INVESTING IN THE TRANSITION
Insights from an energy leader
The transition that I see is one driven by two forces that combine; one is the improvement in computing power, which enabled designers to simulate and refine their products fantastically and increasingly better, and the other force is the improvement in material science, and the combination of these two things explain deep down why certain things got competitive all of a sudden that were not competitive before, and why this change and that change, and that change, all of a sudden, becomes economically possible, easy to implement, less risky, and therefore is adopted by everybody. So, why I'm optimistic, because I see these forces at work now, not just in the energy field, but in other fields, in general, in the industry and the economy.
Technology works the same way everywhere, physics works the same way everywhere, computing power is spreading everywhere, and countries cannot do much, governments cannot do much to stop that. So, you have to look a little bit on that dimension and see that this is a big tide, and there are waves, ripples on top of it, and don't be confusing ripples with the tide. So, you need to have a longer view than any government, elected or non-elected, can last. Policies of the governments can accelerate or slow down the trend, but the trend is a trend, and it's not driven by governments, it's driven by technology.
[TRANSITION CARD]
Combining AI and energy
So, how to harmonize two worlds that have a different antenna clock, the computing world, so AI, if you want to, has a very short clock, so we're talking about things that improve in months and needs that surface in months or years. The energy field is used to think about decades, so how to combine these two, these two different speeds is really, really important. How to do that efficiently in a good way, and not making mistakes, because when you have these two different time zones, you can make mistakes. You can always be off, off, off, off, or if you are in sync, then it really flies.
So, if you look at all the infrastructure around the world, it's mostly an extrapolation effort, and then you have the transition funds that look at what happens when the transition is hot, it's an exposure to an exponential growth that requires a different mindset, a different setup, a different speed, and also a combination of growth and infra characteristics that is quite unique. So, equity makes a conscious effort to differentiate these tools, because they, you have to use them all in this moment, you have all of that to be combined in a good way.
But at the end I think you know this dialectic between short term and long term is healthy, because it helps to keep people awake, because the worst mistakes, you know, I've seen a lot of mistakes in my life, plenty. Basically, the mistakes in infrastructure always result in one single way, which is a write off. If you try to combine short term and long term, your likelihood to make that kind of mistake is smaller, because you're trying to find out how fast can I amortize this investment, and is this long enough given the turbulence that I have around me, can I afford an investment that gets repaid in 30 years?
So, there is a thinking that needs to be combined between long term and short term, which is painful, but it's a discipline you have to have.
[TRANSITION CARD]
The nuclear revival
If you look at when power plants were built all across the 80s and mid-90s, because they were decided during the 70s, that's the cycle of nuclear, so that is there, and it's a great thing to have, and anyone that has a power plant should keep it running, of course, spend money on it, so that it runs safe, fine, but it's the past. Then, if you take that past and say I want to build a nuclear power plant of that kind, now, you can, but it takes another 20 years. Then you have the future: small modular reactors, new reactor designs. And that is not obvious, that they will fulfil the promise of becoming cheap, easy to build, and easy to manage, as we all think. I don't think it is unlikely. I think it's possible. Okay, but we don't have that clarity right now.
[TRANSITION CARD]
Meeting the demand challenge
Solar and wind today are by far the cheapest and fastest way of generating electricity. They became fast and cheap in a period between 2009 and 2012-13. Then this is the time where they made this breakthrough. Not everyone saw that coming, but it happened, okay. This is a classic case in which, looking at it in the past, you say, where, where was the investment community at that time…? Sleeping. No one really understood this happening in this order of magnitude, but it did happen anyway, because they became competitive in a brutal manner, and they became fast in a brutal manner. I mean, it was unthinkable to build a power plant in less than a year, until solar plants did it, and so now we have this, and they are the present future of generation of electricity for the next 15-20 years. It's no more a generation story, it's a demand story. And the change there requires storage also. So, storage is becoming so important because both ends of the value chain require storage, because of the volatility that increases on both ends of the spectrum. So, networks need help, and the help comes in the form of storage. This is the decade of storage, because of what happened decade ago.
The change of demand is much more important than we all think. Global demand of energy consumption is between 1.5 to 2.5 growing year on year, and every year the electricity demand, so the portion of that that is electrical, grows twice as fast.
How will the energy system need to change if millions and millions of cars will be electric; if all the boilers will change to heat pumps; when all the industries will start to electrify their heat? That is unknown. No one has a clue. Okay, I'm sorry to scare you guys, but it's really super important. And the electricity systems we have today are not designed for that, they are designed for another world, the world that we all lived in, so far, so that change is critical, but it's so difficult to understand, because the supply world is an incredibly big, biggest complexity. If you, if you think, how many generators of electricity are there around the world, less than 10,000 of which 2,000 are material, and out of these 2,200 actually make 80% of the story. It's a very small universe to observe to understand what's going on, but demand is millions of companies, so it's much more complex to understand.