Power Weekly: Capital or Execution? Takeaways from Dallas Infra Energy Finance

• The industry is split on the primary bottleneck in energy infrastructure: some point to capital, others to execution.
• The capital argument: more capital needs to be mobilized from more sources and new financial products, with development, equipment and interconnection capital and blended structures still to be unlocked.
• The execution argument: there aren't enough trained people in the right locations, with the right equipment and coordination, to build what's needed.
• The definition of infrastructure is expanding, with essential services that support core infrastructure now being treated as core infra.
• Capital roles are reshuffling: targets that used to be private equity territory are now drawing infrastructure capital, and core-plus is stretching into new markets and risk profiles.

Stuart Pomeroy
Account Executive, Paces

Is capital or execution the bigger bottleneck for energy infrastructure?

Both arguments came up at the Dallas Infra Energy Finance Conference. One side says more capital needs to be mobilized, faster and through new financial products. The other says the constraint is execution: trained labor, equipment and coordination in the places where projects need to be built.

What does it mean that the definition of infrastructure is expanding?

Investors are starting to treat essential services that support the operation and value of core infrastructure as core infrastructure themselves. Core-plus is also stretching into new markets, new project types and different risk profiles.

How are capital roles changing in infrastructure investing?

Value-add targets that used to be private equity territory are now being pursued by infrastructure capital, which is reshuffling which types of investors chase core, core-plus and value-add opportunities.

What is Power Weekly?

Power Weekly is a weekly video series from Paces in which Stuart Pomeroy highlights the most important power and energy industry news and explains why it matters for developers and investors.

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Hey. What's up, everyone? I'm Stu, and welcome to another episode of Power Weekly, where we highlight the most important industry news and share our take on why it matters so you can stay in the know on the go.

I'm back from the Dallas Infra Energy Finance Conference earlier this week, back in the garden, as you can see. It was really great to hear from developers and investors over those two days: targeted panels, unstructured conversations at the coffee bar, happy hour, dinner, etcetera. So there are two main takeaways that I want to dive into today.

First is capital or execution. I kind of want this to be interactive, at least as interactive as LinkedIn can be. What do you think the primary bottleneck is in the energy space? I've heard both arguments. I'm going to break them down here for you.

So, capital. Larry Fink wrote a piece in the Journal yesterday about how much more capital needs to be mobilized, from more sources, through more and new financial products, more quickly, to support the infrastructure build-out. Primarily energy first and then compute, as energy and transmission infrastructure then allows additional downstream development to happen. So his argument is that there's a capital constraint there for that set of activities to happen. I heard some flavors of this during the Dallas conference as well, about different types of capital, whether it's dev cap, equipment cap, interconnection cap, or some other types of blended structures that need to be unlocked. But point being, is capital the constraint? Maybe yes or no.

Execution. I also heard in Dallas the argument that labor, equipment and coordination are the primary constraint. There are not enough trained people in the necessary locations with the necessary tools building the necessary things. Right? So I'm curious what you think, whether capital or execution is the primary constraint. Let me know in the comments. Maybe we can have some cool dialogue about this. I can cover comments next time if there are some responses.

Secondly, the definition of infrastructure is greatly expanding. Okay, so what do I mean by this? Core infrastructure is chugging along, of course. But I heard the argument that essential services for that core infrastructure are now being considered core infra, which is an interesting angle: essential activities that support the ongoing operation and value preservation of core infrastructure being included in those models and in those investments.

Beyond that, I've heard people really pushing the envelope of what core-plus means. So new markets, new projects, different risk profiles, that sort of stuff.

And lastly, on this thread, the takeaway from the Dallas conference was that there's a capital structure element to this. What I heard is that what used to be exclusively value-add targets that private equity would pursue, those things that used to be private equity territory, are now infrastructure capital territory. So you have a reshuffling of capital roles happening within the infra stack, with people chasing different types of core, core-plus, value-add, etcetera, with new or different capital types and teams compared to legacy ones. So there's some restructuring going on. I'm going to keep a keen eye out for core infra investors making some core-plus or value-add bets, or the opposite: higher-risk companies trying to get into core infrastructure to get exposure somehow.

That's all for today. Drop us a comment or a DM. We always love to hear what you're seeing and hearing in the market. See you next week.