Speaker 1: With a round segle and from London and Gerard Reed
Speaker 1: from Berlin.
Speaker 2: This is redefining energy.
Speaker 1: Minutes today on relief an amg Jaz's not there, so
Speaker 1: I'm going to talk about wind because jads literally zero
Speaker 1: interesting wind, but WIN. It is a big market. If
Speaker 1: you consider Europe alone, We've got two hundred and seventy
Speaker 1: giga awad of winds that is valued five billion euros.
Speaker 1: So this is a lot of kid And in order
Speaker 1: to talk about wind, I brought a friend and one
Speaker 1: of the great specialists of the sector, brilliant m and
Speaker 1: a banker. Probably you'll hear more British than the Queen,
Speaker 1: although it's originally chairman Martimaer means Martimer, welcome to the show.
Speaker 2: Thank you very much. It's great to be I'm a
Speaker 2: great fan of the show.
Speaker 1: I brought you to talk about WIN because you are
Speaker 1: arranging a lot of transaction. That's what you've been doing
Speaker 1: for quite some time. And I guess the topic today
Speaker 1: is going to be the new value of wind assets
Speaker 1: because a lot of things have changed post COVID in
Speaker 1: relation to supply chain, the type of operation interest rates.
Speaker 1: Probably start by describing what you are doing and what
Speaker 1: you've done recently, Thank you, Lament.
Speaker 2: So we we're a specialist financial advisor in renewables and
Speaker 2: we've been doing it since two thousand and two, so
Speaker 2: ready for a very long time. And to give you
Speaker 2: some data, we've done roughly twenty billion euros of equity
Speaker 2: placed across one hundred and sixty transactions, and that's about
Speaker 2: forty gigawatts of renewable assets, about five billion heroes of
Speaker 2: debt placed on top of that, and that has been
Speaker 2: predominantly in wind in all European markets because that's where
Speaker 2: the bigger transactions were, that's where the utility scale transactions
Speaker 2: were and where the money was going. So we have
Speaker 2: a lot of experience and have seen this market developed
Speaker 2: from right at the beginning in the early two thousands
Speaker 2: to where it is today. We've had a lot of
Speaker 2: changes and you've covered them very well and in great detail
Speaker 2: on your podcast in the past. You know, interest rates
Speaker 2: up five hundred basis points in eighteen months, COVID over
Speaker 2: quantitative easing, over inflation up, inflation down again a little bit,
Speaker 2: continuing supply chain problems because of COVID and also because
Speaker 2: of inflation. Of course, the Ukraine War causing what is
Speaker 2: now mostly called the energy crisis. You know, Russian gas
Speaker 2: replaced effectively in Europe by US LNG. This has had
Speaker 2: significant impact in our little world. You can see in
Speaker 2: the public markets equity market valuations down roughly thirty percent.
Speaker 2: I know you've covered that yield co is trading, you know,
Speaker 2: fifteen to thirty percent below their net asset value. You've
Speaker 2: also covered that fundraising down substantially. I was looking at
Speaker 2: some data earlier today. You know, forty percent down for
Speaker 2: infrastructure fundraising from twenty two to twenty three. That's a
Speaker 2: big drop when you will energy down to twenty twenty
Speaker 2: levels in twenty twenty three, both in deal value and
Speaker 2: deal count. So this has all been a pretty big
Speaker 2: impact in our space. And if you if you just
Speaker 2: focus away from a little bit you move away from
Speaker 2: the finance bubble into what's been happening in renewables to
Speaker 2: understand where we are now.
Speaker 1: Wow, whoa whoa Martina search a gloom. But the interesting
Speaker 1: is a lot of the gloom. You're talking about, this
Speaker 1: bit of a macro gloom. On the top of that,
Speaker 1: the industry has not really helped itself by certain suppliers
Speaker 1: having specific problems because you know the macro environment, we're
Speaker 1: interest rate Russia. Hopefully at some point things will give
Speaker 1: back to normal, but there's been also some inherent issues.
Speaker 1: Look two more minutes on problems, and then after we
Speaker 1: talk about the future, because otherwise this is a positive podcast.
Speaker 1: Where are we heading?
Speaker 2: It's not as bad as it looks. The effect of
Speaker 2: all these macro events has not been as big as
Speaker 2: you might expect because of the growth and the success
Speaker 2: of renewables. Renewables has been so successful, there has been
Speaker 2: such a large build out. We have now got more
Speaker 2: molatility on the system. We have a changed environment. But
Speaker 2: if you look at specifically what you're interested in, long
Speaker 2: on the valuations, how is all this affected valuations in
Speaker 2: wind in Europe? Investors need more return. If the interest
Speaker 2: rates go up five hundred basis points and you compare
Speaker 2: that to the risk free rate, which let's call it
Speaker 2: for argument's sake, the US Treasury. Look at US treasuries
Speaker 2: which were at five percent for most of the last
Speaker 2: eighteen months. You need to increase your return. You can't
Speaker 2: buy renubal energy assets that traditionally have yielded an IRR
Speaker 2: after fees of around six percent so something had to move.
Speaker 2: Investors needed more return. That return has to come from somewhere.
Speaker 2: It has come effectively from the developers. If you look
Speaker 2: at where ready to build assets trade, they have reduced
Speaker 2: in value. So if you're selling a wind farm in
Speaker 2: any European country there are two possible exceptions that in
Speaker 2: Germany and France. In most European countries, ready to build
Speaker 2: values are down. That is because these investors that are
Speaker 2: driving investment into those assets need more return, so they
Speaker 2: are paying less for these assets. You have not seen
Speaker 2: the same and operating asset Operating asset values stable throughout.
Speaker 2: Investor returns obviously up a little bit, not that dramatically.
Speaker 2: And if we look at all that, then what that
Speaker 2: looks like to us is a normalization of renewable energy
Speaker 2: values across Europe. It's a reversion to the norm mm.
Speaker 1: So that's it. It's the end of the gloom. This
Speaker 1: is a good time to enter the market.
Speaker 2: You would say it is if you look at the
Speaker 2: top of the developer premium paid in the European wind
Speaker 2: energy asset that was probably some time around the middle
Speaker 2: of twenty twenty one, early to middle twenty one, before
Speaker 2: we started worrying about the Ukraine warm before its et cetera,
Speaker 2: et cetera. At that stage, you had record low capics,
Speaker 2: you had subsidy regimes just ending, and you had very
Speaker 2: low interest rates. So you had this perfect situation for
Speaker 2: people to invest and spend money and build, and the
Speaker 2: developer premium were very high. If you look at your
Speaker 2: average wind farm, there are four basic counterparties, equity investor
Speaker 2: and the debt. There's the developer, and then there is
Speaker 2: the OEM. Now the debt always makes the same amount
Speaker 2: of money. The equity investors had to make a bit more.
Speaker 2: OEMs have increased their cost. That's inflation related. So the
Speaker 2: person who's been squeezed the most is the developer, but
Speaker 2: they're still making very good money. In Germany and France,
Speaker 2: I would argue that the d has been very minor
Speaker 2: for wind. In other countries a bit more. It is
Speaker 2: a bit more difficult to do deals. But there is
Speaker 2: more capital than ever into the space. There are more
Speaker 2: investors than ever, there are more strategics. One interesting thing
Speaker 2: you've seen is the strategics. Now with the financial investors
Speaker 2: needing more return, the strategics are actually becoming more competitive.
Speaker 2: So you're seeing many more strategics in auctions, which are
Speaker 2: very safe investors. When you're selling an asset, it's good
Speaker 2: to sell to strategics because they tend to a know
Speaker 2: what they're doing, understand valuation, and be very good at
Speaker 2: operating these things. So the market is more complex, but
Speaker 2: it is definitely still very active. There are lots of
Speaker 2: deals getting done. You need a good advisor, you need
Speaker 2: good experts helping you through this. There is a lot
Speaker 2: going on. And also we haven't spoken about power prices yet,
Speaker 2: but there has also been a normalization again of power prices,
Speaker 2: which we consider a good thing coming off the energy crisis.
Speaker 1: Did you see the same actors in on shore and
Speaker 1: offshore or these are really two different marksts.
Speaker 2: They are largely two different markets because of the scale
Speaker 2: of offshorees. Offshore, it's been a stop start market. We
Speaker 2: were very active at the beginning of it. Back in
Speaker 2: the twenty tens. We sold twenty four different offshore projects
Speaker 2: for our clients, our developer clients, and I did most
Speaker 2: of those myself. At the time, those were selling permitted
Speaker 2: assets into the market for a certain value, which we
Speaker 2: helped establish. Now they are little shareholdings in very large,
Speaker 2: already built assets which are obviously trading for much higher valuations.
Speaker 2: And also you are bringing investors into the chance to
Speaker 2: participate in an auction, which we have done quite a
Speaker 2: lot of recently on our continuing to do so. That
Speaker 2: market has changed. You had a combination to succeed nowadays
Speaker 2: of a financial investor, a large strategic really put together
Speaker 2: to win an offshore auction. It's a very different game
Speaker 2: in the auction world, of course than it was before,
Speaker 2: so different investors.
Speaker 1: But you would say on shore you still love dozens
Speaker 1: of potential investors.
Speaker 2: Yeah, truly global capital market level on which it wasn't
Speaker 2: when you and I started in this space. We had
Speaker 2: to fight to get attention with the utility and with
Speaker 2: a financial investor. It was very difficult convince them of
Speaker 2: the risks that I would say in the first ten
Speaker 2: years of the industry, people worrying about the equipment, will
Speaker 2: it fall over, will the turbines work? You know, icing issues, gearboxing,
Speaker 2: but how it hot. We argued about gearboxes, permanent magnet
Speaker 2: versus geared, all this kind of stuff. In the next
Speaker 2: ten years of the industry, but on the third decade,
Speaker 2: but in the second decade, it was about power pricing.
Speaker 2: You know, where is your power price expectation, how much
Speaker 2: risk you take on power price? How good is your PPA,
Speaker 2: how long is your PPH. Now I would argue we're
Speaker 2: in a third place. Energy transition comes into this very strongly.
Speaker 2: We're very active in that area. But now co location storage,
Speaker 2: private market, merchant transactions. It's just a lot more complex.
Speaker 2: But there's more money than there's ever been.
Speaker 1: And what about the Chinese. Are the Chinese coming?
Speaker 2: We have worked with Chinese in the past, We've sold
Speaker 2: projects to Chinese OEMs. We would welcome them back into
Speaker 2: the market. They used to be very active buyers. They
Speaker 2: have gone away for the last few years. We hope
Speaker 2: they come back because it's great to have them in
Speaker 2: the market. We see those turbines re establish themselves slowly
Speaker 2: but surely, and we hope they come back.
Speaker 1: And of course, now the big market is the all
Speaker 1: of hippo oring issue, because a lot of those good
Speaker 1: sites which were developed twenty years ago but probably with
Speaker 1: one Mega what turbines or two Mega what turbines and
Speaker 1: all have access to five six Mega what turbines. So
Speaker 1: is that happening or not?
Speaker 2: That's definitely happening. We're seeing a growing repowering market across Europe.
Speaker 2: The country where we have done the most transactions in
Speaker 2: repowering is Germany and we see that as continuing. It
Speaker 2: has a very easy to understand and industry friendly framework
Speaker 2: for repowering. There are also less planning issues with turning
Speaker 2: thirty turbines into five that I've a fifty meter higher
Speaker 2: hub height and longer blade length, etc. You would expect
Speaker 2: that to be a bit easier in Germany than in
Speaker 2: other countries, but it's coming in Spain, it's coming in
Speaker 2: other markets we're looking at We were waiting for that
Speaker 2: market for a decade and a half long. I'm happy
Speaker 2: to say it's now really here. There's a whole host
Speaker 2: of transactions and investors are keenly looking at it because
Speaker 2: the benefits are huge, because you tend to be repowering
Speaker 2: the first wind sites, which it's clearly the best in
Speaker 2: most countries.
Speaker 1: Excellent Martimer. Overall, you're bullish for the next five years.
Speaker 2: I'm very bullish. There's more money than ever. It requires
Speaker 2: more work, it's a little bit more difficult, but this
Speaker 2: whole situation is a lot easier than the financial crisis. Was,
Speaker 2: it's easier than COVID. We have a bit more complexity.
Speaker 2: We're in a merchant world, where in a world with storage,
Speaker 2: with co location, with interconnection, with demand growth, it is fascinating.
Speaker 2: We haven't spoken about battery technology and smart grids and
Speaker 2: dispatchable and that sort of thing, but you know, it's
Speaker 2: much more complex. But renewables has been super successful. You
Speaker 2: and I have seen that happen to a certain extent
Speaker 2: with the victim of our own success in terms of volatility,
Speaker 2: but we can deal with that. There are emittigance to volatility.
Speaker 2: One of the biggest is demand. I mean demand is
Speaker 2: expected to grow very strongly, not just because of hydrogen,
Speaker 2: but because of AI electrification, interconnectors, etc. Etc. And that
Speaker 2: is always very difficult to foresee. You know, you can
Speaker 2: count suppliesily, just count power stations, but actually forecast tingdom
Speaker 2: mark is really hard. And we're very bad at if.
Speaker 2: The old industry is bad at it. But it now
Speaker 2: looks like we've got a bit of a breakthrough happening.
Speaker 2: So we're very bullish. We're bullish on power prices, we're
Speaker 2: bullish on the buildouts, we're bullish on capital being available,
Speaker 2: and these projects make money. Your IRN Germany today, if
Speaker 2: you invest in it is eight percent. You're IRON France
Speaker 2: is seven to nine percent. Your IRON the Nordics is higher.
Speaker 2: Your IRN Spain is significantly higher. These projects make money.
Speaker 2: This is a place to make money. And if you
Speaker 2: put that against some of the other investment opportunities investors have,
Speaker 2: this is still a really attractive space to.
Speaker 1: Be Thank you so much. Great conclusion, we're bullish. Before
Speaker 1: we go for our listener, just know that I will
Speaker 1: be sharing a free seminar on the future of green
Speaker 1: energy procurement with KPMG and Ronoable, the award winning platform
Speaker 1: at a law firm called wed Leg Bail on Thursday
Speaker 1: the third of October at four pm in the City
Speaker 1: of London. It's free, but it's going to be super technical.
Speaker 1: I will put the link in the show note and
Speaker 1: hopefully we'll see you there.
Speaker 2: Martimer, thank you so much, Thank you very much, great
Speaker 2: jop to you. Thank you for listening to Redefining Energy.
Speaker 2: Don't forget to rate the show and subscribe on Apple, podcast,
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