Private capital will play a pivotal role funding the future of infrastructure

Because these early-stage technologies require large up-front capital investments and have long investment horizons, digital and energy transition infrastructure projects are often not a natural fit for traditional sources of funding. Instead, they may need bespoke funding solutions, where the speed of change and innovation driving these technologies is met by a similarly fast-changing funding mix. While banks have long been the key providers of infrastructure funding, financing methods have broadened to include a mix of public and private options. These options are also spreading beyond financing for the energy transition and digital markets and are gaining traction in the broader infrastructure market. 

Public capital markets are a natural fit for more mature industries and technologies. As we have seen recently, uncertainty, volatility and cyclicality in public market sentiment may not align with the large-scale and long-term structural demands of tomorrow’s infrastructure. For instance, demand has moderated for opportunities aligned with environmental, social and governance factors, after they received a surge of positive interest between 2020 and 2021. Equity market valuations show these swings in public market sentiment.

Project finance is most commonly used to fund the construction and operation of capital-intensive assets — from wind farms and stadiums to datacenters — with debt serviced from the cash flows of completed projects and secured by collateral including project assets, and debt instruments that feature strong covenant packages and guarantees. 

But private markets are also increasingly contributing to the supply of funding with asset-based finance, where investors are drawn by predictable, contractual cash flows, with returns that are not correlated to the broader markets. In part, this funding comes from a growing number of alternative asset funds dedicated to infrastructure that can offer more flexibility and customization for project financings. But for all their benefits, private credit instruments offer less liquidity and transparency than standardized public market instruments. The diverse pool of infrastructure investments and their added complexity may also contribute to fragmentation in private markets. 

Private credit has become vital in providing flexible, patient capital for the energy transition as interest in these projects has intensified.

S&P Global analysts noted a surge of private credit infrastructure lender activity in the energy transition sector following the COVID-19 pandemic and supply chain disruptions, when energy transition projects attempting to raise project financing from banks faced sectoral headwinds due to rising interest rates, tighter lending standards and uncertain market outlooks. Tailwinds for the sector, including declining input costs and strong policy support — particularly in the US and EU — bolstered potential returns for these projects, but many still fell outside the parameters of banks’ traditional lending portfolios.

Private credit funds compensated for much of the funding shortfall in the US, sometimes in partnership with bank lenders, and backed dozens of smaller debt deals or existing asset acquisitions that reflected the smaller-dollar project economics of many renewable energy investments. These deals reflected a shift in debt financing capacity to private markets, which has filtered its way into project financing.

Global private equity and venture capital-backed investments in renewable energy have risen steadily since the beginning of the decade in terms of number of deals and aggregate deal value. Private credit’s share in aggregate energy transition financing has fluctuated over the past few years, but this has been driven more by changes in bank commitments — which expanded in 2024 amid a broad push to build out clean technology lending capacity — than by any pullback in private credit to the sector. 

This chart is specific to renewables and understates the breadth of private capital inflows into broader energy transition investments in renewable energy. Beyond renewable investments, there has been a surge of interest over the past five years in biogas, biofuels and carbon-removal solutions such as direct air capture. With rapidly changing technology and innovative approaches, classifying energy transition projects is a challenge. Energy investments were once easily bifurcated into the categories of fossil fuels and low-carbon, but energy transition-related projects can increasingly be found within the categories of gas, batteries and lower-carbon liquid fuels, in addition to renewables. 

The requirements and best mechanisms for financing these technologies are varied. Private credit’s capacity to offer greater flexibility in structuring loans and creating other forms of bespoke financing is a compelling option for cleantech developers, despite higher borrowing costs than traditional bank lending. This is particularly true for projects that fall outside of the scope, size, risk parameters or financial standardization most attractive to traditional banking.

The most-adopted technologies — solar photovoltaic and battery storage — are inexpensive, well understood in many markets and growing at rates that provide fundamental proof of their value proposition as a source of new electricity generation. But from a financing perspective, the scalability that makes these technologies suitable to a wide range of applications — from 10 panels on a rooftop with a battery pack in the garage to a football field-sized, utility-scale installation — puts many developments outside the scope of ordinary bank lending, project financing or infrastructure finance.

Despite recent policy shifts in the US, indications from the private sector point to a continued appetite for cleantech and other energy transition investments. New private capital funds are continuing to target this play, including a $5.6 billion energy transition-focused private equity fund raised by Blackstone in February 2025. Institutional investors are continuing to pursue decarbonization mandates, sometimes using different terminology, effectively mitigating some of the lending risk for private debt funds. 

The need to continue financing capital-intensive projects in clean energy and transition-related infrastructure comes amid rising demand for energy to power the digital infrastructure of AI. The power needs for this cloud computing and datacenter infrastructure are more weighted toward electricity than hard-to-displace liquid fuels, providing opportunities for private credit to step in.

AI tools will be essential for capital markets to help manage the additional complexity and fragmentation of an increasingly digital space and instruments that are increasingly bespoke. To scale AI will require substantial computing power from datacenters and hyperscalers. The pace of technological innovation and the demand for AI have presented enormous opportunities for financing the development of digital infrastructure. Datacenters have seemingly become an essential investment across many public and private equity portfolios due to their growth potential and potential for stable contractual cash flows. We expect global infrastructure funding and financing requirements for datacenters to rise 86% to $173 billion by 2028 from $93 billion in 2025. 

Datacenters may be privately or publicly funded. Advanced economies are more experienced in building and running datacenters, but emerging economies are becoming a target development area. Each region has different funding access across traditional banking lenders, sovereign capital and private markets. In some markets, sustainability-linked or green bonds could play an important role, notably to fund green initiatives that aim to increase datacenter energy efficiency or provide renewable energy solutions.

As projects multiply and average project sizes increase, constraints across power and water requirements, financing, tenant concentration and cost inflation will emerge. The substantial resources needed for such innovative and transformational projects are also bringing new investors, including those that may have a higher risk tolerance.

Private credit is emerging as a prominent financing source for datacenter infrastructure by providing flexible capital solutions. Offering the prospect of steady inflation-resistant cash flows and higher returns, alternative asset managers are flocking to incorporate datacenter projects into their portfolios. Life insurers, particularly annuity providers, are playing an increasingly central role as investors in several alternative asset managers' lending platforms, as the long-term liabilities of insurers can be matched to long-duration assets. 

For borrowers, private funding is more fungible for commercial bank funding than bond markets. In reviews of public and private finance transactions, S&P Global Ratings observed that private placement issuances among rated datacenter entities were faster than public bond transactions. 

Because fewer parties are involved, private funding offers more certainty when it comes to execution, speed, flexibility, pricing and terms. These hallmarks of direct origination through private funding benefit borrowers as they provide tailored maturities, covenants and terms. This is critical, considering how datacenter infrastructure projects can have widely varying needs over their useful economic lives.

Even as private markets are establishing their place in infrastructure and energy transition funding, public capital markets retain an important role that we do not expect private markets will fully supplant. For instance, companies that are in the low-carbon segment and those in the process of decarbonizing their portfolios commonly rely on public markets for funding. 

From a capital structure standpoint, both public equity and fixed income contribute to funding these investments. With a generally lower cost of capital, public debt remains a preferred mechanism for financing more mature industries and technologies. Since early 2020, electric utilities worldwide have issued over $900 billion of senior and preferred debt, according to data from S&P Global Market Intelligence. Much of this funding has been allocated to decarbonizing power generation portfolios and building grid infrastructure amid a broader trend toward electrification. Meanwhile, becoming publicly traded remains a key objective for many companies in the low-carbon sector as they seek a stable component of capital while preserving balance sheets. Nearly 50 renewables-focused companies worldwide have completed IPOs of meaningful size so far this decade, raising approximately $14 billion in total proceeds. New instruments — such as ESG-focused mutual and exchange-traded funds, green bonds and sustainability-linked financing — have emerged to support companies with a low-carbon emphasis. These instruments can lower the cost of capital and increase accessibility for issuers while catering to a broader range of investors.  

At the same time, public markets can be ill-suited for the financing required to support the energy transition, and market sentiment can quickly shift. Public markets are largely centered on relatively mature and understood businesses, with IPOs generally limited to companies with a line of sight to profitability. Early-stage technologies — some of which are expected to play an important role in accelerating the energy transition — may need more creative problem-solving to unlock their value than public markets are willing to provide.  

Geopolitical considerations and the need for energy transition capital in emerging markets add to the complexity of financing needs as these regions are often fragmented, at different stages of growth and maturity, have less supporting infrastructure, and are more exposed to currency fluctuations and political risks. 

Energy transition projects or strategies may take a decade or more to execute, and public investors may not have the patience to overlook short-term considerations. In these situations, private market investors that can withstand longer investment horizons may be more compatible with the intricacies and demands of a project. 

From the ground up, infrastructure projects provide the foundation for the businesses and capital markets of tomorrow. Connecting market participants through advanced blockchain technologies and AI requires building digital infrastructure today. Furthermore, the future of digital markets is electric, requiring power and new energy sources. The new technologies, complex risks and long-term horizons involved in such infrastructure investment may not suit existing public markets, creating an opportunity for private credit to become a key driver of funding.