FINANCE


Refine business plans and forecasts using data analytics

Data have always been at the core of projecting future revenues and risks for infrastructure projects. Today, more than ever, we have richer data and better, more accessible tools to capture and analyze it. Investors can use these data pools and tools to examine certain aspects of infrastructure opportunities (such as demand forecasts, maintenance schedules, and operating volumes) and improve their assessments.

High stakes: How investors can manage risk in the new infrastructure environment

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Analytics can improve site selection and ensure that project design can meet the more accurate estimates of future capacity and service needs. Also, more accurate models of greenfield projects or expansions can decrease risk for both investors and governments; they may also result in lower capital and operating costs and the ability to push a greater number of projects through the pipeline.

For example, when assessing the revenue risks related to an urban transport system, an investor can build a model that integrates analyses of rider travel patterns, consumer preferences, and data sets supporting predictions on where people are likely to live, work, and play over the next 20 years. That model can also show government sponsors and citizens—who may well be the transport system’s financiers—the extent to which that project will likely reduce travel time and congestion. This in turn can lead to more accurate predictions of economic benefits.

The recycling of existing infrastructure brownfield assets that need enough capital infusion that they’re almost greenfield could be a sweet spot for investors. [For owners], really identifying risk, mitigating it, pricing it and putting it into the project package up front will make it more attractive for equity investors.

Data analytics may also help identify projects that are no longer viable due to shifting demographics or consumer patterns. Indeed, analytics may reveal some longer-term projects that have been in planning for years but no longer have a strong business case or economic development rationale.

To seize this opportunity, project sponsors—including private investors and government funders—can require data analytics to be integrated into project origination and planning. Public and private infrastructure financiers can lead the way. They should also work with sponsors to make these tools available so the modeling and potential outcomes can be transparently shared with stakeholders. Importantly, they can help build support for projects by working with governments to provide clear and supported assessments of the economic and social benefits.

Build flexible assets to capture a range of funding sources over time

Infrastructure is generally viewed as among the most permanent single-use investments. Much of the infrastructure being built today is meant to provide exactly the same set of services for 30 years or longer. The assumptions are that, indefinitely, airports will continue to support planes and passengers, parking lots will still house cars, and highways will serve commuters who need to travel from suburbs into city centers and back home again.

But are those fair assumptions? Technology is changing mobility—how we get around, where we go, and how we power our transport systems. Furthermore, population growth and urbanization are triggering the repurposing of already-built environments and are demanding more from infrastructure assets.

These trends make it more likely than ever that much of the infrastructure financed today could look very different 30 years from now. The rapidly changing needs of society necessitate additional infrastructure services for different groups of users. For example, many greenfield roads are designed with expansion potential and with rights of way for fiber and power lines. However, roads authorities should now be thinking about flexible designs that allow for rapid lane direction changes, express lanes, adaptive exits, in-road electrification, and even the option to allow for accommodating rail and other types of mass transit as the population grows.

Owners of major civic buildings intended as government office space or courthouses should assess the potential for their buildings to also house retail and commercial tenants, to function as an event space, and to net-produce rather than use energy. Their rooftops and basements could serve as parking and service centers for flexible car services, autonomous vehicles, and airborne vehicles and drones.

Accommodating the need for flexible infrastructure will require sponsors, planners, and users to invest in assessing the most likely future trends, deploy data and analytics tools to assess potential and risks, and then integrate flexibility into the financing business case.

Building materials, design, and technologies need continued innovation to integrate energy into infrastructure and operate it more efficiently. Investors need to be well-versed in these technologies and willing to invest in their deployment—even if there is some risk. Sponsors and governments need to consider changes to their project procurement processes to reward infrastructure developers and investors that propose flexible solutions with longer-term sustainable business cases.

Given the rate of technological progress and evolution, technology is no longer the primary limiting factor in capitalizing on the opportunities offered by big data and advanced analytics. The change management process and collaboration with diverse stakeholders are the main hindrances.

Include diverse revenue sources in financing plans

Traditional public-sector funding models for infrastructure will not meet the world’s infrastructure needs. But users of infrastructure services cannot be expected to finance the high-costs of complex transport, water, and utility systems alone. High user fees and rates often have the effect of driving users away to alternative routes and distributed services. They can also make some infrastructure services unaffordable for lower income users. Additional revenue sources must be integrated into the financing plan for infrastructure whenever possible to make projects bankable and politically acceptable.

The department of transportation of the future

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Additionally, the trends compelling the need for flexible infrastructure will reinforce the likelihood that infrastructure assets of the future have multiple revenue streams. Established models of transport-oriented development, for instance, in which rail and bus stations and airports are financed partially by integrating real estate development and retail revenues into the base-case financing model, are becoming the norm. They are also now being extended to a wider range of infrastructure assets such as ports, universities, civic centers, bridges, and roads.

The monetization of data generated by users on an infrastructure asset is still at early stages but will ultimately be a part of any infrastructure assets customer and financing strategy. Integrating diverse revenue streams with unique drivers and risks presents challenges to the traditional model of project financing, but it also opens new capital sources with different risk and reward profiles. Importantly, it creates new opportunities for the public and private sector to work together to finance more infrastructure faster.

Build and broaden investors’ in-house digital expertise

These new models for infrastructure finance all have one thing in common: they will require public and private infrastructure financiers to integrate new capabilities alongside their traditional investing expertise. Given how essential data analytics is becoming to origination and due diligence, industry first movers are hiring in-house data analytics professionals. Others need to follow suit to remain competitive. Furthermore, as they look to secure new opportunities, many investors will find that success will depend on their ability to bring design expertise as well as familiarity and comfort with new revenue streams.