Sustainable Infrastructure Investing with Petya Nikolova, Head of Infrastructure Investments, New York City Retirement System, Office of the Comptroller. Maureen O’toole, Head of the Americas Investor Development Group, Actis. Pieter Houlleberghs, Director, Investment (Energy & Environment), Temasek.
Moderated by Caroline Abramo, Founder & Chief Investment Officer, Panal LCE.
PRESENTED BY
SPEAKERS
Petya Nikolova
Head of Infrastructure Investments
New York City Retirement System
Maureen O'Toole
Managing Director & Head of the Americas Investor Development Group
Actis Advisers
Pieter Houlleberghs
Director, Investment (Energy & Environment)
Temasek
MODERATOR
Caroline Abramo
Founder & Chief Investment Officer
Pana LCE
TIMESTAMPS
EPISODE TRANSCRIPT
Caroline Abramo: (00:08)
Hello, everyone, it's great to be here. And what an act that we have to follow. I obviously wore the wrong jacket today. But hopefully you'll forgive me. I'm Caroline Abramo. I'm the CEO and founder of Pana (Low Carbon Economy) Investments based here in New York City. So thrilled that we get to have this event in New York City. And I really thank the whole SALT team for giving us this opportunity to talk about what we think is the best investment opportunity of our lifetime, besides Bitcoin, of course. And so I would love to bring you in and meet the panel, we're going to talk about a lot of what I call macro ideas about the space. Pana, our firm, is dedicated to what we call growth equity. So we're really bridging some of the breakthrough technologies that have been developed to reduce carbon in all our major supply chains. So all of our real assets supply chains, getting them to the stage where they could be deployed into large scale infrastructure. And that's really the topic is really, infrastructure.
Caroline Abramo: (01:13)
And my esteemed colleagues will talk about how from their perspective as both asset managers and investors, they're actually doing it. They're actually making investing, they're making investing decisions, and really bridging sometimes what the gaps are between the way government supports some of these technologies and these infrastructure, investments, the role of corporations and the private sector. So we'll talk a lot about all of those. And so without further ado, I want to introduce my panel. So each of them is going to tell you a little bit about their role and something fun about them. So Petra, if you can start.
Petya Nikolova: (01:52)
Thank you, Caroline. It's a pleasure to be here, good afternoon. I'm Petya Nikolova. And I lead the infrastructure asset class with New York City Retirement Systems. New York City Retirement Systems are the fourth largest pension plan in the US. Currently, we totally went over 260 billion. We invest across a variety of private markets but for the purposes of this panel, the infrastructure would be the most relevant one. Infrastructure, we started around nine years ago and we continue to invest very actively across different sectors. And as we'll discuss later on, a lot is going on in the sustainability space.
Caroline Abramo: (02:39)
Thanks, Petya. Maureen.
Maureen O'Toole: (02:41)
Hi, I am Maureen O'Toole and pleased to be here and not in Las Vegas, I will admit. This is always a great conference. I started attending years ago on the hedge fund side, I spent all of my career in the alternative investment world. Two years ago, I joined Actis. We are an impact and private capital manager based in London. What I'm excited about is to tell you more about what we do at Actis and to raise the level of awareness around what is achievable, both in terms of getting really good market rates of return. And in terms of taking a look at what the leave behind effect of your investments are on the ground. I was thrilled to get to Actis because I had been hearing about impact investing. We hear all these terms, ESG, sustainable investing, and Actis has a 70 year plus history in this area because they were originating within a development finance institution in the UK actually. They started a private capital investment arm within a DFI, to show that market rates of return can be made, exits can be made in developing markets.
Maureen O'Toole: (03:56)
And so I think that will be the angle that I will take today. We did not start as a carbon neutral or a carbon type of an investment arm, we started to bring power to people who don't have power. When we started there were nearly 2 billion people in the world that didn't have access to electricity. Today, there's approximately 1 billion. Great tailwinds, great supply, demand and efficiency and a great way to make market returns for our clients.
Pieter Houlleberghs: (04:25)
Great. So hi, everyone. I'm Pieter Houlleberghs. I'm with Temasek, the Singapore based investment firm. In the New York office, I lead our energy and environment practice for the Americas. So that includes clean energy, water, waste, really, energy transition and circular economy focus thematics, both private and public sector investments. And I've been with the firm for eight years, spent eight years prior to that also in the energy sector. And I have been thrilled to be part of a firm that's been transitioning and helping to also help industry transition as we Look at decarbonization as a massive investment opportunity, which simply makes sense. And I think as Maureen said and I quote, "We're also very much driven by that huge opportunity and excited to share a little bit more about it today."
Caroline Abramo: (05:15)
Thanks. So it's great. Well, didn't hear any fun facts. So we're going to get back to that, because you're not eluding me. So Petya, just started with you. Just wondering how the firm got comfortable with this specific investment area and the transition to a low carbon economy, and how your investments look versus what was currently in your portfolio, and maybe what's still in your portfolio and how you're thinking, potentially of transitioning all of it to a low carbon economy.
Petya Nikolova: (05:43)
Yeah, absolutely. And I'll start with a little bit of a bigger picture above infrastructure. So what do we do as an organization at the plan level? What we have done is we have divested a few of our boards from fossil fuels. But we also started investing and that is, the more interesting piece. We have tripled our investments in sustainability over the last three years. Again, at the plan level, for infrastructure, specifically, the dynamics has been extremely interesting. And that's to the point that both Maureen and Pieter made, which is that without necessarily focusing from the very beginning on sustainability, and the infrastructure portfolio as we as an investor could invest across a variety of asset classes, more traditional ones, like transportation, or the newer ones, like digital infrastructure. And yet, we invest primarily to funds. So where the opportunity has been, it has been renewables and sustainability. So our portfolio has very organically grown in renewables, and they represent currently the largest portion of our investments.
Petya Nikolova: (07:14)
And if we add other sustainability themes, like energy efficiency, or battery storage, it would be one larger portion of the pie. And I think the key here, Caroline, to your point about how did you get comfortable is based on returns, they are money to be made there. And we go through a very thorough process of due diligence to understand exactly the risk and return profile of this investment. And so far, it has been a great opportunity.
Caroline Abramo: (07:57)
Yeah, that's really helpful, Petya, and to know that with solar and wind that we're on a trajectory of spin started that 20 years in the making. In terms of achieving the right level on the technologies and derisking them, so that now that they're considered a basic infrastructure. Maureen, in terms of Actis, and how you taken advantage of, let's say, the renewable sector, maybe you can talk about your focus, and where it is. And we'll go back to you, Petya in terms of just geographies, like being in New York City, are you focused only on the US or is it a global mandate? But Maureen, if you could talk about your portfolio.
Maureen O'Toole: (08:43)
Right. So as I said, we're a power generation company are the area I'm going to talk about, we do other things, we do digital and data center, but for the sake of today, we'll talk about the power generation. As I said, we didn't start doing renewables because they weren't affordable. So what's so important, and I think so exciting for investing right now is we just we're raising a fund right now it's done. And this vintage year of ours is going to, I think be one of the most transformative when we started our first fund 15 years ago, we were doing thermal. We were studying wind and solar the minute they got affordable, the minute that their cost per kilowatt hour dipped below that of coal, which is just sort of the base case, we were able to pivot very quickly. What's so exciting today and we'll touch on it, I hope, is the new work that's being done in the renewables that will propel us for tomorrow. And that's going to be primarily in battery and storage and perhaps hydrogen as storage.
Maureen O'Toole: (09:40)
What we do right now, as I said is wind and solar because the minute that that price became affordable when you have input that costs zero, sun cost zero, wind cost zero. That is the most affordable way for an emerging market to bring power to its people. So today we build large scale solar and wind plants. We have our offices in 17 markets around the world we invest broadly throughout Latin America, Africa, India and Southeast Asia. We do nothing in the developed markets because of our history of being part of that DFI that focus primarily on the emerging markets. And in so doing, we keep track of how much carbon are we reducing out of the atmosphere. Many of the places that we... In fact, does anybody know how much of the world's power is still generated by coal, 30%. Go to a country like India, almost 90% of electricity in India comes from coal generation.
Maureen O'Toole: (10:41)
So I go back to when you're an investor, you should be looking at where that supply demand imbalance. And how can I take advantage of this huge transition and transformation that is going to occur? Yes, we will have infrastructure investment in the United States. And yes, we will continue to build renewable power, but the biggest opportunity from a global carbon impact. And from a life impact is bringing electricity for the first time to people or bringing industrial electricity so that you can actually have urbanization and improvement of lives. And taking that carbon out of the world's atmosphere because it is a world measuring problem. I'll give you one more stat as we measure it, and metrics are important. Greenwashing, impact washing, all of those things are very real. So we keep track and we compare, if this hadn't happened, if we hadn't opened a move from coal to natural gas, what would the carbon emission have been. And we have, since our inception, taken 15.7 million tons of carbon out of the atmosphere.
Maureen O'Toole: (11:43)
That's just us, we're only a $16 billion firm. So it just shows you the power of what can be done in renewables where 1 trillion has been invested over the+ last 10 years in renewables. And the estimate is we need 20 trillion to meet that demand in need, especially in the demographically driven emerging markets over the next few years.
Caroline Abramo: (12:06)
And continuing with that one, thanks, Maureen. At Pieter, since Temasek, is based in Singapore, however, global reach, and to some of Maureen's comments about the amount of carbon that just Actis has been able to reduce over their time in wind and solar, maybe you could talk about some of the other areas that you're looking at. And maybe the entire, let's say, carbon balance that we are trying to reduce. So how much carbon are we really talking about. And maybe aligning with a lot of folks have heard about the Paris accord goals of 2050. And aligning with those goals, which are, the subsequent result would be to not raise surface temperatures by 1.5 degrees. So we'll get into that later. But Pieter, maybe talk about some areas of focus.
Pieter Houlleberghs: (12:52)
Yep, sure. And that's hugely in focus for us, I think. I would start by saying that as well, that the cheap clean power is certainly the fundamental building block, which everything else has to ask the stem from. But as we look beyond that, we look at really industry, transportation and materials, it's kind of the main other areas where I spend my time. And in industry, it's really the non-electric emissions. So heat or process emissions that do present fairly low hanging fruit opportunity as well to decarbonize and also increasingly an economic one. I think you've got a sort of trifecta of policy, as well as the actual technologies are starting to mature to a point where they make sense and they've derisk. And as well as in the fundamental building block that I started with, which is the Clean Power. So I think that those three together are unleashing business models that are ready to scale. And in many cases, in our view, the challenge is largely a business model and execution challenge.
Pieter Houlleberghs: (14:01)
So really pursuing that and supporting the management teams that are looking to seize that opportunity as what we feel passionate about and also working together with other investors. And really kind of trying to get to the right answer, which is, as Caroline mentioned, sort of really the overall climate objective that is at this point relatively well known and understood, but it's extremely challenging to achieve. So we'll take a concerted effort and a coordinated effort to be successful around. So, the industrial fees is an area that I spent a lot of time. Transportation and materials are also duty of interest. I think that the risk profiles change in each of these areas. Materials is a space where, I think it's intriguing that there's much less need for policy than we're seeing in perhaps, the energy or industrial decarbonization space. There's huge pull from corporates that are willing to co-develop with technology companies, and really provide that line of sight to fairly long dated offtake at scale for some of these facilities that are again built out, which then gives investors the comfort to underwrite and really get these breakthrough technologies off the ground.
Caroline Abramo: (15:23)
Yeah. Thank you for bringing that up. So in terms of, in light of not having incentives, so... Because a lot of people will get nervous about this space by saying, "Well, if there are government incentives like we started with wind and solar, I'm not comfortable with that. Government's could change those. That's not an investment risk that I'm willing to take." However, when we look at some of these other areas that we're looking to decarbonize, that are sort of the kind of the big ones that are the most carbon emitting. We see that companies that have good operating margins, and that they can exist incentive free so they can have 20, 30, 40%, 50% operating margins outside of an incentive scheme. So and that's, I think what Pieter is referring to. And maybe I'll get him to, he can talk a little bit more specifically about a few of those or at least one of those examples. Like some of the industries that we're trying to decarbonize. Like cement, steel, glass manufacturing.
Caroline Abramo: (16:18)
These are the big areas where there is big carbon emissions. So I don't know if you can speak a little bit more about maybe a technology or a group that you've seen and how that's playing out.
Pieter Houlleberghs: (16:31)
That question sort of touches on the aspect that I think is important to highlight in this panel, which is really the stock and flow example, right? So we have this huge capital stock that's out there. And is really, in order to move the needle quickly enough, I think, looking at the flow of new solar and new EVs and all that, is hugely important and will be an attractive investment opportunity. I think there's a second piece, which is really looking at the existing stock and finding the technologies that can be retrofitted or cleverly integrated into those, whether it's factories or other types of infrastructure really smartening things up, doing carbon capture. So I think what Caroline was encouraging me to speak about is the carbon capture piece which is, clearly can be done directly from air or from point source at industrial sources of emission, which is the latter part is an area that I spend quite a lot of time on and excited to really be digging into that space because it's very multifaceted, I think, capturing the carbon is one part of it.
Pieter Houlleberghs: (17:37)
So going up to being able to offer a cement company or an industrial gases business that's got a hydrogen manufacturing facility, offering them as a service the ability to, without messing with the process that's there, the industrial process that's clearly very delicate to retrofit onto that carbon capture technology that is in and of itself a viable economic proposition for the investors putting up the capital, we are very close to that really breaking through. And I think we're working hard to really make that into reality, because I think at that point you'll unleash a ton of capital that's ready to be deployed into that space.
Caroline Abramo: (18:23)
Yeah. And for I guess, just to scale things when we talk about early days solar and wind being relatively expensive. Maureen's talking about how we've derisked it, similarly with this carbon capture technology most of it from direct air capture, which literally is taking carbon out of the air. We're talking about 200, $250 a tonne that would make that economic. However, one of the opportunities that Pieter's working on, I'm working on too in the terms of point source capture can actually be feasible and profitable at $50 or $70 a ton. And that's actually directly relates to in the US some of the the legislation that's underway. Not just under Biden, but in terms of what's been happening with some tax credits, with the 45Q tax credit, which currently gives $50 a ton credit to people that develop some of this technology. So, just for an example and a level setting, and in terms of how these things are becoming very economic and profitable.
Caroline Abramo: (19:23)
So there's definitely now a derisking piece that's happening. Petya, how would it be, so for you and the plan how would it be to start thinking about some of these new technologies? Kind of what's the process? When you put them all against each other in terms of risk return, how will you start to think about some of these newer areas?
Petya Nikolova: (19:51)
Yeah. It's an interesting question because on the infrastructure side, we like a lot of the technology risk being taken out of the deals. The role of infrastructure in our portfolio is capital preservation, stable and predictable cash flow. So it's an interesting balance. And at the end of the day, it's a question of how it is derisked? So if there is another party that takes this risk that possibly make the deal more appealing from our perspective on infrastructure. We also collaborate with our private equity team so that we understand their themes and growth equity, we don't do venture. But we collaborate with them just to get an understanding of how the space looks like today and where it's going tomorrow, what the impact might be on our infrastructure deals going forward. So that's how we're thinking about it. It's not a very well defined process, it is just something that we try to look through and think about as we see new technologies emerging.
Caroline Abramo: (21:20)
Yeah. I think, another part of that and that's great that you mentioned just in terms of that derisking piece of the kind of in these opportunities the offtake agreements. So when you have wind power, if you can sell your power forward for 20 years, 30 years, it's becomes a stability of cash flows, which for that an investment makes it much more palatable, where... And if government's not there, then who's going to step into that? And what we've seen, and I think the whole panel seen corporations are stepping into that now, because there's a real desire from corporations as they put out their carbon reduction goals for 2040, 2050. To actually now, they turn around and say, "Well, how am I going to actually do this? How am I going to look through my supply chains, look to my head of sustainability, and carbon do this?" And so there's basically a lot of investments that's going to happen. And then if they will then purchase whatever materials that would be sustainable or carbon reducing, in a longer term fashion, and even at a premium to the existing products that are out there.
Caroline Abramo: (22:24)
So we call it green premium, that can stabilize these transactions. And that's, by and large, what we're seeing with lot of this. And where can get around some of this technology risks that Petya is talking about. And I would say, and Maureen I don't know what your experience is. I mean, you have tons over the years. Just this concept of technology risk. I mean, and how in infrastructure, this is not something you'll go to seven, eight, nine, 50 managers and they'll say, "In infrastructure, we don't do technology risk. If we want to invest in this company, they have to have the force for projects done and they have to be EBIDTA positive and all that kind of stuff." And maybe you can address some of that a little bit more. But that's just me, please. Take it from me.
Maureen O'Toole: (23:10)
Yeah. Okay, so a couple of things there. And I had a couple of thoughts while Petya was talking too. And let me pull a few things together. You mentioned power purchase agreements. So I think the important thing for those of you who may not know in the audience is that you can get 20, 30 year agreements, primarily from governments as to what they're going to pay you for electricity. There are publicly run auctions, these are all very transparent. They're online. I mean, one of the things that we get of course is, "Oh, all emerging market is corrupt." Well, okay, I live very close to New Jersey. Sorry, to anybody who does. But, yes, there's ways of doing business around the world. These are publicly available auctions. You see exactly to the penny who want a PPA. You have that long term cash flow, which enables you then to run your investment models and know exactly how you're going to build something and have this profitable cash flow stream. My firm is run by a bunch of engineers. I'm one of the few finance people so it's a bunch of engineers.
Maureen O'Toole: (24:12)
So they build stuff in complex markets, and they know how to do that. The new technology, and I think the thing that becomes very important, and again, I'm only speaking for emerging markets. We are profitable without government subsidies. Now what we do have in our markets though, is the very critical partnership of the world development money. So think of the World Bank, think of the Commonwealth Development Corp, CDC out of London. Think of the world that is trying to channel low cost loans to emerging markets, to improve the quality of life writ large. And power generation is one of those. So you have as a carrot and a stick approach. And we mentioned government, we mentioned corporate and the importance of aligning all of these to get it right. And again, I go back to we are at a glorious moment in time where I think there's going to be so much dynamic happening. We don't invent things in emerging markets, we need them to be invented and tested out here and then we take them there.
Maureen O'Toole: (25:11)
But we right now are very excited about the nudge that certainly the Paris Accord and the upcoming COP26, which you're all familiar with, is going to be happening in the first week of November. And these are all regulations that will push and continue to push towards the technologies and the broad implementation, that will help the profit seeking money to go afterwards. So I point to India, their renewables goal has gone up, I think it's like 440 gigawatts or something by 2030. So you have all these countries now putting 2050, 2030 goals out there. And the amount of wind turbines, the amount of solar panels, the amount of cobalt lithium that's needed to get there is almost insatiable. There is a supply demand problem even with that. But the opportunity set is there. And what we are very strongly looking at is, we do solar and wind. Fine, we're there. Two things to let you know. Wind blows harder, sun shines brighter, south of the equator. So you put a wind turbine in Germany, and you put one in Brazil, it is going to be three times more efficient and effective in Brazil.
Maureen O'Toole: (26:32)
So it's a slam dunk that renewables in certain areas, and that's what we're specializing in, right? You're not going to go put solar in someplace that rains a lot. You have to put it in the right place in our markets. But it can be so much more productive, and with that carrot out there of low cost loans to a government, to go ahead and build out their green infrastructure because of that zero cost input. To work on battery, need 24/7. You can't have a hospital running just when the sun is out or the wind is blowing. So we do you use natural gas as a transition fuel, which I think is a very fascinating topic as well coming up to COP. And you have that ability to really do both. So I guess the carrot and the stick thing in our markets is working exceptionally well. And the minute that any of that other technology gets affordable, the opportunity to implement on a broad scale is phenomenal.
Caroline Abramo: (27:29)
That's terrific. And that makes, Petya you know where I'm going. So that, in terms of some other areas for baseload power generation that are carbon reducing, and maybe don't have the regulatory support that wind and solar already have. So things like geothermal, kind of how is that progressing as one topic and then the second topic I want to bring up with you is some of the other big carbon emitting sectors like plastics. And then the insatiable, as Maureen said about insatiable demand for certain things. Insatiable demand from consumers for sustainable packaged goods, for alternate proteins. So just to to tie into some of the themes that even we've heard at the conference yesterday, who was a great panel on alternative proteins which is really cool. But Pieter, what do you what do you think?
Pieter Houlleberghs: (28:23)
Yeah. And then cueing off the comments that were just made, I think there's sort of three driving factors that I believe are going to generate or generating huge investment opportunities. It's really this decarbonization and then the resource efficiency, as well as the resilience of some of these solutions. I think, we look for things that tick all those three boxes, and I think those are applicable across emerging markets as well as develop markets. And being able to really look on a global basis, I think, help spot the right solutions and then also getting them to the right applications. And one of those solutions where I think there's a lot of good lateral thought that's been applied, and is being applied currently is geothermal. So it's really taking a lot of the innovation that was seen in the shale industry over the past 10, 15 years and translating that across to a sector which had seen less innovation, then perhaps or certainly less of well known innovation that then we seen in solar or wind.
Pieter Houlleberghs: (29:26)
So, really taking horizontal drilling and the cost declines in the oil and gas industry, basically brought into the money, a lot of applications in geothermal that that were previously just not economic. So again, that's just things are entering this interesting window. And if you can get geothermal to work, it is baseload, clean power, which is ultimately then obviates or complements the obvious need for a battery or it complements solar and wind which is intermittent. And really gets us to the last 20, 30% of the grid that has to be decarbonize, that's most challenging. So we believe that that is a fascinating area that's complimentary to the whole suite of solutions that's out there, and spending a lot of time on that space. And in terms of the other industries around, whether it's plastics or more of the kind of agri-food domain, that's an area we spend a lot of time as well. I'll speak specifically to the plastic space where there are effectively bio plastics, whether they're bio based or biodegradable. If we look at the lifecycle of those products, there's huge optionality and opportunities that's embedded in some of the attributes there.
Pieter Houlleberghs: (30:52)
We can think of an ecosystem where, from a food court let's say, all the cutlery and the plates and things are made of biodegradable materials, so then things all get directed into the organic stream. And really thinking about the ecosystem that sort of, how do we solve this as a society really? And that takes a lot of convening power, a lot of different actors that need to come together. And we're proud to play a small part in bringing those together and supporting the companies that are looking to really move the needle.
Caroline Abramo: (31:27)
Yea. That's thank you. It's super helpful. We're talking a lot about carbon reduction, but it's really about environmental sustainability, and like the E of the ESG, which we've talked quite a bit about at this conference. And we won't even get a chance to talk too much about the S and the G. But that's all something that isn't part of our investment processes, which is just kind of interesting to note. Talking about just this, well getting back to the whole geography and the nature of the, where these investments are. Petya, in terms of your portfolio, where do you look? Will you invest, is it only in US, North America, or is it outside?
Petya Nikolova: (32:07)
So we invest globally. And we don't have any restrictions on how much we need to invest in certain geography. Naturally, we try to have a balanced portfolio, which talking about risks also exposes us to different risks and different opportunities set as well. And historically, the city of New York or New York City retirement systems have not invested in emerging markets on the private side. But with infrastructure, given the opportunity set there and Maureen, very well described that opportunity set. And we actually were able to invest in emerging markets in a strategy that is primarily focused on energy transition and renewables. So, very happy to share that we are a global investor, and we were able to invest in emerging markets as well.
Caroline Abramo: (33:12)
And just, I don't know if you personally have an opinion, maybe and Maureen and Peter, of how we're doing around the globe. Where are the most opportunities? And when I say the most it's really... There's tons of options everywhere but how quickly are certain parts of the world, let's say Europe versus Asia versus US moving along with transition, and that can be many things. It could be the legislative part, the regulatory part, it could be where corporates are located manufacturing is. It could just be the consumer sentiment, but what are your thoughts on that, how it's going?
Petya Nikolova: (33:52)
Yeah. It's a very nuanced question, because there are opportunities but also that different returns. And in certain geographies, we see the returns being pushed down. So as we think about Europe and the US, a lot of the areas in straightforward renewables are generating relatively at least for us, low returns. And then you need to go up to the risk spectrum with taking more either construction risk and or development risk to be able to reach some of the benchmark targets. And then when you look globally, more towards emerging markets. Markets in Asia or Latin America, even Africa. There is much more growth, and to Maureen's point, just the radiation is better. I was smiling when you mentioned Germany because 15, 20 years ago in a prior life on the direct side of things, we worked on a deal with Germany, a portfolio of German wind farms. And guess what, there wasn't going to blow so the deal didn't go that well. Yeah. So we see also that contracting structure being different in different geographies, and again, in some of the emerging markets, much longer term contracts with great worthy counterparties.
Caroline Abramo: (35:31)
Now I don't have to ask you about what your worst trade was, but we covered that. Because Petra probably can't say but I can, just in terms of the return she's talking about. So let's say large scale wind and solar in North America, talking about six, 7% type of returns. Obviously, derisked in many ways, but that's... And for many plans, many investors, that's a great bogey. That's terrific. But when we kind of look now, as Petya is saying, and Maureen. Just in terms of emerging markets, in different places, different risks but increasing returns. And this is all kind of absent technology risks. So, Maureen, what are your thoughts?
Maureen O'Toole: (36:17)
So you can still get good returns in the emerging markets, but there's so much money sloshing around. Now, we've got some very dumb money that is coming into our markets, which is always dangerous for two reasons. These are complex markets within which to operate. So we've been doing it as I said, with a 70 year heritage, with a 20 year real track record of doing it. When this silly money comes in, it distorts everything on the ground. The pricing, and the silly money inevitably leaves because they don't do it quite right. So that's a danger that we are seeing right now in operating assets. And we do have two lines of business. We do have operating assets, whereas I think if you were to buy an operating solar or wind farm here, you mentioned six, seven. I think on the pure operation, it's even down to a cap rate of three to four. In our markets, you can still get eight to 10% of a dividend flow on operating. But how we really go ahead and make the money in the 20 plus range for our clients is to take that development risk.
Maureen O'Toole: (37:11)
But like I said, it's not totally greenfield because we've won the PPA before we even do shovel in ground. And then we're a bunch of engineers, so we know how to build stuff. But that still is the type of return profile you should be expecting if you take development risks. The other thing that I'll mention because I'm sure all of you are wondering like, "What about FX risk? What about corruption? What about a coup? What about all these things that happen?" Because that's what the newspaper tells you happens in emerging markets. The World Bank and numerous others has an insurance policy that you can almost ensure, and we do. We are the largest purchaser of these insurance policies in fact. Where you can assure and insure against multiple types of risk. FX is still one that's out there and that yes is something to consider. You get a blend of dollar PPAs, local currency PPAs. There's a way to help with the portfolio construction. Other risks can be mitigated and that's that partnership with the DFIs that matters so much. One more thing I just want to say because we are not-
Caroline Abramo: (38:11)
And define DFI for-
Maureen O'Toole: (38:12)
Sorry. Development Finance Institution. As I said, it's the World Bank's, it's the International Finance Corporation, it's USAID, and every country has these. It would be remiss if I didn't mention the SMG very briefly. It is very possible to go in the ground in these emerging markets, and leave behind not just a great wind farm and good returns for our clients, but a very positive impact on the community. And if you go in with that lens of leaving something positive behind on day one, the added cost to implement is nil. So we build schools, we build libraries, we build water filtration plant, so we de fluoridate the water so the kids don't have bowed bones. And that from day one is part of every project that we do. And that's that element that I think also has applicability as we go to other developing markets, and developed markets. And I think this responsibility and this idea that money can do both, is an unstoppable wave that people now really understand. And it's that having that lens on day one, and building into your model on day one.
Caroline Abramo: (39:18)
Well, I love that. Where a lot of, I think our best known climate advocates like Bill Gates started it was really on a health journey. Which thinking about how these things tie together and thinking about the technologies, about the feedstocks we're using to create sustainable products around the world. A lot of them are bio based. There's a huge interconnection which that's a whole nother topic to discuss. Pieter, any thoughts from your perspective just on geographies? Who's getting it right, who's not? What's happening?
Pieter Houlleberghs: (39:49)
I mean, the thing that came to mind just listening to Maureen's answer was also just the fact that one of the investments that taught me the most was an African gas to power investment, this was eight years ago now. Where just the sort of the, it shows all the good and the bad of the D. This sort of very centralized power grid and the chain of payments that you rely on, and the guarantees that you need to be able to get comfort as an underwriter. And really sort of taking that and then looking at the renewable space, and how can we create a decentralized grid that doesn't have some of these dependencies and therefore can also hopefully scale quicker and grow quicker, I think is hugely applicable in emerging markets, as well as here as we look at resiliency of our own grid and some of the wildfires and other things that are causing us to rethink a lot of that. So, these are all just changes and opportunities which we're trying to try to do our best to capture and and treatise still winds.
Caroline Abramo: (40:49)
So just, we only have about four and a half minutes left, and I want to make sure we... Is there any questions? Which I can't see any of you. But if there's any questions you'd like throw something at me. But maybe kind of last ideas about just cutting edge stuff. And again, many more topics that we can have about hot money, silly money, like SPACs and all kinds of stuff, money chasing tech. But in the next, I guess what's happen, to the panel. What's happening now and maybe what will happen in five years from now. What are your thoughts on some of these technologies that probably we hear about, like nuclear and fusion and hydrogen? Just your thoughts, and maybe how you and your institutions are thinking about things like this, that could be disruptive to some of the things that we're investing in today, or maybe not.
Pieter Houlleberghs: (41:40)
Yeah. I could start, I mean, it's sort of the... I think, disruptive, yes, but also discomplimentary. The energy sector is so big that just one breakthrough isn't sort of going to obviate all the rest, by the way. So we're certainly watching the fusion space and having making early bets, making sure we're sort of on top of those developments. And that's an area which I think we'll be talking about five, 10 years from now and continue to get closer to make another commercial reality.
Maureen O'Toole: (42:11)
I would say don't yet count out natural gas, it's the transition to the wild stuff in 10 years. And there are some places in the world that can't do renewables. I mean, I often find I'm in a geography class where I remind people, "Look at a map, here's Bangladesh. It is swamps and islands. There's 163 million people there. You cannot put solar panels up and generate enough power. So we have to use natural gas." So what we're going to do with this current vintage product, that I think is exciting is we will integrate hydrogen into some of the natural gas pipelines as possible, which will help in the reduction of the overall emissions. I think our thinking in the five, 10 year plus is we do believe someday this concept of the peaker power or the baseline, whatever you want to call it, when it's not renewable. We're very excited about battery. Now that could be traditional batteries as we're looking at them now, lithium, ion. Or it could be hydrogen as a storage as well.
Maureen O'Toole: (43:12)
Hydrogen is not going to be used in our cars. We might use it in cement manufacturing and steel manufacturing. But hydrogen as a battery, I think has great possibilities. We're less excited about fusion, it's a little too far out for us to even envision. And nuclear will remain what it is. Right? And just like good decommissioning of nuclear plants. It's the most clean energy out there.
Petya Nikolova: (43:40)
Hydrogen is interesting. I was reflecting as we were talking about these technologies. And hydrogen was so much more marginal just two years ago. Not talked about in the infrastructure space anyway. And all of a sudden, now everything is about hydrogen. So I think what's fascinating is how quickly some of these technologies become more downstream to your point about more private equity, technology growth equity. And then going downstream to infrastructure. So that's what we are monitoring. And I think there are going to be some investible opportunities relatively soon. Definitely, more quickly than I expected.
Maureen O'Toole: (44:28)
Cost is definitely coming down. I mean, we monitor the cost as well. And you guys might not know but solar wind, the cost is down like 90% from 10 years ago. Hydrogen is on that same trajectory, and it will flip at some point.
Caroline Abramo: (44:41)
Yeah. We're seeing, I mean, and we are a growth equity. We get tend to get involved earlier than in this traditional infrastructure, and it's an adjacency to natural gas and the infrastructure we have in the United States. It is a tremendous growth area. It's a tremendous focus. So when I think about my contribution of this geographic discussion is that, that will be one that I think will get pushed and there'll be initiative from a regulatory perspective. And just really what's in people's current portfolios. So we have 14 seconds left, any questions? [inaudible 00:45:14] I can see you.
Speaker 5: (45:14)
I have a question over here.
Caroline Abramo: (45:17)
Hi.
Speaker 5: (45:18)
Thanks. [inaudible 00:45:20]. Just the presence of activists in the space is that putting a little bit of pressure on sort of time duration and sort of the project expectations here?
Maureen O'Toole: (45:30)
Yeah. Yeah. I'll take that one real quickly.
Caroline Abramo: (45:35)
Yeah. Sure. Yeah.
Maureen O'Toole: (45:36)
Yeah. Activism in the space. Look, we love activists in general. They're good and they're bad. Right? They are no question, a large part of this impetus that we will not see going back on in terms of you name it. Carbon, DNI, all of this stuff. The activists and I would say social media very, very important to keep the thing going. Where I would say, sometimes activists run afoul is let's go to natural gas, okay? It is an important. We cannot just go renewable no matter how much we want to, there is simply a path to get there. And so sometimes I find that activists in their zeal can derail a conversation and prevent... At the end of the day, this is about people and the planet. And how do we go to people in India and say, "You cannot have air conditioning which will improve your quality and your health of life. Because we don't think you should have it." So that's I think, where I think activists, good, and activists can be bad. But a critical element to the conversation.
Caroline Abramo: (46:44)
Go with that. Thank you very much for your attention and looking forward to speaking to you again about this.
Pieter Houlleberghs: (46:50)
Thank you.