Josh Matthews — Practice Leader, Sustainability, Energy and Utilities, HFS Research[00:21]
Hey, welcome everyone to this HFS videocast. I’m Josh Matthews, our practice leader for sustainability, energy and utilities, and I’m very lucky today to be joined by Masud from Publicis Sapient. Masud?
Masud Haq — Global Practice Lead, Energy Supply and Trading, Publicis Sapient[00:38]
Thank you, Josh. Hi everybody, I’m Masud Haq with Publicis Sapient. I’m the global practice lead for our energy supply and trading, based in Houston in the US.
Josh Matthews — Practice Leader, Sustainability, Energy and Utilities, HFS Research[00:38]
Hey, fantastic. Well, thanks again for joining me, and I know we’re going to talk a lot about clean energy today. Quite frankly, clean energy is confusing. You’ve got fantastic economics for wind, solar, and other clean energy — the best number from the IEA, 2 trillion clean energy versus 1 trillion fossil fuels last year. But you might not think that if you listen to politics, certainly in the US, certainly coming from the oil and gas industry rolling back their investments. But alongside a lot of that rhetoric are a lot of firms accelerating, whether it’s based on economics, whether it’s based on getting the remaining subsidies, which are still there. You have nuclear and battery technology moving forward very, very quickly. And in so many parts of the world, you still have so much political and business support for the energy transition. So what I wanted to ask you, almost from what you’re seeing at various levels with the clients Publicis Sapient works with: how are they managing to navigate the transitions that they know are happening across sustainability, the energy transition, artificial intelligence, new pools of talent they’re trying to access — and how are they doing that across the now, the 3 to 5 year, and from a risk management point of view, the 10 year and beyond?
Masud Haq — Global Practice Lead, Energy Supply and Trading, Publicis Sapient[02:07]
As you mentioned, there’s a lot of political rhetoric around this, which is very confusing, but when you peel that back, there are a few different forces at play. There is the demand in power and energy that’s increasing in general — some of it driven by new data centers. In the US there’s the new regulation with the new administration, which a lot of people are not completely clear how that changes from the previous administration. And then there’s also the perception in terms of what kind of energy I’m getting — more social perception, affordability, reliability, and things like that. So if I look at the policy, what has actually happened is some of the Biden-era Inflation Reduction Act tax credits, for both production and investments, are actually continuing for the next couple of years. At the same time, what the new legislation has done is enabled more tax credits for batteries and nuclear technology. So they’re actually picking technologies — certain technologies where in the previous administration it was technology neutral. So when we look at some of our clients, particularly on the power generation side, they’re actually continuing their investments into generation capacity, a lot of which is wind and solar, there’s battery, now they’re considering nuclear, and obviously the gas-powered plant as well. The other interesting dynamic here is the supply chain. Gas-powered plants, for example, have a backlog of, I believe, about 7 years, which is post the expiration of the tax credits. So people are in fact continuing to invest in wind and solar and looking at nuclear.
Josh Matthews — Practice Leader, Sustainability, Energy and Utilities, HFS Research[03:47]
This is something we focus on a lot at HFS — this idea of transition planning, whether that’s behind the scenes at businesses, whether it’s voluntary disclosures, or whether it’s the publicly disclosed and regulated transition plans. Are you finding, with the energy and utilities firms you work with, where are their transition plans? Do you feel like they have — I assume they know the direction the energy transition is going in. They might not know what the time frame necessarily is, but they know where we’re going to have to end up, and they know very clearly where we are now, even if it’s confusing. So to what extent do you feel that they have that journey mapped out?
Masud Haq — Global Practice Lead, Energy Supply and Trading, Publicis Sapient[04:52]
At different levels. With a lot of these companies, the journey isn’t very clearly mapped out in the sense that we need to be at a certain percentage of renewable by a certain date. What they’re trying to do is a couple of things. One is — even in the US, even outside of the federal regulation, the various states, especially the populated states, have their own regulations that the companies need to meet: California, New York, the New England area, for example. And the second thing is, because the demand is increasing, one of the things these companies are trying to figure out is how to best meet that demand without the prices going through the roof. So as they bring more production capacity, power generation capacity online — many of which are renewables, many of which are leveraging batteries — naturally the percent of renewable in the portfolio does continue to increase, and these companies continue to benefit from the tax credits as well, both for production and investment. So right now, the way I see it is, what is the full throttle ahead in terms of increasing generation capacity without getting caught up in the backlog of some of the traditional gas generation, at the same time making sure that you’re meeting the demand, you’re meeting the state regulations, and you’re constructing or building as fast as you can.
Josh Matthews — Practice Leader, Sustainability, Energy and Utilities, HFS Research[06:35]
I know that a lot of folks listening and watching will want to know — and so many folks from within the energy and utility space who really are sort of hanging on and trying to think that they can make that positive impact from the inside and be part of that transition. So I was going to ask whether this is one company or one client example specifically, or a partnership, or a specific set within the industry. What do you think is the best example that gives the most hope to the energy transition now that you’ve seen?
Masud Haq — Global Practice Lead, Energy Supply and Trading, Publicis Sapient[07:02]
The way I’m seeing it is, it’s quite a few companies, and interestingly, it’s not just power generation, it’s also on the oil and gas side. Folks are looking at carbon capture, they’re looking at biofuels, because those are also incentivized in the new legislation, particularly carbon capture. But coming back to power generation, the two prominent examples are NextEra and RWE. RWE obviously is a German company, but has a large US presence, and they’re building out their portfolio. And NextEra is already the largest renewable power generation company, and they also have a lot of conventional and nuclear assets. What is actually happening is, FERC in the US just recently gave the permits to start new construction, and each of the ISOs and the various states are now putting out bids, or inviting bids, for companies to start construction. The first one is MISO, which a few weeks ago announced that they will accept the first 70 bids for power generation construction. And given the backlog of the traditional or the gas turbine power plants, and given the timeline it takes to build nuclear, a lot of it is in fact going to be renewable energy. Obviously they’ll also do some conventional, because the idea is to meet the demand and to meet the reliability and price regulations from the states. The flip side of not doing that is a lot of these companies like the Googles and Microsofts and Amazons of the world — they’ll start building their own energy supply. They will buy gas, buy whatever power generation capacity they have, and that creates a very interesting dynamic. Now, will they still do that? Maybe. But what we’re seeing is, with these power generation companies, they’re trying to figure out how do they manage the cost, how do they manage the state regulations, how do they manage the demand, and make sure that their internal operational cost isn’t going up and they’re still benefiting from the tax credits.
Josh Matthews — Practice Leader, Sustainability, Energy and Utilities, HFS Research[09:49]
Well, at the risk of hyping up one company too often — other energy companies are available — but no, NextEra I’ve used as an example for some time. I think they’re definitely a standout. I’m going to say, sort of 3 to 5 years ago, they disclosed their transition plan for pretty much the entirety of the energy transition, or certainly the decarbonization point of it, in working on the transition for 40, 45 years. So I would highly encourage anyone out there to go and check out NextEra’s transition plan. But as more time goes on, you’re starting to see more examples, especially in the financial sector, saying this is our transition plan, this is how it links into power generation, into oil and gas. The Science Based Targets initiative has just released their new power generation standard as well. So these regulations are back on the table in the UK — voluntary standards, regulation in law — it’s coming down the line, we know where it’s heading. And again, all power to the companies who are trying to get ahead, and to you and Publicis Sapient to try and help them as best as possible. I will finish on one last question: is there anything you feel that I should have asked, or that we should have covered today?
Masud Haq — Global Practice Lead, Energy Supply and Trading, Publicis Sapient[11:10]
I think we covered a pretty broad base. One thing I would add — and it could have been a question, but I’ll add it anyway — is really the challenge of getting your conventional and renewable both serving the demand needs. What I’m getting at is, there does need to be an integration between the traditional IT technology and the operational technologies, which are actually operating the assets. As you know, the renewable powers are not necessarily dispatchable, meaning power generation happens when the sun is shining or the wind is blowing. So how do they manage that? By having the conventional generation in parallel. But what we’re seeing increasingly, and with this new legislation from the current administration — it’ll help — is bigger investments in battery technology, so that the renewable assets do become dispatchable. So having that — it’s not just about generating and dispatching and billing, but it’s also integrating with the new technologies such that you’re actually meeting the demand curve in the way that the consumers and the companies need.
Josh Matthews — Practice Leader, Sustainability, Energy and Utilities, HFS Research[12:37]
Yes, well, we’ll save digital grids for the next time. But no — if anyone ever asks me what within the energy transition to focus on, I always tend to go to some form of battery technology in some part of that problem. I hope, on the investment in the technology side, we are at the start of that exponential phase, but I think there’s a lot more work to do. We’ve solved quite a lot on the technology side — solar, wind — to make it more efficient, install it, upgrade the grid, but the battery technology side… if anyone out there is looking for a place to throw their innovation, their resources, you could do a lot worse. But thank you again, Masud, an absolute pleasure talking to you as always, hopefully next time in person.
Masud Haq — Global Practice Lead, Energy Supply and Trading, Publicis Sapient[13:04]
Thank you, Josh.
