc (DGI9), an investment trust that invests in infrastructure assets that will help to deliver, among other things, a reliable and functioning internet.

“There is a significant societal need to improve connectivity globally by investing in a portfolio of critical digital infrastructure assets in subsea and terrestrial fibre, wireless networks and data centres,” says Thor Johnsen, head of digital infrastructure at Triple Point, which is participating in building a network from Europe to India, among other projects. “Investing in our digital infrastructure is vital to driving economic growth and equality in an interconnected world.”

Once again, however, participating in advancing this social imperative can also achieve the dual investment benefit of delivering sustainable, long-term income. “Like energy efficiency, the government is relying on private capital to continue to deliver a reliable functioning internet. Given the increasing importance and vital role digital infrastructure is playing for industry and society as a whole, infrastructure projects can provide a highly predictable cash flow return,” Johnsen adds.

As well as offering investors access to exciting sustainable asset classes with long-term capital return and income, investment trusts can also contribute to a diversified and robust investment portfolio. This is best illustrated by their 17.8% return in 2020, when stock markets were tumbling due to Covid volatility. And with more than 300 trusts focused on asset opportunities across more than 30 different sectors now trading on the UK stock market, there’s an abundance of choice.