1 00:00:10,119 --> 00:00:14,480 Speaker 1: Hello, and welcome to another episode of the Odd Lots Podcast. 2 00:00:14,560 --> 00:00:16,880 Speaker 2: I'm Joe Wisenthal and I'm Tracy Alloway. 3 00:00:17,079 --> 00:00:18,919 Speaker 1: Tracy, I have to say, there are a lot of 4 00:00:19,079 --> 00:00:25,320 Speaker 1: exciting things happening in energy, decarbonization, electrification of the grid, 5 00:00:25,840 --> 00:00:28,360 Speaker 1: things we've talked about recently with people like Jigger Shaw 6 00:00:28,520 --> 00:00:31,000 Speaker 1: and so forth. But I have to say I keep 7 00:00:31,040 --> 00:00:32,720 Speaker 1: seeing negative headlines about wind. 8 00:00:33,400 --> 00:00:34,040 Speaker 3: Oh my gosh. 9 00:00:34,200 --> 00:00:36,760 Speaker 2: You know, just before we came in studio to record this, 10 00:00:36,880 --> 00:00:39,160 Speaker 2: I was taking a look at the SMP Global Clean 11 00:00:39,240 --> 00:00:42,760 Speaker 2: Energy Index. Yeah, it's down thirty percent this year, more 12 00:00:42,760 --> 00:00:44,919 Speaker 2: than thirty percent this year, and a lot of that 13 00:00:45,640 --> 00:00:48,320 Speaker 2: is thanks to what's been going on in wind. 14 00:00:48,600 --> 00:00:48,800 Speaker 4: Yeah. 15 00:00:48,840 --> 00:00:50,920 Speaker 2: In fact, if you look at Orsted, which I think 16 00:00:51,000 --> 00:00:54,640 Speaker 2: is the world's biggest provider of offshore wind farms, it's 17 00:00:54,680 --> 00:00:57,240 Speaker 2: down fifty percent year to date. 18 00:00:57,720 --> 00:01:00,600 Speaker 1: Yes, So we are recording this November fifth teenth. I 19 00:01:00,600 --> 00:01:03,920 Speaker 1: think just earlier in the week, two top Orsted executives 20 00:01:04,480 --> 00:01:07,600 Speaker 1: departed the company. I think there was a project off 21 00:01:07,640 --> 00:01:10,760 Speaker 1: the shore of I think New Jersey that they that 22 00:01:10,920 --> 00:01:14,319 Speaker 1: recently the plug was pulled on. And it just seems 23 00:01:14,319 --> 00:01:17,920 Speaker 1: that every story everywhere around the world, with the exception 24 00:01:18,120 --> 00:01:22,280 Speaker 1: maybe of China. It seems to be something seems to 25 00:01:22,319 --> 00:01:25,440 Speaker 1: be wrong, whether it's the math doesn't pencil out on 26 00:01:25,480 --> 00:01:29,399 Speaker 1: the actual projects themselves. There are companies, I think Siemens 27 00:01:29,480 --> 00:01:32,600 Speaker 1: wind has had all kinds of manufacturing issues with respect 28 00:01:32,680 --> 00:01:36,000 Speaker 1: to turbines, et cetera. And so just trying to understand 29 00:01:36,160 --> 00:01:38,640 Speaker 1: what is going on with this industry and how bad 30 00:01:38,720 --> 00:01:41,520 Speaker 1: is it in terms of if it's not going as 31 00:01:41,640 --> 00:01:45,240 Speaker 1: planned reaching our decarbonization goals as a country. 32 00:01:45,400 --> 00:01:48,600 Speaker 2: Yeah, So my understanding is there are two things kind 33 00:01:48,600 --> 00:01:51,120 Speaker 2: of happening at once. You could say, two headwinds for 34 00:01:51,360 --> 00:01:54,480 Speaker 2: the wind power industry creating a perfect storm. 35 00:01:54,720 --> 00:01:56,520 Speaker 1: Joe, I'm just going to say, so a perfect storm 36 00:01:56,560 --> 00:01:57,360 Speaker 1: would be good for wind. 37 00:01:57,480 --> 00:02:00,160 Speaker 2: I'm just going to get as many weather puns I 38 00:02:00,200 --> 00:02:03,760 Speaker 2: can into this conversation. But there's higher borrowing costs because 39 00:02:03,760 --> 00:02:06,880 Speaker 2: of surging interest rates, and then there are also higher 40 00:02:06,960 --> 00:02:11,960 Speaker 2: component costs. Yes, And I guess my question is how 41 00:02:12,080 --> 00:02:15,280 Speaker 2: much of all of this is sort of growing pains 42 00:02:15,360 --> 00:02:18,320 Speaker 2: for an industry that, at least in the US is 43 00:02:18,360 --> 00:02:22,400 Speaker 2: still relatively new, although it is true that it's also 44 00:02:22,440 --> 00:02:26,520 Speaker 2: facing problems in places like the UK. Or is this 45 00:02:26,639 --> 00:02:31,200 Speaker 2: a kind of permanent change in the industry's trajection. Basically, 46 00:02:31,320 --> 00:02:34,720 Speaker 2: is wind power a low interest rate phenomenon, like I 47 00:02:34,720 --> 00:02:37,080 Speaker 2: don't know, we work or cheaper ubers? 48 00:02:37,560 --> 00:02:39,920 Speaker 1: Is wind power a lot of hot air? So you know, 49 00:02:40,200 --> 00:02:43,480 Speaker 1: you mentioned the renewable energy stocks and that is sort 50 00:02:43,480 --> 00:02:45,920 Speaker 1: of another I don't know funny is the right word. 51 00:02:45,960 --> 00:02:48,080 Speaker 1: But we're having this great year in the stock market 52 00:02:48,200 --> 00:02:51,440 Speaker 1: so far, and how many people would have bed It's like, Oh, 53 00:02:51,560 --> 00:02:55,680 Speaker 1: the Inflation Reduction Act passed, all this money pouring into 54 00:02:55,840 --> 00:03:00,320 Speaker 1: renewable energy, all these incentives, can't lose betting on these 55 00:03:00,440 --> 00:03:02,800 Speaker 1: and win and I think solar, I mean, it's been 56 00:03:02,840 --> 00:03:03,480 Speaker 1: pretty dismal. 57 00:03:03,639 --> 00:03:06,560 Speaker 2: Yeah, please, doc, absolutely, and wind especially was like a 58 00:03:06,760 --> 00:03:11,000 Speaker 2: much hyped component of the renewable energy revolution, and you're 59 00:03:11,080 --> 00:03:13,920 Speaker 2: right with the Inflation Reduction Act. There is this question 60 00:03:14,120 --> 00:03:16,920 Speaker 2: about how much of this is a temporary hold up 61 00:03:17,080 --> 00:03:20,440 Speaker 2: given permitting issues that we've discussed with people like Chicker 62 00:03:20,960 --> 00:03:23,959 Speaker 2: versus how much of this is the math just doesn't 63 00:03:23,960 --> 00:03:30,040 Speaker 2: pencil out. There is something fundamentally challenging in Win. 64 00:03:30,360 --> 00:03:33,320 Speaker 1: Lots of questions, and we have the perfect guest to 65 00:03:33,360 --> 00:03:35,880 Speaker 1: get the answers. We're going to be speaking with Chelsea 66 00:03:36,000 --> 00:03:39,520 Speaker 1: Jean Michelle she is an offshore wind analyst here at 67 00:03:39,520 --> 00:03:42,440 Speaker 1: Bloomberg n EF, one of our colleagues on a different floor. 68 00:03:42,920 --> 00:03:45,360 Speaker 1: So excited to check Chelsea. Thank you so much for 69 00:03:45,440 --> 00:03:46,760 Speaker 1: coming on odd Laws. 70 00:03:46,720 --> 00:03:48,320 Speaker 5: Thanks so much for having me Joan Jacy. 71 00:03:48,600 --> 00:03:51,600 Speaker 1: Is our premise correct more or less that it's been 72 00:03:51,640 --> 00:03:53,920 Speaker 1: a just dismal year for the industry. 73 00:03:54,320 --> 00:03:56,440 Speaker 5: I think dismal is a bit of a big word 74 00:03:56,480 --> 00:03:58,960 Speaker 5: to use, but you know, it hasn't It hasn't been great, 75 00:03:59,040 --> 00:04:00,880 Speaker 5: and there have been a lot of negative headlines, and 76 00:04:00,920 --> 00:04:03,160 Speaker 5: you guys highlighted a lot of the key issues already. 77 00:04:03,680 --> 00:04:07,080 Speaker 5: I think maybe to highlight at a grander scale, we 78 00:04:07,160 --> 00:04:10,720 Speaker 5: have seen a lot of the impacts, most most saliently 79 00:04:10,800 --> 00:04:13,240 Speaker 5: in the US. And Tracy, you mentioned you know it's 80 00:04:13,240 --> 00:04:15,760 Speaker 5: a very like new industry in the US. For contexts, 81 00:04:15,760 --> 00:04:19,680 Speaker 5: there's only seven operational turbines forty two megawatts installed. However, 82 00:04:19,720 --> 00:04:22,760 Speaker 5: there are two offshore wind farms currently under construction right 83 00:04:22,800 --> 00:04:25,719 Speaker 5: now almost a gigawatt, So the industry is growing. But 84 00:04:25,760 --> 00:04:29,840 Speaker 5: we've also seen over twelve gigawatts of offshore wind projects 85 00:04:29,920 --> 00:04:33,200 Speaker 5: seek to cancel or renegotiate their off take contracts in 86 00:04:33,240 --> 00:04:35,240 Speaker 5: the US. Now, what I mean when I say an 87 00:04:35,240 --> 00:04:39,159 Speaker 5: off take contract is that's typically an agreement that these 88 00:04:39,320 --> 00:04:43,200 Speaker 5: offshore wind developers, their projects will sign with states state 89 00:04:43,279 --> 00:04:46,040 Speaker 5: utilities to essentially guarantee that they're going to buy their 90 00:04:46,080 --> 00:04:48,680 Speaker 5: power for usually around twenty to twenty five years. And 91 00:04:48,720 --> 00:04:51,360 Speaker 5: that's really key for an offshore win project because they 92 00:04:51,440 --> 00:04:54,040 Speaker 5: need you know, you have variable generation, so if you 93 00:04:54,080 --> 00:04:56,240 Speaker 5: can't guarantee your generation, you can guarantee the price at 94 00:04:56,240 --> 00:04:58,720 Speaker 5: which that generation is sold, and that makes it easier 95 00:04:58,760 --> 00:05:01,440 Speaker 5: for these projects to you know, reach financial clothes make 96 00:05:01,480 --> 00:05:04,320 Speaker 5: a business case for them. Now in the US, this 97 00:05:04,440 --> 00:05:07,480 Speaker 5: is interesting because this happens a little bit earlier on 98 00:05:07,560 --> 00:05:10,760 Speaker 5: in a project's process. So in the UK, before you 99 00:05:10,760 --> 00:05:12,600 Speaker 5: bid for an off date contract, you need to have 100 00:05:12,640 --> 00:05:15,200 Speaker 5: a grid connection agreement. You also need to have your permits. 101 00:05:15,240 --> 00:05:17,280 Speaker 5: In in the US that's not needed, and so you 102 00:05:17,360 --> 00:05:20,000 Speaker 5: might have a couple of years when between when you 103 00:05:20,040 --> 00:05:22,080 Speaker 5: lock in your off date contract until you finally reach 104 00:05:22,160 --> 00:05:24,799 Speaker 5: financial clothes and then you want to construct and build 105 00:05:24,800 --> 00:05:27,479 Speaker 5: the project. So that leads to a certain level of 106 00:05:27,560 --> 00:05:29,320 Speaker 5: risk that's a little bit higher in the US than 107 00:05:29,320 --> 00:05:31,279 Speaker 5: you've see in other parts of the world. And that's 108 00:05:31,279 --> 00:05:33,520 Speaker 5: also why you know we've seen just how much interest 109 00:05:33,600 --> 00:05:35,800 Speaker 5: rates have shifted over the last few years, how much 110 00:05:35,800 --> 00:05:39,080 Speaker 5: inflation has changed, and that has meant that now when 111 00:05:39,120 --> 00:05:42,000 Speaker 5: these projects are looking to reach financial clothes, they're in 112 00:05:42,040 --> 00:05:45,159 Speaker 5: a different macroeconomic environment than when they had initially placed 113 00:05:45,160 --> 00:05:47,440 Speaker 5: their bids and made those assumptions back in twenty nineteen, 114 00:05:47,480 --> 00:05:48,039 Speaker 5: twenty twenty. 115 00:05:48,240 --> 00:05:50,840 Speaker 2: Oh, that's really interesting because I was wondering how higher 116 00:05:50,920 --> 00:05:53,760 Speaker 2: rates are actually feeding into a lot of those given 117 00:05:54,000 --> 00:05:56,480 Speaker 2: you would have assumed that the financing was in place, 118 00:05:56,520 --> 00:05:59,839 Speaker 2: but you're highlighting the discrepancy between the revenue coming in 119 00:06:00,160 --> 00:06:03,120 Speaker 2: the off take agreements and the financing that is still 120 00:06:03,120 --> 00:06:06,240 Speaker 2: coming up in the higher interest rate environment. So, just 121 00:06:06,320 --> 00:06:09,479 Speaker 2: on this note, could you maybe tell us like the 122 00:06:09,520 --> 00:06:14,360 Speaker 2: factors or the calculations that go into creating a wind farm, 123 00:06:14,400 --> 00:06:17,200 Speaker 2: whether it's onshore or offshore. Like, if Joe and I 124 00:06:17,600 --> 00:06:20,400 Speaker 2: were at a bar and we were writing on a napkin, 125 00:06:20,600 --> 00:06:24,080 Speaker 2: here's our rough cost and here's like our rough revenue source, 126 00:06:24,240 --> 00:06:26,880 Speaker 2: what would that napkin actually contain. 127 00:06:27,920 --> 00:06:30,000 Speaker 5: Yeah, So there's a lot that goes into it, and 128 00:06:30,080 --> 00:06:32,359 Speaker 5: it depends on you know, if you're building in the 129 00:06:32,480 --> 00:06:35,800 Speaker 5: US versus if you're building say in the Netherlands. 130 00:06:35,520 --> 00:06:37,800 Speaker 1: Or in Germany, but we're building in the US. 131 00:06:38,000 --> 00:06:43,320 Speaker 5: We're building in the US. Yeah, so if we're building 132 00:06:43,360 --> 00:06:46,279 Speaker 5: in the US right for context, offshore wind development takes 133 00:06:46,320 --> 00:06:48,400 Speaker 5: a really long time. As I mentioned, there's very few 134 00:06:48,440 --> 00:06:52,599 Speaker 5: projects currently operational operational in the US right now, but 135 00:06:52,960 --> 00:06:55,040 Speaker 5: around eight to ten years is what we see globally. 136 00:06:55,320 --> 00:06:57,080 Speaker 5: But in the US, you know, this can take as 137 00:06:57,080 --> 00:06:59,080 Speaker 5: long as fourteen years. We've seen that for some other 138 00:06:59,080 --> 00:07:01,680 Speaker 5: projects that are currently in the process of getting built 139 00:07:01,760 --> 00:07:03,760 Speaker 5: right now. Or when you take a look at that 140 00:07:03,839 --> 00:07:06,840 Speaker 5: really long process, one of the first things you think 141 00:07:06,839 --> 00:07:09,040 Speaker 5: about is, okay, so that's like ten years where you 142 00:07:09,040 --> 00:07:12,120 Speaker 5: have like development costs going in, right, so you need 143 00:07:12,240 --> 00:07:14,560 Speaker 5: the people that are going to help formulate the bids. 144 00:07:14,600 --> 00:07:16,400 Speaker 5: In the US, you have a seabed lease auction. So 145 00:07:16,440 --> 00:07:19,200 Speaker 5: this is usually the first step in the process where 146 00:07:19,240 --> 00:07:22,640 Speaker 5: you're like, I want to acquire my seabed for X 147 00:07:22,680 --> 00:07:24,600 Speaker 5: amount of dollars. We recently saw the New York by 148 00:07:24,600 --> 00:07:27,480 Speaker 5: at lease auction last year millions and millions of dollars 149 00:07:27,520 --> 00:07:29,880 Speaker 5: of revenue for the US government over four billion dollars 150 00:07:29,920 --> 00:07:32,480 Speaker 5: to secure these sites. And that's just step one. And 151 00:07:32,520 --> 00:07:33,320 Speaker 5: then you also have. 152 00:07:33,440 --> 00:07:35,520 Speaker 2: Can I ask really quickly to shore the US government 153 00:07:35,600 --> 00:07:36,920 Speaker 2: own all those sea. 154 00:07:36,800 --> 00:07:40,360 Speaker 5: Beds on the outer continental shelf? They do, Okay, However, 155 00:07:40,400 --> 00:07:42,840 Speaker 5: that being said, I think it's three nautical miles that's 156 00:07:42,920 --> 00:07:45,120 Speaker 5: state waters, but most offshore wind development is going to 157 00:07:45,200 --> 00:07:46,840 Speaker 5: take place in federal waters. 158 00:07:46,920 --> 00:07:49,440 Speaker 2: Ah, yes, I remember those from my offshore gambling days. 159 00:07:51,080 --> 00:07:53,200 Speaker 5: But yeah, So that's like a cost you can expect 160 00:07:53,240 --> 00:07:55,600 Speaker 5: to pay for the seabed. Then you have kind of 161 00:07:55,680 --> 00:07:58,480 Speaker 5: other development costs when it comes to you know, fitting 162 00:07:58,600 --> 00:08:01,840 Speaker 5: into an offshore and off shore wind procurement or bidding 163 00:08:01,840 --> 00:08:04,240 Speaker 5: into an offhr wind solicitation. So this is where you 164 00:08:04,280 --> 00:08:06,320 Speaker 5: go in to say, I will bid X price, I 165 00:08:06,360 --> 00:08:10,040 Speaker 5: will bid Y price, I'll bid Z price for you know, 166 00:08:10,080 --> 00:08:12,880 Speaker 5: this off take contract that we've talked about in state solicitations, 167 00:08:13,440 --> 00:08:16,080 Speaker 5: and so that takes also some costs. Now you have 168 00:08:16,160 --> 00:08:18,280 Speaker 5: costs over the development lifetime. Then let's say you get 169 00:08:18,320 --> 00:08:21,200 Speaker 5: to the point where you need to reach financial clothes 170 00:08:21,280 --> 00:08:23,720 Speaker 5: and actually build that project. So let's talk about the 171 00:08:23,760 --> 00:08:27,520 Speaker 5: equipment costs. This includes your turbines, This includes your foundations. 172 00:08:27,520 --> 00:08:30,200 Speaker 5: This includes your transition pieces, which are kind of you know, 173 00:08:30,280 --> 00:08:33,080 Speaker 5: the pieces that exactly what they sound like transition from 174 00:08:33,160 --> 00:08:35,920 Speaker 5: the foundation into the turbine. You have your rate cables 175 00:08:35,920 --> 00:08:38,480 Speaker 5: which connect the turbines to each other. You have your 176 00:08:38,600 --> 00:08:41,760 Speaker 5: offshore substation which kind of collects all the power within 177 00:08:41,800 --> 00:08:43,439 Speaker 5: the offshore wind farm to then get it ready to 178 00:08:43,480 --> 00:08:46,840 Speaker 5: transmit to shore. Then you have your offer cable, onshore substation, 179 00:08:47,000 --> 00:08:48,920 Speaker 5: et cetera, et cetera. So part of the reason why 180 00:08:48,960 --> 00:08:51,800 Speaker 5: I mentioned, you know, the Netherlands and Germany is because 181 00:08:51,880 --> 00:08:54,600 Speaker 5: these are markets where they pay for offshore transmission. In 182 00:08:54,640 --> 00:08:58,240 Speaker 5: the US, that responsibility falls in the developer. And then 183 00:08:58,240 --> 00:08:59,920 Speaker 5: of course, you know, as you're financing the project, you 184 00:09:00,000 --> 00:09:02,880 Speaker 5: also have different financing costs involved with that. So if 185 00:09:02,920 --> 00:09:04,640 Speaker 5: you're using project finance and you're going to go to 186 00:09:04,679 --> 00:09:06,640 Speaker 5: the bank, then you have, you know, to factor in 187 00:09:06,920 --> 00:09:08,960 Speaker 5: the payments that you're going to be making to pay 188 00:09:08,960 --> 00:09:11,280 Speaker 5: off your loan. And if you're talking about lifetime costs, 189 00:09:11,280 --> 00:09:13,439 Speaker 5: renewable energy is great because you don't have to pay 190 00:09:13,480 --> 00:09:15,679 Speaker 5: for fuel costs. But that being said, you do have 191 00:09:15,720 --> 00:09:18,160 Speaker 5: some O and MS, some operations and maintenance that you 192 00:09:18,160 --> 00:09:19,160 Speaker 5: need to take care of as well. 193 00:09:19,760 --> 00:09:21,640 Speaker 3: This seems complicated, Joe. 194 00:09:21,679 --> 00:09:24,080 Speaker 1: It's so complicated. Also, you know, I have to, you know, 195 00:09:24,120 --> 00:09:25,439 Speaker 1: however long it's in a while with Trace that you 196 00:09:25,520 --> 00:09:27,520 Speaker 1: try to convince me to write a book, you. 197 00:09:27,480 --> 00:09:30,720 Speaker 3: Know, yeah, and meet here with you. 198 00:09:31,160 --> 00:09:33,920 Speaker 1: And the reason I can't do a project that's going 199 00:09:34,000 --> 00:09:35,840 Speaker 1: to take two years. That's just too long. And so 200 00:09:35,880 --> 00:09:38,640 Speaker 1: when I hear, oh, the process is going to be 201 00:09:38,640 --> 00:09:42,840 Speaker 1: ten to fourteen years, I can't even imagine thinking about 202 00:09:43,080 --> 00:09:45,200 Speaker 1: starting out a project ten to fourteen years. I can't 203 00:09:45,240 --> 00:09:47,600 Speaker 1: even do a two year project. So just that blows 204 00:09:47,600 --> 00:09:51,960 Speaker 1: my mind. But when you're talking about such long development timelines, 205 00:09:52,080 --> 00:09:56,520 Speaker 1: it really drives home, you know how much financing costs 206 00:09:56,640 --> 00:09:58,520 Speaker 1: can matter. And that's a lot of time where you're 207 00:09:58,520 --> 00:10:02,000 Speaker 1: spending a lot of money on very things without revenue, 208 00:10:02,040 --> 00:10:06,319 Speaker 1: and the whole math changes with the change in financing conditions. 209 00:10:06,480 --> 00:10:08,440 Speaker 1: But why do you talk to us about, Okay, what 210 00:10:08,640 --> 00:10:12,200 Speaker 1: are the conditions for these developers in twenty twenty three 211 00:10:12,640 --> 00:10:16,160 Speaker 1: versus twenty nineteen, both in terms of the rate environment, 212 00:10:16,240 --> 00:10:18,680 Speaker 1: but also just the inflation environment, the cost of labor, 213 00:10:18,720 --> 00:10:21,120 Speaker 1: the cost of construction, the cost of steel for the materials, 214 00:10:21,160 --> 00:10:24,760 Speaker 1: and so forth, like how much have things changed for 215 00:10:24,840 --> 00:10:26,400 Speaker 1: them in four years or three years? 216 00:10:27,360 --> 00:10:31,240 Speaker 5: Significantly? I actually I have those numbers when we're talking 217 00:10:31,320 --> 00:10:35,280 Speaker 5: about the impact that inflation, interest rates, and also you 218 00:10:35,360 --> 00:10:38,160 Speaker 5: mentioned Tracy the Inflation Reduction Act have had on the 219 00:10:38,240 --> 00:10:40,959 Speaker 5: levelized cost of electricity. So what this means is this 220 00:10:40,960 --> 00:10:44,360 Speaker 5: is essentially the price at which electricity must be sold 221 00:10:44,400 --> 00:10:46,600 Speaker 5: in order to kind of break even, make sure your 222 00:10:46,600 --> 00:10:49,439 Speaker 5: returns are met, et cetera. So in twenty twenty one, 223 00:10:49,480 --> 00:10:52,880 Speaker 5: we did some analysis estimating that the LCOE for offshore 224 00:10:52,920 --> 00:10:56,160 Speaker 5: win projects in the US, assuming a thirty percent investment 225 00:10:56,200 --> 00:10:59,640 Speaker 5: tax credit, so this is investment tax credits as allowed 226 00:10:59,640 --> 00:11:03,200 Speaker 5: in the Inflation Reduction Act was around seventy seven dollars 227 00:11:03,240 --> 00:11:06,840 Speaker 5: and thirty cents. So this is assuming a thirty percent ITC. 228 00:11:07,480 --> 00:11:10,880 Speaker 5: If you take into account capex and oppex rise, so 229 00:11:11,040 --> 00:11:15,200 Speaker 5: opex being operational expenditure, this added around seventeen dollars per 230 00:11:15,240 --> 00:11:18,840 Speaker 5: megawat hour. Then take into account interest rate hikes, that's 231 00:11:18,840 --> 00:11:21,400 Speaker 5: around twenty seven dollars per megawa hour. But then we 232 00:11:21,440 --> 00:11:24,280 Speaker 5: also had when the IRA came out, you know, bonus 233 00:11:24,320 --> 00:11:27,040 Speaker 5: tax credits, so developers could also get plus ten percent 234 00:11:27,840 --> 00:11:31,480 Speaker 5: for certain meeting certain requirements. That took down so it 235 00:11:31,520 --> 00:11:34,080 Speaker 5: reduced the levelized cost of electricity by around seven dollars 236 00:11:34,120 --> 00:11:36,000 Speaker 5: per meg on hour, So when we're sitting here in 237 00:11:36,040 --> 00:11:39,560 Speaker 5: twenty twenty three, this means that now the LCOE assuming 238 00:11:39,600 --> 00:11:42,640 Speaker 5: a forty percent investment tax credit, stands around one hundred 239 00:11:42,679 --> 00:11:46,120 Speaker 5: and fourteen dollars and twenty cents per megawat hour. So 240 00:11:46,160 --> 00:11:48,480 Speaker 5: you can see comparing that one fourteen to that seventy 241 00:11:48,520 --> 00:11:50,800 Speaker 5: seven dollars per megawat hour number, just how much that 242 00:11:50,920 --> 00:11:54,240 Speaker 5: environment has changed. And I think to highlight a couple 243 00:11:54,320 --> 00:11:58,000 Speaker 5: of you know, movement pieces in terms of, you know, 244 00:11:58,040 --> 00:11:59,600 Speaker 5: what this has been happened, what has been happening on 245 00:11:59,600 --> 00:12:03,400 Speaker 5: a MACRII economic scale, So US CPI, So this is, 246 00:12:03,520 --> 00:12:05,959 Speaker 5: you know, consumer price index average at around one point 247 00:12:06,040 --> 00:12:10,240 Speaker 5: nine percent before COVID nineteen in twenty nineteen, and then 248 00:12:10,400 --> 00:12:12,200 Speaker 5: if you take a look at how it peaked in 249 00:12:12,320 --> 00:12:15,240 Speaker 5: twenty twenty two, it was at around nine percent, and 250 00:12:15,280 --> 00:12:17,280 Speaker 5: so you can really see how that environment has shifted. 251 00:12:17,679 --> 00:12:20,760 Speaker 5: Also for several projects, the secured overnight financing rate, so 252 00:12:20,800 --> 00:12:23,360 Speaker 5: this is the base rate for interest rates in the US, 253 00:12:23,720 --> 00:12:26,800 Speaker 5: stood at around zero percent, almost nothing in you know, 254 00:12:27,160 --> 00:12:30,080 Speaker 5: kind of end twenty twenty into twenty twenty one. And 255 00:12:30,080 --> 00:12:31,320 Speaker 5: then when you take a look at where it is 256 00:12:31,320 --> 00:12:34,160 Speaker 5: in twenty twenty three, it's you know, around five point 257 00:12:34,240 --> 00:12:36,160 Speaker 5: five percent. And so you can see just how much 258 00:12:36,200 --> 00:12:39,360 Speaker 5: the base rate for you know, barring money has increased. 259 00:12:39,520 --> 00:12:43,440 Speaker 2: Wow, it's like an almost fifty percent increase in the cost, 260 00:12:43,520 --> 00:12:46,760 Speaker 2: which is almost perfectly tallied with the drop in or 261 00:12:46,760 --> 00:12:47,640 Speaker 2: studs share price. 262 00:12:47,720 --> 00:12:48,319 Speaker 1: Oh perfectly. 263 00:12:48,400 --> 00:12:50,520 Speaker 3: Yeah, So if pishient markets right there? 264 00:13:06,960 --> 00:13:10,960 Speaker 2: Okay, So you just laid out wonderfully all the different 265 00:13:11,240 --> 00:13:14,520 Speaker 2: cost pressures that have landed on the wind industry, and 266 00:13:14,640 --> 00:13:18,560 Speaker 2: I guess my question now is what levers can they 267 00:13:18,600 --> 00:13:22,120 Speaker 2: pull to offset some of these? So you know, you 268 00:13:22,240 --> 00:13:25,720 Speaker 2: have fixed rates on the revenue side because of those 269 00:13:25,760 --> 00:13:28,880 Speaker 2: off take agreements, can they renegotiate to try to get 270 00:13:29,080 --> 00:13:33,640 Speaker 2: additional money? And then on the cost side, I imagine 271 00:13:33,720 --> 00:13:38,920 Speaker 2: putting together these massive wind turbines is a pretty expensive 272 00:13:39,120 --> 00:13:43,120 Speaker 2: and complicated endeavor. But we have seen, for instance in 273 00:13:43,160 --> 00:13:46,559 Speaker 2: the oil industry that you can do things like have 274 00:13:46,640 --> 00:13:50,640 Speaker 2: standardization on components and things like that that can bring 275 00:13:50,800 --> 00:13:55,600 Speaker 2: down costs. So which of these is the industry looking at, which, 276 00:13:55,640 --> 00:13:57,880 Speaker 2: in your opinion, might be most effective here? 277 00:13:58,320 --> 00:14:01,000 Speaker 5: So I think what comes to mind are three things. 278 00:14:01,080 --> 00:14:04,480 Speaker 5: So one the first you mentioned being renegotiation. So that's 279 00:14:04,480 --> 00:14:07,240 Speaker 5: what a lot of these developers have been trying to do. 280 00:14:07,920 --> 00:14:10,959 Speaker 5: So far, not really any of the renegotiation attempts have 281 00:14:11,000 --> 00:14:14,760 Speaker 5: been successful. We did see some green lights in New 282 00:14:14,840 --> 00:14:18,080 Speaker 5: Jersey when risted requested basically being able to keep some 283 00:14:18,120 --> 00:14:20,880 Speaker 5: of the upside of their federal tax credits. So traditionally 284 00:14:20,920 --> 00:14:24,120 Speaker 5: in their contracts they're meant to pass down those benefits 285 00:14:24,400 --> 00:14:27,520 Speaker 5: to rate payers if they're going to get any extra access. 286 00:14:27,760 --> 00:14:30,680 Speaker 5: But New Jersey kind of passed a bill saying that no, 287 00:14:30,840 --> 00:14:33,120 Speaker 5: this is okay, or Stead can keep the upside to 288 00:14:33,240 --> 00:14:36,360 Speaker 5: make sure that project goes forward. Now, even though that 289 00:14:36,400 --> 00:14:39,800 Speaker 5: bill passed and Orstad was able to receive the upside, 290 00:14:39,800 --> 00:14:42,560 Speaker 5: that project still did not go through. If we take 291 00:14:42,600 --> 00:14:47,000 Speaker 5: a look at renegotiation attempts in Massachusetts, the regulators had 292 00:14:47,000 --> 00:14:49,440 Speaker 5: also said no, we're not willing to renegotiate, and so 293 00:14:49,480 --> 00:14:52,680 Speaker 5: then we saw fines of around fifty million sixty million 294 00:14:52,720 --> 00:14:55,120 Speaker 5: dollars that these developers were paying to kind of exit 295 00:14:55,160 --> 00:15:00,280 Speaker 5: those agreements so that they could then rebid into future solicitations. York, 296 00:15:00,320 --> 00:15:04,440 Speaker 5: we also saw regulators decline requests to increase off take prices, 297 00:15:04,800 --> 00:15:06,920 Speaker 5: and so for New York. We're still waiting to see 298 00:15:06,920 --> 00:15:11,080 Speaker 5: what exactly might happen. But basically renegotiating kind of opens 299 00:15:11,160 --> 00:15:12,600 Speaker 5: up a whole can of worms because this is a 300 00:15:12,600 --> 00:15:16,320 Speaker 5: competitive process that these developers are competing against each other for. 301 00:15:16,480 --> 00:15:18,440 Speaker 5: And then the second you reopen that up to say, oh, 302 00:15:18,480 --> 00:15:20,440 Speaker 5: I want a higher off take price, then that kind 303 00:15:20,440 --> 00:15:23,000 Speaker 5: of calls into question the competitive nature of the award. 304 00:15:23,440 --> 00:15:27,120 Speaker 1: Wait, sorry, explain that further. When you say calls into question, 305 00:15:27,480 --> 00:15:28,600 Speaker 1: can you clarify that. 306 00:15:28,760 --> 00:15:31,080 Speaker 5: Yeah, So, essentially, when we see something like an offshore 307 00:15:31,120 --> 00:15:34,080 Speaker 5: wind solicitation, I've been using a lot of different words, solicitation, procurement. 308 00:15:34,080 --> 00:15:36,640 Speaker 5: They're also known as requests for proposals RFP. Some people 309 00:15:36,720 --> 00:15:40,840 Speaker 5: might call them an auction. So these are essentially developers 310 00:15:41,040 --> 00:15:43,880 Speaker 5: coming in the state says I want to procure let's say, 311 00:15:43,880 --> 00:15:47,480 Speaker 5: four gigawatts of electricity of offshore wind power. And so 312 00:15:47,560 --> 00:15:50,840 Speaker 5: then you'll have multiple developers kind of develop a proposal 313 00:15:51,200 --> 00:15:53,840 Speaker 5: with different projects. They'll say I'm developing a one gigawat project, 314 00:15:53,840 --> 00:15:57,040 Speaker 5: I'm developing a five hundred megawat project, et cetera. They'll 315 00:15:57,080 --> 00:16:00,240 Speaker 5: then say I'm willing to provide this project at say 316 00:16:00,240 --> 00:16:02,720 Speaker 5: one hundred dollars per Mega one hour, and this project 317 00:16:02,760 --> 00:16:05,760 Speaker 5: is going to commission in twenty thirty and so then 318 00:16:05,800 --> 00:16:07,880 Speaker 5: you'll have all of these different elements. Now, usually in 319 00:16:07,920 --> 00:16:10,160 Speaker 5: the US they'll take into account the bid price. So 320 00:16:10,280 --> 00:16:12,680 Speaker 5: the lower your price, you know, the more that you 321 00:16:12,720 --> 00:16:14,760 Speaker 5: can save rate payers money, and so then the better 322 00:16:14,800 --> 00:16:17,560 Speaker 5: that looks. So that's usually around maybe seventy percent of 323 00:16:17,560 --> 00:16:20,880 Speaker 5: the evaluation, and then you'll have thirty percent be attributed 324 00:16:20,880 --> 00:16:24,880 Speaker 5: to things like environmental attributes, economic development opportunities, how much 325 00:16:24,960 --> 00:16:27,600 Speaker 5: are you investing in the state, also things like project viability, 326 00:16:27,760 --> 00:16:31,240 Speaker 5: developer experience, different pieces like that, but the big portion 327 00:16:31,440 --> 00:16:35,080 Speaker 5: is how cheap can you sell electricity to me? And 328 00:16:35,160 --> 00:16:39,760 Speaker 5: so when you have these different developers essentially saying, I 329 00:16:39,880 --> 00:16:42,640 Speaker 5: can you know, sell it at this price and this 330 00:16:42,760 --> 00:16:44,560 Speaker 5: is the lowest one that or this is the most 331 00:16:44,600 --> 00:16:47,600 Speaker 5: attractive one that the state selected, you award it, and 332 00:16:47,600 --> 00:16:50,000 Speaker 5: then a couple of years later you say, oh, I 333 00:16:50,080 --> 00:16:52,960 Speaker 5: need an increase. Then that calls into question, Okay, what 334 00:16:53,000 --> 00:16:55,120 Speaker 5: about the previous developers that lost out in the auction? 335 00:16:55,360 --> 00:16:57,680 Speaker 5: Were they bidding at a price because perhaps they had, 336 00:16:57,880 --> 00:17:00,920 Speaker 5: you know, less optimistic assumptions about what the future would 337 00:17:00,920 --> 00:17:03,680 Speaker 5: be like and other math was better exactly right. So 338 00:17:03,840 --> 00:17:06,880 Speaker 5: when you think about contingency planning things like that, it's 339 00:17:06,920 --> 00:17:08,719 Speaker 5: good to have an optimistic view of the future. But 340 00:17:08,760 --> 00:17:12,040 Speaker 5: when the optimistic view doesn't actually end up happening, then 341 00:17:12,119 --> 00:17:14,639 Speaker 5: that kind of, you know, makes it a little bit 342 00:17:14,680 --> 00:17:15,720 Speaker 5: more more difficult. 343 00:17:15,960 --> 00:17:19,520 Speaker 2: And what about on the supply side, like the component idea, 344 00:17:19,600 --> 00:17:22,280 Speaker 2: how much can be squeezed out of costs there? 345 00:17:23,320 --> 00:17:25,480 Speaker 5: That is a great question. So a lot of the 346 00:17:25,480 --> 00:17:28,920 Speaker 5: cost declines we've seen in offshore wind has been due 347 00:17:28,920 --> 00:17:33,320 Speaker 5: to increasing sizes in turbines. And so what that means 348 00:17:33,440 --> 00:17:35,560 Speaker 5: is that as a turbine gets bigger, that means that 349 00:17:35,760 --> 00:17:39,359 Speaker 5: oftentimes you need less turbines for the same amount of output. 350 00:17:39,640 --> 00:17:41,720 Speaker 5: So for you know, a one gig go out wind farm, 351 00:17:41,760 --> 00:17:43,840 Speaker 5: you need less turbines. If you have bigger turbines at 352 00:17:43,880 --> 00:17:46,639 Speaker 5: higher rated capacities, you also need less array cables to 353 00:17:46,640 --> 00:17:51,199 Speaker 5: interconnect them, less foundations, oftentimes less vessel trips needed to 354 00:17:51,720 --> 00:17:53,520 Speaker 5: you know, go in and install the turbines because there's 355 00:17:53,520 --> 00:17:56,119 Speaker 5: fewer of them. So with that being said, you know, 356 00:17:56,359 --> 00:18:00,000 Speaker 5: sometimes when you have this longer runway for offshore wind development, 357 00:18:00,000 --> 00:18:02,120 Speaker 5: and that means oh okay, well, I have a little 358 00:18:02,160 --> 00:18:05,000 Speaker 5: bit longer time to kind of pick the biggest, newest 359 00:18:05,000 --> 00:18:08,159 Speaker 5: technology that is going to allow for cost savings on 360 00:18:08,200 --> 00:18:10,840 Speaker 5: a permegawap basis. Now that being said, a lot of 361 00:18:10,880 --> 00:18:13,520 Speaker 5: these projects that have been raising red flags are a 362 00:18:13,560 --> 00:18:16,120 Speaker 5: little bit more in the later stages and so kind 363 00:18:16,119 --> 00:18:18,840 Speaker 5: of you know, reconfiguring and getting the newest and biggest 364 00:18:18,880 --> 00:18:22,440 Speaker 5: turbine or signing new supplier agreements and you know, trying 365 00:18:22,440 --> 00:18:24,120 Speaker 5: to figure out where to squeeze can be a little 366 00:18:24,119 --> 00:18:27,480 Speaker 5: bit more challenging because oftentimes a lot of these supplier 367 00:18:27,520 --> 00:18:30,720 Speaker 5: agreements are already being put in place or have already 368 00:18:30,800 --> 00:18:32,560 Speaker 5: been put in place. So this was the case for 369 00:18:32,680 --> 00:18:34,680 Speaker 5: ocean Wind one and two, where if you take a 370 00:18:34,720 --> 00:18:37,639 Speaker 5: look at orsted's impairment, the vast majority of it was 371 00:18:37,720 --> 00:18:41,080 Speaker 5: due to supply chain complications, mostly in Ocean Wind one, 372 00:18:41,400 --> 00:18:44,000 Speaker 5: and this is because they experience kind of knock on 373 00:18:44,080 --> 00:18:47,679 Speaker 5: effects from delays and kind of scheduling issues that they 374 00:18:47,680 --> 00:18:51,280 Speaker 5: were having with suppliers, predominantly with vessels, and so there 375 00:18:51,400 --> 00:18:54,199 Speaker 5: is some wiggle room that you can do with reconfiguration 376 00:18:54,640 --> 00:18:58,240 Speaker 5: and redesigning. You know, the project we have seen you know, 377 00:18:58,680 --> 00:19:00,960 Speaker 5: I mean or stead mentioned for their skins Jack projects 378 00:19:00,960 --> 00:19:03,880 Speaker 5: in Maryland that they are revisiting some reconfiguration to see 379 00:19:03,880 --> 00:19:06,520 Speaker 5: if they can, you know, make the project as valuable 380 00:19:06,560 --> 00:19:09,199 Speaker 5: as possible. But that being said, for some projects it's 381 00:19:09,240 --> 00:19:12,320 Speaker 5: not always possible. Sometimes you reconfigure as much as you 382 00:19:12,359 --> 00:19:14,560 Speaker 5: can until you kind of have to make a final 383 00:19:14,600 --> 00:19:17,639 Speaker 5: investment decision. And for some projects you you have less runway. 384 00:19:17,680 --> 00:19:19,479 Speaker 5: So if you're early on in the development process, then 385 00:19:19,480 --> 00:19:21,760 Speaker 5: you have more leeway to shift, you know, your designs 386 00:19:22,240 --> 00:19:25,000 Speaker 5: and change your suppliers. But if you're later on, it's 387 00:19:25,040 --> 00:19:26,000 Speaker 5: a little bit more challenging. 388 00:19:26,320 --> 00:19:29,760 Speaker 1: So you mentioned the supply chains, and the big stress 389 00:19:29,760 --> 00:19:31,640 Speaker 1: point has actually been the vessels. 390 00:19:31,880 --> 00:19:33,800 Speaker 5: For Orsted's Ocean Win one and two. 391 00:19:33,800 --> 00:19:35,920 Speaker 1: That's what they mentioned that It was that the one 392 00:19:36,040 --> 00:19:38,080 Speaker 1: off of that was going to be off of New Jersey. Yes, 393 00:19:38,280 --> 00:19:41,399 Speaker 1: and wait, what's the vessel constraint? Is it actually the 394 00:19:41,480 --> 00:19:42,120 Speaker 1: number of ship? 395 00:19:42,560 --> 00:19:42,760 Speaker 3: Yeah? 396 00:19:42,800 --> 00:19:43,520 Speaker 1: What's going on there? 397 00:19:43,880 --> 00:19:44,200 Speaker 5: Yeah? 398 00:19:44,240 --> 00:19:45,320 Speaker 3: So the US. 399 00:19:45,359 --> 00:19:48,359 Speaker 5: Has essentially this law called the Jones Act. I'm not 400 00:19:48,359 --> 00:19:49,480 Speaker 5: sure you guys familiar. 401 00:19:50,080 --> 00:19:50,959 Speaker 4: Yes, we love it. 402 00:19:50,960 --> 00:19:53,399 Speaker 2: It always comes back, It always comes back to the 403 00:19:53,480 --> 00:19:53,880 Speaker 2: Jones Act. 404 00:19:53,920 --> 00:19:55,920 Speaker 3: No, we've done I've done a couple episodes. 405 00:19:55,920 --> 00:19:57,640 Speaker 1: I had no idea this is going to turn into 406 00:19:57,680 --> 00:19:58,919 Speaker 1: a Joneses Act episode. 407 00:19:59,320 --> 00:20:02,840 Speaker 5: Now I'm reallycas so I have my own personal feelings 408 00:20:02,840 --> 00:20:03,960 Speaker 5: about it, but that aside. 409 00:20:04,119 --> 00:20:06,840 Speaker 1: I've noticed, by the way, like on social media, that's 410 00:20:06,840 --> 00:20:08,959 Speaker 1: one of the most hot button topics that you can 411 00:20:09,040 --> 00:20:11,200 Speaker 1: talk about. So you never never say anything about the 412 00:20:11,240 --> 00:20:13,879 Speaker 1: Jones Act online whatever. People have a really strong opinion. 413 00:20:13,960 --> 00:20:19,680 Speaker 5: Okay, sorry, I mean it's a hot button topic. So essentially, basically, 414 00:20:19,720 --> 00:20:23,560 Speaker 5: if you are traveling between two points in the US, 415 00:20:24,200 --> 00:20:27,120 Speaker 5: then that ship has to be US built, US crewed, 416 00:20:27,200 --> 00:20:30,600 Speaker 5: US flag, and what that means for offshore wind is 417 00:20:30,640 --> 00:20:33,560 Speaker 5: that that offshore wind farm counts as a point. And 418 00:20:33,640 --> 00:20:38,439 Speaker 5: so the US has you know, I mentioned seven turbines 419 00:20:38,480 --> 00:20:43,960 Speaker 5: currently installed, two projects currently under construction. But what happens is, 420 00:20:43,960 --> 00:20:46,480 Speaker 5: because of the Jones Act, you either have to have 421 00:20:46,840 --> 00:20:50,000 Speaker 5: a Jones Act compliant you know, vessel that can do 422 00:20:50,080 --> 00:20:53,000 Speaker 5: that transportation. That doesn't exist in the US right now. 423 00:20:53,080 --> 00:20:56,680 Speaker 5: Currently there's only one wind turbine installation vessel that Dominion 424 00:20:56,720 --> 00:20:57,600 Speaker 5: is building right now. 425 00:20:58,119 --> 00:20:59,080 Speaker 3: I'm getting dredging. 426 00:21:00,000 --> 00:21:01,960 Speaker 1: Oh my god, this is so amazing. It all comes 427 00:21:01,960 --> 00:21:02,640 Speaker 1: full circle. 428 00:21:03,240 --> 00:21:07,000 Speaker 5: So, yeah, there's only one vessel currently under construction right now, 429 00:21:07,000 --> 00:21:09,200 Speaker 5: and that's not going to be ready until a few 430 00:21:09,240 --> 00:21:11,359 Speaker 5: years from now. And Dominion's planning on using that on 431 00:21:11,400 --> 00:21:14,040 Speaker 5: their two point six Gagua Coastal Virginia afsher wind projects. 432 00:21:14,080 --> 00:21:15,760 Speaker 5: That's set to be the largest in the US when 433 00:21:15,800 --> 00:21:17,880 Speaker 5: it commissions, one of the largest in the world, which 434 00:21:17,920 --> 00:21:21,199 Speaker 5: is great for them, but for other projects. Orstead was 435 00:21:21,200 --> 00:21:23,679 Speaker 5: actually hoping to use this for their Sunrise Wind and 436 00:21:23,720 --> 00:21:27,600 Speaker 5: Revolution Wind projects, but now that the vessel has been delayed, 437 00:21:28,040 --> 00:21:30,000 Speaker 5: they are no longer able to use that Jones Act 438 00:21:30,000 --> 00:21:32,960 Speaker 5: compliant winterbine installation vessel. So another thing that you can 439 00:21:33,000 --> 00:21:36,560 Speaker 5: consider doing is using a European wind turbine installation vessel 440 00:21:36,840 --> 00:21:39,080 Speaker 5: and then using a kind of like feeder barge method, 441 00:21:39,280 --> 00:21:40,760 Speaker 5: and so this is what a lot of US austr 442 00:21:40,800 --> 00:21:43,600 Speaker 5: WIN projects are hoping to do. Essentially, the feeder barges 443 00:21:43,600 --> 00:21:46,679 Speaker 5: are Jones ACT compliant and you feed in the components 444 00:21:46,800 --> 00:21:49,600 Speaker 5: to the European vessel that stays at the offshore wind site. 445 00:21:50,119 --> 00:21:53,000 Speaker 5: This is traditionally not how projects are installed in Europe 446 00:21:53,000 --> 00:21:56,520 Speaker 5: as you might imagine. Usually the European WTIV will go 447 00:21:56,560 --> 00:21:58,520 Speaker 5: to the port, pick up the components loaded up, go 448 00:21:58,600 --> 00:22:00,919 Speaker 5: to site and then install the component, and so you 449 00:22:01,000 --> 00:22:03,560 Speaker 5: kind of have this mish mash way of doing things. 450 00:22:03,640 --> 00:22:05,520 Speaker 5: And then the last one that we don't really expect 451 00:22:05,560 --> 00:22:08,679 Speaker 5: to see because it's super expensive, but you might stage 452 00:22:08,680 --> 00:22:13,159 Speaker 5: your components in say Canada, and then use EUROPEANATIV and 453 00:22:13,200 --> 00:22:15,639 Speaker 5: then go get the components and then install them. So 454 00:22:15,720 --> 00:22:19,840 Speaker 5: the Jones Act has essentially created a situation where so 455 00:22:20,080 --> 00:22:24,160 Speaker 5: many vessels involved in the Austra wind installation process need 456 00:22:24,240 --> 00:22:26,880 Speaker 5: to be built here and right now there's only one. 457 00:22:26,960 --> 00:22:28,119 Speaker 5: So that's a huge constraint. 458 00:22:28,240 --> 00:22:30,920 Speaker 2: Joe, I dare you to tweet that the Jones Act 459 00:22:31,000 --> 00:22:34,200 Speaker 2: causes pollution and adds to the US's carbon load by 460 00:22:34,200 --> 00:22:35,840 Speaker 2: denying wind energy. 461 00:22:36,080 --> 00:22:38,320 Speaker 1: I'll tweet it from my out locked all too account 462 00:22:38,440 --> 00:22:39,800 Speaker 1: that nobody knows about. 463 00:22:40,160 --> 00:22:44,399 Speaker 2: Okay, but this actually leads nicely into another question. Just 464 00:22:44,440 --> 00:22:47,760 Speaker 2: going back to the IRA, A lot of this sounds 465 00:22:47,800 --> 00:22:51,800 Speaker 2: like difficulty with how the US system is set up 466 00:22:51,960 --> 00:22:55,280 Speaker 2: for wind power. So you have the ship constraints via 467 00:22:55,320 --> 00:22:57,879 Speaker 2: the Jones Act that you just described, and then you 468 00:22:57,960 --> 00:23:01,080 Speaker 2: have the permitting process, which can all be difficult. You 469 00:23:01,160 --> 00:23:04,160 Speaker 2: have the sort of time discrepancy between when the off 470 00:23:04,160 --> 00:23:07,600 Speaker 2: take agreements are agreed and when the financing is actually secured, 471 00:23:07,640 --> 00:23:11,399 Speaker 2: which is different to other countries, different types of subsidies 472 00:23:11,440 --> 00:23:15,040 Speaker 2: and things like that. How much can the government do 473 00:23:15,400 --> 00:23:18,679 Speaker 2: to alleviate some of these pressures? And then on the 474 00:23:18,720 --> 00:23:23,920 Speaker 2: IRA specifically setting the griping aside about the permitting process, 475 00:23:24,560 --> 00:23:28,560 Speaker 2: what does it actually do to help win power here? 476 00:23:28,680 --> 00:23:32,320 Speaker 2: Does the existence of a very large underwriter in the 477 00:23:32,359 --> 00:23:35,719 Speaker 2: form of the US government provide some certainty to the 478 00:23:35,720 --> 00:23:37,960 Speaker 2: industry at a time when it seems like there are 479 00:23:38,000 --> 00:23:38,920 Speaker 2: a lot of challenges. 480 00:23:39,880 --> 00:23:43,440 Speaker 5: Yeah, so I think that you mentioned like what can 481 00:23:43,640 --> 00:23:46,159 Speaker 5: governments do? So I think going back to one of 482 00:23:46,200 --> 00:23:48,800 Speaker 5: your initial questions that I think that I'd ended up 483 00:23:48,800 --> 00:23:51,280 Speaker 5: missing at some point. Starting at the state level, what 484 00:23:51,320 --> 00:23:54,520 Speaker 5: states have begun to do is starting to introduce inflation 485 00:23:54,600 --> 00:23:59,200 Speaker 5: adjustment mechanisms in their off take contracts. And so the US, 486 00:23:59,240 --> 00:24:02,919 Speaker 5: I mentioned having that timeline between being so long between 487 00:24:02,960 --> 00:24:05,080 Speaker 5: you know, when you agree with that off take to 488 00:24:05,119 --> 00:24:07,320 Speaker 5: the off take price and then when you actually finance 489 00:24:07,359 --> 00:24:09,479 Speaker 5: the project being really long. That makes it really risky. 490 00:24:09,920 --> 00:24:12,040 Speaker 5: But also another piece is that the US off take 491 00:24:12,080 --> 00:24:15,720 Speaker 5: contracts are not indexed to inflation, and so what that 492 00:24:15,880 --> 00:24:20,200 Speaker 5: means is that in the UK, in Poland partially in Ireland. 493 00:24:20,600 --> 00:24:23,760 Speaker 5: Over the twenty you know, fifteen twenty twenty five year 494 00:24:23,920 --> 00:24:28,200 Speaker 5: off take contract lifetime, the price might go up by 495 00:24:28,280 --> 00:24:31,760 Speaker 5: a certain percentage that is usually up by inflation. In 496 00:24:31,800 --> 00:24:34,760 Speaker 5: the US, these projects bid at like a flat price 497 00:24:34,880 --> 00:24:37,119 Speaker 5: or at a set escalator, say two or three percent. 498 00:24:37,520 --> 00:24:39,639 Speaker 5: And so again, given the shifts that we've seen in 499 00:24:39,680 --> 00:24:42,800 Speaker 5: the environment over the last few years, this means that 500 00:24:43,240 --> 00:24:46,080 Speaker 5: these projects are not nearly as protected as they are elsewhere. 501 00:24:46,520 --> 00:24:49,320 Speaker 5: And so states have been starting to say, Okay, we're 502 00:24:49,320 --> 00:24:51,840 Speaker 5: not necessarily going to index this price over the lifetime 503 00:24:51,880 --> 00:24:54,000 Speaker 5: of the contract, but we will say we'll give you 504 00:24:54,040 --> 00:24:56,960 Speaker 5: a one time and adjustment mechanism. And so in New York, 505 00:24:57,000 --> 00:24:58,440 Speaker 5: what this means is from the time that you bid 506 00:24:58,560 --> 00:25:00,920 Speaker 5: until the time you receive your final f federal permits, 507 00:25:01,320 --> 00:25:06,840 Speaker 5: your price will be indexed to metrics like steal labor, fuel, copper, 508 00:25:07,080 --> 00:25:09,560 Speaker 5: different pieces like this to help kind of protect the 509 00:25:09,560 --> 00:25:11,560 Speaker 5: developers a little bit more and stave off a little 510 00:25:11,600 --> 00:25:13,800 Speaker 5: bit more of that risk. So that's one beneficial thing 511 00:25:13,800 --> 00:25:15,399 Speaker 5: that we've seen kind of help in this way at 512 00:25:15,400 --> 00:25:18,360 Speaker 5: the state level. Now the federal level, for the Inflation 513 00:25:18,400 --> 00:25:21,200 Speaker 5: Reduction Act, a lot of the big drivers for offshra 514 00:25:21,320 --> 00:25:24,800 Speaker 5: wind have you know, has been at the state level. 515 00:25:25,680 --> 00:25:28,800 Speaker 5: And so you know, the Biden administration came out with 516 00:25:28,920 --> 00:25:31,639 Speaker 5: a thirty gigawatts offsh win by twenty thirty goal a 517 00:25:31,680 --> 00:25:34,960 Speaker 5: few years ago, and that's a good sign for the industry. 518 00:25:35,119 --> 00:25:38,040 Speaker 5: But in reality, these off take agreements that are really 519 00:25:38,080 --> 00:25:41,720 Speaker 5: what you know, these developers need a guarantee of like 520 00:25:41,800 --> 00:25:43,720 Speaker 5: route to market and you know, a future for like 521 00:25:43,760 --> 00:25:45,920 Speaker 5: how much build is going to be is there going 522 00:25:45,960 --> 00:25:47,439 Speaker 5: to be in the future, you know, that kind of 523 00:25:47,440 --> 00:25:49,760 Speaker 5: long term certainty, that's what the states have really been giving. 524 00:25:50,040 --> 00:25:52,280 Speaker 5: And so the Biden administration's goal, while a good sign 525 00:25:52,640 --> 00:25:55,880 Speaker 5: also just for contexts at Bloomberg NIF in our. 526 00:25:55,760 --> 00:25:58,359 Speaker 3: Class, didn't one of your colleagues call it a pipe dream. 527 00:25:58,800 --> 00:26:01,120 Speaker 5: One of my colleagues did call it of vibreed. And 528 00:26:01,160 --> 00:26:02,960 Speaker 5: you know, part of the reasons for that is because 529 00:26:03,000 --> 00:26:06,159 Speaker 5: we've never once forecasted that the US was going to 530 00:26:06,160 --> 00:26:08,719 Speaker 5: meet this goal even before it came out. But it 531 00:26:08,760 --> 00:26:10,800 Speaker 5: is a good sign for the industry just to kind 532 00:26:10,800 --> 00:26:13,680 Speaker 5: of you know, hammer that home. The ambition is good, 533 00:26:13,960 --> 00:26:15,719 Speaker 5: but it doesn't look like it's realistic. And in our 534 00:26:15,760 --> 00:26:17,760 Speaker 5: latest forecast, it looks more likely that it's going to 535 00:26:17,800 --> 00:26:18,320 Speaker 5: be half of that. 536 00:26:18,640 --> 00:26:18,880 Speaker 2: Wow. 537 00:26:19,160 --> 00:26:22,320 Speaker 5: And for the Inflation Reduction Act, I think that the 538 00:26:22,359 --> 00:26:25,160 Speaker 5: tax credits that are included in it are a very 539 00:26:25,160 --> 00:26:28,760 Speaker 5: good sign. They help kind of decrease the price of 540 00:26:28,760 --> 00:26:31,480 Speaker 5: offter wind, on ture wind, entre renewables in general, right, 541 00:26:31,880 --> 00:26:35,400 Speaker 5: and so it becomes a more attractive space to certain investors. 542 00:26:35,480 --> 00:26:39,159 Speaker 5: Let's say, but offshore wind is one of the most 543 00:26:39,400 --> 00:26:43,439 Speaker 5: expensive renewable energy technologies out there, and so when we 544 00:26:43,480 --> 00:26:47,479 Speaker 5: take the look at why developers and countries are building it, 545 00:26:47,480 --> 00:26:50,840 Speaker 5: it's not necessarily because you know, it's the cheapest, you know, 546 00:26:50,920 --> 00:26:54,880 Speaker 5: form of electricity. Offter wind has super high capacity factors. 547 00:26:54,880 --> 00:26:57,320 Speaker 5: And so what that means is that essentially, if you 548 00:26:57,359 --> 00:27:01,200 Speaker 5: take the entire year and assume a wind farm is 549 00:27:01,280 --> 00:27:03,480 Speaker 5: generating at one hundred percent, the wind speeds are like 550 00:27:03,520 --> 00:27:06,600 Speaker 5: ideal generation is at one hundred percent. But then you 551 00:27:06,680 --> 00:27:09,560 Speaker 5: actually take the actual generation, so you know, sometimes wind 552 00:27:09,600 --> 00:27:12,440 Speaker 5: is variable and wind speeds are lower, and the turbines, 553 00:27:12,480 --> 00:27:14,640 Speaker 5: you know, aren't spinning always at high speed all the time. 554 00:27:14,680 --> 00:27:18,200 Speaker 5: There's some curtailment. Perhaps that percentage of the year which 555 00:27:18,240 --> 00:27:21,679 Speaker 5: it's like fully operational is the capacity factor. And so 556 00:27:21,880 --> 00:27:23,919 Speaker 5: for solar, where you might have a capacity factor like 557 00:27:23,920 --> 00:27:26,280 Speaker 5: twenty percent, and that makes sense given that you know, 558 00:27:26,480 --> 00:27:28,840 Speaker 5: it's only really generating when the sun is out. Onsure 559 00:27:28,840 --> 00:27:30,959 Speaker 5: wind you might have something like thirty percent or so 560 00:27:31,040 --> 00:27:33,520 Speaker 5: thirty five percent offshore wind in the US you can 561 00:27:33,560 --> 00:27:35,920 Speaker 5: get you know, forty forty five percent, and so it's 562 00:27:35,920 --> 00:27:39,360 Speaker 5: a lot higher. And so when you're looking at renewable generation, 563 00:27:39,720 --> 00:27:42,240 Speaker 5: as it gets more and more integrated into the grid, 564 00:27:42,520 --> 00:27:46,119 Speaker 5: having higher capacity factors, you know, having technology which is 565 00:27:46,160 --> 00:27:48,919 Speaker 5: able to generate a lot more is more beneficial for 566 00:27:48,960 --> 00:27:51,600 Speaker 5: the system. And then also scale, so you have gigawatt 567 00:27:51,600 --> 00:27:55,399 Speaker 5: scale projects that are offsru wind projects. You know, for context, 568 00:27:55,680 --> 00:27:58,880 Speaker 5: you might see one hundred two hundred megawat on sure 569 00:27:58,920 --> 00:28:02,360 Speaker 5: wind project in the US, but that turns to a thousand, 570 00:28:02,480 --> 00:28:05,600 Speaker 5: sometimes two thousand megawatts when you go offshore. And so 571 00:28:05,640 --> 00:28:09,600 Speaker 5: you have things like scale, higher capacity factors. Also they're 572 00:28:09,640 --> 00:28:12,600 Speaker 5: huge economic development opportunities really kind of being the driver 573 00:28:12,720 --> 00:28:15,120 Speaker 5: for offsher wind more so than it is the price 574 00:28:15,160 --> 00:28:17,480 Speaker 5: of that electricity. And so I think the IRA is 575 00:28:17,960 --> 00:28:21,959 Speaker 5: great for you know, taking the impact off you know, 576 00:28:22,000 --> 00:28:24,239 Speaker 5: the price of that electricity and the amount that like 577 00:28:24,280 --> 00:28:26,320 Speaker 5: states are going to have to be paying and you know, 578 00:28:26,440 --> 00:28:29,000 Speaker 5: kind of putting that on the federal budget side of things. 579 00:28:29,200 --> 00:28:31,600 Speaker 5: But in terms of actually spurring on that build and 580 00:28:31,640 --> 00:28:34,520 Speaker 5: making it, you know, essentially being a driver for more 581 00:28:34,600 --> 00:28:37,200 Speaker 5: offshore wind growth, I think that that's really lying more 582 00:28:37,200 --> 00:28:38,960 Speaker 5: so with the states than it is with the federal 583 00:28:39,000 --> 00:28:39,800 Speaker 5: government and the IRA. 584 00:28:56,880 --> 00:28:59,560 Speaker 2: Just to hammer this point home, how much of the 585 00:28:59,640 --> 00:29:06,400 Speaker 2: challenge cheer is the physics of wind power versus financial conditions, 586 00:29:06,440 --> 00:29:09,360 Speaker 2: the increase in borrowing costs and the higher you know, 587 00:29:09,960 --> 00:29:15,280 Speaker 2: cost of physical components like labor, like ships, things like that. 588 00:29:15,480 --> 00:29:18,800 Speaker 2: In other words, could there be an argument that unless 589 00:29:18,880 --> 00:29:23,560 Speaker 2: those costs come down really significantly, that wind power just 590 00:29:23,760 --> 00:29:28,000 Speaker 2: isn't I guess energy dense enough to make financial sense. 591 00:29:29,040 --> 00:29:32,480 Speaker 5: That's a really interesting question. I think that one thing 592 00:29:32,520 --> 00:29:36,720 Speaker 5: that's important to contextualize is that these things that we've 593 00:29:36,760 --> 00:29:41,160 Speaker 5: been talking about in terms of inflation, interest rates, it's 594 00:29:41,200 --> 00:29:44,840 Speaker 5: not just relegated to wind right like we have been 595 00:29:44,880 --> 00:29:47,640 Speaker 5: seeing this hit other renewable technologies, We've been seeing it 596 00:29:47,680 --> 00:29:50,160 Speaker 5: hit other sectors. I know, I go to the grocery 597 00:29:50,160 --> 00:29:52,080 Speaker 5: store now and say, oh, my goodness, what like this 598 00:29:52,160 --> 00:29:54,120 Speaker 5: has gone up by x amount. This is a ridiculous 599 00:29:54,120 --> 00:29:57,520 Speaker 5: amount of money. Or now when you know you try to, 600 00:29:58,480 --> 00:30:00,680 Speaker 5: you know, go for a loan. I think my parents 601 00:30:00,720 --> 00:30:02,440 Speaker 5: were saying the other day, the interest rates are are 602 00:30:02,480 --> 00:30:05,360 Speaker 5: crazy nowadays. And so this is something that's hit a 603 00:30:05,400 --> 00:30:08,320 Speaker 5: lot of industries, and it's not necessarily just wind power. 604 00:30:08,880 --> 00:30:12,400 Speaker 5: If we take a look at offshriwind in particular. I 605 00:30:12,440 --> 00:30:16,120 Speaker 5: think that one of the reasons why we've been seeing 606 00:30:16,160 --> 00:30:18,520 Speaker 5: so much news around it is because these are large 607 00:30:18,520 --> 00:30:21,760 Speaker 5: infrastructure projects. You know, they're billions of dollars. The second 608 00:30:21,800 --> 00:30:24,920 Speaker 5: one project says, you know, I can no longer develop. 609 00:30:25,680 --> 00:30:28,040 Speaker 5: It's huge news because that's like a gigawatt of clean 610 00:30:28,080 --> 00:30:31,280 Speaker 5: electricity versus you know, if one solar project doesn't move forward, 611 00:30:31,320 --> 00:30:34,000 Speaker 5: you know, maybe that's fifty megawats and it's gone. So 612 00:30:34,040 --> 00:30:37,320 Speaker 5: it's a smaller fraction. These are also, you know, huge 613 00:30:37,320 --> 00:30:41,080 Speaker 5: government initiatives, so you might have government back contracts now 614 00:30:41,120 --> 00:30:43,600 Speaker 5: being called into question, versus you know, if you have 615 00:30:43,760 --> 00:30:46,680 Speaker 5: like a corporate bilateral ppa at a smaller scale, you know, 616 00:30:46,680 --> 00:30:48,800 Speaker 5: that's a little bit easier to renegotiate, perhaps have a 617 00:30:48,840 --> 00:30:51,239 Speaker 5: little bit more wiggle room. And so I think that 618 00:30:51,280 --> 00:30:54,400 Speaker 5: a big portion of it is on you know, the 619 00:30:54,400 --> 00:30:58,560 Speaker 5: financing side of it and the macroeconomic situation that's impacting 620 00:30:58,680 --> 00:31:02,480 Speaker 5: you know everything. But also if we take a look 621 00:31:02,480 --> 00:31:05,000 Speaker 5: at wind and offshore wind in particular, there are some 622 00:31:06,000 --> 00:31:07,800 Speaker 5: unique pieces to it that I think make it a 623 00:31:07,840 --> 00:31:12,120 Speaker 5: little bit more susceptible to say. I'm trying to figure 624 00:31:12,120 --> 00:31:17,000 Speaker 5: out the right words, but let's say grandioseness or like 625 00:31:17,040 --> 00:31:20,840 Speaker 5: bigger news, because they are larger projects, they are billions 626 00:31:20,840 --> 00:31:23,560 Speaker 5: of dollars. They are huge when it comes to like 627 00:31:23,680 --> 00:31:26,120 Speaker 5: amount the amount of clean energy that you see it 628 00:31:26,160 --> 00:31:30,080 Speaker 5: can contribute to countries' portfolios, but also from a company 629 00:31:30,160 --> 00:31:32,080 Speaker 5: level as well. Right, we've seen a lot of oil 630 00:31:32,080 --> 00:31:34,680 Speaker 5: and gas majors get into offshore wind, and it's because 631 00:31:34,720 --> 00:31:37,200 Speaker 5: you know, they've been starting to integrate, you know, renewable 632 00:31:37,240 --> 00:31:40,600 Speaker 5: energy goals into their strategies. An offshore wind, you know, 633 00:31:40,680 --> 00:31:43,320 Speaker 5: you win a huge seabed lease, a seabed lease auction, 634 00:31:43,400 --> 00:31:46,240 Speaker 5: you get gigawatts immediately added to your clean energy portfolio. 635 00:31:46,880 --> 00:31:50,200 Speaker 5: And so I think the bigness of the project's bigness 636 00:31:50,200 --> 00:31:54,440 Speaker 5: is not a word, but we'll go with it. How 637 00:31:54,480 --> 00:31:56,920 Speaker 5: expensive they are. But also you know, these longer timelines, 638 00:31:56,960 --> 00:31:58,880 Speaker 5: I think I mean, I don't know about you guys, 639 00:31:58,880 --> 00:32:00,440 Speaker 5: but I'm a lot more upset when I've been working 640 00:32:00,480 --> 00:32:02,160 Speaker 5: on something for a really, really long time and it 641 00:32:02,160 --> 00:32:03,920 Speaker 5: doesn't work out. Then, you know, when you've been working 642 00:32:03,920 --> 00:32:05,680 Speaker 5: on it for you know, you know. A couple of. 643 00:32:05,680 --> 00:32:07,800 Speaker 2: Show just admitted that he doesn't work on any. 644 00:32:07,800 --> 00:32:09,200 Speaker 4: Long term pa I don't don't. 645 00:32:09,600 --> 00:32:12,280 Speaker 1: I don't do long term projects. So I completely agree. 646 00:32:12,400 --> 00:32:14,920 Speaker 1: I have one last question, which is, Okay, there are 647 00:32:14,920 --> 00:32:20,520 Speaker 1: all these challenges, from interest rates, to statewide legal issues, 648 00:32:20,560 --> 00:32:24,120 Speaker 1: to the Jones g to whatever. If things don't get 649 00:32:24,160 --> 00:32:28,760 Speaker 1: figured out, how important is the wind component to overall 650 00:32:29,440 --> 00:32:32,840 Speaker 1: clean energy goals? Especially I know in the Northeast we 651 00:32:32,880 --> 00:32:34,960 Speaker 1: don't get a ton of sunlight. There aren't a ton 652 00:32:35,000 --> 00:32:38,600 Speaker 1: of other alternatives for decarbonization. Just talked a little bit 653 00:32:38,640 --> 00:32:42,200 Speaker 1: about the significance of somehow getting this right in terms 654 00:32:42,240 --> 00:32:43,560 Speaker 1: of the US's bigger strategy. 655 00:32:44,080 --> 00:32:46,760 Speaker 5: Yeah, I mean, I think it's huge. For context, are 656 00:32:46,800 --> 00:32:49,360 Speaker 5: you at PENF is that this is more of a 657 00:32:49,400 --> 00:32:51,840 Speaker 5: bump in the road than anything. So for years we've 658 00:32:51,880 --> 00:32:56,240 Speaker 5: seen cost declines, cost declines, cost declines, cost aclients, especially 659 00:32:56,280 --> 00:32:58,400 Speaker 5: in solar, and now is one of the first time 660 00:32:58,440 --> 00:33:00,560 Speaker 5: in years where we've seen a little of a bump 661 00:33:00,640 --> 00:33:04,640 Speaker 5: in costs, and so a lot of it in part 662 00:33:04,680 --> 00:33:08,920 Speaker 5: is due to the inflationary pressures and higher cost of 663 00:33:08,960 --> 00:33:11,960 Speaker 5: capital that we've been seeing. Now, we do think we're 664 00:33:11,960 --> 00:33:15,480 Speaker 5: going to see a return to normal, whatever that means 665 00:33:15,840 --> 00:33:18,240 Speaker 5: to you, in the next few years, and so then 666 00:33:18,400 --> 00:33:21,680 Speaker 5: we should come back to seeing some cost declines. And yes, 667 00:33:22,000 --> 00:33:24,200 Speaker 5: there are bigger components, and I think that there are 668 00:33:24,240 --> 00:33:27,240 Speaker 5: some structural issues that the industry needs to work out. 669 00:33:27,440 --> 00:33:30,320 Speaker 5: I mentioned bigger turbines being like a huge push, a 670 00:33:30,560 --> 00:33:33,200 Speaker 5: huge reason why we've seen cost declines in offher Win. 671 00:33:33,440 --> 00:33:35,320 Speaker 5: Then there's also the question of how big can those 672 00:33:35,360 --> 00:33:36,080 Speaker 5: turbines get. 673 00:33:36,280 --> 00:33:38,760 Speaker 2: Yeah, I saw like one of them or some of 674 00:33:38,800 --> 00:33:40,760 Speaker 2: them are now like three hundred and fifty feet or 675 00:33:40,760 --> 00:33:42,520 Speaker 2: like one hundred meters something like that. 676 00:33:42,520 --> 00:33:45,000 Speaker 5: The blank I think in meters. Yeah, so the Vestus 677 00:33:45,040 --> 00:33:47,440 Speaker 5: fifteen megawat turbine has a two hundred and thirty six 678 00:33:47,480 --> 00:33:48,120 Speaker 5: meter rotor dice. 679 00:33:48,160 --> 00:33:49,000 Speaker 3: Oh my gosh. 680 00:33:49,120 --> 00:33:52,720 Speaker 5: Yes, they're really vague. But yeah, as they get bigger, 681 00:33:52,960 --> 00:33:54,600 Speaker 5: you need vessels that are going to be able to 682 00:33:54,800 --> 00:33:57,720 Speaker 5: install them, ports that can house them, you know, factories 683 00:33:57,720 --> 00:34:00,800 Speaker 5: that can manufacture them. The entire supply chain has to 684 00:34:00,840 --> 00:34:03,720 Speaker 5: grow with it, and so there's some structural issues there 685 00:34:03,720 --> 00:34:05,760 Speaker 5: that also need to be worked out. And turbine makers 686 00:34:05,800 --> 00:34:08,000 Speaker 5: have differing strategies on whether or not it's better to 687 00:34:08,080 --> 00:34:11,000 Speaker 5: keep going big or to you know, kind of maintain 688 00:34:11,080 --> 00:34:13,920 Speaker 5: a you know, one turbine size. Now, Now that is 689 00:34:13,920 --> 00:34:17,719 Speaker 5: aside in terms of like how important it is your question, Joe, Yeah, 690 00:34:17,760 --> 00:34:21,040 Speaker 5: we can't necessarily just have an energy system that's made 691 00:34:21,080 --> 00:34:24,640 Speaker 5: completely of solar panels. Right, the sun's going to rise, 692 00:34:24,680 --> 00:34:26,680 Speaker 5: You're going to have lots and lots and lots of 693 00:34:26,719 --> 00:34:28,719 Speaker 5: solar energy, and then it's going to set and then 694 00:34:28,719 --> 00:34:31,560 Speaker 5: everyone's in a blackout. You know, that doesn't really make sense. 695 00:34:31,880 --> 00:34:34,600 Speaker 5: Then you add storage. How many batteries can you add? 696 00:34:34,800 --> 00:34:37,360 Speaker 5: You have wind? You want to have different sorts of 697 00:34:37,480 --> 00:34:40,560 Speaker 5: electricity sources with differing profiles so that your system can 698 00:34:40,600 --> 00:34:42,759 Speaker 5: be a little bit more flexible. You can be a 699 00:34:42,760 --> 00:34:46,480 Speaker 5: little bit more nimble with you know, moving your resources 700 00:34:46,520 --> 00:34:49,240 Speaker 5: around so that you can actually go where demand is needed. 701 00:34:49,400 --> 00:34:52,040 Speaker 5: So that includes investments in the grid, right and making 702 00:34:52,080 --> 00:34:54,840 Speaker 5: sure that that is upgraded to a point where electrons 703 00:34:54,840 --> 00:34:57,480 Speaker 5: can flow a little bit more easily, and in the Northeast, 704 00:34:57,640 --> 00:34:59,319 Speaker 5: as you mentioned, there's not a lot of sun, and 705 00:34:59,360 --> 00:35:01,719 Speaker 5: it doesn't always make a whole bunch of sense to 706 00:35:01,800 --> 00:35:04,520 Speaker 5: build solar, even if it might be you know, cheaper 707 00:35:04,640 --> 00:35:07,200 Speaker 5: on a levelized cost of electricity basis than on sure 708 00:35:07,280 --> 00:35:09,800 Speaker 5: offshore wind. And so the big push in the Northeast 709 00:35:09,800 --> 00:35:11,719 Speaker 5: for offure wind has to do with you know, we 710 00:35:11,760 --> 00:35:14,560 Speaker 5: see these really high electricity price spikes in the winter 711 00:35:14,719 --> 00:35:17,399 Speaker 5: because you know, gas due to gas constraints and high 712 00:35:17,400 --> 00:35:20,000 Speaker 5: prices for gas, and so offter wind kind of helps 713 00:35:20,040 --> 00:35:22,000 Speaker 5: offset that a little bit. More so, those kind of 714 00:35:22,000 --> 00:35:24,080 Speaker 5: tie into some of the other benefits that I mentioned, 715 00:35:24,360 --> 00:35:27,799 Speaker 5: not necessarily environmental astrobotes and economic benefits, but when you 716 00:35:27,800 --> 00:35:30,279 Speaker 5: look at the electricity system as a whole and kind 717 00:35:30,280 --> 00:35:33,080 Speaker 5: of trying to reduce you know, those price spikes and 718 00:35:33,120 --> 00:35:35,719 Speaker 5: price drops, offter wind can kind of help add swin 719 00:35:35,840 --> 00:35:37,839 Speaker 5: that way. So there are benefits there that I think 720 00:35:37,840 --> 00:35:39,600 Speaker 5: are good for the industry, and I think wind is 721 00:35:39,640 --> 00:35:42,000 Speaker 5: a really big necessary part of the energy transition. 722 00:35:42,840 --> 00:35:46,960 Speaker 1: Chelsea Jean Michelle, that was amazing, that answered so many questions. 723 00:35:47,120 --> 00:35:49,040 Speaker 1: Really appreciate you coming on the podcast. 724 00:35:49,320 --> 00:35:50,440 Speaker 5: Noah for sure, happy to be here. 725 00:35:50,440 --> 00:35:50,959 Speaker 2: Thank you guys. 726 00:35:51,440 --> 00:36:06,760 Speaker 4: Yeah, that was great, Tracy. I thought that was great. 727 00:36:06,840 --> 00:36:09,400 Speaker 1: That entered so many questions, and the fact that it 728 00:36:09,560 --> 00:36:12,280 Speaker 1: ended up coming back around to being a Jones episode 729 00:36:12,280 --> 00:36:15,160 Speaker 1: two just it was like a classic interview. From my perspective, 730 00:36:15,239 --> 00:36:16,160 Speaker 1: we should have seen it coming. 731 00:36:16,280 --> 00:36:18,000 Speaker 4: I didn't. I had no idea. I had no idea. 732 00:36:18,080 --> 00:36:19,200 Speaker 1: That was a big part of the story. 733 00:36:19,400 --> 00:36:22,960 Speaker 2: Yeah, so there was so much packed into that. Chelsea 734 00:36:23,040 --> 00:36:25,359 Speaker 2: got so much, and I'm struggling to think about where 735 00:36:25,400 --> 00:36:27,480 Speaker 2: to start. But so one thing I'm thinking is like, 736 00:36:27,520 --> 00:36:30,760 Speaker 2: on the one hand, a lot of this sounds really 737 00:36:30,880 --> 00:36:35,319 Speaker 2: complicated to solve. So these are huge infrastructure projects, as 738 00:36:35,360 --> 00:36:39,040 Speaker 2: she laid out, working on very long timelines, and so 739 00:36:39,080 --> 00:36:42,600 Speaker 2: you would imagine that the macro environment might change, you know, 740 00:36:42,680 --> 00:36:46,680 Speaker 2: as the project actually matures and comes to fruition. But 741 00:36:46,840 --> 00:36:49,120 Speaker 2: on the other hand, it does seem like there are 742 00:36:49,239 --> 00:36:54,920 Speaker 2: some little things that could be kind of fixed almost immediately. 743 00:36:55,000 --> 00:36:58,360 Speaker 2: So the idea of off take contracts actually being indexed 744 00:36:58,360 --> 00:37:03,040 Speaker 2: to inflation, I'm sure that would be an extremely politically 745 00:37:03,120 --> 00:37:06,239 Speaker 2: unpopular move, but I guess if other countries are doing it, 746 00:37:06,280 --> 00:37:09,360 Speaker 2: maybe you could make the argument. And if wind power 747 00:37:09,560 --> 00:37:13,239 Speaker 2: is a necessary source of energy to get us to 748 00:37:13,360 --> 00:37:16,640 Speaker 2: our carbon goals, like maybe there is some political appetite 749 00:37:16,960 --> 00:37:19,480 Speaker 2: for making the projects more financially. 750 00:37:18,960 --> 00:37:23,000 Speaker 3: Sound, but yeah, it seems like it's complicated. 751 00:37:23,040 --> 00:37:25,839 Speaker 2: It seems like there are like multiple things happening here 752 00:37:25,840 --> 00:37:28,840 Speaker 2: and multiple levers you could pull, and the question is 753 00:37:29,520 --> 00:37:32,279 Speaker 2: again like which are the most efficient And at the 754 00:37:32,360 --> 00:37:34,040 Speaker 2: end of the day, if you do all of them, 755 00:37:34,600 --> 00:37:37,600 Speaker 2: is wind power still efficient and financially viable? 756 00:37:38,040 --> 00:37:40,799 Speaker 1: Yeah, and you could see though too, like even with 757 00:37:41,120 --> 00:37:45,400 Speaker 1: all of these challenges from engineering to financing, the prize 758 00:37:45,480 --> 00:37:47,320 Speaker 1: is great, right, And I think I saw some stand 759 00:37:47,320 --> 00:37:49,840 Speaker 1: one that all it takes is one spin of the blade, 760 00:37:49,880 --> 00:37:52,600 Speaker 1: literally just one, and that powers multiple houses for a 761 00:37:52,600 --> 00:37:55,319 Speaker 1: few days or something like that. And there's just so 762 00:37:55,480 --> 00:37:59,719 Speaker 1: much potential energy out there a couple miles off the 763 00:37:59,760 --> 00:38:02,760 Speaker 1: show or that you could see why there's this pursuit. 764 00:38:03,080 --> 00:38:05,480 Speaker 1: But then also, you know, there were so many different 765 00:38:05,760 --> 00:38:08,719 Speaker 1: follow up conversations that we can now have related to 766 00:38:09,000 --> 00:38:11,799 Speaker 1: questions about well, what is the optimal size of the 767 00:38:11,840 --> 00:38:14,960 Speaker 1: blade or the optimal size of the turbine and all 768 00:38:14,960 --> 00:38:17,560 Speaker 1: these different things that you can see, or the ultimate 769 00:38:17,640 --> 00:38:20,360 Speaker 1: the optimal bidding process as you described. 770 00:38:20,480 --> 00:38:23,120 Speaker 2: Oh yeah, that was really interesting also, like the idea 771 00:38:23,560 --> 00:38:26,720 Speaker 2: the renegotiation of the off take agreements, and the idea 772 00:38:26,760 --> 00:38:29,960 Speaker 2: that like, obviously, the environment has changed. So if you're 773 00:38:29,960 --> 00:38:33,240 Speaker 2: an energy provider, you might want to get additional revenue 774 00:38:33,239 --> 00:38:35,800 Speaker 2: to cover your costs, but given the way those auctions 775 00:38:35,840 --> 00:38:39,319 Speaker 2: are structured, you can't really do that in a fair way. 776 00:38:40,000 --> 00:38:43,560 Speaker 1: Electricity markets future episodes for sure. 777 00:38:43,840 --> 00:38:47,200 Speaker 2: Yeah, and probably a jones Ac debate in our future, yes, 778 00:38:47,280 --> 00:38:47,640 Speaker 2: for sure. 779 00:38:47,880 --> 00:38:49,359 Speaker 3: All right, shall we leave it there for now? 780 00:38:49,440 --> 00:38:50,120 Speaker 4: Let's leave it there. 781 00:38:50,200 --> 00:38:53,560 Speaker 2: Okay, this has been another episode of the All Thoughts podcast. 782 00:38:53,640 --> 00:38:56,520 Speaker 2: I'm Tracy Alloway. You can follow me at Tracy. 783 00:38:56,200 --> 00:38:59,000 Speaker 1: Alloway and I'm Jill Wisenthal. You can follow me at 784 00:38:59,000 --> 00:39:02,520 Speaker 1: the Stalwart. Follow so our producers Carmen Rodriguez at Carman 785 00:39:02,640 --> 00:39:06,480 Speaker 1: armand dash Ol Bennett at Dashbot and Kelbrooks at Kelbrooks. 786 00:39:06,800 --> 00:39:09,480 Speaker 1: Thank you to our producer Moses Ondam. For more odd 787 00:39:09,520 --> 00:39:12,760 Speaker 1: Loots content, go to Bloomberg dot com slash odd Lots, 788 00:39:12,800 --> 00:39:15,759 Speaker 1: where we have a blog, transcripts and a newsletter comes 789 00:39:15,760 --> 00:39:19,200 Speaker 1: out every Friday. And if you want to chat with 790 00:39:19,280 --> 00:39:22,239 Speaker 1: people about energy. One of the favorite places I go 791 00:39:22,360 --> 00:39:25,360 Speaker 1: to check energy news in the discord. We actually have 792 00:39:25,360 --> 00:39:27,080 Speaker 1: two channels that this is relevant to. We have a 793 00:39:27,080 --> 00:39:30,000 Speaker 1: climate channel Energy. People are chatting in there about these topics. 794 00:39:30,440 --> 00:39:34,120 Speaker 1: Twenty four to seven discord dot gg slash. 795 00:39:33,760 --> 00:39:37,200 Speaker 2: Oddlocks and if you enjoy odd Lots, if you want 796 00:39:37,280 --> 00:39:40,200 Speaker 2: us to hold that Jones Act debate, then please leave 797 00:39:40,280 --> 00:39:43,720 Speaker 2: us a positive review on your favorite podcast platform. Thanks 798 00:39:43,719 --> 00:40:01,880 Speaker 2: for listening it