Speaker 1 (00:00:00):
Good morning. Thank you for joining us for the fourth session and our thought leadership navigating the energy transition series. The role of grants in delivering net zero I'm Anthony INO, and I'm the global co-head of the power utility and infrastructure group at RBC. Today, I'm honored to moderate a panel of CEOs of three of the most innovative and respected companies in the global utility sector. Firstly, we have Nick Akins, Nick Akins is chairman, president and CEO of American electric power. Under his leadership. AEP has been investing in monitorization and security of the electric grid, resource diversification and technology and innovation enabling the transition to a clean energy future while preserving the universal access to the great for customers through strategic partnerships and collaboration with customers. Nick has positioned AP to redefine the future of energy and embrace the transformation sweeping the industry. Next we have Dave Hutchins.
Speaker 1 (00:01:04):
Dave is chief operating officer and incoming chief executive officer of Fortis. As many of you are aware for this is a diversified gas and electric company with operations across Canada, the us and the Caribbean. They also own the largest independent transmission company in north America. ITC Fortis has established a carbon reduction targets of 75% through 2035 compared to 2019 levels. And finally, I'd like to welcome John [inaudible], the chief executive officer of national grid, national grid's businesses, supply gas and electricity safely, reliably, and efficiently to millions of customers and communities in the UK and the U S under John's leadership. National grids is driving change through engineering innovation and incubating new ideas with the power to revolutionize the industry. Thank you all for joining RBC and its institutional investors today and sharing your insights. We've allocated an hour for our panel today. We want to jump right into questions. So we preserved some time for audience participation. Nick, I'll start with you. You've been highlighting it's $37 billion cap ex plan centered around wires and renewables and positioning a transformation of transmission and distribution. Can you discuss this transformation and how it was going to help both customers and rape and shareholders? Thanks,
Speaker 2 (00:02:35):
Nick. Yeah, sure. Thanks Anthony. Thanks RBC for having me on today. We're spending 37 billion. That's our capital plan going forward. And if you look at that capital plan, it truly is a transformation. Uh, so much previously, if you looked at it 10 years ago, it was mainly on generation on scrubbers SCRs and all kinds of equipment like that. Today, we're looking at, um, that 37 billion, 85% of it is going to be spent on a transmission distribution and renewable, uh, applications. So it's going to be extremely important for us to continue that transition. You know, we have the largest transmission system, uh, in north America and the focus is ensuring not only the grid, reliability and resiliency associated with the grid, but also addressing the changes in generation, the generation retirements we're, uh, we're, we're retiring. Uh, well, we've retired over 50% of our coal fire generation since, since 2000.
Speaker 2 (00:03:33):
And, uh, and certainly, uh, we continue to, uh, retire even more. Uh, matter of fact, uh, we have another 46% that were, will be retiring over the next few years. So, so it's really important for us to continue the transmission build out to support the grid, uh, but also in the advent of renewables and renewable applications, our north central project is a perfect example of a large project, a large, uh, uh, renewable project, as simple as in Arkansas, Louisiana, and Oklahoma. And, and really those kinds of transformations that are occurring, uh, will, uh, certainly be a part of the process focused on transmission to enable renewables, to enable the generation transformation to exist. And also from a distribution standpoint, looking at distributed energy resources and the expansion there, uh, associated with service to our customers. So there's a whole different framework, uh, regarding technologies at the transmission and distribution level. They're going to it to benefits for our customers in terms of resiliency, but also in terms of our shareholders and the consistent ability to invest.
Speaker 1 (00:04:46):
Thanks, Nick. And maybe I'll ask you to add to that with your sizable us transmission footprint, ITC, as well as your various electric distribution assets through north America. What's your vision for the grand of the future and how does your investment plan support that vision?
Speaker 3 (00:05:02):
Yeah, thanks Anthony. Thanks for having me as well. Uh, particularly cause I'm, I'm the CEO and waiting, so you, you got me a month early, but really appreciate, uh, being part of the panel. Um, uh, as you mentioned, ITC is our largest subsidiary and the largest independent transmission company in the U S and with those 16,000 miles of transmission that we have across seven states in the Midwest, uh, in, in, in the markets of miso and SPP in particular, we're, we're very well situated on a going forward basis for, for the growth that we feel is needed to meet the clean energy roll rules or clean energy policy that's coming out, um, across states, across utilities, uh, in that footprint. Um, so that the grid of the future, that's a great question on, on how, how do you define that? And, and what's the focus, uh, pieces related to that?
Speaker 3 (00:05:54):
I put it in a couple different categories. The first is when you think, and, and Nick mentioned this, when you think about the activity that's going on in the utilities across America, particularly changing the generation mix from, you know, coal-based fossil based generation to renewables, um, that really changes the generation mix and obviously the degeneration location. Um, so that that's definitely going to drive, uh, transmission investments, not just from a, from an interconnection perspective, but you got to get the energy from those renewable resources to, um, our customers, to, to the, to the load centers. Um, but, but also when you think about, uh, the greenhouse gas reduction goals that most states have their economy wide, not just a lot of, not just in the electricity sector. And what most are looking to do is, is reduced greenhouse gases by electrifying other parts of the economy, particularly say the transportation sector.
Speaker 3 (00:06:48):
So we see, uh, the importance of a very, very robust grid on a going forward basis, um, so that you can not only integrate those renewables, but manage the increased demand that we think is coming, uh, from, uh, I think very broad electrification efforts. Um, but, but probably as importantly, you want to make sure that that grid of the future is efficient, right? So you, you have to look at ways of interconnecting the market because, you know, from a, from a, from a grid efficiency standpoint, bigger is better. If you have a bigger geographic foot print, it flattens out the load, curves, it flattens out the renewable resource curves. Uh, that's better. It's, it's more efficient. You can get more renewables on your system, uh, for the same amount of transmission investment, if you do it smart, right? So that's the other part is you gotta make sure that you're, you're using technology so that you're making a, a grid that smarter and can react to the variable resources that we're going to have on a going forward basis.
Speaker 3 (00:07:44):
And this is the one lesson that we learned in 2020, not that we needed to learn it and need to be, and we surely didn't need to learn it to this extent was the importance of resilience. Um, you know, that that's different than say reliability. This is resilience to the things that we've seen this year, whether it's tropical storms, hurricanes, the rate shows, um, which is a new thing. I didn't even hear those kinds of storms before, uh, fires, excessive heat waves. Every part of our country got hit with something special this year on top of COVID. And we, as an industry, all realize that, you know, we, we really have to focus on resiliency, storm hardening, um, our, our, our services absolutely critical, and we have to make sure that we can withstand anything that nature throws at us. And we're going to be relied on more on a going forward basis as we see more electrification across, across our industry as well.
Speaker 3 (00:08:38):
And then lastly, I'd just add that the last thing, and probably the most important, because you put all those pieces together, if you don't secure the grid. And I mean, from a, from a cyber perspective and a physical security perspective, you don't secure it, then all of that is for not if you can have someone get in there and, and, and, and do mischief, uh, on, on your grid, that that's a problem. And that basically knocks out all the rest of the efforts that you do. Um, and, and like, Nick, we, we have a very heavy capital plan on T and D. And this is just, just from an electric T and D perspective. If you look at the transmission investments that we're making at ITC, it's $5 billion over the next five years, we've got another $2 billion in transmission across the other subsidiaries down here in Arizona and up in New York. Um, and then on a distribution side of things, we've got another $5 billion over the next five years across our 10 different, um, electric utilities across north America. So two thirds of our capital budget is just T and D for the electric side. Um, so obviously a big focus and all of those things. When I, when I talk about grid of the future, you know, the, the, you might think I was talking about solely the transmission grid, but it's really those same principles apply and maybe even more so down at the distribution level.
Speaker 1 (00:09:55):
Yeah. Thank you, Dave. I know you obviously touched on a lot of different areas there, cyber weather, all the, all the changes you talked about, electric versus distribution, you know, maybe, maybe John I'll ask you to expand, you know, you've, you've certainly been vocal about, you know, changing to embrace clean energy and businesses shifting to operate in a more responsible way, but you've got the added complication of doing that in both electric and gas and figuring out how to meet those kind of net zero targets on electric and gas. Maybe you could talk about the two, how you're investing in both businesses, how they compliment each other, and what's your plans for both.
Speaker 4 (00:10:35):
Yeah. Thank you, Anthony. And thank you for the invitation by RBC as well. Yeah, so we, um, you know, the way we've been thinking about it, as we think about the journey that we're on for different parts of our business and how we can then enable it. So, uh, as we look at the decarbonization of generation, our senses that the pathway is pretty well set. You can't be exact what exact timing on how much offshore, wind, how much on shore wind, how much solar in the UK, it looks like the UK government's going to support nuclear. We had the 10 point plan a couple of weeks ago, but you can sort of see what the decarbonization looks like. And therefore we're pretty clear about what investments we need to make to be able to support that decarbonisation that's going on. And then in the back of the mind as well, we want to modernize the grid.
Speaker 4 (00:11:16):
So we're digitizing the grid as well at the same time, the second driver and the second path where we think about a lot is the electrification of transport. So we're spending a lot of time, both in the UK and the U S thinking about what does that mean for our network? How much load is going to transfer from liquid fuel to electricity, and how do we extend our networks to where our customers are going to want to charge their vehicles? So it's been a lot of time on that. Again, we feel that the pathway for electrification, certainly for light duty vehicles is pretty set. It's just the timing of the implementation of it and the utilization of it that's uncertain, but we've got very clear plans for how we can support that. The area, I think is the most challenging around the net zero, uh, for both the UK and the us is decarbonization of heat.
Speaker 4 (00:12:01):
Uh, and this is the real challenge. And the one that I think is least set in terms of what's the pathway, there's a huge amount of work going on at the moment around what's the role of hydrogen, uh, what's the role of renewable gas and what's the next between, you know, electrification of heat and actually using those traditional gas fields as well. So at the moment, we're spending a significant amount of time doing pilots. We've just actually launched a pilot to inject hydrogen into part of our transmission system, the UK, to really test and work out what would you have to do to repurpose the network? So it can provide either a blend of hydrogen or potentially all hydrogen to our domestic customers. And we're doing similar things in the U S with renewable gas as well. So for us, we think about each of those journeys, we think about the investments that we need. I mean, I agree wholeheartedly with what Dave said, you know, it starts with our investment plans, we're spending about five, five and a half billion pounds a year in our capital investment plans. It starts with reliability, resilience, acid, health, and then we build on top of that, what we need to do to support net zero, whether it's de-carbonization digitalization or exploring how we can.
Speaker 4 (00:13:15):
So you guys got a contribution to the net zero as well.
Speaker 1 (00:13:20):
Thanks. Thanks, John. Um, maybe just adding to that, we've talked about, about stakeholders and we've talked about customers, we've talked about, about, uh, shareholders. Maybe we can touch on regulators and, you know, John, obviously you're in the middle of a regulatory review right now in the UK. You deal with multiple regulators in the U S can you talk about the role of regulators in working with you on this energy transition and where there, where the goals and efficiencies may not be aligned with what, what you're trying to achieve?
Speaker 3 (00:13:56):
Anthony? I think, I think we may have lost John there for a minute and while, while he re reboots and maybe rejoins, I'd like to pile on, on the, on the natural gas conversation. Um, because I think John brought up a lot of really good points and, you know, obviously our companies, you know, there's, like I said, two thirds of our investments are in the T and D on the electric side, but we also own a large natural gas company in British Columbia. And, uh, you know, we've got a million customers over there and, uh, I think it's, it's so imperative for, um, all of our, uh, utility industries, not just the electric side, but on the gas side to be thinking about this as a comprehensive approach to decarbonization. And, uh, you know, I mentioned electrification two or three times, um, but that's just, that's just one story.
Speaker 3 (00:14:45):
There is ways to decarbonize the natural gas stream as John laid out there. And that's absolutely what the natural gas industry has to be focusing on. It's it is, it is about how do we continue to lower that footprint of that delivery mechanism and utilize that extremely valuable infrastructure that we have across north America for a resource that we have right here in north America. I mean, natural gas is plentiful across the entire north American continent, and then you can take and clean it up a little bit at a time and see how the economics of it, whether it's renewable natural gas, whether it's hydrogen, like John mentioned, um, or there's, you know, you can't forget too, that natural gas is a decarbonizing fuel when you think of, uh, LNG and the ability for that to offset other liquid fuels that have a much higher greenhouse gas footprint. Um, it's, it's gotta be part of that story on a going forward basis as open to stall long enough for John to get back on.
Speaker 1 (00:15:47):
Yeah, that's all, that's all true, Dave, I appreciate you jumping in there and, you know, maybe we'll start with Nick on that regulatory question, call you to operate in 11 states, you have to deal with, uh, a number of constituents in addition to shareholders and customers. How do you, how do you balance that? How do you see their, you know, their support and, and the various politics that you have to deal with in, in, in helping or hindering your agenda for, for, for revolutionizing the grid?
Speaker 2 (00:16:14):
Yeah, first, first, I think you definitely have to have a plan a and that plan needs to be discussed before you file rate cases and all the other activities, the ongoing discussions with regulators is critical through this, through this process. And as we've gone through it, certainly you've gone, gone through areas where you want to make sure from a transmission distribution resiliency standpoint, that you have mechanisms in place for concurrent recovery riders and so forth, uh, for, uh, sort of things. But also you have to focus on the future, you know, with the technology that's changing the use of analytics, the use of those kinds of activities that the customer in we've got to really demonstrate to our regulators that, that there is this notion that you can deploy capital, uh, to reduce customers' bills and at least give them the opportunity to reduce customers bills.
Speaker 2 (00:17:08):
Because so many times you hear from regulators that you're just trying to spend more capitals to produce more earnings. Uh, well, yes, that's part of it, but, but, but obviously we're trying to do it to lower our customer's overall bills and give them the opportunity and the information they need to be able to support that. So we're doing pilots of various technologies that the customer in, um, to show the benefits of that. And then it's, it's a critical part of the process. And then the other part, I think with regulators, and we're primarily, we're in 11 states primarily, uh, and, and, uh, uh, different, uh, different styles associated with it, different demographics, different issues that are dealt, but some of those are the same in terms of the need to move to a clean energy environment. Our investors expect it, our customers expect it. And I think even the red states that we're involved with primarily restoring to realize the transformation is occurring and that we need to have that discussion about how we transition now with a national standpoint, that's going on.
Speaker 2 (00:18:12):
Uh, assuming that the, that the Republicans keep the, um, keep the Senate, uh, you'll probably have a more administrative approach to all this through the EPA and others, but the states will certainly have to be a big part of that process that we have communications with to, to talk about that transition and that you can, for example, run this generation, the 24 7 generation in a different method, uh, to really provide, it's sort of like an insurance policy where they don't have really high capacity factors, but they're there when you need it. And then you can deploy more renewables, uh, to, uh, to reduce, reduce emissions and reduce carbon, uh, as well. So there's those kinds of discussions we have to have along every facet and our states are moving different directions to Virginia as a requirement for a hundred percent renewables by 2050. Uh, and then you see other states that are starting to pick up on the, on the notion that yes, renewables are good because, uh, um, in Oklahoma, Louisiana, uh, Arkansas, Texas, and so forth, they have natural gas prevalence, but they also recognize the place for renewables.
Speaker 2 (00:19:21):
And certainly north central is an example of that. So you're seeing that continue. And then also customers themselves are asking, and just having discussions with the regulators about how they can move more quickly from an ESG standpoint and move to these clean energy environments. And that's why micro grids and other types of activities that we're involved with restoring to become more of an environment as well, uh, that produces renewables, produces transmission, investment, and, and resiliency associated with all that. So, uh, I think it's a clear, it clearly is a change that's occurring across the board and everybody recognizes it, but it's a matter of having those communications on a regular basis to reinforce the steps being taken and, uh, with a common view.
Speaker 1 (00:20:10):
Yep. Thanks. Thanks, Nick and John Wood backing early here was, you know, adding onto what Nick just answered with respect to, um, w did we lose John again? Can we, can we hear you, but technical difficulties? Uh, well maybe, maybe we should, maybe we should move to a question dealing with that, which is clearly the world has had to adapt to, uh, to, to COVID and working from home. Um, it's having an impact to all of our businesses, you know, maybe, maybe Nick and David, if you could share with us, what do you think are these permanent changes? Are we going to be doing zoom calls and zoom for the foreseeable future? And if so, what does that mean for the grid of the future?
Speaker 2 (00:21:06):
I think certainly David, I know you probably have comments on this as well. Um, and John, if you can get in, but there, but there's, there's obviously a lot of activity, uh, associated with, uh, you know, the process of how we deal with COVID, what post COVID looks like. And I think it's changing dramatically the way we look at even our system load, uh, where you have industrials commercials, residential, residential, um, has been up considerably because of the state, the stay at home work environment. And, and we expect, and actually there's companies that are already saying that they're going to continue to maintain that work from home environment may not be the entire employee population, but certainly you could probably say 25 to 25% to a third, we'll continue to work from home permanently. And that, and that says that we're going to have to think about the resiliency of the distribution grid, uh, as well, uh, in particular to respond to that, particularly if you have further electrification around transportation with EVs and other activities, and you're, you're depending upon these kinds of environments that we're on today, to be able to in interface on a regular business relationship perspective.
Speaker 2 (00:22:21):
Now, I think there's going to continue to be, um, you know, offices may be more like conference centers as opposed to, you know, the office centers that we have today, but certainly we'll have continued work from home continued obligations associated with getting employees together, uh, to be able to focus on different initiatives, commercial, residential load, we're seeing, we'll see changes. And I also think that that even the notion of individual company, that you wouldn't have thought, like call centers and other activities operating from home environments is going to run the business cases associated with, uh, the ability to take advantage of these techs. Um, we will have another face to face and ER, to face-to-face, um, conferences, but even from a board perspective, uh, we're looking at, uh, are there times to have virtual meetings? Is there a couple of meetings a year, for example, that you could do that? So the world is changing and, uh, certainly I think the advancement of digitization and automation was certainly accelerated with COVID and we're going to take advantage of that.
Speaker 3 (00:23:39):
Yeah. I just jumped in and got a couple of things there, um, to Nick, to Nick's comments and yeah, it, it really is going to change one how we do business. And I, I agree that it's, it's not going to be like it was before. Um, we're not going to travel like we used to, um, we're not going to go across the country for a, you know, an afternoon meeting anymore. Um, we have, which is kind of, I guess, sort of the funny part is that we never thought of this before. That's the that's the strange part is we had to have a pandemic before we realized that we were probably traveling too much. Um, but at the end of the day there, there's just going to be this nice mix where I think we're going to end up being more efficient. Um, we're going to be able to spend our time, uh, doing the things that we need to do.
Speaker 3 (00:24:24):
We'll travel when we have to travel, because at the end of the day, I mean, look, we're all social creatures. We got to get in the same room. You got to build that level of trust. You got to do that with your team. You've got to do that within your industry. You have to have those relationships built. And the reason that we're, you know, in essence, I'll say surviving during the pandemic is we're surviving on what I'll call the cultural collateral that we have built up over the years like Nick and I have seen each other probably 20 times at EEI meetings. So, you know, I, I know him and I know him from the industry and you're the people that you work with. You've built up those relationships that trust. You have to have some way of doing that. And that's, that's that part where we will be getting back together.
Speaker 3 (00:25:06):
We just won't, we just won't do the things that are, that are not efficient anymore, but you hit on a, on a great point. Um, Nick, and that's the whole, you know, what does this mean from a load and a planning perspective, you know, talk about the grid of the future and, you know, and you think about the transmission system, but you get down into the distribution side of things and you think about electrification, the electrification of vehicles, um, all of a sudden you have a lot more demand at houses. Well guess where some of that demand is coming from, particularly in Peaky areas like Arizona in the summer, residential load is extremely weather sensitive, but guess what, if everyone's at work during the day, it didn't much matter when everybody's at home during the day, we see that peak get even peak here. And that's something that now we have to start planning for within our distribution system, within our generation system, it changes the capacity planning.
Speaker 3 (00:25:57):
It can, it changes distribution planning. And right now we're still sitting there going, okay, well, we're not thinking everybody who's working from home right now is going to be working from home forever. But let's say half because for us, for the utilities, we probably have, you know, at most half of our employees working from home, because we still have folks out in the fields of power plants, et cetera, that still have to keep the grid operating. So you're right now, I think you're, you're, you're right on. It's, it's going to be about 20, 25% of our workforce is going to be working from home, you know, probably 80% of the time. And the 20% is coming in for training. You know, that relationship building, things like that.
Speaker 1 (00:26:41):
It's actually been pretty amazing to me, right. We think about five years ago and how we were all concerned about the stability of the grid. Would it be reliable with the influx of all the renewable power that was coming onto the grid? You know, with all the, the, you know, baby Rick mentioned earlier, all the challenges we've had from a weather perspective, but, you know, at least from my seat, it seems like the grid has gotten a lot more reliable and we haven't had to deal with some of those issues. Now we've been lucky or, or have as the investment that we'd been making over the last five years really put us in that position. And what does that mean for the next five years as we adapt to storage and other, and the continued proliferation of renewable power.
Speaker 3 (00:27:28):
So Anthony, can I have a re a rebundled to your, your commentary that the grid's as reliable as it ever was kinda thing. Um, so you've, you've probably all noticed that, uh, there were rolling blackouts in California, which is right next door to, to, uh, you know, our, our Arizona utilities here. And of course in that part of the grid, you know, with one, one big state, obviously like California, which is most of the grid in the Southwest as a problem, and we all have a problem. Um, and it is, it is just making sure that it's all about planning, right? So we know how those resources react. And we just have to make sure that we're being smart about when we shut down these fossil plants that we have a replacement before. And I would say, and this is what I tell our regulators.
Speaker 3 (00:28:13):
I said, okay, we've got a real aggressive plan down here in Arizona to retire coal, replace it, renewables and storage. I said, but we're going to do this at a, at, at the right pace. And we're also not going to shut down those plants or commit to not running them until after we've gone through a summer with them sitting there idle and hot standby. So we know we can bring them back if we need to, because that's, that's really the issue. It was, it was the lack of coordination regionally. Um, and it's the, it's that slow evolution of getting storage on the grid. We just have to make sure that we do that, right.
Speaker 2 (00:28:52):
I don't know if John's bag, but I'll, I'll comment some more on that. I, I really believe that, uh, we're going to see really substantial changes, uh, from how the system operates. That resiliency aspect is critical. Uh, you think about the work from home environment, um, that's, that's emerging. Uh, we always, we always focused in many cases in rate making standpoints focused on industrials and commercials and, and residential customers. Um, obviously the distribution is, is important, but now it's even more important. And you can just think about, think ahead, in terms of even the rate making aspects of that, where customers, usually residential customers subsidize, um, industrial and commercial rates. So you're going to have to really think about, um, how that gets levelized. Particularly if, if, uh, individuals, uh, at home are paying, uh, for, uh, obviously they're not turning on their, uh, uh, turn off their heat or cooling while they're at work anymore because they are at work.
Speaker 2 (00:29:57):
So there's some fundamental shifts that are going to occur, uh, along the way that we have to be very cognizant of, I believe the system is, is, is getting better because of the hardening aspects that have been recognized, particularly in hurricanes and so forth. A lot of hardening has been done, uh, of the grid and recognition of that. Uh, but still we have a long way to go. I mean, just for AEP our transmission system, we spend 3 billion a year on transmission. And, um, but that, that changes our average age from 55 years to 54 years old. So, so it's, it's just a, a long way to go, um, to really reinvigorate this grid to where it needs to be, particularly, as you said, Anthony, the more devices that are connected to it in a different way, um, certainly is going to drive a difference in how we plan and how we operate, uh, the grid of the future.
Speaker 1 (00:30:54):
John, obviously we've been, we've been discussing some of the technology and, and dealing with renewables as a, as a, as a system operator. Maybe you can help add on how you manage through some of the intermittency that might come from increased penetration of renewables alongside the changing demand patterns with EVs and batteries. How are you thinking about that? And, you know, do we have the right plans for, for, for positioning for the, for the grid of the future?
Speaker 4 (00:31:21):
Yeah. Thank you. Anthony apologies seems to have some technical problems. Um, I mean, one of the things that we've done in the UK, we are the, uh, the system operator as well in the UK, uh, as national grade is we've sat in ambitions to be able to operate the system with zero carbon generation by 2025. Uh, an interesting just before I dropped off with the technical problem, I did your next time to talk about COVID and internally thing interesting in the UK. One of the things that COVID brought for us is a challenge as the system operator was we saw really low demands and really high renewables in the UK. So actually for much of the summer, we will operate in with pretty much off shore, wind and solar. Uh, and it forced us as a system operator to accelerate a lot of the tools that we knew.
Speaker 4 (00:32:05):
We know we're going to need in five years time, we're actually, COVID accelerated some of that towards us. So it was actually quite a good experience for the electricity system operator. What we're thinking about at the moment is what are those tools that we need to develop? Uh, one of the challenges obviously with intermittency is that we lose the inertia in the system. And therefore we need to think about how we can develop new products and services that can provide frequency, response and reserves much more quickly than historically they've been, uh, being provided. So that's been a real focus, similarly, things like Blackstar to be able to restore the system when you have outages, uh, traditionally that's been done by fossil fuel generation and that's not going to be there in the future. So we're looking at developing new ways of doing that through. We've actually got interconnection in the UK between mainland Europe and UK. So potentially using interconnection with mainland Europe to do that, uh, as well as actually using some other new, uh, some, uh, some offshore, wind and onshore wind to do it as well. So our aim is by 2025 to have all those products, all those tools developed. So that we're ahead of the game, expecting me to a position where actually the whole of the network is reliant on zero carbon generation or 25, but the system operators will be ready to go by then.
Speaker 1 (00:33:22):
So the scenario where we have a complete reliance on, or, or most of our generation is coming from sources like officer Wayne, um, and having a, a mismatch between supply and demand where you're actually having an over supply situation is the, is the, is the Goldilocks scenario for hydrogen? Is it, are we getting close to the point that hydrogen can get economic? And therefore we, you know, is this exists a, is something we're looking at over the next 10 years, or is it a 20 or 30 year trend to get the hydrogen?
Speaker 2 (00:34:05):
Well, certainly the way we look at it, and it really depends on where you're located, right? In terms of the market and market prices. But for us, we look at hydrogen technologies and we believe that they'll probably become price competitive in about 10 years, um, today, uh, it's much higher than what, um, any of the other resources provide. So, um, but we'll continue obviously to focus on, uh, on, on the technologies and see how they advance. But, but, but, um, certainly, uh, it'll take, it'll take time.
Speaker 3 (00:34:38):
I just jump in and say, I think Nick's right about the regions. And when you think about the Southwest and the high penetration of solar that we have in the Southwest will probably be one of the first areas where it starts making sense from an, from a storage perspective, because we have so much excess solar. I mean, in the middle of the day, either after, you know, you have to ramp down your solar or you have to figure out something to do with it. So you in essence have anywhere from free to, um, people paying you to take energy in the middle of the day when, when you have excess solar, if you can, if you can take that and turn that into hydrogen, it changes the entire price dynamic dynamics of, of our entire grid over here in the, in the Southwest and the, and hydrogen to, and particularly when we have, you know, natural gas, a lot of natural gas combined cycles down in the Southwest, as well as if you can put that in to storage and then use it in existing assets that the entire economic view of it as well.
Speaker 3 (00:35:39):
So now you're just talking about cheap free, or they'll pay you to take energy. You can turn that into hydrogen. So you need an electrolyzer, you have the existing asset to turn it back into electricity. Now you have a whole different economic story than if you were to design something from tip to tail to make green hydrogen, and then end up making electricity out of it again later. Um, that's, that's, that's a pretty expensive, uh, trail there. Um, so that, that, that to me gets me excited too, because, uh, John, John brought up something, um, I guess we're probably all engineers on here, but just the, the conversation around inertia and, and that's so important. And when you talk to the grid operators and the folks are dispatching these units and you lose that inertia of that rotating, you know, generators out there on the grid, it really changes the dynamics and the stability of the grid. So having the ability to take that hydrogen and put it right back into something, that's got a nurse, you clean that up, blend it to whatever percentage makes sense. And now you've got a nice, uh, you know, clean, clean storage resource.
Speaker 4 (00:36:46):
I mean, the only thing I'd add to that, and today it's quite interesting developments being going on in the UK over the last few weeks. So the UK government's announced this 10 point plan, and one of their commitments is to be in a position to produce five gigawatts of hydrogen by 2030. And the way that they're thinking about it is initially the thing about blue hydrogen. So it's, depending on the, sort of what, where, where your carbon dioxide is, is coming from with the gas transmission system that is in the UK, we've got these industrial clusters. So they're thinking about whether you can say natural gas into a, into a region, strip the carbon to actually don't use the TCUs and then use the hydrogen in that industrial area. And they're aiming to get about five gigawatts by 2030, which is quite ambitious. It require quite significant. I think technology price falls particularly around CCU S but the way that they're thinking about it is blue hydrogen first is probably more economic and then green hydrogen will follow as we see more and more renewables, more spare capacity with intermittency.
Speaker 1 (00:37:49):
Thanks, John. And maybe, maybe, maybe you can talk about a little bit in the balance, right? You've got the government where their initiatives, you're trying to do things with respect to customers and shareholders, and then you've got the regulator that you deal with as well. So maybe you can give us some comments on that balance. How do you see overcoming some of the challenges with the regulator and maybe how that difference between your operations in the UK versus the U S
Speaker 4 (00:38:16):
Yeah. So the I'll start the UK, um, many people on the call will know that, uh, we have quite challenging. What's called a draft determination from our regulator and we, we pushed back quite strongly on it. And the reason for that is we think it's really important that there is alignment between what our regulators are trying to achieve and what our policy makers and government are to achieve. And then our drafted termination, we felt there were three areas where there was misalignment, first of all, at a time of massive change when we got decarbonisation going on, we don't think it's sensible to increase the risk on the network. So we need to maintain the asset health and the resilience, the networks, and our regulator. And we had a slightly different view around that, but we were arguing quite strongly when you're going through a period of change, don't undermine the foundation of the reliability of your network.
Speaker 4 (00:39:03):
Certainly I think it's really important that your regulatory framework reflects the policies that are being developed. So there are times when austerity is right and the focus should be all around losing costs to customers. But at the moment, you know, we're in a period where actually we want to encourage investment to enable the connection of all this renewable. So in the UK, the UK, government's committed to 40 gigawatts of offshore wind by 2030. We current have just less than 10. So that's a massive engineering requirement, a huge amount of infrastructure investment. And therefore we feel that the regulatory framework should be set to encourage investment. So it can be done efficiently and quickly. Uh, and then third, of course, you get to the financial package. So if you want to encourage investment from the private sector, it needs to be competitive internationally. So the people will want to invest whether it's in the UK or the us.
Speaker 4 (00:39:51):
So for us, we've been spending a lot of time working with government and regulators trying to get them to align. Um, one of the things we've been debating is whether the, the statutory duties that regulators have have today are too narrow. So quite often, regulators duty is always to the customer and the cost for customers today. And I think in the industry that we're in over the next 30 years, there's a role to play in ensuring not only to protect customers today, but actually we protect customers in the future. And that means encouraging investments that we minimize the cost of net zero. So that's been a big debate that we've been having in the UK and the us. We're very lucky. We operate in the Northeast where actually we've got really ambitious policy statements in New York and in Massachusetts Rhode Island, they are very committed to net zero.
Speaker 4 (00:40:38):
Um, New York, Massachusetts, the faculty have legislated for it rolled out and looking to get to zero carbon generation by 2030. So we're working with the regulators, but we're trying to be helpful as well. I think the next point, which is just that base level of investment that you have to do, and then everybody wants to get to net zero, and that requires investment in the networks, but you have discretion about how quickly you do it. You have to reflect the economy and what's going on. So at the moment in my territories, you know, they've been really hard hit economically by COVID and therefore it's not sensible to have large regular increases to support investment. At this time, if you take a long-term view of it, you can shape your cap CapEx to modernize the grid, to support the renewables and do the digitalization and therefore manage the bill impacts for customers as well. So really important in our view that you've got that alignment between the economic regulator and the policymakers.
Speaker 2 (00:41:32):
John makes a great point. Um, the regulators, uh, really, I don't know that they're actually prepared for the changes that are occurring and it's becoming so convoluted in terms of the technologies that can deploy. Matter of fact, like in Texas and ERCOT, um, Dwyer's company, can't put in a storage, um, legislatively, so, and you see an energy storage, and obviously we've had even arguments in, in PJM about that. Uh, in terms of, is it a transmission resource? Is it, is it, um, uh, generation resource or what I think these technologies have become, become more convoluted all the time. And if you really want a resilient, strong grid, you've got to look at it from, from end to end, from that perspective and determine what's best. Uh, and, and the customers actually will tell you too, uh, we have customers that want storage, but we can't, we can't do it.
Speaker 2 (00:42:31):
And ERCOT, Texas, because of legislative issues. So, uh, and the regulators, um, will need to broad their swim lanes in relation to this. Because a lot of times, when you, even, when you think about electric vehicles and charging stations and, and all the infrastructure to support a more clean energy environment, no, it's not really going to get done unless the utilities, uh, are able to put this, but these Backpages together to ensure that that, that society overall society can benefit, not just the people who can afford it. So, uh, I think there's a lot of work to be done from that perspective.
Speaker 1 (00:43:12):
Yeah, that's obviously helpful. And that's, that's, it's a challenge that we, we all need to deal with. Uh, I think it's, you know, clearly that's probably slowed down the pace of electric vehicles and we'd like to see more, a greater proliferation of electrification. Do we see that changing in the, in the short term, or is that an area that we reach a point where, where, you know, the, the electric vehicle is a two way source of power and we're pulling power off the, off the vehicles in the day and using them. And I have, you know, out how ambitious can we be on that front?
Speaker 3 (00:43:59):
I'll, I'll jump in on, on that one. I think, uh, the whole vehicle to grid conversation has been happening for awhile. Um, but we, I think have recognized one, you've got to have a lot of electric vehicles. Um, and then you have to have the infrastructure, particularly the communication infrastructure to control a lot of vehicles. And, you know, that varies greatly by jurisdiction and by utility, but at the end of the day, um, you know, us as, as utilities and, and seeing the pending Evy, um, growth coming and, and it's, you know, we can sit back and go, you know, five, even 10 years ago. And we were talking a lot about electric vehicles and how they were coming and they didn't, but now we know, and we can see, we can see a manufactured out there, right? We can see the ramp up of, of electric vehicles it's coming.
Speaker 3 (00:44:44):
And we as a, as an industry and in essence kind of need to hurry because we can't let the adoption of electric vehicles get ahead of our ability to support those and to do it effectively and efficiently. Because when you think about how you, um, how you deploy electric vehicles in the charging infrastructure, we have courses as in, in the utilities would like to be, um, uh, a part of that, because at the end of the day, we know where you should put them in. We know the rate design that you should have, and, and if you can do things like vehicle to grid and actually get energy back on the grid and, and provide some, uh, support for your local distribution network, you absolutely should be doing that. And if we don't kind of start moving on the policy front, uh, and this isn't, you know, obviously policy comes down to jurisdiction by jurisdiction, but if you can align some of the policy across north America, um, then, then you're going to be in a much better spot.
Speaker 3 (00:45:41):
And when you think about what you need to do to align that policy, you need, you need partners and you need the automotive partners. You need to charge you network partners, you need utility partners, you need other electric vehicle advocates to get together and try to push policy, um, so that we can get a fast, efficient, uh, adoption, um, and deployment of electric vehicles. And that that's, that's what I think we, as an industry need to focus on. And we have, we have been, uh, there's the Alliance for transportation electrification, which all three of us are. Companies are all a part of that, um, which is pushing exactly for that. It's a partnership of folks who understand the importance of electric vehicles, understand the importance and the need to electrify, um, a lot of our transportation sector in order to meet the, you know, the lofty greenhouse gas reduction goals that we all have in our governments all have.
Speaker 3 (00:46:34):
Um, so that that's, that's where, that's where we need to focus. And we are, we are seeing some success, um, not, I wouldn't say broad or consistent success, but we are seeing different jurisdictions that are allowing and even encouraging utilities to get in there and put in charging infrastructure. Cause at the end of the day, all you gotta do to get a utility to put in the infrastructure is tell us to do it. We have the access to capital. Um, we, we know how to, we know how to deploy the infrastructure. Um, all we need is, is, is a nod and off we go. So we're starting with pilots and a lot of our jurisdictions. And if we're successful with those, with those pilots, if we show our regulators, our customers, that we're doing it right, we're doing it efficiently. We're going to have a bigger role to play there. And that will help the adoption of electric vehicles, you know, across the board.
Speaker 2 (00:47:24):
I think the big point here is though the utility can actually accelerate the benefits of a clean energy economy, um, because we're used to bringing the stakeholders together. We're used to having discussions about what needs to be done for society as a whole. And, and if, if the government and environmentalist really focused on this, but focusing on the utilities, we can get it done. And I think, I think, uh, no pun intended, but there is no question electric vehicles are accelerating. Uh, there's, there's no question that's going to continue to, uh, to prosper. You see so many new models coming out. Um, even I'm confused on which ones, but I have an electric vehicle, but it's, it's, it's great to be able to pass by a gas station in the cold weather and not have to get out, uh, anywhere. And that I think the, I think just, just the, the realization of what it means to have an electric vehicle, but also, uh, the ability to put as, as, as was mentioned earlier, David talked about this, but in the systems in and putting the support mechanisms in, that's why I think all three of us are probably so bullish on our industry.
Speaker 2 (00:48:34):
When you have the generation transformation, that's occurring movement to renewables movement, to infrastructure and hardening of infrastructure, and then the advent of electric vehicles and what it means for the transportation sector. I think, I think you have to be bullish about this industry and its ability to deploy capital.
Speaker 4 (00:48:57):
Great. I'm just going to take a few these just for my colleagues, actually. So I'm an, I, I think pace is incredibly important. So w when you look at all the studies as to why people don't buy an electric vehicle today, number one is always price. Number two is what they call range anxiety. If they call in a public place, when it bottles out there and prices coming down, they're going to be cheap enough, the unload, the traditional car prices. So it's really imperative that actually policy gets aligned so that we can move forward with building infrastructure so that people can have confidence that when they do buy an Evie, that actually when they're on that long journey, that they actually can charge it and charge it in a sensible time, which means, you know, putting enough power in a, to do fast charging. So it doesn't interrupt their junior and he as well. But I think just the next point is lost because, because these is about creating a challenging net work from the dangerous, you end up with a bit like a broadband system, where you get really great broadband, where there's a lot commercial opportunity and high income, but actually if you want to provide a network, Brad really important role, I think for networks to first is to fill that. So actually everybody has access to UVS
Speaker 1 (00:50:20):
On the technology. John, obviously we've seen a significant amount of offshore wind that's been developed in the UK. What are, what are they, what's the impact. There could be great there. And do you see that being a continuing trend that we'll see in the U S
Speaker 4 (00:50:42):
Yeah. So the, um, the UK, we've got about 10 gigawatts of offshore, wind 12 gigawatts of, um, of onshore, just under 50 gigawatts, um, correctly, you haven't got any w we're hearing you now. So I was saying the challenge from an engineering perspective is, okay, looks like he put today is coming from school. So
Speaker 1 (00:51:55):
Yeah, maybe you could turn off your video. We can get the, just the audio with less bandwidth.
Speaker 4 (00:52:04):
Let me know we're here. You're fine. Great. Okay. I'm going to, I'm going to upgrade my broadband that's for sure. It's saying that from an engineering perspective, there's real challenges, uh, to deliver that in the timescales. So what we'd be looking at is, let me truly believe in that idea. And you believe that there's going to be significant amounts of off shore, like 40 gigawatts. Actually, what you do is you create national network and then you'd limit the number of onshore connections you need. It's much more from an engineering perspective is actually much lower cost. And actually you're more likely to deliver that infrastructure in time. So those are some of the debates that we're having in the UK at the moment about how do we move from where there was, you know, it was a sensible system, but it only worked with them, a small volumes or short went into one in which actually you need to fundamentally change the nature of the network. Uh, I was, I looked to the U S I see there's real opportunity there, obviously there's quite a lot of activity in the Northeast or in terms of off shore. But again, I think if you're going to get to the volt, your opportunity to think about how you create offshore networks, dark connecting, wind farms to those networks. And I think that is a much more effective and cost-effective sister, you know, situation for customers as we move forward.
Speaker 1 (00:53:21):
Yeah. And, and, and I always like to say that offshore wind is as a transmission project as it is a, a wind project. So, um, it is interesting that we, we, I guess we are, we are all engineers on this call, which is, which is interesting. I, I, about five years ago, I had the fortunate to go over to China at the, at the invite of the chairman of state grid. And he had a vision that, you know, why, why aren't we just building long transmission lines and putting all the solar on the equator and all the wind in the, uh, on the poles. Um, you know, as, as, maybe as a last question for the three of you, I'll say is as engineers, if we put regulation aside, and obviously I have an educated mind that all the different regulators that we have to deal with that to make something like that happen, you know, what would be one thing you'd like to see happening over the next five years to, to, to enhance the grid and, and, and have your, your, your vision of the grid in the future, uh, come, come to fruition.
Speaker 2 (00:54:27):
No, I had that same conversation with chairman Lou over there. Um, and, and, um, I really believe, uh, and you really, you look at Sean and you look at what we're doing. Um, your customers, customers really don't want to know where there. Um, and, and, you know, while China is looking at larger and larger transmission and one gig transmission and all that kind of stuff around the world, um, the, the point really is, is that even transmission, uh, uh, to get, uh, Rockaway space, um, we're actually going the other direction with our bold transmission lines. We're trying to go smaller, more compact, but able to deliver more energy. I think in the future. Um, we have to really think about what our system looks like in the future to be not as, as obtrusive, not only to, to our customers, but the environment as well.
Speaker 2 (00:55:24):
And so for us to continue moving forward, we're going to be in partnership with our regulators, uh, to ensure that we're not just answering the needs of the electric system, but answering societal needs, uh, because there's no doubt electrification is going to drive those needs for us to be able to provide resiliency, reliability, and certainly at a reasonable cost to our, to our customers. But then you expand into transportation. You expand into broadband, uh, those types of activities that you, that leverage the resources that we're putting in place. Those are clear opportunities for us to have a dramatic impact on, on really some of the ills that society has today. You know, when we, when we, um, uh, when we went to a state, a work from home environment, you know, people continue to pay their electric bills. Well, they didn't, I mean, it's not because they care about the utility, but they cared about Netflix and all the other things that they were doing, uh, to they could do it. And even today, the EVs, the charging stations and other things like that, because Americans will want to drive their cars, they'll want to be able to take advantage of electric vehicles. Battery technologies will move ahead because of electric vehicles and we'll benefit from that. And we just need to make sure that we're, we're a part of that process to ensure that it can be accelerated and get, uh, get really the policy changes that people have been talking about. For years, we can get it done.
Speaker 1 (00:56:53):
John what's on your wishlist
Speaker 4 (00:56:58):
I'll make two comments as I think about networks actually going forward. Um, well, the first thing is that, you know, the traditional boundaries of transmission and distribution or collapsing. So you have to think about networks for the whole system perspective. We're going to see a lot more generation local than we've ever seen before. We're going to see a lot more, two way flows on the networks and therefore well networks. We have to get away from this sort of vertically integrated sort of thinking on how they've been done in the past and think about a much more holistic approach, potentially two way E these local generation, as well as large generation as well. I used to be a system operator many years ago. That's good. Oh, there is a fantastic opportunity for a lot more options. So you need to have multiple sources. If you want to ensure you're delivering a resilient and reliable service to your customers. Thanks, John
Speaker 1 (00:58:15):
Me again. Well, David, you've got 30 days now, right? Or 29 days to figure out what you're going to your vision is going to be, but maybe you can give us the 32nd version before we sign off.
Speaker 3 (00:58:28):
Yeah. I mean the short story is aligning policy objectives and the actual processes so that we can meet those policy objectives. Obviously renewable energy is going to be huge. I love the idea of the super grid. Um, you know, we got way more solar than we can use down here. There's way more wind than the Midwest can use over there. We've got to figure out ways of interconnecting those markets, um, and flattening that resource curve, um, and flattening the demand curve at the same time. Um, you know, I, I want to pull on a thread that Nick said earlier, and that's the, this whole conversation of, if you want to, if you want to clean society, you need to just pull us in. We were the ones who can implement so much of that. When you think about the greenhouse gas reduction goals that everybody has, the electron is the mightiest thing out there and how you create a transmit it and just distribute it.
Speaker 3 (00:59:19):
If you're in that value chain, we all are it's, you know, I'm, I'm, I'm like Nick, I'm really bullish on the future. That's what, that's what it's going to be all about. Now, the conversation that we have to get better at as a, as a utility industry is explaining, stop looking at your electric bill. Well, one don't look at your rates because that's, that's irrelevant. You need to look at your bill, but don't just look at your electric bill. Look at your pile of bills. You got on your desk at the end of the month that you got to pay and see that what you're saving on your gasoline, bill heating bill, whatever it is is, is, is more than what your electric bill is increasing. And that's, that's where we got to start telling that story better about wallet share or not, you know, electricity, bill rates, et cetera. Um, cause when you get there now, all of a sudden the conversation gets aligned and we're all in the same direction. We can save our customers money. We can do it more, uh, more cleanly, um, you know, more cost-effectively it's that, that's the story. We gotta be, you know, pounded in our fist on the table.
Speaker 1 (01:00:22):
Well, thank you, David. Thank you, John. Thank you, Nick. Uh, really appreciate you doing this and look forward to, uh, maybe have continuing this discussion over a cocktail of the next year.
Speaker 3 (01:00:35):
Yeah. Looking forward to that. Thanks. Thanks Anthony.