You are listening to Redefining Energy. Your co hosts from Berlin Gerard Reid and from London Laurent Sagalam. Today I'm redefining energy. We're going to talk about subc cables around and it has become a massive industry. But trust the word from our partner, Redefining Energy sponsored by a Mundi, the leading European asset manager, your trusted partner to accelerate the transition to a low carbon future. Leading asset manager based on the IPE ranking. Investing involves risk. Consult your
financial advisor. Yes, child, it is turning into the backbone of global grid. But I want to warn our listeners because we have a super guest, but the audio quality sometimes is not very good. And the reason is while we were recording your on the super yacht with your Holigax friends of the Greek island of Corfu. I blame Elon Musk we actually had a power issue and we couldn't get through the starting. Yeah, Microsoft teams, I'm sorry
about that, Laura really love Yeah. So to our listeners. Sorry and always get the comment that Chad is always recording from inside his washing machine. It's true, It's true. It wasn't machine in the time. To go back to the topic interconnectors, well, it's not a new technology for being started in the sixties or connecting little islands, but now we're talking about hundreds of kilometers and it's changing totally the landscape in an epoch where there's a lot
of viability regarding the sun and the wind. And guess what, now we have interconnector which are longer than weather patterns. I want to add something else around which reflected on I mean, what you do is when you interconnect, what you're actually doing is you're connecting countries together and you're making them interdependent. And this is really really interesting. So what you're doing is cooperation between friends. So that what that means is Germany is reliant in Norway, Norway is
reliant in Ireland because they're all connected together. That's me is really one of the other positive things in and around interconnectors and subse cables. And they just happened to be in Europe because we've got the North Sea and I received our countries are actually quite connected together and the depths are not that deep. So our guest is rebec I said, she's the managing director of the interconnector at National Grid. You remember web Game of Thrones and Kelly see what is the
Mother of Dragons? And I can say, because she's the mother of interconnectors, Well, let's bring around the show. Rebekah, welcome to the show. Thank you for having me and listen. Maybe let me just pick off straight away with an old question, which is really why do we build into collect Thanks Jared first of all, just to help frame the way I look it into connectors. I find it quite frustrating that we separate interconnectors from the
grid. Asking why do we build interconnectors is almost like asking why we extended
the grid to connect to other countries. It's just not indigenous. Particularly at the moment with the renewable energy policies that we have in the UK, across Europe, etc. There's a huge amount of focus on connecting generation and on transporting the generation from the demand, which typically tends to be far away from where it's consumed, but there's not so much focus on the variability of the whole system and the flexibility the interconnectors by building that grid to connect to other
countries can provide. Ultimately, I see interconnectors as flexible tools that provide security of supply benefits and huge flexibility benefits, particularly complementmentary to variable renewable generation. Rivic for audience, how many do you manage? We manage six interconnectors at national grade seven point eight gigawatts of capacity. Have two to France, one
to Norway, one to Belgium, one to Netherlands. And Viking Link, which we've just built, is the first connection between the UK and Denmark. Vigining is pretty phenomenal because it's I think the longest in the world seven hundred and fifty kulometers, a holder of a Guinness World Record now Laurent so it's
official. Super cool. Can you explain a bit of genesis you how somebody in an office one day decides to say, oh, it's a good idea to connect England and and Denmark and then kind of run us went quickly through the old process. I believe the first kind of formal Viking Link meetings were around thirteen years ago. That tells you how long it takes for the concept to evolve into the physical asset that we now have on the system today.
Where it all starts is analysis looking at the energy systems of the respective countries and seeing where there could be an complementary opportunity that benefits both energy systems, ultimately benefiting UK consumers and Danish consumers, to create the physical link between the
energy systems. Now, the Danish energy system has a different energy mix to the UK, much more dominated by wind, heavier slug of biomass, and of course very different weather patterns, different time zone that our time difference in the continent makes a big differ. The morning peak is different, the evening
peak is different. And by creating a physical link, you can optimize between those demand patterns, as trading speak, arbitrage opportunities because scarcity on the systems, scarcity being the margin between supply of generation and demand for generation is different
at different times of the day in different energy systems. So I imagine that the kind of fundamental market analysis was performed and the strategic teams of both countries and the policy teams of both countries decided to meet and to start looking at how a project could be formed, what capacity the interconnector of course, what technology where it could be cited, and they take it from there. Rebecca, can I ask, then you're talking a little bit about the economics so
I can imagine you're striking your teams of down they look at us. Then what happens. Whilst we consider interconnectors to be not as regulated as the onshore grid in the UK, most of them are underpinned by regulatory schemes and I guess this provides the investor with some level of comfort of the minimal levels of return, particularly if they are awarded what's called a cap and floor scheme.
So if we just looked at this as a pure merchant investor, you would be taking the cape of the asset investment and the small layers of ops that it takes once it's up and running, and you'd be putting it against many
different views of the world that manifest in different price scenarios. I guess important to say that that's not just driven by what the oil price or gas price and then power price is doing, but what's going to happen to policy like carbon policy that can affect the power prices of different countries, what the renewables build out is going to be, and how that impacts the module price, etc. So you'll have a range of scenarios that will manifest in this arbitrage
opportunity ultimately where the price spread is going to be and the value of the capacity of the interconnector, but of course there'll be risk. Typically transmission system operators want to invest in assets under regulated schemes than in the UK. What we have interconnectors is a cap and floor scheme as I mentioned, and we will look at the overall cost benefit analysis of the project and we will put it forward to off GEM to see if it's worthy of being awarded such a
scheme. And typically there are huge benefits across the twenty five year timeframe for a cap and floor scheme in the UK for any of the projects that National Grid is put through. And we can see from the last couple of years the fact that interconnectors have or many of them earned above the cap, so that means they're actually paying money back to consumers rather than costing consumers anything. They have the potential to work well for both the investor and the regulator.
There's the famous exception of the le clink who didn't choose the cap and floor, and everybody told your a tunnel that they were crazy to put the cable, and the best consultant on this planet told them, you'll never see your money back in twenty years and guess what they saw it back in twenty months.
Because something you cannot model is when there's a real problem on a grid, real meaning crisis that could bring the grid down, the interconnector is the last line of defense, and of course you need to pay for this. That's very difficult to put in an Excel sheet, but we can assume that over twenty five years, somehow sometimes the worst can happen. And that's where also the beauty of interconnector, which is hard to put in a model,
It protects the grid, it reinforced the grid. Yeah, you're absolutely right, and joined National Grade at the end of January twenty twenty two. Been in energy for decades looking at markets do things. Never seen the level of volatility, the huge amount of price spreads, and also during that year we saw some other pretty big and unforeseen issues such as nuclear availability constraints and much lower hydro reserves in Norway also hit the markets, which has exacerbated that situation.
But you can't bank on that volatility. It could take a long time to transpire as you know. As you said, it's very difficult to model. And also we need to remember that KAPEC has really gone out. So the cost of building these assets is now a different level to what it was a few years ago, even because of the supply chain squeeze, inflation, et cetera, et cetera. So even to get these projects going, once you have got past the stage of right, I've done my analysis, it's
a great opportunity here. I know what the cost will be, I've got my regulatory deal. I then have to start spending money. I mean, these assets only start paying back when you've built them and they're operating, and even doing the kind of seed and pre seed work like seabed surveys is getting pretty expensive. So you've got to be really sure that the whole thing lines up and that you're able to contract at your costs, which I'd say is
becoming a more difficult challenge for interconnected developers. All decides on the power clows and also then said that it's an auction that takes place. How does it work and does work? How do you decide that whether to import to export? Is it you, as a great operator to make that decision rather than somebody else. Ultimately it's the customers who decide which way the power flows.
And this is somewhat determined by the markets. In the longer term, we will auction out capacity to customers for both directions, and we'll do that a couple of years ahead, a year ahead, a quarter ahead, a month head right to the day head stage, and then at the dayhead stage, the customers will nominate finally which way it goes, or they may choose not to nominate at all if the spread is negligible or it's not worth doing. Ultimately, our job as the asset owner is to make sure you have an
available, reliable asset that customers can use to their advantage. I guess the exception to that is when there are market circumstances that involve the intervention of the system operator on either side. And what we sometimes see intra day is the system operator of the UK, for example, trade against the market, so they will buy a customer out of their position. They will trade against the
flow of the market. The UK could be the more expensive price but still be exporting, for example, because there's other issues going on in other parts of the grid. But it's certainly not the interconnector owner that determines the flow. Our job is to provide an available and reliable asset. Can I ask, when you look at the good operator look energy security, could they include interconnecting them as part of what they see is just energy security per particular country
or the the excluded. When the grid operator looks at energy security, if we take for example, the winter outlook which is published every year in the UK by the system operator, they will make assumptions about all the plant and all the assets that are running on the system, and interconnectors do feature in there. They won't take the full fleet one hundred percent availability in their scenario, They'll assume a derated are kind of a lesser availability that will apply risk
factor to it. But certainly from memory on the peak of the coldest day that they were forecasting in their modeling last winter, they assumed around about four gig wats of interconnector imports. So they are certainly relied on by the system operator for security of supply, and indeed they have proven to be reliable in
such cases. I mean, we've not yet had a capacity market event in the UK, but we've had plenty of near events and scarce days, and our experiences that the operating protocols which underpins the interconnectors in the customer and the system operator. Coordination collaboration across Europe works well if you let people in the control rooms do their job. Sorry it's a bit my obsession, but I'm
going to go back to Viking Link. Because you've gone all your analysis, you get a cap and floor agreed by of GEMA, which means of GEM agrees against the cap X that you present to ensure that the revenues that you're going to get are inside the band. So if you are below the floor, they will top it up. But if you pass the gap, you need to give the money back. You know, it creates a code up.
Probably it's not very exciting as an infrastructure in the stop, but it's it's done good in those times of valiatility to get a return within a band. Okay, so you get all those truckloads of paper analysis, contracts, agreement. At that time, you already have chosen your suppliers, your IPC. How do you choose I don't know, between a Prismian and kat next sence for the cable who's going to be How does that would supply chain put
itself together? Typically, what's happened in the past is that there's been three stages of submission to off GERM regarding the costs of the revenue of the project. The first one is called the initial projects assessment. This is where you are doing your kind of initial bits to get a cap and flow. At that point off Gen will come back to you and say the hither you know
you're being awarded Warner you're not. You then have a couple of years to work with your supply chain to refine casts, and you need to submit what's called a final project assessment for off Gen to review, which is kind of the final stamp on it. And then the last round of refining custom revenues is something called a post construction review. This is when you're built it. In fact, I think we've just submitted vikings now, so this is we
did what we said we did. This is their basis. There might be some small tweaks here, we go. We know we're not to operation the national grid. Projects typically lined up supply chain and got ready for something like a FID in that middle stage, that final project assessment, and at that point, if you refine your cast, you put your supply chain, you've
updated your market scenarios and you're ready to go. However, the world's change, and we know that we need to make commitments to our supply chain much more earlier to book factory slots to ensure that they've got capacity to help them invest to deliver to our capacity requirements. And we are looking at the apply chain for our new projects lion Link which is our oshore hybrid asset to the Netherlands, and Nautilus which is as hybrid asset to the Belgian Energy Island much
earlier on. So we're looking at it now and we're doing just the initial project assessment, and we will have to make commitments to those supply chains much earlier on in order to proceed with the project in a reasonable time frame. And this of course is just a feature of what's required with transmission build out across the globe now and the pressure that our key supplies, the cable and
the converted supplies that you know are under. Let's say you built a cable every two years, which means you can rely a lot on the learnings you did for the past one to the new one. So I guess your Lion King, sorry, lion something, Lion Link, sorry, your Lion Link. We look a lot like your link, And of course your tweak, you'll take the lessons and so on. But that's what I like a lot within industry is that there's no revolution, but there is a permanent evolution and
probably the cables get a bit better all the time. Explain a bit that
industrial progress that you've seen over time. I think you're right that it starts with the people and that being able to have that capability that worked on project, and when the project's delivered, they go to the next one and the next one, and that kind of learning capital being constantly invested has paid dividends to organizations like National Grade, that's for sure, and indeed to the industry as a whole, because of course National Grip people pop up on all kinds
of other projects. We have seen a huge amount of evolution in converter and in cable technology. We've seen different density of cables, different manufacturing techniques. What I'd like to encourage is less focus on constant technology evolution and more on giving our supply chain than the manufacturers of our supply chains and consistency so that
they can produce the volume that we need consistently. If we look and see what's happened in the wind sector, many of the supply chain manufacturers have fallen foul of this constant drive for technology innovation, for bigger turbines, et cetera, et cetera. And where we are in transmission is whilst of course you always need to develop engineering, you need to look for more efficient ways to produce different components, we also need to standardize at a time where you have
such the volume of orders ahead of us as we do. So when I speak to our cable manufacturers who are having to make absolutely enormous investments. If you have been to a cable factory of interest, have you seen what's required to produce these cables? I have, They're at amazing. Yeah, it's just mind blowing the scale and just the intricacy and the complexity of the manufacturing
techniques. You can't introduce too much change too quickly into that, and so finding the balance as we go forward between innovation and between quality standardization is going to be really key, Rebecca, I just following on that is not an easy thing to do, even that your supplier are pretty concentrated anyway, whether you're looking at the transformer side or you're looking at the cable side, is not just a matter of just getting them to sit down and sort of same
guy, this is what we need to do in terms of roll back for the next decade. Yeah, but Joe, that was my question because I wanted to talk about the tenet to Gigawat, which looks like it's turning into the new with the current standout for a few years a piece, Rebecca, because I think you know better than me. You're right that there's much more with these huge frame works that have been launched to the market, and you mentioned the tenet to Giggle what national grids it should be DC framework it is
in the market now as well. We need to support the suppliers with certainty on the orders, on the technology and also really from a UK perspective, understand what we can do with the government to support investment in a more holistic industrial strategy to meet the needs of the network companies, not just interconnect.
It's not just national grids for the longer term. If you have a look and see what the build scenarios are going to be, not just you know, people focus on up to twenty thirty, but there's far more that needs to be done beyond twenty thirty. And you also consider that This goes beyond cables, This goes beyond the primary OEMs that National Grid has worked with.
This goes to their second and third tier subcontractors. There's a whole industrial strategy, is the best way to think of it, behind this that will benefit the UK. And if you also consider the moves that the US has made in the IRA and the green deal that the EU is thinking, we need to make sure that we're keeping pace with all of that. Rebecca, as when you look into the future, would you give us your vision and view of how you see interconnectivity growing? And also I'm asking also not just from
a European perspective, I'd also like to hear a global perspective. My prediction of the energy system is that offshore wind is here to stay and here to grow. It's well proven. I think certainly in the UK we're blessed with geographical conditions that enable smart investment in meaningful our shore wind schemes. And I think that it's clear that to complement this variability of oshore and do you need
other technologies flexible technologies of which interconnection is one of them. So we will see growth in interconnection alongside growth in off wind and we'll see combination of assets. So I mentioned our offshore hybrid asset projects earlier, which is essentially coordinated infrastructure between offshore wind transmission cables that are saving on the converter technology, saving
on landing points to coastal communities. And we need to understand the drive between having homegrown renewable energy which provides us with a certain level of independence from collaboration and cooperation with neighboring energy systems. We might not be part of the European Union, but was certainly part of the European energy system that benefit consumers and
that are far more cost effective than overbuilding the UK's energy system. Looking even further out, and if we think about these projects like the Transatlantic cable or of exce Links cable to Morocco, I think it's fantastic that we have developers in the market with this level of wonder and innovation and ambition. I think that that will push forward the boundaries of what interconnectors and transmission in general can
provide. It'll be interesting to see how they overcome the challenges with the geopolitical contexts, the supply chain contracts, etc. But I'm all behind innovation in this sector. So yeah, I think it's an incredibly exciting place to be. We're going to America, Baby Reviga. It was such a treat to have you. Thank you so much for coming on the show. Thanks for having me, been great, Thank you very much. Jarg just have a world mastery. She is the master of her own domain. Absolutely, absolutely,
that was a great conversation because No so agreed. Look, I don't want to make but I can tell you if the energy transition has been a success after forty years of conservative government, it's certainly more because you had guys like Finton's slide at Esso or John Petty grew at National Grid or even Sonia two Weiga. Then so it's not the politician, it's really the operators of
the infrastructure we've managed to bring us to the success we've seen. Actually, what you also you mentioned Sonya, I mean she's the head of MCU. People probably won't know what that is, but that is the Grid Operators Association in Europe where they all sit down and cooperate and greed plans going forward and and so we can expand the grid in an economically efficient and effective way. So you're absolutely right. So that's why it goes back to cooperation, cooperation,
cooperation. Furthermore, and this is really a UK debate because there's been a lot of privatization way back when of certain monopolies and the bad example were in the UK the water companies who have been rumpaged by their private equity owners and it's an absolute disaster. And National Grid is really the opposite. That company is wonderfully well managed. Ye're absolutely right. Yeah. Actually, it's probably not not the occasional to talk about the benefits of being on a public
market versus a private market. But what's clear as National Grid I've done something pretty amazing over that and they've been a front runner and everything. It's not like if you just think of the use of batteries in the system and front runners. Yeah. Plus they've invested in all the grid enhancing technologies, the reconductorying, the dim line rating. And it's probably because it's a private company that they've been more in the forefront of technology innovation. That's definitely true.
I contrasted with idiof No, I won't get down that road. Sorry, now you can say that Artie is decently well managed. Okay, so yeah, don't do politics please, okay job. We thank Rebecca are the mother of interconnectors. Look, I know she's gonna blush, but she and other team these are ready super your people. Yeah, and we're going to America. Baby. Sure, I'm my friend. We thank Amandy for supporting the show and Joe I talked to you next week for her Thank you for listening
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