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The Biden Administration, Infrastructure and Covid-19

February 12, 2021
On January 21, 2021, the GRI Club held an eMeeting titled "Investors' Appetite for US Infrastructure Assets - Competitive opportunities or scarce success?" The eMeeting discussed investment opportunities in the US Infrastructure and Energy sectors in light of the Covid-19 pandemic, the recent US presidential election and the worldwide drive towards sustainability and decarbonization.

The e-Meeting was moderated by Jose Moran, Partner at Baker & McKenzie LLP, and Jorge Valenzuela, Principal at ARUP, and included the following panelists: Amit Rikhy, President and CEO, Carlyle Airport Group, Helen Newell, Senior Vice President-Infrastructure, GIC, Juan Camargo, Managing Director, OMERS Infrastructure, Olivier Renault, Managing Director, Caisse de dépôt et placement du Québec (CDPQ), and Paul David, Head of Americas, Infrastructure Debt, Allianz Global Investors.

One speaker indicated that infrastructure is a key focus for the Biden administration.  The number one priority now for the Biden administration is Covid relief.

The Biden infrastructure policy is a wide ranging policy, which touches every aspect of infrastructure, including assets at the state and local level.  The Biden infrastructure policy has a big focus on sustainability: everything that will be done will focus on sustainability.  The second big area of focus will be on equity: infrastructure investment will not focus only on wealthy areas, but will focus also on disadvantaged areas to create equitable economic opportunity.

The Biden administration will also focus on healthy travel.  Its efforts will aim to rebuild confidence in all modes of travel, and will aim to ensure that such travel is healthy, safe and secure.  The Biden administration will aim to provide stimulus to develop and retrofit travel assets consistent with this goal.

Panelists considered several obstacles that the Biden administration may face in effecting its plans.  Many assets and procurements lie within the jurisdictions of non-federal levels of US government: at state, regional municipal and other levels of government (such as universities).  In the past, big federal plans for infrastructure stimulus have been complicated by this relationship and the need to get approvals at other levels of government for plans to proceed.  This is not a new problem.  However, for large-scale stimulus to take effect, it is critically important to coordinate between the different levels of the US government.

Renewable energy assets differ, since the main stimulative effect is derived from federal tax policy (in the form of tax credits).  For most of these assets, it is not necessary to coordinate with other levels of government to affect stimulus.

Investment opportunities in sources of renewable energy

The panel considered investment opportunities among the different sources of renewable energy.

One panelist noted that energy had been involved in a first wave of transition, to cleaner energy, and was now engaged in a second wave of transition, from fossil fuels to renewables.  The investment opportunities in the US include wind and solar, hydrogen and carbon capture, electrolyzing technology (for hydrogen production) and electric vehicles (and charging networks for such vehicles).

A principal challenge for hydrogen is that it is not currently used on a wide scale.  The Biden administration may encourage further use of hydrogen by imposing a tax on carbon emission as well as by subsidizing the use of hydrogen assets.  A panelist was of the view that a measurable shift to increased use of hydrogen might not occur in the near term.
The panel considered a question from the audience regarding whether the recession had affected the ability of investors to invest in renewables.  A panelist responded that the market is tightening, but deals are getting done.  The recent extension in the US of the investment tax credit for solar investments through the end of 2022 should increase the number of investment opportunities in that space.  Renewables deals may be monetized internally (with existing tax equity investors), rather than with third party debt.

Energy transition; Oil & gas companies moving into renewables

A panelist noted that, while there has been much speculation about traditional oil & gas companies seeking to diversify into renewable energy assets, the panelist had not seen much evidence of this.  Private equity and pension funds are currently the big players in this space.  Oil & gas companies may come into this market in the future, but have not yet been seen making large investments.

The Biden administration has given a clear message regarding renewables.  It has cancelled the Keystone pipeline, and has rejoined the Paris climate accord.

A panelist questioned whether the current US tax equity system was the best way to promote the Biden administration's renewables policy.  In the view of this panelist, renewables assets are long term assets, that ideally should be funded with long term liabilities.  The panelist stated that there was a currently a degree of uncertainty in financing renewable assets.

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José Moran
Baker McKenzie
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