Greenfield’s essential transition role

The energy transition  constitutes  an unprecedented  overhaul of where  we get our energy from  and opens up a whole  host of opportunities for infrastructure investors. Indeed, given that demand for clean energy is rising, renewable infrastructure will need to expand substantially to keep pace. Ready-to-build greenfield opportunities will therefore be an essential part of the future mix and are attracting more and more attention from investors. The challenge, then, lies in identifying which projects will ultimately provide reliable investment returns.

How do you define greenfield infrastructure assets, and what makes these appealing to investors?

There are three distinct stages to an infrastructure asset over its life. The first  is  the  development  stage, which  covers everything  from prospecting the land to designing the asset, obtaining permits and so on. This is very high-risk, and a lot of projects ultimately don’t see the light of day, particularly in the renewables space. But it can potentially offer high returns, and it doesn’t take too much capital.

The second stage is what we call the greenfield window, which is everything   between   being   ready-to-build    and   achieving   notice to proceed. This means you have all the permits,  so the project  is almost certain to be built, but you may still need someone to do the construction, to lock in the revenue and to finance it.

Arranging all this may take six months or longer. Following notice to proceed, construction  takes place and then the plant needs to be derisked during the first few months of operation. This entire stage – which  is where we focus – has high capital requirements, high complexity and low-to-medium  risk. However, it is a relatively well- defined time period, so we know how long we will have the asset, and we can have confidence regarding what the outcome will be if the risks are managed well.

The third stage is brownfield, where an asset is fully operational, has a track record, and most aspects have been de-risked.  It’s a stage marked by low complexity, low risk and high capital requirements.

We focus on that middle, greenfield stage. Different investors have different preferences in terms of risk/return profile, but we feel greenfield offers us a competitive return compared to brownfield assets, with the benefit of a defined investment timeframe. There is a little more risk involved than with brownfield, but we can manage this.

Greenfield  assets  also  provide  real  additionality.  For  instance,  if you are concerned  about  moving  the  dial  on climate  change and decarbonising the energy system, it is only by building a new asset that you can achieve that change. If you just buy brownfield assets, you are not achieving that.

Does the  appeal  of investing directly  in renewables  risk enabler investments – such as interconnectors and battery storage  – getting overlooked? What opportunities  can be found here?

It’s true that wind and solar are the most mature and best-known energy transition assets, but there are lots of other related technologies to consider too, including these so-called enablers. These are present across many different geographies, but not all markets will be at the same stage when it comes to developing these technologies. 

For example, Australia has a long and skinny energy network mostly extending up the east coast, with relatively high renewable energy penetration. This means there is considerable need for batteries, and the Australian market has been investing in these solutions for some time.

After all, storage is crucial to keeping the lights on consistently when you’re relying on renewable energy, given that it’s not always windy or sunny. The benefits go deeper, too, as storage solutions such as batteries  can  provide grid  stabilisation  services that  help  to  instil system strength and grid safety. In Australia, market-based contracts are increasingly  being  offered  for  such  grid  stabilisation  services. By contrast,  in the UK, which  is not quite  as advanced, there are frequency markets that you can be paid for. And crucially, batteries’ revenue stack will continue to grow over time too.

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