Inside the 20GW Pipeline Shaping U.S. Renewable Energy - Engie North America

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 apply to 20GW of pipeline across five US power markets. It can get complicated.

Engie 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 hyperscale demand is pushing developers into new markets faster than the grid can respond. So how do you decide what gets built work and with whose capital?

Lolita Carry, director of portfolio strategy at Engie 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 Modo Energy. Can you start by introducing yourself what your role is within Engie and explaining what Engie actually does?

Yes, sure. And thanks for having me. Very pleased to be here for the first time. Um, I'm working at energy as a portfolio strategy director.

I was previously investment director, uh, been with the company for the last 16 years. So in the portfolio strategy team, we steer the portfolio that we eventually want to build, uh, in the US. So we have some target growth. Um, that is quite high, uh, for Engie in this country.

We also look at capital allocation, some recycling of capital. Where do you want to be bigger? Where do you. We 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 markets, 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. Okay. And so what is the main service that Engie provides to its customers. So yes, that was for our team Engie in the US.

It's very big in um energy generation, especially renewables, wind, solar, batteries. We are the first battery operator in ERCOT right now. Wow. And we are growing bigger also in other states.

Um, and with sorry with first you mean with the larger portfolio. We are first in battery portfolio in ERCOT. Okay, perfect. 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 hyperscalers. That's hype in the moment.

But for other corporates or municipality of takers, uh, out of this mix between assets and energy management that we bring in. We also have retail B2B activities in parts of this country, and we have distributed generation, um, in, uh, in the US as well. Which of all of these different business lines is the biggest within Engie? So the biggest is, uh, renewable and batteries, energy generation.

That's the business line where I'm in and the one that we are actively developing right now is great. You mentioned that one of the key tasks of your team and your daily tasks is capital allocation. So portfolio strategy from news perspective on yourselves, what are the key technologies right now in the US to focus on, and what are the key regions where you're think that they're the most amount of opportunities. Mhm.

Yeah that's a good question. So at Engie we are very strong at deploying and scaling up all the renewables generation activities. So wind solar based all those three. We have a big footprint.

They are roughly one third each in the portfolio that we are that we are having under operations right now uh, which is roughly 11 12GW. By the end of the year, we should get to 12GW installed between the US and a small part in Canada as well. We have some wind assets in Canada, And that's the main basis for our activity in the US, in the world. We also have hydro generation.

We have nuclear power generation and gas power generation coupled with water desalination in the Middle East, for example. Yes. So depending on the regions, we have different technologies. In the US it's wind, solar and batteries.

So you just mentioned the key technologies. What about the key regions within the US? Which key ISOs or states are you focused on? So we are very strong in ERCOT.

We have a big presence here with wind solar base as well with portfolio for further growth. We also have a large presence in retail, and we are building up some capacity in terms of generation in PJM MISO. Those are from our top target regions where we want to scale up our presence. We have a portfolio, a 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, PJM, MISO and CAISO. And if I could ask what makes those markets so unique and the most appealing to you. 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 are able to provide, and we have released recently a press release around a 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 ERCOT. What we want to do is also to diversify to other markets, and that's why we're interested in them.

PJM is, uh, is the first one. Uh, PJM ERCOT have very strong fundamentals. So why we go there is because we have a good play for our assets and, um, good, uh, demand strong demand, especially driven by electrification, um, data center, hyperscale 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're also being pulled by our customers there and MISO as well. There is quite some appetite to to deliver more energy and capacity in those markets as well. Um, in California we are we have a very big, um, uh, storage portfolio there, which is more driven by the regulatory scheme, um, for storage.

So yeah, it has those different parameters, but we always look at all of those like market fundamentals. Are the market price attractive. How is the capacity price. We look at what our customers ask for.

We look at how. How easy it is also and how quick it is to develop projects there. So Urquhart is probably the the 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, 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&A for example, depending on what's available. 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're developing a plant and sending an uptake agreement with them while participating in participating in wholesale markets? Will it be fully merchant?

What is the typical way to interconnection and to operations within Engie? So that's a good question. So the typical business model in energy is developed on very greenfield sometimes what I'm saying. And then develop builds.

Operate. Settle 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 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 provide, but we would generally want to go with a with strong off taker when we effectively make the decision on the project.

Okay. Thank you for explaining those differences. Now looking into specific technologies such as battery with solar. Could you walk us through how the full development process would look like until you reach FID?

Uh, not full development until you reach FID within Engie and your team. So that might vary across market, but in general, once we have, um, uh, 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. Um, pricing for these projects. Is there appetite on the market. Uh, and then when the time comes and the market and the project is mature enough, we will go to investment decision considering in the business plan all the elements that I just mentioned.

So you could obviously, uh, map the timing that needs to be completed for the project to be operational. Uh, we would look at, um, market prices, um, price expectation we will get to offtake contracts that we have on the negotiation and on the basis of those economics, we would make the decision to okay. So just to clarify, when I mentioned IFAB for its 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 that project and say, hey, we'll leave it. We won't continue developing it. So there wouldn't be like a red flag in itself. I think we would.

The projects are full of risks that the business we are in and, um, the main activity of the business development team, together with the finance team and all the SMEs, all the all the support functions, is really to decrease 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, um, 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, cuz 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 flaw for a project, for example.

But yeah, in general we really put in two figures into numbers. Whichever challenge we have, which is very common during the cycle of development. And then we see the business case flies or not. Okay.

And when you mention network upgrades, if I want to understand, can you put a simple case fictional case where you use 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? 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. Yeah. For all those plans 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, etc..

And the outcome of those studies is extra infrastructure which costs need to be split amongst the market participants. So it's not really a 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. Um, and, and then when the results come out, that's information shared amongst the different participants.

And you can see that alongside the CU process, you have projects dropping out because of unfavorable network upgrades or capital requirements to stay in the queue and be able Yeah. So from one day to the other, I probably had expected maybe a cost of $100,000 in network upgrades. Could face, for example, $2 million suddenly, uh, if the. Yeah.

That's not something that we have seen like, so far. Um, I would rather not go too much into detail on that front because that's not my. As an example. Expertise.

But yeah, that's, that's part of the business that you put together. So you would need to factor in if you can absorb those costs and your project would still be profitable. Quick break. If you listen to the show then you probably work in energy and at Modo Energy.

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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? So first we start with the with the portfolio. We have we have a pipeline of 20GW at the moment.

So we have a big basis. And we see which project we can mature and bring 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 didn't we have not had to renounce to any project. So we really took investment decision and wrote and built those 12GW 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 that 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 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 prioritizing 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 when 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, etc.

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 looking 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 are mentioning, etc.. And well, we put all of that in the shaker, and then we have a different scenarios that we discuss with leadership and see where where we want to really push. Um, I would say one of the strong drivers is obviously the market fundamentals. So the markets that I was mentioning, PJM, ISO, 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. And from your experience, uh, in which part of the development construction operation process have you captured the most value? Is it during early stage development, during construction or during operation later? 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, uh, 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 a 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 rolled 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. Okay, great. We've seen that Engie has recently sold part of a 2.7GW portfolio operating portfolio to SES, but kept some assets operating by Engie for someone not in finance.

Why would you sell a share of projects you already built? What is the value behind. So that's the. That's the business model.

That's how we 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 that sit on our balance sheet and we sell part of the capital to a minority shareholder.

Um, 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's also allows us to, to to share the risk and to invest together if the project needs upgrades, etc.. So that's really platform. We see that platform with partners that we can grow in the business, but having partners on board allow us to to really.

Um, yeah, duplicate or multiply, multiply the number of projects that we can do. Otherwise it would reduce the the capital. It's really an additional capital slack. So it would reduce the capital that we have available to invest in new product.

Okay. Great. Thank you. People often imagine batteries as giant power banks where like you can start a lot of energy and later release it when it's needed.

In reality, what are energy grid scale batteries doing day to day? How do you operate them and optimize them? The business model on batteries is actually quite fascinating. It's not as much 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 on 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 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 a huge electricity demand in ERCOT for AC needs at homes 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 operational ability of your assets. And battery revenues in markets like ERCOT and CAISO have been declining in recent years.

In the last two recent years, partly because of ancillary service 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?

No we are we are bullish on batteries definitely. Um like I was saying ancillary services capacity. You mentioned capacity. Remuneration is a is quite important on our case for asset.

Our code doesn't have capacity but we see energy taking more and more relevance. Uh we are also discussing um PPA or offtake deals that involve more than one technology and battery. Adding it to the mix is actually of value for our of takers. So yeah, no we are we are bullish batteries and we see it complementing quite nicely.

The the the wind and solar portfolio that we have. Uh, we also have some strategic studies where we do some stochastic modeling etc., 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.

Do you cover the full operational side of batteries in-house, or do you hire external asset optimizers, for example? Yeah, that's a good question. And actually in our business model, we 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.

And that's one of the key differentiator at energy. 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. Yes. Being part of the portfolio team and a big company such as energy 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? Or would you say those advantages are. Mhm. Um, 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 the asset part of it, the 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, um, next to the trading team that is able to trade, uh, that's definitely a value that we add to our platform. Then we have capital, right? We have a large capital and we are backed by a big company, uh, which is bullish in the US. The situation is probably a bit tricky right now, uh, with some uncertainty.

But Engie has confirmed its commitment to the US and will still continue spending one 2 billion a 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 hyperscale 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. 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. And we are looking okay.

We are looking at that. Definitely. Uh, we are looking, uh, opportunistically. Uh, we think it might be a good moment.

We have a very strong portfolio of our own, so we are not needy. We are not desperate to buy, um, more projects. But if that fits the strategy that I was mentioning, the market and the technology, uh, um, we we would definitely look at, uh, and we are, we are looking at those opportunities that come up. Yes.

Okay. Jumping into the personal side a little bit. Um, after you 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? Um, I would say the opportunities.

It's it's huge. And we can hear that at the conference today as well. Um, 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 to the technological part of it, I would say. Batteries were not very spread.

A couple of years ago, Engie invested in Broad Reach Power, which is the basis, the strong basis for battery development that we are now having at Engie. 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. Um, all those, um, hyperscalers and other obstacles that we are talking with, they are there. There is so much demand out there that it's we know we are at the right place. So that's that's really motivating.

And like I was mentioning, I think the US is a is an incredible playground. I've been working in many regions of the world for Engie being in Dubai, in Mexico, in France. Every market is different and has its own attractiveness. But the US being complex with these different I saw system, different rules, etc.

when you actually want to deploy your capital on a portfolio, it's it's 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 quite exciting to see where we want to go from there.

Yeah. Out of the strong bases that we have built and with the capital that we have and the opportunities that we have, where, where do we want to to continue going? 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 become has attracted a lot of attention recently with the AI data center boom, learning 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. On the investment side? I mean, on the on the finance side. Yeah.

Finance, public finance, investment sites within the industry. Yeah. So that's 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. Where in Houston we are in the capital of energy of the world. Um, you have so all those clean tax initiatives there are 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 are having an intern starting 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. I'm sure our audience has taken a really good note about what you just said.

I'm intrigued. You mentioned that you have the largest portfolio, very big portfolio, but part of that portfolio initially came from the acquisition of Broad Reach Power. Correct. Can you tell us a bit more about that acquisition process and lessons learned from that?

Yeah. So we acquired Broad Reach Power two years ago actually. So it's quite recent. It was a big, big accelerator for for Engie in batteries, especially because it came with a 350 megawatt of operating batteries at that time.

Very knowledgeable and skilled teams that we integrated with the, with our teams. Um, and something I would say is that what has really proved, uh, 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 Broad Reach Power brought was mainly scales very large portfolio, not only in ERCOT, also in other in other markets. So that's why we are scaling up our presence in California, for example, that came with the Broad Reach Power acquisition. Um, very strong systems, very good integration with the energy management team and the trading side of it. So we have really been able to to scale up of what Broad Reach Power had built in a couple of years and deploy it with the capital that Engie has and, uh, presence, the international presence that Engie has, for example, we are leveraging that knowledge for in many other geographies that we are bidding on, project on, etc..

Great. Thank you for sharing those details. Jumping onto the final section. Is there anything you would like to plug or promote our audience?

This is the moment for it. Uh, so. I am personally strictly convinced that, um, renewables and decarbonization will come. Uh, I know in the US it might be, uh, sometimes questions, we know it will come.

And we are convinced that Engie, that we have the right tools to address that, um, bringing, uh, secure, reliable power 24 over seven. That's what we are looking at. Coupling renewables with batteries. Um, the solutions are there.

And I'm very excited about that. Okay, great. And the final question that we asked to everyone, what is a contrarian view that you hold about the energy industry that many people would not share with you? So I would put someone from the conference that was saying, energy is cool.

So, yeah, energy is not boring. Uh, or not boring anymore. Um. Full of opportunity. Lots of modernization of the transmission grid, for example.

Uh, we didn't talk too much because it's not the business of energy, but oil and gas. Um, but you see those transformation? It's an industry that is really transforming itself. And that will enable AI, uh, which is going to revolutionize our, our societies.

So I would say the challenge is energy is not boring. I fully support that statement. I guess it's all right. So maybe it's not so contrarian.

No no no no no. But I see that there's been an evolution of people thinking that it's becoming cooler and cooler now, recently. Yeah, but it was not. Well, thank you very much for joining us today, Lolita.

It was great to have you. See you soon. And I'll see you soon. Yes, exactly.