Rising demand for smart infrastructure opens up investment opportunities, says UBS

Smart infrastructure technologies will become a lucrative investment opportunity for both public and private sector organisations over the coming years.

That’s according to new research from investment banking giant UBS, which explores the risks and opportunities of data infrastructure assets. Describing smart infrastructure as “the combination of technology and data to improve productivity and efficiency”, UBS claims that this broad area offers investors a range of opportunities.

From public-private smart city partnerships to increasing demand for electric vehicle solutions, the report’s authors, Alex Leung and Declan O’Brien, picked out key areas to explore for potential investment.

Increasing EV adoption

Highlighting transportation as a trending area for investors, UBS forecasts that electric models will make up 15% of global vehicle sales by 2025. Consumer perceptions are not only changing with the introduction of government subsidies, but some countries will ban combustion engines in 10-15 years.

The big obstacle, though, is that EV infrastructure (namely charging networks) is still poor in a lot of countries. UBS claims that $360bn of investment will be required by 2025 to meet the increasing demand for electric cars. While that may sound daunting, it’ll be good news for charge point operators and other EV companies.

Mobility as a service

The predicted widespread adoption of autonomous vehicles could change the long-running trend for car ownership. Instead, ‘mobility as a service’ will become the norm.

Ride-hailing apps like Uber are already popular: without drivers, costs could reduce from $2.50/mile to $0.70/mile. Consumers will no doubt want to take advantage of these cost savings, although there’ll be an onus placed on making cities and towns AV ready.

Greentech

The energy industry will also be impacted by connected technology. UBS notes how supply-side levers have traditionally been offered to boost flexibility to the grid, allowing power stations to adjust output easily.

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However, with the continued adoption of intermittent renewables, existing supply adjustments prove costly and time-consuming in comparison. In the next few years, infrastructure such as smart meters, smart grids and EV charging will grow exponentially.

UBS says these will “allow households and distributed energy suppliers to monitor their own electricity output and consumption, share data with other parts of the grid, and sell excess electricity into the network, ensuring flexibility and reliability of the entire system”.

If there’s one thing certain, the need for infrastructure technology will only increase. UBS sees potential in infrastructure tech companies catering for the demand-side and frequency response market segments, using utility-scale batteries, big data asset optimisation and traffic management systems as examples.

Private-public partnerships

The Internet of Things is already showing that it can boost sustainability in cities and towns, especially when it comes to transportation, energy, security and the environment.

But UBS takes the view that there is a lack of coordinated smart city projects targeted at the private sector, attributing it to “a limited appetite from governments to invest” in such initiatives.

That being said, public-private partnerships are a great way to bring government and business together to leverage the benefits of smart city initiatives. Alternative funding, such as the €250 smart city fund from Whitehelm Capital, is also available to organisations looking to make a mark in this exciting sector.

The bank sees clear investment opportunities in companies producing the components of smart city projects, such as street lighting and EV charging. Of course, it’s still an emerging area, and UBS warns “against over-optimism in the growth of integrated smart city projects with plenty of pilot projects not resulting in subsequent opportunities for the private sector”.

Asset management

Clearly, there are lots of new opportunities for infrastructure investors. But UBS says the focus shouldn’t just be on the pipeline of transactions. Asset management principles to improve the performance of existing holdings and targets are powerful, too.

To paint a picture of this, the bank explained how airport management is using big data to better manage terminal and retail spaces. Meanwhile, electricity and water companies are using sensors, acoustics and infrared heat systems to detect and fix issues in pipes and cables. And sensors and cameras are decongesting roads.

Areas to avoid

While UBS has identified lucrative investment areas, it also considers investments that may prove more challenging. The bank warns against infrastructure projects that could face public planning delays and bureaucracy, as well as technologies without clear economic and social benefits. It seems transportation and energy initiatives offer the most return on value.

Read UBS’s report in full