Speaker 1 (00:01):
This episode of EnergyCents is brought to you by IHS Markit's Financial & 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 EnergyCents, an IHS Markit podcast that sits on the intersection of finance and energy markets. This is Hill Vaden here, as always, with Breanne Dougherty. How are you Brea?
Breanne Dougherty (00:43):
I'm good. Happy 2021.
Hill Vaden (00:46):
Breanne Dougherty (00:46):
This is our first official conversation of 2021. Of course, I've said many times, Hill and I have many conversations daily, so there's definitely been some non-official conversations or unofficial conversations, but yeah.
Hill Vaden (01:00):
Breanne Dougherty (01:01):
You feeling good to be back? I guess work's ... Last week was a little bit of a lighter, right? Because everybody's coming back, but now I guess everything's in full swing.
Hill Vaden (01:10):
It hit middle of week, last week. It was unsettling how Monday and Tuesday things were somewhat slow, but then all of a sudden things all caught up in the middle week and now it is back to normal. Same for you?
Breanne Dougherty (01:25):
Yeah. Exactly. The Monday, Tuesday was quiet, which was nice, so we could all get back on top of some emails and stuff, but I will say I feel like everybody's up and running this morning for sure. It's been a whirlwind. It makes the morning go by fast though, so I'll take it.
Hill Vaden (01:40):
Yeah. It has been a start to the year and maybe that's ... We try to start on something current event, something topical. We noticed yesterday was the fifth anniversary of the death of David Bowie. There was an opinion piece in the New York Times that in those past five years, things have gotten rather crazy once David Bowie left the world. I guess before we get into some of this, do you have a favorite David Bowie period or favorite David Bowie album or memory?
Breanne Dougherty (02:14):
It's Let's Dance, but it's interesting because I always liked Bowie, but it was ... I mean, I guess maybe now it's been eight years since this happened. I live in New York and about eight years ago, one of my good ... I think it's the Red Bull Music series or something like that that happens every year, or happened every year. One of my friends says, "I've got an extra ticket." They were only 30 bucks at the New Museum. Nile Rodgers, who was the producer on Let's Dance, is going to do an intimate discussion around Let's Dance.
Breanne Dougherty (02:50):
I think only about 45 to 50 people, I guess, were in there. Go up to the New Museum and it's on the top floor where there's this balcony and the sun was setting and it's all white in there. Then Nile Rodgers sat up on the front with his guitar and he was being interviewed. Then they had this fantastic sound system. He gave a discussion and went through how he got brought in by Bowie. It wasn't really what seemed to be a natural fit for Nile Rodgers and how he was approached at the table in a restaurant by Bowie and all these sort of things.
Breanne Dougherty (03:16):
Talked about the making of Let's Dance and even the specifics of Bowie having just gotten sober and obviously the other people maybe not being sober and some of the dynamics that happened in the creation of it. It was one of the best things I have ever attended. It was so cool. Nile Rodgers was so open book about it and every now and then he would just start playing parts of the different songs on his guitar as he sat up there.
Breanne Dougherty (03:42):
What was remarkable about it is as he was giving the interview and having the discussions, you could see him getting excited as he started remembering things again that you didn't necessarily think of at the time. Then what they did is we listened to, I think it was his copy, it might've been his copy of the original vinyl, both sides. Just, we all sat there in silence and he sat at the back and every now and then you'd hear laughter come out of him or something. Then he'd tell a story about why it's so funny that this was that or however it turned out to be.
Breanne Dougherty (04:15):
Even though you loved the album to begin with, but it created a real soft spot in me for that particular album just for the experience, because you don't often hear the behind the scenes of an album like that, how iconic it was and how it was created. Nile Rodgers, I didn't necessarily know or appreciate his personality. He grew up on the Lower East Side of New York, so he even talked about different aspects of the scene at the time and everything in New York. It was phenomenal. Best thing I've ever done for 30 bucks.
Hill Vaden (04:46):
Wow. Well, by coincidence ... So our guest today, Sam Wilkinson, who is a research director ... Welcome Sam. Research director overseeing a lot of the clean tech research for IHS.
Sam Wilkinson (04:59):
Hill Vaden (05:00):
How are you?
Sam Wilkinson (05:01):
I'm doing very well. Thank you. Doing pretty good.
Hill Vaden (05:04):
Good. Well, so by coincidence, we just realized before this call began, that one of your, I guess, identifications with David Bowie is through Stevie Ray Vaughan, who was the guitarist on the Let's Dance album or much of the tracks on Let's Dance, right?
Sam Wilkinson (05:18):
Yeah. That's what I understand. Honestly, I'm not a big David Bowie fan and I don't know a lot about him. I know the basics and what everyone knows. I just clearly remember the story of perhaps one of those not very sober people involved in creating Let's Dance was Stevie Ray Vaughan, who was a big influence when I spent a lot more of my time playing music than I did talking on renewable energy podcasts. Yeah.
Sam Wilkinson (05:46):
I mean, he got famous and then he made a complete pain out of himself by refusing to participate in the ... He basically was asked to go on tour, but he refused to do it, to go with David Bowie unless he could take his own band. Eventually he made a name for himself through his determination to not follow the path that was laid out for him by the David Bowie tour management. That was I think one of the big springboards for his personal success. Yeah. That's pretty much all of my David Bowie knowledge exhausted to be perfectly honest.
Breanne Dougherty (06:21):
That's actually a nice niche little sidebar. I like it.
Hill Vaden (06:25):
Yeah. Well, so the way we were going to talk about-
Breanne Dougherty (06:29):
Wait, Hill, what's your favorite?
Hill Vaden (06:32):
I think I would say my favorite is Diamond Dogs. That's because my ... Well, a couple of reasons, but one, when my daughter was born, the nurse in the delivery room was playing Pandora on his phone. Rebel Rebel was the first song that she ever heard and the song that she was delivered to particularly.
Breanne Dougherty (06:54):
Does she listen to it? Does she-
Hill Vaden (06:55):
She loves it.
Breanne Dougherty (06:56):
Hill Vaden (06:57):
She's memorized the Future Legend, the opening about fleas eating rats the size of cats and cats eating rats the size of dogs. She's memorized all of that. Where I guess that ties into some of the energy is that David Bowie made these dystopian futures in a lot of his albums and Diamond Dogs is probably best at that. Since his death, five years ago, we're in somewhat of a dystopian world where none of us can leave the house without masks on. A lot of us are communicating through digital channels exclusively.
Hill Vaden (07:35):
We've got people storming streets and rioting, and it's a crazy world, and, renewable energy is all but mainstream. A lot of these ... I read a sci-fi book with my son this summer, where all the power came from the moon, solar panels on the moon. As a slight segue here, Sam, how, in this almost dystopian future that is today our present, is renewables mainstream? Are we at a place of maturity within renewable energy? Relative maturity I would say.
Sam Wilkinson (08:13):
Would say absolutely we are. Renewables has become mainstream. The way that I would measure that in a very everyday way that most people can relate to is that my children, if we're driving along, they see a solar panel, they know what a solar panel is. They see a wind turbine. They know what a wind turbine is. If we drive past the coal-fired power plant or a gas turbine, it's nothing to them. It means nothing. My children, who are four and seven, already talk to me about the idea of cars running on electricity.
Sam Wilkinson (08:52):
They can see cars plugged in outside people's houses and things. In people's minds, I feel like it's already mainstream. Probably solar and wind more than electric vehicles, but it already is. The truth is that in most cases, solar and wind power, depending on where you are in the world and how you measure it, is already one of the most economical forms of new-build electricity. It's not universally true that it's cheaper to build a new solar farm than it is to run an existing thermal power plant, for example.
Sam Wilkinson (09:27):
The economics for new-build power generation are increasingly competitive for the two principal forms of renewables, both solar and wind. Yeah. I think mainstream, we're surrounded by it. You pretty much can't go anywhere that's inhabited without seeing solar and wind power generation. It's everywhere. On the other hand, when you look at the pure economics, which is what makes the energy world go around, yeah, it's an increasingly compelling, increasingly attractive solution.
Breanne Dougherty (09:59):
Can we talk about the competitiveness? Costs have come down tremendously in the last, probably five years. I guess, two questions here. How much more cost reduction do we think there is in the next five-year period, for instance? Then, so now it's economic, it doesn't need policy support, or it still requires a tax incentive side to it as well, or standalone is it competitive?
Sam Wilkinson (10:23):
I will tackle that one thing at a time. The first question about cost reduction and continued cost reduction and what's possible in the future, I always think about it. Solar is unique in comparison to other energy generation in that it's infinitely scalable. You take one solar panel and you make a million of them. You make a hundred million of them. I couldn't tell you what the actual number is now. I think it's something like half a billion solar panels around the world, but it's a very high-pace, automated electronics manufacturing process, right?
Sam Wilkinson (11:01):
You've got these machines that, okay, you set the polysilicon, you set it into an ingot, you slice it into a wafer, you make a cell. Then you package those cells into a module or what a lot of people call a panel. It's a highly-automated, very fast electronics process. Huge, huge, massive factories being built. It's the same as a lot of other electronics products that you've been able to drive down the price of over the years. You can put five of these panels on your roof, or you can put hundreds or thousands of them in the desert, right?
Sam Wilkinson (11:36):
Because of this massive scalability, this high volume manufacturing, we've seen a cost curve for the pure CapEx side of things that no other technology, really, if you think across the whole power generation spectrum has ever been able to achieve, because that totally different manufacturing process. Then add onto that some of the increased performances, increased efficiencies, et cetera, that also helps drive down the overall cost to the energy it produces. We can talk a bit more about that later on.
Sam Wilkinson (12:08):
On the other piece that you mentioned about whether subsidies are required now that it's increasingly competitive. I mean, subsidies are required to keep the market going at the massive volumes that we're seeing today, but they're not required everywhere. There is increasingly large amounts of renewables being built just because they are one of the lowest cost forms of power. Of course, the inherent problem with solar and wind is that you only get solar power when the sun's shining and you only get wind power when the wind's blowing.
Sam Wilkinson (12:40):
That's why the energy storage and typically batteries piece comes in as well to create what we would call a dispatchable power plant so you match supply of power and demand a little bit more closely. Yeah. We will continue to see incentives and incentives will help the industry to continue growing. With the industry continuing to grow, we can drive down costs further, but it's not required everywhere anymore. That's an important step.
Hill Vaden (13:11):
Is most of the costs decline ... Is that in the system or are we looking at improvements on the margins, or are you still expecting step change in cost in solar cost improvements?
Sam Wilkinson (13:27):
The cost ... I talk too a lot about the cost of the module, the panel, and that has come down dramatically. The other hardware has all come down as well. You have what's called an inverter. A lot of people aren't familiar with all the different pieces of a solar system, if you like. We have the module which produces DC electricity. Obviously what we have in our grids all around the world is AC electricity. You have what's called an inverter.
Sam Wilkinson (13:52):
An inverter takes the DC power, turns it into AC power and interfaces with the grid and injects the power into the grid. Increasingly, that's also where a lot of the intelligence is happening as well. The monitoring, all of the intelligent functionality that's required to keep the grid stable with high levels of renewable penetration. Those two items in particular, the cost has fallen significantly in recent years, and we see continued cost reduction in the future. That's the CapEx side of things.
Sam Wilkinson (14:27):
Then you get other technologies that are helping to just improve the output. Obviously, when you build your solar system, that's going to produce electricity for 20, 30, 40 years, depending on the lifetime of the system. What you care about is how much power it generates. That's what determines essentially what you would call the LCOE, the levelized cost of electricity, and as well people. Then you're talking in dollars per kilowatt-hour or dollars per megawatt-hour, which is what people that buy and sell electricity care about.
Sam Wilkinson (15:00):
There are some technologies like solar trackers, for example, which have become pretty much mainstream in large scale ground mount solar farms, which is a device that you add to the system that basically means that the solar panel is moving throughout the day to keep it facing towards the sun. Rather than obviously when the sun first comes up in the day, it's hitting the panels in a fixed ... We call it fixed tilt system. The very narrow angle, so you get a very low amount of power produced.
Sam Wilkinson (15:31):
The truth is if you buy a tracker and you install a system with a tracker, then you are going to pay more upfront. Generally speaking, as long as you're in a region with reasonable solar conditions, you're going to get so much more electricity produced that the overall economics of the system, when you look at it in dollars per megawatt-hour or kilowatt-hour, is actually improved. It's the same as some of the module technologies that you see today.
Sam Wilkinson (15:56):
Things like bi-facial, which is one of those beautifully simple ideas that basically on a traditional older solar panel, you would have basically a back on it. That means that the light can't get through. By basically making a solar cell so it has two sides to it and putting a transparent back on, any of the light hitting the ground is reflecting up and hitting the underside of the panels and you're harvesting extra power basically. People say 20, 30% extra power from this technology.
Sam Wilkinson (16:28):
It costs a little bit more, but it's worth that extra CapEx to get the increased performance of the system over the lifetime. There's a lot of things being done, but overall, obviously the goal and what people measure, what people care about, is the cost of the electricity produced, which is obviously achieved either by improving the output or by driving down the CapEx.
Breanne Dougherty (16:51):
You mentioned regions and making sure that there are adequate solar conditions. That's obviously an important aspect of solar energy. When we think about where we've seen the greatest growth thus far, and where we actually see, from a regional perspective, the greatest growth potential, are there regions that rise to the top that are low-lying fruit we think for expansion of solar rapidly versus other regions that are maybe going to struggle?
Sam Wilkinson (17:19):
I'm not sure. I mean, the biggest regions for solar development in terms of megawatts built today are China and the U.S. and certain parts of Europe. That is where a huge amount of the market lies today. Obviously, in China, the plants tend to be built in the west of the country where you have more sunshine. In the U.S. a huge amount of the market is in California and the southwest, where again, that's where solar conditions are perfect so you get better economics. There's equally ... I mean, let's get it out there.
Sam Wilkinson (17:56):
There's plenty of solar built in the UK, and we're not famous for the sunshine, right? Actually there's a bit of a misconception. It's a very common misconception that yes, of course, bright sunshine is great, perfect conditions, but actually heat isn't great for a lot of solar technology. It can degrade the panels and it can decrease the efficiency. There's a lot of technology that favors cool climate, but sunny conditions.
Sam Wilkinson (18:25):
I don't feel like I've really answered your question directly, but there's solar being built all around the world. It's not just in the particularly hot ... like they're places with very, very high levels of solar radiation.
Hill Vaden (18:43):
On that thought last point, is a lot of investment going in to making solar in less ideal environments? Is that a focus of investment? Or I know we've talked before about solar and battery as almost an integrated organism. Is that more of the flavor of investment dollars right now? Trying to look at both storing the electricity from solar at the same time generating the electricity from solar.
Sam Wilkinson (19:08):
Well, I guess another unique thing about solar, which I said earlier about how scalable it is. You can put a couple of panels on a roof, you can put a thousand panels on a factory roof. That for me is where some of the most interesting investment dollars are going, because that's another unique thing, is that I can put solar on my roof. You guys can put solar on your roof. You can put solar on a business, in an office, in a factory. It's what we call behind-the-meter generation.
Sam Wilkinson (19:40):
That power is being generated on your rooftop and consumed in your business, in your home and lowering your energy bills, right? That's a totally different business and a totally different business case to putting it on our big ground mount facilities that are purely for generating power that's pumped straight into the grid. That's where batteries also come into play, because in many places around the world, it's now cheaper to buy a solar panel and put it on your roof and generate electricity than it is to just draw it straight out of the grid from your utility.
Sam Wilkinson (20:15):
I mean, that's been the case in some countries for actually quite a long time. It flips the case. In the past, you used to put those solar panels there because when you exported it to the grid, you got paid and you got paid good money for it. Now the situation is that you don't want ... Now, if I build a system, I don't want to sell the power to the utility because they're going to pay me less money than I actually pay for my electricity. You can think about it. Germany is one of the extreme cases.
Sam Wilkinson (20:45):
It's not entirely accurate but you could argue ... Like take a ballpark figure that it costs you about €10 cents per kilowatt-hour for the electricity that comes from your solar panels. You sell it to the utility a few cents more than that. Then later in the day, when you need that electricity, you're going to buy back the same electrons effectively at something like €35 cents per kilowatt-hour. These aren't accurate numbers but that kind of ballpark.
Sam Wilkinson (21:11):
Three times more, you're going to pay to buy the electricity than you just sold it to the utility for. Now you're thinking, "Well, I don't want to sell my electricity. I want to keep it and save that 35 that I'm going to have to buy it for later on." That's why people are increasingly adding batteries to their systems in their home. It's all about storing the energy and using it later. It's what people call increasing their self-consumption. That's in the residential sector, so.
Breanne Dougherty (21:46):
This is actually something I had ... The connection with battery, we're talking on individual residential cases, as well as utility-size batteries?
Sam Wilkinson (21:52):
Absolutely. Yeah. I mean-
Breanne Dougherty (21:53):
Interesting. I'd only thought of utility. This is ... Yeah.
Sam Wilkinson (21:57):
Utility is a totally different use case. There's a lot of different things on the ... we call it front of the meter or utility scale side of things that batteries can do. One of the things it does is just you pair it with solar and you can then be a little bit more flexible with when you deliver your power to the utility. Sometimes you can obviously sell it at more valuable times of the day. If you think of ... Imagine a really extreme case where there's so much solar built that there's an oversupply of electricity in the middle of the daytime.
Sam Wilkinson (22:30):
Unless you've got a guaranteed price if you were to be selling on the wholesale market, you'd have a real tough time selling at a profitable price because there's an oversupply essentially. You could store that power sell it later in the day, when the price is more favorable. Or, what it means is that the batteries are being added to ... Well, totally separate to the renewable energy generation, batteries are being used to do things like frequency regulation, or provide capacity services and other ancillary services.
Sam Wilkinson (22:59):
In many cases, they are a lower cost solution than say gas, which is commonly used for that type of thing. What we're seeing is actually hybrids. People will build solar batteries, and those batteries will do a lot of different things. Sometimes they'll be basically adjusting the output of the solar plant. Sometimes they'll be participating in ancillary services markets and frequency regulation markets, or they'll have contracts to provide capacity.
Sam Wilkinson (23:29):
They're doing multiple different things. They're a very, very flexible, very versatile asset, which is why you're increasingly seeing them being built in certain parts of the world.
Breanne Dougherty (23:39):
Hill Vaden (23:41):
Have you ... Sorry. Just real quick. What's the general split between behind-the-meter and in front-of-the-meter in terms of, I guess, development?
Sam Wilkinson (23:50):
In terms of market size, like megawatt-hours stored around the world today, it's roughly equal, I would say, but the front-of-the-meter market is accelerating much quicker just because of the scale of some of these projects.
Hill Vaden (24:04):
That feels very disruptive to the historical utility business, almost an Airbnb type model, that Airbnb did to hotels what solar can do to utilities.
Sam Wilkinson (24:16):
Something like that. I mean, solar is a disruptor because, well, it disrupts the system because of its ... what we call intermittency. The fact that the power goes on and off and up and down. That's why there is, I guess, an increased need for the flexibility which batteries can provide. I would put it like that. Yeah. The front-of-the-meter is a really interesting opportunity. It is disruptive because batteries do have this versatility that I mentioned earlier in how they can hop into different markets and do different things.
Breanne Dougherty (24:52):
The batteries, maybe we just talk a little bit about those. My understanding is we're still at a four-hour battery, is that right or have we expanded that? The other thing I guess is, who's making these batteries? Is it the same one that's doing the utility-size battery, that is doing the residential-size batteries? What's that battery market looking like?
Sam Wilkinson (25:15):
Let's tackle that one thing at a time. Let's talk about the who's making it first. The lithium-ion batteries that dominate the grid energy storage sector, majority of them are made in China, as we said, by Asian manufacturers. Essentially, majority of them are being made for the automotive market, for the electric vehicle market. If you look at current situation, you're talking about like 80 to 90% of lithium-ion batteries are already going into the electric vehicle market. That's not set to change.
Sam Wilkinson (25:47):
If you went back five years, probably half of lithium-ion batteries were going into consumer electronics. Basically the balance has shifted entirely toward the automotive market. That's where the scale comes from. Similarly to what I said about solar panels earlier. The cost reduction in batteries that has been enabled has been purely because of this massive increase in volume. Huge volumes, giga factory, as Elon Musk termed it. They popped up all over the world.
Sam Wilkinson (26:19):
The scale of the factories that have been built in China to manufacture these things is hugely impressive. That's what's really driven down the cost. That's what's enabled these batteries to become competitive in the grid storage space. Yeah. You mentioned duration. What happened was, generally speaking in the early markets, the ones that are just starting to install energy storage, it's about frequency regulation. You can do frequency regulation with a 30-minute battery, essentially.
Sam Wilkinson (26:53):
That opened up the early opportunities in certain parts of the U.S. like the PJM network. We saw a lot of systems built in Korea. We saw quite a lot built in Germany specifically. That was the early markets, but as the costs have come down, it's enabled you to build systems with a lot more batteries attached so you get that longer duration. Yeah. Four hours is the sweet spot now. That's typically driven by the fact that that's the requirement to participate in most capacity markets.
Sam Wilkinson (27:21):
California was one of the first places where we started to see batteries actually having contracts for capacity. A lot of those are built now and doing just that. Increasingly, as we move to these high levels of renewables, we see a need for longer duration systems. Six hours isn't impossible now. We think eight hours will happen as well. That's the general trend, is towards longer-duration batteries. Longer-duration batteries can do more. They can participate in a lot more different markets, provide a lot more different services.
Sam Wilkinson (27:54):
The ability to do that is very much driven by the lower costs that are enabled by the volumes that are being manufactured for the automated market.
Hill Vaden (28:03):
When you look at both the battery space and the solar space, we often hear about oil and gas and energy as its own company. Is there a sun and battery company? Are any of these big names, Sunnova, SunPower, or some of the solar companies that we know by name, are they getting into batteries or are these two discrete fields for two discrete [inaudible 00:28:26]?
Sam Wilkinson (28:28):
On the manufacturing side, you don't really see any of the classic renewable companies getting directly involved. SunPower, you mentioned there is a minor exception because ... Well, is an exception. There's something minor about it. Obviously, SunPower is Total and Total also acquired a few years ago a company called Saft, which is a French battery manufacturer. Otherwise, the batteries are pretty much all manufactured by Korean, Japanese, Chinese companies.
Sam Wilkinson (28:59):
It is true that we are starting to see a lot more battery capacity coming to Europe and to North America. It's viewed as a strategic concern to bring this manufacturing of such a critical component for the electric ability market, within domestic borders basically. Still, a lot of it is being built by the Asian manufacturers, but just closer to the big future markets of Europe and North America. We don't really see any of them directly participate in the manufacturing side.
Sam Wilkinson (29:34):
But it's almost difficult to find a renewable energy company that isn't diversifying into the deployment of battery energy storage, and starting to offer products and systems and solutions that incorporate batteries into them.
Breanne Dougherty (29:49):
When we think of ... This expands beyond the solar and battery, but from a competitive positioning, we're hearing a lot for instance about, so there's solar for instance, versus wind. Then there's also the rise of hydrogen. It's becoming increasingly a hot topic in North America and Europe, obviously as well. Is solar well positioned for the long run in this? Is it a five-year investible theme as well as a 30-year investible theme? Or how does it compare?
Sam Wilkinson (30:15):
Well, the way that I would pull all those things that you just said together, solar, wind, batteries, hydrogen, is that if you look at the big problem here, the underlying driver is to reduce the carbon footprint, well, of the global economy, essentially. You look at where those emissions are coming from and roughly speaking, nearly a half of it is from power generation. It's pretty obvious how we clean up power generation. We switch to renewables.
Sam Wilkinson (30:49):
If you're going to switch to renewables, which is principally solar and wind, then you're going to need an increased amount of energy storage, which largely comes from batteries to keep things stable. The truth is you've got the other sectors, industry like transport, buildings, for example, that a large part of that can't be easily decarbonized. Electrifying things is one route. Obviously, for example, transport, you increasingly power it with electricity and whilst you're cleaning up the power generation side of things then you're moving down the scale of carbon emissions.
Sam Wilkinson (31:25):
Certain parts of it, perhaps can't be easily electrified like heat, industrial processes, all those types of things. That's where hydrogen really comes in. Now, obviously, hydrogen may also play a big role in transportation as well. As you know, I've got many colleagues that could talk to you about that in more detail, but essentially hydrogen is going to be required. There's no doubt about that, but it's all about how you create that hydrogen. Obviously, traditional methods today of creating hydrogen are not clean and green at all.
Sam Wilkinson (31:55):
The goal is to shift towards green hydrogen production, which is producing hydrogen from water via electrolysis, pairing that with renewables. You've got this very complex future energy system that was starting to arrive, where in the past we had very discreet, very simplistic networks of gas, power, heat. Very independent from each other. Large production flowing through to end consumers in all cases. Now everything's this really complex interconnected web of these different networks.
Sam Wilkinson (32:33):
The truth is, is solar and wind will somehow compete, but they will also complement each other in many cases. In many cases, solar and wind will be built specifically to power green hydrogen production that will be required to then decarbonize the heat industrial processes, et cetera. I see all of it playing a role, and I think we're actually at very early stages of the development of this. I don't really know the exact word to call it. This highly interconnected, I guess, web of energy.
Sam Wilkinson (33:06):
We went from having a grid to a network, and I think the next thing we have is a web where things are becoming increasingly complicated and increasingly connected to each other. I guess sector coupling is the buzzword at the center of all of that.
Hill Vaden (33:23):
Is scale the big competitive advantage in all of this? Or is there some piece of technology or access to sun or wind or something that is going to make one region or one company or one business model better than others?
Sam Wilkinson (33:37):
I'm not sure. Scale, I've mentioned a couple of times, and it's a big thing for the solar and batteries, just because they are that unique high-volume manufacturing system. On hydrogen as well you get massive benefits from scale on the electrolyzer side. As you move to bigger electrolyzers, that's a big part of driving down the CapEx of a system. I think actually more and more, it becomes about the business model and the implementation. Moving towards high value rather than high volume, it becomes important.
Sam Wilkinson (34:11):
Batteries is a great example, being intelligently managed to hop between different revenue streams to achieve the highest possible revenues. It all becomes about intelligence, versatility and the intelligent management of the overall system. I think that's where some of the biggest opportunities lie.
Breanne Dougherty (34:32):
I guess, on that then, so that's maybe the current biggest challenge is needing to solve that? Is that what you think is the biggest challenge to proliferation of solar development over the next five years or battery development?
Sam Wilkinson (34:46):
I think the biggest challenge overall is again about this integration of all of these technologies. Solar has proven to be low cost, reliable, bankable. Wind has proven to be low cost, reliable, bankable. Batteries have proven the same. I think for me, it's more about the integration of all of these technologies into this single system. Of course, driving down costs further through scale helps to open up new markets where it's borderline at the minute, whether it's competitive or not.
Sam Wilkinson (35:22):
I think for me, it's all about that integration and development of business models.
Breanne Dougherty (35:26):
Then since it is the inaugural podcast of 2021, we'll do a little bit of a prediction. In the next, let's say ... I won't say one year, because a year time-wise it's pretty tough, but in the next 24 months, let's say, what are you watching for as far as development in ... I won't even keep you committed to just solar or batteries. It could be across the renewable energy platform. Is there something that you're watching for as a signpost in the next 24 months, either as a positive or negative that we should all have on our radar?
Sam Wilkinson (35:59):
Yeah. One thing that I would say is in the solar industry specifically, we're looking for a return to growth. 2020 was a unique year because it was the first time since we've been tracking the industries that the market actually contracted on an annual basis, which is kind of a momentous occasion, but obviously it wasn't a normal year. There was many factors that drove that decline. What we see is a very strong rebound now, but combined with that is there is a few challenges on the supply side that is impacting on pricing.
Sam Wilkinson (36:33):
A lot of the raw materials that go into solar panels, for example, the prices are particularly high at the moment, so people are waiting to make investment decisions. We do see the possibility of supply crunches on the horizon because of this. Basically demand dropping off and the supply chain adjusting to that. Now we're going to see a big takeoff as the industry hits the ground running again in 2021 and 2022.
Sam Wilkinson (37:01):
I think that's the key thing, is I will be watching very carefully whether supply can stay aligned with demand and obviously some of the implications on price and investment that any tightening between the two could bring. That's going to be what I'll be watching carefully.
Breanne Dougherty (37:18):
Well, excellent. That gives us something to watch ourselves, which means that it'll just probably mean that you're going to be a revisit to our podcast, Sam. This is how we get you on the hook. It's like the quintessential, what is it? That you're supposed to leave a bag or something somewhere so that you get invited back. This is what I'm going to hold you to, is that you've left your little crumb.
Breanne Dougherty (37:38):
I can come back and ask you to return in order to impart some added wisdom to us as we see how 2021 evolves, as you said now that things can get up and running again. Or hopefully can get up and running again, depending on how quickly these economies can obviously get back to work.
Hill Vaden (37:54):
Sam Wilkinson (37:54):
Yeah. I'll definitely be looking to see if solar module prices start to fall again, before I'm allowed out of the house. That's going to be the two things that I'm-
Breanne Dougherty (38:04):
Sam Wilkinson (38:06):
Which one happens first?
Hill Vaden (38:08):
Well, thank you, Sam. This has been fantastic, illuminating even, if that's not too bad of a pun for a solar podcast.
Breanne Dougherty (38:17):
[inaudible 00:38:17] right Hill.
Hill Vaden (38:20):
We do look forward to having you back. We will let you go, and thanks for joining us on what is the first recording of 2021.
Sam Wilkinson (38:28):
Thanks for having me, guys.
Breanne Dougherty (38:30):
Speaker 1 (38:32):
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Speaker 5 (38:52):
This podcast contains information and insights copyrighted by IHS Markit. To learn more about IHS Markit energy solutions, visit ihsmarkit.com/energy. That's I-H-S-M-A-R-K-I-T.com/energy.