The PJM Reliability Resource Initiative (RRI)

The PJM RRI was a one-time, expedited process launched by PJM to address near-term concerns about resource adequacy due to factors like significant load growth (e.g., from data centers), accelerated generator retirements, and the time it takes for new resources to complete the standard interconnection process.

Here are the key points about the PJM RRI:

• Purpose: To quickly bring "shovel-ready" generation resources online that can most effectively contribute to grid reliability in the PJM region.
• Mechanism: It allowed a limited number of new or upgraded generation projects (up to 51 were ultimately selected) to bypass the standard queue and join Transition Cycle #2 (TC2) of PJM's reformed interconnection process. This accelerated the study and approval timeline.
• Project Selection: Projects were selected based on a weighted scoring formula that primarily considered:
• Market Impact Criteria (e.g., Unforced Capacity (UCAP) and Effective Load-Carrying Capability (ELCC), which measure reliability contribution).
• Commercial Operation Date Viability Criteria (e.g., the planned in-service date and the project's readiness, such as permitting, equipment, and financing).

Result: The initiative successfully selected a mix of projects, including uprates to existing natural gas and nuclear facilities, as well as new battery storage and gas construction, with the goal of adding significant reliable capacity to the grid.

In short, the PJM RRI was a temporary, emergency measure to boost the grid's resource capacity and maintain reliability in the face of rapidly changing electricity supply and demand dynamics.

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"The extent to which projected AI-driven electricity demand materializes in the future will have consequences for those investors who back today's construction of data centers and related power plants"

"This year, we are going to put $300 billion into building data centers in this country. Is all of that needed?" said Himanshu Saxena, chairman and chief executive at private-equity firm Lotus Infrastructure Partners, which invests in power plants. "I have no way of telling."

To protect against risks, Lotus seeks to sign long-term contracts with large users of data centers that have solid balance sheets, so-called hyperscalers such as Google, Amazon and Microsoft, instead of the operators of the facilities serving them or other intermediaries, Saxena said.

"If I'm selling power to somebody, I want it to be a Google on the other side. I do not want it to be a middleman or a [data center operator], because I can't see what they would be doing in 15 years," he said. "If you are doing a deal with a heavily levered data center company and 10 years from now they go under, our contract is worthless."

The sheer volume of capital required to build generating plants and data centers with tens of thousands of power-hungry digital processors makes speculation more difficult than in previous infrastructure booms, said Todd Bright, co-head of private infrastructure for the Americas at Partners Group. He is also a partner at the Swiss private-equity firm.

"[There were] very low barriers to entry compared with building data centers," Bright said of past infrastructure booms turned into busts. As an example, he cited the "build it, they will come mentality" that predominated in the rollout of fiber-optic systems for broadband services during the late 1990s, which hurt telecommunications companies when the dot-com bubble burst.

Source: WSJ

https://www.wsj.com/articles/power-sector-investors-hedge-bets-on-ai-boom-607c1de2

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Waldorf Production loses court case for restructuring

 

Waldorf Production UK Plc, Re - Find Case Law - The National Archives

The judgment in Re Waldorf Production UK Plc [2025] EWHC 2181 (Ch) concerns the proposed restructuring plan of Waldorf Production UK Plc (“WPUK”), an oil and gas company operating on the UK Continental Shelf. The plan aimed to enable WPUK to continue trading while pursuing a solvent sale, involving a cross-class cram down of dissenting unsecured creditors—Capricorn Energy and HMRC—who opposed the plan. The restructuring was supported by a steering committee of bondholders holding 84.8% of the bonds. The court examined the statutory preconditions under the Companies Act 2006, including whether dissenting creditors would be worse off under the plan than in the relevant alternative (likely administration or liquidation), and whether the plan was fair.

Justice Hildyard concluded that although the statutory conditions for sanctioning the plan were met, the plan was ultimately unfair. He found that WPUK and its bondholders failed to engage meaningfully with the dissenting creditors during the formulation of the plan, offering only a 5% recovery without negotiation or justification. The court emphasized that the benefits of the restructuring—particularly the potential for a solvent sale—depended on the compromise of the unsecured creditors’ claims. Drawing on recent Court of Appeal decisions, including Re Petrofac, the judge stressed that fairness requires a genuine attempt to negotiate a reasonable compromise with all stakeholders, especially when the restructuring benefits are derived from their concessions.

The judgment also highlighted troubling conduct by WPUK’s former management, including the payment of a US$76 million dividend based on flawed accounts and the failure to engage with HMRC regarding significant tax liabilities. These actions contributed to WPUK’s financial distress and undermined the credibility of the restructuring plan. Ultimately, the court refused to sanction the plan, inviting the parties to pursue further negotiations and potentially return with a revised proposal that fairly allocates the benefits of the restructuring among all creditor classes.

See also: https://oginsights.blogspot.com/2025/07/waldorf-production-north-sea-operator.html

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Permian Part II

The Permian continues to deliver record gas volumes. At the same time, gas demand at the US Gulf Coast continues to grow as more LNG facilities come online.

Yet gas pricing at the Permian remains in negative territory with a $5-7/mcf discount to pricing at Gulf Coast hubs. Egress remains constrained but should ease with pipeline expansions and Matterhorn coming online.

 

Looking forward and further downstream, record LNG exports could see a softer LNG flush market – expect merchant revenues (i.e. excess volumes above contracted SPAs) at Gulf Coast LNG facilities to decline in the coming years.

 

In contrast, pipeline revenues will see growth with pipelines being booked to capacity. Further optionality for pipelines in the case of lower LNG excess volumes trading by supplying existing and new gas power plants in the Gulf Coast region – Texas will be an attractive region for power intensive datacenter development.

 

More generally, the US should see c.2.5% load growth per year over the next 10 years – with 60% driven by datacenters, 40% from reshoring/reindustrialisation and  electrification (20% each). This will need to be met by building new gas generation, renewables (onshore solar), and grid stabilisation with BESS. Coal retirement delays (which kicked off during the Biden administration) will also be needed in a truly “all of the above” solution.

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German onshore FiP award prices decline again

Feed-in Premium (FIP) Mechanism

In Germany, most new large-scale renewable energy installations, including onshore wind, receive support through a sliding Feed-in Premium (FIP), known as the Market Premium (Marktprämienmodell).

The FIP is the difference between the "Reference Value" (the price awarded in the auction) and the "Market Value" (the average market price achieved by the power, adjusted for the specific technology and time of generation).

FIP Payment = Reference Value - Market Value

The producer sells the electricity directly on the market and receives the FIP as a top-up payment.

The "Ceiling" Price

The "ceiling" or maximum price is set by the Bundesnetzagentur (Federal Network Agency) for the auctions.

This is the highest price (in cents per kilowatt-hour, or ct/kWh) that bidders are allowed to submit in the tender.

Ceiling Price (Maximum Bid): For example, the ceiling for onshore wind auctions in 2024 and 2025 was set at 7.35 ct/kWh.

The "Actual" Price (Reference Value):

The "actual" price is the Reference Value/Award Price that a successful project secures in the auction. This is the price that is used to calculate the FIP.

Actual Price (Reference Value): This is the winning bid price, which is generally below the ceiling price.

The Bundesnetzagentur has kept the ceiling stable because the "upward trend in bid volumes has not yet led to a significant decrease in the award prices" (meaning the actual winning bids are still relatively high).

In summary

Ceiling Price: The maximum allowed bid in the onshore wind auctions (e.g., 7.35 ct/kWh for 2024/2025). This price is a cap on the Reference Value.

Actual vs. Ceiling: The actual awarded price (Reference Value) in the auction is typically lower than the ceiling price. The FIP payment is then calculated based on this Actual Award Price minus the actual market revenue.

Results Show Increasing Competition and Decreasing FiP 

Tender Date (Closing)	Maximum Bid Price (Ceiling) (ct/kWh)	Average Volume-Weighted Award Price (Actual) (ct/kWh)	Difference (Actual−Ceiling) (ct/kWh)
Dec 2020	∼6.20 (est.)	5.91	(0.29)
May 2021	6.2	5.91	(0.29)
Sep 2021	6.2	5.79	(0.41)
Feb 2022	6.2	6	(0.20)
May 2022	6.2	6.3	0.10
Sep 2022	6.4	6.34	(0.06)
Feb 2023	7.35	7.3	(0.05)
May 2023	7.35	7.31	(0.04)
Aug 2023	7.35	7.32	(0.03)
Nov 2023	7.35	7.33	(0.02)
Feb 2024	7.35	7.33	(0.02)
May 2024	7.35	7.33	(0.02)
Aug 2024	7.35	7.33	(0.02)
Nov 2024	7.35	7.15	(0.20)
Feb 2025	7.35	7	(0.35)
May 2025	7.35	6.83	(0.52)
Sep 2025	7.35	6.57	(0.78)

Key Trends

• Maximum Bid Price (Ceiling): The ceiling was adjusted upward significantly in 2023 (from $\sim 6.2$ ct/kWh to 7.35 ct/kWh) due to rising costs for construction, financing, and operation. This higher ceiling has been maintained through 2025.

• Near-Ceiling Bids (2023-2024): After the ceiling was raised, the Average Award Price (Actual) came very close to the Maximum Bid Price (Ceiling) for all of 2023 and most of 2024. This indicates that developers needed the full support price to cover their increased costs, leaving very little competitive margin.

• Falling Prices (2025): Starting in late 2024 and continuing into 2025, the Average Award Price began to show a noticeable decline, moving further below the ceiling. This suggests that competitive pressure has increased, likely due to a better project pipeline (more permits) and potentially stabilized or reduced costs, leading to lower subsidy requirements. The auction in September 2025, for example, saw the average bid fall to 6.57 ct/kWh, a significant drop.

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Apollo / RWE JV to fund Amprion

Apollo (NYSE: APO) today announced that Apollo-managed funds and affiliates have agreed to commit €3.2 billion of equity to a newly established joint venture with RWE, Germany’s largest power producer and a global leader in renewable power generation. The JV will be operationally controlled by RWE and hold and fund RWE’s 25.1% stake in Amprion, a Transmission System Operator (TSO) spanning across seven German federal states and serving approximately 29 million people and industrial corporations.

 
The JV will provide the required equity capital for its 25.1% stake to support Amprion’s major investment program for grid expansion over the next decade, enhancing critical German energy infrastructure. The JV is supported by reliable and stable dividend returns from Amprion’s regulated asset base. For RWE, the partnership with Apollo also aligns with its strategy to grow its generation portfolio of renewables, batteries and flexible generation assets and to focus on its core activities of power generation and energy trading.
 
Apollo Partner Jamshid Ehsani said, “This partnership with RWE will help fund long-term capex for critical grid expansion in Germany to power homes and industry, and it underscores our focus on delivering tailored capital solutions to leading global companies and essential infrastructure. It also reflects Apollo’s commitment to strong, lasting partnerships across both the private and public sectors. Looking ahead, we expect to further accelerate our investment activity in Europe, with a particular focus on Germany, France, Italy and the UK.”
 
The JV investment builds on Apollo’s significant record of providing scaled capital solutions to leading companies. Since 2020, Apollo has originated more than $100 billion of bespoke, high-grade solutions, including for European companies and/or European assets such as EDF, BP, Vonovia, Air France-KLM, AB InBev and Intel’s Fab 34 in Ireland, among others. Earlier this year, the Firm announced that it expects to deploy more than $100 billion in Germany alone over the next decade, helping to meet market demand for long-term financing and investments.
 
The transaction is subject to regulatory approvals and customary closing conditions, and it is expected to close in the fourth quarter of 2025. Latham & Watkins LLP and Paul, Weiss, Rifkind, Wharton & Garrison LLP are serving as legal counsel to the Apollo funds.

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Fossil and Renewables Have to Coexist

Five years ago, the narrative became renewables all the time. The perception was that renewables would displace fossil fuels, and that fossil fuels would have no place in the world. That perception has been truly shattered.

With the power demand of AI and electrification, and the impossibility of delivering electricity to meet that demand, the world is rolling back. Hyperscalers are signing power from renewables and fossil power plants - they need and want both.

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PJM: Producer - Pay to Play

 

PJM adopts the common practice of new power producers paying for the grid upgrade required to support the new load being introduced by the producer. This ensures fairness as a principle and avoids free-riding. 

A similar model exists for most markets including MISO, ISO-NE, SPP, ERCOT, NYISO, although with e.g. ERCOT, broader upgrades beyond the interconnection can be shared with the transmission operator funded through transmission rates.

However: In PJM, MISO, ISO-NE and SPP, transmission owners also have the unilateral ability to fund upgrades and charge the interconnection owner for the cost plus a return. There are concerns by FERC that this increases the cost for end consumers because the transmission owners is earning a return for the upgrade vs. this being paid for by the generator - although still to be reconciled that funding of capex should in general earn a return to attract capital, regardless of the source of that capital. The transmission owners should therefore have the right to compete to fund upgrades. But should this be at the transmission owner or the producer’s discretion?

Another concern is around cost allocation - how much of the burden is funded by the producer, and balancing that against burdening the rate base to be shouldered by consumers who may not ultimately benefit from the upgrade.

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Anatomy of an Auction: A Simplified Example of PJM Capacity Auction Clearing

PJM Service Area (inc. DC)

Anatomy of an Auction: A Simplified Example of PJM Capacity Auction Clearing

The PJM annual capacity auction utilizes a "descending clock" mechanism to determine which power generators will be paid to be on standby and ensure a reliable electricity supply for the 65 million people in its territory. While the actual auction is highly complex, this simplified example illustrates the core principle of how the auction "clears" and sets a uniform price for all successful participants.

The Setup: Demand and Supply

First, PJM determines the total amount of capacity it needs to secure for a future year. This is based on forecasted peak demand plus a reserve margin for unexpected events.

Let's assume for our example:

• PJM's Required Capacity: 10,000 Megawatts (MW)

Next, power plant owners offer their available capacity into the auction at the minimum price they are willing to accept to be available for that year. These offers come from a variety of sources with different costs.

Here are our hypothetical power plants and their offers, ranked from lowest to highest price:

Power Plant	Resource Type	Capacity Offered (MW)	Offer Price ($/MW-day)	Cumulative Capacity (MW)
Plant A	Nuclear	2,000	$10	2,000
Plant B	Hydroelectric	1,000	$25	3,000
Plant C	Coal	3,000	$50	6,000
Plant D	Natural Gas (Combined Cycle)	2,500	$90	8,500
Plant E	Natural Gas (Peaker)	2,000	$150	10,500
Plant F	Older Coal	1,500	$175	12,000
Plant G	Demand Response	500	$200	12,500

The Descending Clock in Action

The auctioneer starts the "clock" at a high price, well above what anyone has offered. At this high price, all the power plants are considered "in" the auction because the price is favorable to all of them.

The auctioneer then systematically lowers the price in rounds. As the price on the clock drops, it will eventually fall below the offer price of some of the more expensive power plants. When this happens, those plants will drop out of the auction as the price is no longer acceptable to them.

Let's simulate the process:

• Clock Price: $250/MW-day: All plants (A through G) are "in." The total available capacity is 12,500 MW, which is more than the 10,000 MW needed.

• Clock Price: $180/MW-day: The price is still above Plant F's offer, so it remains in. All plants from A to F are still in.

• Clock Price: $160/MW-day: The clock has now dropped below Plant F's offer of $175/MW-day. Plant F drops out. The total available capacity is now the sum of Plants A, B, C, D, and E, which is 10,500 MW. This is still above the 10,000 MW requirement.

• Clock Price: $150/MW-day: At this price, Plant E, with its offer of $150/MW-day, is still "in." The total available capacity from Plants A through E is 10,500 MW.

The Clearing Price: Where Supply Meets Demand

The auction "clears" at the price where the amount of offered capacity is just enough to meet PJM's required capacity.

In our example, when the price dropped and Plant F exited, there was still 10,500 MW of capacity available from the remaining plants (A, B, C, D, and E). Since this is the first point at which the available capacity meets or just exceeds the 10,000 MW requirement, the auction is over.

The clearing price is set by the offer of the last generator needed to meet the demand. In this case, that is Plant E, the natural gas peaker plant. Therefore, the clearing price for all successful participants is $150/MW-day.

The Results: Who Gets Paid and How Much

Here's the final outcome of our simplified auction:

• Cleared Generators: Plants A, B, C, D, and E.

• Uncleared Generators: Plants F and G did not clear because their offer prices were too high. They will not receive a capacity payment.

• The Payment: All the cleared generators (A through E) will receive the same clearing price of $150/MW-day for their committed capacity for the specified delivery year. This is a key feature of the auction – even though Plant A offered its capacity at a much lower price, it still receives the higher, market-clearing price.

This example demonstrates how the PJM capacity auction is designed to secure the necessary amount of power at the most competitive price, with the final clearing price being set by the last resource needed to ensure grid reliability.

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US Power Markets

 

US Power Markets

PJM Service Area (inc. DC)

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The Future of AI: Deployment, Disruption, and Dystopia?

The world of Artificial Intelligence (AI) is evolving at an unprecedented pace, even surprising industry insiders. This rapid acceleration is particularly evident in breakthroughs in next-generation AI and embodied AI, such as humanoid robotics, as well as the advanced development of AI agents.

The Future of AI: Deployment, Disruption, and Dystopia?

We can anticipate a broad deployment of AI applications in 2026 and 2027. We're already witnessing the initial phases of this integration, with some companies experiencing layoffs and the incorporation of AI into their business models. A recent example is Business Insider, which reportedly laid off 20% of its workforce. Interestingly, some early adopters are experiencing a sense of "regret," realizing that human involvement is still crucial for AI's success.

The 2020s are poised to be a period of massive innovation in AI. However, projections suggest the 2030s could lean towards a more dystopian future, potentially necessitating a fundamental shift in the social contract. Looking further ahead, the 2040s might bring about a period of abundance, positively impacting both work and leisure.

The Lag in AI Regulation

The current pace of AI regulation is significantly lagging behind technological advancements, and it appears this trend will continue. A sovereign arms race in AI is likely to take precedence over ethical considerations. Many major risks are currently being "auto-regulated" by individual companies. It's crucial to acknowledge that AI can exhibit behaviors as detrimental as humans, highlighting the urgent need to instill morality within AI systems.

Current Leaders in the AI Landscape

Google is viewed very positively, having successfully delivered usable AI to consumers. Companies like Apple and Intel are perceived as being behind in the AI race. Nvidia is considered to be performing well. The rumored merger between OpenAI and io is believed to be focused on acquiring an ambient AI-related device.

DeepSeek's Impact and the Future of AI Scaling

DeepSeek did not prove to be the disruption many anticipated. Its emergence demonstrated that simply scaling AI through more training and data is not the future of the technology. There are natural limits to the availability of information for AI training, and in the future, the marginal value of information and knowledge is expected to fall to zero. The availability of lower-cost AI will inevitably lead to increased demand and more diverse use cases. Nvidia, for instance, believes the market will absorb all the chips it can produce. The question of whether we have enough data centers remains an open one, reflecting the speculative nature of AI's future importance.

The Sovereign AI Race

The sovereign AI race is a tangible reality and will likely overshadow ethical concerns. China possesses approximately half of the world's AI researchers and can leverage its state control to its advantage. China is also reportedly leading in terms of power and compute capabilities. However, the United States still holds an edge with superior AI models and excellent access to capital for funding AI initiatives.

How AI Will Reshape Our World

AI will fundamentally change the world by driving the cost of knowledge to zero. AI businesses will likely adopt a tiered model to maintain profitability. Applications as we know them may fade into the background, with users relying on an AI assistant to "search" for them. Business costs, including labor and capital, are expected to decrease significantly.

Ultimately, AI is an amplifier of human talent. The key differentiator between businesses will remain human talent, as technology becomes increasingly accessible to everyone. While AI promises immense benefits, it will also introduce dystopian and ethical risks.

Bottom Line

• AI chip and energy demand are projected to remain high, as lower-cost solutions will only fuel increased demand.
• Labor disruption is likely to be very significant and occur in the near future.
• Productivity and profitability are expected to increase very soon.

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OPINION: Supply Chain Woes

Supply chain risk was a child of COVID-19. With mass lockdown, industrial closures, limitations on transportation and shipping, supply chains were stretched. This was then exacerbated post COVID-19 as the world ramped back up to normal and supply chains unable to cope. This manifested in delivering delays and higher transportation costs along the entire value chain.

Now geopolitics are entering the mix of reasons for supply chains disruption. Protectionism and tariffs are increasing costs - project developers have been bulk ordering to try and get ahead of the curve - and reshoring are pushing up costs further. Restrictions on exports are adding to the woes. Think US CHIPS Act and Chinese restrictions on rare earths exports.

All this at a time when the world needs an affordable and functioning supply chain to deliver the energy transition, growth in power demand and AI compute.

This is what happens when supply chains were built for just-in-time to slim down costs and working capital. What the world needs now to rebuild is a just-in-case supply chain.

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Real-time power consumption from two US hyperscale data centres

 

Real-time power consumption from two US hyperscale data centres (MW)

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US Large Load Tariffs

 Large load datacenters are driving a large proportion of investment by utilities required for load augmentation. This introduces asymmetry with significant long-term investment to serve one specific group of customer over the current broad retail/commercial customer base.

This one customer group - hyperscalers - are also prone to rapid technological change. This poses the dilemma of how to ensure this group pays for the cost of serving them and shielding existing customers from the risk of future datacenter power demand being lower than expected.

Utilities are adopting several mechanisms to balance attracting new large customers while protecting existing customers (ratepayers) with "large load tariffs":

• Rates based on the marginal cost of serving the new customer
• Long-term contracts obliging payment of service regardless of whether power is required, to provide revenue certainty; an option to exit the contract for a fee could be a feature
• Minimum monthly demand and energy charges - i.e. take-or-pay, so that large customers contribute to grid costs even during low usage periods. Foe example, AEP Indiana uses a charge based on 80% of contracted or historical peak demand
• Collateral requirements

Examples of large load tariff protectionist features include:

State	Utility	Tariff Features	Purpose / Notes
New Mexico	Multiple Utilities	Special rates allowed by law if they recover incremental service costs	Supports economic development while protecting existing ratepayers
Indiana	AEP Indiana	Minimum demand charge (80% of contracted/historical peak)	Ensures cost recovery even during low usage periods
Kansas	Evergy	15-year contracts, collateral requirements, early termination fees	Provides revenue certainty and risk mitigation
Georgia	Georgia Power	Load forecast shows high growth; cautious tariff commitments due to project risk	Focus on data centers; many projects not yet committed
Texas	Oncor, CenterPoint	Tariffs include peak demand incentives and grid contribution requirements	Designed to manage grid stress and incentivize off-peak usage
Virginia	Dominion Energy	Tariffs include clean energy integration options and flexible load management	Aligns with state clean energy goals and large customer flexibility
Arizona	APS, SRP	Tariffs include time-of-use rates and infrastructure cost-sharing	Encourages load shifting and shared investment in grid upgrades
North Carolina	Duke Energy	Tariffs include customer commitment thresholds and performance guarantees	Ensures reliability and investment justification

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Waldorf Production North Sea Operator Enters into Administration

 

Sources:

• https://www.insider.co.uk/news/waldorf-production-intends-appoint-administrators-32962536
• Waldorf Production files notice of intention to appoint administrators
• Finance Top executives depart distressed UK oil and gas producer
  

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Renewables vs. Datacenter Financings

With power hungry AI hyperscaler datacenters now being large buyers of power, the debt financing markets for the two sectors are beginning to converge.

Both sectors are characterised by upfront capex, followed by cashflows generated under long-term contracts - PPAs in the case of power, and datacenter leases in the case of hyperscaler datacenters. The counterparties in each case are typically large, creditworthy institutions.

Given the above, hyperscaler datacenters provide similar risk-return charateristics to some renewables projects.

However, hyperscaler datacenter debt financings can be superior in a number of ways:

1. Datacenter lease revenue is highly stable and not reliant on variable weather conditions that drive revenue in renewables
2. Broader financing sources with datacenter debt sitting in real estate, infrastructure or project finance lending books
3. Datacenters as a sector have a much broader range of refinancing options including the ABS and CMBS securitisation markets, private placement and institutional debt investor markets, reducing refinancing risk. This is not the case for even utility scale renewable portfolios
4. Datacenter supply is in a short market with no alternative sources of supply - apart from building more datacenters. This increases the value of the asset from a lien or residual value perspective. This contrasts with renewable assets - where more can be built quickly, and power supply can be backstopped by conventional generation sources
5. Tax equity structures do not exist for datacenter financings, meaning debt is senior as opposed to second lien behind such structures which feature heavily in the renewables world

Lenders to both renewables and datacenter projects will have seen the two sectors converge and credit exposures doubling up, when the underlying credit of a renewable project is a hyperscaler datacenter. When comparing the relative value of renewable vs. datacenter financings, the latter is certainly attractive with a current pricing premium of 100-150bps for essentially taking on the same counterparty risk and superior credit quality characteristics noted above.

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OPINION: "There can be no national security without energy security"

There can be no national security without energy security.

Energy security comes from energy sufficiency - not necessary self sufficiency, but sufficiency through a mix of own production and generation, and supply from trusted partner nations. In an ideal world, energy abundance over energy sufficiency.

The big dilemma plaguing Europe - amidst Russian aggression and malign actors such as China, Iran and North Korea - is how to achieve energy security. Is it by fast-tracking renewables or furthering fossil fuel usage for economic growth, but prolonging the chains fossil fuels and dependency from non-desirable nations.

The answer is all the above, but with the ongoing wind down of fossil fuels.

• Fossil fuels are a cheap source of energy - for both power generation and transportation; affordability remains a must in a world where the high cost of living is causing society to challenge the the foundations of democracy.
• Self generation through renewables must ramp up to allow the West to wean off fossil fuels over time.  Green fuels must also be part of the solution for harder to abate sectors.

But renewables ramp up is not simply installing more wind turbines and solar panels. The entire electricity infrastructure needs to be upgraded including mass roll out of battery storage and grid augmentation to deal with renewable intermittency, and the added challenge of increasing electricity demand from the roll-out of AI and general electrification of the economy.

The simultaneous ramp-down of fossil fuels and ramp-up up renewables is the path forward. The electrification of the economy - particularly the adoption of EVs - is gradual, and the ramp provides the time needed to transition. Renewables build-out, battery storage roll-out and grid augmentation takes time and cannot be delivered over night.

The ramp will also allow the required investment to be phased. The energy transition is expensive and it needs to be paid for. But too much financial pain for the public will not be tolerated.

A clear plan is what is now required, to allow regulation to be designed and finalised, providing investors with certainty on proceeding with the necessary projects to deliver the energy transition. 

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European Stability

 

The USA is discouraging investment. The political risk is real and feeding through into policy instability and uncertainty. The USA has upended traditional notions of friends and allies. Its actions have cost it a lot of friends for good.

Europe on the other hand remains steady, stable and united. Government support is structured through commercial contracts free-from political interference, and even protected from future political interference.

Europe's energy transition could well be the beneficiary of cheaper technology as Chinese manufactured equipment is "dumped" into Europe with the US tariff fall-out.

Development risk

Scaling risk

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Sorry State of the Union

This publication rarely ventures into geopolitics – especially that of the USA – but the rapidly shifting world order warrants a record of where things stand, two months into the term of the new administration.

Many have referred to the current events as a tectonic or seismic shift. We are beyond that now with the destruction of long-held relationships with allies, institutions, and the foundations of democracy. We are in paradigm shift territory. The world has enjoyed, and newer generations have taken for granted, the hard-fought peace since the end of the Second World War and the careful navigation of the Cold War.

The world has since gone through unprecedented times: the fall of the Berlin Wall, the Northern Ireland peace process, 9/11, the invasion of Iraq, the Arab Spring, Brexit, Obama presidency, Khashoggi, the Umbrella Movement, first Trump presidency, COVID-19, the invasion of Ukraine by Russia, and most recently the Israel-Gaza conflict.

But we are now in truly unprecedented times. Many of the above events were consistent with the advancement of liberal democracy: a worthy cause that the US, previously a key proponent, no longer stands behind. Even then, the beginning of the current snowball is evident in events like Brexit and the first Trump presidency.

The US is rapidly shifting to a different system built on outdated views of protectionism and mercantilism, and led by hugely misinformed, conspiracy theorist billionaires with false confidence from the successes that life has gifted them. This group is now running a country and system like a business with blatant disregard for the social wellbeing of its citizens, or the rule of law for that matter. The speed of change and disruption is enormous. 

Those with the most money and access to the loudest megaphone, aka X fka Twitter, control the narrative. Unfortunately that narrative is populist, twisted, and self-serving. Then again, what else should we expect from a group of misinformed and conspiracy theorist billionaires. As the recent New Zealand envoy to the US put it, “Trump [and this group] does not understand history” – he was dismissed for making this statement. They treat the world as a playground, with enough wealth to protect them no matter what the consequences of their actions. In fact, some would relish a collapse of the status quo so they can play out their end-of-civilisation fantasies in their far-away, ready to go, fully stocked bunkers. This group has used its money and megaphone to bend Washington to its will. The US is quickly descending into plutocracy.

Trump and his cronies hold the worldview where, quoting [x] “might is right”, and an acquiescing neutered Zuckerberg agrees that we need more “macho energy”. This is coherent with Trump’s view that democracy as a system, exemplified by Europe, is weak, loosely blending into his view that Europe has been freeloading off the US. If Trump, his cronies and his supporters really understood politics and how the world worked, they would realise that overseas defence and aid to counter malign influence is a very good deal for the US. The US and its citizens could not have prospered without the global peace we have enjoyed up until now. Ukrainian soldiers are on the front lines right now to protect this peace, not US soldiers.

Where does this leave the US’ allies? The damage is done. It has been made clear that the US can no longer be relied upon and the defence backstop it once provided is now worthless. The assault on institutions, the very visible weakening separation of executive, legislature and enforcement, the attack on free speech, and the vindictiveness of Trump and his administration is taking the US to a very dark place.

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