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Speaker 1: Bloomberg Intelligence with Alex Steinel and Paul'sweenye on Bloomberg Radio.
Speaker 2: On Today's Bloomberg Intelligence Show, we dig inside the big
Speaker 2: business stories impacting Wall Street and the global markets.
Speaker 3: Each and every week we provide you inp research and
Speaker 3: data on some of the two thousand companies and one
Speaker 3: hundred and thirty industries our analysts cover worldwide.
Speaker 2: Today, we'll look at what earning some of the world's
Speaker 2: largest alternative asset manager tell us about the health of
Speaker 2: financial markets.
Speaker 3: Plus, we're going to discuss how energy companies are working
Speaker 3: to satisfy high demand for power.
Speaker 2: But first we dive into the eb space and Tesla.
Speaker 2: This week Tesla announced it is slashing headcount by more
Speaker 2: than ten percent. CEO Elon Musk cited duplication of roles
Speaker 2: and the need to reduce costs.
Speaker 3: We also heard that senior vice president Drew Baglino and
Speaker 3: Rohan Patel, vice president of public Policy and business Development,
Speaker 3: have also departed. So for more on this, we were
Speaker 3: joined by Steve Mann, Bloomberg Intelligence Global, Autos and Industrial's
Speaker 3: research analyst.
Speaker 2: We first asked Steve for his take on this week's news.
Speaker 5: It's actually worse than I thought I thought. You know,
Speaker 5: the first quarter sales drop was you know, hopefully close
Speaker 5: to the end, but you know, there's seems to be
Speaker 5: the light at the end of the tunnel is not
Speaker 5: really here yet. And it looks like their plans are
Speaker 5: running just pretty much well below capacity at the moment,
Speaker 5: and there's still a lot of cost headwinds facing them.
Speaker 5: They're trying to balance a lot of things in terms
Speaker 5: of deliveries, production, they're raising prices. I don't know how
Speaker 5: long that's gonna last. So execution is key for the
Speaker 5: company in the next you know, six to the nine months.
Speaker 2: Steve, where are we now or where is the market?
Speaker 2: When you talk to investors in terms of getting a
Speaker 2: sense of where EV demand is in the US and
Speaker 2: then maybe globally.
Speaker 5: Well, EV demand is waning. I think the interest rate
Speaker 5: is not helping, you know, it's uh they're looking to
Speaker 5: you know, as you know, the FED is probably not
Speaker 5: going to cut rates anytime soon in the next couple
Speaker 5: of months, next quarter or so, so that's going to
Speaker 5: condude away on big purchases like automobiles. We're seeing that
Speaker 5: across the board in the US as well as in China.
Speaker 5: Trying is a little bit worse for Tesla because there's
Speaker 5: so much new competition there. But you know, sales is
Speaker 5: slowing for GM, sales is slowing for Ford for just
Speaker 5: had to cut production of their lightning recently announced about
Speaker 5: a couple of weeks go. So I think this year
Speaker 5: will be tough for the industry. Now, you know, we
Speaker 5: probably won't see any improvement until as far as I'm concerned,
Speaker 5: in twenty twenty six.
Speaker 3: Steve, Why twenty twenty six, Why is it going to
Speaker 3: take that long?
Speaker 4: Yeah?
Speaker 5: I think what the EV market is is facing today
Speaker 5: is that we had early adopters, especially on the high end,
Speaker 5: they're you know, they're pretty much tapped out. You know,
Speaker 5: they've they can buy only so many the market is
Speaker 5: relatively smaller than the mass market. I'm looking at twenty
Speaker 5: twenty six because if you look at the Inflation Reduction Act,
Speaker 5: it's bringing in on shoring a lot of the EV
Speaker 5: battery production in the US. Hopefully it will cut costs.
Speaker 5: And at the same time, in twenty twenty six, where
Speaker 5: we're looking at more affordable evs coming into the market,
Speaker 5: that's going to expand the addressable market for EV's And
Speaker 5: that's why we're we're thinking, you know, twenty twenty six
Speaker 5: will probably be a better, better time for the EV
Speaker 5: market than it is today.
Speaker 2: So how about profitability in that scenario, Steve, It's tough
Speaker 2: to make an argument that, you know, these evs can
Speaker 2: be profitably manufactured at a higher price point. How are
Speaker 2: they going to adjust their cost structure to get be
Speaker 2: profitable at maybe a lower price point, I don't know,
Speaker 2: thirty thousand dollars or something like that.
Speaker 5: That's a good question. I think if you look at
Speaker 5: the EV startups in the US, the only one that's
Speaker 5: really still profitable is Tesla. You saw Fisker being delisted.
Speaker 5: There's risk of them filing bankruptcy. Both Lucid and Rivian
Speaker 5: will need, you know, billions of dollars just to get
Speaker 5: them through the next couple of years. We're not sure
Speaker 5: if they're going to get that money given the slowdown
Speaker 5: and the EV market. But on a bright side, I
Speaker 5: think Tesla is still generating cash. You know, they're making
Speaker 5: some of the cuts today I think really to maintain
Speaker 5: cash generation so they can continue to invest for the
Speaker 5: long term, you know, for them, I think what's really
Speaker 5: important for them is the AI, the FSD, the full
Speaker 5: self driving a system that they're trying to build out.
Speaker 5: That that's gonna be the future of the automotive industry.
Speaker 5: It's really those software based subscriptions that's going to drive revenue,
Speaker 5: not so much of the automaking. So if they're trying
Speaker 5: to get there, trying to maintain cash, maintain some level
Speaker 5: of profitability to make those investments to get them there.
Speaker 3: Let's go to the SVP departing. So Drew Baglino leaving
Speaker 3: the company, as I mentioned, senior vice president. Who is he?
Speaker 3: Do we care? Like how big a deal he was
Speaker 3: in Tesla? What did he do walk us through it?
Speaker 5: He looks like to be the right hand person for
Speaker 5: Elon Musk. So it's a big loss for the company,
Speaker 5: no doubt about it. But you know he's he's a
Speaker 5: powertrain engineer for the most part, energy engineer, so he's
Speaker 5: you know, he's really involved in the battery if you
Speaker 5: saw him on battery day. I think, you know, if
Speaker 5: you look at Tesla and what Elon Musk have been
Speaker 5: saying about Tesla's future, which is on AI, which is
Speaker 5: on full self driving, is it a big loss. I mean,
Speaker 5: you can you can argue that, hey, you know, Tesla's
Speaker 5: moving on to the next phase. It's not about building
Speaker 5: the motors, not about building the batteries. They've gone through
Speaker 5: that process over the past fifteen eighteen years. You know,
Speaker 5: I think, you know, looking forward, they probably need somebody
Speaker 5: more people around AI. You know, developed them algorithms for
Speaker 5: the future of the car.
Speaker 2: Our thanks to Steve Man Bloomberg Intelligence, Global, Autos and
Speaker 2: Industrials research channels.
Speaker 3: We move next to the world's largest alternative asset manager, Blackstone.
Speaker 3: Blackstone reported higher quarterly earnings than expected, and the firm
Speaker 3: also collected more fees from big retail funds and credit
Speaker 3: strategies during the first quarter and all of this helped
Speaker 3: compensate for a slower pace of deal exits.
Speaker 2: For more, we were joined by Paul Goldberg, Bloomberg Intelligence
Speaker 2: senior equity analyst. We first asked him for his take
Speaker 2: on the latest coutally results.
Speaker 6: The numbers, I would break them up in three buckets.
Speaker 6: One the fee growth, which was fairly decent, but not
Speaker 6: the double digit bracknate growth that we've seen in years
Speaker 6: prior to the painful twenty twenty three and late twenty
Speaker 6: twenty two. The second one is key themes, and those
Speaker 6: things are getting better. So you do get a private
Speaker 6: credit business that was working pretty well. You have a
Speaker 6: wealth management business that you mentioned that's working pretty well.
Speaker 6: They've reached two hundred and forty billion dollars in assets
Speaker 6: in the wealth management with their goal of to fifty,
Speaker 6: so they're pretty much at their goal. And lastly, the
Speaker 6: painful part is the deal activity in terms of deployments
Speaker 6: and particularly realizations that produce performance fees, and that sort
Speaker 6: of becomes still a pain point for Blackstone and that's
Speaker 6: a drag on their earnings.
Speaker 2: Paul, what have they been saying about that, because again,
Speaker 2: you're right, we haven't seen a lot of m and
Speaker 2: a activity. We haven't seen a lot of IPO activity
Speaker 2: types of exit events that would allow them to realize
Speaker 2: some returns on their investments. What are they saying about
Speaker 2: the next six to twelve months.
Speaker 6: Well, I would actually look a little bit beyond that,
Speaker 6: because on the call they were really talking about twenty
Speaker 6: twenty four and before they were really hopeful for the
Speaker 6: second half of twenty four to get better. But then
Speaker 6: Jonathan Gray was actually unplumber tivity. He kind of mentioned
Speaker 6: that the more activity, return of activity is probably going
Speaker 6: to be more of a late twenty four and into
Speaker 6: twenty five matter. So I would look a little bit
Speaker 6: beyond the next six months, maybe the next nine to twelve.
Speaker 3: If they have a hard time exiting investments, how do
Speaker 3: they then raise more money for new funds? How does
Speaker 3: that work?
Speaker 6: Well, I think it's the issue not just we're kind
Speaker 6: of very focused on the private equity when we talk
Speaker 6: about that, but the third of their business is private equity.
Speaker 6: The third of their business is real estate, and there
Speaker 6: are still there are some opportunities, and performance in real
Speaker 6: estate gotten a little bit better, so they fundraising came
Speaker 6: back to some extent, the b read b cred the
Speaker 6: retail funds. The outflows kind of stopped there, so perpetual
Speaker 6: vehicles are doing pretty well for them. And the last category,
Speaker 6: the credit category, that had just been a very strong
Speaker 6: grower and that's reached out about a third of their
Speaker 6: assets at this point.
Speaker 4: Paul.
Speaker 2: Yeah, you mentioned real estate, and of course historically Blackstone's
Speaker 2: been a big, big player in the real estate business.
Speaker 2: What is their call on office A Do they have
Speaker 2: a lot of exposure there? And B how concerned are
Speaker 2: they about it?
Speaker 6: There was nothing discussed in terms of office really on
Speaker 6: the cold they have about one or two percent of
Speaker 6: total assets in commer in office space, maybe even less
Speaker 6: than that, so it's a fairly small amount. They are
Speaker 6: super focused on the multifamily. During the quarter they made
Speaker 6: it ten billion dollar deal for air communities that take
Speaker 6: private deal, so they're still very focused on that. That've
Speaker 6: been for over the last ten to fifteen years. They
Speaker 6: also tooked gave some specific numbers around the logistics and infrastructure.
Speaker 6: So there's about fifty billion dollars of investments in that
Speaker 6: already we're talking about. That's five percent of the total
Speaker 6: assets just in that private credit.
Speaker 2: Paul, what's Blackstone say about this business. It's obviously just
Speaker 2: a booming business. Assets under management is skyrocketing. There's some
Speaker 2: calls for maybe some greater transparency, maybe in some regulation
Speaker 2: of the private credit business. What's the Blackstone take on
Speaker 2: that part of the business.
Speaker 6: It's been very strong. As I mentioned, it reached about
Speaker 6: thirty of their assets three hundred plus billion dollars. They
Speaker 6: do have a lot of different vehicles there that do
Speaker 6: a lot of direct lending, but they also have the
Speaker 6: largest business development company which is geared towards retail b
Speaker 6: cred that's a huge vehicle for them. There was a
Speaker 6: lot of growth first quarter. There are actually some questions
Speaker 6: because you had a syndicated loan market with blending from
Speaker 6: the banks. Come back to some extent reclaim in some
Speaker 6: of the module that the private credit got last year.
Speaker 6: But it's a long term game, so over time there's
Speaker 6: still a lot of opportunity for private credit. We ran
Speaker 6: some numbers, but think if you think of investment credit
Speaker 6: potential for replacement, especially for those insurance companies, it could
Speaker 6: be a forty trillion dollars addressable market. When private credit
Speaker 6: is we're talking about one point six one point seven
Speaker 6: trillion right now, So there's a lot of opportunities still
Speaker 6: to take the incremental one two three percent of that
Speaker 6: market still.
Speaker 3: Before we let you go. So Blackstone set the tone.
Speaker 3: What do you think the other big asset managers are
Speaker 3: going to come out with.
Speaker 6: It's a little bit difficult because the earnings for them
Speaker 6: kind of idiosyncratic to some extent because these are private investments,
Speaker 6: they're large, and sometimes they move in different different directions.
Speaker 6: There's about two weeks until the next one report, so
Speaker 6: there's most of them reforced over the end of April
Speaker 6: and early May. I think from what we've seen from Blackstone,
Speaker 6: the private credit is going to hold fairly well, which
Speaker 6: is a positive for companies like Apolla and error private
Speaker 6: equity realizations exits is still a little bit more difficult,
Speaker 6: so it might give some pain to the guys like
Speaker 6: Carlisle KKR. They actually pre announced their realizations a few
Speaker 6: weeks before the end of the quarter, so we know
Speaker 6: the numbers were pretty light, so that's not going to
Speaker 6: be a surprise. But on the other hand, the rates
Speaker 6: is stained higher for longer. They brought out the Global
Speaker 6: the rest of the business from Global Atlantic, so the
Speaker 6: insurance business is going to do well and provide them
Speaker 6: some earnions in that area.
Speaker 2: Our thanks to Paul Goldberg Bloomberg Intelligence Senior Equity ANAST.
Speaker 3: Coming up, We're going to discuss how energy companies are
Speaker 3: working to satisfy a high demand for power.
Speaker 2: You're listening to Bloomberg Intelligence on Bloomberg Radio, providing in
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Speaker 3: I'm Paul Sweeney and am Alex Steel and this is Bloomberg.
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Speaker 3: This week, Bloomberg Intelligence Radio visited Bloomberg a neipp's annual
Speaker 3: Energy and Climate Summit in New York. The summit brings
Speaker 3: together corporate executives, government officials, and industry leaders.
Speaker 2: This year, speakers at the event covered topics ranging from
Speaker 2: clean power, trade, federal US policy, hydrogen and climate technology.
Speaker 2: We begin with power and we were joined by David
Speaker 2: Crane Undersecretary for Infrastructure at the US Department of Energy.
Speaker 3: David says, the demand growth of power in the US
Speaker 3: is going to be more than we thought. So for
Speaker 3: the last ten years, power demand was up just fifty
Speaker 3: basis points a year, and now we're looking at five
Speaker 3: to six percent a year. And we first asked David,
Speaker 3: what all of this means.
Speaker 4: Well, five to six percent in our world is huge.
Speaker 7: I mean that's like tiger economies from the nineteen nineties.
Speaker 7: And because of the long lead time of most things
Speaker 7: in the electricity sector, those five to six percents per
Speaker 7: year pile up if you're not getting after it. So
Speaker 7: what it means is and what's very important all this
Speaker 7: as we look at these transitioning to the clean energy economy,
Speaker 7: all these new technologies, is you always have to ask
Speaker 7: the time question, what you need and what time frame
Speaker 7: and what are the solutions that fit that land within
Speaker 7: that time frame.
Speaker 4: You know.
Speaker 2: A couple of summers ago, my summer read was the
Speaker 2: grid Frame Wires between Americans and our Energy Future. I
Speaker 2: read that on the beach and people are laughing like
Speaker 2: a geek. So I feel like I know what I'm
Speaker 2: talking about here, and what I know is we need
Speaker 2: constant investment in our energy grid. And if Alex is right,
Speaker 2: the energy demand is going to keep increasing. That's even
Speaker 2: more so. What are some of the key issues that
Speaker 2: you need to tackle or trying to tackle at least
Speaker 2: in the short term here.
Speaker 7: Well, first of all, I need to tackle what your
Speaker 7: summer reading is, beach does Paul, I think you got
Speaker 7: to get a life exactly?
Speaker 4: If that's what.
Speaker 7: I think, Well, I mean one big one, the missing link,
Speaker 7: and I mentioned this on stage as well, is permitting reform.
Speaker 7: The I mean, we're very supportive permitting reform. It takes
Speaker 7: a lot of different permutations. I'm personally not a policy person.
Speaker 7: I'm the implementation person. But we just need to do
Speaker 7: things faster because just the scale of infrastructure that exists
Speaker 7: under this new legislation, just in my area, by the
Speaker 7: end this year, we will have invested in over one
Speaker 7: hundred infrastructure projects that are over one hundred million dollars
Speaker 7: each and so we're straining the system in many different ways.
Speaker 4: But permitting it should not be the bottleneck.
Speaker 3: So to break that down a little bit, when we
Speaker 3: say permitting, what are we talking about? And I say
Speaker 3: that in terms of like are we going to have
Speaker 3: to move power lines underground? For example? Do we need
Speaker 3: more transmission lines if we're going to set up that
Speaker 3: hydrogen hub or a new nuclear facility and we need
Speaker 3: to get that to the grid. Does it mean we
Speaker 3: need to just kind start over and like do a
Speaker 3: new grid. Like there's a lot of ways that infrastructure
Speaker 3: can be used. What does it actually mean for you?
Speaker 7: Well, of the two that you mentioned specifically, any of them, okay,
Speaker 7: I would leave aside undergrounding wires because that's more of
Speaker 7: a climate mitigation thing.
Speaker 4: It's where you need to do it. It's very important.
Speaker 7: But in terms of solving the demand issue, the transmission
Speaker 7: thing breaks into sort of two parts, and the answer
Speaker 7: is yes and yes we need both. One is we
Speaker 7: need more transmission lines to move the energy around the
Speaker 7: country or at least around regions. But then we also
Speaker 7: need this thing which is grid innovation, which is a
Speaker 7: series of technologies which are not in the popular mindset,
Speaker 7: things like reconductoring where you basically take in existing rights
Speaker 7: away in the towers and you take down the ceramic
Speaker 7: circular things and in some cases the wires, and you
Speaker 7: what we call reconductoring, and you can get two to
Speaker 7: three times the amount of power over the same line,
Speaker 7: and you don't need a right away. It's cheaper and
Speaker 7: that's good for rate payers. And we just in fact
Speaker 7: publish a report about this at the DOE called Grid
Speaker 7: Innovation Lift Off Report, And so there's that, and there's
Speaker 7: a host of other things. But basically we need all
Speaker 7: of the above right now.
Speaker 2: And is this a federal funded issue or is this
Speaker 2: a federal end state issued How local does it get?
Speaker 2: Because I think of Texas with its own grid, and
Speaker 2: I'm wondering how should they be integrated, for example, for
Speaker 2: the national grid.
Speaker 7: I mean, we're not gonna want that, Yeah, exactly, Yeah, Paul,
Speaker 7: that's what I'm not touching. I mean, there's a reason
Speaker 7: that Texas is a sovereign onto itself when it comes
Speaker 7: to their electric system. But we have a lot of
Speaker 7: financing tools in the tool chests, but most of them
Speaker 7: are set up as sort of matching funds. We put
Speaker 7: up up to fifty percent against fifty percent coming from
Speaker 7: basically anywhere else that's not federal government. So we say
Speaker 7: fifty plus percent from non federal sources. And if it states,
Speaker 7: if it's the private sector, that's all good.
Speaker 3: With us, and that's what you need to see in
Speaker 3: order to commit the money after that. Yes, yeah, So
Speaker 3: how does this all square? So stuff you're talking about,
Speaker 3: like reconstituting the grid like that, like that's not sexy
Speaker 3: cool stuff like clean tech and hydrogen. Right, how much
Speaker 3: of your job is on the energy that we're gonna
Speaker 3: need in fifty years and how much of that is
Speaker 3: how do we get more transmission mechanisms? How do we
Speaker 3: get that plug that we can't get so we can
Speaker 3: change the grid?
Speaker 7: You know, Alex, I was getting a little hung up
Speaker 7: on what's actually sexy in the world of electricity, But
Speaker 7: I'm glad that you can distinguish between hydrogen on one
Speaker 7: in transmission. But what I'd say is, first of all,
Speaker 7: nothing that if I thought that what I was doing
Speaker 7: was just affecting things in twenty fifty, like you know
Speaker 7: at my age, I wouldn't be doing it.
Speaker 4: But we are.
Speaker 7: We're aiming for the Biden administration goal of zero carbon
Speaker 7: electric sector by twenty thirty five, and so the premise
Speaker 7: of your question is correct because of this new awareness
Speaker 7: of demand issues. I would say that what I've been
Speaker 7: focused on my two years at the DOE is what
Speaker 7: does the system look like sort of between twenty twenty
Speaker 7: eight to twenty thirty five first of a fast following
Speaker 7: commercial But because of this new concern, I think we're
Speaker 7: going to be even looking at more.
Speaker 4: Three to five year solutions.
Speaker 7: And that's where things like the grid innovation is important,
Speaker 7: because that's a three to.
Speaker 4: Five year solution.
Speaker 2: Our thanks to David Crane, under Secretary for Infrastructure at
Speaker 2: the US Department of Energy and.
Speaker 3: Staying on Power at Bloomberg's Any App Annual Energy in
Speaker 3: Climate Summit, we were also joined by Pedro Pizarro, President
Speaker 3: and CEO of Edison International.
Speaker 2: Pedro discussed the transition to clean energy and how to
Speaker 2: satisfy the demand for power that we're seeing right now.
Speaker 2: With regards to demand, we first asked Pedro just how
Speaker 2: high it is and who's calling.
Speaker 8: I can tell you from a Southern California Edison perspective,
Speaker 8: our utility we had had flat growth for the last
Speaker 8: fifteen years. We're now seeing something like two percent load
Speaker 8: growth and in our state a lot of atas transportation electrification.
Speaker 8: I'm also chair of the Edison Electric Institute, which represents
Speaker 8: the investor owned utilities across the country. About seventy percent
Speaker 8: of the load two years ago. EI members. We're forecasting
Speaker 8: something like a two percent load growth over the next
Speaker 8: years ahead. The most updated numbers are four point seven percent,
Speaker 8: and I have colleagues in some states that are seeing
Speaker 8: five six seven percent. So who's who's calling it? Is
Speaker 8: electrification in places like California more broadly across the country,
Speaker 8: but I think we're more leading edge there. It is
Speaker 8: data center growth that you read a lot about that.
Speaker 8: And then it's also the repatriation of manufacturing. You know,
Speaker 8: the bipartisan Infrastructure Law is working and it's bringing back
Speaker 8: a lot of of you know, manufacturing into the country,
Speaker 8: and that's another source.
Speaker 2: Oh interesting, So can you, being your company and your industry,
Speaker 2: can you handle that increase in load?
Speaker 8: Yes? There will be there, yes, and there will be
Speaker 8: some bumps in the road.
Speaker 2: Right.
Speaker 8: I was sharing with Alex earlier that it's not the
Speaker 8: first time in our history of the industry we've seen this, right,
Speaker 8: rural electrification, air conditioning load. So we've lived through these periods.
Speaker 8: It's been the last fifteen years or so that it's
Speaker 8: been fairly flat. So how do we handle it in
Speaker 8: the near term?
Speaker 1: Right?
Speaker 8: You see a lot of focus of utilities working in
Speaker 8: their various regions, power companies, working with regional transmission organizations,
Speaker 8: and working with customers to make sure we're using every
Speaker 8: tool available. Demand site management is important. Energy efficiency is important,
Speaker 8: but so is making sure that we can maintain and
Speaker 8: in some cases expand existing resources, and ultimately we need
Speaker 8: to add new resources to the system.
Speaker 3: How do you pay for that? Because as yields have
Speaker 3: moved higher, stock moves lower and then it's more expensive
Speaker 3: to borrow. How do you do it?
Speaker 8: Well, you know, it is an investment in infrastructure that's needed,
Speaker 8: and this is an industry that's been investing for a
Speaker 8: long time. Our members at EI have invested over a
Speaker 8: trillion dollars over the last decade on infrastructure, one hundred
Speaker 8: and sixty eight billion dollars last year alone.
Speaker 3: Right, So it eventually the rate pair, right.
Speaker 8: It isn't eventually the rate pair, right, and so we
Speaker 8: have a responsibility to make sure that that investment is
Speaker 8: economics being done thoughtfully. It has been doing done efficiently.
Speaker 8: But importantly, this investment has multiple uses.
Speaker 5: Right.
Speaker 8: There is the near term need to keep up with demand,
Speaker 8: but there's also the longer term need for investing towards
Speaker 8: the carbonization. Right, then the industry's been going as clean
Speaker 8: as we can, as fast as we can, but while
Speaker 8: maintaining reliability and affordability. And so those investments are the
Speaker 8: same investments that are needed to build out the transmission grid,
Speaker 8: to add renewable resources, to add storage, and that helps
Speaker 8: with climate change mitigation. There's also investment that we're needing
Speaker 8: to put in to deal with climate change adaptation, right,
Speaker 8: the effects of extreme weather, the effects we've seen initially
Speaker 8: in California and now across the country in wildfire. Right,
Speaker 8: So my own company has been investing billions of dollars
Speaker 8: to redesign the system to harden it against wildfires. Other
Speaker 8: colleagues are having to do that now. So all of
Speaker 8: these investments accrue to the customer, a customer benefit, whether
Speaker 8: it's to keep the system safer, keep community safer, and
Speaker 8: also to support the demand growth that we're seeing.
Speaker 2: Alison I spoke to David Crane, under Secretary for Infrastructure
Speaker 2: the Use Department of Energy, and he said one of
Speaker 2: his major goals over the next several years is to
Speaker 2: make permitting easier, presumably to allow companies like yours to
Speaker 2: make these investments. And maybe in a quicker manner, are
Speaker 2: you seeing that or what do you need to see?
Speaker 8: Absolutely needed? Okay, And so if you gave me a
Speaker 8: magic one, then gave me one wish for the industry,
Speaker 8: it would be that.
Speaker 3: Okay, I don't blame you, all right, And.
Speaker 8: We have other challenges supply chain, labor availability, but it's
Speaker 8: really siting and permitting the needs the most help. Just
Speaker 8: to frame it for a little bit, Paul, the analysis
Speaker 8: that we've done as Edison for California and what we
Speaker 8: will take to the carbonise the whole California economy by
Speaker 8: twenty forty five. You know it stays ned zero goal
Speaker 8: still feasible, right, but it will require significant investment for renewables,
Speaker 8: for storage for the grid, three hundred and seventy billion
Speaker 8: dollars of investment state wide through twenty forty five. That analysis,
Speaker 8: by the way, from an affordability perspective, back to your
Speaker 8: comment earlier, Alex, we do see that will put pressure
Speaker 8: on the electric rates and bills, but because it's a transition, right,
Speaker 8: a lot of that electrification will be removing uses in
Speaker 8: the economy that they are using combustion processes with fossil fuels.
Speaker 8: These are more efficient technologies, right, The electric car is
Speaker 8: more efficient than an internal combustion engine car. We see
Speaker 8: the total energy bill for our average customer electric plus
Speaker 8: gas plus gasoline going down by forty percent in real
Speaker 8: turns between now and twenty forty five. So that goes
Speaker 8: to these investments having a co benefit of affordability. As
Speaker 8: we look at how we proceed with this kind of investment,
Speaker 8: you know, we have to keep in mind that it
Speaker 8: has those.
Speaker 3: Multiple benefits, so all of it has to work at
Speaker 3: the same time for that to be that forty percent decline.
Speaker 8: Absolutely, and we need to be able to get the
Speaker 8: steel in the ground through setting and permitting, and so
Speaker 8: part of our analysis showed that the rate at which
Speaker 8: we add transmission will need to be four times the
Speaker 8: annual rate that it's been historically. The rate at which
Speaker 8: we add distribution the lower voltage wires will need to
Speaker 8: be ten times a rate. So when David Crane talked
Speaker 8: about its heading on permitting, absolutely needed and it's help
Speaker 8: that we need at both the federal and the state
Speaker 8: and even the local level.
Speaker 2: Our thanks to Pedro Pisado, President and CEO of Edison International.
Speaker 3: Coming up on the program a conversation with Jeff Gustavsen,
Speaker 3: president of Chevron New Energies. He believes the future of
Speaker 3: energy is lower carbon.
Speaker 2: You're listening to Bloomberg Intelligence on Bloomberg Radio, providing in
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Speaker 2: Bigo in the terminal Paul sweet.
Speaker 3: Am, Alex Steele, and this is Bloomberg.
Speaker 1: You're listening to the Bloomberg Intelligence podcast. Catch us live
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Speaker 3: We continue with some of our best interviews from Bloomberg's
Speaker 3: nef's annual Energy and Climate Sumit in New York.
Speaker 2: The summer brings together corporate executives, government officials, and industry leaders.
Speaker 2: This year, speakers at the event cover topics ranging from
Speaker 2: clean power, trade, federal US policy, hydrogen and climate technology.
Speaker 3: We were joined by Jeff Gustavisen, president of Chevron New Energies.
Speaker 3: Now he believes the future of energy is lower carbon.
Speaker 3: He thinks that energy should be affordable, reliable, and ever cleaner.
Speaker 3: We first asked Jeff what Chevron's new Energy unit actually does.
Speaker 9: We launched these new businesses about three years ago. This
Speaker 9: is actually our third full year and it's a suite
Speaker 9: of businesses that support our lower carbon strategy as a company.
Speaker 9: There's two pieces to that. One is lowering the carbon
Speaker 9: intensity of our traditional oil and gas business. The other
Speaker 9: part is growing new low carbon businesses and solutions to scale,
Speaker 9: and that's what Chevron New Energies is. We're focused on
Speaker 9: renewable fuels, carbon capture, utilization and storage, hydrogen, carbon offsets,
Speaker 9: emerging technologies, and everything in between. This is something that's
Speaker 9: always been a passion of mind, the energy transition and
Speaker 9: low car energy. I love oil and gas. I grew
Speaker 9: up an oil and gas but now shifting seeing a
Speaker 9: company like Chevron with the capabilities we bring to this
Speaker 9: space growing these new businesses, I couldn't be more excited
Speaker 9: about this role.
Speaker 2: Jeff, what is I don't know. If you fast forward five
Speaker 2: years from now, ten years from now, how do you
Speaker 2: guys think about sustainable energy as a part of the
Speaker 2: overall portfolio of Chevron. What percentage do you think that
Speaker 2: might look like?
Speaker 9: Yeah, good question. And we when we launched, we announced
Speaker 9: that we were, you know, allocating or guiding to spending
Speaker 9: ten billion dollars over an eight year period. Right, this
Speaker 9: would be twenty twenty one, twenty eight, And that's just
Speaker 9: the starting point. So these are already a significant part
Speaker 9: of our capital allocation strategy. We have a very large
Speaker 9: oil and gas business, which requires a lot of capital
Speaker 9: to maintain and grow that business to meet global demand.
Speaker 9: But these these businesses are We're spending you know, anywhere
Speaker 9: from one and a half to two billion a year
Speaker 9: to support these new businesses. And my job and our
Speaker 9: job as a new segment is to find the right
Speaker 9: opportunities that are investable so we can grow this business
Speaker 9: even further.
Speaker 3: You're based in Houston, Guys like you, the new Energy
Speaker 3: people are Are you guys welcome in Houston?
Speaker 2: Like the oil bar, like the oilman's bars taken.
Speaker 3: Like the cowboys, guys who stick like a pipe in
Speaker 3: the ground and get oil. He's thinking those people, Are
Speaker 3: you welcome in those bars?
Speaker 1: Yes?
Speaker 9: And I love being referred to as a New Energy person,
Speaker 9: but no, I mean this is I think this. Look,
Speaker 9: there's three things that we're that we really need to
Speaker 9: see in order to accelerate the growth of these businesses.
Speaker 9: And that's a greater collaboration between private companies, between private
Speaker 9: companies and policymakers, between governments around the world. It's lowering
Speaker 9: the cost of these new technologies and solutions so customers,
Speaker 9: large customers, large businesses or individual customers will buy them.
Speaker 9: And it is bringing capabilities to bear the right capabilities.
Speaker 9: And that goes to your Houston question. The energy industry
Speaker 9: possesses a lot of the capabilities, technical, operating, commercial capabilities
Speaker 9: that are required to grow these businesses profitably, to scale.
Speaker 9: So absolutely, you know a lot of this, a lot
Speaker 9: of activity in Houston, a lot of companies engaged in this.
Speaker 9: So Houston it's an oil and gas capital, that's how
Speaker 9: its thought of. It's also a new energy capital.
Speaker 2: So where are we in terms of I've been reading
Speaker 2: a lot on this, Alex, she knows that she's the expert.
Speaker 2: I've been reading up a lot on this over the
Speaker 2: last several days. It seems like the US government's putting
Speaker 2: a lot of money into this. That's the good news,
Speaker 2: as Alex mentioned earlier, but I've also heard here of
Speaker 2: the last couple of days, it's still not easy doing
Speaker 2: business with the government. I'm thinking permitting for certain projects
Speaker 2: and things like that. What's been your experience there is
Speaker 2: to is the government doing the best it can to
Speaker 2: kind of facilitate some of these investments in transition.
Speaker 9: Yeah, So collaboration between the private sector and the public
Speaker 9: sector's fundamental here. It helps lower the cost those are
Speaker 9: you know, advocacy understanding politics, not just in this country
Speaker 9: but around the world. Is a strength of our company
Speaker 9: of energy companies, you know, more broadly, so it fits
Speaker 9: one of our existing capabilities. But that is one of
Speaker 9: the starting points here. You know, you need the right
Speaker 9: policy support, the right incentives to get the private sector
Speaker 9: investing even more heavily in this space. That will drive
Speaker 9: the technology forward, That will drive innovation, that will drive
Speaker 9: to building large scale projects which will lower the cost,
Speaker 9: make it more consumable for the world, and that is
Speaker 9: a cycle that will then you know, continue. So it
Speaker 9: starts with policy, but it really is sustained by the
Speaker 9: investment by the private sector in technology. Government's a very
Speaker 9: important partner. We've seen We're having really constructive conversations with
Speaker 9: the government, But you mentioned permitting, there's still a long
Speaker 9: way to go to make all of this come together.
Speaker 9: We've shown some progress, but there are many steps in
Speaker 9: front of us.
Speaker 3: You know, paul O. To your point, it seems like
Speaker 3: the good part of this is that energy companies in
Speaker 3: the new energy world are in the room talking to people,
Speaker 3: typically the government and oil and gas of a contentious
Speaker 3: relationship at best in certain administrations, and it feels like
Speaker 3: in this area maybe that is dissolving a bit, which
Speaker 3: would be helpful. Something that I've noticed too, is that
Speaker 3: I think it was like three hundred and three billion
Speaker 3: dollars has been spent I think it was last year
Speaker 3: on all these new energy stuff. What I'm also hearing
Speaker 3: is that demand is a forgotten problem. Like all the
Speaker 3: money is being spent, all the money, but the money
Speaker 3: being spent on supplying the stuff and getting that cost down,
Speaker 3: but not enough. It's being spent on demand to incentivize
Speaker 3: a company signing up with you for ESAF, for something
Speaker 3: along those lines. Is that true?
Speaker 9: There is a lot of money being spent in these
Speaker 9: in these new businesses. It's actually one point seven trillion
Speaker 9: dollars globally compared to about one trillion dollars spent in
Speaker 9: the traditional energy business last year, and we need even
Speaker 9: more to grow these businesses to scale. And you hit
Speaker 9: on a very important point. It is, and I'll use
Speaker 9: hydrogen as an example. It's not hard to produce hydrogen.
Speaker 9: It's harder to produce low carbon hydrogen at a low cost,
Speaker 9: something that we're working on using natural gas as a
Speaker 9: feedstock or using electricity and renewable power as feedstocks to
Speaker 9: produce low carbon hydrogen. But transporting hydrogen to the market,
Speaker 9: you need policy support in order to do that. You
Speaker 9: need tech, technological innovation to do that to lower the cost,
Speaker 9: and then importantly encouraging consumers to buy a hydrogen making
Speaker 9: it easier for them to transition from a traditional product
Speaker 9: that they're using today to a lower carbon product that
Speaker 9: comes at a higher cost. That's where demand incentives and
Speaker 9: policy support will also be required.
Speaker 3: Our special things to Jeff Gustavsen, president of Sevrun New Energies.
Speaker 2: Staying at Bloomberg and eif's annual Energy and Climate Summit,
Speaker 2: Let's have a look at Constellation Energy. It's an American
Speaker 2: energy company that provides electric power, natural gas, and energy
Speaker 2: management services.
Speaker 3: It also operates the largest nuclear reactor fleet in the
Speaker 3: United States. So for more on the company, we were
Speaker 3: joined by its executive vice president and chief strategy Officer,
Speaker 3: Kathleen barn and we first asked her about some of
Speaker 3: the other things that the company is doing in the
Speaker 3: energy transition space.
Speaker 10: Well, one of the opportunities we see ahead of our
Speaker 10: country is to find ways to decarbonize. It's really hard
Speaker 10: to find a way to run steel, manufacturing, agriculture, aviation,
Speaker 10: long haul shipping on electricity, right, so we have to
Speaker 10: find another way to decarbonize that sector and find a
Speaker 10: liquid or gases or a solid fuel that we're going
Speaker 10: to have at the ready at any moment to power
Speaker 10: those industries. And hydrogen has emerged as an opportunity for
Speaker 10: the US now that the Inflation Reduction Act has passed.
Speaker 10: There's a production tax credit for hydrogen in that act.
Speaker 10: And we see nuclear and hydrogen as an ideal pairing because,
Speaker 10: as you pointed out, nuclear is clean, but it's also firm,
Speaker 10: it's reliable, it runs twenty four to seven, and so
Speaker 10: it can be a steady source of power to run
Speaker 10: into an electrolyzer split water into oxygen and hydrogen and
Speaker 10: then create that clean molecule that can power industrial applications.
Speaker 10: What color clean fuel, Well, we're trying to discourage the
Speaker 10: rainbow of colors and just talk about clean versus emitting.
Speaker 10: But it is called pink for.
Speaker 3: What it's for just to work clear, yep.
Speaker 2: So I was fascinated to not just I didn't know
Speaker 2: much about your company. Your company has the largest or
Speaker 2: the biggest nuclear fleet in the country with twenty one reactors.
Speaker 2: What is the future of nuclear energy in this country
Speaker 2: as we again think about more green types of energy sources.
Speaker 10: You know, it has changed a lot, even just in
Speaker 10: the last few years in terms of public acceptance for
Speaker 10: the technology it makes. I mean not just our fleet,
Speaker 10: but the nuclear fleet generally generates twenty percent of the
Speaker 10: electricity that runs through this building we're in in our
Speaker 10: economy every day. People don't really realize that, but it
Speaker 10: is the backbone of the power sector, and it is
Speaker 10: carbon free and as we just talked about, very reliable.
Speaker 10: It operates around the clock, no matter the weather, sun, wind, brainstorm,
Speaker 10: it's still operating, and we operate twe reactors. We own
Speaker 10: twenty three and so that's about a quarter of the
Speaker 10: US fleet and the beauty of these machines is that
Speaker 10: they can run for a very long period of time.
Speaker 10: Most of our assets are sort of in the thirty
Speaker 10: forty fifty year old time frame, but they can run
Speaker 10: up to eighty years according to the Federal Safety regulators
Speaker 10: in Washington, and so they are constantly being rebuilt. We
Speaker 10: put in about a billion and a half a new
Speaker 10: capital every year, and we're replacing the components. It's kind
Speaker 10: of like an old car that's having its parts replaced regularly.
Speaker 10: So these machines can run for a very long time.
Speaker 10: They abate about five hundred million metric tons of carbon
Speaker 10: every year, so it's in the nation's interest to keep
Speaker 10: them running. In at this growing public acceptance, we're seeing
Speaker 10: interest in corporate procurements, We're seeing interest from governments. We're
Speaker 10: seeing people valuing this thing that we don't have enough of,
Speaker 10: which is a clean firm megawont hour.
Speaker 3: So when we talk about the hydrogen stuff, so pink
Speaker 3: so basically you would get the power to split the
Speaker 3: hydrogen from the oxygen and the electrolyizer using nuclear stream.
Speaker 3: Does that mean that if I'm building a hydrogen facility,
Speaker 3: I have to go where your power plant is or
Speaker 3: are you going to be building a power plant, a
Speaker 3: small modular power plant near me, or are we running
Speaker 3: like a big tube of something in between me and you.
Speaker 10: So what we're talking about is using the existing reactors
Speaker 10: to power an electrilizer. As you said, split the oxygen
Speaker 10: and the hydrogen. You could do that right up next
Speaker 10: to the power plant, so you put the electricity right
Speaker 10: into the electrolyizer, or you could put your electrolyizer next
Speaker 10: to your manufacturing plant or whatever process you're trying to
Speaker 10: use the hydrogen for, say you're making sustainable aviation fuel,
Speaker 10: and we can shift the electricity over the transmission line
Speaker 10: to your electoralizer with a dedicated power purchase agreement, that
Speaker 10: sort of hydrogen by wire configuration. So either co located
Speaker 10: with the plant or through the transmission line. Either way
Speaker 10: you're going to have that steady source of zero carbon
Speaker 10: electricity going. It's the electrolyizer every hour.
Speaker 2: Can I go out and build a nuclear power plant
Speaker 2: in this country today?
Speaker 10: There is no reason why you can't, But thank you, Alex.
Speaker 10: There are a bunch of reactor technology developers who have
Speaker 10: new designs. You mentioned small modular reactors that are in
Speaker 10: the process of getting licensed, and there are some utilities
Speaker 10: who have created relationships with those technology developers for sort
Speaker 10: of codevelopment or you know, an advanced commitment, but none
Speaker 10: of them are under construction just yet. Some of them
Speaker 10: are going to be starting soon. For example, in Canada
Speaker 10: that the Ontario Power Generator has partnered with the GE
Speaker 10: three hundred megawatt reactor design and they think they have
Speaker 10: been through regulatory approvals and they will start construction sooner.
Speaker 10: But in the US we're just we've lagged. I mean,
Speaker 10: this is happening in Candide's happening overseas, and we don't
Speaker 10: have that market poll here. We don't have commitments as
Speaker 10: much as we should to get those new reactor designs
Speaker 10: through licensing and into construction and pass that first of
Speaker 10: a kind cost cycle.
Speaker 5: All right.
Speaker 3: Thanks to Kathleen Baron, Executive vice president and chief Strategy
Speaker 3: Officer at Constellation Energy.
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