My point of the below post to give some reasoning/ perspective to the big worldwide picture to why some companies want long term funding and seemingly locked in return in their investment and how they also leverage off that stability. It goes to follow that in a oversupply situation , market collapse, market boom, commodity boom or crash or political upheaval how the investor has a natural hedge. It shows how large investors in a worldwide scale don't care about a local glut or electricity or shortage long term and are happy to lock in a average for a large % of output .
It is a different game to be a small wheel and take the risk that may become unhedgable/ unfundable and bet on a short term continuation of existing commodity price or interest rates or political position when you have underlying infrastructure that relies on a 20 year payback. These are not nimble investments you can enter or exit overnight and there is no set market price. There is a skill in packaging them so others will want to but the "package"or creating it initially so it fits into what the package buyers want and some want greenfield and other want finished producers.
The bottom line is that a small company taking a large risk that could become unmanageable with partner risk may look great on the surface and depending on market conditions may be a great investment but it may also become a noose around their neck as others in the same market are investing on at totally different scale and investment basis. You have to consider if the specialty and skill of the company you are invested in can see that big picture and manage that risk or are they better to take design , packaging contracts were their skill lies and better margins until they have scale and not be locked in to a particular thing for a period of time in which market attitudes can change quickly due to larger investors or players and their allocation of funds to a country. An example would be if politics in Australia changes some here may say - yippee every solar project will be build but in reality underneath that will be a massive glut at lower margin and interest rates for Aust risk due to economic stability unbalanced might stymie existing projects without locked in forward offtake agreements or the inverse could happen.
A lot of the funding for infrastructure projects in Australia is coming from other nations national / sovereign wealth funds, pension funds diversifying , Canada, saudi and other oil nations ,chinsa, Uk , US Japan , Norway, Ie the superannuation, savings , oil tax or commodity income of other countries. Similar to the Australian "future fund" . Most domestic super funds don't have the size and long term commitment to do the same deals directly or the motivation . They want guaranteed income over long periods with everything locked in especially power, water, roads, office towers, large scale farming . In other area they invest in very high risk early stage investment that has the ability for large % return. They love stable political countries and although the return in many cases may look not great as you can get the stability is what they want but it is a core holding in a essential product that ultimately will by market forces be a average return in the long term. The skill is that they have free cash so their funding cost is very low so Australia with 4% rates for example and inflation gives them a margin greater than a local investor along then with Aussie tax incentives , franking capital return rules and so on that allow them to invest, divest if they choose. In the past infrastructure bonds etc gave similar access to high net worth individuals with a tax advantage for taking on long term funding of infrastructure, They can get extra leverage by either further hedging on a worldwide basis the commodity they are involved in or hold a natural hedge by having similar infrastructure in many countries in different currency etc etc. All countries/ funds have different styles and may have covenants that force a % already in their local market via govt bonds etc to give local stability and deal / invest in the big picture core market areas. They needed infustructure so there has been a 10 year rush and a very competitive market to get projects so they in a low interest rate market have bid down initial upfront margins.They may leverage their investment by holding % for example of Lend lease, downer etc who is executing the project or guarantee./ underwrite such companies activities knowing they have long term build operate maintain contracts and are a step ahead of retail investors as they know margins on each stage of business be it their project or another funders as they are all bid for on a competitive basis on a worldwide basis.
