1 00:00:00,360 --> 00:00:03,199 Speaker 1: This is Tom Rowland's Rease and you're listening to Switched 2 00:00:03,240 --> 00:00:06,640 Speaker 1: on the podcast brought to you by Bloomberg. NEF. Grid 3 00:00:06,680 --> 00:00:10,639 Speaker 1: investment continues to surge, with global spending growing seventeen percent 4 00:00:10,680 --> 00:00:13,960 Speaker 1: in twenty twenty five, reflecting how central networks have become 5 00:00:13,960 --> 00:00:17,279 Speaker 1: to renewable energy connections, electrification and the rapid growth of 6 00:00:17,360 --> 00:00:21,080 Speaker 1: data centers. But higher spending isn't translating neatly into more 7 00:00:21,079 --> 00:00:25,160 Speaker 1: capacity on the ground. Rising supply chain costs, aging assets 8 00:00:25,239 --> 00:00:28,000 Speaker 1: and the rollout of new technologies are slowing. Delivery or 9 00:00:28,000 --> 00:00:31,000 Speaker 1: connection cues for both generation and load are growing longer, 10 00:00:31,160 --> 00:00:33,919 Speaker 1: in some cases, far exceeding what systems will need over 11 00:00:33,920 --> 00:00:37,239 Speaker 1: the next five years. With grids under pressure from all sides, 12 00:00:37,320 --> 00:00:39,880 Speaker 1: what's really holding expansion back and what will it take 13 00:00:39,880 --> 00:00:43,720 Speaker 1: to turn record investment into real world capacity. On today's show, 14 00:00:43,760 --> 00:00:46,720 Speaker 1: I'm joined by Peter Wall, bnef's head of grids Research, 15 00:00:46,880 --> 00:00:49,920 Speaker 1: to review findings from his team's note Grid Investment Outlook 16 00:00:49,960 --> 00:00:54,040 Speaker 1: twenty twenty five double digit growth again. BNYF clients can 17 00:00:54,080 --> 00:00:56,960 Speaker 1: find this note, along with other grids research, by heading 18 00:00:57,000 --> 00:01:00,080 Speaker 1: to BNF go on the Bloomberg Terminal or BNF DO 19 00:01:00,680 --> 00:01:03,040 Speaker 1: If you'd like to learn more about how BNF approaches 20 00:01:03,040 --> 00:01:07,160 Speaker 1: strategy research on the energy transition, including developments and commodity markets, 21 00:01:07,240 --> 00:01:10,279 Speaker 1: trends across different sectors, and the cross cutting technology shaping 22 00:01:10,319 --> 00:01:13,680 Speaker 1: the future, you can find more information on BNF dot com. 23 00:01:13,720 --> 00:01:15,200 Speaker 1: And if you'd like to speak with a member of 24 00:01:15,200 --> 00:01:18,120 Speaker 1: our team about becoming a client, email US at Sales 25 00:01:18,120 --> 00:01:21,240 Speaker 1: dot BNF at Bloomberg dot net. And with that, let's 26 00:01:21,280 --> 00:01:24,080 Speaker 1: unpack what's driving grid investment and why progress is still 27 00:01:24,160 --> 00:01:35,840 Speaker 1: so hard. Hi, Peter, Welcome to the podcast. All thanks. 28 00:01:35,880 --> 00:01:38,639 Speaker 1: What happened? Grids is one of the kind of more 29 00:01:38,959 --> 00:01:40,920 Speaker 1: I think of it as one of the more challenging 30 00:01:41,080 --> 00:01:45,080 Speaker 1: areas because it's so ubiquitous in both an energy transition 31 00:01:45,200 --> 00:01:48,560 Speaker 1: world and in a world before the energy transition. So 32 00:01:48,600 --> 00:01:52,040 Speaker 1: it's actually very difficult to see the change even though 33 00:01:52,080 --> 00:01:55,040 Speaker 1: it's there. So you're kind of tasked with figuring that out. 34 00:01:55,080 --> 00:01:56,960 Speaker 1: And I know that one of the big reports that 35 00:01:57,040 --> 00:01:59,000 Speaker 1: your team does every year is you look at total 36 00:01:59,000 --> 00:02:02,080 Speaker 1: grid investment. We're going to get under the surface of 37 00:02:02,120 --> 00:02:04,400 Speaker 1: this in the second to sort of talk about the 38 00:02:04,440 --> 00:02:06,640 Speaker 1: things that are changing, but just to frame this whole thing. 39 00:02:06,720 --> 00:02:10,119 Speaker 1: I mean, in your report, What is grid investment globally? 40 00:02:10,560 --> 00:02:13,120 Speaker 2: Well, that's a great opening question really because it's it's 41 00:02:13,160 --> 00:02:14,920 Speaker 2: the grid is a hard thing, as you said it. 42 00:02:15,000 --> 00:02:16,519 Speaker 2: And I think one of the key things is everyone 43 00:02:16,520 --> 00:02:18,320 Speaker 2: has well you can't ignore any kindry. 44 00:02:18,360 --> 00:02:20,600 Speaker 1: Everyone has one, and everyone has means to us like 45 00:02:20,680 --> 00:02:22,080 Speaker 1: I got a grid, You got a grid. 46 00:02:22,240 --> 00:02:23,840 Speaker 2: It's in your house, it's on the streets. 47 00:02:25,160 --> 00:02:27,600 Speaker 1: The grid is an issue that affects us all. I 48 00:02:27,680 --> 00:02:31,200 Speaker 1: think that's the way I definitely, And it's the it's the. 49 00:02:31,160 --> 00:02:34,200 Speaker 2: Fact that it means different things to different people. For us, 50 00:02:34,240 --> 00:02:36,320 Speaker 2: our focused when we say grid investment is it's the 51 00:02:36,440 --> 00:02:40,400 Speaker 2: capital spending on big bits of metal that cross the country. 52 00:02:40,440 --> 00:02:44,240 Speaker 2: So your transmission towers, underground cables, increasing our submarine cables, 53 00:02:44,360 --> 00:02:46,720 Speaker 2: that's our spending number. A lot of people will then say, oh, 54 00:02:46,760 --> 00:02:50,000 Speaker 2: but what about the digitalization spending. We cover the physical 55 00:02:50,000 --> 00:02:51,720 Speaker 2: parts of that, like when you buy the smart meter, 56 00:02:51,840 --> 00:02:54,240 Speaker 2: but we don't look at the licensing fees for software. 57 00:02:54,240 --> 00:02:57,320 Speaker 2: And that's again increasing that op ex or operational expenditure 58 00:02:57,440 --> 00:02:58,000 Speaker 2: is a big story. 59 00:02:58,080 --> 00:03:01,240 Speaker 1: See in this report, you're in this report, your team 60 00:03:01,240 --> 00:03:02,600 Speaker 1: does look at that outside of this. 61 00:03:02,919 --> 00:03:05,280 Speaker 2: Yeah, but when we say numbers of our global investment. 62 00:03:05,320 --> 00:03:07,040 Speaker 2: It's the capital spending from. 63 00:03:06,880 --> 00:03:09,320 Speaker 1: This report, got it. So this report is all about 64 00:03:09,360 --> 00:03:12,800 Speaker 1: the capex going in. So go on, what's the damage 65 00:03:12,960 --> 00:03:13,920 Speaker 1: as they would say. 66 00:03:13,800 --> 00:03:15,560 Speaker 2: Well, we think I think this. She has another record 67 00:03:15,680 --> 00:03:17,960 Speaker 2: and we're looking at over four hundred and eighty billion 68 00:03:18,240 --> 00:03:21,600 Speaker 2: US dollars, which is about seventeen percent boost on last year. 69 00:03:21,720 --> 00:03:24,600 Speaker 2: And again it's one of those things. It's more money, 70 00:03:24,720 --> 00:03:27,800 Speaker 2: which should be celebrated because the grid enables a transition. 71 00:03:28,040 --> 00:03:31,000 Speaker 2: But then ultimately, with the grid and great many things, 72 00:03:31,080 --> 00:03:33,239 Speaker 2: it's the customer, the people in the street, you and me. 73 00:03:33,440 --> 00:03:36,120 Speaker 2: We pay for that. So that's seventy percent more coming 74 00:03:36,120 --> 00:03:37,800 Speaker 2: out of our pocket at some point in the next 75 00:03:37,840 --> 00:03:38,400 Speaker 2: few years. 76 00:03:38,520 --> 00:03:41,400 Speaker 1: I did a back of the envelope calculation before the call, 77 00:03:41,760 --> 00:03:45,520 Speaker 1: and taking roughly seven billion people in the world, it 78 00:03:45,560 --> 00:03:48,440 Speaker 1: works out as about seventy to eighty dollars per person. 79 00:03:48,640 --> 00:03:52,800 Speaker 1: Obviously not evenly spread. We would all be pretty thankful 80 00:03:52,800 --> 00:03:54,960 Speaker 1: if we all with someone gave us seventy or eighty 81 00:03:55,000 --> 00:03:57,600 Speaker 1: dollars put in our back pocket. And actually in this 82 00:03:57,680 --> 00:04:00,360 Speaker 1: case it's kind of we're instead paying for that's something 83 00:04:00,760 --> 00:04:04,560 Speaker 1: to do, so we expect results with that. Speaking of results, 84 00:04:04,680 --> 00:04:07,680 Speaker 1: I mean, how much you seeing in terms of activity. 85 00:04:07,680 --> 00:04:09,400 Speaker 1: I mean, I suppose one question is how much of 86 00:04:09,400 --> 00:04:10,800 Speaker 1: this is for new stuff and how much of this 87 00:04:10,880 --> 00:04:12,680 Speaker 1: is for just maintaining existing. 88 00:04:12,760 --> 00:04:15,160 Speaker 2: Yeah, that's another key topic and it's on it's hard 89 00:04:15,160 --> 00:04:17,640 Speaker 2: to split. But I think when you look at new 90 00:04:17,680 --> 00:04:21,279 Speaker 2: equipment versus just replacing the old equipment, we see about 91 00:04:21,400 --> 00:04:25,279 Speaker 2: thirty to forty percent spending on just replacing old equipment, 92 00:04:25,760 --> 00:04:28,240 Speaker 2: which again is it's it's a bit of a shock 93 00:04:28,240 --> 00:04:30,520 Speaker 2: to something where songbirds are incredibly old in the UK 94 00:04:30,600 --> 00:04:32,640 Speaker 2: for example, to the nineteen seventies as a lot of 95 00:04:32,640 --> 00:04:35,000 Speaker 2: building of equipment and see looking at fifty years the 96 00:04:35,080 --> 00:04:36,919 Speaker 2: French have a couple of bits and bobs surf at 97 00:04:36,920 --> 00:04:39,719 Speaker 2: one hundred now And it's the thing we always sold 98 00:04:39,720 --> 00:04:43,239 Speaker 2: about the industry was deferring this capital investment, spend later, 99 00:04:43,560 --> 00:04:46,279 Speaker 2: be smarter now, get more out of every asset. The 100 00:04:46,320 --> 00:04:49,240 Speaker 2: great phrase or here sweat the assets. We're now coming 101 00:04:49,240 --> 00:04:51,760 Speaker 2: into that phase where we've sweated the assets. And if 102 00:04:51,800 --> 00:04:54,200 Speaker 2: you want to put more power through this career, you 103 00:04:54,240 --> 00:04:56,880 Speaker 2: need to build more. But we need to replace the 104 00:04:56,920 --> 00:04:58,359 Speaker 2: old tub as well. So it's a bit of a 105 00:04:58,400 --> 00:05:00,839 Speaker 2: perfect storm, which is why we're seeing is double digit 106 00:05:01,040 --> 00:05:02,080 Speaker 2: increases and spending. 107 00:05:02,320 --> 00:05:04,719 Speaker 1: I mean, I suppose one could argue, I mean, if 108 00:05:04,760 --> 00:05:07,600 Speaker 1: we're being half class full about this, the fact that 109 00:05:07,600 --> 00:05:11,359 Speaker 1: that old infrastructure has lasted as long as it has 110 00:05:11,480 --> 00:05:14,200 Speaker 1: is on some level testament to the fact that these 111 00:05:14,200 --> 00:05:17,359 Speaker 1: were good investments in the first place. And so a 112 00:05:17,440 --> 00:05:20,960 Speaker 1: question I have is, are we now making today investments 113 00:05:21,000 --> 00:05:24,720 Speaker 1: that we expect will have a similar lifetime and maybe 114 00:05:24,720 --> 00:05:27,360 Speaker 1: one day those assets will be getting sweated and future 115 00:05:27,400 --> 00:05:29,400 Speaker 1: generations won't be having to spend as much on the 116 00:05:29,400 --> 00:05:31,479 Speaker 1: grid because we invested well. Now, are we had a 117 00:05:31,520 --> 00:05:33,320 Speaker 1: moment where do we expect this to be a sort 118 00:05:33,360 --> 00:05:35,039 Speaker 1: of a continuous thing, or is it maybe there'll be 119 00:05:35,080 --> 00:05:39,039 Speaker 1: a decade of grid modernization in some countries, followed by 120 00:05:39,279 --> 00:05:41,880 Speaker 1: just enjoying the benefit of those assets without having to 121 00:05:41,920 --> 00:05:42,560 Speaker 1: spend so much. 122 00:05:42,600 --> 00:05:45,440 Speaker 2: Well to take the is it a phase? Is it 123 00:05:45,480 --> 00:05:47,680 Speaker 2: a cycle of spending? We have a separate piece of 124 00:05:47,680 --> 00:05:49,640 Speaker 2: work as part of the New Energy Outlook we called 125 00:05:49,640 --> 00:05:52,560 Speaker 2: new ennge out Grids. We see the spending just continuing 126 00:05:52,560 --> 00:05:55,279 Speaker 2: to rise through the twenty fifty a different more asset 127 00:05:55,440 --> 00:05:59,200 Speaker 2: replacing more old assets, connecting more renewables, connecting more demands 128 00:05:59,360 --> 00:06:03,160 Speaker 2: more digitalization. There's just a continuous escalator of more investment 129 00:06:03,240 --> 00:06:05,799 Speaker 2: being called for. Then on how old do assets last? 130 00:06:06,000 --> 00:06:08,719 Speaker 2: I think the assets today is better than the assets 131 00:06:08,720 --> 00:06:11,159 Speaker 2: in the past. We've got better ways of maintaining them, 132 00:06:11,400 --> 00:06:13,599 Speaker 2: levels of monitoring that you just couldn't dream of in 133 00:06:13,640 --> 00:06:16,240 Speaker 2: the seventies in terms of real time asset assessments and 134 00:06:16,360 --> 00:06:20,080 Speaker 2: predictive maintenance. That then all brings digital technology into the play. 135 00:06:20,160 --> 00:06:21,960 Speaker 2: And actually one of the updates we made to this 136 00:06:22,040 --> 00:06:25,400 Speaker 2: year's report was that digital equipment doesn't last as long 137 00:06:25,440 --> 00:06:28,599 Speaker 2: as your cardper aluminium steel. This year's results have a 138 00:06:28,600 --> 00:06:31,400 Speaker 2: bit more spending on just replacing. In this case smart 139 00:06:31,400 --> 00:06:33,880 Speaker 2: meters is an extra cycle of smart meter replacement by 140 00:06:33,960 --> 00:06:36,560 Speaker 2: twenty to fifty because you're looking at twenty year life 141 00:06:36,560 --> 00:06:38,160 Speaker 2: maybe instead of fifty to seventy. 142 00:06:38,440 --> 00:06:40,880 Speaker 1: Got it. So there's kind of I mean, I don't 143 00:06:40,880 --> 00:06:42,800 Speaker 1: know if this is the correct top terminology, but you 144 00:06:42,800 --> 00:06:44,880 Speaker 1: almost think of it as the hard assets and the 145 00:06:44,920 --> 00:06:47,520 Speaker 1: digital assets. There's like a slightly different story, and there's 146 00:06:47,560 --> 00:06:48,880 Speaker 1: investment going into boats. 147 00:06:49,000 --> 00:06:52,560 Speaker 2: Yeah, and they both have equal merit and to making 148 00:06:52,600 --> 00:06:55,240 Speaker 2: the right investments. It's always really hard to know before 149 00:06:55,279 --> 00:06:57,760 Speaker 2: the fact, but a lot of engineers in the industry 150 00:06:57,800 --> 00:07:00,760 Speaker 2: work really hard to make sure we are building right assets, 151 00:07:00,800 --> 00:07:03,120 Speaker 2: and there's a lot of these accusations of all they 152 00:07:03,160 --> 00:07:05,560 Speaker 2: just want to pad the asset base, build stuff to 153 00:07:05,560 --> 00:07:08,240 Speaker 2: get money back, because that's how the revenue. They own 154 00:07:08,279 --> 00:07:10,640 Speaker 2: the asset and they get a percentage back every year. 155 00:07:10,840 --> 00:07:13,280 Speaker 2: Pretty much all the engineers I've worked with don't think 156 00:07:13,320 --> 00:07:16,040 Speaker 2: that way. They take great personal ownership of their grid 157 00:07:16,160 --> 00:07:18,880 Speaker 2: and want to build it to be cost effective, strong 158 00:07:19,080 --> 00:07:21,800 Speaker 2: in good value. But with the rate of change, it's 159 00:07:21,920 --> 00:07:24,560 Speaker 2: really hard to see what is good value. 160 00:07:24,800 --> 00:07:27,120 Speaker 1: Yeah, I mean, and we'll get in a moment to this. 161 00:07:27,480 --> 00:07:29,560 Speaker 1: I mean, it's worth remembering that even if you do 162 00:07:29,680 --> 00:07:32,040 Speaker 1: think that engineers are trying to kind of cook up 163 00:07:32,080 --> 00:07:34,880 Speaker 1: ways to get people to buy more gizmos, there is 164 00:07:34,920 --> 00:07:38,600 Speaker 1: an advocate for austerity, you could argue, which is the 165 00:07:38,640 --> 00:07:42,240 Speaker 1: regulator who is questioning and pushing back on this and 166 00:07:42,320 --> 00:07:45,760 Speaker 1: really assessing. So this is all the result of maybe 167 00:07:45,800 --> 00:07:48,960 Speaker 1: a consensus that has reached between those two opposing forces 168 00:07:49,000 --> 00:07:51,200 Speaker 1: of like meeting in the middle. So yeah, we'll talk 169 00:07:51,240 --> 00:07:53,480 Speaker 1: about the regulatory models in a moment, because it's obviously 170 00:07:53,600 --> 00:07:56,600 Speaker 1: there's a lot of nuance to unpack there, but before 171 00:07:56,600 --> 00:07:59,840 Speaker 1: we do, it's about sort of this in a global sense, 172 00:08:00,200 --> 00:08:02,520 Speaker 1: how does the picture sort of break down When we 173 00:08:02,560 --> 00:08:04,000 Speaker 1: look at different parts of the. 174 00:08:03,920 --> 00:08:07,120 Speaker 2: World, there is a debris of variation. So if you 175 00:08:07,120 --> 00:08:09,920 Speaker 2: think of your sort of Western European US markets, a 176 00:08:09,960 --> 00:08:12,280 Speaker 2: lot of growth there. And that's one of the things 177 00:08:12,280 --> 00:08:14,120 Speaker 2: we hire like in the report is around sometimes more 178 00:08:14,120 --> 00:08:16,640 Speaker 2: money doesn't mean more brid So the UK is a 179 00:08:16,640 --> 00:08:20,400 Speaker 2: great example because this maybe sometimes we're building more, but 180 00:08:20,440 --> 00:08:22,600 Speaker 2: we're not more to building different things. So if you're 181 00:08:22,600 --> 00:08:25,640 Speaker 2: building a submarine HVDC link, that's going to cost more 182 00:08:25,640 --> 00:08:27,560 Speaker 2: than the equipment overhead line, but you're gonna get the 183 00:08:27,600 --> 00:08:29,720 Speaker 2: same amount of power through it. So when you start 184 00:08:30,040 --> 00:08:32,040 Speaker 2: coming to this region of people don't want to see 185 00:08:32,160 --> 00:08:34,800 Speaker 2: overhead towers anymore. So if you underground it sort of 186 00:08:34,880 --> 00:08:36,679 Speaker 2: our research on that for the US has shown you 187 00:08:36,760 --> 00:08:38,960 Speaker 2: looking at it, it starts at six to ten times 188 00:08:38,960 --> 00:08:41,319 Speaker 2: as much, and then depending on the ground you're going through, 189 00:08:41,360 --> 00:08:43,520 Speaker 2: it can get I'm going to say somewhat higher. I 190 00:08:43,600 --> 00:08:45,160 Speaker 2: won't make up a record, but the record I think 191 00:08:45,160 --> 00:08:46,200 Speaker 2: we found was in the hundreds. 192 00:08:46,240 --> 00:08:47,880 Speaker 1: There was a lot of rock, so you've got to 193 00:08:47,920 --> 00:08:51,160 Speaker 1: really want to not see it yeah, if you're willing 194 00:08:51,200 --> 00:08:51,640 Speaker 1: to pay that. 195 00:08:51,720 --> 00:08:54,120 Speaker 2: But it's really tough because if you spend that money, again, 196 00:08:54,160 --> 00:08:56,560 Speaker 2: it's everyone's money. And I think this is maybe sort 197 00:08:56,559 --> 00:08:58,839 Speaker 2: of outside the report, but I do feel it's as 198 00:08:58,840 --> 00:09:02,439 Speaker 2: a society, maybe we don't talk enough about Okay, you've 199 00:09:02,440 --> 00:09:04,680 Speaker 2: put that underground or we've put it under the water 200 00:09:04,800 --> 00:09:07,960 Speaker 2: for these reasons, and now everyone gets to pay billions 201 00:09:07,960 --> 00:09:11,080 Speaker 2: of pounds for the next ten years to help cover that. 202 00:09:11,200 --> 00:09:13,120 Speaker 2: It's like, is that really being thought about? 203 00:09:13,520 --> 00:09:16,800 Speaker 1: So in the US and Western Europe, that's a lot 204 00:09:16,800 --> 00:09:20,400 Speaker 1: of what is going on is investment in maybe well 205 00:09:20,480 --> 00:09:23,040 Speaker 1: this question whether it's better or not, but like not 206 00:09:23,080 --> 00:09:26,600 Speaker 1: necessarily more, but sort of qualitatively different types of grid. 207 00:09:27,000 --> 00:09:28,520 Speaker 1: What about in say China. 208 00:09:29,120 --> 00:09:32,800 Speaker 2: China is it's a massive expansion there again as there's 209 00:09:32,840 --> 00:09:36,200 Speaker 2: over forty ultra high voltage links they've been building to 210 00:09:36,240 --> 00:09:38,920 Speaker 2: bring bulk renewables from the middle of the country, the 211 00:09:39,000 --> 00:09:40,880 Speaker 2: north of the country to the urban centers. And again 212 00:09:40,920 --> 00:09:43,520 Speaker 2: that's a narrative. In most grids, you'll find the generation 213 00:09:43,640 --> 00:09:45,400 Speaker 2: and the city's along the sit in the same place. 214 00:09:45,600 --> 00:09:47,400 Speaker 2: So it's the same narrative. In a lot of countries 215 00:09:47,480 --> 00:09:50,320 Speaker 2: South America, you see a lot of projects awards. Pretty 216 00:09:50,320 --> 00:09:52,600 Speaker 2: often we need a big, long line to bring cheap 217 00:09:52,640 --> 00:09:55,520 Speaker 2: generation to where people want power. So China's really driving 218 00:09:55,559 --> 00:09:58,679 Speaker 2: that forward. That's AC and so alternating current and the 219 00:09:58,720 --> 00:10:02,000 Speaker 2: traditional and the direct current, the high vultged direct current 220 00:10:02,120 --> 00:10:04,439 Speaker 2: that's small modern where they have different benefits. I don't 221 00:10:04,440 --> 00:10:06,400 Speaker 2: think we need to get into today. But again, the 222 00:10:06,600 --> 00:10:10,280 Speaker 2: high voltage direct current costs more per megawaper mile, So 223 00:10:10,320 --> 00:10:12,439 Speaker 2: again is that choice about you're building something different, but 224 00:10:12,559 --> 00:10:13,400 Speaker 2: it has its merits. 225 00:10:13,760 --> 00:10:16,600 Speaker 1: I'm also just curious to know. I'm not an expert 226 00:10:16,679 --> 00:10:18,400 Speaker 1: on this, but I understand. I mean, if you boosts 227 00:10:18,440 --> 00:10:21,240 Speaker 1: to a higher voltage, you can get more power through 228 00:10:21,400 --> 00:10:24,240 Speaker 1: a certain thickness of line. So there's kind of, in 229 00:10:24,320 --> 00:10:26,520 Speaker 1: a way like the voltage you boost to versus the 230 00:10:26,559 --> 00:10:28,559 Speaker 1: amount of copper you have. But then the voltage you 231 00:10:28,600 --> 00:10:31,360 Speaker 1: boost to, the higher it is, the more space you 232 00:10:31,480 --> 00:10:34,880 Speaker 1: need around your cable. And this is why we don't 233 00:10:34,920 --> 00:10:37,840 Speaker 1: have high voltage lines just you know, running down the street, 234 00:10:38,120 --> 00:10:41,960 Speaker 1: because it would be extremely dangerous and ineffective. So there's 235 00:10:41,960 --> 00:10:45,000 Speaker 1: a cost of land associated with this, and you know, 236 00:10:45,040 --> 00:10:47,560 Speaker 1: when you're looking at the investment and the cost, how 237 00:10:47,640 --> 00:10:49,319 Speaker 1: much of this is just the land the rights of 238 00:10:49,400 --> 00:10:50,760 Speaker 1: way if there. 239 00:10:50,679 --> 00:10:52,679 Speaker 2: Is a lot by market, and it's again one of 240 00:10:52,760 --> 00:10:56,360 Speaker 2: those things where we where a market includes the land 241 00:10:56,480 --> 00:10:57,720 Speaker 2: costs as capital expensure. 242 00:10:57,800 --> 00:10:58,160 Speaker 1: We don't. 243 00:10:58,280 --> 00:10:59,880 Speaker 2: There are other markets they don't because they have to 244 00:11:00,080 --> 00:11:02,599 Speaker 2: from models, but it can be a huge part of 245 00:11:02,679 --> 00:11:04,880 Speaker 2: the cost. But the other factor that really comes in 246 00:11:05,280 --> 00:11:07,400 Speaker 2: with that, the width of the route you need for 247 00:11:07,480 --> 00:11:11,640 Speaker 2: the line is less the costs and more the permitting planning. 248 00:11:11,960 --> 00:11:14,000 Speaker 2: The wider it is the tour or the tower, the 249 00:11:14,120 --> 00:11:16,439 Speaker 2: less likely you are to get it built. And it 250 00:11:16,520 --> 00:11:18,720 Speaker 2: sort of leaks to one of the themes of money 251 00:11:18,800 --> 00:11:20,720 Speaker 2: can sometimes be the easy part for the grid because 252 00:11:20,720 --> 00:11:22,600 Speaker 2: if you think we need lots of capital, you've got 253 00:11:22,640 --> 00:11:25,679 Speaker 2: to guaranteed return coming to a lot of investors. That's 254 00:11:25,679 --> 00:11:28,199 Speaker 2: a very attractive proposition for part of their capital. But 255 00:11:28,320 --> 00:11:30,719 Speaker 2: then actually, okay, but will people let us build? It 256 00:11:30,880 --> 00:11:33,520 Speaker 2: becomes a big question can we get the equipment. Because 257 00:11:33,520 --> 00:11:35,760 Speaker 2: there's a lot of supply chain constraints where there's so 258 00:11:35,920 --> 00:11:40,480 Speaker 2: much building all happening at once, we're seeing regulators question, well, okay, 259 00:11:40,559 --> 00:11:42,360 Speaker 2: we'll sign off on the money, but you sure you 260 00:11:42,440 --> 00:11:44,800 Speaker 2: can actually deliver this plan, especially when you bring in 261 00:11:44,920 --> 00:11:47,319 Speaker 2: do they have enough labor. There's a massive shortage of 262 00:11:47,400 --> 00:11:50,280 Speaker 2: the specialized skills you need all across a value chain, 263 00:11:50,360 --> 00:11:53,160 Speaker 2: from classic one being well there's lines, money can go 264 00:11:53,280 --> 00:11:55,800 Speaker 2: up the towers and actually do the work required. 265 00:11:56,280 --> 00:11:58,600 Speaker 1: Is that an issue globally? The reason why I asked 266 00:11:58,640 --> 00:12:01,040 Speaker 1: this is there's a bit of a thing in some 267 00:12:01,240 --> 00:12:04,079 Speaker 1: Western markets where power demand has been stagnant for a 268 00:12:04,160 --> 00:12:07,240 Speaker 1: while and I'm not talking necessary about transmission, but in 269 00:12:07,320 --> 00:12:09,880 Speaker 1: other areas, what you've seen is like I mean, i'd 270 00:12:09,920 --> 00:12:13,680 Speaker 1: take nuclear as an example. In the US, nuclear plants 271 00:12:13,720 --> 00:12:15,800 Speaker 1: haven't been built in a low while, except for virtual 272 00:12:15,880 --> 00:12:18,360 Speaker 1: which was built more recently, and so the sort of 273 00:12:18,440 --> 00:12:20,720 Speaker 1: the skills to do that had kind of gone away. 274 00:12:20,840 --> 00:12:23,040 Speaker 1: And then you're a standing start when suddenly like we 275 00:12:23,120 --> 00:12:25,199 Speaker 1: need more nuclear, whereas in China has been in this 276 00:12:25,320 --> 00:12:29,439 Speaker 1: perpetual growth story. The kind of the skills are there, 277 00:12:29,559 --> 00:12:32,319 Speaker 1: and therefore if you say, yeah, we need to do X, 278 00:12:32,480 --> 00:12:34,840 Speaker 1: Y or Z, they're not quite at the same standing 279 00:12:35,000 --> 00:12:37,240 Speaker 1: start in terms of ramping up. I mean, is that 280 00:12:37,559 --> 00:12:39,320 Speaker 1: is that something you see in the grid side as well? 281 00:12:39,360 --> 00:12:42,040 Speaker 2: We do as well. Yes, there is an example just 282 00:12:42,080 --> 00:12:44,880 Speaker 2: in the China. Note you think China Southern grid for example, 283 00:12:45,000 --> 00:12:47,439 Speaker 2: or exporting those skills. They're delivering a major line in 284 00:12:47,520 --> 00:12:49,840 Speaker 2: Chile as part of the sort. Okay, that's interesting when 285 00:12:49,880 --> 00:12:52,360 Speaker 2: I do it, they're bringing most of the labor and skills, 286 00:12:52,600 --> 00:12:54,720 Speaker 2: and that's something you see we sit across different markets. 287 00:12:54,720 --> 00:12:57,880 Speaker 2: They're also European companies who specialize in inter connection and 288 00:12:57,920 --> 00:13:00,800 Speaker 2: they'll take their skills, especially on subsea out to Asia 289 00:13:00,880 --> 00:13:03,840 Speaker 2: because Europe deluted more subsea lines, so they have more experience, 290 00:13:03,880 --> 00:13:05,319 Speaker 2: and they'll go out and support. If you want to 291 00:13:05,360 --> 00:13:07,880 Speaker 2: bot a lime from Japan, say to another country, they'll 292 00:13:07,960 --> 00:13:10,280 Speaker 2: help figure that out. So there are skills flowing around. 293 00:13:10,440 --> 00:13:12,400 Speaker 2: But yeah, we do see. I think we're seen more 294 00:13:12,440 --> 00:13:14,640 Speaker 2: of that project export out of solid rid and state 295 00:13:14,679 --> 00:13:16,400 Speaker 2: grid because they have had their building phase. 296 00:13:17,559 --> 00:13:20,360 Speaker 1: You mentioned renewables and you know you were talking about 297 00:13:20,520 --> 00:13:23,559 Speaker 1: the HVDC lines, you know, bringing demand from where say 298 00:13:23,600 --> 00:13:26,280 Speaker 1: the renewables resources are to where the cities are. Is 299 00:13:26,360 --> 00:13:28,920 Speaker 1: that the only way in which they're impacting grid investment in. 300 00:13:29,000 --> 00:13:31,960 Speaker 2: Terms of capital investment, That's that's their biggest impact. Yeah, 301 00:13:32,400 --> 00:13:35,360 Speaker 2: it's the classic when you replace a gas turbine plant 302 00:13:35,400 --> 00:13:37,079 Speaker 2: with another one, you kind of just take the old 303 00:13:37,080 --> 00:13:39,880 Speaker 2: grid connection, Whereas when you say that gas plant retires, 304 00:13:40,080 --> 00:13:42,640 Speaker 2: it's unlikely you're built it on a fantastic wind resource 305 00:13:43,920 --> 00:13:46,400 Speaker 2: unless you really do. So you then have to take 306 00:13:46,400 --> 00:13:48,920 Speaker 2: the UK again. Germany. Sometimes you go out into the 307 00:13:49,040 --> 00:13:51,760 Speaker 2: sea to find the best resource, and there wasn't grid 308 00:13:51,840 --> 00:13:53,640 Speaker 2: in the sea, so that it's just a new place 309 00:13:53,679 --> 00:13:56,160 Speaker 2: of the new new grid. Because the size of the generation, 310 00:13:56,480 --> 00:13:58,880 Speaker 2: it's entirely new grid, and then you have the knock 311 00:13:58,920 --> 00:14:01,319 Speaker 2: on effect of that new grid connects to grid that 312 00:14:01,760 --> 00:14:03,880 Speaker 2: wasn't built to serve something that size, So then you 313 00:14:03,920 --> 00:14:06,240 Speaker 2: have to reinforce that it can already cascade through the 314 00:14:06,280 --> 00:14:09,160 Speaker 2: whole network. But again that drives the capital. That's the 315 00:14:09,160 --> 00:14:11,680 Speaker 2: biggest hit for renewables. In this report of the capital, 316 00:14:11,720 --> 00:14:13,760 Speaker 2: we also tracked to sort of the operational impacts. I 317 00:14:13,840 --> 00:14:15,680 Speaker 2: think a lot of people will heard about various things 318 00:14:16,040 --> 00:14:18,760 Speaker 2: better with the Spanish blackout, about how renewables can impact 319 00:14:18,840 --> 00:14:22,040 Speaker 2: that they drive spending there that's more operational and there's 320 00:14:22,080 --> 00:14:25,680 Speaker 2: a reasonably high threshold for your renewal penetration for that 321 00:14:25,800 --> 00:14:27,760 Speaker 2: to really kick in. So a lot of markets aren't 322 00:14:27,800 --> 00:14:30,520 Speaker 2: seeing that. They're still on the phase of some beautiful phrases. 323 00:14:30,760 --> 00:14:33,840 Speaker 2: My favorites. Fit and forget was the early phase of renewables. 324 00:14:33,920 --> 00:14:35,040 Speaker 2: You just connect it and move. 325 00:14:34,960 --> 00:14:35,520 Speaker 1: On with your life. 326 00:14:35,640 --> 00:14:37,640 Speaker 2: And then we moved into connect and manage, where you 327 00:14:37,720 --> 00:14:40,120 Speaker 2: connect it and then okay, well it can't export full 328 00:14:40,200 --> 00:14:42,600 Speaker 2: power because the lines can't carry it, will turn it 329 00:14:42,640 --> 00:14:44,800 Speaker 2: off a bit. Then the newspapers will be played, and 330 00:14:44,920 --> 00:14:47,480 Speaker 2: you'll build and you'll catch up. What we found though, 331 00:14:47,640 --> 00:14:50,040 Speaker 2: for people going through the fit and forget phase is 332 00:14:50,160 --> 00:14:52,800 Speaker 2: sometimes that generation comes and finds you. So you finn 333 00:14:52,880 --> 00:14:55,080 Speaker 2: forget a whole pile of residential soul of being the 334 00:14:55,120 --> 00:14:58,760 Speaker 2: classic one, very limited protection and control set up on it. 335 00:14:58,920 --> 00:15:01,520 Speaker 2: And then you realize, because away reliables to teach you 336 00:15:01,680 --> 00:15:04,680 Speaker 2: to scale, especially Soul, just scale so quickly you find 337 00:15:04,720 --> 00:15:08,200 Speaker 2: you actually have huge volumes of this generation you actually 338 00:15:08,240 --> 00:15:09,960 Speaker 2: kind of wish you could control. And then you have 339 00:15:10,080 --> 00:15:13,080 Speaker 2: these retrofit programs. It had in the UK it was 340 00:15:13,120 --> 00:15:15,840 Speaker 2: called the Accelerated Loss of Mainz Change program. And if 341 00:15:15,880 --> 00:15:17,920 Speaker 2: they spent a lot of money, our money going back 342 00:15:17,960 --> 00:15:19,920 Speaker 2: and say we need different protection and control on these 343 00:15:19,960 --> 00:15:24,400 Speaker 2: devices to protect our grid. This sort of forgotten generation 344 00:15:24,680 --> 00:15:27,240 Speaker 2: wasn't really the cause of the Spanish blackout, but it 345 00:15:27,400 --> 00:15:30,240 Speaker 2: did really not help in case when you have large 346 00:15:30,280 --> 00:15:33,960 Speaker 2: amounts of distributed PV generation tripping off while the operator 347 00:15:34,000 --> 00:15:35,600 Speaker 2: is desperately trying to keep control of the brid. 348 00:15:36,080 --> 00:15:38,520 Speaker 1: Building on this idea of the impact of renewables, another 349 00:15:38,640 --> 00:15:41,360 Speaker 1: thing that was just interesting in the report is that 350 00:15:41,520 --> 00:15:45,840 Speaker 1: there's more investment in transmission. Now, simplistically, I've always thought 351 00:15:45,920 --> 00:15:51,400 Speaker 1: of transmission is networking supply, distribution is networking demand, and 352 00:15:51,560 --> 00:15:54,440 Speaker 1: so if supply is where there's a transformation happening, then 353 00:15:54,480 --> 00:15:58,920 Speaker 1: it makes sense that there's more investment in transmission. Is 354 00:15:59,000 --> 00:16:01,560 Speaker 1: that take act. Is it just to do with renewables 355 00:16:01,600 --> 00:16:02,880 Speaker 1: that we're seeing more in transmission. 356 00:16:03,240 --> 00:16:05,720 Speaker 2: Partially, it's mostly right as a way to view the world, 357 00:16:05,920 --> 00:16:09,400 Speaker 2: but there's also again different markets is happening in different ways. 358 00:16:09,560 --> 00:16:12,120 Speaker 2: But you got the AC and superbrid, you've got European 359 00:16:12,160 --> 00:16:16,200 Speaker 2: attempts to interconnect cross border. There's transmission between different markets 360 00:16:16,480 --> 00:16:20,120 Speaker 2: to bring more market coupling and in a way move 361 00:16:20,240 --> 00:16:24,920 Speaker 2: renewables from say Ireland to France to Italy to take 362 00:16:24,920 --> 00:16:27,480 Speaker 2: advantage of the geographical spread, because when you're all using 363 00:16:27,640 --> 00:16:32,000 Speaker 2: very similar gas generation, you interconnect for stability and reliability. 364 00:16:32,200 --> 00:16:34,800 Speaker 2: But really there's a marginal difference between the cost of 365 00:16:34,880 --> 00:16:37,120 Speaker 2: one person's gas and another. But then when you have 366 00:16:37,360 --> 00:16:40,160 Speaker 2: huge amounts of wind that's not needed in Ireland or 367 00:16:40,240 --> 00:16:42,080 Speaker 2: in Germany and you have the chance to move it, 368 00:16:42,320 --> 00:16:44,280 Speaker 2: that's when you start seeing more of this cross border 369 00:16:44,280 --> 00:16:47,040 Speaker 2: into connection markut guppelin to try and bring prices down 370 00:16:47,160 --> 00:16:48,240 Speaker 2: and make the best use of it. 371 00:16:48,440 --> 00:16:49,120 Speaker 1: And that's a trend. 372 00:16:49,200 --> 00:16:51,360 Speaker 2: You've got the ac in superbrid, as I mentioned, the 373 00:16:51,440 --> 00:16:55,480 Speaker 2: West African Powerpool is a very similar concept. There's movements 374 00:16:55,520 --> 00:16:57,480 Speaker 2: around the world to go cacking with more long distance 375 00:16:57,520 --> 00:16:59,880 Speaker 2: inter connection. We've tracked a lot in the US as 376 00:16:59,880 --> 00:17:02,720 Speaker 2: well well, which is slightly different because it's more outside 377 00:17:02,720 --> 00:17:04,720 Speaker 2: of the Western region where they do have quite a 378 00:17:04,760 --> 00:17:08,639 Speaker 2: coordinated plan broadly the funnel power into the California market. 379 00:17:08,920 --> 00:17:12,320 Speaker 2: It's more ad hoc single lines than an overarching plan. 380 00:17:12,520 --> 00:17:14,880 Speaker 2: But that's a big drive to again, just if there's 381 00:17:14,880 --> 00:17:16,720 Speaker 2: access to re deal was one place, let's get it 382 00:17:16,760 --> 00:17:18,840 Speaker 2: somewhere we can sell it, and you need brit assets 383 00:17:18,880 --> 00:17:19,159 Speaker 2: to do that. 384 00:17:19,600 --> 00:17:21,879 Speaker 1: There's there's a sort of a trend towards the macro 385 00:17:22,200 --> 00:17:23,240 Speaker 1: I suppose, you know. 386 00:17:23,520 --> 00:17:25,800 Speaker 2: But again, while while we are we think we trapped 387 00:17:25,840 --> 00:17:28,920 Speaker 2: about sixteen percent growth in transmission and only nine percent 388 00:17:29,040 --> 00:17:32,280 Speaker 2: distribution they're getting. That links back to the renewables impact 389 00:17:32,359 --> 00:17:34,680 Speaker 2: transmission at scale, but a lot has sounded on the 390 00:17:34,720 --> 00:17:36,920 Speaker 2: distribution network as well. There's a lot of behind the 391 00:17:37,040 --> 00:17:40,159 Speaker 2: meter or small scale generation EV chargers drive a lot 392 00:17:40,200 --> 00:17:43,280 Speaker 2: of grid spending, and different markets have different views on 393 00:17:43,600 --> 00:17:45,679 Speaker 2: the rate of growth. But I think we are currently 394 00:17:45,720 --> 00:17:48,439 Speaker 2: seeing a Surgeon transmission, and I would expect a Surgeon 395 00:17:48,480 --> 00:17:51,680 Speaker 2: distribution to arrive not too far from now. The way 396 00:17:51,720 --> 00:17:53,520 Speaker 2: I usually phrase it in my own mind is a 397 00:17:53,560 --> 00:17:56,800 Speaker 2: distribution sort of a regulatory cycle. Behind the transmission is 398 00:17:56,840 --> 00:17:59,000 Speaker 2: life and are like, we need to build big, build 399 00:17:59,080 --> 00:18:01,480 Speaker 2: now or we're going to just choke onto all these 400 00:18:01,520 --> 00:18:04,280 Speaker 2: power flowers. Distributions getting there next. 401 00:18:04,720 --> 00:18:06,520 Speaker 1: So how long is a regulatory cycle? Is it like 402 00:18:06,680 --> 00:18:07,120 Speaker 1: four or five? 403 00:18:07,720 --> 00:18:10,959 Speaker 2: Three to five years is the typical range. You can 404 00:18:11,080 --> 00:18:13,760 Speaker 2: change things in between. But again going back to the 405 00:18:13,840 --> 00:18:15,680 Speaker 2: pre conversation about trying to make sure we're building the 406 00:18:15,800 --> 00:18:18,119 Speaker 2: right things and getting value for money, takes a lot 407 00:18:18,160 --> 00:18:20,680 Speaker 2: of time to prepare the cases for a major project 408 00:18:21,080 --> 00:18:23,880 Speaker 2: or from major projects to transmission one big project two 409 00:18:23,920 --> 00:18:27,160 Speaker 2: billion euros distributions more. We need a program of work 410 00:18:27,400 --> 00:18:30,359 Speaker 2: where we're going to change thousands of these devices, so 411 00:18:30,800 --> 00:18:33,280 Speaker 2: different challenges, but they usually both have to a lot 412 00:18:33,320 --> 00:18:33,720 Speaker 2: of money. 413 00:18:34,280 --> 00:18:36,360 Speaker 1: Let's move on to talk because I think the regulatory 414 00:18:36,520 --> 00:18:38,680 Speaker 1: I mean, I can't believe I'm saying these words. You know, 415 00:18:38,960 --> 00:18:42,040 Speaker 1: eighteen year old Tom is like, what happened? Horror? I 416 00:18:42,200 --> 00:18:45,639 Speaker 1: know you'd be so boring, but the regulatory aspect is 417 00:18:45,680 --> 00:18:49,040 Speaker 1: really interesting. Forty four year old Tom is telling eighteen 418 00:18:49,119 --> 00:18:51,760 Speaker 1: year old Tom the regulatory aspect is really interesting. I 419 00:18:51,880 --> 00:18:54,200 Speaker 1: remember back when I was in my role at being 420 00:18:54,440 --> 00:18:56,280 Speaker 1: a little bit more focused on some of these topics 421 00:18:56,320 --> 00:18:59,920 Speaker 1: we're talking about now, meeting with an engineering company, you know, 422 00:19:00,200 --> 00:19:02,360 Speaker 1: one of the large industrials, I won't say the name, 423 00:19:02,640 --> 00:19:07,200 Speaker 1: and they were doing kind of cutting edge grid related technologies, 424 00:19:07,280 --> 00:19:09,359 Speaker 1: and I remember they said their sales strategy, well, the 425 00:19:09,400 --> 00:19:11,359 Speaker 1: first thing they do is they look at the regulator 426 00:19:11,600 --> 00:19:14,280 Speaker 1: in different countries and they look how many people does 427 00:19:14,320 --> 00:19:18,040 Speaker 1: the regulator employ. And their rationale was does the regulator 428 00:19:18,119 --> 00:19:22,120 Speaker 1: have the capacity to actually assess something that is new 429 00:19:22,280 --> 00:19:25,520 Speaker 1: and different and give it a proper assessment? Because if 430 00:19:25,520 --> 00:19:28,680 Speaker 1: they don't, then we're immediately like we're basically have no 431 00:19:28,840 --> 00:19:31,119 Speaker 1: chance at all. It's going to be the tried and 432 00:19:31,200 --> 00:19:34,040 Speaker 1: tested is always is always going to win out? Is 433 00:19:34,119 --> 00:19:36,560 Speaker 1: that how it still is? And you know, are we 434 00:19:36,640 --> 00:19:39,600 Speaker 1: seeing different degrees of regulatory sophistication and is that a 435 00:19:39,760 --> 00:19:43,560 Speaker 1: major influence on where we're seeing innovation happen in the sea. 436 00:19:43,640 --> 00:19:46,240 Speaker 2: Yeah, I think that's sort of the perfect advice for 437 00:19:46,320 --> 00:19:48,639 Speaker 2: a regulated market. If you look at the market and 438 00:19:48,720 --> 00:19:51,639 Speaker 2: there's a regulator who doesn't have good staff either in 439 00:19:51,760 --> 00:19:54,160 Speaker 2: numbers or skill set, you're going to be pushing uphill 440 00:19:54,359 --> 00:19:56,240 Speaker 2: to sell things because they're not going to be open 441 00:19:56,320 --> 00:19:58,800 Speaker 2: to the innovation. The engineers will bring the innovation, the 442 00:19:58,880 --> 00:20:00,160 Speaker 2: regulator will not toler. 443 00:20:00,280 --> 00:20:01,040 Speaker 1: And then they'll give up. 444 00:20:01,320 --> 00:20:03,680 Speaker 2: So raising models it as you say, it's hard to 445 00:20:03,800 --> 00:20:06,280 Speaker 2: name the straight face, but it is such an important 446 00:20:06,280 --> 00:20:08,560 Speaker 2: part of this because if it's poorly regulated, you get 447 00:20:08,600 --> 00:20:09,200 Speaker 2: poor outcomes. 448 00:20:09,520 --> 00:20:11,760 Speaker 1: And I think a big part of this, like maybe 449 00:20:11,800 --> 00:20:14,440 Speaker 1: the biggest part of this is are there any incentives 450 00:20:14,480 --> 00:20:19,480 Speaker 1: in the regulatory model for opex related options? Are avoiding 451 00:20:19,560 --> 00:20:22,879 Speaker 1: capex spending by investing in something that is more of 452 00:20:22,920 --> 00:20:26,640 Speaker 1: an operational expense? Can you just explain this this because 453 00:20:26,680 --> 00:20:28,840 Speaker 1: I'm familiar with this concept, but I'm sure all of 454 00:20:28,880 --> 00:20:31,359 Speaker 1: our listeners are could just break this down from Yeah. 455 00:20:31,280 --> 00:20:35,320 Speaker 2: So start with the capital expenditure recovery. You buy an asset, 456 00:20:35,480 --> 00:20:37,359 Speaker 2: you own it, and then you get paid effectively a 457 00:20:37,480 --> 00:20:39,760 Speaker 2: fee for the value of that asset as ages. So 458 00:20:39,800 --> 00:20:41,920 Speaker 2: as long as you have the asset and exists, you're 459 00:20:41,960 --> 00:20:43,800 Speaker 2: going to make money back on it because the part 460 00:20:43,840 --> 00:20:46,000 Speaker 2: of the repayment has a percentage return on it to 461 00:20:46,119 --> 00:20:48,600 Speaker 2: cover your cost of capital, to cover some of your costs, 462 00:20:48,640 --> 00:20:51,200 Speaker 2: and to give your profit. In the very traditional model, 463 00:20:51,200 --> 00:20:53,680 Speaker 2: which some grids are moving away from, your op X 464 00:20:53,800 --> 00:20:56,200 Speaker 2: is always just treated as a direct pass through, so 465 00:20:56,359 --> 00:20:58,800 Speaker 2: every dollar you spend gets returned to you, but with 466 00:20:58,920 --> 00:21:01,240 Speaker 2: no profit. Because it was always a concern you'll just 467 00:21:01,359 --> 00:21:03,760 Speaker 2: people just pad their operational expenditure and there'd be no 468 00:21:03,800 --> 00:21:06,240 Speaker 2: attempt to achieve efficiency because the more you spend, the 469 00:21:06,320 --> 00:21:08,199 Speaker 2: more you get, and there's no asset at the end 470 00:21:08,280 --> 00:21:08,880 Speaker 2: of that spending. 471 00:21:09,119 --> 00:21:12,480 Speaker 1: So it's kind of almost that regulatory model exists on 472 00:21:13,080 --> 00:21:16,520 Speaker 1: the assumption that this is purely about asset ownership and 473 00:21:16,640 --> 00:21:19,880 Speaker 1: management and not about operating your grid. 474 00:21:20,000 --> 00:21:23,040 Speaker 2: Yeah, and then they're the operation should be just on top. 475 00:21:23,200 --> 00:21:25,240 Speaker 2: And it makes sense if you think of the grid 476 00:21:25,280 --> 00:21:29,520 Speaker 2: of the seventies A passive hopefully physically bulletproof system. But 477 00:21:29,640 --> 00:21:32,880 Speaker 2: for the modern grid you're moving towards the UK, they've 478 00:21:32,920 --> 00:21:35,159 Speaker 2: adopted it quite strongly. Others are looking at what they 479 00:21:35,240 --> 00:21:38,560 Speaker 2: called totex, which is total expenditure where the operations where 480 00:21:38,600 --> 00:21:41,040 Speaker 2: it gets pulled into that model. One method of that 481 00:21:41,240 --> 00:21:44,399 Speaker 2: is you state your operational expenditure for the period and 482 00:21:44,520 --> 00:21:46,800 Speaker 2: then everything that you bring below that you get to 483 00:21:46,840 --> 00:21:49,080 Speaker 2: keep as profit. And it's amazing to see if that's 484 00:21:49,080 --> 00:21:51,600 Speaker 2: something that profit in censive is there, companies will find 485 00:21:51,680 --> 00:21:53,639 Speaker 2: ways to be more efficient because they get to keep it, 486 00:21:53,880 --> 00:21:55,920 Speaker 2: and the next regular cycle they find a new way. 487 00:21:56,200 --> 00:21:58,879 Speaker 1: And so to fully explain this to people, because if 488 00:21:58,920 --> 00:22:01,880 Speaker 1: you don't have that and you're a utility, and you're like, well, 489 00:22:02,040 --> 00:22:05,240 Speaker 1: it will be more cost efficient to take an opex option, 490 00:22:05,440 --> 00:22:07,680 Speaker 1: you know, some digital thing we pay for as a 491 00:22:07,720 --> 00:22:09,640 Speaker 1: service that means we don't have to invest in capex. 492 00:22:09,800 --> 00:22:12,160 Speaker 1: It might be cheaper, but they are reducing their own 493 00:22:12,200 --> 00:22:15,119 Speaker 1: profits through doing them, Whereas with a totex model, the 494 00:22:15,320 --> 00:22:19,000 Speaker 1: idea is that genuinely the best value for the consumer 495 00:22:19,320 --> 00:22:21,679 Speaker 1: will also be the best value for the util exactly, 496 00:22:22,000 --> 00:22:22,280 Speaker 1: and you. 497 00:22:22,359 --> 00:22:25,040 Speaker 2: Can't you can't blame for profit companies for looking at 498 00:22:25,040 --> 00:22:27,080 Speaker 2: the rule set and making a profit. So you've got 499 00:22:27,160 --> 00:22:29,560 Speaker 2: to manipulate the rule set to get the outcome you want. 500 00:22:29,680 --> 00:22:30,960 Speaker 2: And that's again goes back to the point if you 501 00:22:31,040 --> 00:22:34,080 Speaker 2: have a good regulator who's sophisticated, they will seek that out. 502 00:22:34,400 --> 00:22:37,440 Speaker 2: The key trends we see around sort of operational expenditure 503 00:22:37,880 --> 00:22:41,480 Speaker 2: not being managed properly. The first is a brit enhancing 504 00:22:41,520 --> 00:22:44,399 Speaker 2: technologies is what they're called. They're those digital solutions that 505 00:22:44,560 --> 00:22:47,040 Speaker 2: let you get more capacity out of the same assets 506 00:22:47,080 --> 00:22:49,480 Speaker 2: by managing the bridain and the smarter way. The simple 507 00:22:49,520 --> 00:22:51,240 Speaker 2: as example probably to explain here, is so called the 508 00:22:51,320 --> 00:22:54,879 Speaker 2: dynamic line rating, which is where rather assuming how much 509 00:22:54,960 --> 00:22:57,000 Speaker 2: power can go through a line based on just some 510 00:22:57,080 --> 00:22:59,680 Speaker 2: assumptions a calculation, then that's the rating of the line. 511 00:22:59,720 --> 00:23:02,280 Speaker 2: For you actually monitor the weather and say, okay, well 512 00:23:02,320 --> 00:23:04,159 Speaker 2: that line has loads of wind going past it, so 513 00:23:04,240 --> 00:23:05,760 Speaker 2: we can put more power through it, or it's a 514 00:23:05,880 --> 00:23:08,320 Speaker 2: very cold day and you can get more power through 515 00:23:08,359 --> 00:23:10,679 Speaker 2: the same asset. But it's an opex thing, so it's 516 00:23:10,960 --> 00:23:12,840 Speaker 2: why would I pay for that software when I can 517 00:23:12,920 --> 00:23:14,960 Speaker 2: know the nice asset next to it. So we see 518 00:23:15,040 --> 00:23:19,160 Speaker 2: that failure limiting the adoption of those technologies because first 519 00:23:19,240 --> 00:23:21,840 Speaker 2: there's no profit in it, and secondly it's difficult. You 520 00:23:21,920 --> 00:23:24,040 Speaker 2: try and make the regulatary case to put it in 521 00:23:24,400 --> 00:23:26,879 Speaker 2: and there isn't a slot to put it in. You 522 00:23:26,960 --> 00:23:28,680 Speaker 2: can go, well, this is this type of project, so 523 00:23:28,760 --> 00:23:30,720 Speaker 2: it makes sense. You're filling in the form of what 524 00:23:30,800 --> 00:23:32,080 Speaker 2: you want to do, and there's a load of box 525 00:23:32,240 --> 00:23:36,080 Speaker 2: for brid enhancing technology, so it becomes an innovation project 526 00:23:36,280 --> 00:23:39,040 Speaker 2: or a pilot that works really well. But then if 527 00:23:39,080 --> 00:23:41,560 Speaker 2: it doesn't roll out, it only helps one small area. 528 00:23:41,840 --> 00:23:44,520 Speaker 2: The other area where we see operation expansion to be 529 00:23:44,800 --> 00:23:47,879 Speaker 2: managed a lot is what it called balancing costs and 530 00:23:48,280 --> 00:23:50,679 Speaker 2: goes back to the impact of renewables, so they're then 531 00:23:50,760 --> 00:23:53,360 Speaker 2: more variable just with the weather. On a gas plant 532 00:23:53,359 --> 00:23:55,600 Speaker 2: that pretty much does where it's tall outside of failures, 533 00:23:55,760 --> 00:23:58,159 Speaker 2: which means you have to carry other resources on the 534 00:23:58,200 --> 00:24:01,280 Speaker 2: grid just in case they suddenly change to maintain stability 535 00:24:01,320 --> 00:24:03,480 Speaker 2: and security, and they aren't free, so you have to 536 00:24:03,520 --> 00:24:05,720 Speaker 2: pay for them. That's a form of operational expenditure. And 537 00:24:05,800 --> 00:24:07,800 Speaker 2: again if you're not incentivized to bring it down, it 538 00:24:07,800 --> 00:24:10,280 Speaker 2: will just drift up. There's a few capital solutions you 539 00:24:10,320 --> 00:24:13,600 Speaker 2: can build synchrous condensers, which are a big motor really 540 00:24:13,640 --> 00:24:16,359 Speaker 2: that provides bred stability and as a capital solution, but 541 00:24:16,480 --> 00:24:20,159 Speaker 2: it's only for some problems. You still see operational expenditure 542 00:24:20,280 --> 00:24:23,400 Speaker 2: rising and those costs can get pretty astronomical. They tend 543 00:24:23,440 --> 00:24:25,400 Speaker 2: to be in the billions. If people don't know these 544 00:24:25,440 --> 00:24:27,960 Speaker 2: things that sometimes we try and highlight it through our research. 545 00:24:28,280 --> 00:24:30,760 Speaker 2: The grid can run through a lot of operational expenditure 546 00:24:31,000 --> 00:24:33,480 Speaker 2: and if you bring incentives, you can find new ways 547 00:24:33,520 --> 00:24:35,920 Speaker 2: to bring that down, and you always using new technologies. 548 00:24:36,440 --> 00:24:38,280 Speaker 2: The UK is again as a good example where they 549 00:24:38,359 --> 00:24:42,439 Speaker 2: have markets around procuring assets and solutions to bring down 550 00:24:42,560 --> 00:24:44,760 Speaker 2: operational costs because there's a benefit there. 551 00:24:45,800 --> 00:24:51,320 Speaker 1: Finally, let's imagine that your utility got regulatory approval for 552 00:24:51,680 --> 00:24:53,440 Speaker 1: and let's just assume it's CAPEX, because this is what 553 00:24:53,480 --> 00:24:57,000 Speaker 1: we're talking about today, big investment. Everyone is happy you've 554 00:24:57,000 --> 00:24:58,680 Speaker 1: got you've got the permits. I know it doesn't happen 555 00:24:58,760 --> 00:25:02,240 Speaker 1: in this order. Let's just imagine it does. Where do 556 00:25:02,280 --> 00:25:05,520 Speaker 1: you get the finance to then pay for this? 557 00:25:05,760 --> 00:25:05,800 Speaker 2: Like? 558 00:25:05,880 --> 00:25:07,520 Speaker 1: Who is financing a lot of this? 559 00:25:08,280 --> 00:25:12,880 Speaker 2: When we tracked this, it's almost all debt raised from 560 00:25:13,240 --> 00:25:17,200 Speaker 2: big famous names. It's just companies that want to commit 561 00:25:17,520 --> 00:25:21,359 Speaker 2: toens of billions at once. Utilities collect that investor and 562 00:25:21,440 --> 00:25:25,040 Speaker 2: then recover from the consumer. That's the main source. One 563 00:25:25,040 --> 00:25:27,040 Speaker 2: the thing we have tracked this year, I've sudden you 564 00:25:27,200 --> 00:25:29,480 Speaker 2: work is that. And again you can see the headlines 565 00:25:29,520 --> 00:25:32,280 Speaker 2: companies like E Patrola and Elia, we're doing big equity 566 00:25:32,320 --> 00:25:34,639 Speaker 2: issues and that was because in order to deliver this 567 00:25:34,720 --> 00:25:37,480 Speaker 2: construction they were raising so much debt they need tradition 568 00:25:37,600 --> 00:25:41,480 Speaker 2: equity to balance out the old balance sheet. But again 569 00:25:41,640 --> 00:25:44,200 Speaker 2: they were pretty all they're pretty much all well received. 570 00:25:44,520 --> 00:25:48,280 Speaker 2: Almost all the equity went to large groups before the 571 00:25:48,359 --> 00:25:49,080 Speaker 2: public issue. 572 00:25:49,400 --> 00:25:51,840 Speaker 1: Right, these companies are not on the rocks because the 573 00:25:51,840 --> 00:25:54,880 Speaker 1: amount of capital they're having to raise that they're having 574 00:25:54,920 --> 00:25:57,760 Speaker 1: to put together for these investments, but it is still 575 00:25:57,880 --> 00:26:02,440 Speaker 1: something that materially has in impacted their kind of financial structure. 576 00:26:02,480 --> 00:26:04,680 Speaker 2: Ye, they're having to raise money. I think again you'll 577 00:26:04,720 --> 00:26:06,520 Speaker 2: see a lot and right now, because of the phase 578 00:26:06,600 --> 00:26:08,719 Speaker 2: we're in, a lot of companies that are in multiple 579 00:26:08,800 --> 00:26:13,080 Speaker 2: sectors are selling aspects of their business to raise money 580 00:26:13,160 --> 00:26:16,280 Speaker 2: to put into their grid business because they're seeing strong returns. 581 00:26:16,600 --> 00:26:19,879 Speaker 1: It's interesting because you know, we see some utilities that 582 00:26:20,000 --> 00:26:23,720 Speaker 1: have all sorts of different arms, some of which are regulated, 583 00:26:23,800 --> 00:26:27,399 Speaker 1: some of which are regulated. A regulated return involves a 584 00:26:27,440 --> 00:26:31,880 Speaker 1: lot of capex, but it's also very dependable and favorable, 585 00:26:31,920 --> 00:26:35,000 Speaker 1: and so I can well imagine selling off some other 586 00:26:35,160 --> 00:26:37,560 Speaker 1: arms in order to keep that part of the business suite. 587 00:26:37,640 --> 00:26:41,359 Speaker 2: Yeah, especially in some markets with renewables and not seeing attraction, 588 00:26:41,440 --> 00:26:43,440 Speaker 2: they might do, especially in the US, it makes a 589 00:26:43,480 --> 00:26:45,920 Speaker 2: lot of sense again lead to that sort of lots 590 00:26:45,960 --> 00:26:48,679 Speaker 2: of capital, reliable returns. You see a lot of pension 591 00:26:48,760 --> 00:26:52,800 Speaker 2: funds involved with financing in some form. They own large 592 00:26:52,800 --> 00:26:55,560 Speaker 2: percentages of grid companies around the world, and then they 593 00:26:55,640 --> 00:26:57,480 Speaker 2: lend money to other grid companies as well. 594 00:26:57,960 --> 00:27:03,040 Speaker 1: It feels very fitting given the expected lifetime of these assets, 595 00:27:03,200 --> 00:27:06,480 Speaker 1: the aspired lifetime with the assets that's pension funds that 596 00:27:06,680 --> 00:27:10,159 Speaker 1: are financing them. There something feels very much like the 597 00:27:10,320 --> 00:27:12,639 Speaker 1: cycle of the asset life is also the cycle of 598 00:27:12,720 --> 00:27:15,720 Speaker 1: our lives and our careers matching up night sleep. We 599 00:27:15,800 --> 00:27:18,840 Speaker 1: could talk all day on this. There's so many interesting angles, 600 00:27:18,880 --> 00:27:21,280 Speaker 1: but we don't have all day. Unfortunately. I hope we've 601 00:27:21,320 --> 00:27:24,119 Speaker 1: covered off some of the coolest part of this analysis, 602 00:27:24,200 --> 00:27:26,199 Speaker 1: which you know, those are your clients. Can check out 603 00:27:26,200 --> 00:27:28,320 Speaker 1: the full report and even you know, talk to Peter 604 00:27:28,440 --> 00:27:30,720 Speaker 1: and his team if you wanna, if you wanna get 605 00:27:30,800 --> 00:27:32,879 Speaker 1: more into it as well. But Peter has been a 606 00:27:32,920 --> 00:27:36,200 Speaker 1: fascinating conversation. Thank you for joining the podcast today. A 607 00:27:36,359 --> 00:27:36,680 Speaker 1: very watch. 608 00:27:36,720 --> 00:27:38,800 Speaker 2: Tom is Yeah, ive always had at all about breads 609 00:27:38,840 --> 00:27:39,880 Speaker 2: if you want to reach out. 610 00:27:40,200 --> 00:27:42,280 Speaker 1: It is true that Peter is always happy to talk 611 00:27:42,320 --> 00:27:45,080 Speaker 1: about grids. So do him a favor and give him 612 00:27:45,080 --> 00:27:47,320 Speaker 1: a call. Nice back. 613 00:27:56,200 --> 00:27:59,280 Speaker 2: Today's episode of Switched On was produced by Cam Gray 614 00:27:59,480 --> 00:28:03,200 Speaker 2: with products assistance from Kamala's Shelling. Bloomberg NEF is a 615 00:28:03,280 --> 00:28:06,240 Speaker 2: service provided by Bloomberg Finance LP and its affiliates. 616 00:28:06,320 --> 00:28:09,040 Speaker 1: This recording does not constitute, nor should it be construed 617 00:28:09,040 --> 00:28:12,920 Speaker 1: as investment advice, investment recommendations, or a recommendation as to 618 00:28:13,000 --> 00:28:14,480 Speaker 1: an investment or other strategy. 619 00:28:14,520 --> 00:28:17,640 Speaker 2: Bloomberg a NEIF should not be considered as information sufficient 620 00:28:17,720 --> 00:28:20,840 Speaker 2: upon which to base an investment decision. Neither Bloomberg Finance 621 00:28:20,960 --> 00:28:24,000 Speaker 2: LP nor any of its affiliates makes any representation or 622 00:28:24,080 --> 00:28:27,200 Speaker 2: warranty as to the accuracy or completeness of the information 623 00:28:27,359 --> 00:28:30,119 Speaker 2: contained in this recording, and any liability as a result 624 00:28:30,200 --> 00:28:32,240 Speaker 2: of this recording is expressly disclaimed.