Transcript
Speaker: Welcome to HSBC Global Viewpoint, the podcast series that brings together business leaders and industry experts to explore the latest global insights, trends, and opportunities.
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Speaker: And now onto today's show.
Speaker: Hello everyone and welcome to today's episode of HSBC Sustainable Podcast.
Speaker: I'm Patrick Kondershen and I'm pleased to be joined today by Hans Kobler, founder and managing partner of Energy Impact Partners, a $5 billion global investment firm investing in the energy transition.
Speaker: Thank you, Hans, for joining us.
Speaker: You are just coming back from Davos, actually.
Speaker: And we're looking forward to having you as well with us at the HSBC Global Investment Summit end of March.
Speaker: Thank you, Hans.
Speaker: Pleasure being here and looking forward to it.
Speaker: So today, we'd like to cover the state of the play in the climate tech space, as well as your investment thesis and what are the current opportunities and risks.
Speaker: So maybe to start, it would be good to have a quick introduction on your company.
Speaker: So EIP, Energy Impact Partners, the strategy and its role in scaling up climate tech.
Speaker: Happy to do that.
Speaker: What is unique about our approach is we work with more than 70 large and very influential utilities, energy companies, and their customers, the industrials, where we look together for the key technologies that would power that energy transition.
Speaker: And so in a way, we help them on their net zero journey, and they then, in turn, help us find those great companies, screen them, and then scale them.
Speaker: And the rationale behind that is, you know, we've been in the sector for a long time and recognize that it's a massive opportunity.
Speaker: But it's also complicated.
Speaker: Everybody wants to go clean.
Speaker: Nobody wants to pay for it.
Speaker: And reliability at a company level, at a national level, is paramount.
Speaker: And that's what we call the net zero trilemma.
Speaker: That's an equation that is very difficult to solve.
Speaker: And in our view, the only way to do that is really through innovation and collaboration.
Speaker: Bringing these incredible innovators and those influential incumbents who operate trillions of dollars of infrastructure in
Speaker: a room together and come up with creative solutions.
Speaker: We started that journey more than a decade ago with a handful of utilities in North America.
Speaker: And today we have more than 75 engaged large global corporate partners, 100 people and about 5 billion assets under management where we invest in venture growth and credit and built a portfolio of more than 120 exciting companies that want to create a better world.
Speaker: Thank you.
Speaker: That is indeed exciting.
Speaker: And today, energy, compute, and power are very center stage.
Speaker: And we've seen that with the announcement on Stargate in the US, with this $500 billion going towards AI and enabling that with the power that it requires.
Speaker: So one of the things that you say about your company is you catalyze the transformation towards a decarbonized, decentralized digital energy future.
Speaker: Can you shed some light about the key sectors and technologies you are looking at right now?
Speaker: Yeah, I think the first recognition is that the energy transition is really a global business.
Speaker: The best technology is developed somewhere in Helsinki, Atlanta, or Perth.
Speaker: And then they might be scaled in the sun-rich desert of Saudi Arabia, and then the product will be shipped to Germany or Japan.
Speaker: So it's a global business, but the challenges are very local in a way.
Speaker: So there's no one-size-fits-all or no silver bullet here.
Speaker: We need all hands on deck.
Speaker: What we are currently particularly excited about is what you were alluding to already a little bit.
Speaker: This data center built out this speed to power.
Speaker: We have experienced 20 years of basically flat in North America demand on electrons going down in Japan, in Europe, and suddenly with the data center and their huge appetite for power.
Speaker: We have experienced tremendous growth and the speed to power, how quickly we can
Speaker: scale those is very critical it's part of actually one of the big focus of trump was pushing for is you know energy dominance and leadership in ai which needs chips at electrons so that's a big topic for us including on-site generation distributed generation the storage that you can deploy renewables faster we have a very exciting company here called enchanted rock
Speaker: that produces dispatchable microgrid with a very fast, responsive, very clean solution that is already getting big inroads in the data center market.
Speaker: So that's one big topic.
Speaker: A second one that we pay a lot of attention to is flexibility.
Speaker: We always had volatility on the demand side.
Speaker: It just got worse with DC fast charges.
Speaker: You plug in your electric vehicle, it's 70 households turning on the TV.
Speaker: So a lot of volatility on the demand side.
Speaker: Now we have it on the supply side as well with wind and solar fluctuating very significantly and becoming an increasingly large part of the energy infrastructure.
Speaker: So somehow we have to deal with that volatility.
Speaker: Otherwise, we're building a church for Easter Sunday.
Speaker: And one way to do that is focusing on building out the grid infrastructure, which is difficult.
Speaker: We have an investment in a company called InfraVision that is helping here a great deal.
Speaker: You invest in storage, chemical storage.
Speaker: where we invested in companies like powering and using lithium-ion batteries at a very exciting software-enhanced utility scale level, but also new forms of storage that are cheaper and longer-term like form.
Speaker: And the third pathway there is, you know, we just make the communication between supply and demand smarter.
Speaker: You know, basically digitizing that communication that you tell people, I need electrons, just turn down your air conditioning at this point.
Speaker: or move your charging to a later point in the day.
Speaker: A couple of exciting companies.
Speaker: We have, you know, Grip Beyond here, actually, in Europe here, is doing great work on a VPP.
Speaker: And our Spark Fund is sending out in a rate-based model distributed generation that utility can tap into.
Speaker: So that's a second one.
Speaker: third topic we care about and pay a lot of attention to is resilience the weather is getting worse i think eight of the ten worst storms have happened in the last 10 years and it's getting worse so spending hardening the infrastructure creating more resilience big topic for us whether that's creating you know composite poles for the transmission distribution networks like rs technology does or using ai to predict where the wildfires will happen or the gas leaks will happen
Speaker: That's a third big topic.
Speaker: And the fourth, which is often underestimated, is automating and freeing up labor for the energy infrastructure.
Speaker: A lot of pick and shovel work here, upskilling, reskilling, introducing robotics to deploy and harden the energy infrastructure faster.
Speaker: Those are kind of four big themes that are almost globally at the top of the mind of our corporate partners.
Speaker: And that's where we pay a lot of attention right now.
Speaker: Thank you.
Speaker: That is great and clear connection for more energy in the world and the transition and how to work on the efficiency as well and the capacity and the resilience.
Speaker: I think you mentioned microgrids, which is a kind of big topic, relies well to the resilience.
Speaker: The software side also that often overlooked to manage efficiency and the adaptation resilience side, I think very key one as well that you will see in the future.
Speaker: So thanks for learning that.
Speaker: Thinking a little bit, maybe a question in a supply chain type of fashion, we do the parallel with the gold rush.
Speaker: and thinking like people who are selling the shovels were, you know, making a lot of money.
Speaker: Here, if you go one level down, talk about all these themes, what could be the equivalent of the shovels really in this order, maybe technical aspects, the cables, the components, etc.
Speaker: that come and that necessary actually to build this infrastructure?
Speaker: I'm afraid there is no silver bullet or a silver shovel here.
Speaker: There are a lot of opportunities different by area, different region.
Speaker: Your energy transition is hard.
Speaker: The laws of physics are not very forgiving.
Speaker: You cannot FedEx those electrons.
Speaker: The regulators have a great deal of, say, who makes money, when, where and how.
Speaker: And you need a lot of capital.
Speaker: So, and all of those things have to work together.
Speaker: So it's great, you know, renewables are coming down the cost curve very significantly, but they have this volatility.
Speaker: So they need to be complemented with, you know, those storage solutions, better networks.
Speaker: with natural gas in a much more important role than most people recognize to take really a system approach.
Speaker: And we have to do things on the customer side also to turn those buildings into batteries, quasi, or, you know, find solutions to make the data centers
Speaker: to connect the data centers faster where maybe they don't run on clean electrons 24 7 but there is a compromise that you picture a little bit so it's really a long variety of technologies that are needed 80 of them we have today that gets us a long way there and but you know there's still some exciting technologies in the works that provide us with new solutions whether that's geothermal or nuclear fission fusion
Speaker: will come up at some point, but there's no silver bullet or silver shovel that's the one solution to this problem.
Speaker: Coming back to Davos, where you've been spending a couple of days, what are the insights that we can gather from the conversation that took place there in relation to energy transition?
Speaker: Two years ago, you could not escape sustainability and climate on any window or any house front, any discussion.
Speaker: This time around, it was all about AI and Trump.
Speaker: I was in the governor's breakfast, which is, you know, most of the financial people, and they polled them.
Speaker: asking what is top of your mind right now?
Speaker: What are you thinking about?
Speaker: And the most dominant discussion was global tensions, followed by the growth of AI, followed by inflation, and lastly was climate.
Speaker: It was really one-tenth of the other ones, climate and energy transition.
Speaker: And I had to smile a little bit because, in a way, the energy transition is behind all of those three topics.
Speaker: So the global tensions are largely...
Speaker: related to energy the ai boom will not happen without energy and and even behind the tariffs and all of that is a lot of the energy topic and so that was one big theme and then of course trump could not escape a discussion from a timing perspective where trump was not part of the conversation
Speaker: Yeah, and as you said, energy transition and building the energy infrastructure is very key to all the other topics that are being discussed.
Speaker: Where do you see, as a consequence, looking forward, the kind of best investment opportunities and maybe the areas that will suffer more?
Speaker: Positives and negatives, as we've most figured in life.
Speaker: If I take the U.S. lens on this one first, positives are, you know, it's a strong economy.
Speaker: It's a strong stock market.
Speaker: There's more cash to invest.
Speaker: 3,000-plus companies that have made some sort of a net zero commitment, they are in a much better position to execute on that.
Speaker: We'll see tremendous growth after, what I mentioned before, 20 years of
Speaker: flat power.
Speaker: Some people are now referring to the energy addition rather than the energy transition.
Speaker: And establishing energy dominance and AI leadership will be very electron hungry.
Speaker: I think we're moving a little bit away from what perhaps was an ideological energy transition to a more pragmatic energy addition.
Speaker: A lot of on-shoring, friend-shoring, manufacturing.
Speaker: So there are opportunities
Speaker: a lot of maybe an easing on regulations to build things you know we had a saying in america there's bananas going on that build absolutely nothing to anyone anytime soon and the administration is expected to loosen up the permitting here and start building transmission distribution
Speaker: our plans, you know, make it easier for decentralized energy, gas pipelines, etc.
Speaker: So a lot of positives.
Speaker: So if I break it down by sector, where do we think we get a lot of tailwinds?
Speaker: Certainly anything gas-related, LNG-related, nuclear, you mentioned that, transmission distribution.
Speaker: I think cyber will be, people will pay a lot more attention to cyber.
Speaker: renewable wind, solar per se may suffer.
Speaker: But then again, they are really the cheapest form of energy in so many ways.
Speaker: So we see some future there.
Speaker: And then there's a lot of in between where I think we have to just see how the policy shake up.
Speaker: Obviously, he passed the IRA, which is making it very difficult for some of the more complex technical challenges, whether that's hydrogen,
Speaker: It may also lead to just a reshuffling.
Speaker: You know, when the IRA was announced, we had a lot of technologies coming to the U.S. from Europe, where you brilliant engineers that come up with great solutions.
Speaker: So they came to the U.S. and maybe now there's a different movement and maybe they go to the Mideast.
Speaker: The Saudis, UAE are putting up big incentives.
Speaker: So maybe it's also a little bit of a global reshuffling that we see as a result of that new political situation.
Speaker: Thank you.
Speaker: The geographical reshuffling is an interesting one indeed.
Speaker: What I take away from what you said is more pragmatic approach to think, less ideological and probably more driven by economics.
Speaker: Standing on their own feet, the cheapest probably wins and there are some clear winners like
Speaker: gas, transition fuel, LNG, nuclear, clearly having had a very big tailwind recently, and we see even countries who are opposed coming back.
Speaker: Thank you for this.
Speaker: To finish, maybe I would like to ask you about a case study from your portfolio, maybe a company that you are really excited about and you would like to share what they do and why is it interesting?
Speaker: In line with what I mentioned before, this speed to power is such an important topic right now for all of our partners.
Speaker: In most of our jurisdictions, where we have two-thirds of North American utilities and really h ave a global presence, in most of those jurisdictions, the data center operators are the biggest customers.
Speaker: They have been spoiled over the years that they can be connected in a very rapid way and get clean electrons at reasonable prices.
Speaker: That is no longer the case because the growth is so high.
Speaker: And so now we are looking for more creative solutions.
Speaker: And one of our companies tackling that challenge is a company called Enchanted Rock.
Speaker: They have an incredible reciprocating engine technology, but also the capabilities as an EPC and the software.
Speaker: So they kept a lot of the data at the shopping malls in Texas up and running when the market went down and basically diesel generator replacement.
Speaker: that has prime power capabilities.
Speaker: So when the power prices are high, they feed that into the air code system there into the electric grid.
Speaker: Now that same solution is also very well positioned to replace the very dirty diesel generators, which is much more cost efficient.
Speaker: And they just landed a deal with our partner Microsoft, where they now become a completely renewable net zero emissions solution
Speaker: for one of Microsoft's data centers, where they combine their fast response, ReSIP technology with solar and storage and provide a really good path forward.
Speaker: And Microsoft has 220 plus of those even before the Gen AI boom.
Speaker: Now that same solution actually can act as a prime power solution
Speaker: to either peak shave or allow the data center company to use that for a while until they get connected.
Speaker: So that good example, we've been investing with them more than six years ago and helped them gradually get more exposure to our utility friends and some of them rate-based technology.
Speaker: But this beachhead into this massive data center market is one that we are very excited about and
Speaker: we could help with our research.
Speaker: We have about 25 researchers and innovation business development people that really go to battle and try to connect our LPs with our portfolio companies to make innovation a little bit easier for both parties.
Speaker: Thank you very much, Hans.
Speaker: That's a good one to close the conversation actually.
Speaker: Thank you for this great insight that you have shared with us.
Speaker: And we're looking forward to hearing more from you in March at our HSBC Global Investment Summit in Hong Kong, where we'll be discussing energy transition among a wide range of critical topics affecting the global economy.
Speaker: Thank you very much, Hans.
Speaker: Thank you for having me.
Speaker: And I look forward to your summit in Hong Kong.
Speaker: Thank you for joining us at HSBC Global Viewpoint.
Speaker: We hope you enjoyed the discussion.
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