H1 2024 sees renewables and digital as a key focus amidst global economic and political uncertainty

Key takeaways 

• US continues to dominate renewable energy investments.  
• Limited access to raw materials, a tight labour market and high inflation plague the wind sector, whilst solar continues its boom. 
• Greenfield deal flow propped up transactions in 2023 but has not had the same effect in the first half of 2024. 
• Globally grid infrastructure deal flow has remained constant but needs to improve to meet the rising demands of industry and consumers. 
• In the first half of 2024, 72% of digital infrastructure transactions have been in data centres, exceeding 2019-2023 averages.  
• Airports have seen an increase in passenger numbers, propelling them to the top of transport deals in the first half of 2024.  

The impact of electoral uncertainty in markets including the US and France, coupled with ongoing conflicts in Europe and the Middle East, and delayed higher interest rate cuts, have contributed to a slowdown in deal-making in the first half of 2024. 

Despite rate cuts from central banks, interest rates are expected to remain high for an extended period. This situation, although somewhat welcomed by debt investors, continues to squeeze returns, placing a greater emphasis on value creation. Additionally, the significant valuation gap between buyers and sellers’ expectations remains a challenge, hindering deal activity. 

In the sections that follow, we look at deals through the first half of 2024 across key infrastructure sectors including renewables, energy and grid infrastructure, telecoms and transport. 

Renewables 

Transactions through the first half of 2024 showed a significant weighting to US deals for renewables, which surpassed the combined value in deal flow of the next four countries as shown in Figure 1. This mimics a long-established trend of deal activity, where the gap between the US and other countries began to widen from 2019 onwards. 

However, performance across renewables sub-sectors is varied. In the first half of 2024, wind power deal flow reached its lowest point in a decade, with only US$21.5 billion closed, compared the US$42 billion at the same point in 2023. This slow down can be partially attributed to macroeconomic headwinds faced by the wind sector, including higher labour costs, high inflation and interest rates, limited access to raw materials, challenging permitting processes, delays in grid connections, and the slow pace of reforms to address these challenges. 

Solar tells a different story, continuing the positive momentum from 2023 by recording US$38 billion worth of deal value in the first half of 2024 alone, similar to 2022 and 2023. The contrast with poor performance in wind deals is partially due to the lower upfront costs, faster development timelines and ease of obtain government incentives and tax credits.  

The story deepens, when looking at renewable’s greenfield activity, with poor performance in H1 2024 compared to 2023. In fact, H1 2024 ranks as the second lowest performing first half of a year since 2019, indicating a cooling of the market for new infrastructure developments and a potential new baseline for deal activity.  

While renewable energy manufacturers and developers have found it relatively inexpensive to produce and import these technologies so far, the reorientation of supply chains and onshoring policies enacted by the US and EU are expected to increase long-term renewable energy development costs The lack of manufacturing capability in the US and Europe also poses challenges to this reorientation. Without further clarity and timeframes for domestic production, investor uncertainty will persist. 

Energy and grids 

With power demand and electricity consumption set to double across Europe and the US by 2050, significant investment is needed in these sectors. Utilities and traditional generation continue to face substantial headwinds from planning challenges and grid constraints to the impact of regional conflicts on supply chains and markets. 

The risks of conflict escalation in the Ukraine and Middle East  raise questions around the resilience of European power supplies, making investors uneasy as they are forced to second guess what interventions will be made which impacts their ability to calculate risks. The implementation of energy price caps in the UK and EU are one example, having been recently revised up due to the renewed Russian war effort, driving security concerns around gas storage and transshipment facilities. Continued aggression in the Red Sea also puts pressure on shipping routes creating strains on global gas prices. 

Governments and the regimes they implement therefore play a crucial role in shaping the future of our energy systems and the investment environment that supports the system’s evolution. Current planning regimes and grid infrastructure are outdated, and struggle to support the shift to renewable energy sources. Without substantial investment in modernising the grid and expanding renewable capacity – as well as in battery storage to manage fluctuations – we risk falling short of our climate goals. Governments must therefore lead the charge by creating policies that encourage investment, while investors need to commit the necessary capital to ensure a reliable and sustainable energy future. 

Battery energy storage systems (BESS) are one crucial element of the transition. The sub-sector is experiencing a surge in growth and investor interest, evidenced by strong performance in investments over recent years and tumbling costs of production.  

Q1 2024 alone marked the best first quarter for BESS in a decade, with US$3 billion in closed deals, and ranks as the fourth-best quarter overall in the last ten years. This success is driven by the critical role battery storage plays in supporting renewable energy, as it addresses intermittency issues and enhances grid stability, making it a key focus for both governments and investors committed to the energy transition. 

Nonetheless, given the significant challenges and capital expenditure required to modernise grid infrastructure (such as energy generation, transmission and distribution), deal flow has been lacking. The US continues to dominate investment in gas and electricity transmission and distribution infrastructure by a considerable margin, at over US$26 billion more than its nearest competitor, Mexico, in H1 2024 alone1. 

This can be partially attributed to US incentives such as the Inflation Reduction Act (IRA) which was introduced with the aim of providing an investment boost to grid infrastructure, with US$65 billion available through tax incentives and grants ready to be deployed. However, the IRA has had more limited success in unlocking private sector infrastructure investment in any grid-related sub-sectors, highlighting the larger issue of planning and permitting which must be overcome to attract higher levels of investment with or without subsidy. 

Telecoms  

Telecoms infrastructure, particularly data centres, is exceeding energy demand forecasts as society increasingly relies on digital services. The rise of AI and power-hungry computer chips is expected to further drive energy demand, and therefore require additional capacity.  

This shift is prompting nations to reconsider the balance between data connectivity and the transition to net zero. Countries like Ireland, Germany, China, and Singapore are already capping data centre energy use. In Ireland, for example, data centres are projected to consume 32% of national electricity by 2026, leading to permit rejections for new projects2. 

To-date, however, this hasn’t undermined investor interest and deal activity. Deal values this year have continued a strong trend, with activity over the whole first half of the year already topping that of the last three years. 

The performance of telecoms infrastructure investments becomes more interesting when you consider the share of data centre transactions within the sector. Examining the average share of data centre deal value over the last five years, data centres this year account for 72% of total deals in telecoms, exceeding the 2019-2023 average of 30% marking a considerable uptick. 

Transport 

Transport infrastructure deals performance in H1 2024 have continued to strengthen following the sector’s significant recovery in 2023, with travel approaching near pre-pandemic levels and revenues rebounding across most subsectors. 

Airport deal value has so far dominated 2024, with the UK accounting for nearly a third of all airports deals globally, followed by Hungary and Australia. However, UK deal value is primarily driven by refinancing and additional financing, with only US$1.6 billion in M&A. In contrast, Hungary tops the M&A list with the sale of Budapest Airport to the Hungarian state.

In terms of issues driving investments, decarbonisation has been at the forefront of transport investors' minds. However, significant deal flows in 2022-23 have not been reflected in the first half of 2024. The pipeline of deals looks healthy, especially in the UK, but significant deals are still lacking. Policy uncertainty in the EU and US around the transition away from combustion engines is driving some of the slowdown. However, additional uncertainty can be attributed to recent headwinds in electric mobility, such as supply-side disruptions and challenging macroeconomic conditions.

Transport was expected to dominate pipeline deals, but they have struggled to reach financial close, highlighting the sector's challenges in tapping into the 4D megatrends—decarbonisation, deglobalisation, digitalisation, and demographics and particularly decarbonisation.

Unlike other infrastructure sectors, transport faces unique hurdles, as new technologies must be proven at scale before widespread implementation. Hydrogen, once hailed as a versatile fuel, is encountering difficulties in mobility applications due to its lower energy density compared to lithium/sodium batteries, and the high costs of producing green hydrogen. Consequently, sustainable aviation fuels are emerging as a more viable solution for reducing carbon emissions in aviation. While electrification is advancing in rail and road transport, the transport sector's ability to fully capitalise on decarbonisation megatrend is yet to be seen.