In 2018, the infrastructure market saw a number of familiar fundamental drivers trigger significant investment opportunities and the ongoing global push for renewable energy continues relatively unabated.
Indeed, the latest round of Taiwanese government support for offshore wind is evidence of strong European investor appetite for the sector and its ability to take on large projects regardless of their geography at extremely competitive pricing.
JCRA has also seen a continued uptick in investor appetite for Australian and South American projects with many of the larger European funds opening local offices. Considerable supply coupled with ambitious growth targets make these the geographies of choice.
Competition in the offshore sector and the corresponding price/tariff collapse hasn’t been welcomed across the renewable energy markets, as there have been losers as a result. The UK government’s decision to deny the required support for tidal plans at Swansea’s tidal lagoon (and other planned projects) has largely been blamed on the costs for the nascent industry. Whereas offshore alternatives are now far cheaper, well established and de-risked, following years of government and other investments.
Another emerging trend is the increasing demand for connectivity. It is beginning to drive development of supporting infrastructure such as fibre networks and telecom towers, providing new opportunities for investors and considerable interest across the industry, in particular for M&A transactions.
Investor appetite and risks
Governments across Europe continue to make far better use of the strong investor appetite and good financial conditions (low underlying debt yields) than the UK government, as they endeavour to meet the increasing need for new or upgraded transportation infrastructure to support economic growth. A number of European countries (Norway, Germany, Netherlands and Spain) have initiated an active PPP programme to develop new transportation infrastructure projects. JCRA has recently advised on hedging structures at pre and post BAFO for the Rijkswaterstaat in the Netherlands with the A16 road project and Afsluitdijk causeway. Both deals were struck with great efficiency and competition.
We have also advised Norway with the first of its recent PPP pipeline -RV. 3 / RV. 25 PPP road contract. This direct primary government procurement provides opportunities in the primary market but also in the secondary market as construction companies and sponsors are recycling interests in operational projects to free up capital to participate in primary projects. Looking ahead at the countries mentioned above, these strong and sustainable drivers should continue to fuel a healthy supply of investment opportunities, notwithstanding a traditional potential summer slowdown.
Finally, the impasse in the independent power producer programme in South Africa was resolved in April, with the 27 delayed round four projects finally being signed. JCRA is advising on seven of these projects.
The South African government has announced that round five bidding should commence in November after the conclusion of the integrated resource plan (IRP), which is expected by August. Elsewhere, renewables and other infrastructure project activity continues to gain momentum, with off-grid solar leading the way. JCRA is advising on a number of transactions in this space.