Quarterly valuation update for the energy and infrastructure: update and valuation in times of uncertainty - Q1 2026

Three key themes from Q1 2026:

Persistent upward pressure on discount rates: rising yields have driven higher discount rates across renewables and infrastructure funds, with the impact of the war in Iran not yet fully reflected, suggesting potential further increases, partly offset by inflation and forecast changes. Risk free rate increases may not always result in higher discount rates, historically some rises have been absorbed by reducing the equity risk premium that investors hold when acquiring infrastructure assets.

Infrastructure can often be insulated from volatility, but sub-sector disparities exist: historical evidence shows infrastructure can be relatively resilient, though this varies by sub-sector. For example, airport cashflows are closely tied to global demand, travel restrictions and fuel prices, making them more volatile than availability-linked PPP assets and parts of the energy sector.

Assessment of direct and secondary impacts remains key to valuations: valuations should focus on expected cashflow impacts rather than assuming automatic write-downs, as crises can be value-accretive in some cases. Risk premia may be applied where impacts are uncertain, while changes in risk-free rates are typically reflected through equity risk premia, with investors taking a longer-term view.

Download our quarterly valuation update for Q1 2026: