3i Infrastructure says Infinis returns were boosted by volatile power prices, sees more competition in ‘energy transition’ investment

Infinis, 3i Infrastructure’s largest investment, was also its star performer last year, according to the infrastructure investor’s annual report.

Although the early stages of the Covid-19 pandemic saw a fall in electricity demand of more than 10% in the UK, it recovered during the second half of the year and there was also more day-ahead price volatility, 3i said in its report. For Infinis, which has several power sector operations including reserve power and generation from landfill gas, “this meant an opportunity to provide flexible generation services, with its Power Response division delivering a record performance in the year”.

3i said the increased power price volatility was a structural change, reflecting the shift in the UK’s generation mix away from baseload capacity to intermittent renewables, along with low availability of traditional thermal generation.

Longer term, it said, “Volatility in prices is expected to continue as thermal and nuclear plants are retired, there is a growth in intermittent renewables and increasing demand due to the electrification of transport and heating”.

The company said Infinis generated a value gain of £25 million in the year and contributed £28 million of distributions, also boosted by progress inits solar development programme.

3i said it was “closely monitoring” electricity market regulation risk around the future of network access charging arrangements – although it was moving towards more location-based charging, “which in principle should benefit generators such as Infinis with sites predominantly in demand-dominated areas” – and the level of post-Brexit carbon price support.

The company said there was more competition in deals, because of“Increasing interest from infrastructure investors in the energy transition sector as the scale of the investment required becomes apparent, and regulations, subsidies, market demand and project economics become more supportive.” It said that although environmental concerns were an area of focus for investors before Covid, “it is now clear that the pandemic has heightened awareness of sustainability issues and this can be seen in the way businesses operate and governments set policy. This has moved the focus to investing capital in cleaner and greener businesses.”

3i had backed away from some potential deals over the last year, but chair Richard Lang said, “We have strong liquidity to take advantage of investment opportunities as economies start to recover as well as to continue to support and grow our portfolio companies.”

The company also noted the need for greater digital connectivity and greater data storage and usage requirements.

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