Catalyst with Shayle Kann - The trends shaping the energy transition [partner content]

Episode Date: December 13, 2022

We are headed into an uncertain future for the climate – but the range of possible scenarios is getting clearer. We’ve likely avoided the worst-case scenarios, thanks to the progress made in clean energy. And that has experts feeling conflicted. “People who are deep in the industry of trying to address climate change flip flop from skepticism to the amazing opportunity we have,” says DNV Senior Vice President Nick Brod. “Every few weeks, we see new technologies that show us that there is endless potential to make things more and more efficient.” “We definitely have a lot of the technologies in wind and solar and storage – and there continues to be breakthroughs,” says DNV Senior Vice President Marion Hill. We have most of the tools available to slow climate change. So where are the opportunities? And what are the bottlenecks to growth? In this special episode, produced in partnership with DNV, we feature a conversation between Stephen Lacey, Nick Brod, and Marion Hill about the trends reshaping supply and demand on the grid. DNV provides advice and assurance to customers across the spectrum of the energy transition, from generation to end use – in solar, storage, wind, grid planning, hydrogen, carbon capture, and more. To learn more about how experts like Nick and Marion can help you accelerate the energy transition, go to dnv.com/catalyst

This is a branded podcast from PostScript Studios. We are headed into an uncertain future for the climate, but the range of possible scenarios is getting clearer. Some countries are still clinging to a goal of keeping global temperature rise to 1.5 degrees Celsius this century. That's theoretically doable, but doubtful. The United Nations says a rise of 2 to 3 degrees is more likely. That kind of warming, it'll bring economic disruption and suffering, but we've likely avoided the worst-case scenarios,

thanks to the progress made in clean energy. And that has experts feeling conflicted. People who are deep in the industry of trying to address issues in climate change, flip-flop day to day from the sort of the skepticism, the difficulty ahead of us to actually the just amazing opportunity we have to actually make it happen. That's Nick Broad. He's a senior vice president at DNV. DNV is a company that assists with risk management from global transformations. And Nick runs a team that implements efficiently,

see another demand side programs in North America. From new devices and controls to business models to consumer interest, he sees continued innovations in how we manage demand. Every few weeks, frankly, in this industry, we see new technologies that show us that there is endless potential to make things more and more efficient and more and more connected to the supply side of this transition. And on the supply side, the unstoppable progress and renewables and batteries are putting net zero grids within reach. We definitely have a lot of the technologies in wind and solar and storage and there's continued to be breakthroughs. That's Marion Hill. She's also a senior vice president at DNV.

She focuses on the supply side technologies that are pushing the energy transition. And there's a lot to focus on. In the next decade, solar PV will be the dominant source of new capacity globally. Battery storage costs could fall another 80% by 2050. And offshore projects will dramatically push the cost of wind downward. We're talking about hundreds of billions of dollars being invested in the energy transition and looking to double and triple over the next decade. Tripling deployment of clean energy is only the start. There's a vast difference in speed and scale

between 1.5 degree and 2-degree warming scenarios. And that challenge is what makes people like Marion and Nick show up every day ready to move solutions forward. Yeah, so while the pace of change is probably not fast enough today for any of us looking at the future ahead of us, the opportunity is endless. We have most of the tools available to slow climate change. So where are the opportunities?

And what are the bottlenecks to growth? In this special episode, produced in partnership with DNV, we feature a conversation with Nick Broad and Marion Hill about the trends reshaping supply and demand. The conversation starts with Nick talking about innovations on the demand side. So I think, you know, the biggest shift has been energy efficiency used to be pretty simple. You know, you change this and you save X-kilow hours. and for 30, 40 years, that has been a big part of the structure of the industry.

What we're seeing and what I expect to see a lot more of is a shift to saying, you know, we need to see a peak reduction between 7pm and 9pm in these 8 zip codes or these feeder circuits. And we need to, how do we get that? We can get that from a combination of technologies. It could be plugged in EVs. It could be heat, up, water heaters, HVs, HVAC units. It could be homes. it could be businesses, that ability to see that level of granularity control did not exist until

probably the last few years, and that's only accelerating. So, Marion, as you're tracking traditional renewables, give me a sense of the scale of deployment that's happening in those spaces. Yeah, there's some really large portfolios that are currently being financed. When we look at the size of the offshore wind portfolio, Vineyard Wind secured $2.3 billion loan for their vineyard financing. NG recently closed an $800 million loan for a portfolio of wind and solar assets, or Intersect Power that secured $2.4 billion loan for a portfolio of solar and storage assets.

These are tremendous size of portfolios and finances that are really starting to reflect the size of financing in oil and gas or nuclear industries, and attracting some major larger players to come in to, to the space and be able to write these type of check sizes. There's constant evolution, there's constant innovation in the technology that we're working on. Across all the spaces of wind, solar, storage, every year there's new technologies and new breakthroughs and new risks that need to be managed. What have been the big bottlenecks that have presented challenges for companies financing

or deploying these projects? Obviously, COVID created all sorts of supply chain issues and labor issues. I'm just curious what have been some of the immediate issues that the industry has been dealing with and how might those play out long term? Yeah, supply chain is wreaked havoc, particularly in the solar and storage industry, but also in the wind industry in 2020. And we'll see a much lower install capacity in 2023 of renewables than in 2022 or than what was projected due to supply chain constraints. We will be working through a lot of those supply chain constraints and we have to work through those supply chain constraints to double and triple the flow of manufacturing facilities to enable the energy transition to happen. But the entire

life cycle of a project needs to be rethought. With the IRA coming in, everyone's business models need to change and every step of the process needs to accelerate and be streamlined. We'll look at that through digitalization. We have to look at it from a permitting perspective, from an interconnection perspective, from a financing perspective, to enable. To enable. all the different pieces to flow a much faster pace to get the pieces coming together and to get these projects online in a shorter period of time with a higher probability of success from early prospecting through to the commissioning of a project of a higher success rate so that we can be much more effective with the capital and the human resources that we're

applying in the renewable development phase. Nick, what about on the demand side? Has COVID presented any significant challenges? Oh, just a few. I mean, similar to Marion's comments. It's wreaked absolute havoc with supply chains. It's wreaked havoc with the sort of nature of the portfolio of buildings that can be addressed in a utilities program or utilities territory. We have dozens of quantitative examples of giant projects that won't complete, won't happen because of, you know, you just can't get the chiller. or you can't find the people to do the installations.

And that is systemic everywhere. I think we are optimistic. We might sort of see some return to normality on that end of the supply chain, into next year, maybe later next year. But it's been hugely damaging and hopefully just a short-term problem on the long path of the energy transition.

There was a slowdown due to COVID in the amount of installed capacity, but we'll be able to ramp back up. We were also dealing with a cliff in 2020 with the PTC running out anyways, and so the industry did need to adapt to installing less wind power. So this type of disruption is enabling us to think differently and act differently. And if we don't change the way that we're doing things, we will not be able to meet the global climate warming objective.

So we have to continue to be disrupted to ensure that we are rethinking how every step of the process fits together so that we're doing it. differently and more effectively going forward. So beyond the current disruptions, what are the other barriers to scale in renewable generation and storage? Permanene's a barrier, interconnection is a barrier, and capital flow to projects. Supply chain scaling is really critical to get us there. So everything.

Everything. Everything. But these are barriers that we can overcome, and utilities are looking to how they will re-look at their interconnection pipelines and looking at how do we do permitting differently. How do we streamline? There's a lot of new digital startups at venture cap, raising a tremendous amount of capital right now to rethink the entire process and ensure that we have better data at every step of the process to make it more efficient. Nick, how about on the demand side? What are the other barriers that you see? You know, probably the big barrier is the pace of the

legislative to regulatory to action cycle, especially as it relates to utility planning. This is not to sort of stray into the political side of that, but when you're trying to plan acceleration of action, slowness is not the way forward. You know, piloting things for two years to see if they work, to see if they can then scale in five is not fast enough. It can work, but not from a scale perspective. I think similarly that, you know, the second, area I see a little bit of is probably skepticism, especially on the demand side. A lot of energy efficiency or demand response is like, if you invest this, you will see this return, this response, but really the complexity of what happens in buildings or portfolios of buildings is tied to

occupancy in weather and production and all kinds of other variables that make it quite a hard thing to really persuade people what they should do, how to take the right action. I think the sort of the other one or two others maybe here are in terms of electrification, which is expected to expand and scale contractor appetite, the people who actually install and sell stuff is a huge... I said it's an opportunity, more than a barrier,

but it's definitely a barrier, even when I've talked to contractors in my own home, the first thing is, well, here's an efficient gas furnace. And I'm like, no, I want a heat pump, what heater, please give me what I want. and a lot of people say, you don't want that, it's not going to work. So there's a whole workforce development, mindset change amongst the contract community needed. That's a great opportunity.

All of this stuff is not going to be cheap. It's not that it's going to be expensive, but it's going to happen in an inequitable way unless equity is addressed. I think one of the barriers I see is if we see too many people left behind or negatively impacted by all kinds of efficiencies all the way up to, you know, ban of gas cars, which I support. But, you know, what do you say to someone who can't afford a car? If cars are not affordable by the time those laws come into place. What does it mean to bake equity considerations into project development on the generation side, Marian? It's thinking about communities. How does a community benefit? What type of say does a community have in the governance of a project? Can they get 50% equity of the project and 50% governance of

of a project, how are we assuring that there's local jobs being developed? We need to be considering these projects very fundamentally to be ensuring that our communities or the projects have a social, have a local cost, a local environmental cost because we have the visual effects, we have the noise effects, we have the construction effects. How do they benefit? How do we help these communities transition and benefit from the projects and from the energy transition? So there's a government's perspectives that we need to be considering in the development of projects and then in the operation so that the revenue does flow back into the community. So, Nick, you recently went to your team and asked them to write a series of thought pieces

on the energy transition dealing with everything from electrification to regulation to challenges that need to be solved in the market. And you came away from that series feeling more positive. than when you started, why? Ultimately, because the alternative would essentially be to give up, and that's not what we're about. So there were two things really that really pushed me over the line.

I think one was obviously I've seen and I work with a fantastic group of people, peers, colleagues, even competitors out there. There's incredible things going on in our industry. And that's hugely optimistic. To me, just the commitment, passion I see younger people, not just younger people, but particularly younger people, coming into this industry trying to make a change.

The other was that, you know, I've been in the US for 20 years now. I think back to 2002 where just the subject of climate wasn't really ever in the newspaper, even in the New York Times. Now it's everywhere. And I think that direction, that's a fantastic shift in consumer mindset, which I think will continue. As more and more people see, the sort of actual effects of climate on their lives.

The other was really the passing of the IRA, which, you know, for the first time, a major piece of directional legislation that's going to pave the way for acceleration of action in a way I don't think we've seen before in the US. So that was probably the final piece of what said, okay, you know what, I'm going to stay on the convince side that we're going to get there.

I am more optimistic about the transition because we're more sensitive and aware of the costs of climate change. There's a greater percentage of society that is aware of the costs of climate change, and there's a greater percentage of society that is dedicated to making a change. And we need as much dedication to making a change to change the regulations that we need to accelerate the build-out. There are many challenges and obstacles ahead of us to get there. It's not going to be an easy path by any means,

but we have more people willing to fight the fight to make the changes and to make the energy transition a just an equitable energy transition. So time ticks on. We're having this conversation toward the end of the year in 2022. And I want to close out by asking what you think the big storyline in your world of 2022 was and what you think the big storyline of 2023 could be. So I'm going to put you on the spot a little bit here. Nick, how about you? In the U.S., the RA was the big story and will still be the big story. I think, you know, the biggest story really is what happened, is happening in Europe. That an energy-centric war has proven how important it is to have energy independence, energy security,

and clean green energy and not be reliant on fossil fuels to the extent people have become. And that will continue, I think, to be really the big story through this winter. We will see hopefully, optimistically, how we sort of how Europe leads comes out of this following winter. Marian, what's the big storyline in your world from this year? 2022 was a year of pause. Ox and tariffs, supply chain challenges prevented a lot of build out of solar and storage facilities. And then IRA comes in, and then all project developers are rethinking how do they build out these portfolios, what projects do they prioritize, how do they restack, what are the

financing instructors look like? So 2022 was a build year. It was that flatline year of rebuilding, rethinking of business plans, rethinking to business models and how to build going forward. And so, 2023 is the start of the IRA program. It is the start of the new century, it's the start of the new era of where we're going to be going and how do we start accelerating that. How do we think about 2x? Well, how do we think about 3? and how do we implement 2x and 3x in our development cycles and our buildout and our manufacturing. So it's building up to that excitement of, hey, now we're going to be doing this. Now this is real.

We're at this beginning of the wedge of the buildout of solar storage, wind, and we're on that acceleration path. Again, that was Marion Hill and Nick Broad, two senior vice presidents at DNV. DNV provides advice and assurance to customers across the spectrum of the energy transition from generation to end use, in solar, storage, wind, grid planning, hydrogen, carbon capture, and more. To learn more about how experts like Nick and Marion can help you accelerate the energy transition, go to dnv.com slash catalyst.