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Transforming Infrastructure

Why infrastructure is the key to our energy transition

The existing infrastructure in many countries is often decades old which is one factor leading to 27% of the global population being dissatisfied with their national infrastructure. And while satisfaction levels are around 40% there is still room to increase this level through measures such as modernizing the current infrastructure.1

In recent years, the global push towards sustainable energy solutions has gained significant momentum. Despite shifting levels of political support, many countries around the world are continuing to invest in renewable energy sources such as solar, wind, hydroelectric power, and green hydrogen and are promoting research in disruptive green technologies. This shift however also requires significant investments in infrastructure.

Driving decarbonisation

The energy crisis caused by the Russian invasion of Ukraine has emphasised the importance of security of supply not just for Europe, but for the whole world. The energy transition has the potential to significantly reduce Europe’s dependence on (fossil) energy imports and replace them with green electricity and green gases produced in Europe. Furthermore, it contributes to the climate neutrality goal of many countries worldwide. According to the International Renewable Energy Agency, investments of USD 150 trillion in transition technologies and infrastructure by 2050 are needed in the 1.5°C Scenario, which amount to USD 5.3 trillion per year on average.2

Alongside energy generation, the decarbonisation of the transport sector is an important pillar on the path to climate neutrality, which envisages the substitution of fossil fuels with green gases and electricity. The transportation sector accounts for ca 20-25% of all greenhouse emissions worldwide. If this is not tackled, transport-related emissions will double by 2050, which shows the need and opportunity to make a fundamental change in this sector.3 With the help of sustainable private capital, such as from Allianz and other long-term institutional infrastructure investors, many projects can be undertaken that will have a meaningful impact on emissions reductions.

At the end of 2023, for example, the world’s first battery-powered trains were put into regular service in the North of Germany. These batteryelectric multiple-unit trains are replacing the diesel trains that were previously in operation due to a lack of electrified lines. This could save ten million litres of diesel and around 26,000 tonnes of CO2 per year.4

Global energy consumption is projected to grow by 50% by 2050, with developing countries and emerging economies seeing an increase of up to 70%.5 To ensure this growth is environmentally sustainable and climate-neutral, a comprehensive energy transition is essential. Green hydrogen next to “green electrons”, and other green molecules such as biogas and biomethane, which are climate-neutral and versatile for hard-to-abate sectors such as cement, steel, and fertilizers which make up ca 25% of global CO2 emission6 and energy storage, could all play an important role in this transition. Many governments are already developing hydrogen strategies, recognizing hydrogen’s potential in energy supply, heavy goods transport, aviation, and shipping. Producing hydrogen requires electricity, and there is a general consensus that this increased demand should be met by renewable energy sources to create green hydrogen or its derivatives.

Figure 1: Global annual carbon emission (2022)
More energy needs more grids

Of course, the rising energy consumption needs more green energy production. More green power plants – largely solar and wind farms – need to be built or repowered. But that will not be sufficient without adapting the transmission and distribution grids too. Without the expansion of electricity grids, charging stations, but also storage technologies and gas grids, eg, for the transport of green gases such as green hydrogen, the system will not be able to accommodate these new and more intermittent forms of power generation. To meet national climate targets, grid investment needs to nearly double by 2030 to over USD 600 billion per year after over a decade of stagnation at the global level, with an emphasis in particular on digitalising and modernising the distribution grids,7 as well as new high-voltage power lines to connect offshore facilities, transport onshore to industrial centres, and ensure interconnectivity between countries.

In order to build the infrastructure of tomorrow, projects need to be initiated now. Given the increasing pressures on national budgets, private capital sources will be essential to finance these developments. Besides just the financial investment, a more rapid planning approval process and a reliable and stable regulatory framework to support these investments are crucial to bring these projects to life. Partnering with experienced long-term infrastructure investors, who can coalesce other sources of institutional capital around them, can significantly enhance the success of these initiatives.

One example is the NeuConnect interconnector, which will be the first submarine electricity connection between Germany and the UK that celebrated its ground-breaking ceremony in the first half of 2024. Launched in 2017, its completion is planned for 2028.8 The owners include institutional investors such as Allianz, who invest their policyholders’ pensions and life insurance policy holders’ money with a long-term investment horizon. The regulatory frameworks put in place by both the UK and German energy regulators enabled this project to be investable by such long-term low-cost capital.

Figure 2: Private investment in infrastructure projects by sector

Note: ‘Other’ includes environment and infrastructure (general) sectors.
Source: cdn.gihub.org/umbraco/media/5416/infrastructure-monitor-report-2023.pdf

Did you know that...?
  • 40% of Europe’s distribution grids are over 40 years old11
  • Cross-border energy infra-structure projects can decrease generation costs by EUR 9 billion annually until 204011
  • At least 3,000 gigawatts (GW) of renewable power projects, of which 1,500 GW are in advanced stages, are waiting in grid connection queues7
  • Electricity outages already cost around USD 100 billion a year, or 0.1% of global GDP7
  • Europe is global leader in energy transition patents, ahead of Japan and the US
Hydrogen as an important part of the green energy mix

Many hopes are pinned on green molecules such as hydrogen and its derivatives in terms of energy security, the energy transition, and competitiveness, especially for hardto-abate sectors. Thanks to its storage capacity, hydrogen can also secure the power supply in times of low feedin from renewable energies. However, we will not be able to produce all the green hydrogen we need ourselves. Some regions of the world that can rely on cheap renewable sources such as solar, wind, and hydropower are more advantaged for the cost-effective production of green hydrogen while other countries will need to import if they cannot produce it themselves.

In 2021, hydrogen demand was around 94 million tons, primarily grey hydrogen (hydrogen produced from natural gas with no CO2. By 2050, the demand for low-carbon hydrogen is expected to rise dramatically to between 350 and 530 million tons per year. To meet this demand, governments and companies need to invest approximately USD 6 trillion to USD 12 trillion from 2025 to 2050 for the production and transportation of low-carbon hydrogen, according to BCG estimates.9

As part of this process, not only storage infrastructure, but also electrolysis capacities and pipelines are currently being planned where institutional investors can play a vital role to accelerate these developments as for example Allianz, who is already investing in green hydrogen projects in Norway and Finland to advance the transition.

Figure 3: Expected global demand for green hydrogen (mtpa)

Source: Green hydrogen as new growth pocket for desalination – Once it takes off at scale, Roland Berger

No transition without scale up capital

Most new energy transition technologies are capex-heavy with investment requirements estimated around EUR 2-3 trillion just in Europe by 2050. Europe in particular suffers from relatively underdeveloped capital markets and a lack of scale-up capital.10 Many energy transition business models such as production of green molecules, energy storage, EV charging battery, carbon capture and storage, industrial heat, and even circular economy processes can be structured as infrastructure-like and be financed with cost-competitive long-term institutional money. One example is Allianz’s investment in Ren-Gas, a Finnish developer of green hydrogen and green methanol projects to decarbonize heavy goods transport.

Private capital from long-term institutional investors can therefore be crucial for the implementation of the energy infrastructure transition and to provide scale-up capital for energy transition companies.

The energy transition remains on top of the agenda of many countries. With national budget deficits on the rise and the demand for investments to accelerate the modernization of infrastructure against the backdrop of driving the energy transition will require private capital. Institutional investors with a long-standing track record in infrastructure and a longterm view can be the drivers of future financial and economic performance.

1 https://giia.net/insights/global-infrastructure-poll-reveals-public-concerns-over-climate-resilience-and-support
2 World Energy Transitions Outlook 2023: 1.5°C Pathway
3 https://energiewende-global.com/en/mobility/
4 https://akkuzug.nah.sh/assets/Subsite3/Files/FAQ-Akkuzug-gesamt-final_Upload3.pdf
5 Green hydrogen and Power-to-X products, BMZ
6 The huge climate problem of cement, steel and…, Canary Media
7 Executive summary: Electricity Grids and Secure Energy Transitions – Analysis, IEA
8 Executive summary: Electricity Grids and Secure Energy Transitions – Analysis, NeuConnect Interconnector
9 Infrastructure Strategy 2023: Building the Green Hydrogen Economy, BCG
10 Financing and commercialisation of cleantech innovation
11 Factsheet_EU Action Plan for Grids.pdf

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  • Allianz Global Investors Fund (“AGIF”)

    • Allianz Global Investors Fund (“AGIF”) as an umbrella fund under the UCITS regulations has within it different sub-funds investing in fixed income securities, equities, and derivative instruments, each with a different investment objective and/or risk profile.

    • All sub-funds (“Sub-Funds”) may invest in financial derivative instruments (“FDI”) which may expose to higher leverage, counterparty, liquidity, valuation, volatility, market and over the counter transaction risks. A Sub-Fund’s net derivative exposure may be up to 50% of its NAV. 

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    • Some Sub-Funds may invest in single countries or industry sectors (in particular small/mid cap companies) which may reduce risk diversification. Some Sub-Funds are exposed to significant risks which include investment/general market, country and region, emerging market (such as Mainland China), creditworthiness/credit rating/downgrading, default, asset allocation, interest rate, volatility and liquidity, counterparty, sovereign debt, valuation, credit rating agency, company-specific, currency  (in particular RMB), RMB debt securities and Mainland China tax risks. 

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    • Some Sub-Funds may invest a significant portion of the assets in interest-bearing securities issued or guaranteed by a non-investment grade sovereign issuer (e.g. Philippines) and is subject to higher risks of liquidity, credit, concentration and default of the sovereign issuer as well as greater volatility and higher risk profile that may result in significant losses to the investors. 

    • Some Sub-Funds may invest in European countries. The economic and financial difficulties in Europe may get worse and adversely affect the Sub-Funds (such as increased volatility, liquidity and currency risks associated with investments in Europe).

    • Some Sub-Funds may invest in the China A-Shares market, China B-Shares market and/or debt securities directly  via the Stock Connect or the China Interbank Bond Market or Bond Connect and or other foreign access regimes and/or other permitted means and/or indirectly through all eligible instruments the qualified foreign institutional investor program regime and thus is subject to the associated risks (including quota limitations, change in rule and regulations, repatriation of the Fund’s monies, trade restrictions, clearing and settlement, China market volatility and uncertainty, China market volatility and uncertainty, potential clearing and/or settlement difficulties and, change in economic, social and political policy in the PRC and taxation Mainland China tax risks).  Investing in RMB share classes is also exposed to RMB currency risks and adverse impact on the share classes due to currency depreciation.

    • Some Sub-Funds may adopt the following strategies, Sustainable and Responsible Investment Strategy, SDG-Aligned Strategy, Sustainability Key Performance Indicator Strategy (Relative), Green Bond Strategy, Multi Asset Sustainable Strategy, Sustainability Key Performance Indicator Strategy (Absolute Threshold), Environment, Social and Governance (“ESG”) Score Strategy, and Sustainability Key Performance Indicator Strategy (Absolute). The Sub-Funds may be exposed to sustainable investment risks relating to the strategies (such as foregoing opportunities to buy certain securities when it might otherwise be advantageous to do so, selling securities when it might be disadvantageous to do so, and/or relying on information and data from third party ESG research data providers and internal analyses which may be subjective, incomplete, inaccurate or unavailable and/or reducing risk diversifications compared to broadly based funds) which may result in the Sub-Fund being more volatile and have adverse impact on the performance of the Sub-Fund and consequently adversely affect an investor’s investment in the Sub-Fund. Also, some Sub-Funds may be particularly focusing on the GHG efficiency of the investee companies rather than their financial performance which may have an adverse impact on the Fund’s performance.

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    Note: Dividend payments may, at the sole discretion of the Investment Manager, be made out of the Sub-Fund’s capital or effectively out of the Sub-Fund’s capital which represents a return or withdrawal of part of the amount investors originally invested and/or capital gains attributable to the original investment. This may result in an immediate decrease in the NAV per share and the capital of the Sub-Fund available for investment in the future and capital growth may be reduced, in particular for hedged share classes for which the distribution amount and NAV of any hedged share classes (HSC) may be adversely affected by differences in the interests rates of the reference currency of the HSC and the base currency of the respective Sub-Fund. Dividend payments are applicable for Class A/AM/AMg/AMi/AMgi/AQ Dis (Annually/Monthly/Quarterly distribution) and for reference only but not guaranteed.  Positive distribution yield does not imply positive return. For details, please refer to the Sub-Fund’s distribution policy disclosed in the offering documents.


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    • Allianz Global Investors Asia Fund (the “Trust”) is an umbrella unit trust constituted under the laws of Hong Kong pursuant to the Trust Deed. Allianz Thematic Income and Allianz Selection Income and Growth and Allianz Yield Plus Fund are the sub-funds of the Trust (each a “Sub-Fund”) investing in fixed income securities, equities and derivative instrument, each with a different investment objective and/or risk profile.

    • Some Sub-Funds are exposed to significant risks which include investment/general market, company-specific, emerging market, creditworthiness/credit rating/downgrading, default, volatility and liquidity, valuation, sovereign debt, thematic concentration, thematic-based investment strategy, counterparty, interest rate changes, country and region, asset allocation risks and currency (such as exchange controls, in particular RMB), and the adverse impact on RMB share classes due to currency depreciation.  

    • Some Sub-Funds may invest in other underlying collective schemes and exchange traded funds. Investing in exchange traded funds may expose to additional risks such as passive investment, tracking error, underlying index, trading and termination. While investing in other underlying collective schemes (“CIS”) may subject to the risks associated to such CIS. 

    • Some Sub-Funds may invest in high-yield (non-investment grade and unrated) investments and/or convertible bonds which may subject to higher risks, such as volatility, creditworthiness, default, interest rate changes, general market and liquidity risks and therefore may  adversely impact the net asset value of the Fund. Convertibles may also expose to risks such as prepayment, equity movement, and greater volatility than straight bond investments.

    • All Sub-Funds may invest in financial derivative instruments (“FDI”) which may expose to higher leverage, counterparty, liquidity, valuation, volatility, market and over the counter transaction risks.  The use of derivatives may result in losses to the Sub-Funds which are greater than the amount originally invested. A Sub-Fund’s net derivative exposure may be up to 50% of its NAV.

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    • In making investment decisions, investors should not rely solely on this website.

    Note: Dividend payments may, at the sole discretion of the Investment Manager, be made out of the Sub-Fund’s income and/or capital which in the latter case represents a return or withdrawal of part of the amount investors originally invested and/or capital gains attributable to the original investment. This may result in an immediate decrease in the NAV per distribution unit and the capital of the Sub-Fund available for investment in the future and capital growth may be reduced, in particular for hedged share classes for which the distribution amount and NAV of any hedged share classes (HSC) may be adversely affected by differences in the interests rates of the reference currency of the HSC and the base currency of the Sub-Fund. Dividend payments are applicable for Class A/AM/AMg/AMi/AMgi Dis (Annually/Monthly distribution) and for reference only but not guaranteed.  Positive distribution yield does not imply positive return. For details, please refer to the Sub-Fund’s distribution policy disclosed in the offering documents.

     

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