June 22, 2022

Ep92: Simon Morrish "650 Leagues of HVDC Under the Sea"

Simon Morrish is the CEO and founder of Xlinks, CEO of Ground Control and Partner at Levitate Capital.

Simon is a serial entrepreneur (he is the founder of amongst others, Xlinks, Future Motors and Skysports) who has invested in and worked with companies such as Excel IT, Solar Ventus, CQC, Survey Roofing and Litter Boss.

Simon started out at Morgan Stanley as a Derivatives Analyst, he then worked at McKinsey & Company. With his wife, he co-founded and directed How-Smart Ltd which was successfully sold to a larger competitor.

Simon holds a Master’s degree with Distinction in Economics, Engineering and Management from Oxford University and a Master of Business Administration degree with Honors from Harvard Business School. Simon was a recipient of the EY Entrepreneur Of The Year™ award for Transformational Leadership in 2018 and was the recipient of the British Business Excellence Awards LDC Entrepreneur of the Year Award in 2021.

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Click here for Edited Highlights

ML: Before we start, if you're enjoying these conversations, please make sure that you like or subscribe to Cleaning Up. It really helps other people to find us. Cleaning Up is brought to you by Capricorn Investment Group, the Liebreich Foundation and the Gilardini Foundation. Hello, I'm Michael Liebreich, and this is Cleaning Up. My guest today is Simon Morrish. He's the founder and CEO of Xlinks. That's a project to build 10.5 gigawatts of wind and solar in Morocco, and bring the resulting power to the UK via an undersea cable. And for the purpose of full transparency and disclosure. I am an angel investor in Xlinks. Let's bring Simon Morrish into the conversation. Simon, welcome to Cleaning Up. Thank you for joining me,


SM: Michael. It's a pleasure. Thank you.


ML: Now, Simon, you are the CEO, among many other things you do, but you are the CEO of this incredible project Xlinks, which is all about bringing renewable energy, renewable electricity from Morocco, straight to the UK, without touching landfall in Europe. Can you give us a sort of thumbnail of that project?


SM: Certainly. So Xlinks really is, is the whole idea around harnessing the sun and believe it or not the wind in North Africa and bringing it to sort of areas which really need it like the UK and other other parts in North Europe, Northern Europe. We have secured essentially 1500 square kilometers of desert in Morocco. It's hard rock surface. And we are putting 10 and a half gigawatts of solar and wind on that site. And so seven gigawatts of solar three and a half gigawatts of wind. And along with some battery storage, we are then running for HVDC cables back to the UK for 8% of the UK's electricity requirement.


ML: Just one second, I forgot to tell you as I as we got started, I have a klaxon here, it's an imaginary klaxon. When we use acronyms. So HVDC, you know what it is, I know what it is, and like half of the audience will know, for the rest of the audience, just give us what is HVDC and then continue.


SM: Forgive me. So HVDC is high voltage direct current. So what we see criss-crossing, most of the high voltage power lines are alternating current. And we transfer voltage at high, very high voltage because it's much much lower losses. Transferring direct current versus alternating current reduces losses significantly more than that. And so by running an HVDC cable back from Morocco, to the UK, which is 3800 kilometers, we basically have 13% losses. So, when we are generating power at less than 10 pounds or $12 per megawatt hour, when you have some like 13% losses, which with with the converter stations bring it up to about 15% losses, it means that, that actually the cost of the renewables coming back into the country is really, really low.


ML: Right, but that's before you pay for the cable and all the other sort of clever stuff that you have to do around that. So talk through, you mentioned batteries, I'm particularly interested, why are you putting the batteries in Morocco? Now why wouldn't you do the cable and then put the batteries in the UK to make the power dispatchable?


SM: Very good question. The reason for that is half the overall cost is the actual cable. So if we think about an overall project cost of around about 16 billion, half of that cost is for the solar wind and batteries. And half of that cost is for the cable. And so by putting battery storage at the Moroccan end, what you're ending up doing is you're smoothing out the supply of of energy and it actually means that the battery storage is much cheaper because you're increasing the capacity factor of the cable. So the capacity factor of the cable would be around about 70% But by adding battery storage, you're up to over 85% And so what you're actually delivering to the UK is equivalent to a firm, flexible baseload power that many in the energy system have confirmed is more valuable to the grid than nuclear power is.


ML: Okay, so you are buffering before it goes into the cables you effectively can keep the cable full of electricity using non engineering terms


SM: Absolutely correct. And what's really interesting about the site, which I must confess, I didn't realize when I first looked into this is the enormous amount of wind power in that area of Morocco. And so whilst you know, we get 360 plus days of really good sunshine a year, what we also get is we get the wind picking up every afternoon, blowing into the evening and night and dropping off at 7am in the morning. And so that, that means it's almost a perfect hedge to solar. And so actually, it allows us to be able to provide that baseload. So it's an enormous wind resource. And just to give you some numbers on there, the capacity factor on the wind resource is 54% at our site, which is compared to 31% in the UK, and matches the very best offshore wind sites around the UK. But unlike those offshore wind sites, which, you know, will blow for a week or two weeks, and then and then not in very, very sort of unreliable in that respect, our site blows every single day. And so it's a lot more. It's a lot more valuable from it from an intermittency perspective.


ML: That's right. So I was looking at some figures recently for offshore wind capacity factors. There's a lot of people out there that think that they're, you know, 25%-30%, maybe 40%, the best wind farm offshore that I could find is actually Hywind of the west coast of Scotland. 57%. But as you say that 57% could be a lot of wind, and then a few weeks of very low wind, whereas you've got this anti correlation with the solar power. And that feeds through into not having to have as many batteries as would otherwise be needed. You don't need two weeks worth of batteries, you just need a number of hours, right?


SM: Absolutely correct. And, and so I mean, this really is a solution is highly complementary to offshore wind. So offshore wind in the UK is incredibly valuable. It's absolutely something we should be pushing forward. But this, this basically buffers and allows and gives us that baseload that we desperately need. So I think, I think National Grid said we need something like 35 gigawatts of baseload by the end end of this decade. And with the majority of nuclear power plants shutting down by then we're really, really struggling to know where that's going to come from. Because offshore wind doesn't, doesn't provide that. And one of the issues with offshore wind is it's very highly correlated. So if it's if it's not blowing somewhere in the UK, it's often not blowing, blowing somewhere else. And also, a local interconnectors don't necessarily help, because they also will suffer from the sort of same low wind output on there. So. So a good example is three weeks in April and September last year, capacity factors never went above 20%, for the whole of the UK for wind. And we would have provided 150% of all the power of all the wind resource during that time. So it's a very, very valuable buffer and part of the overall energy mix that we're going to be providing.


ML: Right, and I haven't seen the figures for the UK, but I have seen some for Germany, which suggests that every year there'll be at least one period when all of the renewables, this wind and solar in Germany, have a five day period where they'll generate, I think the number was 10% of their nameplate capacity. And obviously, five days, batteries cover a few minutes, they might cover a few hours, but they're not going to cover five days. And I suspect it's the same for the UK.


SM: Well, I think you're absolutely right. And this really comes to the whole genesis of why Xlinks. So for me, renewable, the cost of renewables now are lower than fossil fuels in almost all parts of the world, the problem they have is their intermittency. And so you have two pillars to be able to solve that intermittency. One is short term battery storage, which we're seeing is getting rolled out enormously, and the costs are coming down, but that really only solves sort of intraday sort of issue or intraday issues where you've got sort of four hour battery storage. The other part of that solution is, is either long term storage like hydro, which is geographically constrained and and it's quite expensive, or you have long distance interconnectors, where you're effectively moving power between regions to match supply and demand. And you do those two things. And you know what, it solves the whole problem of intermittency for renewables.


ML: Simon, there is one question that I get asked a lot when I talk about Xlinks, and that is, wouldn't it be better if you just brought that electricity across a much shorter straits of Ceuta into Spain, and then it could go through the European electricity system without having to build all this high voltage DC undersea cable and the all of the expense involved in that.


SM: I get asked the same question as well. And there are a number of really important reasons why that doesn't, that actually doesn't work. So one is, the electricity system in Europe is already capacity constrained. So we're... our interconnectors, from the UK to France, everything are already at capacity. And so just simply putting it into Spain doesn't mean to say oh, it comes all the way back to UK, far from it. And in fact, Morocco is already exporting power to Spain through those interconnectors that it has. The other reason is, the UK's requirements for this kind of shape or profile of power is way more than Spain. So Spain already has the ability to produce quite a lot of solar, and other other renewables that can do, the ability for us to be able to provide this firm, flexible, baseload, or whatever you want to call it to the UK is much, much more valuable, because effectively the UK has gotten and I've seen some some sort of projections where it wants to have 80% offshore wind and things like that it needs to have this counterbalance for that. Now, having said that, at some point, if we want to drop in and actually have the interconnectors drop into Portugal, Spain or France on the way, that could be a future project. But you know, dealing with multiple governments and multiple sort of negotiations, that's just not something that's going to going to work for us, and also doesn't work with a CFD mechanism. So that CFD requires it to be exclusive just for the UK, and not to be exported anywhere else.


ML: Right, that's a great explanation. And I usually say, Well, if you did that, it would stop being dispatchable. And it would become variable. And it would become, to a certain extent at the whim of our European partners, whether it was delivered. And then if somebody comes back at me, then I point out that France threatened to cut off power supply to the Channel Islands as part of a fishing dispute. And, of course, you know, having a cable that goes around the outside avoids some of that sort of getting dragged into all sorts of other issues.



SM: And one of the things we haven't really spoken about is security, because that's the other question I get asked is about security. And I say, well, a) anytime that you diversify, your where you're getting your power from, that only increases your security. The other thing is, Morocco is way more secure than Russian gas. And whilst the UK only gets 3%, or did get 3% of its power from Russian gas, indirectly gets a lot more because it's linked into the European energy grid. I think Germany gets 40% or 50% from Russia. It also, I mean, again, and you talk about sort of France, it's a completely independent place, which is very stable, and has real ambitions to be able to be this this exporting powerhouse. And so actually, Morocco is going to do everything in its power to make sure that that it is a really good partner to the UK and the trading relationship. I think actually, we've got the longest trading relationship or trade agreement with any countries, some 800 years or something like that, with Morocco. So there's some deep history with Morocco in that respect.


ML: Good Lord, that's even older than the Board of Trade on which I said, which I think was founded in the 17th century. And of course, the cables themselves. Those are... we do undersea telecoms cables all the time without asking ourselves specific questions about the security of anyone of those. Okay, now, there are some other technologies that could that you'll be competing with to fulfill that role. And I'm thinking of nuclear, and I'm thinking of geothermal and also large scale industrial shutdowns, maybe even overcapacity. But before we get into that, we've got a few more bits of background to add, and you've used a term baseload. And you've said that, and that's a contentious term. I mean, it gets... what is baseload? One person's baseload is the minimum level of power ever needed in an economy. And I think you're using it in the in the sense of, we have to be able to switch 35 gigawatts on demand. So it's really about despatch ability. It's not some mythical line across very often that will be met by intermittent wind and solar and so on. But you you're really talking about 35 gigawatts of electricity that we can turn on when we need it, not when the sun or the wind wants to produce it. Is that correct?


SM: You're absolutely right. And I do misuse the term baseload very slightly because I try and try help people understand, actually, you... it's dispatchable. So baseload is something like either nuclear or a gas fired power plant, which again, is there whenever it's whenever you need it to rather than being intermittent. And so


ML: And Jesse Jenkins, one of the great energy systems modelers that I know. Well, he calls it firm flexible, and I call it dispatchable. But it's the same thing. It's stuff you can control now, what level of dispatchability or what capacity factor will you reach? Because of course, you've got your solar every day, you've got your wind every afternoon and evening, and you've got your batteries. But that won't get you to 100%, will it?


SM: No. So what we've done is we've modeled this and effectively 97% of days, we will be able to provide a full 3.6 gigawatts for eight hours during the eight hour peak provision in the UK. And for 99% of days, we will be able to provide four hours. Okay, and that that is actually better than nuclear in terms of the maintenance and the programs they have. So in that respect, it's it's a, it's a very, very valuable to the grid.


ML: And how much warning will you have when you can't do that? Because that's also a key design parameter, nuclear, although it only has, let's say, 90-95% dispatchability. But generally, you can... a lot of the other 5% or 10%, is planned maintenance, not always, and then it's enormously disruptive to lose nuclear power stations, you know, because of unplanned maintenance. But what's your sort of planned, unplanned, weather forecast? Or what's what does? What do you think that's going to look like? Yeah,


SM: So we will know several days in advance if if there are going to be problem, if there's going to be something that's, that's going to limit the output. And, and bear in mind, it's not, it doesn't go from sort of 24 hours a day down to nothing, it just, it might go down to sort of less than sort of 16 or 15, or something like that. So it should not, it should not be a big impact in that respect.


ML: And and now the the 64,000, or perhaps the 16 billion pounds $64,000, or the 16 billion pound question, what will be the price for the electricity? What price do you need to get for this all to make sense?


SM: Well, I think that's bluntly, that's the most important factor because it's wonderful having these grand visions and ideas and things, but they have to be economic. And so really the cost that we're providing when we're negotiating at the moment with UK Government is a CFD at 48 pounds per megawatt hour, which when we started this off, and before the energy crisis was already well below BEIS' central price projections for the future energy supply, and now is a long, long way behind where things are. So just to give you in comparison, Hinkley the CFD that they've negotiated is 92.50 pounds.


ML: Acronym, acronym klaxon. CFD


SM: CFD. Contract for Difference. So this is this is a very good tool that the UK Government brought in to be able to help renewables lock in a firm price. And so if you think about most renewables and nuclear as well, it has very, very high upfront capex cost and very low ongoing maintenance cost. And so you need to have certainty over what price you're going to sell that long into the future. And so the government brought in a CFD mechanism many years ago. And it's been highly successful for wind where it started at 150 pounds per megawatt hour, and it's been driven all the way down to low 40s now. And so that's what we require, we require a CFD at 48 pounds, and it's effectively we're providing it to the UK consumer at half the price of nuclear with something as valuable or more valuable.


ML: Okay, now, in a couple of weeks after this episode goes out, I'm going to be talking to Julia Pyke who has been pushing forwards the EDF's plans for size was see and so I'm going to kind of ask her, whether she can match that with the later plants because obviously Hinkley was, was the first for many decades to be built, and perhaps not financed well, not financed in a smart way at all. But you're saying 48 pounds, I just want to say a couple of words about the CFDs because it's such an interesting instrument and it's now being used around the world. And in fact, Patrick Graichen talked about it. And Germany has moved to CFDs from its feed in tariff system. So the contract for difference the way it works is that a renewable energy project sells its power into the wholesale markets or whatever. And then if they get less than the contract for difference, the government tops it up and if they get more they pay back to the government. So in fact, it's what we would call in finance a swap contract, all you're doing is swapping the spot market fluctuations into a long term price. And actually, it is now in the money, it was expected that it would always be out of the money that the government would always be topping up the difference between renewable energy costs or between the market and the cost of renewable energy. But actually, at the moment, and for the last, for as long as gas prices stay where they look like being for a while, the government is raking in very large amounts of money from these Contracts for Difference. They're making money in that swap market, aren't they?


SM: Yeah, you're absolutely right. And so whilst I think the government got some amount of stick for the 92.50 pounds, frankly, you look at it right now. And it was a great decision. And, I mean, again, you talk about sort of Sizewell C, you know, this is what the country needs, lots of different options. So I'm very pro nuclear, you know, there's a whole bunch of other things that, that the that, we need to lay seeds for, for doing. And Xlinks is one of those, it certainly looks to me, like the most compelling but it is one of many options. And so as you just like, I think the government did a really good job in terms of the COVID vaccines and placings of several different bets in that respect, and we were able to sort of come out of the gate run sort of very fast. We should be doing exactly the same thing with our Net Zero ambitions and effectively placing lots of seeds to be able to do that.


ML: Yes, I would agree with you. I do agree with you. When it comes to Hinkley C, the 92.50 pounds, of course, was 2012 money. It's already 115 pounds. And because of it's adjusted for inflation, and it's 35 years, and it was accompanied by debt guarantee, I mean, I've no doubt if you were offered that deal today, you would take it all day long, but it's costing the country, still it is it is a very, very substantial multi tens of billions of pounds subsidy. Despite the fact that you know, for a few years, the energy prices will be higher. So I won't concede on Hinkley C.


SM: No. I will, I will give you that one. And again, but it's what you said about swap contract. It all depends on what the market price is. And so and we're having conversations with the government, because at 48 pounds, our argument is this is not a subsidy. Okay, this is so far below, what is the expected market price for the next 25 years, which is what we're asking for that effectively, we are we are paying into the government. And just to give you an example for the last if we had been live the last six months, we would have paid into the government 1.5 billion pounds. So that's the kind of and by the way, the Treasury and Number 10 are really excited about this. And so yeah they're moving that forward.


ML: Right. And so what you're doing is trading off the certainty of revenues against the upside, in order to be able to bring in the finance to get 16 billion of finance and those investors, particularly the debt providers, they don't want to see a revenue line that bounces around with the Ukraine war, and then there's a recession and then there's something else. So they need to have certainty. So to achieve that you're trading off some possibly quite a bit of upside,


SM: Completely. And you know what, and our cost of debt is much, much lower based on that security. So it effectively means by the government doing this, it means that we're able to provide much lower prices to consumers.


ML: Okay, and you are at 48 pounds you're looking for, and you said that I think it was onshore wind, or was it solar? Or was it offshore wind that can do 40 pounds, but of course it doesn't fulfill the same ecological niche in the market in the power markets in meeting demand.


SM: Yeah, you're right. So, so low, low 40s is where offshore wind is, is has been for some of the recent auctions, but it is it is very different. So again, each new megawatts of offshore wind cannibalizes existing offshore wind because it's it's generally what happens in terms of that CFD mechanism is when it is windy, then actual spot power prices are quite low. And so that's when they're receiving money on the CFD sort of contract for difference. And when it's not windy at all. That's when power prices are very, very high. And they have to pay into CFD, but they're not producing electricity. So actually, even at a low 40s. Often, that's still a subsidy because of how that CFD mechanism works. Whilst we're slightly higher at 48 pounds. We are a huge net contributor to the LCCC or that sorry, I shouldn't say lt but that's another acronym. It's the it's effectively it's the government's body for administering the CFD mechanism. And so yeah, we are huge contributor for that.


ML: Right. And in fact, you said something about the offshore wind because it correlates and then the incremental offshore plant might not, you know, it might be cannibalizing, of course, I do have a second klaxon, so which is my hydrogen klaxon. And, and I'm going to invoke it because it's for the first person who uses the word hydrogen. But of course, if we do use offshore wind to make green hydrogen, then you could keep doing that, potentially, depending on the engineering, right the way through very windy periods when the demand when there's much more wind, and then there is demand.


SM: You can and obviously hydrogen is is one of the alternatives. But if you actually have a look at hydrogen, and you know what, and I don't want me to do a plug for you, but I mean, your hydrogen ladder is very, is very, I think, informative on there. But right near the bottom of that is, is using using hydrogen for electricity generation. So hydrogen has much, much better uses in there. And if actually just think about the round trip efficiency for hydrogen, you know, what you've got, you've got the electrolysis, you've got the storage, you've got the transport, you've then got the fuel cell back into power, you will never get anywhere near a price of 48 pounds per megawatt hour for something that Xlinks is able to do. It just in terms of I think a round trip efficiency is around about between 30 and 40% on that, whereas we're at 85%. And so it can't, it will never be able to compare to our product project in terms of providing that baseload or dispatchable electricity that the country needs.


ML: Yes. And when I went through the competing technologies, just earlier in our chat, I didn't mention hydrogen, but we've now brought it in, that was an omission. In fact, on the ladder, long duration storage is actually fairly high up just using hydrogen to generate power to you know, just to shift it for a few hours. You're absolutely right, it's right down the bottom. It's one of the stupidest things you could do with hydrogen. What I've got those long duration storage is actually at the level of I think it's B, in other words, reasonably likely. But by that, I mean, more than 48 hours. I mean, you know, what do you do if an interconnector goes down? What do you do? If there's a conflict? What do you do if there's a really bad wind year? And the answer is potentially we're going to need some form of storage, that gets us through weeks and months. And then I think on that front, Xlinks is, you know, it's not really it's competing in a different part of the of the market, a different type of demand is providing a different sort of resilience. And maybe it'll cost us a lot more than 48 pounds per megawatt hour, if we need that, if we pay for that, by megawatt rather than by you know, telling people to have this much reserve and just sit there and, and sit on it and wait just in case we need it. But if we pay by a megawatt hour, it's going to be much more than 48 pounds, it could even be triple or quadruple that


SM: Correct and effectively without solutions like Xlinks, it means you will need a much much more hydrogen long term storage to make the whole electricity grid work. So effectively, the Xlinks part of that energy mix reduces I mean, we had, we had a study done by Imperial College, which showed that we will be saving the UK consumer around about 300 million a year by this project, on almost all scenarios that they've had a look at. So again, I mean, that's that's thinking about hydrogen, it's thinking about all the different technologies on that respect.


ML: And just for completeness, in my introduction, I explained that I am an investor in Xlinks, and we're going to get on to talk about XLCC the cable company piece. But we also have another, we have a couple of mutual investments. One in one in charging is different. In fact, we we had Pasquale Romano, the CEO of ChargePoint on this show, but there is another one, which is geothermal. And I believe you're a small angel, an angel investor, and I'm chair of the Advisory Board, geothermal competes or Eavor's technology would compete with Xlinks because this firm, flexible or dispatchable, baseload whatever you want to call it power, are you worried about two of your you know, the ones that the business you run and the one you've invested in competing with each other?


SM: I'm always worried so I, I'm always looking out there for what is going to challenge the costs that we're looking for, for Xlinks on there bluntly, I don't believe so. I think as a, as a world we need to be we need to be striving so hard to be decarbonizing and, and it's not about placing single bets on one thing that looks really promising. It's about placing them on multiple things, where I sit at the moment, I believe our cost of generation for Xlinks will be lower than Eavor, but I also think that Eavor is an incredibly important part of the energy mix. somewhere and we need to be sort of pursuing multiple fronts. The other thing that I think's interesting is whilst we're talking about CFD at 48 pounds per megawatt hour, that's for first of a kind. Okay? And just like Eavor, will be going rapidly down a cost curve, we should be as well. And so it's probably a nice link in to sort of the cable is that our current cable, we're doing a 3800 kilometer route hugging the coast of Portugal, Spain and France. For future for future projects, we could go a much more direct route cutting out third of the cable about 25 to 30% of the of the cable route, and at high voltages. And so we believe that future projects could get down as low as 30 to 35 pounds per megawatt hour CFD equivalent, which really is quite I mean, groundbreaking in terms of the overall energy mix. And I don't see anything out there that comes close to be able to doing something like that. So so this is I think it's not just how important Xlinks is. It's actually how important it is for the future. Because I see a world where a little bit like telecommunications cables criss crossed the oceans now, we actually have oceans being covered by these power cables, which move power from areas of demand to supply and interconnectors. So I know we've talked previously about interconnectors between the UK and the US. And that's truly isn't interconnector sort of matching supply and demand when one country is sleeping the other country is, is sort of needing needing that power. And you do that and it just makes the whole usage of electricity so much more efficient. So the funny thing is, that is an idea that was first proposed by Buckminster Fuller, the famous inventor who invented the Bucky, the buckyball, <inaudible> the fuller dome and so on. And of course, was regarded widely regarded as potty. And that brings, which is a English word for bonkers, for those who are listening around the world. But that brings me on I think, let's get back to the cable and how you're structuring the project and what it involves in terms of factories and cable laying vessels and so on. But let's let that's a good time to talk about the genesis of the project, because you sort of hinted that we need to be placing multiple bets. You've hinted at the importance you've said that for the government, but you've also said it for that you yourself are looking to place those multiple bets. Why is this important to you? What I mean, talk about your, your I don't know if it's your main business, but I believe it's your main business, which has nothing to do with the energy sector, at least if I've understood it right? It wasn't originally That's correct. No so so I, so I bought a company called Ground Control in 2004, which is a landscaping business and ran that for a number of years and still still CEO there. And we have built that up to I mean, we should be around about 200 million this year, and the really preeminent landscaping and winter gritting company in the UK. But as part of that, I have always been incredibly passionate about the environment. So we, in terms of that business, we are leading the charge in terms of our industry, we're carbon neutral, two and a half years ago, we'll be net zero by 2025. We have all our managers in EVs. We've got over 200 Teslas. We've built... we've bought a 300 acre farm in Essex, where we're completely rewilding that and  we set up an evergreen fund, where we put 5% of our profits towards sustainability ventures to help the help target of net zero. So I think that I'm incredibly passionate about that kind of thing. I've also set up a number of other businesses, one of which is I mean, I run over a sort of 100 wind turbines in the UK, and various other things on the whole climate, climate piece. For me, Xlinks started at the end of 2018, when I understood just how cheap renewables were in, in North Africa and the Middle East. And so at that point, it was around about $15 per megawatt hour. And I wondered, how do we get that back to the UK in terms of where it's needed, and other countries. And it's, and clearly hydrogen is one avenue, and there are other avenues. But looking at China, they've already got at that stage, a 3000 kilometer plus HVDC cable transporting much higher power and voltage. And it was like, why can't we do something like that? And so it was really researching that understanding what that cost would be and realizing very, very quickly, just how cheap this would be because there's no point having a dream like this if the economics don't work, but almost immediately it was it was utterly compelling. And then I just really had to get my head around do I do I really want to do this and and involve myself with government negotiations and everything else because I know it's going to be painful. And it's gonna hurt. And I thought we know, I think we have an enormous moral obligation as business leaders to do the right thing. And so that's, that's why I'm here.


ML: And it was around that time because we already had met because we had co-invested in ChargePoint and, and so we were working in parallel on a few things. And I remember very clearly, our conversation about this, I thought this was a bonkers idea. I thought it was just I thought it was yes, of course, the engineering works. And maybe even the economics works. But the the institutional barriers, the complexity, I thought was crazy. But I remember that I did introduce you to a great friend, Paddy Padmanathan, who is I call him the Usain Bolt of solar power, because he kept on breaking his own world record for the lowest cost solar plants across the Emirates, across the Gulf. And now right across many countries in Africa and elsewhere. So I introduced you to Paddy, I remember out in California, we were both there. And to my sort of shock and surprise, a few months later, you and he were, you know, deeply in cahoots, and this thing was up and running.


SM: And Michael, for that I'm forever in your debt, because Paddy is one of life's and truly amazing individuals. And he set up ACWA Power about 12-15 years ago, has built $75 billion worth of energy assets throughout North Africa and Middle East. Again, driving down these costs, he's put, I think it's about $7 billion worth of renewables into Morocco. And he's my vice chairman, and significant investor in the business as well. And so, you know...Everything I don't know about this, he does. And he's been there <inaudible>. And so having him sort of beside me, and also helping to build up a team, from true project finance, people who know who know this, in terms of their bread and butter has been super important and very, very valuable.


ML: Right now, talk to me about that team, because you have... I sort of spotted that you turn up with Paddy, suddenly you're working on this. And then I start getting these emails, I was not an investor yet, I started getting these emails from Richard, one of your team. And they are incredibly structured and thoughtful about how to get this done breaking everything down into modules, and so on at that point, that was when I came on board as an investor. But you've also, you've had another major hire, which you probably want to talk about. Talk us through that team and then your your chair?


SM: Well, I don't think it's just one I think I've been very, very fortunate. And I think this has captured the imagination of a number of people. And once they've got they've, they've worked past the barriers and realize just how feasible it is and how needed it is. There's a number of really, really very special people who've joined. So one of those is to Sir Dave Lewis, who's the ex-CEO of Tesco. And again, he's joined as my executive chairman. I'm very, very privileged to have him, he is just one of these incredibly smart, humble, ethical, ethical individuals, and really helps guide me and the team on this journey. Another another person who again, very, very lucky to have is Sir Ian Davis, who was global managing partner at McKinsey, Chairman of Rolls Royce, on the board of BP. And again, one of the preeminent business leaders in this country.


ML: Simon, you don't probably don't know this, or maybe he's told you maybe he hasn't. He was my mentor. When I was at McKinsey, I did a lot of work in the consumer goods group. And it was actually I was quite controversial at McKinsey because I was going off to ski all the time. And there was a faction in the office that thought that this was absurd and ridiculous and tried to sort of get rid of me because I didn't fit their models. And then Ian was one of the he was the leader of the of the lot that sort of, you know, said no, this is what McKinsey is about, you know, Michael is doing his thing, and we're going to enable it, and we're going to create an environment where he can still be productive, and I think I was. So he's been an enormous force in my life, creating that space while I went to the Olympics, and so on. So when you next see him if he hasn't told you that, tell him thank you for me, and I can't wait to see him.


SM: He hasn't, but he is another truly special individual. And then, and then we're also joined by sort of Paddy's number two at ACWA Power. Rajit, who's, again, who basically side by side with Paddy has built all of these billions of dollars of energy assets. And then we've got in terms of the actual core team Dayae in Morocco who's our country lead and chair over there. She's done an incredible job, working with the Moroccan government, securing all the land getting the 1309 law change to be able to to export all this power, and we've we've got an incredible relationship with the Moroccan government. And that is that is hugely down to her. We've also got Nigel Williams, who is basically building out our cable for us. He was the project director of North Sea Link, which is today the world's longest subsea cable that's connecting between the UK and Norway. And so he's looking to break his existing record.


ML: Another so he's, he's going to be the Usain Bolt of undersea cable.


SM: He is, and again, hugely privileged to have him. And just as a slight aside, because I think it's it's probably useful for your reassoning. I mean, that North Sea link is an interconnector is incredibly valuable. And it took years and years to get past the shall we build it shalln't we build it, you know, the negotiations between Norway and the UK. But since being built, effectively, it allows Norway to act as Britain's battery for the excess wind power. So whenever there's excess wind in the UK, it'll export power to the hydroelectric dams in Norway, and vice versa. Now, really, for the last six months, most of its been traveling one way from Norway to the UK because of the the energy crisis, but it's an incredibly important link, and shows how valuable these long longer distance interconnectors are, and bluntly, you know what will have paid for itself in a very, very short period of time, because of because of that value.


ML: Right. And I know it was controversial in Norway, because a lot of Norwegians were worried that their very cheap electricity would be sucked over the North Sea to the UK. And they didn't really see it as yes, but just a minute, those are export earnings. So that's an important economic resource for Norway. And, you know, and Norway, maybe should be generating more electricity from its incredible wind resources and so on. So it's, it's, I can understand why it's taken so long. I do want to get on to the cable. And why XLCC because one other email, all emails, that say marvelous progress. One other email said, you know, almost, oops, we're going to have to build our own cable factories. And I thought, oh, no, that sounds like that's going to be a showstopper. And of course, that's, you know, I think that you've lent in and turned that into another business.


SM: Well, and I think as we as we went through this, and whilst there are no technological barriers, in that respect, there are barriers in terms of supply chain. And so there are three main HVDC cable manufacturers in Europe with combined capacity, which they're building of around about 2000 kilometers a year. Well, we need 15,000 kilometers. And so of cables,


ML: Just explain why you need 15,000. You've said it's 3600 kilometers, why do you need 15,000?


SM: So 3800 kilometers times four. So we're basically a building to bipoles. So one bipole is 1.8 gigawatts, and the second bipole is 1.8 gigawatts. So that's, that's the four cables in that respect.


ML: So that's seven times the annual capacity of cable of HVDC cable in Europe, for just this one project.


SM: Correct. And if you actually look at their current backlog, if we were able to get financial close today, which were not on Xlinks, we're aiming for that in Q4 next year. The current backlog is between four and six years. So we wouldn't even be able to get our first bit of cable delivered for at least four years on that. And so really, we went back to sort of first principles and contacted <inaudible>, which is their supplier that does all of their stuff. And we did a plant definition study. And we looked at how we could do this better. And effectively, what we have designed and, and looking to build is a plant, which is just for HVDC. And it is bespoke to a very low number of products, which allows our efficiency to be much much higher, and really reduce the overall cost of that cable. And so the plant in Hunterston, which we are hoping to get planning permission for or granted next month in June, we'll be able to supply 2600 kilometers per year of cable. So that's already more than the entire European capacity of multiple factories combined, and it will be state of the art factory, high tech. And the lovely thing about that is, is we're building it right next to a Hunterston nuclear power plant, which is shutting down at the moment with a loss of 700 jobs. And we'll be creating 900. So it's a it's a really, really good story on that and then we'll need one other factory as well in the UK and we're currently deep in negotiations with both Port Talbot and Teesside on that one.


ML: And those cables should be using... they use steel, where's that going to come from?


SM: So we'll absolutely, we signed the UK steel charter so and that the steel is just for the armoring on the outside. So the the cable will be using aluminium in terms of its core and XLP which is the the insulator on there, and and then there'll be effectively the steel armoring at the on the outside. So that's that's how we'll be building that.


ML: And of course, no sooner had you resolved all of that, then there come the next set of questions. And I'm observing this as I get my investor updates, which is connectors and cable laying vessels.


SM: Yes, so there's no point having tons of cable if you haven't got somewhere to lay them. So clearly, not only do you need to connect them. So I mean, we will just be using industry standard connectors, but we do have to prove them out for each different cable design. Now actually, the cable design that we're using is identical to one that's already or virtually identical to, to one that's already being used. And being designed by sort of the same same person. But the connectors, we need to prove that these work and so our cable lengths will be around about 160 kilometers each. And so after each 160 kilometer, we have to be able to pick the cable up from the seabed, connect it to the next 160 kilometers, lay it and then drop it down again. And in order to do that, we need a cable laying vessel. And so we have designed and we're currently tendering with the top eight shipyards for building the world's largest cable laying vessel. So it will be about twice the size of Leonardo da Vinci which is Prismium's, state of the art cable laying vessel, which they've just launched recently.


ML: Right. And I have another... incredibly I have two friends who are embarked on these sorts of adventures, you and Mike Cannon-Brookes, over in Australia, who came up with the Sun Cable project to lay a cable between Australia and Singapore. Are you in competition for anything with them? Are you working with them? Are you ahead of them? Who's going to win this one?


SM: We're certainly not in competition. We see them as great friends, we're collaborating on a whole number of things. They've been helping us, we've been helping them. At the end of the day, this both of us we really move the needle on net zero. Because we demonstrate this happens we we supply electricity much cheaper than the alternatives in a clean, renewable way. You know what... My strong prediction is by the mid 2030s? You have tens if not hundreds of these projects sort of starting up all over the place. So no, I think I think they're in a they're in a great place. I think they have discovered similar challenges to ourselves in terms of the actual cable supply. And so we're working with them to look at how we can how we can work together on that.


ML: Right, now let's turn to investors. Because I've been an investor very happy, but it's a time a tiny, tiny piece of this, you've obviously put in a lot more yourselves and you've got investors around you. But recently there was an announcement of an investment by Octopus. And of course, Greg Jackson, another person, another friend of mine who has been on Cleaning Up last year, I don't know which episode number but Octopus has now come in and presumably they're interested not just in investing, but also in buying some of this dispatchable clean power?


SM: Well, I mean, first of all, we're very fortunate to have Octopus on board now. And I think they will also galvanize a  whole part of the business, which is that whole offtake they have been and are very forward thinking in terms of what does this energy mix look like in the UK? How do we solve it? And they see the same issues that you and I saw in terms of right, how do we keep the lights on in the UK? If we actually are genuinely serious about net zero and with all the nuclear power plants shutting down, or not sorry, not all of them, majority of them shutting down, you know what, this really fills a hole for them. And so they are absolutely committed to be able to providing renewable power to all sorts of homes and businesses they do. And so this is a natural extension of being able to secure those sorts of sources of power.


ML: So you've got the investment from Octopus, and they're helping to navigate and think through the offtake piece. How are you thinking about just raising the rest of the money? Because 16 billion, I don't know how much you've already secured, but it's going to be a relatively small piece compared to that, what does the, what does the financing plan look like in terms of equity and debt and, and so on?


SM: So we need around about 50 million of development capital to get to financial close. Okay, majority of that costing is subsea surveys on that just to be able to know the exact route, where, where it's going. And it's amazing, these, these cable laying vessels can lay these cables to within within sort of centimeters of that avoiding everything they need to. And we're fine in terms of that funding to get to financial close, we're still inviting other people to come in. And so who are interested in we're in conversations with a number of strategics on that, to potentially come in as development. At financial close, that's when we're going to need the 16 billion on there, plus some contingency and sort of interest, financing costs on there. And we've already got clear indications from pension funds and others for the sort of 25% i.e. 4 or 5 billion of equity to sort of put in there, and then we'll be we'll be laying the rest off as debt. This is somewhere where Paddy and Rajit are really leading the way. I mean, this is this is what Paddy has done for the last 12-13 years. And he's very comfortable and confident that that actually, the financial side of things is not our problem.


ML: Right. And this should you would hope, qualify as an ESG investment. I mean, ESG is so sort of messed up in its definitions at the moment, as we've been hearing from the news flow about Exxon is ESG. But Tesla isn't but this this thing surely is going to be absolutely in the center of the bullseye for any ESG investor.


SM: This this will be core. Yeah. So where where we are looking for significant investment right now is on the XLCC on the cable.


ML: Just the 50. Can I ask does the 50 that you mentioned to get to final investment decision? Does that include XLCC? Or is that a separate amount there. XLCC, acronym klaxon for myself. XLCC is the cable company, it's Xlinks' cable company.


SM: So the cable company. So again, so we've funded that all the way up to development now. And as I said, we are expecting to get planning permission shortly. And so now we'll be actually breaking ground towards the end of this year. And that's when we'll need significant funding to be able to do that. Now, the the complexity here is we're looking to fund that prior to Xlinks hitting financial close because, there is such a demand for cable. And we're actually building capacity into a into a highly capacity constrained environment. So it's not just interconnectors, it's also offshore wind farms, which, as they're moving further out, they're wanting to move from AC technology to DC technology. But find they can't because they're the lead-in times for the cable suppliers are so long that they can't wait another four or five years after they reach financial close before they can actually convert. So actually helping that supply also helps. And we've been contacted by a bunch of wind farms and large energy generators saying we're desperately in need of more capacity in the marketplace. So thank you.


ML: Now financial regulations doesn't let you say, so come and talk to us if you want to, if you're looking at this sector, but it does sound pretty attractive. I want to finish with one topic, which is this interface between entrepreneurship and government because the role of government has come up a number of times there's the law that you had to change in Morocco, there was your initial concerns about whether this could be done or whether you would spend the next decade negotiating with governments. Who, who leads on a project like this? Is this fundamentally a sort of government project? And you're now just the vessel that has been chosen? Or is this your project and governments and you're sort of, in a sense, telling governments what they need to do to get it to happen?


SM: I think in all of these things, it's a symbiosis of a number of things. So, you know, entrepreneurs, businesses, they can't exist without proper laws and frameworks and government assistance to a certain extent, and it's also not government's job to be doing it to actually be doing this. Government's job is to be able to, to give the incentives and the frameworks to allow these things to happen. So I don't think it's necessarily my project in that respect, I think it's, it's something that I need government support on. And, and we've had some really productive conversations to date. I wish it was moving a little bit faster. But I think there's lots of competing priorities that they're, that they're working on. And but it's something that everybody needs to work together to be able to solve these things. What I have been impressed with is just how fast Morocco's moved. They have real intention to be a sort of a global exporter of renewable energy. And they have been, quite frankly, really, really, on the ball, active and on the front foot in terms of being able to deliver everything that we've needed to be able to get to this place.


ML: How do you make sure by the way that Morocco benefits appropriately, because there was a project called Desertec a few years back, and I was very critical of it, because it seemed like a sort of almost like a colonial construct. This was Germany wanted to address its footprint, and it was going to go over build renewable plants in the desert, bring the electricity into Germany, and nobody ever talked about, well, what about the electricity needs of North Africa? And indeed, social protection for the people or environmental protection? Or how do you make sure it's not corrupt? And all those sorts of good things. That was never discussed? It was all about Germany. And so I was very critical of that. Why is the same criticism... Why can't that criticism be leveled at Xlinks?


SM: No, and I think it is, it is a very different picture today. And for a whole number of reasons. I mean, Morocco is a very forward thinking country, it's already leading the way in terms of renewables and has got, has got plans in place for itself to be over 50% renewable by in really in the next few years. So we actually don't need to help Morocco in that respect, because it's actually already doing an enormous amount itself, to be able to get its own renewable power. Where we are helping or not, Morocco is the whole industrialization strategy. So of the 8 billion that we'd be spending in Morocco, and we've been working very closely with the government there, we're ensuring that at least 40% is going to be procured and built in Morocco. Okay. And so directly, we will be employing 10,000 people, indirectly, at least that number again, through all that, all that sort of different countries. And so and there's there's also tax revenue that they will be generating from this, tax revenue from all the employment. So and I was with the wali, which is the the regional president in that in that area. And he's really, really excited about what this is going to do for that region, and the skills and the jobs, and everything else this is going to this is going to bring. And then we've got a whole separate piece, which is our corporate social responsibility where we are, where we're going to be providing desalination and water supplies to the local community, additional schooling, and a whole bunch of other things that we really want to be good citizens in terms of what we do.


ML: Now, that's tremendous. And, you know, you've illustrated that symbiosis, but I think you've been too modest. And I think that this is clearly a project that has come out of your, your sense of obligation, your creativity, it's a slight trick question, because we had on this show, Mariana Mazzucato, episode 67. And she would say, well, high voltage DC technology was first research by the CEGB Labs Central Electricity Generating Board back in the 1970s. They're the ones that took all the risk, and you're just exploiting that technology. And, and the government should now own big chunk of what you do at Xlinks. So it is a trick question because clearly I disagree with that.


SM: Well, isn't all innovation standing on the shoulders of giants and, and everything? Everything, everything we do as a society is we build on what other people do so, I mean, you brought up Desertec before I mean, Xlinks is not a new idea. Okay. The difference now is the timing. Okay, so the reason Desertec didn't work is because at the time to produce to produce the core power in the in the desert was recording a CSP at 150 pounds per megawatt hour.


ML: Klaxon, CSP.


SM: Oh, concentrated solar power, so this is it, anyway, sorry


ML: Thermal solar, not photovoltaic.


SM: Thermal solar, so we're now at less than 10 pounds. So it's, it's a fact it's a fact it's an over 90% reduction in cost. And so that allows us to be able to do this economically, right?


ML: Very good. Simon, we are out of time, it has been absolutely fantastic getting this shareholder update, you could call it live as part of Cleaning Up because, you know, I have been an investor and I'm a huge supporter of what you do, and a supporter of lots of other similarly visionary projects around the world. But it's really been a privilege spending a bit of time with you. And I believe that our audience will be fascinated to listen to the story, and good luck.


SM: But Michael, I certainly continue to appreciate all your support and the guidance that you've given me over the years. So thank you very much.


ML: Well, you're very kind. You have a good day. So that was Simon Morrish founder and CEO of Xlinks. My guest next week is Roger Pielke Jr. He's a Professor of Environmental Studies and Political Science at the University of Boulder Colorado. Please join me this time next week for a conversation with Roger Pielke Jr. Cleaning Up is brought to you by Capricorn Investment Group, the Liebreich Foundation and the Gilardini Foundation.