Investing in trains and railways
Great Britain’s railways consist of 2,566 stations, 15,847km of route and employ around 240,000...
During his recent two-week visit to North America, Andrew Greenup, deputy head of First State Global Listed Infrastructure, met with a number of management teams across a variety of infrastructure sectors. Here’s what his ‘boots-on-the-ground’ research uncovered why West Texas and Kansas are ‘the Saudi Arabia of wind’.
“In the 11 years we have covered global listed infrastructure, we have neither seen the North American economy stronger than it is today, nor its infrastructure management teams more optimistic. While infrastructure demand is related primarily to the essential services it provides, GDP sensitive infrastructure sectors are enjoying a helpful tailwind.
“The collapse of the oil price in 2014-15 left many energy infrastructure companies with lower-than-forecast earnings, over-extended balance sheets, distribution payments that exceeded cashflows, and counterparties with impaired credit worthiness. This was followed by a gruelling three-year process of distribution cuts, asset sales and equity raisings.
“However, after three years of pain, we saw clear signs that the energy infrastructure sector has healed itself and is ready to expand again, this time using more sustainable corporate structures. The US and Canada have global competitive advantages in energy production and infrastructure. These stem from ongoing improvements in drilling techniques, lower production costs, generally stable geopolitical environments and the ability to quickly harness large pools of human and financial capital. This is in stark contrast to poorly run government-owned competitors, which suffer rising production costs, limited investment and increasingly unstable political environments.
“Despite efforts by the US federal government to roll back environmental rules, and their attempts to support uneconomic coal and nuclear power plants, we observe no change in the structural shift towards renewable energy across North America.
“Xcel Energy’s CEO was quoted in June as saying “It is not a matter of if we are going to retire our coal fleet in this nation, it’s just a matter of when”. While renewables subsidies are being phased out, wind and solar remain utilities’ preferred option for new-build power generation. To quote one CFO I spoke with, “West Texas and Kansas are the Saudi Arabia of wind”. Battery storage, electric vehicle charging stations and energy efficiency programs remain very well supported in many states.”
“It seemed wherever I went on this trip that politics was impacting listed infrastructure companies. Crass conservative populism in Ontario, Kansas, Missouri and South Carolina has seen politicians targeting local utilities for short term political gain.
“But it’s not all doom and gloom. We applaud Missouri Governor Greitens, who on his last day in office, signed a utility bill into law, which will greatly improve returns and earnings for local utility and portfolio holding Evergy Inc. Governor Brown in California is working hard with the legislature to fix the inverse condemnation liabilities facing that state’s utilities. We have also been impressed at how quickly New Jersey’s Governor Murphy has developed win-win, carbon-friendly energy policies.
“At the end of the day, the North American infrastructure sector has world leading assets, managed by world leading companies. The greening of the grid, healing of the energy infrastructure sector and a booming economy are all supportive of the sector’s investment fundamentals.”