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- [00:04]
A
A supermarket does not stock every product equally. It watches what sells, cuts what does not, and gives more space to what moves. The logic is simple, but applied to 20 gigawatts of pipeline across five US power markets, it can get complicated. LG is a major renewable operator with batteries, wind and solar projects across ercot, pjm, Miso and beyond. But battery revenues are tightening, interconnection queues are brutal, and hyperscaler demand is pushing developers into new markets faster than the grid can respond. So how do you decide what gets built where and with whose capital? Lolita Cary, Director of Portfolio Strategy at NG North America, makes those calls every day. This episode is not about building clean energy. It is about the business of deciding what gets built in the first place and where it gets built. I'm Alejandro Diego, filling in for Ed Porter. Welcome back to Transmission. Lolita. Thank you very much for joining us today to Transmission by Motor Energy. Can you start by introducing yourself what your role is within Engie and explaining what Engie actually does?
- [01:25]
B
Yes, sure. And thanks for having me. Very pleased to be here. For the first time, I'm working at ENGIE as a portfolio strategy director. I was previously investment director, been with the company for the last 16 years. So on the portfolio strategy team, we steer the portfolio that we eventually want to build in the us so we have some target growth that is quite high for energy in this country. We also look at capital allocation, some recycling of capital. Where do you want to be bigger? Might we want to reduce our footprint? We follow up on our development pipeline, on the investment decision until the projects are put into operation. And we look at competitiveness and in particular we look at fundamentals of the market, of the different ISOs that we want to play in in the US and that helps us calibrate the appetite we have for growth in those different markets.
- [02:29]
A
Okay, and so what is the main service that ENGIE provides to its customers?
- [02:35]
B
So yes, that was for our team, NG in the US it's very big in energy generation, especially renewables, wind, solar, batteries. We are the first battery operator in ERCOT right now and we are growing bigger also in other states.
- [02:53]
A
Sorry, with first you mean with the
- [02:55]
B
largest portfolio, we are first in battery portfolio in ercot.
- [03:00]
A
Okay, perfect.
- [03:01]
B
So that's one of the main activities we have in the renewable and flexible power business unit. We also have trading activities, energy management activities that are coupled with our asset based activities. And in general we actually can offer PPAs for hyperscaler. That's hype in the moment, but for other corporates, or municipality off takers out of this mix between assets and energy management that we bring in. We also have retail B2B activities in part of this country and we have distributed generation in the US as well.
- [03:43]
A
Which of all of these different business lines is the biggest within Engie?
- [03:47]
B
So the biggest is renewable and batteries energy generation. That's the business line where I'm in and the one that we are actively developing right now. Yes.
- [03:58]
A
Great. You mentioned that one of the key tasks of your team and your daily tasks is capital allocation. So portfolio strategy, from Angie's perspective on yourselves, what are the key technologies right now in the US to focus on and what are the key regions where you think that there are the most amount of opportunities?
- [04:17]
B
Yeah, that's a good question. So at ng, we are very strong at deploying and scaling up all the renewables generation activities. So wind, solar base, all those three, we have a big footprint. They are roughly one third each in the portfolio that we are having under operations right now, which is roughly 1112 gigawatt. By the end of the year we should get to 12 gigawatt installed between the US and a small part in Canada as well. We have some wind assets in Canada. That's the main basis for our activity in the us in the world we also have hydro generation, we have nuclear generation and gas power generation coupled with water desalination in the Middle east for example. So depending on the regions, we have different technologies. In the US it's wind, solar and batteries.
- [05:16]
A
So you just mentioned the key technologies. What about the key regions within the US? Which key ISOs or states are you focused on?
- [05:24]
B
So we are very strong in ercot. We have a big presence here with wind, solar as well. Big portfolio for further growth. We also have a large presence in retail and we are building up some capacity in terms of generation in pgm, Miso. Those are from our top target regions where we want to scale up our presence. We have a portfolio, a quite large portfolio in California as well. And we have some assets in SPP where we have a moderate growth appetite for the moment. So big regions, ercot, pgm, Miso and Kaiser.
- [06:04]
A
And if I could ask, what makes those markets so unique and the most appealing to you?
- [06:10]
B
So they are actually, they are quite unique in their own terms between one another. We've been in ERCOT for a while, so we have a strong presence there. We have a very complementary portfolio between the technologies that I was mentioning we're able to provide. And we have released recently a press release around large PPA with meta on the 600 megawatt solar plant. So we are able to really scale the offer we have for our customer in what we want to do is also to diversify to other markets and that's why we're interested in them. PGM is the first one. Pgm, ERCOT have very strong fundamentals. So why we go there is because we have good play for our assets and good demand, Strong demand, especially driven by electrification, data center, hyperscaler demand in those markets. So that's really where our customers are also asking us for more assets. So that's what we see. But we are also being pulled by our customers there. And Miso as well. There is quite some appetite to deliver more energy and capacity in those markets as well. In California we have a very big storage portfolio there, which is more driven by the regulatory scheme for storage. So yeah, it has those different parameters, but we always look at all of those like market fundamentals or the market price attractive. How is the capacity price? We look at what our customers ask for, we look at how easy it is also and how quick it is to develop projects there. So ERCOT is probably the easy play in general because we don't need to enter into an interconnection queue that might be more tricky in other markets. So when we want to go in those markets that have a long interconnection queue, we go by different strategies. We might do some greenfield, or we might look at M and A for example, depending on what's available.
- [08:15]
A
Okay, I see. And for the audience just to understand it, if we would describe the business model of engine in simple terms, would it be, for example, a large load approaching you, you developing a plant and signing an offtake agreement with them while participating in wholesale markets, will it be fully merchant? What is a typical roadway to interconnection and to operations within engie?
- [08:39]
B
So that's a good question. So the typical business model of NG is developed very greenfield, sometimes round M and A develop, build, operate, sell down. In general we bring a partner, but we remain operator. We remain the main owner and the operator of the plant. So we have a long term view. We are a long term player here. And then in terms of exposure, we try to satisfy the demand that is on the market, which is very strong. So in general we would have a mix of contracted and some merchant exposure to take opportunities that might arise. But we would generally want to go with strong offtaker when we effectively make the decision on a project.
- [09:24]
A
Okay, thank you for explaining those differences. Now, looking to specific technologies such as battery Paired with solar. Could you walk us through how the full development process would look like until you reach fid? Not full development until you reach fiddle within Engie and your team.
- [09:41]
B
So that might vary across market. But in general, once we have a project identified, meaning we have a plot of land, we know where we want to interconnect, we've placed an interconnection request, we go through the interconnection queue or interconnection studies depending on the markets we are in. We look at technology so sourcing the different technologies and we look at the economics of all of that pricing for these projects is there appetite on the market. And then when the time comes and the market and the project is mature enough, we would go to investment decision considering in the business plan all the elements that I just mentioned. So we would obviously map the timing that needs to be completed for the project to be operational. We would look at market prices, price expectations. We would look at offtake contracts that we have under negotiation. And on the basis of those economics, we would make the decision to.
- [10:44]
A
Okay, so just to clarify, when I mentioned fid, preferred final investment decision for the audience to understand. In all of these screening process, have you seen any common patterns when assessing potential projects on the risk side? Any. Not red. Well, red flags or yellow flags that would stop a product and say, hey, we'll leave it, we won't continue developing it.
- [11:09]
B
So there wouldn't be like a red flag in itself. I think we would. The projects are full of risks. That's the business we are in. And the main activity of the business development team, together with the finance team and all the SMEs, all the support functions, is really to de risk the project. So the way we would tackle any risk would be by pricing it into the cash flows of the project that we are valuing now. We might have some showstoppers in terms of design, in terms of land control. So we had good projects, but we could not secure site control, for example. So the project would have to go or when we go through the interconnection queues, we are part of cluster studies and network upgrades come out of those studies. Depending on the market. Sometimes those network upgrades are so high, the cost is so high that the project cannot absorb it. So that could be a fatal flow for a project, for example. But yeah, in general we really put into figures, into numbers, whichever challenge we have, which is very common during the cycle of development, and then we see if the business case flies or not.
- [12:18]
A
Okay, and when you mention network upgrade for everyone to Understand? Can you put a simple case, fictional case, where you just confront an unexpected network upgrade that you say, hey, we can go on with this project. Why are these network upgrades happening and how do they impact the project?
- [12:33]
B
I'm not a specialist of transmission of the transmission process, but when. So that's really driven by the ISOs themselves and the transmission process. So when many projects want to connect, they would need to upgrade the infrastructure for all those plants to connect. And then they do the studies based on which projects will need to connect and what will be the demand in the zones, et cetera. And the outcome of those studies is extra infrastructure, which costs need to be split amongst the market participants. So it's not really surprise, but it's obviously not known. So we work with consultants that have the same kind of models that the ISOs themselves will be using. And then when the results come out, that's information shared amongst the different participants. And you can see that alongside the queue process, you have projects dropping out because of unfavorable network upgrades or capital requirements to stay in the queue and be able to move forward.
- [13:37]
A
So from one day to the other, a project that expected maybe a cost of $100,000 in network upgrades could face, for example, $2 million suddenly if the.
- [13:47]
B
Yeah, that's not something that we have seen like so far. I would rather not go too much into detail on that front because that's not my expertise. But yeah, that's part of the business you put together. So you would need to factor in if you can absorb those costs and your project would still be profitable.
- [14:05]
C
Quick break. If you listen to this show, then you probably work in energy and at Modo Energy, we're not just talking about the energy transition, we help our users to actually make it happen. All energy storage, solar and wind assets on the global balance sheet need to be valued and benchmarked. And that's where modoenergy comes in. Our benchmarks and forecasts are transparent, bankable and trusted by the world's leading banks, asset managers, utilities and developers. So if you want to learn more, go to modoenergy.com and if you want more content like this, sign up to our weekly Dispatch newsletter. Enjoy the conversation.
- [14:47]
A
From a portfolio strategy perspective. When you look at so many different markets, how do you raise or lower the investment bar depending on the type of market, how do you deal with that changes?
- [15:01]
B
So first we start with the portfolio we have. We have a pipeline of 20 gigawatts at the moment, so we have a big basis and we see which Project we can mature and bring to market. Now when we have to select, if your question is to select between one and the other market and how we allocate. At this moment we have not had to renounce to any projects. So we really took investment decision and brought and built those 12 gigawatt that I was talking about in different markets without having to discard other projects. So now it's more going forward. We want to be a bit more selective and look at the higher value. So I was talking about business model earlier. We would really look at the individual value added from the project and also some risk reduction they can bring to the portfolio that we have. Because some technologies or some different zones might be good from a portfolio perspective because you can split your returns without being too concentrated in one zone, for example. And then that would be kind of an additional element when you look at your overall pipeline and portfolio. Regarding prioritizing maybe one zone and deprioritizing another one. Very concretely, we are having portfolio review between the development team and the strategy team and the power marketing team monthly and probably even on a daily basis somehow where we discuss the opportunity to progress on projects. This is also something that is discussed broadly, incorporating all the elements. If you look at costs, we would incorporate construction costs, supply costs, et cetera. And then the outcome of it is a view on what value we can see from projects in the different zones. Because you have your cost, but you also have different pricing, different market prices. The big customers might have more needs and appetite and go for higher prices in some other markets. So really look at the margin implied by those projects and those technologies across the different regions. And then we would feed that into our pipeline portfolio review. Look at CODs like when is this project going to be operational? What's the probability from a development perspective, permitting risk that you were mentioning, et cetera. And well, we put all of that in the shaker and then we have different scenarios that we discussed with leadership and see where we want to really push. I would say one of the strong drivers is obviously the market fundamentals. So the market that I was mentioning, pgm, miso, ercot, we have very strong demand for bringing more energy capacity in those markets. So that's definitely something that we pay attention to when we push our projects forward.
- [17:58]
A
And from your experience, in which part of the development, construction or operation process have you captured the most value? Is it during early stage development, during construction, or during operation learning?
- [18:10]
B
Yeah, so our business model is really development, construction, operation. So all of those parts bring value to us. Being early in development brings value. Instead of buying a project that is close to construction, for example, where you might have to pay a premium to the early developer, we do that as well in some markets that we have not solid base project base as we have in other markets, but we see that it has some value to do early development. Then we construct, we finance the projects and we operate them. I would say we have value that is being brought at all phases and we are able to finance and bring some partners. That allows us to recycle some capital and invest in other projects. All of it is part of the of the business plan.
- [18:56]
A
Okay, great. We have seen that NG has recently sold part of a 2.7 gigawatt portfolio operating portfolio to Ares, but kept some assets operating by ng. For someone not in finance, why would you sell a share of products you already built? What is the value behind?
- [19:14]
B
So that's the business model, that's how we operate here, that we will always keep the control. So the deal that you mentioned, we kept controlling the assets, so we are operating them, but we are also the main shareholder. So it's really our assets, they sit on our balance sheet and we sell part of the capital to a minority shareholder. That allows us to recycle capital so that to duplicate if you want and invest in more projects because we are able to free up capital brought by the partner and that also allows us to share the risk and to invest together if the project needs upgrades, et cetera. So that's really platform. We see it as platform with partners that we can grow in the business. But having partners on board allows us to really duplicate or multiply the number of projects that we can do. Otherwise it would reduce the capital. It's really an additional capital slack. So it would reduce the capital that we have available to invest in your project.
- [20:14]
A
Okay, great. Thank you. People often imagine batteries as giant power banks where you can store a lot of energy and later release it when it's needed. In reality, what are NG's grid scale batteries doing day to day? How do you operate them and optimize them?
- [20:31]
B
The business model on batteries is actually quite fascinating. It's not as such generating new energy. Right. It's storing and then giving back energy, but also capacity. What we've seen in the early years and a big part of the activity was related to ancillary services. So that varies across the regions and the ISOs based on the grid codes and the needs that they have. We've been strong players in ERCOT and ancillary services. I think Lately we've seen that energy sales has become a larger part of the activity. So it's really driven by, I would say, the grid needs somehow. Right. And battery is really a very nice and very tricky business. You need to be there when the moment is right and when you have a market disruption that by definition you wouldn't know. Right. But if you have a strong disruption on the grid on that day, you need to be there to support the grid. That's what is useful and that's what it's valued for and that's where we get most of our value from. So in some specific moments, I would say, like traditionally January or in summer when you have huge electricity demand in ERCOT for AC needs at home early evening, you want to be ready, you don't want to have a maintenance done at this point in time. So you need to be very reactive in terms of operation ability of your assets.
- [22:03]
A
And battery revenues in markets like Ercort and Kaizo have been declining in recent years. In the last two recent years, partly because of Azure services cannibalization, a lot of competition from other batteries and flattening of the price curve leading to less energy arbitrage opportunity. How do you embed this into your most recent investment decisions? What is your stance in batteries right now? Has it changed or is it still bullish?
- [22:32]
B
No, we are bullish on batteries, definitely. Like I was saying, ancillary services, capacity. You mentioned caiso capacity. Remuneration is quite important on our caiso asset. ERCO doesn't have capacity, but we see energy taking more and more relevance. We are also discussing PPAs or offtake deals that involve more than one technology. And battery added to the mix is actually of value for our off takers. So yeah, no, we are bullish batteries and we see it complementing quite nicely the wind and solar portfolio that we have. We also have some strategic studies where we do some stochastic modeling, et cetera. And we see that batteries are really supportive and risk reducing for the portfolio because they can be there when the other technologies cannot be there, for example. So it really mitigates your exposure.
- [23:26]
A
Do you cover the full operational side of batteries in house or do you hire external asset optimizers, for example?
- [23:35]
B
Yeah, that's a good question. And actually in our business model we do the energy management of the battery, which I guess that's what you're referring to. So we operate our batteries and we trade them on the market as well. That's one of the key differentiator at ng, we have an integrated Business model in the US we have this energy management team. Trading activities are part of it, optimizing the plant on a day to day, hour to hour basis. So that's what we do in house.
- [24:03]
A
Yes, being part of the portfolio team and big companies such as Engie gives additional tools and resources to develop your portfolio and look at returns, risk and grow your business model. What key advantages do you have compared to smaller developers which have limited resources and have to choose a market? What would you say those advantages are?
- [24:25]
B
I think there are numerous. So first of all, we have an integrated business model and we have all those teams on the ground in the us so the assets part of IT portfolio, which is part of this business unit, we have the trading team, the power marketing team. All those come together and I don't think that small shops might necessarily have them all. Especially I think a differentiator is the energy management team. So next to the trading team that is able to trade, that's definitely a value that we add to our platform. Then we have capital, we have a large capital and we are backed by a big company which is bullish in the US the situation is probably a bit tricky right now with some uncertainty, but MG has confirmed its commitment to the US and will still continue spending 1,2 billion per year in the next couple of years in this country. So this is also very strong at the moment of maybe more uncertainty and it's very differentiating for us because we see and it's the right strategy for us because we see strong demand, so we see prices, fundamentals prices, we see them going up and we see the demand from off taker. I talked about these hyperscaler deals. We need to be here and we are able to be here because we have both the capital and the tools locally to address and deliver those projects, which is why we are also valued for.
- [25:57]
A
And are you seeing a consolidation of the market right now? Let's say that smaller players, smaller developers are going into bankruptcy and bigger players are taking the opportunity to make their portfolios bigger for a really good price.
- [26:11]
B
We are looking. Okay, we are looking at that. Definitely. We are looking opportunistically. We think it might be a good moment. We have a very strong portfolio of our own. So we are not needy, we were not desperate to buy more projects. But if that fits the strategy that I was mentioning, the market and the technology, we would definitely look at and we are looking at those opportunities that come up. Yes.
- [26:40]
A
Okay. Jumping into the personal side a little bit after your experience working in the investment side of the energy industry for some years already. What keeps you motivated and what do you like the most about your daily tasks?
- [26:56]
B
I would say the opportunities, it's huge. And we can hear that at the conference today as well. People are very optimistic and it's fascinating to be at this moment in the US when demand growth is peaking again and there will be so much coming. The technological part of it, I would say batteries were not very spread a couple of years ago. Engie invested in broad range power, which is the strong basis for battery development that we are now having at ng. And now it's very big. We are thinking about long duration batteries. So there is definitely an innovation and technological edge of it. The commercial side of it, which is just so many opportunities. All those hyperscalers and other off takers that we are talking with, there is so much demand out there that we know we are at the right place. So that's really motivating. And like I was mentioning, I think the US is an incredible playground. I've been working in many region of the world for ng, been in Dubai, in Mexico, in France. Every market is different and has its own attractiveness. But the US being complex with these different ISO system, different rules, et cetera. When you actually want to deploy your capital on a portfolio, it's exciting, right, because you can really choose and you can really compare and we have the tools to do so. So I think the moment is qu exciting to see where we want to go from there. Out of the strong bases that we have built and with the capital that we have and the opportunities that we have, where do we want to continue going?
- [28:39]
A
I always like to say that there are enough markets to never get bored here in the US and very different markets. And the energy industry has attracted a lot of attention recently with the AI data center boom, LLM models and all of this demand growth. The investment side within the energy industry especially, what advice would you give to younger generations that want to break into your role and your teams?
- [29:06]
B
On the investment side, I mean on the finance side.
- [29:08]
A
Yeah, finance project finance, investment sides within the energy industry.
- [29:12]
B
Yes, that's an interesting question. I sometimes remember how I started in the energy industry and that was more from the strategy and geopolitical point of view. I think there are many ways to get there. And I've heard also on this conference that I mean you will always have engineers, you will always have financiers, but you have also this commercial view. You have data centers that have entered the sphere. Renewables energy is not the same as oil and Gas. We are in Houston, we are in the capital of energy of the world. You have all those clean tech initiatives. There are many ways of entering the industry. And then if you're interested, if you're studying, get an internship. We do internship program. For example, we're having an intern start on our team in January. Doesn't have much experience, but we'll get some in our team and then you can see if it's for you. Do you want to be on the strategy side of it? Do you want to go more in finance? Do you want to see how the trading is doing? We have all those things in Engie and that's what's being attractive. But I would say, yeah, try it out.
- [30:16]
A
I'm sure our audience has taken really good note about what you just said in ercot. You mentioned that you have the largest portfolio, very big portfolio, but part of that portfolio initially came from the acquisition of Broadridge. Correct. Can you tell us a bit more about that acquisition process and lessons learned from that?
- [30:35]
B
Yeah, so we acquired Broadridge two years ago, actually, so it's quite recent. It was a big accelerator for NG in batteries, especially because it came with 350 megawatt of operating batteries at that time. Very knowledgeable and skilled teams that we integrated with our teams. And something I would say is that what has really proved profitable and a very good move was the integration within our flexible generation team then and then with the renewables team. So now we are really one business unit, having batteries together with wind and solar. So we can really look at our portfolio on a global basis. And what Broadridge brought was mainly skills, very large portfolio, not only in ercot, also in other markets. So that's why we are scaling up our presence in California, for example, that came with the Broadridge acquisition. Very strong systems, very good integration with the energy management team and the trading side of it. So we have really been able to scale up of what Broadridge had built in a couple of years and deploy it with the capital that NG has and the presence, the international presence that NG has, for example. We are leveraging that knowledge in many other geographies that we are bidding on, project or on, et cetera.
- [32:01]
A
Great. Thank you for sharing those details. Jumping onto the final section, is there anything you would like to plug or promote to our audience? This is the moment. Right.
- [32:12]
B
So I am personally strictly convinced that renewables and decarbonization will come. I know in the US it might be sometimes questioned. We know it will come and we are convinced at MG that we have the Right tools to address that. Bringing secure, reliable power 24 7. That's what we are looking at. Coupling renewables with batteries. The solutions are there and I'm very excited about that.
- [32:46]
A
Okay, great. And the final question that we ask to everyone. What is a contrarian view that you hold about the energy industry that many people would not share with you?
- [32:56]
B
So I would quote someone from the conference that was saying energy is cool. So yeah, energy is not boring or not boring anymore. Full of opportunity, lots of of modernization of the transmission grid, for example. We didn't talk too much because it's not the business of NG about oil and gas. But you see those transformation. It's an industry that is really transforming itself and that will enable AI which is going to revolutionize our societies. So I would say the contrarian view is energy is not boring.
- [33:33]
A
I fully support that statement.
- [33:34]
B
I guess you support right. So maybe it's not so contrary. No, no, no, no, no.
- [33:38]
A
But I see that there's been an evolution of people thinking that it's becoming cooler and cooler now, recently, as it was not. Well, thank you very much for joining us today, Lolita. It was great to have you.
- [33:50]
B
See you soon.
- [33:52]
A
Thanks for hanging and see you soon. Y.