Good Investing Talks - How are you building the energy future at ABO Wind, Karsten Schlageter?

Episode Date: September 1, 2021

Renewable energies are booming. In this conversation with Karsten Schlageter, a member of the board of ABO Wind, I discussed the business model of the developer ABO Wind.

Hello, audience. Hello, Mr. Schlageta. It's great to have you here. Today, we're talking about wind and the abo-wind and for the beginning. I would like to ask you, what does Abilind stand for? What does the Abou stand for? And when did you get in touch with the company? Yeah, hello, Tilman. I'm happy to be with you today in this interview. And it's, of course, a question everyone poses that is really interested in ABO and in Germany that's kind of if you if you buy a newspaper on a regular basis so that's definitely not what it stands for it comes from our founders it's on Dr. Arn who's one of the founders and Bokholz so Arbo Wind and 25 years ago when Abow Wind was founded definitely we were fully focused on wind

And today I hope we not only talk about wind, but also solar, storage and other technologies, because today we not only have wind in our portfolio. Yes, we will talk about different technologies of renewables. When did you get in touch with the company, since when are you part of the team? And what was your role before you came in the board? Yeah, actually it was also a funny story. I was responsible before I joined Abo for a large utility. in Peru.

So I was living in Peru and I needed to close down the subsidiary there. And then I said, okay, I change my job to a new responsibility. I wanted to be and continue in an entrepreneurial mindset. And I sent two applications and gladly the team here responded immediately. So we had the first interview from Lima, Peru. With the team here, then I flew over once and we met then the first time in 2013. And I started with the role of, yeah, of general manager. That's the second level at ABO Wind.

And I was responsible at that time for some of our international markets. It was Ireland, Spain, part of UK, and then continually I grew my responsibilities. And since when are you part of the board? It's now three years. So I had my first extension of the contract. And it was a fantastic, yeah, journey together with the founders, with my other co-forcedon. Yeah, it is very joyful working here.

It has a great purpose. I mean, we do something good for human mankind. And I think that's motivating in itself. and it's exciting. Tillman here. I want to invite you to support my work. Below, you can find a link to the thank you page. Just click on it.

There you find ways to support me and allow me to produce further great videos like this for my channel. Thank you. I hope you can answer my next question a bit because it's going back 10 years ago to the renewable industry. So what was the state of the industry

10 years ago and what is how would you describe it today in comparison yeah it has changed completely and that's what makes it so so yeah interesting also challenging i mean we could even go let's start 20 years ago because i think it's important to understand so when you listen to the founders it was really fighting against everyone i mean fighting against so to say the virtual windmills the the administrations, the big utilities, we were really the outcast, the outsiders. Yeah, we believed in renewable, but that was a niche market. Turbans were very small. Percentage of electricity generated by renewables was very small, but people understood already

there. Of course, we had club of Rome discussions. All of that is well known. We already knew at that time that climate change. is an important factor. So it was really that we started and built something big. It was visionary at that time. Of course, I was not there.

So it's really the job and the story of our founders. And then 10 years later, 15 years later, you say 10 years ago, there it started probably to get more and more mainstream. So the first utility company started to switch to renewables. Before that, it was like, wow, renewables, what's that? It has had no importance for them. The big thing was still coal and gas. But then there was a shift.

Some utilities started understanding. They started building their own renewable teams, their business development teams. And we grew, of course, the company. We made it each, and we continue doing so. year more professional and 10 years ago I mean that's also an interesting story maybe we still believe that solar had has not really a chance so five six seven years ago then we really understood also that wind wind in some market is beaten with respect to price by solar and we started solar so I mean maybe that gives you a bit the dynamic and today I mean to

continue to your question. It's really we are in the middle of the energy transition. It's it's mainstream now. Now it even comes to the oil major. So we are in the center of this energy transition. So with the next question, your answer will might be truly be wrong because I want to look out for the next 10 years and what is your take on the future of the industry for the next 10 years. But it's about the future. So what do you think might happen in the next 10 years? Yeah, I mean, you say giving forecasts we are most certainly wrong, but I think what we can see clearly today is that renewables will continue their path

and the build out of renewables will speed up. The ramp up will speed up. I mean, there are any number you want in the market. but I would say it's legitimate to say the speed of investment, the amount of investment at least will double in the next 10 years compared to the last 10 years. And it will get a different angle also. We will now really see, and that has started, that's irreversible.

We see a sector coupling. I think that's the new really story that drives additional growth of the sector. So while we had in the past purely a focus on electrification in a sense of renewables replacing coal and gas, now we start with electric vehicles to electrify the transport sector. And we see since last year a huge discussion about also decarbonizing the industry via electricity. And one way, and I think this will really pick up in the next five, 10, 15 years is the hydrogen. business and green hydrogen you need again renewable so demand is huge what is your internal forecast for the next years you mean now at abo abo wind or you mean for the market no in

the for the market for the wind market or the energy market would ask yeah we see we see enormous growth rates in many markets i mean we did not yet discuss about our about our markets. We are in 16 markets, so the pace of electrification and decarbonization will be different in any market, but in the European Union, as we talked, just yesterday, the European Union raised their targets, made details about their strategy. So, and I believe in that scenario, now, that the EU sets to us, so we will have 55% of less carbon dioxide compared to 1990, and that means in most markets that we really need to double the capacity. So it's a, what we came to, the current situation in 25 years, so we will double this at least in the next 10 years. Where do you see the biggest hurdles and problems for future growth of renewables? Again, it depends a lot of on the individual markets you look at. So in Germany, we are densely populated countries.

So the surface, the surface available for wind energy, solar energy is definitely the key. I mean, we have a lot of resistance by close by households. So this is the main challenge in other markets. Maybe it's the economic environment. For example, let's go to the other end. Maybe we have large surfaces in Africa or Argentina, but then you have very high capital costs and political instability and not at all

resistance here in some areas we do not face any resistance, quite the opposite so people welcome fully if you install windmills because then they get at least some jobs taxes. It depends where we look at. I mean if you want we can

of course focus in some of the markets we will during the interview and is steel price for instance on topic for you absolutely It's steel, it's all the components we need for batteries, we need for the production of modules like wafer and seletium. So all these prices are really important. And what you read also a lot in the press and all industries are affected, but it affects us as well as logistics costs.

Whereas, for example, in module prices, you usually add 1.2 cents per kilowatt. on logistics now we add currently we add five so it has really skyrocketed it's amazing what are other parts of this calculation if you do them like logistics steel what are other parts that are important to consider if we evaluate a wind farm yeah we have i mean very clear cost structures or of course it's the components but that's only one thing it's the term it's the term one itself or the solar module then you have the grid connection cost it depends on at wet voltage level you can connect so this is a very important determinant and we do have the cost of the land if you if you need to pay extremely high rents like in the netherlands or other

high value markets for land and it drives up your costs considerably And last but not least, what many forget is financing costs. So, of course, the industry now profits a lot from a very low interest environment and from a lot of money that pours into green bonds and any kind of green financing. Maybe let's take a look and with the 10 years perspective in the investors that changed on the five year perspective, what investors were there currently in the renewal? business that were in there five or ten years ago? You mean entrance that came in the last years? Like not like investors that want to invest in like wind parks, solar parks, are there many new coming, new investors?

Absolutely. When we go 20 years back, we had mostly private investors that really believed in something good for the planet that way idealists. And we cherish a lot of these shareholders because many of them are with us and these are really valuable and believe in some greater purpose. So that's great to have them still on board. And then, I mean, in recent years, really the finance industry noted that on the one end industries need to undergo transformation, really to understand that energy transition is

needed to fight climate change. So they look in all these ASG topics. and on the other end, many poor directly into investments in renewables or in companies like us that invests and purely doing business in the renewable sector. So we had a lot of entrants from family offices, from large asset managers, but also, of course, a lot of interest in acquisition of projects or in investing in Abouin by pension. funds. And even all companies are interested in these sectors today. It has changed completely. So if you have a nice project that is bankable, has a tariff, then there is a large queue behind such assets that want to buy. Maybe on this also has implications for the financing costs. Do you have a rough sketch how they got down like the last 10 or 5 years?

there was a huge, a huge decrease in costs. I mean, I mean, it's totally correlated with the interest rates of central banks. You can, I mean, you simply can look, look that up. I mean, when today we have almost negative interest rates for, I mean, central bank rates for 10 years, so you add 2 to 3% depending on. on a, where in an industrial market you are. So, and it has to decrease the line with these, yeah, with the general interest environment.

It's really, it's a huge impact. But also people then ask, hey, and what happens if it goes the other way around? And then, I mean, simply we need to say then, usually we are very well protected because, I mean, then usually tariffs of electricity go up as well. So then prices rise again and then, so to say, we are in a natural hedge. That's good to know.

Maybe let's take a look at the value that Abo Vint adds to the renewables production ecosystem, I would call it, or the production of renewables. And I brought a slide from your slide deck for this and would like to ask you to guide us to guide us a bit through the different segments you have as Abow Vint and maybe also highlight what are the most important fields for your business and which are the strongest, like let's start with the most important fields and maybe describe the fields of business you're doing. Yeah, here you are with the functions and the value chain we add and that's interesting. So we do that technology-wise for wind, solar, storage, and more and more also for hydrogen projects.

And explaining exactly what we do, you asked also, are there new investors, new market entrance, one could also say, and let's also focus on what protects us, what creates market barriers. This are my questions that are coming up. Oh, I'm sorry. No problem. But I think this is usually what is interesting for a general audience, no, an investor-like audience. So side acquisition, the first one, that's already one of these high entry barriers. Today, there is a huge competition for land rights.

So usually you rent the land for 25 years, 30 years, today even some projects for 35 years or longer. And to get these, you really need people decently on the ground that are, able to speak to landowners that have the same language that are not arrogant, that are like, I mean, that have the same flavor. And that's what our teams do all over the world. So our planning people, they, with, with, with geo-information systems, you identify sites, you go to landowners and then you put them under contract. And then we start the next phase, the development. Then you ask for, or you provide. Let's stick with. the site acquisition is it different and different destinations like for instance in Germany

you mostly rent the spaces and in Argentina where you also present you go about buying land as well or is it generally renting usually we prefer renting and the whole sector does because it's it gets very capital intensive if you start buying all these huge lands you need and And also landowners usually, I mean, they pass from generation to generation, their land to their children and so on. And they do not want to sell. They want to own it. They want to have it enhanced. They want to, so to say, often also their own wind farm on their land.

So we really, I would say 95% of cases we just rent. And then there are some countries where you are more or less obliged to buy or where uncertainty is too big to rent. and only then we consider buying one case is hungary there there are some regulation so we prefer for example to buy land is there a difference in wind and solar because i think solar farms are more dense oh yes there is of course solar farms they use much larger surface of course people sometimes especially actually in germany they prefer solar farms because for some reason and it's very subjective. They do not interfere with the general landscapes, according to the taste of some people. But they eat up a lot of land. So you need for one megawatt solar, you need two hectares.

And for one, I mean, approximately and for the same megawatt of wind, I mean, you pretty much need no ground space. just have the foundation and that's compared to a megawatt solar really nothing so let's go ahead to development yeah in development then once you have the land then you need to do the permitting we call this so get the environmental approval the approval of municipalities the buy-in of stakeholders a lot of hard work again a lot of things you we have learned the last 25 years, you need a lot of suppliers for that. So it, again, it has high hurdles to entry. You really need to know how to plan and design and engineer projects in a sense that they fit to the environment,

that the impact is limited, that it's acceptable to authorities. A lot of brain and engineering goes into that. So there we have our planners, but also engineers. And then if you allow, if you have more questions, we can come. back. I would come back to the site acquisition development part because I think the development part is mainly run by your local or central offices and the site acquisition part is, is there a network you have on the ground like you have location scouts or something like that or are you doing it all by yourself? Yeah, it's a mix. But these two phases usually are fully done by our central teams.

So the site acquisitions is done in all the countries or in Germany, we have several offices. So people go to the countryside and we have an holistic approach. And then the same people in most cases, they also then develop because we want that they manage all stakeholders, that our colleagues have full picture on the holistic project. And then, so they do it centrally, but supported by, decently, but supported by central functions, of course. The engineering teams are central. They are in the headquarters. Is there on the cost side before we come to financing, is there any trend you could make, costs are going up for putting solar farms and wind farms on? or is it going down?

What is the trend? Unfortunately, these development phases, they get more and more expensive and more and more risky. First, I mean, we already touch the land. So, of course, today landowners more and more know about their privileged situation. So the prices of renting go up, especially as many competitors want the same lot. And also the complexity of,

environmental permits is increasing. We have this contradictory momentum on the one end everyone wants to combat climate change. And this is really what I think human mankind needs to focus on. On the other end, often the same people, they then want to protect the species. And I think we want to do that as well, but it often is maybe it's really extreme.

So then you need to do more and more studies, lengthier studies, higher compensation. And in the end, that means also that you often have projects that fail in these phases. So also depending on countries in Germany, at least every second project fails in these phases. And France as well, so France maybe not that many in other markets a bit less. In some markets, it could even be more. So it's really a risky investment, a very, very high risk. and it has also high return.

That's, I mean, that goes always together or most of the time together. That's why we focus so much on this field. That's where our strength is. That's where high risk is. And we take fortunately high reward also from these segments. Do we have a hurdle rate for projects where you say, I want to have an IRR of 50% before I do this? or yeah we do not so much discuss in hurdle rates we are first of all we are driven really by

by the purpose of doing and pushing the energy transition so sometimes we even do projects that have a very low margin but but we do it we developed it so we do it um because it's also the volume i mean it has also some business reason the more volume you have the better is you're buying power in the market. But the main purpose is the energy transition. And then, of course, usually, I mean, we would like, but that's often just visual thinking. And sometimes it's bigger.

We would like to have, on average, a 10% maybe a margin on the CAPEX, on the whole project CAPEX. So, of course, in this, if you invest one euro in a, a site acquisition, you need, I mean, think at least that you double that. So if not, you will not sustain. If every second project fails, every second euro is lost. So you need, I mean, double at least. I mean, you can take from that that usually, I mean, a euro that early on is invested,

we expect it to multiply. Then let's go to the financing phase. Yeah, there are our central teams, as you ask, come in. These are really finance experts that have the relations, as we said, with family offices, with insurance investors, pension funds, municipality investors. So a lot of different segments. And also they do the financing with banks. So usually we work with commercial banks because that makes it easier.

Multilateral banks is a long lasting process. Only in some emerging markets we do that. And yeah, and they add a lot of value. I mean, if you have not the means to finance a project, then you need to sell at a much higher discount. That's why our strategy definitely is to sell turnkey. We come to that, I think, later in some minutes, but the strategies really develop, finance, build, and sale.

When the asset is de-risk, so to say, when it's operational, then the risk drops immensely. And then we pass it on to an investor that has a long-term view and just looks at it as a bond in a sense. Yeah, then I have no question on the financing side. I think it's quite clear to me. Then let's move on to the construction and sales. Yeah, construction.

We have then strong engineering teams in construction, electric engineers that can build the civil side as well as the electric parts. So it's about grid connections today, as I said before. These teams organize all the construction. I mean, not a lot to say. So we do the foundations, the access roads, the grid connections, the fences, I mean, the installation of solar plants, whatever is needed. We organize it.

Of course, we have a lot of subcontractors that we use. that, I mean, yeah, that we bring together. We are not a construction company as per se. Where do you have scale advantages in this part of the value edit chain? Because you've grown and you are in different countries. So are there any scale advantages? Scale, definitely we have scale advantages in all of these value chains. So for example, if today you want really to identify sites in a very competitive environment,

you need to have a complex GIS system. So you spill that out to all the markets and regions you have. If you do development, development is maybe very individual. So I'm not sure if we can here talk about scale. It's more the experience, the repetitive learning of our colleagues that stay for many years. thanks thanks i mean we are thankful to them really and we have a very low churn rate on on people people stay with us and we we like to have them on board we have family but i would not say that scale financing is definitely a kind of scale because you the market is not so huge so often

you repeat with banks so once you have done all the structures in the market let's let's for example use France as a showcase. So in France, we do per year two, three, four financing transactions. And then, and we do maybe these transactions with only two or three banks. So over the years, there's a lot of scale. You know the bank, they know us as a trusted customer. So it's a lot of these relations you have. And then the transactions are a bit, I mean, I do. I do. I'm, I'm, It's not nice to say that to our colleagues who in detail need to fight a lot and work a lot, but there is, of course, some copy and paste. No, you do not start from scratch.

For example, our first transaction in Greece last year that took a lot of months, just negotiating the contracts, educating maybe some of the stakeholders involved. But now we do the second transaction, and hopefully it goes much smoother and faster. So these economies of scales you have. And in construction and procurement, I would say, of course, there is a very important topic to have economies of scale. If you buy modules, suppliers in China, for example, they would not talk to you. If you have not a certain minimum size, indeed, that is really important to do projects and to have a strong pipeline to be taken serious. And the same for wind turbines.

How do you make sure that the best people like to work for you and stay at Abouvent? First of all, it's really a challenge today. It's more a challenge, fortunately, for us to find new colleagues. We are a growing company, so we have grown to 750 colleagues now, all adding a lot and bringing their energy. So what do we do to keep people? First of all, of course, we want to have a nice atmosphere. We want to keep the family spirit, a fast decision-making, so that people see they have an impact. What they do really has results.

They do not report to abstract boards. They talk to the owners, to the board members directly. We have open-door policies. And, yeah, this is important to keep this. culture, we have the purpose, of course, of the company I refer to several times. So we work really for something that motivates us all every day. That also makes people stay. And then, of course, we adjust to more, let's say, modern topics. We introduced home office before Corona. So that's an important topic people ask. So we more and more allow that. We have smaller programs, but that add. So we have, for example, e-bikes, everyone can get an e-bike once one. Before Corona, we had a lot of socializing sports teams. I mean, all these things add up.

And I think the most important is really this abou culture that we try to proceed, that it continues existing for the last 25 years. And maybe, sorry, one. And last thing, I think what is important that Avo is we allow and see people as holistic. Everyone is allowed to be who he is, no matter what his orientation is or her orientation or, yeah, what one like. So we do not come to the office in suits and a facade. It's really, okay, we are the people that we really are, no. That's important.

In this diverse setup, how do you keep the, what you already mentioned as one strength, the fast decisions being able to make, how do you are you being able to make fast decisions even if you're growing like this? It's a big, big challenge really, and we address it every now and then and think about what we can do because, yeah, when you grow, people do not know every department, so there's uncertainty and that's perceived everywhere. What we do, just recently we introduced something that we call, I mean, project groups we have for many years.

Now we have a country group. These are groups where we have every function in such a group. So the project group obviously focuses on one project and they are really asked and we try to give them all the freedom to take the decisions. So, so we, and this of course enables after certain discussions, very fast decision making. So these projects, things if they need to, let's say make a decision on a, on an additional investment, no one needs to go to, so to say a top level management or so. And if, if still someone needs, they, they simply drop in the office.

It's really very, very direct. How in the, go on. Really, really these groups, and we have the same for the countries. So we delegate a lot of decision making now to the countries. There's then a finance person, a development person, country head, engineer even so. And these really should concentrate on a country market, gain know-how and make fast and, of course, qualified decision. It's not only about the fast decision-making. People need to be enabled then also to take the right decisions.

Maybe let's finalize this graphic with the services. Maybe let's start with the revenue basis. Is the services your main recurring revenue part or are there other recurring revenue parts in your revenue structure? In a very narrow sense, that's the recurring revenue. you, but it's below 10%. And it is, I mean, I should have said that coming back to your question, this is very sensitive to scale.

I mean, we grow. We also will grow by an organic acquisition. So we really, we also will buy service parts and, yeah, O&M parts from other companies. It is a very competitive market, so margins are thin, but yes, of course, they will contribute to the overall success. But the recurring aspect in our business that we reinvest and grow in our pipeline development.

And I think you will come back to that later. It's more like, I mean, for those that do not know the sector, maybe it's a bit more like the pharmaceutical industry. We live on our pipeline and the quality, where it's located, and what the value is so that's the interesting thing you want to renew my energy then please subscribe to this channel leave a comment or a like this boosts me and drives me 100% carbon-free and if you're listening to the podcast you can also write a review that's great thank you then let's go to the pipeline you've you sector your pipeline in phase one phase two and phase three if i'm adding this

Right. What is the difference in these phases? Phase three is the most easiest. It's the easiest. So we, we built already. All construction is imminent. So projects usually they are already financed. So these are the ones that you will see grid connected in most of the time less than a year. In phase two, these are permitted projects. And phase one are projects where. where if I'm right, I cannot read the small things here. The land-secured permit in progress. Yeah, exactly. So that's what we discussed before.

So phase one is really where we have a certainty that projects can do it and where we have the land-secured. Where are the biggest risks in this phases and how much default risk do they roundabout have? You already mentioned it, but. Yeah. Yeah, you're nicely asked these questions before to understand the business model. So now it's easy for me, hopefully, to explain. So in phase one, you have come over this land hurdle.

Often we do lose land rights in competing schemes. For example, in Germany, the forest, the state-owned forests, they tender their land. So you participate with 20, for example, 20 competitors, and it's really a race. But once we have the land, then the major risk is, of course, the permitting. And this has most of the time to do with environmental topics like protected species. In these areas, you still, I mean, we do, of course, pre-selection. So there's, if we are in phase one, we have pre-checked the sites. But still you can find, for example, a protected bird, an eagle, a Rotmilan.

or even some smaller animals or beds. A lot of things can make projects fail there. In Project 2, when you are close or about to have a permit, then most of the time they no longer fail. I mean, then something really strange needs to happen. Maybe, for example, in a political, very unstable environment, We had one project in Argentina when the crisis fully hit, so we had a project permitted with a tariff, and now it's maybe about to fail, a very small one, so it's not so significant for the group,

but extraordinary things, I would say, can happen. And in phase three, fortunately, and we keep our fingers crossed, and of course we do a very professional job, but so far we had no failure. at that stage so if they go through this three phases where's the point you will receive cash if you if you sell it after phase three or how you're going about it yes they usually standard business model now we need again differentiate into the markets we are in but standard business model as in germany or france is really in phase three so some Sometimes we get some upfront payment or we get because of the disbursement of bank financing some money to finance the construction. But the real ownership change, the flip of assets to the new owner is at COD, we call that the commission commissioning of a plant.

If I as an investor would ask you, how would you value the different phases and give you a certain worth? How would you do this? Yeah, this is, I, if I turn it around, yeah, if you allow, I would say, how do investors approach us? And this is transparent to the market, yeah. I mean, I can, I could now tell you whatever I think or what we think, but what the market says, for example, there were several acquisitions that I'm constantly confronted in an analyst conferences or an investor talk. So NordX sold their project pipeline to RWE. So this was the benchmark in the market. So it was really highly valued.

Don't ask me now exactly what the megawatt price was. So I would need to look it up. Google is your friend if you want to find it out. Exactly. Everyone listening today can Google it. That's very transparent. And it's interesting because it had an impact on our share price. yeah and all the analysts were wow you are undervalued you are undervalued yes and we and we only can

say yes of course i mean we have a strong pipeline it is mainstream now it is in all markets i mean it's often a timing issue when projects materialize how fast you can bring them from phase one to two and then to three but yes indeed indeed now i mean of course if you look at our share development, share price development, but also at our competitors, I mean, it had an impact. The whole mainstream focus and discussion of the finance industry now on renewables, on energy transition, has an external impact. Of course, we internally also have done a lot to sustain that. Why is there no phase four, like owning the wind parks yourself?

That's a very, very good question. and we are also all the time and we also frankly sometimes discuss it internally if we should change that. But I think we do it the right way because we are, if I may use this financial terminology, we are a pure play,

so to say we focus really on the risk side. As I said, the risk is when you develop, when you fight for land, when you need all the intelligence, the tools to really, bring this project to permitting. And you need to understand that this is not only, let's say, oh, we do it in a year,

no, in France this takes sometimes eight years in Germany, and now it's maybe five years. So it takes a long while and it is high risk. And when then you have grid connected, then the return is pretty low. Then it's more the characteristic of a bond, because you have repetitive, very state, very easy to plan returns and revenues over 25, 30 years. And this is capital intensive, of course. And we think instead of having this lot of capital for the long run, in an investment, we reinvested in this first phase,

which has overall higher returns. That's the story. We already have seen the project development value adding chain you have. What are other, what are your competitors in this space? Hey, Tillman here. I'm sure you're curious about the answer to this question. But this answer is exclusive to the members of my community Good Investing Plus. Good Investing Plus is a place where we help each other to get better as investor day by day.

If you are an ambitious, long-term-oriented investor that likes to share, please apply for Good Investing Plus. Just go to Good minusinvesting.net slash plus. You can also find this link into show notes. I'm waiting for your application. And without further ado, let's go back to the conversation. It sounds a bit like you have a certain ownership culture in the company. Is it also reflected in the shares, like that people that work at your company own the shares? Or is it like many German companies where people don't own trust, even if they're highly engaged?

I unfortunately would say it's rather a letter. People are fully engaged and identify highly with the company, are committed. And as I do, but many never took the chance to buy. to buy shares. This is maybe I think a bit like everywhere in Germany. There's not so much a shareholding culture. But of course, of course we have many, many colleagues that own shares. I mean, myself as well, of course, but I mean, many colleagues and very early on board shares.

And of course, they now also are happy. I mean, fortunately for us and for them, it has, has paid it out a lot. If you bought shares three years ago, it has dribbled. And if you have bought them 10 years ago, then the return is even higher. Do you have certain programs for this? No. We were also the truth is we were often asked from colleagues,

hey, shouldn't we have a share program for employees? But we need also be realistic. We are still a mid-sized company. And we cannot, I mean, I explained before we do a lot for our colleagues. We try really to make it a great environment to work for, but there are limits also. And these share programs are very costly. So we encourage people to directly buy shares and from their bonuses or from their regular salary. Then let's go to your key topic, the international profile of Abo Vint.

Maybe let's take a look at this map and can you try to tell a bit about the history, how it developed and what were the first countries you expanded to from Germany and why also? Yeah, this is also very, very interesting and it starts in a, let's say, funny way and then gets more and more systematic. So when we started, it was all entrepreneurial and small and the industry was really interesting. immature. So you could also say at a certain moment, some years, many decades ago, I mean, the map was really totally, I mean, how can you say it would be a white space for renewables? There was maybe Germany, a bit in Spain, a bit in other markets, and then the world was without renewables. So you could pretty much go everywhere and start the business. And how did it work at that time. So we first went, for example, Spain and Argentina were among our first markets.

And how did we do it? Frankly, we knew someone, someone worked here, went back to the whole market, and it was purely, let's say, these ad hoc moments, entrepreneurial, seeing an opportunity. In retrospective, we could also say not systematic in a sense. So then there was the next phase where we started to have teams that defined criteria that filled out huge Excel sheets to identify new markets. And for example, one of our most successful market entries was to Finland. And this was really an analytical thing. So we came with a lot of countries of the world and then drilled it down. And Finland was the outcome.

and then we went there. It was the first really fully systematic market entry. And five years ago, then, we started to double the speed of expansion. We doubled the countries. And there we also used quite a systematic approach, but also used different, I would say, criteria. So can you tell us a bit more about the systematic approach? what is important for you before you enter a new market? Yeah.

Oh, it's so, it's so many angles, yeah. Even if you do a lot of analytics, at the end, you need to take the risk. But yes, no, I will tell you a bit what we do. So we look at the renewable sector, yeah. What is the prospect of growth? We look at the political level. We look at if parties that are in government and parties that are in opposition support energy transition. We look at the bankability of a country, of the rating.

So is it investment great, then it's much easier for us to get commercial bank financing, which I explained before is a core part of our business model. And you would be surprised which countries are banked, which not, for example, we see Colombia. Colombia has been, for most of the time, investment-grade country. So you can get bank finance there, Tanzania, to pick one country, obviously not. Then we look at cultural fit. Is the language, I mean, is it a huge barrier? Is there a time zone difference that is too big?

So it's really a long, long catalog we look at. But at the end, even if all is ticked, yeah, you need to say, hey, can we do it? Have we in access? Can we find projects early on? We often do a bit of test in the market. We talk to institutions. We talk to even competitors. So it's really a process today.

What markets are close to where you said, okay, there were many boxes ticked, but you finally didn't decide to go there are there any examples uh let me think about i mean yeah let let's see the other way around where are we not yet and we think it might be good markets so for example i mean europe in europe we have the umbrella of the european union which i think is a very positive element and there we lack still italy for example we lack sweden We like Norway, we lack some Eastern European countries. So these are always, let's say, on our list. And yeah, you might decide with one or the other to enter.

But yeah, even as if many boxes have been ticked, they never took the initiative. I mean, you also, I mean, it's obvious, but it's also good to repeat. You cannot do one after the other or even in parallel. So you need to have a phase of expansion and then a phase of consolidating the countries. You need then really to, I mean, it's one thing going there, opening an office, hiring five people and then start. But then it takes you five years to make a profit in such a market.

So we have a bit in waves, expansion, consolidation, then we consider again a market. so it takes careful risk-taking, I would say. How long does it take until you, after starting your office in the market until there's something happen? Is it five years or is it quicker? It depends a lot, yeah, but five years is really a good assumption. If we go in the market and acquire semi-developed projects, and we did so in Finland, fortunately, we did so in Hungary,

then, of course, you have a faster, I mean, route to the market because half of the way is maybe completed. But if you just start with Greenfield, as we do or did in Canada or South Africa, then it takes you that long. Maybe it's four or five, six years. It's really, again, it's an investment you need capital for. And again, it's another answer why we said, hey, we want to expand internationally. We do not want to focus on Germany and keep our assets.

I mean, if we would in theory have infinite capital, then of course we could do everything at the same time, but we prioritized our core businesses, I have explained. So, and it's usually five people who go into a new destination and build the office there, or is it just one curious guy from Wiesbaden going there and curious woman from Wiesbaden going there? Yeah, often we have, fortunately, we have. these guys or women that want to go there and explore and feel that they are in the market and do it and overcome all the challenges. But again, it's the systematic way today we do it. So we try to do it in teams and we try to do with local hiring.

And let's say a minimum size is five. usually we scale up quite quickly. So, yeah, 10 is a good size. Because again, I mean, I explained before the functions, you need different functions. I mean, you need, of course, all these planning people. You need colleagues that understand the grid connections, people that can talk to customers there.

So it's a different set also. Not one person can do it all. how do you make sure that in this new units the abomin culture still perpetuates or that your standards are held however you want to frame it yeah if you're asking before covid it would be much easier to answer because of course a mid-sized company lives on on interacting with people that people come to we spot and we go to the markets we do a lot of introductory courses and trainings and also in markets go together with new colleagues to possible clients, institutions, banks, etc. So I would say it's an ongoing process and you touch an interesting point because especially now after a corona crisis where we I mean I have even not met some key people we hired for example in Canada I'm not allowed to fly there because

of the regulations, so we cannot go there. And I have not seen some of our key personnel we hired last year. But that triggered also a more systematic way now. We want to create more formal onboarding sessions and trainings and get together. So it needs, again, also an investment to keep people in this culture, in this ownership culture, in this entrepreneurial spirit. But it's also the day-to-day, no, if people, People act and commit errors.

We need to accept it. We need to encourage people to take decisions. We need also to accept that it's maybe not always in a way that I personally or one of my colleagues would have done it. But there are different ways to do things in especially in different countries. So the units are 100% daughters of Abilint. But there, as I saw from the annual report, there are entities themselves. So you could close them without having a bad effect on AboVint

or how you have built the structure there. I would say to the first part, you mentioned, yes. They're 100% Abo-owned. And simply closing it, this would have, I mean, huge side effects. Usually we are really for the long run. I mean, look at Argentina. They're almost for two decades now, not totally, but almost. And I mean, we go through the ups and downs, no.

We believe in the long-term potential of a market and we invest. I mean, sometimes we invest less. If there's a crisis, if the market gets more attractive, we invest more. So we are really for the long run. We have closed, and it was even before I joined only one office. and that was in Bulgaria and it was totally because of a super adverse effect in the environment

if companies introduce taxes that kill your business model and okay finally you might have no choice then leaves so for instance in Canada are there any people or like in the general markets that I marked orange on the map is there always a person that comes from Wiesbaden

or are these teams that are locally built? Most of the time they are locally built. We have always a responsible at least one or more in Germany. And the functions also dedicate a certain person to a market. But yeah, it's most of the time locally. Sometimes we deploy one colleague for a temporary period. Sometimes because there's an interest, someone goes there for the long term but in a systematic way we build local teams and that's

good because we need this local flavor you need to talk to municipalities to authorities landowners and as a foreigner you you get lost yeah which free markets are you most bullish about and why which what did you say which three markets or which free markets with free markets like Three, like the Germans say THH, are you most bullish about because they offer the most interesting opportunities and why is that so? Yeah, good, good question. In the end, every market we are and has a, let's say, an interesting story to tell and is attractive. Of course, our core markets are Germany and France and these are very profitable markets. and where we have strong teams for many decades now,

that these are the markets we know the environment best. And it's, are the largest offices. So I would be, would be strange not to name them among the top three. For me, it's also, and this is maybe also a bit personal, Spain. I'm very bullish about we, when I started in Spain, when I joined Abbey, you asked me, where did I start? And I told you, I started in Spain and it was a dead market, no single investor. I had a list of at least 100 investors all over the world.

I called one and next one and they did not even want to engage in a discussion. And today we have huge targets. We have so many competitors. Every investor now wants to buy from us in Spain. And it's a market that is self-sustaining in a sense that you do no longer need subsidy. So it's a free market also for renewables. It's there where renewables already, I mean, push out everything else. And it is a good showcase what we will see in the next 10 years all over the world.

So these two core markets in Spain are your free bullish markets? Or is there any other market you would say? If you wake me up in the morning at free, I would say this is a great market. Of really, I would say, I can continue now. You ask me three. I gave you three, but I can continue. For example, I'm in Canada. I like it.

We are still new there. We just hired a new, very good management team. We continue hiring. We have the largest project in all Canada under development with 500 megawatt. In Alberta, Calgary. We are in Nova Scotia, where we develop a nice portfolio. a very small niche market, but huge wind speeds. So it's exciting to do projects there.

And suddenly there are things popping up, which I would not have anticipated two years ago. Suddenly a lot of people start talking about exporting hydrogen, like you might have read Fortescue is one of these big players. So suddenly you start seeing huge, possibly you start seeing huge export-oriented. green hydrogen projects. So in Argentina, we now suddenly talk about gigawatt projects in South Africa, maybe as well. In Canada, we do.

We have one discussion ongoing for a huge, huge project for hydrogen export, discussed that in Finland. So a lot of, I mean, if you want to see excitement in these markets, yeah, there's a lot. continue to discuss about maybe with look at time also let's go to the markets where you have the feeling there are more headwinds than tailwinds so the wind blows in your faith instead in your back and supports you what markets are we have them always also and that's why we base our thinking in a portfolio no so that's why we have a diversified set of countries in different maturity stages and different cycles, life cycles. Whereas headwind, for example, in Tunisia, the government needs to really, yeah, organize itself in a sense they have not even, at least until recently named an energy minister.

So the energy minister needs to sign all the regulation. So in such a market, you have difficulties, of course. But again, the long run, we see positive. In Tanzania, we have seen a change in presidency. So let's see how that evolves. We had headwinds in the past. So new president might give it a new positive impetus. And of course, we also need to say and admit that, I mean, in Colombia, especially in South Africa,

we are hit quite a bit by corona, no? I mean, if everyone who reads the news sees, hey, Colombia is still very much struck South Africa as well. So it's not easy for our colleagues to travel. But that again, I mean, we then have so great people. They find their ways. They find alternative foods. We have done the first environmental stakeholder,

how do you say that, audience listening to stakeholders in a virtual way, in Colombia and also this is really I mean it creates a lot of innovation if you have good people that want to overcome obstacles did corona make your company stronger on the one hand I'm absolutely sure it pushed innovations like digitalization I mean today it's everywhere in the world we are connected via teams. This was not so perfect in the past. And this saves a lot of flights, travel. I mean, in this sense, stronger. But also I personally feel, but there might be different understandings. I personally feel that there's a threat. And this is when you are so long apart, it works because you know each other. You trust each other. You know,

the procedures, the processes. But now we are in a phase, as I said, we hire additional people that have not been integrated before Corona. Now we are at a point in time where definitely we need to take a lot of care and to not have some people go astray or that we do not lose people. So let's move on to the other markets you're trying to. enter you already entered in 2014 you find it founded abercraft and verme which is heat and heat and um or heat energy and biogas i think 2007 you did set up your first solar park

um 2020 you built your first battery storage project in 2021 you built the first solar and wind project together so why did you go for this new businesses and what are your key learnings from them Yeah, first of all, I think I mentioned it, but it's also good to repeat. Our founders were motivated by the energy transition. So it's not, let's say they say, hey, there's wind, we can make profit. No, they really want an alternative energy system. They want to combat global warming in a social-friendly way. So it's not one technology that will be sufficient for that.

So because of the interests, and here I refer really now to the owners, founders, the original founders, they were very interested in bioenergy. That's not my field. But we have, especially in Germany, we developed early on some biogas projects. It's a business. We never expanded it to international markets because it's complex. It's more a logistics-driven business. So it is not like a wind or solar farm. A wind and solar farm pretty much you build it, then you run it.

But you, I mean, there's not so much to do. But logistics in biogas every day you need to manage the streams of material. It's a different business model. And some of these and most of these things are now in the craft environment, as you mentioned. So then, and this is internationally also relevant, we started solar five, six, seven years ago. I already said when we suddenly felt, hey, the solar market gets competitive before it was a subsidy market, only living on subsidies. And suddenly, like in Mexico, that was one of the trigger moments, it beat, it beat the, wind in tenders.

Then we started, hey, we need to rethink. We started large-scale solar projects. And we hired very, very experienced colleagues. And now every second project is a solar project. We start. And the reason that you mentioned rightly is storage. Again, we repeat a bit in the same way. We hired a very experienced female manager,

and she builds the business and it starts also quite promising. We build now a 50 megawatt project in Ireland. That's quite huge in storage terms. What are the business opportunities you're expecting from these businesses? I mean, solar is like wind. It's a very profitable, long-term business. Solar is the most competitive one.

where you can do large-scale projects in most of the countries. We are operative. We have countries where we just do solar, like in Colombia, for example. Yeah, what can I say? I mean, the same business model, as I explained, applies. We have good margins there again, about to say something. We expect also the 10% on average on CAPEX, at least in the long. run and storage is, of course, there we have different business model.

Storage will become part of some solar projects. We call that then hybridization, but also storage will be a standalone, and then you have different services like frequency, control of grid, grids. You shift supply and demand, some hours from, let's say, peak production of solar to the evenings. I mean, lots of business models. And also we have another business model off-grid, or let's say in weak grids where we really supply with batteries, communities or large industries also. So it's a key component batteries to get closer to 100% renewables in the grid. Is there any big extra risk from going into this new technologies?

is it doable with the existing knowledge you have? So how you're making sure to manage the risks good in these new technologies? Definitely, you need a different know-how. That's why we have created the group on batteries. It's not that someone does it, that has no clue. As I said, we hire an experienced manager. We also hire additional colleagues. there is one aspect maybe that's especially different you need really this needs a management system

so you need to understand when to load a battery when to give electricity to the grid again so this needs an intelligent system which usually usually in solar and wind you do not have i mean solar you produce when there's sun wind you produce when there's wind but in the in the storage business you need of course intelligence and this is more software based so i mean there will there are additional competencies needed and it's more even more market driven often so you need to anticipate in the next 10 years how volatile will be a market because you want to get the energy when prices is low and you want to feed it back into the grid when when prices are high so and this you need to do as often as possible to make a battery profitable. Investors often love options in businesses that might

become a bigger business. And I have the feeling that in the energy market, a lot of things are speeding up now and changing and cost aggression is kicking in at a certain point. So where do you see this or where's above already lurking around in spaces where they could build new businesses we haven't even talked about yet? Yeah, I would say, The big thing, the big new thing is hydrogen. You have read about it, I'm sure. So hydrogen will be needed to decarbonize some of our industries. It might be needed in long distance transport.

It might be needed, I don't know, in some specific areas. Maybe some in heating, some backup generation assets. So this is a big, big new thing. For us, first of all, it's a huge driver. because every green hydrogen element you will find needs some renewable assets behind to generate it. But second, we also, in partnerships alone, want to expand into this area, to do the central integrated hydrogen businesses. We see a lot of opportunity in combining all the technologies we have.

So we have hybridization in Spain that takes off now. So we combine wind, solar and storage, maybe in the future hydrogen. So a lot of things really that will come together and that will one more replace the conventional assets we still see in the market. And that will be there for a while still. It's a hard question to answer, but I find it's interesting. so I tried. So if you compare like being in 2011 and being in 2021, where would you say I'm more hyped by the chances you have in renewables?

Which year would you pick this year or 2011? Me personally, I would pick today because I like now that it becomes mainstream and omnipresent and we really do now the transition. If you see it more from an entrepreneurial avant-garde, visionary perspective 10 year ago would maybe still be more fascinating. But even today we have that, no. I mean, what you asked at the beginning, looking 10, 15 years ahead, how will it look like? How will it work? I mean, there are so many open questions we need to answer. And that's really what all our colleagues work on. That's a fascinating thing. We need to do it. Our wind wants to be

part of it. We need to be successful with the energy transition. If not, first of all, of course, we lose against climate change with catastrophic impacts on all of us. But also it might mean if you do it in the wrong way to lose jobs or to, yeah, to have too many people that we lose in the way to full decarbonization. So for the end, it's talk about a bit of entrepreneurs behind Abiland, the family Bockhold and the family Aann, Abo. What is there, like they're currently holding 52% of Abiland. Is there a certain point where they go through capital increases below this 51, 52% threshold?

Yeah, first of all, of course, I do not want to speak in name of other. So it's up to them to communicate these things or to give their personal view. But what I can say, what we discussed at the board, we want to stay with this agility and entrepreneurship and fast decision-making. And it helps to have the owner on board. They have a lot of knowledge. They give a lot of energy to the company. And they are, to my understanding, fully committed to keep 50% plus,

plus one share, keep control. So we have still, and you call it an option, I call it also an option. It's not that we want to do it or that we think about it, but we have the option, of course, to have an additional capital increase to come to this limit. In value investing terms, Warren Buffett and Charlie Munger play a important role. and from Ron Buffett, there's this quote that he likes to tap dance to work.

Have you seen one of the founders tap dancing to work, or how would you describe their energy today? Yeah, I see them with full energy. I mean, again, I could tell some things, which I do now not, but I think that's no secret. Matthias Pockeld, for example, is a sports person, so he comes sometimes by bike. And, I mean, it's not a tap dancer, so to say. One secret about me, I mean, I love Argentine tango. So you might see me sometimes dancing tango in a good spirit for Abo as well. Maybe another...

Take you a picture, yeah. Secret, I don't know, I haven't found it in the end of the report. How many shares do you own of Abo? and is it a significant portion of your wealth unfortunately not yet but I'm building up I hold yeah some some I should not disclose but some 10,000 euros but no

so there's some room to go there's room to grow I actually look I tried I try to invest more but then the share price was always in front of me, so to say. But, yeah, I mean, I continue build it up, especially since I'm board member.

So it's a small shareholding. I also, yeah, hold different other things we have like Messanine financing. So I'm fully committed. That's not the question. But, yeah. Do you personally then think that the share is overvalued at the moment? no I would I would say not but it has it has actually it has reason three times in value in the last year so that's really a success as I said it's driven by our build out of the portfolio so we have we have continually grown the project portfolio and and yeah we will I mean we will continue doing so and it's also driven of course by by these new general very very positive

environment it's also driven that we are now perceived as a much lower risk company because as i said in the past we have been in a niche now we are the core of the energy transition nothing will move without renewable projects we have already the picture of the wind park in the back and one topic that comes up before my final question Is repowering an important topic for you? Like replacing of old engines with new or bigger ones? Yes, it is definitely. Especially in markets that are more mature like Germany.

And yeah. Do you have a rough estimate how much is in the pipeline that's repowering? In Germany it gains very, high significance but i cannot not tell you how much it is maybe maybe 10 up to 20 percent of the pipeline maybe we i will forget the information from mr kovka i could in the show notes like the final question before you have the chance to add anything if you haven't discussed it where do you see abuvent in 10 years yeah i see i see us in more countries i see us doing much larger projects than today that's why we increase our capital that's why we

issue subordinated loans i think we will yeah we will be a key element of the energy transition so we will have grown in the service area we discussed before so by organic unorganic acquisitions as I explained and a lot of organic growth so stronger positions in batteries a significant position in hydrogen in batteries and in more auxiliary services no you said it i mean all will be integrated so there will also be more intelligence coming to all of that so intelligent use of these energies, software, I think we will also, of course, grow in size. Maybe we are double, I don't know, but that's not a target for us. We want to be a part of the energy transition and have a significant position.

So growth in itself is not an aim, but it comes with the market. When the market grows, of course, Arbor Wind will grow. Then do you have anything to add for the end of the interview behalf? discussed? I think we really have touched a lot of topics. I think and I'm happy you invited me. I mean, you are calling yourself good investing and I can only encourage the financial community to continue investing in renewables, not in conventional assets. We as Abel want to be part of the journey will continue to drive energy transition. So I think we touched it all i think that's the spirit the purpose thanks for being with you today thank you very much

for coming and thank you and thank you also to the audience have a great day you all bye-bye as in every video also here is the disclaimer you can find a link to the disclaimer below in the show notes the disclaimer says always do your own work what we're doing here is no recommendation and no advice so please always do your own work Thank you very much.