Welcome to zero.
I'm Akshatrati. This week wind industry struggles and victories. If you've heard anything about the wind industry in recent years, it's mostly bad news. Building projects is becoming more expensive, getting government permission to build wind farms is taking much longer, and big companies like Oorstered, Vestas and Semens are struggling. But it's not all bad news. There are still big players winning at the win game. One of them is Copenhagen Infrastructure Partners.
It's not as.
Famous as other companies, but it's a big player. Since twenty twelve, CIP has raised twenty eight billion dollars and it now has one hundred and fifty gigawards of clean energy projects in the pipeline. That's roughly the size of the UK's electricity generation capacity under one company. CIP is so big, in fact, that the company is now even talking about building artificial islands out in the sea to
further speed up the deployment of offshore wind power. To understand how CIP is managing to navigate the challenges of the wind industry, I spoke to one of its founders, Jakub Baruel Poultsen. He got to start building offshore wind projects in what used to be Danish oil and natural gas and is now Orsted. You can hear more of that story in a previous episode of Zero with Ostered
CEO Mad Snipper. Yakub benefited from the initial wave of government subsidies given to offshore wind projects by countries like the UK and Denmark, and then he used that success to create CIP and bring in big investors such as pension funds and insurance companies to build even bigger offshore
wind project. I spoke to Yakub at the World Economic Forum meeting this year in Tavos to understand how the wind industry is dealing with the many challenges it faces, why CIP has been so profitable, and what will be needed to keep deploying off your wind to meet climate goals.
Yakub, welcome to the show.
Thank you.
CIP was founded in twenty twelve, but before that you work for Dong Energy for a decade or more. That company is now called Orsted and is a giant in the offshore wind industry.
So could you.
Talk me through that period of working for Dong Energy and what made you leave Dong Energy to create CIP.
Well, I started already in two thousand and one. Actually my first job was to consolidate six Danish energy companies into what became Dong Energy and what is now astel And a few years after we did that six way merger, I became head of offshore wind in astel and in two thousand and seven and grew the company or the offshore wind division from around fifty people to around fifteen hundred people. So that was a really really interesting experience
for me. And when I left in twenty twelve, quite a few of those people I had worked with in the offshore wind division followed me to the CIP company and are still there. So we have been working together for almost the twenty years, many of us.
But let's be honest, you were known as the golden birds in Dong Energy. You were building these offshore wind projects and making a ton of money for the company, but also for yourself and Denmark. You know, the state prefers that the executives of its state owned companies did not personally profit so much, and so was having CIP as an independent company just allow you to grab opportunities that you could.
Not have at Dong Energy, which of course became austered.
I think the reason why we established CIP was that we wanted to give access to many, many more investors than just the Danish state into the offshore wind space. So we saw that offshore wind would not only be a Danish or north sea phenomenon, but it would be potentially become a global thing, which it tells Subsequently, we
wanted to give access to many investors. So today we have two hundred institutional investors in CIP who are investing into our offshore projects across Europe, Asia and the US.
And since twenty twelve when you created CIP, you've gone on to raise twenty eight billion US dollars, which makes you one of the largest spenders on clean energy in the world.
But you don't just.
Raise money and invest in projects. CIP actually goes out and builds energy projects. Could you talk me through the idea of having CIP as the body that raises money and then working with Copenhagen Offshore Partners that's the body that goes out and builds these projects.
We see ourselves as a hybrid between a financial company and an energy company, so we try to do the take the best from both worlds. We have a very very strong financial muzzle because of our fund structure, et cetera, so we can always attract money on an ongoing basis, on a very flexible basis, in a way that suits our investors very well. But on the other hand, we have around two thousand people working in our system doing practic development all over the world's twenty four to seven
in the thirty something countrys SO. I think it's a very good combination. So it's a hybrid model between a fund setup and an energy company set up, and I think it's quite unique actually, but it works very very well.
But on Copenhagen Offshore Partners, the body that build these projects, you're not involved in the management of that company. So when you say it's a hybrid structure, what exactly is the connection between CIP and cop SO.
Copenhagen Offshore Partner is a service company which is owned by some of our former colleagues from Ustor who established an engineering company, if you will, who are then servicing our projects across the world. And we have a number of other similar companies who are servicing us in different fields and we work on an exclusive basis with all these companies and have a very long term relationship with most of these people were working with for fifteen or twenty.
Years and in building so many projects and raising billions of dollars. Could you just talk us through some of the biggest projects that you've worked on since twenty twelve. What are the challenges that you faced as you tried to build this industry because when you started, yes, offshore when was something that was starting to scale, but it was still very early days. It was, and say, it
required subsidies and support from government to become commercial. Even now there are subsidies around the world for offshore and so it's not quite price competitive. Of course, it's become much cheaper in recent years. So yeah, talk us through the projects and the challenges.
No, you're absolutely right. So fifteen twenty years ago, offshore wind was heavily subsidized sector. Nowadays it's in most countries it's actually a sector which can compete with other energy sources on a grand scale. So in Europe there are not really any subsidies anymore. It's actually the energy sector pays monitor governments for the right to build offshore winds. In other countries it's a little bit different, but it has been a very very interesting development and I think
something that we will see continue in the future. It's offshore wind is unique in the sense that there's actually no limit for how big you can do the projects. So that's where it differs quite a bit from onshore wind, where some natural physical limitations usually for how big you can do the.
Projects, and some projects that you've built and what challenges you faced.
Our daily life is to face challenges, physical challenges, regulatory challenges, So we've had hundreds, if not thousands of challenges in all our projects. So I think that the two projects are mostly proud of. Recently is our wind Yard wind project in the US, which will be the first it's almost being finished now and it will be the first
commercial scale offshore wind project in North America. And I'm also very proud about our Changfang Seda our project in Taiwan, which is the first offshore wind project in Asia outside of mainland China. So these two I think are on a global scale, actually landmark projects. We have had issues in both cases, but the projects has ended up being built on time and on budget.
And what kind of challenges to do face as you were trying to build these first of a kind for those regions at least projects.
So there have been a practic specific challenges. For instance, in Taiwan, which is very very far away from the European supply chain, so a lot of stuff has We've had to export that to Taiwan. We've had to build an industry in Taiwan to build the foundations and things like that. We've had to have many minute discussions with government about the regulatory framework for offshore wind in Taiwan,
et cetera. So it has been a very very long journey over the past six or seven years since we started back in two thousand and fifteen or sixteen.
And same thing I assume in the US, which is only just really getting into the offshore wind game and already many of the developers are either walking back or having to take billion dollar write downs exactly.
So I personally started going to the US twelve years ago looking for offshore possibilities and the first practic we attempted to do never happened. Actually, that was the Cape Wind project that was ultimately abandoned before it was even started. So it has been a long journey also in the US.
And one of the challenges that you face is regulatory certainty. I mean, in the US, even if there is incentive to build, subsidy to build, regulatory challenges such as permitting or governments deciding yes it's okay to build and then suddenly deciding no, no, there are challenges there. Whales might be affected, as some tried to say, so how do you deal with that?
We tried to have some serious conversations with the relevant regulatory bodies before we even consider building, so in the early stage, in the development phase, and really try to map out any possible issues that could be And I think it actually generally works quite well in most cases. I think that's a good metrodology now in the industry for identifying, for instance, environmental issues such as the whale
issue in North America and Ada. Now also set there's a good toolbox for dealing with the issue so that we don't just disturb the whales in critical periods, et cetera. So I think all in all, we see that the amount of issues are going down because the industry is
simply becoming more and more experienced. On the other hand, of course, a new set of issues have arised in the supply chain because of the big volumes and the congestions and the supply chain, and so there's always something we need to look after, and lately it has been a lot supply chain related. What we have been focusing on.
Well, I mean, let's get specific there, because one thing that's happened because of the supply chain issues is that prices of offshore.
Wind have gone up.
And as prices have gone up, some of the governments have decided not to go ahead with an auction or not to build a project. And then when companies have had to do write downs, the overall profitability of this industry is under question. You're seeing not just companies like Osted or Vestas or Semens Energy phace challenges, but also oil companies which we're thinking about becoming big players in the offshore space are taking a step back and they're
questioning whether it's an industry we should enter. So, given your exposure to off your win and given your history of building these projects, how do you think the industry can overcome this real big challenge Because it's clear we need a lot more wind power in the world.
I'm actually not so concerned about it. I've been an offshore win for more than twenty years now, and we've seen this happening a couple of times before. For instance, around the financial crisis, we had a similar situation as what we see now, so I think it will work out. We have seen recently that some of the PPA prices have increase.
Against PPA stands for power Purchasing Agreement and it's a contract a company that consumes electricity signs with another company producing electricity. The key detail in the contract is what fixed price that renewable energy will be sold for and for how long.
So, for instance, the latest US allocation of PPAs were at a higher price level than previously. We have seen also in Ireland, for instance, that the prices have increased, and the UK government also has told me that they are considering a new auction instead of the failed one et CE. So I think the industry will move on. So I don't see this as a fundamental issue in the industry. It is a natural reaction to the cost increases.
We should remember that offshore wind is still a relatively cheap energy resource in most areas compared to fust fuel based electricity production.
So do you think the era of falling costs for offshore wind is over.
A period of time, hya there will be an adjustment, so the cost level will lead to the revenue label will need to adjust so it can cover the costs. But I'm confident it will be way cheaper than fossil fuel based. And then I'm sure as we see new technological progress sort of happen, we will in the long run see a continued downwards trend again.
Right, so you expect that you're going to see price declines happening soon, But of course, right now we're in that environment of price increases. When do you start seeing the trend reverse to what used to be.
It's very, very hard to say, because it's a combination of technological aspects and some macro economic energy market aspects, so oil prices, gas prices, and things like that. So it's hard for me to come with a firm estimate here. But I clearly see that we have a short run adjustment so that that revenues and cost align, and then we have a longer run fundamental decrease in the cost of renewable energy.
Now, one model that companies building clean energy projects use is to build a project, then sell off a portion of that project, or to sell off the entire project to infrastructure investors bigger holders of capital.
That way they.
Don't hold as much debt on their books and can use that capital to go and build more projects. Does CIP use the same model.
Our key value creation process is to develop and construct renewable energy projects and then we actually seek a good long term buyer for the projects. And in some cases we sell one hundred percent of the equity and an other cases we sell, for instance, forty nine percent, and that depends a little bit on the buyer preferences, so it's a little bit decided from case to case.
And when you go out and raise funds, which you do and have done so much of what different types of funds do you create to be able to attract these large investors and just talk us through what type of investor is interested in what type of fund?
So we create funds which are regulated by the Danish FSA, so it's a regulated financial product we are doing. And it's relevant for primarily for big institutional investors, so primarily pension funds, and it can also be family officers and insurance companies and other financial investors. Even the nuclear industry has actually invested money in our funds, which I'm very
proud of. So it's really relevant for people who want to invest capital for ten fifteen years and who has a positive view on the renewal energy transition and who we leave in our ability to develop and construct projects.
We'll be back with more from the conversation after the break.
And are there some of your backers that you can talk about, because I think you started with one investor and now you said you have two hundred who have been the consistent ones we have.
Our biggest investor is still Pension Denmark, who sort of invested in our first fund, is still our biggest investor. We have I would say most of the Danish pension funds, and in Denmark we are very blessed to have a very very strong pension sector where all Danes are forced to invest into the pension funds basically, and we have many German clients, many Scandinavian clients, quite a few Asian
investors also including several sovereign Welsh funds. Also, we are still quite the small in terms of US investors, but that's growing and the US is the biggest capital market in the world, so it's a big priority for us to get more exposure to US clients.
Now, the oil industry is famous for its boom and bus cycle. Oil prices rise, more people invest in trying to supply oil, that causes too much supply, and then oil prices fall, then demand starts to rise, oil prices rise again.
And the cycle just repeats.
Is clean energy also becoming a victim of the boom and bus cycle?
I think we see an element of that also. I think what is quite clear in the renewable energy sector is that quite a few of the investors who want to invest into renewable energy are only allowed formally or implicitly to invest into brown field assets, so essentially assets that has been brought into operation. It's basically investors who
can not take development and construction risks. So when we see these boom and bust cycle sits primarily because a lot of money are chasing a scars number of brownfield assets, and the prices are then increased a lot and then returns fall for those investors.
And brownfield being already existing.
Already existing assets exactly. So the point I'm making here is that the investment starting returns for brownfield investments can be a little bit volatile, but for greenfield assets. It's actually remarkably stable in the twenty five years I've been in this business.
And greenfield investments is where you actually go and build these things. And what's the rough stable return that you've seen in that then.
I would say it has been around ten percent. That has been the return level we have seen for greenfield returns over in many years. Of course it's going up and down a little bit, but it has much less to do with financial markets and speculation. It has much more to do with technological progress, power prices sometimes also, but it has been remarkably stable. And the way we work in CIP is that we have a very very
big portfolio of investment opportunities. So we're developing around one hundred and fifty gig award of renewable energy products, so that's comparable to all of Germany's renewable eddy So a massive portfolio, and it means that we always have some products which are mature where we can take the decision to invest, and we also have the opportunity to say, okay, this project does not attractive right now, let's defer a
little bit and then focus on other products. And that gives us quite a bit of stability because we can always just focus on the best projects and let the other products develop until they become as good as we want them to be.
And if you didn't want to do just one number, what other numbers would you talk about?
We are usually investing at around the ten percent. Then we very often sell in the brownfield space at a return level of maybe six percent or something like that. So there's a quite good value pick up from the activity we do. And that's that's the key attraction for the investors in GOP, that that we can we can underwrite products usually at around ten percent, and we can usually sell them when they have been constructed, and we have taken the risks, usually at around six percent.
And so if we talk about it in sort of a billion dollar valuation, say you build a project that's worth one billion dollars, when you sell it to a large investor, how much are you charging them?
Then it can sometimes happen that weich asked them two billion.
Well that sounds like a pretty good rate of return.
Yeah, but we take some risks and some you know, there's some costs also, and it's so it's not just a free lunch, right, it's we actually do quite a bit of work for that or several years. Sometimes it's also less than two billion, right, it can also be one and a half or something, but it's it has never happened. It's less than one.
Let me say like this, And if we are in a bus cycle right now, given the state of the wind industry, how do you take advantage as an investor with plenty of cash to spend?
No, but we have had a period now where we have bought, acquired, developed quite a number of development projects. So we have expanded our development portfolio. So I think over the past two or three years we have probably expanded the development portfolio from around ninety two hundred gigawatts to around one hundred and fifty gigawats. So you could say that our inventory, or our wine sellar so to speak,
has grown. I think there could be a good possibility that we see into now a boom cycle and then we will sell out a little bit and the wine cellar will diminish a little bit. Again, that would be my expectation.
And you've built a lot of offshore wind projects. What are some of the exciting innovations that you've seen over the years beyond just the fact that the more you deploy, the cheaper it is to build these turbines out in the sea.
No, but I think the exciting things are actually all the on exciting things. So it's a number of quite cycnical and quite boring things. So there's not one big, fancy, moonshot thing that has changed the whole world here. It has been a number of smaller things.
But recently you've created a new company that's going to build energy islands off Sure, now that sounds like a James Bond movie set.
What is it really?
Yeah, that was not the plan to do to do James Bond movies. We actually see this idea about building artificial eyelanes in the North Sea and certain places in Asia. Also, there's a natural prolongation of the development of offshore wind in the last thirty years. So thirty five years ago the first project was built in Denmark that was five megawat. Then a few years after one hundred megabater project was built, and now most of the products we're doing one thousand
megawat projects. We hope that seven to ten years from now it will be ten thousand megabot projects. And there we need eyelanes for the electrical infrastructure for power to x for the service facilities, et cetera. Eight CE. So we see it actually as prolonging the exponential growth we have seen over the last thirty five years. Whether James Bond movies will be done on the islandes also I cannot say. But so most of the stuff that will
take place there will be pretty boring, right. That will be you know, electrical engineers who will run around and make sure that the wind turbines are connected properly.
Well, that could be an extra source of revenue if you can sell it to a James Bond movie. But just to understand the concept right now, you have these offshore wind turbines that are typically anchored to the seafloor.
There's a big base.
That is built on top of which there's a big pole, and then you have these turbines which can be sometimes as big as the Eiffel Tower just out in the sea. Of course, then you have to take a big long cable, and perhaps you bring many of those turbines into one cable at a substation, and then you have to take another long cable back out to the land where this
electricity is consumed. So all you're saying now, is as this industry grows and you have many, many more wind turbines than there are out there, instead of having so many cables going out directly to land, you create a hub where those cables come in, and then from that hub you still have to take a cable back to Yeah.
But the whole point here is that wind power is an intermittent resource. So around half of the time the window is blowing an the other half it's blowing lists. So it means that if we do an energy island, as we call it, and we connect all the wind turbines to the island, and they sent the power to the island, then we only need a smaller cable from the island to show than we would otherwise have needed. But that cable will then be full all of the time instead of only being full half of the time.
So that's the purpose of the island is to facilitate energy storage power to X facilities so that when we have surplus power, it will be exported in a pipeline as hydrogen to show and exporting energy in a pipeline is only caused a fraction, a small fraction of what it costs to export it in a power cable. So the big driver for the island thinking is that it's very very expensive to build all these electricity cables, so we try to save a lot of billions and billions
of euros on that. And we also by doing that, we create a more stable, almost a flat production profile power. So the power cable that we do build is then almost one hundred percent utilized.
But if the power cable is one hundred percent utilized, that's good because then you're going to get a higher rate of return on that power cable. Except the hydrogen electrolyzers that you will install will not be running at one hundred percent power, and so they will be half utilized, and so they won't have the kind of return. And so how do you balance Because of course, yes, cables are expensive, but they're also kind of simple, right, they're
made of copper and electricizers. Much more complicated. You need more precious metals, and of course the price of green hydrogen hasn't quite come down. So you want to use those electrolyzers one hundred percent of the time.
Yeah, but our calculation shows that there's a very clear economic benefit from having more electoralizers and less cable and there will also be an element most likely of better restoration on the island, also to some extent in order to fully stabilize the sport of power.
And just so we have numbers on how much money this saves, I would make a case for how big a project and how much money would be, say.
One island, So one island would probably anger around tin gigawats of wind power, so the total capex of that would be around thirty billions or more. Only maybe one or two billions will be the island itself, so that's actually a quite small investment. Many people think the artificial island is expensive, but it's actually relatively cheap. That transmission investments will probably be five or seven billion euros lower than they would otherwise have been.
You're right, I mean it doesn't have to be that expensive to build artificial islands. Of course, to buy has built entire maps and different designs with artificial islands just off the coast of Dubai, so it's not that expensive. But you know, just looking at it from a technology perspective, from a risk perspective, there are two big things that this creates. One the benefit of renewables is that they're decentralized and if you attack a nuclear power plant, that
could be a big danger. But if you attack a wind farm, you know, the damage isn't that much. Now you create a central hub where all this power comes in, just becomes a very easy target. From a geopolitics perspective, how are you going to tackle the challenges that brings As a.
Starting point, Renewable energy is improving Europe's security of supply situation. If you think about offshore projects, it's a little bit similar to the existing oil and gas projects we have in the North. See. I don't think the energy island will be more vulnerable for an attack compared to a guess installation, for instance, So we have that vulnerability already.
I think we will, of course, when we suggest islands, we will of course have a debate with the various governments about how can we improve the security for the those installations from the start, So I'm sure there will be various technologies available for that for surveillance and protection.
You will also have to manage sea level rise. Building an artificial island in a world that's warming.
We have for many years taken that into account when we build it. The offshore wind projects that there wasn't expectations for sea level rise.
And then you'll have to of course contend with the difficult guessing game that everybody is in right now, which is whether the hydrogen demand will appear or not. Because the way you make your economics of this energy island work is that you have this hydrogen production and that.
Is piped back to the ground.
And for all the interest in hydrogen, and yes, there are applications for it in many places, and there's also lots of subsidies that governments want to give, it hasn't actually ended up being used at scale in many many places.
I think what is important in relation to hydrogen in a European context is that I don't think many people in Europe would doubt that we need electricity ten, twenty, thirty or fifty years from now. I think most people would agree with that. And we see very very high electricity prices right now, and the main product from the islands and from all offshore wind paths that will be the electricity produced, so the hydrogen will be a by product.
And it means also that most of the revenues for these projects will come from the electricity side, and it actually means that the necessary price we need for the hydrogen will be relatively low, so it will be relatively competitive also with other sources of hydrogen because it's a by product, so we don't need that much money. We will earn most of the money, or the projects will earn most of their money on the electricity side.
So the company is called Copenhagen Energy Islands and your plan is to spend something like one hundred and fifty billion euros over the next decades to be.
Able to build multiple of these islands. I do hope there.
Is a James One movie set on one of these islands if it does get built.
Thank you, Yakob.
Yeah, you're welcome.
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Zero's producers are Tiffany Choi, Magnus Hendrickson, and Somarsadi. Our theme music is composed by Wonderly Special thanks to Kirra Bindrim and Will Mathis. I'm Akshatrati until next time.