Host: Shayle Kann
Guest: Sheldon Kimber | CEO | Intersect Power
Category: ⚡ Renewable Energy
Podcast’s Essential Bites:
[4:54] “[The state of clean power is] chaotic. […] It's an industry that everybody expects explosive growth from and everybody […] knows that it's inevitable in the end. But in the near term, I would characterize it as being marred by sort of fits and starts of […] trade issues and supply chain. […] It seems like every day you're responding to some other crisis in the business. And so while the general trend is kind of up and to the right, and there's enormous growth opportunity for everybody in the sector, […] it's definitely harder to save the world to make money than you think it is.”
[7:39] “Logistics have gone off the charts. And so anything you're shipping in from out of the country is just astronomical. I was told by one supplier that to get what used to cost about $3,500 a container from China to the US West Coast, […] people were paying like $20,000 plus to get a container. If you're Walmart […] or Apple bringing an iPhone, that’s really high margin business, […] but if you're bringing in […] steel posts for an infrastructure project, it's a much lower margin business, and you can eat those margins pretty quick.”
[12:07] “Renewables are inframarginal, meaning they are […] below the marginal resource in most cases. […] They are now cheaper than the kind of marginal gas plant. […] My point is, I don't think renewables are going to go up. But I think it's time we stop looking at if renewables need to come down […] as you begin to see the explosion of demand. […] We got to continue to have the tax credits and the cost base support to maintain the low cost structure of the industry, but increasingly, now we need demand side policy support.”
[13:14] “I think, in the next few years, at least on the power grid side of this, you're going to see people begin to realize that plants have value and that supply has a constraint. That supply isn't infinite at ever decreasing price points. And that will mean that you'll see price points in the wholesale electricity markets on the grid stabilize. I think you may continue to see pretty crazy LCOE compression in some of the other areas of clean energy […]. Places where maybe you're making green hydrogen, or desalination […] off the grid, because those projects aren't gonna be burdened with interconnection, they're not gonna be burdened with they must be in this location. You can pick the cheapest best resource and just go mega in terms of the project scale.”
[22:12] “In one case, [the market] could go toward increasing contract length and higher prices. So you're going to see policies coming down from the government on clean energy standards and things like that, increasingly you've got ESG standards coming in for more and more public companies. So demand for clean power is just exploding. So let's say that that demand side meets […] a bank market or a financing market that says, […] we see this risk now and in order to finance a plant, we need you to get to longer term contracts. Well, the market could equilibrate in that case to 20-25 year contracts and better and better prices. So you could see that happen, and the market would readjust back to, there's an enormous amount of demand, we now have some pricing power and some power in terms of the tenders we can extract from people and that's going to get pushed back on customers. That's one path. Power markets and capital intensive commodity industries have rarely exhibited that level of self restraint.”
[23:21] “I think the second path is probably the more likely. And that is, we're going to see financing structures change to accommodate the new risk profile of contracts. And what I mean by that is, before you used to have these 20 year contracts, or 25 year contracts at nice, juicy prices and you just go out and you put a ton of debt on the project. You go get a long term […] 30 year loan […] and you just basically lever that thing up. […] Now, what you're going to see is more and more portfolio financings that are not necessarily single asset, and you're going to see mixes of contracts. […] So you've got huge diversification. So there's no singular risk. […] What you find is that your […] financing capacity or debt capacity doesn't go down that much. […] If you add up the tax equity, you can get plus the term financing, you can get using either of these structures, the amount of common equity you're left having to put in at the top to own the asset is not materially that much different. You have to put a little bit more equity in, in the shorter tenor business. But that kind of leads me more to where I think the industry is going, […] which is the implications of that financing strategy mean that the structures of the companies in this industry are going to change radically.”
[33:52] “You'd have to be an absolute moron, not to think that we're going to put a price on carbon, no matter what your politics are. […] If you're a person building a business plan today, and you don't take into account that there will be some kind of value to carbon, I don't think you should be in business. […] When you look at that future state that we're planning for, we get to kind of what we call these inevitable industries. And we've identified five of them. And those are green hydrogen and to some degree e-fuels, […] direct air capture, the electrification of thermal loads, […] mass scale EV charging […] and desalination. […] I see these as five industries that barely exist today that will be trillion dollar global industries in 30 years. And the one thing they all have in common is high capacity factors, cheap, clean electricity.”
Rating: ⚡⚡⚡
🎙️ Full Episode: Apple | Spotify
🕰️ 50 min | 🗓️ 09/02/2021
✅ Time saved: 48 min
