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By Jim Barry, Mark Florian and Alan Synnott T he world is undergoing a deep struc- tural shift in how it powers industry, homes and transportation. Although this shift is vast — crossing both different types of energy and different parts of the supply chain — the main thrust is the shift from coal and nuclear energy to cleaner sources, notably natural gas and renewables. At the same time, the proliferation of electronics, including electric cars, is resulting in steady power demand growth even as economic and population growth decelerate. e global energy and power transition: Technological innovation, demographics, new government policies, and the rise of sustain- ability and environmental concerns are driv- ing a profound shift in both sectors. As the energy and power sectors depend heavily on infrastructure development, the ongoing trans- formation points to opportunity for infrastruc- ture investors ahead. While the opportunity is vast, infrastructure investors should focus on four main aspects of the transition: (1) e shifting mix in energy supply; (2) the changing character of energy demand; (3) the rise of globally integrated mar- ket for gas; (4) the revision of business models and replacement of aging assets. e shifting mix in energy supply: Power generation is shifting from coal and nuclear to renewables and natural gas. Coal remains the world's biggest source of electrical power, but changing economics and policy are reducing growth. Use of nuclear also is declining. e 2011 Fukushima disaster reversed the brief renaissance the power source was having in the previous decade. Renewables, meanwhile, continue to gain share globally as the cost of production declines. e decrease in cost for utility-scale solar pho- tovoltaic projects has been especially dramatic. Levelized cost of electricity — a measure that equates the costs of different types of power generation — fell 73 percent between 2010 and 2017. Lower costs should drive immense growth for the sector over the coming decades. While the renewables sector is expanding swiftly, natural gas will be needed to support growth. e intermittent nature of wind and sunlight energy cannot independently meet 24-hour baseload power needs. Battery storage could eventually compensate for this limitation over time, but the technology is not ready for scale yet. For the medium term, natural gas– fired generation is serving as a fully dispatch- able power source to replace aging coal and nuclear facilities. e changing character of energy demand: Most countries around the world are consum- ing more of their energy in the form of electric- ity. According to reports by the World Bank, the developing world is increasingly gaining access to electricity, and electric vehicles prolif- erate through the developed world. e global preference for electrical power likely means the expansion of transmission grids in the develop- ing world and the development of smarter, less centralized grids in developed countries. Natural gas demand will come from both power generation as well as capacity growth in heating and in industries such as chemicals, refining and primary metals. e U.S. Energy Information Administration projects a 43 per- cent increase in global natural gas consumption between 2015 and 2040, with growth greatest in non-OECD countries utilizing it for both industry and household electricity demand. e rise of a globally integrated market for gas: e global flow of natural gas is bur- geoning. Since 2007, U.S. natural gas produc- tion has more than tripled. However, as trans- porting gas is complex, it is often consumed and priced locally. e abundance in certain geographies and dearth in others is causing substantial price dislocations. e vast extent of cheaply recoverable natu- ral gas reserves makes it unlikely that prices will increase much in decades to come. e pros- pect of long-term affordability encourages the construction of gas-reliant electrical plants and manufacturing facilities and related infrastruc- ture. However, as reserves are not distributed evenly, infrastructure is necessary to equalize pricing. Although new cross-border pipelines will play a role in the globalization of the gas mar- ket, most of the increased trade will take the form of liquefied natural gas (LNG), creating a major need for new LNG infrastructure around the world. e revision of business models and replacement of aging assets: e energy tran- Regulation and technology are shifting how industry, homes and transportation are powered shift Power 42 REALASSETS ADVISER | D E C E M B E R 2 0 1 8