“The question of energy security needs to be separated from decarbonisation in the sense that there is an overlap but there’s also a potential contradiction between those objectives,” says Herman Deetman, Transaction Managing Director at Infracapital.
Energy security and decarbonisation are both inextricably intertwined in order to operate within a 1.5-degree world – and yet distinct in terms of meeting the immediate energy needs as prices soar for consumers.
“The best example is the vast increase in the use of coal at the moment as a source of energy,” adds Deetman. “That increases energy security for the country, but that also goes diametrically against decarbonisation objectives.”
Last year, Russia accounted for 40% of the EU’s natural gas and 27% of its imported oil supplies1. As member states sought to reduce their reliance on Russian supplies, this soon translated into “a short-term win for coal”2 as countries across the bloc delayed its departure from the energy mix.
When it comes to capital allocation, however, this is not necessarily a signal for investors to invest in coal. Other than the obvious areas that come to mind, such as wind and solar, what infrastructure solutions can investors target in order to decarbonise the European economy and help enhance energy security?
One avenue is to target transportation. In 2019, total emissions from road transportation accounted for 22%3 of the EU’s overall greenhouse gas emissions. The European Parliamentary Research Service identifies inland waterway transport (IWT) – which spans 13 EU countries – as “one of the most CO2-efficient transport modes per tonne of goods carried, using only 17 % of the energy needed by often-congested road transport and 50 % of rail transport”, and highlights “untapped potential for increasing its capacity4”.
In 2021 Infracapital acquired a company operating inland container terminals in the Netherlands and Belgium, served by multiple barges, each replacing around 100 trucks. While this is a far less carbon intensive way of transporting containers compared to road haulage today, investors must also be cognisant of the medium and long-term.
“We acquired a business that has a certain carbon footprint today, but we have a plan to decarbonise that business and to move it away from using fossil fuels to batteries and hydrogen,” says Deetman.
“That’s not something we’re doing overnight but we believe strongly it makes sense economically and is aligned with the dual objectives of decarbonising the European economy and thereby, reducing dependence on fossil fuels and enhancing energy security.
“It’s a complex way of addressing it, but equally as important as building a wind farm or solar park, and can often have a bigger impact per invested euro.”
The value of investments will fluctuate, which will cause prices to fall as well as rise and investors may not get back the original amount they invested. Past performance is not a guide to future performance. The views expressed in this document should not be taken as a recommendation, advice or forecast.