With a rund segle end from London and Gerard read from Berlin.
This is redefining.
Energy today on refin Energy, George, we're going to talk about deal trends in MNA and energy financing.
Absolutely, this is very important because we have a nice saying in the finance world follow the money.
And here we're really following the money. But first of all, from our partner.
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Back to the show, and we have a wonderful guest that we loved a lot and came. Would you believe it's six years ago when we were just amateur podcaster.
It was right at the beginning, just six years ago and we started. Yeah, unbelieva. Yeah, so I can't believe time flies that so much. Anyway, it's great to have Natasha Luther Jones again on the podcast.
And for those few who don't know who Natasha is, she's partner Global Culture, Energy and Natural Resources at the law firm DLA Piper. But she's mostly known for a nickname, which is.
The the quit a PPAs.
But you're going to see we're gonna go much further than just PPAs.
Yeah, that was the old nickname from six years ago. The world has changed anyway. It's actually great to have her to come on to talk about what has changed and what's hard and what's not.
So a bit of music and then we bring her on the show.
Natashet, it's great to have you on the show again. It's been a long while.
Oh thank you for having me. It's nice to be back on the show with you both.
Natasha. We look into the archive. You came episode twenty eight in June to or twenty and now we're episode to twenty two or something, So I mean, what a journey. And before you comment, I found a speech by Winston Churchill talking about six years. We may allow ourselves a brief payod of rejoicing, but let's us not forget for
a moment the toilet efforts lie ahead. We have come through the worst of six years of suffering and peril, so that's a bit dramatic, but six years that's the length of World War Two.
I have to say that a really interesting intro, Lauren. But you're absolutely right. A lot has changed since the last time I was on this podcast six years ago, including actually you two, and I'm not talking about the fact that we've all aged. I'm talking about how you two now become this sort of celebrity podcaster as it's some more professional than it was back during COVID in twenty twenty.
I can't believe it's six years ago. I really can't. It's just unbelievable. Time flies when you haven't done. It's a pity about Lauren's Winston Churchill accent, doesn't it, because it was a really lovely quolt.
Yeah.
I agree.
Let's dive into what's happening and how the market is changing, because you are in the art of it and you used to be the queen of PPA but now it's so much more complex sophisticated. So what are the trends you're seeing right now in terms of deal structure, deal financing all over Europe.
If you look back over the last six years, a lot has changed globally, and many of your episodes have covered some of the things that we've all faced. I suppose what hasn't changed from a DLA Piper perspective is that I'm still here and I'm still running the energy practice.
But DLAs now firmly established itsself as one of the largest global law firms in revenue terms, and over the last four or five years we've managed to move up to the league table, so we're like either number one or two for energy transition deals on M and A and PS. So it's allowed us to really see how the landscape operates globally. Where are those priorities now they are BEZ. Wow, it's mind blowing. Over the last couple of years, the growth in BEZ we've seen, that's so
client wise. If you look at the figures, fifty percent growth on installation last year. Actually that's just mirrored in the legal sector and advisors sector as well. It's been our biggest growth we are now for the last couple of years. What we've seen in the M and A is six years was a long time. We still had a ready to build model then, which was super popular. We had a single asset buying and selling model. We've now moved into the Wilder's platform, investments developers moving into
that world of IPPs. And then I suppose what follows that is then that move of financing in the whole code structures we're seeing rather than the single asset financings. And final trend I have to say is data centers, hyperscalers AI the impact that's having on renewable energy electricity. Those would be my top key trend one.
Now, Natasha, maybe let's dig into each of them because they're really really interesting. Let's start with the battery energy storage area. I just only want to say from my own cor perspective and a Lexa perspective, we did our first financing ten years ago in the space and nobody was doing anything, and now suddenly it's the heart of this energy transition. And the thing I love about it
is it's complex. But I'd love to hear your views and what you see in best and what you see the trends are across Europe.
You are right, it's complex, but it's only complex because it's new and we're figuring it all out. We've been doing solar and wind for years, so there are tried and tested positions for that, and I suppose BEZ does bring in that more element of technical knowledge when you're trying to optimize it. So what have we genuinely seen.
You've got very mature markets now with the UK has been really successful and developing out the Bears market with all the revenue stacks available there and the co location of Bez under CSDS in the UK. Two. I suppose what I've found really interesting is going into the new markets and then seeing how we can finance and develop
Bears in different markets. I know Germany's very close to your heart, Gerards, So I don't know if you saw the deal we did a couple of months ago that was super interesting because it combines all sorts of different parts of bed Natasha.
That's the one random berg you're talking about in the old airport. Yeah, it's amazing. Yeah, maybe talk a little bit about it.
Five hundred mega walk of Bear, one hundred and fifty megawatts of so co located. But what you're doing is you're taking Brownfield's an old military airport, developing that and then having a data center development on it as well, so we work with Prime Capital on that, and that's the sort of deal that's really exciting because it's not Bears on its own, it's Colo and we all love Colo. But actually it's also encouraging data centers to come there and then buy the green power.
Yes, Nata Sha, I mean, there's so much stuff to say about Germany and people ask us all the time, but it's not just there. Because you've seen markets like Italy, Finland. Can you go in certain structure? Are they the same? Aw they different? How do you see in?
What's really interesting in both of the markets that you've mentioned, and this is the same in quite a few different markets, is the deals can be structured and the deals are very different, even if as they're in the same country. So if you take Italy for example, that's the real boom area. The amount of clients who wanting to do deal in italy's really really increased recently, and a lot of people when they talk about Bears in Italy talk about the max result. You know, oh, well you've got
the max there. That's great. Well, actually you can finance MAXI. I'm sure we'll see a whole pipeline of projects coming through financing MAX. But we actually project financed last month the first ever Bears facility in Italy and that didn't have a MAXA that that basically got finance and it was the Air for a transaction two fifty megawatts where we got a tolling agreement with Shell and that's what enabled the financing on that project rather than the government
auction of MAX. But you could see them both Finland again, different model. You don't have a government auction like the MAX there, but we've seen financing structures where we've project financed assets there where we've had contracted revenue with tolling agreement, but we've actually also financed on a merchant basis. They're clearly different finance structure. But seeing the likes of these new tech players that come in and facilitate it, like Capello,
that enables the financing. So that structure that deal is very different to a deal that then has a tolling agreement. I think that's what's really interesting about the best market. It's not one size fits all.
Natasha, can we dig into the financing there, because that's for me, the biggest trend since we'd asked spot Woken is that if you think of a lot of what we've been doing for twenty years, renewables has just been financed with a government PPA at the end of the day a CFDA or a feeling TERV and now you're going into having to take merch and risk, and then you've got these so called tolls and stuff like that.
Maybe talk about what you're seeing out there and what the trends are and how you see it going forward.
It's a really interesting question. And again on a country by country basis, it does depend and it also depends if you've got co location as well, because that hybrid solution for a co location facility in Spain will look very different to a co location facility in the UK, where maybe you don't have a gate to offer for your bears in co location, but you have been given a gate to offer for solar. But generally, i'd say most lenders prefer a toll, maybe not for the full output,
it might be a certain percentage. But we do see also financings taking place with optimization agreements. Now clearly it does affect the gearing and different positions on the covenants, and it will depend what the project owner wants to achieve and it there isn't one approach for financings. You don't tend to see standalone financings for solar anymore. That's moved definitely into the hold co financing because it's tried and tested and the lenders are really comfortable with it.
Subject to clearly like say standalone solar in Spain and the need to bring on BEZ for that. But you tend to see hold co structures more for the solar with BEZ maybe coming in. I still see that stand alone financing for BEZ being quite an active market because people are trying to figure out what the right revenue and ric model is.
It's just going to get more complex, to tell you the truth, because now that people run BESS or operate bes, it's a totally different animal from Winner Solar case. Between these, it's any what I kepture prices, but the best You decide every day what you're going to do. You're in charge, you and all the algos who are managing the best and plus you've get your own new stack. So am I charging? Am I discharging? Am I putting option? And you know, do I work on the physical market? Do
I work on the congestion market? Do I sell premiums the level of sophistication, and weirdly the guy who start to master best management are former gas operators.
Yeah, what's interesting, Lauren. As you see this market develop, you'll see the hyperscale's coming into this market. So I totally agree at the moment, take if you take a hybrid asset, you need a very sophisticated player to take a ibrid asset and then optimize that. But we are seeing signs that some of the hyperscalas are now moving into this market too, So I think that's a watch the space.
Let's follow up on that. So how are they going to come into that minor market? In other words, are they going to sign PPAs, Are they going to go and actually vertically integrate, are they going to partner with people? How do you see them sorting out that energy side going forward?
Basically, I don't think it will be one size fits all for all of them. And this is me kind of anticipating where the market will go. Signing pure PPAs for Bears probably needs this GEO protocol to come in in Europe which will allow that transfer of certificates attaching to when generation occurs to actually time shifting it to when it dispatches, and I think so some of them will need to wait for that to happen before PPAs
are signed. So I think it will be the latter that you mentioned, which is partnership working CLIs mostly with people then to try and help firm and provide a better profile for them.
Just the other trend that you said that I thought was quite interesting, which was you talked about whole co financing, and I'm totally with you on this because I just I'm coming from a copper finance point of view where you would normally what you would do is you would just finance something at a project level, right, That's how you did it in the past. But as you said, now what you're doing is you're not doing it at that level. You're doing it at at the whole co
level that has a whole portfolio list. Talk a little bit about why this is happening and also just how you see the trends going forward in terms of financing. As I said, these type of platforms does call them like that.
It starts off with with the trends that we've seen, which is the m and A market consolidation and the move for investors actually investing in developers and turning developers into IPPs and then building these platforms, and it's far more flexible. It's a to deal financially to provide a bigger facility for that whole co platform than to be able to draw down to fund construction on a multiple
project basis. So I think it goes hand and hand in the trend of the consolidation of these big players investors investing in developers and IPPs.
Which means that if you had missed the boat three four years ago creating this platform, so not only owning assets, but managing them and optimizing them and doing what I used to do twenty years ago when I was training commodities, which is called cross collateralization. Maybe it's a new world for the arulnerable energy, but I can tell you it was done twenty years ago in the fossil fuel area.
Assets are natural hedge one against another, and of course if they are natural hedge, it's much cheaper because they complement themselves, which means that going from a single asset to a portfolio level requires a level of knowledge and sophistication not only on the operators, but on the lenders and even the lawyers like you or organized. So what
you see is you said conceliation. Have those people improved the same way or some really got it and others have totally missed the boat and they end up with a series of assets, and maybe they're weaker than the one who conceited better. So question is long, but the problem is complex.
It is indeed if I pick up that sort of cross collateralization point though, and people get it in this market, and this is a whole move to hybridization of renewable energy assets, and in a way it applies equally to the whole co portfolio financings that are occurring. This does allow lenders to take a more sort of pragmatic view
across the whole portfolio. So if you think about Bears and Solo, you might agree a certain percentage of merchant revenues and then you might agree a certain percentage of contracted revenues. So you look at it from a whole portfolio base is and a hybrid solution and really set out those parameters at the top which allow then the IPPs that you believe in, the sophisticated IPPs to build that ideal platform that they can.
Do Lauran actually an attached to both here. Really, I think it's a really interesting talking point here because I think we're only at the beginnings of these financing structures and I actually don't believe that the renewable industry has that capabilities internally, which means and Lauren, you pointed to it earlier when you sort of talked about, you know, the whole area and the whole gas trading area, et cetera,
et cetera. I suppose my question to both here and Laurn obviously this you're a commodity trader for many years. How do you see this market going? For a start, and then the Natasha, I'd be interested also to hear your thoughts on it as well well.
John, I'm supposed to ask questions, so.
You are, but you're an expert in that area given what you did beforehand, right, so you can see boat worlds. That's where I'm coming from, anot.
It's a different mindset. Some infrastucture investors are smart, and I know a lot of them, and they will adapt, but it's a different mindset portfolio management. It's like, at some point you go to BP, who's processing all those molecules we're gonna do electron, Man, it's not simple. An
electron is not virtual molecule. It reacts differently. And if your model was AK twenty year feed in tariff, which is the equivalent of a government bond plus or minus at the capture rate or the lot factor, you're gonna have a really tough time not only understanding what's happening in your portfolio, but also the way you're going to raise fund because if your slides are ten years old, you are gonna be hurt. That's my view now, not a shure you're in the in think of it.
Please, I've got a more optimistic view than you, and it's probably because I've got these three deals on the table currently. By the time this podcast gets released, one of them will have closed and it'll be out in the press. I think you'll be pleasantly surprised to see depending on how much of it is disclosed, man, how much of it's confidential. But I think there are plenty of players who have the mindset and we're moving into that world quite quickly.
Exciting times ahead. Indeed, I'm always.
The guy's bearing venues and you're always optimistic, But that's the dynamics. The one who really get it will consolidate with the one who don't get it.
That's not how I would phrase it. I phrase it as consolidation is happening, and the people looking to invest in see the technical experience and that in country knowledge that they may not have. And we've seen a huge
amount of consolidation in the energy sector generally. And what was interesting when we looked back at the M and A figures for last year, you had actual deal amounts going down, but you had deal value growing by twenty percent, which shows you the deals are bigger and they're more strategic.
And if I just look across the p for some of the clients we've worked at working with Elgin Energy for ten years, seeing their development from developer IPP, investment by CIP, working with BEV startup Octopus Energy Financing, now buying the UK EV charging business from stack Craft, that's what we're seeing. We're seeing that sort of journey and I think that development will continue.
By the way, I think it's even got to go well beyond what we're talking here in terms of best and renewables. I think you're also going to see it in the utility space as well, because it's the same trends we're talking about, and it's the same complexities that they have to deal with. And if you don't have the capabilities or the scale needed, whether you're you're renewable or customers are grid to' in trouble going forward.
Oh, you've hit the nail on the head. Actually, one deal I didn't mention, which we signed this year we sold Flexitricity for Quinbrook to Drax. That's exactly the point you're making. Drax decided they needed that sort of business within their portfolio and now they're offering some new products because of that exactly.
In other words, what we're saying also is we're seeing this the m and a consolidation taking place. The question is is it going to accelerate now? In other words, have we reached the peak or is the peak in twelve months eighteen months? How do you see that?
I don't think we've seen the peak. We're seeing any increase on I hate to mention the US in this podcast because we've managed to get to like twenty five minutes without Lauren mentioning it. So this is my bad everyone forry, But we've seen because of what's going on. We've seen that European investment come back into Europe, and then we're seeing the investment from the Middle East and
from the US coming into Europe. So I think, particularly from a European basis consolidation, I don't think we've seen the peak. I think we've still got lots to come. I'm certainly looking forward to an even busier year this.
Year, Natasha. A lot of the consolidation has taken place is because a lot of the smaller players just don't have the capabilities. Now, what you're also saying, I agree with you totally. What you've got is a lot of small our players who realize and now's the time to actually really scale the business and have an impact, right.
Sham, We've really been good so far. We haven't talked about hyperscalers yet, so it's time to dive into hyperscalers that are centers. And of course it's all the range in the US, but it's fever is coming also in Europe.
What do you see?
You know? I love a hyperscaler Ppa twenty twelve, my first a hyperscaler PPA, and I've loved following the market and actually they are the biggest driver of the market now for us globally. A lot of people have said to me, oh, well, you know the figures for corporate PPAs they really fell off last year, but actually there were still twice as big as they were in twenty twenty. And the difference is the biggest percentage now is being driven by the hyperscalers and their demand for power, which
is outstripping all the other buyers in the market. So it's a super exciting time. And then what's been really interesting also is seeing renewable energy generators also understand and want to work and adapt their strategy to bring in the sort of digital energy side of the piece. Could you have powered land, can you provide bridging solutions for data centers? How can we as an industry facilitate more data centers in a green way?
And I think the other thing I'd add to it is a whole move to what I call energy parks sort of the words what you're doing is and you talked about the better one and Brandenburg going on, that trend has going to intensivey going forward, otherwise you're going to be building generations very close to demand.
Totally agree, and what will be interesting to see then is the hybrid approaches taken to the generation affets. Will we see in Europe more biogas on these sites? Will it be simply solar and bears? Will there be wind?
We know what we're seeing in the US, which is some of the gas coming in and nuclear coming in for the hyperscalers, So it'll be It will be super interesting to see how this market develops over the next couple of years as they all race or in this sort of data center ia rate that they're in to get to where they need to get to.
And can I ask you just in terms of countries where this is going to because Okay, I live in between Ireland and Germany, and if I take the case of Ireland, look, the grid is completely fallen. You know. I know Google wants to have a whole pile of power here, but they're not going to get it. So where do they go next?
I have got some hope that the UK is really going to continue to develop, and we have got grid reform finally coming hopefully to a conclusion with the gate two offers that we should be getting. We should hopefully see more data center development in the UK, Finland and the Nordics cheap power, it makes absolute sense that different places across the Nordics should continue to see growth, and then maybe Eastern Europe as well. They're going to go
where the power is cheat. Also, as hybrid solutions get developed in Spain, you're not seeing a huge amount of hyperscala pure solar PPAs in Spain now for obvious reason. But as we see in these hybrid solutions develop in Spain, then that seemed like a sensible area for growth too.
And in a certain way, having all those hyper scalers signed PPAs and probably even private wires, it's really you know what they say in the US, you know, bring your own generation, or at least partially because what we see in the US is okay, if you want to connect eight thousand, six hundred hours a year, you need
to add five years. But if you agree to forego a few hundred you'll get the connection much faster, which means that the hyper scalers must integrate all those backup, whether it's recipal getting engine or even we see fuel cell for more boeing, everything go the way the dealer structure is that a bit of a virtual way to bring a bit your own power.
How do you see that everything's on the table with the hyperscaler. That is entirely possible, And in some countries it just depends where they want to see their demand and where the hyperscal of data centers are getting trains. Again, on site generation is really important, especially in some of these places. Again, the Nordics is ideal for that, or if you have a massive, big industrial facility, on site generation absolutely makes sense.
Natasha, So you're going to come back then in six years time? So what are we going to talk about six years time? Oh?
God, well, I don't know. You've become superstars by then, won't you. So we'll have to wait and see.
I won't.
I'll definitely promise, I tell you what. I'll promise definitely to come back in six years time. But I'm not promising about what I want to talk about.
I need to correct the wrong six years ago I named you the Queen of Ppa.
It's finished.
You're the Empress of Energy.
Oh thank you, Lauren. I'll take that Moniker and then I'll leave you six years for you to decide on a new one. Then, thank you.
Well, that was a great conversation. We really really really enjoyed that and listen, I'd love to think about it.
She's totally on the top of the game. And what is extraordinary is that as the deals are getting more complex, Okay, we add the batteries, we had the data centers and all this co location hybridization, that all financing is becoming extremely sophisticated. And still you have lawyers like Natasha who can wrap everything together and a load of financing to happen,
and the banks are getting better. But I'm really sometimes worried that we have a two tier sector where some catch the wave and ride with it and surf on it, and others, if they stay a bit analog in their two or ten model, are really going to suffer going forward? Or how do you see it.
Duran, I think that's actually was driving consolidation. But it's as simple as that, because those guys who don't serve that wave just think on to survive, they'll either go out of business or else they will be consolidated. And we actually spend a lot of conversation talking really we're talking about really about renewables and all that the product and also a lot of the flash institutions that have invested in renewables but I think it's much deeper than that.
I think you're going to see the exact same thing in the utility space going forward as well. That's the next big one.
Yeah, we've seen that in the US. Now there's a lot of issue in Europe, so I'm not sure it's going to be as fluid as in the US, but certainly we'll have less actors. They need to un est curtailment, they need to honest capture rates, negative prices. The system is much more complex to understand. But on the other hand, the solutions, which are altgoes, digitization, batteries, solution exists, but it's a very very complex set of tools you need to master and not all of them will.
Actually, that's why I think it's such an exciting space to be at a present round because I've just moved away from the simplicity of feeding entire financing to now complexity.
It's cool complexity, and that's what you do again and again at alex a.
Capitan exactly, That's what that's what we're doing. That's I said, that's why it really excites the hell out of me now because it's like you sort of feel your time is coming okay.
John, we like to thank Nata char Luther Jones no more the Queen of Ppa, but the Empress.
Of Energy, the Energy Empress.
Empress. Yeah, and I took to you next week.
I look forward to the front.
Thank you for listening to Redefining Energy.
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