Southern Europe Infrastructure Update: In conversation with Federico Giannandrea, Head of Business Development, Infrastructure

In our Southern Europe Infrastructure Update, Federico Giannandrea, Partner and Head of Business Development, Infrastructure, shares his insights on Southern Europe's solar market in the wake of COVID, and discusses the regulatory and behavioural changes that are set to shape this investment landscape.

Businesses have taken a hit during the pandemic, but the renewables sector has proven to be more resilient than other infrastructure sectors and as business activity resumes, we are observing burgeoning interest in this asset class.

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Federico Giannandrea

With regard to our business, we have suffered the impact of the pandemic. I think the business grew to be very resilient, but obviously not immune. Our assets have the advantage to have a local relation to the equity markets and therefore they weren't hit at the same speed and with the same force. Clearly we have experienced a sharp fall on the prices of our listed products in the early days of the pandemic, but they have so far recovered.

Another aspect to be taken into account is the decline of the price, which was driven by low demand, and that affects the performance and the valuation of our assets but, the effects of that vary from jurisdiction to jurisdiction, and depend on how much each investment is exposed to on one hand, the fixed prices of electricity by subsidies or PPA, and how much is left to the fully merchant market. Our assets in particular in Southern Europe are less exposed to the fully merchant market compared to the ones in the Northern part of Europe.

In general, the renewable energy sector has proved to be more resilient than other infrastructure sectors, such as airports, aircraft leasing, for example, or toll roads, which have experienced a big hit from the pandemic and from the lockdown regulations.


In terms of coming back to our business, I think we haven't stopped at all, making investments during the pandemic and actually, probably this period has been even busier than before. We have completed all the investments that we had in the pipeline so far and that were scheduled to complete during this month, and actually we haven't seen, the pipeline so full as at this point in time.

So the market is very active. Luckily then also our business, it's very suitable for smart working. Each one of us have experienced the joys and pains of working from home. In terms of the impact on the day to day management of our investments, I can say that clearly the lockdown regulations have impacted sometimes the presence on the sites.


If there were, for example, under construction or if we were waiting for the supply of certain equipment which were delayed, but those delays, I wouldn't say were significant. Ffurthermore, luckily as well, the renewable energy sites do not require a huge amount of human interference on a daily basis on the site itself. Given they are located in remote spaces, the COVID social distancing rules could be implemented there. Therefore the impact has been minimal, if not close to zero.


The renewable energy landscape is already a very crowded landscape. Many investors, invest in these particular asset classes. As I was mentioning before the fact that other sectors of the infrastructure galaxy have been highly effected by the pandemic, we are experiencing the fact that many investors and managers are redirecting their efforts investing in renewables.

This creates clearly an even more crowded market and as a consequence that will bring, obviously more competition. Competition that translates into, let's say more crowded options, if an asset is for sale.


If you pair that with the fact that, the central governments have reduced even more the interest rates on the debt, the combined effect of the two elements create a brutal yield compression, which we have seen across different countries.


We are now experiencing the fact that now investors have set a return depending on technology rather than country. The reason is that they're happy with the technology risk and the old, let's say system of evaluating these assets where by they were evaluated as a premium over the risk of the relevant country is no longer the applicable metric, but, just the asset risk would be the one that would be looking in the future.

As somebody said in every crisis, there is an opportunity. Therefore in this one, we see the fact that probably the better, more equipped investors or fund managers would be the ones that would see the older will look stronger at the end of the crisis itself.


I think that the combination of having the possibility in this moment in the markets to have a dry powder to spend so, and being capable as we are, for example, having a very diversified network of opportunities across all the markets in which we are active, allow us to scout those opportunities better than others.


Futhermore, the fact that we manage a huge amount of assets in the renewable energy space, allows us to have economies of scale that other players do not have.


Once again, the combination of these elements puts us at the forefront of being one of the strongest players in this, pandemic situation, to be capable of benefiting from the opportunities that he has to offer, which can be either a distressed assets or assets in which you would require, a very quick intervention in order to be capable of securing them.


ESG measures the sustainability of investments from different standpoints. If anything, COVID has a new chapter to the sustainability book. None of us thought, up until yesterday, that the pandemic would be one of the risks that needed to be considered, and to be addressed, and to be mitigated, in making some investment.


Today now, all the businesses need to be prepared for that. The resilience against the pandemic is now one of the key elements that the investors will look at in making new investments.


If we add then the fact that we will experience the real crisis, starting from September, October, once people that were originally furloughed, start to be jobless and be in the market to look for a job, and the decline of the global economy, which up until today has been sustained by injection or liquidity from the central states.


We will see that the money available for investment will reduce, both on the retail side and on the institutional investor side. The majority of investors in the institutional world, they're investing in any infrastructure, or insurance company and pension funds that will obviously experience less money available for investment.


As a consequence of that, their selection in terms of fund managers on one hand and investments on the other, would be even more ESG oriented and would be focused at finding each and every, let's say sustainability key element in order for them to be in such a way immune if something goes wrong tomorrow.