Infrastructure podcast mini-series

The Bid GIP mini-series #1: “The Growing Demand For Infrastructure Investment”

Episode Description:

In this first episode of our infrastructure miniseries on The Bid, guest host Mark Wiedman is joined by Raj Rao, Founding Partner, President and Chief Operating Officer of Global Infrastructure Partners (GIP), now a part of BlackRock to talk infrastructure investing 101, how the asset class started, what's driving its growth and why it's becoming a must have in investors' portfolios.

Sources: “Data center spending skyrockets as cloud building rush accelerates”, CIO Dive, Sep 2024; “The Infrastructure Opportunity: Listed Versus Unlisted”, Institutional Investor 2022

Written disclosures in each podcast platform and each episode description:

This content is for informational purposes only and is not an offer or a solicitation. Reliance upon information in this material is at the sole discretion of the listener.

Reference to the names of each company mentioned in this communication is merely for explaining the investment strategy and should not be construed as investment advice or investment recommendation of those companies.

For full disclosures go to Blackrock.com/corporate/compliance/bid-disclosures

<<THEME MUSIC>>

<<TRANSCRIPT>>

Oscar Pulido: Welcome to The Bid, where we break down what’s happening in the markets and explore the forces changing the economy and finance. I’m Oscar Pulido.

This week, Mark Wiedman, Head of BlackRock’s Global Client Business, will guest host 3 episodes on The Bid as part of a special mini-series focusing on infrastructure. Mark will lead conversations with investors from Global Infrastructure Partners, who are now a part of BlackRock, to discuss investing insights in the world of infrastructure and how private capital will be key to the growing need for investment in the infrastructure landscape.

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Mark Wiedman: Earlier this year, BlackRock announced plans to acquire Global Infrastructure Partners, or GIP, leader in infrastructure investing.

Infrastructure sits at the heart of the world's biggest structural forces, the transition to a low carbon economy, advancements in AI and the urgent need to repair aging infrastructure, roads, bridges, and airports. With governments everywhere facing budget constraints, private capital is critical to filling that gap.

In this first episode of our infrastructure miniseries on The Bid, I'm joined by Raj Rao, Founding Partner, President and Chief operating Officer of GIP, now a part of BlackRock to talk infrastructure investing 101, how the asset class started, what's driving its growth and why it's becoming a must have in investors' portfolios.

Raj Rao, welcome to The Bid.

Raj Rao: Thank you Mark for inviting me to The Bid.

Mark Wiedman: Raj, what is infrastructure?

Raj Rao: Infrastructure is assets that touches everyone's life on a day-to-day basis. And sometimes you see them and sometimes you don't. So, these are airports, ports, rail, power pipelines, renewables, data centers, telecom towers, water and waste facilities. So, you know what it is, but how does electricity come to your house? Why is the heating in your house work? Because there is some pipeline somewhere that has transported gas to a facility that heats up your home.

Mark Wiedman: Who owns infrastructure?

Raj Rao: Most of the infrastructure in the world is owned by governments. Federal or state. I would say 80 to 85% of the infrastructure in the world is owned by governments. 20% is in private hands. Most of it is in hands of corporates because some of the biggest oil and gas companies, utilities in the world, transport companies in the world, digital companies in the own, own a lot of infrastructure. And over the last 18 years, which is when we started, GIP, the infrastructure as an asset class in the private alternative world has grown rapidly. So now a big part of infrastructure sits with funds like ours that own really large critical assets all over the world.

Mark Wiedman: What's the logic for infrastructure sitting in private hands?

Raj Rao: The logic for infrastructure sitting in private hands is that it can be managed better. Because if you think about infrastructure assets, most of the infrastructure assets are, some of them are monopolies, some of them operate in a regulated environment. Some of them operate in a protected environment. They really haven't been put through the rigor of what you would normally see in industrial company, and that breeds a completely different mindset of managing that asset, improving the operational capability of that and hence ultimately improving profitability. So, the logic for owning infrastructure is improving the service.

And I'm not saying that is universally the case because some government run assets are operated really well. The second is as government balance sheets all over the world have got stressed and you look at all over the world, pretty much every single large OECD country around has got deficits today. So how much can a government continue to fund growing infrastructure, existing infrastructure, upgrading infrastructure? I'm not even talking about new infrastructure. So that's the second reason why assets historically have transferred from government to private ownership. So, the combination of the two is the reason why it's a big growing private infrastructure community.

Mark Wiedman: Sometimes corporates even need financial help. Talk about that.

Raj Rao: A lot of times corporate needs financial help. And if you think about it, a large number of corporates are already sitting on big pieces of infrastructure within their portfolio. If you think about an oil and gas company, they want to drill for oil and gas, that's the biggest area where they spend capital expenditure on. And then to evacuate that oil and gas, they have to build a pipeline. Now actually it's not necessary for them to build the pipeline. Somebody else can do it for them, and as long as they have access to that pipeline, why do I need to own that pipeline?

Historically, corporates have owned that, but over the last 20 years or so, corporates have realized that it's a better use of their balance sheet to not to fund capital expenditure and actually spend capital expenditure where they're better off and getting a better return than owning a piece of pipe that someone else can operate.

And as long as they have use for that. It makes a lot of financial sense for them, and it then makes a lot of financial sense for us and our investors who are investing in this asset class.

Mark Wiedman: So that's where GIP comes in. What is GIP?

Raj Rao: GIP is a private equity style dedicated infrastructure asset manager, that focuses on four sub-sectors. Investing in energy infrastructure, and energy defined for us as anything that moves oil, gas, liquids, power. The second is transportation infrastructure, which is airports, ports, rail roads, think about digital infrastructure, which is data centers, fiber optic cable, telecom towers, all of which is necessary to get you to download data very quickly on your phone, or use AI very quickly, you need to have the data center capacity to do that.

And then water and waste infrastructure, which is recycling facilities collection, and then sort of incineration and disposal of all of that. So that is our definition of infrastructure and what GIP does. Invest in some of the largest infrastructure assets around the world, in these four sub-sectors, buys them, operates them, improves their financial capability, and at the end of the day, in some cases, sell them and return capital.

Mark Wiedman: How do you make investment decisions today practically?

Raj Rao: We start with focusing on the four sectors. So, it has to be the four sectors that we know, and we have built an area of expertise. We know what to look for and where we can generate incremental value and return for our investors. So, the first thing is choosing the right asset.

The second thing is we are value-add investors, a number of our transactions are with corporate partners, so more than half our transactions that we've done are 50, 50 joint ventures with large oil and gas companies, large utilities, transport companies. So, second is making sure that you get the governance right.

The third is, over the life of that asset, having a plan as to what are the four or five things we are going to really do in this company to create value? Is it de-risking it from a market perspective, construction perspective? Is it growing a market? Is it adding an incremental like to what we are doing? So have a thesis as to what are the four or five things you're going to do in the asset to improve the profitability and then execute it.

But one of the things that, I believe that we've done really well is at the time of investing already thinking. How are we going to exit this investment? 5, 7, 8, 10 years down the line? So, we deliberate a lot as to who's going to be a logical buyer and what do we need to do to attract an investor?

So those are the things that we think through very carefully. And then we have also started thinking a lot over the last eight, nine years. How is this asset going to be positioned from a transition towards net zero over the next 10, 15, 20 years? Because one thing is very clear that if what you own today and you don't reduce the carbon footprint of that, it's going to be very difficult to eliminate the carbon footprint for most of the assets - over a period of time you can, but during our lifetime of ownership, five to 10 years, if we can demonstrate that we are reducing the carbon footprint of that investment, we will attract more investors when we sell. So that's another area that we think through a lot as we are making a decision-making process.

And then we sit through in a room, debate it at length, and then come up with a value that we want to pay for it. And sometimes we win, sometimes we don't. The worst mistake you can make is fall in love with something, pay for it a lot, and make a big mistake. So, discipline is super important in how you get to a decision on an investment,

Mark Wiedman: Let's talk about two of the frontiers, the areas where you're most active in infrastructure investing going forward.

Raj Rao: One is around the transition to a low carbon economy, and then the second is AI and data centers may have some overlap. AI and data centers It's a game changer from an infrastructure perspective. I'll give you some numbers. In the last 15 years in the US there has been no growth in power. Demand and growth in power demand has been offset by efficiencies to a certain extent. If you look at the load growth, it's been flat. With cloud computing increasing and more importantly, with the advent of AI, the US is going to add growth in electricity is going to be 2.5% growth per annum. That is a massive increase in the amount of power that is going to be needed. That is a massive increase in the amount of infrastructure needed to move the power. That's just one example.

You do a normal Google search, and you do an AI enabled ChatGPT search or any of those searches, the amount of power you need for that same search is 10 x. So, the amount of power needed is huge for AI. Again, the computing capacity that you need, the chips capacity, you need the data center build out that you need to warehouse all the kit that enables you to do the fast computing that you want is increasing at a rate fivefold.

All hyperscalers put together deployed about $230 billion in CapEx for building data centers in 2023. In 2024, that number is going to be 20%, 25% higher. That number is going to grow to 500, 600, 700 billion to a trillion dollars a year going forward. That has to get funded, and that has to get built. And what is the infrastructure data center here? It's the building. It's the land, it's the permitting, it's the power, it's the cooling. This is not including the chips and all the stuff that needs to get, put in, as well. So that capacity that's going to get built in is so large that it needs to be funded.

Sounds very simple, but it is extremely complicated to get the land, get the grid, get the permits, build it, cool it, because you can't afford to have a failure here because this is 24/7. So, the availability of the data center and the cooling needs to be a hundred percent. So, you're building something here, which is designed to make sure that it doesn't fail. So, you build backup facility after backup facility to show that, if something fails, there's something else that kicks in so that all these chips remain in a cool environment.

Mark Wiedman: Let's talk about the energy transition. Why is that relevant for you as an infrastructure investor?

Raj Rao: Because the bulk of what is required for energy transition is a combination of two things. New build infrastructure that does not exist today. Or repurposing existing infrastructure to make it better and resilient in the future.

And the trend of decarbonization is irreversible. And the reality is you can argue whether is the world going to get to net zero by 2050 or not, but what is very clear, a lot of going to flow in for the world to get very close to that target.

How close time will tell, but that trend is there. And then private capital. It's a massive opportunity to build a significant piece of what is required. And we've seen this in renewables. If you thought what has happened and built in renewable capacity since 2006, so think about it this way, the amount of capital that was put into renewables in the last 10 years, double of that is going to go into renewables in the next 10.

And that's just renewables without batteries. I think about adding battery because what you want ultimately is green power 24/7. We're not close to that at the moment, but you need battery. You need all different forms of storage to get to a combination where it is a much longer than 20% load factor.

So that is one piece of the economy, but look, if you think about hard to abate sectors, steel, chemical, fertilizers, they all emit carbon. They all want to get to a point where the carbon footprint reduces. So, industry has to transform its method of generation of all of these to reduce the carbon footprint, which is going to require a lot more capital to go in, which is going to require a lot of technology to go in.

So, the space in energy transition investment is so large. Again, it's trillions of dollars and we talk about digitization being a trillion-dollar opportunity. That is the opportunity that we have today, and I'm not even talking about creaking existing infrastructure that needs to be upgraded, which also is another big opportunity.

You add all of those three together, the capital that is needed to build, repurpose, or improve existing infrastructure is so large, which cannot be funded by government, can be funded by private sector, combination of corporate. And private pool of capital, which is why the opportunity ahead of us is so large over the next 10, 20, 30 years.

Mark Wiedman: Raj, you've talked about operational improvements. What does that actually mean for one of the assets you own?

Raj Rao: Operational improvement is going inside a company, looking at how they run their day-to-day business and seeing can we change the way they operate to make it better? And if we change the way they operate to make it better, is that going to give us a financial reward? Is that going to make our customers happy? And if it actually can deliver both of that even better.

So let me give an example of Gatwick. We did many different things at Gatwick. Gatwick is in the UK. It's the second largest airport in the UK. It's on the outskirts of London, just outside of the M25. It is single busiest airport out of a single runway anywhere in the world.

When we bought Gatwick Airport, we had a plan to increase the air traffic movement at peak time to 55. We called it the ‘drive to 55’. And what's an air traffic movement? An air traffic movement is a landing or a takeoff. So, at peak time, which is early in the morning, 7-7:30 in the morning till about 9 when everybody wants to fly, we were doing 45 in an hour or 47 in an hour. We systematically worked on a different set of initiatives, and we had worked with the air traffic controller. We had to work with all the airlines. We have to work with the crew in the gate to turn things around quickly. As soon as the plane touched down at the runway, we had to get it off the runway so that someone else could land.

So, this was a series of processes that we needed to think through. What's the most optimal way for the sequence of landing or a takeoff? Is it a takeoff landing? Is it a landing takeoff? We did all this analysis. Mechanically we worked out a process to say if we do this, we will increase the air traffic movement at peak time. So it was that drive that ultimately led us to getting to 55. Now why is that important?

It has to be done in a safe way. So, to work with the Civil Aviation Authority in the UK, the regulator, to make sure everything's fine, it'll work with the air traffic controller to make sure everything is done safely. But at peak time, airlines pay for capacity. So, our ability to sell that extra slot that we've generated. So, billion pounds of value that we created just through that one initiative. It didn't happen overnight, but it needed an operational team to work very closely with everybody at the airport to drive that. That's just one example.

The second is security. And at an airport when you go through security, some people, get stressed because it takes a long time. You're stuck in queues, and you are at the end of it when you come on the other side, very disgruntled. Our plan was very simple. Let's do something that can get our customers through the security lane as quickly as possible, as de-stressed an environment as we can. And you go to some of our airports, you will see how quickly we get people through, through the security channel.

And as an airport or owner, when you have got through your clients through security quickly in a de-stress way, you've done two things. A, they're happier when they come on the other side. B, they have more dwell time. And what do people do at an airport when they have dwell time? They go and buy something. They buy a coffee, they buy a newspaper, they buy a bag or whatever it might be. And as an airport owner, that's a positive because you add it to your bottom line. So, focusing on customer service, focusing on the processes has led us to making our airport better, making our airlines happier too, because when we get clients through the security faster, our airline customers are also happy, customers are happy, and that has generated financial reward for us than our investors. So that's just two examples that really show what we are capable of doing.

Mark Wiedman: Raj Rao, thank you and welcome to BlackRock.

Raj Rao: Thank you, Mark for having me,

Mark Wiedman: In the next episode, I'll be speaking with GIP partners, Matt Harris and Salim Samaha about how the transition to a low carbon economy is driving massive demand for new infrastructure and what this means for investors everywhere.

<<THEME MUSIC>>

Spoken disclosures at end of each episode:

This content is for informational purposes only and is not an offer or a solicitation. Reliance upon information in this material is at the sole discretion of the listener.

For full disclosures go to Blackrock.com/corporate/compliance/bid-disclosures

MKTGSH1124U/M-3988028

The Bid Infrastructure Mini-series Ep2 The Low-Carbon Transition: A $100 Trillion Infrastructure Opportunity

Episode description:

In the second episode of our infrastructure mini-series on The Bid, guest host Mark Weidman, speaks with Matt Harris and Salim Samaha from Global Infrastructure investing to explore one of the biggest opportunities in infrastructure, the global transition to a low carbon economy.

Sources: IEA Net Zero 2050, May 2021; Bloomberg New Energy Finance (BNEF) New Energy Outlook 2024 (May 2024); LevelTen Energy - Q1 2024 PPA Price Index Executive Summary - North America;

This content is for informational purposes only and is not an offer or a solicitation. Reliance upon information in this material is at the sole discretion of the listener.

In the UK and Non-European Economic Area countries, this is authorized and regulated by the Financial Conduct Authority. In the European Economic Area, this is authorized and regulated by the Netherlands Authority for the Financial Markets.

Reference to the names of each company mentioned in this communication is merely for explaining the investment strategy and should not be construed as investment advice or investment recommendation of those companies. For full disclosures go to Blackrock.com/corporate/compliance/bid-disclosures

<<THEME MUSIC>>

TRANSCRIPT

Mark Wiedman: Welcome to the second episode of our series on The Bid, where we're exploring the world of infrastructure investing. I'm Mark Weidman, your host.

Last time we spoke with Raj Rao, president and COO of GIP, Global Infrastructure Partners, now a part of BlackRock for a primer on infrastructure investing. How the asset class began, what's driving its growth and why it's becoming a must have in investors' portfolios.

Today, we're building on that foundation to explore one of the biggest opportunities in infrastructure, the global transition to a low carbon economy. The shifts fueling a wave of new energy infrastructure projects worldwide. On the supply side, that means gas extraction, renewable power plants, and electricity transmission. On the demand side, we're talking about investments in electric vehicle charging stations, industrial equipment, and full energy systems. Together, these developments are creating some of the most significant opportunities in infrastructure investing.

To unpack all this, I'm joined by Matt Harris and Salim Samaha. Matt is a founding partner at GIP who oversees energy transition and decarbonization investments. And Salim leads new energy investments as GIP’s Global Head of Energy.

Matt, Salim, welcome to The Bid,

Matt Harris: Thank you, Mark.

Salim Samaha: Great to be here, Mark.

Mark Wiedman: Matt, looking out, when you think broadly about the infrastructure world, how's demand for infrastructure investing, in other words, the places to invest going to change over time?

Matt Harris: It is increasing, and in my opinion, it's increasing at a rate that is as attractive as any other asset class out there for 4, specific reasons. One, the general refurbishment that's needed in the infrastructure asset class. Two, energy transition and decarbonization. Three digitization. We've all read about AI and power convergence. Four, emerging markets where the infrastructure span in the developing world is expected to be about two thirds of what's required, all set against the backdrop of increased government debt and a lesser and lesser ability of government to fund these types of assets.

Mark Wiedman: Salim, Matt just brought up the energy transition. How big is this opportunity around the transition?

Salim Samaha: It's a pretty significant, opportunity about a

Mark Wiedman: A hundred trillion?

Salim Samaha: A hundred trillion! . Clearly there's going to be a cost to doing that, but there is a cost of not doing it. There can be some significant savings along the way, through improved technology and a real focus on coming up with more sustainable technologies.

Mark Wiedman: Let's dig into some of the areas where you see as most promising. Infrastructure investing in the transition, what are the top two or three sectors that you see as most appealing?

Salim Samaha: Electrification is one theme. Clearly renewable investment will continue representing about half of all transition investments. That's going to include solar, wind, battery storage. It's going to include transmission. the grid will be more distributed. And so, the need for additional transmission and distribution assets will be quite significant.

Clean fuels - a lot of people don't recognize that It's not electricity, and it's a significant challenge to decarbonize all of those molecules.

And then one of the things I'm most excited about are decarbonization partnerships. Anytime you're building new infrastructure, it has to be a lot more sustainable and it's going to require a significant public and private investment in order to enable that change.

Mark Wiedman: Matt, how do you look at decarbonization or the transition to a low carbon economy as part of the infrastructure world?

Matt Harris: As Salim mentioned, this a $100 trillion number, roughly half of that is infrastructure and that includes renewables, includes batteries, includes alternative fuels, EV charging, hydrogen, alternative forms of effectively powering vehicles, et cetera.

So, the enabling piece of the energy transition, is really infrastructure. We've had 150 or 200 years of building a fossil fuel economy. And I think it's really important to really understand that when we talk about a fossil fuel economy, it means that So, the complexity of unwinding that system and turning it into something that is either electrified or uses clean fuels is immensely complex and the infrastructure is what enables it.

Mark Wiedman: The transition to a lower carbon economy, lots of infrastructure, highly capital intensive. Why's so much capital needed?

Matt Harris: Well, large-scale infrastructure and we live in a globally interconnected world, is expensive. And you're talking about liquified natural gas plant or a utility scale solar farm. Or a large ethanol facility, any type of distributed electricity. These are assets at scale, and so the capital investment is significant in order to serve the population that relies on it.

Mark Wiedman: Matt, how would you locate decarbonization or the transition relative to other big opportunities in infrastructure over the next 30 years?

Matt Harris: I think over that 25- or 30-year period, Mark it's the largest because it requires a complete reassembling of our global economy.

Mark Wiedman: Hence the 50 trillion you're talking about that needs to get invested?

Matt Harris: Correct.

Mark Wiedman: Salim. Let's go back to electrification When you see the transformation of the energy system to be heavier reliance on electricity, what does that imply in terms of what needs to be built and invested in?

Salim Samaha: So, that requires the build out of solar, wind, battery storage. longer duration, storage than battery storage because there's an intermittency to the wind and an intermittency to the solar.

Mark Wiedman: Salim, where do you see the biggest opportunities in electrification for investors that you're working with?

Salim Samaha: I see it in electric transmission and distribution. We think that's a very low risk way to play electrification. And there's a massive capital need. Storage is going to be increasingly valuable. And we think electric mobility is going to be significant because the electric motors are significantly more efficient than the internal combustion engine.

So, not only can you clean up the source of the power that's being generated, you can also create energy efficiency, which reduces energy demand. And my mother taught me that if you can figure out a to save a couple of pennies that is very worthwhile long-term.

Mark Wiedman: Salim, if you were forecasting the future, in 10 years and 20 years purely on market forces, what will be the relevance of electric vehicles versus internal combustion vehicles?

Salim Samaha: For lighter duty applications such as the car that you drive every day, no doubt in my mind, electric vehicles are the way of the future because they're a lot more efficient than internal combustion vehicles and there's a lot more technology that you can pack into a vehicle because it has a lot fewer moving parts. For much heavier duty applications where you're moving huge equipment or huge materials, batteries are very heavy. They take up a lot of space that you need to move around these bulk products. And whether it's hydrogen or decarbonized diesel, those are going to be the primary energy sources.

Mark Wiedman: You talked about clean fuels before. What is a clean fuel and why would I want one?

Salim Samaha: So, what are fuels- let's start with that. You've got gasoline, you've got diesel, you've got jet fuel. and you have marine fuels. And how do you create those fuels? With a lower carbon intensity, you can use different feedstocks.

One is biofuel. So, you're growing crops such as soy and you're crushing them. And then you're creating sustainable aviation fuel. You can be taking animal fats and turning those into sustainable fuels. And what's beautiful about doing that is you can put those fuels in the existing infrastructure that we're using today which is very beneficial from a cost perspective and less disruptive to the communities because you're not rewiring the infrastructure that already exists.

Mark Wiedman: You mentioned a third category before?

Salim Samaha: It's a theme of decarbonization partnerships. So, think about mining companies. We're going to need a lot more copper to build out everything around, electrification. How do you do that in the most environmentally friendly manner. You're going to need trains that that move on electricity or hydrogen. You're going to need big trucks that move with, decarbonized fuels or even electricity. So, there's a massive multi-billion-dollar opportunity around each mine that we need, and the needs are going to be significant.

Mark Wiedman: Matt, are traditional fuels dead?

Matt Harris: No, they're not dead. They're going to be around for quite some time. But you're going to see, one, an increase in the usage of electric vehicles. And also, as Salim was describing, more and more clean fuels that can be used in a combustion engine. Those are called ‘drop-in’ fuels, obviously, they can ‘drop in’ to the existing vehicle, but they're going to be around for a while.

Mark Wiedman: Talking about intermittency, why is nuclear additive to renewables?

Matt Harris: Because it's base flow's capacity, there's no intermittency to it. So nuclear historically has been, very significant portion of the generation fleet in the United States. It's been decreasing because the cost of the facilities has been very unpredictable at these large utility scale facilities.

But what's on the horizon today is what we call an SMR, a Small Modular Reactor. So, the size is much more manageable, and these are in the pipeline, although we don't have any working yet, but nuclear would be an important base load part of the power stack.

Mark Wiedman: Salim, you mentioned natural gas before. Why is that attractive as a supplement to solar and wind?

Salim Samaha: Solar and wind, are intermittent. So, the sun's not always shining, and the wind is not always blowing. So, what, you need is something that has half the carbon content of coal and there's still too much coal in the world to make up for that intermittency and provide a base load source of power.

Mark Wiedman: What are the economics today in the OECD or the major and wealthier countries of marginally producing renewable power versus off of hydrocarbons?

Salim Samaha: Renewable power is very competitive, but then up to a point. What do I mean by that? and you can make a lot of money doing that. But when you get to a point where there is so many renewables on the grid and the intermittency of those renewables becomes an issue, now you're going to need, additional storage.

So, it's not fair to then compare the cost of that renewable compared to something like natural gas generation where you have a lot of predictability around, how you're going to be generating that. And what we're seeing is the value of the capacity that these natural gas fired plants have is much more and more valuable as renewable penetration increases.

Mark Wiedman: So, just put some numbers around that. How do you see the growth of renewables and therefore when eventually you get to a place where the system has a challenge?

Salim Samaha: So typically, if you get to roughly 50% renewable generation on the grid. What's happening is the sun is shining at the same time; the wind is blowing at the same time that there may be insufficient demand to use all of the generation from these renewable resources.

And so, what that means is you have to overbuild them and that becomes very expensive. So, now you need different fuel sources that are not correlated to them, that provide value to the system to be able to meet the demand when the demand actually occurs.

Matt Harris: There's two ways that you can, in effect, manage this idea that Salim's talking about. One is base load capacity. Obviously, we want base load capacity that's got a reduced CO2 footprint. That's where nuclear and potentially geothermal can be very effective.

The second option, which is still, being worked on is long duration energy storage. So that excess electricity that Salim is talking about when the sun is shining can be stored and used later when the sun is not shining,

Mark Wiedman: So, what is long duration storage and what are some examples?

Matt Harris: Eight plus hours. There's a lot of people working on long duration storage, but we don't really have an answer yet technologically to what an effect would create that base load capacity that Salim is talking about. So, in a perfect world, you would generate all your electricity from hydro, solar, wind, maybe even geothermal, and have enough storage so that when you had excess electricity, you could store it and then use it when you needed it. But the storage capacity is not long enough to do that. So, if you had one or two days where there was no sun shining, or the wind wasn't blowing, you wouldn't have a way to meet your demand.

Salim Samaha: The are a couple of examples. One is an old technology, pump storage. You take water when electricity is cheap, and you have excess electricity. Move that up into a reservoir and then you drop the water into a turbine when you need the power. Another thing people are working on is compressed air storage.

So, when you have that excess electricity, you pump air into these caverns at pressure and then when you need to spin a turbine, you release it. And there are other innovations that, different companies are working on that are promising, but they're going to take some time.

Mark Wiedman: Permitting. Let's talk about that. Why is permitting relevant to this discussion, Matt?

Matt Harris: Because people don't want an electricity wire or a gas pipeline or a storage tank running through their backyard or their community.

Mark Wiedman: Salim, most of those constraints, those environmental constraints were imposed by laws designed to protect the environment. Part of the decarbonization goal is to protect the environment. Resolve please.

Salim Samaha: I think that's why one of the things we're most excited about is how can you buy existing infrastructure and use technologies that can leverage that existing infrastructure, so you don't have to go through the permitting process all over again, drop in fuels that Matt and I were talking about earlier is one example of that.

Mark Wiedman: What are the sectors you're long and short. You can't really short in private markets, but you get the idea - what are you long you're eager to invest in versus where would you shy away from. So Matt, why don't you kick it off? Longs and shorts.

Matt Harris: I'm not sure I'm sure short anything as it relates to the energy transition. I'm definitely long electricity, and I'm along the intersection of data and power.

Mark Wiedman: So, what does that mean?

Matt Harris: Artificial intelligence, cloud computing - you need infrastructure in the form of data centers to house all that capacity, and you also need power to run it. So, that intersection where those two pieces of infrastructure or the infrastructure value chain converge is a huge opportunity.

Mark Wiedman: Salim, longs and shorts.

Salim Samaha: I'm also very long, electrification because I like the efficiency benefits of electrification. but I'm also very long, mining, companies and mining infrastructure because in order to move into a decarbonized world, we're going to need a lot more materials. And these mining companies are going to play a central role in that we're going to need more lithium, we're going to need more copper. We're going to need more graphite, and I also think that the companies that control existing infrastructure that moves molecules today, such as the midstream companies, are going to play a bigger role in the energy transition that what they've been given credit for historically.

Mark Wiedman: So, we huddle in five years. How will this conversation be different?

Matt Harris: I would say we will be talking about the pace of the energy transition and wish that it were faster. As we talked about earlier, it's complex, it's multifaceted, it's deeply ingrained in our economy, and it's going to take time.

Mark Wiedman: I think you're going to have lots of ups and downs in the narrative around the energy transition. I think as you see more storms, as you see, people being impacted by them and migrating. I think the costs, of not pursuing the energy transition are going to become more evident and we'll continue to see policies, go up and down with world events.

 Salim and Matt, thanks for coming on the show.

Matt Harris: Thanks for having me.

Salim Samaha: Thank you for having me.

Mark Wiedman: Thanks for listening to this episode of The Bid. In the next and final episode of our infrastructure mini-series, I will be speaking with Will Brilliant, global head of digital infrastructure. We're going to talk about how artificial intelligence is driving massive demand for new data and energy and the opportunities it creates for investors. Subscribe to The Bid wherever you get your podcasts.

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