EDP Focused on Developing US Assets, Not Buying New Ones

The market gave you a bit of a cheer. Yes, Sir. You’re becoming more focused on what it is that makes money. But you did cut your guidance on the renewables business by 25% over the next couple of years. Was that just a Truth and reconciliation moment for you or what? What is it that led to that quite dramatic cut? Hi, good morning and Menace, It’s a pleasure to be here. I’d start off by saying that it’s really reacting to the current market environment. I mean, clearly we’re seeing energy prices have come down dramatically in Europe from where they were sort of a year ago or two years ago. And on the other hand, we have interest rates at higher for longer. And I think that’s particularly true in the US even in Europe, there’s some expectations they might come down. But in any case, we are seeing this cost of capital being higher. And so we’re obviously very focused on keeping a solid balance sheet, triple B balance sheet. We have a strong dividend policy as well that we are maintaining. And so we’re adjusting our investment basically to these two factors. And and basically it’s still going to be a very strong growth plan. We’re talking about €17 billion that we will be investing over the next three years and a very strong compound annual growth rate sort of in the double digit. Look, your headwinds are significant. Spanish electricity prices registering negative for the first time. Portuguese prices are on the floor. I mean are you trying to call, nobody can call the bottom of the top of a market, I’m not going to ask you something as banal as that. But is, is this the worst kind of case scenario that we’re in at the moment? Do you see this as being a flaw in prices? Well, I think it’s down to levels that we had sort of pre pandemic and pre energy price, pre energy crisis. And so I think it’s levels that we could consider would be sustainable over the long term. Now obviously prices can fluctuate and who knows where they’ll be in six or months or in a year’s time, it could be up or down. But let’s say this is a more reasonable level. Clearly a year ago we’re seeing much higher prices, not only at the time but also for 2425 and 26 and that has come down significantly. And so I’d say at these levels we feel comfortable that you know it won’t deviate much further from this, certainly not on the downward side. But let’s see this is very dependent on gas prices as well as in in Europe. And gas prices as you know have also come down dramatically in Europe as a result of much lower demand on one hand and a lot more supply I think than people were expecting in in a much milder winter. Or perhaps it is that the rampage of the hedge funds in the electricity and the gas markets has abated. We we can debate that on another day. I I’d like to focus on the US obviously here we have the inflation reduction act, much fanfare and and delivery and and and the distance is quite phenomenal. But when I look at the meltdown in the clean energy sector here, the stocks in the clean energy sector here over the past year, how much of A cautionary tale is that? I mean that’s a market reaction, but how much caution do you have about expanding in the United States of America? So we, we think that the US is a fantastic market for renewables. We’ve been in the US since 2007. We’re one of the top five renewable players in the US and we continue to see very strong growth prospects going forward, particularly with the inflation reduction Act. I think there was quite a lot of hype. You know, as cycles go, there’s a lot of hype back in 2021 and 22, obviously with the new administration coming in 21 and then Inflation Reduction Act in 2022. And so that was built up. I think things have recalibrated and what we’re seeing is that the credible players such as ourselves, I think, you know, we are in here for the long term. And so we didn’t maybe get carried away with the hype, but we’re also certainly not depressed and we continue to see very attractive projects. Perhaps this is one of the better times that we’ve seen for investing in the US very high single digit IR Rs, you know so for the winds and solar projects and also for storage. So actually we’re quite optimistic about the prospect going forward in the US Well you talked about a strong balance sheet and then the corollary to that is you you must be ready to use some of the dry pilot or on the balance sheet. So Are you ready to bid for energy projects here if you have to have a choice on how to grow the business here, will it be through bidding for let’s say wind and wind energy offshore? Is that the plan to be more deploying of capital here in the United States of America? So about 40% of our overall global investment goes into the US and as I said, we’ve been in the US since 2007. We’re based out of Houston, but we’ve got projects in, in more than 20 different States and we are particularly strong in winds, but we’ve got a growing presence also in solar and in storage. We also have offshore projects, particularly up in Massachusetts. We have a big project called the South Coast wind. We’ve got one and Are you ready as well? The question is really Are you ready, Are you ready to actively buy more assets here not by but developed. We’ve been investing. So organically we have a good portfolio and that’s what we’re focused on. We’re not focusing on buying other assets. We’re you know focused on developing our own assets and we think that’s where we’ll get the best returns, which then takes me to the to get your opinion on the inflation reduction act. Much fanfare, much hype as you say a couple of years ago. Reality and delivery is something different in in a succinct answer if you can. Is the Inflation Reduction Act fit for purpose? Is it working efficiently You’ve interacted with it? Give me your take. Definitely very fit for purpose. Long term plan gives you know predictability and stability in terms of the investments for renewable companies like ourselves. And so clearly something that you know was a big consequential piece of legislation that we fully support. The risk is this that you have either Biden Mark 2 as we go into 2025 or we have a new administration and with the potential of a Trump administration, there are risks to the IRA. Would that materially, do you think that could materially impact renewable investing in the United States of America if there’s any step back from I or a or would it materially impact you? I you’ve said to me I’m here for the long run, but if the policy changes, you must adopt for sure. But I mean we’ve invested throughout the Trump administration and we had a very successful run also in terms of growth during that period. You know, so definitely the Inflation Reduction Act is something that we think will be there independent of the administrations that are strong, I believe nowadays bipartisan support for the majority of it. They might play with it some at the margin, but if you think that 80% of the of the investments coming out of the Inflation Reduction Act are actually going to Republican states, I think that says a lot about say the the buying in terms of keeping it instead of in place. Some of our biggest markets are Texas, Indiana, you know, deeply Republican States and where we’re creating jobs, we’re creating employment, you know, sort of cheap energy, you know economic growth. So why wouldn’t you keep it? Well, if it, if it’s not broken, you know, don’t some people say don’t tinker with it and just let’s close off here. We debate inflation every day on these TV shows. We get together with CEO’s like you and we get a sense that the supply side of the inflation narrative, those bottlenecks, has abated. If I look at your supply chains, do you have enough of everything that you need on solar panels and wind turbine equipment? Is there any kind of shortages for you that can perhaps stymie your development and your growth plans? I think the industry is in a much better place now than it was over the last two years. I think over the last two years, particularly in the West, there was a severe shortages of of solar panels for example, most of them were being imported. There are things like the Yoguri Forced Labor Protection Act which imposed much more stringent requirements on the importation of solar panels and that’s slowed down substantially the let’s say the, the build up of that supply chain that has now changed with Pivoted. We now have several suppliers, most of them US based. And so to the extent that you know we can continue to supply our projects in the US with US made panels, you know I think that’s a big part of de risking our supply chain. Obviously there is also an issue around price. So it’s not just a question of you know can you get the quantities necessary, but what is the price. And obviously the US has imposed also tariffs and so that has driven up prices. In any case we are seeing people relocate and the IRA, the inflation reduction Act provides a lot of incentives for projects and panels and supply chain. So that is actually based in the US So over time we think that the cost will continue to come down and it will be you know competitive as it is with them in other regions in other parts of the world.