1
00:00:00,320 --> 00:00:03,520
Speaker 1: This is Dana Perkins and you're listening to Switched on

2
00:00:03,840 --> 00:00:09,039
Speaker 1: the BNF podcast. A trend is emerging. Publicly listed clean

3
00:00:09,160 --> 00:00:13,240
Speaker 1: energy companies are moving to private markets. While ESG as

4
00:00:13,280 --> 00:00:16,320
Speaker 1: a term may be falling out of favor, clean energy

5
00:00:16,360 --> 00:00:20,480
Speaker 1: companies are still working hard to meet ever growing energy demand.

6
00:00:20,840 --> 00:00:24,360
Speaker 1: When public market valuations have fallen, some private market players

7
00:00:24,400 --> 00:00:28,440
Speaker 1: have stepped in, seeing their potential risks like price cannibalization

8
00:00:28,600 --> 00:00:32,440
Speaker 1: are considered alongside growing demand from AI and data centers,

9
00:00:32,600 --> 00:00:35,760
Speaker 1: giving public and private market investors a lot to think

10
00:00:35,800 --> 00:00:40,680
Speaker 1: about and leading investors to refocus on fundamentals. On today's show,

11
00:00:40,760 --> 00:00:44,800
Speaker 1: I'm joined by solar specialist Pietro Rodoya and from BNF's

12
00:00:44,880 --> 00:00:48,880
Speaker 1: Sustainable Finance team, Ryan Lockhead. We discuss findings from the

13
00:00:48,960 --> 00:00:53,080
Speaker 1: report listed clean energy firms moving back into private hands,

14
00:00:53,280 --> 00:00:56,440
Speaker 1: which BNAF clients can find at BNF go, on the

15
00:00:56,440 --> 00:01:00,520
Speaker 1: Bloomberg Terminal and at BNF dot com. So what are

16
00:01:00,600 --> 00:01:04,360
Speaker 1: clean energy companies considering as they navigate this shift. Let's

17
00:01:04,400 --> 00:01:16,640
Speaker 1: jump into the conversation. Pietro, thank you very much for

18
00:01:16,720 --> 00:01:17,360
Speaker 1: joining today.

19
00:01:17,640 --> 00:01:19,640
Speaker 2: Hi, Thanks Dina and Ryan.

20
00:01:19,720 --> 00:01:20,679
Speaker 1: Great having you here.

21
00:01:20,920 --> 00:01:22,160
Speaker 3: Thanks Diana, good to be here.

22
00:01:22,360 --> 00:01:25,000
Speaker 1: So we had switched on. Are talking about the energy transition,

23
00:01:25,280 --> 00:01:28,320
Speaker 1: and we're here to talk about really the financing end

24
00:01:28,319 --> 00:01:32,320
Speaker 1: of things. How do things get done for clean energy companies?

25
00:01:32,560 --> 00:01:35,120
Speaker 1: For those that are publicly listed, it's been a wild

26
00:01:35,200 --> 00:01:37,320
Speaker 1: ride over the course of the past five years, and

27
00:01:37,360 --> 00:01:40,320
Speaker 1: we have seen valuations of these companies go up and

28
00:01:40,400 --> 00:01:44,400
Speaker 1: go down for some factors that from the outside looking

29
00:01:44,440 --> 00:01:47,720
Speaker 1: in look like maybe very much connected to public sentiment

30
00:01:47,880 --> 00:01:50,760
Speaker 1: on ESG. But let's talk about what's happened to these

31
00:01:50,760 --> 00:01:53,600
Speaker 1: clean energy companies specifically, and we want to talk about

32
00:01:53,600 --> 00:01:56,080
Speaker 1: private markets, but before we get there, let's put some

33
00:01:56,160 --> 00:02:00,120
Speaker 1: context around what's been happening with publicly listed clean energy

34
00:02:00,120 --> 00:02:01,080
Speaker 1: companies as of late.

35
00:02:01,480 --> 00:02:05,280
Speaker 3: It's a really interesting question because anyone who's following the

36
00:02:05,600 --> 00:02:07,760
Speaker 3: line graphs of the prices of some of the well

37
00:02:07,800 --> 00:02:11,400
Speaker 3: cited clean energy indicies stock indices, it was a very

38
00:02:11,480 --> 00:02:14,120
Speaker 3: big hype cycle up to about the start of the

39
00:02:14,160 --> 00:02:16,760
Speaker 3: twenty twenties the end of twenty twenty one, where clean

40
00:02:16,880 --> 00:02:22,399
Speaker 3: energy companies broadly were doing extraordinarily well from evaluations perspective.

41
00:02:22,480 --> 00:02:24,119
Speaker 3: So if you were holding them up to that point,

42
00:02:24,160 --> 00:02:25,480
Speaker 3: you saw them at that point, you would have done

43
00:02:25,480 --> 00:02:29,200
Speaker 3: extremely well. So those graphs look very steep and to

44
00:02:29,280 --> 00:02:31,520
Speaker 3: the right, like a very typical BENF chart and energy

45
00:02:31,520 --> 00:02:34,200
Speaker 3: transition chart up until twenty twenty one, and then I

46
00:02:34,200 --> 00:02:37,919
Speaker 3: think suddenly investors started to realize that the clean energy

47
00:02:37,960 --> 00:02:42,440
Speaker 3: stock market slightly overheating, and once the sell off started,

48
00:02:42,840 --> 00:02:46,120
Speaker 3: it continued and has continued. It would be a very

49
00:02:46,320 --> 00:02:48,160
Speaker 3: easy thing to say from somebody who works in the

50
00:02:48,200 --> 00:02:50,160
Speaker 3: space to just blame this on the net outflues, but

51
00:02:50,200 --> 00:02:53,680
Speaker 3: there are some genuine fundamental economic factors at play here.

52
00:02:53,720 --> 00:02:56,560
Speaker 3: When it comes to the new higher interest rate environment,

53
00:02:56,960 --> 00:02:58,920
Speaker 3: I think people have become a little bit more cognizant

54
00:02:58,960 --> 00:03:01,640
Speaker 3: as well of supply chain. So it's not for us

55
00:03:01,680 --> 00:03:04,680
Speaker 3: to say whether or not these price movements are fair,

56
00:03:05,000 --> 00:03:07,600
Speaker 3: but I think we can spot the reasons behind these

57
00:03:07,639 --> 00:03:10,360
Speaker 3: movements and the different factors that are driving them as well.

58
00:03:10,560 --> 00:03:13,480
Speaker 1: So often when you see equities are up, credit is

59
00:03:13,520 --> 00:03:17,519
Speaker 1: down and vice versa. So if we have established now

60
00:03:17,560 --> 00:03:20,239
Speaker 1: that clean energy companies are actually at a low point

61
00:03:20,560 --> 00:03:23,920
Speaker 1: at least compared to recent history when it comes to

62
00:03:23,960 --> 00:03:27,200
Speaker 1: their equity prices, and what's happening then in private markets,

63
00:03:27,200 --> 00:03:31,280
Speaker 1: and has private equity essentially taken interest in creating the

64
00:03:31,320 --> 00:03:34,920
Speaker 1: financing for a lot of these important energy infrastructure companies.

65
00:03:36,000 --> 00:03:38,160
Speaker 3: Might help to have a little bit of context about

66
00:03:38,160 --> 00:03:41,320
Speaker 3: what private markets in general have been doing outside of

67
00:03:41,320 --> 00:03:44,160
Speaker 3: the clean energy space, and then linking it to clean

68
00:03:44,240 --> 00:03:47,000
Speaker 3: energy a little bit, just because they've become a very

69
00:03:47,040 --> 00:03:51,800
Speaker 3: popular asset class for institutional investors a high networth individuals

70
00:03:51,880 --> 00:03:54,440
Speaker 3: over the last two decades or so, particularly since the

71
00:03:54,520 --> 00:03:57,200
Speaker 3: turn of the global financial crisis in two thousand and eight,

72
00:03:57,440 --> 00:04:02,600
Speaker 3: those large, sophisticated, well diversifieds have started looking to diversify

73
00:04:02,640 --> 00:04:06,200
Speaker 3: their portfolios when interest rates and bond yields were at

74
00:04:06,240 --> 00:04:09,560
Speaker 3: rock bottom into things that would either generate equity like

75
00:04:09,600 --> 00:04:13,760
Speaker 3: returns or cash FREW type returns that weren't from your

76
00:04:13,880 --> 00:04:16,760
Speaker 3: traditional conventional assets like stocks and bonds. So if we

77
00:04:16,760 --> 00:04:19,320
Speaker 3: looked at a global market portfolio but twenty years ago,

78
00:04:19,480 --> 00:04:22,279
Speaker 3: the sort of broader landscape of alternatives where private markets

79
00:04:22,320 --> 00:04:25,960
Speaker 3: fit into and includes other things like hedge funds and commodities,

80
00:04:26,040 --> 00:04:28,719
Speaker 3: they would have maybe made up under five percent of

81
00:04:28,760 --> 00:04:32,080
Speaker 3: their total allocation. Today that's probably closer to twenty to

82
00:04:32,120 --> 00:04:35,279
Speaker 3: twenty five percent. So that's across the board. Now, there

83
00:04:35,320 --> 00:04:39,200
Speaker 3: is a clean energy element to this, where the nature

84
00:04:39,279 --> 00:04:42,200
Speaker 3: of these types of funds that raise the money and

85
00:04:42,240 --> 00:04:45,800
Speaker 3: invest it into private companies or infrastructure assets that they

86
00:04:45,920 --> 00:04:48,720
Speaker 3: lend it out in private credit mandate, they perhaps marie

87
00:04:48,720 --> 00:04:51,320
Speaker 3: a little bit better to clean energy than public markets

88
00:04:51,400 --> 00:04:56,160
Speaker 3: might because a they have typically set to find time

89
00:04:56,200 --> 00:05:00,320
Speaker 3: horizons and lock up periods perhaps for the investors where

90
00:05:00,560 --> 00:05:02,240
Speaker 3: they can afford to be a little bit more patient.

91
00:05:02,440 --> 00:05:06,360
Speaker 3: And as anyonef will tell you, clean energy, particularly the

92
00:05:06,400 --> 00:05:09,760
Speaker 3: power generating assets, the big physical infrastructure type assets, they

93
00:05:09,760 --> 00:05:12,039
Speaker 3: require a bit of patients because there's a lot of

94
00:05:12,080 --> 00:05:15,800
Speaker 3: upfront capital that's required to build either the physical infrastructure,

95
00:05:15,880 --> 00:05:17,400
Speaker 3: and it might take a little bit of time before

96
00:05:17,400 --> 00:05:20,080
Speaker 3: they start seeing it return generated from those assets. So

97
00:05:20,480 --> 00:05:23,039
Speaker 3: when it comes to the stock market and a listed company,

98
00:05:23,080 --> 00:05:28,000
Speaker 3: there's a lot more pressure to get things done today.

99
00:05:28,279 --> 00:05:30,920
Speaker 3: And if you are a developer and you're in a

100
00:05:31,000 --> 00:05:34,560
Speaker 3: developer of a listed company, you're potentially stressing on a

101
00:05:34,640 --> 00:05:36,520
Speaker 3: day by day are by r basis about what the

102
00:05:36,520 --> 00:05:38,600
Speaker 3: market to market valuation of your company is doing. You

103
00:05:38,640 --> 00:05:40,040
Speaker 3: don't want to see that ticker and you don't want

104
00:05:40,040 --> 00:05:42,320
Speaker 3: to see it colored red on the Bloomberg terminal, So

105
00:05:42,360 --> 00:05:43,880
Speaker 3: you have to kind of think about that whereas with

106
00:05:43,880 --> 00:05:46,640
Speaker 3: the private markets, it's well, we're going to raise money,

107
00:05:46,640 --> 00:05:49,120
Speaker 3: we're going to invest it in the companies, and we're

108
00:05:49,120 --> 00:05:51,479
Speaker 3: going to either make our returns ten years down the

109
00:05:51,480 --> 00:05:54,000
Speaker 3: line in the exit process, or we're just going to

110
00:05:54,040 --> 00:05:56,680
Speaker 3: be continuously generating some sort of cash flow. So we

111
00:05:56,680 --> 00:05:58,680
Speaker 3: talk about private markets as if it's this sort of

112
00:05:59,000 --> 00:06:02,960
Speaker 3: monolith or one particular thing, but it's actually very diverse

113
00:06:03,000 --> 00:06:05,800
Speaker 3: from type of asset classes you can have. So it's

114
00:06:05,839 --> 00:06:09,640
Speaker 3: not just private equity, although I think Pietro's now specifies

115
00:06:09,680 --> 00:06:11,839
Speaker 3: private equity, but there's also a lot of debt in

116
00:06:11,880 --> 00:06:14,600
Speaker 3: there as well. Private credit is becoming very popular in

117
00:06:14,600 --> 00:06:17,680
Speaker 3: this space. And then you get the sort of things

118
00:06:17,680 --> 00:06:20,640
Speaker 3: that straddle the line a little bit in infrastructure, so

119
00:06:20,640 --> 00:06:22,679
Speaker 3: you could have in for debt or infra equity as well.

120
00:06:22,800 --> 00:06:26,799
Speaker 3: It also covers the whole spectrum of the risk return profile,

121
00:06:26,920 --> 00:06:30,600
Speaker 3: so you could start at the novel technology area and

122
00:06:30,760 --> 00:06:33,039
Speaker 3: venture which attracts the venture capital, all the way up

123
00:06:33,080 --> 00:06:36,080
Speaker 3: to the sort of core infrastructure funds where your return

124
00:06:36,120 --> 00:06:40,600
Speaker 3: profile is based on sort of steady streams of cash flow,

125
00:06:40,720 --> 00:06:43,479
Speaker 3: and clean energy can offer that. So you've got really

126
00:06:43,520 --> 00:06:45,599
Speaker 3: at either end and quite a lot in between it

127
00:06:45,640 --> 00:06:48,320
Speaker 3: as well that is suitable in these within these particular

128
00:06:48,360 --> 00:06:50,560
Speaker 3: asset classes that suit clean energy.

129
00:06:50,400 --> 00:06:53,400
Speaker 1: And if you're looking to grow faster, then organic growth

130
00:06:53,440 --> 00:06:57,279
Speaker 1: can allow you have some options here. And when making

131
00:06:57,320 --> 00:07:00,719
Speaker 1: these choices, are we essentially how is the source of

132
00:07:00,760 --> 00:07:04,640
Speaker 1: financing impacting the growth that we're seeing and how quickly

133
00:07:04,680 --> 00:07:07,520
Speaker 1: it is or is not happening within clean energy And

134
00:07:07,520 --> 00:07:10,120
Speaker 1: we have Pietro and here is focused specifically on solar,

135
00:07:10,160 --> 00:07:12,320
Speaker 1: So maybe that's the technology that we should spend the

136
00:07:12,360 --> 00:07:15,520
Speaker 1: most time thinking about. What impact is the move towards

137
00:07:15,600 --> 00:07:19,120
Speaker 1: private markets happening on these companies in these industries.

138
00:07:19,440 --> 00:07:22,880
Speaker 2: So we recently published a report looking at a group

139
00:07:22,960 --> 00:07:27,360
Speaker 2: of fifty six publicly listed renewable energy companies active in

140
00:07:27,360 --> 00:07:30,960
Speaker 2: the development space and owning assets, and as you mentioned

141
00:07:31,000 --> 00:07:34,440
Speaker 2: earlier on, there's been a huge evaluation in this space.

142
00:07:34,720 --> 00:07:37,760
Speaker 2: They currently have a total market capitalization of two hundred

143
00:07:37,800 --> 00:07:40,120
Speaker 2: eighty two billion dollars just to give an idea of

144
00:07:40,120 --> 00:07:42,960
Speaker 2: how big they are put together, but their median share

145
00:07:43,000 --> 00:07:47,200
Speaker 2: price declined by almost one third since twenty twenty one,

146
00:07:47,400 --> 00:07:50,120
Speaker 2: so there's been a twenty nine percent drop in the

147
00:07:50,160 --> 00:07:53,880
Speaker 2: past three to four years, and so large infrastructure and

148
00:07:53,920 --> 00:07:57,360
Speaker 2: private equity companies have taken advantage of this situation and

149
00:07:57,480 --> 00:08:00,920
Speaker 2: moved in the space by completing a few multi billion

150
00:08:01,320 --> 00:08:04,680
Speaker 2: dollar corporate M and A transactions, so they essentially take

151
00:08:04,760 --> 00:08:10,160
Speaker 2: over ownership of huge renewble energy developers such as Neoen,

152
00:08:10,320 --> 00:08:13,600
Speaker 2: which was acquired for six billion dollars by Brookfield, which

153
00:08:13,640 --> 00:08:17,200
Speaker 2: is a Canadian investment firm, and US private equity firm

154
00:08:17,280 --> 00:08:21,000
Speaker 2: Kkar took over Hamburg listed and Carvis, which is a

155
00:08:21,120 --> 00:08:25,800
Speaker 2: leading solar and wind ipp for almost three billion euros.

156
00:08:26,000 --> 00:08:28,680
Speaker 2: And so we're seeing a lot of movement happening in

157
00:08:28,720 --> 00:08:33,640
Speaker 2: this space, and it's essentially down to valuations being really,

158
00:08:33,679 --> 00:08:38,520
Speaker 2: really poor at the minute for listed clean energy downstream companies.

159
00:08:39,200 --> 00:08:42,679
Speaker 1: So we've talked about how the equities market has cooled

160
00:08:42,679 --> 00:08:44,760
Speaker 1: when it comes to clean energy. What I want to

161
00:08:44,800 --> 00:08:47,920
Speaker 1: know is, given that you've looked specifically at Solar, I

162
00:08:47,960 --> 00:08:51,760
Speaker 1: want this view on the valuations on the private market

163
00:08:51,840 --> 00:08:54,520
Speaker 1: side too, and are we seeing cooling of interest on

164
00:08:54,559 --> 00:08:57,120
Speaker 1: that side it reflects the same thing we're seeing in

165
00:08:57,200 --> 00:08:59,559
Speaker 1: public markets or is it a different story.

166
00:09:00,200 --> 00:09:03,800
Speaker 2: We actually track prices of assets that are being traded

167
00:09:04,080 --> 00:09:06,640
Speaker 2: in the private markets as part of our secondary market

168
00:09:06,800 --> 00:09:11,080
Speaker 2: analysis and prices have come down, but not as at

169
00:09:11,160 --> 00:09:16,239
Speaker 2: the same speed as public equities. I would say definitely

170
00:09:16,520 --> 00:09:20,760
Speaker 2: public listed companies have taken a bigger hit, and it's

171
00:09:20,800 --> 00:09:24,920
Speaker 2: down to the ESG theme cooling off. This love story

172
00:09:24,960 --> 00:09:27,360
Speaker 2: has come perhaps to an end. Can say the bubble

173
00:09:27,440 --> 00:09:31,600
Speaker 2: has popped, and then there are other dynamics more related

174
00:09:31,600 --> 00:09:34,840
Speaker 2: to the private market, and ultimately I think the big

175
00:09:34,880 --> 00:09:39,560
Speaker 2: big factor hitting returns and a volume of investments cost

176
00:09:39,600 --> 00:09:42,800
Speaker 2: of capital increasing over the past three years, so central

177
00:09:42,800 --> 00:09:45,400
Speaker 2: bank rates have gone up by between three hundred to

178
00:09:45,480 --> 00:09:48,480
Speaker 2: five hundred basis points in major markets. That has pushed

179
00:09:48,559 --> 00:09:52,040
Speaker 2: up equity return expectations from investors because made it more

180
00:09:52,040 --> 00:09:56,160
Speaker 2: difficult to raise financing and reaching final investment decision on

181
00:09:56,280 --> 00:09:59,600
Speaker 2: projects has been more difficult than in the past. All

182
00:09:59,600 --> 00:10:04,240
Speaker 2: of this feeds into the valuation of projects, whether they

183
00:10:04,280 --> 00:10:08,360
Speaker 2: are listed or not listed. Another reason why high cost

184
00:10:08,400 --> 00:10:12,440
Speaker 2: of capital has impacted the sector is that those institutional

185
00:10:12,480 --> 00:10:16,920
Speaker 2: investors had moved into the space over the past decade

186
00:10:17,040 --> 00:10:23,040
Speaker 2: and had gotten comfortable with relatively secure investment, so renewable

187
00:10:23,160 --> 00:10:27,760
Speaker 2: energy investments are considered as a secure investment, while they

188
00:10:27,800 --> 00:10:31,600
Speaker 2: have moved back into alternative investment opportunities such as government

189
00:10:31,640 --> 00:10:34,640
Speaker 2: bonds which offer high risk free returns at the moment

190
00:10:34,679 --> 00:10:37,400
Speaker 2: if you look at the bond yields in the UK

191
00:10:37,840 --> 00:10:40,839
Speaker 2: or guilties at around four point six four point seven

192
00:10:41,040 --> 00:10:43,600
Speaker 2: percent right now and the same in the US, So

193
00:10:43,640 --> 00:10:47,679
Speaker 2: that is really affecting the volumes of investment in this segment.

194
00:10:47,960 --> 00:10:51,760
Speaker 2: Coming back to your question around prices and whether assets

195
00:10:51,800 --> 00:10:56,400
Speaker 2: are underpriced looking at the listed entities, we looked at

196
00:10:56,400 --> 00:10:59,719
Speaker 2: the fundamentals and at ratios such as the price to

197
00:10:59,760 --> 00:11:03,800
Speaker 2: book racial, price to earnings ratios, and that have without

198
00:11:03,880 --> 00:11:06,520
Speaker 2: doubt come down, and so looking at the christ to

199
00:11:06,520 --> 00:11:09,600
Speaker 2: book ratios as a financial metric, the medium price to

200
00:11:09,600 --> 00:11:13,720
Speaker 2: book racial currently is one point four x, considerably lower

201
00:11:13,880 --> 00:11:16,160
Speaker 2: compared to what it was four years ago when the

202
00:11:16,200 --> 00:11:19,240
Speaker 2: medium point was three point eight x.

203
00:11:19,600 --> 00:11:22,800
Speaker 1: So we've addressed the fact that things that touch esg

204
00:11:23,000 --> 00:11:25,559
Speaker 1: in any way as a term went through a bit

205
00:11:25,600 --> 00:11:28,000
Speaker 1: of a popular period and are a little bit less

206
00:11:28,040 --> 00:11:30,959
Speaker 1: popular at the moment, and investors do just like anyone else.

207
00:11:31,120 --> 00:11:35,160
Speaker 1: We are watching certain parts of the world change and

208
00:11:35,200 --> 00:11:38,320
Speaker 1: there are certain topics that become very popular at the moment.

209
00:11:38,800 --> 00:11:41,400
Speaker 1: What's clean energy's chance of becoming popular again?

210
00:11:41,840 --> 00:11:47,760
Speaker 2: There's huge expectations around data centers and demand coming from

211
00:11:47,880 --> 00:11:52,560
Speaker 2: data centers and financial buyers into renewable energy companies and

212
00:11:52,600 --> 00:11:55,920
Speaker 2: assets are very bullish on what demand will look like

213
00:11:56,160 --> 00:11:59,680
Speaker 2: in the next five to ten years, and the forecasts

214
00:11:59,800 --> 00:12:04,679
Speaker 2: around electricity demand are pointing to strong growth after I

215
00:12:04,720 --> 00:12:08,680
Speaker 2: would say a decade of stagnation. We do not forecast

216
00:12:08,840 --> 00:12:11,640
Speaker 2: within B and EF demand coming from data centers, but

217
00:12:12,000 --> 00:12:15,440
Speaker 2: I can provide you a figure from Bloomergin Intelligence which

218
00:12:15,440 --> 00:12:19,200
Speaker 2: carries out analysis around this theme, and they expect data

219
00:12:19,240 --> 00:12:22,040
Speaker 2: center demand to grow seventeen percent in the US by

220
00:12:22,080 --> 00:12:26,000
Speaker 2: twenty thirty, So the expectations are really big. Clean energy

221
00:12:26,120 --> 00:12:30,520
Speaker 2: developers are partnering with data center companies in various ways.

222
00:12:31,120 --> 00:12:36,120
Speaker 2: It's either by signing PPAs power purchase agreements or by

223
00:12:36,160 --> 00:12:41,640
Speaker 2: providing the infrastructure where to locate the data centers. Interestingly,

224
00:12:41,960 --> 00:12:45,199
Speaker 2: Madrid listed Solaria, which is a solar company, finalized in

225
00:12:45,320 --> 00:12:48,840
Speaker 2: agreement with the Japanese company to provide two hundred megawats

226
00:12:48,880 --> 00:12:52,760
Speaker 2: of energy in a data center within their former module

227
00:12:52,800 --> 00:12:57,120
Speaker 2: manufacturing facility, which hosts clean rooms which are ideal to

228
00:12:57,240 --> 00:13:01,240
Speaker 2: host servers. So there's a lot going on, and I

229
00:13:01,240 --> 00:13:05,080
Speaker 2: would say, perhaps what could slow down this growth is

230
00:13:05,160 --> 00:13:08,520
Speaker 2: actually the bottlenecks to connect to the grid. So this

231
00:13:08,600 --> 00:13:12,600
Speaker 2: has been a huge issue for so and win developers

232
00:13:12,720 --> 00:13:15,760
Speaker 2: on the supply side, but it actually could slow down

233
00:13:15,960 --> 00:13:18,600
Speaker 2: things on the demand side. So we know that in

234
00:13:18,640 --> 00:13:22,360
Speaker 2: certain markets such as pain there are connection cues from

235
00:13:22,480 --> 00:13:26,320
Speaker 2: data centers are exceeding ten gigors already and we expect

236
00:13:26,320 --> 00:13:29,040
Speaker 2: this number to grow significantly in the months to come.

237
00:13:29,440 --> 00:13:32,960
Speaker 1: So I'm thinking from the perspective of the companies operating

238
00:13:33,000 --> 00:13:35,160
Speaker 1: in this space, of the clean energy companies, you're looking

239
00:13:35,200 --> 00:13:38,000
Speaker 1: at the options available to you in order to raise

240
00:13:38,040 --> 00:13:41,839
Speaker 1: money in order to expand take advantage of the energy

241
00:13:41,880 --> 00:13:44,640
Speaker 1: demand coming from AI and generally we're seeing an increase

242
00:13:44,679 --> 00:13:46,600
Speaker 1: in energy demand from a lot of different parts of

243
00:13:46,600 --> 00:13:48,880
Speaker 1: the economy. What I really want to know is doesn't

244
00:13:48,920 --> 00:13:51,559
Speaker 1: matter to them that much whether it's a publicly listed

245
00:13:51,679 --> 00:13:54,720
Speaker 1: company or whether or not it's going to private markets,

246
00:13:54,720 --> 00:13:57,040
Speaker 1: as long as they're able to raise that money. We've

247
00:13:57,040 --> 00:13:59,720
Speaker 1: talked about some of the pros and cons of really

248
00:13:59,800 --> 00:14:02,280
Speaker 1: the importance of keeping that share price high once you

249
00:14:02,400 --> 00:14:05,360
Speaker 1: have listed. Maybe from the private market side, you know,

250
00:14:05,600 --> 00:14:08,679
Speaker 1: what are the concerns that one might have if you

251
00:14:08,760 --> 00:14:11,880
Speaker 1: are a clean energy company and trying to make this

252
00:14:11,960 --> 00:14:15,160
Speaker 1: decision on how to go forward in finding more money

253
00:14:15,200 --> 00:14:15,720
Speaker 1: to do more.

254
00:14:16,200 --> 00:14:19,320
Speaker 3: There's definitely a trade off for a company raising their

255
00:14:19,320 --> 00:14:22,040
Speaker 3: money in private markets compared to public markets, and it's

256
00:14:22,240 --> 00:14:24,440
Speaker 3: the one we talk about often. It's the cost of capital.

257
00:14:24,520 --> 00:14:28,160
Speaker 3: The investors who are investing in private markets and infrastructure

258
00:14:28,160 --> 00:14:31,720
Speaker 3: type assets typically will demand an ill liquidity premium because

259
00:14:31,720 --> 00:14:35,200
Speaker 3: you can't just exit very easily. It's very very difficult

260
00:14:35,200 --> 00:14:37,360
Speaker 3: compared to if you're on a stock market. They're very

261
00:14:37,440 --> 00:14:39,680
Speaker 3: very liquid asset stocks, right, you can buy and trade

262
00:14:39,720 --> 00:14:41,760
Speaker 3: them in real time. Private markets, it's a little bit

263
00:14:41,760 --> 00:14:44,400
Speaker 3: more difficult to shift them, and therefore there is an

264
00:14:44,440 --> 00:14:47,000
Speaker 3: extra liquidity premium that goes on top of that, and

265
00:14:47,040 --> 00:14:49,680
Speaker 3: that does represent the higher cost of capital. So it's

266
00:14:49,720 --> 00:14:52,520
Speaker 3: not a free lunch, so to speak. It is a

267
00:14:52,560 --> 00:14:55,720
Speaker 3: trade off between having a little bit less pressure, having

268
00:14:56,080 --> 00:14:59,680
Speaker 3: investors and managers on your side who are perhaps a

269
00:14:59,680 --> 00:15:01,960
Speaker 3: bit more patient, a bit more understanding of how it

270
00:15:02,040 --> 00:15:05,360
Speaker 3: is you go about generating return, and those profiles are

271
00:15:05,360 --> 00:15:07,040
Speaker 3: married perhaps a little bit better than they are in

272
00:15:07,040 --> 00:15:09,800
Speaker 3: the public markets. But make no doubt, and this you

273
00:15:09,800 --> 00:15:13,560
Speaker 3: will hear this from private market investors themselves, it will

274
00:15:13,920 --> 00:15:16,360
Speaker 3: increase their cost of capital, and that is something that

275
00:15:16,400 --> 00:15:17,320
Speaker 3: has to be considered.

276
00:15:17,680 --> 00:15:21,520
Speaker 1: So they care, yes, is the answer.

277
00:15:21,640 --> 00:15:24,800
Speaker 3: Yeah, from the public market perspective, and then they have

278
00:15:24,840 --> 00:15:26,600
Speaker 3: to care about share press right. It's it's a legal

279
00:15:26,640 --> 00:15:29,520
Speaker 3: requirement and nearly every jurisdiction that there has to be

280
00:15:29,560 --> 00:15:33,600
Speaker 3: a focus on shareholder value. It's about deciding holistically which

281
00:15:33,640 --> 00:15:34,320
Speaker 3: is the better option.

282
00:15:35,000 --> 00:15:38,720
Speaker 1: So how you finance the growth in clean energy very

283
00:15:38,760 --> 00:15:41,080
Speaker 1: much matters, and the cost of capital very much matters.

284
00:15:41,280 --> 00:15:44,520
Speaker 1: So Pietro, what did you zero in on? And you know,

285
00:15:44,600 --> 00:15:46,120
Speaker 1: I guess in as simplest sense kind of what was

286
00:15:46,160 --> 00:15:48,320
Speaker 1: your methodology? But what did you zero in on?

287
00:15:48,680 --> 00:15:52,400
Speaker 2: So we looked at a list of solar, wind and

288
00:15:52,520 --> 00:15:57,360
Speaker 2: battery project developers. These are companies that are publicly listed

289
00:15:57,560 --> 00:16:01,120
Speaker 2: with a total market capitalization of two hundred eighty two

290
00:16:01,160 --> 00:16:03,880
Speaker 2: billion and on in total one hundred and seventy eight

291
00:16:03,960 --> 00:16:07,560
Speaker 2: kickawads of late stage projects which are either commissioned or

292
00:16:07,640 --> 00:16:12,160
Speaker 2: under construction. These companies are active in the downstream what

293
00:16:12,240 --> 00:16:16,120
Speaker 2: we call the downstream segment. They do not manufacture equipment.

294
00:16:16,280 --> 00:16:20,720
Speaker 2: There are not utilities, There are pure renewable energy developers

295
00:16:20,920 --> 00:16:24,880
Speaker 2: or clean energy closed end funds. So there's this distinction

296
00:16:24,960 --> 00:16:28,440
Speaker 2: between the two. On one hand, we have growth oriented

297
00:16:28,480 --> 00:16:33,880
Speaker 2: companies which focus on share price appreciation do not handout dividends,

298
00:16:34,160 --> 00:16:37,360
Speaker 2: and on the other hand, we have closed end funds

299
00:16:37,480 --> 00:16:41,600
Speaker 2: which do not focus on share price appreciations. They rather

300
00:16:42,080 --> 00:16:46,560
Speaker 2: focus their efforts on dividend payouts. So the note was

301
00:16:46,600 --> 00:16:49,160
Speaker 2: looking at these two groups of companies.

302
00:16:49,600 --> 00:16:52,480
Speaker 1: Are there risks for these private companies who have bought

303
00:16:52,560 --> 00:16:55,320
Speaker 1: the public listings and you know what steps are they

304
00:16:55,400 --> 00:16:57,840
Speaker 1: taking to then mitigate some of those risks.

305
00:16:58,320 --> 00:17:01,120
Speaker 2: So the risk for these price the companies who have

306
00:17:01,200 --> 00:17:06,160
Speaker 2: taken over renewable energy developers is that demand for electricity

307
00:17:06,200 --> 00:17:09,520
Speaker 2: doesn't turn out to be as strong as they think

308
00:17:09,800 --> 00:17:13,520
Speaker 2: it will be, and that demand from data centers will

309
00:17:13,600 --> 00:17:16,800
Speaker 2: not boom in the years to come. Now, since the

310
00:17:16,880 --> 00:17:20,160
Speaker 2: valuation for the companies they acquired was at a low,

311
00:17:20,359 --> 00:17:23,520
Speaker 2: that risk is quite limited. But listening into the earning

312
00:17:23,560 --> 00:17:27,120
Speaker 2: scores of these companies, what really struck me was how

313
00:17:27,160 --> 00:17:30,480
Speaker 2: positive they are about the outlook and how big their

314
00:17:30,520 --> 00:17:33,879
Speaker 2: expectations are in terms of growth. It comes as a

315
00:17:34,119 --> 00:17:37,760
Speaker 2: really strong contrast in what the sentiment is currently between

316
00:17:37,880 --> 00:17:41,840
Speaker 2: renewable and g acid owners, whether they are listed or private.

317
00:17:42,400 --> 00:17:45,359
Speaker 2: I've been to a few conferences where the mood is

318
00:17:45,440 --> 00:17:48,800
Speaker 2: really low due to power prices coming down since the

319
00:17:48,840 --> 00:17:52,320
Speaker 2: heighs of twenty twenty two and because of increased fears

320
00:17:52,320 --> 00:17:56,199
Speaker 2: of price cannibalization as more solar capacity comes online.

321
00:17:56,320 --> 00:18:00,520
Speaker 1: And these private market investors are they specialists in space?

322
00:18:00,600 --> 00:18:03,720
Speaker 1: Are they the infrastructure investors that have been involved since

323
00:18:03,880 --> 00:18:06,880
Speaker 1: well before the ESG hiphe cycle, or are there new

324
00:18:06,920 --> 00:18:09,359
Speaker 1: companies that are getting up to speed on this and

325
00:18:09,480 --> 00:18:13,080
Speaker 1: is there just more wide ranging interest.

326
00:18:13,280 --> 00:18:15,920
Speaker 2: I would say they are experts. They have been involved

327
00:18:15,920 --> 00:18:19,240
Speaker 2: in in acquisitions in the past. Brookfield, for example, has

328
00:18:19,320 --> 00:18:24,200
Speaker 2: raised thirty billion dollars via its private Global Transition funds

329
00:18:24,240 --> 00:18:27,359
Speaker 2: in the past four years, and they've been really on

330
00:18:27,400 --> 00:18:31,360
Speaker 2: a buying spree, acquiring huge portfolios. For example, in the US,

331
00:18:31,440 --> 00:18:34,400
Speaker 2: they acquired three point four gigawats from Duke Energy. They

332
00:18:34,640 --> 00:18:38,880
Speaker 2: acquired fifty percent stake in a big solar development company

333
00:18:39,000 --> 00:18:43,080
Speaker 2: called Xedeo. So they know what they're doing, and in

334
00:18:43,080 --> 00:18:46,760
Speaker 2: many cases they acquire companies which are not doing that great.

335
00:18:46,920 --> 00:18:50,639
Speaker 2: There is restructuring their balance sheet, refinancing the debt and

336
00:18:50,680 --> 00:18:54,080
Speaker 2: then perhaps looking for an exit strategy five years down

337
00:18:54,080 --> 00:18:56,840
Speaker 2: the line. They might hold on to these companies for

338
00:18:56,880 --> 00:18:59,879
Speaker 2: a longer term. But this is what their model looks like.

339
00:19:00,240 --> 00:19:05,960
Speaker 2: The synergies between these buyers the likes of Brookfield, KKR,

340
00:19:06,400 --> 00:19:11,040
Speaker 2: mazz Dar and acquired Entity, so the developers is quite important.

341
00:19:11,200 --> 00:19:15,719
Speaker 2: They're quite beneficial. I would say these are strategic synergies.

342
00:19:15,840 --> 00:19:18,400
Speaker 2: So on one hand we have the developers that get

343
00:19:18,440 --> 00:19:21,360
Speaker 2: hold of the much needed capital, and on the other

344
00:19:21,400 --> 00:19:24,240
Speaker 2: hand you have the buyers that they gain knowledge around

345
00:19:24,240 --> 00:19:27,440
Speaker 2: how to develop projects. They get hold of large pipelines

346
00:19:27,480 --> 00:19:30,719
Speaker 2: of projects. So buyers with the cash are showing interest

347
00:19:30,760 --> 00:19:34,119
Speaker 2: in developers with a good geographical footprint and an interesting

348
00:19:34,400 --> 00:19:38,480
Speaker 2: pipeline of projects which are both under development and operation.

349
00:19:38,560 --> 00:19:42,159
Speaker 2: And if the pipeline includes battery storage, well this is

350
00:19:42,200 --> 00:19:43,200
Speaker 2: a huge plus.

351
00:19:43,520 --> 00:19:45,760
Speaker 1: So the way I'm thinking about the conversation we're having

352
00:19:45,760 --> 00:19:48,000
Speaker 1: and who might be listening, I'm very much trying to

353
00:19:48,080 --> 00:19:50,760
Speaker 1: view this through the perspective of somebody who is working

354
00:19:50,840 --> 00:19:53,520
Speaker 1: at one of these companies in the clean energy value chain,

355
00:19:53,600 --> 00:19:58,080
Speaker 1: maybe even possibly at a project developer who's looking at storage,

356
00:19:58,160 --> 00:20:01,119
Speaker 1: wind solar and try and understand and the decisions that

357
00:20:01,119 --> 00:20:03,960
Speaker 1: are being made within their organization on how they're going

358
00:20:04,080 --> 00:20:08,199
Speaker 1: about financing the growth and the considerations one needs to

359
00:20:08,680 --> 00:20:10,720
Speaker 1: really be thinking about and whether it's a good thing

360
00:20:10,800 --> 00:20:13,000
Speaker 1: or a bad thing. Because we can look at the

361
00:20:13,040 --> 00:20:18,080
Speaker 1: news and see changes in sentiments around ESG is a term,

362
00:20:18,320 --> 00:20:21,520
Speaker 1: but really these projects are still happening. What are the

363
00:20:21,560 --> 00:20:24,120
Speaker 1: sorts of things that you know you're thinking about If

364
00:20:24,160 --> 00:20:26,520
Speaker 1: you are coming at it from the perspective of somebody

365
00:20:26,520 --> 00:20:28,960
Speaker 1: who's actually working in this industry, the.

366
00:20:29,000 --> 00:20:33,000
Speaker 3: Risk of term profile is paramount right, it's it's it's

367
00:20:33,080 --> 00:20:36,120
Speaker 3: number one for all of these block students not a charity,

368
00:20:37,520 --> 00:20:40,560
Speaker 3: it's an investors. None of them are charities. And also,

369
00:20:40,680 --> 00:20:43,159
Speaker 3: for the most part, the money that they're allocating, the

370
00:20:43,480 --> 00:20:46,200
Speaker 3: assets that they're allocating, don't belong to them. They belong

371
00:20:46,280 --> 00:20:49,280
Speaker 3: to the pension funds, high net worth individuals of sovereign wealth,

372
00:20:49,400 --> 00:20:53,520
Speaker 3: or you ever. And ultimately Blackrok's decision making, block student's

373
00:20:53,520 --> 00:20:56,080
Speaker 3: decision making, KRS decision making is really kind of a

374
00:20:56,080 --> 00:20:58,320
Speaker 3: function of what their clients want, and there's no getting

375
00:20:58,320 --> 00:21:01,000
Speaker 3: away from if their client's demanders return or a good

376
00:21:01,080 --> 00:21:03,199
Speaker 3: risk return proofile, that's what they've got to seek and

377
00:21:03,280 --> 00:21:05,320
Speaker 3: I still then think that it's quite a good news

378
00:21:05,320 --> 00:21:09,240
Speaker 3: story that those asset managers are still increasingly allocating to

379
00:21:09,440 --> 00:21:11,359
Speaker 3: clean energy, because that means that they see it and

380
00:21:11,359 --> 00:21:14,000
Speaker 3: they're the so called I mean, there's no camera in here,

381
00:21:14,040 --> 00:21:16,320
Speaker 3: but I'm making air quotes. They're the smart money, right

382
00:21:16,440 --> 00:21:19,520
Speaker 3: and they're still going after these assets. Now, it depends

383
00:21:19,520 --> 00:21:21,240
Speaker 3: on the different types of funds that we're looking at

384
00:21:21,280 --> 00:21:25,200
Speaker 3: and the clean energy ETFs. The equity ETFs obviously haven't

385
00:21:25,240 --> 00:21:27,879
Speaker 3: done very well in recent years, and there is fundamental

386
00:21:27,960 --> 00:21:30,480
Speaker 3: risks for some of the companies that are going into

387
00:21:30,480 --> 00:21:33,560
Speaker 3: different different asset classes and different asset class focused funds.

388
00:21:33,760 --> 00:21:36,880
Speaker 3: But there's something there. It's a diversifier at the very least.

389
00:21:37,359 --> 00:21:40,119
Speaker 1: Pierre, Jo and Ryan thank you very much for joining

390
00:21:40,160 --> 00:21:42,639
Speaker 1: today and talking to us a bit about this trend

391
00:21:42,680 --> 00:21:45,760
Speaker 1: and the move from public to private markets when it

392
00:21:45,800 --> 00:21:48,760
Speaker 1: comes to financing the clean energy transition.

393
00:21:49,119 --> 00:21:58,800
Speaker 2: Thank you very much. Dana, thank you. Data.

394
00:22:00,080 --> 00:22:03,120
Speaker 1: Today's episode of Switched On was produced by Cam Gray

395
00:22:03,320 --> 00:22:07,000
Speaker 1: with production assistance from Kamala Shelling. Bloomberg NEIF is a

396
00:22:07,040 --> 00:22:10,159
Speaker 1: service provided by Bloomberg Finance LP and its affiliates. This

397
00:22:10,280 --> 00:22:12,959
Speaker 1: recording does not constitute nor should it be construed as

398
00:22:13,000 --> 00:22:16,720
Speaker 1: investment a vice, investment recommendations, or a recommendation as to

399
00:22:16,800 --> 00:22:18,280
Speaker 1: an investment or other strategy.

400
00:22:18,280 --> 00:22:18,680
Speaker 2: Bloomberg.

401
00:22:18,720 --> 00:22:21,720
Speaker 1: A NEIF should not be considered as information sufficient upon

402
00:22:21,760 --> 00:22:24,880
Speaker 1: which to base an investment decision. Neither Bloomberg Finance LP

403
00:22:25,160 --> 00:22:28,320
Speaker 1: nor any of its affiliates makes any representation or warranty

404
00:22:28,440 --> 00:22:31,479
Speaker 1: as to the accuracy or completeness of the information contained

405
00:22:31,520 --> 00:22:34,040
Speaker 1: in this recording, and any liability as a result of

406
00:22:34,080 --> 00:22:36,040
Speaker 1: this recording is expressly disclaimed.