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BI Weekend: Warner Discovery Splits, Walmart Credit Cards · Bloomberg Intelligence

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Speaker 4: Plus we'll take a look at how one university system
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Speaker 4: is benefiting from AI, crypto and power.
1:03
Speaker 2: But first we moved to some news in the media space.
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Speaker 4: This week, we heard that Warner Brothers Discovery is splitting
1:07
Speaker 4: into two independent companies, Global Networks and Streaming and Studios.
1:11
Speaker 2: Global Networks will include entertainment, sports, and cable television brands
1:14
Speaker 2: such as CNN, TNT, and TBS, and will hold a
1:18
Speaker 2: twenty percent stake in Streaming and Studios.
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Speaker 4: Its separations expected to be completed by mid twenty twenty six,
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Speaker 4: allowing each company to pursue deals and investment opportunities on
1:26
Speaker 4: their own.
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Speaker 2: For more on this and the latest media news, we
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Speaker 2: were joined by Githa Rang and Athan Bloomberg Intelligence, senior
1:31
Speaker 2: media analysts.
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Speaker 4: We first asked Etha if she likes Warner's plan and
1:35
Speaker 4: if it's at all surprising and exciting.
1:38
Speaker 5: We like the plant. This has been many months in
1:40
Speaker 5: the making, so last December they had actually reorganized the
1:44
Speaker 5: existing business into these two separate units, the TV business
1:47
Speaker 5: and then the streaming of the studio business, kind of
1:49
Speaker 5: eventually paving the way for exactly the announcement.
1:53
Speaker 6: I think the.
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Speaker 5: Surprising part and this is a little bit of a
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Speaker 5: pleasant surprise for Warner Brothers. Discovery has really been on
2:00
Speaker 5: the debt side, so as you well know well the
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Speaker 5: linear TV business is challenged, but the bigger problem for
2:06
Speaker 5: WBD has really been a huge amount of debt. And
2:10
Speaker 5: this debt was really as part of the combination of
2:13
Speaker 5: Warner Brothers and Discovery, which happened a few years ago.
2:15
Speaker 5: At that point, the company had over fifty five billion
2:18
Speaker 5: dollars in debt. They've paid about nineteen billion down, but
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Speaker 5: they still have thirty five billion. But what they're doing
2:24
Speaker 5: now as part of this transaction is they have a
2:26
Speaker 5: tender offer out there, really kind of looking to streamline
2:29
Speaker 5: the capital structure. So when you have these two new
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Speaker 5: public companies, there's going to be a much more manageable
2:35
Speaker 5: debt load at both of those companies. And I think
2:37
Speaker 5: investors are really reacting positively to that news.
2:40
Speaker 7: Keetha.
2:41
Speaker 2: When they put the companies together, one of the arguments
2:43
Speaker 2: was to create scale to compete against Netflix and Disney.
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Speaker 6: What happened to that.
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Speaker 5: Argument, Yeah, exactly, Paul. You know, yes, they did create
2:54
Speaker 5: scale as far as the TV networks part of the
2:57
Speaker 5: business was concerned. You know, you have Discuss, which is
3:00
Speaker 5: really the leader when it comes to nonfiction. You have
3:03
Speaker 5: you know, the Warner Networks and HBO, which is the
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Speaker 5: leader when it comes to fiction and quality dramas and
3:08
Speaker 5: scripted series. And they thought that that would do well,
3:12
Speaker 5: but unfortunately what happened is, you know, and all media companies,
3:15
Speaker 5: as you will know Paul, have this conundrum because they
3:18
Speaker 5: have the TV business, which brings in a lot of
3:20
Speaker 5: the cash, but is literally a no growth business. In fact,
3:23
Speaker 5: it does in decline. Both advertising as well as affiliate
3:26
Speaker 5: fees are in decline. But then you had the streaming business,
3:29
Speaker 5: which initially kind of had a little bit of trouble
3:32
Speaker 5: because you know, in that whole game of subscribers and
3:35
Speaker 5: that land gradt for subscribers, they actually ended up incurring
3:39
Speaker 5: a huge amount of losses. But there is this whole
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Speaker 5: wave of content cost rationalization. We've seen a turnaround and
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Speaker 5: all of the streaming businesses and Warner Brothers Discovery actually
3:48
Speaker 5: has kind of led the charge there. So they were
3:50
Speaker 5: actually the first to get profitable in terms of streaming.
3:54
Speaker 5: And so now we're seeing this huge disconnect, or at
3:57
Speaker 5: least they are saying that there is this huge disconnect
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Speaker 5: between TV network's business and the streaming of the studios businesses,
4:02
Speaker 5: which should arguably get a much higher multiple, and that's
4:06
Speaker 5: kind of the reason for this split. So we've we're
4:08
Speaker 5: seeing how multiple companies do this. Actually, so Comcast, which
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Speaker 5: has the NBC division, they're splitting out their cable networks.
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Speaker 5: We had Lions Skate and Stars, where you have Lions
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Speaker 5: Skate as an independent movie studio, Stars as the media networks,
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Speaker 5: and now you have Warner Brothers Discovery. So there's this
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Speaker 5: whole big movement now towards you know, this vertical kind
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Speaker 5: of separation if you will, I mean, do.
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Speaker 4: They all come together then and create kind of one
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Speaker 4: less great TV network thing?
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Speaker 5: Yeah, that's kind of the plan. So the most logical combination,
4:39
Speaker 5: and this has been floated around for for months now,
4:41
Speaker 5: is that with this news of the Comcast, you know,
4:44
Speaker 5: the NBC cable network separation, who would have would that
4:47
Speaker 5: become like this kind of roll up vehicle. And that's
4:50
Speaker 5: kind of what you know, a lot of the industry
4:53
Speaker 5: experts are thinking, they're expecting now that you have this
4:55
Speaker 5: news with Warner Brothers Discovery, everybody's kind of expecting down
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Speaker 5: the road some common nation of maybe that Warner Brothers
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Speaker 5: Discovery TV assets along with the Comcast assets and who
5:05
Speaker 5: knows who else kind of spins off their networks and
5:08
Speaker 5: then that becomes this giant kind of TV network umbrella.
5:12
Speaker 5: Going back to Paul's point about scale, because scale really
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Speaker 5: matters now at this business.
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Speaker 2: All right, how about Paramount you other sick child in
5:21
Speaker 2: your coverage, what's going on there?
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Speaker 5: Yeah, So we really don't know what's going on there.
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Speaker 5: So there's been a lot of ups and downs, Paul,
5:28
Speaker 5: with the whole closing of the deal. So the Paramount
5:31
Speaker 5: sky Dance transaction, it was announced last year sometime in July.
5:36
Speaker 5: It was supposed to close by the first half, by
5:39
Speaker 5: the end of the first half of twenty twenty five,
5:42
Speaker 5: but there's just been so many different press reports. They've
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Speaker 5: had to do different things to appease the current administration
5:47
Speaker 5: to a peace President Trump, I'm not sure he is
5:51
Speaker 5: yielding so easily. So we're actually it's still kind of
5:53
Speaker 5: fifty to fifty Paul, whether that transaction actually, yeah, actually closes.
5:59
Speaker 5: So there's just too many up in the air. And
6:01
Speaker 5: then again there is the lingering question because we know
6:03
Speaker 5: that Skydance was really only interested in the Paramount's studio business.
6:07
Speaker 5: So again what they kind of do with the TV
6:10
Speaker 5: networks business, what they do with the streaming business, that's
6:12
Speaker 5: all a huge question mark. So visibility very very limited
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Speaker 5: right now for Paramount.
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Speaker 4: I guess I just wonder if you stick all the
6:21
Speaker 4: cable networks together, how does that actually generate real income?
6:25
Speaker 4: I mean, I know that's a cash cow to some extent, right,
6:27
Speaker 4: but then you have a lot of debt and there's
6:28
Speaker 4: no growth.
6:29
Speaker 3: Like, what kind of asset is that?
6:32
Speaker 5: Yeah, it's definitely a melting ice cube kind of an asset,
6:35
Speaker 5: which is exactly what you know, the TV networks have been.
6:38
Speaker 5: The argument that all of these media companies are making
6:41
Speaker 5: alex is that somehow by kind of banding together, you know,
6:45
Speaker 5: because each one of them will have one or two
6:47
Speaker 5: networks that is kind of a must have networks. If
6:49
Speaker 5: you're looking at Warner, you have CNN, you know. If
6:53
Speaker 5: you're looking at again, if you're looking at the NBC networks,
6:56
Speaker 5: you have USA, you have MSNBC. So you know, there
6:59
Speaker 5: are definitely all going to be some must have networks
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Speaker 5: in each portfolio, and kind of putting them all together
7:05
Speaker 5: will stem that rate of decliner. At least that is
7:07
Speaker 5: the argument that they're making. But again we've seen that
7:10
Speaker 5: court cutting has actually been far worse than what was
7:14
Speaker 5: initially projected, so again it remains to be seen. But
7:17
Speaker 5: the idea is they want to milk it till it
7:19
Speaker 5: kind of runs dry.
7:21
Speaker 2: Our thanks to get it Wrong Andathen Bloomberg Intelligence Senior media.
7:23
Speaker 4: Analyst, we moved to some news at the world's largest retailer, Walmart.
7:27
Speaker 2: This week we heard that Walmart's credit cards will once
7:30
Speaker 2: again be issued by the consumer financing company Synchrony Financial.
7:34
Speaker 2: Synchrony previously issued Walmart credit cards for nearly two decades
7:37
Speaker 2: until twenty eighteen.
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Speaker 4: Walmart will now use its fintech startup One Paid a
7:41
Speaker 4: partner with Synchrony, and they'll offer co branded and private
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Speaker 4: label cards in the US later this year.
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Speaker 2: This comes as Walmart makes a renewed push into financial
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Speaker 2: services and for more. We were joined by Ben Elliott,
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Speaker 2: Bloomberg Intelligence consumer finance analyst.
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Speaker 4: We first asked Ben for some background on Synchrony, which
7:55
Speaker 4: initially lost a partnership with Walmart to Capital One.
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Speaker 8: Yes, so they had it for twenty years right up
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Speaker 8: until twenty eighteen when the renewal sort of negotiations between
8:06
Speaker 8: the two companies got contentious. Walmart was demanding too much
8:10
Speaker 8: for Synchrony, and so Synchrony sort of sort of backed down.
8:12
Speaker 8: And at the time it was a really big deal,
8:15
Speaker 8: and so this is an equally large deal that they're
8:17
Speaker 8: coming back.
8:19
Speaker 3: Why did it go away?
8:20
Speaker 8: So the way Synchrony works is they have these large partners,
8:23
Speaker 8: right the top five partners are more than fifty percent
8:26
Speaker 8: of their net interest in fees. And what they do
8:29
Speaker 8: is they share the economics with the partner programs and
8:31
Speaker 8: something called a retailer share arrangement. So every couple of
8:35
Speaker 8: years the partnerships are up for renewal. And Walmart is
8:37
Speaker 8: a gigantic corporation. They have huge leverage and they were
8:40
Speaker 8: demanding essentially more of the economics than Synchrony could provide
8:43
Speaker 8: and still be profitable.
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Speaker 2: Ben talk to us about these kind of branded credit
8:49
Speaker 2: cards if you will. I mean, my daughter is a
8:51
Speaker 2: master at managing points and managing points and doing all
8:54
Speaker 2: that kind of full time job it is, but it
8:57
Speaker 2: pays off every time she's traveling somewhere it's oh, it's
8:59
Speaker 2: on points points. Talk to us about that. The business
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Speaker 2: of those kinds of cards and kind of the economics.
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Speaker 8: Yeah, So Syncrety is not so much in that business.
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Speaker 8: They're in the business of providing a credit option, usually
9:13
Speaker 8: to sort of a lower credit worthiness, lower income borrower
9:18
Speaker 8: that is really focused on a single retail partner. So
9:21
Speaker 8: this partnership is going to be there's gonna be two cards.
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Speaker 8: One's a general purpose card that kind of does what
9:25
Speaker 8: you're talking about, but the rewards sort of value proposition
9:28
Speaker 8: will typically be a little bit lower. The card will
9:31
Speaker 8: be more accessible, and then the other card will be
9:33
Speaker 8: just used at Walmart. And details are still pretty light
9:36
Speaker 8: on what the reward structure might look like. But the
9:39
Speaker 8: goal is to drive through put at Walmart and not
9:43
Speaker 8: necessarily at sort of other retailers.
9:45
Speaker 4: So they also have cards with like JC penny Low's
9:48
Speaker 4: Amazon PayPal for example. And you mentioned sort of a
9:51
Speaker 4: different type of band of consumer. How is that band
9:55
Speaker 4: of consumer doing.
9:57
Speaker 8: So Synchrony likes to say that they're managing, they're not thriving,
10:01
Speaker 8: and they're not struggling. You know, this is a it's
10:04
Speaker 8: sort of like a subset of wallet share, all right.
10:06
Speaker 8: So the Syncrety is just seeing how these consumers are
10:10
Speaker 8: behaving at a single retailer for the most part. But
10:13
Speaker 8: there's not a lot of stress. But if you look
10:14
Speaker 8: back at twenty eighteen when they first decided not to
10:18
Speaker 8: renew the Walmart partnership, it's kind of overnight their charge
10:21
Speaker 8: offs went down like sixty seventy basis points, so presumably
10:26
Speaker 8: this particular customer set is charging off a little bit higher,
10:30
Speaker 8: like maybe one percentage point higher than your typical borrower.
10:33
Speaker 8: So there's going to be it's an interesting time for
10:35
Speaker 8: Syncrony to go out and look for these sort of
10:37
Speaker 8: more marginal buyers basically to get growth.
10:41
Speaker 2: Ben your coverage of consumer finance companies, you get a
10:44
Speaker 2: good view those companies, get a good view of how
10:46
Speaker 2: the consumer is doing, how they're spending their money. What
10:50
Speaker 2: are you hearing from these companies these days?
10:52
Speaker 8: So if you look across spending categories, everything is still
10:55
Speaker 8: typically growing a couple percentage points above GDP. There's one
11:00
Speaker 8: obvious standout, which is travel, which is basically people cutting
11:03
Speaker 8: back on their most incremental spend. But if you kind
11:06
Speaker 8: of think about travel, right, you're booking your flights a
11:08
Speaker 8: couple of months maybe a year in advance, and growth
11:12
Speaker 8: in that category is down double digits. So if you
11:15
Speaker 8: kind of extrapolate that forward, will we see similar shrinking
11:19
Speaker 8: in hotel spending, entertainment, leisure things like that? You know,
11:23
Speaker 8: could be a little bit of a canary in the
11:24
Speaker 8: coal mine.
11:26
Speaker 4: What is Synchrony's flexibility when dealing, when they're managing, when
11:30
Speaker 4: they're saying that their consumer isn't thriving and they're not
11:33
Speaker 4: dropping off, but they're managing. What does that translate for Synchrony.
11:37
Speaker 8: Well, so this goes back to what we talked about
11:39
Speaker 8: the retailer share arrangements. So you share both the profits
11:43
Speaker 8: and you share the costs, right, so you know, if
11:46
Speaker 8: charge offs were to rise, the retailer in this case,
11:48
Speaker 8: Walmart is going to pick up some of those charge offs.
11:51
Speaker 8: So that kind of like you know, softens the blow
11:53
Speaker 8: a little bit for Synchrony as a as an issuer.
11:57
Speaker 8: But they have other sort of tools in their toolbox.
11:59
Speaker 8: One big one was the late fee, which CFPB had
12:03
Speaker 8: been trying to cap at eight dollars instead of about
12:06
Speaker 8: thirty dollars. But they can use those things like that
12:08
Speaker 8: to incentivize borrowers to pay even when it gets to
12:11
Speaker 8: be more painful.
12:12
Speaker 2: Ben are your consumer finance companies? Are they talking about
12:15
Speaker 2: credit quality concerns at this point?
12:17
Speaker 6: Yet?
12:18
Speaker 8: Credit quality is still great for companies like Amex, it's pristine, unimpeachable.
12:23
Speaker 8: But the thing to look at is delinquency. Just the
12:26
Speaker 8: mechanics the way charge offs work. First, you have to
12:28
Speaker 8: go delinquent before you stop paying. And we're not really
12:32
Speaker 8: seeing any sort of increase beyond kind of like seasonal
12:34
Speaker 8: trends in delinquency.
12:36
Speaker 2: Our thanks to Ben Elliott, Bloomberg Intelligence consumer finance analyst.
12:40
Speaker 4: Coming up, we're going to break down the White House's
12:41
Speaker 4: plans for nuclear energy.
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Speaker 4: I'm Paul Sweeney and a Malex Steel, and this is Bloomberg.
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13:15
Speaker 3: We moved next to the biotech space this week.
13:17
Speaker 4: We were joined by Sam Fazzelli, Bloomberg Intelligence, Director of
13:19
Speaker 4: Research for Global Industries and senior pharmaceutical analyst.
13:22
Speaker 2: He joined to discuss the latest in the biotech space
13:25
Speaker 2: from Moderness recent COVID vaccine approval and placebo trial to
13:28
Speaker 2: new obesity drugs from the biotech company met Sarah.
13:32
Speaker 4: We first began with the money side of things and
13:34
Speaker 4: asked Sam for his take on why more biotech companies
13:36
Speaker 4: are returning cash back to their shareholders.
13:39
Speaker 6: So, I think companies are coming to a realization that
13:42
Speaker 6: they can't just sit on a large pilot cash. The
13:46
Speaker 6: latest one that just happened was seven hundred million dollars
13:52
Speaker 6: in the bank, and the assets weren't particularly going in
13:56
Speaker 6: the direction that athy shareholders were happy with, which is
13:59
Speaker 6: why the company was sitting at a negative enterprise value
14:03
Speaker 6: of like one hundred million or ninety million, depending on
14:06
Speaker 6: when you're looking at it. And I think they thought, well, no,
14:09
Speaker 6: actually two hundred eighty eight million. Sorry, they thought this
14:12
Speaker 6: time to return some of that cash to shareholders. And
14:14
Speaker 6: you're seeing more of this happening. Investors got tired of
14:18
Speaker 6: companies essentially constantly saying, we'll find a better thing to
14:21
Speaker 6: do with your cash, and they investors go, we know
14:24
Speaker 6: what to do with our cash.
14:25
Speaker 4: That is like a really weird thing for about tech company, right,
14:28
Speaker 4: because this isn't the whole value proposition. Eventually, is that
14:31
Speaker 4: you spend all this money on R ANDD to make
14:32
Speaker 4: that super cool thing that's going to make up bazillion dollars.
14:36
Speaker 6: Right, sure, Alex. But if you start off saying I
14:39
Speaker 6: am the expert in this area, and I'm going to
14:40
Speaker 6: take this expertise and translate this idea into a product,
14:44
Speaker 6: and that doesn't work out, then you say, actually, I
14:48
Speaker 6: have another idea that wasn't necessarily your expertise. That's where
14:51
Speaker 6: investors get a little bit edgy.
14:54
Speaker 2: Yeah, so, Sam, I know the FDA recently approved modarrens
14:58
Speaker 2: new COVID BAX seen what's new about it and is
15:03
Speaker 2: it better?
15:05
Speaker 6: Well, actually, they did a real trial of comparing this
15:11
Speaker 6: new version. I'll tell you what's new about it with
15:13
Speaker 6: the standard vaccine spike facts that we've been getting. I
15:17
Speaker 6: don't even know how to pronounce the new name m
15:19
Speaker 6: next via something like that. I could never It's not
15:24
Speaker 6: an easy roar rolling off the tongue. What they've done
15:27
Speaker 6: is that they've taken the dose from fifty micrograms to
15:30
Speaker 6: ten micrograms, and what that does is that it gives
15:33
Speaker 6: you less reactions, and in fact, in this particular trial,
15:37
Speaker 6: they showed even higher antibody responses compared to the old one.
15:40
Speaker 6: So there is a small possibility it was only a
15:43
Speaker 6: few ten percent or so higher. A small possibility you
15:47
Speaker 6: get a much better efficacy in a real world setting.
15:50
Speaker 6: But it seemed to go in that direction here, So
15:53
Speaker 6: and that now is going to become the base of
15:55
Speaker 6: all their vaccines going forward.
15:57
Speaker 4: Right, But that's a good news if you take the
15:59
Speaker 4: VACS scene. But then you're not allowed to get the
16:02
Speaker 4: vaccine unless you have underlying commorbidities, right.
16:06
Speaker 6: Yeah, alex is only you not allowed to get direction
16:10
Speaker 6: because you don't have a whole bunch of the qualifying factors.
16:14
Speaker 6: You're not old, you are, you're over sixty four, you're
16:18
Speaker 6: not you're not come morbidity. Except the one thing you have,
16:23
Speaker 6: which is something that doesn't show up in these conversations,
16:27
Speaker 6: is a risk of a really bad reaction to COVID, right,
16:30
Speaker 6: which is something that you've experienced. So what is going
16:33
Speaker 6: on though, is that the company has whatever specifically, has
16:36
Speaker 6: committed to the FDA to do a placebo control trial
16:39
Speaker 6: in a fifty to sixty four year or sixty five
16:43
Speaker 6: year group of individuals without come moobilities compared to a
16:48
Speaker 6: placebo I eat nothing so that will be where they
16:53
Speaker 6: will have to do this trial, and by committing to it,
16:55
Speaker 6: this trial needs to be large in order to show
16:58
Speaker 6: a difference. And I remember a whole bunch of people
17:00
Speaker 6: going into these trials now with previous immunity, which means
17:04
Speaker 6: the difference is going to be smaller, which means you're
17:06
Speaker 6: going to need larger trials. So I hope it works
17:09
Speaker 6: out and I hope the cost isn't punitive for modernaw.
17:13
Speaker 2: New obesity data from a Newish biotech met Sarah and
17:17
Speaker 2: their obesity issue. What's going on there? What do they
17:20
Speaker 2: have for the market.
17:21
Speaker 6: Yes, so they've got a new mechanism, which they're not
17:25
Speaker 6: the only people following it. Lily's doing it, and I
17:28
Speaker 6: was doing it Zealand and now in partnership with Rash
17:32
Speaker 6: are doing it. And it's targeting not jlp ones but
17:35
Speaker 6: amelin in the same sort of pathway of hormones that
17:41
Speaker 6: hunger and satiety, et cetera, but slightly different. And the
17:45
Speaker 6: theory is that you're going to get a drug that
17:48
Speaker 6: is less difficult to tolerate. Nausea and vomiting is the
17:53
Speaker 6: biggest one with these drugs because they impact the gut
17:55
Speaker 6: and so here they've presented data that shows pretty good
17:59
Speaker 6: weight loss the thirty six week readout, thirty six day readout, sorry,
18:03
Speaker 6: five weeks, and you've got unfortunately one hundred percent nausea rates,
18:09
Speaker 6: but they are at the very low grade. I is
18:15
Speaker 6: just feeling a little I'm assuming yuck. And then what
18:19
Speaker 6: you've got is that it only seems to majority of
18:22
Speaker 6: them seem to pass after the first week. So I
18:25
Speaker 6: think this is good.
18:26
Speaker 2: Our thanks to Sam Fazzelli, Bloomberg Intelligence, Director of Research
18:29
Speaker 2: for Global Industries and senior pharmaceuticals analysts.
18:31
Speaker 4: We move next to the energy sector, specifically nuclear energy. Recently,
18:35
Speaker 4: the White House announced it's gold a quadruple US nuclear
18:38
Speaker 4: generation capacity by twenty fifty.
18:40
Speaker 2: The goal is to have reliable energy supply to meet
18:43
Speaker 2: the growing demand for artificial intelligence from more.
18:45
Speaker 4: We were drawn by Scott Levine, Bloomberg Intelligence, senior Energy
18:48
Speaker 4: and Industrial Services analyst.
18:49
Speaker 2: We first asked Scott to explain the complicated relationship with
18:52
Speaker 2: nuclear energy and what the Trump administration would like to
18:55
Speaker 2: do with it.
18:56
Speaker 9: Nuclear has always kind of been a bit of a
19:01
Speaker 9: strange one for environmentalists and for the industry overall. You know,
19:05
Speaker 9: it's an emissions free power source, right, which would seem
19:08
Speaker 9: to align well with the goals of environmentalists. However, safety concerns,
19:16
Speaker 9: you know, end up being an issue three Mile Island,
19:18
Speaker 9: Fukushima and otherwise. And so you know, with the combination
19:24
Speaker 9: of demand from AI for power of all types, coupled
19:30
Speaker 9: with the fact that it is an emissions free power
19:32
Speaker 9: source has really brought it back into the forefront and
19:38
Speaker 9: supporting the AI demands story. So you have the demand
19:42
Speaker 9: picture has clearly strengthened as a result of that. The
19:46
Speaker 9: two things that really blew a hole in the story
19:49
Speaker 9: the last time it was in vogue and the Obama
19:52
Speaker 9: administration was really the shale revolution which made natural gas
19:56
Speaker 9: so cheap as an alternative, and then in twenty eleven
20:01
Speaker 9: Fukushima created all kinds of concerns there. So the two
20:05
Speaker 9: really blew a hole in the story then. And now,
20:07
Speaker 9: you know, in fifteen years has gone by since then,
20:10
Speaker 9: and the memory has faded, and now it's back in
20:13
Speaker 9: the forefront folks minds.
20:15
Speaker 4: So expanding or keeping alive or recommissioning a nuclear plant
20:20
Speaker 4: is one thing, and that's what we're doing three Mile Island.
20:22
Speaker 4: We're getting it back up and running again. Then Constellation
20:25
Speaker 4: also made that deal with Meta on Monday or Tuesday.
20:28
Speaker 4: That is just continuing to expand. It's going to keep
20:30
Speaker 4: going with its nuclear reactor, right, but building a new
20:34
Speaker 4: one is like a whole different thing.
20:36
Speaker 3: How expensive is that?
20:38
Speaker 9: Yeah, so we've only built one plant in the last
20:42
Speaker 9: thirty years in this country. It was in Georgia. It
20:45
Speaker 9: was initially expected to cost under fifteen billion dollars and
20:51
Speaker 9: take seven and a half years, and it ended up
20:54
Speaker 9: costing over thirty billion dollars to complete and taking about
21:00
Speaker 9: as long as expected. And that was the one that
21:03
Speaker 9: got through, right.
21:04
Speaker 4: Well, but President Trump and what he outlined those executive
21:06
Speaker 4: orders is aimed to reduce the time and the money.
21:09
Speaker 3: But does it kind of do it that much?
21:12
Speaker 9: I mean in theory, In theory it's possible, yes, but
21:16
Speaker 9: there's so much we don't know, right, I Mean, our
21:19
Speaker 9: expectation would be that, you know, we may not even
21:23
Speaker 9: see full sized reactors built at this point, right. Small
21:27
Speaker 9: modular reactors, yes, where I want to go are being developed,
21:32
Speaker 9: there are, you know, and so these are going to
21:34
Speaker 9: be much more they're you know, modular built. They're smaller
21:38
Speaker 9: in terms of the unionization. Uh, and so they could
21:42
Speaker 9: be built conceivably behind the grid if the regulators can
21:46
Speaker 9: get comfortable with the safety aspects. So uh uh it's conceivable.
21:51
Speaker 9: But none of those have been built yet, right, So
21:53
Speaker 9: a lot of it's still on the come uh and
21:56
Speaker 9: a lot of will depend on the uh progress of
21:58
Speaker 9: technology goes to the regulators, et cetera.
22:01
Speaker 2: Is the technology there, because we've had people come through
22:04
Speaker 2: here to kind of apply that it is there.
22:06
Speaker 9: It is on paper. You know, there's a have we
22:09
Speaker 9: built one of them? We have not built any of
22:11
Speaker 9: them in the US. There have been a couple built
22:14
Speaker 9: over seas. Only one design has been approved, and that
22:19
Speaker 9: is New Scales small modular reactor, and that's basically mimics
22:24
Speaker 9: a light water reactor. It's a smaller version of the
22:26
Speaker 9: plants that are in service now. Two thirds are the
22:29
Speaker 9: ones in service in the US or Westinghouse one third
22:32
Speaker 9: give or takeer ge, and those are all light water reactors.
22:35
Speaker 9: And then there's a whole other list of companies that
22:37
Speaker 9: are building these more innovative technology gas cool reactors, salt
22:42
Speaker 9: cool reactors. None of those are in service, right and
22:45
Speaker 9: you know, half of those are in the process of
22:48
Speaker 9: commercialization in some way, shape or form, but none have
22:51
Speaker 9: been built here.
22:52
Speaker 4: No, why is nuclear so interesting to hyperscalers Because.
22:57
Speaker 9: It's emission's free, and because it runs twenty five or
23:00
Speaker 9: by seven, right, And that's the big knock on wind
23:02
Speaker 9: and solar, right, And so those two things in and
23:06
Speaker 9: of themselves, they need to be twenty four x seven.
23:09
Speaker 9: They need to be basedload in order to support data
23:12
Speaker 9: center needs number one and number two missions free, you know,
23:16
Speaker 9: supports the environmental mandates of the metas, the Googles, the
23:19
Speaker 9: Microsoft's of the world. And those are two huge positives
23:23
Speaker 9: that can't be ignored. So if indeed we need power
23:27
Speaker 9: for a longer period of time than it's taken to
23:29
Speaker 9: train these models, and all indications suggest that will be
23:33
Speaker 9: the case for inferencing purposes nuclears, positives are really too
23:39
Speaker 9: great to ignore.
23:40
Speaker 2: But it's expensive. Yes, we're going to pay for this.
23:43
Speaker 2: Federal governments can some subsides. Is the President posing that?
23:47
Speaker 9: Yeah, they are proposing that. And that's really kind of
23:49
Speaker 9: the big unknown right now. How much money are they
23:51
Speaker 9: willing to put behind this? When they built the scale VC, sorry,
23:56
Speaker 9: the Southern Company plant Vogel and Georgia. If I'm administration
24:00
Speaker 9: put eight over eight billion loan guarantees towards that, and
24:03
Speaker 9: it ended up costing thirty one to thirty four billion dollars. Yeah,
24:07
Speaker 9: and so we're in an age now right where the
24:10
Speaker 9: budgets are concerned, and some renewable projects are being canceled,
24:15
Speaker 9: others are being allowed to move forward, whether it's hydrogen,
24:19
Speaker 9: whether it's carbon capture, et cetera. So you know, Trump's
24:22
Speaker 9: saying he loves nuclears is a big positive there. But
24:27
Speaker 9: how much money they're willing to put behind specific projects
24:31
Speaker 9: is really the key question.
24:32
Speaker 4: And that's such an interesting point because therein lies the
24:34
Speaker 4: problem with hyperscalers. They're not used to taking on that
24:38
Speaker 4: particular kind of risk. Also, they need power yesterday. So
24:42
Speaker 4: saying that we can get this to you, let's just
24:44
Speaker 4: be generous and say seven, it would say four.
24:46
Speaker 3: They need it yesterday. Four is not going to be
24:48
Speaker 3: good enough.
24:48
Speaker 4: So are they going to actually like help offset the
24:51
Speaker 4: cost for something that won't be available to them in
24:53
Speaker 4: four years in an industry like tech that changes really fast.
24:56
Speaker 9: I mean, they have a look all every hyper scaler
24:58
Speaker 9: has made positive comments regarding nuclear. Then it comes down
25:01
Speaker 9: to like how much how subsidy is done. Is that exactly?
25:04
Speaker 9: And so you know, the reality here is they need
25:08
Speaker 9: interim solutions now to support the growth. They also need
25:10
Speaker 9: longer term solutions. Nuclear certainly could be a longer term solution.
25:15
Speaker 9: But you know, we'll see what the details are. We'll
25:17
Speaker 9: see where the government's willing to subsidize a portion of
25:20
Speaker 9: those investments. The one thing I can say is utilities
25:23
Speaker 9: are probably going to be redis in to put a
25:25
Speaker 9: lot of money behind this on their own without that backing,
25:28
Speaker 9: given the history of the last three decades.
25:30
Speaker 2: Our thanks to Scott Levine Bloomberg Intelligence senior Energy and
25:33
Speaker 2: Industrial anast.
25:34
Speaker 4: Coming up on the program, we're going to break down
25:36
Speaker 4: the state of offshore wind in the US.
25:38
Speaker 2: You're listening to Bloomberg Intelligence on Bloomberg Radio, providing in
25:41
Speaker 2: depth research and data on two thousand companies and one
25:43
Speaker 2: hundred and thirty industries. You can access Bloomberg Intelligence if yeah,
25:46
Speaker 2: be I go on the terminal.
25:48
Speaker 4: I'm Paul Sweeney and a Malex Steel and this is Bloomberg.
25:59
Speaker 1: You're listening to the Bloomberg Intelligence podcast. Catch us live
26:02
Speaker 1: weekdays at ten am heasterne on Apple Cocklay and Android
26:05
Speaker 1: Auto with the Bloomberg Business App, listen on demand wherever
26:09
Speaker 1: you get your podcasts, or watch us live on YouTube.
26:13
Speaker 4: This week we focus on higher education in a story
26:16
Speaker 4: titled Oil Rich University of Texas Cash is in on AI,
26:19
Speaker 4: Crypto and Power. You can find it on Bloomberg dot
26:21
Speaker 4: Com and the Terminal.
26:22
Speaker 2: This story discusses how the University of Texas System is
26:25
Speaker 2: generating cash from new projects on its land from a
26:28
Speaker 2: mix of renewable energy, crypto and oil and natural gas
26:31
Speaker 2: production from more.
26:32
Speaker 4: We are joined by Janet Lauren, Bloomberg Higher Education finance reporter.
26:35
Speaker 2: We first asked Janet to explain how the University of
26:37
Speaker 2: Texas System is benefiting from AI, crypto and power.
26:41
Speaker 10: So, the University of Texas System has lanned two point
26:45
Speaker 10: one million acres in the premium basin that the State
26:48
Speaker 10: of Texas set aside for higher education in the eighteen
26:51
Speaker 10: hundreds when the land was supposed to be worthless. But
26:55
Speaker 10: then something happened in nineteen twenty three struck oil and
26:59
Speaker 10: for the first hundred years the University of Texas grew
27:01
Speaker 10: its endowment with oil and gas, and now in the
27:06
Speaker 10: next century they're looking for revenue from above the surface.
27:10
Speaker 10: They've had, they've started with a few wind and solar facilities,
27:13
Speaker 10: they have a crypto mining center, and they're looking to
27:17
Speaker 10: expand to you know, augment their revenue from surface ventures.
27:22
Speaker 3: So that's so fascinating to me.
27:24
Speaker 4: How quickly are they diversifying, Like how quickly is the
27:26
Speaker 4: money moving? And I wonder what policy in DC is
27:30
Speaker 4: also sort of filtering down into what the university invests in.
27:35
Speaker 10: Well, the university actually isn't really investing in anything. They
27:39
Speaker 10: are the landholder, So they're signing lots of leases.
27:42
Speaker 4: Sure, but they're like choosing to then maybe sign it
27:44
Speaker 4: for one part of energy and not another.
27:46
Speaker 3: One might say, well.
27:47
Speaker 10: They're they're looking to find new revenue sources. They've had
27:51
Speaker 10: a few wind and solar facilities on the land, and
27:55
Speaker 10: they just signed a preliminary agreement to lease about two
27:59
Speaker 10: hundred thousand acres or ten percent of their land to
28:01
Speaker 10: a company called Apex Clean Energy for wind and solar.
28:05
Speaker 10: And their customers include companies like Meta and the Army
28:09
Speaker 10: and eBay. So and right now these are you know,
28:13
Speaker 10: these things take years and years and years to build.
28:16
Speaker 10: The wind and solar facilities I saw that are up
28:19
Speaker 10: and running for a couple of years. You know, those
28:21
Speaker 10: deals were initially signed several years ago, but it just
28:23
Speaker 10: takes time. And there's new transmission lines that were just
28:26
Speaker 10: approved in Texas in three of them at ten billion
28:30
Speaker 10: dollars to move power into the Permian. So these wind
28:36
Speaker 10: and solar are producing them and then these lines will
28:39
Speaker 10: be able to take them.
28:41
Speaker 2: It's you know, Texas is such an interesting, you know
28:44
Speaker 2: place in the world for many reasons, one of which
28:46
Speaker 2: is me. When I think of Texas, I think a
28:48
Speaker 2: big oil you know, the oil rigs and cowboys and
28:50
Speaker 2: all that kind of great stuff. But it's also like
28:53
Speaker 2: the one of the biggest renewals places. They've got a
28:56
Speaker 2: lot of wind, and I got a lot of sun,
28:57
Speaker 2: and they got a lot of land. So how does
29:00
Speaker 2: Texas kind of bounce those things?
29:02
Speaker 10: Well, they need an all all, all in approach. And
29:06
Speaker 10: the University of Texas has you know, really grown its endowment.
29:09
Speaker 10: It's you know, forty eight billion, you know, coming close
29:12
Speaker 10: to Harvard. And I did a story a couple of
29:15
Speaker 10: years ago about their record year in oil. You know
29:18
Speaker 10: a few years ago they got over two billion dollars
29:21
Speaker 10: in oil and gas revenue.
29:23
Speaker 4: Yeah, that's amazing and it's just cash into the into
29:27
Speaker 4: the endowment. Can other universities replicate the monetization of their
29:32
Speaker 4: land in a similar way, Like what what other universities
29:35
Speaker 4: have this kind of option?
29:37
Speaker 10: Everybody in Texas knows, never sell your mineral rights. But
29:41
Speaker 10: you can't really come close to this, I mean rice
29:44
Speaker 10: in Texas. They also have revenue coming from oil, you know,
29:47
Speaker 10: from land, but nothing even comes close to this University
29:50
Speaker 10: of Oklahoma. You know, I did a store several years
29:53
Speaker 10: ago about you know, people gift them.
29:56
Speaker 3: Land, they keep the mineral rights.
29:57
Speaker 10: With fracking, they got you know, huge increases over time.
30:01
Speaker 10: But you know, you just can't compare anything to two
30:04
Speaker 10: million acres in the Permian basin, so one of the
30:06
Speaker 10: they are the one of the largest landholders in Texas.
30:10
Speaker 2: Still it's you have a great chart in here that
30:12
Speaker 2: just kind of shows the growth of revenue from their
30:15
Speaker 2: oil and gas business, which is still the vast majority
30:18
Speaker 2: of it. But this surface piece sounds like it can
30:22
Speaker 2: be totally incremental.
30:24
Speaker 10: Yes, And you know the head of University Lands, which
30:27
Speaker 10: is the unit of the University of Texas system that
30:29
Speaker 10: runs it. You know, initially he's saying, we're kind of
30:32
Speaker 10: looking for a couple of singles here and there test
30:34
Speaker 10: the waters, and now they're looking for bigger projects where
30:38
Speaker 10: they can have wind and solar power generation, you know,
30:41
Speaker 10: on larger swaths of land to generate more money. Now
30:44
Speaker 10: keep in mind, under these projects, the wind turbines that
30:47
Speaker 10: I saw, they have oil underneath, and you know that
30:50
Speaker 10: business is also working, so it's all concurrent.
30:53
Speaker 2: All right, You've got I have to ask you this question.
30:55
Speaker 2: Als can answer for you. There's a picture here an
30:58
Speaker 2: operator flaring excess natural gas at a well at Ute
31:01
Speaker 2: Manage Land in Cood, Texas. So there's gas escaping from
31:05
Speaker 2: the well and they just kind of let it on
31:07
Speaker 2: fire so it doesn't go into the atmosphere.
31:08
Speaker 4: Yeah, I mean in theory, they want to capture it economically,
31:11
Speaker 4: because if you capture it, you can then use it.
31:14
Speaker 4: And also with any sort of environmental restrictions, you got
31:16
Speaker 4: to capture it. But those restrictions are changing, let's say.
31:21
Speaker 10: And down the road, maybe you can use that natural
31:23
Speaker 10: gas to power.
31:24
Speaker 4: A data So yeah, it's like you gotta make it
31:26
Speaker 4: economic and if you can use it for something else,
31:27
Speaker 4: that's where.
31:28
Speaker 3: You got it.
31:28
Speaker 4: Silly question, What are they using all this money for sports?
31:32
Speaker 3: Teams like saying a good question.
31:35
Speaker 10: So the money from oil gas goes to basically building things.
31:40
Speaker 10: It's not for operations. So if you look at their campus,
31:44
Speaker 10: you know, and we described in the story a couple
31:46
Speaker 10: of buildings, you know, fifty million dollars for Texas A
31:49
Speaker 10: and M's new business school. You know, tens of millions
31:53
Speaker 10: of dollars for new hospital facilities. You know, they run
31:58
Speaker 10: a bunch of medical schools, different different types of technology
32:01
Speaker 10: within those medical schools and those health systems. You know,
32:05
Speaker 10: I forget the number of schools between the two systems,
32:09
Speaker 10: but it's something like twenty plus, you know, M. D.
32:11
Speaker 10: Anderson Cancer Center. Ye, So they build buildings, all right.
32:14
Speaker 4: Thanks to Janet Lauren, a Bloomberg Higher Education Finance reporter,
32:18
Speaker 4: each week we take a look at research from Bloomberg
32:20
Speaker 4: and EF previously known as New Energy Finance.
32:23
Speaker 2: They're the team at Bloomberg that tracks and analyzes the
32:25
Speaker 2: energy transition from commodities to power, transport, industries, buildings, and
32:29
Speaker 2: agricultural sectors.
32:30
Speaker 4: This week we looked at BNF's outlook for offshore wind
32:33
Speaker 4: for more. We were joined by Oliver Metcalp Bloomberg B
32:36
Speaker 4: and EM, head of wind Research.
32:37
Speaker 2: We first s Oliver to discuss the state of offshore
32:40
Speaker 2: wind in the US.
32:41
Speaker 7: Well, offshore wind projects in the US at the moment
32:43
Speaker 7: are facing a really, really difficult outlook. It's been tough
32:47
Speaker 7: over the last few years. There have been rising costs,
32:49
Speaker 7: supply chain bottlenecks that have hit the sector really hard.
32:54
Speaker 7: High interest rates for such an expensive technology is also
32:57
Speaker 7: something that raises costs a lot. There have been strong
33:00
Speaker 7: political headwinds since the since the Trump administration took office.
33:05
Speaker 7: So the Trump administration withdrew the permit for that Atlantic
33:08
Speaker 7: Shores project. That was a project that had already faced
33:11
Speaker 7: those higher costs I was talking about already facing a
33:14
Speaker 7: lot of economic difficulties, and the removal of that permit
33:17
Speaker 7: was that the final straw that really pushed the developers
33:20
Speaker 7: over the edge. The project isn't completely canceled, so SHERL
33:24
Speaker 7: and EDF that own that lease area that kind of
33:27
Speaker 7: marine area are going to hold onto that lease. There's
33:30
Speaker 7: potential that they could develop that in a different form
33:33
Speaker 7: in the future if there's a more friendly administration to
33:35
Speaker 7: off your wind. But yeah, a bit of a bleak
33:38
Speaker 7: out outlook for the sector at the moment. In the US.
33:40
Speaker 4: What about projects that already are outshore offshore and are
33:43
Speaker 4: already producing. Could those lose their lease and get shut down.
33:47
Speaker 7: It's not looking like that at the moment. So the
33:49
Speaker 7: Trump administration put a stop work order on a currently
33:52
Speaker 7: under construction project that would feed parent to New York
33:56
Speaker 7: called Empire Wind that's getting developed by the big Norway
34:00
Speaker 7: and oil men called Equinor. That and the Equinor had
34:05
Speaker 7: already invested over a couple of billions of dollars in
34:09
Speaker 7: that project. Thank thankfully for the sector, the stop work
34:13
Speaker 7: order has been lifted. Now that's a good sign for
34:16
Speaker 7: the other projects. There are five under construction US offshore
34:19
Speaker 7: wind projects at the moment, So the fact that that
34:23
Speaker 7: project was allowed to go ahead is a very very
34:25
Speaker 7: good single signal for other investors that are building projects
34:28
Speaker 7: like AUSTID, like you mentioned, that have projects in the pipeline.
34:32
Speaker 7: So those five projects we're expecting to go ahead. All
34:36
Speaker 7: the other ones kind of further out in the pipeline,
34:39
Speaker 7: federal permitting of projects, federal leasing of new seabed areas
34:43
Speaker 7: to build projects, the kind of developer, the development environment
34:47
Speaker 7: has has ground to a standstill for those projects that
34:50
Speaker 7: are a little bit further out into the pipeline in
34:52
Speaker 7: US off your wind.
34:53
Speaker 2: What's the rest of the world doing with offshore winning
34:55
Speaker 2: these days?
34:57
Speaker 7: Well, some of those effects that I was talking about
34:59
Speaker 7: that have hit the U have hit other markets around
35:01
Speaker 7: the world. So costs have risen globally, there have been
35:05
Speaker 7: supply chain constraints, there have been high interest rates. That's
35:07
Speaker 7: kind of a global story. But we're seeing a lot
35:10
Speaker 7: of growth despite that around the world for offshore wind,
35:14
Speaker 7: particularly European countries in the North Sea are building mega projects.
35:18
Speaker 7: We're expecting the largest project in the world to start
35:23
Speaker 7: to start commissioning their turbines next year, a project called
35:26
Speaker 7: Doggerbank off the coast of the UK. And then we're
35:29
Speaker 7: just beginning to see markets in Asia start to pick up.
35:31
Speaker 7: So we're beginning to see the globalization of the offshore
35:34
Speaker 7: wind industry. So that's markets like Taiwan, Japan, South Korea
35:39
Speaker 7: starting to install their first commercial scale projects, and over
35:42
Speaker 7: the next few years we're expecting them to start installing
35:45
Speaker 7: kind of industrial sized projects that we're already seeing in
35:48
Speaker 7: the North Sea.
35:49
Speaker 4: You mentioned this earlier, but a couple of things that
35:50
Speaker 4: sort of went wrong for offshore wind before the political
35:53
Speaker 4: environment shifted was interest rates and also supply chain issues.
35:57
Speaker 4: So a lot of at least of the way it
35:58
Speaker 4: was described to me by some of the players, is
36:00
Speaker 4: that they took on a lot of the commodity and
36:02
Speaker 4: supply chain risk and they didn't properly share that with say,
36:06
Speaker 4: customers and other developers, and that that really hurt them
36:09
Speaker 4: during COVID. Have those two issues, though, sorted themselves out globally.
36:15
Speaker 7: So there's a couple of different ways that those issues
36:18
Speaker 7: are slowly starting to resolve themselves. So firstly, suppliers are
36:23
Speaker 7: pushing to share a bit more of that risk when
36:26
Speaker 7: they're signing contracts, so things like linking contract price, your
36:30
Speaker 7: final contract price the customer pays to a steel price
36:35
Speaker 7: index or a copper price index, for example, to partially
36:38
Speaker 7: protect you from these commodity price movements. Another way that
36:43
Speaker 7: government's reacting to this kind of thing is linking the
36:47
Speaker 7: price of the subsidy you get paid too similar indexes,
36:50
Speaker 7: So linking the price of subsidies to the consumer price
36:53
Speaker 7: index to protect a developer against kind of some of
36:57
Speaker 7: those inflationary impacts. Same goes for commodity prices. So there's
37:01
Speaker 7: a bit a bit of a resolution on the policy side,
37:03
Speaker 7: and then also a bit of a push from supply
37:05
Speaker 7: chain contracts to protect themselves in some of the deals
37:08
Speaker 7: they're signing.
37:10
Speaker 2: What's the profitability of land based wind farms versus offshore.
37:17
Speaker 7: It really depends in the market you're looking at. Typically,
37:21
Speaker 7: the kind of required returns for an investor on an
37:24
Speaker 7: onshore wind farm is lower than an offshore wind farm,
37:27
Speaker 7: where we're kind of more looking kind of nine plus
37:32
Speaker 7: internal rates of return on a project. Partially that's because
37:36
Speaker 7: the perceived risks of building something on shore are lower
37:39
Speaker 7: than building something offshore. Every time you need to fix
37:42
Speaker 7: a turbine, kind of the whole construction process is just
37:45
Speaker 7: much more difficult when you're doing it on water versus
37:47
Speaker 7: when you're doing it just on land. And also on
37:51
Speaker 7: shore wind projects have been operating, we've been building them
37:54
Speaker 7: for a lot longer, and so just the perceived risks
37:57
Speaker 7: and how we understand those risks, it's much further along
38:01
Speaker 7: for on shore wind firms than on show wind firms.
38:03
Speaker 7: All right.
38:04
Speaker 4: Thanks to Oliver met Kaploomberg b A, the app head
38:06
Speaker 4: of Wind Research.
38:07
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