Hosts: Gerard Reid & Laurent Segalen
Guest: David Scaysbrook | Co-Founder & Managing Partner | Quinbrook Infrastructure Partners
Category: ⚡ Renewable Energy
Podcast’s Essential Bites:
[3:49] “The changes [in the power market] that we're seeing these days are really multi dimensional, with costs and technology playing very significant roles, not only in how to identify new opportunities for return, but particularly in management of downside risk. So a lot of these changes that are occurring in power markets are occurring, because we're getting a proliferation of renewables to make up a very significant portion of the total power market. So we're starting to see very profound changes in the way power markets behave and the way power gets priced, particularly because of the really the cost performance of some of the leading renewables technologies, particularly solar, which has probably been the most potent impact that we've seen in the last five years.”
[4:38] “When we would typically invest way back 30 years ago at the start of independent power, technologies remained fairly static and power prices were largely determined by the marginal generator […]. The market today couldn't be further from that paradigm really, where whilst there are certain power markets where gas is still a very important determiner of price, that's changing very, very rapidly. We didn't need to think about what next year's solar module was going to cost or battery storage configuration costs, or even wind turbines would cost. Now that renewables in some power markets getting up to 30 and 40% of the operating capacity is changing markets fundamentally. What we're seeing is the emergence of what we call covariance risk, which is, […] where the natural endowment is, from a resource perspective is where the bulk of the capacity is being attracted to. Now we're starting to see some of the consequences of that as we start to reach sort of serious levels of capacity penetration. And so when the wind blows, all the wind blows, and all the installed capacity blows, and it has zero fuel cost. And so what we're seeing is, in certain areas, the markets’ power prices are tending to zero or negative, where there's a lot of wind capture, or a lot of solar capture. […] So this covariance risk is increasingly prevalent and so in terms of understanding revenue and price formation in power markets, you have to be really paying attention to the effects of covariance on your long term power price forecasts.”
[7:07] “The other issue that we're seeing that's kind of related to that is curtailment. Where the transmission systems were never designed to accommodate the renewable energy build out that we're seeing in those zones where the wind resource is strongest, or the solar resources strongest, and we're seeing constraints. And we're seeing high volume production times of the day for solar or wind. We're seeing a significant amount of capacity actually been curtailed, which is just not getting into the power market itself.”
[8:01] “The market is quickly moving away from vanilla wind and solar development. And the market is definitely significantly shifting to favor those that are multi technology. What the market needs, what the market wants, particularly the corporate consumer of renewables, is wanting the holy grail, which is a 24/7 carbon free round the clock product. And so individual technology silos of just a wind development platform, or just a solar development platform, is becoming kind of increasingly isolated in the value proposition for the customer. And so that's tending to favor the developers and investors who are multi technology, have larger scale platforms, and have the intrinsic diversity in their portfolios to be able to build towards that 24/7 goal. And that's probably one of the most profound changes as corporates get out of their utility relationships, seeking direct procurement of renewables. They want it to match their load.”
[13:13] “We're an investor and operator in biomass and hydro and geothermal, but they're just very locationally specific [which] is the issue. [They] don't offer us a 24/7 solution in many of the places where we need it. Data centers are one of the biggest areas that we're focused on, because the customers need 24/7 power, and they want it to be net zero, they want to be carbon free. And so finding what we call the missing hours is the biggest conundrum right now in renewables investing for a 24/7 objective. [There are] six to eight hours of the day that need filling, and batteries will only take you so far. And longer duration storage offers potentially some solution to that. But the missing hours is the issue hanging over the sector in delivering to its potential.”
Rating: ⚡⚡⚡
🎙️ Full Episode: Apple | Spotify
🕰️ 27 min | 🗓️ 01/16/2022
✅ Time saved: 25 min
