Asset Class
Infrastructure Development
Infrastructure Development targets higher returns by taking construction, permitting, and delivery risk—often in energy transition and transport projects. Allocators evaluate it through schedule realism, contractor strength, permitting risk, and downside protections if delivery slips.
Development infrastructure involves building new assets or materially expanding existing ones. Outcomes are driven by execution, where delays, cost overruns, and permitting can shift IRRs dramatically.
How allocators define Development exposure
They segment by:
- Permitting/entitlement status: shovel-ready vs early-stage
- Counterparty quality: EPC contractor strength and incentives
- Cost inflation risk: materials/labor and contingency buffers
- Schedule risk: critical path realism, liquidated damages
- Offtake certainty: PPAs, take-or-pay, or merchant exposure
- Financing structure: construction debt terms and refinancing assumptions
Allocator framing:
“What happens if the project is late and costs are higher than expected?”
Core strategies
- Renewables development: PPA quality + interconnection risk
- Grid/storage: permitting, technology, and utilization risk
- Transport development: political, demand, and delivery risk
- PPP development: contract complexity and disputes
Portfolio role
Used to:
- Capture illiquidity and complexity premiums
- Access thematic build-out cycles (energy transition, logistics)
- Complement core infrastructure with higher-return sleeves
Manager evaluation
Conviction increases when:
- Development track record includes difficult delivery environments
- Contracting strategy allocates risk appropriately
- Permitting and interconnection risk is explicitly underwritten
- Contingencies and downside budgets are conservative
- Governance and reporting are tight during construction
What slows decisions
- Optimistic schedules and thin contingencies
- Weak contractor incentives or misaligned risk allocation
- Permit risk underestimated
- Merchant exposure disguised as “contracted”
Common misconceptions
- “PPAs eliminate risk” → interconnection and curtailment can still break economics.
- “Development is just early cash flow” → it is binary execution risk.
- “Contracts solve overruns” → disputes can delay cash flows materially.
Key allocator questions
- What is the permitting and interconnection status, with evidence?
- What are the realistic contingencies and who pays overruns?
- What are LDs and enforcement mechanisms?
- What happens if offtake pricing resets lower?
- Who has delivered similar projects on time and on budget?
Key Takeaways
- Development infrastructure is execution underwriting
- Permitting, contractor incentives, and contingency discipline define outcomes
- Institutional allocators demand conservative schedule and cost realism