With Laurent's segal And from London and Gerard Reed from Berlin.
This is redefining energy Today. On redefining Energy, we're going to talk about investing in clean energy and that wider green technology space.
Yeah, especially we're going to talk about public markets. And as you may have noticed, I did a prediction last year that green equities would go up and they did.
Know you owe me about the Champagne because I lost four because of your investment advice. Never listen again, forget about it. So I'm so glad. I just decided that I need to see, we need to get someone on that knows what they're talking about. What we did is we contacted Liizard Asset Management and we got Shallow Matthew to come on and talk about it and I learned a lot. It was really great.
Yeah, because Shan you compared to me, he's a real expert.
Shadow, I myself agree that if you say buy it, we said it, like you say sell that, we buy it.
Yeah, when it comes to a compass that indicates the souths Unfortunately, let's bring on Shannu mate on the show. Shanno, Happy New Year and welcome to the show.
Eylron Hey, Gerard, thanks for having me on Shanna.
Can we just take a look back at last year, which looks from the outside looked like a difficult year in terms of clean tech?
How did you see it? Absolutely, your framing is a correct one, but just just just a step back a little bit and highlight the landscape. I'll start at a high level and kind of we can go down into individual sectors. But the way that I look at clean
tech is I define it in two big buckets. And so there's traditional clean tech, which is what you traditionally think of solar, wind batteries, evs, and then you have clean tech adjacent, which I consider different pockets of multi industrial companies that benefit from sustainability and climate related tailwinds like ellectrical equipment and HVAC low growth, but may not
be traditionally considered, you know, your traditional clean tech. So if we look at how clean tech did, the way that I'll use to describe performance of broader indices and so for the listeners that aren't as close to financial markets, indexes are a makeup of a variety of stocks or companies from different sectors into a broad index. So, for like the broad US stock market, we use the S and P five hundred to gauge the overall performance of the stock market, whereas like an index might be a
select composition of different clean tech companies. And so for trailing three year period, if you look at what the broader SMP has done, so the broad star market, it returned forty percent. And then that same period, if you look at kind of the global clean energy index or a global solar index, they were down forty to fifty percent. So in terms of relative underperformance, you know, that's materially very very poor, and a lot of that happened in
the last year. Act to your point, in the last year, the broader market was up thirty percent, whereas the various clean tech industries were down anywhere from twenty to three thirty percent. So again relative under performance of anywhere from fifty to sixty percent. And so that's a really challenging
predicament in terms of what happened. And there's a variety of factors, and I'm sure we can kind of get into some of the secret specific things, but broadly, the big takeaways were interest rates, the normalization of power prices, which deteriorate some of the payback or advantages that some of these new cleaner technologies have reduced focus from governments and corporates as well as broader just weak end market condition. We look at things like slowing edy adoption and incremental
growth countries. You look at kind of the slowing adoption or saturation of certain things like solar adoption in various markets that are supportive in terms of policy, and so you have a variety of confluence of factors that are really challenging overall end market performance as well as you know, valuations in terms of clean tech adjacent which I think often gets missing this conversation or a nuance. You actually
have some companies that have done tremendously well. So if you look at lacross broader industrial companies, two of the strongest performing, if not the strongest performing subsectors of have been electrical equipment and HVAC, and both those are very much driven by energy efficiency, the move to more sustainable options as well as kind of addressing the electrification of everything trends that we often talk about when we talk about climate, but don't really I forget to discuss when
we're thinking about the stock equity performance.
Shann thank you for this big picture that's pretty ugly when it comes to kin tech, and much better when it's adjacent. As you say, can you explain what type of shares or main shares you have in that ten tech segment and what type of shares you have in the teen adjacent segment.
So in terms of clean tech, you have traditional sectors like residential solar WHI show this will be like your stolar installer companies, your solar inverter companies, solar module companies, utility scale solar side, you have electric balance system, you have solar modules, things like for solar and those types
of companies. In terms of like other subsectors, lithium, you have litium producers like Albemarle or live ND, and then kind of moving up the stream the evs, you have people up and down the supply chain, whether it's the actual auto OEMs things like Tesla or Rivian or various
components or suppliers into those subsectors as well. When we think about clean tech adjacent this is more companies that sell various equipment that may benefit from these broader trends but may not be traditionally things that you think of like solar modules or wind turbines, but you know electrical equipment. These are things like bus bars, transformers, switch gear, circuit breakers.
HVAC is actually you know the chillers or the HVAC systems of heating, ventilation and air conditioning systems that go into big commercial buildings. And these shares or companies have done tremendously well in terms of the overall pricing power they have, the volumes and orders are seeing, and that comes from a variety of factors, including a focus on energy efficiency, load growth, as well as trying to save on energy costs in various equipment, and as well as
the electrication of everything. As we've discussed, increase content for a lot of these companies in terms of selling into data centers or new commercial buildings, and we can kind of get into the non residential construction trends and manufacturing and what's the story that's going on in the US. But a lot of those companies have been beneficiar areas of that spend.
Yahan new It's very interesting what you're saying, which is your differentiating the clean tech guys and the adjacent area clean tech adjacent? Can I dig into the differences between the two, is the differences between the two, the fact that the clean tech adjacent guys really have competitive advantages and it's much more difficult to enter those areas and compete. Well, let's be clear, if you're a battery manufacturer, very different
compete with the Chinese. If your soda guy is the same thing, that's not why we have the relative performance or as there something else.
I think it's a really fair characterization, to be honest. One of the things that really stood out for me when I was observing performance over the last years and in the last few years, if you look at some of the clean tech companies, right the big story that everyone got excited about, especially in late twenty one, was that you had this massive energy transition that needs to happen. It's a completely one directional tailwind. It's going to only
increase in velocity. So in otherwise commodity type or cyclical industries right equipment selling into power markets like you would thought that there's gonna be this tailwind that would help subside the traditional cycles. And what we just saw in
this cycle was that that didn't happen. A lot of these companies really out of themselves is having minimal visibility overstuffed inventories, minimal pricing power, especially when competing against the Chinese, and then that leads to just weak margins and weak cash flow generation. And so when you compare it to some of these other incumbent industries like you mentioned, you have more of a moat. They're more all gopaalistic industries,
so you have much better volume and pricing trends. You have an established brand that's been built over fifty to one hundred years versus a more nascent company, and those things allow you to perform better in cycles. So I would categorize it broad as one is like the macro for the subsector, it's been weak for clean tech, what's been strong for clean tech adjacent? Just give it on the construction spend, and then you kind of think about
the overall economics and industry composition. And as an investor, right, you're always looking for that sustainable competitive edge remote what we call and I think to your point you're answering is that clean tech companies haven't necessarily defined their remote yet or a little bit fewer and far between today.
What's extraordinary in two twenty four is that Siemens and LG grew almost as Puss, Nvidia, which is phenomenon, and even g Velanova. The branch of gu was split, and those the gas still buying I mean the guest still buying market is on fire like they haven't seen in a decade. Those type of shares, that's what you would characterize as.
The adjacent fought on LARN. If you look at the contributors or hot performers in the index last year, you'll see names like ge Vernova or Vistra, or Constellation or Energy Energy. These are companies that are taking advantage or should benefit from all the anticipated load growth and data centers. And as you alluded to, g Bbnova is a little bit of an interesting one because it has three different subsegments that relate to the transition, whether it's the gas
drimine business, the wind business, or electrification business. But some of those other companies may have traditional natural gas plants or nuclear plants, and there's been a reserveence of thermal generation just as we have to address all this load. And so some of those shares have done tremendos well to your point, and in some ways it's interesting because depending on how you define it, some people wouldn't consider that clean tact, but I very much do in terms
of it's a global energy transition. It's not just only certain types of energy. So the companies that do well depend on the subsector that you're exposed to. And right now it feels that those that can deliver on load growth, if it actually materializes, are the ones that are going to stand up benefit. And so those shares have done tremendously well.
Yeah, I like that. So Weirdly, the incubans started, although bit lately, riding the wave, whereas all those specs who came out of nowhere were just like big four points with three years ago. I mean, they've all gone down ninety five percent. It's an unmitigated disaster. Yeah.
Absolutely, I'm solid definitely in the spac mania in terms of companies that probably went public far too early and didn't really have provable or defensable business models or scale. But even I would point out some of the companies that were quote unquote clean tech darlings would point to the residential solar inverter space, for example, the companies that were up on a three basis through twenty one twenty two a three hundred five hundred percent, they're down eighty
to ninety percent off all time highs. Even companies that we once thought were going to be trendous, high flying cleantech companies have come down considerably, and it just goes again to that point of ultimately comes down to economics.
And I always kind of make this point that despite increasing amounts of dollars going into the transition at a macro level or an economic level depending on the country, it doesn't necessarily mean that the value capture a cruise to the companies themselves, right, It can be dispersed across the subsector, and that's where it gets back down to pricing power and your ability to generate profitable growth.
The way I'd be looking at it is that the big change is the fact that for the first time in a decade, we have expectations that electricity demand is going to grow, and it's cirly grows significantly for the next years, and the main reason is data centers and the move to AI. I'd love to hear your thoughts on how you see that sector, because obviously, if you'd invested in that last year, you would have done incredibly well right.
On Gerard in terms of the number one theme. If I had to identify and just the broader market. It is this whole AI and load growth related theme. We talked about some of the top contributors of the index last year, and it's very much related to the theme. And so just a step back again for listeners, the last two decades pretty much in the US, we've had flatish load growth. A lot of people have heard that.
And then in terms of the near term acceleration of load growth that's going to come from these AI different credit data centers, the electrication of transport, electrication of heating, and spacing, and we're going to enter an era right where different estimates have it as up to two to three percent, which nominally doesn't sound that large, but actually
from an infrastructure challenge is extremely large. And so I'll just focus on data centers to your point, with the general thinking being that we're in this era of a new technology that's one of the fastest adopting technologies in
terms of consumer and corporate interest. And the way that this has developed is hyperscalers building these data centers filled with these GPUs that are incredibly energy intensive, and the conventional thinking right now is that to scale it, you need to build large GPUs with higher thermal rating and ability to process more compute, and that means more energy growth.
And so there's all numbers storing out there, And just to give a little bit of sense, like the current gigawats in the US is roughly I think like around twenty to twenty five gigawatts, and in terms of the next six years, so twenty thirty, the amount expected is anywhere from another twenty five all the way up to I saw an estimate of one hundred and thirty yo wats the other day, And just to put some dollars on it, in terms of the build an AI data center,
it can be anywhere from like ten million dollars in megawatt to twenty five depending on if your quitting chips or not. And so that's anywhere from like a low end five hundred million dollar opportunity, it's like a two
point five trillion dollar opportunity. So who benefits from that, to your point, it's the chip providers, the server's racks, the thermal cooling, the electrical equipment that goes into these things, the actual labor that goes and installs and builds the electrical infrastructure, or the mechanical systems that go into these things, and all shares of the companies up and down the supply chain have really been poured over to see what your exposure is the data center and that's probably the
most excited in that everyone is really fixated on and focusing on. And that's why some of the subjectors I mentioned earlier, whether it's electrical, mechanical or labor engineering, pyramid and construction firms have done tremendously well because everyone expects a lot of this build to come in and so I think the question really becomes now as we get from last year, in this year and next year, is
does the load growth actually start to come. You know a lot of these buildings won't go into service here until twenty twenty six, twenty seven, and so we don't really have the first evidence of such. But right now we're seeing a lot of the speculative load requests as well as the construction start and so it's a matter to see like will that load growth come and will it come with the velocity that people are expecting.
Okay, so I've got one stud and one quote. The first thirty is ten years ago NVDA cheap sales to data center was three hundred million DOLLA, so three hundred million DOLLA in twil twenty four. This one hundred billion dolla. It's insane.
It's staggering.
And the second quote, which I like a lot, is the stock market has correctly predicted eighty out of the last three technology booms. I think that AI think, you know, smell a bit like the same guys that were doing ESG three four years ago. You know, everything was ESG and now everything's AI. Yes. Of course, over the long term, HEI is going to be there, and I think a lot of people are overly optimistic. But that's that's my two cents.
I think it's a really fair point. And to be honest, just like the market rewards a certain theme or narrative in one year, doesn't necessarily mean that the trend is true or that even it will materialize to the extent
that people are expecting. And that's why I think this is such an interesting point in time where a lot of the share prices of certain companies that benefits from this trend have gone up fifty one hundred, couple hundred percent in a single year, and so that means expectations are moving up and so these companies will need to deliver high single digit, double digit type top line growth. They'll need to deliver significant in earnings growth to actually
grow into these valuations. And if they don't, these shares that benefited a lot might be the ones that actually get penalized the most in coming years. And I think that's the trade that investors really need to pay attention to. One of the things you brought up earlier was gas turbans, right, whether it's like the Semens or gie Vnova's of the world.
I've seen a lot of enthusiasm about that space, both in the share price movement as well as the overall just interest in the calls and the meetings that people schedule.
For example, just for a little bit of background for people, gas turbine market in the early two thousands was considered like a resurgence because the US market just became deregulated and you were selling a lot of turbines, and at one point you sell up to one hundred gigawatts of turbines I think it was like twenty one, and so that market up until like two years ago was considered a little bit of a melting ice cube in the sense of like everyone knew that gas was going to
play a transition role in the overall energy transition, but pacing new equipment installations wasn't necessarily a given. So we our market now is roughly like forty gigawatts. Now you have estimates that some people have it going up to sixty seventies, some people have it going backup to one hundred gigawats per year by twenty twenty seven, all the way through like you know, in the mid twenty thirties.
And so again that's massive moves, and that explained some of the share price movements and of those gas urban companies. But to your point, the velocity of expectations has gone very very high paced, and so it will be to be proven for these companies. But it's interesting to even see the management teams get a little cough guard, where two years ago they might have been managing down capacity and now they're talking about capacity increases, and that's a pretty big swing.
As you're opinion, if I had access to gas and BTU, I would put the gas sturbine in my backyard everywhere, cheaper on coals, cheaper than new gear. A two METU is so cheap, I mean there are very very few countries on this planet who can benefit from gast. Okay, you've got the Gulf States, Russia, whatever that is, but that's pretty much it. When you start importing the liquefying and moving and importing, you end up with guests with five times more expensive So outside the US, gas is
an expensive, important form of energy. And I hear the energy guys, but they don't realize that they are importers on the other side who really wish they would not have to import, which means the push for clean energy
is not for the environment. Okay, it's for the environment, but it's also a security of supply play that you don't have to do in the US because you are blessed by God and swimming in a cornucopia of energy coming from all over the place means that whatever success of vision you have in the US is very difficult to replicate elsewhere.
I think that is such a good point and one that's tremendously under appreciated. Is like the US, as you mentioned, that blests with this plentiful amount of natural gas. It's extremely cheap, and we have the infrastructure and the ability to produce it at a very low rate, which isn't the same across countries. To actually have a question for you, because this is something that's been really I've been percolating
in my mind. Where again, as you mentioned, is due to the kind of the economic considerations, natural gas will probably serve a disproportionate amount of the incremental load growth in the United States given our abundant natural resources and infrastructure,
but that's not the same in different countries. But one of the points that have been made to me is, for the first time in a really long time, utilities have buyers that are willing to pay premiums or access rents in the system that they're willing to actually pay up for, and so utilities can be a little bit more experimental in terms of how they serve this load
growth versus traditionally. You know, you're trying to operate, execute on the cheapest possible route to execute against your regulated way to return. And so have you seen utilities in Europe or elsewhere be a little bit more experimental about how they serve their commensurate load growth because it's happening globally, right,
it's not just a US story. Be curious as that if you're seeing a little bit more of that, because in the US you might default a little bit more in natural gas, but elsewhere it might be fuel cells or batteries or things like that. So what do you two think about that topic.
The European situation is very, very difficult, and it's also very different than the US. So what we've got is we don't have the same level of demand growth for a start, and we have significant demand of renewables that have command to the markers and are continue to come on to market and they are disrupting the markets. So we have large amounts days where you've got zero prices. We've got huge curtailment of wind, etcetera, etcetera. And we have,
despite all those surpluces, we've really high power prices. Our power prices on average are twice what they are in North America. And the reason is because we're important energ and so the LNG is determining the wholesale price for everyone, not all the time, but maybe for fifty percent of the time across most of Europe.
And that's an issue.
Lauren said it earlier on he talked about some energy security point of view, it's also an economic issue as well. You know, how is German industry going to compete with American industry when they're paying twice the price for electricity and gas prices three times higher. It's tough, tough, tough, tough.
You're spot on. I think towards the end of last year you saw Reuter's posting stories about how German industry has been throttling capacity because of really expensive gas prices. And so to your point right there, right, you're almost like handicapping an industry on their ability to compete because their input costs are so high. And so that's where like a lot of this build very strongly about the
energy transition. A lot of what we're trying to solve for, especially with this unprecedented acceleration of growth, is how do we do this in the most smooth and economically consider it possible way, Because at the end of the day, load growth is positive, right, I mean, if we build more, infrastructure will be better suited to handle the future needs of electrification, of heating, and transport, which will be multiple as in the theory of what data centers will do.
And so if we build the more, if we set up the right infrastructure, if we allow utilities to kind of figure out these new tariff systems or ability to charge you know, premium rates for folks that need access to power quicker. That will help us down the road, versus kind of kicking the can down in terms of
how do we solve these infrastructure problems. It's going to happen sooner or later, and I say, it's kind of a better thing in my eyes that we solve these issues sooner or at least, you know, apply innovative approaches.
The way we see the US from outside, it's like we are in the streep of Las Vegas, you know, on the street, and we look at the hotel and there's a guy dressed like Elvis, and he has three buffet as much as you can hit, and we're the poor guys on the outside. And sometimes, you know, you throw us a half eaten cold hamburger. That's how we see and then you complain like we our idiots. Sorry. I've heard a lot of guys say, he opens our idiot. Sorry.
We are energy poor and every year at the beginning, we need to literally throw away four percent of our GDP just to buy energy, which is a luxury. Well, at least where allies we get the stuff, but we need to pay for it. You know, imagine China, who has to import eighty percent or more of their oil.
Every tanker going to China goes in front of the fifth fleet in Qatar and then the seventh fleet in Singapore, which means that the day somebody coughs and says, well, you know, I think those those tankers cannot pass anymore. That's the main reason for me. They develop evs and you know, trying to get rid of oid. It's never about the climate, it's about energy security. You are the US in this phase of energy dominance, and good for you, because look if you what the permin basin in Bavaria
will do exactly the same. But the guys outside the buffet in Las Vegas, they think differently from the guy inside. And I think it's a really good point, right.
China is doing all the above energy policy as a result of a lot of what you just said, the considerations, it could be certain views of the transition, but more importantly, it allows for their independence and the ability to grow a lot faster versus kind of being dependent on other nations for their energy needs.
Seana, maybe we can just return to the future a little bit what gets excited about twenty twenty five.
As I sit here and think about the year ahead, things I'm trying to think about is the rate of change or you know, what are things that are rather confirm or break the seas And so I think a lot of it still, especially with our recent election in the US right here, is focused on the level of investment and infrastructure build in the United States. And you know, there's various views as to whether the new administration and
supportive or not. But at the end of the day, spending on manufacturing, spending on data centers annualized now, you know, as approaching I think like thirty five percent of all total non residential private construction spend and those are factories, those are infrastructure setups, those or new power generation facilities. And I'm really still excited by this theme and kind of looking at the people that help provide that or
address constraints. So whether that's equipment providers, labor and engineering, equitment and construction, those companies continue to grow their tams as well as their ability to execute against backlog. I think these various pockets of equipment, whether it's electrical or HVAC, you have really strong order growth into both data centers but also into the utility markets and CNI or industrial
type customers as well. One thing I'm paying attention to as well, as you know, we spent a little bit of time talking about kind of underperformance of clean tech. But at some point the sponsorship will return to the sector. You're on two to four years now of really poor performance and no one wantingone to own these things. But now, at least once you have some direction or clarity on where the administration is going to go in terms of the tax credits you have, well you'll have people step
back into these names. You know, valuations at one point where two act index at the end of twenty twenty one, which was crazy maini a time, but now and depending on which metric you're using, are half the index, and so some of these companies will see growth, Some of these companies are taking share, some of these companies will benefit from domestic content or protectionist type policies that the
administrative being put in place. And so at some point too the clean tech world have a resurgence and such as a matter of when, and so those are some of the things that I'm paying attention to well.
It's a great way to conclude. Channel. It was a real pleasure to have you on the show.
Thank you so much for having me on, and look forward the following future episodes.
And I wish you Grade twenty twenty five.
Yeah, same you too as well.
But Job, I've got three things to say. First of all, well, I'm glad we brought Channu because it's obviously much more knowledgeable than the two of us combined. Agreed, very articulate.
Agreed, agreed, agreed.
The second thing is, as we are early two twenty five, greniquities are now supper cheap, so I might be right even if the time in was wrong. And the third point is it was, in hindsight a great idea to split the conglomerates of G and Siemens because the performance of their energy branch now they are independent, has been stellar Fanova one hundred and eighty percent last year and Siemens energy times four.
Role.
You've said a lot there, but let's start with the end, which is you talked about Siemens and GE. I could also add to that Hitachi and a whole pile of prismium. You do steal cables everyone around the periphery of this energy transition. If you make transformers, they're the guys that have done well because in all those areas is a little bit of barriers to entry number one and number two,
there's a huge growth opportunity in front of them. And let's be clear, if you're in most of the rest of the whole renewable space, well in the hardware, so it's all about China. Really want to compete with China, very tough. And then the second thing, as you know, is that in the whole we're anew about asset space.
That's awesome.
There's been a lot of stress there as well, just because of I suppose interest rates fluctuations for a start, And I think secondly then just the whole thing in and around power price volatility, which is causing people to get a little bit nervous. And there's also negativity in the public eye in and around that.
So yeah, I like that piece.
Is now what you said another interesting thing which has maybe now is the time to be buying some of these particular I'm thinking of some of these American solar business as the first soldos of this world and stuff like that. And if I be honest, I did buy first soldo, So let's talk in a year's time and see how I did. And I did it my own bat so it's my own responsible if I mess up.
That there's something quite clear in my eye. And of course what I'm going to say is very controversial. Is there is a crazy hype around nuke company like a Vistrand constellation. And I know that they signed a lot of PPAs with Big Take and so on. But it's all well and good to talk about nuke for data centers. But what we've seen at the end of last year is Meta announcing a Mega two gigawa data center for ten billion dollar in Louisiana called Richland Parish, and it's
fueled by three ccgts built by Entergy. It's all well and good to talk about nuke. It's all well and good to talk about net zero. And I know Meta is in kahoot with Amazon, and you know they're cooking their emission books. I mean this, everybody knows.
That I won't go to that outfield, but I will talk about the AI reck and actually it's all good and taking an all nuclear plant and putting it back online. That makes sense, Okay, By the time you build a new SMO or any form of traditional nuclear reactor, good locks twenty thirty five.
BI race is over. You've lost. Oh, it's not. It's not the power.
The solution, It really isn't. The solution is you.
Need to build fast.
And that means you're gonna do You're gonna do solar, You're gonna do batteries, You're gonna do that, Gas engines, you might do gas turbines, you might do win that's it quick, right, Otherwise you're not gonna win the AI race.
Yeah. And in conclusion, there's a generic point that I'm flabbergasted because people don't understand the basics of energy. And I'm gonna remind you. Gas in the US is a three dollar m mbtu. Now, the energy content of MTU is seventeen percent of bile of oil. So in fact, you multiply by six, so three US dollar and mbtu, that's a bil of oil at eighteen dollar barry, Okay,
right now? Is that seventy good? Now in Europe we get it at thirteen dollars, which is equiped to a barrel of oil at seventy five dollars, which is kind of where it should be I'm done.
So your first round to the year. I love it.
It's not run, it's a calculation, it's basic.
I know, I know, absolutely absolutely.
But that's also mean that gas in the US is incredibly cheap. So of course, of course, of course they're gonna right now they export what fifteen percent in the energy they want to go to thirty percent okay, and they want to power everything with gas. But will there be enough gas? Because everybody is looking after that magic barrel at eighteen dollars. It's magic, yess magic okay, but market's out of magic.
Job.
We will do a bit less episode this year because we did like once a week last year and that's a bit exhausting and sometimes the curity is not there.
We want to improve the quality this year. We want to get that's the key thing we want to do with the podcast. So we're gonna got it three times a month rather than four. Promise you good shows every time, okay, except when Lauran has given stop pretiction.
Job, have a good weekend. We're talk in two weeks time. You're my rod.
Thank you for listening to Redefining Energy. Don't forget to read the show and subscribe on Apple Podcast, Spotify, or the platform of your choice.