This month’s World Infrastructure Summit, organised by NCE and sister title Infrastructure Journal, will
bring together global leaders, decision makers and technical and financial specialists for the most comprehensive overview of the world’s biggest infrastructure projects. Here’s an idea of what to expect.
How can Europe overcome the numerous risks associated with building and operating offshore wind to leverage €100bn (£86bn) for projects by 2020?
From planning, to construction, to operation, the risks in delivery of offshore wind farms are legion.
In the Building Delivery Models, Planning and Funding European Offshore Wind
session at the World Infrastructure Summit in Barcelona later this month, expert speakers will describe the developmental, technical and financial challenges facing the sector.
Dexia head of Energy and Energy Global Project Finance Xavier Monteau estimates that between 30GW and 40GW of offshore wind capacity will be built between now and 2020 (although the UK alone is planning to install 25GW by then).
Monteau says that at a rough price of £3 per watt, this means that roughly £86bn of capital is needed by the sector in Europe.
“Up until now projects have largely been financed on balance sheet by utilities,” says Monteau.
“Less than a handful have been project financed, and their generating capacities have not been that large.
However, something will have to change as utilities will not be able to keep bearing the cost.”
Monteau adds that one main problem facing the sector is that he cannot see the cost of projects coming down significantly between now and 2020.
Mainstream Renewable Power global head of corporate affairs Adam Bruce disagrees.
“Many if not all the major turbine manufacturers are developing specific offshore turbines, rather than the marinising of onshore turbines that takes place now,” says Bruce.
“That process has the potential to strip a lot of costs out. Offshore wind’s three growth markets are Europe, China and the US. Europe is obviously developing an industrial approach, while China is doing phenomenal work in bringing down costs.
“Offshore wind’s growth markets are Europe, China and the US. Europe has an industrial approach, while China is bringing down costs”
“And there are lots of people from the US with expertise in the offshore oil & gas sector developing solutions that will help reduce risks and cut costs.”
Monteau and Bruce will be speaking along with Arup director Ian Gardner at the Building Delivery Models, Planning and Funding European Offshore Wind session at the World Infrastructure Summit in Barcelona, November 29 - December 1.
Governments around the world are starting to realise that investment in roads is a key driver of economic growth as well as the long-term development of a specific area after financing and construction.
As such, the way in which these building blocks of infrastructure are developed and financed over the coming years will be pivotal to a wider acceptance of infrastructure as a government priority.
This central issue of how best to deliver global road deals will feature as one of the panel discussion highlights
of the World Infrastructure Summit.
In recent times there has been a general swing away from real toll back towards the availability payment model that is now most prevalent in North America and Europe.
This trend is likely to continue and we can expect to see more emerging markets such as India, Russia and African nations adopt the availability model as they roll out their PPP programmes.
The availability model has become a far more attractive prospect - unaffected by economic conditions and seen more as counter-cyclical - if investors are able to get comfortable with political risk.
Demand risk deals are stable solid investments, but not so attractive during economic downturns when they are seen towards the riskier end of the market. Australian investment bank Macquarie selling off its toll road assets is a good example of this.
With availability deals governments can direct where investment is most needed and promote economic growth, rather than where there is already high demand. This allows governments to use infrastructure as a tool to promote economic growth and provide a real return to a specific area.
While there is a dwindling market in the UK for greenfield availability road deals, this very principle was highlighted in the country’s first ever National Infrastructure Plan and recent spending review.
Capital spending will boost regions such as the Mersey Gateway and there is little doubt over the nationwide economic benefits of rolling out the next stretch of high speed rail line.
Oil & Gas
Leading a session entitled Gas Security and Storage in Europe will be two of Europe’s heavyweight storage players represented by Jean-Marc Leroy, president for gas storage at GDF Suez subsidiary Storengy and Francisco de la Flor, from Enagas and Gas Infrastructure Europe.
In assessing the seasonal deficit facing Europe annually three key factors have been identified by the WIS panel as entry points for debate - with each of these covered substantially by Infrastructure Journal (IJ) this year. Government policy directives, issues of third party access to facilities and political drivers for further development will provide the framework for a broader discussion.
There is an overwhelming consensus that an increasing gas storage deficit needs to be addressed, especially in countries like the UK and Ireland where existing capacity is pitifully low compared to its neighbours. With the economy and state infrastructure due to be increasingly reliant on gas over the coming decades a guaranteed safety net is seen as a political necessity by market watchers.
With third party access (TPA) such a bone of contention for Centrica as it seeks a way forward for the Baird, Bains and Caythorpe facilities in the UK, the WIS panel will look at whether legislation that, in effect, reduces sponsors control over the use of their project really encourages such developments.
National government policy inevitably dictates the breadth and scale of gas storage projects, and where Centrica may feel it lacks the backing of the UK’s government in a time of tight fiscal budgets it is clear that sponsors in other European countries are taking the initiative.
Earlier this year Enagas, along with JV partners Eurogas and ACS Partners, agreed to the US$1.9bn (£1.17bn) Castor Gas Storage facility 18km offshore Barcelona, and both Holland and Germany are seeing major projects push ahead in Bergermeer and the Continental Gas Storage project.
With a host of other projects trying to get off the ground in places like Hungary and Romania among others this is a key moment for discussion on how, why and where a storage revolution could and should take place - and how both sponsors and investors can navigate the complex policy rabbit-holes set up by Europe’s political imperatives.
“There are other ways of procuring infrastructure and the UK once again is leading the way - using the increasingly popular Local Asset Backed Vehicles”
In addition to gas security, two leading officials will analyse investment opportunities in the worlds great hydrocarbon frontier, Africa. Ernest Rubondo, commissioner for petroleum exploration and production at Uganda’s Ministry of Energy and Minerals will take part in a panel alongside Mouhamadou Niang from theAfrica Development Bank (ADB).
Keen readers of IJ’s energy coverage over the last year will not have failed to notice the added depth we’ve given to the region. With a range of African players looking to join Uganda, Nigeria and Ghana as major energy exporters this discussion, entitled Oil and Gas: The New Frontier Opportunities and Challenges in Africa, promises to delve into the key factors in the emerging African energy sector
Over the past 20 years PPP has become the default procurement method for the vast majority of authorities in Western Europe looking to procure mid to large size social infrastructure projects.
However, since the onset of the global financial crisis many governments - in particular the UK - seem to have lost sight of the considerable benefits they bring and are keen to find a new model.
This central issue of whether the PPP model still works in the current climate will feature as one of the panel discussion highlights of the summit.
Without question the PPP model has improved procurement, providing better risk analysis, clearer risk allocation, accountability and greater certainty in terms both of cost and delivery.
Central government can always borrow more cheaply but to paraphrase a previous IJ guest editor, while it may cost more to change a light bulb on a PPP project at least it is likely to be changed.
But the ire aimed at the model by critics has spread into mainstream political thought with figures thrown about without any meaningful attempt to make a like for like comparison.
There are certainly other ways of procuring infrastructure and the UK once again is leading the way - using the increasingly popular Local Asset BackedVehicles (LABV) and variations of the tax increment financing that has its origins in the US.
These undoubtedly have a place in what is likely to be a constrained spending environment - however when you boil both models down they are essentially development finance and depend primarily on an
uplift rather than an income stream to guarantee a decent return.
Combined with the fact that such models depend on strong leadership at a local level, it’s difficult to see a government becoming comfortable with the risk profile should they be implemented wholesale.
For better or worse a PPP tends to avoid these problems as both sponsors and lenders are far more likely to commit to a 25-year relationship when the sovereign guarantee is explicit.
In the current constrained economic climate, it’s understandable that governments are re-assessing ways of procurement to eke out every last drop of value. It’s right that PPP is re-assessed - but don’t let’s throw the baby out with the bathwater.
Selected WIS Speakers
Table Rock Capital
Hochtief PPP Solutions
AFRICA & MIDDLE EAST
JP Morgan Asset Management - Asian Infrastructure Group
SBI Capital Markets