Why Renewables Are Booming Despite the Politics | Ep245: Miguel Stilwell d'Andrade

This transcript is generated using a combination of speech recognition software and real-life human beings, and may contain errors. Please double check this transcript against the recording before quoting in any form. 

Migiel Stilwell d'Andrade

I mean, the amount of demand that there is for power in the US is phenomenal. There's a huge amount of demand. And basically, this is a, you know, changing paradigm versus the last couple of decades where demand has been, you know, relatively flat or even declining in some places.

And here you actually have a very tangible increase in demand, driven by data centres driven by sort of industrialisation. And all of that means that people are having to procure power to supply that additional demand. And so we are having, let's say, some of the best projects, you know, or returns, you know, over the last 20 years that I've been sort of following the US.

And so I think it's actually a great time to invest in the US. And that's why I say, often, it's important to separate sort of the sentiment, let's say, or some of the rhetoric with actually what's happening on the ground. On the ground, you need power, and you need it now in the short term.

Michael Liebreich

Hello, I'm Michael Liebreich, and this is Cleaning Up. Before we get started, I'd like to take this opportunity to welcome the newest member of our Leadership Circle, Schneider Electric, a world leader in electrification, automation, and digitisation. One of the things we did at the start of the year here at Cleaning Up was to identify our big themes for 2026.

Geopolitics and AI, of course, but also electrification, resilience, and ‘Most of World’, the countries outside the US, Europe, and China, where most of the global population lives. My guest today lives and breathes these themes and more. Miguel Stilwell d'Andrade runs one of the world's great clean energy companies, EDP, a member of our Leadership Circle, steering the company deftly through the turbulent waters of today's energy markets.

Please welcome Miguel Stilwell d'Andrade to Cleaning Up. 

ML

Before we start, EDP has asked me to point out that this episode was recorded before the recent events in Portugal, where floods have severely impacted communities and the country's basic infrastructure. Our thoughts go out to all those affected. For the latest information from EDP and on their services, please visit their website. And of course, we'll put a link in the show notes. 

ML

Miguel, thank you so much for joining us here on Cleaning Up.

MSA

Thank you, Michael. It's great to be here.

ML

So let's start where we always start, with you, in your own words, giving us the short version of who you are, what you do.

MSA

So I'm the CEO of EDP and EDP Renewables. We are a leading global clean energy company with a strong focus in networks, which is about a third of our business. And the other two thirds is renewables. So hydro, wind and solar, and a little bit of gas, but mostly hydro, wind and solar in multiple different countries around the world, over 20 different countries.

ML

Very good. And just before we started recording, we were reminiscing about the good old days when we first came across each other. And that was during the, actually, the new energy finance days, even before the sales of Bloomberg.

MSA

20 years ago.

ML

20 years ago, or something like that. My goodness. Now, just one question. You've got EDP and EDP Renewables, and those are both publicly quoted companies. Why two?

MSA

Yeah, it's a great question. So we started, well, EDP was a traditional Portuguese utility, sort of 100% Portuguese back in the 80s and 90s. And then basically it started to internationalise and grow outside of Portugal.

I mean, Portugal is a decent sized country, but obviously, we thought we could grow internationally. And so we went first into Brazil in the late 90s, and then into Spain in the early 2000s. In 2007, we went into the US and bought Horizon Wind Energy, which is a large wind energy company.

So I think the top five wind energy companies in the US at the time. And we realised that we actually had a very significant presence already in renewables at the time. So this is 20 years ago.

And we decided to create this company called EDP Renewables, which was a subsidiary where we basically put all of these renewable assets that we had in the US, in Spain, we already had a little bit in France, and we listed EDP Renewables back in 2008. So I mean, this goes in cycles, but even back in the days, and you'll remember this well, 2006, 7, 8, there was quite a lot of hype already at the time around carbon and around renewables. And so we decided to raise capital.

And so we listed EDP Renewables at the time, it was a fantastic transaction, because we did it, we IPO'd EDP Renewables on June 2008. And we actually had several recommendations from the consortium of banks that we should be doing it post summer. And for those of you that remember, post summer was a Lehman debacle and the whole world collapsed at the time.

So if we'd waited just another couple of months, I think we would have been completely, you know, we would have not been able to survive, throughout that crisis. As it was, we raised enough capital, and that allowed us to continue to grow the renewables business. And we've kept it listed ever since.

I mean, it's had its ups and downs. But it's actually been, I mean, arguably sort of the largest pure play renewables company listed, certainly a European one. You know, it's 14 billion euros of market cap.

And with the presence, as I say, in Europe and the US, South America, Southeast Asia, so really has a very strong presence in all of these different markets and with different technologies. It used to be primarily wind, and a lot more solar, batteries offshore. So we're into all the different technologies as well.

ML

So I'm smiling partly as you tell this story, because we're going back to the period when I actually used to write news stories for New Energy Finance. And I remember the Horizon Wind Energy Deal. And I remember thinking, EDP? Really? I mean, who? 

Because obviously there were, you know, there was EDF Renouvelables. And there were a few players. And there were some of them that also spun out, or partially spun out and had an independent listing for their renewables activities. And then quietly after the values crashed a few years later, they bought them back in. But you didn't do that. So you've still got this.

MSA

No, we've kept it. We've kept it listed. And as I say, I think it's been a good source of the ability to also raise capital. It's a dedicated vehicle to renewables. We raised more capital, for example, back in 2021, we raised another one and a half billion euros. And then in 23, we raised another billion euros.

So in total, through the EDPR vehicle, we've raised, you know, 4 billion euros over this period, which I think is a significant amount, and which has allowed us to continue to develop business over this time.

ML

And tell me if you can, the China Three Gorges investment, because along the way, you also raised money, I believe, at the Topco level, at the EDP level, from China Three Gorges, which is the big clean energy or mainly hydro, but not only global developer now out of China, when did that money came come in? And what was the theory behind that? Because that was along the way somewhere, right?

MSA

So that was back in 2011, 2012. And then we didn't raise money. What happened was EDP used to be a state owned utility back, as I say, in the 80s, 90s.

We're actually celebrating 50 years today, not today, sorry, this year, since EDP was created back in 1976. So 2026 is the 50 year anniversary. But anyway, it started off as a state owned utility 100% owned by the government, the Portuguese government, and they started privatising EDP back in the late 90s, and then through the 2000s, and then they had the final stake of around 21%.

And when Portugal was intervened by the Troika, back in 2011, the first thing that the Troika told the Portuguese government was, you need to sell some assets. Troika, we need to explain Troika, yeah, the European Central Bank, the IMF. And yeah, this was the crisis.

This was because of the sovereign crisis when Portugal was basically, well, Portugal and a lot of the southern European countries were underwater, you know, they had sovereign debt issues, and they needed to be rescued, some of them explicitly like Portugal and Greece and others, and others sort of like Spain implicitly. So there wasn't a direct intervention, but they had to be helped out. In any case, the point was that the Portuguese government had to sell some assets and the most valuable asset that they had at the time was the stake in EDP.

And so they ran a process together with the company, and basically to try to identify potential investors. And at the time, there are several interested parties, including E.ON at the time and China Three Gorges. And China Three Gorges ended up putting the highest price and sort of the best industrial project.

And so they bought that stake from the government. So we didn't get any fresh cash into the business. What we did was get a commitment from them to buy some of our assets, you know, 49% stakes in some of our renewal assets.

And that sort of effectively allowed us to get some equity, but not at the top, but sort of at the bottom. So that was the entry of China Three Gorges. They have a 21% stake still to this day. But you know, we have the other 79% shareholders that are all market investors.

ML

It's great. It's a real sort of witness to history because just the genesis, 1976, just as Portugal was emerging from one of Europe's last dictatorships. And then this incredible sort of seat at the table as renewables became, you know, I would say dominant, which is absolutely dominant because you used to be a coal company.

MSA

Yes. So, you know, even if we go back 20 or so years, we had a significant amount of coal. So 80% of our generation was thermal. And then about 20% was renewable. And by renewable, I mean mostly hydro. So we had some hydro plants in Portugal going back, you know, to the fifties and sixties. But the majority was thermal, coal. And we also had some gas plants. As of today, you know, we are over 90% renewable.

So we phased out the coal. A lot of the gas has also been pared back. And in the meantime, we've been investing significantly in the hydro, the wind and the solar.

So the last year, you know, more than 90, around 92, 93% of our generation was renewable, which I think is a remarkable transformation. I normally say it's one of the good case studies of the energy transition, but actually lived sort of as a company.

ML

Well, there used to be two. There used to be Ørsted in Denmark and yourselves, and now there's really only yourselves. No, there's others, of course. There's plenty of other good renewables. I shouldn't say things like that because the comments will fill up on the social media.

MSA

But I think of the integrated European utilities, I think we are by far the greenest one statistically, not statistically, like as a fact, in terms of our generation mix, sort of the highest percentage of green generation or renewable generation, I think is UDP.

ML

So give us a thumbnail in terms of sort of megawatts, gigawatts and also the networks business, because I think what's really fascinating is that you are this outlier in terms of, you know, switching from coal to renewables in a big way. But also, you know, Portugal, the electricity price has not soared so it does seem like a great case study. So why is it, you know, what are you doing that's different? But first, talk about the scale and where you're operating and how much of it you've got.

MSA

So in terms of scale, maybe just a couple of numbers. So EDP is a 17 billion euro market cap company, around 45 billion euros of enterprise value. And EDPR is a 13 and a half billion euro market cap company.

ML

So if I might, I'm just going to intervene on the difference between market cap and enterprise value, because, you know, you've spent a lot of time, I know from your role in London and in Singapore and in New York with the capital markets, but the audience may not understand the difference between that, which is, of course, debt.

MSA

It's debt, it's minority interest. So let's say asset value. So the amount of assets that we manage sort of as a company is over 40 billion sort of between networks and renewable projects. And an EDPR is roughly 20-25 billion, let's say, of assets. We have around 32 gigawatts of power, operational projects. Most of that, as I say, is hydro, wind, solar, and we have around four gigawatts of gas. And then in terms of networks, we operate all of the networks in Portugal, high, medium and voltage. So we just don't operate the very high voltage, which is the REN.

ML

Right, so not the transmission grid.

MSA

So we don't operate the transmission grid.

ML

REN is the Redes Energéticas Nacionais?

MSA

Yes, the national electric network.

ML

So that's the bit that fell over in April last year, you don't do, right?

MSA

Well, we can go there, but it was, I think everything fell over at the time, as a consequence, basically of what happened in Spain.

ML

Yeah, but it was, but it was the transmission, it was a transmission failure.

MSA

That cascaded throughout the system.

ML

But the bits that you run are all the different distribution networks into homes, into businesses that link the transmission to...

MSA

To people's homes or to the businesses, as you say, so high, medium and low voltage. So we operate all of those in Portugal. We operate in the north of Spain as well.

So in Asturias and Cantabria, and then we also operate two distribution companies in Brazil, and we also operate some transmission in Brazil. It's the only place where we operate transmission. So that's essentially the networks business.

And as I say, the renewables business is much more spread out. So very strong presence, obviously, in Iberia, but we're also present in France and Italy, Germany, Poland, UK, Greece, Romania, North America. So apart from the US, about half of our renewable projects are in the US, but we also operate in Canada and Mexico.

We have a presence also in Brazil, Chile, and in Southeast Asia, Singapore, Vietnam, Australia, Japan, and a little presence in China and Taiwan.

ML

So in preparation, I had a look at your capital markets presentation from late last year, and you're making very substantial investments, as you'd expect. You've got the networks business, you've got the renewables business. Talk us through where you're investing, because I found that a bit surprising.

The mix between, I understand you've got to maintain the networks and upgrade them, and a lot of modernisation. There's more investment on renewables, but where are you investing?

MSA

So we are significantly scaling up our investment in networks. So for example, in networks in Portugal, we're increasing the investment by about 70% over the next five years versus the previous five years. So there's a huge need for additional investment in networks, not just in Portugal, but in, for example, in Spain and in Brazil.

But certainly in Portugal, there's a material step up. But then on the renewable side, where we spend also a lot of money on the different projects, we're allocating about 60% to the US, and the remaining 40% is split mostly between Europe and a little bit Southeast Asia. In the US, so we are, as I say, 60%.

That means that what the US will represent for EDP renewables will go from around 50, 55% to approximately two thirds or 65% of our renewables business. So it's a significant investment in the US over the next couple of years.

ML

And I was very struck by, there's a term in your presentation about the regulatory tailwinds. And then you've got the regulatory tailwinds in Europe, regulatory tailwinds in Asia. It's kind of, yep, get it, get it. But the US, which is then where you're putting 60% of your renewable investment, regulatory tailwinds. And, you know, really, Miguel, do you not read the news?

MSA

Well, I think there is a difference, perhaps, in terms of the rhetoric and a little bit the sentiment that exists around the sector and actually what we see on the ground. The truth is that if we go back a year to the beginning of 2025, there's a huge amount of uncertainty about the investment in renewables in the US. And clearly, you know, all bets were off.

People were risk off. They just didn't want to touch it. There was a lot of uncertainty about whether, what would happen with the Inflation Reduction Act that had been put in place by President Biden.

So a lot of people weren't really giving a lot of credit to the renewables business in the US. The truth is that then this administration, so the Trump administration, came out with a big, beautiful bill, which, among other things, kept the tax credits for renewables all the way out to 2030, as long as you safe harboured the equipment.

ML

Can you just, let me come in there. Explain safe harbour, because we all use the term and we know what it means, but I guarantee you there are people out there that don't.

MSA

So safe harbouring means as long as you start building the project or you're procuring a certain amount of equipment for these specific projects, you then have essentially four years in which to build a project. But you've already qualified to have the tax credits. And the whole sort of system in the US, whether it's on the thermal side or on the renewable side, it works a lot with tax credits.

And that means that basically if I start a project today, sort of in 2026, and I can qualify that project for these tax credits, I can then have the project only built by 2030, but I've already qualified for that. So I've already sort of been able to capture a big part of that value. And so essentially what we've done is lock in, you know, almost five gigawatts of projects that we can build over the next couple of years in the US.

ML

And they will then continue to get the tax credits throughout their lifetime. So you've got to start now, safe harbour, and then finish by 2030. And then you've got the economics locked in.

MSA

So there are two types of tax credits. There's the production tax credits, which is mostly for wind, and those are then paid out over 10 years. And so if you qualify for them, once the project starts to produce, you know, to operate every megawatt hour that it produces, they'll get a tax credit, roughly $25 inflated for that.

But then there's another tax credit, which is mostly used by solar, which is what they call the investment tax credit, which can vary sort of the amount, but it's sort of roughly 40, as much as 50% of the actual investment can be recovered as a tax credit upfront, which would mean that essentially, you know, if we are finishing a project in, let's say, 2028, we can recover or capture or monetise that tax credit that year for roughly 40 to 50% of the capex of the investment.

ML

And the backdrop here is, of course, that there is increasing demand for electricity, certainly in the US, certainly in your operations in Asia, Southeast Asia and so on, maybe even in Europe, but certainly in the US, what you're seeing is strong demand.

MSA

So that goes to the point, and that's really one of the key issues or one of the key points that we highlight sort of in the Capital Markets Day and in general, when we're talking to investors. I mean, the amount of demand that there is for power in the US is phenomenal. There's a huge amount of demand.

And basically, this is a changing paradigm versus the last couple of decades where demand has been relatively flat or even declining in some places. And here you actually have a very tangible increase in demand driven by data centres, driven by sort of industrialisation. And all of that means that people are having to procure power to supply that additional demand.

And so we are having, let's say, some of the best projects or returns over the last 20 years that I've been sort of following the US. And so I think it's actually a great time to invest in the US. And that's why I say often it's important to separate sort of the sentiment, let's say, or some of the rhetoric with actually what's happening on the ground.

On the ground, you need power and you need it now in the short term.

ML

And you need to get your sector right in terms of your technology. So you're doing a lot of solar and I'm guessing some batteries, right?

MSA

Batteries as well.

ML

And I mean, is that the big difference between you and Orsted, that they went big on offshore wind and stuck with offshore wind? And you, I don't know if you have any.

MSA

So we do have some offshore wind through a joint venture that we have with Anji. So it's a 50-50 joint venture called Ocean Winds. And through that joint venture, we have some offshore in the US. We actually have three projects still at a development stage, and we can talk a little bit more about that. But we also have several offshore projects in Europe, two operational projects up in the north of Scotland, some operational projects in France and Poland, and then also South Korea sort of development stage.

ML

But that 60% that you're allocating to the US. That excludes the offshore.

MSA

I'm going to guess that it does not include the three development projects. That excludes the offshore. So on the offshore in the US, that clearly...

So I was talking about the difference between the sentiment and actually what's happening on the ground. That's not true about the offshore. So to be clear, what I was saying is more in relation to solar and batteries.

In relation to wind offshore, clearly there's been a, let's say, very strong pushback against that technology in the US. And our projects, fortunately, we were not yet at the phase where we're building them. We had the permit already to build one of them up in Massachusetts, and we were ready to go. But we paused back in 2024, and I think that was good.

ML

What about onshore wind? Can you get onshore wind projects done in the US at the moment?

MSA

It's slightly more tricky. I'd say that you can do if you're, for example, repowering projects. So if you have existing wind projects, and we have a lot of them, if they have older technologies, older turbines, and perhaps you can just substitute those older turbines and put in more efficient turbines, you're not having to build new interconnections.

You're not having to get federal permits or anything. You're just essentially upgrading the projects. Then, yes, we have some quite attractive projects that we can sort of repower.

To actually build new wind projects over the next two, three years, I'd say it's a little bit more risky. So we're assuming more of these projects will get built towards the back end of this decade. We do believe wind technology is actually very, it's like a premium product, because it produces typically throughout the day. I mean, it's not dependent on the sun like solar, obviously.

ML

And particularly in the north, when the sun doesn't produce very much at all during the winter.

MSA

So what we call the wind adjustment factor is much smaller. Let's say the discounts, or if any, to the base load price, sort of to the average price is lower.

ML

Because the backdrop here is that as we are recording this, there's this big meeting of the North Sea nations, I think eight or nine countries around the North Sea, that are meeting to put down a great marker and say, offshore wind is it, and we're all going to work together and do huge amounts, 100 gigawatt type scale of offshore wind in Europe. Is that exciting you? Is that something we're going to be, you know, seeing you pile into that project or that set of projects?

MSA

I think it's exciting for Europe. So I have a very strong view that, you know, Europe needs to be more energy independent, that we need to be more competitive in terms of the cost of energy. So I think offshore, if done right and in the right conditions, can be a very good source of power.

I think the question then is, do you have the model right? Sort of, you know, do you have the right sort of auction model, CFDs and stuff like that to actually be able to deploy that at scale and be able to provide the competitive power that we need?

ML

But it is inherently more expensive than solar. And in fact, you know, even more expensive than solar and batteries. So, you know, it does feel that we're, I agree with you, you know, if Europe is going to be, it has to have more energy independence.

And where is it going to get a lot of renewable, a lot of electricity from? Yes, of course, there can be some nuclear power and I'm all for that, but it'd be expensive. But where is it going to go? And it will be in the north, mainly offshore, and in the south, lots of solar and some wind as well. But it does seem like we're locking in high costs. That's the risk.

MSA

Well, let's see what comes out of those auctions in the offshore. But I think in many cases it can be relatively competitive. I think our view is that for different countries that have different resources, you will have different technologies to, you know, to fit those resources.

As you say, as a broad approximation, obviously there's more solar in the south, although there's also quite good wind onshore. In the north, particularly around sort of the North Sea, you have very good conditions to do offshore wind power. So you can get quite competitive sources of offshore wind up there.

So I think as long as you structure it right, it can be a good complement. And then you can also have solar and batteries in the mix, and I'm sure you'll have some gas as a backup. But I do think you have to have this diversified energy mix and not be just 100% focused on any one particular technology, because that is also, you need to have some diversity or some diversification of technologies.

ML

The North Sea is an incredible resource because it's shallow and very windy. My only worry is that it becomes a tremendous energy resource for Europe, but only in 2050, once all the investment is fully depreciated, then it'll be tremendous, but not until then. But there is a backdrop here, which is even offshore wind, we used to think that it could be done for, let's call it 50 euros per megawatt hour.

Now it looks like a kind of 100 euro per megawatt hour resource. But even in the US, there's a chart in your Capital Markets Day presentation that shows it used to be sort of $30 per megawatt hour for both wind and solar. So the PPAs, the power purchase agreements being sold at $30 per megawatt hour, and it's now $70.

Of course, marvellous for you, because you're doing the selling. But isn't that incredibly inflationary for energy users?

MSA

But it's great for us, obviously, but it's not because of the price. I think what you need to bear in mind is that you're comparing that with the prices pre-COVID, where the cost of capital was practically zero. I mean, in Europe, the cost of debt was zero, and in the US, very close to zero.

In some places in Europe, even negative. And also in terms of the CapEx, in terms of the investment costs in the US, for example, you didn't have tariffs. So the whole cost of the investment was much lower.

Since then, you've had an increase in the cost of capital and an increase in the CapEx, including tariffs, for example, in the US. So a solar panel in the US will cost three times more than it does in Europe. And that's really what's driving that increase in the PPA prices.

You know, you still have decent returns, but it's not like that is all margin to the developers. On the contrary, I mean, the margin has improved slightly because there's more demand, but a lot of it has just been captured by the increased investment costs and sort of the cost of capital associated with that.

ML

Yeah. So I suppose that's right. You've put your finger on the question: is that because of that surging demand that the prices have gone up, or is it because of surging costs or both?

MSA

It's a combination. I think, you know, if there wasn't demand, maybe that increase in prices, maybe you wouldn't be able to sell that power if, you know, if there wasn't that much demand and sort of in the sector. But going to your question also around offshore, I think it's the same thing.

You know, offshore in Europe, a couple of years ago, you were also able to get much lower costs because the investment costs were lower. The cost of capital financing was much lower. And so you ended up with a lower cost of energy.

So there definitely has been an inflationary pressure throughout the world as a result of cost of financing also going up over the last couple of years.

ML

But it does feel like this question about affordability is not just in, you know, it's a European issue, and we've talked about it on various episodes. But it is also, I think it was at the beginning of, actually, relatively near to the Trump administration, second administration, I said that I couldn't see how we're not going to see huge electricity price inflation in the US because of, as you say, you've got tariffs, you've got the cancellation of some very big offshore wind projects. So you've got less supply, you've got data centres, you've got even, you know, even though the US is behind on electric vehicles, they still are working their way, you know, 10, 12, 15% into the fleet and therefore driving up demand throughout the whole of the, you know, not, it's not just a global phenomenon, it's even in the US.

What happens when that really becomes a political force is a really interesting question.

MSA

Well, affordability in the US is definitely one of the key issues and one of the sort of key words that you've seen sort of coming up. And it is becoming more of an issue and sort of being spoken about a lot. I think that's one of the reasons why you definitely need to get more supply.

And there's been a lot of work done to sort of try to accelerate projects, to try to get them to connect to the network faster, to invest in the network so that you can get more supply. And if you can get more supply, then you can try to keep the costs down. Just a couple of comments, which I think are relevant.

First, I mean, a lot of people talk about, for example, nuclear, you know, as being a source. I think, you know, again, nothing against nuclear, but quite frankly, it's not going to solve the problem anytime soon in the next five, 10 years. So if you have an affordability issue, nuclear is not going to be the answer anytime soon.

Gas, to a great extent, is also capped in terms of the number of turbines that can be produced and installed in any particular year. So that's also not going to be, you know, sort of the solution sort of in the short, medium term. It will help and for sure it will be rolled out.

And so that's why we've been, we believe very strongly that renewables can be deployed in the next 12, 24, 36 months. These are projects that can be actually put on the ground and start producing very, very quickly. And that will help bring down some of that pressure on affordability.

But a couple of other things on Europe, which I think also often comes up and, you know, you read the Draghi report and the Letha report and everyone's sort of complaining about Europe not being competitive from an energy perspective. First, I believe that Europe will never be very competitive if it depends 100% on gas or very much on gas. We don't produce enough gas.

We don't produce enough oil. We're always going to be importing it. So by definition, the cost of gas in Europe will be higher than in other places, than in the US, for example, from where we're importing a big part of it.

So, you know, going to that issue around energy independence, but also affordability and competitiveness, the more we can produce with, you know, resources here in Europe, the more competitive we can be. Because the sun shining in Iberia, for example, is the same sun that's shining, for example, in the US. Like, and by the way, the cost of producing it in Iberia, for example, the CapEx, there's no tariffs, you know, so the cost of investment is lower.

So you can actually produce it at a more competitive level, for example, in Iberia. You can produce power more competitively in Iberia than in many places in the US. And again, just two more points.

One, we often compare the competitiveness of Europe as a broad region with the US as a broad region. In the US, you have multiple different realities, the same way that you have in Europe. In the US, you have California and the Northeast with much higher energy prices than the Midwest and Texas, sort of lower prices.

In Europe, the same thing. You have Central Europe with higher prices, but then you have Scandinavia with very low prices. And you have Iberia with very low prices.

Iberia has at this moment, so Portugal has over 75% of renewable generation and some of the lowest wholesale prices anywhere in Europe. Spain, around 55% renewables, and also some of the lowest prices, very similar to Portugal. So actually, Iberia, because of this high penetration of renewables, has become a very competitive, let's say, region from an energy perspective.

So I think these things of comparing averages, first, it's slightly misleading. You need to go a level down. And secondly, looking at the competitiveness of renewables in these specific regions versus, for example, the cost of producing them, whether, let's say, in Iberia versus some places in the US, we can be very competitive in Europe as well from an energy perspective.

Where I think we then mess up in Europe is we then tax everything. And then we have these distortions in terms of industrial policies. Whereas in the US, they work with tax credits. And so essentially, the taxpayer is subsidising the energy consumer. In Europe, we typically like to tax and use the energy bill as a way of sort of getting additional revenue. So that, for me, is what ends up distorting this relative competitiveness of the cost of energy for the consumer.

ML

Yeah, it's a fascinating conversation. I mean, you've raised a number of points, each of which could be an episode. Because I don't think that Europe, I hear you on cheap solar in the south, but link it back to the earlier conversation about our really big resource during winter and in the north is offshore wind, which is, frankly, expensive.

So I don't see how, I don't think Europe can ever be a kind of energy, it can't build its global competitiveness on energy costs. It's going to have to do something else. And it has historically also had to do that.

But your point about the nuance between the difference between Scandinavia and Iberia and the rest of Europe, California, northeast versus Texas, that's very well taken, I guess. The only thing I would say is that the US historically has been much better at moving people and jobs and industries around than Europe has been, which has been much more protectionist and much more sort of sticky in the way it goes about that.

MSA

It's true. But one of the things that we advocate, for example, in Brussels often when we go there is when people talk about moving their factories out of central Europe, because they're going to move them to China or to the US. I tell them, well, have you thought about moving it within Europe?

If the issue really is just about the cost of energy, we can have a very competitive cost of energy here in Europe as well. And as long as you sort of don't then distort it with that, those issues around the tax and sort of the industrial policy component. But I definitely take your point that, you know, we don't have a long or a big tradition in Europe, I think, of moving those industries around.

ML

Cleaning Up is proud to be supported by its Leadership Circle. The members are Actis, Alcazar Energy, Arup, Cygnum Capital, Davidson Kempner, EcoPragma Capital, EDP, Eurolectric, the Gilardini Foundation, KKR, National Grid, Octopus Energy, Quadrature Climate Foundation, Schneider Electric, SDCL and Wärtsilä. For more information on the Leadership Circle, please visit cleaningup.live. If you're enjoying this episode, please hit like, leave a comment and also recommend it to friends, family, colleagues and absolutely everyone. To browse our archive of around 250 past episodes and to subscribe to our free newsletter, visit cleaningup.live.

ML

But what Europe has been trying to do is actually to move the electricity around. And so you had the EU rule on 10% cross-border capacity. You have these, you know, ferocious investment levels in the grid. First we had John Pettigrew of National Grid, but then also Tim Meyerjürgens of Tennet. So John Pettigrew now has left as CEO of National Grid. But Tim Meyerjürgens just sort of, well, not just, not really coming in. He's been with Tennet, but he's now got huge amounts of money. We're talking kind of 50 billion euros each to spend. I mean, is that going to work in terms of moving, can one move enough electricity around to make Europe sort of competitive?

MSA

Well, I think you should definitely improve the, let's say, the interconnections between European countries. And the more you do that, the more resilient we will become. Coming back to my point, for example, about Iberia, do you know that the interconnection between Spain and France, or let's say, if you thought of Iberia as an island, it's actually less interconnected with Europe than Ireland, which is an island.

So, I mean, for me, that's fascinating. So we still have these issues, even within Europe.

ML

My understanding is that that was largely because the French didn't want to, their plentiful nuclear power to leach away into Spain.

MSA

I think, though, the energy flow would probably be the other way around.

ML

Now, certainly when it's very sunny, absolutely, yes. Or windy.

MSA

I think the issue is more, do they want their energy, their nuclear energy, to be perhaps undermined by the renewable energy coming out of Iberia? I think that's the issue, because we've been talking about this interconnection for 20 years, and I think will still be many more years.

ML

Well, but it came into very, very stark focus last year with the blackout, the power cut on the, was it the 25th of April, 24th? 28th of April. 28th of April last year, because that very thin connection, essentially what Europe is trying to do is to keep the same frequency, the same voltage from Latvia down to Jerez or down to the Algarve in Portugal.

And using this very, very thin interconnection proved to be an incredible resilience weak point, didn't it?

MSA

Yes, although I don't think that that was the cause of the blackout. I mean, the blackout, the final report is still due to come out, but I think a lot of investigation has already been done, and it's been pinpointed as sort of being a surge in voltage levels in the southeast of, southwest of Spain. And essentially that, the system operator allowed the voltage to spike above a certain level, which then caused some of the power plants to start tripping and sort of coming off the network.

And there wasn't sufficient redundancy or let's say inertia in the system. And then that triggered a domino effect where several other power plants started coming off, and that essentially made Spain collapse. Portugal at the time was importing around 30% of its energy from Spain at that particular moment, because it was the middle of the day and there was a lot of cheap solar from Spain.

And so when Spain went down, Portugal went down. And so we basically had the whole Iberian Peninsula offline for around 12 hours or so.

ML

I want to ask you, what did that feel like? I mean, you're the CEO of Portugal's leading utility. You run all the distribution grids and it flatlines suddenly.

Just play out what happened. I mean, did your telephone start ringing or what happens in that situation?

MSA

First, fortunately, I was in Portugal on that day and actually we were having a board meeting at the time. And it was in the middle of the day, so it was something that we were able to react quite quickly. If it had been in the middle of the night or something, obviously it would have taken perhaps a little bit longer to react.

But we were able to set up our crisis committee immediately and start focussing on what we call Blackstart, which is restarting sort of the network and let's say the key power stations to start energising the whole country. At the beginning, though, I'd have to say that the first thing that happens is trying to have a good diagnosis of exactly what happened. Because immediately you start having all of these rumours circulating, you know, was this a cyber attack?

Was this some foreign attack? Was it safe to restart or had we been infiltrated to a certain extent?

ML

Was it just too much solar? Which is what some of the naysayers would like to believe.

MSA

No, well, that I can definitely say it wasn't an issue around too much renewables. And I can come to the lessons sort of learned. But I think in that first moment is really trying to come up with a good diagnosis of what had happened and what needed to be done to restore power.

I think in hindsight, it was restored very quickly. We were able to actually restart the key power plants, you know, and start energising the whole system. But it is a very delicate process.

And I think it happened in a record amount of time. So that was, let's say, the recovery. But obviously, there's a huge amount of communication that needs to happen, you know, because the whole economy stops.

So you have the government sort of really trying to understand what's going on, you know, what are expectations can we give to people in terms of recovery? And obviously, you have all the companies, all the people sort of trying to understand, you know, what's going on. So there's a huge amount of communication that needs to be done about or managing expectations over this period to sort of make sure that people have the trust and, you know, can manage over this period.

Fortunately, we were able to recover quickly because, for example, for hospitals and some other critical facilities, if it had gone on much longer, it could have been a real disaster.

ML

So my favourite observation is that you managed to get two countries back up and running faster than we managed in the UK to get one airport back up and running.

MSA

Okay, well, yes. But honestly, the teams did a fantastic job. There's a huge amount of coordination with the system operators, with the transmission companies.

It was great.

ML

So now, what are the learnings from that? Because, you know, really the world is watching. I was, you know, woken up on that day to some of the resilience issues about how bad it can get. And it doesn't have to be because there's too much wind and solar, but there are these just dramatic changes. I mean, you yourself said you've got completely out of coal. You've got almost out of gas. You've now serving the power mix has changed completely. It doesn't have to be because there's simply too much renewables, but that pace of change exposed vulnerabilities. What have you learned either in terms of, I don't know, governance or in terms of innovation or, you know, what are the lessons been?

There must have been so many.

MSA

So many, but maybe trying to distil them down to sort of a few broader ones. I think one is the importance of having some sort of physical hard assets, providing inertia, frequency control to the system. So as I said, the reason this happened was because of a voltage spike.

And basically, if you can have more, some more power plants, whether they're hydro or some, you know, batteries, but to help manage the stability of the system over time.

ML

Do they have to be spinning? Because you can, you know, traditionally, you didn't have to think about this because you had lots of things spinning. And so it was kind of like those services were provided free and without worrying about them.

How do you do it now?

MSA

If it's spinning, it's great. And, you know, definitely that's a positive. It doesn't need to be spinning, but if it is, you know, you should use it. So for example, hydro and gas would do the job perfectly. Maybe just a broader comment. I think in many places, and I'm not saying specifically Iberia, but the regulators and just generally the system has opted to go very much, you know, to push the pendulum very much towards efficiency, you know, trying to be the lowest cost provider.

And you need to pay for resilience. And that means sometimes having backups. It means sometimes having, you know, a little bit of additional margin, even if it means that you're paying a little bit more for it.

But, you know, you are making sure that there's less probability that the system goes down. And so I think this pendulum is now swinging back towards people recognising you need to pay for that resilience.

ML

And one of our very early episodes was with a New Zealand sort of, I don't know if I should say futurist, but an expert on resilience, Roger Dennis. And what he said was that resilience is incredibly expensive, except in retrospect.

MSA

Yes, well, definitely. That's a good comment. And clear, this was the case. You know, now you think about it and it's like obvious. OK, you know, could they have kept sort of a couple of additional power plants spinning and kept the system sort of balanced? And obviously that would have made sense in hindsight.

But so the first lesson, I think that having those hard assets, the second is some additional, let me say, flexibility. So more ancillary services, more sophisticated ancillary services, remunerating those ancillary services, things like fast frequency response, and, you know, having those batteries, having those synchronous condensers. So that, I think, is also something that, for example, in continental Europe in general, we don't have as developed, for example, as in the UK or in some places in the US.

ML

So two things. First of all, synchronous condenser, 15 seconds. What is that?

MSA

So that's to your point about something spinning. It's basically something that's spinning on the network and just provides you a certain amount of inertia. So that if there is a change in the frequency of the network, it will try to balance that out. It will dampen those effects.

ML

It's a generator that spins but doesn't generate most of the time. But if there's a perturbation, then it corrects. And then you also have to, if you've got those services, you do also have to police them and make sure they are delivered according to contract.

Because that was also one of the issues. Was that also one of the learnings?

MSA

That's still disputed. Not by myself, but by some of the other utilities. Apparently, it's been said that some of the power plants were not operating to standards.

ML

So we'll watch this space on that one.

MSA

So that's one argument. I mean, let's say that some weren't operating to those standards. I think the counter argument to that is that you need to have enough resilience and redundancy in the system to make up for that.

Because we've had many cases where, for example, you have a nuclear power plant of one gigawatt that suddenly goes off the line, trips. And the system has to be able to take that and be able to stay functioning without that.

ML

And in the end, it is up to the system operator to know whether you need n plus one redundancy or n plus two or n plus whatever. But you cannot have those sorts of power cuts. What is the role of digitisation and innovation in resilience?

Because it also struck me as extraordinary that I was trying to say, OK, I was trying to find data. OK, what was the voltage? What were the harmonics?

What was happening to the frequency? And there was just such sparse data, at least available to me as a member of the general public. And it seems like we're in the world of sensors, we're in the world of AI.

How can it take six months or nine months or a year to diagnose something so basic?

MSA

Well, I think definitely you're right in terms of the more data you can have, the better. And in this case, though, there were multiple different companies and assets. And so trying to collect all the data, for example, one of the critical things here is the timing when each event happened.

And so making sure that everyone's clocks were exactly synchronous, so that you know exactly in what sequence certain things happened. So there is a certain amount of data that I think also it wasn't just getting access to the data, it was then treating the data to make sure that you could actually tell the story from it.

ML

But that feels like you ought to be able to sort of say, well, at least in the future, it ought to be, I don't know, chat GPT or Claude, you know, tell me why this system fell over and it ought to be able to crunch through that. And certainly from the system operators should have access to that. But I want to come back to EDP, because you've got a significant investment in innovation.

What sorts of things are you doing on innovation? And as our very good mutual friend, one of your colleagues, Antonio Coutinho, who I've known for nearly as long as I've known you, who leads that activity. What are you investing in on the innovation front?

MSA

So a couple of different things. I think definitely on the flexibility side, that's something we're working hard on. So whether it's batteries, you know, different technologies of batteries, whether it's things like even on the demand side, management, we haven't talked a lot about that. But that's also an area that has also been under explored or used sort of in the energy system. Often we just talk about the generation side and not enough about the demand side. So that's one area.

I think another area that we're working on very hard is the automation of building the projects. I think one of the interesting things is physical automation. And that's because first, the projects that we're building, for example, solar, the cost of the panels is increasingly a small percentage of the overall investment. I mean, nowadays, maybe it's 30 to 50% maximum, which means that the rest is essentially labour or other ancillary services, but not specifically the panels.

And one of the biggest costs is, as I say, labour. And there's often a lack of labour. And often it's not particularly qualified labour or it's quite strenuous work.

So the more you can automate this, the cheaper you can make the projects, the faster you can build them. And I think that's definitely one area that we're working on a lot. And things like also on the operation and maintenance side as well, as you start having huge projects, multiple gigawatts spread out through the world, basic things like how do you clean the panels in an automated way?

How do you use drones to make sure that you have everything working up to speed? How do you sort of cut the vegetation? One of the biggest issues with solar that no one thinks about is if the grass grows or if the vegetation grows too much, it starts having an impact on the panel.

So for example, in Brazil, we had huge issues with that because the soil is so fertile and things grow so fast that you have to be constantly cutting sort of on a daily basis. So a lot of sometimes smaller pieces of innovation, but that really contribute at the end of the day to having lower investments or more competitive cost of energy and also lower operation and maintenance as well.

ML

One of the most recent episodes that we did towards the end of last year, when we released it, was Sines in Portugal. I think it was one of your old coal-fired power stations.

MSA

It's next to it.

ML

We got coverage, I think it was from your team, of the chimneys coming down.

MSA

Chimneys coming down, yes, that was our coal plant.

ML

Your coal plant was decommissioned and is being dismantled. And there's this colossal AI data centre campus that's being built in its place. The episode with Rob Dunn, who runs it.

How are you interfacing with these data centres around the world? Because you're not the transmission operator. You don't have transmission assets. So to a certain extent, presumably, you can just say, well, we'll sell electricity to them. Or is it as simple as that? Are you trying to develop some of those data centres yourselves?

MSA

Well, first, interestingly, Start Campus is actually connected to the distribution network as of today, because the transmission line hasn't been built yet. So it's still connected at the high voltage level and not at the very high voltage. It will be then upgraded once it gets to a certain size and once the line has been built.

ML

So that means they are a customer of yours?

MSA

They're actually a customer of our distribution network for the moment until they can get the upgrade. So that's just to say that a lot of the customers actually are connected to our network. But yes, that project is a very interesting one, because I often say that just that one data centre that is being built in Portugal, and mind you, it is one of the largest ones in Europe, but will represent around 20% of Portugal's energy consumption.

So it is a very material amount of demand. But you have other data centres that are being built as well. So the impact for us is twofold.

I think where we have networks, it's essentially how we connect those data centres and making sure that we have a network that can take this additional demand. Coming back to one of my initial points, we are increasing the amount of investment in networks by 70%. So that's a substantial increase in investment.

We're talking about 3.1 billion euros just in Portuguese networks over the next five years. But then on the generation side, there are two sub points. One is just selling them energy, if it's, depending on the amount, it's almost like a normal PPA contract or power purchase agreement.

But then in some cases, it's this additionality concept. So more and more governments and regulators are asking that these big sources of demand bring their own generation and sort of contribute to providing additional generation. So we are helping bring either solar projects or wind projects and batteries so that when that data centre, for example, comes and asks to be connected to the network, they can say, I'm going to be consuming, let's say, two or three terawatt hours of energy.

But I have here some additional generation that will be, let's say, matching. And so I won't have an impact on the other consumers. I think what we all want at the end of the day is that this, let's say, cost isn't socialised by the other consumers.

And so that this doesn't result in sort of an additional cost for the domestics.

ML

The worry for you must be that, you know, you will end up being blamed by communities. If they see their electricity price go up, then you could say, but it wasn't us. It was these other people building their data centres or whatever it is.

But you're going to be, your EDP, you are, at least in Portugal, synonymous with the people providing the electricity. And you're going to be blamed. Does that worry you?

MSA

It worries us in Portugal. It worries us just generally everywhere. I don't think it's ever good for the energy sector when there is this crisis of affordability or when you start getting a backlash from the consumers.

Because typically that a consumer, domestic consumer is a voter and a voter will pressure the politicians who will then come back to the sector and say, guys, you know, this is over. Like we're going to cut the remuneration or we're going to intervene. Or so there's, you know, those type of precedents are not, are never good, you know, extraordinary taxes or clawbacks.

So all of these sort of regulatory interventions, they come back to bite the sector. So we are all, we all take a long term view. We all look at the sustainability of the system and what that means for the final consumer.

And we try to make sure that the system is balanced over time. Fortunately in Portugal and in Spain in general, but in Portugal in particular, we're actually expecting prices to come down over time because, you know, there's a lot of renewables, as I say, which actually some of them older feed-in tariffs, which are coming off. There's some of the system debt, which was, you know, there used to be back many years ago, which is also going to stop being amortised.

And so we're actually expecting that there could be, you know, sort of a reduction in prices. And I think that's a good thing for consumers.

ML

I think that's very good in Iberia. But you do operate, as we said already, in the US. I'm trying to recall how much you've got in the UK, but in Eastern Central Europe, where the price is high. I mean, is that, would you put that as one of the biggest risks facing your business is actually a potential backlash against electricity price inflation?

MSA

For sure. I mean, I can tell you where, you know, when we have, for example, the energy crisis, when there was the war in Ukraine, when it broke out in February 2022. And if everyone remembers, the price of gas went through the roof, the price of power went through the roof.

And there was a huge backlash. I mean, the regulators and the governments intervened, as I say, with clawbacks and, you know, caps and all of these things. And they completely distorted the energy market.

That was not good for anyone. I think, you know, we suffered because a lot of times it's put together sort of in a way which doesn't make a lot of sense and which ends up actually harming us much more. So we'd rather have a, you know, predictable, stable, you know, sustainable outlook for the different markets that we operate in all over Europe and in the US than sort of trying to have much higher prices, which then comes back to bite us.

ML

Just finally, I want to...

MSA

But I would say, though, that, again, I think the biggest problem in Europe has always been the price of gas, because that, for example, that's what triggered the energy crisis in, you know, back in 2022.

ML

It is, although all the signs are that we're now going to see a glut of LNG. I mean, actually, you know, I hope it's true, not from a climate perspective, but at least socially, it'd be much easier if the power prices and heating costs reduced. I want to finish by talking about the financial markets, because you are entering a period, in fact, you're in a period of a sort of bulge of spending, a bulge of investment.

What are you hearing from the capital markets, from the asset owners, from the asset managers? Do they sort of fully buy your vision, your 60 percent in the US, or are they telling you, you know, you should be doing more in Asia? Or are they saying avoid Europe?

What are they telling you? Are they backing your plans?

MSA

The answer is definitely yes. I think, you know, definitely the longer term investors and the ones that are closest to the sector, they see this long term macro trends in energy. They see it in AI and sort of digital.

They see the demand growth also structurally over the medium, long term. And so, you know, we are very much plugged into that, whether it's on the network side or on the renewable side. So I think, you know, we've been able to do that, that's why we've also been able to raise capital over the years.

And that's why we've been able to attract also, you know, top sort of quality investors to back us. So I think that's definitely the macro trend. Obviously, there will be ups and downs, you know, so the market sometimes in the short term is a little bit more optimistic or a little bit more depressed.

But structurally over the long term, you know, we see that RAB growth, that regulated asset base growing in networks, and we see sort of additional renewable projects being built.

ML

Right, but I guess you're asking about the geographies where we see most. Geographies, but also I think whether things have changed in terms of, you know, a few years ago, you would have said, look, you know, ESG, you all got to do this thing, climate change, we'll shake the bag, form a line, put your money in it. We're done. I'm exaggerating. But that was your line, you know, two, three, four years ago. Have you had to change? And are you working much harder to persuade investors? Maybe let's phrase it like that.

MSA

At the moment, it's actually a good time. I think people are feeling very excited about the sector. But going back, I think this is a long term trend.

Again, you know, we've been around the sector for over 20 years. And, you know, as I mentioned earlier, we listed EDP renewables back in 2008. And there was a huge buzz about renewables at the time.

I mean, we've gone through all these different cycles. If we go back to 21, 22, you know, there's all this excitement around ESG and around, as you say, sort of people want to invest in the sector. Then we went through a slight depression when sort of back end of 23, 24, particularly around the offshore and maybe early 2025.

But now there's a lot of excitement around the demand growth and around the sort of the need that people are not talking that much nowadays about the energy or at least some people about the energy transition. They're talking about energy additionality. They're saying, you know, sort of there's a lot of demand. So what supply can we bring to the market quickly? And OK, by the way, that's renewables. And by the way, it also gives us more energy independence.

And so, you know, sometimes the priorities change. You know, you've got the energy dilemma, the trilemma, sort of the clean, affordable, reliable power. The clean part was very important a couple of years ago. I'd say maybe it's a little bit less important now. But let's say the affordable part and the reliable part is very important nowadays.

ML

So you used a word there, additional, which, you know, I've been very vocal about the fact that if clean energy grows fast enough, the sort of growth rates that you're talking about, it will not be just additional. It will get to the point where it now absorbs almost all of that demand growth. But if it can keep growing, it can actually then start to absorb more than the growth and start to displace fossil. So I guess it's a question of, you know, what's this space?

MSA

What's the space for sure over the next couple of years? I mean, it's a really exciting space. And as I say, it has its ups and downs. But that macro trend, whether it's on the network side, whether it's on the renewable side, I mean, it's there. And so, you know, we're here for the long term.

ML

Miguel, thank you so much for spending some time here with us today and explaining the path that you're on, the route that you're travelling. I find it very exciting. Thank you very much.

MSA

Thank you very much, Michael.

ML

That was Miguel Stilwell d'Andrade, CEO of EDP, one of the founder members of our Leadership Circle. As always, we'll put links in the show notes to resources we mentioned in our conversation. So that's my discussion with John Pettigrew, the former CEO of National Grid, episode 227. Tim Meijerjurgens, CEO of Tenet Germany, episode 233. Rob Dunn of Start Campus, that's the huge AI data centre in Sines, Portugal, episode 235. And Roger Dennis, one of our very early guests, talking about resilience on episode eight. With that, it only remains for me to thank our producer, Oscar Boyd, video editor, Jamie Oliver, head of operations, Kendall Smith, and the team behind Cleaning Up. Also, the other members of the Leadership Circle who make all of this possible and you, the audience, for spending some time with us here today. Please join us at this time next week for another episode of Cleaning Up.

Cleaning Up is proud to be supported by its Leadership Circle. The members are Actis, Alcazar Energy, Arup, Cygnum Capital, Davidson Kempner, EcoPragma Capital, EDP, Eurolectric, the Gilardini Foundation, KKR, National Grid, Octopus Energy, Quadrature Climate Foundation, Schneider Electric, SDCL and Wärtsilä. For more information on the Leadership Circle, please visit cleaningup.live. If you're enjoying this episode, please hit like, leave a comment and also recommend it to friends, family, colleagues and absolutely everyone. To browse our archive of around 250 past episodes and to subscribe to our free newsletter, visit cleaningup.live.