The evolution of how we consume and generate energy is well underway. In the coming decades, it is expected to touch every sector and impact our way of life. This energy evolution is expected to cost trillions of dollars and to require the expansion of our infrastructure in order to support our global needs.

A recent in-depth paper from TD Asset Management Inc. called Private Infrastructure: The Energy Transition Opportunity argues that the energy transition will likely be the most important macro-economic trend in the field of infrastructure over the coming years - and the single largest investment opportunity in the private infrastructure market. According to the paper, exposure to the growth driven by the energy transition will represent the best opportunity to continue outperforming the broader private infrastructure market.

The paper looks at the government policies and technology advances that have been driving the growth of renewables. It also examines the mismatch between the amount of capital aggregated by the largest investors and the relatively smaller size of opportunities in renewables and power infrastructure.

Government Policies Driving Change

Decarbonizing our economies has become a key policy initiative for governments around the world. Policies such as carbon taxes and limiting fossil fuels in transportation are expected to continue creating investment opportunities in renewable energy and power infrastructure.

Driving this investment further is the fact that the majority of Green House Gas emissions are produced by energy consumption, much of which is expected to be decarbonized through the use of renewable energy, energy efficiency technologies, carbon capture technologies and transitioning away from fossil fuels.

Technology Advances

While climate change is currently dominating headlines, the technology advances over the past decade have caused a tipping point in the cost of renewable energy, driving significant investment in the space.

However, the transition to renewable energy is only part of the story. Significant investment opportunities are expected to keep emerging thanks to trends such as electrical grids continuing to evolve, transportation moving away from combustion engines, agriculture seeking low-carbon alternatives, and building materials advancing.

Mismatch Between Capital and Deal Sizes

Renewable energy and power infrastructure investments tend to be smaller than the average investment in the infrastructure market. Renewables and power dominate smaller and mid-market transactions.

As a result, there is currently a mismatch between the supply of capital which has been aggregated by the largest infrastructure investors seeking sizeable deals and the majority of investments in renewables and power infrastructure.

For more details, check out the full paper.