Speaker 1: With Laurent's segle and from London and Gerard read from Berlin,
Speaker 1: this is redefining Energy.
Speaker 2: Today on Really Faking Energy, John, we had the privilege
Speaker 2: of recording live from Dly Piper, our good friends Jelly
Speaker 2: Piper the law Firm an episode with Copenhagen in Fast
Speaker 2: Job Partners.
Speaker 1: Who's one of the biggest investors obviously in the whole
Speaker 1: renewables era, and they've been not for a long, long while.
Speaker 1: It's a good conversation. I think we should just bring
Speaker 1: another show. How are you everybody? I'm Jared, that's Lauren,
Speaker 1: this is Rowan. It's really great to be here and
Speaker 1: we're going to talk really about investing in electrical infrastructure,
Speaker 1: the opportunities and I would say perils as well, because
Speaker 1: it's not an easy time to be investing. So it's
Speaker 1: great to be here.
Speaker 2: So we have as a guest, Owen Parkhauso is accepted
Speaker 2: to be in the middle. We have a lot of
Speaker 2: questions pre prepared as you can see here. Of course
Speaker 2: I'm gonna toss so that's going to make the conversation
Speaker 2: more interesting. And the first question, as you are our guest,
Speaker 2: is you are managing director at Copenhagen Infast your partner. Imagine,
Speaker 2: I'm an LP. I heard about you, but this first
Speaker 2: time I meet you, so introduced to me Copenhagen in
Speaker 2: your part.
Speaker 3: Thanks no, thanks for throwing away my notes. My IR
Speaker 3: team will love that. So yeah, Cobnagen Infrastructure Power the CP.
Speaker 3: We're a fund manager, but we're really an IPP at
Speaker 3: the same time. And so we're set up as a
Speaker 3: fund manager. We've raised money from our investors and we
Speaker 3: go and invested in greenfield energy infrastructure. But of the
Speaker 3: twenty three hundred people that we have employed, about seventy
Speaker 3: five percent of those are actually construction managers technology specialists.
Speaker 3: So we kind of even though we are a fund manager,
Speaker 3: really we're a little bit like an IPP platform, and
Speaker 3: we have all the kind of delivery engine and the
Speaker 3: sort of construction and procurement engine of an IPP or
Speaker 3: a utility. But we're a fund manager, so we have
Speaker 3: all of the kind of analytical rigor and so on
Speaker 3: of being a fund manager and all that all becomes
Speaker 3: with that. And so greenfield energy investing is, to put it,
Speaker 3: simply investing in projects during development and then taking them
Speaker 3: through development, doing all the procurement, the financing off take
Speaker 3: and then taking them through construction into operations, and then
Speaker 3: we will divest projects at some point in time, and
Speaker 3: we are primarily a direct project investors. Sometimes we'll buy
Speaker 3: businesses that also do this, but you know, in the end,
Speaker 3: what's really important for us is sort of to be
Speaker 3: close to the assets and try and deliver those assets
Speaker 3: in a good way, and then you know, the technology wise,
Speaker 3: we invest across sort of the energy transition. So Offstra Wind,
Speaker 3: our heritage actually is sort of coming out of the
Speaker 3: Senior partners, came out of allsted A commercialized the offual
Speaker 3: wind industry, so we have a lot big heritage in
Speaker 3: austral wind. But we also do a lot of ontore wind,
Speaker 3: solar batteries, a bit of transmission distribution across the range
Speaker 3: of different technologies.
Speaker 1: So maybe we're just staff for true the different technologies, right,
Speaker 1: because as you said, came out of wind. When I
Speaker 1: compare the wind and the solar investors, the wind investors
Speaker 1: for me are always people that just in terms of mentality,
Speaker 1: they're different because they take longer, the plans take longer,
Speaker 1: and if I look at the world that we're in
Speaker 1: a present, we sort of need people that are really fast,
Speaker 1: which lends itself to the solar guy, because the solar
Speaker 1: guy tends to be They just tend to be quicker
Speaker 1: in developing, get to the next project. Do you see
Speaker 1: the same when you're investing. Do you think of it
Speaker 1: in a different way now or how do you look
Speaker 1: at it?
Speaker 3: You need to be very thorough as an infrastructure investor
Speaker 3: because really being a good infrastructure investor for me, means
Speaker 3: of being a little bit neurotic, a little bit. Sort
Speaker 3: of attention to detail is extremely important. Control is important
Speaker 3: getting into the weeds because the small chinks in your project,
Speaker 3: small weaknesses can have a big impact. So you have
Speaker 3: to be really thorough, which is probably what you're talking
Speaker 3: about when you're saying wind investors have that sort of mindset.
Speaker 3: I think solar you can do a little bit more standardization,
Speaker 3: You can sort of cookie cutter it a little bit more,
Speaker 3: so then you can turn the handle a bit faster.
Speaker 3: I think we try to be agile and sort of
Speaker 3: understand and that there are different ways of doing different things.
Speaker 3: I don't think anybody can complain about us being too slow.
Speaker 3: Where definitely sort of being a fund manager kind of
Speaker 3: brings with it a level of intensity and speed and
Speaker 3: sort of drive to want to go faster, which naturally
Speaker 3: means that where there are opportunities to do it without
Speaker 3: compromising on the thoroughness that's required, we are trying to
Speaker 3: move pretty fast. I mean that, honestly. Is the reason
Speaker 3: I joined CIP was because of the level of ambition
Speaker 3: and sort of the desire in the organization, in the
Speaker 3: culture to go fast and really sort of deliver at
Speaker 3: the speed that's needed for the energy transition.
Speaker 1: So where I'm coming from more is what I'm seeing
Speaker 1: now is there's a need for battery storage right across
Speaker 1: the system. It lends itself to solar and you need
Speaker 1: to go quick. Yeah, that's the way it would look
Speaker 1: at it. So how do you see storage and how
Speaker 1: do you invest in storage?
Speaker 3: Yeah, so we first invested in battery storage about five
Speaker 3: years ago, and at the time, I think in retrospect
Speaker 3: it seems like it was a really sort of obvious
Speaker 3: thing to do, But at the time it was a
Speaker 3: bit sort of non obvious. I think we saw high
Speaker 3: cap x you needed to go and chase after sort
Speaker 3: of scarcity pricing and ancillary services and markets in order
Speaker 3: to justify the high capex. We couldn't contract many of
Speaker 3: the revenues very well. There wasn't sort of opportunities to contract.
Speaker 3: The technology was getting better, but it was still quite
Speaker 3: early in a way, and I think we took a
Speaker 3: bet at that point, and the bet was really that
Speaker 3: the EV market would drive down with the technology. And
Speaker 3: you know, last year it's something like sixty billion or
Speaker 3: something that was invested global in battery storage. It's just nothing.
Speaker 3: The EV market is forty five times larger, so that
Speaker 3: the R and D spend and stuff that the technology
Speaker 3: development that goes into into batteries is all driven by evs.
Speaker 3: So we said that the technology is going to get
Speaker 3: better fast. That was the first thing we thought. Utilities
Speaker 3: are structurally short peak power and they're structurally short balancing,
Speaker 3: and so even though they're not offering a lot of
Speaker 3: opportunities to contract now that will improve. And so we
Speaker 3: had this thesis that it would work out, and we
Speaker 3: entered those development projects and then started constructing a few
Speaker 3: years after that, once the thesis sort of was panning out.
Speaker 3: We've now invested about three and a half billion euros
Speaker 3: into battery projects in the UK, the US, Chile, South Africa,
Speaker 3: and we've got a forty gig with our pipeline, So
Speaker 3: we're big believers in the kind of in the need
Speaker 3: for it, and I think we move pretty fast when
Speaker 3: it comes to batteries because it is a bit different
Speaker 3: from wind as I mentioned earlier. So we've been able
Speaker 3: to acquire projects and take them into construction extremely fast.
Speaker 2: If I look at your website, cip dot com, exce
Speaker 2: a lot of good information in it. So you've been
Speaker 2: founded forty years ago and now you've grown to thirty
Speaker 2: five billion of AUM, which ranks you, depending who you
Speaker 2: talk to, anywhere between the tenth and twenty years ranking
Speaker 2: in the world. You invest a lot, have fifteen funds. Well,
Speaker 2: I guess a lot of different strategy. So you talk
Speaker 2: about batteries and somehow five years ago there were a
Speaker 2: lot of difficult things which now probably are easier. So
Speaker 2: let me return the question, what was easy five years
Speaker 2: ago and now it's much more difficult.
Speaker 3: Projects have got a lot more complex. I think it
Speaker 3: is a lot harder to navigate. And it's not even
Speaker 3: one part of the project that's got more complex. You know,
Speaker 3: we're looking at co located projects with hybridization now, whereas
Speaker 3: before its single technology projects have got larger, and so
Speaker 3: you know, you're trying to move enormous turbines or even batteries. Right,
Speaker 3: we had some projects where the first projects we built
Speaker 3: in batteries, they were sort of two and a half
Speaker 3: mega with our containers, which way about thirty tons. The
Speaker 3: latest ones are sort of double that, if not more,
Speaker 3: and they weigh forty five tons, which sounds like nothing,
Speaker 3: but then actually when you try and move that over bridges,
Speaker 3: suddenly the bridges can't handle it. So there's just like
Speaker 3: a lot of complexity. And then I think even when
Speaker 3: you go into the sort of easy things like ordering
Speaker 3: transformers and switch gear, managing lead times on those sorts
Speaker 3: of things has become really difficult. It plays a little
Speaker 3: bit to our strength because we have the scale so
Speaker 3: we can order transformers, and then we have some optionality
Speaker 3: where we place those transformers into different projects. So you know,
Speaker 3: we found ways to navigate that complexity. But sure it's
Speaker 3: a more complex environment to work in. I think the
Speaker 3: sales pitch fast is a little bit, you know, it
Speaker 3: plays to our strengths. We're an energy specialist. We're all
Speaker 3: a bunch of energy nerds. We really just this is
Speaker 3: what we do day in, day out. So if you
Speaker 3: want anyone who can manage the complexity, I think we've
Speaker 3: got to believe that we're able to do that.
Speaker 2: And generally your addition was grid connection that's tougher.
Speaker 3: Yeah, I think good connection has become more difficult across
Speaker 3: the board. I have a lot of sympathy for grid operators.
Speaker 3: Before grid reforming the UK, it was a seven hundred
Speaker 3: giga what pipeline of connection requests they had? It was
Speaker 3: obvious to everybody that that wasn't needed. So how do
Speaker 3: you plan a system with seven hundred giga? What's asking
Speaker 3: to be connected? So that I have a lot of
Speaker 3: sympathy for how they're managing things. I think they're still
Speaker 3: inundated and they're still trying to work through how do
Speaker 3: you actually reliably deliver good connections on time. For us,
Speaker 3: we would like to help build the grid. We think
Speaker 3: that there's a lot of opportunities there or need for
Speaker 3: private capital. I think the UK has quite a forward
Speaker 3: thinking regime, but in the rest of continental Europe we
Speaker 3: do not see quite the same regulatory framework that lets
Speaker 3: us do that. So in the UK, for example, we're
Speaker 3: building transmission in Wales we're building, you know, we're developing
Speaker 3: an interconnector. I think in the rest of Europe it's
Speaker 3: more difficult to do that, so we'd like to be
Speaker 3: part of the solution. But overall it is much harder
Speaker 3: from a project perspective though. It's just I don't have
Speaker 3: a really sort of any secret source. You just look
Speaker 3: at what was the date the grid operator told you
Speaker 3: they could connect you, and you can work back from
Speaker 3: that and say, Okay, have you bought your equipment, have
Speaker 3: you done your permitting, have you got the land rights?
Speaker 3: Like it's simple stuff, and often you can see these
Speaker 3: delays coming because you say, okay, actually they are behind
Speaker 3: on these things. We just have to try and navigate
Speaker 3: it when we're looking at projects from sort of in
Speaker 3: a very practical way. But it has become way way
Speaker 3: more difficult.
Speaker 1: Ron you said earlier on that actually you were an
Speaker 1: independent power producer. I thought that was very interesting you
Speaker 1: started with that, because if I look, my criticism of
Speaker 1: everybody that's in this industry is that they have been
Speaker 1: running power plants with Excel sheets for the last twenty
Speaker 1: and the reason they've done that is because financial investors
Speaker 1: have seen them as annuity products. They're not. When you
Speaker 1: suddenly get zero prices every second day, then you realize, oh,
Speaker 1: I have to manage them in a different way and
Speaker 1: you have to change it. So I have a view
Speaker 1: certainly that you have to go and you have to
Speaker 1: virtually integrate, you have to go into trade and you
Speaker 1: have to which means you move towards independent power produce.
Speaker 1: But you started the conversation with that, so maybe you
Speaker 1: could explain how you see that and what you or
Speaker 1: how you think about it.
Speaker 3: I completely agree the age where we saw them as
Speaker 3: annuities is over to a large degree. I mean, if
Speaker 3: you bought a new solar project today with CfDS and everything,
Speaker 3: it feels a little bit like an annuity for a
Speaker 3: short period of time. But the reality is you're like
Speaker 3: you're missing a lot of levers and underperformance and issues
Speaker 3: that unless you get oily hands and you go on
Speaker 3: the site and you really figure it out, it's just
Speaker 3: not being optimized properly. And then there's this sort of
Speaker 3: window of sort of easier operation and you're out of that,
Speaker 3: not quickly, but you're out of that at some point.
Speaker 3: And so then you need to really be a sophisticated
Speaker 3: owner of those assets and manage all of the merchant risk, right,
Speaker 3: And I think if you look at some of the
Speaker 3: listed funds for example, this is a little bit the
Speaker 3: issue they've had.
Speaker 1: Right.
Speaker 3: They've raised this money into this vehicle, sold it as
Speaker 3: a financial product, but it's gone from being an annuity
Speaker 3: like product into something that really requires you know, blade
Speaker 3: replacements and the cell kind of you know, refurbishments and
Speaker 3: repowering and hybridization and all of this stuff. And they're
Speaker 3: kind of then having to build into that to becoming
Speaker 3: more of an IPP. But they unfortunately have a base
Speaker 3: of retail investors who didn't really decide to buy an
Speaker 3: IPP at the beginning. So then there's a bit of
Speaker 3: a disconnect, which I think is a lot you know
Speaker 3: in some part why they sort of trapped a little
Speaker 3: bit trading at this discount to lab that we're seeing.
Speaker 1: So dig into it a little bit. Does this mean
Speaker 1: that you're going into trading? Does it mean that you're
Speaker 1: going to go into customers? How do you go and
Speaker 1: hedge your portfolio going forward when you move into a
Speaker 1: world beyond subsidies, and even when you do have subsidies,
Speaker 1: you have power price risk.
Speaker 3: Yeah, it's a bit of a nuanced picture from market
Speaker 3: to market. I don't think we'll go sort of big
Speaker 3: into energy trading. And we're also in the end, once
Speaker 3: we've developed sites and sort of built them out, we
Speaker 3: do exit those projects at some point. Right, We don't
Speaker 3: end up building an enormous book of power that we
Speaker 3: need to go and optimize ourselves, but we do have
Speaker 3: an energy management team. We are sort of thinking about
Speaker 3: trading and optimization. The flip side to all of it
Speaker 3: is that the trend over the last few years has
Speaker 3: been for off takes to extend the duration. And that's
Speaker 3: partly because you know, we've had a lot of inflation,
Speaker 3: We've had sort of capleex increases, and we've just got
Speaker 3: higher interest rates at the moment, so you know, so
Speaker 3: that has increased slightly the power PPA prices that you
Speaker 3: need and the way a lot of people have reacted
Speaker 3: to that. UK government included, but also of corporates have said, well,
Speaker 3: can I get an extra couple of euros off my
Speaker 3: PPA price if I give you a fifteen or a
Speaker 3: twenty year contract whereas before I was giving you tens.
Speaker 3: So we do see that there's this complexity around power,
Speaker 3: but also our opportunity to contract that power for longer
Speaker 3: is also kind of improved quite a lot in the
Speaker 3: last few years.
Speaker 2: Okay, you recently are quite osted. You're on show business.
Speaker 2: What does it says about the value in the market.
Speaker 3: Yeah, so, I mean the business. It's now rebranded as
Speaker 3: Peragus Energy, which I won't hear a word against it.
Speaker 3: It's a great name. It's a portfolio of some operating
Speaker 3: assets but also a development pipeline, so it's not sort
Speaker 3: of completely one or the other. We really like the
Speaker 3: business because they're really experienced operators. They've been through these cycles.
Speaker 3: Like what we talk a lot about in CIP is
Speaker 3: like how many reps have you done, because it's not
Speaker 3: just sort of, oh, I'm a smart engineer, but I've
Speaker 3: never built anything and then seen it go wrong, And
Speaker 3: you need to actually do two, three four reps in
Speaker 3: order to get good as an individual and as an
Speaker 3: organization sort of institutionally, and they've been through that under
Speaker 3: the ownership of Austair. Before that, they were with Brookfield,
Speaker 3: you know, so it's been a business that's been around
Speaker 3: for a long time. It's got a lot of war stories,
Speaker 3: so we liked that they had that and they were
Speaker 3: sort of all this complexity that I mentioned earlier. We
Speaker 3: felt they were a really good team to help deliver
Speaker 3: projects even given that more complex environment. But they do
Speaker 3: still have a pipe. They are going to go off
Speaker 3: and grow the business, and we think that team is
Speaker 3: will placed to do that. I think if it tells
Speaker 3: you anything about what has changed over the last few years,
Speaker 3: it probably is that there's now greater value placed on
Speaker 3: experienced teams that are having at his extinct operating base.
Speaker 3: Whereas in the past we saw sort of astronomical value
Speaker 3: being placed on development pipeline. I think now it's matured.
Speaker 3: You know, five years ago, there was just an oversupply
Speaker 3: of capital into the space, and I think people were
Speaker 3: pricing risk in a sort of very irrational way. Now
Speaker 3: it's very rational because oil and gas is kind of
Speaker 3: out of the market largely, there's still funds I mentioned,
Speaker 3: they're trapped at a discount, and ab utilities that have
Speaker 3: network businesses are having to ration capital to generation to
Speaker 3: fund their networks. Right, So actually the people clearing all
Speaker 3: of these M and A processes tend to be more
Speaker 3: financials who were balancing the risks and pricing it and
Speaker 3: competing for capital with transport and social infra and you
Speaker 3: know digital and so there's just like a lot more
Speaker 3: rational pricing of risk that we're seeing. So that's why
Speaker 3: we're getting this more mature approach to how you value
Speaker 3: development pipeline versus how you value operational assets. What we
Speaker 3: really like about Paragris in particular is that there's also
Speaker 3: a lot of opportunity to do sort of value creation
Speaker 3: in the operating base through recontracting assets, through repowering of assets,
Speaker 3: which by the way, is harder than people think. But
Speaker 3: you know, they have existing good connections and they're the
Speaker 3: Windyer site, so there is a lot of value there
Speaker 3: and then sort of co location, hybridization, that sort of stuff.
Speaker 3: So if you sort of had to bucket, where will
Speaker 3: we create value here? In the past, people probably thought
Speaker 3: it was all in the development pipeline. Now I think
Speaker 3: it's a little bit more nuanced.
Speaker 1: Picture can askulously how you view behind the media as
Speaker 1: opposed in front of the meter. So in front of
Speaker 1: the meter is really where you come from. But when
Speaker 1: you look at behind the media, and when I don't
Speaker 1: mean behind the meta, I don't mean that just residential.
Speaker 1: I mean it may be a creating industrial parks, digital parks,
Speaker 1: all that types of how do you view that.
Speaker 3: We actually have a small microgrid fund where we're sort
Speaker 3: of trying to get more into into the space, so
Speaker 3: we think there's a lot of opportunities there for us
Speaker 3: to do more. It gets pretty complex when you look
Speaker 3: at the different regulatory regimes that there are in different markets.
Speaker 3: So it's not particularly well regulated today. I would say
Speaker 3: there are some places where it's very attractive to do it,
Speaker 3: but really it's attractive because you're arbor charging against network charging,
Speaker 3: and so you know, if I can sort of add
Speaker 3: soilar and batteries on site and I can just avoid
Speaker 3: all my network charges, that can make the economics of
Speaker 3: that behind the meter solution sort of extremely attractive. But
Speaker 3: the network chargers need to get paid by somebody, and
Speaker 3: so if you are the ones sort of avoiding them,
Speaker 3: they'll just go up and someone else will have to
Speaker 3: pay them. So I think long term there are some
Speaker 3: really good reasons to do it, but when you look
Speaker 3: at what's driving and in different markets, sometimes it can
Speaker 3: be a little bit The regulations are not sort of
Speaker 3: you know, in terms of how the cost of networks
Speaker 3: in particular are allocated and not as developed as they
Speaker 3: should be. That said, I think there's a huge opportunity.
Speaker 3: If you've got demand on one side, and you've got
Speaker 3: the space and you've got the capital to do it, it's
Speaker 3: a huge growth area. It does compete a little bit
Speaker 3: within front of the meta. On the battery side, for example,
Speaker 3: we see that there's sort of in all of our models,
Speaker 3: we're assuming that that happens, that there is some competition
Speaker 3: coming in front of the met is anormalness, and so
Speaker 3: you have sort of capex that's probably like half the cost.
Speaker 3: So there's some advantages to doing very large projects with
Speaker 3: economies of scale in front of the meta. So I
Speaker 3: don't think the solution will be entirely one thing or
Speaker 3: entirely the other, or that one behind the meter will
Speaker 3: kill in front of the meta. But we think there's
Speaker 3: a big opportunity.
Speaker 1: Can I ask as well, you talked a little bit
Speaker 1: about complexity earlier on. I would say there's massive stress
Speaker 1: in the market, And for me, massive stress comes about
Speaker 1: when I see massive volatility. So I look, for example,
Speaker 1: tomorrow at the continental European power prices, it's going to
Speaker 1: be zero, and then right across the continent it's going
Speaker 1: to be two hundred and fifty euros in the evening, right,
Speaker 1: So that for me says stress. And the second thing
Speaker 1: is you're seeing these zero prices every day because it's
Speaker 1: sunny outside, which means nobody's gonna invest in solar go forward, right,
Speaker 1: And we can begin to see that in solar pipelines
Speaker 1: that have been sold, where if there will be sold
Speaker 1: at one hundred thousand a megawa, now you can't give
Speaker 1: them away. Do you see us going into this era
Speaker 1: of stress or the next eighteen months of stress in
Speaker 1: this market? Or how do you look at that? And
Speaker 1: you look at as an opportunity or a trayer for or.
Speaker 3: Yeah, I mean we spend a lot of time looking
Speaker 3: at it, right, and so we have not gone into
Speaker 3: say Spanish solar, or or we spend a long time
Speaker 3: looking at German solar and we've sort of decided not
Speaker 3: to do it for exactly this reason. So it's something
Speaker 3: that we spend a lot of time on trying to
Speaker 3: get sort of under the skin of markets in the
Speaker 3: long term. There's this sort of thing that traders say,
Speaker 3: which is low prices solfload prices. I believe it to
Speaker 3: a degree, but it's just over what time frame when
Speaker 3: you get very large volumes of batteries. I think it
Speaker 3: will help smooth out a little bit of that solar
Speaker 3: cannibalization in the middle of the day. And then there's
Speaker 3: other things that you can do, Like in Finland, for example,
Speaker 3: there's been it's not solar driven, but there's been also
Speaker 3: sort of similar level of cannibalization. And then what Finland
Speaker 3: has seen is just sort of this super interesting buildout
Speaker 3: of e boilers, and e boilers are kind of like
Speaker 3: gaspeakers of heating. You know, it's not heat pumps. They're
Speaker 3: not nowhere as efficient as heat pumps, but they're really
Speaker 3: cheap and you can actually use them when you get
Speaker 3: these zero hour pricing and then store the heat in
Speaker 3: a sort of easier way than you can store the power,
Speaker 3: and then you know, use the heat at the time
Speaker 3: when prices are higher. So I think there are these
Speaker 3: sorts of technologies that will start to see increasingly as
Speaker 3: the kind of problem of zero hours and oversaturation cannabization
Speaker 3: gets worse. But we will still be quite cautious about
Speaker 3: going into those markets. And so we're still when we're
Speaker 3: doing looking at new investments, trying to sort of look
Speaker 3: at what's the moat that really stops this from just
Speaker 3: becoming oversaturated really fast. And some markets you can't convince yourself,
Speaker 3: you can't get conviction that there is one.
Speaker 2: Well halfway, and we have not pronounced the word data center,
Speaker 2: there are I'm going to summarize your vision of that center.
Speaker 2: It's the greatest invention since Lyza bread and me. I
Speaker 2: say it's the greatest cash firllness since the dot com
Speaker 2: bubber or the railways, and it's probably both are probably true.
Speaker 1: Well, I'm just going to correct Lauran because he completely
Speaker 1: misinterprets what I say, So that'd.
Speaker 2: Be really okay. So what did you say?
Speaker 1: I said, we're going to the biggest industrial revolution in
Speaker 1: the history of mankind good, and that is an AI
Speaker 1: revolution that we're going through, and that AI needs electricity
Speaker 1: and that's the reality of and electricity needs AI as well.
Speaker 1: So it's not data centers, it's AI. The technology changes
Speaker 1: our world, changes the way we live. I can only
Speaker 1: say for my own small business, what I've done is
Speaker 1: we've seen twenty five percent increase in productivity in the
Speaker 1: last eight weeks since I've introduced AI into the business.
Speaker 1: Right we've done hackertron in the business, and we're only
Speaker 1: touching what we can handle. So that's in my business.
Speaker 1: But we can see this right across the world. I'm
Speaker 1: only the beginnings on it. That's where I'm coming from
Speaker 1: on art all right. And by the way, if I
Speaker 1: go to the US, the US are very clear that
Speaker 1: it's a revolution and they're jumping on it, and that's
Speaker 1: why they're doing whatever. You've got a US government, US military,
Speaker 1: US tech, US finance industry all behind that revolution. Meanwhile
Speaker 1: back in Europe we're full of French bureaucrats and Brussels
Speaker 1: who were blocking everything. What can I say, Sorry, Gian
Speaker 1: that was just me.
Speaker 2: That's question is what is CIP position on AI slash
Speaker 2: data center? Are you very bullish? You invest, co invest?
Speaker 3: What do you do if I split it in half? AI?
Speaker 3: I use it all the time, and I think it's
Speaker 3: been fantastic, and I agree that there's a huge amount
Speaker 3: of productivity growth that you can see sort of that
Speaker 3: we have seen internally in terms of how we're using
Speaker 3: it in terms of data centers. Everybody talks about data
Speaker 3: center powering demand growth and it is definitely true. But
Speaker 3: I think if you put it in context, it's not
Speaker 3: the only driver of demand growth that we're seeing. And
Speaker 3: if you look over the next ten years in the UK,
Speaker 3: for example, sort of I looked at a forecast before
Speaker 3: I came on. The top three drivers of demand growth
Speaker 3: over the next ten years are number one, evs it's
Speaker 3: like thirty terriord hours or something. Number two was heat
Speaker 3: electrification of heating, which was like eighteen, and then number
Speaker 3: three was data centers. Over the last twenty years, we've
Speaker 3: had basically flat demand growth, which is kind of like
Speaker 3: the headline figures hidden what's actually gone on, because you
Speaker 3: have seen growth in demand from electrification, it's just that
Speaker 3: they haven't been able to outrun the sort of one
Speaker 3: two percent energy efficiency improvements that we've had every year
Speaker 3: for the last twenty years. Now all three of those
Speaker 3: things are going to outrun energy efficiency gains, and so
Speaker 3: it is like at an inflection point where we're going
Speaker 3: to see demand growth and data centers are part of
Speaker 3: the picture. But some people talk about it like it's,
Speaker 3: you know, we run out of power completely. I don't
Speaker 3: think that that's the case, but nonetheless it is driving demand.
Speaker 3: What's probably interesting about data centers out of the three
Speaker 3: of those is that the air bars are just so
Speaker 3: big relative to the other two. Finton Slide came onto
Speaker 3: your podcast recently and I think he said there was
Speaker 3: one hundred gigawatts of connection applications, and maybe it's something
Speaker 3: like eight twelve gigawatts of projects that will actually get
Speaker 3: realized if the projects themselves are a gigabat sized each,
Speaker 3: it's only a handful of decisions by some hyperscalers where
Speaker 3: that can suddenly turn into double so that the air
Speaker 3: bars can be a plus one hundred percent, but equally
Speaker 3: Laurn you would agree with this. It can be also
Speaker 3: to the downside as well, because you can imagine a
Speaker 3: scenario where the hyperscalers have spent a lot of their
Speaker 3: free cash flow already every year on data centers. It's
Speaker 3: not clear that the revenue growth can continue forever and
Speaker 3: that customer willingness to pay is enough to amatize and
Speaker 3: make a return on all of those investments. Oh and
Speaker 3: by the way, we've seen incredible efficiency gains on the
Speaker 3: computer side, right, so can that just eat the whole
Speaker 3: of the demand like it it's sort of plus minus
Speaker 3: hundred percent, So.
Speaker 2: Okay, okay, when you are your Investment Committee, Yeah, you
Speaker 2: invest or you don't, or when do you invest in?
Speaker 3: Where we think that there's a really interesting opportunity is
Speaker 3: that hyperscillers are going to have to bring flex with
Speaker 3: them if they want to connect to the grid. We've
Speaker 3: already seen that in Ireland with the sort of new regulations,
Speaker 3: and then in the US they've got this rate payer
Speaker 3: protection pledges. They're going to have to bring flex to
Speaker 3: help manage around. Otherwise the grid needs to be built
Speaker 3: out enormously for the few hours a year where you
Speaker 3: need to move power to that data center. So we
Speaker 3: need to bring flex and they need to bring power.
Speaker 3: Given the data centers are so capital intensive. We are
Speaker 3: seeing this live. We're talking with hyper skilled working on
Speaker 3: projects today where we're helping to provide capital and sort
Speaker 3: of expertise to deliver those power solutions for data centers.
Speaker 3: That's where we think there's a really big opportunity. If
Speaker 3: we end up investing in a few data centers where
Speaker 3: they're co located with energy, it might be but I
Speaker 3: think for US where energy investors, that's where we see
Speaker 3: the really big opportunity.
Speaker 2: But in your capital location, which is in the tens
Speaker 2: of billions you do to data centers. That's it. You
Speaker 2: pretty much job considering the you know the size of
Speaker 2: each deket, so in your head you say, okay, as CIP,
Speaker 2: we won't be above ten percent or twenty percent, or
Speaker 2: you don't think like that.
Speaker 3: That's probably about right. It could be somewhere. It's sort
Speaker 3: of ten twenty percent. But I think maybe the way
Speaker 3: to say it is we also don't have to do
Speaker 3: any We feel like it's an interesting space where we
Speaker 3: find the opportunity. So maybe we're a little bit opportunistic
Speaker 3: in terms of going into the data center data centers themselves.
Speaker 3: What we think is really interesting, which is our core
Speaker 3: business is the power solutions, and so that's really where
Speaker 3: we expect to do a lot of investments.
Speaker 1: So when I ask about power solutions, where does that
Speaker 1: actually end? Because if I look at the data center today,
Speaker 1: you get a black wild chip from Nvidia, and you've
Speaker 1: got a capacitor on the chip, and then I go
Speaker 1: into the rack and I've got ultra capacitors on that,
Speaker 1: and then I go actually to the door on the
Speaker 1: data center and as another battery, and all those batteries
Speaker 1: are doing is just ensuring the right power quality for
Speaker 1: those reconductors. Then I go outside the building and I've
Speaker 1: got a backup battery, and actually I'm going to have
Speaker 1: more batteries because again, what I have to do is
Speaker 1: make sure that I'm providing enough quality flexibility to the
Speaker 1: grid operator. So these things they all become energy parks.
Speaker 1: That's where we're moving to. They get more and more complex,
Speaker 1: and that's a huge opportunity for anybody who's investing in
Speaker 1: energy and could agree. Now you're going to actually and
Speaker 1: the cooling as well around absolutely, Yeah, the biggest cost
Speaker 1: is energy, and they've got great off takes.
Speaker 3: Yeah, the off takes in particular are sort of interesting.
Speaker 3: Somebody asked me the other day, is this changing our
Speaker 3: investment strategy for power projects? And I think the most
Speaker 3: interesting area where it does change our strategy a little
Speaker 3: bit is if we continue to see the level of
Speaker 3: concentration of build out of data centers, then in those
Speaker 3: markets they are going to be forced to bring power
Speaker 3: with them. You know, in Ireland they this regulation where
Speaker 3: they have to bring me eighty percent of their new
Speaker 3: demand with renewed of course renewables that has to be
Speaker 3: in Ireland, right, so they are in Ireland, there's going
Speaker 3: to be the sort of supply demand dynamics which are
Speaker 3: going to result in sort of higher PPA prices, higher
Speaker 3: off take prices, undoubtedly, So from an investment perspective, that
Speaker 3: would be the main thing, the main sort of change.
Speaker 3: Otherwise all of this uncertainty. The good thing about it
Speaker 3: is it's all sort of headed in that direction. You
Speaker 3: just don't know how steep the curve is. Our model
Speaker 3: is development projects. Spend as little as possible as we
Speaker 3: can on the development of those assets, and then we
Speaker 3: will build them out if and we will invest the capex,
Speaker 3: so we're only spending sort of five percent of our
Speaker 3: money on development, and then the ninety five percent is
Speaker 3: all in the capex of the projects, the cost of
Speaker 3: constructing the assets. We'll only do that where the conditions
Speaker 3: make sense. Right, So we have a lot of embedded
Speaker 3: optionality in that model where you have sort of uncertainty,
Speaker 3: but you have a lot of potentially a lot of
Speaker 3: outcomes that where a lot more power will be needed.
Speaker 3: The value of optionality has gone up massively, and so
Speaker 3: we're constantly trying to look for these opportunities to create
Speaker 3: you know, more options, and particular in markets where we
Speaker 3: see data center build out already happening at pace.
Speaker 1: Does that not mean that you're not going to actually
Speaker 1: go and build data centers in space and finance them.
Speaker 3: No, I'm a bit of a sci fi fan, so
Speaker 3: I would love to do it. My honest view is
Speaker 3: I would love to do it. But if you think
Speaker 3: about how much of the world's power are we going
Speaker 3: to use for data centers, it just seems to me
Speaker 3: unlikely that, at least sort of within my lifetime. And
Speaker 3: probably I'll look back on this in the future and
Speaker 3: think this is a terrible thing to say, But in
Speaker 3: my lifetime it seems unlikely that we will absorb so
Speaker 3: much of the entire world's power that we have to
Speaker 3: do that. I think it will still be cheaper to
Speaker 3: just go to a new location where there's not already
Speaker 3: data centers today. Right, it's only like one and a
Speaker 3: half percent of global power demand that comes from data
Speaker 3: centers today. In Ireland it's like twenty five percent, So
Speaker 3: that gives you an idea of the concentration. So there's
Speaker 3: a lot of room to just go to other markets
Speaker 3: where there are not data centers today. I think you
Speaker 3: will only go to space when you get to twenty
Speaker 3: five percent in every market because it will just be
Speaker 3: so much cheaper to go and build something in Scotland
Speaker 3: rather than go into space.
Speaker 1: I mean, maybe talk a little bit about the grid,
Speaker 1: because obviously we talked about generation right. I think myself
Speaker 1: and Rama both have a very clear view that we
Speaker 1: obviously have to build out grid and there's a huge
Speaker 1: need for investment in that area. But if I look
Speaker 1: at the grid myself and I take the case of Germany,
Speaker 1: Germany's got two hundred gigle watts of batteries that are
Speaker 1: in planning, but the grid operators are blocking it. Let's
Speaker 1: be really clear, okay, and they're actively blocking it because
Speaker 1: it's not in the interests of their business models. How
Speaker 1: do you see that whole grid space. Are you really
Speaker 1: going to look at it and say we're going to
Speaker 1: go big time in there and invest in distribution grid operators,
Speaker 1: transmission grid operators and how do you see all of
Speaker 1: this We.
Speaker 3: Would like to invest in them. The question is whether
Speaker 3: the regulatory kind of frameworks are set up to allow
Speaker 3: for that, and whether the right incentives that are there
Speaker 3: for them to act in the right ways. It will
Speaker 3: get fixed because it has to, because network costs us
Speaker 3: such a large portion now of power prices that it
Speaker 3: cannot be allowed to happen that this is not resolved,
Speaker 3: and that they can cannot, for example, fund non wire
Speaker 3: solutions which might not add to the sort of asset
Speaker 3: base of a network operator distribution company, but would be
Speaker 3: the most efficient solution. And I think the big thing
Speaker 3: that everybody you know needs to do is we also
Speaker 3: need to sort of stop thinking just about building more
Speaker 3: things and trying to actually sweat the asset a little
Speaker 3: bit harder. If you look at the utilization of the
Speaker 3: transmission system and we can squeeze that asset a lot harder.
Speaker 3: We can have more flex on there, we can have
Speaker 3: more use of non firm grid connections. There's a lot
Speaker 3: of room for improvement in terms of sort of having
Speaker 3: the system run a little bit hotter. And it's just
Speaker 3: such a big issue for the competitiveness of Europe in particular,
Speaker 3: but globally. It's just such a large and growing share
Speaker 3: of the cost of power that it has to be solved,
Speaker 3: and I think it will be.
Speaker 1: Maybe The last thing from my side is just as
Speaker 1: me being practical, I went and bought a battery the
Speaker 1: other day in Leedle in Germany. It cost me two
Speaker 1: hundred euros for two and a half kill a what hours.
Speaker 1: That's basically one third of the fully installed cost of
Speaker 1: a large stationary storage battery. And I plug it in
Speaker 1: and I can use my existing solar system. I worked
Speaker 1: out the payback and rather than me feeding it into
Speaker 1: the German grid at en, I'm buying a back at thirty.
Speaker 1: I have a six month payback on this vestment. Okay,
Speaker 1: And in other words, I'm saying, is that whole decentralization
Speaker 1: stuff behind them. You can't block any of that because
Speaker 1: our properties are so high in Europe. We're just yeah,
Speaker 1: and I see that happening more and more, which makes
Speaker 1: it even more complex, this whole system completely.
Speaker 3: There's the sort of systems and data and technology issue
Speaker 3: that we just need to fix as well. With we
Speaker 3: don't really know what's happening at the distribution level. I
Speaker 3: think one of my colleagues said the other day, we
Speaker 3: know more about where an Amazon parcel is this in
Speaker 3: the world than we know about where electrons are flowing,
Speaker 3: so we actually have very little data. And then there's
Speaker 3: just like simple things like we don't have enough smart
Speaker 3: meters in German households to actually deliver the flexibility. So
Speaker 3: all of these great things that you can do with
Speaker 3: distributed resources like vehicle to grid and all of this stuff,
Speaker 3: and we don't have the systems quite there for that
Speaker 3: to happen. So we undoubtedly think it will happen. It's coming.
Speaker 3: It's just the thornier question of integration and implementation of
Speaker 3: these things. The theory of it is sort of really
Speaker 3: attractive for sure.
Speaker 2: Oh and I've got one last question left, and thank
Speaker 2: you for your patients and working without net. You've been
Speaker 2: very good. So my last question is with every trade,
Speaker 2: is ever twice too big or twice too small? So
Speaker 2: what investment you wish you had done sooner? And which
Speaker 2: one do you regret having done?
Speaker 3: Yeah, sooner probably. I don't know if I would regret
Speaker 3: that we didn't do it sooner, but I think we
Speaker 3: should have done it twice as big was building out
Speaker 3: our battery capabilities. We had this thesis that I mentioned earlier,
Speaker 3: and it kind of five years ago. We were a
Speaker 3: bit uncertain whether it was going to pan out. About
Speaker 3: a year in it became pretty clear that it was
Speaker 3: going to work out, and we got a lot of
Speaker 3: projects done, and we built this great team and everything.
Speaker 3: But I think probably what I would have if I
Speaker 3: could go back and talk to myself, then I would
Speaker 3: say double down faster in all the other markets that
Speaker 3: you think this will be a big thing, and go
Speaker 3: a bit harder at it. I mean we've still I
Speaker 3: think we're one of the biggest investors in Europe and
Speaker 3: battery storage. I don't think we missed too much of
Speaker 3: the opportunity. And it's also like ten x growth that
Speaker 3: you were exceeding forecasts in the next ten years, right,
Speaker 3: So in the scheme of things were still pretty early
Speaker 3: on in this build out. We should have gone a
Speaker 3: bit faster and harder when art thesis was working out.
Speaker 3: In terms of investments that I regret. I mean, we're
Speaker 3: a greenfield investors, so we're taking a lot of not
Speaker 3: a lot, but we take development risk on assets and
Speaker 3: so sometimes that works out, sometimes it doesn't work out.
Speaker 3: That's just kind of comes with the territory. There's sort
Speaker 3: of two ways to de risk that. The first is
Speaker 3: by spending.
Speaker 2: You know, you don't want to say hi, wag no,
Speaker 2: he doesn't want to say in the US.
Speaker 3: I'm going to say something else.
Speaker 2: Don't worry.
Speaker 3: Don't worry, you'll get a juicy word. We try to
Speaker 3: make sure we only do things that sort of make
Speaker 3: sense in terms of the fundamentals, and then we spend
Speaker 3: as little as possible until we know that that is
Speaker 3: actually going to be deliverable. And actually, I think one
Speaker 3: investment where it has been a challenge is a US
Speaker 3: off Sure Wind. We've got one project near pretty much
Speaker 3: finished in construction, Vineyard Wind, that we own with the Patroller,
Speaker 3: and then we've got some leases that we own. The
Speaker 3: fundamentals of those projects makes sense. So the states need
Speaker 3: the power, the powers competitive versus other sources, and we
Speaker 3: have not spent too much in the scheme of things,
Speaker 3: so we can afford to sort of hold those assets
Speaker 3: for a little bit longer. So for us, sort of
Speaker 3: the de risking of it is that we can afford
Speaker 3: to be a bit patient and wait until the fundamentals
Speaker 3: that are still there and attractive can get those assets built.
Speaker 3: So we think it's a matter of when and not if.
Speaker 3: But you know, we're twenty twenty hindsight, if I could
Speaker 3: go back and say, like I think at the time
Speaker 3: we made with the information we had, we made the
Speaker 3: right decision but of course if I could go back
Speaker 3: and just say don't do that, maybe I would.
Speaker 1: Yeah, I just wait waiting for the Democrats to get in. Basically,
Speaker 1: well comment.
Speaker 2: Well one, thank you very much for joining the show.
Speaker 2: It was a very pleasant conversation, and I thank Natashan
Speaker 2: Uldili Piper for organizing all this. And I please join
Speaker 2: me to thank you applaud oh elinor that's a good.
Speaker 1: Thank you for listening to Redefining Energy. Don't forget to
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