At the Crossroads of Infrastructure and Technology: Disruption and Opportunity
by Chris Anderson
This is Part I of a three-part series on infrastructure and technology. Parts II and III will publish in the October and November issues of i3, respectively.
As we look to the future, new technological advancements, from green energy to driverless vehicles, promise to impact and benefit our lives. In the world of infrastructure, we have already seen how innovations such as 3D modeling and drone imagery are helping to design and maintain assets, but with technology developing at an ever-increasing rate, could this actually pose an issue for investors?
Infrastructure investment is a long-term commitment, with assets offering a lifespan of 50 years or more, and in the current fast-paced environment, it can be difficult to predict the landscape from one decade to the next. Yes, there is the promise of automation, artificial intelligence (AI), and even smart cities and connected infrastructure, with many interested parties, from established tech companies to disruptive startups, pushing to make this a reality. But how can investors and fund managers take advantage of this, capitalizing on the trends and seizing the potential opportunities? Those failing to adapt will be vulnerable to technology risk, with the nature of an asset changing or even becoming redundant.
Embracing change
Companies working in infrastructure are already feeling the push for greater technological advancement. As Jesse Devitte, co-founder and general partner of Building Ventures, describes, “Innovative technologies and the capital to birth more startups to bring them to market are arriving at the same time. In terms of how we design and build our world, the way we do that is changing. The ‘built’ world is finally en route to losing its status as the last major sector of the global economy yet to be transformed by technology.”
Marie Lam-Frendo, CEO of the Global Infrastructure Hub, has noted an increased demand for technology as a result of the recent coronavirus pandemic. “Technology is able to continue the operation of critical services,” she explains. “Reduced disruption means continued services and revenue, and it can also help to build resilience against the risk of future pandemics. For example, technology could reduce the numbers of workers needed to be onsite, or measure the temperatures of people arriving to an airport.”
But for Ross Israel, head of global infrastructure at QIC, technology has always been a cause of disruption for infrastructure. “It was the rise of the railways that disrupted canals, or electricity that replaced kerosene,” he says. “We’ve seen these developments before, but the challenge is to back the right technology.
“In each area, whether it’s energy, transportation, materials or communications, what will be the dominant solution? Could it be hydrogen or electric powering vehicles, for example? It’s part of this curation risk you have because you’re buying assets that have large fixed components that you need to get a return on for a long period of time, and your worst nightmare is obsolescence or stranded-asset risk in infrastructure.”
Causing disruption
Efficiency, sustainability, and costsavings are among the incentives driving the adoption of technology. Planning, monitoring and problem-solving can all stand to benefit, with automation and AI; the advancement of durable, sustainable materials; and drone scanning to identify issues with greater accuracy and frequency all helping to increase the levels of confidence in an investment. In these areas, data is key, and can be gathered from a variety of sources and uploaded to a ‘digital twin’ — a virtual depiction of the asset in real time, accessible to relevant parties, and helping to track scheduling, maintenance updates, budgets and so on.
This concept is being worked on by Wayne Gerard, CEO of RedEye. “We provide digital twins for large complex assets,” he says. “Our cloud and mobile platforms incorporate existing engineering data, asset documentation and media, as well as data feeds from IoT (the internet of things) and drones, and leverage AI to improve performance and maintenance, which ultimately delivers real savings and operational improvements. Think of it as a single source of truth for all of your asset information, accessible via your smartphone.”
Terry Bennett, owner and chief strategist at Infra Foresight Consulting, also explains how the use of technology is helping to lower costs. “You can now build an asset digitally first, then work on the timescale and stages according to which contractors are the most critical or expensive — the ones you can’t afford to have delayed. It gives firms more control over the project.”
Technology is being developed by a variety of sources, too, with startups vying for the attention of the market, in addition to more established companies. “I think it serves a startup mentality, and it’s important not to ignore or make it all about corporate,” says Rosemarie Lipman, CIO and SVP, digital data and engineering at EllisDon. “I think that encouraging grassroots innovations is important because that’s often how you can develop very quickly, proof of concept.”
Growth opportunities
It is likely we will see further technological disruptions in a number of key areas, such as utilities, transportation, social infrastructure, renewable energy and telecommunications. Where change will be felt most strongly is difficult to predict, but that has not stopped investors looking for opportunities. Assuming that electric vehicles continue on their current trajectory, for example, growing energy demands will increase pressure on local utility networks and circuits, with the owners of the grids needing to replace and upgrade their technology to cope with the added demand.
“It’s a similar story with digitalization,” says QIC’s Ross Israel. “With IoT, the massive connectivity that is required, from fiber-optic and telecommunications, and in particular 5G, the infrastructure for all of that will really need to be enhanced.
“We can already see how telecom towers, fiber-optic cables and data centers have grown in importance to investors, and this is likely to continue. I think we’ll see a similar growth in renewables wind and solar, and connecting infrastructure, in particular energy storage.”
Lipman has also identified other key areas for growth. “Technology that benefits productivity I would expect to see adapted quickly,” she says. “Also, technology that improves transparency or insight into the development, construction and performance of an asset.”
Industry challenges
Although there is much potential for the relationship between technology and infrastructure to advance, it is not without its challenges. “There’s still a lack of a deep connection between the tech and infrastructure industries,” says the Global Infrastructure Hub’s Marie Lam-Frendo. “Partly, this is due to an overall limited awareness in identifying the technology, but also there’s an issue of financing. Historically, infrastructure is a low-margin sector, and research and development are often challenged.”
Speaking on the technology offered by startups, James Harkness, strategic account director at Juniper Square, discusses the challenges he has seen. “Big companies can sometimes be hesitant about going with an unproven, disruptive software name, which is understandable,” he says. “And if the decision makers aren’t necessarily from a technology background, they might be focused more on investments and transactions, and how they grow their business, rather than prioritizing the benefits that technology can bring.”
With so many players looking to get their technology to the forefront, that can also mean a lack of standardization and compatibility between products. And there continues to be questions surrounding legislation and guidelines, and ultimately how data is owned. “There’s a number of challenges,” confirms Henri Blas, chief content officer of the Global Infrastructure Hub. “The complex thing is, because technology is constantly evolving, it’s hard from an investor or government perspective to feel comfortable around the choices. There can be hesitation. Do you adopt a particular sensor, buy or rent it, and what are the implications of that?
“Standardization is important too, but you don’t want to create standards that prevent innovation as well. Also, it’s difficult to have a global standard because attitudes to technology and data sharing vary around the world — in Asia, for example, it’s seen as a benefit, but in Europe or the U.S., it can be viewed as an intrusion.”
Lipman acknowledges that with so many parties working on an infrastructure project, it becomes even more difficult to allocate data ownership. “You have suppliers, contractors and subcontractors, but ultimately we take the position that it’s our client’s data, and the insight we derive should not only improve our own projects, but their portfolios, as well,” she says.
Building flexible portfolios
In building a portfolio, investors and fund managers need to display an awareness of technology, adapting to changes as required. As Ryan Hacker, president of TruePoint Laser Scanning, describes, “Because things are changing so quickly, I think the challenge is to keep up with developments, and also be able to spot the ideas that may look promising but, for whatever reason, are not the best solution.”
Businesses that embrace and respond to disruption will be best placed to thrive, with a strong data strategy that helps to inform their decision making.
“The managers need to be able to process that data and have the systems to analyze it well,” QIC’s Ross Israel explains. “That’s putting a higher bar on portfolio construction, primary and secondary sources of data, and being engaged with more detailed expertise – to identify the technology, understand and apply it.
“Our advice would be to think about having a spread of risk return, to contend with the potential changes that come with the different technologies. Also, look to decarbonization, renewables and digitalization as key areas of growth.”
Part II of the Technology and Infrastructure feature series will continue in the October issue of i3.
Chris Anderson is a freelance writer based in London.
