This Red Paper on technological advancements disrupting key infrastructure sectors follows our earlier Red Paper Reimagining infrastructure amid transformative change that addressed five megatrends impacting infrastructure.
Digital disruption was one of the five megatrends touched on in that Red Paper. Our latest study – based on a disruptive infrastructure technology review undertaken over six months – dives deeper to identify 11 significant themes of technological disruption and innovation that every forward-thinking infrastructure industry participant should have an eye on.
Seven of the themes are specific to key infrastructure sectors while four cut across all sectors, such is their breadth and impact.
This Red Paper addresses the seven sector-specific themes. Another Red Paper Part 2 addressing the four cross-cutting themes, from our study will follow shortly.
To download and print the PDF version of this document, please click here.
1. Megascale Desalination, MIT Technology Review, March 2015.
2. Bank of America Merrill Lynch, The Global Water Sector, September 2011.
The Austrian economist Joseph Schumpeter coined the seemingly paradoxical term “creative destruction” in his 1942 work Capitalism, Socialism and Democracy. Since then, creative destruction has become a short-hand description of the untidy way by which material progress comes about.
The ultimate outcome of this progress is higher living standards and improved wellbeing, but the process does result in casualties along the way. Lost jobs, ruined companies and vanishing industries are inherent parts of economic evolution.
Cycles of technological advancement are getting shorter and the speed of technological change is increasing. This will have distorting implications for individual infrastructure assets as well as the asset class as a whole including adverse risk profile consequences. The upshot is that forward thinking infrastructure operators and investors alert to impending technological changes can adapt and integrate advancements rather than be caught off guard and end up as casualties.
In order to manage the complex, ever changing risk of technological change, investors need to foster a deeper understanding of disruptive innovations and their potential impacts on the asset class and assets they may already own. Investment opportunities will emerge for investors who can scan the horizon, recognise trends early-on and are flexible to adapt business models to new circumstances.
Monitoring technological innovation and formulating actionable response strategies to industry transformation is a prudent input to asset management and delivering long term value given the duration of infrastructure assets.
There are plentiful historic examples of technology-driven disruption in infrastructure. See The past is prelude for three historic examples.
Transformative changes are not just interesting facts of history. They are also promises of things to come. This paper is Part 1 of our contribution to that discussion and we have done so by focusing on seven themes where technological disruption could affect key infrastructure sectors (Figure 1). Four cross cutting themes will be detailed in our next Red Paper.
We begin with three disruptions in the energy sector: technology to store and convert energy; solar energy; and smart grids.
Households, businesses and industries have long been dependent energy consumers. Long reliant on supply security from massive, capital-intensive electricity network users are progressing towards an era where they can become energy storers and even energy providers. Doing so is likely to undermine the traditional centralised generation model, accelerate the uptake of renewable energy and relieve networks from inefficient ‘peak’ based investments.
Numerous technologies with varying technical and economic attributes are competing for the tipping point trophy of mass adoption (Figure 2). Currently, improvements in lithium-ion and redox flow batteries make them the front-runners as electro-chemical storage devices take centre-stage in the battle for user acceptance.
These two types of batteries combine higher lifetime cycles, greater energy density and shorter recharge times and thus currently exhibit the greatest potential for distributed electric generation and storage.
1. Interface Consulting International, 2013.
At this stage, lithium-ion batteries are probably the strongest contender for mass-scale energy storage as they can easily be adapted for diverse applications and their cost-competitiveness is on an improving trajectory with prices having already fallen from US$1,000 per kilowatt hour to US$200 per kilowatt hour (Figure 3).
Redox flow batteries are even more tantalising as a next-generation technology. There is no risk of combustion, giving a big tick for safety and the batteries have a life of more than 10,000 charge-discharge cycles. Moreover, battery capacity can easily be raised by increasing the size of the electrolyte tanks making them suitable for large-scale energy storage infrastructure used in the electricity grid.
Converting the promise of energy storage technology could revolutionise the energy industry by ameliorating the intermittency of renewables, thereby assisting to maintain grid integrity while potentially also improving the economics of renewable energy by channelling electricity sales to optimal pricing periods.
Furthermore, if energy storage systems can economically overcome the intermittency of renewable generation, they could together challenge the incumbent position of fossil fuels such as coal and gas as primary base load generators (Figure 4).
While electricity grids were originally created as simple transporters of electric energy, the mass adoption of conveniences such as air conditioning units and heating systems means that energy demand can be highly volatile. Consequently, grid operators, and distribution and transmission companies are forced to make expensive investments to ensure energy security for the relatively few days of peak energy demand in a year. Distributed energy storage systems hold great promise in overcoming the need for such inefficient grid investments.
However, technological advances and improved economics by themselves don’t automatically seal the path to the tipping point of mass adoption. The pros and cons of the leading technologies and the nature of their economic value will, to an extent, dictate the location of storage systems within the electricity network (Figure 5). Ultimately, the policy overlay in the form of financial incentives and regulatory frameworks will shape the character, speed and impact of adoption.
Thus the final nature of the disruption remains unclear and the precise winners and losers from the old energy order are difficult to pinpoint, at this juncture. Nevertheless, hints of the direction of market evolution can be gleaned from the actions of incumbents, technology providers, regulators and governments (Figure 6).
Traditional energy utilities in Australia, such as Origin Energy and AGL Energy – well-positioned in their quest for rooftop solar photovoltaic (PV) dominance – have launched energy storage products to protect against the risk of declining utilisation of their conventional power generation assets. Their strategic centrepiece is highly decentralised energy storage models boasting significant cost savings. However, the risk of such decentralised models is the possible interruption of energy in extreme situations.
Meanwhile, regulated networks such as Oncor in Texas continue to champion the benefits of energy storage systems as regulated public goods. They are advocating models that operate in largely the same way as traditional energy systems, but with the added benefit of large scale storage devices bolted on to existing networks.
Incumbents in Australia’s regulated and competitive market segments are also collaborating in the renewable integration field. This is evidenced by the Energy Storage for Commercial Renewable Integration project being undertaken by AGL Energy and ElectraNet in South Australia. The project, which benefits from government funding, faces many of the challenges confronted by similar projects globally, namely the ability to develop an operating framework in which both the generation and network benefits of energy storage systems can be commercialised.
While government funding supporting such projects is welcome, regulatory frameworks continue to hinder progress.
Complexity and lack of clarity surrounds the functional classification of energy storage, and discrepancies in market rules and regulations across a large number of markets are frustrations. Examples include grid rules for ancillary services (ie. voltage and frequency control), which are still tailored to thermal power plants and not compatible with batteries and the confusion caused by legislation in many jurisdictions which require treatment of systems as either generators or consumers of electricity, not both.
Policy makers and regulators are mindful of such challenges and nascent steps in the right direction are being taken in a number of geographies.
In Germany a €25 million storage system incentive scheme has been launched. South Korea announced a public-private partnership aiming to invest US$6 billion while in Japan US$300 million has been invested in the world’s largest battery. Meanwhile, in California a mandate for 1,325GW of energy storage to support the state’s power grid by 2020 has been released, aiming to support the state’s renewable energy ambitions.
As technology providers continue their search for the optimal storage device, incumbents, regulators and governments are working to create the environment that energy storage systems will ultimately inhabit.
This environment is likely to be shaped with answers to three fundamental questions: who are the optimal owners of energy storage devices; who are the optimal operators of such devices; and what is the optimal revenue and regulatory model that underpins the viability of the devices?
Even with considerable technological, economic and regulatory headwinds, the relentlessness of progress in the field of energy storage is such that we remain optimistic that energy storage systems are on track for mass adoption over 15 years.
The current Early Adoption phase could end around 2020. During this phase, energy storage will largely remain the domain of residential and commercial solar photovoltaic. We anticipate a step-up through 2020-2030 in the Moderate Adoption phase. During this phase, the battery storage market is forecast to increase significantly, and for the cost of US$10,000-14,000, a household will be able to install a solar-battery system that will enable them to largely rely on decentralised energy generation and energy storage, although still fully dependent on the grid for energy security.
The Universal Adoption phase is expected over 2030-2040 when energy storage in several regions may become comparable in size to some conventional forms of generation. In this same phase, renewables with battery storage may reach grid parity in large parts of the world. Government policies, regulatory frameworks and the operation of the energy system are expected to have matured to facilitate smooth integration of energy storage devices.
We expect several milestones along the development path to the tipping point of mass adoption:
R &D boost: significant increase in energy storage R&D, bringing it in-line with R&D spending in solar photovoltaic PV and wind technologies over the last 20 years.
Policy: strong policy support in the form of specific investment/deployment mandates.
By ameliorating the intermittency of renewables, energy storage is revolutionising the energy sector. While energy storage technology continues to face myriad technical, economic, and regulatory challenges, significant strides in battery technologies are propelling energy storage systems towards mass adoption within the next 15 years, particularly when combined with increasing penetration of solar energy technology (as we discuss below).
2. Solar energy’s time has arrived
The world’s growing reliance on energy, coupled with resource depletion, has underscored a decades-long fascination with the idea of endless, clean energy derived from the sun. Thanks to recent technological advances, cost reductions, maturing financing and growing environmental consciousness manifested in government policies, solar energy is finally poised to become part of the energy mainstream.
According to reports by Bloomberg New Energy Finance, PV module prices have fallen by 99 per cent in 40 years, representing a drop of 24 per cent for each doubling of cumulative volumes (Figure 7). Technological improvements have also assisted this process by enhancing module efficiencies (conversion rate from solar energy to electricity).
In the last 10 years, the efficiency of average commercial wafer-based silicon modules increased from 12 per cent to 16 per cent, with best performing modules in laboratory settings recording efficiencies as high as 20-45 per cent, emphasising the potential for further improvement.
Maturing funding models are also a key feature of the solar revolution. Technology providers, incumbent utilities, financial investors and governments continue to experiment with innovative risk sharing models as they converge towards developed capital structure principles to support investment needs. Green bonds, zero deposit distributed solar installations, public-private partnerships, long term off-take agreements and project financing are some of the financing innovations taking root.
Policy initiatives have also assisted the solar cause with renewable energy and decarbonisation mandates in operation around the world. In December 2015, 195 countries adopted the first ever universal, legally binding global climate agreement, the success of which will largely depend on the replacement of fossil fuel generators with renewable generation technologies.
The momentum in solar generation development has also shifted focus away from solar PV systems, the most widely deployed commercial solar technology, to Concentrating Solar Power, Solar Thermal and Solar Fuels, which incorporate thermal and chemical energy conversions in the process of harnessing solar power. Such technologies are at early stages of development but hold immense promise.
The consequences of the rise of solar are becoming increasingly clear. Numerous countries have now either reached or are within reaching distance of grid parity, the point at which energy can be created at a cost that is less than purchasing power from the electricity grid (Figure 8).
The implications are potentially immense. At grid parity, consumers will be indifferent between using the traditional centralised electricity system and distributed renewable generation from solar PV systems.
Below grid parity, defection from the traditional electricity system would become economically rational with disturbing consequences for fossil fuel generators under pressure owing to their relatively higher costs. As consumers disconnect from the grid, the massive costs associated with maintaining the electricity grid would compel more consumers to disconnect, leading to a ‘death spiral’ of increasing costs which further encourages defection from the grid. This all culminates , in the redundancy of the electricity system that has supported the world for over a century.
But such an apocalyptic outcome for the grid is far-fetched.
For starters, solar generation is linked to sunlight and therefore would only cover a small portion of daily electricity demand. The sunlight link also means that electricity supply would be highly weather dependent.
Locational factors are also a constraint. Areas covered by trees or larger buildings are not suitable for solar generation and high density residential areas have insufficient access to sunlight to support the large volume of consumption.
As it happens, Australia has the most solar radiation per square meter of any continent, equivalent to 10,000 times the country’s annual energy consumption. To put this in a practical sense; if solar radiation falling on an area of around 20,000km2 – which is less than 1 per cent of mainland Australia – in one year could be converted with solar technology, it would be approximately equivalent to Australia’s annual primary energy needs.
Grid instability concerns also persist including severe voltage fluctuations or grid failure (brownouts or blackouts). However, electricity supply security remains the greatest obstacle to mass grid defection as doing so would expose consumers to the risk of being without power for extended periods of time. It’s reasonable to say that modern households take energy availability for granted and exposing themselves to the absence of energy, especially in peak winter or summer periods, is not something they are likely to do quickly.
Our view is that even coupled with efficient distributed energy storage systems, which solve a number of the constraints of solar generation, mass grid defection remains implausible.
Nevertheless, traditional energy providers cannot be complacent. They will need to embrace the rise of solar and policy makers, regulators, incumbents and technology providers must work towards peaceful co-existence of new technologies and old systems.
In the case of centralised solar generation, this integration should be simpler. But in the case of distributed solar generation, the path is not so straightforward.
Hurdles to overcome
Well intentioned environmental mandates should steer away from excessive market distortions which favour specific technologies or operating models too early in their development. Policies built around specific initiatives should be aligned with an overall strategy for the evolution of the energy market which considers implications for all market segments. Regulatory changes that safeguard the connection component in network tariffs and the passing of pricing signals to final consumers are essential to maintaining energy supply security by strengthening the role of the existing electricity system.
Introduction of policies and regulation that can embrace time-of-use meters, feed-in tariffs and net metering, together with supporting infrastructure will ensure that the benefits of distributed solar generation are maximised without introducing systemic risks. In some instances, this may require legislative changes to clarify the treatment of distributed generation.
Political and regulatory risks also need to be well managed with an emphasis on transparency and stability. Federal and state governments and relevant regulators in each jurisdiction need to actively monitor market developments and communicate legislative and regulatory responses in real time. Market participants and industry bodies should also actively inform this process by highlighting major technical and market issues for consideration.
Such an environment would balance efficiency gains from new technologies with assurances that existing assets will not become stranded.
This process is expected to mark the conclusion of the Early Adoption phase which commenced around the end of the 20th century and was marked by significant cost reductions and accelerating installations.
The Moderate Adoption phase should last about a decade to 2030. During this part of the adoption journey, we expect the cost of solar installation to continue to fall and for installations to become more globally prevalent. Niche market segments such as remote generation, desalination and waste water treatment are anticipated to rely heavily on solar generation. We also expect increasing pilots for combined solar generation and energy storage with mixed results.
Universal Adoption should be discernible from 2030 onwards. In this phase centralised and distributed solar generation is expected to become a dominant part of base load electricity generation in combination with a moderate level of energy storage. The path to Universal Adoption, however, would be marked by sign-posts where policy and regulation will determine the direction and speed of deployment.
Solar energy is parasitic and substitutional, making it truly disruptive to existing energy infrastructure, particularly when paired with rapidly developing energy storage technology. The powerful combination of a positive policy environment, rapidly dropping costs of solar PV and energy storage technology is generating significant momentum in the industry.
As a result, solar energy technology is now poised to become an important component of the global energy mix, and in the process has the potential to truly transform and disrupt the electricity sector into a decentralised generation model.
3. Smart grids: evolution of the traditional grid model to serve a modern world
A smart grid is a concept of an electricity network enabling two-way flows of electricity, real-time information and market feedback, and allowing for the incorporation of renewable energy sources and demand-side management. The smart grid’s emergence will result in the home of the future using electricity very differently to what has been the case so far and to what current networks have been built to service.
Evolving technologies – solar panels, battery storage and the increasing popularity of electric vehicles – are already changing consumer behavior around electricity usage and the way utilities interact with their end customers. The combination of smart appliances and consumer apps that fall under the smart grid umbrella will enable users to closely manage their consumption and allow remote settings to avoid usage at peak times.
All this aggregates to a future in which networks will have to adapt to the changing dynamics of consumer needs with an emphasis on interoperability, enabling infrastructure, communications and information technology/operational technology convergence.
Four progressive business models (Figure 9) have emerged for network operators globally as they respond to smart grid technologies:
The upshot is that energy companies and electricity utilities will have to fundamentally evolve and change from obligated commodity delivery providers to energy solution providers.
The estimated financial benefits associated with smart grids are impressive. In the US alone, a study suggests that the integration of the smart grid could result in a US$49 billion per year reduction in the cost of outages while 12-18 per cent per year system efficiency improvements are possible.
Meanwhile, thanks to potential savings due to improved demand response management, a more than 4 per cent reduction in energy use is envisaged by 2030 translating to US$20.4 billion in savings.
Hurdles to overcome
To realise the full benefits of the smart grid, a major restructuring of the consumer market needs to take place centered on tariff reform and real time consumption data.
Current tariff structures do not charge solar PV consumers equally for required network investment versus non-PV consumers. In fact, they fail to match the economic burden assumed by network companies constructing a network with the actual utilisation profile.
A lack of coordination on smart grid policies and regulatory differences across regional and national levels creates uncertainty and multiplies impediments. Coordination at national, regional and industry levels is important to drive the policies and regulations that can stimulate investment and growth in smart grids.
As technology progresses and greater volumes of energy consumption data is both produced and analysed, cyber security and data privacy laws will need to evolve to protect the consumer but also make it practicable to offer services such as remote monitoring and user/third party control. Doing so will drive potential savings through real time consumption of data and competitiveness in the retail market.
The physical components of a smart grid broadly fall into two categories; improving system performance and power flow with system monitoring and grid intelligence, and secondly, empowering the customer with meter technologies, mobile applications and distributed energy systems.
Private investment and political leadership will be required to propel smart grid adoption and integration. The speed of implementation will depend on the political will to solve policy and regulatory issues in concert with the economic viability of technology at hand.
Most smart grid projects are in the demonstration phase with China, United States and Italy leading the way in financial commitments.
Achieving full transition to a smart grid will be a large but not insurmountable financial undertaking with one study concluding that the United States would have to spend US$1.5 trillion over 20 years (roughly US$75billion a year), including new generator and power delivery systems to achieve a complete overhaul of the entire electricity infrastructure. Currently, European Union member states collectively have 459 smart grid projects amounting to €3.15 billion in investment.
Fully integrated smart grids are unlikely to be implemented in the very near term. As both the political and economic elements progress, traditional utilities will start to alter their business models.
Incumbent utilities at the forefront of technological advances will capture the emerging market over the next 20 years as political and regulatory barriers are reduced. Analysis suggests that the total number of smart devices will approach US$12 billion in 2024 from a base of less than US$1billion today.
Smart metering and smart grid management solutions will be among the first technologies to be adopted in the coming era. A vast array of other solutions will gain traction as a result of the introduction of these technologies.
A range of devices that are part of the wider smart grid ecosystem will be seen. Many will be used where there is potential to increase efficiency by modifying power consumption.
Smart grids have the potential to transform the energy value chain – using bidirectional electricity and data flow to create a direct link between power generation and consumption. This type of transformation will force utilities to eventually evolve from being energy providers to energy solutions providers. Smart grids will allow consumers to shift from their current position at the end of the electricity value chain.
Once again, it’s the potential combination of smart grids, along with developments in solar technologies and battery storage that has the potential to truly evolve the energy sector as we know it.
4. Driverless vehicles are coming
For parents left like shaking leaves after taking their school-age children for driving lessons, autonomous vehicles (AVs) can't come soon enough. However, patience is required as AVs potential for widespread application is still some years away, so learning to drive will remain a rite of passage for the present generation of teens and their reluctant parents.
Google's Driverless Car initiative that kicked off in 2012 grabs a lot of attention, but the history of such vehicles extends back to the early 1980s when Bundeswehr University Munich developed a vision-guided vehicle that travelled at speeds of 100 km/hour without traffic.
It's easy to see why technologists and engineers would be attracted to creating AVs. The potential safety, mobility, decongestion, land use and environmental benefits are significant.
In the United States, traffic accidents are the leading cause of death among young adults ages 15-19; second for children 5-14 years. US government estimates reveal that the cost of vehicle crashes in 2000 was a staggering US$230.6 billion.
While it's common to assume that access to mobility and transport is available to all, the reality is that many are excluded from what most take for granted. Seniors, disabled people as well as non-driving age children don't necessarily have safe, affordable and easy transport access. AVs can change the picture and make life better for many with four types of vehicles expected to be used in the future — Traditional Vehicles, Family Autonomous Vehicles, Shared Autonomous Vehicles and Pooled Shared Autonomous Vehicles.
AV adoption will significantly reduce the number of vehicles required to service the population by increasing the number of miles each vehicle travels a year. Figure 10 illustrates a combination of trip configurations along with types of shared AVs to achieve these outcomes.
Likewise, traffic jams and associated energy wastage and pollution can be reduced by a combination of greater road throughput capacity and fewer crashes, and lighter AVs can support the transition to electricity or alternative fuels. Researchers suggest that greenhouse heating gas emissions in 2030 per autonomous vehicle can be reduced by 87-94 per cent compared to current conventionally driven vehicles.
One estimate suggests that universal adoption of Level 4 Autonomous Vehicles in Australia by 2050 could enable road capacity requirements to remain constant despite Australian population growth of 60 per cent by 2050.
In the US, the Eno Center for Transportation estimated that annual economic benefits from autonomous vehicles could be in the range of US$25 billion (at 10 per cent market penetration) to a potential US$450 billion (at 90 per cent market penetration).
Above everything would be the lives saved and injuries prevented by accident reduction. The same study estimated a 90 per cent accident and injury reduction versus non-AVs at 90 per cent penetration, reflecting the near-elimination of humans error as a cause.
Impact on infrastructure
Ultimately, the deployment of connected technology and AVs will fundamentally change the way roads, bridges, and parking systems are designed and built. Roadway capacity would be increased as AVs can drive closer together – by 'platooning' – without collision.
Vehicles can be on the road longer and travel further and more safely as issues of driver and passenger fatigue are overcome. However, road systems will need to be designed (and for existing infrastructure, redesigned) at both the concrete and electronic level to facilitate these changes in traffic patterns and to accommodate the AV technology (eg. sensors and next-gen traffic signals).
The land use and business-productivity impacts are considerable. As AVs will reduce commuting times, businesses could move further from city centers leading to more dispersed land-use patterns.
We also foresee opportunities for the intensification of residential and commercial development along highway corridors as a result of higher traffic flows. Driverless parking will de-couple parking spaces from most buildings, leading to more compact urban cores and reducing the number of spaces required.
By increasing the capacity of existing highways and reducing need for on-site parking, AVs will allow greater density development along highway corridors.
AV technology also has the potential to disrupt existing public transport networks as people opt for the flexibility of a driverless vehicle over a bus or light rail system. As an infrastructure investor, this could lead to new investment opportunities in public transport infrastructure in the form of “AV Transportation Utilities.”
Hurdles to overcome
A complex set of factors will influence the pace and extent of AV adoption.
The news headlines and company announcements by the likes of Audi, Tesla and Google are pointing to commercialisation of AVs being close. However, technology to enable Level 4 AVs still has a way to go.
Progress toward full automation will consist of intermediate milestones and disruptive leaps where vehicles are more aware and capable of navigating complex situations and environmental conditions. Fully automated vehicle fleets will require development and deployment of vehicle-to-vehicle and vehicle-to-infrastructure communication technologies at a minimum.
However, the industry has yet to develop standards regarding the extent to which AVs are able to sense external conditions versus the environment communicating its status. The ultimate challenge will be how to match human perception and write algorithms that process visual data as well or better than humans.
Technology advancements are not the only stumbling block. Incumbent industries that may be adversely affected can be expected to resist and thus supportive regulatory change will be essential. Regulations are still at a very early stage globally, and only one US jurisdiction (Nevada) has licensing provisions for AVs to be freely used on public roads. The issue of liability and responsibility for accidents in the event of full automation is also a sensitive issue.
Security concerns also need to be addressed as the potential for cyber-attacks as well as old-fashioned physical tampering remain live issues.
Environmental factors in support of the technology will need to undergo similar transformation to allow for broad adoption of AVs.
These include capital costs of upgrading infrastructure in order to support autonomous vehicle technology (vehicle to infrastructure communication systems); digital signage; the legal framework permitting and regulating AV technology; and social acceptance encompassing people‘s willingness to give up the pleasure of driving for the safety and economic tradeoffs.
We believe addressing such factors will be critical to mass adoption of AVs and is likely to take longer to resolve than technological issues.
Level 4 AVs – where the car can drive itself without a human driver – are likely to be 5-10 years away from commercialisation and more than 20 years from universal adoption.
The adoption phase can be broken into three broad phases:
By this stage of the AV adoption journey, these vehicles should have widespread application as taxis, buses as well as ride and car-share services. They should also be commonplace in long-distance trucking and delivery services.
Other infrastructure implications that come to mind include AV-only connected highway lanes to enable 'trains' of AVs; wireless traffic/intersection management capabilities; and AVs will boost vehicle-to-grid interfaces (V2G) and alternative fuel adoption.
Consistent with universal adoption, there would be ubiquitous deployment across most consumer, commercial, industrial, and government market segments.
Infrastructure implications would include commuter AV 'trains' that can navigate AV lanes with independently operated AVs; reduced parking capacity and transfer of businesses to the urban periphery as well as increased suburban sprawl.
Autonomous vehicles stand to pose significant disruptive impacts as well as create opportunities forn infrastructure assets. The deployment of connected Level 4 AVs will fundamentally change the way roads, bridges, and parking systems are designed, built and reconfigured. However, a complex web of factors means that universal adoption is at least 20 years away.
5. The rise of ride hailing and car sharing
The confluence of technology in the form of smart phones, GPS, data analytics, mobile payments and an absence of regulations has led to the creation of ride hailing and car sharing services.
Consumers have embraced them with enthusiasm with Uber (Figure 11), the best-known of the ride hailing providers, available in around 60 countries and 300 cities worldwide. Uber has taken their original concept a step further with the creation of a suite of new ride sharing products including its carpool option Uber Pool.
21. Total paid car rides for business people.
The rise in ride sharing carpool options has shaken the transportation planning industry’s ‘business as usual’ approach and the focus is now on understanding how these new driving behaviours will affect travel demand, regional congestion and infrastructure needs.
Historically, there has been low cultural acceptance of carpooling (Figure 12) despite governments’ efforts to encourage ride sharing with preferred lanes and ride share matching services.
23. AASHTO Commuting in America 2013 
But with changing demographics and the emergence of ride hailing and car sharing services, this trend is reversing, particularly among millennials who are showing a preference for using these services and foregoing car ownership. Forty-two per cent of Generation Y consumers in the United States (versus 28 per cent for other generations) say they are willing to carpool if carpooling is readily available and convenient: 2013 census data reports that 39 is the median age for carpoolers, making them around three years younger than solo drivers.
Impacts on infrastructure: reduced travel and parking demand
Alterations in travel behaviour and demand are already observable thanks to ride hailing and car sharing services. Naturally, this is leading to forecasts of reduced overall trips as fewer people drive to work individually as well as fewer cars on roads.
A case in point: Copenhagen Economics concluded that a well-functioning ride sharing community in Stockholm could reduce the number of car trips made in Stockholm each day by 37,000.
A US study estimated that if on-demand ride service providers could facilitate trip sharing for 30 per cent of New York City (NYC) trips, the total number of trips would be reduced by almost 52 million a year, leading to a reduction of 431.2 million vehicle miles traveled.  The same study by Deloitte estimated that the congestion savings in NYC could amount to US$495 million to consumers, with 14 million hours in delay saved, and infrastructure savings to NYC of US$959 million on road construction over 25 years.
Current 2015 data from UberPOOL identifies matched trips in key urban areas such as Manhattan.
Across all urban cities, UberPOOL data shows that pickups occur in a more concentrated set of central locations than drop-offs, which are typically in residential neighborhoods. This indicates that ride sharing models are being used more to serve ‘work centre to home’ trips, rather than ‘home to work centre’ trips given the higher densification of work locations vs. lower densification of home locations.
In summary, from a traffic modeling perspective, UberPOOL works best from a work/transit center to home base trip rather than a home to work trip given the higher densification of work locations vs. lower densification of home locations.
An out-take of this conclusion is that UberPOOL will be most successful in cities with dense “trip generators” (universities, CBDs, airports, train stations, etc.). A city like Dallas, for example, which has very diverse work locations spread across the city, will not be an ideal candidate for UberPOOL.
Such matters of detail cannot be overlooked. Still, we believe that ride-sharing services and the travel behaviour changes provoked will be felt across the private car, taxi, and transit travel sectors.
A 2015 University of Pittsburgh study noted that; “the use of taxis and private autos are most impacted by ride sourcing where users’ shift away from these modes.”
Furthermore, declining prices for ride sharing services will make them increasingly attractive relative to transit service costs. Though ride hailing and sharing services will not fully replace private cars, buses, taxis, and subways, the new emerging mix of alternative options is transforming public transport infrastructure utilisation.
The rising popularity of discount carpooling options is increasing vehicle occupancy and reducing the number of cars on the road. Finally, ride hailing trips eliminate parking concerns as drivers are always on the move, potentially saving up to 20 minutes of slow circling to search for on-street or garage parking in highly dense urban areas.
Hurdles to overcome
Currently ride-sharing and car-pooling services are concentrated in high population cities. For commuting trips, a Dupress study found that neighbourhoods within a 10 to 15 mile radius outside the city core are most likely to convert to ridesharing options.
Major barriers to ride hailing and car sharing services include, price elasticity, existing traffic conditions, densification of regions, and proximity of the service to an individual‘s final destination or to a metro/bus station. Urbanisation affects road congestion, which impacts customer receptivity to ride hailing and car sharing services.
Regulations are still catching up. Many jurisdictions are finding it difficult to regulate peer-to-peer ride sharing services under existing regulatory frameworks. Many are still in the process of determining the proper classification and regulations of such services.
Recently in Australia, a number of States have legalised ride-hailing services, with State Governments offering compensation to traditional cab drivers. For example, in NSW, it was announced in December 2015 that 50 taxi and car hire regulations will be repealed, and a new regulator and commissioner will also oversee the industry. The action demonstrates the reactive measures being taking by governments to accommodate the rapidly changing ride-hailing landscape.
See California’s response on how another jurisdiction is addressing the ride-hailing phenomena.
Ride-sharing companies are coming under increasing pressure regarding their treatment of drivers as contractors and not employees. Uber and Lyft have experienced several unsuccessful court rulings which determined that their treatment of specific drivers as contractors was illegal.
Concerns persist regarding the social impact of surge pricing as the consumer backlash grows toward perceived ‘gouging’ during times of peak demand. Given the public service nature of ride-hailing companies, there is an on-going regulatory debate surrounding the mechanisms with which these services are priced.
Safety concerns also influence the degree to which society and regulatory institutions will permit services.
Ultimately, we expect ride hailing/car sharing to merge with AVs to disrupt personal vehicle ownership models.
From our viewpoint, the early adoption phase ended around 2010 when the first commercially viable ride hailing company was Uber, which started as a matchmaking service for underutilised ‘black car’ taxis in New York City.
The moderate adoption phase, the current phase, will end around 2020. Currently, uptake of ride hailing continues to increase as consumers embrace a mix of relatively low cost and convenience. Continuous improvements in analytics are enabling better customer-driver match response times and introduces demand-sensitive ‘surge pricing.’
As the trend gains even more traction, decreasing utilisation of line-of-site parking assets can be expected as real-time valet services, such as Luxe, expand. “The Perpetual Ride” model could develop in which each ride sharing vehicle would always have a passenger. Finally in this phase, public transportation can be expected to experience significantly reduced utilisation in urban areas.
Universal adoption is forecast over 2020-2030. By then, ride hailing/car sharing services should increasingly converge with AV technologies to provide driverless transportation solutions and highly efficient fleet management systems should enable driver-customer matching seamlessly.
It’s also possible that ride hailing/sharing will spread to marine vessels, aircraft and other recreational vehicles.
Expected infrastructure implications would include a reduction of parking lots from city centers, leading to a densification of urban cores and structural blows to local government revenues from public transport and traditional taxi systems attrition. The decreasing travel demand expected will lead to a shift in transportation infrastructure planning towards network upkeep and away from new capacity infrastructure projects.
However, the emergence of AVs (discussed earlier in this Red Paper) pose a threat to the existing ride hailing business models with competition growing between the leading rail hailing service operator (Uber) and the leading Level 4 AV technology developer (Google) over the future of shared transportation. The convergence of these two themes is where the real impact on infrastructure is expected to occur.
6. Membrane technologies, desalination and wastewater treatment
Data associated with water is both alarming and paradoxical. By 2025, forecasts project 1.8 billion people to have insufficient access to clean drinking water globally and half the world’s population could be under water stress by 2030. Yet, 2.4 billion people live less than 100 kilometers from sea.
So water is in fact abundant, just not in a consumable form. Large-scale, affordable application of reverse-osmosis (RO) desalination and membrane bioreactors (MBR) in the wastewater treatment space are the means of changing the equation and making safe water available to at-risk communities.
Membrane technologies have the potential to disrupt the water infrastructure value chain by challenging incumbent systems and technologies involved in water transport and treatment. They will also have a secondary impact on energy utilities.
Water supply infrastructure
Desalination technology itself is not new, and as of 2012 over 15,000 desalination plants in 150 countries served the water needs of 300 million people. Reduced desalination costs are making it cheaper to produce freshwater than to move it, challenging incumbent water transport infrastructure.
Improvements in energy recovery mechanisms and membrane efficiency have enabled desalination costs to fall by 80 per cent between 2002 and 2010. This is making desalination a competitive alternative to some conventional methods of water transportation, particularly long-distance pumped conveyance in places like California.
Indeed, a 2011 study found that the total cost of the California State Water Project (2.4-2.8 kWh/m3) can be higher than desalination of seawater from the Pacific Ocean (2.6-3.7 kWh/m3). At the same time, existing desalination infrastructure developed in the 1970s using multi-stage flash technology is aging and offers attractive replacement market opportunities.
The desalination sector is expected to double its daily capacity from 66 million m3 per day in 2009 to 120 million m3 in 2016 (Figure 13).
Wastewater treatment infrastructure
Membrane advances are unlocking applications beyond desalination, such as treatment of industrial wastewater and oil and gas fracking byproducts. Furthermore, improvements in membrane technologies are driving significant cost savings for the industry through reduced energy usage, plant footprint, and equipment.
Commercial reverse osmosis desalination remains a highly energy intensive process, and its growing adoption will increase demand for primary energy and electricity (grid-scale and distributed).
Potential exists to capture synergies with thermal electricity generation processes, where extraction steam from gas turbines supplies process steam for desalination.
Hurdles to faster adoption
As with other fast-changing technologies, cost and regulatory challenges pose barriers to broader adoption of membrane technology.
Currently, water as a commodity is often underpriced. Its price is not reflecting its true economic cost in society. Many water systems subsidise extraction, conveyance, purification, and distribution, which makes adoption of desalination less economically attractive.
Pricing water to reflect its true cost to society is controversial, even polarising, but doing so will help to spur technological innovation to increase water supply. Widespread, universal adoption of membrane technologies will not be possible until market prices reflect the full lifecycle cost of water production. Furthermore, subsidies for competing water technologies and thermal desalination/wastewater treatment systems will need to be phased out.
In circumstances where the profitability of desalination depends on future water supply limitations and on future increases in the cost of competing supply options, government entities may find it difficult to secure funding to build desalination plants without sufficient incentives.
In Israel, for example, the Government has supported the development of desalination plants through subsidies (such as the provision of free land) and public-private partnerships with premium pricing for delivered water supplies.
Even in a supportive regulatory environment, technology tripwires remain.
Desalination using membranes remains a highly energy intensive process, expansion of which raises fears of greater greenhouse gas emissions and consequent climate change affects. Commercial reverse osmosis systems remains capital intensive and plant uptimes need to be improved from an average of 70-80 per cent.
Membrane technologies are poised to play an increasing role in satisfying the world‘s water needs. The early adoption phase ended around 2010 when membrane technologies were applied to brackish water and seawater. The desalination industry leveraged increasing opportunities for replacing aging, inefficient thermal desalination plants that were originally developed during the 1970s.
The moderate adoption phase, which commenced over five years ago, is expected to continue to 2020. The cost of treated water is forecast to fall to US$0.4-0.7/m3 (compared to US$0.5-0.8/m3 in the early phase), while the membrane useful life is anticipated to stretch to 7-10 years (versus 5-7 years in the early phase). 
Application is forecast to become more widespread with municipal and industrial waste water treatment usage as well as water treatment for natural gas hydraulic fracturing.
Universal adoption should occur by 2030-2035 when we expect ubiquitous deployment across consumer, commercial, industrial, market segments and economic competitiveness will lead to replacement of conventional water supply and transport infrastructure. Over that period the cost of treated water should fall to US$0.3-0.4/m3, while membrane life can be expected to stretch to 10-15 years.
While desalination technology itself is not new, security of water supply is becoming increasingly important. Desalination technology is important in this equation and its ability to penetrate and disrupt will hinge on a combination of political and regulatory developments as well as improving economics of manufacturing membrane units.
In the most disruptive adoption scenario, desalination technology has the potential to decentralise the water treatment model, which would significantly impact water network infrastructure as we know it.
7. Data centres and cloud computing
Updating computer systems is a large financial and organisational commitment for most enterprises. It can also be greatly disruptive.
Rather than building proprietary systems with attendant fixed costs, risks and disruptions, capabilities within data centres and cloud computing offer the possibility of accessing communications and computing resources on an as-needed basis without requiring large capital expenditure. It allows for low cost storage and computing, coupled with high capacity networks and service-oriented architecture.
See Picturing the cloud and data centres for more direct explanations and representations of these concepts.
A data centre is a centralised repository, either physical or virtual, for the storage, management, and dissemination of data and information organised around a particular body of knowledge. It provides massive scale and thus overcomes the need for any single enterprise to make capital commitments to create its own proprietary capability.
Impacts on infrastructure
The benefits of both cloud computing and data centres are obvious and their potential to form an integral part of the infrastructure asset class is intriguing.
The growth of data centre capacity on a global scale has a significant impact on infrastructure operators and investors. Data centres provide massive scale in data storage and thus overcomes the need for any single enterprise to make capital commitments to create its own proprietary capability.
For infrastructure investors, it also creates an opportunity to invest in a nascent asset class. Data centres are clearly an essential service to mainstream business and the consumer economy, so from that standpoint they are aligned with the definition of infrastructure assets.
Creative legal and financial structuring could convert data centers into long-term, stable and predictable cash flow infrastructure-like assets. The goal would be to transfer the technology risk on the operator while leaving an infrastructure-like cash flow stream with the institutional investor.
Cloud computing enables companies and individuals to consume computing resources as a utility – just like electricity – rather than having to maintain computing infrastructure in-house. It also allows infrastructure operators to mitigate upfront capital costs and slash operating expenses dedicated to the maintenance of IT systems. Cloud resources are usually not only shared by multiple users but are also dynamically reallocated with demand.
This approach helps maximise the use of computing power while reducing the overall cost of resources by using less power, air conditioning, and rack space. With cloud computing, multiple users can access a single server to retrieve and update their data without purchasing licenses for different applications.
As it is, movement to the cloud by individuals and organisations is already driving growth in physical infrastructure stemming from demand for servers, virtual machines, data storage, load balancers and networks.
Cloud computing also helps traditional infrastructure businesses increase operational efficiency and simplify processes, while achieving higher revenue growth and decreasing operational expenditures.
The applications of cloud computing are practically limitless. With the right middleware, a cloud computing system could execute all the programs a normal computer could run. Potentially everything from generic word processing software to customised computer programs designed for a specific company could work on a cloud computing system.
We also foresee subtle shifts in energy demand, generation and transmission. Data centres consume a large amount of electricity, leading to increased demands on energy utilities for energy supply. On the other hand, cloud computing provides energy savings by making data centre utilisation more efficient.
While outsourcing functions to specialist providers 'who can do it better for less' has been established business practice for years, its acceptance for communications and IT services has been slower to gain traction.
Amazon's popularising of the term 'cloud computing' in 2006 when it introduced the Elastic Compute Cloud was an important milestone in entering the concept into wider business consciousness. Now it is gaining wider acceptance.
The foundation of data centres and cloud computing is the broader concept of converged infrastructure and shared services. Estimates suggest that businesses that outsource IT capabilities reduce their capital formation costs (up to 40 per cent) and IT costs (30 per cent).
Hurdles to overcome
Data centre technology is still rapidly evolving and there remains a significant level of technology risk and uncertainty. High speed internet access remains a significant barrier to cloud adoption especially in emerging economies. Interoperability among disparate cloud-based systems is also an on-going challenge which has inhibited cloud computing adoption.
It’s usually the case that technology speeds ahead of the policy and regulatory response and the data centre/cloud computing arena is no exception. As a generalisation, national-level regulations are frequently cited as a consistent barrier to universal cloud adoption.
Conflicting cross-border policies in areas such as data privacy and protection are affecting the scalability of the Internet, the availability of Internet access, the free flow of information, and the cloud-based global economy on a daily basis. Policymakers, in consultation with stakeholders, could support the identification of relevant criteria and develop a standard framework for measurement.
Policy makers should free up additional spectrum for mobile broadband. They could promote the most flexible network technologies and topologies and spur competition in order to spur broadband infrastructure development.
Privacy issues need to be addressed too. Questions of whose laws apply to the data stored in the cloud, including who can access this data, and under which circumstances processing of data in the cloud amounts to a cross-border transfer, need resolution.
Security and technological challenges also persist. Ensuring that adoption of cloud-based systems do not introduce cyber security vulnerabilities to business and infrastructure-critical assets is a tripwire. At the same time, enterprises have expressed concern about moving critical workloads to a public or hosted cloud, especially if it involves data centers in foreign territories.
Finally, stiff competition among industry leaders and emerging players is driving down the costs of cloud computing. Ultimately, the economic benefits of cloud storage versus traditional on-site storage will be a function of respective data storage costs – specifically, the gap between maintaining a private on-site storage facility versus pooling computing resources with the cloud. As it currently stands, research indicates that businesses that outsource IT capabilities can reduce their IT costs by around 30 per cent.
Rapid technological growth could bring cloud computing technology to universal adoption from 2020.
Early adopters jumped on board from 2000-2010 as evidenced by the fact that the total public cloud market reached US$15 billion in 2010.
The moderate adoption phase is currently underway as the global public cloud market size in 2015 reached US$97 billion. IT managers are already spinning-up virtual servers in the cloud. Business critical operations like CRM, word-processing, spreadsheets, data storage software is shifting to SaaS and PaaS service models.
At current rates of progress, universal adoption between 2020-2030 is realistic: by 2020, the total public cloud market could reach US$160 billion in value.
Over that period, advanced data analytics is likely to make business intelligence ubiquitously accessible for individuals and enterprises. Corporates and governments will no longer have servers on site, or, invest in private clouds, rather sensors would be everywhere, data processed in the cloud and real-time mobile analytics.
The end-point would be the emergence of the “Industrial Internet of Things” as cloud-based systems enable automation of critical infrastructure processes and real-time, data-driven decision making becomes possible.
The benefits of both cloud computing and data centres are obvious and their potential to form an integral part of the infrastructure asset class is intriguing. We are currently in the moderate adoption phase with universal adoption potentially as close as 4 years.
With significant opex and capex savings likely to ensue from a move to “outsourcing” this key function, infrastructure operators would be remiss in not giving due consideration to this trend. Forward thinking infrastructure investors will assess if they can structure an opportunity set for data centres and cloud technology which meets the fundamental characteristics of the infrastructure asset class.
New York Yankees baseball legend “Yogi” Berra was famous for his pithy comments, malapropisms, and seemingly witticisms like, “It's déjà vu all over again.”
Another of his memorable lines, “It gets late early out there,” conveys the importance of being a step ahead of the consensus.
The pace of technological change has accelerated with digitalisation and the scope of this change is increasing, driven by big data and automation.
Infrastructure investors and operators, given the high barriers to entry and wide moats around their businesses, can naturally become complacent. Overlooking game-changing technological developments with the potential to upend current business models and sector value chains invites danger.
Businesses need to carve out time to deeply analyse and understand how quickly new technology will impact their assets (defensively) and create new investment opportunities (offensively).
In this paper we have identified seven key themes across four core infrastructure sectors. In Part 2 we will examine four cross-cutting themes across infrastructure as a whole with significant disruptive potential.
A key takeaway from our work is that in isolationthese themes may not worry investors or operators. However, their combined and compounded effects make them worthy of assessment. Given the duration and lifecycles embedded in infrastructure assets, infrastructure investors and operators ignore them at their peril.
Those who survey the horizon and recognise trends early-on and are quick and flexible to adapt their business models to new circumstances can gain significant first mover advantages. By contrast, those who miss the great turning points stand the risk of having assets stranded. In either event the pace and breadth of technology disruption is accelerating reinforcing the for active management in infrastructure.
This Red Paper results from a collaboration across QIC Global Infrastructure including but not limited to: Ross Israel, Albert Daniels, Kirsten Whitehead and Matthew Zwi.
 Megascale Desalination, MIT Technology Review, March 2015.
 Bank of America Merrill Lynch, The Global Water Sector, September 2011.
 Interface Consulting International, 2013.
 AECOM, Empowering a Changing World, 2013.
 Disruptive infrastructure technology review. Global Infratech Consult 20 December 2015.
 Commonwealth of Australia (Geoscience Australia), 2013
 Amin, Massoud, Smart Grid: Overview, Issues and Opportunities.‖
 AECOM, Empowering a changing world, 2013.
 Smart Energy, EnterpriseIoT.ord
 Disruptive infrastructure technology review. Report prepared for QIC by Global Infratech Consult 20 December 2015.
 Greenblatt & Saxena, Autonomous Taxis could greatly reduce…, Nature Climate Change, January 31, 2015.
 A level 4 vehicle performs all safety-critical functions for the entire trip, with the driver not expected to control the vehicle at any time. This vehicle would control all functions from start to stop, including all parking functions.
 Various, How Digital Infrastructure Can Substitute for Physical Infrastructure, University of Sydney, May 14, 2015.
 Various, Preparing a Nation for Autonomous Vehicles, Eno Center for Transportation, October, 2013.
 Ride hailing sharing is a service that arranges one-time shared rides on very short notice. Car sharing is a model of car rental where people rent cars for short periods of time, often by the hour.
 Disruptive infrastructure technology review. Report prepared for QIC by Global Infratech Consult 20 December 2015.
 Total paid car rides for business people. Taxi category includes all taxi, limousine, and airport shuttle rides. Uber includes all uberX, uberXL, uberPLUS, Uber Taxi, UberBLACK, UberSUV, and UberLUX rides. http://www.certify.com/infograph-sharing-the-road.aspx
 AASHTO Commuting in America 2013, http://traveltrends.transportation.org/Pages/default.aspx
 US Census Bureau, American Community Survey, “2013 1-year estimates, table S0802, Means of transportation to work by selected characteristics,” http://factfinder.census.gov/faces/nav/jsf/pages/index.xhtml
 Stefansdotter, et al., Economic Benefits of Peer-to-Peer Transport Services, Copenhagen Economics (August 2015).
 Vehicle miles of travel or vehicle miles traveled (VMT) is defined by the U.S. government as a measurement of miles traveled by vehicles within a specified region for a specified time period.
 Viechnicki et al., “On-Demand Ride Services: Disrupting and Complementing Taxi Service”, Deloitte University Press (May 2015).
 Analysed ride sharing rates in 171 metro US areas. http://dupress.com/articles/smart-mobility-trends-ridesharing/
 Founded and based in San Francisco, Luxe is a new service that sends valets to consumers directly, wherever they are, and parks the vehicle for them. Luxe is currently in six US urban cities.
 “Megascale Desalination,” MIT Technology Review, March 2015.
 Bank of America Merrill Lynch, “The Global Water Sector,” September 2011.
 Water Desalination – Deep Enough to Dive in? GP Bullhound, July 2012.
 Seawater Desalination Power Consumption. Water-reuse Association, November 2011.
 Younos, Tamim. Environmental Issues of Desalination,‖Universities Council on Water Resources, December 2005.
 GP Bullhound, July 2012.
 A Data Center is a facility used to house computer systems and associated components, such as telecommunications and storage systems.
 Cloud Computing is a model for enabling ubiquitous, convenient, on-demand access to a shared pool of configurable computing resources.
 Converged Infrastructure (CI) is an approach to data centre management that seeks to minimise compatibility issues between servers, storage systems and network devices while also reducing costs for cabling, cooling, power and floor space.
 Various – Economic Impact of Cloud Computing, Center for Economics and Business Research, (2010).
 Forrester Research Inc.
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