The new global co-chair of the Baker Botts Energy, Infrastructure & Hydrogen, and Energy Sector groups is optimistic that infrastructure and energy project finance and M&A will see an uptick in 2024, as macroeconomic conditions improve.
Baker Botts announced that it had hired New York-based lawyer Mona Dajani from Shearman & Sterling on 11 December.
Dajani, who has over 27 years of experience in the energy, infrastructure and hydrogen spaces, told Infralogic that despite the tough year the sectors have had to traverse in 2023, with high inflation and multiple global conflicts affecting investment and lending activity, she is optimistic that 2024 will see a rebound of sorts, particularly in the USA.
“The US is number one by far in terms of important markets for infrastructure and clean energy finance,” said Dajani, who practices globally with a focus on North America, the MENA region and Europe. “Many international companies are building plants and spending enormous amounts of capital on 'greening,' and this trend is not going away. The efforts to encourage and stimulate energy and infrastructure investment across many sectors is one of the biggest legacies that the Biden administration is leaving, with the Inflation Reduction Act (IRA) and the Infrastructure Investment and Jobs Act (IIJA) encouraging investors to come to the USA to engage with the energy, infrastructure and hydrogen sectors.”
Dajani feels that those countries that will get ahead in the current global environment are those with some combination of government incentives and financial and geopolitical certainty—important factors to attract capital in the energy and infrastructure sectors.
“The US has passed laws to support infrastructure development. They are committed, and this is an instigator for more investment. The only other country coming close to the United States right now is China, which also has a huge market.”
While Dajani is full of praise for the two signature pieces of legislation championed by the Biden administration, she believes it’s important to recognize that they have still not reached the level of stimulus for the industry that they could.
“There’s some frustration with certain industry participants that things are not moving as fast as they would have hoped and as a result there have not been as many executed deals as industry players had thought. There are many things outside of the IRA, for example, that could affect where they stand, including outstanding guidance on certain tax credits, persistent high interest rates and global geopolitics, all of which are also affecting the execution of deals,” she said.
“The energy industry is at a huge inflection point with the passage of the IRA. Those companies that can scale quickly, will double or triple their enterprise value. For example, I expect global EV adoption to grow from 13% currently to 60% by 2030," with a compound annual growth rate of 24% or more, she said. "There’s also a greater focus globally on net zero and on sustainable finance and that’s putting pressure on public companies to implement green strategies."
Dajani says she's bullish that as we get more clarity and guidance on how incentives under the IRA will work, there will be an uptick in hydrogen and energy infrastructure investment, as well as more M&A transactions and the forming of joint ventures in 2024.
Not all of the federal guidance that has come out so far has pleased the private sector, however. The market has its own expectations for where the lines should be drawn and how much support the US government will commit to providing. Guidance published recently proved stricter than anticipated, which Dajani says will create challenges for projects in early stages.
Alongside fellow co-chair of Energy Infrastructure and Hydrogen, Partner Thomas Holmberg, and co-chairs of the firms’ Energy Sector, partners Jason Bennett, Bill Kroger and Scott Janoe, Dajani’s practice will cover assets such as storage projects, transmission lines, solar plants, wind farms, electric vehicles, mobility, digital infrastructure assets and data centers but an area of particular interest for Dajani is the growing hydrogen sector.
Dajani has been doing hydrogen deals for many years now, starting in Europe, then the Middle East and now in the USA. She has a conviction that the price of building these projects will come down, for a number of reasons, including the recent October Department of Energy announcements of financial support for seven hydrogen hubs and the tax credits and guidelines that the administration is putting in place to provide a significant uptick in investment activity in the sector next year.
While at Shearman & Sterling, Dajani represented South Korea’s sustainable infrastructure company SK Ecoplant on a CAD 4.5bn (USD 3.36bn) investment agreement it signed with World Energy GH2 for the investment and construction of a green hydrogen project located in Newfoundland, Canada, named Project Nujio'qonik, and she continues to work on large, utility scale projects in the US and around the world.
Dajani sees much unrealized potential in the IIJA also., She believes this new legislation, coming as it did out of the COVID-19 pandemic and the economic turbulence that markets have faced, will prove useful to bridging America’s infrastructure gap. It could be, especially suited to broadband rollouts and new construction of smart roads, bridges, airports, data centers and high-speed rail projects.
Dry powder fueling competition
Infrastructure funds are sitting on large amounts of dry powder, with no better example than Canada-based asset manager Brookfield, which is close to hitting its USD 28bn hard cap for its fifth flagship infrastructure fund.
Dajani sees more and more buyers seeking assets and believes that the increasing amounts of dry powder being raised by asset managers means participants in competitive M&A processes will have to accelerate their decision making.
“As long as investors are very clear what they’re looking for, and once they identify deals they want to do, they will have to do diligence quickly. Deals will be moving faster and there will be less of a gap between diligence and execution. Deal makers will have to speed up the process of whether a deal makes sense to them or not and if it makes sense, move quickly or kill it,” she said.
Despite her optimism for the prospects of her coverage sectors in 2024, Dajani also sounded a note of caution over the upcoming presidential election in the US. While many Republicans are in favor of green energy, with any change of administrations, we could see some policy shifts—primarily with the halt of the export of gas and oil, Dajani said. With clean energy, she said this could lead to some policy shifts, but doesn’t think the principal items that the IRA installed are going to change much, especially as they’re budgeted for another nine years.
“The times of waiting for the public sector governments to get their act together on clean energy is over. The private sector is fully embracing ‘smart infrastructure’ and clean energy as an opportunity to do good, create jobs and fuel growth. The bold choices that the United States makes in these sectors is a stark reminder that with vision, courage and money, one can turn a desert into an oasis.”