Inside Infrastructure: Investment Tracks to the Future - Decarbonisation & Digitalisation

The global rail sector is undergoing a profound transformation, marked by significant investment, innovation, and strategic realignment in developed markets versus new growth in emerging ones. 

Recently, it was reported that Deutsche Bahn is launching an asset sale process for a minority stake in its combined maritime transport business to help reduce its substantial debt. The sale follows DB’s broader divestment strategy, including the €14.3bn sale of DB Schenker earlier this year, and is a further step towards its “Strong Rail” initiative to focus on rail infrastructure. While established players in mature markets are strategically reconfiguring their assets, emerging economies are launching ambitious modernisation and greenfield projects, creating a dual front of opportunity for traditional rail investors as well as more strategic value-chain players. This underscores the broader dynamics currently reshaping rail as a sector now firmly at the centre of infrastructure investment discussions and the future of logistics and sustainability.

1. Sector Trends: Decarbonisation and Modal Shift

The global drive towards transport decarbonisation is at the heart of the rail industry’s current development. To achieve this, electrification has emerged as the primary strategy – particularly in Europe where around 60% of the rail network is already electrified. However, significant barriers remain, including (i) environmental limitations, e.g. in protected areas or areas of high urban density; (ii) infrastructure gaps, e.g. in the US and Australia; and (iii) cost-benefit concerns in low-traffic areas. This has spurred interest in alternative propulsion technologies where investors are carefully weighing the risk and reward of nascent technologies:

• Hydrogen trains: While these promise longer routes over 500km, their drawbacks present material risks for investors. These include (i) high fuel consumption, as much as 3,000–5,000kg per journey in North America; (ii) infrastructure and supply chain limitations; and (iii) particular safety concerns for use in dense urban or tunnel environments. These factors remain substantial hurdles to wide-scale deployment. For more information about the status of the hydrogen economy, see our recent Inside Infrastructure blog Highlighting Hydrogen.
• Battery-electric trains: By contrast, battery-electric trains have rapidly gained traction across Europe, particularly in short-to-medium-range passenger services (100-150km). These offer lower operational costs than diesel after just 3–5 years but investors remain cautious due to (i) limited operational track records, (ii) evolving standards and a lack of consistent charging and fuelling infrastructure, and (iii) technical risks around battery and fuel cell lifetimes and safety.
• Dual-mode locomotives: Meanwhile, dual-mode locomotives - combining electric and diesel capabilities - are on the rise as transitional solutions, especially where national net-zero targets drive diesel phase-out, such as in the UK.For investors, these assets can represent a valuable bridging technology, mitigating obsolescence risk while the viability of pure-play green technologies is still being proven as an investment thesis.

2. Innovation: Digitalisation and AI

Digitalisation is revolutionising rail operations to increase network capacity, reduce costs and enhance safety standards across both passenger and freight services. Moving beyond traditional performance measures, rolling stock valuation and investor interest are increasingly influenced by digital and AI capabilities such as:

• AI-optimised rail systems and operations: Enable better punctuality, condition-based maintenance, predictive diagnostics, higher energy efficiency, and an improved passenger experience. These enhancements translate directly to stronger revenue streams and higher asset values.
• Long-term infrastructure modernisation: This could include digital signalling, automated train operations, solar-powered battery systems, and EU-wide digital control and communication systems. Such upgrades are critical for future-proofing assets and securing long-term returns.

3. Investment Models: PPPs and Financing Dynamics

Public-Private Partnerships (PPP) have solidified their position as the preferred investment model for new projects, due to their alignment with social utility and urban integration objectives. The success of metro PPPs in places like Sydney, Dublin, and Mecca involves:

• Risk allocation: For assets built on emerging technology, re-leasing and technical/market risks must be considered. A clear allocation of these risks between public and private partners is fundamental to achieving bankability.
• Clear performance indicators: PPPs are adaptable and can integrate KPIs which align with investor goals, including technological maturity, operational reliability, clear procurement processes, and the robustness of delivery frameworks.

4. Global and Regional Outlook: Emerging Markets

Across Africa, distinct regional investment landscapes are emerging, driven by electrification and cross-border integration. In North Africa, nations like Egypt and Morocco are spearheading modernisation - Egypt is pursuing a comprehensive network transformation, while Morocco has already launched the continent's first high-speed rail service, demonstrating the region's capacity for advanced rail projects. 

Momentum is also building in sub-Saharan Africa, where major corridors, such as the US and EU-backed Lobito Corridor connecting Angola, the DRC, and Zambia, underscore a strategic focus on integrating critical mineral-rich regions with global markets. Further south, in a significant policy shift, South Africa's state-owned Transnet has announced plans to invest $7.3bn over the next five years in modernising its rail infrastructure, and to allow private operators onto its freight rail network. This will create a major new opening for private investment in rolling stock and operations on key commodity corridors. Political stability will be critical to sustaining this momentum.

Further, the Middle East is undergoing a surge in rail development. The ILFR award-winning Oman-Abu Dhabi railway, which Freshfields advised on, underscores the trend of cross-border projects. More recently, upcoming tenders such as for Israel’s Tel Aviv Metro PPP and Saudi Arabia’s Riyadh driverless metro reflect the growing ambition and opportunity in this area. For more information about these trends, see our recent Inside Infrastructure blog about Market Trends in MENA.

5. Operational and Project Risks

• Complexity: As observed in our most recent mandates, major infrastructure projects increasingly involve multi-contract and cross-border factors. These complexities result in interface risks and the potential for misalignment across liability regimes, which must be carefully managed through robust, integrated legal frameworks to protect investor interests.
• Future-proofing: While re-leasing and obsolescence risks must especially be addressed for assets with emerging technologies, future-proofing investments with modular rolling stock and battery systems can mitigate this. This approach allows for incremental upgrades, reducing the upfront capital risk associated with unproven technologies.

6. Opportunities and Next Steps

Ultimately, the alignment of policy frameworks and geopolitical collaboration will underpin the rail sector’s transformation pace and scale. If these elements create an environment of investor confidence, a new generation of PPP tenders and infrastructure projects will continue to create opportunities for a broad spectrum of stakeholders. This dynamic is also likely to fuel M&A activity in the space, as strategic players look to acquire key technologies or shed non-core assets, and financial investors pursue consolidation plays. For market participants, tracking advances in digitalisation, decarbonisation and hybrid finance models will be key to securing both short and long-term value from the upcoming waves of development.

7. Conclusion: The New Era for Rail and Logistics

The centrality of rail to modern, sustainable logistics, urban mobility, and regional development cannot be overstated. The next phase of success will belong to those ready to innovate - including on financing and risk strategies - while collaborating across the public and private divide. More than ever, major infrastructure projects require robust dealmaking, structured legal advice, and a keen understanding of global tailwinds.

At Freshfields, our experience advising on some of the world’s most complex cross-border infrastructure projects means we are well placed to partner with and help clients capture these opportunities and manage the risks and rewards that lie ahead.

For more information about the trends shaping rail infrastructure, or to discuss your next project, please contact us.

And finally, Real Asset or Fake News? 

Well done to everyone who correctly picked out underground OJ as the fiction last week. With global rail facing a wave of innovation—from hydrogen trains to AI-driven operations—it’s getting harder to separate the breakthroughs from the bold claims. Which of these “facts” is right on track, and which one is just a signal failure?

• Green hydrogen on the move: Stadler’s SBCTA hydrogen train set a Guinness World Record by traveling 1,741 miles without refuelling or recharging during testing.
• AI pioneer: Dubai is implementing an AI-powered system for monitoring and proactively maintaining infrastructure, which could reduce the cost of regular maintenance by 25%.
• Battery breakthroughs: Great Western Railway in the UK recently completed a 200-mile journey on a single battery charge, demonstrating battery-powered trains are feasible for regional routes.
• PPP project boom: Last year, over half of all new rail line kilometres globally were developed through public-private partnerships.
• Driverless metro expansion: Globally, driverless metro networks now exceed 1,000km combined.

We’ll reveal which of these is a high-speed reality and which has come off the rails next week. If you’ve already spotted the wild card—or want to put your infrastructure intuition to the test—reach out and let us know!