Introduction

Welcome to The Energy Shift, a podcast series focusing on the rapidly evolving energy landscape with hosts Luisa Fuentes and James Wright.

Luisa Fuentes: Good afternoon everyone. Welcome to this episode of The Energy Shift. How are you doing, James? Back from vacation.

James Wright: Yeah. Great to see the reset. Fresh back. I was out in the high desert of Utah last week in Moab, which I cannot plug enough if you haven’t been. It’s a really magical place. It’s kind of like hiking on Mars very, very cool place.

Luisa Fuentes: I’m going to add that to my long list of places to go to in the US, especially the national parks.

James Wright: Very cool place.

Luisa Fuentes: All right. On today’s episode of The Energy Shift, we’re going to be talking about credit ratings and their impact in the transition space. As we know, policy in the US continues to support decarbonization through tax credits for things like carbon capture, hydrogen, low carbon fuels, just to name a few. The pressure is on for banks to lean in, prepare and get informed as projects in the sector start to come to market.

Luisa Fuentes: Unlike traditional renewables, where initial project sizes were in the few hundreds of millions, transition is a skilled business and with the exception perhaps of storage projects in the transition space tend to be in the multiples of billions. At those price tags, the level of commitments expected from banks will be very high. Banks will likely request, if not wholesale require, that a project and or bond take out be rated.

Luisa Fuentes: This will serve to help both mitigate underwriting risk and refinancing risk. To that end, rating agency views on these key sectors will be critical to the ultimate finance ability of projects in the transition spaces.

James Wright: Yeah. That’s right. And as I think about analogies and parallels with some other spaces, Louis, I think about LNG as a nice example. Arguably a very important transition fuel in its own right and one where the US has been a dominant supplier over the past couple of decades. All of those deals are multibillion dollar financing. A number of the borrowers have opted to either then tap the 42 or the 144 markets.

James Wright: And equally, we’ve also then seen more recently a number of the renewable energy portfolio, which have grown at real scale, also tapping those markets where larger IPP and solar wind developers have seen the benefits of the foray to private placement market, particularly been another good source of long term capital. So I think you’re right there. There’s a very well trodden institutional capital path that many of these newer transition technologies will follow in due course.

James Wright: Now that we’ve set the table, we’ve invited two great guests to bring us some perspective on those themes and what they’re seeing in the transition. We’re pleased to welcome Greg Remick and Richard Sanders. The call Greg is a senior analyst of Fitch Ratings, and Richard is a veteran of both rating agencies and banks. And he’s an executive director in our CIBC corporate Bank and our in-house ratings expert. So great to see you, Greg and Richard.

James Wright: All right. So let’s get straight into it. let’s start with defining the transition. Greg, one of the key things we discuss most often is how different people or companies define transition. So perhaps it’s worth just trying to set the table a bit with what energy transition means for you and for Fitch.

James Wright: And also do you include traditional renewables in that? And what about natural gas as well?

Greg Remec: Sure. Happy to help set that table, James. And thank you to you and Luisa for having me on this podcast today. Always pleased to talk about these elements of what I work on and why I think it’s so fascinating. Energy transition is more than just moving to renewables for energy generation and moving away from fossil fuels. That’s certainly very important part of it, but it goes well beyond that.

Greg Remec: The overall aim is to reduce overall greenhouse gas emissions, enhance energy security and promote sustainability. And in doing so, again, beyond just power generation, another sector that’s affected is transportation. That’s one that we all know very well as vehicles are starting to transition to electric power as opposed to fossil fuels. But it also affects industry, heavy industries, especially difficult to decarbonize industries like steel, cement and chemicals, hugely energy intensive and traditionally use fossil fuels.

Greg Remec: So the transition there is more about energy efficiency and also creating alternative energy sources. Another sector that’s affected is buildings and construction, new construction and retrofitting existing buildings to improve energy efficiency. I think everyone is familiar with the leads program that certifies buildings to be Leed certified. It really speaks to their efficiency, their use of energy efficient materials, how they source their power, so increased use of renewable energy.

Greg Remec: They can create it using solar panels or using more efficient equipment like heat pumps. That’s all part of the transition agriculture, another one that’s traditionally been very heavily reliant on fossil fuels, not only moving towards EVs for farm equipment, but also looking at reduced emissions as far as how livestock is raised and the fertilizers that are used, the amount of fertilizers, the types of fertilizers, all these sectors are part of that transition.

Greg Remec: And of course, we all work in the financial sector. There’s significant investment promoting renewable energy, increasing use of of public transportation and infrastructure. And then the shift in investment strategies that need to support these kinds of sustainable and green technologies. So kind of why we’re gathered here today, but it’s more than just shutting down coal plants and building more solar plants, right?

Greg Remec: It’s really a wide range of transition that we address when we talk about energy transition.

James Wright: Yeah, exactly. That’s one of the challenges we found at the bank. So just the transition schematic covers basically everything we can cover everything. Every sector we touch. That was great. Great. Thank you. So Richard over to you. We speak often about, you know, the conflation between transition and sustainability on both the project side and the traditional corporate side.

James Wright: Could you maybe dig into the differences between the terms transition and sustainability for us? And given what Greg just said about transition, maybe just talk to us a bit about how sustainability fits into that picture.

Richard Sanders: Yeah, sure. James, thanks again for the invitation. I think as Greg was saying, transition and decarbonization, it’s a very wide topic in its own right, covers multiple sectors through both energy efficiency as well as through energy transformation. What I would say is that sustainability is arguably an even wider term. I the sustainability is, as I say, it covers various sectors that are away from the energy transition.

Richard Sanders: So water or circular economy. Biodiversity also addresses social considerations. And I think if you step back and think about how the rating agencies are thinking about this topic, and in broader terms, I think the best way to think about it is if sustainability is, in effect, the E in the S in the ESG that the rating agencies are assessing from a from an investor standpoint.

Richard Sanders: And I think it does best saying that even as we focus here on the environmental side and sustainability would also incorporate social, I think, where rating agencies dig into this the most. And I saw a number of recently from one of the agencies that up to a fifth of their portfolio of covered issuers is affected by ESG in a material way.

Richard Sanders: The vast majority of that impact is coming from the G side, from governance. So I think that also Betsy. Yeah.

James Wright: Great points there, Richard. Thank you. So maybe just staying with you, just pulling on a couple of those strings a bit. So how are our corporate clients looking at sustainability. What are you seeing there. What are some of the key areas that they’re focused on and how rating is playing into that?

Richard Sanders: Let’s talk in broad terms. I think from a client standpoint, as I see our clients, they’re tackling sustainability. And my view from two alternative lenses, one of which is risk and the other is opportunity. And I think on the opportunity side, and if you think about the various projects and the various investments that companies are contemplating, really, at the end of the day, your focus on consumer expectation for products and not just for sustainable products, not just, for example, for EVs.

Richard Sanders: But if you think, for example, we’ve heard a lot recently about the exploding demand for data and AI services and the impact that’s going to have on our energy supply chain, that’s a good example of opportunity. That’s driving an enormous amount of change that will have impact, both from a risk and an opportunity standpoint on developers, on utilities, on TMT companies, as we look to transform the way we deliver that particular suite of products.

Richard Sanders: On the risk side, I think we should be paying attention to and our clients are paying attention to climate resilience and disaster planning. and obviously, especially post-Covid, people have been very, very focused on supply chain interruption. All of these kinds of risks are things that rating agencies are taking account of as they think about how companies are addressing sustainability.

Richard Sanders: And that brings me back to that point about governance. The agencies, at least on the corporate side, I think the agency’s primary focus is on how, management teams actually addressing these points and how are they tackling them from an opportunity standpoint and the expenditure involved in making that opportunity happen, but also from the standpoint of risk mitigation.

James Wright: And maybe just to tack on to what you were saying, what about the new SEC disclosure requirements on scope one and two emissions and how they may impact approaches to corporate credit ratings?

Richard Sanders: We need to step back and look at that in the wider context that the SEC proposals and the SEC requirements, one of a number of requirements. If you look around the globe, I think the figure now is looking globally at all the different jurisdictions where these kinds of disclosure requirements are coming to the fore. We’ve got something like 22 jurisdictions already where this kind of disclosure is either already mandated or it’s shortly going to be mandated.

Richard Sanders: So a lot of push globally for climate disclosure that creates greater transparency and for consistency in that climate disclosure so that investors can actually make informed decisions. And issuers can also make informed decisions. The agency focus on this is probably more on those opportunities from a disclosure standpoint, from a consistency of analysis standpoint. But I also think there will be some instances.

Richard Sanders: Again, it goes back to governance for smaller companies, companies that are perhaps less well equipped to handle these kinds of additional disclosure requirements. That could be a credit concern, as agencies consider management teams ability to implement these kinds of things or otherwise, what the penalties might be if they fail to implement them appropriately. Once you get past that, you’re into a world where the disclosures, in broad terms are expected to bring benefits.

Luisa Fuentes: Moving on to new technologies, at CIBC, we spent a lot of time working with developers across the spectrum of what we call technological readiness. Some companies are developing projects that represent really evolution of otherwise established technologies and processes that are proven others, yet with offerings that look more like revolution, real potential game changers, maybe leaning into those game changers a bit.

Luisa Fuentes: While CIBC engages with companies early on the investment banking side, helping developers raise capital in the series B and C see space. It is often clear that when it comes to traditional project finance, these are opportunities that are too early for banks to engage in at any scale. Enter the D.o.e., the loan program, hydrogen hubs, DAC hubs, etc. starting with you Greg, maybe you can characterize the work that Fitch has been doing with regard to the D.o.e..

Luisa Fuentes: What sectors are you seeing? What are the sizes of the transactions that you’re looking at?

Greg Remec: Fitch rates a lot of projects for the Department of Energy’s loan guarantee program, and that program was started over a dozen years ago, really, to help projects that can’t achieve financing in the traditional markets get commercialized to help promote new technology, new processes and new efficiencies. And my first solar power project was part of a rating, was part of a Doe transaction to build these mega solar projects out in the California desert.

Greg Remec: Back in 2009 2010 timeframe. At that point, solar energy was considered new, technologically unproven, and really not financed, and these giant solar facilities were built to help prove the technology out, but also the commercial process behind them. The construction of them. And today we consider solar as traditional renewables. I’m not saying that the Doe was responsible for that, but they certainly helped to bring those kind of large scale projects to the market through the loan guarantee program, which really helped the system, that technology be adopted and commercialized.

Greg Remec: Same on the wind side when we had a little more of a track record and so was not considered as new and novel, but still not considered a traditional renewables project as it is today. In that vein, then, the Doe is continuing to pursue new technologies and requests a credit rating in order to help them decide on which projects to pursue and how to price the debt that they use for their loan guarantee program.

Greg Remec: In that vein, we have looked at projects fairly recently for high voltage DC transmission. We’ve looked at hydrogen cells, hydrogen production used for aviation projects, green hydrogen produced for renewable energy production, compressed air storage as a physical battery of sorts. Solar cell plant manufacturing here in the US, as we start to onshore more manufacturing projects, a more sustainable steel mill.

Greg Remec: Again, I mentioned steel as metals as one of the very difficult to decarbonize sectors. There’s steps that can be taken towards making it more of a transition, assisting industry, as opposed to completely relying on fossil fuels, renewable plastics, plastics made from non-fossil materials, both non-fossil and also biodegradable. Certainly something that would assist the transition. We’ve looked at, nuclear projects, both small scale nuclear as well as relicensing of existing facilities, nuclear being considered low emission technology, sustainable aviation, fuels created from using renewable resources, EV charging stations and EV fleets associated with last mile delivery.

Greg Remec: We’ve rated a 100% merchant battery electric storage project that has no contracts underlying it blue, ammonia, blue and green ammonia. Less carbon intensive approaches to to making ammonia, which is, a foundation for fertilizer, as I mentioned, for farming and then some further development of more traditional projects. But they carry higher levels of risk than others, such as offshore wind here in the US, very spotty history, very slow development of those projects.

Greg Remec: But we’re seeing that and the Doe gets involved with those as well as geothermal, which has been around for decades and decades, but is now getting a closer look as a low emissions technology and importantly, a dispatchable renewable energy production. These are all things that are relatively new on the technology front, and we don’t evaluate the technology itself.

Greg Remec: We rely on the technology experts, the independent engineers and the market consultants that help inform us on the technology risks. But we evaluate these in terms of their market structure. How are they going to earn their cash flows? What are the primary risk elements are beyond just technology? In order for us to come up with a credit rating for a proposed financing involving any of these new technologies, such that the D.o.e. can help promote and get them to a comfort level.

Greg Remec: Seen as investable and able to attain a commercial level of performance.

Luisa Fuentes: Just given the breadth of the technologies you just talked about and the early engagement that the Doe process brings you, how do you think that is preparing Fitch and other rating agencies for when these technologies become more fully commercialized?

Greg Remec: Absolutely. It’s incredibly helpful in that these are not projects that we would ever see outside of the loan guarantee program. Very unlikely that we would see something that carries this kind of technology risk, because technology risk is generally incompatible with investment grade project financing, which is really the sweet spot for the widest range of investors. And thus what, most issuers are trying to achieve for a project financing.

Greg Remec: Well, I rated my first solar project at Fitch over a decade ago. we did not have renewable energy rating criteria. It was brand new, and we had to develop it in order to apply it and refine it. Over time, as we saw more and more renewables transactions come to the market, for example, we not only had to have our own criteria for our rating purposes, but we needed to publish rating criteria for the market to understand how we would assess these risks.

Greg Remec: And as a result of rating those early projects, we first wrote our Wind power project rating criteria followed it up a couple of years later with Solar Power project rating criteria. Therefore, we hope to leverage that experience for the sectors where we think there’s additional work and additional opportunity warranted. We can write the sector criteria required to rate those kinds of, technologies.

Greg Remec: And as a result, we’ve largely supplanted the primarily fossil fuel portfolio that I was rating when I first came to Fitch, with mostly renewables projects now and related energy transition projects that, now make up the bulk of our portfolio.

Luisa Fuentes: That makes a lot of sense. I think we’re seeing the same on the project finance side, to be honest. Maybe putting aside the Doe with regard to technical risk, specifically, which sectors you think have evolved to the point where they should be able to achieve full scale traditional project finance, and maybe what are the drivers that allowed them to make that leap?

Greg Remec: I think that the sector that is most likely to start to tap Capital Market Solutions for financings is going to be battery electric storage, battery technology has one evolved technologically to the point where it is much safer, much more efficient than it had been not all that long ago. But very importantly, the price curve has evolved amazingly similar to what we saw with photovoltaic solar cells.

Greg Remec: The price has fallen precipitously to the point where now I think it becomes much more potentially economic on a standalone basis to build a solar plant with a battery plant or even a battery project as a standalone entity, which can then be used to help address the intermittency of renewable energy resources, such that we can get to the point where a large enough solar project with enough battery backup can, in fact, be considered dispatchable.

Greg Remec: That’s a major, major goal, but it has to be economical. And I think at this time we still would need to have revenue certainty behind a project like that to be successful in the capital markets financing. I think we would still need to have an investment grade off taker willing to pay fixed prices for that battery storage element, such that we can be more certain about the cash flow.

Greg Remec: We’re relatively comfortable with the cost profile for for battery electric storage projects. There’s still some safety safety concerns. So insurance plays a very important part of of that. And then how the projects are used is of course very important. Where will they be recycled? Frequently multiple times. And our 100% to 0%. Or are they more of a of a stable, long term, backup kind of service?

Greg Remec: And, all of these things have addressed both the cost cycle and the replacement cycle for, for batteries, which will have an impact on the credit profile as well. But I really think that batteries are at the point where they’ll be able to make that leap into traditional project financing, and open the way for the next technologies as well.

Luisa Fuentes: We have a lot of clients in the space that will be very happy to hear your views on that. So thank you for that, Greg. Pivoting to you, Richard, how do banks think about readings in the context of some of these novel sectors or technologies? Are ratings enough? If not, maybe. What are some of the other pieces of advice you would give to developers who plan to come to the market eventually for financing?

Richard Sanders: We’ve been working in this space a good long while, and I think historically we’ve always seen banks looking to achieving greater certainty around, take out financing for these newer technology sectors. And I guess what I would say also, just to complement what Greg’s been saying, I see technology risk on a continuum. And every project that we look at has some form of assessment of the degree to which we’re taking on new risks.

Richard Sanders: So if you go back to, for example, gas turbines and the number of hours at a particular model of a gas turbine has been operating, being a measure of what we can know about certainty of this operation over time, I don’t think that changes. I think we’re going to see, especially for single asset financings going forward. We’re going to continue to see that focus on what are the risks that have been taken and how are the developers passing out that risk to parties that can best take it, or otherwise, asking lenders to take a portion of that risk?

Richard Sanders: Or investors on the cap market side from an advice standpoint, I think the primary thing I see when I’ve looked at these kinds of projects for rating purposes in the past is enabling the agencies that you’re working with to be able to assess the technology risk not only during the construction phase, but through the life of the project.

Richard Sanders: I think sometimes people lose sight of the fact that, single asset financings are very long lived from a from a cash flow standpoint, and the debt service is required to be satisfied all the way through. So I think looking at life cycle risk is key and looking at which parties are taking which risks and how those parties are going to interact with each other over time.

Richard Sanders: I think that will remain key, irrespective of the technologies that we’re looking at. There’s always going to be some element of new technology or new configuration of existing technology risk. Greg and I’ve spoken over many years on reconfiguration of technology itself, bringing a level of risk to be assessed. So I think that’s what the developers need to focus in on.

Richard Sanders: I guess my last comment we may see more of going forward is more complexity on the capital structures of the developers themselves, as they take some of that risk on their own balance sheets, away from individual projects.

James Wright: That was a great segment into a couple of topics I wanted to touch on just to tee this up. I think we’ve we’ve seen quite a bit of noticeable pushback over the past year or so on the sustainability thematic, should we say, and even the label itself. This has been coupled with a general slowdown in development on certain transition technologies as well.

James Wright: So if we could dig into that a bit, Greg, maybe starting with you development across some of those more novel spaces in transition, like cars, hydrogen and SAS, they’re definitely ongoing. They’re moving forward. But timing on f id for some of those projects looks like it’s been pushed out quite a bit in some cases. Do you or Fitch have a view on the cause of some of those delays, like what are you seeing?

James Wright: There is a purely driven by economics. Are there other kind of regulatory or political factors happening there? What are you seeing.

Greg Remec: A bit of all of that. But I think the primary thing that any project really needs to have, in order to move ahead is a contracted sales agreement with a creditworthy counterparty lacking that kind of offtake agreement, you just can’t get to a level of cash flow certainty that can justify making the investment. As much as we hear about the interest in, for example, using hydrogen, we did rate a hydrogen project that was able to get to an investment grade rating because it did have, in fact, a well rated offtake taker willing to pay above market prices for green hydrogen to then produce low emissions to, power.

Greg Remec: Part of that projectwas that off taker being willing to contract on a long term basis for known level of pricing and as well as mitigating some of the costs to actually enable that project to potentially achieve an investment grade rating in capital markets. So lacking that kind of revenue certainty, I think it’s going to really sideline the development of many of these promising new technologies until they’re either financed through strictly equity or higher yield debt issuances that are able to absorb that kind of risk, anticipate that kind of risk until we have more of those either demonstration projects or just, comfort level improved with technology demonstration, it’s really

Greg Remec: going to require counterparties willing to pay above market prices for a product that they can already buy. Otherwise, in some cases, we have we have, for example, direct air capture. You’re not making anything. You’re not selling something. You’re splitting air into its components and burying the greenhouse gases for a credit. It’s really regulatory driven and regulation is another well can either promote the technology or it can hold that up as well.

Greg Remec: We started off talking a little bit about natural gas. And we absolutely see natural gas as a transition fuel, helping to make that transition to a lower carbon environment.

James Wright: Hearing you talk, actually, Greg, it made me think about there’s no special rules for project financing for transition, right? In the sense that the normal kind of project finance rules apply. You’ve got to have a well structured contractual matrix that apportion the risk. So the best parties place to take that risk, whether that’s, as you were saying, the borrower, the end product, the government VPC contractor building it, those rules still apply.

James Wright: So that was a point one way. Thank you Richard. Just pivoting to you quickly. Then on the sustainability side then what are you seeing with clients if you felt a bit of shifting there with regards to folks leaning in on the sustainability thematic, what’s driving that, again, is that is that really kind of where we’ve been in the economic and political cycle or other kind of factors that we should be thinking about?

Richard Sanders: Thank you. James. A few things to tackle here. I think that we have a lot of companies in our, client portfolio, both on the corporate side and on the project side, who, are and have been for many years leaning into sustainability in a big way. We have pure play developers. We have companies that are extremely active in the space in multiple ways, and we have companies that are considering reconfiguring some aspects that their go forward strategies to address this space more clearly.

Richard Sanders: I don’t think that goes away. We have some political risks out there and some regulatory risks. The sort of the flip side of what we were talking earlier about on the reporting side. And I think that that does create some noise in the press as companies think about this. But I would maintain that most of our clients, if not all of our clients, know exactly what they’re trying to achieve.

Richard Sanders: They may not have decided exactly how they’re going to get there, but they know broadly what they’re trying to achieve. and the challenge really is how do you documented and how much do you talk about it? how visible do you want to be, not just from a regulatory standpoint, but also how visible do you want to be from the standpoint of a competition, point of view?

Richard Sanders: You know, some of the some of the companies that I’ve been involved in rating, for example, in the chemical sector, the most profitable parts of their business, so also the parts of the business that they want to talk the least about. And some of these opportunities and sustainability. I think that the opportunities are potentially very profitable for some of the companies.

Richard Sanders: So we may not see a lot of discussion about some aspects of sustainability just for simple competition reasons. I’d say from a rating agency standpoint, I see the agencies as somewhat takers in all of this, especially on the corporate side. They need to assess what’s brought to them, and they need to think about the complex of risks and the cash flows that are being generated.

Richard Sanders: Actually, whether it’s a project or a corporate in its own right and in isolation from others and in comparison with what others are doing, often they’ll have better information as an organization from those management teams, then we can have as bankers and that the general public will have. But so it’ll be partial information. They have to make an assessment accordingly.

James Wright: Yeah, exactly.

Luisa Fuentes: I’m going to move to a question that’s really driving a lot of conversation lately, especially with clients. And that is, U.S political risk. Obviously about two thirds of the world’s democracy are having elections this year. A lot of those are already settled with France, India, the U.K., etc. the US election is upcoming in November. There are very sharp contrast between the two parties with regard to transition sectors, at least in the rhetoric.

Luisa Fuentes That’s been put forward. Greg, how are rating agencies processing U.S macro political risk in 2024? Is the IRA at risk or is it too embedded to be undone? Are we at risk of a significant slowdown in the renewable space, in the transition space? And what about, things like the LNG moratorium and development in the CG space?

Greg Remec: We recognize these as potentially real risks to projects financings. You know, we can’t wait and see what the results are going to be. We have to anticipate what could happen if support for these programs either continues with the current administration, or is radically changed with the introduction of a new administration, the Inflation Reduction Act, the IRA. It includes a lot of funding for climate and energy programs, and we know that a Trump administration might try to roll back some of that funding De-Fund some of those provisions, particularly things relating to renewable energy and climate change mitigation.

Greg Remec: But we also know that the IRA has been a reasonable success in terms of deploying capital that works for both sides of the aisle. It’s not strictly a red state or a blue state issue, and I think it will be very difficult to reverse. Not only that, but a Republican victory at the presidential level would need to be accompanied by, control of both houses of Congress in order to really change laws.

Greg Remec: And so even if that’s not the case, there could still be pressure to change regulation, to delay or weaken or reinterpret regulation and diminish the impact on, carbon emissions, all in support of the fossil fuel industries. Therefore, I don’t think that there’ll be absolute cessation of progress towards decarbonization and support of renewable energy. We saw in Trump’s first administration withdrawal from the Paris Agreement.

Greg Remec: This was something that we had we had agreed to and, was completely reversed. Your minimize the U.S. involvement. Could we see movement in that direction again, to minimize the impact of any agreements that have been entered under the current administration? Certainly, that’s that’s the case on the environmental side. We saw in Trump’s first term significant rollback of environmental regulation actions that could happen again, as we rate projects that rely on cash flows from a given set of assets, we have to anticipate to what extent do these cash flows rely on government support?

Greg Remec: To what extent do they rely on funding or subsidies that exist today that could be reversed? It’s similar to be contracting risk. If there’s not a strong certainty that a government program will remain in place through the maturity of the debt, then we have to consider what would happen if it does get eliminated and we look to things like break even levels.

Greg Remec: certainly for peer comparison, how does one project that may be exposed to a similar risk? How was that evaluated? How was that rated in the past? It’s not that we will know with certainty even once the election is over, what the impacts will be. Eventually. We have to anticipate that things will change. I think it’s fair to say that if Trump is elected, there’ll be much more support for fossil fuel industries and, less of a legislative support for moving towards renewable energy.

Greg Remec: But it’s absolutely the case that states have a lot to do with the direction of that transition. States are the ones that set their renewable portfolio standards. and you look to California and you see the just a very, very aggressive move towards zero emission economy. They’re going to do that no matter who’s in Washington. They seem to be well on their way towards doing that.

Greg Remec: And even if you don’t have the support at the federal level, I mentioned that, air capture project based completely on California regulations. it’s not federal money. That’s that’s supporting it. But, Californian, that can vary state to state. And on the other hand, there are states that are very far behind California and have made very few steps in energy transition direction.

Greg Remec: What happens at the federal level doesn’t necessarily, dictate what will happen at the state level. So there’s many different ways it can go. And we understand that that’s the case. And so we try to look at many scenarios to give us a sense for what are the single points of failure. What are the things that a project is most at risk at threatening its ability to service its debt?

Luisa Fuentes: Thank you Greg. I think with that, we move to our favorite segment of the pod, which is what’s shifted. Greg. Richard, we like finishing each pod with a quick round robin of what’s been shifting all of our week’s energy or non-energy related. Given the heaviness of the last few weeks here in the US especially, I’m going to try to aim to end with some positive notes so I can kick off.

Luisa Fuentes: One of the things I’ve been spending a lot of time on is manufacturing, and I think there is a growing optimism, backed by actual data, that the US is reemerging as a manufacturer and maker of products and a real manufacturing player in the global space. Those products are in sectors ship equipment, climate tech, really that are going to be around for a long time.

Luisa Fuentes: They are involved with, providing prevailing wages for the IRA. And I think there is a potential for this to have long term impact into the middle class for generations to come. So I grew up here when my family emigrated during the years of factory shutdowns in the northeast, in the Mid-Atlantic states, as jobs went abroad, this reversed.

Luisa Fuentes: This reminiscence of manufacturing feels really good to witness. James, I’ll kick it over to you.

James Wright: Thanks. So that’s a great, positive one. I’m going to be a little uncharacteristically glass is half empty to start with, and I’ll try and turn it around. So we we saw some pretty worrisome data on where corporate commitments are currently up for net zero pledges and sort of where we’re heading with that. I was looking at some this last night, and the data is really showing that the kind of emissions budget, so to speak, that we have to even have a chance of hitting the Paris 1.5 degree target is eroding pretty quickly.

James Wright: If we’re going to have a chance of hitting that, we’re going to have to really see those corporate commitments increasing pretty quickly. So that was kind of a pause moment for me. But then flipside, trying to be positive for a second. On a lighter note, I’m reading a fantastic book right now, actually, all about the history of formula One for one car racing called The Formula.

James Wright: And it reminded me some of the history I remember as a youngster back in the 80s and 90s at a huge pace of technological development in that sport, with driver safety stuff, engine technology, electronic driving aids, all that sort of good stuff. And it reminded me that as a species, we do have a knack of solving problems through technology.

James Wright: So where there’s a will, there’s a way, and it’s just a question of whether we move quick enough. That’s my thought.

Richard Sanders: I’m actually going to echo what James was saying a little bit. I do think that notwithstanding some of the political headwinds and notwithstanding the the challenges on net zero that we are seeing, I do think we’re living through a period now where there’s, global transformation and the willingness to accept and recognize that there is something that there’s a challenge and we need to face up to and and to find the technology solutions to do that.

Richard Sanders: We, here based in a region where we have a great deal of focus on finding technology solutions to solving these kinds of problems. For me, it’s a privilege to be part of this and to be involved in financing this. I would end on that note.

Greg Remec: My contribution will be a little more personal and less philosophical this weekend. Sadly, my 2010 accord bit the dust. I had a transmission outage at 220 something thousand miles. made it not warranted for life extension. So my wife and I started talking about, well, what what kind of car are we going to buy? And she is absolutely not comfortable with a fully electric option yet. And I think that mirrors to a large extent what many people are thinking.

Greg Remec: But she does want to reduce our carbon footprint. And so she thinks that maybe a hybrid or plug in hybrid might be a good choice for us. And so that will achieve a lower carbon footprint by virtue of higher mileage, better miles per gallon. But we’re not quite ready to flip the switch and go fully electric for many reasons, but I think it mirrors what a lot of people are weighing when they have to make that decision and what their options are.

Greg Remec: And it’s, like I said, a personal demonstration of my, small but growing contribution to decarbonization.

James Wright: Greg, you do realize when this podcast goes live, you’re going to have every car dealer in the Chicagoland area calling you.

Greg Remec: Yes, well, I have I have a limited budget, so there won’t be that many happy car dealers.

James Wright: That was great. Great, Richard. Fantastic, great. We could have talked about this for a very long time. Fantastic content from you both. We’ll continue to watch rating agencies and the important role you’re playing, Greg, in this energy transition a great topic and you’ve been excellent guest. So thank you both very much.

Outro & Disclaimer

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Rating the Transition

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