Listed companies that own and operate the infrastructure behind the global energy transition offer investors an attractive combination of income, resilience and growth. Today, that case has only strengthened, but for a reason the market appears to be overlooking.
Despite clear improvements in their risk profile, valuations of listed infrastructure assets stand at a significant discount both to their own long-term averages and private equivalents. There are three main reasons for this.
First, interest rates. Infrastructure is often considered a bond proxy asset class, and when US rates moved from 1% to 5% in just three years, long-duration business models were automatically derated. In buoyant economies, capital has also rotated towards more cyclical sectors, leaving defensive infrastructure relatively out of favour. Since the onset of higher interest rates and inflation, valuations have declined, while the major private equity infrastructure funds have raised over $100bn in the past year alone.
Second, questions around the renewables business model have also shaped sentiment in recent years. Rising input costs and supply chain pressures created challenges for some operators, and a handful of smaller, less well-capitalised companies struggled to manage their long-term contracts. Yet this period of stress has had the effect of strengthening the sector overall. Listed utilities with scale, diversified portfolios and inflation-linked contracts have been able to absorb these pressures, consolidating their position as reliable long-term providers of clean energy. The short-term volatility in valuations has therefore opened up opportunities to invest in stronger businesses that stand to benefit as the energy transition continues to accelerate.
Third, investment flows. Infrastructure weightings within equity indices have declined just as private equity funds have raised hundreds of billions. With a limited pool of assets, private valuations have been driven higher, while listed markets – repriced daily and exposed to sentiment – have come under pressure. The result has been frequent private takeovers of listed assets at 40–60 per cent premiums, with recent deals such as CDPQ’s acquisition of Innergex coming at an 80 per cent premium to the prior 30-day average.
The implication for public market investors is clear, though: there remains a significant valuation disconnect that presents a timely entry point, and it won’t be around forever. Private buyers are willing to pay up for the same assets that public markets continue to undervalue.
What makes the gap more surprising is that the fundamentals of the sector have rarely looked stronger. Earnings that once depended on volatile commodity prices are now largely underpinned by stable, contracted frameworks.
From commodity volatility to recurring revenue streams
Historically, the earnings of large infrastructure and utility companies were significantly exposed to fluctuating fossil fuel prices. In 2008, as much as 42% of the operating income of Europe’s ten largest utility companies came from conventional power generation, holding investor returns hostage to swings in commodity markets. As of 2024, that figure stood at just 10%. Today, 80% or more of profits in the sector are regulated or fully contracted, underpinned by frameworks that guarantee predictable returns and typically allow for inflation indexing.
This transition has been driven by two key developments. First is the expansion of regulated asset bases, where returns are set by independent regulatory agencies. Across many developed markets, regulators have allowed major utilities to invest heavily in upgrading grids and modernising water and transport systems. These investments are protected by regulatory regimes that guarantee a level of return, frequently with explicit inflation pass-throughs to customer pricing.
Second, the growth of renewables has been fuelled by the adoption of long-term power purchase agreements (PPAs), particularly for the large-scale operators. These multi-year contracts, typically lasting 15 to 20 years, lock in fixed or inflation-adjusted pricing for power generated from wind, solar and other clean sources, further stabilising revenue streams.
We believe the main benefits for investors of this de-risking shift are greater income visibility and lower volatility. With the majority of profits in the sector coming from asset-backed, long-duration contracts, future cash flows are now highly predictable.
Powerful secular drivers and structural growth
These structural improvements come against a backdrop of extraordinary long-term demand. Electricity demand in the US alone is expected to rise by 38% by 2040, driven by the electrification of transport and industry, the proliferation of AI and data centres, and the shift towards a low-carbon economy. The energy transition – underpinned by national policies and global commitments to net zero – is driving unprecedented investment into grids, renewables, and efficiency upgrades.
Moreover, most of the transport, energy and water networks across OECD countries were built in the post-war decades and in our view require urgent refurbishment or replacement. It’s estimated that $4trn in capital expenditure is required to close the funding gap, presenting a significant opportunity for investors.
Against this context, listed infrastructure offers investors a rare combination: income security, high barriers to entry, and persistent demand that stems from providing essential services - while avoiding the unpredictable swings of more cyclical sectors. A historic valuation gap and extraordinary private capital inflows set the stage for a re-rating. And for those willing to look through short-term sentiment and focus on fundamentals, today’s disconnect between listed and private infrastructure presents a timely opportunity.
Jean-Hugues de Lamaze is senior portfolio manager of the Ecofin Global Listed Utilities and Infrastructure trust. The views expressed above should not be taken as investment advice.