Hallowe’en Special – doomed on every level

Draw close infra chums for I’ve a tale to tell that’s fit to send shivers down your spine. This ain’t some paltry tale of woe that’ll have you sobbing into your cups over the folly of times gone by. This tale’s playing out before our very eyes.

Picture the scene (if you can), nations around the world are arming to the teeth while greedily securing independence for everything from energy through to food and water.

Drawbridges have rattled into defensive positions. Arrow slits bristle with armaments. In the keep, the quartermaster tallies everything from spam to oil… presumably to set ablaze and pour over unfortunate victims.

Look yonder, can you see that terrifying army of shambling critters, maws greedily agape… making straight for you?

No two monsters are the same. Many of them you’ve only heard spoken of in hushed tones. And every last one of them wants your life’s blood / money.

Now, let’s bring that horrible scenario back to the world of infrastructure and energy finance and see just how similar that nightmare is to reality.

Tales from the infra crypt

We find ourselves in a market where there has never been such a disparate range of projects seeking – and finding – finance from such a disparate selection of lenders.

On the other side of the table, bully-boy borrowers – more to the point their sadistic financial advisers – have installed such impressive Chinese walls that folk don’t know who the heck they’re sitting next to as they reach for the cheque book.

What a ludicrous state of play. We talk to lenders who genuinely don’t know who else is ponying up cash for the project that’s just made it to financial close… or they are honouring the NDA that would have made Prince Andrew blush.

And what are they being “invited” to lend against? Good old fashioned PPPs, a power plant, a motorway, just one single renewable energy project… something proven, time-tested that you can take to the bank?!

Nope, it’s everything from biomethane through to electric vehicle charging, EV battery manufacturing, hydrogen, data centres… you name it, the freakier the better.

What could go wrong?

Well now, last November (2024) HH2E – the German hydrogen developer backed by Foresight Environmental Infrastructure and HydrogenOne Capital Growth – went into administration after failing to find financing.

And – because misery loves company – the same month Swedish battery developer Northvolt and 8 subsidiaries filed for voluntary Chapter 11 restructuring in the US.

That’s just the tip of the iceberg. There’s a lot more horror stories out there… and a lot more on the way.

And how is this all being financed? Well, as one infra grandee points out “there has never been such an array of capital available”.

There’s a wall of cash out there… and every brick is of a different hue.

Increasingly we see private credit cropping up – it featured recently in these pages – and sources (some possibly driven by self-interest) are wary, with one intoning: “Beware the peddlers of ‘flexible capital’. Flexible in their favour, not yours.”

The same infra chum taps into the Hallowe’en mood – with a side portion of Shakespeare – cautioning: “That pound of flesh won’t grow back…”

Meanwhile, another infra veteran cautions that our mates in the private credit industry are “using our pensions to enrich a load of PE asset managers with light resources to assess and mitigate risk”.

And here we are again. The ravings of an infra purist in a world gone impure.

The Friday Editorial has already made clear its feelings on ill-defined debt structures masquerading as “project finance” with a bit deployed against this, some more on that, and the rest for a rainy day project that’s yet to be identified.

This road to hell is ever-more frequently travelled and it’s clearly paved with best intentions – and desire to turn a profit (nothing wrong with that).

But the financing structure is being incessantly bastardised in partnership with the definition of infrastructure which has been stretched to the point where terms like “value add” have to be invented.

With this in mind, you’ve gotta wonder just how far we can continue to stray from PF fundamentals.

As one project finance lender of note says: “PF was based on an SPV that raised finance because of a set of contracts – including an EPC contract – wrapped by one contractor and a long offtake, providing predictable cashflows… generally for a project of public utility.

“Nothing of the above is true anymore…”

Truly, we’re doomed.