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sition is pushing many utilities and other large energy companies to restructure their business models. Utilities, especially, will need to adapt to a world of changing power sources, lower energy prices and greater efficiency. As a result, many are selling noncore assets to reinvest in growth businesses. In addition to changing business models, companies will need to replace aging stock. Much of the energy infrastructure in developed countries is due for replacement. Nearly one- third of the U.S. generating fleet is more than 40 years old. is also is true in the midstream oil industry, with more than half of the United States' gas pipelines constructed before 1970. Opportunities across the value chain: e energy and power world is broadly divided into three sectors — upstream, referring to extraction; midstream, which comprises trans- portation and storage; and downstream, which includes activities that occur directly before final consumption. While all three sectors are capital intensive, infrastructure investment opportunities mostly reside at the midstream and downstream level. Energy infrastructure investments have the same traits of assets in other infrastructure sectors: real assets with the potential for long- term revenue and cash-flow stability, con- trollable expenses, and a conservative capital structure. In practice, the ability of a particu- lar asset to meet these criteria depends largely on its degree of exposure to the main risks in the energy and power sector. Among these key risks are exposure to commodity prices, the possibility of regulatory change, and country and counterparty risk. However, even with these challenges in mind, given the global scope of the energy transition, we believe it's still possible to source attractive investments of various kinds. e top opportunities are in the midstream and down- stream segments, including power generation and regulated utilities. Midstream: Midstream assets generally have long-term stable contracts, but also the ability to grow revenues. For example, a contracted anchor customer can provide a revenue base and a minimum return on investment for the owners of a new gas pipe. Once the asset is operating, the owners then have an opportu- nity to add more customers and revenue. Globally, there is a major need for new mid- stream infrastructure in support of growing domestic demand as well as global LNG trade. Estimates by Interstate Natural Gas Association of America show the financing need for North American midstream natural gas infrastructure by 2035 to be more than $450 billion. Increas- ing LNG demand has led to a spike in capital investment throughout the entire midstream sector, including storage, pipelines and export/ import terminals. Restructuring and balance sheet manage- ment by large energy and power companies also make midstream an active segment. Energy companies are now outsourcing the construction and operation of new pipelines, as well as divesting older ones. Counterparty risk is especially important in midstream investing. Midstream counterpar- ties are often medium-size companies that are exposed to commodity prices. Investors need to understand a counterparty's financial profile, assets and other relationships, bearing in mind the adage that "the counterparty of my coun- terparty is my counterparty." Understanding a counterparty's economic position relative to their own exploration and production activity becomes an important due diligence compo- nent for midstream investors. Power generation: e power-generation segment includes infrastructure for the genera- tion and transmission of electrical power. Gen- eration assets employ a variety of revenue mod- els, from fully contracted, where the power is pre-sold for a set term to a government, a util- ity or a corporate user, to generating power for sale on a spot basis. In the power generation sector, the largest opportunity is in the construction of renew- able and gas-fired generation capacity, and the extension/modernization of transmission infra- structure. is is especially true in emerging markets, where there's an urgent need for gen- eration capacity. Gas and renewables projects may offer opportunities for investors wishing to target capital appreciation as well as income. For transmission investments, grids across the globe need to adapt to a future of decen- tralized generation. Where there is govern- ment and corporate support, development of transmission assets may potentially provide attractive opportunistic returns, and long-term ownership of them may produce stable core returns. Regulated utilities: Regulated utilities are involved in providing electricity or gas, and are subject to the oversight of a regulatory body. Performance of regulated utilities tends to be relatively resilient relative to the eco- nomic cycle. Regulated utilities are generally owned by governments or large, well-capitalized com- panies, but private capital is increasingly uti- lized. Examples include private-equity-style buyouts of weaker utilities, roll-ups of smaller utilities that need scale, and the construction and operation of regulated transmission lines or pipelines. Regulated assets are usually seen as a source of stable cash yield, but there is some room for capital appreciation through restructuring companies or adding new customers. Key risks to the sector are focused around changes in regulation. Regulators use tariffs to control and improve performance (such as incentives for avoiding outages). A mod- ification in regulation can disrupt the return profile of an investment. Mitigating risks requires knowledge of regulations, their his- tory and political context, as well as contin- ued monitoring. Conclusion: As the energy-and-power tran- sition progresses, the global policy push for a lower-carbon energy sector, and the evolving business models of energy and power compa- nies, should continue to generate both oppor- tunities and risks for infrastructure investors. e transition is under way, but the massive size of the industry suggests that the shift is still in the early stages. Technology, demographics and government policy will all contribute to increased demand for the energy and power sector and the associated infrastructure, point- ing to substantial opportunity for infrastruc- ture investors ahead. This article is an abbreviated version of a BlackRock white paper about changes in the energy and power infrastructure sector. It was authored by Jim Barry, global head of BlackRock Real Assets, Mark Florian, global head of energy and power infrastruc- ture with BlackRock, and Alan Synnott, global head of research and product strat- egy with BlackRock Real Assets. 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