1 00:00:00,280 --> 00:00:02,680 Speaker 1: Hi, I'm Dana Perkins and you're listening to Switch It 2 00:00:02,759 --> 00:00:06,080 Speaker 1: on the bn EF podcast. So today I'm joined by Bocan, 3 00:00:06,400 --> 00:00:09,360 Speaker 1: she is a carbon analyst for BNF, and she's joined 4 00:00:09,400 --> 00:00:12,680 Speaker 1: by Michael Keneffect who's part of our Decentralized Energy team, 5 00:00:12,720 --> 00:00:15,000 Speaker 1: and they're here to talk to me about a recent 6 00:00:15,040 --> 00:00:18,560 Speaker 1: piece of work they did titled European Utility Company Profiles. 7 00:00:19,680 --> 00:00:21,439 Speaker 1: They're going to talk to us about different parts of 8 00:00:21,480 --> 00:00:24,639 Speaker 1: the value chain, generation, networks and retail and where some 9 00:00:24,720 --> 00:00:27,760 Speaker 1: of these strategies are different and which ones are actually 10 00:00:27,880 --> 00:00:32,040 Speaker 1: proving successful. As the energy transition continues full steam ahead, 11 00:00:32,360 --> 00:00:35,360 Speaker 1: what can we learn from the decisions these European utilities 12 00:00:35,360 --> 00:00:37,760 Speaker 1: have made. Now, if you want to read this report, 13 00:00:37,800 --> 00:00:39,960 Speaker 1: it can be found on the Bloomberg terminal at b 14 00:00:40,040 --> 00:00:43,440 Speaker 1: NF Go or at BNF dot com. As a quick reminder, 15 00:00:43,520 --> 00:00:46,600 Speaker 1: BNF does not provide investment or strategy advice, and you 16 00:00:46,640 --> 00:00:49,000 Speaker 1: can hear a more complete disclaimer at the very end 17 00:00:49,000 --> 00:01:01,040 Speaker 1: of the show. But now let's speak with Bo and Michael. Bo. Michael, 18 00:01:01,120 --> 00:01:03,600 Speaker 1: thank you very much for joining today. Thank you, Dana. 19 00:01:04,760 --> 00:01:08,640 Speaker 1: So today we're going to talk about utilities, specifically European utilities. 20 00:01:09,000 --> 00:01:11,200 Speaker 1: And this is a really exciting space at the moment 21 00:01:11,240 --> 00:01:13,199 Speaker 1: because there are a lot of things that I would 22 00:01:13,200 --> 00:01:14,960 Speaker 1: say it's safe to say we're looking at maybe they're 23 00:01:15,040 --> 00:01:19,240 Speaker 1: changing going forward. But before we dive right into what 24 00:01:19,440 --> 00:01:21,640 Speaker 1: b anf is so good at, which is talking about 25 00:01:21,680 --> 00:01:23,880 Speaker 1: the future, let's talk a little bit and lay the 26 00:01:23,880 --> 00:01:27,080 Speaker 1: groundwork for those out there in you know, podcast land, 27 00:01:27,400 --> 00:01:30,800 Speaker 1: wondering what specifically we're talking about when we mean utilities, 28 00:01:30,840 --> 00:01:33,959 Speaker 1: and would you guys kind of break down which part 29 00:01:34,160 --> 00:01:37,959 Speaker 1: of the utility value chain we are looking at when 30 00:01:37,959 --> 00:01:40,360 Speaker 1: we're looking at the company profiles, where you stually look 31 00:01:40,400 --> 00:01:43,920 Speaker 1: at the utube value chain by separating the upstream, midstream 32 00:01:43,959 --> 00:01:46,920 Speaker 1: and downstream. And what do we mean by upstream is 33 00:01:47,000 --> 00:01:51,920 Speaker 1: mainly fossil fuels, thermogeneration and renewable generation, everything that makes 34 00:01:51,920 --> 00:01:54,720 Speaker 1: power general at the end and midstream we look at 35 00:01:54,920 --> 00:01:59,800 Speaker 1: transmission and distribution basically all the grids and networks that 36 00:02:00,120 --> 00:02:03,400 Speaker 1: runs our power. And in the downstream will focus on 37 00:02:03,640 --> 00:02:08,000 Speaker 1: retail and energy services and also non energy services such 38 00:02:08,040 --> 00:02:12,560 Speaker 1: as like telecom, real estate management, insurance and finance. Now 39 00:02:12,720 --> 00:02:15,760 Speaker 1: all of us are here in London still in lockdown, 40 00:02:15,880 --> 00:02:19,520 Speaker 1: so we see a path forward. Depending on when you're 41 00:02:19,560 --> 00:02:21,640 Speaker 1: listening to this, we may or may not yet be 42 00:02:21,720 --> 00:02:25,520 Speaker 1: permitted to have coffee with somebody outdoors in a park. 43 00:02:25,960 --> 00:02:29,919 Speaker 1: So my question is what has changed for the European 44 00:02:30,000 --> 00:02:35,040 Speaker 1: utility space over the past year with COVID nineteen. COVID 45 00:02:35,120 --> 00:02:38,960 Speaker 1: nineteen has really impacted different parts of utility value in 46 00:02:39,000 --> 00:02:42,960 Speaker 1: a different way. We have those field suppliers and generators 47 00:02:43,040 --> 00:02:47,360 Speaker 1: with exposure to lower power demand and lower power prices 48 00:02:47,400 --> 00:02:51,320 Speaker 1: and fuel prices, they have been hardest hit, while those 49 00:02:51,440 --> 00:02:55,799 Speaker 1: units with more regulative returns and residential power retail they 50 00:02:55,840 --> 00:03:00,040 Speaker 1: have been more protected. Yeah, and I talking more a 51 00:03:00,400 --> 00:03:03,800 Speaker 1: denis from side of things, in particular energy services, which 52 00:03:03,840 --> 00:03:07,079 Speaker 1: bowmanshures what we mean by energy services is like installing 53 00:03:07,560 --> 00:03:11,200 Speaker 1: rooftop TV or storage or electric electric vehicle charge church 54 00:03:11,240 --> 00:03:14,680 Speaker 1: chargers our energy efficiency for residential and commercial users. And 55 00:03:15,639 --> 00:03:18,359 Speaker 1: we kind of saw the acceleration of a trend. We've 56 00:03:18,360 --> 00:03:20,960 Speaker 1: been seeing that this businesses a lot of comp utilities 57 00:03:21,000 --> 00:03:22,760 Speaker 1: that invest in the space, but it kind of been 58 00:03:22,800 --> 00:03:26,600 Speaker 1: a bit maybe a bit slow to find growth. And 59 00:03:27,120 --> 00:03:30,200 Speaker 1: I think COVID nineteen meant that utilities couldn't get in 60 00:03:30,200 --> 00:03:32,360 Speaker 1: and install the stuff they cann't get to clients to 61 00:03:32,360 --> 00:03:35,119 Speaker 1: to sell that, and we've kind of we've seen several 62 00:03:35,200 --> 00:03:39,000 Speaker 1: utilities perhaps step back from the space centric and energy 63 00:03:39,120 --> 00:03:43,480 Speaker 1: being to data data come to mind. Especially COVID nanty 64 00:03:43,560 --> 00:03:47,520 Speaker 1: has exposed kind of the weaknesses of the coal industry. 65 00:03:47,600 --> 00:03:51,880 Speaker 1: So we've seen basically all this reduced power demand and 66 00:03:51,960 --> 00:03:57,200 Speaker 1: reduced a kind of power prices hitting those thermal generators, 67 00:03:57,440 --> 00:04:02,040 Speaker 1: those coal industry, and meanwhile, renewables have been basically quite 68 00:04:02,040 --> 00:04:05,760 Speaker 1: protected because they have the great priority and they have 69 00:04:05,880 --> 00:04:10,320 Speaker 1: been able to secure good prices through like predetermined price 70 00:04:10,360 --> 00:04:13,640 Speaker 1: agreements such as p p a s power purchase agreements. 71 00:04:13,720 --> 00:04:16,120 Speaker 1: So do we think that these changes are here to last? 72 00:04:16,200 --> 00:04:19,800 Speaker 1: Because you know, this industry doesn't change on a dime 73 00:04:19,800 --> 00:04:22,120 Speaker 1: in terms of the infrastructure that you build and these 74 00:04:22,160 --> 00:04:24,600 Speaker 1: p p as that you're signing into the future. So 75 00:04:24,680 --> 00:04:27,479 Speaker 1: does this mean that these will be lasting impacts? When 76 00:04:27,560 --> 00:04:31,760 Speaker 1: demand does what we think will actually return pretty you know, 77 00:04:31,800 --> 00:04:34,239 Speaker 1: aggressively as soon as they start to open up again. 78 00:04:34,480 --> 00:04:37,640 Speaker 1: In Gurnal, the thermal producers haven't doing well. It's not 79 00:04:37,720 --> 00:04:40,640 Speaker 1: just because of COVID nineteen and the reduced power demand, 80 00:04:40,839 --> 00:04:44,960 Speaker 1: but also because of the carbon price in Europe. We 81 00:04:45,040 --> 00:04:48,080 Speaker 1: actually just hit a record high carbon price a few 82 00:04:48,160 --> 00:04:51,640 Speaker 1: days ago, hitting over four d euros permetrics on and 83 00:04:51,800 --> 00:04:55,040 Speaker 1: this adds quite a lot of price pressure cost pressure 84 00:04:55,120 --> 00:04:58,119 Speaker 1: for these So basically the carbon price hits over forty 85 00:04:58,320 --> 00:05:01,720 Speaker 1: or else prometric town a small and it's quite a 86 00:05:01,800 --> 00:05:04,880 Speaker 1: big hight compared to seventeen when it was just over 87 00:05:05,080 --> 00:05:08,839 Speaker 1: five years preton and it takes a ginormous bite into 88 00:05:09,000 --> 00:05:13,520 Speaker 1: those carbon intensive coal and lignite generator's margin. And we 89 00:05:13,640 --> 00:05:16,960 Speaker 1: will continue to say that cold being squeezed out the 90 00:05:17,080 --> 00:05:21,840 Speaker 1: group by renewables and cheap gas. So this is geographically 91 00:05:21,920 --> 00:05:23,840 Speaker 1: very split though, because there are some countries that are 92 00:05:23,880 --> 00:05:26,880 Speaker 1: way more exposed to lignite than others. So which countries 93 00:05:27,000 --> 00:05:30,840 Speaker 1: are changing the most? Definitely Germany has been one of 94 00:05:30,920 --> 00:05:35,839 Speaker 1: those that are being hit the most. Also, increasingly we're 95 00:05:35,880 --> 00:05:39,000 Speaker 1: saying that this is hitting also those Eastern European countries 96 00:05:39,040 --> 00:05:41,960 Speaker 1: such as Poland. We will most likely to see like 97 00:05:42,120 --> 00:05:45,640 Speaker 1: a cold face that is even faster than what has 98 00:05:45,720 --> 00:05:48,760 Speaker 1: been said in the news at the moment, which then 99 00:05:48,839 --> 00:05:53,120 Speaker 1: brings me to which companies, So you know, this will 100 00:05:53,680 --> 00:05:58,240 Speaker 1: probably disproportionately advantage or disadvantage certain companies so which companies 101 00:05:58,360 --> 00:06:02,039 Speaker 1: have done the best. We have been following this as well, 102 00:06:02,360 --> 00:06:06,640 Speaker 1: like which companies have been performing better and based on 103 00:06:06,800 --> 00:06:10,520 Speaker 1: like the three year return on investing capital. We're seeing 104 00:06:10,600 --> 00:06:14,120 Speaker 1: that those who have been exposed mostly to the thermal 105 00:06:14,360 --> 00:06:17,480 Speaker 1: generation like Uniper and r w E, they have been 106 00:06:17,680 --> 00:06:22,000 Speaker 1: performing less well as those who have more renewable exposures 107 00:06:22,000 --> 00:06:26,039 Speaker 1: such as like Nail and a bedroller and button Fell 108 00:06:26,279 --> 00:06:30,680 Speaker 1: for example. Ultimately, the high performers have been those with 109 00:06:31,000 --> 00:06:36,680 Speaker 1: regulator return whether it's from like grid operations or from renewables. However, 110 00:06:37,040 --> 00:06:40,600 Speaker 1: there is a caveat about regulator returns is that it 111 00:06:40,760 --> 00:06:44,280 Speaker 1: exposes these companies to polish a risk. For example, for 112 00:06:44,560 --> 00:06:48,200 Speaker 1: European grids that which allowed returns have been falling. There 113 00:06:48,360 --> 00:06:52,360 Speaker 1: is falling returns for European networks. An example that is 114 00:06:52,480 --> 00:06:57,080 Speaker 1: off JAM the UK energy regulators have the return on 115 00:06:57,640 --> 00:07:01,560 Speaker 1: equity transmission network GOT riders can achieve. And we're seeing 116 00:07:01,600 --> 00:07:05,800 Speaker 1: systemilar trends across Europe, in Spain, Germany, in Scandinavia as well. 117 00:07:06,480 --> 00:07:09,720 Speaker 1: And I guess in response to that, we're seeing I 118 00:07:09,760 --> 00:07:13,400 Speaker 1: guess the the European Utilities Expanded Site of Europe. I 119 00:07:13,440 --> 00:07:15,960 Speaker 1: guess Latin America has been one of the main targets 120 00:07:16,000 --> 00:07:18,280 Speaker 1: there and they'll is it wants to expand, it's it's 121 00:07:18,320 --> 00:07:23,400 Speaker 1: gris business there. Energy bought TAG Brazilian networks company, and 122 00:07:23,760 --> 00:07:27,280 Speaker 1: eber Droll as well is also expanding its business in 123 00:07:27,360 --> 00:07:29,840 Speaker 1: Brazil and the US, and it's really where it caes 124 00:07:29,880 --> 00:07:32,920 Speaker 1: its growth in networks and not in its European businesses. 125 00:07:33,360 --> 00:07:35,960 Speaker 1: So really, when we're talking about European utilities, in many 126 00:07:36,040 --> 00:07:38,960 Speaker 1: respects we're talking about global utilities. Would you say that 127 00:07:39,360 --> 00:07:42,560 Speaker 1: that is the strategy of the majority of the utilities 128 00:07:42,600 --> 00:07:45,080 Speaker 1: in Europe is to be looking for expansion areas either 129 00:07:45,240 --> 00:07:48,520 Speaker 1: in South America you know, typically very much linked to 130 00:07:48,560 --> 00:07:51,520 Speaker 1: those in Iberia, right the utilities that operate there, or 131 00:07:52,040 --> 00:07:55,040 Speaker 1: is that just you know, the select few. There is 132 00:07:55,080 --> 00:07:59,880 Speaker 1: definitely a strong interest in South America. For example, both 133 00:08:00,160 --> 00:08:03,120 Speaker 1: and Nell and I Padrola are strongly there. They are 134 00:08:03,160 --> 00:08:07,000 Speaker 1: attracted by the demand, strong demand. That is, they're also 135 00:08:07,120 --> 00:08:11,560 Speaker 1: attracted by some of the supportive policy regimes that are 136 00:08:11,640 --> 00:08:15,720 Speaker 1: in place, and also by that there's still potential to 137 00:08:16,200 --> 00:08:20,560 Speaker 1: grow quite strongly the renewable generation in those markets. At 138 00:08:20,560 --> 00:08:24,240 Speaker 1: the moment. The good point there is expansion in Latin America. However, 139 00:08:24,320 --> 00:08:27,160 Speaker 1: the sub companies are not expanding and if anything, they 140 00:08:27,200 --> 00:08:30,640 Speaker 1: are actually reducing their geographic coverage. And I think Centrica 141 00:08:30,840 --> 00:08:33,240 Speaker 1: is probably the biggest stories we saw there. Centrica had 142 00:08:33,400 --> 00:08:37,800 Speaker 1: a energy business in North America, Direct Energy, which they 143 00:08:38,000 --> 00:08:43,439 Speaker 1: sold to Energy Energy later in twenty twenty, and I 144 00:08:43,520 --> 00:08:46,359 Speaker 1: guess the goal of Centrica now is to really consolidate 145 00:08:46,440 --> 00:08:49,760 Speaker 1: this business and reduces focus down to just its home 146 00:08:49,840 --> 00:08:53,920 Speaker 1: markets of the UK and Ireland. And essentially we're the 147 00:08:54,000 --> 00:08:57,840 Speaker 1: only company doing this either Energy they have and it's 148 00:08:57,920 --> 00:09:00,839 Speaker 1: quite a big strategy change, and part of that is 149 00:09:00,880 --> 00:09:05,080 Speaker 1: to reduce the number of countries that they operation. Okay, 150 00:09:05,240 --> 00:09:08,839 Speaker 1: so then we are really truly talking about Europe here. 151 00:09:09,160 --> 00:09:12,400 Speaker 1: So since we are talking about Europe and we're looking 152 00:09:12,600 --> 00:09:17,280 Speaker 1: at certain countries maybe decarbonizing faster than others, depending upon 153 00:09:17,360 --> 00:09:19,199 Speaker 1: how their grids are currently set up, I wanted to 154 00:09:19,280 --> 00:09:22,160 Speaker 1: know is there still a strong case for integration. We 155 00:09:22,280 --> 00:09:26,199 Speaker 1: have seen kind of some signs of vertical integral being 156 00:09:26,440 --> 00:09:31,360 Speaker 1: not as avantageous structure anymore. We saw Eon and r 157 00:09:31,559 --> 00:09:35,240 Speaker 1: w E swapping their assets are double A focus is 158 00:09:35,400 --> 00:09:40,439 Speaker 1: now in upstream while Ion is specialized in downstream. We 159 00:09:40,960 --> 00:09:45,760 Speaker 1: also saw Ovote buying SSS retail Arm, which kind of 160 00:09:45,920 --> 00:09:49,960 Speaker 1: raises the question whether the generation retail era is coming 161 00:09:50,040 --> 00:09:53,760 Speaker 1: to an end after this deal, the majority of UK 162 00:09:54,000 --> 00:09:58,480 Speaker 1: customers are now served by retailers with no generation, which 163 00:09:58,600 --> 00:10:02,200 Speaker 1: was not the case twenty years ago where the almost 164 00:10:02,280 --> 00:10:07,080 Speaker 1: nine was served by generator retailers. And there are easy 165 00:10:07,400 --> 00:10:11,200 Speaker 1: kind of two groups of reasons. The pull reason from 166 00:10:11,360 --> 00:10:15,079 Speaker 1: this integrated structure is that the skills to run a 167 00:10:15,240 --> 00:10:20,080 Speaker 1: successful business is not that much. There's like little overlap 168 00:10:20,200 --> 00:10:24,400 Speaker 1: between generation arm and retail arm. And then the ultimately 169 00:10:24,800 --> 00:10:28,719 Speaker 1: the main argument why are many companies have chosen the 170 00:10:29,240 --> 00:10:33,760 Speaker 1: integrated structure is the physical hedge, which means that you 171 00:10:33,880 --> 00:10:36,839 Speaker 1: have one buy empower and one selling power and then 172 00:10:37,000 --> 00:10:40,000 Speaker 1: you can match the volumes with each other. But it's 173 00:10:40,040 --> 00:10:44,720 Speaker 1: becoming less important because of kind of the ongoing evolution 174 00:10:44,760 --> 00:10:48,959 Speaker 1: of financial hedge and tools that it's providing this generator's 175 00:10:49,280 --> 00:10:53,880 Speaker 1: options that are more flexible than coupling their generation with retail. 176 00:10:54,040 --> 00:10:57,839 Speaker 1: They basically have now so many different financial instruments like 177 00:10:58,080 --> 00:11:01,719 Speaker 1: pp A, forwards and future which can all do what 178 00:11:02,040 --> 00:11:06,319 Speaker 1: the retail coupling did and maybe better. And also the 179 00:11:06,559 --> 00:11:12,360 Speaker 1: field switching and increasing renewables are really making this hedging 180 00:11:12,480 --> 00:11:17,160 Speaker 1: more difficult than before. And there's also the push element 181 00:11:17,320 --> 00:11:22,720 Speaker 1: here that customers are wanting more today and utilities are 182 00:11:22,800 --> 00:11:26,040 Speaker 1: exploring quite a lot like how can they do this? 183 00:11:26,240 --> 00:11:30,280 Speaker 1: How can they satisfy their customers? But there have them 184 00:11:30,320 --> 00:11:36,320 Speaker 1: been really a winning strategy. So by consolidating and having 185 00:11:36,400 --> 00:11:40,080 Speaker 1: a larger customer base, this could help them to scale 186 00:11:40,160 --> 00:11:43,520 Speaker 1: up faster. Now for a very short break, stay with 187 00:11:43,679 --> 00:11:49,200 Speaker 1: us for right now, Let's say, okay, we've talked about retail. 188 00:11:49,280 --> 00:11:52,640 Speaker 1: Let's throw the metaphorical car in reverse and let's head 189 00:11:53,160 --> 00:11:57,000 Speaker 1: back up the value chain to networks, and let's talk 190 00:11:57,000 --> 00:11:59,000 Speaker 1: about networks. What do you see and what should we 191 00:11:59,080 --> 00:12:03,160 Speaker 1: watch for anyone when it comes to networks. So, as 192 00:12:03,240 --> 00:12:07,400 Speaker 1: you say grid companies looking to grow abroad in Latin America, 193 00:12:07,440 --> 00:12:10,960 Speaker 1: we said, the other big trend you see in networks 194 00:12:11,360 --> 00:12:16,559 Speaker 1: is the adoption of digital technologies, so getting more smart 195 00:12:16,600 --> 00:12:19,000 Speaker 1: meters in the grid. But that's where the smart meters 196 00:12:19,080 --> 00:12:22,520 Speaker 1: live exactly. So that's probably a great use for smart 197 00:12:22,600 --> 00:12:24,520 Speaker 1: meters for network comperies to see what's going on in 198 00:12:24,559 --> 00:12:26,839 Speaker 1: their grids and being able to respond to that more 199 00:12:27,040 --> 00:12:30,640 Speaker 1: quickly and just gathering that data, integrating that with other 200 00:12:30,800 --> 00:12:33,320 Speaker 1: data streams from some stations they have on the grid, 201 00:12:33,440 --> 00:12:37,200 Speaker 1: and using all that to understand where you know, predictive 202 00:12:37,240 --> 00:12:39,800 Speaker 1: maintenance on their grid, you know, reducing those operating costs, 203 00:12:39,880 --> 00:12:44,040 Speaker 1: while at the same time perhaps employing digital or software 204 00:12:44,400 --> 00:12:48,880 Speaker 1: solutions such as local flexibility markets, which we recovering other research, 205 00:12:49,000 --> 00:12:52,040 Speaker 1: which would allow these network companies to reduce the capital 206 00:12:52,240 --> 00:12:54,320 Speaker 1: they're investing, so they might have brings that their building 207 00:12:54,400 --> 00:12:57,439 Speaker 1: as well. So while the returns are falling, I think 208 00:12:57,480 --> 00:13:00,559 Speaker 1: the target now for within your free to Lose is 209 00:13:00,640 --> 00:13:03,240 Speaker 1: to try and get their costs down as much as 210 00:13:03,280 --> 00:13:06,079 Speaker 1: they can. And which companies or utilities are doing this 211 00:13:06,240 --> 00:13:08,480 Speaker 1: the best right now? So sorry, so and I will 212 00:13:09,480 --> 00:13:14,280 Speaker 1: It's okay, it's a very short answer, but I'LL are 213 00:13:14,600 --> 00:13:18,080 Speaker 1: investing very heavily in the digital space. Yeah, and it's 214 00:13:18,320 --> 00:13:20,800 Speaker 1: not only the quality of the grids, but also the quantity. 215 00:13:21,080 --> 00:13:24,800 Speaker 1: Because of the uptake of the huge amount of renewable capacity, 216 00:13:24,960 --> 00:13:28,160 Speaker 1: we will also need a lot more networks to connect them. 217 00:13:28,679 --> 00:13:32,160 Speaker 1: So we're expecting that just more grids will come online. 218 00:13:32,280 --> 00:13:35,319 Speaker 1: And these big utilities in Padrola and now they have 219 00:13:35,400 --> 00:13:38,679 Speaker 1: already made a big commitment to expand their grids in 220 00:13:38,760 --> 00:13:42,840 Speaker 1: Padrolla said that they were invest almost thirty billion euros 221 00:13:43,000 --> 00:13:48,520 Speaker 1: to kind of increase it almost two hundred by which 222 00:13:48,640 --> 00:13:52,120 Speaker 1: is quite a big uptake from their existing base and 223 00:13:52,400 --> 00:13:56,000 Speaker 1: throwing the car in reverse yet one more time. So 224 00:13:56,280 --> 00:14:00,480 Speaker 1: let's go back to generation. So you mentioned that we'renewables 225 00:14:00,920 --> 00:14:03,280 Speaker 1: were an indicator actually, well not an indicator, but that 226 00:14:03,400 --> 00:14:07,400 Speaker 1: we did see some correlation between success recently and the 227 00:14:07,440 --> 00:14:10,040 Speaker 1: amount of existing renewables that people actually had as a 228 00:14:10,120 --> 00:14:12,400 Speaker 1: part of their portfolio. And the question is what are 229 00:14:12,440 --> 00:14:14,559 Speaker 1: the opportunities and what are the things to watch in 230 00:14:14,640 --> 00:14:17,360 Speaker 1: the generation side. We talked a little bit earlier about 231 00:14:17,480 --> 00:14:20,400 Speaker 1: how renewables for some of these companies, the ones that 232 00:14:20,480 --> 00:14:23,040 Speaker 1: actually had a lot of exposure there did pretty well recently. 233 00:14:23,480 --> 00:14:27,480 Speaker 1: And do you see that as continuing to be a trend. Yes, definitely. 234 00:14:27,960 --> 00:14:31,360 Speaker 1: The business case for renewables are definitely there. The cost 235 00:14:31,600 --> 00:14:35,880 Speaker 1: of the technology is falling and climate policy is supporting it. 236 00:14:36,120 --> 00:14:39,520 Speaker 1: And also it's important to think what are the future 237 00:14:39,600 --> 00:14:44,240 Speaker 1: gaps and industrial decarbonization will be a big thing, a 238 00:14:44,320 --> 00:14:48,640 Speaker 1: big thing to watch. Electrification will definitely boost renewables, so 239 00:14:48,920 --> 00:14:51,560 Speaker 1: there will be business case there and there will be 240 00:14:51,640 --> 00:14:55,160 Speaker 1: also a business case to kind of in those newer 241 00:14:55,280 --> 00:14:59,000 Speaker 1: technologies to decarbonize those hard to embate sectors like the 242 00:14:59,320 --> 00:15:03,680 Speaker 1: aluminum and cement. A lot of utilities have already jumped 243 00:15:03,760 --> 00:15:08,560 Speaker 1: into like a development of hydrogen ccs, and it will 244 00:15:08,600 --> 00:15:12,280 Speaker 1: be interesting to see like what kind of business strategy 245 00:15:12,360 --> 00:15:15,760 Speaker 1: will actually be the winning one in those areas. And 246 00:15:15,880 --> 00:15:19,400 Speaker 1: another thing be interesting to watch is the flexibility, which 247 00:15:20,040 --> 00:15:23,280 Speaker 1: will be a key challenge as we have more uptake 248 00:15:23,400 --> 00:15:26,720 Speaker 1: of renewables, So the question will be how do we 249 00:15:26,920 --> 00:15:31,240 Speaker 1: kind of address all these challenges. Companies will definitely want 250 00:15:31,320 --> 00:15:33,640 Speaker 1: to be involved in this, and there will be also 251 00:15:33,680 --> 00:15:36,840 Speaker 1: a market design challenge for kind of making all this 252 00:15:37,080 --> 00:15:40,640 Speaker 1: piece come together. And then how about even further back 253 00:15:41,200 --> 00:15:44,000 Speaker 1: to the fossil fuel part of things, because really, let's 254 00:15:44,040 --> 00:15:46,880 Speaker 1: go as far upstream as possible. Now we're already talking 255 00:15:46,920 --> 00:15:50,240 Speaker 1: about how renewables are going to help with decarbonization, but 256 00:15:50,400 --> 00:15:53,640 Speaker 1: presumably there is still just quite a bit within the 257 00:15:53,680 --> 00:15:57,560 Speaker 1: fossil fuel space that has yet to transition to something else, 258 00:15:57,720 --> 00:16:00,280 Speaker 1: or may never transition to something else. How do you 259 00:16:00,400 --> 00:16:03,040 Speaker 1: see that changing, I guess or maybe not in the 260 00:16:03,120 --> 00:16:06,400 Speaker 1: next year. The story for coal is quite straightforward now 261 00:16:06,560 --> 00:16:09,200 Speaker 1: as we're also expecting the carbon to go up as 262 00:16:09,320 --> 00:16:12,680 Speaker 1: with a renewable uptake. The cold story is that it 263 00:16:12,800 --> 00:16:16,000 Speaker 1: will be faced out just by looking at the economics, 264 00:16:16,080 --> 00:16:19,760 Speaker 1: not even taking into account like those cold face out policies. 265 00:16:20,200 --> 00:16:23,160 Speaker 1: But the bigger question is is gas. What will happen 266 00:16:23,240 --> 00:16:26,240 Speaker 1: to gas? Right now? There is still a business case 267 00:16:26,360 --> 00:16:30,080 Speaker 1: for gas because of the volatility of renewables and the 268 00:16:30,240 --> 00:16:33,880 Speaker 1: need for balancing the grid and most utilities in Europe 269 00:16:33,920 --> 00:16:36,720 Speaker 1: they have already committed to net zero, but at the 270 00:16:36,800 --> 00:16:40,320 Speaker 1: moment gas is still profitable and it's a money maker 271 00:16:40,440 --> 00:16:44,080 Speaker 1: for them. So how to face out gas will be 272 00:16:44,200 --> 00:16:46,560 Speaker 1: a bigger question for them to kind of get to 273 00:16:46,680 --> 00:16:50,320 Speaker 1: their actual net zero commitment. So what are some of 274 00:16:50,360 --> 00:16:53,080 Speaker 1: the companies again from the business models, So who are 275 00:16:53,120 --> 00:16:55,040 Speaker 1: the utilities that are doing the best in the space 276 00:16:55,480 --> 00:16:58,840 Speaker 1: an upstream? We have seen that it's the renewable majors 277 00:16:58,880 --> 00:17:01,360 Speaker 1: that have been done. The BA asked, So we have 278 00:17:01,520 --> 00:17:04,240 Speaker 1: an l in Padrola and E d F what the 279 00:17:04,400 --> 00:17:08,440 Speaker 1: fall they are all kind of doing similarly well when 280 00:17:08,480 --> 00:17:11,400 Speaker 1: we look at like the return on the investing capital 281 00:17:11,560 --> 00:17:15,960 Speaker 1: and are there any outliers here across the utility space comprehensively. 282 00:17:16,359 --> 00:17:19,959 Speaker 1: We're seeing certain trends and certain sub segments, but are 283 00:17:20,000 --> 00:17:23,119 Speaker 1: there any outliers which just don't seem to be doing 284 00:17:23,200 --> 00:17:26,360 Speaker 1: the things that the others are. So one company made 285 00:17:26,400 --> 00:17:30,080 Speaker 1: one energy major Energy didn't five years ago, didn't take 286 00:17:30,119 --> 00:17:33,399 Speaker 1: the same route as an l or Jola. It preferred 287 00:17:33,440 --> 00:17:36,200 Speaker 1: to go down an energy services rout and and since 288 00:17:36,280 --> 00:17:39,520 Speaker 1: you does intend, they've acquired about nineteen companies in this 289 00:17:39,760 --> 00:17:44,200 Speaker 1: energy services space as energy storage companies, energy efficiency generation, 290 00:17:44,440 --> 00:17:49,760 Speaker 1: and on site generation. Last year they decided against that strategy. 291 00:17:49,920 --> 00:17:53,399 Speaker 1: They've replot of course they are going to spin out 292 00:17:53,480 --> 00:17:57,320 Speaker 1: the energy part of the energy services business and take 293 00:17:57,520 --> 00:18:02,199 Speaker 1: them cash raised from that and invest into developing renewables 294 00:18:02,760 --> 00:18:07,000 Speaker 1: and building as their grids business as well. So there 295 00:18:07,040 --> 00:18:10,280 Speaker 1: were companies who maybe took a different tax and now 296 00:18:10,359 --> 00:18:13,400 Speaker 1: we see them reverting course and going to the same 297 00:18:13,520 --> 00:18:17,440 Speaker 1: route dash an l aber droller that they pursued so 298 00:18:17,920 --> 00:18:23,000 Speaker 1: successfully in the upstream. Maybe one company that comes to 299 00:18:23,119 --> 00:18:26,520 Speaker 1: mind is for Tomb while kind of other companies they've 300 00:18:26,560 --> 00:18:30,520 Speaker 1: been more invested in how to dicarbonize their generation protfolio. 301 00:18:30,880 --> 00:18:35,000 Speaker 1: For to instead, their generation portfolio was quite low carbon, 302 00:18:35,400 --> 00:18:39,320 Speaker 1: but instead of going more or expanding their low carbon 303 00:18:39,440 --> 00:18:43,120 Speaker 1: They went and bought Uniper who had higher carbon intensity 304 00:18:43,240 --> 00:18:47,720 Speaker 1: than they did, so that was an interesting development. But 305 00:18:47,960 --> 00:18:50,280 Speaker 1: I guess what they are really betting on is that 306 00:18:50,560 --> 00:18:54,920 Speaker 1: there will be a tighter power market and while coal 307 00:18:55,200 --> 00:18:59,760 Speaker 1: and nuclear plants retire and the gas production from growing 308 00:18:59,800 --> 00:19:02,720 Speaker 1: and ends, there will be a really tight power market 309 00:19:03,160 --> 00:19:07,040 Speaker 1: where like gas plants that Uniper has a lot and 310 00:19:07,200 --> 00:19:10,880 Speaker 1: hydro they will have a huge advantage in that case. 311 00:19:11,440 --> 00:19:14,280 Speaker 1: So we've talked about a lot of successful business models 312 00:19:14,320 --> 00:19:16,600 Speaker 1: and a lot of successful businesses on the show, keeping 313 00:19:16,680 --> 00:19:19,960 Speaker 1: it really quite upbeat. But I want to know about 314 00:19:20,040 --> 00:19:23,199 Speaker 1: how competitive this space is and what we see happening 315 00:19:23,240 --> 00:19:24,639 Speaker 1: in the future. I mean, is it is it a 316 00:19:24,680 --> 00:19:28,000 Speaker 1: crowded market? That it is definitely. We have been seen 317 00:19:28,160 --> 00:19:31,840 Speaker 1: quite a lot of new entrants in this market, especially 318 00:19:31,920 --> 00:19:34,800 Speaker 1: from oil and gas sector. There is a huge gap 319 00:19:34,880 --> 00:19:37,760 Speaker 1: between kind of now and reaching the Paris Agreement, so 320 00:19:37,880 --> 00:19:42,439 Speaker 1: there is space as well, but it definitely getting more competitive. 321 00:19:42,560 --> 00:19:44,720 Speaker 1: And example of that is what we saw with the 322 00:19:45,119 --> 00:19:48,240 Speaker 1: U k C Bed auction where we saw a record 323 00:19:48,400 --> 00:19:51,639 Speaker 1: high level of bidding from oil and gas sector. From 324 00:19:51,720 --> 00:19:54,400 Speaker 1: BP and in theF both of the oil and gas 325 00:19:54,560 --> 00:19:58,639 Speaker 1: and utilities have their advantages. And it's good to notice 326 00:19:58,720 --> 00:20:01,280 Speaker 1: that even though maybe oil and gas have a lot 327 00:20:01,359 --> 00:20:06,600 Speaker 1: of money, but utilities they have advantage in um their 328 00:20:06,720 --> 00:20:11,840 Speaker 1: experience of developing assets and building looss renewable projects and 329 00:20:12,119 --> 00:20:17,000 Speaker 1: also their existing pipeline is invaluable and those factors have 330 00:20:17,119 --> 00:20:20,360 Speaker 1: been built over the years and it may give them 331 00:20:20,520 --> 00:20:24,520 Speaker 1: an edge over this oil majors coming into the power sector. 332 00:20:24,760 --> 00:20:28,800 Speaker 1: But what also Shells mentioned earlier that they have big 333 00:20:28,880 --> 00:20:34,520 Speaker 1: trading desks and ability to manage big offshore projects. This 334 00:20:34,760 --> 00:20:38,720 Speaker 1: could help them kind of to manage those merchant risks 335 00:20:38,840 --> 00:20:41,480 Speaker 1: that we see in a power sector and manage those 336 00:20:41,560 --> 00:20:44,600 Speaker 1: unsubsidized revenue risks. And all the gas majors in their 337 00:20:44,600 --> 00:20:48,440 Speaker 1: focus isn't just on the upstream in renewable development. We're 338 00:20:48,440 --> 00:20:51,879 Speaker 1: actually seeing a lot of activity from shell in particular 339 00:20:52,040 --> 00:20:56,520 Speaker 1: in the downstream space. So show has acquired energy retail 340 00:20:56,560 --> 00:21:01,320 Speaker 1: businesses in Australia. In the UK they about battery storage 341 00:21:01,400 --> 00:21:05,880 Speaker 1: companies that's on and in Germany they have but four 342 00:21:06,160 --> 00:21:11,000 Speaker 1: separate electric vehicle charging companies total has bought SAFT an 343 00:21:11,160 --> 00:21:13,920 Speaker 1: array of ev charging companies itself. So oil and cast 344 00:21:14,000 --> 00:21:18,439 Speaker 1: companies are chargeting both the upstream the generation side as 345 00:21:18,480 --> 00:21:22,280 Speaker 1: well as the downstream on the retail side, and Shell 346 00:21:22,600 --> 00:21:25,639 Speaker 1: only recently announced that they want to double the amount 347 00:21:25,760 --> 00:21:31,119 Speaker 1: of electricity that they sell to customers by With that, 348 00:21:31,280 --> 00:21:33,879 Speaker 1: that's what to watch when we sit down to do 349 00:21:34,200 --> 00:21:38,320 Speaker 1: the next look at these utilities and their company profiles. 350 00:21:38,600 --> 00:21:40,840 Speaker 1: This may be a very different conversation with a lot 351 00:21:40,960 --> 00:21:44,760 Speaker 1: more energy companies involved in a bigger way going forward. 352 00:21:45,040 --> 00:21:48,240 Speaker 1: And with that, Michael both, thank you so much for 353 00:21:48,320 --> 00:21:50,280 Speaker 1: your insights today and great having you on the show. 354 00:21:50,520 --> 00:22:02,600 Speaker 1: Thank you, Thank you. Ny. This episode of Switched On 355 00:22:02,760 --> 00:22:05,679 Speaker 1: was edited by Rex Warner who Grace Stook Media. Bloombergin 356 00:22:05,720 --> 00:22:07,919 Speaker 1: e F is a service provided by Bloomberg Finance LP 357 00:22:08,040 --> 00:22:10,680 Speaker 1: and its affiliates. This recording does not constitute, nor it 358 00:22:10,720 --> 00:22:14,280 Speaker 1: should it be construed as investment advice, investment recommendations, or 359 00:22:14,280 --> 00:22:17,600 Speaker 1: a recommendation as to an investment or other strategy. Bloomberguin 360 00:22:17,600 --> 00:22:20,200 Speaker 1: e F should not be considered as information sufficient upon 361 00:22:20,240 --> 00:22:23,439 Speaker 1: which to base an investment decision. 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