YouSaid · the spoken record

Francesco Starace

lines on the record: 29
first: 2018-10-01
most recent: 2018-10-01
sittings or episodes: 1
sources: podcast

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“Actually, no, I think the US is actually leading the race for batteries, and partly maybe thanks to Elon Musk and the Giga Factory, but clearly we have seen a couple of renewable developers in the US offering an integrated solar plus battery offering and be quite successful at it. We've seen Nextera, we've seen Excel Energy, for instance. The European developers are nowhere near, partly because there are parts of the US which are more suited to introduce batteries. Think about for instance Texas as a key example, but partly because actually if in the European companies on this specific technology and trends they've probably been sitting behind, they're trying to catch up because clearly they're quite big in the US, but I would argue the US are probably two to three years ahead.”
2018-10-01 · Goldman Sachs Exchanges · Europe's Energy Evolution · IDENTIFIED FROM THE TRANSCRIPT
“So, you mentioned a couple times batteries in the role, storage plays, and the intermittency of these new technologies. Is Europe leading the way on the revolution in battery technology as well? And how are they looking at storage?”
2018-10-01 · Goldman Sachs Exchanges · Europe's Energy Evolution · IDENTIFIED FROM THE TRANSCRIPT
“No, not at all, not at all. It was considered niche. It was considered like sort of a vagary of European politicians. And I suspect that five years from now, well, I hope that I'll become an expert also in batteries and more and more in electric vehicles.”
2018-10-01 · Goldman Sachs Exchanges · Europe's Energy Evolution · IDENTIFIED FROM THE TRANSCRIPT
“Well, on paper, but there's a bit of nimby culture if I use an American term at the local level. There were so many delays for an interconnection anecdotally between Spain and France because there were some issues about protecting local bears in the Pyrenees. So just to give you an idea. And that's just a small example to tell you that on paper everyone knows that it's for the greater good, but when it comes actually to authorizing cables going through mountains and natural reserves, then the local politicians can really slow down the process.”
2018-10-01 · Goldman Sachs Exchanges · Europe's Energy Evolution · IDENTIFIED FROM THE TRANSCRIPT
“South, if you think about it right now, Europe is made up of four or five island power markets. You need to interconnect Iberia with France and Central Europe. You need to interconnect Italy with France and Germany. You need to interconnect UK and Nordic with everything. So that's more investment in transmission so that offshore wind in the north could actually power Italy in the south when the sun is not shining.”
2018-10-01 · Goldman Sachs Exchanges · Europe's Energy Evolution · IDENTIFIED FROM THE TRANSCRIPT
“That's a good point. Target help and overall awareness on environmental matters also helps. I think you need a little bit more of enablers, particularly the grid. The power distribution and power transmission grids are extremely important because the volatility of supply that renewables bring puts quite a lot of stress on the networks. And if you start to add electric vehicles and if you want to have intermittent recharging, otherwise the complexity of the system explodes and otherwise people would all recharge the cars at the same time, 6, 7 p.m. at night, then what you want to do is to effectively upgrade the degree of digitalization of the grid. So there's quite a lot of investment in the grid to simply be able to manage flows much better for the grid to sell field to control the frequency as a first point. The second point is that considering the regional biases we talked about earlier offshoring the north, onshore everywhere, solar in the”
2018-10-01 · Goldman Sachs Exchanges · Europe's Energy Evolution · IDENTIFIED FROM THE TRANSCRIPT
“As shale gas has been for the US. And if you go for very cheap and predictable electricity, you could suddenly, as an entrepreneur, be tempted to switch some of your gas processes to electricity processes in a factory, for instance. And if you're building a new block of apartments, maybe you're not going to build infrastructure for a pipeline of gas to heat the apartments. You're just going to go for electricity, connect the cable, and then predictable renewable facilities from a cost perspective will be able to supply power there and help you heat up the space.”
2018-10-01 · Goldman Sachs Exchanges · Europe's Energy Evolution · IDENTIFIED FROM THE TRANSCRIPT
“Or perhaps considering that the marginal output would be very cheap, you can put that into the electric vehicles. That's one very pragmatic example how electric vehicles can feature into this new power system. The second point is that if the share of renewables is increasing in the system, a larger and larger percentage of your electricity bill will be fixed because it will not be subject as it is today to input costs such as coal, gas, carbon, and that will make electricity cost more predictable and we think eventually will make electricity costs much lower because the twenty percent of subsidies for renewables we discussed in the next 10 years will largely be gone. So you can move into a world where your stripping inflation largely out of electricity bills for quite some time and electricity bills are getting lower. It could be almost not quite as much but almost as running”
2018-10-01 · Goldman Sachs Exchanges · Europe's Energy Evolution · IDENTIFIED FROM THE TRANSCRIPT
“That's a very important point because the beauty about the gas plant or the nuclear plant is just that you turn it on or turn it off and gas can actually be quite flexible, whereas solar and wind, you cannot control how much power you produce from them, you're subject to weather. And solar produces by definition maximum twelve hours a day. When it's dark, it's not producing. And most of its production is between 10 a.m. and 4 p.m. So if you start to go in a world where 20-30% of installed capacity is solar, for instance, you're going to have a structural oversupply of output during summertime or spring and especially during the weekends when offices are shut, factories are closed and maybe you indulge yourself in sleeping a little bit longer and suddenly there's lots of solar production because there's no weekday or weekends for solar. So suddenly what's going to happen is that you have a lot of excessive demand that either you need to put into a battery for a later time”
2018-10-01 · Goldman Sachs Exchanges · Europe's Energy Evolution · IDENTIFIED FROM THE TRANSCRIPT
“And they effectively spun off the old conventional generation which has been more and more and more under pressure because of renewables. I mean, this seems kind of normal in a corporate finance textbook, but if you think about a utility in developed Europe, this was pretty groundbreaking and radical as a transformation. The reason I also said slowly is because in our opinion, power prices in Europe will face a 20 to 40 percent downside risk because if you are replacing power at 60 to use the example of Italy with power that will cost between 20 and 30 and coming down, over time the power prices will come under a lot of pressure. So in our opinion what companies should do is most likely to continue to spinning off this activities, creating bigger conventional generators which you be running for cash and pay loads of dividends out of free cash and raise your hands and value them as a finiteness.”
2018-10-01 · Goldman Sachs Exchanges · Europe's Energy Evolution · IDENTIFIED FROM THE TRANSCRIPT
“Lowly is the answer. Utilities are not innovators. This is the most distant thing from Silicon Valley probably you can think of in terms of speed of change. So initially utilities reacted very slowly. They did not see this trend. Some companies, particularly in Germany, did not realize that they were sitting on one of the most flourishing markets for renewables. In fact, those were actually the companies that eventually had to take”
2018-10-01 · Goldman Sachs Exchanges · Europe's Energy Evolution · IDENTIFIED FROM THE TRANSCRIPT
“Your apple or your Goldman Sachs, you want to go 100% consumption from renewables. And what do you do? You can either become a utility and build solar parks or wind, or you can go to utility and say you're pretty good at developing. Clearly you can do it cheaper than I do. Why don't we sign a long-term contract, i.e. a PPA with a corporate, so that for 10 years, 20 years, I have a guaranteed output with a fixed price, maybe inflated, maybe not. So it has several advantages. First, it makes the world greener. Secondly, it's actually locking in the cost of electricity for many years. So suddenly it's an input cost, you sort of don't worry about, it's just inflation, very fixed.”
2018-10-01 · Goldman Sachs Exchanges · Europe's Energy Evolution · IDENTIFIED FROM THE TRANSCRIPT
“Very good point. Historically, you were billion renewables because some government was putting together a policy and was saying, okay, it's a lens grabbing exercise, go and find a farmer that can lease you the land. And if your measurements stuck up and you feel all the right documentations, which in Europe tends to be pretty heavy, then you buy your equipment, you're producing electricity, we will guarantee you top line for 20, 30 years. Then the governments realized that it was more efficient to do auctions. So nowadays auction is the name of the game. Why is auction important? Because it typically captures the cheapest source and the cheapest option at any point in time. So all developers are competing for the same lot, let's say, and typically returns have come down a bit because of that. But the new trend, which is complementary to all we talked about, is really signing a corporate PPA, this power purchase in agreement. You are Nike, you are Google.”
2018-10-01 · Goldman Sachs Exchanges · Europe's Energy Evolution · IDENTIFIED FROM THE TRANSCRIPT
“How about corporates outside of this sector, companies like ourselves have agreed to buy power from a certain source and allowed the development of renewables sometimes called PPAs or power purchases agreements? But having that locked in supply, locked in demand leads to the creation of supply in places where it might not otherwise be economic.”
2018-10-01 · Goldman Sachs Exchanges · Europe's Energy Evolution · IDENTIFIED FROM THE TRANSCRIPT
“And Italy, we think, is another key example, partly because it's very sunny in the south, partly because the wholesale power price in the region is quite high. So that's an opportunity cost. If the wholesale power price in Italy is 60 euros per megawatt hour and you can build solar at 2025, you will see a mushrooming of development, which is what we have precisely seen in countries like Spain, where we have a huge pipeline of projects of independent developers that want to produce merchant, i.e. taking a power price risk, or they want to sign a long-term contract with an industrial customer.”
2018-10-01 · Goldman Sachs Exchanges · Europe's Energy Evolution · IDENTIFIED FROM THE TRANSCRIPT
“There's different technologies that apply to different regions. So if I want to be extremely simplistic, I would say that the northern part of Europe, particularly if you take North Sea or Baltic Sea, are really, really well suited for offshore because you can produce 40-50% of the time, huge machines, because you don't have bottlenecks in terms of roads, how to get there and install this very high pylons is a big problem. So big scale projects, perfect. And that is going to continue. The offshore business started in Europe is now starting to be global, but Europe is the key market. Then you move gradually in the central Europe where you have a combination of onshore wind and solar. And when you move south, talking about particularly Spain, Italy, Greece, Portugal, their solar takes a much bigger market share in our opinion going forward.”
2018-10-01 · Goldman Sachs Exchanges · Europe's Energy Evolution · IDENTIFIED FROM THE TRANSCRIPT
“Phenomenal development machine with business units really across the globe. China remains a bit of a closed market, but everywhere else you'll find European utility bidding. Could be offshore in Taiwan. It could be offshore on the east coast of the US, where Iberdrol has just been awarded a very sizable lot. It could be onshore, solar in the US, it could be Australia, it could be Southeast Asia, Middle East, you really find that these companies are truly global and actually leaders. Now, three European companies are in the top five global developers in the world.”
2018-10-01 · Goldman Sachs Exchanges · Europe's Energy Evolution · IDENTIFIED FROM THE TRANSCRIPT
“Yes, I would say so. On the development side, particularly the European companies were early movers, they had an expertise which they acquired in Europe, and they started to replicate that and export that abroad. So very early on, companies such as Iberola, EDP, and then Enel have started to expand and develop renewables in North, Central and South America quite successfully because scale is also quite important in this business. Like, let me take a company such as Enel. Enel is bidding almost 15,000 megawatts of projects every year to be awarded between three and five thousand megawatts. Now, what does that mean? It means that actually a pretty sizable developer, if lucky, would build 500 megawatt per year. And these guys, Italian-based companies, suddenly can do up to 10 times more in any given year because they have been the”
2018-10-01 · Goldman Sachs Exchanges · Europe's Energy Evolution · IDENTIFIED FROM THE TRANSCRIPT
“European companies are getting a head start. They're growing faster. They're deploying this technology more. They're building scale. Have they started to expand and we're going to see them show up more and more around the world as the leaders in this alongside maybe the Chinese companies?”
2018-10-01 · Goldman Sachs Exchanges · Europe's Energy Evolution · IDENTIFIED FROM THE TRANSCRIPT
“Far, far, far, far behind. If you exclude Latin America because of very attractive hydro resources, they are already there. Those numbers are less than half of what we discussed in other developed economies. Now, China is coming up very strongly. I think there's been a big aha moment in 2015 where the world realized that China started to put environmental policies a little bit more at the center of their priorities, and we have seen ever since a major acceleration of renewable development in China. Last year, China accounted for about half of all the solar installations in the world.”
2018-10-01 · Goldman Sachs Exchanges · Europe's Energy Evolution · IDENTIFIED FROM THE TRANSCRIPT
“They do have targets, and Germany is planning to achieve 80% of its electricity production from renewables versus just over 30% today. That's going to be a big game changer with many other ramifications on electric grids, potentially electric vehicles, storage, interconnections across European countries. It will push a holistic redesign of the power system.”
2018-10-01 · Goldman Sachs Exchanges · Europe's Energy Evolution · IDENTIFIED FROM THE TRANSCRIPT
“So we are halfway through compared to 2030, and we are probably about the third compared to 2050. These are very long-term trends, as we discuss in renewables. Why am I saying that? Right now, let's say in 2018, less than 30% of production in Europe comes from renewable sources, wind, solar, hydrogen, The target that have been set by the European Union for 2030 imply that at least fifty five percent of production will have to come to renewables. If you assume a little bit of demand growth from now until then, it means that the actual”
2018-10-01 · Goldman Sachs Exchanges · Europe's Energy Evolution · IDENTIFIED FROM THE TRANSCRIPT
“Well, look at California and replicate what they just told you in terms of space, in terms of sunshine. Maybe the network isn't as strong and stable, so there will be more investments necessary in the network. But there's several parts of the world where this trend is going to replicate. Think Australia, think about every island that is not connected to mainland where the main source of electricity is a very expensive diesel fuel oil power station put solar, put batteries, put some windmills. This is exactly what's happening in the Balearic Islands or the Canali Islands of Spain, and this is what can happen in many other islands around the world.”
2018-10-01 · Goldman Sachs Exchanges · Europe's Energy Evolution · IDENTIFIED FROM THE TRANSCRIPT
“So even though Spain has some unique features that makes it a leader in the space, you've written that Spain could also be a precursor of broader trends that will drive really the whole global market. So while Spain's unique, why are the trends we're seeing there going to spread?”
2018-10-01 · Goldman Sachs Exchanges · Europe's Energy Evolution · IDENTIFIED FROM THE TRANSCRIPT
“Well, again, initially it was policy. Spain had a big blackout in 2001 when suddenly in supposedly a warm region of Catalonia you went to minus 10 for a couple of weeks and that was a wake-up call so the government started to incentivize conventional capacity and as a pilot test they also started to incentivize wind. Then the economics started to improve. It was gradually less of a burden on the tariff and now suddenly because of the reasons we just discussed they actually are going to be deflationary. Now what makes Spain really well suited for solar? It's very sunny, clearly very sunny irradiation number of hours of sunshine and Spain is very well suited for that. Also Spain is low densely populated so there's lots of space to simply develop this equipment and Spain is a very good infrastructure because the flip side of building loads of renewables is that the electricity grid is going to come under”
2018-10-01 · Goldman Sachs Exchanges · Europe's Energy Evolution · IDENTIFIED FROM THE TRANSCRIPT
“Today, not at all, quite the opposite. So, if you look at countries such as Italy or Germany, even more of an obvious example, nearly 20% of the electricity bill is dedicated to paying for subsidies for old renewable capacity. In other words, your electricity bid would be 20% cheaper if renewables did not exist at all. So quite a lot of people might be inclined to think renewables are actually expensive, they are making my electricity bill way more expensive to me, it's a problem for myself. Actually, from now onwards, the marginal capacity that is going to be added into the system is going to be, in our opinion, deflationary. Because you take again a key example, Spain, which we think is a precursor on solar, developing solar in southern Spain today can be done at least 50% cheaper than any other technology.”
2018-10-01 · Goldman Sachs Exchanges · Europe's Energy Evolution · IDENTIFIED FROM THE TRANSCRIPT
“That the sheer size of the machines as just exploded. If you drive in southern Spain and maybe you're a Windsor fan and you go to Tarifa and Andalusia, very windy, lovely area, ideal for wind farms, most wind farms built 15 years ago, twenty years ago were less than one megawatt. In 18 months, 24 months time, the key manufacturers in Europe are coming out with four megawatt machines. So we have a four-fold increase in capacity per windmill. That's extremely important because the capex per megawatt, the invested capital per megawatt has remained largely constant in the past five years, but bigger machines produce much more energy and much more electricity. So the cost per unit produced has been plummeting. So this has been really a very important driver.”
2018-10-01 · Goldman Sachs Exchanges · Europe's Energy Evolution · IDENTIFIED FROM THE TRANSCRIPT
“It depends by technology, but effectively the most spectacular reduction in prices was seen in solar. Solar started as a niche incentivized, subsidized market, largely in Germany. So effectively, thanks to the scale that the business created, we have seen manufacturing started to move out of Germany into China. Or we should say that Chinese manufacturing has been way more cost competitive and initially labor cost was cheaper than the size of factories got bigger, and now we are starting to have better processes, robotics and all of that. So the costs really has come down by a factor of almost literally 80-90% in terms of capital spending per megawatt, let's say per module produced. And this has been a big driver for solar. For wind, it's slightly different. What has changed in winds is”
2018-10-01 · Goldman Sachs Exchanges · Europe's Energy Evolution · IDENTIFIED FROM THE TRANSCRIPT
“We've been doing extensive work on renewables because it really started as effectively function of very strong policy by the European Union, but quickly the economics of renewables are taking over and they're becoming as important as policy and we think in the future they're becoming more important. Just to give you a couple of stats, the cost of producing electricity from solar photovoltaic has dropped by about eighty percent since 2010 and the cost of producing electricity from wind, onshore or offshore that it is has come off between fifty and seventy percent. So really these technologies used to be subject to incentives. That's how European Union started to have its policy because they were extremely expensive but in several regions of Europe right now renewables are way, way cheaper than any other technology.”
2018-10-01 · Goldman Sachs Exchanges · Europe's Energy Evolution · IDENTIFIED FROM THE TRANSCRIPT