Digital and energy infrastructure are being forced to combine to see through the AI revolution
Infrastructure is often talked about as though it is a monolithic asset class, but the types of underlying assets can be hugely diverse – from toll roads to electric-vehicle charging, from airports to fibre-optic networks. More importantly, the wide-ranging types of assets associated with infrastructure are never static and have been evolving in line with technological advancement.
For instance, there was a time before renewables were a core part of institutional infrastructure portfolios. Then there is what used to be known as ‘communications infrastructure’, including assets like telecoms towers and more latterly fibre networks. That term has now been subsumed under the all-encompassing ‘digital infrastructure’ banner. Today, this is being led by the huge buildout of data centres and the infrastructure needed to support the dizzying growth of AI and cloud computing.
Can AI and decarbonisation co-exist?
But this area of infrastructure is still evolving. In fact, it is beginning to cross fertilise with the other major growth area – energy infrastructure. Building the requisite volume of data centres calls for investors to square the circle of energy and water intensity – two factors that are pushing in the opposite direction to investor efforts to decarbonise economies and improve climate resilience.
The world’s largest tech firms and the biggest data-centre platforms know that one of the biggest potential impediments to the AI goldrush is a political, regulatory and popular pushback against building more energy-hungry and water-thirsty AI and cloud facilities. Hence, the marriage between digital and energy infrastructure.
Digital and energy: an inevitable marriage
The clearest illustration of this is the $1.05bn acquisition of power infrastructure specialist ArcLight Capital Partners by data-centre specialist DigitalBridge in May. But there are more recent examples.
Take, for instance, Copia Power, a platform founded in 2021 by US private equity firm Carlyle, which builds data centres across the US and connects them with the renewable power. This month, Swedish private markets fund manager EQT paid $2.bn to acquire Copia Power, which is developing over 9GW of grid-connected data centres, supported by a gigawatt-scale energy campus portfolio comprising upwards of 25GW of solar and storage alongside 7GW of natural gas generation assets.
Pooja Goyal, CIO of Carlyle’s infrastructure group, said: “When we established Copia, our thesis was that power would be the defining constraint for electrification and the digital economy, and we moved with conviction. Rather than acquiring an existing business, we saw an opportunity to create a differentiated platform that was built for purpose, specifically to target this constraint in a scalable and commercial manner.”
EQT, which is investing on behalf of its seventh global infrastructure fund, said it will support Copia’s management team in scaling the platform, advancing priority development projects and expanding its integrated campuses strategy throughout the US. Alex Darden, partner and head of EQT infrastructure Americas, said: “The rapid adoption of AI is transforming infrastructure demand, making energy an increasingly critical enabler of digital infrastructure. Copia has built a differentiated platform at the intersection of these two themes, and we believe it is exceptionally well positioned for long-term growth.”
Brookfield and Bloom: A match made in heaven the cloud
Another example is the ongoing partnership between Brookfield and Bloom Energy, which was expanded this month from $5bn to $25bn. Under the agreement, NYSE-listed Bloom Energy serves as the preferred provider of clean, onsite fuel cells across Brookfield’s global AI data centre portfolio.
At the time of the announcement, Sikander Rashid, global head of AI infrastructure at Brookfield, said the partnership strengthened his firm’s “position as one of the leading global AI infrastructure investors, capable of delivering end-to-end solutions, from electrons to tokens”. Earlier this year, Rashid spoke to IPE Real Assets about Brookfield’s ambitions to invest $100bn in AI infrastructure, and how its “AI infrastructure teams work hand in hand with our power teams to help underwrite certain types of technologies, whether in batteries, fuel cells or nuclear”.
Top 100 infrastructure managers: A €1.3trn AUM industry
As much as AI continues to dominate headlines and exercise the minds of investors the most, the biggest focus area for the world’s largest infrastructure fund managers continues to be the energy transition. For the second year in a row, it was cited as the biggest sector opportunity for investment, ahead of digital transition and then transport, in the latest Top 100 infrastructure investment managers survey by IPE Real Assets. This is an important finding for an industry that has more than doubled over the past five years to reach €1.3trn in assets under management.
Meanwhile, investors will also be concerned about whether the growth in AI is sustainable and whether they are in danger of investing in the next tech bubble. Rather than simply doubling down on digital infrastructure, many investors are looking to broaden their focus to energy, transportation and other assets also positioned to benefit from an AI-driven economy, without carrying the same execution or concentration risks.
Chris Haines, principal at Hodes Weill, says that, as power becomes central to data centre growth, investors are increasingly drawn to energy and other strategies that can benefit from rising digital demand without assuming the same concentration risk. “In digital, we are seeing increasing interest in what investors describe as ‘adjacency’ plays – with potentially lower execution risk and more predictable returns,” he says.
