Michael Liebreich So, Paddy, I've described you as the Usain Bolt of solar power, because you've created world records and then just beat them again and again for the cost of solar power. And that was while you were running and building ACWA Power?
Paddy Padmanathan Yes. So, the world at that time, on an average number basis - it differs from place to place, right - was sitting at about sort of eight cents per kilowatt hour, nine cents in some places. DEWA - Dubai Electricity & Water Authority - put out pretty much the first renewable energy, PV-plant tender at scale on an IPP-basis. They were testing to see how low the price can be, and the consensus was it would be somewhere around about the sort of eight or nine cents mark. Right from the start in 2004, we convinced ourselves that we should be in the business of not simply market pricing what we do, because we are selling on long-term contracts; that tariff needs to endure for such a long time, so we said, we don't ever want to market price. Don't worry about who's our competitor, or what does it replace... We said no, no, our philosophy should be: focus on minimizing cost. Whatever that number is, we tender; amazing when you do that, if you really, really, really are diligent at that. So, using the same philosophy, we jumped into this PV tender, and priced it.
ML And the number was? I'm on the edge of my chair even though I know the answer!
PP It was 5.85 cents per kilowatt hour, which was a shockingly low number. That part of the world at that time hadn't really adopted solar yet at scale because you're able to extract oil or gas out of the ground at very low cost. So, the minute ours came at 5.85, they said, man, even in this part of the world life has changed, has to change. When the sun is shining, we're not going to be able to compete, even with our low-cost energy. Fast forward, the plant is operating very well, is consistently delivering energy, we're making the money that we expected to make. And then of course, very quickly, we were proven right, because within one year, there was another tender from DEWA. Guess what? The numbers were 2.99. Then not long after that 1.04. I'm expecting the 1.04 to remain a competitive tariff for some time to come - the lowest that has been achieved – because of inflation, post pandemic, post this crazy war, tragic war. You've now got rampant inflation, shortage of components. And then of course, interest rates have gone up.
ML Now, if I was to push back and say, these are not real, real numbers, because very often you've got some state or state-like entity buying the power, providing the land, providing even the capital in many cases, providing the permitting. I mean, it's a really unique situation.
PP Michael, we became very famous in Ethiopia. There you go: Ethiopia. Ethiopia tendered their first at-scale, renewable energy plant - PV - 2018/19, that kind of time. We delivered at the lowest end there, and the whole continent of Africa became very excited about it. 2.4 cents per kilowatt hour in Ethiopia. No subsidized nothing. And by the way, this is an argument that I have. Forget about all the other things: electricity and water. We need to think of them very differently from a risk perspective. They are so basic for people's needs, particularly in these very different, faraway places, where people have not had access to electricity or adequate access; all of a sudden, you start providing it at a sensible rate, it's like a drug that they start taking, they're never gonna go off. I really think the risk profile is very different - they're not going to default on it. Provided it is at that really competitive, lowest possible price. I think the reason why we are in the mess that we are, all these so-called real risks are getting overplayed and overvalued. Particularly with God giving us the energy for nothing, we are now in a position where with a bit of kit, we can convert that to real, usable energy, provided we value that risk correctly, and price that money correctly. You can end up with very competitive energy, which can transform economies, improve lives, and get them focused on fighting about other things. There are many solutions that are starting to be developed, but not fast enough. I think banks like the World Bank, who have been focused on poverty alleviation, need to get off that, and need to start thinking about how to reduce the cost and provide these mechanisms for projects that provide energy, that provide water, that will then sort out their poverty problem. Notwithstanding, I think this revolution has to be led by private sector. People like the World Bank, all the IFIs have a role to play, to accelerate, and to multiply. But really, this revolution has to be led by private sector.
ML Talk to me about NEOM. But what has been your involvement, and your role?
PP We picked that site as a location to deliver a green energy project, green hydrogen production plant at scale - the first one that has gone into construction in the world. Just to give its scale, that plant will produce more green hydrogen than is produced in the world today by all the little plants. So, 2.1 gigawatts of electrolyzers, fed by 4.3 gigawatts of solar and wind and battery. And then it's converted using the Haber-Bosch process to ammonia, liquid ammonia. So, all of that, and the pipeline to the port itself - it's all at the port facility - that whole package is $8.4 billion total investment cost. Fully-funded, it's now in construction, it's now in construction for nearly one and a half years - on track.
ML But, with those quantities… it's nice, but it's not going to really move the needle on climate in any meaningful way, is it?
PP Michael, a couple of things. I think you better start praying that hydrogen does deliver, and does work. Because there is about 20% - plus or minus - emissions, we have no clue how we're going to decarbonize. I think there's a whole basket of issues that we need to address. The biggest focus must go on energy efficiency - obviously, that's the first thing. Next electrify as much as you can, no question. But I am super proud of what we, Air Products and NEOM have been able to achieve in bringing that first plant into construction, delivering hydrogen and liquid ammonia, I'm super proud of it. I absolutely agree with you and your Hydrogen Ladder - the use of that hydrogen, first and foremost, should be going towards fertilizer, to decarbonize. I am not convinced that we should be rushing into transportation so much; I think electricity is proving itself to be a much more efficient solution for transportation
ML I wanted to touch on Xlinks. You said about NEOM that it's wind and solar and a bit of battery to smooth... And that's basically the same thing we're doing there.
PP This first project that we are doing in Xlinks is in Morocco, where we're able to supply reliable energy, 24 hours a day, 23 hours a day in this particular case, through an underwater cable to the United Kingdom. But the exciting thing about Xlinks by the way is not just that project. I think exactly like what NEOM is doing, once that project gets into construction, it'll open the floodgates. There is no way that we are going to efficiently complete the energy transition by having these little islands of grids and local supplies. Exactly like the communication revolution - the world is ringed by comms cables, fibre optic cables around the world - we'll end up with electron superhighways that will make the grids more resilient; completely change the load-curve everywhere; use redundant capacity while people are sleeping, people are working in a different time zone; locations, fantastic solar place here, fantastic wind place there, dark, no wind up there - link everything; and reduce the demand for storage.
ML The thing that you are working on now is Zhero, producing lots of cheap renewables and cheap hydrogen. Marco Alverà, who is your partner on Zhero, is spending his time on this thing called TES, and what he's doing is one of the things that I consider to be absolutely bonkers.
PP Michael, first point I want to make on this subject: it's an energy transition, it's not an energy switch; it doesn't sort of magically decarbonize the following week. So, to me, eNG, is an essential contributory pathway to the final energy transition. We need time for transition, we need solutions in the intermediate period. Industries can do a lot of things while continuing to be industries, by the way. They can't just suddenly take a holiday, sabbatical for two years, while they retrofit everything. One of the biggest things we should get to is: keep driving the electrolyzer costs down, all the balance of systems, get these plants built cheaper. I agree with you I don't think we have time to waste in pursuing some pipe dreams. But there are opportunities that will get us somewhere fast, but I'm also never going to underestimate human ingenuity and capacity and entrepreneurship - I've seen it at work.