We believe there are strong tailwinds across our target sectors.
In transportation and social infrastructure, we remain bullish about the U.S. market and are actively tracking its progress. Our Core+ strategy will benefit from several themes, such as, electric vehicles, the 2028 Los Angeles Olympics, and the renewal of aging transportation infrastructure in general. Our Core strategy will pursue investments meeting the fund’s objective of essential infrastructure assets, supported by long-term or regulated contracts with a stable, consistent cash yield.
In the core+ space, several U.S. availability based P3s closed in year 2022, notably DC Street Lights and Clackamas County Courthouse, but we are also seeing an increased number of opportunities in projects developed outside of traditional government procurement processes. These projects will allow us to use Fengate’s build-to-core expertise to create investor value. The Canadian market for investment in transportation and social infrastructure remains slow, as many projects are being procured without the use of long-term private capital.
With respect to energy transition, as previously mentioned the Inflation Reduction Act is a game-changer and Fengate is well-positioned to take advantage of these immense tailwinds. Let me list a few of the provisions in the IRA we are most excited about:
- Tax credits for wind and solar projects have been restored to their full rates for projects put in service over the next 10 years: from year 2022 until 2032.
- The investment tax credits and production tax credits for wind and solar projects can increase by an additional 20% due to bonuses for domestic content.
- For smaller projects up to 5 MW, the 30% Investment Tax Credit (or ITC) could reach as high as 70% due to additional bonuses for assets located in low-income communities.
- Production Tax Credits (or PTCs) can now be claimed on solar projects versus just being eligible for the ITC.
- And the IRA provides a new 30% ITC for standalone battery storage projects.
Finally, projects will be allowed to sell tax credits directly to other companies. Our Core+ approach is to continue to get involved in late-stage developments underwriting equity at greater than 10% returns and selling this equity below 10%. In Core, we will acquire stabilized renewable investments located in competitive power markets.
In digital infrastructure, while valuations have pulled back from all-time highs seen in late 2021 and early 2022, significant macro tailwinds including increased mobile data, streaming consumption, and 5G deployment have increased demand for bandwidth, storage, and connectivity. Broad 5G adoption by all U.S. mobile carriers will result in more colocation and new-build cell towers. U.S. tower inventory is currently growing at approximately 14% per year. While U.S. data center vacancy remains at historical lows of 4.4%. Fiber-to-home projects are experiencing strong growth due to U.S. federal government subsidy programs that support universal broadband availability.
Digital investment opportunities in Canada remain limited outside of the data center sector. Only 2% of cell towers in Canada are privately owned and fiber opportunities are limited and dependent on uncertain subsidy regimes.