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Speaker 1: Bloomberg Audio Studios, Podcasts, Radio News.

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Speaker 2: Hello and welcome to another episode of the Odd Lots Podcast.

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Speaker 3: I'm Jolle Wisenthal and I'm Tracy Alaway.

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Speaker 2: Tracy, here's something that really frustrates me, or I find

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Speaker 2: kind of weird.

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Speaker 4: You know.

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Speaker 2: I see these charts a lot of times. They get

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Speaker 2: posted on Twitter and it's like, oh, look at the

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Speaker 2: incredible like plunge in solar production costs or the incredible

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Speaker 2: advance in you know, how much cheaper it is getting

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Speaker 2: to install solar. And then I see these charts where

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Speaker 2: it's like more and more of our energy is coming

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Speaker 2: from solar.

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Speaker 3: So it's like, why do you hate environmentalism?

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Speaker 2: No, I don't say something I'm not saying, but if

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Speaker 2: the thing is getting cheaper and the volume of it

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Speaker 2: is growing, why aren't electricity bills like down ninety percent?

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Speaker 2: Why is the electricity not gotten a new chuaber?

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Speaker 3: Yes, So you know, I have that house in Connecticut,

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Speaker 3: which means that I follow ever source news quite closely.

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Speaker 3: And eversource raised their rates because they said they needed

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Speaker 3: to make more investment into renewable energy, and then just

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Speaker 3: recently they said they're actually pulling back on some of

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Speaker 3: their renewable energy investments. But unsurprisingly, perhaps rates aren't actually

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Speaker 3: going down. But I think it's a frustration that a

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Speaker 3: lot of people share, and one that probably says a

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Speaker 3: lot about the way renewable energy currently works.

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Speaker 2: By the way, on that thing is like, oh, we

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Speaker 2: have to raise prices because you're making these investments. That

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Speaker 2: was actually a really interesting nugget that I had forgotten

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Speaker 2: about from our recent episode when we went to Mount

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Speaker 2: Airy and we talked to the CEO of Unified, the

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Speaker 2: textile company, and there was a line in there where

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Speaker 2: he said, Yeah, energy is obviously a big component of

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Speaker 2: our costs, and it's gone up because the utility is

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Speaker 2: making all these renewable energy investments. So like, there's something

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Speaker 2: weird about this right for energy, in which here you

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Speaker 2: have this thing that's getting cheaper and cheaper, there's more

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Speaker 2: and more of it. Obviously we know that decarbonization or

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Speaker 2: electrification and decarbonization are major priorities, So it's like, what's

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Speaker 2: happening Why. I just like, like it's hard for me

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Speaker 2: to wrap my head around, Like when are we going

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Speaker 2: to see the fruits of all this?

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Speaker 3: Yeah, it feels like the natural path of capitalism here,

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Speaker 3: or technological adoption where you would expect, you know, as

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Speaker 3: this particular technology becomes more popular, more efficient, more useful,

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Speaker 3: prices would come down and it would start to proliferate.

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Speaker 3: It doesn't really seem to be happening quite that way.

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Speaker 2: You know, we need you know, we need that like

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Speaker 2: the kool aid man to jump through the window and

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Speaker 2: bring up Jevin's paradox here. It's like, aha, you made

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Speaker 2: the fallacy of thinking that is energy comes down and

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Speaker 2: gets cheaper.

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Speaker 3: Where's the where's the paradox collects? And that's what we

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Speaker 3: need the airhorn to go off.

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Speaker 2: So obviously especially in the US right now, but I

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Speaker 2: think globally and the doing some similar things in Europe,

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Speaker 2: but certainly in the US. We have the Inflation Reduction Act,

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Speaker 2: and you hear a lot about like these, like the

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Speaker 2: public private partnerships, and we're going to unleash the power

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Speaker 2: of capitalism, and we're going to unleash market forces. And

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Speaker 2: because capitalism does something really well, which is like drive

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Speaker 2: for cheapness and efficiency and all this, you know, that's

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Speaker 2: the sort of idea and we're going to nudge it

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Speaker 2: along with subsidies and tax credits et cetera. We're going

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Speaker 2: to sort of have these like powerful capitalist actors come

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Speaker 2: and deliver us this world of cheap, clean electrified energy.

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Speaker 3: I mean, I do feel like things are changing a

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Speaker 3: little bit on that front. And you mentioned the IRA

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Speaker 3: just then, but yes, you're absolutely right. At least in

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Speaker 3: the States and you know, large parts of the West,

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Speaker 3: a lot of the renewable energy transition is still this

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Speaker 3: like kind of weird half measure where it's like private

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Speaker 3: capital meets for the most part government subsidies.

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Speaker 2: Right, So the question is like, are we doing it wrong?

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Speaker 2: What is the role of private capital? Do we need

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Speaker 2: private capital to invest in all this? Can the sort

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Speaker 2: of the things that capitalism good at deliver us cheap

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Speaker 2: clean energy? I'm very excited. We have the perfect guest today.

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Speaker 2: We're going to be speaking with Brett Christophers. He's a

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Speaker 2: professor of geography at Uppsalo University in Sweden, and he

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Speaker 2: is the author of a book that came out this year,

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Speaker 2: The Price is Wrong, Why Capitalism Won't Save the Planet,

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Speaker 2: and it's a deep dive into how these energy markets work. So, Brett,

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Speaker 2: thank you so much for coming on.

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Speaker 5: Odd lots, thanks for having me.

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Speaker 4: It's great to be with you.

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Speaker 2: Why don't you just start by telling us the basic

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Speaker 2: thesis of your book, which seems to be, you know,

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Speaker 2: you say why capitalism won't save the planet, or why

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Speaker 2: why market forces won't save the planet, why it won't

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Speaker 2: deliver us that world of abundant, decarbonized energy.

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Speaker 4: Sure, the basic thesis of the book is as following,

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Speaker 4: but it's important to preface it with two kind of

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Speaker 4: bits of contextual information that are really really important to understand.

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Speaker 4: So the first of those is how the world is

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Speaker 4: approaching the job of electricity sector decalanization in economic terms,

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Speaker 4: And what I mean by that is to say that

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Speaker 4: for the most part, we are relying on the private

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Speaker 4: sector to do this. So governments, accepting certain important places

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Speaker 4: like China, are keeping out of this in terms of

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Speaker 4: the actual role of energy investment and ownership and operation.

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Speaker 4: They're expecting the private sector to drive this forwards, but

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Speaker 4: with the helping hand from government in various different ways,

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Speaker 4: which we can talk about, and the Inflation Reduction Act

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Speaker 4: is obviously a very important example of that. So the

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Speaker 4: private sector is being expected to do it. The second

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Speaker 4: thing it's important to say by context is what the

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Speaker 4: private sector is being expected to do, and for the

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Speaker 4: most part, solar and wind are the key things that

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Speaker 4: the future, i guess is being hung on. So yes,

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Speaker 4: there will continue to be a role for things like

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Speaker 4: nuclear and hydro, and that will vary to different degrees

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Speaker 4: in different countries, but for the most part, we're kind

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Speaker 4: of betting the house on solar and wind. Coming to

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Speaker 4: our aid now, with those two bits of information said,

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Speaker 4: the basic argument of the book is that in so

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Speaker 4: far as we're relying on a private sector, and in

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Speaker 4: so far as we're focusing on solar and wind, that's

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Speaker 4: a problem because solar and wind, and I'm not talking

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Speaker 4: here about the manufacturing side of it, I'm talking about

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Speaker 4: the deployment side. Building the solar and wind farms, owning them,

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Speaker 4: selling the electricity they generate is a pretty uncertain and

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Speaker 4: actually relatively unattractive proposition in investment terms, and specifically in

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Speaker 4: terms of profitability. It's very volatile in profitability terms, and

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Speaker 4: the returns are actually not great in general. And so

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Speaker 4: in so far as that's true, that's a problem because

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Speaker 4: we're relying on the private sector to do this, and

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Speaker 4: obviously the private sector is led by profit motivations, and

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Speaker 4: if it's not a great prospect in profit terms, then

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Speaker 4: we're in trouble.

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Speaker 3: So I want to get more into why solar and

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Speaker 3: wind might not be the best investment opportunity. But before

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Speaker 3: we do, I feel like we need to define some

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Speaker 3: of your terms. And you make a big distinction between

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Speaker 3: price cost versus profit in the book. Can you maybe

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Speaker 3: explain that a little bit more, because I think a

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Speaker 3: lot of people will hear the word profit and then

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Speaker 3: they'll hear a price cost and they'll be like, well,

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Speaker 3: the difference between price and cost is the profit, and

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Speaker 3: that those two things are interconnected. But you make a

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Speaker 3: very important distinction.

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Speaker 4: Yeah, So I'm sure almost all your listeners will have

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Speaker 4: heard about one of the things that you guys were

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Speaker 4: talking about earlier, which is the fact that the cost

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Speaker 4: price of renewable energy, which is essentially the cost of

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Speaker 4: generating power through solar or wind, has come down hugely

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Speaker 4: over the past ten to fifteen years. In particular, it

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Speaker 4: has come down a lot, and you would imagine intuitively

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Speaker 4: that if the price of generating it comes down, then

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Speaker 4: the profit that can be obtained from selling it would

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Speaker 4: be going up, so that as the price comes down,

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Speaker 4: it inherently becomes more profitable. But one of the arguments

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Speaker 4: I make in the book, I mean, in a way

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Speaker 4: the central argument is that for all sorts of interesting

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Speaker 4: and important reasons, they are kind of nerdy reasons. You

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Speaker 4: have to get into the thickets to understand them. That's

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Speaker 4: just absolutely not necessarily the case. There are all sorts

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Speaker 4: of reasons why A does not lead inevitably to B.

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Speaker 4: And my argument is that the focus on price, the

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Speaker 4: focus both on the left and right in understanding these things,

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Speaker 4: relentlessly on this what's referred to as the levelized cost

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Speaker 4: of energy, and lots of people will have seen this

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Speaker 4: chart with the declining price. The focus on that has

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Speaker 4: been misleading when it comes to understanding the economics of renewables.

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Speaker 4: And the argument is that we should be thinking on

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Speaker 4: specifically about profit because that's what drives investment decisions.

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Speaker 2: Great, well, then let's get right into this. So there

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Speaker 2: are a lot of solar firms in the US. There's

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Speaker 2: more and more installation happening all the time, like and

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Speaker 2: at a piece that many people would not have guessed.

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Speaker 2: So a solar installation, even prior to the IRA was

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Speaker 2: deployed at a rate faster than expected there's still more

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Speaker 2: the IRA maybe accelerating it at further before we even

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Speaker 2: get to the whole grander decarbonization thing. Tell us about

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Speaker 2: a business model of a solar farm and why it's

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Speaker 2: not that great of a business.

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Speaker 4: Yeah, okay, So I think the best way to approach

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Speaker 4: this is to think about what needs to be done

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Speaker 4: to get a solar wind farm development off the ground,

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Speaker 4: and there are basically three or four crucial things you

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Speaker 4: need to do. So the first of those is you

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Speaker 4: need the technology, right, so you need in the case

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Speaker 4: of wind, you need the turbines, in the case of solar,

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Speaker 4: you need the solar sales and the solar modules. You

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Speaker 4: need the stuff that's going to help you to generate

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Speaker 4: the electricity. The second thing, and all of these are

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Speaker 4: really really important. The second thing is you need somewhere

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Speaker 4: to put it. So in the case of solar and

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Speaker 4: onshore wind, you need land, and you need lots of it,

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Speaker 4: which is a really important thing to understand. I would

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Speaker 4: say that as a geographer, but it's actually true that

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Speaker 4: you need lots and lots of land. And in the

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Speaker 4: case of on shore, you can either lease that land

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Speaker 4: or you can buy that land. So land is the

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Speaker 4: second thing you need, or in the case of offshore wind,

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Speaker 4: you need rights to ocean and sea floor. Essentially that

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Speaker 4: gets auctioned off by the state, so that's the second

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Speaker 4: thing you need. Third thing you need typically is a

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Speaker 4: grid connection, So you need to be able to connect

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Speaker 4: your generating facility to the transmission grid in order that

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Speaker 4: that electricity that you produce can be delivered to the

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Speaker 4: entities that consume that electricity, households and businesses. There are

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Speaker 4: some exceptions to that, so some you get some off

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Speaker 4: grid developments that are literally connected directly to whoever it is,

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Speaker 4: might be a big corporation like a Google or something

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Speaker 4: that's going to consume that electricity. But in almost always

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Speaker 4: you need a connection to the grid. And then the

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Speaker 4: fourth and final thing, but actually by far the most

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Speaker 4: important thing. And I say that because if a project

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Speaker 4: is not going to proceed, if a project is going

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Speaker 4: to fall down, this is in the vast majority of

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Speaker 4: cases where it falls down, it's in not getting a

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Speaker 4: grid connection. It's not in not getting land, it's in

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Speaker 4: getting finance. And so this is the really important thing

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Speaker 4: to say, which is to say that I thought I

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Speaker 4: was writing a book about electricity and I did write

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Speaker 4: a book about electricity just as much it's a book

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Speaker 4: about finance. And so, whoever you are, whatever type of

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Speaker 4: renewable energy developer you are, you typically will be looking

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Speaker 4: I mean it varies a bit across time and space,

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Speaker 4: but typically you're looking to finance your development in large

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Speaker 4: part with debt. So somewhere between sixty and ninety percent

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Speaker 4: is the typical range that is debt rather than equity financed.

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Speaker 4: And obviously the key thing to understand here is what

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Speaker 4: type of economic business this And again it's really really

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Speaker 4: important to understand this.

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Speaker 5: So with a sonar and wind.

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Speaker 4: Power plant rather than a conventional power plant, the key

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Speaker 4: economic characteristic of it is that essentially all the costs

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Speaker 4: getting curred up front, So you have your cost of

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Speaker 4: getting the grid connection, getting the land, buying the technology.

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Speaker 4: But once it's up and running kind of free. You know,

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Speaker 4: occasionally a rotor will stop turning, you need to get

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Speaker 4: an engineer to come out with a screwdriver and get

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Speaker 4: the road to turning again, but basically it's free. So

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Speaker 4: well over ninety percent of the costs are incurd up

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Speaker 4: front that it's very different from a conventional power plant

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Speaker 4: where you're buying the gas or cold to keep the

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Speaker 4: power plant running. So if you let's put it this way,

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Speaker 4: if you are a renewable energy developing and you've done

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Speaker 4: those first three things and now or you've got the

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Speaker 4: kit on order, and you now say, right, I need

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Speaker 4: to raise the finance. If you go to you and

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Speaker 4: you'll basically go to a bank and you'll say I

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Speaker 4: need two hundred million dollars to develop this solar farm,

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Speaker 4: and your bank manager will say, okay, you know I

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Speaker 4: want to invest in green stuff. Green stuff's cool. I

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Speaker 4: definitely want to do that. How are you going to

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Speaker 4: pay that loan back? And how long is it going

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Speaker 4: to take you to pay it back? And you'll say, well,

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Speaker 4: maybe ten to twelve years. The kit will last for

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Speaker 4: thirty but hopefully within ten to twelve I'll be able

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Speaker 4: to pay it back and I'll pay you the interest

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Speaker 4: all the time. And the bank manager will look at

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Speaker 4: you and say, well that sounds great. How are you

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Speaker 4: going to make the money And you say, I'm going

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Speaker 4: to sell the electrics and they say what price you're

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Speaker 4: going to sell the electricity for? And you say, I

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Speaker 4: have absolutely no idea. And the reason you have no

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Speaker 4: idea is electricity price is unbelievably volatile in places where

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Speaker 4: you have deregulated electricity markets, which in the US isn't

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Speaker 4: about two thirds of the country by population, and they're

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Speaker 4: very volatile at all time scales, short, medium, and long

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Speaker 4: time scales.

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Speaker 5: And here's the thing.

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Speaker 4: Nobody can reliably predict wholesale electricity market prices a week,

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Speaker 4: two weeks, let alone a month or a year or

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Speaker 4: five years in as the bank manager will say, well,

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Speaker 4: I can't lend you that money because you have no

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Speaker 4: idea what the price you're going to be to sell

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Speaker 4: the electricity at. And so some mechanism has to be

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Speaker 4: found to stabilize those prices so that the bank manager

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Speaker 4: can be confident that you will be able to pay

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Speaker 4: that deep back. So that's the basic way the business works.

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Speaker 4: Once you've raised the finance, you're off to the races.

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Speaker 3: So low returns, at least initially, coupled with the difficulty

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Speaker 3: of predicting how much you're going to sell the power

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Speaker 3: for or the volatility of electricity prices, yeah, I can

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Speaker 3: understand how that would be a bad mix if you're

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Speaker 3: a bank manager. This is something that has come up

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Speaker 3: before when We've spoken with Jiggershaw from the Department of Energy,

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Speaker 3: the Loan Program's office there, where he talks about the

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Speaker 3: lack of expertise in banks when it comes to renewables,

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Speaker 3: and also just the reluctance to take on this particular

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Speaker 3: risk even when you have like many mandates both internally

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Speaker 3: and externally that are saying you should throw money at renewables.

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Speaker 3: It's kind of difficult to overcome. One of the reasons

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Speaker 3: we wanted to talk to you is because in your

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Speaker 3: book you do a lot of one on one interviews

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Speaker 3: with people in this industry, So I'm curious, can you

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Speaker 3: tell us, like what bank managers say specifically about underwriting

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Speaker 3: this kind of risk. Are there any like particular stories

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Speaker 3: or anecdotes that stand out to you?

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Speaker 5: Yeah.

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Speaker 4: So, I think one of the things that came through

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Speaker 4: very clearly to me when I talk to people in

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Speaker 4: this business is that they want to invest in this space.

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Speaker 4: And so I often hear people, you know, colleagues, a

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Speaker 4: man on the left who, like you know, esg is

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Speaker 4: all just greenwashing. I don't actually believe that. I think

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Speaker 4: there are a lot of people out there in the

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Speaker 4: industry who want to support these types of developments, and

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Speaker 4: there are also lots of renewable energy developers who are

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Speaker 4: actually maybe not the big guys like the Next Era

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Speaker 4: energies and the Black Rocks, but the smaller guys, and

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Speaker 4: there's tens of thousands of them out there, you know what,

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Speaker 4: They're actually prepared to take on the risk. In many

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Speaker 4: cases they're like, well, we will do this even if

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Speaker 4: the profit prospects are not necessarily great. And so it

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Speaker 4: tends not to be them that are making the decisions

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Speaker 4: not to invest if the profits don't look particularly appetizing.

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Speaker 4: It's the financial institutions that are doing that. And of

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Speaker 4: course that makes sense. If you are advancing two hundred

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Speaker 4: million dollars that's not going to be paid back over

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Speaker 4: to ten to twelve years, you want to be very

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Speaker 4: very sure that you're going to get that money paid back,

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Speaker 4: and so that they will emphasize relentlessly and repeatedly that

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Speaker 4: having some form of certainty over the price which the

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Speaker 4: electricity is going to be sold is the key thing.

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Speaker 4: Now here's where it gets really interesting, which is the

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Speaker 4: difference between the US and say Europe, Because the thing

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Speaker 4: about the way the US has approached this, which is

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Speaker 4: through renewables tax credits, both historically and with under the

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Speaker 4: Inflation Reduction Act. They subsidize electricity investment and generation, but

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Speaker 4: they don't stabilize it. And now that's very different from

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Speaker 4: the types of mechanisms that governments have typically used in Europe,

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Speaker 4: which do both. So some people might have heard of

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Speaker 4: what are called feed in tariffs, which has been historically

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Speaker 4: the main way in which this is supported in Europe,

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Speaker 4: and in China historically as well, and in lots of

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Speaker 4: other countries India included, And what they do is essentially

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Speaker 4: the government itself or a government back dentity will provide

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Speaker 4: a long term contract of say twelve years to buy

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Speaker 4: the electricity produced by a renewal developer at a fixed price.

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Speaker 4: And the IRA doesn't do that. So what's really interesting

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Speaker 4: about the US is that tax credits are enough. So

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Speaker 4: you need tax credits plus something else.

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Speaker 2: There is some guaranteed right in the Inflation Reduction it's

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Speaker 2: some like guaranteed something per kilo or.

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Speaker 4: So that's a supplement, okay, to the market price. So yes,

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Speaker 4: you get a supplement, but if the market price is

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Speaker 4: in the toilet, you're still in the toilet, but just

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Speaker 4: less in the toilet, so to speak. And so in

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Speaker 4: the US you need something else. And so there have

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Speaker 4: been two main things historically that do that, and that

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Speaker 4: you know, talking to bank bank investors, this is what

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Speaker 4: they look for. So either there are some form of

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Speaker 4: financial hedging instrument so banks will do other parts of

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Speaker 4: the same, or a different bank will provide swap or

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Speaker 4: futures contracts in order to synthetically stabilize the electricity price essentially,

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Speaker 4: or and again lots of listeners will have heard of these,

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Speaker 4: particularly recently because they've been in the news a lot recently.

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Speaker 4: It's what's called corporate power purchase agreements where instead of

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Speaker 4: the generator having to sell their electricity into the volatile

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Speaker 4: spot market, but Google or an Amazon or a Microsoft

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Speaker 4: will come along and say, hey, we're going to build

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Speaker 4: a new data center. Because of everything that's going on

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Speaker 4: with AI, we want to secure as much of that

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Speaker 4: electricity in renewably as we can because it's good for

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Speaker 4: our pr Obviously that's the most the most important thing

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Speaker 4: for them, and so they will enter a direct agreement

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Speaker 4: of our purchase contract with the renewable developer and say, look,

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Speaker 4: if you build this facility, we commit to buying often

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Speaker 4: all your electricity, sometimes fifty percent of the electricity you generate,

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Speaker 4: and we'll do that at a fixed price for the

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Speaker 4: next twelve years. And the renewables developer then takes that commitment,

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Speaker 4: goes back to the bank and says, here's what you're

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Speaker 4: looking for, Now give me the money. And so they've

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Speaker 4: become a really important way of rendering renewables projects bankable.

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Speaker 2: I want to give back to some of these market

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Speaker 2: structure questions with electricity, but you know, you lay out

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Speaker 2: a very compelling argument that in theory there are some

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Speaker 2: real problems that the way we deploy solar and wind,

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Speaker 2: and on the other hand, in practice we are deploying

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Speaker 2: a lot of stuff.

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Speaker 5: We are so for all.

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Speaker 2: These things, whether it's the uncertainty about the ultimate price

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Speaker 2: you get, the cost of land, the coins of interest rates,

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Speaker 2: in practice there is a lot more and there's more

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Speaker 2: solar on the grid in California every day, and there's

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Speaker 2: more battery stores to augment that solar, to deal with

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Speaker 2: some of the variability that naturally comes out of solar.

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Speaker 2: So like, why is that not an undercutting point the

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Speaker 2: fact that, yes, in theory it shouldn't work, but in

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Speaker 2: practice it's getting built.

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Speaker 4: Yeah, so it is getting built, which is great. But

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Speaker 4: a it's getting built because the renewables industry globally remains

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Speaker 4: fundamentally buttressed by subsidy and support. So any way you

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Speaker 4: look in the world, where governments have tried to remove

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Speaker 4: those support mechanisms or even substantially attenuate them, investment collapses.

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Speaker 4: So that's important to understand. And that's fine in a way.

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Speaker 4: I mean, of course, the fossil fuel sectory is underwritten

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Speaker 4: by subsidy globally as well, so it's not like renewables

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Speaker 4: are alone in this. That's the first thing to say.

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Speaker 4: The second thing to say is that you know, I

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Speaker 4: often like in this to people who look at things

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Speaker 4: through a glass half full or a glass half empty, right,

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Speaker 4: which is, you look at the pace of growth of

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Speaker 4: renewables investment, and you look at the pace of growth

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Speaker 4: of generation from renewables, and it's sharply upwards. Fantastic. However,

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Speaker 4: electricity generation from fossil fuels is also still going up,

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Speaker 4: so greenhouse gas emissions from electricity generation are also going up.

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Speaker 4: So as I see it, it's very hard, it would

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Speaker 4: be very difficult and in my view, not really acceptable.

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Speaker 4: To say we are succeeding while you know, twenty or

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Speaker 4: thirty years into this, in terms of renewables deployment, we

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Speaker 4: are still growing the amount of power we generate from

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Speaker 4: fossil fuels. So the basic point is that, yes, renewables

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Speaker 4: have been growing strongly, but that renewables growth has proven

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Speaker 4: purely supplemental too, rather than substitutive of fossil fuel generated power.

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Speaker 3: Just to go in sort of the opposite direction to

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Speaker 3: Joe's question, but why not? I mean, if we recognize

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Speaker 3: that this isn't a particularly profitable business model, that private

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Speaker 3: capital is perhaps reluctant to underwrit and at the same

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Speaker 3: time we agree that decarbonization is an important goal for humanity,

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Speaker 3: then why not just nationalize everything?

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Speaker 4: Yeah, So that's kind of the argument that I'm broadly

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Speaker 4: sympathetic to. But as anyone who's read the book will know,

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Speaker 4: what I don't do is come out with a kind

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Speaker 4: of full throated positing of that argument. And the reason

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Speaker 4: I do that is that I don't feel that I

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Speaker 4: know enough about how that might look to actually go

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Speaker 4: down that road. But it's definitely one argument that's out there.

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Speaker 4: I mean, that was kind of like central to the

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Speaker 4: original Green New Deal as it was articulated on both

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Speaker 4: sides of the Atlantic. So that's one possible argument. I mean,

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Speaker 4: I think you've asked that question. I think it's actually

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Speaker 4: useful to kind of lay out what the possible kind

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Speaker 4: of routs out of this are as they are seen

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Speaker 4: by those who acknowledge that we have a problem. And

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Speaker 4: so the first and not surprising you, those different answers

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Speaker 4: are kind of associated with different constituencies, so that the

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Speaker 4: first of those is the argument that you get from

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Speaker 4: I guess what I would call orthodox energy economists, so

436
00:22:12,480 --> 00:22:15,359
Speaker 4: economists who are focused on energy and trained in the

437
00:22:15,359 --> 00:22:20,760
Speaker 4: neoclassical tradition, and their basic argument is that our reliance

438
00:22:20,800 --> 00:22:23,439
Speaker 4: on the private sector and markets to do this is

439
00:22:23,480 --> 00:22:25,480
Speaker 4: not the problem. The problem is that we haven't got

440
00:22:25,520 --> 00:22:28,000
Speaker 4: the market design right. So that's their argument, is that,

441
00:22:28,240 --> 00:22:30,640
Speaker 4: and it's always their argument, frankly, whatever, whether you're talking

442
00:22:30,640 --> 00:22:32,720
Speaker 4: about energy or anything else. But the basic argument there

443
00:22:32,760 --> 00:22:34,480
Speaker 4: is that the problems not markets. The problem is that

444
00:22:34,480 --> 00:22:36,600
Speaker 4: we haven't got the markets right, and we need more

445
00:22:36,600 --> 00:22:39,679
Speaker 4: markets or better markets are optimized markets. And actually I

446
00:22:39,720 --> 00:22:42,200
Speaker 4: have some tympathy to that argument because what they say,

447
00:22:42,280 --> 00:22:45,560
Speaker 4: and they're right is that, look, the types of markets

448
00:22:45,560 --> 00:22:48,680
Speaker 4: that we have now for the trading of electricity, whether

449
00:22:48,680 --> 00:22:51,920
Speaker 4: the wholesale and or retail, are ones that were designed

450
00:22:52,000 --> 00:22:55,359
Speaker 4: in and for a fossil fuel world, and actually those

451
00:22:55,440 --> 00:22:59,359
Speaker 4: markets remain largely unreformed, which is true. So they say

452
00:22:59,640 --> 00:23:03,040
Speaker 4: we need to rethink markets and optimize them for the

453
00:23:03,160 --> 00:23:07,639
Speaker 4: new mix of electricity sources that we're living. Fair enough, However,

454
00:23:08,359 --> 00:23:11,800
Speaker 4: you look at any specific design that has been suggested,

455
00:23:12,320 --> 00:23:14,440
Speaker 4: and all of them have their own drawbacks as well

456
00:23:14,440 --> 00:23:17,879
Speaker 4: as potential advantages. So I am sympathetic to that argument,

457
00:23:17,960 --> 00:23:20,520
Speaker 4: but not convinced by it. The second argument is the

458
00:23:20,560 --> 00:23:23,480
Speaker 4: one you hear from industry, who they agree with the

459
00:23:23,520 --> 00:23:26,919
Speaker 4: mainstream economists that the problem is not that we're relying

460
00:23:26,920 --> 00:23:29,960
Speaker 4: on the private sector of markets. But what they say

461
00:23:30,080 --> 00:23:33,800
Speaker 4: is the existing market design's fine, we just need more subsidy.

462
00:23:34,280 --> 00:23:35,960
Speaker 4: And so that's kind of how you end up with

463
00:23:35,960 --> 00:23:38,560
Speaker 4: the Inflation Reduction Act, which is for several years now,

464
00:23:38,600 --> 00:23:42,440
Speaker 4: the industry's been telling the administration, look, you've been reducing

465
00:23:42,440 --> 00:23:44,800
Speaker 4: these subsidies over time, which is what had been happening

466
00:23:44,800 --> 00:23:47,199
Speaker 4: in the US. You can see the results of that

467
00:23:47,240 --> 00:23:49,439
Speaker 4: investment is beginning to stagnate, the rates of growth are

468
00:23:49,480 --> 00:23:51,879
Speaker 4: not good enough. You need to bump up those subsidies again,

469
00:23:52,600 --> 00:23:55,520
Speaker 4: and that's what happened with the Inflation Reduction Act. Now, unfortunately,

470
00:23:56,000 --> 00:23:58,520
Speaker 4: at the same time as that was happening, you had

471
00:23:58,640 --> 00:24:02,120
Speaker 4: increases in supply chain and you had increases in financing costs.

472
00:24:02,240 --> 00:24:04,679
Speaker 4: So there's a very open question as to whether the

473
00:24:04,680 --> 00:24:07,600
Speaker 4: I array is enough. Maybe it needs to be even more.

474
00:24:08,000 --> 00:24:10,919
Speaker 4: But that's basically the industry's answer. Everything's fine, but just

475
00:24:11,040 --> 00:24:14,840
Speaker 4: more subsidy so that returns go up from say five

476
00:24:14,920 --> 00:24:17,399
Speaker 4: to eight percent, which is where they're typically at now,

477
00:24:18,000 --> 00:24:21,800
Speaker 4: to ten plus percent, and eventually to a point where

478
00:24:21,880 --> 00:24:24,760
Speaker 4: and here's the key thing, maybe even the big fossil

479
00:24:24,800 --> 00:24:28,359
Speaker 4: fuel companies might begin to get interested if returns in

480
00:24:28,480 --> 00:24:31,880
Speaker 4: renewables get closer to the kind of fifteen plus percent

481
00:24:32,560 --> 00:24:34,760
Speaker 4: that they're used to in their upstream oil and gas business.

482
00:24:34,760 --> 00:24:37,119
Speaker 4: But right now, of course, they're not interested to million

483
00:24:37,119 --> 00:24:39,199
Speaker 4: miles away from the types of returns they're used to.

484
00:24:39,520 --> 00:24:42,119
Speaker 4: So that's the second answer, more subsidy, more support, and

485
00:24:42,160 --> 00:24:46,320
Speaker 4: I'm not unsympathetic to that argument either. The third answer

486
00:24:46,680 --> 00:24:49,000
Speaker 4: is the one where you where you started, Tracy, which

487
00:24:49,040 --> 00:24:51,560
Speaker 4: is the answer you typically hear from large parts of

488
00:24:51,600 --> 00:24:55,800
Speaker 4: the left, which is to say, look, we've tried the

489
00:24:55,840 --> 00:24:58,520
Speaker 4: private sector in markets. That's what we've been doing for

490
00:24:58,520 --> 00:25:03,120
Speaker 4: twenty twenty five years. It's still not working. And I've

491
00:25:03,160 --> 00:25:07,320
Speaker 4: explained why. I think that's absolutely true. Even though the

492
00:25:07,320 --> 00:25:11,160
Speaker 4: industry is completely buttressed by subsidy internationally, and even though

493
00:25:11,880 --> 00:25:14,600
Speaker 4: the costs of generation have come down as much as

494
00:25:14,600 --> 00:25:16,840
Speaker 4: they have so something there is telling us that maybe

495
00:25:16,880 --> 00:25:19,919
Speaker 4: that's not the right approach after all, and therefore we

496
00:25:19,960 --> 00:25:25,720
Speaker 4: should try the kind of massive public sector financing ownership operation.

497
00:25:25,840 --> 00:25:29,120
Speaker 4: And again I'm sympathetic to that argument too. However, one

498
00:25:29,160 --> 00:25:31,000
Speaker 4: thing I would say about this, and I think this is,

499
00:25:31,440 --> 00:25:34,000
Speaker 4: you know, arguably to my mind, the most important thing

500
00:25:34,040 --> 00:25:37,040
Speaker 4: I can say, which is that you know, the credibility

501
00:25:37,080 --> 00:25:38,960
Speaker 4: of that argument depends massively in what part of the

502
00:25:38,960 --> 00:25:41,680
Speaker 4: world you're talking about. I mean, I know there's lots

503
00:25:41,720 --> 00:25:44,960
Speaker 4: of kind of concerns about levels of public debt in

504
00:25:45,359 --> 00:25:48,600
Speaker 4: various rich countries around the world, including the US, UK,

505
00:25:48,840 --> 00:25:51,280
Speaker 4: Germany and so on and so forth. But at least

506
00:25:51,320 --> 00:25:53,960
Speaker 4: in those countries, it remains the case that the state

507
00:25:54,200 --> 00:26:00,240
Speaker 4: could conceivably borrow to invest in revenue generating things, which

508
00:26:00,280 --> 00:26:03,399
Speaker 4: is what renewable assets are at a reasonable rate, probably

509
00:26:03,440 --> 00:26:07,120
Speaker 4: even cheaper than the private sector without being massively punished

510
00:26:07,160 --> 00:26:10,360
Speaker 4: by by the bomb market. But now if you are

511
00:26:10,760 --> 00:26:13,199
Speaker 4: a government in a very very poor country with you know,

512
00:26:13,240 --> 00:26:16,920
Speaker 4: crippling levels of debt, servicing obligations as it is, then

513
00:26:16,960 --> 00:26:19,960
Speaker 4: frankly their idea of a kind of a big green

514
00:26:20,080 --> 00:26:23,000
Speaker 4: state investing in and owning in those that is is

515
00:26:23,280 --> 00:26:24,320
Speaker 4: very very far fetched.

516
00:26:24,359 --> 00:26:26,720
Speaker 2: And this is where all the demand's coming from for electricity.

517
00:26:27,200 --> 00:26:29,440
Speaker 2: These un rigual.

518
00:26:29,280 --> 00:26:30,800
Speaker 4: And this is that, you know, when we were sitting

519
00:26:30,840 --> 00:26:33,520
Speaker 4: in New York and where I'm based in Europe, we

520
00:26:33,560 --> 00:26:36,120
Speaker 4: often think kind of a bit too much about those

521
00:26:36,160 --> 00:26:38,720
Speaker 4: parts of the world. But frankly, if you think about

522
00:26:38,880 --> 00:26:42,040
Speaker 4: the power sector and the future of greenhouse gas emissions

523
00:26:42,040 --> 00:26:44,040
Speaker 4: and the future of the planet, frankly, what happens in

524
00:26:44,080 --> 00:26:47,359
Speaker 4: North America and Europe is not completely incidental, but it's

525
00:26:47,400 --> 00:26:51,440
Speaker 4: almost incidental to future emissions tractories. And there are two

526
00:26:51,480 --> 00:26:54,200
Speaker 4: reasons for that this is really important. First is that

527
00:26:54,359 --> 00:26:57,399
Speaker 4: actually large parts of the Europe and of the global

528
00:26:57,440 --> 00:27:00,400
Speaker 4: North in general are actually quite far down the decarbonization

529
00:27:00,560 --> 00:27:02,880
Speaker 4: path of the power sexual already where I am in Sweden,

530
00:27:03,200 --> 00:27:06,959
Speaker 4: ninety percent of electricity is generated carbon free. But there

531
00:27:07,000 --> 00:27:10,680
Speaker 4: are other parts of the world where power generation remains

532
00:27:11,200 --> 00:27:14,879
Speaker 4: hugely dependent on fossiphyr. South Africa ninety percent is coal,

533
00:27:15,280 --> 00:27:18,640
Speaker 4: India seventy five percent coal, China sixty five percent coal.

534
00:27:19,160 --> 00:27:23,240
Speaker 4: A those are the parts of the world where future

535
00:27:23,800 --> 00:27:27,800
Speaker 4: growth in energy consumption is expected to be concentrated as

536
00:27:27,800 --> 00:27:32,280
Speaker 4: you get further urbanization and industrialization and modernization and b

537
00:27:33,440 --> 00:27:35,600
Speaker 4: China arguably accepted. But those are the parts of the

538
00:27:35,640 --> 00:27:38,240
Speaker 4: world where the financial challenges our greatest.

539
00:27:53,920 --> 00:27:57,200
Speaker 2: So Tracy asked you the question of Okay, why not nationalized?

540
00:27:57,760 --> 00:28:01,719
Speaker 2: But there's another solution, the theoretically or another answer, which is,

541
00:28:01,720 --> 00:28:04,879
Speaker 2: if we accept the premise that, whether it's through subsidies

542
00:28:04,960 --> 00:28:08,200
Speaker 2: or direct ownership or whatever, that the government balance sheet

543
00:28:08,240 --> 00:28:11,320
Speaker 2: should play a much bigger role in this, why not

544
00:28:11,480 --> 00:28:14,160
Speaker 2: skip solar and wind and just do what France did

545
00:28:14,400 --> 00:28:17,200
Speaker 2: and build a ton of nuclear. And it's like, maybe

546
00:28:17,240 --> 00:28:19,359
Speaker 2: the French nuclear plants like didn't end up being that

547
00:28:19,480 --> 00:28:21,760
Speaker 2: economical and I think they had some excess or whatever,

548
00:28:22,119 --> 00:28:25,320
Speaker 2: but they have a what eighty percent decarbonized grid. They're

549
00:28:25,359 --> 00:28:26,840
Speaker 2: the nuclear So if we're going to spend all the

550
00:28:26,840 --> 00:28:29,199
Speaker 2: money when I just skip the solar and wind and

551
00:28:29,280 --> 00:28:30,520
Speaker 2: just build more nuclear plants.

552
00:28:30,560 --> 00:28:32,880
Speaker 4: Yeah, I mean, you know, I again, that's an argument

553
00:28:32,920 --> 00:28:35,560
Speaker 4: I'm sympathetic to. France is the great example of that,

554
00:28:35,960 --> 00:28:39,320
Speaker 4: and certainly there are lots of very compelling voices out

555
00:28:39,360 --> 00:28:41,720
Speaker 4: there who argue exactly that. I think probably the Breakthrough

556
00:28:41,760 --> 00:28:43,760
Speaker 4: Institute here in the US would be one of the

557
00:28:43,760 --> 00:28:46,880
Speaker 4: best examples of that, And I personally don't take a

558
00:28:46,920 --> 00:28:49,120
Speaker 4: particular position on that. I'm not sitting here saying we

559
00:28:49,120 --> 00:28:52,800
Speaker 4: should focus exclusively or even larger and renewables. The reason

560
00:28:52,840 --> 00:28:54,920
Speaker 4: I focus on renewables in the book, just it's worth

561
00:28:55,040 --> 00:28:57,840
Speaker 4: spelling that out, is that that's what the world is doing.

562
00:28:58,240 --> 00:29:00,520
Speaker 4: So yes, I think there's been a of a mini

563
00:29:00,640 --> 00:29:02,680
Speaker 4: nuclear renaissance in the last couple of years.

564
00:29:02,920 --> 00:29:04,479
Speaker 2: Certainly a lot of podcasts about it.

565
00:29:04,600 --> 00:29:07,720
Speaker 4: Yeah, but you know, I think the likelihood if you

566
00:29:07,760 --> 00:29:09,840
Speaker 4: look at what governments are doing around the world is

567
00:29:09,880 --> 00:29:12,640
Speaker 4: that nuclears so nuclear is currently at about ten percent

568
00:29:12,920 --> 00:29:16,360
Speaker 4: overall of global electric electricity generation. There might go up

569
00:29:16,360 --> 00:29:19,160
Speaker 4: a bit, but it's not where the focus is. But

570
00:29:19,320 --> 00:29:21,760
Speaker 4: you're right, it could be where more of the focus is.

571
00:29:21,840 --> 00:29:24,320
Speaker 4: I mean, I think that the reason. I think there's

572
00:29:24,320 --> 00:29:26,479
Speaker 4: a bunch of reasons why that's not where the focus

573
00:29:26,520 --> 00:29:30,080
Speaker 4: is in most countries. So one is cost. It definitely is,

574
00:29:30,120 --> 00:29:32,840
Speaker 4: and so you look at those levelized cost charts, and yes,

575
00:29:32,960 --> 00:29:36,400
Speaker 4: while the cost of generating electricity from renewables is now

576
00:29:36,800 --> 00:29:39,800
Speaker 4: comparable too and in some places lower than from colon

577
00:29:39,840 --> 00:29:42,720
Speaker 4: elateral gas, nuclear is a lot more expensive, and a

578
00:29:42,720 --> 00:29:45,680
Speaker 4: lot of that's due to regulatory costs, So partly it's cost.

579
00:29:45,720 --> 00:29:49,640
Speaker 4: I think the second thing is timescale. So once you've

580
00:29:49,640 --> 00:29:52,160
Speaker 4: got the grid permits and so on all sorted out

581
00:29:52,160 --> 00:29:54,840
Speaker 4: and the financing, you can put up a solo farmer

582
00:29:55,120 --> 00:29:57,120
Speaker 4: or an onshore wind farm in six to twelve months.

583
00:29:57,160 --> 00:29:59,920
Speaker 4: It's really quick. Nuclear is not quick. Nuclear is like

584
00:30:00,080 --> 00:30:04,600
Speaker 4: five to ten years at best, and everything's kind of

585
00:30:04,680 --> 00:30:07,000
Speaker 4: urgent now. So I think that's the second reason for

586
00:30:07,000 --> 00:30:09,080
Speaker 4: the focus on renews. And then the third one is

587
00:30:09,120 --> 00:30:12,440
Speaker 4: just is public perception. Despite the fact that nuclear is

588
00:30:12,600 --> 00:30:19,840
Speaker 4: very very safe statistically, it's still represents something somewhat forbidding

589
00:30:19,920 --> 00:30:22,200
Speaker 4: in the public consciousness in many parts of the world,

590
00:30:22,320 --> 00:30:24,280
Speaker 4: and Germany is obviously the best example of that.

591
00:30:25,120 --> 00:30:28,440
Speaker 3: Since we're talking about things that could possibly work. You know,

592
00:30:28,520 --> 00:30:32,960
Speaker 3: you mentioned power purchase contracts earlier, and we've seen so

593
00:30:33,040 --> 00:30:37,280
Speaker 3: many headlines recently about big tech companies, players and AI

594
00:30:37,560 --> 00:30:40,520
Speaker 3: teaming up in one way or another with energy companies

595
00:30:40,560 --> 00:30:44,600
Speaker 3: to secure power and make those big off take agreements.

596
00:30:45,080 --> 00:30:48,000
Speaker 3: Is that something that like maybe could be helpful here

597
00:30:48,120 --> 00:30:51,360
Speaker 3: by providing you know, there is a lot of money

598
00:30:51,360 --> 00:30:53,840
Speaker 3: flowing into AI. I'm not entirely sure whether or not

599
00:30:53,920 --> 00:30:57,239
Speaker 3: that business is very profitable yet, but there's certainly a

600
00:30:57,280 --> 00:31:01,160
Speaker 3: lot of enthusiasm for it in the market. Could you

601
00:31:01,200 --> 00:31:04,720
Speaker 3: maybe borrow from the AI world some of that enthusiasm,

602
00:31:05,000 --> 00:31:10,080
Speaker 3: the promise of profitability perhaps and use that to funnel

603
00:31:10,160 --> 00:31:12,480
Speaker 3: more money into renewable energy.

604
00:31:12,920 --> 00:31:15,160
Speaker 4: Yeah, I mean, I think it has been and will

605
00:31:15,200 --> 00:31:17,800
Speaker 4: continue to play a really important role. And as I said,

606
00:31:17,880 --> 00:31:21,000
Speaker 4: the key thing here is that the agreements from the

607
00:31:21,000 --> 00:31:24,320
Speaker 4: big AI developers, the big the Amazons and so on

608
00:31:24,840 --> 00:31:27,200
Speaker 4: are what enable a lot of renewables projects to get

609
00:31:27,240 --> 00:31:28,720
Speaker 4: off the ground that might not otherwise get off the

610
00:31:28,760 --> 00:31:32,120
Speaker 4: ground because they're offering long term fixed prices. And actually,

611
00:31:32,160 --> 00:31:35,080
Speaker 4: if you read what a lot of policymakers have been saying,

612
00:31:35,440 --> 00:31:37,040
Speaker 4: not just in the last few months, but actually the

613
00:31:37,120 --> 00:31:42,440
Speaker 4: last few years, they in many cases regard those power

614
00:31:42,480 --> 00:31:46,360
Speaker 4: purchase agreements as kind of an almost an alternative to

615
00:31:46,440 --> 00:31:48,040
Speaker 4: government subsidy and government support.

616
00:31:48,280 --> 00:31:49,440
Speaker 5: So the argument there is that.

617
00:31:49,480 --> 00:31:53,360
Speaker 4: The market will perform the role that governments have historically

618
00:31:53,880 --> 00:31:57,880
Speaker 4: by rendering projects bankable through those power purchase agreements. And

619
00:31:57,960 --> 00:32:00,760
Speaker 4: I think all I would say about that is two things.

620
00:32:00,760 --> 00:32:03,440
Speaker 4: So the first is that it will play a role,

621
00:32:03,480 --> 00:32:05,360
Speaker 4: and it is play a role, and it will continue

622
00:32:05,400 --> 00:32:08,239
Speaker 4: to play a role, but it's a limited role. So

623
00:32:08,520 --> 00:32:13,520
Speaker 4: it will help with bankability to a certain extent, but

624
00:32:13,560 --> 00:32:15,640
Speaker 4: it will only ever do that in a limited way

625
00:32:16,160 --> 00:32:20,240
Speaker 4: because there are unfortunately only a kind of limited number

626
00:32:20,520 --> 00:32:26,120
Speaker 4: of credible off takers out there who can perform that

627
00:32:26,280 --> 00:32:29,920
Speaker 4: role of providing bankability. So if Amazon comes along and

628
00:32:30,000 --> 00:32:32,560
Speaker 4: says we'll buy your power for twelve years, the bank

629
00:32:32,600 --> 00:32:35,480
Speaker 4: behind the renewable developer will be like, fine, we're pretty

630
00:32:35,480 --> 00:32:37,240
Speaker 4: confident Amazon is going to still be in business in

631
00:32:37,240 --> 00:32:39,400
Speaker 4: twelve years and it's going to honor that agreement. But

632
00:32:39,520 --> 00:32:42,040
Speaker 4: most other types of entities that might try to do

633
00:32:42,120 --> 00:32:45,760
Speaker 4: that then they're not considered credible enough, So there's only

634
00:32:46,040 --> 00:32:48,480
Speaker 4: limited market out there. The second thing flows from that,

635
00:32:48,960 --> 00:32:51,120
Speaker 4: which is that because there's only a limited number of

636
00:32:51,120 --> 00:32:54,440
Speaker 4: players out there, they have a lot of power in

637
00:32:54,440 --> 00:32:56,520
Speaker 4: this market. So the Amazons and the Googles and code

638
00:32:56,560 --> 00:32:59,480
Speaker 4: because there aren't that many of them, when they negotiate

639
00:32:59,520 --> 00:33:03,040
Speaker 4: with renewed boost developers the price at which they will

640
00:33:03,240 --> 00:33:05,960
Speaker 4: buy that electricity for the next twelve years, they have

641
00:33:06,200 --> 00:33:09,720
Speaker 4: all the leverage. There's thousands of developers scurrying around to

642
00:33:09,760 --> 00:33:13,440
Speaker 4: get this sort after contract from an Amazon, and Amazon says, okay,

643
00:33:13,520 --> 00:33:15,520
Speaker 4: we'll we'll exploit that and we'll push down the agreed

644
00:33:15,560 --> 00:33:18,240
Speaker 4: power price, limiting renewables developers profits.

645
00:33:18,920 --> 00:33:21,000
Speaker 2: You know, it's interesting. So, by the way, we're recording

646
00:33:21,040 --> 00:33:24,600
Speaker 2: this May seventh, just six days ago May first, Microsoft

647
00:33:24,680 --> 00:33:28,360
Speaker 2: in Brookfield signing the biggest ever clean power deal. It's

648
00:33:28,360 --> 00:33:30,360
Speaker 2: going to be like a ten point five billion dollar deal.

649
00:33:30,440 --> 00:33:33,200
Speaker 2: So one of these massive agreements. But I think actually

650
00:33:33,200 --> 00:33:37,000
Speaker 2: now thinking about it, it actually speaks to the point

651
00:33:37,080 --> 00:33:40,520
Speaker 2: that if you want renewables, whether it's the government or

652
00:33:40,640 --> 00:33:44,400
Speaker 2: a private company, what's important is that guaranteed.

653
00:33:43,960 --> 00:33:44,960
Speaker 5: Off take one hundred percent.

654
00:33:45,280 --> 00:33:47,600
Speaker 2: Yeah, and so in a way it almost like, yes,

655
00:33:47,680 --> 00:33:51,000
Speaker 2: technically this is a market arrangement, but as you noted,

656
00:33:51,080 --> 00:33:53,760
Speaker 2: there's probably a lot of pr or maybe sort of

657
00:33:54,000 --> 00:33:57,680
Speaker 2: ESG requirements that encourage them, so in a way, it

658
00:33:57,840 --> 00:34:01,240
Speaker 2: still sort of backstops the basic loge of the government

659
00:34:01,280 --> 00:34:03,160
Speaker 2: needing to be either the buyer or the price center.

660
00:34:03,200 --> 00:34:03,360
Speaker 1: Yeah.

661
00:34:03,760 --> 00:34:07,440
Speaker 3: Per So, just going back to the financing side of things,

662
00:34:07,480 --> 00:34:10,200
Speaker 3: So one thing that we've seen in Europe in particular

663
00:34:10,320 --> 00:34:14,880
Speaker 3: is an effort to maybe tweak regulatory capital requirements for

664
00:34:15,200 --> 00:34:20,120
Speaker 3: environmentally friendly or renewable energy related financing. I'd love to

665
00:34:20,160 --> 00:34:24,120
Speaker 3: get your views on the efficacy of that. And then secondly,

666
00:34:24,239 --> 00:34:26,960
Speaker 3: my understanding is that as part of the IRA money

667
00:34:27,320 --> 00:34:30,200
Speaker 3: you know, I mentioned Jiggershaw and the DOE earlier and

668
00:34:30,280 --> 00:34:33,600
Speaker 3: their loan Program's office, a lot of what they're doing

669
00:34:33,640 --> 00:34:37,720
Speaker 3: is extending financing in lieu of the banks. So trying

670
00:34:37,760 --> 00:34:40,759
Speaker 3: to get over that hurdle of if you are a

671
00:34:41,239 --> 00:34:44,839
Speaker 3: loan officer at a large bank, you do not want

672
00:34:44,880 --> 00:34:47,799
Speaker 3: to underwrite this particular business because of the combination of

673
00:34:47,920 --> 00:34:53,200
Speaker 3: low returns and volatility difficult to forecast electricity prices. So

674
00:34:53,600 --> 00:34:57,560
Speaker 3: how how effective are those types of policies like attacking

675
00:34:57,560 --> 00:34:59,160
Speaker 3: it from the financing set.

676
00:34:59,360 --> 00:35:02,240
Speaker 4: I mean, I think that has been and almost certainly

677
00:35:02,280 --> 00:35:06,160
Speaker 4: will continue to be a really a really important way

678
00:35:06,200 --> 00:35:08,240
Speaker 4: of attacking it to you know, to use your word

679
00:35:08,760 --> 00:35:11,480
Speaker 4: and I think, you know, probably probably the best example

680
00:35:11,480 --> 00:35:14,160
Speaker 4: of that right now is China. So if you look

681
00:35:14,200 --> 00:35:17,200
Speaker 4: at what's been happening in China, so about a year

682
00:35:17,320 --> 00:35:19,640
Speaker 4: or two ago, I can't remember the exact details, China

683
00:35:19,760 --> 00:35:25,839
Speaker 4: actually withdrew a lot of the legacy mechanisms for subsidizing

684
00:35:25,880 --> 00:35:28,319
Speaker 4: renewables development in China, which which feed in tariffs. At

685
00:35:28,360 --> 00:35:31,400
Speaker 4: least it's centric, it's at least the feeding tarifts provided Beijing.

686
00:35:31,760 --> 00:35:33,759
Speaker 4: And there was lots of concern at that time that

687
00:35:33,880 --> 00:35:37,719
Speaker 4: renewables investment would collapse in China. Obviously didn't happen, and

688
00:35:37,760 --> 00:35:40,520
Speaker 4: one of the main reasons that it didn't happen is

689
00:35:40,520 --> 00:35:43,960
Speaker 4: that the Chinese Central Bank now plays a really really

690
00:35:44,000 --> 00:35:48,520
Speaker 4: important role in subsidizing the capital cost for renewables development.

691
00:35:48,960 --> 00:35:51,520
Speaker 4: By I mean it does it indirectly rather than directly,

692
00:35:51,840 --> 00:35:57,120
Speaker 4: so it basically provides a capital subsidy to the lenders

693
00:35:57,160 --> 00:36:00,319
Speaker 4: who then lend directly to the renewables developers, and it's

694
00:36:00,360 --> 00:36:03,239
Speaker 4: doing that on a massive scale. So that's exactly the

695
00:36:03,280 --> 00:36:05,680
Speaker 4: type of thing you're talking about. And of course the

696
00:36:05,719 --> 00:36:07,600
Speaker 4: other sorts of entities that are doing this in a

697
00:36:07,640 --> 00:36:10,440
Speaker 4: really big scale, but on a scale which is not

698
00:36:10,560 --> 00:36:14,640
Speaker 4: remotely big enough is the big development finance institutions. Because

699
00:36:14,719 --> 00:36:18,279
Speaker 4: and here's the thing, right, if finance is the big obstacle,

700
00:36:18,640 --> 00:36:20,239
Speaker 4: or one of the big obstacles, which I think it

701
00:36:20,400 --> 00:36:25,040
Speaker 4: clearly is that obstacle is far greater in the global South,

702
00:36:25,160 --> 00:36:29,640
Speaker 4: where the perception of risk among private lenders is so

703
00:36:29,800 --> 00:36:32,520
Speaker 4: much higher. So instead of lending at say four or

704
00:36:32,520 --> 00:36:34,680
Speaker 4: five percent, which they might have been doing in recent years,

705
00:36:34,680 --> 00:36:36,919
Speaker 4: in the global North, they will be lending at twelve

706
00:36:36,960 --> 00:36:39,560
Speaker 4: to fifteen percent, which means that projects have no chance

707
00:36:39,560 --> 00:36:43,200
Speaker 4: of getting off the ground unless a development finance institution,

708
00:36:43,280 --> 00:36:46,520
Speaker 4: a World Bank, or some philanthropic financier comes in and says,

709
00:36:47,360 --> 00:36:51,640
Speaker 4: we will effectively subsidize that finance in some way, you know,

710
00:36:51,680 --> 00:36:53,239
Speaker 4: And that's what you know, lots of listeners will have

711
00:36:53,280 --> 00:36:55,839
Speaker 4: heard about blended finance and all these sorts of thing.

712
00:36:56,080 --> 00:36:59,879
Speaker 4: That's what's going on there is that essentially, in order

713
00:36:59,920 --> 00:37:03,520
Speaker 4: to bring private capital to the table, some sort of

714
00:37:04,000 --> 00:37:08,200
Speaker 4: either public capital or quasi public capital also has to

715
00:37:08,239 --> 00:37:11,000
Speaker 4: come to the table, essentially to subsidize that private capital

716
00:37:11,000 --> 00:37:14,439
Speaker 4: and to make things attractive in profitability terms for them.

717
00:37:14,680 --> 00:37:18,440
Speaker 4: So I think finance has to and will continue to

718
00:37:18,440 --> 00:37:21,200
Speaker 4: play a huge role in this. And it's interesting that

719
00:37:21,360 --> 00:37:24,319
Speaker 4: China is doing that, you know, much more effectively and

720
00:37:24,360 --> 00:37:26,840
Speaker 4: aggressively than the rest of the world.

721
00:37:27,680 --> 00:37:32,080
Speaker 2: You mentioned Sweden where you live now, I see coined

722
00:37:32,560 --> 00:37:36,120
Speaker 2: the various websites and clicking on somewhere between seventy and

723
00:37:36,200 --> 00:37:39,279
Speaker 2: ninety five percent, depending on how measure renewables. How did

724
00:37:39,280 --> 00:37:39,799
Speaker 2: they get there?

725
00:37:40,800 --> 00:37:44,920
Speaker 4: Two main answers to that. So it's not primarily a

726
00:37:44,920 --> 00:37:47,400
Speaker 4: solar and wind story, not as it only a primary

727
00:37:47,520 --> 00:37:52,840
Speaker 4: solar story. Not surprisingly hydro, oh, very good hydro resources, however,

728
00:37:53,400 --> 00:37:58,200
Speaker 4: also nuclear. So hydro is about thirty percent of electricity

729
00:37:58,239 --> 00:38:02,080
Speaker 4: production in Sweden, much high in Norway, and nuclear is

730
00:38:02,080 --> 00:38:03,080
Speaker 4: about thirty percent.

731
00:38:03,320 --> 00:38:05,759
Speaker 2: We aren't damns. I love hope, I love dams. And

732
00:38:06,120 --> 00:38:07,920
Speaker 2: there used to be, seriously, there used to be a

733
00:38:07,920 --> 00:38:10,399
Speaker 2: time in this country in which I was reading one

734
00:38:10,400 --> 00:38:12,560
Speaker 2: of those books. You know, we're like the Bureau of

735
00:38:12,600 --> 00:38:15,400
Speaker 2: Land Management and the Army Corps of Engineer like competing

736
00:38:15,400 --> 00:38:17,400
Speaker 2: against each other just so you could build more dams.

737
00:38:17,520 --> 00:38:18,640
Speaker 2: Is there more room for hydro?

738
00:38:19,000 --> 00:38:19,239
Speaker 3: Yes?

739
00:38:19,280 --> 00:38:21,960
Speaker 4: I mean that's so. The reason I mean This goes

740
00:38:22,000 --> 00:38:23,960
Speaker 4: back to what we were going about nuclear. The reason I

741
00:38:24,000 --> 00:38:28,799
Speaker 4: think that the world is not expecting massive growth in

742
00:38:28,920 --> 00:38:32,279
Speaker 4: hydro in the future, and as instead is kind of

743
00:38:32,320 --> 00:38:34,960
Speaker 4: betting the house on so and when a primarily twofold

744
00:38:35,080 --> 00:38:38,120
Speaker 4: or threefold one is the time thing light nuclear takes

745
00:38:38,120 --> 00:38:41,239
Speaker 4: a heck of a long time. Second thing is that

746
00:38:41,640 --> 00:38:43,400
Speaker 4: and again I think lots of people will be aware

747
00:38:43,400 --> 00:38:47,040
Speaker 4: of this, but the negative social in many cases environmental

748
00:38:47,080 --> 00:38:51,080
Speaker 4: implications of damn development, you know, displacing hundreds of thousands

749
00:38:51,120 --> 00:38:57,000
Speaker 4: of people have become more obvious and more problematic in

750
00:38:57,120 --> 00:38:59,880
Speaker 4: large parts of the world. That's the second the second

751
00:38:59,880 --> 00:39:02,640
Speaker 4: thing I think, and the third thing is that, as

752
00:39:02,680 --> 00:39:04,840
Speaker 4: I understand, a lot of the kind of low hanging

753
00:39:05,000 --> 00:39:07,839
Speaker 4: fruit in terms of hydro development has already been kind

754
00:39:07,840 --> 00:39:11,359
Speaker 4: of plucked, and actually literally the geophysical potential for it

755
00:39:11,400 --> 00:39:13,360
Speaker 4: is more constrained than it was, you know, twenty or

756
00:39:13,360 --> 00:39:14,080
Speaker 4: thirsty years ago.

757
00:39:15,040 --> 00:39:17,560
Speaker 3: I have just one more question, which is you know,

758
00:39:17,640 --> 00:39:20,800
Speaker 3: reading your book, you're very explicit about what the goal

759
00:39:20,960 --> 00:39:23,920
Speaker 3: of it is, and you know it's focused on solar

760
00:39:24,080 --> 00:39:27,560
Speaker 3: and wind. It's about explaining why the business model doesn't

761
00:39:27,560 --> 00:39:31,279
Speaker 3: really work. It's not about policy prescriptions, and you make

762
00:39:31,320 --> 00:39:34,600
Speaker 3: that very clear. What's your next book? Is it a

763
00:39:34,640 --> 00:39:37,040
Speaker 3: continuation two.

764
00:39:36,920 --> 00:39:40,600
Speaker 4: Books a year? Yeah? Well, yeah, I've been I've been

765
00:39:40,680 --> 00:39:43,920
Speaker 4: quite productive recently. I'm going to give the honest answer

766
00:39:43,920 --> 00:39:47,000
Speaker 4: to that question. I have no idea. However, I moved

767
00:39:47,080 --> 00:39:51,319
Speaker 4: recently within Upside University to an Institute of Housing and

768
00:39:51,400 --> 00:39:54,719
Speaker 4: Urban Research, and I've done a lot of work historically

769
00:39:54,760 --> 00:39:59,080
Speaker 4: on housing stuff, and I'm pretty sure that moving back

770
00:39:59,120 --> 00:40:03,120
Speaker 4: towards house, you know, another area where the world is nothing,

771
00:40:03,120 --> 00:40:05,400
Speaker 4: if not in crisis, is probably going to be what

772
00:40:05,480 --> 00:40:07,200
Speaker 4: I'm focusing on going forward.

773
00:40:07,400 --> 00:40:10,400
Speaker 3: Maybe you could do a history of nimbiism and nuclear

774
00:40:10,440 --> 00:40:13,600
Speaker 3: power plants on no. I think that'd be interesting, you

775
00:40:13,640 --> 00:40:14,760
Speaker 3: could tie the two together.

776
00:40:15,560 --> 00:40:17,920
Speaker 2: We definitely will have you back for a housing episode

777
00:40:17,960 --> 00:40:19,720
Speaker 2: because there's never enough demand for housing.

778
00:40:19,880 --> 00:40:21,120
Speaker 5: And I have one last question.

779
00:40:21,239 --> 00:40:25,040
Speaker 2: So it's just a theory that I have and if

780
00:40:25,080 --> 00:40:27,760
Speaker 2: you think it's complete nonsense, then feel free to shoot

781
00:40:27,760 --> 00:40:30,399
Speaker 2: it down. But you mentioned that the world has made

782
00:40:30,400 --> 00:40:32,160
Speaker 2: this bed on solar and wind, that these are the

783
00:40:32,160 --> 00:40:34,920
Speaker 2: two war courses that we expect for decarbonization. But it

784
00:40:35,000 --> 00:40:37,560
Speaker 2: raises the question of why there's it nuclear as a

785
00:40:37,640 --> 00:40:40,920
Speaker 2: part of the story the environmental movement. In my lifetime,

786
00:40:41,520 --> 00:40:44,360
Speaker 2: when I was younger, the environmental movement meant like literal

787
00:40:44,400 --> 00:40:49,000
Speaker 2: green forests and preservation and conservation and clean water, et cetera.

788
00:40:49,280 --> 00:40:52,880
Speaker 2: And today the environmental movement is almost synonymous with climate,

789
00:40:52,920 --> 00:40:57,000
Speaker 2: although there's still other issues. Is it like a solar

790
00:40:57,000 --> 00:40:59,920
Speaker 2: and wind or bucolic and we associate it with just

791
00:41:00,120 --> 00:41:03,440
Speaker 2: green because get under you from sun and the wind?

792
00:41:03,560 --> 00:41:07,080
Speaker 2: Like it sounds, Is that like, explain in part why

793
00:41:07,120 --> 00:41:10,520
Speaker 2: there is so much attachment to these forms of energy.

794
00:41:11,160 --> 00:41:13,200
Speaker 4: I don't know a definitive answer to.

795
00:41:13,120 --> 00:41:16,880
Speaker 5: That right people's minds, but I would be.

796
00:41:17,040 --> 00:41:19,799
Speaker 4: Astonished if that's not at least partly true. I think

797
00:41:19,800 --> 00:41:22,960
Speaker 4: that for sure that must be partly true, the idea

798
00:41:23,000 --> 00:41:26,640
Speaker 4: that you can that there's this kind of free resource

799
00:41:26,719 --> 00:41:30,400
Speaker 4: that you can capture cleanly in a way that doesn't

800
00:41:30,440 --> 00:41:35,120
Speaker 4: have any at least any downstream environmental implications. There are

801
00:41:35,160 --> 00:41:37,760
Speaker 4: certainly upstream implications in terms of you know, the copper

802
00:41:37,800 --> 00:41:39,360
Speaker 4: and the lithium and everything.

803
00:41:38,960 --> 00:41:41,759
Speaker 3: That is needed and the whales. To go back to

804
00:41:41,840 --> 00:41:45,360
Speaker 3: nineties environmentalism and the wind power generations.

805
00:41:45,440 --> 00:41:48,160
Speaker 4: Yeah, absolutely, but no, for sure it fits with that

806
00:41:48,239 --> 00:41:50,440
Speaker 4: kind of bucolic image, which is still part of the

807
00:41:50,880 --> 00:41:53,640
Speaker 4: environmental movement broadly conceived absolutely.

808
00:41:53,280 --> 00:41:56,120
Speaker 2: Bred Christopherus, thank you so much for coming on our block.

809
00:41:56,200 --> 00:41:57,200
Speaker 2: Fascinating conversation.

810
00:41:57,360 --> 00:42:11,320
Speaker 5: Thanks for having me, Tracy.

811
00:42:11,360 --> 00:42:15,600
Speaker 2: I really enjoyed that conversation. It was nice to hear

812
00:42:15,760 --> 00:42:17,560
Speaker 2: like the sort of like yeah, just like a very

813
00:42:17,600 --> 00:42:19,960
Speaker 2: clear spelling out of what the sort of like financial

814
00:42:20,000 --> 00:42:22,840
Speaker 2: and just other constraints are to further expansion of the production.

815
00:42:23,160 --> 00:42:23,319
Speaker 1: Yeah.

816
00:42:23,360 --> 00:42:25,680
Speaker 3: I think that's right. I think intuitively, a lot of

817
00:42:25,680 --> 00:42:29,359
Speaker 3: people have the sense that the current model isn't necessarily

818
00:42:29,400 --> 00:42:32,040
Speaker 3: working because of the reason that you mentioned in the intro.

819
00:42:32,239 --> 00:42:35,840
Speaker 3: You know, like cost of producing renewable energy is going down,

820
00:42:35,960 --> 00:42:39,719
Speaker 3: but like the rates for people aren't necessarily going down

821
00:42:39,800 --> 00:42:41,680
Speaker 3: as much, and it still feels like a lot of

822
00:42:41,719 --> 00:42:46,239
Speaker 3: the burden of investment is on electricity users versus like

823
00:42:46,360 --> 00:42:49,480
Speaker 3: the investors. So I think intuitively it feels like it

824
00:42:49,600 --> 00:42:53,560
Speaker 3: kind of encapsulates that tension. I did find it really

825
00:42:53,640 --> 00:42:57,759
Speaker 3: interesting the emphasis on off take yes and having a

826
00:42:57,800 --> 00:43:00,880
Speaker 3: reliable source of demand, because this seems to be a

827
00:43:00,920 --> 00:43:04,360
Speaker 3: key difference between the US model and some European models,

828
00:43:04,640 --> 00:43:07,239
Speaker 3: and also it seems to be a thing where we

829
00:43:07,280 --> 00:43:11,719
Speaker 3: are seeing some momentum in terms of the IRA, you

830
00:43:11,760 --> 00:43:14,279
Speaker 3: know a little bit, not that much, but also in

831
00:43:14,360 --> 00:43:17,840
Speaker 3: terms of private players, like say a Microsoft who wants

832
00:43:17,880 --> 00:43:21,160
Speaker 3: to strike a big deal to take renewable energy from

833
00:43:21,320 --> 00:43:25,120
Speaker 3: an energy company and like underwrite that investment permanently into

834
00:43:25,120 --> 00:43:26,760
Speaker 3: the future. That's kind of interesting.

835
00:43:26,920 --> 00:43:28,680
Speaker 2: I agree, And I think that was like a light

836
00:43:28,680 --> 00:43:31,719
Speaker 2: bulb moment for me because you know, we've talked to Jiggershawn.

837
00:43:31,800 --> 00:43:34,160
Speaker 2: Jiggershaw talks a lot about off take and the need

838
00:43:34,239 --> 00:43:38,680
Speaker 2: for this, but that basically that, yes, if Microsoft and

839
00:43:38,719 --> 00:43:41,759
Speaker 2: Brookfield do a deal, that is two market players coming

840
00:43:41,840 --> 00:43:44,680
Speaker 2: to a free market agreement. But it sort of validates

841
00:43:44,719 --> 00:43:48,080
Speaker 2: the underlying logic. And Microsoft isn't going to pay for

842
00:43:48,160 --> 00:43:50,200
Speaker 2: more energy than it consumes. It's not going to pay

843
00:43:50,200 --> 00:43:53,120
Speaker 2: for other people's energy, so that it sort of validates

844
00:43:53,120 --> 00:43:56,400
Speaker 2: this underlying logic, which is if you want to not

845
00:43:56,520 --> 00:44:00,319
Speaker 2: just ad solar but actually add renewables to the scale

846
00:44:00,400 --> 00:44:03,960
Speaker 2: that you can then cut back on fossil fuels based

847
00:44:04,080 --> 00:44:07,640
Speaker 2: energy that you actually need to like that off take

848
00:44:07,719 --> 00:44:09,960
Speaker 2: has to be part of it, you know, across the space.

849
00:44:10,040 --> 00:44:12,359
Speaker 2: The other thing that was interesting, and I think we're

850
00:44:12,360 --> 00:44:16,480
Speaker 2: gonna do another episode on electricity market soon is you know.

851
00:44:16,680 --> 00:44:22,560
Speaker 2: Brett described why the volatility of electricity markets hamper renewables

852
00:44:22,640 --> 00:44:25,400
Speaker 2: because you're the price is so uncertain, et cetera. The

853
00:44:25,480 --> 00:44:29,320
Speaker 2: nuclear people don't like electricity markets either, and their argument

854
00:44:29,400 --> 00:44:31,319
Speaker 2: is like, well, we have such big costs and it's

855
00:44:31,320 --> 00:44:34,200
Speaker 2: so difficult to turn on and turn off nuclear. It's

856
00:44:34,239 --> 00:44:37,480
Speaker 2: not like other forms like gas that during these periods

857
00:44:37,520 --> 00:44:40,200
Speaker 2: when everything is cheap, we lose a lot of money.

858
00:44:40,520 --> 00:44:42,120
Speaker 2: And so it feels like there are a lot of

859
00:44:42,239 --> 00:44:48,080
Speaker 2: players that find electricity markets to be not conducive to

860
00:44:48,280 --> 00:44:49,360
Speaker 2: the best energy system.

861
00:44:49,760 --> 00:44:52,400
Speaker 3: Yeah, you know, we should do a episode on the

862
00:44:52,520 --> 00:44:55,000
Speaker 3: history of unbundling of energy.

863
00:44:55,239 --> 00:44:57,480
Speaker 2: I think I think we may have one in the work.

864
00:44:57,560 --> 00:45:00,480
Speaker 3: Oh okay, excellent, because I still don't underst down how

865
00:45:00,480 --> 00:45:01,000
Speaker 3: it happens.

866
00:45:01,040 --> 00:45:03,120
Speaker 2: I think I think we may even be recording one

867
00:45:03,160 --> 00:45:04,640
Speaker 2: tomorrow for Thursday.

868
00:45:05,080 --> 00:45:09,760
Speaker 3: Okay, there's an insight into the Odlots prep process where

869
00:45:09,840 --> 00:45:11,719
Speaker 3: I don't know anything about what we're going to talk

870
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Speaker 3: about until the day of Okay, shall we leave it there.

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Speaker 2: Let's leave it there.

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Speaker 3: This has been another episode of the Audlots podcast. I'm

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Speaker 3: Tracy Alloway. You can follow me at Tracy Alloway.

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00:45:22,080 --> 00:45:25,000
Speaker 2: And I'm Joe Wisenthal. You can follow me at the Stalwart.

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00:45:25,320 --> 00:45:28,000
Speaker 2: Check out the book of our guest Brett Christopher's The

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00:45:28,080 --> 00:45:31,520
Speaker 2: Price Is Wrong Why Capitalism Won't Save the Planet, put

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00:45:31,520 --> 00:45:34,840
Speaker 2: out by Verso Books at Verso Books. Follow our producers

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00:45:34,880 --> 00:45:38,400
Speaker 2: Carmen Rodriguez at Carman Ermann dash, Ol Bennett at Dashbot

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00:45:38,400 --> 00:45:42,080
Speaker 2: and Kilbrooks at Keilbrooks. Thank you to our producer Moses On.

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Speaker 2: For more Oddlots content, go to Bloomberg dot com slash

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00:45:45,120 --> 00:45:48,080
Speaker 2: odd Lots. We have transcripts, a blog, and a newsletter,

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Speaker 2: and you can chat about all of these topics twenty

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Speaker 2: four to seven in the discord where we have an

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Speaker 2: energy room and a climate room Discord dot gg slash

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Speaker 2: odd lots. You can talk about it with fellow listeners,

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Speaker 2: and if.

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Speaker 3: You enjoy addlots, if you want us to do that

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00:46:01,800 --> 00:46:04,799
Speaker 3: history of energy market unbundling, which it sounds like we're

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Speaker 3: going to do anyway, but please leave us a positive review,

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Speaker 3: nevertheless on your favorite podcast platform. And remember, if you

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