Infrastructure Boom Promotes Investments in Water and Energy

Governments invest in state infrastructure to stimulate the economy. In many places, transport infrastructure is given top priority. However, even more money is flowing in the energy and water sectors. For example, renewable energies are the current trend. Investors can also benefit elsewhere. 

The energy sector has undergone a major transformation in recent years due to new regulations, including those governing environmental impact standards with an increased focus on clean energy. According to Bloomberg New Energy Finance (BNEF), globally nearly USD 4.4 trn will be invested in new power generating capacity over the next ten years, ~ USD 2.3 trn of which in Asia with a focus on renewables. The increased use of renewable energy should drive spending on improving electricity grid infrastructure and interconnection and provide opportunities for battery storage.

The European Commission, for example, aims to connect European energy networks, increase the security of energy supply and contribute to sustainable development by integrating renewable energy sources across the EU. It has allocated EUR 5.4 bn to the Trans-European energy infrastructure project through 2020.

The US Lacks Billions Needed for Energy Infrastructure

Meanwhile, Africa – estimated to hold 10% of the world’s hydrocarbon resources – offers significant potential for the oil industry, but remains relatively underexplored. Potential investments of USD 42 bn over the next ten years could lift refining capacity by 1.7 million barrels a day, based on analysis by Bloomberg.

In the USA, President Trump has signed executive orders to advance the USD 3.7 bn Keystone XL and Dakota access pipelines. Energy infrastructure in the USA is receiving increased investment due to greater demand, capacity bottlenecks and aging equipment.

However, the American Society of Civil Engineers (ASCE) estimates that there is still a significant funding gap of USD 177 bn to meet the nation’s energy infrastructure needs through 2025. The Trump administration’s efforts to deregulate the energy industry should be a key catalyst for future spending.

a-lot-is-invested-in-energy-and water

Capital investments in power generation (USD trn) 

Source: Bloomberg New Energy Finance, Credit Suisse 

Access to Water Is Not to Be Taken for Granted

Water is a further critical infrastructure resource. As an industry, agriculture remains the largest consumer (69%) of water, followed by industrial (19%) and municipal corporations (12%), according to the Food and Agriculture Organization of the United Nations.

The growing global population is exacerbating water sanitation and scarcity problems. According to the OECD, the number of people living in areas seriously affected by water supply shortages will likely rise to four billion by 2050. While water supply poses a serious challenge globally, it can also be seen as a huge investment opportunity.

Renewable Energies Could Greatly Benefit from the Trend

Utility companies, along with government organizations, will increasingly be called in to build sustainable water infrastructure, in our view. China, for instance, currently plans to invest ~USD 330 bn in water infrastructure. Meanwhile in the USA, upgrading aging and leaking pipe systems and meeting drinking water infrastructure needs will require at least USD 1 trn over the next 25 years, according to the ASCE.

Gas and electric utilities, renewables, power generation facilities, transmission and distribution pipelines and smart grids should be key beneficiaries of spending.