Speaker 1: With Laurent's segle and from London and Gerard read from Berlin.
Speaker 2: This is redefining energy today.
Speaker 1: On Redefining Energy, Laurno. We're going to bring an old
friend back on the show, aren't we.
Speaker 3: Yes, it's David's Casebrook, the Brook in queen Brook and
reading on the show five years ago, very popular episode
episode sixty six. The things have changed so much so
it was probably time to bring in and discuss all
this data center and the revolution of twenty fourteen power development.
Speaker 1: Yeah. I think that's what I love about David is
these guys have been at the forefront of this renewable
stuff for twenty five years over and I mean always
at the forefront of that. They're not just an infrastructure
investor really are. They're local and sort of saying, well,
where's the future going? And that's creator. Yeah, we need
to have Drap back on again. Yeah.
Speaker 3: And for the people who don't know queen Brook, it's
a mid size specialties fun They have executed twenty seven
billion dollars two hundred and forty projects. They've built more
than forty gigawad operating across US, UK and Australia, and
they're so good. Definitely punching above their weight. And of
course at some point we're going to enter in the
data center realm. And here they've developed out of thin
air a company called Rowan, so you can hear about Rowan,
which is one of the top three successful data centered
developer in America. And they just signed a Chinamos did
with Blackstone one billion dollars. Very very impressive. I'm keen
to hear what David is to.
Speaker 1: Say, So let's bring another show.
Speaker 3: David, Welcome back to the show.
Speaker 2: It's so nice to see you guys again. I can't
believe it's been this long. Always a pleasure to talk
to you too.
Speaker 1: Well, David, maybe just kick off this and I think
actually the last half another show was almost five years ago. Yes,
you've been in this renewable space for almost a quarter
of us and shit at this point in time. But
I'd love to hear what's changed over the last five
years for you, and then you know, we can probably
dig a little bit deeper into Quinn Brock and what
you're doing differently and then really talk a little bit
more about the future. Now, that's what we'd love to
sort of go through today. But startup, and what are
the big things that you look at and say, wow,
this is what's changed. Yeah.
Speaker 2: Look, I would say if I go back five years,
I'm thinking, you know, twenty one, twenty two. Back then,
the big things that we were pondering were getting out
of wind on shore wind and into solar and storage
in a fairly big way. And the projects that we
were doing were persuading us in that direction, largely because
on the solar and storage side, you know, with our
Gemini project in Nevada, which it was just cost based,
we were looking at the potency of those two technologies
combined together. There have been a lot cheaper since then,
but of course both in time of day, but in
overall Lcoe they were unbeatable. And on the other hand,
we were finishing up about a five year build of
our Scout wind platform and it was occurring to us
that we saw that the fund was going out of
on sure wind from a risk adjusted return perspective. For
a couple of reasons, particularly in the US, we saw
it as a cluster technology, which means everyone develops it
in the same location, and that Tier one wind sites
and then did Tier two, etc. But that particularly in
the US with the production tax credits led to price cannibalization,
and so it was a very very difficult period to
think about sort of consistent returns with so much volatility
being driven by too much capacity going into the same
node or into the same connection. And of course then
we started to see price separation between your connection point
and irrelevant pricing node from a customer point of view,
So to us, you can't really diversify yourself out of that.
Very difficult back then to contract your way out of
that from a hedging perspective, and so there was really
a really huge turning point for us was the decision
to get out of on shore wind and into solar
battery storage, which at the time and in the five
years since, we saw it back then as the engine
room of the energy transition. We were a pioneer of
solar and DC coupled storage, and that was with four
hour solution back then. Everything that's happened since then, I mean,
it's more than eighty percent of most grid cues. It's
now the dominant technology combination, and certainly in the markets
where we're active. And so I would say that technology
trend based on cost. The sheer cost competitiveness and the
time of day service that solar and storage could deliver
because turned out to be absolutely right.
Speaker 3: So in the past five years, the financing condition, so
you've seen more investors come in, the risk profile changing.
How has it evolved because at the same time the
interest rates have gone up.
Speaker 2: Yeah, I'd say it. In the early days, the novelty
was in being in the sector itself, and so there
was reasonable return capture through the whole development cycle. And
when money was cheap, M and A strategies and renewables
attracted a lot of institutional capital. There's a lot of
new entrants coming in. I mean, generalists were turning into
renewable infrastructure. Generalists were having renewables represent the largest component
of their funds, of their core and their core plus funds,
and so money started to flow into the sector. Generalists
took significant amount of that capital. M and A strategies
really dominated a lot of the capital flows that went
into the sector, and there were reasonable returns I mean,
in a relative sense, reasonable chance to be had through
those M and A strategies. I think in that time
we've seen a lot of capacity build, a lot of
capital flow, both on the equity and debt side to
a point where where we are today, a lot of
the institutional capital that we speak to around the world
has kind of got their allocation of what they would
sort of refer to as generic megawatts or the sort
of the more or maybe the core plus strategies that
have suffered a lot with interest rates given these discounter
cash flow assets. As interest rates go up, wax go up,
navs go down, that's put a lot of pressure on
some of those historic sort of M and A strategies,
particularly things that were bought aggressively in competitive auctions. They
haven't performed very well. That's been a little bit of
appall over renewables sitting in their portfolios. That has tempered
appetite for more. Fast forward to kind of where we
are today, I'd say from where we sit, particularly a
lot of institutional capital looking for differentiation in the strategy.
They're looking for differentiation in the returns. They're looking for
new ways to play infrastructure within the energy transition. So
we're kind of in the age of the specialist and
we're in the age of differentiation. And the other thing
I would say is you look at the evolution of
investment product that's been created and offered to the capital
that flows into the sector back not that maybe five
years ago you had solar funds and you had very
technology specific investment funds that we're doing kind of one
thing in either one country or a number of countries.
And I think over that time what we've seen is
investors now are attracted more to either technology agnostic, multi
technology or diversified strategies that are across more than one
way to play the energy transition. So that's part of
that differentiation, and I think it's also a function of
the fact that the return on investment and return on
equity across technologies has largely commoditized. And so whilst we
know that there are significant differences technologically and performance wise
in the way these assets behave and a lot of cases,
a lot of stres srategies, you're not getting rewarded for
that differential. And so the choice in terms of the
fundamental risk beta, whether it's construction, whether it's operational, you're
not getting compensated for that, particularly using sort of M
and A strategies. And so the market has sort of
tended to shift towards more value add where the investor
is investing more for sponsors that are differentiated in the
way they go about creating a higher return and sort
of mitigating their risk position on the downside, and moving
away from those generic megawats that sort of still necessary
for decarbonization. It's just not as interesting for investors to
deploy a lot more capital in that direction. It's far
more going into the value add strategies.
Speaker 1: David May, I just follow on this because the one
thing that I would see when I'm looking at a
lot of your competitors is exactly what you said, I'm
going to be more brutal than what you said. Is
all they've done is they have run power plans from
Excel sheets for the last fifteen to twenty years. Now.
You've been very different now because I even just go
back to the fact that you bought a flexibility platform,
you realize that you had to sort of become an
energy services company, and you didn't use that phrase, and
I'm just curious why you didn't have that phrase energy
such system.
Speaker 2: That's a great question. I mean, it probably touched on
something I should have mentioned in response to Laurren's question earlier,
which is what's happened in the last five years for
US is we're thinking thematically these days, and we're investing
thematically because at the end of the day, our job
is to deliver the same thing from an investment outcome
and performance perspective. It's a rinse and repeat exercise. But
of course, in terms of our return targets and what
we're offering for our investment services doesn't really change from
decade to decade mid teens plus, but what we have
to do to achieve it has changed fundamentally a year
to year, vintage to vintage, fund to fund, market to market.
We have to to reinvent our strategy each time thematically,
and so we've learned to invest now more by choosing
a select number of thematics which are directionally where we
think we can apply our skills and generate these value
add returns. And so we don't think in market terms,
or we don't think specifically in market or country terms.
We think thematically and we try to apply those thematics
across all of the markets where we are active. And
the most significant part of that is that our strategic
focus has shifted entirely to being customer centric, so we
are solving problems and to solve problems for customers. Customers
don't care what technology choices you make. They care about reliability,
they care about impact, they care about cost, and so
when we think about the tools we need in our toolkit,
they are all the things you mentioned. Yes, of course,
we have to have full suite development capability across all
all the bank of all proven technologies. We need to
be able to mix them and compliment them to achieve
a supply profile that matches what the customer needs. But
then we need to do more than that. We need
to algorithmically optimize batteries using AI. We need to do
that through the whole project development suite, and we need
access to flexibility. We need to fill in the gaps
going back to what I said in twenty two, the
missing hours problem. Since then, we've developed an eight hour battery,
now working on a twelve hour battery. It's purely designed
to be able to deliver that twenty four to seven
profile to data centers or steel mills or smelters, because
that's the problem we're increasingly trying to solve. We're not
trying to develop mega watts just to stick into the grid.
We're trying to develop a services and a solutions project.
Or combination of projects that solve a customer's problem. So
I'd say over the last five years we have pivoted
entirely to being thematically driven solutions business in the energy transition.
Speaker 1: Can I just dig on that a little bit and
after question? Yeah, cool and again a bit a bit provocative.
Here does that really sit in a fund structure? And
where I'm coming from ante is at the end of
the day, you've got a fund. At some point you're
trying to get a return to someone to that song, right,
So tell me how does that of fit in? And
where is the secret SAP and all of our.
Speaker 2: The secret source is that the capital lives in the
fund and that's where it belongs because that's our fiduciary business.
But we have an equivalent number of people over one
hundred and hour in our project development, construction, design, operations, procurement.
That's the secret source. We are finding over time. The
only way we can consistently deliver differentiated value add returns
with proprietary thematics that we are thinking about every day
that solve customer problems is we have to be able
to deliver those solutions ourselves increasingly, and so today across
the Quinnrook pipeline. Even compared to say, five years ago,
we were way more dependent on portfolio businesses that we
were creating ourselves to execute a certain thematic. These days,
we're still doing that, but more than half of our
portfolio now is things that Quimrook itself is developing, site acquisition,
grid connections, permitting, design, procurement.
Speaker 1: Now.
Speaker 2: Not only that gives us the ability to retain a
lot of value and offer that value back up to
our investors, but we're pursuing proprietary thematics that we don't
want the market to know about, necessarily because we want
to continue to be a first mover. So to answer
your question, if you were just a fund manager, I
don't think you can do all of that that needs
to be done. That when I say we are thematically driven,
we're customer centric. We can solve problems and create solutions.
As just as a fund manager, it's very very difficult
to do that. You can do it via portfolio company
and assemble portfolio companies, but of course you've got to
sell those portfolio companies at some point in time and
then you lose all that capability. We still do that,
you know, we still turn over our portfolio companies, but
what we've done internally is create the enduring capability, the
enduring skill set from project development side, acquisition grid. These
are things that are common to everything that we do,
and so being able to have that in perpetuity I
think is really really critical. It's a critical differentiator for us.
Speaker 3: Let's talk about the elephant in the rumor, well, not
the different the herb of elephants, which well she was
not pronounced four years ago, a Berlin pass data sentels
and that has been a fantastic driver of your gross recently.
Rather just shoveling make out what our work to the
grid and let the grid take care of it more
or less, let's talk about the past five years and
our integration in the hyperscalar universe.
Speaker 2: Yeah, it is the biggest topic today, wasn't back in
twenty one when we were on the blackboard trying to
figure out I mean, in twenty one was obvious that
hyperscale data centers were the largest virtual buyers of renewable power. Right,
they all had net zero commitments, they were all doing
the biggest PPAs. But one of the things that we
noticed was that data centers were getting bigger. I mean,
Gemini was supporting a two hundred megawatt data center in
twenty twenty one for Google in Nevada. That was monstrous
in twenty twenty one and in the desert, and we
were like, what's going on. We had just like this
light bulb moment where we said, the hierarchy of needs
for data centers is changing to power first, and that's
right up our street. So we looked across the landscape
of the US industry, which hadn't gone hyper scale really,
and AI wasn't a thing. Post COVID five G was
a thing. Netflix was a thing, Zoom was a thing,
Teams thing, and that was driving a lot of growth
in power need and their full capacity of data centers.
But we saw beyond that. We just thought, this is
an exorable trend. And we looked across the industry landscape
and they were mostly property businesses, like there were real
estate trusts, and they were triple net lease where power
was a pass through and they just signed up to
the local utility and passed the costs onto the data
center operator. So what occurred to us was we just
need to expand our development capability. We're already finding sites
that can host massive gigawattscale supply solutions. Why don't we
expand our ability to find sites that also host these
data center Think back to what I said before, We
needed to get physical because the world was virtual, and
in a virtual ppa world, you don't get paid for
quality and you don't have any bargaining leverage when you're
negotiating price and terms. But you do when you're physically
delivering out of site where a customer needs access to
all the things you're developing at that site. So, if
you think about that collectively, we needed to go physical.
We needed to expand our development capability to include places
where you'd put a hyperscale data center that needed massive
power supply, particularly renewables at the time, and needed to
be well developed in the right location, at the right
timing and the right price point. And so that's what
gave us a huge conviction to go hard into the
hyperscale data center Thematic empowered Land providing a customer solution
for hyperscale data centers. Now, at the time, everyone said
we were learning. They said, you guys are kidding. How
can you waltz into the US data center industry and
sort of crack it open with this idea of yours,
and that inspires us being told we're mad or we
can't do something. So I think our conviction wasn't wavered,
and we went and did what we not know. We
didn't know really about hyper scale data center busyesers and
the customer perspective, and so we hired a whole bunch
of people from the customer and we didn't need to
be taught out to develop projects, but we needed to
acquire the customer mindset to know what was the right
thing to do at the right time. And that was
really an important initiative that we took. So we started
Rowan back in twenty twenty one in the US. I'm
proud to say that from dollar one employee number one
in that five years, Rowan is now number three data
center developer in the United States, one of the fastest growing,
has got three hundred and fifty people. You saw the
deal we announced with Blackstone. But importantly, over that time,
the power first is now obvious to everybody. It's obvious
you've got data center company's buying power developers. It's the
only thing that matters. It's the only thing that gets
you a lease with any of the compute firms is
power and timing of power, and so now it's obvious.
But importantly, the delivery of the power solution, together with
the land solution and the permit solution hasn't changed. It's
become more acute and more obvious. And so the power
element to the strategy is now more critical than ever.
And actually people are paying big money and I'm paying
a lot of value away to acquire that power capability
along with the data center development piece. Probably it's our
most successful investment. Is showing no signs of letting up.
But I guess the most important thing beyond Quinbrook, of course,
is it's entirely changed the supplied demand paradigm. And five
years ago, no one was seeing the demand curve tilt
up as aggressively as we're now seeing it, and we
are in supply demand equilibria markets. From a pricing perspective,
that's what drives the price and value of electricity in particular,
and therefore data centers are having the single largest impact
on affordability on available of capacity. Competition for capacity. You're
seeing it in acute political reaction, in community reaction, in
places where capacity is being saturated or is overbuilt. So
this is really the issue of our age. Because it
affects everything, you can't ignore it. Fortunately for us, we're
in the middle of it up to our eyeballs. That's
where we'd rather view the game from inside the tent
because it is so fundamentally important and influential to everything
in the sector.
Speaker 1: David, I'm sort of curious about how far you go
into this energy value chain within data centers and where
I'm coming from, and this is I can understand what
you're doing is you're bringing power to the meter, But
if you look between the meter and the chip, it's
all electrics at the end of the day, power electron acity.
You've got capacitors in there, you've got batteries in there.
Do you vertically integrate more into that or do you
just leave the hyperscalers through that or how do you
see that?
Speaker 2: Well, people talk about the hyperscale is like they're amorphous.
Speaker 1: They're not.
Speaker 2: Every single one of them is different in how they
approach their power strategy. But the pressures of time forcing expediency,
which means the more you're able to do, the more
valuable you are at this moment in time and So
if you have long lead equipment that they don't have,
if you have development capability, if you're able to provide
behind the meda capacity, whether that's truck mounded gts or
its batteries, or you've got a track record in you've
got a long duration battery, you've got any of these things,
you've got, the more tools you've got in your bag
to solve their power issue, because they still think of
it like as a customer should power to the chip
or power at the chip. That's what drives their business.
That's what they need, and so they don't want to
have to compromise on that journey. But now the next
single biggest shift in the industry because of grid can
community opposition is you've got to bring your own power.
So now we're going through another evolution of the solution required,
which I think is a partial answer to your question
that the hyperscalers can't just think about power at the
chip anymore. They have to be accommodating to now some
of the constraints of behind the meta solutions for power acceleration.
They may get grid power five years from now, but
the behind the meta solution has imperfections. The power quality
isn't necessarily as reliable as grid power, but that's Ford
seeing compromises, and so that's changing the nature of the
engagement between the behind the meta power supplier and the hyperscaler.
Some of the hyper scalers are massively building out their
internal power teams because they need their own delivery capability.
That doesn't make the solution any different to whether it's
a third party solution or any how solution. You're still
constrained by the art the possible technologically behind the meta
at a certain point. But technology is evolving in a
way that's helping that, so real time power management, algorithmic
optimization of the interface between the load and the supply point.
But again, come back, I'll like to take the conversation
all the way back to episode sixty six, the missing
hours and being behind the meter in twenty four seven.
Our challenge right now and a lot of the projects
that we're developing is we're getting very close to twenty
four to seven power. It isn't the way we thought
we would be there. Necessarily, long duration batteries have taken
a bit longer to get there, but we're probably at
the cutting edge of that. But the urgency of the
power needs, particularly of the data center industry at the moment,
for particularly AI compute means you don't have time for
a lot of that evolution, and you have to be
more expedient in that solution, and that's why you're seeing
this move to short term gts. Eventually we think they'll
be and they're still doing backup generators in a lot
of their projects. They don't have the time to experiment
with some of these new solutions, so expediency has forced
us to fall back on what we know. But the
innovation really is in the software and the control systems
that are able to do multi technology combinations of integrated
solution behind the meta. That's the next biggest shift that
we're seeing. What they say, necessity is the mother of invention,
and so now we're seeing a whole plethora of solutions
claiming to solve that problem for behind the meta supplied
to energy intensive load. That's I think one of the
most fascinating developments we'll see over the next couple of.
Speaker 1: David, maybe just one last question, because you're working internationally,
can you talk about the differences in the markets here
in particular, I'm sort of looking at the difference between
the you know, the US market and obviously the urine market,
but you're also in the Australian market as well.
Speaker 2: Yeah, we can pursue the same thematics with different gusto
in each one at any given particular point in time.
Speaker 1: But look, the.
Speaker 2: US is still a very very attractive market if you
can pivot, strategically, pivot and tactically pivot. Putting the data
center thing aside, which of course is the most acute
in the US, we're still doing a lot of solar
and batteries, and we're still doing a lot of particularly
green fuels we find very attractive in the United States.
Despite the tariff profile they're making construction costs and procurement
cost more expensive, but there are still very fertile territories
to be exploring in the US market. So I would
say we have slightly detuned our focus there in terms
of overall capital allocation. It's far more specific in the
things that we're doing. Liquid fuel solutions, for decarbonizing, data
center backup generation, things like that we find fascinating, and
we're going all in on those sectors, which we think
the US is probably the best market in the world
I'd say in Europe the overall return profile has improved
for what we do anyway from what it was five
years ago, where we stuck to our needing in the UK.
UK it's a tougher market to develop to the return
targets that we seek. We're seeing some pockets of opportunity
now merging into Coloneal Europe that wouldn't have met our
return targets before, and I think that's partly out of
necessity as well. And so I think that the opportunity
set is broadening in Europe, it's still not quite at
the same level of return opportunity for the sectors that
we're pursuing in the United States. And the one big
change in the last five years I also should have
mentioned the first conversation is Australia. In our opinion for
what we do right now, Australia is the most attractive
market in the OECD for US to develop these customer
centric solutions aimed at industrial decarbonization. At this moment in time,
Australia is top of the pops for US across all
of our markets. And so the ability to pivot and
refocus your efforts from your thematic focus and the capital
deployment in the markets that are offering you that value
added returnal opportunities are hugely employed. It has always been
important because this market, as you know we met back
in the nineties, has moved in a series of closing
and opening windows and doors, and whether that's technologically or regulatory,
or market or customer driven, it's really the ability to
anticipate those openings and anticipate those closings. And right now
it's actually a very fertile time to be investing in
all of those markets, but very subject to what you
choose to do.
Speaker 1: David, can I just ask you very quick about Australia.
There is the Australian opportunity there specifically because the fact
that just solar and batteries makes economic sense given just
the high levels of radiation or is it something else.
Speaker 2: It's a combination of things.
Speaker 1: You know.
Speaker 2: Firstly, they're closing a huge amount of coal plant in
Australia and it just needs to be replaced. Number two,
we don't tariff solar and batteries in Australia. We import
them all from China pretty much, but we get them
at wholesale compare they're triple the cost in the United States. Yeah,
we've got one of the best solar radiances anywhere in
the world. That solar irradiance and the land and now
transmission system in certain areas can be developed at scale.
In areas where we have a carbon intensive, electricity intensive
industry that's desperately seeking to decarbonize, located right next to
deepwater export ports to law Asia, it's just got a
lot going for it. And I give this speech at
conferences going back to Adam Smith and the Wealth of
Nations where we talked about a country's factor endowment and
you think about what is wealth at a national level? Really,
where's its genesis? These days it's no different And that's
what really where Australia is coming into its own at
the moment. It's got everything, It's got an abundance of everything.
Its endowment is all of the above and a little
bit like the US as well, very different to Europe,
very different to the UK, very different islands, very different
to Colonel Europe. It isn't and all of the above abundance.
But I think if you think about how you exploit
the energy transition profitably critical minerals supply chains, Australia sits
right at the very intersection of this next era of
industrial resiliency and self sufficiency.
Speaker 3: David, it's a treat to have you. Unfortunately you need
to wait another five years to come back.
Speaker 2: Fair enough, we'll do another retrospective.
Speaker 1: No, it's really great.
Speaker 3: So congratulation on your work and we always learn a
lot and I like the fact that you are a
first mover. That's great. So congratulations and thank you for
coming on the show.
Speaker 2: Thank you, Jess Pleasure as always, thanks for having me.
Speaker 1: Yeah, thanks for that, Dave Lauren. I'm always blown away
by David because listen, my job is also to look
in the future and see what's going on. But I
talk about it, he doesn't. It's just very impressive, you know.
That's all. I would just say.
Speaker 3: Superb that's the title of the episode, and it's probably
the most important things that he has said. It's this
world of virtual we need to go physical.
Speaker 1: Absolutely, we need to go physical. Well set exactly.
Speaker 2: Thank you for listening to Redefining Energy.
Speaker 1: Don't forget to read the show and subscribe on Apple Podcasts, Spotify,
or the platform of your choice.