John Laing: Infrastructure investors will play an important role in upgrading the grid

Anthony Phillips, Global Head of PPP and Head of Americas

Around the globe, we are seeing substantial demand to scale up infrastructure investment to meet net zero, drive growth and adapt to social change. The electricity system is at the heart of this investment case as the electrification of society becomes one of the dominant themes of the twenty first century.

To achieve this, significant upgrades are required across the world’s electricity transmission networks to improve reliability, reinforce resilience, and crucially, to build capacity. This is magnified thanks to megatrends increasing interest in the power needed for the data revolution and the ever-important clean energy evolution.

The catch is that, globally, the infrastructure funding gap is estimated at $15 trillion by 2040, with governments heavily reliant on private capital to meet their commitments. This is particularly true in the United States transmission sector, where substantial updates to the country’s electricity grid, which is outdated and lacking sufficient connections, is urgently needed.

This is where John Laing comes in. For us, transmission is an exciting area where we see significant potential for future investment and development. These assets play to our existing strengths as a greenfield investor and experience in the energy sector, and in supporting global governments with their green transitions.

As well as our recent acquisition of the Indiana Pioneer Transmission project in the US, we acquired Hornsea 2 Offshore Transmission Owners (OFTO) as part of our second largest portfolio acquisition, marking our first steps into the transmission sector. Regulatory approval of which was received in May 2024, fully closing John Laing’s acquisition of a key transmission asset in the most advanced offshore wind markets. 

The challenges

Transmission networks are particularly attractive for us as an infrastructure investor because they provide long-term, secure, often inflation-linked returns. As utilities operating under a regulatory framework, they present long-term certainty and require long-term capital, because upgrading networks is a multi-decade project, not an overnight endeavour. The biggest challenge is the planning and permitting processes – in many countries, it takes years to get this kind of infrastructure approved.

Then there’s the challenge of high costs associated with building new transmission infrastructure. This is compounded by the fact that many electricity grids around the world are built on aging infrastructure that was not designed to handle the demands of upgraded energy systems. Implementing these updates is costly and is why we need to see both governments and private investors working together to deliver the transition.

The future

What’s clear is the scale of the transmission challenge is too big for public capital alone to address. The future will be shaped by collaborative partnerships between governments, regulators, and the private sector, combining the heft of state backing with the agility and scale of long-term private capital.

Even in less well-developed transmission markets such as the US, government and investor ecosystems are starting to take shape in ways favourable to developing a thriving market.  This is exemplified, for example, by the US Federal Energy Regulatory Commission’s (FERC) recent transmission planning regulations and proposed incentives, which require grid operators to develop long-term regional transmission plans and establish methods for allocating costs and incentives of interstate transmission projects.

These steps to provide flexibility whilst mitigating the impact of supply constraints and demand spikes will be vital.  Whilst the impact of these recent changes will likely take time to manifest into a pipeline of opportunities, these latest developments further strengthen the policy tailwinds for a significant step-up in new development or upgrades to existing infrastructure. 

We have increasing confidence in the sector globally and what is needed for it to develop, and as an active and hands-on investor with the experience and track record of working as long-term partners to governments around the world and deploying capital to update critical infrastructure to meet the demands of the future, John Laing is perfectly placed to take advantage of emerging opportunities.

Related points of view:

No grids, no green transition
Duncan Jewell, Co-Head APAC

Upgrading and expanding electricity grids is critical to the continued growth in clean energy. Much focus has been on clean power generation such as wind and solar; but unless we can transmit all the clean power, the transition will stall.  At the same time, the rise of electric vehicles and AI, alongside the decarbonisation of industrial processes, is also driving increased electricity demand.

This calls for urgency in upgrades to transmission grids to relieve congestion, improve resilience and reliance of the Australian grid, and to open new areas to renewable energy.

The more network capacity we have to meet the demand, the better equipped we will be to drive the energy transition. Without significant grid improvements, transitioning to a cleaner, sustainable energy system would face major challenges.

The offshore wind opportunity
Erin Lee, Director Investments

Offshore wind presents a significant growth opportunity for John Laing, especially as the market positively adjusts to the effects of the inflationary environment. As the market grows, so does demand for the transmission infrastructure that takes power from sea to shore, and this is an area in which we’re making increasing strides.

We entered the electric transmission sector in the UK in 2023, acquiring a 37.5% interest in the offshore transmission assets associated with one of the world’s largest installed windfarms, Hornsea 2. 

Germany is also a major geography for John Laing, where we own offshore Windkraftanlage Nordergrunde. The German government has committed to install 30 GW of offshore wind turbines in the North and Baltic Seas by 2030, up from 8.5 GW today. In 2024 alone, it plans to tender for 8GW for new offshore wind capacity addressing the move from onshore to offshore. The Netherlands is following a similar trajectory.

Whilst the German and Dutch markets are nationalised, the UK operates the Offshore Transmission Owner (OFTO) model, introduced in 2009 to encourage competition in the sector. OFTOs are the owners of offshore transmission assets, which connect offshore wind farms to the onshore electricity network and are responsible for operating and maintaining them.

The formation of OFTOs has removed some challenges that you often see with big offshore wind assets, but given the regime was developed fifteen years ago when the offshore market was far less developed than it is today, potential challenges lie ahead. Some suggest the current system needs to be revisited given the size and complexity of the UK offshore market today. With the market set to grow further, our experience here, and our ability to solve the most complex issues that arise will continue to keep us open to more opportunities in this area.