1
00:00:03,160 --> 00:00:18,760
Speaker 1: Bloomberg Audio Studios, Podcasts, radio News.

2
00:00:20,440 --> 00:00:23,919
Speaker 2: Hello and welcome to another episode of the Odd Lots podcast.

3
00:00:24,000 --> 00:00:26,360
Speaker 3: I'm Joe Wisenthal and I'm Tracy Alloway.

4
00:00:26,800 --> 00:00:29,120
Speaker 2: Tracy, we've been talking a lot of electricity lately.

5
00:00:29,160 --> 00:00:33,080
Speaker 3: Actually, yeah, it's been what energy months here on Odd Lots.

6
00:00:33,400 --> 00:00:37,360
Speaker 2: Not really intentionally, but yes, it's sort of becoming energy

7
00:00:37,720 --> 00:00:42,239
Speaker 2: month here on Odd Lots. I find like understanding any markets,

8
00:00:42,280 --> 00:00:45,479
Speaker 2: any understanding any commodity markets or whatever is sort of

9
00:00:45,600 --> 00:00:49,239
Speaker 2: extraordinarily difficult, But I find power and electricity to be

10
00:00:49,320 --> 00:00:52,040
Speaker 2: sort of like orders of magnitude. Like it just sort

11
00:00:52,040 --> 00:00:54,480
Speaker 2: of like my mental model how it all works is

12
00:00:54,520 --> 00:00:57,520
Speaker 2: so still like in co it and immature, and I'm

13
00:00:57,560 --> 00:00:59,600
Speaker 2: just sort of understanding it. Like it feels like so

14
00:00:59,720 --> 00:01:03,640
Speaker 2: much more complicated, all these auctions and micro auctions and

15
00:01:03,960 --> 00:01:07,000
Speaker 2: mini markets, and you know, it's it feels a lot

16
00:01:07,080 --> 00:01:09,360
Speaker 2: more complicated in my mind than say, like trading oil.

17
00:01:09,720 --> 00:01:12,280
Speaker 3: My mental model for how it all works is that

18
00:01:12,360 --> 00:01:16,080
Speaker 3: meme from It's Sunny in Philadelphia with the posting notes. Right,

19
00:01:16,120 --> 00:01:21,520
Speaker 3: It's like this weird pseudo government private thing where on

20
00:01:21,560 --> 00:01:24,759
Speaker 3: the one hand, you have natural monopolies in the form

21
00:01:24,800 --> 00:01:26,720
Speaker 3: of the grid and then on the other hand, you

22
00:01:26,800 --> 00:01:30,679
Speaker 3: have all these private individual actors who are trying to

23
00:01:30,720 --> 00:01:34,160
Speaker 3: do all these new things, and it just it seems

24
00:01:34,280 --> 00:01:37,760
Speaker 3: enormously complicated. And in some ways it's becoming more complicated

25
00:01:37,760 --> 00:01:41,680
Speaker 3: because you do have efforts to hasten the energy transition

26
00:01:41,840 --> 00:01:45,480
Speaker 3: in the form of things like the Inflation Reduction Act.

27
00:01:45,880 --> 00:01:51,200
Speaker 3: This network of tax credits and subsidies seems very difficult

28
00:01:51,200 --> 00:01:52,800
Speaker 3: to understand to me as well.

29
00:01:53,440 --> 00:01:55,720
Speaker 2: Right, and we had this grid that for years sort

30
00:01:55,760 --> 00:02:00,560
Speaker 2: of operated with gas and coal and some nuclear, and

31
00:02:00,640 --> 00:02:03,040
Speaker 2: now you know, over the last several years and the

32
00:02:03,080 --> 00:02:06,760
Speaker 2: Inflation Reduction Act has tried to accelerate it get more

33
00:02:07,040 --> 00:02:10,320
Speaker 2: renewable clean energy on the grid. So we're sort of

34
00:02:10,320 --> 00:02:13,800
Speaker 2: putting a new model of production onto an existing model

35
00:02:13,840 --> 00:02:17,040
Speaker 2: of distribution. Creates all kinds of new things. One thing

36
00:02:17,080 --> 00:02:20,480
Speaker 2: in particular, though, you know, we're here in the northeast

37
00:02:21,200 --> 00:02:23,079
Speaker 2: and you know, we don't get a lot of sunlight,

38
00:02:23,200 --> 00:02:24,320
Speaker 2: or we do, but you know.

39
00:02:24,560 --> 00:02:25,760
Speaker 3: We get it's erratic.

40
00:02:26,000 --> 00:02:28,520
Speaker 2: It's erratic, and for much of the year there's hardly

41
00:02:28,600 --> 00:02:31,880
Speaker 2: any and so if we're going to sort of decarbonize

42
00:02:31,919 --> 00:02:34,359
Speaker 2: a lot of the northeastern part of the grid, the

43
00:02:34,880 --> 00:02:36,840
Speaker 2: bet is that a big chunk has to come from

44
00:02:36,840 --> 00:02:38,959
Speaker 2: wind and in particular offshore win Yes.

45
00:02:39,080 --> 00:02:41,640
Speaker 3: Absolutely, and this is something that we've touched on before

46
00:02:41,919 --> 00:02:46,080
Speaker 3: in an episode with Chelsea Jean Michelle, the wind industry

47
00:02:46,120 --> 00:02:49,360
Speaker 3: analyst for Bloomberg nef SO, one of our colleagues here

48
00:02:49,680 --> 00:02:52,519
Speaker 3: at Bloomberg. And I think, to me, the big question

49
00:02:52,680 --> 00:02:56,760
Speaker 3: is we have all these projects and there have been

50
00:02:56,840 --> 00:02:59,720
Speaker 3: some hiccups over the past year. So we've seen projects

51
00:02:59,800 --> 00:03:03,160
Speaker 3: can sold, We've seen a bunch of big energy companies

52
00:03:03,200 --> 00:03:08,079
Speaker 3: take impairments on wind projects. We've seen energy stocks, you know,

53
00:03:08,240 --> 00:03:11,760
Speaker 3: fall quite a bit. There's the potential return of a

54
00:03:11,880 --> 00:03:16,080
Speaker 3: known wind energy disliker, let's put it that way, in

55
00:03:16,160 --> 00:03:20,480
Speaker 3: the form of Donald Trump. All these different headwinds for

56
00:03:20,560 --> 00:03:23,560
Speaker 3: the industry, and to me, the question is still, are

57
00:03:23,680 --> 00:03:29,560
Speaker 3: these growing pains for something which requires enormous upfront investment

58
00:03:29,800 --> 00:03:33,120
Speaker 3: and the creation of a lot of really really big

59
00:03:33,160 --> 00:03:37,280
Speaker 3: structures in the form of turbines and complicated supply chains

60
00:03:37,320 --> 00:03:40,120
Speaker 3: are needed to build those and huge investment outlays and

61
00:03:40,160 --> 00:03:44,480
Speaker 3: all of that. Or is this something more fundamental about

62
00:03:44,520 --> 00:03:47,120
Speaker 3: the business that's the big question in my mind, Like,

63
00:03:47,400 --> 00:03:50,720
Speaker 3: is this just a question of transition and getting started,

64
00:03:50,960 --> 00:03:54,560
Speaker 3: or is this maybe saying something more long term about

65
00:03:54,600 --> 00:03:55,200
Speaker 3: the industry.

66
00:03:55,280 --> 00:03:57,240
Speaker 2: I think that's a great way to frame it. And

67
00:03:57,320 --> 00:03:59,840
Speaker 2: you know, the only thing I would add is further

68
00:04:00,120 --> 00:04:03,560
Speaker 2: complication to this question is that the IRA and this

69
00:04:03,680 --> 00:04:07,800
Speaker 2: like particularly aggressive imperative right now is coming at a

70
00:04:07,840 --> 00:04:11,040
Speaker 2: time when like every industry saw supply chain disruptions and

71
00:04:11,120 --> 00:04:15,600
Speaker 2: every industry saw rising cost of capital thanks to the

72
00:04:16,000 --> 00:04:19,120
Speaker 2: raid hikes and inflation, etcetera. You know, you know, we

73
00:04:19,720 --> 00:04:21,400
Speaker 2: if we had to do over, maybe we would have

74
00:04:21,440 --> 00:04:24,239
Speaker 2: started this done an IRA like act in two thousand

75
00:04:24,240 --> 00:04:27,320
Speaker 2: and nine or twenty ten when we had significant unemployment

76
00:04:27,360 --> 00:04:29,560
Speaker 2: and commodities were dirt cheap, but we didn't. Can't go

77
00:04:29,680 --> 00:04:32,560
Speaker 2: into the past. And so answering these questions, how much

78
00:04:32,640 --> 00:04:35,120
Speaker 2: is growing pains, how much is the bad timing with

79
00:04:35,160 --> 00:04:35,840
Speaker 2: supply chains?

80
00:04:35,880 --> 00:04:36,200
Speaker 3: How much?

81
00:04:36,640 --> 00:04:41,080
Speaker 2: Very complicated, but that fits the theme of how complicated

82
00:04:41,120 --> 00:04:44,400
Speaker 2: the energy markets are, power markets are in general. So

83
00:04:44,440 --> 00:04:48,040
Speaker 2: we continue our process of discovery of learning about how

84
00:04:48,040 --> 00:04:48,559
Speaker 2: it all works.

85
00:04:48,880 --> 00:04:51,000
Speaker 3: I am excited. We do, in fact have the perfect

86
00:04:51,000 --> 00:04:52,080
Speaker 3: guest for this episode.

87
00:04:52,240 --> 00:04:54,440
Speaker 2: We do have the perfect guest. We are going to

88
00:04:54,480 --> 00:04:56,680
Speaker 2: be speaking with David Hardy. He is the CEO of

89
00:04:56,680 --> 00:05:00,680
Speaker 2: the America's division at ORSTED, which is the huge fish company,

90
00:05:00,720 --> 00:05:04,560
Speaker 2: one of the global leaders in wind power. He had

91
00:05:04,560 --> 00:05:07,919
Speaker 2: previously been the CEO of the offshore business at ORSTED

92
00:05:08,400 --> 00:05:12,120
Speaker 2: after joining the company in twenty twenty, so the right

93
00:05:12,240 --> 00:05:15,000
Speaker 2: in the sweet spot to help us disentangle all of

94
00:05:15,040 --> 00:05:17,440
Speaker 2: this stuff. So, David, thank you so much for coming

95
00:05:17,440 --> 00:05:18,159
Speaker 2: on the podcast.

96
00:05:18,600 --> 00:05:20,400
Speaker 4: Thanks Joe and Tracy. Great to be here.

97
00:05:20,839 --> 00:05:24,280
Speaker 2: Absolutely, So why don't we start off twenty twenty three

98
00:05:24,360 --> 00:05:28,800
Speaker 2: I think was sort of overwhelmingly recognized as a very

99
00:05:29,040 --> 00:05:34,760
Speaker 2: challenging year, both for offshore wind and also ORSTED specifically.

100
00:05:35,080 --> 00:05:37,159
Speaker 2: And we can get into some of the projects, but like,

101
00:05:37,440 --> 00:05:39,440
Speaker 2: why do you give us the sort of like high

102
00:05:39,560 --> 00:05:43,200
Speaker 2: level summary of like what we saw unfold over the

103
00:05:43,279 --> 00:05:44,960
Speaker 2: last year eighteen months or so.

104
00:05:45,800 --> 00:05:48,320
Speaker 4: Yeah, I appreciate, appreciate the question. I also appreciate the

105
00:05:48,680 --> 00:05:51,279
Speaker 4: introductory dialogue you had with each other thinking about how

106
00:05:51,320 --> 00:05:53,960
Speaker 4: complex it all is, and I have to echo that

107
00:05:54,080 --> 00:05:57,279
Speaker 4: it is a it is a complex industry. I actually

108
00:05:57,520 --> 00:06:02,120
Speaker 4: enjoy that because you know, with complexity you can differentiate.

109
00:06:02,680 --> 00:06:04,800
Speaker 4: It's a lot harder to differentiate if you're selling a

110
00:06:04,800 --> 00:06:08,520
Speaker 4: cup of sugar to against the other guy. Who's selling

111
00:06:08,520 --> 00:06:12,039
Speaker 4: a cup of sugar. But and likewise, I think the

112
00:06:12,160 --> 00:06:15,560
Speaker 4: question from Tracy about, you know, is this growing pains

113
00:06:15,720 --> 00:06:18,760
Speaker 4: or you know, what was the cause? I think it

114
00:06:19,640 --> 00:06:24,200
Speaker 4: is kind of all of the above, but specifically a

115
00:06:24,240 --> 00:06:26,599
Speaker 4: little bit of you know, no one likes to in

116
00:06:26,680 --> 00:06:29,480
Speaker 4: business say bad luck, but a little bit of bad

117
00:06:29,560 --> 00:06:32,240
Speaker 4: timing I would say is there was a lot of

118
00:06:32,400 --> 00:06:37,839
Speaker 4: ambition and expectations and growth expected from from the US

119
00:06:37,839 --> 00:06:41,040
Speaker 4: and offshore wind as as the maturity of the industry

120
00:06:41,080 --> 00:06:46,400
Speaker 4: overall in Europe reflected an opportunity for America. I remember,

121
00:06:46,520 --> 00:06:48,640
Speaker 4: or said, built the world's first offshore wind far more

122
00:06:48,680 --> 00:06:51,599
Speaker 4: than thirty years ago, and as the world leader an

123
00:06:51,680 --> 00:06:56,640
Speaker 4: offshore wind and has you know, nine gigawatts operating, and

124
00:06:56,839 --> 00:07:00,560
Speaker 4: a lot of those were pretty low cost projects prices

125
00:07:00,600 --> 00:07:05,320
Speaker 4: in Europe. The US Northeast states especially who you know,

126
00:07:05,360 --> 00:07:07,160
Speaker 4: don't have a lot of sun, as you guys said,

127
00:07:07,200 --> 00:07:09,520
Speaker 4: and also don't have a lot of space, saw offshore

128
00:07:09,520 --> 00:07:12,480
Speaker 4: win as the kind of panacea for how to get

129
00:07:12,600 --> 00:07:16,560
Speaker 4: large amounts of green energy you know, onto the grid.

130
00:07:16,720 --> 00:07:20,720
Speaker 4: And and so there was a big fast ambition and

131
00:07:20,760 --> 00:07:24,720
Speaker 4: growth and orsted as the leader saw the opportunity and

132
00:07:24,720 --> 00:07:29,040
Speaker 4: and and took an aggressive position of building projects and

133
00:07:29,120 --> 00:07:32,160
Speaker 4: built building, you know, signing up for off take and

134
00:07:32,160 --> 00:07:35,720
Speaker 4: and committing to billions of dollars of capital investment in

135
00:07:35,760 --> 00:07:43,000
Speaker 4: this market, all as COVID hits were in Ukraine, massive inflation,

136
00:07:43,640 --> 00:07:47,160
Speaker 4: rising interest rates, and yes, all industries were affected by that,

137
00:07:47,240 --> 00:07:51,400
Speaker 4: but renewable energy in general is very, very susceptible to

138
00:07:52,120 --> 00:07:55,800
Speaker 4: rising interest rates, and offshore win even the most of

139
00:07:55,880 --> 00:08:00,640
Speaker 4: all of the renewable energy sectors because it's so cap intensive.

140
00:08:00,680 --> 00:08:02,760
Speaker 4: Our fuel is free, we say, but our fuel is

141
00:08:02,800 --> 00:08:04,960
Speaker 4: really the cost of capital because we put so much

142
00:08:05,000 --> 00:08:09,440
Speaker 4: capital out upfront, and so as interest rates rose three

143
00:08:09,520 --> 00:08:14,560
Speaker 4: hundred BIPs, it just fundamentally changed the economics of the projects.

144
00:08:14,600 --> 00:08:16,400
Speaker 4: And then on top of that, we had you know,

145
00:08:16,480 --> 00:08:21,080
Speaker 4: bespoke inflation, not just generic CPI but but industry specific

146
00:08:21,120 --> 00:08:25,400
Speaker 4: inflation that led to thirty forty percent cost increases. And

147
00:08:25,440 --> 00:08:31,280
Speaker 4: those two factors just basically required a reset, and or

148
00:08:31,360 --> 00:08:34,920
Speaker 4: SAT unfortunately, was the most exposed and the most progressed.

149
00:08:34,920 --> 00:08:37,040
Speaker 4: We had some really late stage projects where we had

150
00:08:37,040 --> 00:08:40,400
Speaker 4: already invested you know, up to a billion dollars in

151
00:08:40,440 --> 00:08:43,679
Speaker 4: one project for example, and made commitments for more. And

152
00:08:43,760 --> 00:08:48,079
Speaker 4: when we we were trying to pull all the levers

153
00:08:48,120 --> 00:08:50,199
Speaker 4: and take all of our experience to try to make

154
00:08:50,200 --> 00:08:53,240
Speaker 4: these projects go, and and in the end we couldn't

155
00:08:53,240 --> 00:08:55,280
Speaker 4: make them all go. And you know, we we had

156
00:08:55,280 --> 00:08:57,640
Speaker 4: to make some some tough decisions in twenty twenty three

157
00:08:57,720 --> 00:09:01,240
Speaker 4: to cease development on on a couple of projects. One,

158
00:09:01,320 --> 00:09:03,400
Speaker 4: like I said, was a really late stage project, and

159
00:09:03,440 --> 00:09:07,520
Speaker 4: so it took a big financial impairment and a financial

160
00:09:07,600 --> 00:09:12,000
Speaker 4: provision for the cancelation charges for that project. But on

161
00:09:12,040 --> 00:09:14,800
Speaker 4: the bright side, and we'll hopefully get to this part.

162
00:09:15,200 --> 00:09:19,120
Speaker 4: We have three projects that we're still building which are

163
00:09:19,520 --> 00:09:24,040
Speaker 4: one is completed, actually America's first commercial scale offshore wind farm,

164
00:09:24,120 --> 00:09:26,920
Speaker 4: the South Fork Wind Farm, was just completed a few

165
00:09:26,920 --> 00:09:29,840
Speaker 4: months ago. And we've got two other very large commercial

166
00:09:29,880 --> 00:09:33,079
Speaker 4: projects that we've taken our so called financial investment final

167
00:09:33,120 --> 00:09:36,880
Speaker 4: investment decision, and we're in construction offshore on one of

168
00:09:36,920 --> 00:09:39,360
Speaker 4: them and building the onshore. You build the onshore part

169
00:09:39,400 --> 00:09:43,160
Speaker 4: first or in parallel with these projects. But the second one,

170
00:09:43,440 --> 00:09:46,920
Speaker 4: we're in full construction mode on the onshore part. So

171
00:09:47,400 --> 00:09:51,680
Speaker 4: I think a little bit of being exposed and being overexposed,

172
00:09:51,960 --> 00:09:55,720
Speaker 4: you know, in retrospect, could we have slowed earlier, probably

173
00:09:55,800 --> 00:09:58,760
Speaker 4: in retrospect, you know, could we have not been as

174
00:09:58,840 --> 00:10:01,679
Speaker 4: ambitious and kind of daggered the number of projects we

175
00:10:01,679 --> 00:10:05,360
Speaker 4: were building in the US. Probably Obviously there were some

176
00:10:06,480 --> 00:10:10,400
Speaker 4: you know, market specific challenges that impacted us. A lot

177
00:10:10,440 --> 00:10:13,320
Speaker 4: of these early projects didn't have any inflation protection and

178
00:10:13,360 --> 00:10:16,720
Speaker 4: the off take, the permitting process was slow, et cetera.

179
00:10:16,800 --> 00:10:19,360
Speaker 4: So there's some US specific things, but a lot of

180
00:10:19,360 --> 00:10:23,480
Speaker 4: it is actually global macro supply chain imbalance, global macrol

181
00:10:23,920 --> 00:10:26,560
Speaker 4: cost of capital, et cetera. That just impacted us in

182
00:10:26,559 --> 00:10:28,240
Speaker 4: a negative way in twenty twenty three. Sorry for the

183
00:10:28,240 --> 00:10:30,280
Speaker 4: long answer. I'll be shorter in the future, but.

184
00:10:30,480 --> 00:10:33,560
Speaker 2: That was very helpful. Also, it's good. Could you gave

185
00:10:33,640 --> 00:10:35,640
Speaker 2: us like six follow up questions automatically?

186
00:10:37,000 --> 00:10:40,520
Speaker 3: Yes? So, okay, first follow up question, but just on

187
00:10:40,600 --> 00:10:45,760
Speaker 3: the idea of rationalizing some projects and even some late

188
00:10:45,840 --> 00:10:48,880
Speaker 3: stage ones which you mentioned, and I assume you're talking

189
00:10:48,920 --> 00:10:52,720
Speaker 3: about the farms in New Jersey Ocean wind But how

190
00:10:52,760 --> 00:10:57,240
Speaker 3: do you decide what to continue with and what to cancel?

191
00:10:57,480 --> 00:11:00,679
Speaker 3: Like is it a question of math and the financing

192
00:11:00,760 --> 00:11:04,520
Speaker 3: costs and the interest rates that you just outlined, or

193
00:11:04,640 --> 00:11:08,560
Speaker 3: is it sometimes a question of physical limitations, so things

194
00:11:08,720 --> 00:11:12,400
Speaker 3: like supply chain issues. The lack of this is Joe's

195
00:11:12,440 --> 00:11:15,680
Speaker 3: favorite subject. The lack of transformers or switch gears or

196
00:11:15,720 --> 00:11:18,400
Speaker 3: the lack of this is another traditional odd lots topic,

197
00:11:18,559 --> 00:11:21,640
Speaker 3: the lack of ships to actually build these things.

198
00:11:22,400 --> 00:11:25,160
Speaker 4: Yeah, it's another kind of all of the above answer.

199
00:11:25,280 --> 00:11:27,760
Speaker 4: You know, we we look at everything. Of course, you know,

200
00:11:28,280 --> 00:11:31,640
Speaker 4: our publicly stated ambition is that we you know, try

201
00:11:31,679 --> 00:11:35,160
Speaker 4: to achieve one hundred and fifty to three hundred bit

202
00:11:35,320 --> 00:11:38,880
Speaker 4: spread to whack. So and we are wack weighted average

203
00:11:38,880 --> 00:11:42,600
Speaker 4: cost of capital. We have a WHACK model basically that

204
00:11:43,120 --> 00:11:47,200
Speaker 4: course is funded in our our corporate cost of capital.

205
00:11:47,240 --> 00:11:49,880
Speaker 4: But then we we have whack adjustments to kind of

206
00:11:49,960 --> 00:11:53,679
Speaker 4: create a project specific whack based on the market, the technology,

207
00:11:54,280 --> 00:11:56,920
Speaker 4: project specific risks, et cetera. So we create this whack

208
00:11:57,040 --> 00:11:59,560
Speaker 4: model and then we then we try to achieve you

209
00:11:59,559 --> 00:12:02,280
Speaker 4: one hundred fifty to three hundred spread to whack against that.

210
00:12:02,400 --> 00:12:05,760
Speaker 4: And so when when we're looking at projects, that's kind

211
00:12:05,800 --> 00:12:09,720
Speaker 4: of our one of our first hurdles or KPIs that

212
00:12:09,760 --> 00:12:12,440
Speaker 4: were that were very very focused on. So as I

213
00:12:12,520 --> 00:12:15,600
Speaker 4: alluded to, is your costs are going up, that spread

214
00:12:15,600 --> 00:12:17,880
Speaker 4: to whack is being compressed. As your cost of capital

215
00:12:17,960 --> 00:12:19,640
Speaker 4: is going up, that whack is going up, and so

216
00:12:20,240 --> 00:12:23,560
Speaker 4: you pretty quickly can get upside down on that spread

217
00:12:23,559 --> 00:12:26,160
Speaker 4: to whack. If if the ambition has only one fifty

218
00:12:26,160 --> 00:12:28,280
Speaker 4: to three hundred and the WHACK went up by three hundred,

219
00:12:28,440 --> 00:12:31,360
Speaker 4: it's pretty tricky. But at the same time, you know,

220
00:12:31,400 --> 00:12:33,760
Speaker 4: we are also trying to be strategic. We were trying

221
00:12:33,760 --> 00:12:36,920
Speaker 4: to make investments in a market, and at some point

222
00:12:36,920 --> 00:12:38,880
Speaker 4: we had some sunk cost and so even though our

223
00:12:39,000 --> 00:12:42,720
Speaker 4: guiding star is this life cycle spread to whack fully

224
00:12:42,760 --> 00:12:47,280
Speaker 4: loaded kind of KPI, we started adjusting a little bit

225
00:12:47,320 --> 00:12:49,959
Speaker 4: and saying like, well, if we cancel, we've got these

226
00:12:49,960 --> 00:12:51,760
Speaker 4: sunk costs we're gonna have to write off anyway, So

227
00:12:51,800 --> 00:12:54,720
Speaker 4: should we just assume them as written off and look

228
00:12:54,720 --> 00:12:57,600
Speaker 4: at ford I rrs And so we started changing our

229
00:12:57,640 --> 00:13:00,240
Speaker 4: parameters a little bit and barometer a little bit as

230
00:13:00,240 --> 00:13:02,839
Speaker 4: we were getting into the tough situation to see if

231
00:13:02,840 --> 00:13:05,360
Speaker 4: it strategically made sense to keep going. And we were

232
00:13:05,400 --> 00:13:09,240
Speaker 4: constantly looking at the supply chain and seeing, okay, well

233
00:13:09,240 --> 00:13:11,200
Speaker 4: what risks are still ahead of us? If we sit

234
00:13:11,360 --> 00:13:14,600
Speaker 4: with a with a target today, you know, how realistic

235
00:13:14,640 --> 00:13:16,480
Speaker 4: is it? We'll be able to hold that. Of course,

236
00:13:16,600 --> 00:13:19,000
Speaker 4: we had our big risk registers, and we have our

237
00:13:19,480 --> 00:13:21,920
Speaker 4: modeling of you know, what things are going to cost,

238
00:13:22,040 --> 00:13:24,400
Speaker 4: and we had contingencies and all that built in, but

239
00:13:24,720 --> 00:13:27,800
Speaker 4: you still kind of have a scientific but not perfect

240
00:13:27,920 --> 00:13:34,720
Speaker 4: scientific probability analysis of outcomes. And if you're you know,

241
00:13:34,880 --> 00:13:38,960
Speaker 4: P ninety nine outcome is really really bad, and you

242
00:13:39,000 --> 00:13:42,640
Speaker 4: know your P fifty looks okay, that's different than if

243
00:13:42,679 --> 00:13:46,320
Speaker 4: your your standard deviations are more narrow between your P

244
00:13:46,440 --> 00:13:48,880
Speaker 4: fifty and your P ninety nine. And so as we

245
00:13:48,920 --> 00:13:51,080
Speaker 4: looked at these projects, there seemed to still be a

246
00:13:51,080 --> 00:13:55,080
Speaker 4: lot of challenges ahead, and so again the management team

247
00:13:55,120 --> 00:13:57,760
Speaker 4: and the board had a discussion and we decided that

248
00:13:58,240 --> 00:14:01,800
Speaker 4: we weren't comfortable with continue to invest in the projects,

249
00:14:01,800 --> 00:14:04,160
Speaker 4: and we thought it was better for the company, for

250
00:14:04,240 --> 00:14:07,120
Speaker 4: the portfolio to go ahead and cancel, take the big hit,

251
00:14:07,640 --> 00:14:11,320
Speaker 4: but hopefully take a little a little bit of risk

252
00:14:11,360 --> 00:14:13,200
Speaker 4: out of the system, a little bit of risk out

253
00:14:13,240 --> 00:14:16,240
Speaker 4: of the supply chain, and a little bit of you know,

254
00:14:17,480 --> 00:14:20,120
Speaker 4: more focus from the organization so that we could make

255
00:14:20,160 --> 00:14:22,360
Speaker 4: these three projects that we did want to keep going

256
00:14:22,400 --> 00:14:25,600
Speaker 4: forward with successful and that's that's been our target. And

257
00:14:25,640 --> 00:14:28,080
Speaker 4: of course this is all from an America's perspective, but

258
00:14:28,200 --> 00:14:30,240
Speaker 4: or said it was doing this you know globally, like

259
00:14:30,240 --> 00:14:33,480
Speaker 4: looking at projects that had in Asia and Europe, et cetera.

260
00:14:50,040 --> 00:14:53,200
Speaker 2: So, first of all, I'm very appreciative that you've gone

261
00:14:53,280 --> 00:14:55,920
Speaker 2: right into things like spread to whack because this is

262
00:14:56,000 --> 00:14:59,040
Speaker 2: exactly you know, what we want to understand better, but

263
00:14:59,200 --> 00:15:02,040
Speaker 2: just to conception rualized sort of like what was or

264
00:15:02,240 --> 00:15:04,440
Speaker 2: is the sort of way to think about like the

265
00:15:04,520 --> 00:15:08,120
Speaker 2: difference between say, the South Fork project and the New

266
00:15:08,240 --> 00:15:11,560
Speaker 2: Jersey project. What was it about one of them that

267
00:15:11,640 --> 00:15:13,480
Speaker 2: it's like, Okay, this makes sense to go ahead and

268
00:15:13,520 --> 00:15:15,960
Speaker 2: complete it, and another one is like, no, we're going

269
00:15:16,040 --> 00:15:17,880
Speaker 2: to take the hit on this and write off some

270
00:15:17,920 --> 00:15:18,600
Speaker 2: of this investment.

271
00:15:19,680 --> 00:15:23,440
Speaker 4: Yeah, without getting into specifics, but conceptually it's about, you know,

272
00:15:23,560 --> 00:15:28,560
Speaker 4: how like how negative is the MPV or how you know,

273
00:15:28,600 --> 00:15:31,720
Speaker 4: how much more risk was there ahead of us, how

274
00:15:31,800 --> 00:15:35,360
Speaker 4: much more unknown? What supply chain challenges were still out there?

275
00:15:35,360 --> 00:15:38,239
Speaker 4: And one of the challenges with Ocean Win one in particular,

276
00:15:38,480 --> 00:15:43,680
Speaker 4: was that as we were approaching kind of the build

277
00:15:43,720 --> 00:15:47,560
Speaker 4: up to this decision, there were new global supply chain

278
00:15:47,920 --> 00:15:52,080
Speaker 4: challenges that were emerging. So potentially, you know, delays in

279
00:15:52,120 --> 00:15:55,960
Speaker 4: our foundations delays, and our turbines delays and vessels, and

280
00:15:56,000 --> 00:15:59,200
Speaker 4: then you have these knock on effects. Right if you're

281
00:15:59,280 --> 00:16:03,400
Speaker 4: planning to to start installing foundations and let's say summer

282
00:16:03,440 --> 00:16:07,760
Speaker 4: of twenty four, which is what our plan was, and

283
00:16:07,800 --> 00:16:11,360
Speaker 4: now you know those foundations aren't going to be ready

284
00:16:11,440 --> 00:16:14,360
Speaker 4: until twenty five, or your vessels, you know, your vessels

285
00:16:14,360 --> 00:16:16,480
Speaker 4: stuck on another project and it's not going to be there.

286
00:16:16,880 --> 00:16:19,480
Speaker 4: Then the whole project has to shift because there's a

287
00:16:19,520 --> 00:16:22,200
Speaker 4: sequence of how these things get built. And so then

288
00:16:22,480 --> 00:16:26,160
Speaker 4: when we had lined up you know, the literally you know,

289
00:16:26,280 --> 00:16:29,920
Speaker 4: hundreds of other contracts to make this whole project sequence,

290
00:16:30,480 --> 00:16:32,240
Speaker 4: and the whole thing was going to have to shift.

291
00:16:32,640 --> 00:16:35,640
Speaker 4: Then we were pretty concerned that as we reopened, as

292
00:16:35,680 --> 00:16:38,760
Speaker 4: we went out to supplier A or supplier B and

293
00:16:38,800 --> 00:16:41,200
Speaker 4: said we now need to shift this project from twenty

294
00:16:41,200 --> 00:16:46,080
Speaker 4: four to twenty six, that all of their pains that

295
00:16:46,280 --> 00:16:50,360
Speaker 4: they were feeling from the macroeconomic challenges we're going to

296
00:16:50,360 --> 00:16:53,600
Speaker 4: be on the table because we had locked in some

297
00:16:53,680 --> 00:16:56,880
Speaker 4: thing's pre the big inflation, and we had actually had

298
00:16:56,920 --> 00:17:00,600
Speaker 4: some very favorable pricing potentially, But as soon as you

299
00:17:00,720 --> 00:17:04,560
Speaker 4: reopen up things then then everybody's clawing back, and so

300
00:17:05,160 --> 00:17:07,280
Speaker 4: I think that that was one of the big, big

301
00:17:07,280 --> 00:17:10,639
Speaker 4: discussions that we had. And at the time, we weren't

302
00:17:10,720 --> 00:17:14,800
Speaker 4: sure how the state was going to respond and you know,

303
00:17:14,880 --> 00:17:17,600
Speaker 4: if they would work with us to to you know,

304
00:17:18,040 --> 00:17:21,439
Speaker 4: to make make the project work. And so we just

305
00:17:21,440 --> 00:17:24,000
Speaker 4: decided to make the call. We're with South Fork for example.

306
00:17:25,040 --> 00:17:28,000
Speaker 4: Yes it's a tight project, but but we didn't have

307
00:17:28,080 --> 00:17:31,440
Speaker 4: those same new supply chain risks that we that we

308
00:17:31,520 --> 00:17:33,800
Speaker 4: saw on the horizon with Ocean Wing one.

309
00:17:34,200 --> 00:17:36,120
Speaker 3: Wait, can you talk a little bit more about those

310
00:17:36,160 --> 00:17:39,760
Speaker 3: supply chain risks because I kind of alluded to this earlier,

311
00:17:39,800 --> 00:17:43,760
Speaker 3: but this is core odd lots thematic content, so things

312
00:17:43,840 --> 00:17:47,880
Speaker 3: like switch gears and transformers and then the ships as well.

313
00:17:48,600 --> 00:17:52,880
Speaker 4: You know, offshore wind is growing rapidly across the world, right,

314
00:17:52,880 --> 00:17:55,440
Speaker 4: It's not just here where people saw this as a

315
00:17:55,440 --> 00:17:59,800
Speaker 4: as a solution to get large renewable energy. And remember

316
00:17:59,840 --> 00:18:06,480
Speaker 4: it in Europe, right, Russian invades Ukraine. Europeans want energy sovereignty,

317
00:18:07,040 --> 00:18:10,040
Speaker 4: and so offshore wind became like even more important as

318
00:18:10,080 --> 00:18:12,560
Speaker 4: they got off Russian gas. And so you all of

319
00:18:12,600 --> 00:18:16,320
Speaker 4: a sudden have this huge supply and demand imbalance, particularly

320
00:18:16,359 --> 00:18:21,359
Speaker 4: on things like HVDC systems, but also vessels, monopiles, et cetera.

321
00:18:21,440 --> 00:18:25,399
Speaker 4: And some of these companies are not you know, super large,

322
00:18:25,600 --> 00:18:28,040
Speaker 4: well funded balance sheet companies, so they can't just see

323
00:18:28,080 --> 00:18:30,199
Speaker 4: the demand signal and ramp up the way that you

324
00:18:30,200 --> 00:18:33,640
Speaker 4: would think they could. And also just the way the

325
00:18:33,680 --> 00:18:38,320
Speaker 4: industry works, it's long cycle, so we typically don't want

326
00:18:38,359 --> 00:18:41,400
Speaker 4: to like commit in a kind of take or pay

327
00:18:41,480 --> 00:18:46,480
Speaker 4: way for whether that's vessels or equipment until we take

328
00:18:46,520 --> 00:18:48,840
Speaker 4: our final investment decision to tell the projects to your risk,

329
00:18:48,880 --> 00:18:51,960
Speaker 4: how we have our permits, our interconnect agreements, our land

330
00:18:52,040 --> 00:18:54,680
Speaker 4: rights are you know, et cetera. Are are a point

331
00:18:54,720 --> 00:18:57,960
Speaker 4: of interconnect agreements. And so there's a little bit of

332
00:18:58,000 --> 00:19:00,600
Speaker 4: a chicken in the egg on like if the supply

333
00:19:00,720 --> 00:19:03,560
Speaker 4: chain builds, it will there be demand or do they

334
00:19:03,600 --> 00:19:06,080
Speaker 4: want that demand locked in? But we're not we and

335
00:19:06,200 --> 00:19:08,440
Speaker 4: I'm saying we not orsted, but we the industry are

336
00:19:08,440 --> 00:19:10,720
Speaker 4: we even though there's a lot of demand signals, are

337
00:19:10,720 --> 00:19:13,840
Speaker 4: we committing? So they have business case certainty and so

338
00:19:14,440 --> 00:19:17,000
Speaker 4: you kind of have had this challenge on the supply

339
00:19:17,119 --> 00:19:21,400
Speaker 4: chain supply chain ramp up and and so definitely there's

340
00:19:21,440 --> 00:19:24,560
Speaker 4: a global imbalance I would say on some of these

341
00:19:24,640 --> 00:19:29,520
Speaker 4: key offshore when supply chain categories. And you know, the

342
00:19:29,640 --> 00:19:32,280
Speaker 4: plan was that in the US, we were going to

343
00:19:32,320 --> 00:19:35,000
Speaker 4: build our own capabilities here, we wouldn't need the global

344
00:19:35,280 --> 00:19:38,520
Speaker 4: the global supply chain. But then again, the same chicken

345
00:19:38,560 --> 00:19:40,720
Speaker 4: and egg problem. Right. We had a bunch of projects

346
00:19:40,720 --> 00:19:44,879
Speaker 4: that had promised to help contribute to both demand and

347
00:19:45,040 --> 00:19:47,400
Speaker 4: in some cases even contribute to some of the upfront

348
00:19:47,440 --> 00:19:50,119
Speaker 4: costs to build out some of the supply chain. But

349
00:19:50,200 --> 00:19:53,880
Speaker 4: then when the economics or the project didn't work anymore,

350
00:19:53,960 --> 00:19:56,480
Speaker 4: then of course the economics for the supply chain didn't

351
00:19:56,480 --> 00:19:59,520
Speaker 4: work anymore. So we're in a reset period for most

352
00:19:59,560 --> 00:20:01,840
Speaker 4: of the product in the in the US. Other than

353
00:20:02,240 --> 00:20:05,240
Speaker 4: kind of R three and and a couple couple more,

354
00:20:05,640 --> 00:20:08,399
Speaker 4: the rest of the whole industry is basically, you know,

355
00:20:08,480 --> 00:20:12,359
Speaker 4: had to recontract and push out and and we're you know,

356
00:20:12,560 --> 00:20:17,440
Speaker 4: kind of in a re re reset of the macroeconomic conditions.

357
00:20:17,960 --> 00:20:20,800
Speaker 2: I'm going to dive right into a subset of the

358
00:20:20,840 --> 00:20:24,600
Speaker 2: supply chain question that speaks to this that also sort

359
00:20:24,600 --> 00:20:27,240
Speaker 2: of our one of our core topics. Talk to us

360
00:20:27,240 --> 00:20:31,400
Speaker 2: about the Jones Act, how it affects affects your business

361
00:20:31,920 --> 00:20:35,120
Speaker 2: and I think Orsted has a you built your own

362
00:20:35,480 --> 00:20:38,320
Speaker 2: Jones Act compliant vessel, But I think that's right. But

363
00:20:38,400 --> 00:20:41,720
Speaker 2: talk to us about like this particular piece of legislation

364
00:20:42,280 --> 00:20:46,320
Speaker 2: that's been around forever and what it means for basically

365
00:20:46,359 --> 00:20:50,560
Speaker 2: the industry's capacity to build out US offshore wind.

366
00:20:51,200 --> 00:20:53,200
Speaker 4: Yeah, I mean the Jones Act for for those that

367
00:20:53,280 --> 00:20:56,479
Speaker 4: don't know, and I'm just going to make it simple,

368
00:20:56,800 --> 00:21:01,919
Speaker 4: it requires a US flagged which means US owned and

369
00:21:01,960 --> 00:21:06,560
Speaker 4: operated and built vessel to transport equipment from one US

370
00:21:06,680 --> 00:21:10,200
Speaker 4: port to another. These products are built in the US

371
00:21:10,200 --> 00:21:13,800
Speaker 4: Outer Continental Shelf and so they're subject to the Jones Act.

372
00:21:14,520 --> 00:21:16,560
Speaker 4: In general, i'd say, or said, we're supportive of the

373
00:21:16,640 --> 00:21:21,720
Speaker 4: Jones Act. It is, you know, it's it's another challenge

374
00:21:21,880 --> 00:21:24,600
Speaker 4: to starting up the industry and we would love to

375
00:21:24,640 --> 00:21:27,439
Speaker 4: have some you know, some waivers in the beginning and

376
00:21:27,480 --> 00:21:30,919
Speaker 4: then you know, work with with the shipbuilding industry and

377
00:21:31,000 --> 00:21:35,000
Speaker 4: others to build out the fleet because it's difficult to

378
00:21:35,040 --> 00:21:38,159
Speaker 4: build off shore wind with Jones Act requirements when there

379
00:21:38,200 --> 00:21:41,440
Speaker 4: are no Jones Act vessels that exist. We were first

380
00:21:41,480 --> 00:21:46,920
Speaker 4: movers in working with another company to invest in and

381
00:21:47,440 --> 00:21:51,600
Speaker 4: commit create demand for a Jones AC wind turbine installation vessel,

382
00:21:51,600 --> 00:21:54,920
Speaker 4: which is one of the really big expensive spoke vessels

383
00:21:54,920 --> 00:21:57,200
Speaker 4: that actually installs the wind turbines. But there's actually a

384
00:21:57,240 --> 00:22:01,120
Speaker 4: whole lot of other vessels. There's cable laying vessels, dumping vessels,

385
00:22:01,160 --> 00:22:05,440
Speaker 4: foundation installation vessels, service operation vessels, et cetera, et cetera.

386
00:22:05,560 --> 00:22:09,080
Speaker 4: So we were, we were and are committed to trying

387
00:22:09,119 --> 00:22:11,320
Speaker 4: to help build out that fleet. But in the beginning,

388
00:22:11,920 --> 00:22:15,479
Speaker 4: wed they vessels don't exist. It's hard to comply, and

389
00:22:15,600 --> 00:22:20,640
Speaker 4: so we we in the industry have built workarounds where

390
00:22:20,680 --> 00:22:24,520
Speaker 4: we you know, either stage stuff outside of the US,

391
00:22:24,880 --> 00:22:28,840
Speaker 4: or we bring it directly over from Europe, or we

392
00:22:29,200 --> 00:22:34,000
Speaker 4: barge things out with US flagged tugs and barges and

393
00:22:34,080 --> 00:22:38,840
Speaker 4: transfer equipment to European flagged or other than US flagged vessels.

394
00:22:39,320 --> 00:22:41,760
Speaker 4: And so it's been a it's been a it's been

395
00:22:41,800 --> 00:22:46,480
Speaker 4: a hindrance, I would say in at least being able

396
00:22:46,520 --> 00:22:49,320
Speaker 4: to get the most cost effective offshore wind in the

397
00:22:49,400 --> 00:22:53,119
Speaker 4: US on early projects. And so yeah, we're still just

398
00:22:53,200 --> 00:22:57,720
Speaker 4: working through it, both getting first projects built and trying

399
00:22:57,760 --> 00:23:01,399
Speaker 4: to support the maritime industry. You did allude to, like

400
00:23:01,440 --> 00:23:06,439
Speaker 4: I said, we were the first charter for a vessel

401
00:23:06,440 --> 00:23:09,920
Speaker 4: called the Caribdas which Dominion Energy was building for their project,

402
00:23:09,960 --> 00:23:12,840
Speaker 4: and we helped secure the business case for the vessel,

403
00:23:12,880 --> 00:23:17,360
Speaker 4: but the vessel was very very late in being completed,

404
00:23:17,359 --> 00:23:20,399
Speaker 4: and so we had to pivot to this bargin tug

405
00:23:20,640 --> 00:23:24,080
Speaker 4: solution for our three Northeast program projects. So we're not

406
00:23:24,240 --> 00:23:27,720
Speaker 4: using the Charybdis for those. But we have built a

407
00:23:27,720 --> 00:23:31,359
Speaker 4: handful more than a dozen I think crew transport vessels,

408
00:23:31,359 --> 00:23:33,280
Speaker 4: and we just a few weeks ago I was alluded

409
00:23:33,320 --> 00:23:36,960
Speaker 4: to the celebration we're having in Louisiana with Leader Scalise

410
00:23:37,240 --> 00:23:41,080
Speaker 4: where we built a large service operation vessel there which

411
00:23:41,119 --> 00:23:45,879
Speaker 4: is Jones Act compliant, and we're contracting other vessels that

412
00:23:45,920 --> 00:23:49,520
Speaker 4: are under construction for other parts of the offshore wind

413
00:23:50,200 --> 00:23:50,560
Speaker 4: set up.

414
00:23:51,160 --> 00:23:53,840
Speaker 3: So just on this note, you know, building some of

415
00:23:53,880 --> 00:23:58,359
Speaker 3: your own transport vessels. I sometimes wonder is this the

416
00:23:58,480 --> 00:24:01,919
Speaker 3: solution for off shore wind? Is it just that you

417
00:24:02,000 --> 00:24:05,480
Speaker 3: guys become more diversified in terms of what you're doing

418
00:24:05,520 --> 00:24:08,959
Speaker 3: and end up building out your own supply chain of

419
00:24:09,000 --> 00:24:13,280
Speaker 3: the necessary components and tools and transportation that's needed to

420
00:24:13,359 --> 00:24:15,320
Speaker 3: actually build these huge wind turbines.

421
00:24:16,040 --> 00:24:18,359
Speaker 4: Yeah, it's a discussion that we have internally a lot.

422
00:24:18,560 --> 00:24:22,520
Speaker 4: Remember these are super capital intensive projects. You know, a

423
00:24:22,560 --> 00:24:24,920
Speaker 4: gig at twelve hundred megawatt project in the US today

424
00:24:25,240 --> 00:24:27,520
Speaker 4: in the order of magnitude of six billion dollars, I

425
00:24:27,520 --> 00:24:31,119
Speaker 4: would say, just for us to buy all the stuff

426
00:24:31,119 --> 00:24:33,280
Speaker 4: we need and pay for all the stuff we need

427
00:24:33,320 --> 00:24:36,520
Speaker 4: to build a project. So if then we have to

428
00:24:36,520 --> 00:24:39,480
Speaker 4: spend billions of dollars building ships and building factories and

429
00:24:39,960 --> 00:24:45,439
Speaker 4: doing everything ourselves, it starts to become you know, very

430
00:24:45,720 --> 00:24:48,239
Speaker 4: few companies that have the balance sheet to do that,

431
00:24:48,480 --> 00:24:53,720
Speaker 4: And so I don't think that we want to necessarily

432
00:24:53,760 --> 00:24:57,800
Speaker 4: be completely vertically integrated, but there's certain times where maybe

433
00:24:57,880 --> 00:24:59,760
Speaker 4: it could make sense for us or others in the

434
00:24:59,840 --> 00:25:02,240
Speaker 4: end street to do that. What we what we want

435
00:25:02,280 --> 00:25:04,760
Speaker 4: to do is be able to give strong demand signals

436
00:25:04,840 --> 00:25:08,159
Speaker 4: so that the supply chain has the you know, the

437
00:25:08,760 --> 00:25:11,919
Speaker 4: wherewithal to make their own investments and to meet the

438
00:25:11,960 --> 00:25:15,680
Speaker 4: demand for all the components and infrastructure that we need

439
00:25:15,720 --> 00:25:19,080
Speaker 4: for these projects. But it's to be determined still, how

440
00:25:19,119 --> 00:25:21,080
Speaker 4: that you know what the best way forward is to

441
00:25:21,440 --> 00:25:23,399
Speaker 4: do that. Again, we don't want to be a turbine

442
00:25:23,400 --> 00:25:27,600
Speaker 4: manufacturer or a monopile manufacturer. We're an energy company that

443
00:25:28,119 --> 00:25:32,440
Speaker 4: develops projects and operates them and sells electrons. But we'll

444
00:25:32,480 --> 00:25:36,160
Speaker 4: see we've definitely make financial investments to support the supply chain.

445
00:25:36,240 --> 00:25:38,560
Speaker 4: So that's a big part of what we're doing to

446
00:25:38,560 --> 00:25:40,680
Speaker 4: try to secure our own success.

447
00:25:41,040 --> 00:25:44,080
Speaker 2: I feel like in all of the conversations we have

448
00:25:44,240 --> 00:25:47,639
Speaker 2: about energy, and in particular it seems to be renewable energy,

449
00:25:47,680 --> 00:25:50,880
Speaker 2: but energy in general, it's just like off take off,

450
00:25:50,920 --> 00:25:54,199
Speaker 2: take off, take the consistency, the importance of that the

451
00:25:54,240 --> 00:25:57,480
Speaker 2: demand and that demand signal, and so whether it's the

452
00:25:57,800 --> 00:26:01,400
Speaker 2: demand for electrons that are produced by wind and then

453
00:26:01,520 --> 00:26:05,200
Speaker 2: the demand from companies like ORSTED for the Jones Act

454
00:26:05,200 --> 00:26:10,280
Speaker 2: compliant vessels or the infrastructure for the foundations, just like

455
00:26:10,640 --> 00:26:15,040
Speaker 2: that sort of continuity of the demand signal seems to

456
00:26:15,040 --> 00:26:16,560
Speaker 2: be really critical. I just want to go back to

457
00:26:16,640 --> 00:26:18,919
Speaker 2: one thing you said, just real quickly. I think you

458
00:26:18,960 --> 00:26:22,359
Speaker 2: said you're supporters of the Jones Act. But why it

459
00:26:22,400 --> 00:26:25,000
Speaker 2: does not sound like it's been helpful. What did you

460
00:26:25,040 --> 00:26:26,240
Speaker 2: did you? What did you mean by that?

461
00:26:27,040 --> 00:26:32,240
Speaker 4: I think we're supporters of building an American supply chain

462
00:26:32,320 --> 00:26:36,879
Speaker 4: which includes vessels which then inherently would be Jones Act compliant.

463
00:26:37,040 --> 00:26:40,119
Speaker 4: So even though we're a Danish company, even at the

464
00:26:40,280 --> 00:26:43,080
Speaker 4: very top of the organization, but definitely at my level.

465
00:26:43,240 --> 00:26:47,720
Speaker 4: We're trying to build an American industry, not just build

466
00:26:47,800 --> 00:26:52,520
Speaker 4: offshore projects with you know, Asian or European supply, and

467
00:26:52,560 --> 00:26:57,080
Speaker 4: so to the extent that we can help build more

468
00:26:58,080 --> 00:27:01,360
Speaker 4: Jones Act compliant vessels and create you know, that part

469
00:27:01,359 --> 00:27:05,280
Speaker 4: of the economy, the economic stimulus et cetera for Americans,

470
00:27:05,600 --> 00:27:08,200
Speaker 4: or support of that, it is difficult. You know, the

471
00:27:08,280 --> 00:27:10,640
Speaker 4: Jones Act makes it difficult to get this industry off

472
00:27:10,640 --> 00:27:13,800
Speaker 4: the ground. For sure. I won't say that that's not true,

473
00:27:13,920 --> 00:27:16,480
Speaker 4: but in the end we know that, you know, part

474
00:27:16,520 --> 00:27:20,160
Speaker 4: of the value proposition of offshore wind is the economic

475
00:27:20,520 --> 00:27:23,240
Speaker 4: benefits to Americans and job creation, et cetera.

476
00:27:39,600 --> 00:27:43,400
Speaker 3: So, just on the question of off take and sort

477
00:27:43,400 --> 00:27:46,520
Speaker 3: of persistent sources of long term demand, Joe and I

478
00:27:46,600 --> 00:27:50,800
Speaker 3: recently had a conversation with Brett Christophers, who just published

479
00:27:50,800 --> 00:27:54,320
Speaker 3: a book called, what is it called The Price is Wrong? Yeah,

480
00:27:54,400 --> 00:27:58,399
Speaker 3: The Price is Wrong basically about why the current market

481
00:27:58,440 --> 00:28:02,919
Speaker 3: mechanisms being used to courage the green energy transition aren't

482
00:28:02,960 --> 00:28:07,680
Speaker 3: necessarily working. And one of his points is that there's

483
00:28:07,720 --> 00:28:10,320
Speaker 3: a difficulty here. You know, if you're trying to finance

484
00:28:10,359 --> 00:28:14,800
Speaker 3: a renewable energy project. There's a lot of uncertainty around

485
00:28:15,040 --> 00:28:19,840
Speaker 3: future pricing and future demand, and so it makes securing

486
00:28:19,880 --> 00:28:23,200
Speaker 3: that funding very difficult. People in traditional finance might be

487
00:28:23,240 --> 00:28:26,399
Speaker 3: a little bit reluctant to give money to something that

488
00:28:26,520 --> 00:28:29,760
Speaker 3: is more than likely going to be volatile in the

489
00:28:29,760 --> 00:28:33,000
Speaker 3: future and might be difficult to model for various reasons.

490
00:28:34,040 --> 00:28:38,120
Speaker 3: I'm curious from your perspective, how do you model out

491
00:28:38,360 --> 00:28:43,000
Speaker 3: that demand picture? And then do you feel like in

492
00:28:43,120 --> 00:28:46,840
Speaker 3: terms of the federal government or maybe some states that

493
00:28:46,880 --> 00:28:52,480
Speaker 3: you're getting support for that sort of long term demand outlook.

494
00:28:52,600 --> 00:28:56,040
Speaker 3: Is there a recognition that people have to provide that

495
00:28:56,200 --> 00:28:59,600
Speaker 3: demand signal to you as well as maybe help with

496
00:28:59,640 --> 00:29:01,200
Speaker 3: some of the initial financing.

497
00:29:02,240 --> 00:29:05,240
Speaker 4: Yeah, I'm going to actually start with the latter question

498
00:29:05,600 --> 00:29:08,000
Speaker 4: first and then come back to the first question if

499
00:29:08,000 --> 00:29:11,880
Speaker 4: that's okay, because you know the demand and I'm talking

500
00:29:11,880 --> 00:29:16,280
Speaker 4: about offshore wind now, but in onshore renewables, they've been

501
00:29:16,320 --> 00:29:19,160
Speaker 4: around for a while. There's a big, big marketplace, and

502
00:29:19,640 --> 00:29:22,480
Speaker 4: the financing is working right, and we've built probably over

503
00:29:22,480 --> 00:29:25,520
Speaker 4: two hundred gigawatts of onshore wind and solar in the US.

504
00:29:25,560 --> 00:29:28,800
Speaker 4: So so I'm not sure I one hundred percent agree

505
00:29:28,880 --> 00:29:34,840
Speaker 4: that that it's hard to finance renewable energy. Obviously, that's

506
00:29:34,920 --> 00:29:37,640
Speaker 4: been on the back of some incentives, federal incentives that

507
00:29:37,640 --> 00:29:40,320
Speaker 4: have been in place throughout the whole period of time,

508
00:29:40,360 --> 00:29:43,600
Speaker 4: which eventually we need to wean off of. And likewise

509
00:29:43,640 --> 00:29:46,160
Speaker 4: it's been on the backs of some you know, kind

510
00:29:46,160 --> 00:29:51,480
Speaker 4: of probably state state policies, rps's renewal portfolio standards, et cetera, right,

511
00:29:51,520 --> 00:29:55,880
Speaker 4: that have driven this. But it increasingly it's CNI customers

512
00:29:55,960 --> 00:29:58,720
Speaker 4: that are providing the off take and they're in their

513
00:29:58,760 --> 00:30:02,280
Speaker 4: desire to have green electrons. When I pivot off shore win,

514
00:30:02,320 --> 00:30:06,440
Speaker 4: it's really the same, except that it's just more immature

515
00:30:07,160 --> 00:30:09,880
Speaker 4: and so you don't have like a third party CNI

516
00:30:10,160 --> 00:30:13,320
Speaker 4: market yet. And the price the prices are higher still

517
00:30:13,360 --> 00:30:16,680
Speaker 4: because we're making all these upfront investments in infrastructure that

518
00:30:16,880 --> 00:30:19,720
Speaker 4: need to be carried by the by the megawatt hour

519
00:30:19,800 --> 00:30:23,160
Speaker 4: price embedded in a project. And so again it's the

520
00:30:23,200 --> 00:30:28,880
Speaker 4: states demand and the states off take that are driving

521
00:30:29,440 --> 00:30:33,840
Speaker 4: the surety that we've got a revenue stream that then

522
00:30:33,880 --> 00:30:37,600
Speaker 4: we can finance. But also it's the tax incentives that

523
00:30:37,680 --> 00:30:40,959
Speaker 4: are all offsetting some of the of the cost. And

524
00:30:41,000 --> 00:30:45,600
Speaker 4: so I think between the the IRA and the federal

525
00:30:45,600 --> 00:30:49,040
Speaker 4: incentives that we have and the states that are driving

526
00:30:49,080 --> 00:30:51,960
Speaker 4: the demand for offshore win that we can we can

527
00:30:52,000 --> 00:30:57,000
Speaker 4: finance these these projects. Unfortunately, it's the tax credits are

528
00:30:57,680 --> 00:31:01,280
Speaker 4: pretty large because they're itcs on this big six billion

529
00:31:01,320 --> 00:31:04,560
Speaker 4: dollar project. I'm just using that a round number. But

530
00:31:05,160 --> 00:31:08,400
Speaker 4: then you know, it's a tax credit that we can't

531
00:31:08,480 --> 00:31:12,600
Speaker 4: self monetize because we don't have enough taxable income. Or

532
00:31:12,600 --> 00:31:14,520
Speaker 4: we could, but it would take a long time to

533
00:31:15,000 --> 00:31:16,920
Speaker 4: work that off, and so typically you have to use

534
00:31:16,920 --> 00:31:20,959
Speaker 4: a third party monetization method and then there's you know,

535
00:31:21,240 --> 00:31:23,840
Speaker 4: intermediators who are making some money along the way, so

536
00:31:23,880 --> 00:31:27,280
Speaker 4: it's not always the most efficient way. We were advocating

537
00:31:27,320 --> 00:31:31,360
Speaker 4: for direct pay, which could have cut out, you know,

538
00:31:31,400 --> 00:31:35,040
Speaker 4: some of the cost to have third party monetization of

539
00:31:35,320 --> 00:31:37,480
Speaker 4: tax credits, but that's probably a whole another topic we

540
00:31:37,520 --> 00:31:39,120
Speaker 4: could spend a different podcast on.

541
00:31:39,520 --> 00:31:43,080
Speaker 2: Yeah, we've been meaning to do a tax credit episode.

542
00:31:43,160 --> 00:31:45,400
Speaker 2: So at some point, well but anyway, keep going because

543
00:31:45,400 --> 00:31:47,400
Speaker 2: that market seems interesting, but keep going.

544
00:31:47,480 --> 00:31:52,240
Speaker 4: Yeah, but the it wasn't necessarily the lack of off

545
00:31:52,320 --> 00:31:56,200
Speaker 4: take that has caused these projects to have to stop

546
00:31:56,360 --> 00:31:59,600
Speaker 4: or to be unfinanciable. It was the change in the

547
00:31:59,600 --> 00:32:01,320
Speaker 4: cost of capital, and it was the change in the

548
00:32:01,840 --> 00:32:05,560
Speaker 4: cost quite frankly. So now we just need an adjustment

549
00:32:05,680 --> 00:32:08,840
Speaker 4: to the off take, you know, willingness to pay what

550
00:32:08,960 --> 00:32:11,320
Speaker 4: it will take for someone like us to earn a

551
00:32:11,400 --> 00:32:13,280
Speaker 4: return or not trying to be greedy, but we need

552
00:32:13,320 --> 00:32:15,760
Speaker 4: to earn a return for our investors. And is our

553
00:32:15,880 --> 00:32:20,240
Speaker 4: states willing to pay the cost and make the investment.

554
00:32:20,800 --> 00:32:24,000
Speaker 4: The federal government is doing its part, or you know,

555
00:32:25,520 --> 00:32:27,320
Speaker 4: maybe the states would say they need to do more still,

556
00:32:27,360 --> 00:32:30,200
Speaker 4: but you know, everybody needs to do their part to

557
00:32:30,440 --> 00:32:32,520
Speaker 4: get these first projects off the ground, get the supply

558
00:32:32,600 --> 00:32:35,120
Speaker 4: chain bilk at the upfront cost bilk at the ship's built,

559
00:32:35,280 --> 00:32:38,240
Speaker 4: and then I'm very confident the levelized cost of energy

560
00:32:38,280 --> 00:32:41,120
Speaker 4: will come down because you can see when you look

561
00:32:41,160 --> 00:32:44,600
Speaker 4: across the Atlantic, you can see much much lower cost

562
00:32:44,800 --> 00:32:47,880
Speaker 4: offshore wind than we have. But they've got thirty years

563
00:32:47,920 --> 00:32:52,480
Speaker 4: of investment in supply chain ships ports that we're trying

564
00:32:52,520 --> 00:32:56,560
Speaker 4: to to do it at much faster pace, and those

565
00:32:56,600 --> 00:32:58,840
Speaker 4: costs need to be born somewhere and carried somewhere, so

566
00:32:58,840 --> 00:33:02,160
Speaker 4: they're being carried in the megawatt hour price that that

567
00:33:02,520 --> 00:33:03,560
Speaker 4: you see for offshore win?

568
00:33:04,520 --> 00:33:07,640
Speaker 3: Is there a point at which we could see subsidy

569
00:33:07,720 --> 00:33:11,600
Speaker 3: free projects in the US like the ones we've seen

570
00:33:11,920 --> 00:33:15,680
Speaker 3: in Europe and I guess specifically the Netherlands. How far

571
00:33:15,720 --> 00:33:16,560
Speaker 3: away would that be.

572
00:33:17,720 --> 00:33:21,000
Speaker 4: For on shore I think it could be relatively quickly.

573
00:33:21,160 --> 00:33:23,720
Speaker 4: I mean, some of my colleagues in the industry, you know,

574
00:33:23,840 --> 00:33:25,800
Speaker 4: don't don't want me to say that, but I mean

575
00:33:26,520 --> 00:33:30,200
Speaker 4: the industry is fairly mature. The price of solar and

576
00:33:30,240 --> 00:33:34,360
Speaker 4: wind are very competitive with the incentives still and would

577
00:33:34,440 --> 00:33:37,800
Speaker 4: still be reasonably competitive without them. For offshore win, Yes,

578
00:33:37,880 --> 00:33:40,120
Speaker 4: eventually we can get there as well, but we've got

579
00:33:40,320 --> 00:33:42,400
Speaker 4: we've got a ways to go, you know, just because

580
00:33:42,440 --> 00:33:46,600
Speaker 4: there is so much upfront investment that needs to be made.

581
00:33:47,080 --> 00:33:50,880
Speaker 4: For example, you know, we invested we in our JV partner,

582
00:33:50,960 --> 00:33:53,920
Speaker 4: ever Source and the state of Connecticut jointly invested over

583
00:33:53,960 --> 00:33:57,040
Speaker 4: two hundred million dollars to build one port. Others in

584
00:33:57,080 --> 00:34:00,440
Speaker 4: the industry are investing in ports and massive use. It's

585
00:34:00,480 --> 00:34:03,680
Speaker 4: New York, you know, we invested before we left New

586
00:34:03,760 --> 00:34:08,840
Speaker 4: Jersey it's over one hundred million dollars into a monopile

587
00:34:08,920 --> 00:34:13,360
Speaker 4: manufacturing facility. One ship the Dominion built. I don't know

588
00:34:13,400 --> 00:34:16,040
Speaker 4: the exact number, but half a million plus minus I

589
00:34:16,040 --> 00:34:19,040
Speaker 4: mean sorry, half a billion plus minus on that ship.

590
00:34:19,080 --> 00:34:22,400
Speaker 4: So there's a there's a lot of upfront startup costs

591
00:34:22,440 --> 00:34:26,160
Speaker 4: in this in this industry, which you could say, hmm,

592
00:34:26,280 --> 00:34:29,680
Speaker 4: that's going to be expensive, but in it and it is.

593
00:34:29,960 --> 00:34:34,160
Speaker 4: But it's also it's also creating economic development, right, all

594
00:34:34,160 --> 00:34:37,200
Speaker 4: this all this investment in these factories and these ships,

595
00:34:37,239 --> 00:34:41,000
Speaker 4: in these infrastructures creating jobs and and and actually making

596
00:34:41,120 --> 00:34:44,279
Speaker 4: the US you know, more robust. This port that we

597
00:34:44,320 --> 00:34:46,719
Speaker 4: invested is not just for offshore win it's now a

598
00:34:46,840 --> 00:34:52,760
Speaker 4: much better port for other things, for multimodal asset for

599
00:34:52,760 --> 00:34:54,320
Speaker 4: for the state of Connecticut for example.

600
00:34:55,320 --> 00:34:58,720
Speaker 2: Real quick question. You know you're talking about the higher

601
00:34:58,800 --> 00:35:02,120
Speaker 2: higher interest rates or high cost of capital, particularly I

602
00:35:02,160 --> 00:35:05,040
Speaker 2: don't know if lethal is the right word, particularly damaging

603
00:35:05,280 --> 00:35:09,000
Speaker 2: to the renewable sector. Is it less? Just to sort

604
00:35:09,000 --> 00:35:14,840
Speaker 2: of conceptualize why that is, is the European wind industry

605
00:35:14,920 --> 00:35:18,520
Speaker 2: or offshore industry less sensitive by virtue of the fact

606
00:35:18,520 --> 00:35:22,320
Speaker 2: that it's been around so long and thus has less

607
00:35:22,520 --> 00:35:26,000
Speaker 2: core infrastructure that needs to be built out right now, I.

608
00:35:25,920 --> 00:35:30,200
Speaker 4: Would say that yes, because the same you know, twelve

609
00:35:30,239 --> 00:35:32,719
Speaker 4: hundred MEGAWAP project in Europe doesn't cost six billion, it

610
00:35:32,760 --> 00:35:36,440
Speaker 4: costs less. And so the reason it's so susceptible is

611
00:35:36,480 --> 00:35:39,560
Speaker 4: because of the high the high upfront costs. The more

612
00:35:40,200 --> 00:35:43,840
Speaker 4: the more you need to invest upfront, the more interest

613
00:35:43,920 --> 00:35:46,680
Speaker 4: rates matter, right, And so you can build a project

614
00:35:46,840 --> 00:35:50,400
Speaker 4: for less CAPEX in Europe than here. And part of

615
00:35:50,440 --> 00:35:52,719
Speaker 4: it is the infrastructure difference, as part of it is

616
00:35:52,800 --> 00:35:56,319
Speaker 4: scope difference. We build you know, the we build the

617
00:35:56,360 --> 00:35:59,279
Speaker 4: generating plant, but we also build the bespoke transmission from

618
00:35:59,320 --> 00:36:02,520
Speaker 4: the generating plant to shore. Then we also are upgrading

619
00:36:02,560 --> 00:36:05,120
Speaker 4: the onshore grid, the existing grid in order to accept

620
00:36:05,160 --> 00:36:08,360
Speaker 4: the offshore win. And then we're building the infrastructure, the ports,

621
00:36:08,400 --> 00:36:11,359
Speaker 4: the vessels, the supply chain. And then we also are

622
00:36:11,800 --> 00:36:14,600
Speaker 4: having to import everything from Europe, so just cost more.

623
00:36:14,800 --> 00:36:18,439
Speaker 4: The transportation, installation costs are significantly higher. And then we've

624
00:36:18,480 --> 00:36:21,440
Speaker 4: got you know, our Jones Act, which is not super efficient,

625
00:36:21,480 --> 00:36:24,680
Speaker 4: and we've got other things that make it more expensive

626
00:36:24,719 --> 00:36:28,279
Speaker 4: to build here. So the interest rates affect us more,

627
00:36:28,280 --> 00:36:30,080
Speaker 4: but the interest rates affect them too. I mean, the

628
00:36:30,120 --> 00:36:32,600
Speaker 4: cost of offshore WIN has gone up in Europe as well,

629
00:36:32,600 --> 00:36:35,359
Speaker 4: it just was much much lower, and so it's gone

630
00:36:35,440 --> 00:36:40,239
Speaker 4: up to a point it's still significantly attractive from my perspective,

631
00:36:40,640 --> 00:36:41,840
Speaker 4: especially compared to US.

632
00:36:42,160 --> 00:36:44,359
Speaker 2: I want to go back to something you said early on.

633
00:36:44,440 --> 00:36:48,400
Speaker 2: You know, almost the day after the Inflation Reduction Act

634
00:36:48,960 --> 00:36:51,600
Speaker 2: was passed, then a bunch of people was like, oh, well,

635
00:36:51,600 --> 00:36:53,680
Speaker 2: it's great, all this money is going to build things,

636
00:36:53,719 --> 00:36:56,320
Speaker 2: but permitting and you mentioned permitting, and you know, in

637
00:36:56,360 --> 00:36:58,640
Speaker 2: my mind is like, guys, you should have put that

638
00:36:58,680 --> 00:37:03,040
Speaker 2: in the bill itself some way. What specifically with permitting,

639
00:37:03,840 --> 00:37:07,000
Speaker 2: How is that impaired timeline? Like what comes up in

640
00:37:07,040 --> 00:37:10,640
Speaker 2: the permitting process that slows down these projects.

641
00:37:11,200 --> 00:37:14,000
Speaker 4: I think there's a couple different ways I could answer that.

642
00:37:14,040 --> 00:37:18,320
Speaker 4: One is that you had an administration that wasn't so supportive,

643
00:37:18,360 --> 00:37:23,040
Speaker 4: and so I think, you know, maybe there were delays

644
00:37:23,080 --> 00:37:26,759
Speaker 4: that were happening by design for prior prior to the

645
00:37:26,800 --> 00:37:32,880
Speaker 4: current administration. Then you have a really ambitious and supportive

646
00:37:32,920 --> 00:37:36,560
Speaker 4: administration who wanted to see everything go, but they they

647
00:37:36,560 --> 00:37:39,759
Speaker 4: had a huge backlock they had to work through, probably understaffed,

648
00:37:39,800 --> 00:37:41,879
Speaker 4: and it's new they had to you know, no one

649
00:37:42,280 --> 00:37:44,680
Speaker 4: had permitted offshore wind projects in the US, and so

650
00:37:45,440 --> 00:37:47,719
Speaker 4: people are trying to figure it out, and so you

651
00:37:47,760 --> 00:37:50,920
Speaker 4: know that's caused some delays. In general. I'm I'm a

652
00:37:50,920 --> 00:37:54,920
Speaker 4: big fan of you know, current current administration and Boehm

653
00:37:55,000 --> 00:37:59,200
Speaker 4: and everything they've done. They've completely one eighty degree. You know.

654
00:37:59,239 --> 00:38:02,600
Speaker 4: Now there's I think six or seven permitted offshore win

655
00:38:02,719 --> 00:38:05,279
Speaker 4: projects and so you have to really give them, give

656
00:38:05,280 --> 00:38:10,080
Speaker 4: them credit for that. But it's it's not running, you know,

657
00:38:10,239 --> 00:38:13,760
Speaker 4: like a Swiss Swiss watch yet. Right there's still ideally

658
00:38:13,760 --> 00:38:15,839
Speaker 4: supposed to be a twenty four month process. That's more

659
00:38:15,880 --> 00:38:18,960
Speaker 4: like a forty eight month process. So and that's you know,

660
00:38:19,560 --> 00:38:22,239
Speaker 4: hope hopefully can improve if we can keep some consistency,

661
00:38:22,320 --> 00:38:23,440
Speaker 4: but we'll have to see.

662
00:38:24,080 --> 00:38:30,000
Speaker 3: You mentioned gaving out the probability of outcomes earlier, and

663
00:38:30,040 --> 00:38:31,759
Speaker 3: I think you were mostly talking about that in the

664
00:38:31,800 --> 00:38:35,239
Speaker 3: context of interest rates. But I have to imagine the

665
00:38:35,360 --> 00:38:40,719
Speaker 3: political landscape must be on your radar, and so I'm

666
00:38:40,840 --> 00:38:44,880
Speaker 3: curious how you're thinking about, you know, the potential return

667
00:38:45,200 --> 00:38:48,840
Speaker 3: of Donald Trump to the US presidency and how you

668
00:38:48,840 --> 00:38:53,440
Speaker 3: would begin to calculate how that would impact your business.

669
00:38:53,520 --> 00:38:56,319
Speaker 3: How do you actually think about that type of policy risk.

670
00:38:57,200 --> 00:38:59,759
Speaker 4: We always start with the with the macro and we

671
00:38:59,840 --> 00:39:04,040
Speaker 4: all also obviously overlay the political side to things, and

672
00:39:04,120 --> 00:39:07,440
Speaker 4: so from the macro, which we haven't spent a lot

673
00:39:07,440 --> 00:39:09,919
Speaker 4: of time talking about, but you guys alluded to it

674
00:39:10,040 --> 00:39:14,839
Speaker 4: in the beginning. I think there is a significantly increasing

675
00:39:15,120 --> 00:39:21,600
Speaker 4: electricity demand happening in America between ev adoption, electric heating,

676
00:39:21,840 --> 00:39:25,279
Speaker 4: reshoring of manufacturing and probably the biggest thing of all

677
00:39:25,400 --> 00:39:29,879
Speaker 4: AI and data centers required for that. There's a lot

678
00:39:29,920 --> 00:39:34,279
Speaker 4: of electricity demand anticipated in the US. And where is

679
00:39:34,320 --> 00:39:36,960
Speaker 4: that electricity going to come from? And whether you're on

680
00:39:37,239 --> 00:39:40,520
Speaker 4: the left or the right, one of the big waste

681
00:39:40,600 --> 00:39:44,480
Speaker 4: to get big chunks of electricity is through renewables and

682
00:39:45,120 --> 00:39:49,239
Speaker 4: in certain parts of the country offshore wind. Even if

683
00:39:49,239 --> 00:39:51,879
Speaker 4: you don't care about green it's a way to get

684
00:39:51,920 --> 00:39:56,520
Speaker 4: a lot of near boat base load electrons onto the grid,

685
00:39:56,600 --> 00:39:59,920
Speaker 4: which we need as a country. Then you think about

686
00:40:00,640 --> 00:40:02,200
Speaker 4: all the stuff that we have spent a lot of

687
00:40:02,200 --> 00:40:06,480
Speaker 4: time on the job creation, the infrastructure and its core

688
00:40:06,520 --> 00:40:10,920
Speaker 4: things like steel and ports and ships and factories, and

689
00:40:11,160 --> 00:40:17,360
Speaker 4: these are things that are bipartisan right Just in our projects,

690
00:40:17,400 --> 00:40:20,120
Speaker 4: we can trace the supply chain to forty different states

691
00:40:20,320 --> 00:40:24,760
Speaker 4: that are contributing, So it's not just benefiting Rhode Island

692
00:40:25,120 --> 00:40:28,600
Speaker 4: or New York. It's the supply chain goes across most

693
00:40:28,640 --> 00:40:33,280
Speaker 4: of America, and so that's red states, Purple states, Blue states,

694
00:40:33,560 --> 00:40:40,040
Speaker 4: and most Americans value job creation, economic progress. And last

695
00:40:40,080 --> 00:40:43,560
Speaker 4: I would say is that you've got a strong energy

696
00:40:43,600 --> 00:40:47,160
Speaker 4: security argument here, where we want to be a net

697
00:40:47,280 --> 00:40:50,600
Speaker 4: exporter of energy and we are today with L and G,

698
00:40:50,960 --> 00:40:54,560
Speaker 4: but we want to maintain that position. And the more

699
00:40:55,360 --> 00:41:00,000
Speaker 4: renewable energy that we build in America, the more opportunity

700
00:41:00,120 --> 00:41:03,680
Speaker 4: we have to maintain that energy security and that net

701
00:41:03,719 --> 00:41:08,360
Speaker 4: exporter of energy position. And so to me, offshore wind

702
00:41:08,400 --> 00:41:14,080
Speaker 4: renewables is much more bipartisan than than maybe people are

703
00:41:14,080 --> 00:41:16,759
Speaker 4: making it out to be. And of course we're not

704
00:41:17,480 --> 00:41:21,240
Speaker 4: just pushing the hope button. We we've we've got mitigation

705
00:41:21,880 --> 00:41:26,120
Speaker 4: plans regardless of any outcome. But we're you know, we

706
00:41:26,120 --> 00:41:28,839
Speaker 4: we I talked to Republicans all the time, and many

707
00:41:28,920 --> 00:41:31,560
Speaker 4: of them understand everything that I just said and understand

708
00:41:31,560 --> 00:41:36,279
Speaker 4: the importance of this sector. And so yeah, we're we're

709
00:41:36,320 --> 00:41:41,640
Speaker 4: weighing out the the outcomes. We've you know, written board

710
00:41:41,640 --> 00:41:44,839
Speaker 4: papers and had lots of discussions and you know, have

711
00:41:45,200 --> 00:41:47,920
Speaker 4: third party inputs on things. But we believe in the

712
00:41:48,040 --> 00:41:51,120
Speaker 4: in the fundamentals of the industry, and we're confident that

713
00:41:51,120 --> 00:41:52,400
Speaker 4: that offshore winds here to stay.

714
00:41:53,160 --> 00:41:55,719
Speaker 2: Just on this politics point real quickly, or that maybe

715
00:41:55,760 --> 00:41:59,200
Speaker 2: not politics point, but the policy question. You know, we

716
00:41:59,239 --> 00:42:02,640
Speaker 2: talk about the Inflation Reduction Act, and we usually sort

717
00:42:02,640 --> 00:42:05,600
Speaker 2: of talk about it in vague terms tax credit, subsidies,

718
00:42:05,600 --> 00:42:07,920
Speaker 2: et cetera. But actually, can you just give us a

719
00:42:08,080 --> 00:42:12,600
Speaker 2: sort of succinct summary of the specifics what you get

720
00:42:12,680 --> 00:42:16,759
Speaker 2: and how the Inflation Reduction Act changes the math for

721
00:42:16,880 --> 00:42:20,359
Speaker 2: you on any given project. What specifically you know you

722
00:42:20,400 --> 00:42:23,040
Speaker 2: go into a project today in twenty twenty four versus say,

723
00:42:23,160 --> 00:42:26,680
Speaker 2: twenty nineteen, what's different about it today post di ray.

724
00:42:27,000 --> 00:42:30,799
Speaker 4: Yeah, First off, the longevity of it is good. It

725
00:42:30,880 --> 00:42:33,959
Speaker 4: was kind of oftentimes one year or two year kind

726
00:42:33,960 --> 00:42:38,840
Speaker 4: of extension of an existing tax credit historically primarily the

727
00:42:38,880 --> 00:42:41,719
Speaker 4: production tax credit, which was a certain two point three

728
00:42:41,840 --> 00:42:45,000
Speaker 4: cents per megawatt hour of sorry per kill a what

729
00:42:45,200 --> 00:42:48,160
Speaker 4: hour of production? But you you know, you're trying to

730
00:42:48,200 --> 00:42:50,400
Speaker 4: get your start of construction, so you qualified in the

731
00:42:50,480 --> 00:42:52,920
Speaker 4: year that the tax credit was still eligible, and then

732
00:42:53,040 --> 00:42:56,120
Speaker 4: it would get renewed and it was like the stop start,

733
00:42:56,280 --> 00:42:59,240
Speaker 4: you know, drama for the industry, and even in Onshore

734
00:42:59,239 --> 00:43:01,960
Speaker 4: it's it's a medium cycle business and that was really

735
00:43:02,040 --> 00:43:06,440
Speaker 4: disruptive and offshort it's much longer cycle, so it would

736
00:43:06,440 --> 00:43:09,320
Speaker 4: never work. So having the kind of the tenure horizon

737
00:43:09,360 --> 00:43:13,680
Speaker 4: I think was a big big factor. Then in addition

738
00:43:13,760 --> 00:43:18,719
Speaker 4: to the traditional PTC and ITC, the difference Production tax

739
00:43:18,760 --> 00:43:21,360
Speaker 4: credit was this you know, kind of incentive that was

740
00:43:21,440 --> 00:43:24,720
Speaker 4: added that you get for every mega what hour you produce,

741
00:43:24,800 --> 00:43:27,719
Speaker 4: you get an extra tax credit that you can monetize.

742
00:43:28,040 --> 00:43:32,440
Speaker 4: ITC is a percentage of the eligible basis of the

743
00:43:32,600 --> 00:43:36,479
Speaker 4: investment that you make. So there's a certain portion of

744
00:43:36,520 --> 00:43:41,520
Speaker 4: the infrastructure that is eligible for the ITC for the

745
00:43:41,560 --> 00:43:44,240
Speaker 4: investment tax credit, and then you could get the base

746
00:43:44,280 --> 00:43:47,680
Speaker 4: ITC is thirty percent, so you could get the equivalent

747
00:43:47,719 --> 00:43:51,360
Speaker 4: of a thirty percent tax credit for whatever portion of

748
00:43:51,400 --> 00:43:54,799
Speaker 4: your investment qualified. And then you have to go again

749
00:43:54,840 --> 00:43:58,040
Speaker 4: third party monetize that most companies do, so you might

750
00:43:58,080 --> 00:43:59,919
Speaker 4: not get the full thirty percent. You get some hair

751
00:44:00,040 --> 00:44:01,840
Speaker 4: cut on that because there's you know, a bank in

752
00:44:01,880 --> 00:44:04,720
Speaker 4: the middle or or somebody that was you know, taking

753
00:44:04,760 --> 00:44:09,120
Speaker 4: some of that value. And then after the IRA that

754
00:44:09,239 --> 00:44:11,560
Speaker 4: was always a bank typically in the past, but now

755
00:44:11,600 --> 00:44:16,040
Speaker 4: the IRA has something called transferability, So basically any taxpayer

756
00:44:16,040 --> 00:44:21,280
Speaker 4: now can take advantage of these helping monetize these tax credits.

757
00:44:21,280 --> 00:44:24,000
Speaker 4: So you could be a toothpaste company and you can

758
00:44:24,320 --> 00:44:27,960
Speaker 4: basically negotiate with us, and if you've got a tax

759
00:44:28,280 --> 00:44:31,880
Speaker 4: liability and you want to offset that with tax credits,

760
00:44:31,880 --> 00:44:35,040
Speaker 4: you can negotiate with us. Is that ninety nine cents

761
00:44:35,080 --> 00:44:36,920
Speaker 4: on the dollar, ninety cents on the dollar, whatever, we

762
00:44:37,160 --> 00:44:40,080
Speaker 4: can negotiate and they can monetize those tax credits for us.

763
00:44:40,080 --> 00:44:43,879
Speaker 4: So that's that's nice. It creates a larger pool of

764
00:44:44,080 --> 00:44:48,480
Speaker 4: tax investors. And then there are two additional we'll call

765
00:44:48,600 --> 00:44:52,680
Speaker 4: bonus tax incentives. One related to something called energy community.

766
00:44:52,760 --> 00:44:55,120
Speaker 4: So if a project is built and this goes for

767
00:44:55,200 --> 00:44:58,840
Speaker 4: onshore and offshore, but if a project is built in

768
00:44:58,880 --> 00:45:02,760
Speaker 4: a community that's deemed to be an energy community, either

769
00:45:03,360 --> 00:45:08,480
Speaker 4: primarily like a historically X traditional energy community like an

770
00:45:08,600 --> 00:45:13,319
Speaker 4: X coal mine or an X coal coal factory or

771
00:45:13,400 --> 00:45:18,000
Speaker 4: an X oil and gas you know location. Also there

772
00:45:18,000 --> 00:45:21,920
Speaker 4: are some definitions around if it's a contaminated brown filled area,

773
00:45:21,920 --> 00:45:24,880
Speaker 4: if it had certain contaminations, then it qualifies as an

774
00:45:24,920 --> 00:45:27,520
Speaker 4: energy community. So this is all across America. There's these

775
00:45:27,640 --> 00:45:30,520
Speaker 4: energy communities that you can qualify for, and if you

776
00:45:30,560 --> 00:45:32,359
Speaker 4: build a project in those communities, you can get an

777
00:45:32,360 --> 00:45:36,040
Speaker 4: extra ten percent tax benefit. And then the last one

778
00:45:36,120 --> 00:45:39,920
Speaker 4: is an extra ten percent bonus for domestic content. And

779
00:45:39,960 --> 00:45:44,120
Speaker 4: again the domestic content definitions vary from entoursolar and wind

780
00:45:44,160 --> 00:45:48,280
Speaker 4: and offshore, but there's a certain requirement of what percentage

781
00:45:48,280 --> 00:45:51,080
Speaker 4: of the project needs to be produced domestically. You know,

782
00:45:51,120 --> 00:45:54,160
Speaker 4: in some cases it's there's some other provisions one hundred

783
00:45:54,160 --> 00:45:56,879
Speaker 4: percent US steel this or that. There's also some other

784
00:45:57,400 --> 00:45:59,080
Speaker 4: a lot of a lot, a lot a lot of

785
00:45:59,120 --> 00:46:03,000
Speaker 4: little nuances of about using US labor and having apprenticeship

786
00:46:03,040 --> 00:46:06,160
Speaker 4: programs and other things that they all go into this,

787
00:46:06,200 --> 00:46:09,759
Speaker 4: but it's all designed to help create more of a

788
00:46:09,760 --> 00:46:12,960
Speaker 4: domestic industry. But I guess to sum it up, you

789
00:46:12,960 --> 00:46:16,560
Speaker 4: can get up to fifty percent of your let's say

790
00:46:16,560 --> 00:46:19,880
Speaker 4: ITC's of your eligible basis tax credits, and then you

791
00:46:19,920 --> 00:46:20,960
Speaker 4: need to go monetize that.

792
00:46:21,200 --> 00:46:26,200
Speaker 2: So, David Hardy, that was a fantastic conversation. Really appreciate

793
00:46:26,360 --> 00:46:29,319
Speaker 2: the detail and the explanation. I actually feel like I

794
00:46:29,400 --> 00:46:31,319
Speaker 2: learned something in that. So thank you so much for

795
00:46:31,440 --> 00:46:32,200
Speaker 2: coming out of lock.

796
00:46:32,680 --> 00:46:35,360
Speaker 4: Heh, you're welcome. I'm glad that you think you learned something.

797
00:46:35,960 --> 00:46:39,279
Speaker 2: No, I definitely did know that we continue our process. Yeah,

798
00:46:39,320 --> 00:46:42,160
Speaker 2: we continue our learning group. No, that really was that

799
00:46:42,200 --> 00:46:44,839
Speaker 2: really was excellent and exactly what we're looking for. So

800
00:46:44,880 --> 00:47:00,920
Speaker 2: I appreciate it. Now let's stay entire absolutely Tracy. I

801
00:47:00,920 --> 00:47:03,000
Speaker 2: thought that was great. As soon as like David went

802
00:47:03,080 --> 00:47:05,200
Speaker 2: into like spread to whack in the beginning, I was like,

803
00:47:05,200 --> 00:47:07,960
Speaker 2: all right, we are going to get a good granular conversation.

804
00:47:08,480 --> 00:47:11,080
Speaker 2: That's really good. It's going to be a good conversation,

805
00:47:11,160 --> 00:47:11,640
Speaker 2: totally right.

806
00:47:11,760 --> 00:47:14,200
Speaker 3: No, it was really nice to hear from We've been

807
00:47:14,239 --> 00:47:17,680
Speaker 3: talking a lot about I guess the structure of the

808
00:47:17,800 --> 00:47:21,400
Speaker 3: US energy market from you know, academics or people who

809
00:47:21,480 --> 00:47:23,120
Speaker 3: take an interest in it, but it was good to

810
00:47:23,160 --> 00:47:27,000
Speaker 3: hear from a practitioner of the market. Let's put it

811
00:47:27,040 --> 00:47:27,440
Speaker 3: that way.

812
00:47:27,680 --> 00:47:30,920
Speaker 2: There were many interesting things in there, particularly in the

813
00:47:30,960 --> 00:47:34,000
Speaker 2: supply chain aspect of the conversation that I think, you know,

814
00:47:34,120 --> 00:47:38,760
Speaker 2: sometimes we talk about like the world isn't a neoclassical world,

815
00:47:38,800 --> 00:47:41,960
Speaker 2: like market signals. You know, you have demand for something,

816
00:47:41,960 --> 00:47:44,160
Speaker 2: but the supply doesn't just arise, and you know, he

817
00:47:44,239 --> 00:47:48,480
Speaker 2: had a line about the balance sheet of the suppliers

818
00:47:48,560 --> 00:47:51,280
Speaker 2: to his own company, and how few of them, et cetera.

819
00:47:51,360 --> 00:47:53,480
Speaker 2: And so you think about like this sort of like

820
00:47:53,840 --> 00:47:57,920
Speaker 2: sequence of off take agreements, the demand for the electricity,

821
00:47:57,960 --> 00:47:59,680
Speaker 2: the demand for the ships, et cetera. And then you

822
00:47:59,719 --> 00:48:03,040
Speaker 2: think about, Okay, there's some companies somewhere, maybe probably in

823
00:48:03,040 --> 00:48:06,239
Speaker 2: Europe or somewhere that makes a key component. But they

824
00:48:06,239 --> 00:48:09,279
Speaker 2: don't have unlimited amounts of money. They can't just ramp

825
00:48:09,360 --> 00:48:12,600
Speaker 2: up instantly, or they can't just have excess supply excess

826
00:48:12,640 --> 00:48:14,520
Speaker 2: inventory if they don't know. And so you could see

827
00:48:14,520 --> 00:48:17,600
Speaker 2: how like fragile it is and how important it is

828
00:48:17,640 --> 00:48:21,080
Speaker 2: to get that sequencing right to actually get these things

829
00:48:21,280 --> 00:48:21,879
Speaker 2: done in time.

830
00:48:22,200 --> 00:48:25,360
Speaker 3: Well, it also seems to me that traditional economics is

831
00:48:25,520 --> 00:48:28,799
Speaker 3: especially ill equipped to deal with I guess, industries with

832
00:48:29,000 --> 00:48:33,120
Speaker 3: incredibly long timelines, right. It seems like that's where you

833
00:48:33,160 --> 00:48:36,120
Speaker 3: sort of get the lag between the demand signal and

834
00:48:36,160 --> 00:48:39,960
Speaker 3: the actual supply increase. And as far as I remember

835
00:48:40,080 --> 00:48:44,480
Speaker 3: from like AP microeconomics.

836
00:48:43,280 --> 00:48:43,839
Speaker 2: It'sok AP.

837
00:48:44,560 --> 00:48:49,719
Speaker 3: Yeah, actually I still have grievances about microeconomics AP, but

838
00:48:50,120 --> 00:48:51,960
Speaker 3: as far as I can remember from that, it was like,

839
00:48:52,080 --> 00:48:54,880
Speaker 3: you know, you draw the little demand supply chart and

840
00:48:54,920 --> 00:48:58,920
Speaker 3: the lines cross, and like there's very little discussion of

841
00:48:59,040 --> 00:49:04,839
Speaker 3: the actual like physical constraints around building up that production capacity.

842
00:49:04,960 --> 00:49:07,239
Speaker 3: The companies are supposed to hear like, oh, we want

843
00:49:07,239 --> 00:49:10,359
Speaker 3: more of this thing, and so prices go up and

844
00:49:10,400 --> 00:49:13,640
Speaker 3: they immediately start building it out. But as we've seen

845
00:49:13,760 --> 00:49:17,080
Speaker 3: time and time again since twenty twenty, it doesn't always

846
00:49:17,080 --> 00:49:18,360
Speaker 3: happen that way in practice.

847
00:49:18,840 --> 00:49:22,640
Speaker 2: No, it definitely doesn't. And all I always say is

848
00:49:22,680 --> 00:49:26,320
Speaker 2: I wish we had done the IRA in twenty ten. Well,

849
00:49:26,360 --> 00:49:29,680
Speaker 2: we had abundoned all that stuff. But it does seem

850
00:49:29,719 --> 00:49:32,560
Speaker 2: like I kind of came away from the conversation, so

851
00:49:32,640 --> 00:49:35,360
Speaker 2: actually two things I kind of now come on the

852
00:49:35,440 --> 00:49:38,440
Speaker 2: side of, Like, it does seem to be like a

853
00:49:38,480 --> 00:49:41,040
Speaker 2: mix of bad timing and bad luck and growing pains.

854
00:49:41,200 --> 00:49:43,359
Speaker 2: And I think the best argument for that as simple

855
00:49:43,400 --> 00:49:46,080
Speaker 2: as like, there is a booming offshore business in Europe,

856
00:49:46,880 --> 00:49:50,040
Speaker 2: and it can be done. It can be done cheaply,

857
00:49:50,080 --> 00:49:53,040
Speaker 2: and it can be done economically. But if you're starting

858
00:49:53,040 --> 00:49:55,360
Speaker 2: from zero and you're trying to build an US and

859
00:49:55,400 --> 00:49:59,440
Speaker 2: you have the Jones Act, and you have various incentives

860
00:49:59,440 --> 00:50:02,279
Speaker 2: for domestic steal and domestic labor, and maybe those get

861
00:50:02,280 --> 00:50:05,200
Speaker 2: in the way. I don't know, like this is a

862
00:50:05,360 --> 00:50:06,279
Speaker 2: ramp up process. That.

863
00:50:06,520 --> 00:50:09,120
Speaker 3: Yeah, I was going to say the exact same thing.

864
00:50:09,400 --> 00:50:11,800
Speaker 3: So there was a time, and I think we spoke

865
00:50:11,800 --> 00:50:14,640
Speaker 3: about it with Chelsea and I kind of mentioned it

866
00:50:14,680 --> 00:50:19,080
Speaker 3: in the intro where I thought, maybe wind is basically

867
00:50:19,080 --> 00:50:23,200
Speaker 3: a low interest rate phenomenon like cheap ubers or we

868
00:50:23,360 --> 00:50:27,200
Speaker 3: work or something like that. But speaking to David, I've

869
00:50:27,280 --> 00:50:30,480
Speaker 3: sort of come away thinking it was that extraordinary combination

870
00:50:30,960 --> 00:50:33,840
Speaker 3: of really bad timing in the form of both supply

871
00:50:33,960 --> 00:50:37,319
Speaker 3: chain disruptions and the ramp up in interest rates, and

872
00:50:37,400 --> 00:50:40,319
Speaker 3: the fact that you're at the very beginnings of this

873
00:50:40,440 --> 00:50:43,239
Speaker 3: particular technology, at least in the US, and that, as

874
00:50:43,239 --> 00:50:45,839
Speaker 3: you said, there is a comparative model in the form

875
00:50:45,880 --> 00:50:50,279
Speaker 3: of Europe where there is some subsidy free wind and

876
00:50:50,440 --> 00:50:52,920
Speaker 3: the cost is much much lower.

877
00:50:53,040 --> 00:50:56,040
Speaker 2: So yeah, maybe there's hope.

878
00:50:56,160 --> 00:50:57,160
Speaker 3: All right, shall we leave it there.

879
00:50:57,239 --> 00:50:58,000
Speaker 2: Let's leave it there.

880
00:50:58,200 --> 00:51:02,000
Speaker 3: This has been another episode of THEOS podcast. I'm Tracy Alloway.

881
00:51:02,040 --> 00:51:03,759
Speaker 3: You can follow me at Tracy.

882
00:51:03,440 --> 00:51:06,120
Speaker 2: Alloway and I'm Joe Wisenthal. You can follow me at

883
00:51:06,160 --> 00:51:09,440
Speaker 2: the Stalwart. Follow our guest David Hardy. He's at David

884
00:51:09,440 --> 00:51:13,560
Speaker 2: Hardy us follow our producers Carmen Rodriguez at Kerman armand

885
00:51:13,600 --> 00:51:17,080
Speaker 2: dash Ol Bennett at Dashbot and Kelbrooks at Kelbrooks. And

886
00:51:17,160 --> 00:51:20,440
Speaker 2: thank you to our producer Moses Ondem. For more Oddlots content,

887
00:51:20,480 --> 00:51:22,640
Speaker 2: go to Bloomberg dot com slash odd Lots, where you

888
00:51:22,640 --> 00:51:26,160
Speaker 2: have transcripts, a blog and a newsletter. And if you

889
00:51:26,200 --> 00:51:28,160
Speaker 2: want to chat about all of these topics, you can

890
00:51:28,200 --> 00:51:31,400
Speaker 2: do so twenty four to seven in our discord Discord

891
00:51:31,480 --> 00:51:33,280
Speaker 2: dot gg slash od Loots.

892
00:51:33,520 --> 00:51:35,719
Speaker 3: And if you enjoy ad thoughts, if you like it

893
00:51:35,760 --> 00:51:38,400
Speaker 3: when we do these deep dives into the energy market,

894
00:51:38,440 --> 00:51:41,120
Speaker 3: then please leave us a positive review on your favorite

895
00:51:41,120 --> 00:51:44,759
Speaker 3: podcast platform. And remember, if you are a Bloomberg subscriber,

896
00:51:44,800 --> 00:51:48,080
Speaker 3: you can listen to all of our episodes absolutely ad free.

897
00:51:48,239 --> 00:51:50,120
Speaker 3: All you need to do is connect to your Bloomberg

898
00:51:50,160 --> 00:51:53,560
Speaker 3: account with Apple Podcasts. In order to do that, just

899
00:51:53,600 --> 00:51:56,880
Speaker 3: find the Bloomberg channel on Apple Podcasts and follow the

900
00:51:56,960 --> 00:52:04,400
Speaker 3: instructions there. Thanks for listening in