The Clean Energy Transition Is Creating Opportunities to Invest in Infrastructure
3 min
A year after the Inflation Reduction Act (IRA) was signed into law it’s a good reminder that there’s opportunity in infrastructure investments in the U.S., particularly green technology or those that profit from the transition from fossil fuels to renewable-energy sources.
“This is a really good time to be investing in the sector,” says Michael McGown, head of North American infrastructure private markets at Mercer Alternatives. “There is a real need to transition away from carbon, and the fact that the U.S. government has gotten behind this makes it a win.”
Yes, there is some political pushback against the law—and there are still those who want to rely on fossil fuels and other traditional forms of energy production. But many experts point to the IRA’s transformative potential, and its impact on energy-transition spending in particular, as a good opportunity for savvy investors.
“I don’t think in my career I’ve ever seen a law have a greater impact on economic development in this country,” Gregory Wetstone, chief executive officer of the American Council on Renewable Energy, a clean energy lobbying group, said in July.
Wall Street agrees. Calling themselves “positive” on greentech opportunities, analysts at UBS wrote in July that they forecast US$40 trillion to US$50 trillion of global energy-transition investments in the years 2021–30, in support of net-zero efforts.
“We also expect to see technological developments and a broad-based move to global electrified vehicles (i.e., battery-electric vehicles and plug-in hybrid electric vehicles),” the UBS team wrote in a note. “Such sales may account for a 30% share of the global market by 2025 and a 60%–70% share by 2030, in our view.”
Within the category of energy transition, there are some infrastructure themes that may appeal more than others, either because of their promise of innovation or potential monetary returns.
Mercer’s McGowan points to investments in carbon reduction and abatement, those dedicated to decommissioning old power plants to replace them with renewable or hybrid technologies, and investing in ammonia, which is often used to transport clean hydrogen.
More cutting-edge technologies are likely to offer investors better total returns, says Steven Novakovic, director of curriculum for the Chartered Alternative Investment Analyst Association. In contrast, the more mature, stable, user-fee oriented investments are less return-oriented, but better bets for income investors.
“Generating, moving, or storing energy tends to be income-oriented,” Novakovic says.
Importantly, even though energy infrastructure may be capital-intensive, higher and rising interest rates aren’t likely to be a negative for the sector.
“High barriers to entry and the monopolistic positioning of many infrastructure assets tend to make them less sensitive to the economic cycle,” the UBS analysts said. “In addition, they can help stabilise income generation in a multi-asset class portfolio, particularly when accounting for long-term inflation. Since 2003, infrastructure has typically performed best when global inflation has been high (based on Cambridge Associates Infrastructure Index data).”
With interest rates higher across the board, some investors may simply choose to stick with safer fixed-income assets, Novakovic says. But, he says, “Ultimately infrastructure still has a diversifying effect for portfolios.”
Where to Invest
What are the best ways for investors to access the sector? Qualified investors, or those with at least a few million to spend, can put money directly into private-market plays, such as private-equity funds or even venture-capital funds, which are likely to pay the most in total returns.
There are, of course, typical concerns with private-market strategies, the UBS team said: “illiquidity, longer lockup periods, leverage, concentration risks, and limited control and transparency of underlying holdings. While risks can’t be fully eliminated, it is possible to mitigate them through strong due diligence and strict manager selection.”
They add a shout-out for global industrial stocks, writing that the “sector’s composition has become increasingly diversified and no longer behaves like a traditional cyclical play, in our view.”
In a July note to clients, J.P. Morgan Private Bank analysts wrote about the opportunities in the semiconductor industry driven by the IRA in addition to last year’s CHIPS and Science Act. Semiconductors, for instance, can be used in the process of decarbonisation, particularly for powering “smart” electric grids and other forms of infrastructure
“The semiconductor industry is poised for growth as chips penetrate the clean energy value chain: in photovoltaic solar cells, wind turbines, EVs, batteries, charging stations, and power grids,” the note said.
CHIPS alone allocates more than US$50 billion to subsidise domestic manufacturing of advanced semiconductors. “These government incentives, combined with the wide variety of uses for semiconductors, have pushed companies to ramp up supply,” J.P. Morgan said.
For investors who want to access a basket of energy-transition stocks, several exchange-traded funds may fit the bill. The Global X Lithium & Battery Tech ETF (ticker: LIT) “invests in the full lithium cycle, from mining and refining the metal, through battery production,” according to fund documents, while the Sprott Energy Transition Materials ETF (SETM) says it, “provides pure-play access to a range of critical minerals necessary for the global clean-energy transition.”
And for those who prefer bonds, or just want a more tax-efficient strategy, many municipalities are also issuing debt to fund cleaner energy. In June, the California Community Choice Financing Authority sold nearly US$1 billion in bonds to finance the acquisition of clean energy—including geothermal and solar-plus-storage—by the Clean Power Alliance of Southern California. The projects could affect as many as 3 million residents.
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The federal budget has rattled property investors. But the biggest mistake isn’t the tax changes, it’s the conclusion many are drawing from them.
2 min
The recent budget has forced a reckoning for property investors.
Negative gearing now restricted to new residential builds, the CGT discount gone and on paper, the numbers look different.
And many investors are responding by pivoting toward yield, prioritising cash flow over capital growth in a way that property strategists say misses the point entirely.
“The debate has shifted to yield versus growth as if they are opposing forces,” says Abdullah Nouh, founder of Melbourne-based buyers’ agency Mecca Property Group. “But that framing is itself the mistake.”
Nouh, who works with high-net-worth families and investors on long-term acquisition strategy, argues that capital growth remains the primary driver of genuine wealth creation and that the post-budget environment has made quality assets more important, not less.
The numbers make his case plainly. An additional $500 per week in rental income is welcome. A prestige asset appreciating by $1 million over a market cycle is transformative.
These are not equivalent outcomes, and portfolios built around yield at the expense of location and land value tend to generate income while wealth stands largely still.
The more nuanced shift Nouh is seeing among sophisticated investors is a move toward assets where both outcomes can be engineered simultaneously – established homes on substantial land in quality locations, where the existing dwelling can be repositioned, rental returns improved, and the underlying land value compounds independent of what sits on it.
For investors with existing equity, commercial property is also entering the conversation in a more serious way.
Prestige industrial assets, medical centres and long-leased essential retail offer income profiles that residential property in most capital city markets cannot currently match: longer lease terms, tenants covering outgoings, and greater predictability than the residential tenancy cycle.
“The investors who build lasting wealth are rarely the ones who chased yield or growth exclusively,” says Nouh.
“They are the ones who built a strategy they could sustain – one that generated enough income to hold quality assets through multiple cycles while those assets compounded in value.”
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