Voiceover (00:01): This episode of Energy Sense is brought to you by S&P Global's Financial and Capital Markets Energy Advisory Group. Our team of experts provides the investment community with actionable insight and integrated thought leadership that identify the trends and trend makers of global energy markets. Solutions cover the full energy and natural resources sector from traditional fossil fuels to emerging clean tech ideas and supply chains, and are available via recurring reports, webinars, robust data sets, and personal engagements with experts.

Hill Vaden (00:30): All right. Welcome back to Energy Sense, an S&P Global podcast covering all things on the intersection of finance and energy. I am here today as usual with Breanne Dougherty. How are you, Brea? .

Breanne Dougherty (00:46): I'm good. The sun is shining. We are recording this amidst CERAWeek actually, so I've spent the week listening in on some good dialogue from industry as well as the investment community. So yeah, it's been an enlightening week for me. .

Hill Vaden (01:00): It's been a big week. There's been a lot of social media and media in general has been covered up with CERAWeek, it looks like a... I guess the first digital CERAWeek, so it's been a virtual CERAWeek. So it's-.

Breanne Dougherty (01:15): It's interesting, right? Because I guess the accessibility to it then was, I have to say, I would think that I'm able to tap into the conversations with a little bit better ease because I can work them into my schedule. There's definitely some benefits to the virtual side of it, but I think everybody's missing the in-person dynamic. .

Hill Vaden (01:33): ... Yeah, in some many things. .

Breanne Dougherty (01:35): Yeah. So many reasons why, the in-person dynamic. But no, I'm impressed. I think the conversations have been great and it's nice to see the level of engagement we've been seeing from clients. And maybe it's, right, we live in this world, so maybe that's why we're so bombarded by CERAWeek? We-.

Hill Vaden (01:48): Right. .

Breanne Dougherty (01:50): ... live in the world, so we see it all. Maybe for those outside, they don't necessarily know what we're talking about here? But yeah. No, it's been great. It's always a little bit exciting to hear the conversations that you're not always otherwise tuned into. .

Hill Vaden (02:05): Yeah. And so our guest today is Andrei Utkin, who joins us from Europe. And we're going to be talking about wind. Andrei, how are you? .

Andrei Utkin (02:17): I'm doing great, thank you. And thank you for having me today. .

Hill Vaden (02:20): Yeah, gladly. And we promise not to make too big of a deal about it, but this is also an important episode for us because this is our last podcast with Breanne, who is going onto other adventures. .

Breanne Dougherty (02:35): So true, Hill. And I'm not just saying this, it's a little sad for me. It's exciting because we've got Andrei with us, he's actually a new guest, so that's very exciting. And I'm excited to leave on a hot topic note here for sure. But it's a little sad. Maybe it's because, obviously Hill and I speak a lot? But in the nature of what the past year has been for a dynamic for everybody, this has felt like an outside connection. .

Hill Vaden (03:04): Yeah. .

Breanne Dougherty (03:05): It's a little bittersweet. But it is what it is, right? .

Hill Vaden (03:09): It is. And no pressure, or perhaps pressure, but I was thinking about Hey Ya!, which was of course the big hit from Outkast's last album, Speakerboxx/The Love Below, which all in all, the hit was better than that album. But we're going to try to repeat that, the last Outkast album. We'll try to repeat the success that they had with our final podcast. .

Breanne Dougherty (03:36): With a big hit? I thought you were going to go somewhere maybe bad about that, but that like the album sucks? Are you saying my album of Energy Sense sucks? Is this what... But maybe we can have one good one? .

Hill Vaden (03:47): Well, when I'm not looking at Outkast in a single album, because if you look at the whole thing, I mean, ATLiens and Aquemini are absolutely fantastic. .

Breanne Dougherty (03:56): Oh, they changed... yeah. They had a huge influence. What year was Hey Ya!, like 2002? .

Hill Vaden (04:04): I think... Well, let me look at my phone. .

Breanne Dougherty (04:07): 2003 maybe?

Hill Vaden (04:07): I was still in college. 2003.

Breanne Dougherty (04:11): [crosstalk 00:04:11]

Hill Vaden (04:11): I was not still in college, I had graduated college.

Breanne Dougherty (04:14): You were just living like a college student maybe?

Hill Vaden (04:17): Yeah.

Breanne Dougherty (04:17): So I think that's what the memory is? Yeah, because I remember I was back in Alberta I think when it hit. Okay. And we have an Andrei with us, look at that.

Hill Vaden (04:24): We do have an Andrei, Andrei [crosstalk 00:04:27]- .

Breanne Dougherty (04:27): ... connections?

Hill Vaden (04:28): ... Yeah. And our topic of course is wind, which is so fresh and so clean, clean. So there's-

Breanne Dougherty (04:38): I love it, Hill.

Hill Vaden (04:38): ... the segue. So Andrei, we've talked, Brea and I, on several other podcasts about clean energy, solar, hydrogen, that there's a lot of obvious enthusiasm around the clean tech and clean energy space right now, which is of course no secret. I think hit us recently that wind is a bit of a horse of a different color and more mature than some of these other technologies. Can you help to frame the overall wind environment right now, noting the differences in onshore and offshore before... I think we wanted to really dive into offshore for most of the conversation.

Andrei Utkin (05:17): Yeah, exactly. Thank you. So that's a great question. And also for those people who were listening to CERAWeek sessions, offshore wind is really a big topic these days, right, for different markets, particularly in northern Europe and mainland China, Asia, some emerging markets in the US. So now, why offshore wind is so important? And why so many people are talking about it? So if we're looking at projections in our outlooks to onshore versus offshore wind, onshore is certain on a plateau, saying that next 10 to 15 years, it's kind of stabilized near 50 to 60 gigawatt a year of new additions, and it's not supposed to grow on an annual basis.

Andrei Utkin (06:00): Now, offshore wind is a completely different animal. Right now we're installing something around five to six gigawatt a year, and it is expected to increase five to seven fold by the end of the decade. So now five gigs a year by the end of the decade is going to be something around 25 to 30 gigawatts a year. So that's why there's so much room and so much new opportunities for conventional players for offshore wind, but also new players that are coming into the industry. So yeah, and different drivers, right, for those two technologists?

Andrei Utkin (06:38): Now we more and more hear about green hydrogen, and so hydrogen, which is basically based on renewables. So offshore wind is a technology which suits very well for that green hydrogen production, and also power supply. So yeah, I guess that's the framework where we live in now.

Breanne Dougherty (07:01): You mentioned I think something that has really jumped out at me over the last few weeks around offshore wind, there's just so much more conversation about the new players that are entering into that technology specifically, mainly because it seems still from the most recent UK options that they're the majors, they're what we would, back a couple of years ago, describe as the traditional oil and gas majors, that they are really getting into the fold here. Was that surprising? That was expected? Anything? How do you feel about the changing corporate landscape?

Andrei Utkin (07:31): Yeah, this is a great question because I remember let's say, five years ago, so right, like the sector was fully dominated by European gas and power utilities, so now it has dramatically changed. Now we see basically most of those European oil and gas majors coming into the game, BP, Shell, Equinor, Total now, so all of them is in the game. Now probably the next big move will be the American oil and gas companies, so why it's happening? So first of all there is a massive pressure from the societies, so all of them, they have carbon neutral goals by certain years. It depends on the company obviously, some to 2050, some to 2040.

Andrei Utkin (08:17): And offshore wind brings massive scale of new capacity. Can you build that with solar and onshore wind? Probably, but there is a problem with land, right? So to build a gigawatt, or two or three gigawatt project, you need a massive piece of land. Now if we're talking about Europe, not everyone wants to have a massive wind turbine on just the back of your yard. If we're talking about offshore wind, this is a completely different energy. You have three gigawatt project somewhere spinning in the middle of the sea, nobody sees that, and it brings you a massive capacity of green energy.

Andrei Utkin (08:58): So oil and gas players believe that they can leverage their core experience, right, because they have so much experience in offshore activities, but also, the supply chain that they used to be served is basically the same. So they feel this natural move towards offshore wind. And at the same time, offshore wind also has to be split into two, it's a conventional, sorry to say, bottom fixed, so we can go up to, I don't know, 60, maybe maximum 70 meters depth. And then there is also floating offshore wind, which is a completely different animal.

Andrei Utkin (09:36): These two technologies are not going to compete, but oil and gas players see it as a predominant part of offshore wind space where they can actually dominate and maybe compete against the conventional European utilities and gas players.

Breanne Dougherty (09:54): This speaks to my lack of understanding, but when we talk about the floating verus the fixed bottom, are the more traditional offshore wind developers very much focused on fixed bottom, and these new entrants are going to maybe focus on floating? Does floating only work in some region... like, why go fixed bottom? Is floating the way of the future and fixed bottom is just sort of what we got right now? How does that fit?

Andrei Utkin (10:21): Right. So the fundamental difference between these two, obviously bottom fixed, it's a mature technology, right? So we know how to install it, we have technology, we have roughly 35 gigawatt of bottom fixed today installed pretty much everywhere in the world, but mostly in northern Europe. So northern Europe is, what? UK, Denmark, Belgium, Netherlands, Germany, it's roughly 25 gigawatt. And then additional 10 you have in mainland China, so that's been deployed so far. Now floating is really a pilot stage right now, so we don't really have any commercial scale project been executed.

Andrei Utkin (11:03): Now this year, 2021, is really a milestone for the technology because we is going to see two first commercial tenders, one in France and one in the UK. So literally this year floating is going to become a mature technology, sorry to say. So it's getting scale. Now when I say that this-

Breanne Dougherty (11:24): Who's driving those projects? Do we know who's behind those ones?

Andrei Utkin (11:28): ... So Equinor is one of those oil and gas majors who has been developing this technology and they have a few pilot projects, and now they're building 88 megawatt in Norway to supply electricity to oil and gas activities in offshore Norway. Now when I say that these two technologies are not going to compete, I mean that if you can install bottom fixed, and it's not only about depth, sometimes it's all about seabed condition. Seabed condition can be so poor that bottom fixed cannot be technically install. So in this sense, if it's not bottom fixed, it's definitely floating.

Andrei Utkin (12:10): Now there's certain markets in the world, for example, Japan, or western US near California, or South Korea, or Norway, or UK, or certain places in, I'm speaking maybe longterm, but Brazil, South Africa, Australia. The water there is so deep that you actually cannot go with bottom fixed, so floating is going to open up absolutely new markets. And so those oil and gas players, you can obviously go and try to compete with Orsted or Vattenfall, or [inaudible 00:12:43], so those companies who are very mature, who has large supply chains in Europe and compete to conventional bottom fixed.

Andrei Utkin (12:52): But it's much better to jump into floating, and to start building and developing those projects in new markets, right? So it open up just new business models for those.

Hill Vaden (13:04): What's the general appetite, well, for offshore wind period, but floating versus fixed? If I think about offshore oil and gas as a corollary... that there's NGO concerns, there's environmental concerns, and you think of some of the problems that have happened with offshore oil and gas development, are people reluctant to embrace offshore wind for any... I mean, obviously there's not going to be a wind spill, but is there any concern?

Andrei Utkin (13:36): Yeah, there are a lot of concerns. And when we're looking for example at developments in the US, right, it's very hard to push the development of these new first projects and to get permissions. And you always confront to fishing industries and different competitive usage, it's not only fishing. Like, we've seen projects in Sweden and also in California been stopped by the military usage or some other things. So yes, there's always a competition, but that's the beauty of floating, that you actually... if we manage to make it work, you can deploy it at absolutely everywhere.

Andrei Utkin (14:20): It shouldn't be just standard 20 or 30 kilometers to the shore, it can be somewhere hundreds kilometers to shore. And then all of those concern that you mention, we can eliminate those. So it actually... one of those points, how floating can be beneficial.

Hill Vaden (14:39): And floating seems a lot more complex from an engineering perspective, is it? And therefore, would change the returns profile?

Andrei Utkin (14:46): Exactly. So it's much more complex, as you said, probably from the technical perspective. The wind turbines stays pretty much the same, right? So yes, there's certain technical modifications needed, because actually your platform is moving all the time, right? So you have to capture certain winds, so you have to adjust your wind turbine in the direct of the wind. But the platform itself is very, very complex. And then the mooring system, so the system by which you attach your platform to the seabed, is also extremely risky as a system.

Andrei Utkin (15:24): But now it's all about scale, right? So now our projects are first pilot projects, is like three, four, five wind turbines. Now with scale when we will start to build hundreds of those, that's where the risk's going to be mitigated, and also the cost's going to go down. If we're talking about cost for example, today floating is just un-comparable to bottom fixed, it's at least twice as much as bottom fixed. And depending where we are and depending what kind of design are we choosing, then yeah, it can be up to three times. But we believe that by the end of the decade it's going to be dramatically reduced, and so probably also by three fold from today's level.

Andrei Utkin (16:07): And I anticipate your next question, why floating has different designs? So far, once again, being a pilot technology there's so many different designs. You can have spar buoy, you can semi-submersible, you can have... there are roughly 45 to 50 different designs of those foundations. And obviously if you have 35 different designs, you cannot get it into massive scale. So this is the challenge where the industry has to overcome and has to choose maybe one or two, or three preferable designs, and to push these designs further into scale. And that's where the cost is going to go down.

Hill Vaden (16:53): And so when we look at, obviously wind energy is a global phenomenon, are there areas that have better wind, that if I'm looking globally, would I rather have my turbine in the North Sea than the Gulf of Mexico, than offshore China, and why? Are there any predictive elements to those places that have the best wind?

Andrei Utkin (17:21): Absolutely. No, that's a great question. Of course yeah, so places are very different and spots are very different in terms of wind density and wind speeds. Now Northern Sea is just a perfect place for different reasons, right? First of all it has basically one of the best winds in the world, then it's relatively shallow, so once again you can do bottom fixed. And that's why we have 25 gigs already and a massive pipeline which will be bottom fixed. Now interconnection plays a great role because at the end of the day you have UK, France, Germany, Belgium, Netherlands, Denmark, and all of this is interconnected.

Andrei Utkin (18:00): So now we are thinking about future designs of how you're going to interconnect all of those, and to build artificial islands in the middle of North Sea or Baltic Sea, and then to put some hydrogen platforms, electrolyzers. And then when the power price goes down somewhere, you just deliver that electricity where the power price goes up. And so there's different models which open up new markets. But then Gulf of Mexico that you mentioned, is not the worst spot in the world either, it has great winds.

Andrei Utkin (18:34): But now the issue is that it's relatively deep, so Gulf of Mexico, you have to go floating. Then Latin America for example, also different issues relatively deep, but if you look at winds in certain places in Brazil, Chile, Argentina, great winds. China has great winds. So yeah. And obviously eastern, north east part of the US, so that's where the current development is happening, right? The state of New York and Massachusetts. So this place is very equal, let's say, to Northern Sea.

Andrei Utkin (19:13): But yeah, further down the road obviously we're going to open new markets and go to southern Europe, and once again, South Africa, and Asia. Asia has a massive potential, Japan and Taiwan, South Korea, Vietnam, all of those places, they already started to develop and they will have some capacity spinning.

Breanne Dougherty (19:38): So I've got... sort of just about that expansion into these different regions globally, and again, speaks to my background that's been very much in more traditional forms of energy. We always sort of looked at that world as the exploration, right? Kind of when you look at explorations programs and how this plays out. And two things were always really important, and I'm interested to hear your perspective on offshore wind and how important these factors are. So one, when you talk about the success that's happened in Europe, to me what came out as very obvious was that whole into an established, well integrated existent market, right? That there's the benefit that there's quite good infrastructure once you get to land and that those markets are very well integrates, that provides that transparency, and all those things that go along with it.

Breanne Dougherty (20:25): Is that going to be a hurdle for some regional development? Do we see that as a real hurdle or do we think that because this is coming from a green source, we don't expect the same hurdles to emerge around onshore above ground risk, I would call it?

Andrei Utkin (20:42): No, I completely agree with you. Of course risks are there. And also, offshore wind is normally installed where the load centers are, right? So that's the beauty. Like, you have those coastal cities, coastal, massive consumption of power. Now the biggest challenge I would say in these new emerging markets are not only in northern Europe as well, is the grid connection, right? So grid connection is a massive problem, a massive issue. It has to attract massive investments and also grid reinforcement, or sometimes we actually need to build it from scratch. So the grid is simply not there, so it's somewhere in the land, not next to the sea.

Andrei Utkin (21:25): And once again, we are bringing massive amounts of power, right? So if we're talking about one of those largest projects in the world, [inaudible 00:21:34] Bank, 3.6 gigawatt in the UK, it's an investment of roughly $10 billion, and you have to build really the whole thing from scratch. So you have to put massive substations somewhere in the sea, on top of that, expert cables and everything, and then onshore substation, and then somehow deliver that power to consumers. So it is a problem everywhere in the world. It's not that it's so much established in Europe, but in other places it is not.

Andrei Utkin (22:03): So yes, this is one of the inhibitors, and that's where the regulator has to intervene and really think very carefully how to design these new connections and interconnections between regions. Absolutely.

Hill Vaden (22:18): So if I'm to continue Breanne's analogy here, if I'm exploring the world for wind or for opportunities for wind, it seems like the North Sea is the perfect place, because you're close to markets, you've got good wind, and you've got a shallow sea. Where do I go next? Am I looking for good wind first or access to markets first? Or we see kind of a bifurcation where some are building the projects in the good wind area, some closer to... I guess put another way, where is the next best wind? And is that project already happening or are people waiting to build a market to access that wind?

Andrei Utkin (23:01): So obviously we're going to go to the markets where the wind is because there are certain places in the world where there's simply no wind, so it does not blow or it does not blow as well as... onshore wind can be much more competitive than offshore. And then of course it does not make absolutely any sense to build, because once again, offshore in terms of instillation, it's so much more complex. You need to use these massive installation vessels and these... all techniques and supply chain is just absolutely crazy. We are talking about the new business of Siemens, Komaza, or General Electric, which is, I don't know, they have height of 160 meters and blades are 130 meters long, so it's a huge, massive infrastructure.

Andrei Utkin (23:49): So of course first of all wind has to be there. Secondly, it's country by country specific, so it depends what is the power market dynamics, what are you trying to achieve with this technology, and what drives that? So in Europe for example, now we have these massive ambitions of green hydrogen, right? So it has been established already. We have a target of 40 gigawatt of electrolyzers by 2030. Now how are we going to achieve that? Well, once again, offshore wind is a great technology which suits the purpose. And why is it so? Because of very high capacity factors. We can each up to 60, 65, which basically brings us pretty much to the base load.

Andrei Utkin (24:35): Now can you achieve this target with solar panels, for example? Well, in some regions, probably, but if there's no sun, there is no electricity. So it's a combination of different drivers, let's say, and in every single country in the world it's going to be different. Take the example of Japan, they want to close their nuclear capacity, right? They're trying to phase out coal and stuff, so for them offshore wind is a natural move, which might not be the case in some other countries in the world.

Andrei Utkin (25:06): So for France for example, we have here roughly, I don't know, 80% of electricity coming from nuclear, right? And it's aging, the fleet is aging, so are we willing to build from scratch all that nuclear capacity once again? Well, to a certain extent, but we have to substitute it with something, right? And once again, offshore wind can suit there. They also... I have to mention that France has great wind resources from Atlantic Ocean, and also in between France and the UK. So yeah, I-

Hill Vaden (25:41): And Japan's got good wind as well. You mentioned a second ago, Japan's got good wind?

Andrei Utkin (25:45): ... Yes, Japan has also great wind. But the problem with Japan is once again, very deep water. So Japan is observed by the global industry as one of that spot where they will be building floating first.

Breanne Dougherty (26:00): Which makes these pilot projects in 2021 so critical as far as... right? As to sort of-

Andrei Utkin (26:06): Well, but once again, those are not going to be pilot anymore, those are [crosstalk 00:26:11]-

Breanne Dougherty (26:10): ... Right, those are going to be established technology. But once we see those up and running, the ability to translate-

Andrei Utkin (26:15): ... Absolutely.

Breanne Dougherty (26:16): ... that technology to some of these deeper [crosstalk 00:26:16]-

Andrei Utkin (26:16): Absolutely.

Breanne Dougherty (26:18): ... The other question, how does it work, and you know what? Just tell me if this is getting too technical and we can leave the question there, what about royalty regimes? Are these being negotiated? Do these work like oil and gas where the countries have to negotiate different royalty regimes around... How does that work?

Andrei Utkin (26:40): It very much depend on the country and the policy. And in certain counties like Germany for example, that's the government who pre-defines the sites and then there is an auction, right?

Breanne Dougherty (26:53): Right.

Andrei Utkin (26:54): So companies, they already have some preliminary designs, they choose this or that turbine supply, or this or that technology, and then they go to the auction and they bid. Now it very much depends on the policy, policies are really different, and also subsidy schemes are very different. I'd like to call them not subsidy schemes, but support, and support is very different across the world. So in Europe for example, in most mature markets like UK or France, we use something called contract for difference, so which means that basically when a developer goes to the auction and he bids for a certain price, normally that's in megawatt hours, right? So you say that, okay, let's say, "For the first 15 to 20 years, I'm going to receive that amount of money per megawatt produced."

Andrei Utkin (27:47): Now how CFD works is that if your power market price is above the bidding price, so the government's going to return you back the delta, the difference. But if the market price below, you're going to pay it back to the government. So that how it works. Now there are different schemes, we have premiums, we have a tax incentive in the US, we have green certificates in Taiwan, for example. And so that's really country by country specific. Now for example, what is super interesting, a few weeks ago there was the first... it's not actually the first, it was the fourth leasing auction in the UK. Now there was the first leasing round when companies actually had to pay for the lease to be able to develop something there.

Andrei Utkin (28:37): And the prices that we saw in that auction were crazy, we're very, very, very high. And was also super interesting to see that mostly it's oil and gas majors who got the capacity, not really conventional players. So-

Hill Vaden (28:55): And then [crosstalk 00:28:55]-

Breanne Dougherty (28:55): So do you think these conventional players are being pushed out? Like, can they not pay? Is this creating a barrier for entry? Are these large IOC oil and gas players for instance now maybe going to be increasing the cost at the auctions and it becomes a barrier for these more conventional players?

Andrei Utkin (29:15): ... Well, that what we observed in the UK for the first time, right? So that's something that happened for the first time. And I was talking to conventional players and there is a certain understanding that as of now there is a room for everyone. So conventional players, they prefer to take lower risk and to go to some less established market, let's say, more emerging markets where you can get better returns, like Taiwan for example, where you still have feeding tariff relative much higher than in Europe, for example, or United States, or some other countries where they can deliver experience and knowledge, and those kind of things.

Andrei Utkin (30:00): So yeah, oil and gas companies were very bullish in that auction, but we're going to see what's going to happen next.

Breanne Dougherty (30:07): There's enough out there for everyone, enough wind for everybody to start capturing it?

Andrei Utkin (30:11): As for now, I bet, so yeah.

Breanne Dougherty (30:12): Yeah.

Hill Vaden (30:13): Do we see them kind of splitting out? I think it's interesting that the established wind players, which I assume are names like [inaudible 00:30:21] and now in some of these, Orsted, and you've got what I would call new entrants, and maybe that's unfair, but Equinor, Total, some of these legacy oil and gas companies, they each bring a different core competency to the business model. The offshore oil and gas company is very good at managing an offshore project and all that goes with that, and to an extent, creating a market for a discovery, whereas I would argue the Enels or the [inaudible 00:30:54] are maybe better at accessing an established market.

Hill Vaden (30:57): Do we see-

Andrei Utkin (30:58): Absolutely.

Hill Vaden (30:59): ... a collaboration or perhaps-

Andrei Utkin (31:00): Yes.

Hill Vaden (31:00): ... oil and gas companies going to the emerging market opportunity rather than the established market opportunity?

Andrei Utkin (31:07): Right. No, that's a great question. And also, oil and gas companies, they do not bid, or they do not develop themselves. So whenever we see any project basically in whatever country, being US or UK, in most of the cases that's going to be a collaboration between the established one and the oil and gas company. Now take the example of Denmark, now there is a tender for one gigawatt capacity, which will be announced I guess at the end of this year, [inaudible 00:31:40] is bidding with Total, for example, 50/50. Now BP is also partnering with different established partners, a 50/50 [GOV 00:31:50].

Andrei Utkin (31:50): So it's mostly a collaboration. And these oil and gas companies, it's in their DNA, they want to split risks 50/50 because once again, offshore wind is a very costly technology. We're talking about tens of billions of dollars in one project. So when you go with someone more experienced, you actually learn, and you're willing to pay for this learning curve.

Hill Vaden (32:15): Is that the next big merger play? Years ago there was Chevron, Texaco, and ExxonMobil, is the next round something like Equinor, [inaudible 00:32:26], or taking a legacy utility and a legacy oil and gas company, and tying them together? Is that beyond the realm of possibilities?

Andrei Utkin (32:35): Well, we're going to see what's going to be in future, but as of now, yeah, more and more. And then gas players are trying to be seen as energy companies, right? So they don't want just to have their core business oil and gas, they see that they're doing different things, they're doing renewables, they're doing green hydrogen, and yeah, they see themselves not as a maybe power. They are not willing to become fully power utilities, but rather than integrated companies. So yeah, definitely there is a transformation.

Andrei Utkin (33:09): Now how fast this transformation's going to go, it very much depends on policy and on support [inaudible 00:33:15], and national targets of different countries, because that's what is crucial here. Most of this project cannot be built without support in most of the places in the world. Now talking about offshore wind particularly, there are two countries where we already saw massive tenders with no subsidies whatsoever, it's Netherlands and Germany. And so Orsted has some capacity, Vattenfall has some capacity, Shell won one gigawatt of a serious subsidy project in Netherlands to build green hydrogen.

Andrei Utkin (33:52): But I don't see zero subsidy being as a new reality, for example.

Hill Vaden (34:01): Does that play into the hands of some of the national oil companies if government support is so important here? Does that create an opportunity for those countries who have big presence of national oil companies looking to redefine their activities or identities?

Andrei Utkin (34:17): I think yeah. I mean, it's not only about national oil and gas companies, it's power utilities as well, right?

Hill Vaden (34:26): Yeah.

Andrei Utkin (34:26): It's just in the core of the technology. I mean, it is costly and somebody has to pay for this, right? So also, power markets are pretty volatile these days, the more renewables you build, the more cannibalization effect you're going to see in future, right? So yeah, as of now, power markets are much more predictable than oil, right? But moving forward, when we see this massive additions of wind and solar, at the end of the day you have to mitigate your risks, so you have to contract somehow your capacity in this or that way.

Andrei Utkin (35:07): And there are actually two ways today, so the first one is to be subsidized, so the second one is to have PPA, so power purchase agreements. So that's what we see in Europe, there is a massive collaboration between the big consumers of electricity, for example, data centers like, I don't know, Amazon is one of the examples. They've been purchasing so much. And also this is super interesting for these new business models for zero subsidy offshore wind projects in Europe, when a project will not move into the construction phase unless a biggest chunk of that is contracted somehow.

Andrei Utkin (35:50): So even Orsted, having had this 900 megawatt in Germany, it's going to sign a PPA first for, I don't know, like 60% of that for the next 15 years, right? And only then you're going to proceed. So I mean, yeah. Clearly.

Breanne Dougherty (36:04): But as you said, Amazon came to the table and signed a massive PPA, and there are so many corporates out there right now with these-

Andrei Utkin (36:11): Absolutely.

Breanne Dougherty (36:11): ... zero targets that inevitably-

Andrei Utkin (36:14): Exactly. So that's-

Breanne Dougherty (36:15): ... more and more number are going to be.

Andrei Utkin (36:16): ... a match, match, yeah?

Breanne Dougherty (36:17): Yeah, that they're going to be forced to come to the table on that. I actually think that's something, we've talked about it before, Hill and I on one of our podcasts, that 2020 was very much the announcements of these zero targets, but 2021 sort of being potentially hopefully the year which you start to get better structure around exactly how those are going to be achieved. And I think the PPAs from the corporate side is a really interesting way to do that. And I know that there's still so much unknown, it's only been a month into the administration, do we see the change in the US administration as maybe giving new legs to offshore wind development within the US specifically?

Breanne Dougherty (36:58): I know we've talked about obviously Asia's going to be a hotspot of development, and Europe is a leader at the moment, but where do we see the space going for the US under the US administration?

Andrei Utkin (37:09): Right. So no, that's a great question. I think we still have to wait and see. But great news is that, first of all at the beginning of this year, so we now have a new tax credits, which expired actually last year. So the industry was kind of hesitant like how it's going to move forward. Now we have a new tax credit dedicated to offshore wind for the next 10 years, so that's give us a bit of more room to proceed. Now I guess the biggest challenge in the US so far was to get all the necessary permissions for the project to move into the construction phase, and that's where first US projects struggled so much.

Andrei Utkin (37:54): Vineyard Wind, for example, have been one of those. But you have the target of 30 to 35 gigawatt in the US by 2030. So I really think, but this is my personal belief, I think that now probably things going to go smoother and quicker from this perspective. So I feel like first projects will struggle, it took really a long time to get those. But probably Vineyard Wind will move into the construction phase somewhere by the end of this year. And yeah, so that's-

Breanne Dougherty (38:34): Perfect. I'm going to ask you what might be an unfair question and we're going to end on that.

Andrei Utkin (38:38): ... Please.

Breanne Dougherty (38:39): It's always the most difficult question and we ask it a lot, but obviously there's the equities, if you want to increase your exposure to offshore wind there's the ability to pickup some equities that are getting into position to be involved in the space. Are there other parts of the value chain? Where are the investible themes in offshore wind do you think?

Andrei Utkin (39:00): That's a great question. So as I mentioned before, what is the major difference between offshore wind and onshore wind is the installation process, right? So to install offshore wind you need these absolutely massive, giant vessels, right? And this is one of the potential bottlenecks to the further expansion of the technology, massive expansion. Now today in the world, excluding mainland China, we have 16 vessels that are actually capable of install wind turbines. Now wind-

Hill Vaden (39:33): One, six?

Andrei Utkin (39:34): ... One, six.

Hill Vaden (39:35): Wow.

Andrei Utkin (39:36): So wind turbines are increasing in size dramatically, like now we're installing something around seven to eight megawatt a unit. In five years time it will be 15 megawatt, and by 2030, probably 20 megawatt. So whatever vessels we have today, they are not capable of installing 20 megawatt whatsoever.

Breanne Dougherty (40:00): So how many vessels per... is there like you need one vessel per project? What's that metric kind of sound like?

Andrei Utkin (40:10): Well, it depends on the scale of a project, right?

Breanne Dougherty (40:10): Okay.

Andrei Utkin (40:10): Like if we're talking about 3.6 gigawatt, probably you don't want to have just one vessel, it's just better to have two, or probably even better to have three, right? Now because it's just going to get quicker. So there are a few vessels right now under construction that can potentially install 15 plus megawatt turbines, but you have so many countries who want to develop offshore wind at the same time, right?

Breanne Dougherty (40:32): Right.

Andrei Utkin (40:33): So if you want to build in France, in Poland, in Germany, in Netherlands, and Belgium at the same time, you probably do not have enough vessels to do that job. Now in the United States for example, you do not have any vessel that is capable of installing offshore wind. Now the [inaudible 00:40:50] energy right now is building the first dedicated wind turbine installation vessel, but is it enough to deliver 30 gigawatt by 2030? No, it's not enough, because a vessel can do probably maximum one gig, but you want to have 30. And in the US, you have something called Jones Act, right?

Hill Vaden (41:08): Mm-hmm (affirmative).

Andrei Utkin (41:09): Which tells you that the vessels has to be built in the United States and operated by the US crew. So this is a potential investment, massive investment opportunity in many places in the world. So yeah, that [crosstalk 00:41:27]-

Breanne Dougherty (41:27): That is one of the best answers I think we've had to that question, Hill?

Hill Vaden (41:29): Yeah, right.

Breanne Dougherty (41:29): I wasn't sure what the answer was going to be and you kind of got me excited off that. That's a solid identification of what sounds to be a very real bottleneck.

Andrei Utkin (41:41): It is, yeah.

Breanne Dougherty (41:41): So there you have it, listeners.

Hill Vaden (41:43): And if the cruise ship industry doesn't come back, maybe we'll have Carnival wind turbine vessels?

Breanne Dougherty (41:48): Yeah, so [crosstalk 00:41:49] installers. It will be a whole repurposing.

Hill Vaden (41:52): Everyone gets free [inaudible 00:41:54].

Breanne Dougherty (41:56): That's right. It's very interesting, that is just an angle I'd never even thought of, how are they getting these things installed? Of course, it's vessels.

Andrei Utkin (42:02): Yeah.

Breanne Dougherty (42:03): Well, that's what's so great about these conversations, right? Is things that I would have never really been thinking about 40 minutes ago now are at the very top of my radar, which is fantastic. We really appreciate you joining us, Andrei. That was great.

Andrei Utkin (42:18): No, thank you so much for having me. That was great. Thank you.

Hill Vaden (42:24): Yeah, this has been great. I think this meets our Hey Ya! qualification-

Breanne Dougherty (42:28): It does.

Hill Vaden (42:28): ... as a hit single for our final episode together with Breanne, so thank both of you.

Breanne Dougherty (42:33): And at least it feels that way to me. So maybe we replace our exit music with a little Hey Ya! at this point?

Hill Vaden (42:43): All right. I'm going to sign off.

Breanne Dougherty (42:44): That's great.

Hill Vaden (42:46): And thank you, Andrei. And Breanne, the best of luck in your future efforts.

Breanne Dougherty (42:52): Thank you, Jimmy. I will be tuning in forever to Energy Sense with Hill Vaden. Can't go wrong with this guy, he's always bringing the very best to the table.

Hill Vaden (43:01): We will try. Thank you.

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