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Infrastructure

Brave new world

by Ross Israel

Seven sector-specific technology developments will disrupt the infrastructure asset class, according to a new paper from the global infrastructure team at QIC, a global diversified alternatives investment firm. In the paper titled Technology disruptions affecting infrastructure (Part 1), the seven sector-specific themes identified for businesses and investors to watch and act on are:

Technology to store and convert energy. Households, businesses and industries that have long been dependent energy consumers reliant on supply security from capital-intensive electricity networks and carbon fuelled generators are progressing toward an era when they can become energy storers and even energy providers. This transition is likely to undermine the traditional centralized generation model, accelerate the development of renewable energy and relieve networks from inefficient “peak”-based investments.

Solar energy’s time has arrived. Solar energy is poised to become part of the energy mainstream thanks to recent technological advances and cost reductions exemplified by solar photovoltaic prices that have fallen 99 percent in 40 years.

Smart grids. These are electricity networks enabling two-way flows of electricity, real-time information and market feedback, the incorporation of renewable energy sources, and management of demand. Smart grids have the potential to transform the energy value chain in conjunction with solar technologies and battery storage.

Driverless vehicles are coming. The potential benefits for safety, mobility, decongestion, land use and the environment offered by driverless cars is significant. While universal adoption is still some distance in the future, the deployment of Level 4 autonomous vehicles will change the way roads, bridges and parking systems are designed.

The rise of ride hailing and car sharing. The confluence of technology in the form of smart phones, GPS, data analytics, mobile payments and an absence of regulations has led to the creation of ride hailing and car sharing services. Consumers have embraced these services with enthusiasm with Uber, Lyft and other services. These rapidly emerging services, in tandem with autonomous vehicles, may result in fewer requirements for city-center parking spaces as well as public transport and require rethinking infrastructure planning.

Membrane technologies, desalination and wastewater treatment. Some 2.4 billion people live less than 65 miles from the sea. Large-scale, affordable application of reverse-osmosis desalination and membrane bioreactors in the wastewater treatment space can make safe water available to at-risk communities.

Data centers and cloud computing. Upgrading computer systems requires a large financial and organizational commitment. Data centers and cloud computing make it possible to access computing resources on an as-needed basis without large capital expenditure.

QIC’s study confirms the cycles of technological advancement are getting shorter and the speed of technological change is increasing. This will have distorting implications for individual infrastructure assets as well as the asset class as a whole, affecting risk and returns.

Given high barriers to entry, infrastructure investors and operators can naturally become complacent. However, it would be dangerous to overlook game-changing technological developments with the potential to upend current business models and sector value chains.

 

Ross Israel is head of global infrastructure at QIC.

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