Can the upward swing in global power infrastructure investment be sustained?
Daniel I. Blanchard is a consultant at Taylor-Dejongh. Contact him at firstname.lastname@example.org.
The global power sector is now in year three of a strong cyclical recovery. As infrastructure investment cycles go, in theory at least, the power-sector cycle over the past decade has been short in duration, and volatile. The current recovery is being driven not only by rising demand for power, but also by the huge levels of liquidity in the global financial markets. As asset valuations rise, investors are beginning to question just how long the current up-cycle will last, and at what valuation levels it will top off. And as power utility balance sheets and projects become increasingly leveraged, they might also begin to consider the likely shape of the next inevitable down-cycle.
We examine these questions in the context of an overview of the sector from a global perspective.
A Bit of History
The globalization of the power sector began in the 1980s and accelerated in the 1990s following deregulation initially in North America and Europe, and later in Australia and Asia. Then, as the deregulation and privatization of power sectors elsewhere around the world became the norm, a wave of investment activity was set off primarily by U.S., European, and Asian power companies.