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On Today's Bloomberg Intelligence Show, we dig inside the big business stories impacting Wall Street and the global markets.
Each and every week we provide in depth research and data on some of the two thousand companies in one hundred and thirty industries our analysts cover worldwide.
Today, we'll take a look at Moderna's new COVID shut and vaccine trial.
Plus we'll take a look at how one university system is benefiting from AI, crypto and power.
But first we moved to some news in the media space.
This week, we heard that Warner Brothers Discovery is splitting into two independent companies, Global Networks and Streaming and Studios.
Global Networks will include entertainment, sports, and cable television brands such as CNN, TNT, and TBS, and will hold a twenty percent stake in Streaming and Studios.
Its separations expected to be completed by mid twenty twenty six, allowing each company to pursue deals and investment opportunities on their own.
For more on this and the latest media news, we were joined by Githa Rang and Athan Bloomberg Intelligence, senior media analysts.
We first asked Etha if she likes Warner's plan and if it's at all surprising and exciting.
We like the plant. This has been many months in the making, so last December they had actually reorganized the existing business into these two separate units, the TV business and then the streaming of the studio business, kind of eventually paving the way for exactly the announcement.
I think the.
Surprising part and this is a little bit of a pleasant surprise for Warner Brothers. Discovery has really been on the debt side, so as you well know well the linear TV business is challenged, but the bigger problem for WBD has really been a huge amount of debt. And this debt was really as part of the combination of Warner Brothers and Discovery, which happened a few years ago. At that point, the company had over fifty five billion dollars in debt. They've paid about nineteen billion down, but
they still have thirty five billion. But what they're doing now as part of this transaction is they have a tender offer out there, really kind of looking to streamline the capital structure. So when you have these two new public companies, there's going to be a much more manageable debt load at both of those companies. And I think investors are really reacting positively to that news.
Keetha.
When they put the companies together, one of the arguments was to create scale to compete against Netflix and Disney.
What happened to that.
Argument, Yeah, exactly, Paul. You know, yes, they did create scale as far as the TV networks part of the business was concerned. You know, you have Discuss, which is really the leader when it comes to nonfiction. You have you know, the Warner Networks and HBO, which is the leader when it comes to fiction and quality dramas and
scripted series. And they thought that that would do well, but unfortunately what happened is, you know, and all media companies, as you will know Paul, have this conundrum because they have the TV business, which brings in a lot of the cash, but is literally a no growth business. In fact, it does in decline. Both advertising as well as affiliate
fees are in decline. But then you had the streaming business, which initially kind of had a little bit of trouble because you know, in that whole game of subscribers and that land gradt for subscribers, they actually ended up incurring a huge amount of losses. But there is this whole wave of content cost rationalization. We've seen a turnaround and all of the streaming businesses and Warner Brothers Discovery actually
has kind of led the charge there. So they were actually the first to get profitable in terms of streaming. And so now we're seeing this huge disconnect, or at least they are saying that there is this huge disconnect between TV network's business and the streaming of the studios businesses, which should arguably get a much higher multiple, and that's kind of the reason for this split. So we've we're
seeing how multiple companies do this. Actually, so Comcast, which has the NBC division, they're splitting out their cable networks. We had Lions Skate and Stars, where you have Lions Skate as an independent movie studio, Stars as the media networks, and now you have Warner Brothers Discovery. So there's this whole big movement now towards you know, this vertical kind of separation if you will, I mean, do.
They all come together then and create kind of one less great TV network thing?
Yeah, that's kind of the plan. So the most logical combination, and this has been floated around for for months now, is that with this news of the Comcast, you know, the NBC cable network separation, who would have would that
become like this kind of roll up vehicle. And that's kind of what you know, a lot of the industry experts are thinking, they're expecting now that you have this news with Warner Brothers Discovery, everybody's kind of expecting down the road some common nation of maybe that Warner Brothers Discovery TV assets along with the Comcast assets and who knows who else kind of spins off their networks and then that becomes this giant kind of TV network umbrella.
Going back to Paul's point about scale, because scale really matters now at this business.
All right, how about Paramount you other sick child in your coverage, what's going on there?
Yeah, So we really don't know what's going on there. So there's been a lot of ups and downs, Paul, with the whole closing of the deal. So the Paramount sky Dance transaction, it was announced last year sometime in July. It was supposed to close by the first half, by the end of the first half of twenty twenty five, but there's just been so many different press reports. They've had to do different things to appease the current administration to a peace President Trump, I'm not sure he is
yielding so easily. So we're actually it's still kind of fifty to fifty Paul, whether that transaction actually, yeah, actually closes. So there's just too many up in the air. And then again there is the lingering question because we know that Skydance was really only interested in the Paramount's studio business. So again what they kind of do with the TV networks business, what they do with the streaming business, that's
all a huge question mark. So visibility very very limited right now for Paramount.
I guess I just wonder if you stick all the cable networks together, how does that actually generate real income? I mean, I know that's a cash cow to some extent, right, but then you have a lot of debt and there's no growth.
Like, what kind of asset is that?
Yeah, it's definitely a melting ice cube kind of an asset, which is exactly what you know, the TV networks have been. The argument that all of these media companies are making alex is that somehow by kind of banding together, you know, because each one of them will have one or two networks that is kind of a must have networks. If you're looking at Warner, you have CNN, you know. If you're looking at again, if you're looking at the NBC networks,
you have USA, you have MSNBC. So you know, there are definitely all going to be some must have networks in each portfolio, and kind of putting them all together will stem that rate of decliner. At least that is the argument that they're making. But again we've seen that court cutting has actually been far worse than what was initially projected, so again it remains to be seen. But the idea is they want to milk it till it kind of runs dry.
Our thanks to get it Wrong Andathen Bloomberg Intelligence Senior media.
Analyst, we moved to some news at the world's largest retailer, Walmart.
This week we heard that Walmart's credit cards will once again be issued by the consumer financing company Synchrony Financial. Synchrony previously issued Walmart credit cards for nearly two decades until twenty eighteen.
Walmart will now use its fintech startup One Paid a partner with Synchrony, and they'll offer co branded and private label cards in the US later this year.
This comes as Walmart makes a renewed push into financial services and for more. We were joined by Ben Elliott, Bloomberg Intelligence consumer finance analyst.
We first asked Ben for some background on Synchrony, which initially lost a partnership with Walmart to Capital One.
Yes, so they had it for twenty years right up until twenty eighteen when the renewal sort of negotiations between the two companies got contentious. Walmart was demanding too much for Synchrony, and so Synchrony sort of sort of backed down. And at the time it was a really big deal, and so this is an equally large deal that they're coming back.
Why did it go away?
So the way Synchrony works is they have these large partners, right the top five partners are more than fifty percent of their net interest in fees. And what they do is they share the economics with the partner programs and something called a retailer share arrangement. So every couple of years the partnerships are up for renewal. And Walmart is
a gigantic corporation. They have huge leverage and they were demanding essentially more of the economics than Synchrony could provide and still be profitable.
Ben talk to us about these kind of branded credit cards if you will. I mean, my daughter is a master at managing points and managing points and doing all that kind of full time job it is, but it pays off every time she's traveling somewhere it's oh, it's on points points. Talk to us about that. The business of those kinds of cards and kind of the economics.
Yeah, So Syncrety is not so much in that business. They're in the business of providing a credit option, usually to sort of a lower credit worthiness, lower income borrower that is really focused on a single retail partner. So this partnership is going to be there's gonna be two cards. One's a general purpose card that kind of does what you're talking about, but the rewards sort of value proposition
will typically be a little bit lower. The card will be more accessible, and then the other card will be just used at Walmart. And details are still pretty light on what the reward structure might look like. But the goal is to drive through put at Walmart and not necessarily at sort of other retailers.
So they also have cards with like JC penny Low's Amazon PayPal for example. And you mentioned sort of a different type of band of consumer. How is that band of consumer doing.
So Synchrony likes to say that they're managing, they're not thriving, and they're not struggling. You know, this is a it's sort of like a subset of wallet share, all right. So the Syncrety is just seeing how these consumers are behaving at a single retailer for the most part. But
there's not a lot of stress. But if you look back at twenty eighteen when they first decided not to renew the Walmart partnership, it's kind of overnight their charge offs went down like sixty seventy basis points, so presumably this particular customer set is charging off a little bit higher, like maybe one percentage point higher than your typical borrower.
So there's going to be it's an interesting time for Syncrony to go out and look for these sort of more marginal buyers basically to get growth.
Ben your coverage of consumer finance companies, you get a good view those companies, get a good view of how the consumer is doing, how they're spending their money. What are you hearing from these companies these days?
So if you look across spending categories, everything is still typically growing a couple percentage points above GDP. There's one obvious standout, which is travel, which is basically people cutting back on their most incremental spend. But if you kind of think about travel, right, you're booking your flights a couple of months maybe a year in advance, and growth in that category is down double digits. So if you kind of extrapolate that forward, will we see similar shrinking
in hotel spending, entertainment, leisure things like that? You know, could be a little bit of a canary in the coal mine.
What is Synchrony's flexibility when dealing, when they're managing, when they're saying that their consumer isn't thriving and they're not dropping off, but they're managing. What does that translate for Synchrony.
Well, so this goes back to what we talked about the retailer share arrangements. So you share both the profits and you share the costs, right, so you know, if charge offs were to rise, the retailer in this case, Walmart is going to pick up some of those charge offs. So that kind of like you know, softens the blow a little bit for Synchrony as a as an issuer. But they have other sort of tools in their toolbox.
One big one was the late fee, which CFPB had been trying to cap at eight dollars instead of about thirty dollars. But they can use those things like that to incentivize borrowers to pay even when it gets to be more painful.
Ben are your consumer finance companies? Are they talking about credit quality concerns at this point?
Yet?
Credit quality is still great for companies like Amex, it's pristine, unimpeachable. But the thing to look at is delinquency. Just the mechanics the way charge offs work. First, you have to go delinquent before you stop paying. And we're not really seeing any sort of increase beyond kind of like seasonal trends in delinquency.
Our thanks to Ben Elliott, Bloomberg Intelligence consumer finance analyst.
Coming up, we're going to break down the White House's plans for nuclear energy.
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We moved next to the biotech space this week.
We were joined by Sam Fazzelli, Bloomberg Intelligence, Director of Research for Global Industries and senior pharmaceutical analyst.
He joined to discuss the latest in the biotech space from Moderness recent COVID vaccine approval and placebo trial to new obesity drugs from the biotech company met Sarah.
We first began with the money side of things and asked Sam for his take on why more biotech companies are returning cash back to their shareholders.
So, I think companies are coming to a realization that they can't just sit on a large pilot cash. The latest one that just happened was seven hundred million dollars in the bank, and the assets weren't particularly going in the direction that athy shareholders were happy with, which is why the company was sitting at a negative enterprise value of like one hundred million or ninety million, depending on when you're looking at it. And I think they thought, well, no,
actually two hundred eighty eight million. Sorry, they thought this time to return some of that cash to shareholders. And you're seeing more of this happening. Investors got tired of companies essentially constantly saying, we'll find a better thing to do with your cash, and they investors go, we know what to do with our cash.
That is like a really weird thing for about tech company, right, because this isn't the whole value proposition. Eventually, is that you spend all this money on R ANDD to make that super cool thing that's going to make up bazillion dollars.
Right, sure, Alex. But if you start off saying I am the expert in this area, and I'm going to take this expertise and translate this idea into a product, and that doesn't work out, then you say, actually, I have another idea that wasn't necessarily your expertise. That's where investors get a little bit edgy.
Yeah, so, Sam, I know the FDA recently approved modarrens new COVID BAX seen what's new about it and is it better?
Well, actually, they did a real trial of comparing this new version. I'll tell you what's new about it with the standard vaccine spike facts that we've been getting. I don't even know how to pronounce the new name m next via something like that. I could never It's not
an easy roar rolling off the tongue. What they've done is that they've taken the dose from fifty micrograms to ten micrograms, and what that does is that it gives you less reactions, and in fact, in this particular trial, they showed even higher antibody responses compared to the old one. So there is a small possibility it was only a few ten percent or so higher. A small possibility you get a much better efficacy in a real world setting.
But it seemed to go in that direction here, So and that now is going to become the base of all their vaccines going forward.
Right, But that's a good news if you take the VACS scene. But then you're not allowed to get the vaccine unless you have underlying commorbidities, right.
Yeah, alex is only you not allowed to get direction because you don't have a whole bunch of the qualifying factors. You're not old, you are, you're over sixty four, you're not you're not come morbidity. Except the one thing you have, which is something that doesn't show up in these conversations, is a risk of a really bad reaction to COVID, right,
which is something that you've experienced. So what is going on though, is that the company has whatever specifically, has committed to the FDA to do a placebo control trial in a fifty to sixty four year or sixty five year group of individuals without come moobilities compared to a placebo I eat nothing so that will be where they will have to do this trial, and by committing to it, this trial needs to be large in order to show
a difference. And I remember a whole bunch of people going into these trials now with previous immunity, which means the difference is going to be smaller, which means you're going to need larger trials. So I hope it works out and I hope the cost isn't punitive for modernaw.
New obesity data from a Newish biotech met Sarah and their obesity issue. What's going on there? What do they have for the market.
Yes, so they've got a new mechanism, which they're not the only people following it. Lily's doing it, and I was doing it Zealand and now in partnership with Rash are doing it. And it's targeting not jlp ones but amelin in the same sort of pathway of hormones that hunger and satiety, et cetera, but slightly different. And the theory is that you're going to get a drug that
is less difficult to tolerate. Nausea and vomiting is the biggest one with these drugs because they impact the gut and so here they've presented data that shows pretty good weight loss the thirty six week readout, thirty six day readout, sorry, five weeks, and you've got unfortunately one hundred percent nausea rates, but they are at the very low grade. I is just feeling a little I'm assuming yuck. And then what you've got is that it only seems to majority of
them seem to pass after the first week. So I think this is good.
Our thanks to Sam Fazzelli, Bloomberg Intelligence, Director of Research for Global Industries and senior pharmaceuticals analysts.
We move next to the energy sector, specifically nuclear energy. Recently, the White House announced it's gold a quadruple US nuclear generation capacity by twenty fifty.
The goal is to have reliable energy supply to meet the growing demand for artificial intelligence from more.
We were drawn by Scott Levine, Bloomberg Intelligence, senior Energy and Industrial Services analyst.
We first asked Scott to explain the complicated relationship with nuclear energy and what the Trump administration would like to do with it.
Nuclear has always kind of been a bit of a strange one for environmentalists and for the industry overall. You know, it's an emissions free power source, right, which would seem to align well with the goals of environmentalists. However, safety concerns, you know, end up being an issue three Mile Island,
Fukushima and otherwise. And so you know, with the combination of demand from AI for power of all types, coupled with the fact that it is an emissions free power source has really brought it back into the forefront and supporting the AI demands story. So you have the demand
picture has clearly strengthened as a result of that. The two things that really blew a hole in the story the last time it was in vogue and the Obama administration was really the shale revolution which made natural gas so cheap as an alternative, and then in twenty eleven Fukushima created all kinds of concerns there. So the two
really blew a hole in the story then. And now, you know, in fifteen years has gone by since then, and the memory has faded, and now it's back in the forefront folks minds.
So expanding or keeping alive or recommissioning a nuclear plant is one thing, and that's what we're doing three Mile Island. We're getting it back up and running again. Then Constellation also made that deal with Meta on Monday or Tuesday. That is just continuing to expand. It's going to keep going with its nuclear reactor, right, but building a new one is like a whole different thing.
How expensive is that?
Yeah, so we've only built one plant in the last thirty years in this country. It was in Georgia. It was initially expected to cost under fifteen billion dollars and take seven and a half years, and it ended up costing over thirty billion dollars to complete and taking about as long as expected. And that was the one that got through, right.
Well, but President Trump and what he outlined those executive orders is aimed to reduce the time and the money.
But does it kind of do it that much?
I mean in theory, In theory it's possible, yes, but there's so much we don't know, right, I Mean, our expectation would be that, you know, we may not even see full sized reactors built at this point, right. Small modular reactors, yes, where I want to go are being developed, there are, you know, and so these are going to be much more they're you know, modular built. They're smaller in terms of the unionization. Uh, and so they could be built conceivably behind the grid if the regulators can
get comfortable with the safety aspects. So uh uh it's conceivable. But none of those have been built yet, right, So a lot of it's still on the come uh and a lot of will depend on the uh progress of technology goes to the regulators, et cetera.
Is the technology there, because we've had people come through here to kind of apply that it is there.
It is on paper. You know, there's a have we built one of them? We have not built any of them in the US. There have been a couple built over seas. Only one design has been approved, and that is New Scales small modular reactor, and that's basically mimics a light water reactor. It's a smaller version of the plants that are in service now. Two thirds are the ones in service in the US or Westinghouse one third give or takeer ge, and those are all light water reactors.
And then there's a whole other list of companies that are building these more innovative technology gas cool reactors, salt cool reactors. None of those are in service, right and you know, half of those are in the process of commercialization in some way, shape or form, but none have been built here.
No, why is nuclear so interesting to hyperscalers Because.
It's emission's free, and because it runs twenty five or by seven, right, And that's the big knock on wind and solar, right, And so those two things in and of themselves, they need to be twenty four x seven. They need to be basedload in order to support data center needs number one and number two missions free, you know, supports the environmental mandates of the metas, the Googles, the Microsoft's of the world. And those are two huge positives
that can't be ignored. So if indeed we need power for a longer period of time than it's taken to train these models, and all indications suggest that will be the case for inferencing purposes nuclears, positives are really too great to ignore.
But it's expensive. Yes, we're going to pay for this. Federal governments can some subsides. Is the President posing that?
Yeah, they are proposing that. And that's really kind of the big unknown right now. How much money are they willing to put behind this? When they built the scale VC, sorry, the Southern Company plant Vogel and Georgia. If I'm administration put eight over eight billion loan guarantees towards that, and
it ended up costing thirty one to thirty four billion dollars. Yeah, and so we're in an age now right where the budgets are concerned, and some renewable projects are being canceled, others are being allowed to move forward, whether it's hydrogen, whether it's carbon capture, et cetera. So you know, Trump's saying he loves nuclears is a big positive there. But how much money they're willing to put behind specific projects is really the key question.
And that's such an interesting point because therein lies the problem with hyperscalers. They're not used to taking on that particular kind of risk. Also, they need power yesterday. So saying that we can get this to you, let's just be generous and say seven, it would say four.
They need it yesterday. Four is not going to be good enough.
So are they going to actually like help offset the cost for something that won't be available to them in four years in an industry like tech that changes really fast.
I mean, they have a look all every hyper scaler has made positive comments regarding nuclear. Then it comes down to like how much how subsidy is done. Is that exactly? And so you know, the reality here is they need interim solutions now to support the growth. They also need longer term solutions. Nuclear certainly could be a longer term solution. But you know, we'll see what the details are. We'll see where the government's willing to subsidize a portion of
those investments. The one thing I can say is utilities are probably going to be redis in to put a lot of money behind this on their own without that backing, given the history of the last three decades.
Our thanks to Scott Levine Bloomberg Intelligence senior Energy and Industrial anast.
Coming up on the program, we're going to break down the state of offshore wind in the US.
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This week we focus on higher education in a story titled Oil Rich University of Texas Cash is in on AI, Crypto and Power. You can find it on Bloomberg dot Com and the Terminal.
This story discusses how the University of Texas System is generating cash from new projects on its land from a mix of renewable energy, crypto and oil and natural gas production from more.
We are joined by Janet Lauren, Bloomberg Higher Education finance reporter.
We first asked Janet to explain how the University of Texas System is benefiting from AI, crypto and power.
So, the University of Texas System has lanned two point one million acres in the premium basin that the State of Texas set aside for higher education in the eighteen hundreds when the land was supposed to be worthless. But then something happened in nineteen twenty three struck oil and for the first hundred years the University of Texas grew its endowment with oil and gas, and now in the next century they're looking for revenue from above the surface.
They've had, they've started with a few wind and solar facilities, they have a crypto mining center, and they're looking to expand to you know, augment their revenue from surface ventures.
So that's so fascinating to me.
How quickly are they diversifying, Like how quickly is the money moving? And I wonder what policy in DC is also sort of filtering down into what the university invests in.
Well, the university actually isn't really investing in anything. They are the landholder, So they're signing lots of leases.
Sure, but they're like choosing to then maybe sign it for one part of energy and not another.
One might say, well.
They're they're looking to find new revenue sources. They've had a few wind and solar facilities on the land, and they just signed a preliminary agreement to lease about two hundred thousand acres or ten percent of their land to a company called Apex Clean Energy for wind and solar. And their customers include companies like Meta and the Army and eBay. So and right now these are you know, these things take years and years and years to build. The wind and solar facilities I saw that are up
and running for a couple of years. You know, those deals were initially signed several years ago, but it just takes time. And there's new transmission lines that were just approved in Texas in three of them at ten billion dollars to move power into the Permian. So these wind and solar are producing them and then these lines will be able to take them.
It's you know, Texas is such an interesting, you know place in the world for many reasons, one of which is me. When I think of Texas, I think a big oil you know, the oil rigs and cowboys and all that kind of great stuff. But it's also like the one of the biggest renewals places. They've got a lot of wind, and I got a lot of sun, and they got a lot of land. So how does Texas kind of bounce those things?
Well, they need an all all, all in approach. And the University of Texas has you know, really grown its endowment. It's you know, forty eight billion, you know, coming close to Harvard. And I did a story a couple of years ago about their record year in oil. You know a few years ago they got over two billion dollars in oil and gas revenue.
Yeah, that's amazing and it's just cash into the into the endowment. Can other universities replicate the monetization of their land in a similar way, Like what what other universities have this kind of option?
Everybody in Texas knows, never sell your mineral rights. But you can't really come close to this, I mean rice in Texas. They also have revenue coming from oil, you know, from land, but nothing even comes close to this University of Oklahoma. You know, I did a store several years ago about you know, people gift them.
Land, they keep the mineral rights.
With fracking, they got you know, huge increases over time. But you know, you just can't compare anything to two million acres in the Permian basin, so one of the they are the one of the largest landholders in Texas.
Still it's you have a great chart in here that just kind of shows the growth of revenue from their oil and gas business, which is still the vast majority of it. But this surface piece sounds like it can be totally incremental.
Yes, And you know the head of University Lands, which is the unit of the University of Texas system that runs it. You know, initially he's saying, we're kind of looking for a couple of singles here and there test the waters, and now they're looking for bigger projects where they can have wind and solar power generation, you know,
on larger swaths of land to generate more money. Now keep in mind, under these projects, the wind turbines that I saw, they have oil underneath, and you know that business is also working, so it's all concurrent.
All right, You've got I have to ask you this question. Als can answer for you. There's a picture here an operator flaring excess natural gas at a well at Ute Manage Land in Cood, Texas. So there's gas escaping from the well and they just kind of let it on fire so it doesn't go into the atmosphere.
Yeah, I mean in theory, they want to capture it economically, because if you capture it, you can then use it. And also with any sort of environmental restrictions, you got to capture it. But those restrictions are changing, let's say.
And down the road, maybe you can use that natural gas to power.
A data So yeah, it's like you gotta make it economic and if you can use it for something else, that's where.
You got it.
Silly question, What are they using all this money for sports?
Teams like saying a good question.
So the money from oil gas goes to basically building things. It's not for operations. So if you look at their campus, you know, and we described in the story a couple of buildings, you know, fifty million dollars for Texas A and M's new business school. You know, tens of millions of dollars for new hospital facilities. You know, they run a bunch of medical schools, different different types of technology
within those medical schools and those health systems. You know, I forget the number of schools between the two systems, but it's something like twenty plus, you know, M. D. Anderson Cancer Center. Ye, So they build buildings, all right.
Thanks to Janet Lauren, a Bloomberg Higher Education Finance reporter, each week we take a look at research from Bloomberg and EF previously known as New Energy Finance.
They're the team at Bloomberg that tracks and analyzes the energy transition from commodities to power, transport, industries, buildings, and agricultural sectors.
This week we looked at BNF's outlook for offshore wind for more. We were joined by Oliver Metcalp Bloomberg B and EM, head of wind Research.
We first s Oliver to discuss the state of offshore wind in the US.
Well, offshore wind projects in the US at the moment are facing a really, really difficult outlook. It's been tough over the last few years. There have been rising costs, supply chain bottlenecks that have hit the sector really hard. High interest rates for such an expensive technology is also something that raises costs a lot. There have been strong political headwinds since the since the Trump administration took office. So the Trump administration withdrew the permit for that Atlantic
Shores project. That was a project that had already faced those higher costs I was talking about already facing a lot of economic difficulties, and the removal of that permit was that the final straw that really pushed the developers over the edge. The project isn't completely canceled, so SHERL and EDF that own that lease area that kind of
marine area are going to hold onto that lease. There's potential that they could develop that in a different form in the future if there's a more friendly administration to off your wind. But yeah, a bit of a bleak out outlook for the sector at the moment. In the US.
What about projects that already are outshore offshore and are already producing. Could those lose their lease and get shut down.
It's not looking like that at the moment. So the Trump administration put a stop work order on a currently under construction project that would feed parent to New York called Empire Wind that's getting developed by the big Norway and oil men called Equinor. That and the Equinor had already invested over a couple of billions of dollars in that project. Thank thankfully for the sector, the stop work order has been lifted. Now that's a good sign for
the other projects. There are five under construction US offshore wind projects at the moment, So the fact that that project was allowed to go ahead is a very very good single signal for other investors that are building projects like AUSTID, like you mentioned, that have projects in the pipeline.
So those five projects we're expecting to go ahead. All the other ones kind of further out in the pipeline, federal permitting of projects, federal leasing of new seabed areas to build projects, the kind of developer, the development environment has has ground to a standstill for those projects that are a little bit further out into the pipeline in US off your wind.
What's the rest of the world doing with offshore winning these days?
Well, some of those effects that I was talking about that have hit the U have hit other markets around the world. So costs have risen globally, there have been supply chain constraints, there have been high interest rates. That's kind of a global story. But we're seeing a lot of growth despite that around the world for offshore wind, particularly European countries in the North Sea are building mega projects.
We're expecting the largest project in the world to start to start commissioning their turbines next year, a project called Doggerbank off the coast of the UK. And then we're just beginning to see markets in Asia start to pick up. So we're beginning to see the globalization of the offshore
wind industry. So that's markets like Taiwan, Japan, South Korea starting to install their first commercial scale projects, and over the next few years we're expecting them to start installing kind of industrial sized projects that we're already seeing in the North Sea.
You mentioned this earlier, but a couple of things that sort of went wrong for offshore wind before the political environment shifted was interest rates and also supply chain issues. So a lot of at least of the way it was described to me by some of the players, is that they took on a lot of the commodity and supply chain risk and they didn't properly share that with say, customers and other developers, and that that really hurt them
during COVID. Have those two issues, though, sorted themselves out globally.
So there's a couple of different ways that those issues are slowly starting to resolve themselves. So firstly, suppliers are pushing to share a bit more of that risk when they're signing contracts, so things like linking contract price, your final contract price the customer pays to a steel price index or a copper price index, for example, to partially
protect you from these commodity price movements. Another way that government's reacting to this kind of thing is linking the price of the subsidy you get paid too similar indexes, So linking the price of subsidies to the consumer price index to protect a developer against kind of some of
those inflationary impacts. Same goes for commodity prices. So there's a bit a bit of a resolution on the policy side, and then also a bit of a push from supply chain contracts to protect themselves in some of the deals they're signing.
What's the profitability of land based wind farms versus offshore.
It really depends in the market you're looking at. Typically, the kind of required returns for an investor on an onshore wind farm is lower than an offshore wind farm, where we're kind of more looking kind of nine plus internal rates of return on a project. Partially that's because the perceived risks of building something on shore are lower
than building something offshore. Every time you need to fix a turbine, kind of the whole construction process is just much more difficult when you're doing it on water versus when you're doing it just on land. And also on shore wind projects have been operating, we've been building them for a lot longer, and so just the perceived risks and how we understand those risks, it's much further along for on shore wind firms than on show wind firms. All right.
Thanks to Oliver met Kaploomberg b A, the app head of Wind Research.
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