Proximo's Year in Review: The festive trends round-up

Proximo’s Festive Trends Round-Up and Draft is fast becoming an institution. It started as a podcast, and now takes place annually as a webinar. It’s a chance to take a look back at the previous year - and take a stab at what might be the most significant features of the project, energy and infrastructure finance markets in the year ahead.

The task is not easy. Even in a normal year, divining trends in diverse regions, sectors and financial markets is not easy. When dislocations like Covid-19 come along the task gets even harder.

But Proximo’s regulars are made of stern stuff. Proximo supplies eight trends that it thinks are significant, and then in three rounds, asks its guests to pick the most important ones. Each trend can only be picked once. Guests can pick from that list, or for one round only they can introduce their own trend.

The guest line-up was:

• Tom Nelthorpe, contributing editor, Proximo (moderator)
• Michael Whalen, managing director, Berkeley Research Group
• Ian Cogswell, senior advisor, Portland Advisers, and founder, CCC Training
• Jonathan Yellen, investment director, OGCI Climate Investments

The whole session is available to watch on demand below. 

Here is the list of trends:

It’s time to pay more attention to methane

Jon, who this year joined OGCI Climate Investments, noted that there are some obvious wins available in methane abatement, since methane, while less prevalent than CO2, is a much more potent greenhouse gas. (Jon’s own trend)

COP26 happened. Did it change much? 

Michael felt that while the news from the COP26 summit in Glasgow was far from inspiring, the direction of travel is still clear and the market looks ready to deliver on the political ambition

The oil and gas industry is far from out

Ian noted that the oil & gas industry has enjoyed a strong recovery and that projects with a clear rationale as contributing to the energy transition or displacing even dirtier fuels can still find favour

Blended finance will be vital to new assets and markets

Tom has gone from being a blended finance sceptic to understanding that blended finance is mainstream, and layering capital from diverse sources - for instance in the Energy Transition Mechanism - will be vital to decarbonisation efforts

US infrastructure is going to be YUUUGE

Jon thought that while the recent infrastructure bill was good news for US infrastructure, proactive municipal governments - in places as far apart as New York and San Diego - are likely to be leading the way in reworking transport systems

Time to remember how inflation works

Michael remarked that for the first time in a while, lenders will have to think about what inflation does to a financing model, and what the implications of higher inflation for base rates might be. (Michael’s own trend - how did we miss that?)

Hydrogen is going to take off very soon

Ian did not quite agree with the sentiment - there is still not much of a transaction record in hydrogen project finance - but he did feel that the market was moving beyond the theoretical.

Infrastructure funds are getting VERY aggressive

Tom noted that the wall of equity was still looming over the market, and pointed to Brookfield and Blackstone’s large investment in FirstEnergy and GIP’s acquisition of the Saavi portfolio in Mexico as examples of funds creating their own opportunities.

The post-pandemic working environment looks a lot like the pre-pandemic environment

Jon did not completely agree with the sentiment - the new normal is not quite like the old normal - but noted the relief with which the market has greeted a return to some physical gatherings.

Time to pay more attention to mining

Tom thought that mining can often be seen as the awkward younger sibling to mainstream project finance, with its own norms and financing structures. Given the importance of minerals and metals to the energy transition, this could be about to change. (Tom’s own pick)

Left unclaimed: No signs of a correction in debt terms and pricing. The market may yet be too febrile - and with base rates looking like they might be heading up, our group of recovering project finance lenders did not fancy chancing a prediction about where pricing would go next.