Energy investors shift focus to demand-side assets

Infrastructure investors are increasingly moving beyond traditional renewable energy generation projects towards assets linked to electrification, energy efficiency and digitalisation, according to speakers at Longview Networks’ Insurance Investment Forum.

During a discussion focused on real assets and infrastructure debt, speakers argued that changing power markets, geopolitical instability and the growth of AI-driven digital infrastructure are reshaping where investors see the strongest long-term opportunities.

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Sven Degens, partner and business development director at Solas Capital, said the investment focus within energy infrastructure has shifted significantly in recent years.

Historically, infrastructure investors concentrated on large-scale renewable generation projects such as wind and solar farms, often supported by long-term feed-in tariffs and relatively predictable cashflows.

But Degens argued that the economics of renewable generation have become more volatile as renewable penetration has increased across Europe. “We’ve seen what’s commonly called the ‘cannibalisation’ of renewables,” he said. “The more renewable power we add, the lower the power price will be.”

As a result, Solas Capital has focused instead on what Degens described as the demand side of the energy transition, including batteries, heat pumps, charging infrastructure and energy efficiency upgrades for buildings.

“We need to focus on how we consume power in a smarter way and how we can better match demand to supply,” he said.

Degens said falling battery prices and increasing grid pressures were accelerating the attractiveness of these assets. Batteries, for example, can store electricity during periods of negative power prices before selling it back into the market during periods of peak demand.

“Battery prices have fallen by 90% in the last five years,” he said. “That is clearly helping.”

The shift reflects broader changes across infrastructure markets, according to Radim Radkovsky, senior credit analyst at Pension Insurance Corporation. He said infrastructure had evolved far beyond its traditional focus on regulated utilities, transport assets and project finance.

“Infrastructure is not a boring asset class,” he said. “It’s evolving, with tailwinds driving the development.”

He identified four major themes to investment opportunities: decarbonisation, digitalisation, demographic change and deconsolidation, as companies increasingly carve out infrastructure assets from their balance sheets.

Digital infrastructure in particular is becoming an increasingly important part of the market, with data centres attracting significant investor attention as AI adoption and data consumption accelerate.

“The demand is enormous,” Radkovsky said. “We all consume more data, we want to be more connected.”

While Pension Insurance Corporation has not yet invested in data centres directly, Radkovsky said the sector remained attractive because of strong tenant demand and long-term contractual structures. Investors and developers have “the upper hand”.

However, he also warned that there is increasingly intense competition for assets. “Unfortunately, it does not fulfil our investment criteria in terms of the rate of return on risk,” he said, noting that PIC is constrained by the matching-adjustment regime.

Geopolitical developments are also influencing infrastructure markets. The ongoing conflict in Iran has increased investors’ focus on energy security, resilience and supply chains, according to both speakers.

Radkovsky said the situation highlighted the need to strengthen infrastructure systems after years of prioritising efficiency. “We need to make our system more stable and more resilient,” he said.

Degens argued that the higher levels of volatility in energy markets were creating new opportunities in battery storage and alternative fuels. He pointed to growing demand for bio-LNG and electrification projects in Germany, partly driven by concerns over imported fossil fuels and energy independence.

“This whole crisis has accelerated electrification a lot and will keep doing so,” he said. “Alternative fuels are becoming really interesting.”

The speakers also argued that infrastructure continues to offer attractive defensive characteristics for institutional investors, particularly during periods of inflation and economic uncertainty.

Radkovsky said many infrastructure assets had demonstrated resilience during previous crises, including the Global Financial Crisis and the Covid-19 pandemic. “Infrastructure proved itself as a resilient asset class with inflation-linked revenues,” he said.

However, he cautioned that not all infrastructure assets provide the same degree of inflation protection, particularly in heavily regulated sectors where governments may limit the extent to which operators can pass rising costs onto consumers.

Both speakers remained positive on long-term opportunities across infrastructure debt and real assets, particularly in areas linked to electrification, digitalisation and the energy transition.

Radkovsky said digital infrastructure, batteries and grid connections were likely to attract significant capital over the coming decade, while Degens highlighted the growing need for the “electrification of everything… and the decarbonisation of heat for buildings”.

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