January 8, 2025 • 36 mins
Energy-infrastructure developers are on the front lines of realizing the electricity growth need to power the AI revolution. In this episode of Bloomberg Intelligence’s ESG Currents podcast, Andrew John Stevenson, senior climate analyst, sits down with Dan Lee, Managing Partner at Simcore Partners. From the backup in grid availability in PJM plants to the opportunities to boost assets in Texas grid operator ERCOT, this episode delves deep into the process to get electrons on the grid in a timely, low-cost fashion. This episode was recorded on Dec. 11, 2024.
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Episode Transcript
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Speaker 1 (00:09):
ESG has become established as a key business theme as
companies investors seek to navigate the climate crisis, energy transition,
social mega trends, mounting regulatory attention and pressure from other stakeholders.
The rapidly evolving landscape has become inundated with acronyms, buzzwords
and lingo, and we aim to break these down with
(00:30):
industry experts. Welcome to ESG Currents, your guide to navigating
the evolving ESG space, one topic at a time, Brought
to you by Bloomberg Intelligence, part of Bloomberg's Research department,
with five hundred analysts and strategists working across all major
world markets. Our coverage includes over two thousand equities and credits,
(00:52):
as well as outlooks on more than ninety industries and
one hundred market indices, currencies and commodities. I am Andy Stevenson,
your host for today's episode. Today we'll be talking with
Dan Lee. Dan is a managing partner at Simpcore Partners,
and he has focused principally on renewables, ev charging and
(01:13):
the energy transition. You know, clearly in this world we
are seeing a significant demand for energy, and renewable energy
is going to be more than a part of that.
So welcome Dan, Thank you, Thank you.
Speaker 2 (01:25):
Andy.
Speaker 1 (01:25):
Maybe give yourself I'll give a little bio review for
the audience if that works for you.
Speaker 2 (01:31):
Sure, so again, thanks for having me. Dan Lee, managing
partner at Some Core Partners. Been focused on the energy
transition here for call it fifteen years and started Some
Core Partners in twenty twenty two. We're an energy advisory company.
We operate primarily in two arenas of the energy transition.
(01:55):
One is large scale utility projects, where we provide advisory
services such as financial structuring, debt underwriting negotiations, and commercial
structuring support. We're currently we have an advisory pipeline of
over three billion of primarily debt underwritings at the moment,
with eight hundred million.
Speaker 3 (02:15):
Closed this year.
Speaker 2 (02:17):
The second part of our business is focusing on smaller
scale distributed projects and we're able to support clients more
directly on development and EPC.
Speaker 3 (02:27):
That's great.
Speaker 1 (02:27):
Yeah, these are obviously this is how it gets done,
you know, for lack of a better description of it, right,
I mean we talk about the clean energy transition, and
you know it's people and companies that are building these
projects and kind of you know, it's all especially in
the renewable space, you're not throwing up a giant power plant,
you know, in most cases you're throwing up a couple
hundred megawates here or ten megawattes there. But that's sort
(02:50):
of the nature of the beast is.
Speaker 3 (02:51):
That you have.
Speaker 1 (02:52):
You know, it's much more incremental power, but a lot
needs to happen for that to happen. So, I mean,
I think, you know, from an audience perspective, the we
we want to get to a place where the vast
majority of our power is clean energy, and very few
people actually know how that a a gets done or
(03:12):
how it.
Speaker 3 (03:13):
Is getting done.
Speaker 1 (03:13):
So I thought it would be interesting to have you
on to kind of walk us through what that means,
you know, like what how are we getting to where
we need to go? Obviously with AI, the demand is
through the roof for power, you know, I'm just looking
at the numbers today. Texas is supposed to double their
power demand by the year twenty thirty, California eighty percent
(03:34):
by twenty thirty five. These are just way outside of
the norm for power. Usually power demand, especially the United
States is the boringest you know, growth market. Ever, it grows,
you know, half a percent a year for decades on
end here and now we're seeing three percent, four percent
some places, five percent of power growth.
Speaker 3 (03:54):
And you know, obviously from an.
Speaker 1 (03:55):
Environmental perspective, from a client perspective, we want to make
sure as much of that can be done with renewables
and you know, power that is as clean as possible.
And so, you know, I want to walk especially with
Dan here, I want to kind of walk through how
that actually gets done from kind of the beginning to
the end. What are the hang ups, Why aren't we
seeing it happen faster? What can be done with the
(04:18):
IRA for example, you know, what kind of incentives are
in place to make that happen today if there's any
risk of those things maybe backsliding over the next administration,
which is obviously possible, but we'll kind of work it
from the from the ground up here. So I'm going
to kind of focus I know you focus on ev
charging as well, but I'm going to focus on the
renewable energy transition and kind of help people understand like
(04:42):
how a bill becomes a law, you know, like how
it actually gets from the beginning of the process with
an idea for a project to the final final FID
and then you know, actually general revenue generating and actually
part of our collective power consumption, if that makes sense.
Speaker 3 (05:01):
Yeah.
Speaker 1 (05:01):
Cool, All right, let's start with the very beginning, right,
So this is citing and permitting. You know what kind
of projects specifically at simcore do you kind of work
on to get them up and running? And you know,
how does that process start?
Speaker 3 (05:17):
Yeah?
Speaker 2 (05:17):
So, I mean energy transition is such a big word, right,
and I would say a big part of it is
solar it's batteries, but it could also be kind of
renewable diesel, it can be virtual power plants. So it
really does kind of span the gamut of different types
of technologies. I want to kind of underscore one point
(05:41):
that you referenced around just kind of what's driving all
of this, right, and just the macro theme of AI
and data centers. I saw the statistic around in the
past three years, more data has been created than all
of mankind and of history, and it's only expected to accelerate.
(06:02):
And this is kind of driving the need for data centers,
which are often quoted in terms of megawats and gigwatts
of power required, and so that is really kind of
foundational to these projects and how they come online. So
in terms of the general call it types of projects again,
it kind of spans the gamut, solar EV charging, virtual
(06:26):
power plants, so can kind of take it in the directions.
Speaker 1 (06:29):
Okay, let's start with solar, I think, and then I'd
like to really get into the virtual power plants because
there's some really interesting things going on in that space
in my opinion. But let's start with let's work with
the data center. Let's just say a data center is
planning to be built in some area. A lot of
the data center the owners of those data centers have
pledged to be as renewable as possible, if not one
(06:50):
hundred percent renewable, So they want solar to be part
of that mix if they can or when to be
part of that mix.
Speaker 3 (06:55):
But let's just stick with solar. How does that actually start, you.
Speaker 1 (06:59):
Know, like from the from the from the very beginning,
We'll start with sort of the siting and permitting. How
hard is that, How what kind of time frames are
involved that kind of thing.
Speaker 2 (07:09):
Yeah, so I'll start with kind of the size of
the types of projects. So one thing that we're seeing
right now is the overall range of project size has
really broadened, so you could aggregate, you know, one hundred
thousands of sixteen kW solar on rooftops, or you know,
(07:31):
there's a thirteen hundred megawatt solar project out in Indiana,
and so that's just a recent trend with projects, and
the range of size is really kind of broadening out.
In terms of the utility scale side, it really starts
with finding a good site that has good interconnection. And
when I say good interconnection, you need to have available
(07:54):
capacity on the line. So a lot of times you
can't find thirteen hundred acres of call it land near
the load center, and so you are following this kind
of traditional model of going out where there isn't a
lot of population. It tends to be kind of a
rural part of the country. You then connect to a
(08:17):
high voltage transmission line and you are then sending that
power back to the load centers. So the first step
is you have to find the lines that have capacity available,
and I would say the general trend has been a
lot of the easy sites have been kind of picked off,
and so we're seeing this in terms of projects are
getting kind of stuck in the queue so to speak,
(08:40):
and it's taking a long time for them to actually interconnect.
Speaker 3 (08:44):
That makes sense.
Speaker 1 (08:45):
I mean you think about like a rural co op
for example, Right, they had power capacity built.
Speaker 3 (08:50):
For a much different time. Right.
Speaker 1 (08:52):
A lot of these things are thirty, forty, fifty, sixty
years old, so they had a lot going on in
those areas. And now that there's clearly less, we've seen
a lot of you know, a lot of the rural
areas being kind of you know, people moving to the
cities and things like that. So you did have this
sort of kind of free opportunity to exploit that, right,
the idea being that there was extra capacity, so you
(09:15):
could you could jump on that bandwagon. But maybe we
go regionally and talk about it. So maybe you think
about a state like Texas or any you can pick
any state you're currently engaged in. How big of a
problem is that, you know in today versus even last year.
I mean, I think the power demand forecaster are just
so different from a year ago that it may be
(09:37):
a big deal.
Speaker 3 (09:38):
Yeah.
Speaker 2 (09:38):
So not as kind of well versed on URKAT, which
is the Texas market, I'll kind of talk about.
Speaker 3 (09:47):
Pgm PGM as monster.
Speaker 2 (09:49):
So we're active in as you say, kind of largest
power market in the here in the US. So the
last I saw peak load in PJM is about one
hundred and fifty gigle typically the summer peak. And what
we're seeing is there is more than that entire load
that's waiting to get interconnected. So over one hundred yeah,
(10:10):
over one hundred and fifty gigawatts of power is still
kind of in the queue waiting to get interconnected. Obviously,
not all of that's going to come online, right But
what that is kind of indicating is this is a
critical path item for projects coming online. And the other
thing that we saw is in order for some of
these projects to come online, old projects needs to come offline.
(10:33):
And so when it comes to call it older coal,
some of those projects have been hanging on for longer,
which is causing I would say, more challenges for the
rto in this case PGM, to study the queue, to
study the grid and how it will change. So it's
there are so many kind of moving kind of pieces
(10:56):
of the puzzle. And I would say, you know, the
interconnection pro it's within PGM again, it's the queue is
you know, overloaded right now in terms of the just
the sheer number of projects and capacity trying to come online.
Speaker 1 (11:08):
And just to clarify on that, you're you're saying that,
so how much of that is sort of quote unquote
funded or you know, like there's always dreamers, you know
what I'm saying, right, So, like what percentage of that
is dreamers versus people that are like, no, I need it.
This is I have the money in my hand, I
just want to get it, get the grid, get to
the grid.
Speaker 2 (11:26):
Yeah, So it's hard. So one way you can parse
it out is so PGM they have multiple steps in
the process. So you go through a feasibility study step one,
then a system impact study step two, then a facility
study step three, and then you sign your interconnection agreement.
I think the way you can kind of parse that
out is how many have actually signed the interconnection agreement.
(11:49):
I don't have that number off the top of my head,
but I will say it is a very small fraction
I say that total amount, I say, and the issue
is the project that are in the feasibility study. They're
kind of waiting on what happens to projects that have
come up before them, and so it kind of creates
this circular effect which is at the end of the day,
(12:10):
causing delays and these projects getting kind of studied and
brought online.
Speaker 3 (12:14):
Right.
Speaker 1 (12:14):
That makes sense because I know, for example, for LNG,
it's like two hundred million dollars to do the complete
feasibility study from the beginning to the end of this thing, right,
And so the number of people claiming they want to
actually build an LNG terminal and the ones that actually
have that kind of resource base to get through that
first hurdle is it just shrinks the pool. You know,
(12:35):
like every developer in the world thinks it's a good
idea until they have to put two hundred million dollars down, right,
So it's a different animal.
Speaker 2 (12:44):
Check sizes for internection for power are not that hot.
Speaker 3 (12:47):
Yeah, I'm sure they're not.
Speaker 2 (12:48):
They're probably in the kind of hundreds of thousands of dollars,
right one. So PGM is reforming their interconnection Q process,
and one of the things that they're doing is they're
requiring projects to put up the posits and letters of
credit to kind of signal that these are real projects
and not you know, kind of developers taking a flyer.
And you know, they're especially making the cost of admission
(13:09):
a little higher for projects that are quote unquote more real.
Speaker 1 (13:12):
I gotcha, And would you say that? So you're talking
about again these are not all some somewhat fantastical some
of these things. But what's the what is how much
of that is solar? How much of that is you
know in broad broad terms. Don't have to don't have
to nail it down for you.
Speaker 2 (13:27):
Yeah, if memory serves, I believe the vast majority of
the projects trying to interconnect our solar.
Speaker 3 (13:33):
I gotcha, I got cha. Yeah, that's it. So there's
this huge queue.
Speaker 1 (13:37):
And for you as a develop when you're developing a
project or advising or advising rather, let's let's stick with
the advising side of the equation. What in your mind,
how much time does that add to projects? Again vaguely
as you wanted it to be, but you know, you
wanted to get done by twenty twenty seven. But you know,
(13:58):
given the queue, it might there's an arabar around that.
Speaker 3 (14:03):
That may skew either way.
Speaker 1 (14:05):
If they if they obviously tighten up the rolls and
make people put down real money, it changes the queue.
Speaker 3 (14:11):
Yep, yep.
Speaker 2 (14:12):
So PGM in the past has quoted, you know, roughly
call it eighteen twenty four months in terms of how
long it should take a project to go through the cycle. Now,
case by case it's different. If you are in a
certain area with more congestion, your studies might be more
complicated and that might extend the time it takes you
to come online. I've personally worked on a project that
(14:33):
took seven years to get an interconnection agreement. So it
really does vary. But I would say, as like a
broad average, that is how long it's technically taking.
Speaker 1 (14:42):
I got you, and is there already biased toward mega projects,
like you know, if you have a whatever, a couple
hundred megawatts so the farm, does that help you get further?
Because I mean obviously for PGM, that's that's you can
work with that a lot easier than you came up
with the smaller projects. From a load based perspective.
Speaker 2 (14:59):
Yeah, it's actually kind of the opposite because the larger
the project, you're more likely to set off transmission upgrades
that are required to increase the capacity of those lines,
and so that requires as a developer and a sponsor,
you don't want to have to spend more money to
(15:19):
upgrade pjm's network, and so that that will cause delays.
And I actually think from a timing standpoint, behind the
meter projects and these smaller projects, they tend to be
less complicated, Okay, and it's easier to kind of get
in with the available capacity because the project is kind
of generally smaller in nature. I got you, and you're
(15:41):
less likely to kind of tip the scale. I see
a network upgrade requirement, I got you.
Speaker 3 (15:46):
That makes a lot of sense. Okay, that's that's great.
Speaker 1 (15:49):
Maybe I'll actually have you touch on a virtual power
paint at this stage, because I think that that's kind
of an interesting kind of emerging opportunity. Said, I know
NRG for examp ample as a company as a has
its own you know, like that's they consider that to
be a very valuable revenue stream going forward. What even
is that and like how is that helping to I
(16:12):
would imagine it's helping solve the problem in some ways.
Speaker 2 (16:15):
Yeah, So, you know, traditionally everyone has thought about kind
of the centralized grid where you're you're hooking up to
these very large high voltage transmission lines, you know, in
remote parts of the country, and you're sending it to
the load center. The call it evolution of the grid.
Is now you're able to source the power at the
(16:36):
site where the load is being consumed. So that could
be in the form of a you know, a car
port and a parking lot. It could be a rooftop
solar project, batteries in your garage, so these much kind
of smaller applications. A virtual power plant is essentially aggregating
all those small distributed resources and then collectively the many
(17:01):
can act as kind of one large power plant and
you can now participate in the call it power markets
as if you were a larger traditional power plant. And
so that's really the kind of evolution of the virtual
power plant I got.
Speaker 1 (17:17):
So you're really pledging that capacity to an aggregator, and
that aggregator is now able to say, look, I've got
some real power to put into play here. It's distributed,
which is actually a beneficial thing because you can you know,
if something goes offline, it's tiny, right, it's not going
to affect the load base of the whole thing like
(17:38):
you would for you know, a gas plant that needs to,
for example, do repairs or something like that.
Speaker 3 (17:43):
Right, So it's it's.
Speaker 1 (17:43):
Probably got much better continuity features than that.
Speaker 2 (17:48):
Yeah, and and and really the big difference is that
you're able to participate as a virtual power plant in
the wholesale markets. And again and that's just through this aggregation.
I will say, kind of something that's allowed this to
happen is really the advent of kind of Internet of
things sensors, and that technology has allowed these distributed resources
(18:13):
to kind of aggregate and interact with each other. And
so it is kind of the confluence of these different trends.
Policy coupled with technology, coupled with the cost of materials
and generally cost of total installation costs going down. That's
what's enabled virtual power plants to kind of be what
(18:34):
they are today.
Speaker 1 (18:35):
That's great, Okay, I was going to touch on financing things,
but let's go to policy because since I think that's
certainly a concern going forward, and maybe just sort of
frame how you think it's helped, you know, let's just
say the clean energy transition. You can speak to projects
that you have on board, but you can expand beyond that,
(18:55):
like in terms of what you think as being what
has the in Place Reduction Act created, in terms of
certainty or what have you that will that has you know,
accelerated some of these projects.
Speaker 3 (19:08):
Sure yeah.
Speaker 2 (19:09):
So, I mean, I think the big news for well
not news at this point for anyone following the energy
industry is really the IRA, the Inflation Reduction Act, And
I would say the biggest thing that that brought was
stability to developers and sponsors. So in days past, you
had production tax credits and investment tax credits that would
either sunset or they would just you know, all be
(19:31):
they would completely go away, and so you would see
this mad rush of developers trying to save harbor equipment
so they can qualify for the for the the prior
years it c. So what the IRA did was it
provided a certainty of ten years for these projects to
essentially receive the economics that they're modeling. So I would
(19:55):
say that's been huge in bringing more players to the table.
So what we're seeing is, you know, folks that were
never really interested in energy or energy transition are now
you know, they are interested because they see something that
has viability beyond kind of the next two three years.
So that includes you know, real estate, you know, private
(20:16):
equity funds, folks that are looking at energy transition as
a way to incrementally improve economics for their assets.
Speaker 1 (20:25):
And I'm sure it helps that that first ten years
is usually the most obnoxious from a from a developer standpoint, right,
getting it set up, getting everything rolling. You know, after that,
you're kind of cutting coupons right for the next or
the back end of that fifteen years. So given that
certainty in the first ten years, that second fifteen years
or whatever, the life of the solar project is is
(20:47):
fairly simple. Right, there's a lot of there's almost no
maintenance to speak of, you know, So it's it has
it solves the front end problem, which is the biggest
hurdle for developers.
Speaker 2 (20:58):
Yeah, and to that, the front end problem. So the
ITC you get that up front. And so if your
development timeline is you know, your interconnection process instead of
taking eighteen months, ends up taking several years, well, now
you have some comfort knowing that, Okay, well, hey, I
have visibility into what that the economics will still hold,
(21:18):
the ITC will still be there, and that's been that's
been big for sponsors and developers.
Speaker 1 (21:25):
I'd imagine it's actually a good thing from an inflation
perspective as well, because what you're describing sounds like, you know,
the you're talking about safe harboring equipment. Those equipment manufacturers
are well aware that these timelines existed, and the ability
for you to smooth that out over time means that
you're not you know, beating each other up and throwing
(21:47):
sharp elbows to get to you know, to wrangle that
equipment so that it's available on time. So there might
be a you know, kind of a positive from a
from a return perspective and just the you know, stress perspective.
We say, benefit to having that certainty.
Speaker 2 (22:03):
Yeah, and that certainty for developers that translates to certainty
for supply chain providers.
Speaker 3 (22:08):
Sure, yeah, yeah.
Speaker 2 (22:09):
Manufacturers say, okay, well we see a pipeline, now we're
willing to expand our manufacturing capacity here.
Speaker 1 (22:15):
Yeah, that makes tons of sense, tons of sense. So
let's talk about what, you know, if anything could be
happening in that. You know, from that, we obviously have
a new administration coming in. I would say that, you know,
during his first Trump's the first administration, President Trump's first administration,
it wasn't a train wreck for the renewable sector, and
(22:36):
particularly I mean interest rates were a train.
Speaker 3 (22:39):
Wreck for the renewable sector. Right.
Speaker 1 (22:41):
The hike of interest rates was very difficult because you
have to your your your hurdle rate went up. But
what do you think if anything is likely to be
you know, up for grabs, shall we say? And and
and what isn't you know like a lot of these
things that are happening are happening in red states.
Speaker 3 (22:59):
They're not there not.
Speaker 1 (23:00):
This is not a political These are not political decisions
when you're investing in these projects.
Speaker 2 (23:05):
Yeah, I mean, it's it's always hard to kind of
look at the crystal ball, so to speak. But you know,
I would say the IRA in general, there is a
concern that with some of the you know, call it
the Tax Cut Jobs Act extension, that you know, there
will need to be offsets and and that potentially some
(23:27):
of those offsets will need to come from the IRA.
But I think to broadly assume that our IRA will
be repealed, I think that's overstated, right, And I think
there may be changes kind of around the edges on
the IRA. But I would say, in in large part,
you know, it's uh again, it's it is providing that certainty.
(23:50):
As you stated, a lot of the beneficiaries of the
i RA are you know, I would say it's kind
of broader than one political party. So again, I think
there are a number of reasons why I think under
the new administration, I think there are number of reasons
why I think it's reasonable to believe that the IRA
(24:11):
will largely stay intact.
Speaker 1 (24:13):
Right, Yeah, I mean I think I would add that
because of AI. I mean, the AI is definitely going
to have an impact from a climate perspective, but because
of AI and the need for power, just we just
need it, you know, like like we haven't needed it
in decades, right in terms of growth that you can't
not incentivize sort of everything, if you know what I'm saying, Like,
(24:34):
that is something that you I would think is has
created its own momentum in terms of, well, look we
need we need five times what we I mean, historically
it's been about power. Growth has been about half percent
of a year. Now we're three percent a year, so
it's six times greater than it used to be. You know,
the fastest gas plant you can throw up is not
(24:54):
that fast, you know what I'm saying. Like, and you
know you can kind of keep wheezy coal plants around
for a little longer, but they're not running particularly efficiently
and all these you know, like there's when you actually
need that much power, you need as many things as
you can ask for, you know, I mean people obviously
renew people talking about nuclear which is just you know,
something you wouldn't have even thought of two years ago.
(25:16):
And I mean that those are all being kind of
back ended. That would say, none of that, very little
of that is happening in the next five or ten years,
which means that if you want to actually meet these needs,
and you have companies that are you know, at least
for now, and have been consistently saying they need renewable
power to make, you know, to drive their their data centers,
that this is something that you need to have available,
(25:41):
you know. So I mean it's one of those things
where I personally I think that there's I agree with
you that there's there are some things in the IRA
that I think they could definitely meddle with, but those
but the ones related to getting power on the great
as soon as humanly possible seem a lot safer in
the context of we just need power.
Speaker 2 (26:00):
Yeah, yeah, And maybe along those lines, you know, I
think from a permitting standpoint, I think there there may
be kind of a loosening, if you will, or easing
maybe on some of the permitting processes, So you know,
one one example that comes to mind is potentially NEPA permitting.
So anytime you're doing a project on federal lands or
(26:20):
there is some federal involvement, you have to run basically
an environmental study process called NEPA, and you know that
can oftentimes be a pacing item for projects to come online.
So you know, there could be some relief for support there.
And then I would say, you know, just in terms
(26:40):
of oil and gas, you know, in terms of some
of the permits for drilling or acquiring I would say
producing natural resources such as oil, and I think there
there could be support there which would would lower gas
prices and maybe kind of pause for more combined cycle
(27:02):
generation or gas speaker generation coming online.
Speaker 3 (27:05):
Yeah, no, that makes sense.
Speaker 1 (27:06):
I mean that, you know, they're just the electrification of
the oil and gas industry is just that it's kind
of staggering, like in terms of what that is contributing
in terms of and a lot of that is needs
distributed power. You're not throwing up a gas plant to
pay your feed a pipeline. You know, like, it doesn't
make any sense, right, I wanted to go I was
going to ask I'll ask about financing that I was
(27:27):
going to I still want to kind of go to
this community solar idea because I wanted to get your
input on that as well. How given that interest rates
really are you know, like project development lives and dies
on interest rates, you know.
Speaker 3 (27:40):
On the cost of capital. The cost of capital was
zero for.
Speaker 1 (27:43):
A long time. Obviously it wasn't zero, but I mean
the interest rates were zero. We've seen things shift up
and you know, had a pretty unavoidably difficult impact on
the return proposal. And not just the developers, but you know,
the solar panel makers and everybody else, right, they were
really because they were kind of bought into this low,
low interest rate model. We're starting to see that kind
(28:07):
of come back. You know, I think the inflation in
the country is coming down broadly, a lot of people
expect fur their cuts and things like that. Do you
see that having a kind of a positive I mean
it I so feel like I'm answering my own question here,
but it like, does that help your case in the
(28:27):
next let's just look for the next two or three years.
Speaker 2 (28:31):
Yeah, I mean absolutely, cost of capital is a huge
component of how these projects either live or die. And
I would say that the rising in recent past, the
rising interest rates have certainly not helped. I would say,
you know, that was kind of offset by we just
talked about the IRA and some of the certainty that
(28:52):
that that provided and enhancing some of the economics. But
absolutely if the cost of capital goes down, I think
that will you know, it's kind of project development on steroids,
if you will, in helping to bring these projects online,
I'll say that, you know, generally there's kind of two
(29:13):
models for for revenue models for these types of projects.
You have a you know, some certainty with a power
purchase agreement, and those projects generally can still get you know,
relatively cheaper cost of capital because debt providers see less risk,
sure sure. Whereas for like a merchant power plant where
(29:35):
you're taking kind of market risk. Uh, those product those
projects are going to be kind of harder to finance.
So but generally it's the lower cost of capital or
it will absolutely help to bring more of these projects
online and ultimately help solve this problem around how are
we going to get this power?
Speaker 3 (29:55):
Gotcha?
Speaker 1 (29:56):
Yeah, that makes sense. I mean, do you remember last
year at this time what the the capital was relative
to this year just as an example, and again vague
as you want. It doesn't just just trying to give
people a sense of did it go from seven to
five or is it eight and a half to six
or I mean, do you have any kind of memory.
Speaker 2 (30:14):
Of what I would say in the past year. I
don't think it's really changed as much. But you know,
if you were to kind of compare it to twenty
twenty one, you know, I would say it's doubled, sure, right,
And so you know, it was it was very It
wasn't zero, but it was very close right on a
lot of these projects. And so now you know, you're
(30:35):
seeing you know, projects getting you know, six, seven, eight,
and it's kind of almost bumping up closer to what
the equity returns needs to be.
Speaker 3 (30:43):
I see, yeah, I got you.
Speaker 1 (30:44):
Okay, I've got one more kind of thing that I
really wanted to spend a little time on, which is
community solar and I think there are you know that
when people think about the need for power there, you know,
oftentimes you kind of talk about AI and things like that,
but obviously there's an opportunity for especially low income communities
to benefit from these projects given there you know, the
(31:08):
cost of a solar panel is really low relatively speaking, right,
and there's a lot of certainty behind it, and it's
you're not like on the hook like you are for
a coal plant things like that. And I just want
to kind of highlight one that is that exists now
in California. It's in Visalia, which is the county, I guess,
and it's a project that basically it's a solar project
(31:30):
and it's providing about thirty seven hundred local families with
solar power at about a twenty percent discount to the
standard utility rates. So I mean it can happen, you know,
Like I just want to kind of and it's happening
more in a place like Minnesota and New York where
this is being you know, the incentives are there and
everything kind of is working in the right direction, but
(31:52):
there is opportunities as well for kind of you know,
that end of the spectrum, right, And just wanted any
thoughts you might have on how that's that's progressing or
you know what what any any thoughts you had on
that at all?
Speaker 2 (32:04):
Sure? Yeah, So community solar we talked about at the beginning,
how you know, power demand is rising and so as
that demand grows oftentimes, well everyone but low and moderate
income communities, they might struggle to access affordable, reliable, clean energy.
(32:25):
And so what community solar is, it's really a program
and a policy where you can directly engage with individual
homeowners and residents and essentially subscribe. They can subscribe to
power from your your plant oftentimes that as you mentioned
(32:45):
in your California example, at dis kind of rates. I
think this will be critical to bringing projects to meet
this demand. And again it's it's really an all of
the above solution where you have obviously you'll still have
your utility scale projects, community solar projects that are you know,
(33:06):
behind the grid or at these kind of lower distribution
level lines, and you're able to sign up subscribers and
they're able to benefit through lower prices. I think it's
really a win win and a way for people not
only to just be bystanders of the energy transition, but
for them to really benefit and directly participate in the
(33:28):
energy transition. And the last point I'll say is part
of why community solar programs were created. A lot of
times folks they rent or they for whatever reason, maybe
they live in a home where there's a giant tree
that's shading their roof, but they still want to participate.
And so community solar is I think a great way
(33:48):
to create this engagement and and and for you know,
just every day, every day people to to participate in
the energy transition. And lastly, we need.
Speaker 1 (33:59):
That sure, yeah, I mean people, you know, we again
we talk about ai as.
Speaker 3 (34:03):
This obviously great.
Speaker 1 (34:05):
Opportunity which may or may not be the case for
the next five years, but certainly it seems promising longer
than that. But the power demand is going to have
an impact on prices. There's just no two ways about it. Right,
their prices aren't going down. I mean, they were stagnant
for a reason, which was because no one was asking
for more power, right and now that now that's becoming
a premium thing, you're starting to see a likely escalation
(34:28):
that people talk about. I will think people talk about
it like gas in five or six years because the
demand is just so high. The data centers have a
lot of money, you know, like, so they're not they
don't want to pay more, but they will pay more
to get done what they're doing. They're working on great margins.
Why wouldn't they write So that's that's a concern. All right,
we're kind of at the end here. I'd like you
(34:49):
to anything you want to add towards the end of
this thoughts part parting thoughts.
Speaker 2 (34:55):
Yeah, I mean, I think the parting thought is really,
you know, one we talked about just fundamentally, how demand
for power is increasing with the advent of AI and
data center growth. And I would say the point that
I'd really drive home is it really is kind of
all of the above in terms of utility scale, but
distributed as well. And the last bit on distributed is
(35:18):
it's a faster solution to help offset that demand. Because
as we deal with utility scale projects and you're dealing
with these longer development cycles, you need a way to
kind of meet that demand faster, and oftentimes distributed is
a way to do that and just kind of zooming out.
It will require again, kind of all of the above
(35:39):
in terms of meeting this challenge and opportunity.
Speaker 3 (35:42):
That's great.
Speaker 1 (35:43):
All right, well, thank you so much Dan for your time.
We're going to wrap it up here. You can find
more information on carbon emissions, for example, with respective the
utility sector and other areas of interest with respect to
that kind of the energy transition AI and kind of
the impact on the on the utility sector in the
(36:03):
broader power markets by going to bi carbon at go
on the Bloomberg terminal. If you haven't any ESG quandary
or burning questions you would like to ask BI expert analysts,
send us an email at ESG Currents at Bloomberg dot net.
Thank you for listening, and Dan, thank you for joining us.
ESG has become established as a key business theme as
companies investors seek to navigate the climate crisis, energy transition,
social mega trends, mounting regulatory attention and pressure from other stakeholders.
The rapidly evolving landscape has become inundated with acronyms, buzzwords
and lingo, and we aim to break these down with
(00:30):
industry experts. Welcome to ESG Currents, your guide to navigating
the evolving ESG space, one topic at a time, Brought
to you by Bloomberg Intelligence, part of Bloomberg's Research department,
with five hundred analysts and strategists working across all major
world markets. Our coverage includes over two thousand equities and credits,
(00:52):
as well as outlooks on more than ninety industries and
one hundred market indices, currencies and commodities. I am Andy Stevenson,
your host for today's episode. Today we'll be talking with
Dan Lee. Dan is a managing partner at Simpcore Partners,
and he has focused principally on renewables, ev charging and
(01:13):
the energy transition. You know, clearly in this world we
are seeing a significant demand for energy, and renewable energy
is going to be more than a part of that.
So welcome Dan, Thank you, Thank you.
Speaker 2 (01:25):
Andy.
Speaker 1 (01:25):
Maybe give yourself I'll give a little bio review for
the audience if that works for you.
Speaker 2 (01:31):
Sure, so again, thanks for having me. Dan Lee, managing
partner at Some Core Partners. Been focused on the energy
transition here for call it fifteen years and started Some
Core Partners in twenty twenty two. We're an energy advisory company.
We operate primarily in two arenas of the energy transition.
(01:55):
One is large scale utility projects, where we provide advisory
services such as financial structuring, debt underwriting negotiations, and commercial
structuring support. We're currently we have an advisory pipeline of
over three billion of primarily debt underwritings at the moment,
with eight hundred million.
Speaker 3 (02:15):
Closed this year.
Speaker 2 (02:17):
The second part of our business is focusing on smaller
scale distributed projects and we're able to support clients more
directly on development and EPC.
Speaker 3 (02:27):
That's great.
Speaker 1 (02:27):
Yeah, these are obviously this is how it gets done,
you know, for lack of a better description of it, right,
I mean we talk about the clean energy transition, and
you know it's people and companies that are building these
projects and kind of you know, it's all especially in
the renewable space, you're not throwing up a giant power plant,
you know, in most cases you're throwing up a couple
hundred megawates here or ten megawattes there. But that's sort
(02:50):
of the nature of the beast is.
Speaker 3 (02:51):
That you have.
Speaker 1 (02:52):
You know, it's much more incremental power, but a lot
needs to happen for that to happen. So, I mean,
I think, you know, from an audience perspective, the we
we want to get to a place where the vast
majority of our power is clean energy, and very few
people actually know how that a a gets done or
(03:12):
how it.
Speaker 3 (03:13):
Is getting done.
Speaker 1 (03:13):
So I thought it would be interesting to have you
on to kind of walk us through what that means,
you know, like what how are we getting to where
we need to go? Obviously with AI, the demand is
through the roof for power, you know, I'm just looking
at the numbers today. Texas is supposed to double their
power demand by the year twenty thirty, California eighty percent
(03:34):
by twenty thirty five. These are just way outside of
the norm for power. Usually power demand, especially the United
States is the boringest you know, growth market. Ever, it grows,
you know, half a percent a year for decades on
end here and now we're seeing three percent, four percent
some places, five percent of power growth.
Speaker 3 (03:54):
And you know, obviously from an.
Speaker 1 (03:55):
Environmental perspective, from a client perspective, we want to make
sure as much of that can be done with renewables
and you know, power that is as clean as possible.
And so, you know, I want to walk especially with
Dan here, I want to kind of walk through how
that actually gets done from kind of the beginning to
the end. What are the hang ups, Why aren't we
seeing it happen faster? What can be done with the
(04:18):
IRA for example, you know, what kind of incentives are
in place to make that happen today if there's any
risk of those things maybe backsliding over the next administration,
which is obviously possible, but we'll kind of work it
from the from the ground up here. So I'm going
to kind of focus I know you focus on ev
charging as well, but I'm going to focus on the
renewable energy transition and kind of help people understand like
(04:42):
how a bill becomes a law, you know, like how
it actually gets from the beginning of the process with
an idea for a project to the final final FID
and then you know, actually general revenue generating and actually
part of our collective power consumption, if that makes sense.
Speaker 3 (05:01):
Yeah.
Speaker 1 (05:01):
Cool, All right, let's start with the very beginning, right,
So this is citing and permitting. You know what kind
of projects specifically at simcore do you kind of work
on to get them up and running? And you know,
how does that process start?
Speaker 3 (05:17):
Yeah?
Speaker 2 (05:17):
So, I mean energy transition is such a big word, right,
and I would say a big part of it is
solar it's batteries, but it could also be kind of
renewable diesel, it can be virtual power plants. So it
really does kind of span the gamut of different types
of technologies. I want to kind of underscore one point
(05:41):
that you referenced around just kind of what's driving all
of this, right, and just the macro theme of AI
and data centers. I saw the statistic around in the
past three years, more data has been created than all
of mankind and of history, and it's only expected to accelerate.
(06:02):
And this is kind of driving the need for data centers,
which are often quoted in terms of megawats and gigwatts
of power required, and so that is really kind of
foundational to these projects and how they come online. So
in terms of the general call it types of projects again,
it kind of spans the gamut, solar EV charging, virtual
(06:26):
power plants, so can kind of take it in the directions.
Speaker 1 (06:29):
Okay, let's start with solar, I think, and then I'd
like to really get into the virtual power plants because
there's some really interesting things going on in that space
in my opinion. But let's start with let's work with
the data center. Let's just say a data center is
planning to be built in some area. A lot of
the data center the owners of those data centers have
pledged to be as renewable as possible, if not one
(06:50):
hundred percent renewable, So they want solar to be part
of that mix if they can or when to be
part of that mix.
Speaker 3 (06:55):
But let's just stick with solar. How does that actually start, you.
Speaker 1 (06:59):
Know, like from the from the from the very beginning,
We'll start with sort of the siting and permitting. How
hard is that, How what kind of time frames are
involved that kind of thing.
Speaker 2 (07:09):
Yeah, so I'll start with kind of the size of
the types of projects. So one thing that we're seeing
right now is the overall range of project size has
really broadened, so you could aggregate, you know, one hundred
thousands of sixteen kW solar on rooftops, or you know,
(07:31):
there's a thirteen hundred megawatt solar project out in Indiana,
and so that's just a recent trend with projects, and
the range of size is really kind of broadening out.
In terms of the utility scale side, it really starts
with finding a good site that has good interconnection. And
when I say good interconnection, you need to have available
(07:54):
capacity on the line. So a lot of times you
can't find thirteen hundred acres of call it land near
the load center, and so you are following this kind
of traditional model of going out where there isn't a
lot of population. It tends to be kind of a
rural part of the country. You then connect to a
(08:17):
high voltage transmission line and you are then sending that
power back to the load centers. So the first step
is you have to find the lines that have capacity available,
and I would say the general trend has been a
lot of the easy sites have been kind of picked off,
and so we're seeing this in terms of projects are
getting kind of stuck in the queue so to speak,
(08:40):
and it's taking a long time for them to actually interconnect.
Speaker 3 (08:44):
That makes sense.
Speaker 1 (08:45):
I mean you think about like a rural co op
for example, Right, they had power capacity built.
Speaker 3 (08:50):
For a much different time. Right.
Speaker 1 (08:52):
A lot of these things are thirty, forty, fifty, sixty
years old, so they had a lot going on in
those areas. And now that there's clearly less, we've seen
a lot of you know, a lot of the rural
areas being kind of you know, people moving to the
cities and things like that. So you did have this
sort of kind of free opportunity to exploit that, right,
the idea being that there was extra capacity, so you
(09:15):
could you could jump on that bandwagon. But maybe we
go regionally and talk about it. So maybe you think
about a state like Texas or any you can pick
any state you're currently engaged in. How big of a
problem is that, you know in today versus even last year.
I mean, I think the power demand forecaster are just
so different from a year ago that it may be
(09:37):
a big deal.
Speaker 3 (09:38):
Yeah.
Speaker 2 (09:38):
So not as kind of well versed on URKAT, which
is the Texas market, I'll kind of talk about.
Speaker 3 (09:47):
Pgm PGM as monster.
Speaker 2 (09:49):
So we're active in as you say, kind of largest
power market in the here in the US. So the
last I saw peak load in PJM is about one
hundred and fifty gigle typically the summer peak. And what
we're seeing is there is more than that entire load
that's waiting to get interconnected. So over one hundred yeah,
(10:10):
over one hundred and fifty gigawatts of power is still
kind of in the queue waiting to get interconnected. Obviously,
not all of that's going to come online, right But
what that is kind of indicating is this is a
critical path item for projects coming online. And the other
thing that we saw is in order for some of
these projects to come online, old projects needs to come offline.
(10:33):
And so when it comes to call it older coal,
some of those projects have been hanging on for longer,
which is causing I would say, more challenges for the
rto in this case PGM, to study the queue, to
study the grid and how it will change. So it's
there are so many kind of moving kind of pieces
(10:56):
of the puzzle. And I would say, you know, the
interconnection pro it's within PGM again, it's the queue is
you know, overloaded right now in terms of the just
the sheer number of projects and capacity trying to come online.
Speaker 1 (11:08):
And just to clarify on that, you're you're saying that,
so how much of that is sort of quote unquote
funded or you know, like there's always dreamers, you know
what I'm saying, right, So, like what percentage of that
is dreamers versus people that are like, no, I need it.
This is I have the money in my hand, I
just want to get it, get the grid, get to
the grid.
Speaker 2 (11:26):
Yeah, So it's hard. So one way you can parse
it out is so PGM they have multiple steps in
the process. So you go through a feasibility study step one,
then a system impact study step two, then a facility
study step three, and then you sign your interconnection agreement.
I think the way you can kind of parse that
out is how many have actually signed the interconnection agreement.
(11:49):
I don't have that number off the top of my head,
but I will say it is a very small fraction
I say that total amount, I say, and the issue
is the project that are in the feasibility study. They're
kind of waiting on what happens to projects that have
come up before them, and so it kind of creates
this circular effect which is at the end of the day,
(12:10):
causing delays and these projects getting kind of studied and
brought online.
Speaker 3 (12:14):
Right.
Speaker 1 (12:14):
That makes sense because I know, for example, for LNG,
it's like two hundred million dollars to do the complete
feasibility study from the beginning to the end of this thing, right,
And so the number of people claiming they want to
actually build an LNG terminal and the ones that actually
have that kind of resource base to get through that
first hurdle is it just shrinks the pool. You know,
(12:35):
like every developer in the world thinks it's a good
idea until they have to put two hundred million dollars down, right,
So it's a different animal.
Speaker 2 (12:44):
Check sizes for internection for power are not that hot.
Speaker 3 (12:47):
Yeah, I'm sure they're not.
Speaker 2 (12:48):
They're probably in the kind of hundreds of thousands of dollars,
right one. So PGM is reforming their interconnection Q process,
and one of the things that they're doing is they're
requiring projects to put up the posits and letters of
credit to kind of signal that these are real projects
and not you know, kind of developers taking a flyer.
And you know, they're especially making the cost of admission
(13:09):
a little higher for projects that are quote unquote more real.
Speaker 1 (13:12):
I gotcha, And would you say that? So you're talking
about again these are not all some somewhat fantastical some
of these things. But what's the what is how much
of that is solar? How much of that is you
know in broad broad terms. Don't have to don't have
to nail it down for you.
Speaker 2 (13:27):
Yeah, if memory serves, I believe the vast majority of
the projects trying to interconnect our solar.
Speaker 3 (13:33):
I gotcha, I got cha. Yeah, that's it. So there's
this huge queue.
Speaker 1 (13:37):
And for you as a develop when you're developing a
project or advising or advising rather, let's let's stick with
the advising side of the equation. What in your mind,
how much time does that add to projects? Again vaguely
as you wanted it to be, but you know, you
wanted to get done by twenty twenty seven. But you know,
(13:58):
given the queue, it might there's an arabar around that.
Speaker 3 (14:03):
That may skew either way.
Speaker 1 (14:05):
If they if they obviously tighten up the rolls and
make people put down real money, it changes the queue.
Speaker 3 (14:11):
Yep, yep.
Speaker 2 (14:12):
So PGM in the past has quoted, you know, roughly
call it eighteen twenty four months in terms of how
long it should take a project to go through the cycle. Now,
case by case it's different. If you are in a
certain area with more congestion, your studies might be more
complicated and that might extend the time it takes you
to come online. I've personally worked on a project that
(14:33):
took seven years to get an interconnection agreement. So it
really does vary. But I would say, as like a
broad average, that is how long it's technically taking.
Speaker 1 (14:42):
I got you, and is there already biased toward mega projects,
like you know, if you have a whatever, a couple
hundred megawatts so the farm, does that help you get further?
Because I mean obviously for PGM, that's that's you can
work with that a lot easier than you came up
with the smaller projects. From a load based perspective.
Speaker 2 (14:59):
Yeah, it's actually kind of the opposite because the larger
the project, you're more likely to set off transmission upgrades
that are required to increase the capacity of those lines,
and so that requires as a developer and a sponsor,
you don't want to have to spend more money to
(15:19):
upgrade pjm's network, and so that that will cause delays.
And I actually think from a timing standpoint, behind the
meter projects and these smaller projects, they tend to be
less complicated, Okay, and it's easier to kind of get
in with the available capacity because the project is kind
of generally smaller in nature. I got you, and you're
(15:41):
less likely to kind of tip the scale. I see
a network upgrade requirement, I got you.
Speaker 3 (15:46):
That makes a lot of sense. Okay, that's that's great.
Speaker 1 (15:49):
Maybe I'll actually have you touch on a virtual power
paint at this stage, because I think that that's kind
of an interesting kind of emerging opportunity. Said, I know
NRG for examp ample as a company as a has
its own you know, like that's they consider that to
be a very valuable revenue stream going forward. What even
is that and like how is that helping to I
(16:12):
would imagine it's helping solve the problem in some ways.
Speaker 2 (16:15):
Yeah, So, you know, traditionally everyone has thought about kind
of the centralized grid where you're you're hooking up to
these very large high voltage transmission lines, you know, in
remote parts of the country, and you're sending it to
the load center. The call it evolution of the grid.
Is now you're able to source the power at the
(16:36):
site where the load is being consumed. So that could
be in the form of a you know, a car
port and a parking lot. It could be a rooftop
solar project, batteries in your garage, so these much kind
of smaller applications. A virtual power plant is essentially aggregating
all those small distributed resources and then collectively the many
(17:01):
can act as kind of one large power plant and
you can now participate in the call it power markets
as if you were a larger traditional power plant. And
so that's really the kind of evolution of the virtual
power plant I got.
Speaker 1 (17:17):
So you're really pledging that capacity to an aggregator, and
that aggregator is now able to say, look, I've got
some real power to put into play here. It's distributed,
which is actually a beneficial thing because you can you know,
if something goes offline, it's tiny, right, it's not going
to affect the load base of the whole thing like
(17:38):
you would for you know, a gas plant that needs to,
for example, do repairs or something like that.
Speaker 3 (17:43):
Right, So it's it's.
Speaker 1 (17:43):
Probably got much better continuity features than that.
Speaker 2 (17:48):
Yeah, and and and really the big difference is that
you're able to participate as a virtual power plant in
the wholesale markets. And again and that's just through this aggregation.
I will say, kind of something that's allowed this to
happen is really the advent of kind of Internet of
things sensors, and that technology has allowed these distributed resources
(18:13):
to kind of aggregate and interact with each other. And
so it is kind of the confluence of these different trends.
Policy coupled with technology, coupled with the cost of materials
and generally cost of total installation costs going down. That's
what's enabled virtual power plants to kind of be what
(18:34):
they are today.
Speaker 1 (18:35):
That's great, Okay, I was going to touch on financing things,
but let's go to policy because since I think that's
certainly a concern going forward, and maybe just sort of
frame how you think it's helped, you know, let's just
say the clean energy transition. You can speak to projects
that you have on board, but you can expand beyond that,
(18:55):
like in terms of what you think as being what
has the in Place Reduction Act created, in terms of
certainty or what have you that will that has you know,
accelerated some of these projects.
Speaker 3 (19:08):
Sure yeah.
Speaker 2 (19:09):
So, I mean, I think the big news for well
not news at this point for anyone following the energy
industry is really the IRA, the Inflation Reduction Act, And
I would say the biggest thing that that brought was
stability to developers and sponsors. So in days past, you
had production tax credits and investment tax credits that would
either sunset or they would just you know, all be
(19:31):
they would completely go away, and so you would see
this mad rush of developers trying to save harbor equipment
so they can qualify for the for the the prior
years it c. So what the IRA did was it
provided a certainty of ten years for these projects to
essentially receive the economics that they're modeling. So I would
(19:55):
say that's been huge in bringing more players to the table.
So what we're seeing is, you know, folks that were
never really interested in energy or energy transition are now
you know, they are interested because they see something that
has viability beyond kind of the next two three years.
So that includes you know, real estate, you know, private
(20:16):
equity funds, folks that are looking at energy transition as
a way to incrementally improve economics for their assets.
Speaker 1 (20:25):
And I'm sure it helps that that first ten years
is usually the most obnoxious from a from a developer standpoint, right,
getting it set up, getting everything rolling. You know, after that,
you're kind of cutting coupons right for the next or
the back end of that fifteen years. So given that
certainty in the first ten years, that second fifteen years
or whatever, the life of the solar project is is
(20:47):
fairly simple. Right, there's a lot of there's almost no
maintenance to speak of, you know, So it's it has
it solves the front end problem, which is the biggest
hurdle for developers.
Speaker 2 (20:58):
Yeah, and to that, the front end problem. So the
ITC you get that up front. And so if your
development timeline is you know, your interconnection process instead of
taking eighteen months, ends up taking several years, well, now
you have some comfort knowing that, Okay, well, hey, I
have visibility into what that the economics will still hold,
(21:18):
the ITC will still be there, and that's been that's
been big for sponsors and developers.
Speaker 1 (21:25):
I'd imagine it's actually a good thing from an inflation
perspective as well, because what you're describing sounds like, you know,
the you're talking about safe harboring equipment. Those equipment manufacturers
are well aware that these timelines existed, and the ability
for you to smooth that out over time means that
you're not you know, beating each other up and throwing
(21:47):
sharp elbows to get to you know, to wrangle that
equipment so that it's available on time. So there might
be a you know, kind of a positive from a
from a return perspective and just the you know, stress perspective.
We say, benefit to having that certainty.
Speaker 2 (22:03):
Yeah, and that certainty for developers that translates to certainty
for supply chain providers.
Speaker 3 (22:08):
Sure, yeah, yeah.
Speaker 2 (22:09):
Manufacturers say, okay, well we see a pipeline, now we're
willing to expand our manufacturing capacity here.
Speaker 1 (22:15):
Yeah, that makes tons of sense, tons of sense. So
let's talk about what, you know, if anything could be
happening in that. You know, from that, we obviously have
a new administration coming in. I would say that, you know,
during his first Trump's the first administration, President Trump's first administration,
it wasn't a train wreck for the renewable sector, and
(22:36):
particularly I mean interest rates were a train.
Speaker 3 (22:39):
Wreck for the renewable sector. Right.
Speaker 1 (22:41):
The hike of interest rates was very difficult because you
have to your your your hurdle rate went up. But
what do you think if anything is likely to be
you know, up for grabs, shall we say? And and
and what isn't you know like a lot of these
things that are happening are happening in red states.
Speaker 3 (22:59):
They're not there not.
Speaker 1 (23:00):
This is not a political These are not political decisions
when you're investing in these projects.
Speaker 2 (23:05):
Yeah, I mean, it's it's always hard to kind of
look at the crystal ball, so to speak. But you know,
I would say the IRA in general, there is a
concern that with some of the you know, call it
the Tax Cut Jobs Act extension, that you know, there
will need to be offsets and and that potentially some
(23:27):
of those offsets will need to come from the IRA.
But I think to broadly assume that our IRA will
be repealed, I think that's overstated, right, And I think
there may be changes kind of around the edges on
the IRA. But I would say, in in large part,
you know, it's uh again, it's it is providing that certainty.
(23:50):
As you stated, a lot of the beneficiaries of the
i RA are you know, I would say it's kind
of broader than one political party. So again, I think
there are a number of reasons why I think under
the new administration, I think there are number of reasons
why I think it's reasonable to believe that the IRA
(24:11):
will largely stay intact.
Speaker 1 (24:13):
Right, Yeah, I mean I think I would add that
because of AI. I mean, the AI is definitely going
to have an impact from a climate perspective, but because
of AI and the need for power, just we just
need it, you know, like like we haven't needed it
in decades, right in terms of growth that you can't
not incentivize sort of everything, if you know what I'm saying, Like,
(24:34):
that is something that you I would think is has
created its own momentum in terms of, well, look we
need we need five times what we I mean, historically
it's been about power. Growth has been about half percent
of a year. Now we're three percent a year, so
it's six times greater than it used to be. You know,
the fastest gas plant you can throw up is not
(24:54):
that fast, you know what I'm saying. Like, and you
know you can kind of keep wheezy coal plants around
for a little longer, but they're not running particularly efficiently
and all these you know, like there's when you actually
need that much power, you need as many things as
you can ask for, you know, I mean people obviously
renew people talking about nuclear which is just you know,
something you wouldn't have even thought of two years ago.
(25:16):
And I mean that those are all being kind of
back ended. That would say, none of that, very little
of that is happening in the next five or ten years,
which means that if you want to actually meet these needs,
and you have companies that are you know, at least
for now, and have been consistently saying they need renewable
power to make, you know, to drive their their data centers,
that this is something that you need to have available,
(25:41):
you know. So I mean it's one of those things
where I personally I think that there's I agree with
you that there's there are some things in the IRA
that I think they could definitely meddle with, but those
but the ones related to getting power on the great
as soon as humanly possible seem a lot safer in
the context of we just need power.
Speaker 2 (26:00):
Yeah, yeah, And maybe along those lines, you know, I
think from a permitting standpoint, I think there there may
be kind of a loosening, if you will, or easing
maybe on some of the permitting processes, So you know,
one one example that comes to mind is potentially NEPA permitting.
So anytime you're doing a project on federal lands or
(26:20):
there is some federal involvement, you have to run basically
an environmental study process called NEPA, and you know that
can oftentimes be a pacing item for projects to come online.
So you know, there could be some relief for support there.
And then I would say, you know, just in terms
(26:40):
of oil and gas, you know, in terms of some
of the permits for drilling or acquiring I would say
producing natural resources such as oil, and I think there
there could be support there which would would lower gas
prices and maybe kind of pause for more combined cycle
(27:02):
generation or gas speaker generation coming online.
Speaker 3 (27:05):
Yeah, no, that makes sense.
Speaker 1 (27:06):
I mean that, you know, they're just the electrification of
the oil and gas industry is just that it's kind
of staggering, like in terms of what that is contributing
in terms of and a lot of that is needs
distributed power. You're not throwing up a gas plant to
pay your feed a pipeline. You know, like, it doesn't
make any sense, right, I wanted to go I was
going to ask I'll ask about financing that I was
(27:27):
going to I still want to kind of go to
this community solar idea because I wanted to get your
input on that as well. How given that interest rates
really are you know, like project development lives and dies
on interest rates, you know.
Speaker 3 (27:40):
On the cost of capital. The cost of capital was
zero for.
Speaker 1 (27:43):
A long time. Obviously it wasn't zero, but I mean
the interest rates were zero. We've seen things shift up
and you know, had a pretty unavoidably difficult impact on
the return proposal. And not just the developers, but you know,
the solar panel makers and everybody else, right, they were
really because they were kind of bought into this low,
low interest rate model. We're starting to see that kind
(28:07):
of come back. You know, I think the inflation in
the country is coming down broadly, a lot of people
expect fur their cuts and things like that. Do you
see that having a kind of a positive I mean
it I so feel like I'm answering my own question here,
but it like, does that help your case in the
(28:27):
next let's just look for the next two or three years.
Speaker 2 (28:31):
Yeah, I mean absolutely, cost of capital is a huge
component of how these projects either live or die. And
I would say that the rising in recent past, the
rising interest rates have certainly not helped. I would say,
you know, that was kind of offset by we just
talked about the IRA and some of the certainty that
(28:52):
that that provided and enhancing some of the economics. But
absolutely if the cost of capital goes down, I think
that will you know, it's kind of project development on steroids,
if you will, in helping to bring these projects online,
I'll say that, you know, generally there's kind of two
(29:13):
models for for revenue models for these types of projects.
You have a you know, some certainty with a power
purchase agreement, and those projects generally can still get you know,
relatively cheaper cost of capital because debt providers see less risk,
sure sure. Whereas for like a merchant power plant where
(29:35):
you're taking kind of market risk. Uh, those product those
projects are going to be kind of harder to finance.
So but generally it's the lower cost of capital or
it will absolutely help to bring more of these projects
online and ultimately help solve this problem around how are
we going to get this power?
Speaker 3 (29:55):
Gotcha?
Speaker 1 (29:56):
Yeah, that makes sense. I mean, do you remember last
year at this time what the the capital was relative
to this year just as an example, and again vague
as you want. It doesn't just just trying to give
people a sense of did it go from seven to
five or is it eight and a half to six
or I mean, do you have any kind of memory.
Speaker 2 (30:14):
Of what I would say in the past year. I
don't think it's really changed as much. But you know,
if you were to kind of compare it to twenty
twenty one, you know, I would say it's doubled, sure, right,
And so you know, it was it was very It
wasn't zero, but it was very close right on a
lot of these projects. And so now you know, you're
(30:35):
seeing you know, projects getting you know, six, seven, eight,
and it's kind of almost bumping up closer to what
the equity returns needs to be.
Speaker 3 (30:43):
I see, yeah, I got you.
Speaker 1 (30:44):
Okay, I've got one more kind of thing that I
really wanted to spend a little time on, which is
community solar and I think there are you know that
when people think about the need for power there, you know,
oftentimes you kind of talk about AI and things like that,
but obviously there's an opportunity for especially low income communities
to benefit from these projects given there you know, the
(31:08):
cost of a solar panel is really low relatively speaking, right,
and there's a lot of certainty behind it, and it's
you're not like on the hook like you are for
a coal plant things like that. And I just want
to kind of highlight one that is that exists now
in California. It's in Visalia, which is the county, I guess,
and it's a project that basically it's a solar project
(31:30):
and it's providing about thirty seven hundred local families with
solar power at about a twenty percent discount to the
standard utility rates. So I mean it can happen, you know,
Like I just want to kind of and it's happening
more in a place like Minnesota and New York where
this is being you know, the incentives are there and
everything kind of is working in the right direction, but
(31:52):
there is opportunities as well for kind of you know,
that end of the spectrum, right, And just wanted any
thoughts you might have on how that's that's progressing or
you know what what any any thoughts you had on
that at all?
Speaker 2 (32:04):
Sure? Yeah, So community solar we talked about at the beginning,
how you know, power demand is rising and so as
that demand grows oftentimes, well everyone but low and moderate
income communities, they might struggle to access affordable, reliable, clean energy.
(32:25):
And so what community solar is, it's really a program
and a policy where you can directly engage with individual
homeowners and residents and essentially subscribe. They can subscribe to
power from your your plant oftentimes that as you mentioned
(32:45):
in your California example, at dis kind of rates. I
think this will be critical to bringing projects to meet
this demand. And again it's it's really an all of
the above solution where you have obviously you'll still have
your utility scale projects, community solar projects that are you know,
(33:06):
behind the grid or at these kind of lower distribution
level lines, and you're able to sign up subscribers and
they're able to benefit through lower prices. I think it's
really a win win and a way for people not
only to just be bystanders of the energy transition, but
for them to really benefit and directly participate in the
(33:28):
energy transition. And the last point I'll say is part
of why community solar programs were created. A lot of
times folks they rent or they for whatever reason, maybe
they live in a home where there's a giant tree
that's shading their roof, but they still want to participate.
And so community solar is I think a great way
(33:48):
to create this engagement and and and for you know,
just every day, every day people to to participate in
the energy transition. And lastly, we need.
Speaker 1 (33:59):
That sure, yeah, I mean people, you know, we again
we talk about ai as.
Speaker 3 (34:03):
This obviously great.
Speaker 1 (34:05):
Opportunity which may or may not be the case for
the next five years, but certainly it seems promising longer
than that. But the power demand is going to have
an impact on prices. There's just no two ways about it. Right,
their prices aren't going down. I mean, they were stagnant
for a reason, which was because no one was asking
for more power, right and now that now that's becoming
a premium thing, you're starting to see a likely escalation
(34:28):
that people talk about. I will think people talk about
it like gas in five or six years because the
demand is just so high. The data centers have a
lot of money, you know, like, so they're not they
don't want to pay more, but they will pay more
to get done what they're doing. They're working on great margins.
Why wouldn't they write So that's that's a concern. All right,
we're kind of at the end here. I'd like you
(34:49):
to anything you want to add towards the end of
this thoughts part parting thoughts.
Speaker 2 (34:55):
Yeah, I mean, I think the parting thought is really,
you know, one we talked about just fundamentally, how demand
for power is increasing with the advent of AI and
data center growth. And I would say the point that
I'd really drive home is it really is kind of
all of the above in terms of utility scale, but
distributed as well. And the last bit on distributed is
(35:18):
it's a faster solution to help offset that demand. Because
as we deal with utility scale projects and you're dealing
with these longer development cycles, you need a way to
kind of meet that demand faster, and oftentimes distributed is
a way to do that and just kind of zooming out.
It will require again, kind of all of the above
(35:39):
in terms of meeting this challenge and opportunity.
Speaker 3 (35:42):
That's great.
Speaker 1 (35:43):
All right, well, thank you so much Dan for your time.
We're going to wrap it up here. You can find
more information on carbon emissions, for example, with respective the
utility sector and other areas of interest with respect to
that kind of the energy transition AI and kind of
the impact on the on the utility sector in the
(36:03):
broader power markets by going to bi carbon at go
on the Bloomberg terminal. If you haven't any ESG quandary
or burning questions you would like to ask BI expert analysts,
send us an email at ESG Currents at Bloomberg dot net.
Thank you for listening, and Dan, thank you for joining us.
Host
Eric Kane
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