Two weeks into May and we are once again amply reminded why the energy transition continues to be the most exciting sector in infrastructure investing today.
We are referring, of course, to the two mega-deals recently announced by Brookfield Asset Management/Brookfield Renewable and Global Infrastructure Partners/CPP Investments. The former, a $10 billion-plus agreement with tech giant Microsoft to contract 10.5GW, or 30 percent, of Brookfield’s renewable capacity growth, from 2026 to 2030. The latter, a $6.2 billion take-private of US utility group Allete, heavily focused on driving its decarbonisation plans.
What do these two deals have in common? Well, they’re both big deals, obviously. But aside from that, they both place a premium on capital security, and the certainty of delivery that comes with it.
“What we are seeing is the industry is placing more value in certainty of execution… We’re moving away from a market primarily driven by price to one increasingly valuing certainty of delivery,” Stephen Gallagher, chief executive of Brookfield Renewable’s US business, told us following the Microsoft deal.
And here’s James Bryce, CPP’s global head of infrastructure, walking us through the rationale for the Allete transaction: “One of the biggest benefits is the capital security. Public companies can raise capital over time. In a private context, between us and GIP, we can provide that capital security on day one.”
On the face of it, these may seem to be slightly different things, but they are two sides of the same coin, really.
The “certainty of execution” Microsoft craves and Brookfield is poised to deliver depends not only on its extensive track record as a renewables developer and operator, but also on its equally extensive fundraising credentials.
As we reported, some of the funds said to be involved in this deal include Brookfield Infrastructure Fund IV, Brookfield Global Transition Fund I, Brookfield Infrastructure Fund V and Brookfield Global Transition Fund II. The first three vehicles – all closed – have raised a combined $63 billion, with GTF II set to add around $20 billion to that pile. That kind of firepower is very much needed when you’ve pledged to deliver north of 10GW.
Capital security has long been private capital’s trump card in the energy transition, even if it’s not always been easy to validate it. Case in point: Brookfield’s thwarted A$18.7 billion ($12.4 billion; €11.4 billion) take-private bid for Australian electricity generator and retailer Origin Energy. Like Allete, the plan for Origin also leaned heavily on private capital’s ability to accelerate the Australian utility’s decarbonisation plans. Unlike Allete, shareholders, led by AustralianSuper, were not convinced that was the best option.
And yet it’s always been obvious that capital security was more than a neat marketing slogan. Private infrastructure investors can, in fact, mobilise and deploy vast amounts of capital, with a long-term mindset that is simply not there in the public markets. That is crucial to financing the energy transition, which, according to consultancy Wood Mackenzie, could require a mind-boggling $75 trillion by 2050.
The near-unimaginable scale of the opportunity makes the $1 trillion in funds raised in the last five years by the top 100 infrastructure GPs look like what it is: a drop in the energy transition ocean. That, in turn, should underline just how much room for growth there is in the infrastructure asset class – which, as we’ve written several times before, is at the beating heart of the energy transition.
As Brookfield managing director Simon Maine said during the first day of our Impact Investor Global Summit, held in London this week: “Within the infrastructure space, we’re seeing a growing allocation into what would be termed as transition alongside what was traditional infrastructure. We’re not seeing cannibalisation; we’re seeing growth.”
Maia, the Roman goddess of growth, would approve – after all, that’s what the month of May, named after her, is all about.