WEBVTT - Orsted's Americas CEO on Fixing What Went Wrong in Wind Power 0:00:03.160 --> 0:00:18.760 Bloomberg Audio Studios, Podcasts, radio News. 0:00:20.440 --> 0:00:23.919 Hello and welcome to another episode of the Odd Lots podcast. 0:00:24.000 --> 0:00:26.360 I'm Joe Wisenthal and I'm Tracy Alloway. 0:00:26.800 --> 0:00:29.120 Tracy, we've been talking a lot of electricity lately. 0:00:29.160 --> 0:00:33.080 Actually, yeah, it's been what energy months here on Odd Lots. 0:00:33.400 --> 0:00:37.360 Not really intentionally, but yes, it's sort of becoming energy 0:00:37.720 --> 0:00:42.239 month here on Odd Lots. I find like understanding any markets, 0:00:42.280 --> 0:00:45.479 any understanding any commodity markets or whatever is sort of 0:00:45.600 --> 0:00:49.239 extraordinarily difficult, But I find power and electricity to be 0:00:49.320 --> 0:00:52.040 sort of like orders of magnitude. Like it just sort 0:00:52.040 --> 0:00:54.480 of like my mental model how it all works is 0:00:54.520 --> 0:00:57.520 so still like in co it and immature, and I'm 0:00:57.560 --> 0:00:59.600 just sort of understanding it. Like it feels like so 0:00:59.720 --> 0:01:03.640 much more complicated, all these auctions and micro auctions and 0:01:03.960 --> 0:01:07.000 mini markets, and you know, it's it feels a lot 0:01:07.080 --> 0:01:09.360 more complicated in my mind than say, like trading oil. 0:01:09.720 --> 0:01:12.280 My mental model for how it all works is that 0:01:12.360 --> 0:01:16.080 meme from It's Sunny in Philadelphia with the posting notes. Right, 0:01:16.120 --> 0:01:21.520 It's like this weird pseudo government private thing where on 0:01:21.560 --> 0:01:24.759 the one hand, you have natural monopolies in the form 0:01:24.800 --> 0:01:26.720 of the grid and then on the other hand, you 0:01:26.800 --> 0:01:30.679 have all these private individual actors who are trying to 0:01:30.720 --> 0:01:34.160 do all these new things, and it just it seems 0:01:34.280 --> 0:01:37.760 enormously complicated. And in some ways it's becoming more complicated 0:01:37.760 --> 0:01:41.680 because you do have efforts to hasten the energy transition 0:01:41.840 --> 0:01:45.480 in the form of things like the Inflation Reduction Act. 0:01:45.880 --> 0:01:51.200 This network of tax credits and subsidies seems very difficult 0:01:51.200 --> 0:01:52.800 to understand to me as well. 0:01:53.440 --> 0:01:55.720 Right, and we had this grid that for years sort 0:01:55.760 --> 0:02:00.560 of operated with gas and coal and some nuclear, and 0:02:00.640 --> 0:02:03.040 now you know, over the last several years and the 0:02:03.080 --> 0:02:06.760 Inflation Reduction Act has tried to accelerate it get more 0:02:07.040 --> 0:02:10.320 renewable clean energy on the grid. So we're sort of 0:02:10.320 --> 0:02:13.800 putting a new model of production onto an existing model 0:02:13.840 --> 0:02:17.040 of distribution. Creates all kinds of new things. One thing 0:02:17.080 --> 0:02:20.480 in particular, though, you know, we're here in the northeast 0:02:21.200 --> 0:02:23.079 and you know, we don't get a lot of sunlight, 0:02:23.200 --> 0:02:24.320 or we do, but you know. 0:02:24.560 --> 0:02:25.760 We get it's erratic. 0:02:26.000 --> 0:02:28.520 It's erratic, and for much of the year there's hardly 0:02:28.600 --> 0:02:31.880 any and so if we're going to sort of decarbonize 0:02:31.919 --> 0:02:34.359 a lot of the northeastern part of the grid, the 0:02:34.880 --> 0:02:36.840 bet is that a big chunk has to come from 0:02:36.840 --> 0:02:38.959 wind and in particular offshore win Yes. 0:02:39.080 --> 0:02:41.640 Absolutely, and this is something that we've touched on before 0:02:41.919 --> 0:02:46.080 in an episode with Chelsea Jean Michelle, the wind industry 0:02:46.120 --> 0:02:49.360 analyst for Bloomberg nef SO, one of our colleagues here 0:02:49.680 --> 0:02:52.519 at Bloomberg. And I think, to me, the big question 0:02:52.680 --> 0:02:56.760 is we have all these projects and there have been 0:02:56.840 --> 0:02:59.720 some hiccups over the past year. So we've seen projects 0:02:59.800 --> 0:03:03.160 can sold, We've seen a bunch of big energy companies 0:03:03.200 --> 0:03:08.079 take impairments on wind projects. We've seen energy stocks, you know, 0:03:08.240 --> 0:03:11.760 fall quite a bit. There's the potential return of a 0:03:11.880 --> 0:03:16.080 known wind energy disliker, let's put it that way, in 0:03:16.160 --> 0:03:20.480 the form of Donald Trump. All these different headwinds for 0:03:20.560 --> 0:03:23.560 the industry, and to me, the question is still, are 0:03:23.680 --> 0:03:29.560 these growing pains for something which requires enormous upfront investment 0:03:29.800 --> 0:03:33.120 and the creation of a lot of really really big 0:03:33.160 --> 0:03:37.280 structures in the form of turbines and complicated supply chains 0:03:37.320 --> 0:03:40.120 are needed to build those and huge investment outlays and 0:03:40.160 --> 0:03:44.480 all of that. Or is this something more fundamental about 0:03:44.520 --> 0:03:47.120 the business that's the big question in my mind, Like, 0:03:47.400 --> 0:03:50.720 is this just a question of transition and getting started, 0:03:50.960 --> 0:03:54.560 or is this maybe saying something more long term about 0:03:54.600 --> 0:03:55.200 the industry. 0:03:55.280 --> 0:03:57.240 I think that's a great way to frame it. And 0:03:57.320 --> 0:03:59.840 you know, the only thing I would add is further 0:04:00.120 --> 0:04:03.560 complication to this question is that the IRA and this 0:04:03.680 --> 0:04:07.800 like particularly aggressive imperative right now is coming at a 0:04:07.840 --> 0:04:11.040 time when like every industry saw supply chain disruptions and 0:04:11.120 --> 0:04:15.600 every industry saw rising cost of capital thanks to the 0:04:16.000 --> 0:04:19.120 raid hikes and inflation, etcetera. You know, you know, we 0:04:19.720 --> 0:04:21.400 if we had to do over, maybe we would have 0:04:21.440 --> 0:04:24.239 started this done an IRA like act in two thousand 0:04:24.240 --> 0:04:27.320 and nine or twenty ten when we had significant unemployment 0:04:27.360 --> 0:04:29.560 and commodities were dirt cheap, but we didn't. Can't go 0:04:29.680 --> 0:04:32.560 into the past. And so answering these questions, how much 0:04:32.640 --> 0:04:35.120 is growing pains, how much is the bad timing with 0:04:35.160 --> 0:04:35.840 supply chains? 0:04:35.880 --> 0:04:36.200 How much? 0:04:36.640 --> 0:04:41.080 Very complicated, but that fits the theme of how complicated 0:04:41.120 --> 0:04:44.400 the energy markets are, power markets are in general. So 0:04:44.440 --> 0:04:48.040 we continue our process of discovery of learning about how 0:04:48.040 --> 0:04:48.559 it all works. 0:04:48.880 --> 0:04:51.000 I am excited. We do, in fact have the perfect 0:04:51.000 --> 0:04:52.080 guest for this episode. 0:04:52.240 --> 0:04:54.440 We do have the perfect guest. We are going to 0:04:54.480 --> 0:04:56.680 be speaking with David Hardy. He is the CEO of 0:04:56.680 --> 0:05:00.680 the America's division at ORSTED, which is the huge fish company, 0:05:00.720 --> 0:05:04.560 one of the global leaders in wind power. He had 0:05:04.560 --> 0:05:07.919 previously been the CEO of the offshore business at ORSTED 0:05:08.400 --> 0:05:12.120 after joining the company in twenty twenty, so the right 0:05:12.240 --> 0:05:15.000 in the sweet spot to help us disentangle all of 0:05:15.040 --> 0:05:17.440 this stuff. So, David, thank you so much for coming 0:05:17.440 --> 0:05:18.159 on the podcast. 0:05:18.600 --> 0:05:20.400 Thanks Joe and Tracy. Great to be here. 0:05:20.839 --> 0:05:24.280 Absolutely, So why don't we start off twenty twenty three 0:05:24.360 --> 0:05:28.800 I think was sort of overwhelmingly recognized as a very 0:05:29.040 --> 0:05:34.760 challenging year, both for offshore wind and also ORSTED specifically. 0:05:35.080 --> 0:05:37.159 And we can get into some of the projects, but like, 0:05:37.440 --> 0:05:39.440 why do you give us the sort of like high 0:05:39.560 --> 0:05:43.200 level summary of like what we saw unfold over the 0:05:43.279 --> 0:05:44.960 last year eighteen months or so. 0:05:45.800 --> 0:05:48.320 Yeah, I appreciate, appreciate the question. I also appreciate the 0:05:48.680 --> 0:05:51.279 introductory dialogue you had with each other thinking about how 0:05:51.320 --> 0:05:53.960 complex it all is, and I have to echo that 0:05:54.080 --> 0:05:57.279 it is a it is a complex industry. I actually 0:05:57.520 --> 0:06:02.120 enjoy that because you know, with complexity you can differentiate. 0:06:02.680 --> 0:06:04.800 It's a lot harder to differentiate if you're selling a 0:06:04.800 --> 0:06:08.520 cup of sugar to against the other guy. Who's selling 0:06:08.520 --> 0:06:12.039 a cup of sugar. But and likewise, I think the 0:06:12.160 --> 0:06:15.560 question from Tracy about, you know, is this growing pains 0:06:15.720 --> 0:06:18.760 or you know, what was the cause? I think it 0:06:19.640 --> 0:06:24.200 is kind of all of the above, but specifically a 0:06:24.240 --> 0:06:26.599 little bit of you know, no one likes to in 0:06:26.680 --> 0:06:29.480 business say bad luck, but a little bit of bad 0:06:29.560 --> 0:06:32.240 timing I would say is there was a lot of 0:06:32.400 --> 0:06:37.839 ambition and expectations and growth expected from from the US 0:06:37.839 --> 0:06:41.040 and offshore wind as as the maturity of the industry 0:06:41.080 --> 0:06:46.400 overall in Europe reflected an opportunity for America. I remember, 0:06:46.520 --> 0:06:48.640 or said, built the world's first offshore wind far more 0:06:48.680 --> 0:06:51.599 than thirty years ago, and as the world leader an 0:06:51.680 --> 0:06:56.640 offshore wind and has you know, nine gigawatts operating, and 0:06:56.839 --> 0:07:00.560 a lot of those were pretty low cost projects prices 0:07:00.600 --> 0:07:05.320 in Europe. The US Northeast states especially who you know, 0:07:05.360 --> 0:07:07.160 don't have a lot of sun, as you guys said, 0:07:07.200 --> 0:07:09.520 and also don't have a lot of space, saw offshore 0:07:09.520 --> 0:07:12.480 win as the kind of panacea for how to get 0:07:12.600 --> 0:07:16.560 large amounts of green energy you know, onto the grid. 0:07:16.720 --> 0:07:20.720 And and so there was a big fast ambition and 0:07:20.760 --> 0:07:24.720 growth and orsted as the leader saw the opportunity and 0:07:24.720 --> 0:07:29.040 and and took an aggressive position of building projects and 0:07:29.120 --> 0:07:32.160 built building, you know, signing up for off take and 0:07:32.160 --> 0:07:35.720 and committing to billions of dollars of capital investment in 0:07:35.760 --> 0:07:43.000 this market, all as COVID hits were in Ukraine, massive inflation, 0:07:43.640 --> 0:07:47.160 rising interest rates, and yes, all industries were affected by that, 0:07:47.240 --> 0:07:51.400 but renewable energy in general is very, very susceptible to 0:07:52.120 --> 0:07:55.800 rising interest rates, and offshore win even the most of 0:07:55.880 --> 0:08:00.640 all of the renewable energy sectors because it's so cap intensive. 0:08:00.680 --> 0:08:02.760 Our fuel is free, we say, but our fuel is 0:08:02.800 --> 0:08:04.960 really the cost of capital because we put so much 0:08:05.000 --> 0:08:09.440 capital out upfront, and so as interest rates rose three 0:08:09.520 --> 0:08:14.560 hundred BIPs, it just fundamentally changed the economics of the projects. 0:08:14.600 --> 0:08:16.400 And then on top of that, we had you know, 0:08:16.480 --> 0:08:21.080 bespoke inflation, not just generic CPI but but industry specific 0:08:21.120 --> 0:08:25.400 inflation that led to thirty forty percent cost increases. And 0:08:25.440 --> 0:08:31.280 those two factors just basically required a reset, and or 0:08:31.360 --> 0:08:34.920 SAT unfortunately, was the most exposed and the most progressed. 0:08:34.920 --> 0:08:37.040 We had some really late stage projects where we had 0:08:37.040 --> 0:08:40.400 already invested you know, up to a billion dollars in 0:08:40.440 --> 0:08:43.679 one project for example, and made commitments for more. And 0:08:43.760 --> 0:08:48.079 when we we were trying to pull all the levers 0:08:48.120 --> 0:08:50.199 and take all of our experience to try to make 0:08:50.200 --> 0:08:53.240 these projects go, and and in the end we couldn't 0:08:53.240 --> 0:08:55.280 make them all go. And you know, we we had 0:08:55.280 --> 0:08:57.640 to make some some tough decisions in twenty twenty three 0:08:57.720 --> 0:09:01.240 to cease development on on a couple of projects. One, 0:09:01.320 --> 0:09:03.400 like I said, was a really late stage project, and 0:09:03.440 --> 0:09:07.520 so it took a big financial impairment and a financial 0:09:07.600 --> 0:09:12.000 provision for the cancelation charges for that project. But on 0:09:12.040 --> 0:09:14.800 the bright side, and we'll hopefully get to this part. 0:09:15.200 --> 0:09:19.120 We have three projects that we're still building which are 0:09:19.520 --> 0:09:24.040 one is completed, actually America's first commercial scale offshore wind farm, 0:09:24.120 --> 0:09:26.920 the South Fork Wind Farm, was just completed a few 0:09:26.920 --> 0:09:29.840 months ago. And we've got two other very large commercial 0:09:29.880 --> 0:09:33.079 projects that we've taken our so called financial investment final 0:09:33.120 --> 0:09:36.880 investment decision, and we're in construction offshore on one of 0:09:36.920 --> 0:09:39.360 them and building the onshore. You build the onshore part 0:09:39.400 --> 0:09:43.160 first or in parallel with these projects. But the second one, 0:09:43.440 --> 0:09:46.920 we're in full construction mode on the onshore part. So 0:09:47.400 --> 0:09:51.680 I think a little bit of being exposed and being overexposed, 0:09:51.960 --> 0:09:55.720 you know, in retrospect, could we have slowed earlier, probably 0:09:55.800 --> 0:09:58.760 in retrospect, you know, could we have not been as 0:09:58.840 --> 0:10:01.679 ambitious and kind of daggered the number of projects we 0:10:01.679 --> 0:10:05.360 were building in the US. Probably Obviously there were some 0:10:06.480 --> 0:10:10.400 you know, market specific challenges that impacted us. A lot 0:10:10.440 --> 0:10:13.320 of these early projects didn't have any inflation protection and 0:10:13.360 --> 0:10:16.720 the off take, the permitting process was slow, et cetera. 0:10:16.800 --> 0:10:19.360 So there's some US specific things, but a lot of 0:10:19.360 --> 0:10:23.480 it is actually global macro supply chain imbalance, global macrol 0:10:23.920 --> 0:10:26.560 cost of capital, et cetera. That just impacted us in 0:10:26.559 --> 0:10:28.240 a negative way in twenty twenty three. Sorry for the 0:10:28.240 --> 0:10:30.280 long answer. I'll be shorter in the future, but. 0:10:30.480 --> 0:10:33.560 That was very helpful. Also, it's good. Could you gave 0:10:33.640 --> 0:10:35.640 us like six follow up questions automatically? 0:10:37.000 --> 0:10:40.520 Yes? So, okay, first follow up question, but just on 0:10:40.600 --> 0:10:45.760 the idea of rationalizing some projects and even some late 0:10:45.840 --> 0:10:48.880 stage ones which you mentioned, and I assume you're talking 0:10:48.920 --> 0:10:52.720 about the farms in New Jersey Ocean wind But how 0:10:52.760 --> 0:10:57.240 do you decide what to continue with and what to cancel? 0:10:57.480 --> 0:11:00.679 Like is it a question of math and the financing 0:11:00.760 --> 0:11:04.520 costs and the interest rates that you just outlined, or 0:11:04.640 --> 0:11:08.560 is it sometimes a question of physical limitations, so things 0:11:08.720 --> 0:11:12.400 like supply chain issues. The lack of this is Joe's 0:11:12.440 --> 0:11:15.680 favorite subject. The lack of transformers or switch gears or 0:11:15.720 --> 0:11:18.400 the lack of this is another traditional odd lots topic, 0:11:18.559 --> 0:11:21.640 the lack of ships to actually build these things. 0:11:22.400 --> 0:11:25.160 Yeah, it's another kind of all of the above answer. 0:11:25.280 --> 0:11:27.760 You know, we we look at everything. Of course, you know, 0:11:28.280 --> 0:11:31.640 our publicly stated ambition is that we you know, try 0:11:31.679 --> 0:11:35.160 to achieve one hundred and fifty to three hundred bit 0:11:35.320 --> 0:11:38.880 spread to whack. So and we are wack weighted average 0:11:38.880 --> 0:11:42.600 cost of capital. We have a WHACK model basically that 0:11:43.120 --> 0:11:47.200 course is funded in our our corporate cost of capital. 0:11:47.240 --> 0:11:49.880 But then we we have whack adjustments to kind of 0:11:49.960 --> 0:11:53.679 create a project specific whack based on the market, the technology, 0:11:54.280 --> 0:11:56.920 project specific risks, et cetera. So we create this whack 0:11:57.040 --> 0:11:59.560 model and then we then we try to achieve you 0:11:59.559 --> 0:12:02.280 one hundred fifty to three hundred spread to whack against that. 0:12:02.400 --> 0:12:05.760 And so when when we're looking at projects, that's kind 0:12:05.800 --> 0:12:09.720 of our one of our first hurdles or KPIs that 0:12:09.760 --> 0:12:12.440 were that were very very focused on. So as I 0:12:12.520 --> 0:12:15.600 alluded to, is your costs are going up, that spread 0:12:15.600 --> 0:12:17.880 to whack is being compressed. As your cost of capital 0:12:17.960 --> 0:12:19.640 is going up, that whack is going up, and so 0:12:20.240 --> 0:12:23.560 you pretty quickly can get upside down on that spread 0:12:23.559 --> 0:12:26.160 to whack. If if the ambition has only one fifty 0:12:26.160 --> 0:12:28.280 to three hundred and the WHACK went up by three hundred, 0:12:28.440 --> 0:12:31.360 it's pretty tricky. But at the same time, you know, 0:12:31.400 --> 0:12:33.760 we are also trying to be strategic. We were trying 0:12:33.760 --> 0:12:36.920 to make investments in a market, and at some point 0:12:36.920 --> 0:12:38.880 we had some sunk cost and so even though our 0:12:39.000 --> 0:12:42.720 guiding star is this life cycle spread to whack fully 0:12:42.760 --> 0:12:47.280 loaded kind of KPI, we started adjusting a little bit 0:12:47.320 --> 0:12:49.959 and saying like, well, if we cancel, we've got these 0:12:49.960 --> 0:12:51.760 sunk costs we're gonna have to write off anyway, So 0:12:51.800 --> 0:12:54.720 should we just assume them as written off and look 0:12:54.720 --> 0:12:57.600 at ford I rrs And so we started changing our 0:12:57.640 --> 0:13:00.240 parameters a little bit and barometer a little bit as 0:13:00.240 --> 0:13:02.839 we were getting into the tough situation to see if 0:13:02.840 --> 0:13:05.360 it strategically made sense to keep going. And we were 0:13:05.400 --> 0:13:09.240 constantly looking at the supply chain and seeing, okay, well 0:13:09.240 --> 0:13:11.200 what risks are still ahead of us? If we sit 0:13:11.360 --> 0:13:14.600 with a with a target today, you know, how realistic 0:13:14.640 --> 0:13:16.480 is it? We'll be able to hold that. Of course, 0:13:16.600 --> 0:13:19.000 we had our big risk registers, and we have our 0:13:19.480 --> 0:13:21.920 modeling of you know, what things are going to cost, 0:13:22.040 --> 0:13:24.400 and we had contingencies and all that built in, but 0:13:24.720 --> 0:13:27.800 you still kind of have a scientific but not perfect 0:13:27.920 --> 0:13:34.720 scientific probability analysis of outcomes. And if you're you know, 0:13:34.880 --> 0:13:38.960 P ninety nine outcome is really really bad, and you 0:13:39.000 --> 0:13:42.640 know your P fifty looks okay, that's different than if 0:13:42.679 --> 0:13:46.320 your your standard deviations are more narrow between your P 0:13:46.440 --> 0:13:48.880 fifty and your P ninety nine. And so as we 0:13:48.920 --> 0:13:51.080 looked at these projects, there seemed to still be a 0:13:51.080 --> 0:13:55.080 lot of challenges ahead, and so again the management team 0:13:55.120 --> 0:13:57.760 and the board had a discussion and we decided that 0:13:58.240 --> 0:14:01.800 we weren't comfortable with continue to invest in the projects, 0:14:01.800 --> 0:14:04.160 and we thought it was better for the company, for 0:14:04.240 --> 0:14:07.120 the portfolio to go ahead and cancel, take the big hit, 0:14:07.640 --> 0:14:11.320 but hopefully take a little a little bit of risk 0:14:11.360 --> 0:14:13.200 out of the system, a little bit of risk out 0:14:13.240 --> 0:14:16.240 of the supply chain, and a little bit of you know, 0:14:17.480 --> 0:14:20.120 more focus from the organization so that we could make 0:14:20.160 --> 0:14:22.360 these three projects that we did want to keep going 0:14:22.400 --> 0:14:25.600 forward with successful and that's that's been our target. And 0:14:25.640 --> 0:14:28.080 of course this is all from an America's perspective, but 0:14:28.200 --> 0:14:30.240 or said it was doing this you know globally, like 0:14:30.240 --> 0:14:33.480 looking at projects that had in Asia and Europe, et cetera. 0:14:50.040 --> 0:14:53.200 So, first of all, I'm very appreciative that you've gone 0:14:53.280 --> 0:14:55.920 right into things like spread to whack because this is 0:14:56.000 --> 0:14:59.040 exactly you know, what we want to understand better, but 0:14:59.200 --> 0:15:02.040 just to conception rualized sort of like what was or 0:15:02.240 --> 0:15:04.440 is the sort of way to think about like the 0:15:04.520 --> 0:15:08.120 difference between say, the South Fork project and the New 0:15:08.240 --> 0:15:11.560 Jersey project. What was it about one of them that 0:15:11.640 --> 0:15:13.480 it's like, Okay, this makes sense to go ahead and 0:15:13.520 --> 0:15:15.960 complete it, and another one is like, no, we're going 0:15:16.040 --> 0:15:17.880 to take the hit on this and write off some 0:15:17.920 --> 0:15:18.600 of this investment. 0:15:19.680 --> 0:15:23.440 Yeah, without getting into specifics, but conceptually it's about, you know, 0:15:23.560 --> 0:15:28.560 how like how negative is the MPV or how you know, 0:15:28.600 --> 0:15:31.720 how much more risk was there ahead of us, how 0:15:31.800 --> 0:15:35.360 much more unknown? What supply chain challenges were still out there? 0:15:35.360 --> 0:15:38.239 And one of the challenges with Ocean Win one in particular, 0:15:38.480 --> 0:15:43.680 was that as we were approaching kind of the build 0:15:43.720 --> 0:15:47.560 up to this decision, there were new global supply chain 0:15:47.920 --> 0:15:52.080 challenges that were emerging. So potentially, you know, delays in 0:15:52.120 --> 0:15:55.960 our foundations delays, and our turbines delays and vessels, and 0:15:56.000 --> 0:15:59.200 then you have these knock on effects. Right if you're 0:15:59.280 --> 0:16:03.400 planning to to start installing foundations and let's say summer 0:16:03.440 --> 0:16:07.760 of twenty four, which is what our plan was, and 0:16:07.800 --> 0:16:11.360 now you know those foundations aren't going to be ready 0:16:11.440 --> 0:16:14.360 until twenty five, or your vessels, you know, your vessels 0:16:14.360 --> 0:16:16.480 stuck on another project and it's not going to be there. 0:16:16.880 --> 0:16:19.480 Then the whole project has to shift because there's a 0:16:19.520 --> 0:16:22.200 sequence of how these things get built. And so then 0:16:22.480 --> 0:16:26.160 when we had lined up you know, the literally you know, 0:16:26.280 --> 0:16:29.920 hundreds of other contracts to make this whole project sequence, 0:16:30.480 --> 0:16:32.240 and the whole thing was going to have to shift. 0:16:32.640 --> 0:16:35.640 Then we were pretty concerned that as we reopened, as 0:16:35.680 --> 0:16:38.760 we went out to supplier A or supplier B and 0:16:38.800 --> 0:16:41.200 said we now need to shift this project from twenty 0:16:41.200 --> 0:16:46.080 four to twenty six, that all of their pains that 0:16:46.280 --> 0:16:50.360 they were feeling from the macroeconomic challenges we're going to 0:16:50.360 --> 0:16:53.600 be on the table because we had locked in some 0:16:53.680 --> 0:16:56.880 thing's pre the big inflation, and we had actually had 0:16:56.920 --> 0:17:00.600 some very favorable pricing potentially, But as soon as you 0:17:00.720 --> 0:17:04.560 reopen up things then then everybody's clawing back, and so 0:17:05.160 --> 0:17:07.280 I think that that was one of the big, big 0:17:07.280 --> 0:17:10.639 discussions that we had. And at the time, we weren't 0:17:10.720 --> 0:17:14.800 sure how the state was going to respond and you know, 0:17:14.880 --> 0:17:17.600 if they would work with us to to you know, 0:17:18.040 --> 0:17:21.439 to make make the project work. And so we just 0:17:21.440 --> 0:17:24.000 decided to make the call. We're with South Fork for example. 0:17:25.040 --> 0:17:28.000 Yes it's a tight project, but but we didn't have 0:17:28.080 --> 0:17:31.440 those same new supply chain risks that we that we 0:17:31.520 --> 0:17:33.800 saw on the horizon with Ocean Wing one. 0:17:34.200 --> 0:17:36.120 Wait, can you talk a little bit more about those 0:17:36.160 --> 0:17:39.760 supply chain risks because I kind of alluded to this earlier, 0:17:39.800 --> 0:17:43.760 but this is core odd lots thematic content, so things 0:17:43.840 --> 0:17:47.880 like switch gears and transformers and then the ships as well. 0:17:48.600 --> 0:17:52.880 You know, offshore wind is growing rapidly across the world, right, 0:17:52.880 --> 0:17:55.440 It's not just here where people saw this as a 0:17:55.440 --> 0:17:59.800 as a solution to get large renewable energy. And remember 0:17:59.840 --> 0:18:06.480 it in Europe, right, Russian invades Ukraine. Europeans want energy sovereignty, 0:18:07.040 --> 0:18:10.040 and so offshore wind became like even more important as 0:18:10.080 --> 0:18:12.560 they got off Russian gas. And so you all of 0:18:12.600 --> 0:18:16.320 a sudden have this huge supply and demand imbalance, particularly 0:18:16.359 --> 0:18:21.359 on things like HVDC systems, but also vessels, monopiles, et cetera. 0:18:21.440 --> 0:18:25.399 And some of these companies are not you know, super large, 0:18:25.600 --> 0:18:28.040 well funded balance sheet companies, so they can't just see 0:18:28.080 --> 0:18:30.199 the demand signal and ramp up the way that you 0:18:30.200 --> 0:18:33.640 would think they could. And also just the way the 0:18:33.680 --> 0:18:38.320 industry works, it's long cycle, so we typically don't want 0:18:38.359 --> 0:18:41.400 to like commit in a kind of take or pay 0:18:41.480 --> 0:18:46.480 way for whether that's vessels or equipment until we take 0:18:46.520 --> 0:18:48.840 our final investment decision to tell the projects to your risk, 0:18:48.880 --> 0:18:51.960 how we have our permits, our interconnect agreements, our land 0:18:52.040 --> 0:18:54.680 rights are you know, et cetera. Are are a point 0:18:54.720 --> 0:18:57.960 of interconnect agreements. And so there's a little bit of 0:18:58.000 --> 0:19:00.600 a chicken in the egg on like if the supply 0:19:00.720 --> 0:19:03.560 chain builds, it will there be demand or do they 0:19:03.600 --> 0:19:06.080 want that demand locked in? But we're not we and 0:19:06.200 --> 0:19:08.440 I'm saying we not orsted, but we the industry are 0:19:08.440 --> 0:19:10.720 we even though there's a lot of demand signals, are 0:19:10.720 --> 0:19:13.840 we committing? So they have business case certainty and so 0:19:14.440 --> 0:19:17.000 you kind of have had this challenge on the supply 0:19:17.119 --> 0:19:21.400 chain supply chain ramp up and and so definitely there's 0:19:21.440 --> 0:19:24.560 a global imbalance I would say on some of these 0:19:24.640 --> 0:19:29.520 key offshore when supply chain categories. And you know, the 0:19:29.640 --> 0:19:32.280 plan was that in the US, we were going to 0:19:32.320 --> 0:19:35.000 build our own capabilities here, we wouldn't need the global 0:19:35.280 --> 0:19:38.520 the global supply chain. But then again, the same chicken 0:19:38.560 --> 0:19:40.720 and egg problem. Right. We had a bunch of projects 0:19:40.720 --> 0:19:44.879 that had promised to help contribute to both demand and 0:19:45.040 --> 0:19:47.400 in some cases even contribute to some of the upfront 0:19:47.440 --> 0:19:50.119 costs to build out some of the supply chain. But 0:19:50.200 --> 0:19:53.880 then when the economics or the project didn't work anymore, 0:19:53.960 --> 0:19:56.480 then of course the economics for the supply chain didn't 0:19:56.480 --> 0:19:59.520 work anymore. So we're in a reset period for most 0:19:59.560 --> 0:20:01.840 of the product in the in the US. Other than 0:20:02.240 --> 0:20:05.240 kind of R three and and a couple couple more, 0:20:05.640 --> 0:20:08.399 the rest of the whole industry is basically, you know, 0:20:08.480 --> 0:20:12.359 had to recontract and push out and and we're you know, 0:20:12.560 --> 0:20:17.440 kind of in a re re reset of the macroeconomic conditions. 0:20:17.960 --> 0:20:20.800 I'm going to dive right into a subset of the 0:20:20.840 --> 0:20:24.600 supply chain question that speaks to this that also sort 0:20:24.600 --> 0:20:27.240 of our one of our core topics. Talk to us 0:20:27.240 --> 0:20:31.400 about the Jones Act, how it affects affects your business 0:20:31.920 --> 0:20:35.120 and I think Orsted has a you built your own 0:20:35.480 --> 0:20:38.320 Jones Act compliant vessel, But I think that's right. But 0:20:38.400 --> 0:20:41.720 talk to us about like this particular piece of legislation 0:20:42.280 --> 0:20:46.320 that's been around forever and what it means for basically 0:20:46.359 --> 0:20:50.560 the industry's capacity to build out US offshore wind. 0:20:51.200 --> 0:20:53.200 Yeah, I mean the Jones Act for for those that 0:20:53.280 --> 0:20:56.479 don't know, and I'm just going to make it simple, 0:20:56.800 --> 0:21:01.919 it requires a US flagged which means US owned and 0:21:01.960 --> 0:21:06.560 operated and built vessel to transport equipment from one US 0:21:06.680 --> 0:21:10.200 port to another. These products are built in the US 0:21:10.200 --> 0:21:13.800 Outer Continental Shelf and so they're subject to the Jones Act. 0:21:14.520 --> 0:21:16.560 In general, i'd say, or said, we're supportive of the 0:21:16.640 --> 0:21:21.720 Jones Act. It is, you know, it's it's another challenge 0:21:21.880 --> 0:21:24.600 to starting up the industry and we would love to 0:21:24.640 --> 0:21:27.439 have some you know, some waivers in the beginning and 0:21:27.480 --> 0:21:30.919 then you know, work with with the shipbuilding industry and 0:21:31.000 --> 0:21:35.000 others to build out the fleet because it's difficult to 0:21:35.040 --> 0:21:38.159 build off shore wind with Jones Act requirements when there 0:21:38.200 --> 0:21:41.440 are no Jones Act vessels that exist. We were first 0:21:41.480 --> 0:21:46.920 movers in working with another company to invest in and 0:21:47.440 --> 0:21:51.600 commit create demand for a Jones AC wind turbine installation vessel, 0:21:51.600 --> 0:21:54.920 which is one of the really big expensive spoke vessels 0:21:54.920 --> 0:21:57.200 that actually installs the wind turbines. But there's actually a 0:21:57.240 --> 0:22:01.120 whole lot of other vessels. There's cable laying vessels, dumping vessels, 0:22:01.160 --> 0:22:05.440 foundation installation vessels, service operation vessels, et cetera, et cetera. 0:22:05.560 --> 0:22:09.080 So we were, we were and are committed to trying 0:22:09.119 --> 0:22:11.320 to help build out that fleet. But in the beginning, 0:22:11.920 --> 0:22:15.479 wed they vessels don't exist. It's hard to comply, and 0:22:15.600 --> 0:22:20.640 so we we in the industry have built workarounds where 0:22:20.680 --> 0:22:24.520 we you know, either stage stuff outside of the US, 0:22:24.880 --> 0:22:28.840 or we bring it directly over from Europe, or we 0:22:29.200 --> 0:22:34.000 barge things out with US flagged tugs and barges and 0:22:34.080 --> 0:22:38.840 transfer equipment to European flagged or other than US flagged vessels. 0:22:39.320 --> 0:22:41.760 And so it's been a it's been a it's been 0:22:41.800 --> 0:22:46.480 a hindrance, I would say in at least being able 0:22:46.520 --> 0:22:49.320 to get the most cost effective offshore wind in the 0:22:49.400 --> 0:22:53.119 US on early projects. And so yeah, we're still just 0:22:53.200 --> 0:22:57.720 working through it, both getting first projects built and trying 0:22:57.760 --> 0:23:01.399 to support the maritime industry. You did allude to, like 0:23:01.440 --> 0:23:06.439 I said, we were the first charter for a vessel 0:23:06.440 --> 0:23:09.920