Lennart Blecher: A Look Back at the Evolution of Infrastructure Investing
Lennart Blecher, Head of Real Assets at EQT Partners, reflects on the evolution of infrastructure investing and the role they can play in addressing the climate crisis.
At the 1992 Earth Summit in Rio de Janeiro, political leaders from across the world gathered for the first time to take coordinated action on climate change. The summit established a landmark international treaty to limit greenhouse gas emissions and is seen by many as the catalyst for our transition away from non-renewable energy.
In truth, the transition began decades before. The anti-nuclear movement, borne of the U.S. atomic bombings of Japan in 1945, was not just campaigning for nuclear disarmament by the 1960s. Opposition to nuclear power grew throughout that decade and had spilled out into large-scale protests by the early 1970s. The Three Mile Island nuclear disaster of 1979 and the Chernobyl meltdown of 1986 marked the end of nuclear power for many countries.
These tragedies did not trigger widespread opposition to coal and gas-fired power plants but the signing of the Kyoto Protocol in 1997 did. By that point it was almost universally accepted that emissions were causing global warming and had to be cut; that there was no turning back. And so the renewables transition gathered pace — slowly at first, given that it would require the largest commercial investment since the dawn of industrialization.
At the turn of the millennium, solar photovoltaic, onshore wind and offshore wind infrastructure were hideously expensive to build, extremely unreliable, and, on the whole, commercially unviable. But we humans of the 21st century, for all our faults, have incredible talent when it comes to technology and engineering. Between 2010 and 2022, the total installed costs of solar photovoltaic, onshore wind and offshore wind fell respectively by 83 percent, 42 percent, and 34 percent, according to a report by the International Renewable Energy Agency.
The rapid decline in the cost of building solar and wind farms caught the attention of the investor community and helped to turn on the money taps. Between 2010 and 2022, investment in the energy transition globally shot up from $212bn to $1.5tn, according to a report by BloombergNEF. Last year, energy transition investments stood at nearly $1.8tn, the same report says.
I’ve been in the energy infrastructure business since the mid-80s. I’d guess that the term “transition infrastructure” became a buzzword in investor spheres around five years ago. Investor interest in the transition has taken off big time since then, which has surely been driven in part by graphic illustration: the terrible floods, storms, extreme heat, and other natural disasters we have seen in recent years.
“Transition infrastructure, and indeed energy infrastructure generally, are not buzzwords for us at EQT.”
Transition infrastructure, and indeed energy infrastructure generally, are not buzzwords for us at EQT. The firm’s investment strategy was inspired by the responsible ownership philosophy of the Wallenbergs, a prominent Swedish family that has invested in industrial projects for more than a century and helped to form EQT in 1994. EQT’s infrastructure arm began operating in 2008 and made its first investment that year. We began investing in transition infrastructure specifically about a decade ago, and have invested more than €12bn in the space. We are the fifth-largest infrastructure fund manager in the world and the first private markets firm to set emissions reduction goals through the Science Based Targets initiative.
Of course, transition infrastructure isn’t just about building solar and wind farms. These sites are often in faraway places, meaning that new transmission capability has to be built and old hardware upgraded. The cyclical nature of renewable energy generation means that energy storage — using batteries, among other things — becomes critical to grid infrastructure.
Then there is the decarbonization of transport, and we’re not just talking about electric cars. Lorries and school buses are being electrified, among other modes of transport. Electric and hydrogen-powered ferries are replacing fossil fuel-powered vessels. The electrification of transport must be supported by widely available fast charging points.
We also need to consider resource efficiency and the so-called circular economy. This might involve recycling rechargeable batteries to extract valuable lithium. It might involve burning waste in a considerate manner to create electricity and heat and extract reusable metals while preventing greenhouse gases from entering the atmosphere. Keeping waste out of landfills in this manner is hugely beneficial because landfill sites create a lot of harmful methane, which is one of the more potent greenhouse gases.
Infrastructure investments of all sorts have long been seen as defensive and safe, given their physical characteristics and social utility. Transition infrastructure brings these benefits but the investment picture is somewhat more exciting: quite simply, there isn’t enough capital to satisfy the expected demand for transition infrastructure over the next 20-25 years.
Without a significant injection of capital into transition infrastructure, I doubt we will be able to limit global warming to our 1.5°C target by the end of the century. We, therefore, have a timely opportunity to invest in physical assets that will be crucial to our fight against climate change.
Lennart Blecher joined EQT Partners in April 2007 and is Head of Real Assets, Deputy Managing Partner and Chairperson of EQT Exeter Lennart holds a Master of Law degree from the University of Lund, Sweden and has studied at the University of Dallas, Texas - Academy of US & International Law. Prior to joining EQT Partners, Lennart was from 2004 to 2007 Managing Director and Senior Banker in the investment bank of Unicredit/HypoVereinsbank in Munich. From 2002 to 2004, Lennart was Managing Director at GE Commercial Finance in London. Between 1987 until 2002, he held various position in the ABB Group, in Zurich such as General Counsel for the ABB Financial Services Group, President and Business Area Manager for ABB Structured Finance and ABB Equity Ventures. Lennart has held various non executive positions in European banks and reinsurance companies. Lennart is a member of the EQT Executive Committee and is a Chairperson of the Infrastructure Partners Investment Committee.
ThinQ is the must-bookmark publication for the thinking investor.
