Episode #005 with Torsten Brammer & Luca Pedretti:
In this episode, we had a chat with Swiss national Luca Pedretti. Luca has a vast background as an energy trader and held various positions at EGL and Axpo. One of his first tasks working for a utility was to assist in negotiating a PPA for the first 100 Megawatt wind park in Poland. It was then that he realized that PPA's are going to become the driving force for furthering investments in renewable energy.
Luca has dedicated his career to the development and negotiation of PPAs and has been riding the PPA boom in the last couple of years.
Luca is the co-founder and COO of Pexapark, the Swiss fintech startup. They specialize in providing risk management and energy trading expertise as well as software tools to the energy investment market.
Connect with Luca on LinkedIn.
Show Notes:
Interesting points covered in this episode for those of us on our own Solar Journey):
Why did Luca dedicate his career to the creation of PPA's?
How is it that PPA's are a critical requirement in obtaining project financing of a renewable asset?
What is the critical difference in the EEG feed-in tariff and certificate-based systems in other countries?
How does the core business model of Pexapark works?
What are the biggest challenges in the energy investment market?
What are the factors influencing the electricity price in a PPA?
What are the risks in a PPA transaction and how do they interact?
What's a surprising side effect of the advent of PPA's?
What is the required change in thinking to achieve a world that is power with 100% renewable energy?
Transcript:
[00:00:03.320] - Torsten
Welcome, everybody, to a new episode on the Solar Journey. And today we have a new guest. It's Luca Pedretti. He's the COO and co-founder of Pexapark. Welcome!
[00:00:20.780] - Luca
Pleasure to be with you. Thanks.
[00:00:23.590] - Torsten
Yeah. So, um, Luca, is as I just mentioned, the co-founder of Pexapark, and it's a company based in Switzerland. And it's specialized in power purchase agreements for solar energy. And so before Luca, held various management positions at Axpo Trading. Axpo is an energy provider, a utility in Switzerland. And it's actually one of the largest companies in Switzerland, which I just found out on Wikipedia.
[00:00:54.390] - Torsten
Yeah, they make billions of revenue.
[00:00:59.440] - Luca
Yeah.
[00:01:01.600] - Torsten
Yeah. Luca close this first power purchase agreement in 2008. So were quite a long time ago. And that was for a hundred megawatt wind park in Poland. That's pretty interesting. I'm sure we will talk about that. The early stages of PPA in renewables.
[00:01:20.730] - Torsten
And since then, he has been in the renewable energy trading business. So he's all about energy trading and renewables.
[00:01:30.900] - Torsten
And he's also says he's actually stuck in this sector for good because his wife is not so much interested in renewables. So he has to compensate for this.
[00:01:40.530] - Luca
So you mentioned to me that in the earlier conversation we had in preparation for this call.
[00:01:46.950] - Torsten
Maybe you want to elaborate on this?
[00:01:49.060] - Luca
Yeah, I could talk renewables 24/7, as he is not so much into renewables. I had to overcompensate job wise. All right. I'm very happy just to dedicate myself to renewables. OK. Fantastic. So where you were.
[00:02:08.500] - Torsten
You've you've got a degree from the University of St. Gallen in politics and economics. And then you started a career in energy trading. Was it renewables right from the start or was it just conventional aerospace?
[00:02:26.490] - Luca
It was all incidental. I mean, I wanted to become a diplomat. Okay. And I was working there in development aid in Indonesia and came back. And so I ended up with an energy utility. Yeah. And the first thing I was allowed to do was a PPA. I didn't have any idea what that is. I really realized at that time in Poland when we did such a power purchase agreement, that it enabled the realization of a huge wind park at that point in time.
[00:03:00.630] - Luca
Yes. And I was always interested in green stuff and renewables. And this really got me as a wow, this PPA means more renewables. And since then, I haven't stopped doing it.
[00:03:15.390] - Torsten
So when did you discover your urge to go into renewables? That that start during the degree or after your degree or even during school time?
[00:03:26.110] - Luca
A good question. I haven't thought about it. I always wanted to make a change. And somehow green was associated with something positive to reflect on it. I just found let's do more of this positive thing. Yeah, well, I think there's some connotations. I mean, renewables are connotative with that decentralization. It's connotated nowadays also with a smart way of doing things. So these are also interesting aspects. And I'm generally fascinated by things which keep on providing for a long time.
[00:04:01.620] - Luca
What makes you successful in the long run? I think that's the core topic of sustainability and renewal, of course, means it can auto generate and somehow probably expanding my passion for that.
[00:04:18.400] - Torsten
OK, so back then, the deal in Poland, there was already with a Axpo?
[00:04:29.360] - Luca
Yeah. There was a company that at that time was called EGL. It was one of the leading pan-European energy traders. That was very important at that point before the liberalisation in the beginning of the market liberalisation. There was a lot of trading of fossil power across borders. And that was what EGL was doing. And then in Poland, there was a case that they started with a first subsidy regime to promote renewables, which was 99 percent coal country.
[00:05:07.700] - Torsten
And they were receiving green certificates. If you were to build a renewable plant, you would get green certificates for 10, 15 years. But there was also electricity next to it. And you had to do something with it. So those investors were trying to sell the electricity for a very long period in exchange for a fixed cash flow. And with this fixed cash flow, they would run to the bank and say, hey, I have very good off tanker.
[00:05:34.510] - Luca
And it's very it's a Swiss company. It's owned by the state. They will never default. They will always pay. Now, here's the money I will get. Please give me debt. So I don't need so much equity and I can leverage my investment. And that's basically the foundation of Project Finance and PPA. Secure renewable cash flows for 10 years. Banks are happy to give debt. So you can invest more in renewables. And that's what the renewable world has been doing ever since then.
[00:06:11.890] - Torsten
Fantastic. I mean, this must have been one of the first power purchase agreements, in short, PPA in Europe on. How would you have put that in context?
[00:06:23.740] - Luca
I mean, Sweden was one of the leading markets at that time when basically renewables when you look on the history of renewables in the beginning, they said that doesn't work at all. Physicall it can't work. And then at a certain point, it was just expensive. So you had all this support system and in Germany was the very famous EEG. But in other markets, they tried other subsidy regimes in Sweden, in Poland and other markets, they tried certificates regimes
[00:06:57.460] - Torsten
Certificates for CO2 emissions?
[00:06:59.740] - Luca
No, it was particular certificates just for wind or just for solar. And there was another way of trying to support. And the side effect was that when you get certificates, you still get power. You need to do something. And those certificates markets allowed the creation of a PPA market because those renewable. The first renewable investors had to do something with their power. They needed to sell it into the market. And that was actually the birth of renewable energy sales for power purchase agreements.
[00:07:40.760] - Luca
And it was not a topic in Germany because in Germany, just the government would pay you for electricity. You didn't have to do anything with it.
[00:07:48.040] - Torsten
There was no trading required. So there's certificate gave them the right to emit. CO2 from standard coal power plants.
[00:07:58.830] - Luca
It was more a sort of system that if if you're a utility and you supply electricity to households, you need to show the government that you have 10 percent of your electricity screen. OK. And then you would go to green producers and exchange a certificate. And when this was done, everyone was happy. And the certificates, of course, they had an artificially high price which allowed them the investment on the renewable side.
[00:08:30.810] - Torsten
All right. OK. So how many? PPAs in volume? I don't know what you would say in megawatts or in euros, have you done?
[00:08:41.400] - Luca
We typically count in gigawatts, I think I've been doing more than six gigawatts of PPA for new capacity over the last 10 years?
[00:08:50.610] - Torsten
Okay, so so we right now we have, what, 600 gigawatts installed in solar? I don't know how much wind?
[00:08:57.350] - Luca
Well, I think every year now, more than 40 gigawatts gets built. I don't even know what the overall figures are.
[00:09:03.440] - Torsten
Solar, it's more than one hundred each year. And wind, I am not sure.
[00:09:08.680] - Luca
Yeah. Most is still under feed-in. Yeah. When you look back a few years. But this is changing now dramatically. I mean, yeah. Technology has gotten so cheap. Secondly, there is not much money left and willingness on the government side to continue subsidizing when costs go down. This combination has been the driving factor behind the PPA boom across Europe.
[00:09:40.790] - Torsten
So, feed-in tariff. That was and still is in a way the key driver in Germany and many other countries. So could you just briefly explain how a feed-in tariff works and then we compare that with the PPA.
[00:09:53.930] - Luca
The feed-in tariff is a governmental sales agreement. It's a PPA with the government. The EEG means that in Germany that the government pays for 20 years a price for whatever you produce or you don't need to think about it.
[00:10:10.350] - Torsten
Yeah. Whenever you produces, um, for the whole time. Right?
[00:10:15.950] - Luca
Whenever you produce, you don't have to worry, you get paid by the government.
[00:10:22.520] - Torsten
A previous guest talked about the net metering, which he found to be very successful in Brazil, for example. Yeah, that's where you basically. Consume or produce. And basically the electricity counter or meter just moves forward or backwards, depending on how you produce or consume.
[00:10:47.320] - Luca
Yes, those are relevant for home kits. Yes, very small installations and not PPA, typically referre to very big investments. Typically with a PPA, we're in the business to business world, where hundreds of millions are invested. If we look at the most recent PPAs, for example, in Spain. Now we're talking hundreds of megawatts of solar installations. All the energy then being contracted on the one PPA. Or in in Germany or in Sweden, Norway, Sweden. We talk of huge wind parks. There are 500 megawatts. And they sell all their energy into one, one big PPA. Yes. So these are like different segments of the renewable market.
[00:11:38.290] - Torsten
Yes. We'll come back to PPAs right away. I'd love to understand more about it. And so you were with Axpo, but then you did start your own thing, right? So you started Pexapark. Yeah. What why did you do that?
[00:11:55.330] - Luca
That's a great question. Why did I do that? I always wanted to do that. I think we were we were seeing that the need to do PPAs became a huge thing. So the combination of higher power prices, the lack of new subsidies and lower technology costs, suddenly it became feasible across Europe. And that means that all the investors that so far were brilliant engineers. I mean, they need to focus on acquiring the land. Getting the permits, building the the choosing the right technology, building it, and then optimizing the hell out of it. Yes. Yes. Highest possible availability. Yes. But they didn't need to think about selling the output, what is actually being produced they didn't need to worry, and suddenly it became extremely important.
[00:12:51.580] - Luca
The idea of Pixel Park was, you know what? We help you get this PPA down from A to Z. So how to find the PPA, how to price and structure it? Because suddenly now there's a huge difference between what you actually contract and what you get. So it's all engineers there and suddenly you have this commercial aspects. And yeah, I mean, suddenly you you become an entrepreneur in a in a very much commercial sense. Prices change every day.
[00:13:27.900] - Luca
You need you need need to have competence and a strategy, how to get rid of this electricity so your revenue is uncertain now. Before it was certain. So that's it's a huge paradigmatic shift. It's it's a huge paradigmatic change. I mean, first now you need to get your sales in order that you can realize your project. And this is just upside down. In the in the past, it was, get the project on sequentially, you do one after the other.
[00:13:58.710] - Luca
And now suddenly you need to start with. First, I need to sell my energy. Before I actually can do my project.
[00:14:05.710] - Torsten
OK. So how big is Pexapark now? When did you found it?And how many people and how much revenue?
[00:14:12.450] - Luca
Three years ago. Almost three years, we are thirty people. Yeah. We have probably done advice and worked on more than five gigawatts of PPAs. And it has become now a software business as well. It's like you need to know how much you sell, how your risks are changing. Your production is changing every day. Prices are changing everything that has become a moving target. And you need to keep track of your energy sales and energy risks. And for that, you need you need a actually a cockpit monitor where you can look into your energy source.
[00:14:56.500] - Torsten
And you didn't found Pexapark yourself. How did you find your co-founders, who are they and why did you choose them?
[00:15:04.590] - Luca
Yeah, I mean, we started with, with my ex-boss. Worked with him for 10 years together. And then we we had some of the same ideas and we wrote down a business plan. It was almost very, uh, how you say it's like what we walked into an investor and he liked it on the spot and that made the thing much easier. If you have someone believing in your idea, investing also into you, that you can try to realize your dream.
[00:15:39.960]
And since then, we've just been busy building, working, doing okay. I think the mission the mission really is to enable renewable investors to succeed in the energy transition. And to to somehow go from, to be able to deal with uncertainty in energy sales, before you had certainty. Now you have not. And this will change the entire market. I mean, it will be very easy. Looking back in five, 10 years, I was very clear it will change the way renewables are financed.
[00:16:13.890] - Luca
It will change to way the new markets work and it will lay open new conflict lines between the players in the markets.
[00:16:24.430] - Torsten
Excellent. Three years. That's almost still in a start-up. But you seem to be doing already pretty well. Well, what was the hardest thing?
[00:16:34.650] - Luca
We're still burning money.
[00:16:35.910] - Torsten
You're still burning money?
[00:16:37.050] - Luca
We're still burning money.
[00:16:38.110] - Torsten
You're saying that on air?
[00:16:39.530] - Luca
Yeah. Yeah, I think it's on air. It's according to plan. OK, well, we need to understand is that what we're trying to do is we're in business to business. So the people need to trust you. They basically, when they invest in us and buy our software, they want to be sure that we're still here. So that's why it's important that you have a diversified, strong shareholder base.
[00:17:07.130] - Luca
So we have actually industrial companies investing in us. So this secures that we will stay in being able to deliver our services. And then we're selling big items. I mean, our software. Well, you need a big credit card to buy it, particularly in an industrial our clients. It takes from the first time we see them until everything is done and settled, it can take a year, and then software development is very expensive.
[00:17:37.100] - Luca
And yeah, but then you see at the core it works and it generates good money. So we're just crazy on investing that money because we want to have an impact. And with that, if you invest in growth, it's just very expensive. But that's actually a good way of, I believe, the market working with startups where you get risk capital to build something and you validate constantly. And if it works well, you get additional money.
[00:18:10.460] - Luca
You have to be up for that. It's not for everyone. You can also do the incremental way. Yeah, I think we see a huge chance to really make an impact in this market.
[00:18:24.020] - Torsten
What was the biggest challenge now from going to the court and registering your company until now? What was the biggest challenge for you to say when you think of think of other possible founders maybe listening? What would you say? What's the toughest part? What would it require to go get beyond that?
[00:18:47.520] - Luca
I will say I was we were extremely lucky that we had a funding in place, so it was not all out of my pockets. I mean, I reduced my salary and put in equity. But somehow we knew we have twelve months to go. Yeah, that helped a lot.
[00:19:03.950] - Luca
Well, is extremely tough is creating something of value. I mean, the ultimate stake is clients paying you for your services. And that's that's brutal reality. But this is I mean, just a. Also, the morning is huge. I mean, what you can learn and it's very fulfilling if someone pays for your services. And then it starts to work. So that's that's what they're actually. I don't have much time to think about it.Also to be very clear here. I've been since then working.
[00:19:44.720] - Torsten
Let's talk again in five years or so then you can have breathing space for to look back right?
[00:19:50.970] - Luca
I think what I'm most proud of is the team. We have created that fantastic culture from the people we hire and that basically and the validation in the market that we see it works. That's uh. That's enough already for me. Yeah.
[00:20:08.850] - Torsten
Excellent. Culture is super important. I would agree. And the people, sure. So you mentioned the software . Your key product service is a is a software. Maybe you can elaborate on that. So what's your business model? So, so you're in between the buyer of electricity and the generate of electricity. How do you create value for both of them.
[00:20:35.790] - Luca
Good question. Uh, the market is not working very efficiently between the seller and the buyer. It's intransparent. Mm hmm. And the idea we first had is to create transparency in the market. So we have one solution is that we help just getting the PPA done. So it's the software that helps you pricing the PPA and matching sellers and buyers. Everything related from A to Z to get your energy sold. Yeah. So as soon as you have sold it, you need to do something.
[00:21:10.200] - Luca
You keep need to have a tap on it because it constantly changes. And so you need to have financial monitor, a risk monitor. And now how do you pay us? Basically we charge a subscription fee. OK. People pay us on a yearly basis to keep accessing the software like you deal with Office 365.
[00:21:31.780] - Torsten
All right. So your product is a software, software as a service subscription model. And. Why would I, so that this is for companies who keep to people all the time like. But because once you if you do it just once, then you would. You don't need a subscription, right?
[00:21:54.580] - Luca
That's correct. If you were only to it, you would to you would need a subscription subscription only one year. Well, when you do the PPA, the PPA that issue is that this is dependent on market prices and prices change every day.
[00:22:12.610] - Luca
And typically from A to Z, they can take years to realize a project. So you need to have an infrastructure in place to be able to to close PPAs and we're providing this infrastructure and this infrastructure is very sophisticated and was so far only accessible to very big utilities. They have this infrastructure in place and they can do it. And our ambition is to make this infrastructure available to investors, Funds. But they cannot spend millions. So they will rather subscribe to this as a service.
[00:23:06.980] - Torsten
It looks a lot better now. Good. It's all right. Excellent. So what's what's. What kind of infrastructure do you need to make such a good. To make it happen, all the know how to do data to do a PPA?
[00:23:23.890] - Luca
First of all, you need to know what is the price.
[00:23:26.420] - Torsten
Yeah. But this is like one data point. Why? Why is it. Because it keeps changing the pricing?
[00:23:33.300] - Luca
The price is, uh, changes every day. Yeah. The price changes according to where you project this. Yeah. What type of technology you have. Yeah. It depends on the. It depends on on the type of PPA you want. Is it five year, 10 years? Is it a full service or only little services? So you suddenly have thousands of data points.
[00:24:07.490] - Luca
And this is the first thing you need to have transparency of. What is the fair price for my PPA? And then when you know what you want to do, you need to find a buyer. And the software connects you with the buyers.
[00:24:23.360] - Torsten
OK. So so it's actually also a marketplace where you can find offtakers?
[00:24:27.020] - Luca
It's a slow moving marketplace. I mean, you need five, maybe five participants from the biocide or we will talk about hundreds of participants in Europe.
[00:24:39.250] - Luca
I mean, when you look at the entire market, 200 transactions are being done a year. Yeah. So it's not like, uh, well, it's not a high frequency product. Yeah. And a typical process goes three to six months. So it's slow motion matching and trading. It's not something which is very dynamic and someone clicks. It is really a very structured process, like when someone buys a big company. It's, uh, it's related.
[00:25:12.340] - Luca
I mean, it's still I mean, the 500 megawatt solar park leads to 300 million euro investment and project financing. So there's a lot of stakeholders involved. A lot of due diligence. So it's a very structure, very high stakes process. So there is a lot of trust involved as well. Do people trust the prices we do? And yes, they do. And can we help speeding up the process? Yes, we can. I think it's a lot of, uh, about transparency, trust and helping to manage the process better.
[00:25:51.740] - Torsten
Yeah. OK. So, um, with a with a fair price, when we start with that, then you basically look at the historical data. So let's let's look at your 100 MW Poland plant. Then you just look what's the electricity pricing in Poland. Right. Which I assume it fluctuates. Yeah.
[00:26:13.150] - Luca
The main input factors are what is currently traded on the market. Whatever is traded at the exchange is the key benchmark for PPA pricing.
[00:26:25.270] - Torsten
But you also need to look into the future. Right. So basically, you need to forecast somehow the development of the electricity pricing?
[00:26:31.490] - Luca
Well, that's a very good question. In the end, this the key question you should ask as an investor now is with what likelihood do I want to secure my revenues? Because you could say I want a fixed price now for 100%. Okay. But then you have the full security. But no upside. Now, this is done at a very deliberate decision making process on the investor, depending on his profile. It's like a personal investment decision, like the questions to us is what is the minimal cost you need to have covered?
[00:27:10.890] - Luca
And will you freak out if you go 20 percent below your expectation or are you very cool? And you say, you know what? I have funds. I can stay. And I have a view that prices will go up. So this is so fundamentally different than investing in them in a feed-in tariff, which guarantees you the payback and everything for 20 years. But this situation where you need to take so many decisions. Shall I sell hundred percent?
[00:27:40.270] - Luca
50 percent? Is this a good price? What happens if prices go higher or lower? What, we are actually doing here is we're managing uncertainty and we're in a probabilistic world. And this is something completely new to the investment world. I mean, to the renewable investment arena, in the other world that is completely common. Yeah, yeah. But it's just, it's different questions in the investment process.
[00:28:10.710] - Torsten
So do you help your customers to forecast the development of the future pricing or do you say, hey, guys. It's all up to you?
[00:28:20.400]
That's that's up to you. You have very specialized companies, Peri, Balinga and all the like to do fundamental models. They ask themselves, if technology costs come down, if more renewables are built, if gas prices go up, what will happen to the German power price in 2025? Yeah, but that's like taking a crystal ball that the forecast will be wrong. Our take is, what can I secure today? And with what likelihoods can the nonsecure part change?
[00:28:56.950] - Luca
And to make a stress test and say, look, in this in this circumstances you will be fine. So it's more a probabilistic view of how your revenue looks like and what can you do today to secure your revenue?
[00:29:15.280] - Torsten
What do your customers do, they have a chance to include a speculation onto the future, because I guess they would help them to.
[00:29:24.620] - Luca
Most do want to. That basically depends on the investor. If the original money is pension funds, yeah, they ideally don't want to have any risks. OK, but there are others who say, look, I. I want to have my operational costs secured. After 10 years, I have my tab to pay it off and then I'm in the fantasy land.
[00:29:45.450] - Torsten
Yeah. OK, so you mentioned. So it's basically managing risks, bringing bringing in transparency on the various risks. What what what are the risks. I mean for renewables of course it's the fluctuating power generation and the other one is, will the prices go up or down for my product? What other risks are there?
[00:30:08.520] - Luca
I mean, from a renewable point of view, the first risk is volume risk. So there is if you don't know how much energy resources there actually will be. So how much wind will there be over 10 years? The second is the so-called profile costs or risks. That's related to the location of your asset. So if there's a lot of wind in the same area. But there is a cannibalization effect on the value of your of your production. Then there is a balancing risk that means.
[00:30:54.460] - Luca
The way the power market works, you need to tell the grid. One day in advance, how much energy you will produce. The grid needs to remain stable. They need to know exactly how much electricity will there be. As we all know, your forecast will be wrong and there will be a charge at balancing fee cost to that. So whatever you see as a gross electricity price, you need to make deductions to receive your net capture rate.
[00:31:32.250]
And. This is the first challenge for new investors. They need to understand all those different types of risks. And last but not least, you sell to a company, a private company. So you also have credit risks. What if the company doesn't pay? What if the company goes bust? That's an additional risk. To contracting electricity.
[00:32:00.220] - Torsten
Excellent. So you are mostly dealing with the wind and I guess also PV photovoltaic solar.
[00:32:11.290] - Torsten
Yeah. These are the key parts?
[00:32:13.510] - Luca
It depends very much on the geography. I think in Scandinavia, everyone is going on wind and in Italy and in Spain, it's more around solar. This has purely to do with the resource economics.
[00:32:28.990] - Torsten
Yeah. What about other renewables? Do they play any role at all? Like whatever? Bio gas, geothermal, tidal, whatever that you can think of?
[00:32:38.200] - Luca
Nothing. I mean, hydro, nothing is built anymore.
[00:32:41.930] - Torsten
Yeah, why not?
[00:32:43.130] - Luca
Probably because everything has been built which can be built. Yeah. There's no more mountains. Yeah exactly. And biogas is, I mean they're more in gas. This is not not so much an electricity game. Yeah. So it's really wind. And it's really solar, but it is actually really solar.
[00:33:06.630] - Torsten
Yeah. Well why is that?
[00:33:07.790] - Luca
Well, because it's where there is sun it's just the most competitive technology.
[00:33:13.270] - Torsten
Yeah. How competitive is it to? Sorry.
[00:33:16.370] - Luca
Yeah, offshore is. I mean it's wind but it's it's a different branch of the wind technology. But that's still expensive. But it's coming in very big and very, very strongly.
[00:33:29.280] - Torsten
Okay. Have you done any projects on offshore wind?
[00:33:32.170] - Luca
Yeah, we have done offshore PPA in Germany. Yeah, well, we have done, we have accompanied and advised on and helped to close it. But that's I mean, there is a there is a clear competition between technologies. I mean, Germany will be huge in solar PPAs, newbuild solar subsidy free. Prices are right now a bit too low. But just three months ago,
[00:33:58.980] - Torsten
Too low?
[00:34:00.560] - Luca
Yeah. The forward market, I mean, the overall market price for power has been decreasing in German.
[00:34:07.550] - Luca
And. It has been decreasing to a level where investors deem it too low for new investments. And that's exactly that. The key thing we with this new PPA market, there are swine cycles here. When prices are high, everyone is contracting, doing 10 year PPAs and building new assets. Then prices may go down again. And no one is building. So you have these cycles of build and none build. And we have seen this very clearly in Sweden, which is under such a system for more than 10 years.
[00:34:46.520] - Luca
But that works. I mean, it is all. I mean, we have to every other Full-scale investment doesn't work like this for new nuclear power plants in the U.K. They need to get a government subsidy, which I mean, for these prices. Will be so many solar built.
[00:35:08.630] - Torsten
What do they get? They get like 20 cents even compensated for inflation. I think, like, it's it's an insane deal. They've got it.
[00:35:17.720] - Luca
It's huge. I mean, I think or also when you just look at the last PPAs in Germany for solar, they were about 40 euro, all inclusive, per megawatt. Yeah. So for 10 years. So with those prices or in Spain it was 35 to 37. That they had much more sun so they can afford the lower price. So with those price levels which were purely given by the market, you had investments on gigawatt scale. Completely subsidy free. Yeah. And I mean this is real and it's working and it's scalable. And the thing is, you can do it in small units here. You can do 100 megawatts, 500 megawatts.
[00:35:59.010] - Torsten
Yeah, it's modular.
[00:36:01.290] - Luca
Exactly. Exactly. If prices fall, which they did now also accelerated due to the COVID crisis. Mm hmm. If prices are too low, nothing will be built. Yeah. So that's like, uh. Well, that's that's a free market yeah.
[00:36:16.480] - Torsten
Yeah. Let's look on the whole planet. Um, do you do you work internationally and what's the what is the situation outside Germany. Outside Europe. Let's say South America. Asia. North America.
[00:36:34.280] - Luca
Well, in the US, it's pretty much similar. I think what I'm describing here works in a world where you have traded markets where you have four with markets where you have power exchanges. If this doesn't exist a PPA, market cannot exist.
[00:36:50.600] - Torsten
So you need. So that's a regulatory framework you need. You need a liberal energy and electricity market.
[00:36:57.260] - Luca
It needs to be somehow an exchange or power can be traded that you can do this. Of course, somehow, bilaterally, you could maybe arrange. But if you trade, basically, you want to know. Well, it's much easier to trade if there is a trusted benchmark.
[00:37:15.410] - Torsten
You need an alternative right, otherwise there's no negotiation.
[00:37:19.980] - Luca
If there is a third party, everyone if we talk about electricity prices in Germany, everyone knows this exchange in Leipzig, what is quoted there. This is accepted as the fair price. And if you don't have this, it's very difficult to. To build a real market.
[00:37:43.760] - Torsten
What about? Do you want to scale your business or do you want to go South America? Africa? I don't know. There's so many places? That will see the energy transition right?
[00:37:53.230] - Luca
We definitely have the ambition to go to the US, as a similar to what we do here. I would be really happy. I look forward to three months. So that's my horizon.
[00:38:13.260] - Luca
But definitely we, I think what I am most interested is the longer term implications. So how will financing change? And there will be I mean, we come from markets with very low renewable penetration, maybe five percent or nothing. And now we're reaching 30, 40, 50 percent renewable penetration. And at some point. Yeah, it's not both systems cannot coexist. That's what I see. So. Right now, the whole curtailment issue is mitigated. So in Germany, if you're under EEG subsidy and you're curtailed, you're compensated by the government.
[00:38:58.810] - Luca
So it's a double cost to the society here. So you have a subsidy and there's too much renewables there are curtailed and you compensate under the new options. That's not the case.
[00:39:11.620]
But what do you mean that a new option that was a PPA? Oh, yeah. If a PPA or with a new German subsidy, it means that if prices really are negative or there's too much, you're switched off and you're not compensated. What does that mean for the renewable business plan? It means that. At some point, if there really will be too, if there will be too much renewables. I will not produce.
[00:39:39.430] - Torsten
Or you have storage!
[00:39:41.260] - Luca
Yeah, it doesn't matter how cheap I am. If there is too much I cannot produce.
[00:39:46.880] - Torsten
Yeah. I mean, an alternative would be to store your energy. Right?
[00:39:52.180] - Luca
Yes. But I mean, if you talk about batteries, we talk about storage of one hour to four hours.
[00:39:58.660] - Torsten
What about batteries? I mean, Tesla built a big better in Australia. There's more and more big batteries coming up. What do you think?
[00:40:06.230] - Luca
But I mean, it just doesn't it's not economical now. The cases now are in very extreme situations on islands, in markets where there is so much renewable that you need to shift production by a few hours.
[00:40:23.170] - Luca
But we need this is not thought through. And I think never in the energy market itself. It was purely a market based system. There was always a very strong governmental. And I think that we always so far have only talked about the power market, but we never talked about capacity. Mm hmm. And if you want to think through a hundred percent renewable market, you will need to have. Double, triple, quadruple, the actual capacity in renewable.
[00:40:54.770] - Luca
Then what you have in demand, and that means it needs to be storage in the middle of which technology on which system. This is all not clear and thought through. Right now what we're doing is we're just adding capacity, which is becoming cheaper, which has a priority feed-in. At a certain point, it will break. It will break because there's just too much volume in the system and it will be curtailed. I mean, this conflict, this in the next five to 10 years is just becoming more aggravated. Yes. And I think it just in the end, it's a political decision of Write-offs to be allowed to. To write off old investments and change the system. And I think this is it's not. No, it's not clear yet how it will play out.
[00:41:52.130] - Torsten
Do do you dare to make a forecast on how it is going to go?
[00:41:56.870] - Luca
Yeah. I mean, in Germany they will solve it with a lot of billions paying out to old coal industry. So we'll just make the whole system. It will eventually transform, but they will be very costly because you have to pay off every single one. And so I think the verdict is not in. Each country will be will be different. Depends also how quickly I mean, I don't see actually a new conventional investment purely on market terms. That's the other reason. I mean. There is I mean, we see with the nuclear investments, no one is building coal. I mean, it's there's no new capacity actually being built on the market terms
[00:42:44.450] - Torsten
In nuclear or coal?
[00:42:47.400] - Luca
Yeah, I mean, that either is some state support behind it. Mm hmm. So this I mean, this is India and I think it's just a purely political decision. Okay.
[00:42:58.460] - Torsten
Where are the prices now for storage? Electricity from storage?
[00:43:05.410] - Luca
I would not know. I could tell you about solar and wind, but I couldn't. Okay.
[00:43:11.860] - Torsten
So it's gonna be it's gonna stay solar and wind? You're sure about that. So there's no other alternative.
[00:43:18.700] - Luca
I think offshore will become increasingly important. Offshore wind.
[00:43:22.210] - Torsten
There's more and more offshore PV in the news. Have you looked into that.
[00:43:27.670] - Luca
I saw. I mean, all those Peevey plans on on legs. Yeah. I see. Yeah. If you mean that by off-shore?
[00:43:34.930] - Torsten
I mean even Singapore. Things will be real offshore. Right? Because it's the ocean. But of course the lakes.
[00:43:45.920] - Luca
I read a bit in the in the news. I mean you don't see it on big scale yet. Everything has to start. What I found really interesting in offshore is that I somehow see that the old dinosaurs, that they are somehow moving into offshore. It's RWE, and all those of those old players. That's something they like. They can invest billions. And it's big construction. I see some out there. They're shifting from conventional to offshore. So maybe that's a way for them out.
[00:44:18.940] - Torsten
And it's a centralized powerplant plant again, right? It's like the big thing.
[00:44:23.110] - Luca
It's huge.
[00:44:23.690] - Torsten
A single cable and then full control.
[00:44:26.550] - Luca
And it's and it's huge. I mean, when you look at offshore installation, I mean, this is. I mean, a wind park, you can do three turbines it's a ten million investment, whatever you do, in offshore is billions. But I mean, it's promising because it can generate very high full-load hours. I mean, the run four or five thousand hours, even more, and the they can produce enormous amounts of electricity. So it will have an important role.
[00:45:02.040] - Torsten
Excellent. So. We touched a little on the future. What about the cost side of wind inside? Where does it have to go? It doesn't have to even go further down. I mean, I know some engineers say, man, we've done reached so much. The costs are so low. Why do we even keep fighting for more efficiencies, high efficiencies, cost down, cetera, cetera? Is that still a limiting factor or is it in the end just competition between the players in the solar and wind market just to beat the other guy next door?
[00:45:36.000] - Luca
Yeah, I think it's really it's greed. People want to earn money and maximize profits. I mean, the biggest. I mean, we look at the EEG, someone fixed the income. So how could you earn money? By reducing technology costs. And I think there's so much capital around, so much money that wants to be invested. And in I think in solar, it's purely electronics. It's the more you build, the cheaper it gets.
[00:46:09.790] - Luca
And so and it has been predictable. Wind is a bit more complicated because there is much more concrete steel technology. I mean, basically, this goes all through size. They have to get bigger, bigger, bigger, that it becomes cheaper. So I think there is a natural advantage for solar.
[00:46:33.590] - Luca
OK. Yeah. The big question mark is battery. But when you see how costs have come down, they have the same learning curve. Yeah. So I think the key thing is not so that the little battery shift like for two, three hours apart, but really the seasonal storage. That's OK. Hugh, if you think through how to I mean. So look, in Germany, we have 40000 megawatts of wind. And the average size is still two megawatts.
[00:47:09.060] - Luca
Two point two or three .
[00:47:11.130] - Torsten
Per wind turbine?
[00:47:12.210] - Luca
Per wind turbine. And the new turbines which are being built are four of us easily. So, just it will be very easy. To double the capacity just perspectively. And in the north of Germany, already 10, 15 percent of all the times they are producing, they need to be curtailed because they have too much electricity.
[00:47:32.580] - Torsten
So the grid is limiting.
[00:47:34.680] - Luca
So what do you do with these huge amounts of electricity? Meaningful, sir. So how can you how can you transform it? How can you storage. What can you do with these free electrons.
[00:47:49.320] - Torsten
Yeah. Yeah. I promised you, we uh. It's almost again in our. Oh yeah. It's superfast. So, uh. So as your final remark. So, um. Maybe we look at the global scale. What does it take? What does it need to get solar and wind to the next level? Right. I mean, we we have come a long way. You were part of this. But how do we make sure? How can we get to 100 percent renewables in the in the world? Right. On on a global scale. What what's your take?
[00:48:21.810] - Luca
It's still dirty politics.
[00:48:22.980] - Torsten
Get the laws right, regulatory.
[00:48:28.100] - Luca
It's not just economics.
[00:48:29.820] - Luca
It's it's in the, it's also it's politics as well.
[00:48:35.790] - Torsten
So open up the market, liberal markets, open the way for PPA?
[00:48:39.610] - Luca
And have basically, I mean, what investors want is clear rules like that. How does the market word? What are the rules?
[00:48:47.010] - Torsten
Yeah. So security on your investment. And konw, I don't wanna have the laws changing every four years, right? Yeah.
[00:48:55.490] - Luca
I mean, if people know that prices will become extremely volatile, for example, because there's so much renewables at some point, this will create value for someone else. Yeah. If you say these are the rules and this is how they will be. Okay. So I think yeah. But I think much to come. So I'm, I'm very optimistic that this will, this will happen.
[00:49:19.200] - Torsten
Yeah. Hey, Luca! Thanks a lot. That was super interesting. Maybe you feel. Maybe you can have a chat again anytime soon. That was pretty interesting, we just touched the surface of many topics. Thanks a lot for taking time. All the best with Pexapark! Thank you! Yeah. And, uh. Yeah. Have a good afternoon!
[00:49:43.030] - Luca
You too. Thanks Torsten! Bye!
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