Titanium Lens

In today's quickly changing industrial landscape, strong infrastructure is the foundation of progress. Economic growth and social progress rely on adequate transportation networks, electricity grids, water systems, and digital highways. Getting investments to power these initiatives can be difficult.  

In this article, we'll look at the dynamics of infrastructure financing and investment, and briefly look into the three D’s effecting the investment landscape: digitization, decarbonatization, and demand.  

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Private investment in infrastructure

Infrastructure projects require a significant upfront expenditure, from planning and design to construction and upkeep. While government finance remains an important source of infrastructure development, private sector engagement is becoming increasingly important. Public-private partnerships (PPPs) have evolved as a popular concept, combining the strengths of both sectors to provide efficient and innovative solutions.

There are different choices accessible when it comes to financing infrastructure projects, including:

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• Public Funding
• Private Investment
• Debt Financing
• PPPs

Infrastructure projects' success relies on funding availability. Creative finance methods are emerging alongside traditional sources like government grants, bonds, and loans. However, managing risks and coordinating incentives is crucial for private investment.

Despite the proven economic significance (for example - 1.5x economic multiplier globally and 3x in the US), US investments in infrastructure, both public and private, lag over many international competitors. As a percentage of GDP, the US (1.5%) trails far behind China (7.4%), India (4.0%), and Saudi Arabia (3.4%). And not surprisingly, US infrastructure didn’t crack the top 10 in a World Economic Forum Global Competitiveness Report.  

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For a deeper dive into the challenges of developing sustainable, resilient, and digitally enabled infrastructure, read Ayna’s 2023 report on the future energy and aviation infrastructure.

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The three D’s and themes to consider in 2024

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Infrastructure, like other industries, is ripe for disruption. How will advanced technologies like automation, AI, and contactless payment systems transform the planning, construction, and operation of infrastructure systems? How will these cause disruptions in the infrastructure environment? These technologies will require organizations to focus on digitization, decarbonization, and demand.  

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• Digitization. Using an energy infrastructure example, grid modernization will necessitate large investments in the US for energy storage, generation and increased resilience and reliability. The National Council of State Legislatures estimate the need for 2 trillion in investments for grid modernization by 2030.

• Decarbonization. The aviation sector is a significant contributor to global climate change. For the US to meet its net-zero goals by 2050, we expect 5 trillion in investments necessary by 2050.

• Demand. Key drivers of accelerated demand are improved economic conditions, electrification of residential and transportation sectors, and doubling of energy consumption by datacenters, AI, and crypto. Energy consumption is expected to increase at 3.4% annually from 2023-2026 after a slower growth rate of 2.2% from 2022-2023.  

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The US government has already earmarked 1.5 trillion in investments by 2030, but the projected investments for the sector are expected to fall short by 4 trillion from 2016-2040. Clearly, there is strong government support for the sector especially with the latest announcements on IIJA and IRA that has earmarked the 1.5 trillion dollars. However, these projected investments will fall short, and given the current government circumstances it is unlikely more funding is on its way. This is where private capital is needed now more than ever.

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Some three D themes to consider:

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Disruptions in infrastructure: Digital technologies like cloud computing, big data analytics, and the Internet of Things are revolutionizing infrastructure development by improving monitoring, maintenance, and optimization to enhance performance and efficiency.

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Stakeholder dynamics: How will you navigate complex stakeholder dynamics and promote cross-sector collaboration in the development of needed infrastructure?

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Contactless technologies: The COVID-19 pandemic accelerated the integration of contactless technologies into public services and transportation. This has led to increased use of automated ticketing, touchless interfaces, and payment systems for convenience and security.

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Artificial Intelligence: AI can enhance infrastructure management by predicting equipment breakdowns, improving energy efficiency, and managing traffic flow. How will you address ethical considerations like algorithm bias and data privacy?

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Regulations: Regulatory frameworks influence infrastructure development.  Adherence to zoning rules, safety standards, and environmental regulations for permits and approvals will be needed, but managing these can lead to increased expenses and delays.

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Government policies: Infrastructure investment decisions and project priorities are heavily influenced by governments. Do they support renewable energy, sustainable development, and intelligent solutions? Or will uneven policies and political unpredictability pose challenges for long-term planning?

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Resilience in infrastructure projects

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Resilience is essential for ensuring that infrastructure systems can withstand and recover from shocks and disruptions, including natural disasters, cyber-attacks, and pandemics. How will you enhance infrastructure resilience in response to geopolitical unpredictability and climate hazards? You will have to look for innovative tactics and industry best practices to improve assets and systems.

Building resilient infrastructure involves incorporating risk assessments, redundancy measures, and adaptive strategies into the design and planning process. Investments not only mitigate the impact of disruptions but also contribute to long-term sustainability and economic stability.

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At the Future of Infrastructure Summit from May 2-3 in Chicago, the importance of resilience in infrastructure projects to make sure there’s continued long-term viability amidst changing risks and uncertainties will be discussed. Also highlighted will be issues like digitization, AI, and contactless technologies, as well as stakeholder interactions, laws, rules, and funding needs.

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The future of infrastructure podcast series

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The podcast series The Future of Infrastructure focuses on resilience specifically in the energy and aviation sector. Recent episodes from key players shaping the landscape of infrastructure financing and investment include:

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• Giulia Siccardo, US Department of Energy Director, spoke with us on the department’s shift toward supporting large-scale energy technologies and how they impact US manufacturing. She talks with Ayna.AI CEO, Gaurav Batra, about the Inflation Reduction Act and how it fuels investments into clean energy projects.
• Tricia Breeger, President and CEO of Mitsubishi Electric Power Products, discusses the role of technology in advancing more sustainable power generation.  
• Brian Ryks, CEO of the Metropolitan Airports Commission disusses the future of airports. Brian offers insights into the challenges airports face trying to modernize infrastructure and meet sudden shifts in passenger demand.  
• Neil Chatterjee, Former Chairman and Commissioner of the Federal Energy Regulatory Commission, shares his perspective on the politicization that hampers long-term energy investment strategies.  

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Promoting economic growth, improving living standards, and fostering innovation will all stall without strong infrastructure. This will come with many challenges, opportunities, and disruptions in funding and investing in infrastructure development. We emphasize the need to understand financial requirements and explore different funding options to create resilient, sustainable, and technologically advanced systems.

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^{With editing by Nidhi Arora}

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