The Exchanges

Q All right, so excited to talk to you about this letter and notice of proposed rulemaking that Secretary of Energy Wright sent out very recently. Allison, I want to start with you, since you have the procedural knowledge here. Like, technically speaking, what is this? What did Secretary Wright send?

A Technically speaking, what Secretary Wright did was use a provision in the Department of Energy Organizing Act, provision, four or three B, which is why people are referring it to the, as the four or three B letter. He sent a letter to then chairman Rosner at FERC and all of the commissioners and said, I, the secretary of energy direct you to consider issuing an advanced notice of proposed rulemaking or an ANOPER. Around large load interconnections. And it's a fourteen-page kind of bare-bones document that, that in the eyes of the Secretary, constitutes an advanced notice of proposed rulemaking. Um, that's the process, and now FERC can say, okay, great, we're gonna consider it, and they either move forward and issue the advanced notice of proposed rulemaking, which there has been some public indication already that they are eager to do, Or they could decide not to issue the rule, but they would have to justify that decision.

AI assessment note: “Technically speaking, what Secretary Wright did was use a provision in the Department of Energy”

Q I have talked about a little bit that I think you have insight into that people don't often appreciate is, like, just the practical challenge of Aggregation and utilization of that resource. Like, talk me through, what does it take? Say you want it to do something. Forget what you're doing with it. Say you want to do something with it, um, at scale. Like, what does that actually entail?

A There is, again, some diversity depending on, on the residue, but if we stick with corn stover for a second and say you want to use the corn stover somewhere, um, Typically, you're not going to be able to use it on the field, right? Typically, if you're going to take some portion of it, whether that's 70% or 30%, depending on the sort of agricultural zone that you're in, uh, you know, you need to get it off the field. And so, there's actually a lot of steps to get the biomass off the field in a sort of usable format at a usable distance where typically people are building centralized plants. And so, you know, that actually dominates the cost of the biomass, which is, you know, something that we're trying to, we're trying to invert, invert this at Charm by eventually Operating on field to cut this all out. But, you know, you have, let's say you have a field, it's all laid flat. You know, a forage harvester came through and, and cut it all down. Now you need to first windrow it into a pile. Then you're going to bail it. Then once you have bales, you're going to have, ah, you know, you're going to bring a machine that's going to stack the bales and bring them over to the edge of the field where you put them in piles. And then you're going to need something like telehandler to load it onto a Load it onto a truck, and they need to drive the truck, and they need to unload the truck. …

AI assessment note: “windrow it into a pile. Then you're going to bail it.”

Q high enough reliability to what you want, so you also put a UPS on site, uh, which just bridges seconds to minutes of power outages, basically, and then you generally put backup generators on site as well, which are supposed to You know, fill in the, the blanks where you have longer outages. So that architecture, grid connection, UPS, backup genset, that's the kind of basic, like, dominant paradigm, right?

A Correct. Yeah. Particularly for your traditional cloud data centers, you'll see that. Um, I think with some of the AI training sites, we've seen it's more of a move away from backup generators. Uh, some of that is in part because of that bad change. Like, they could handle an outage, um, if it, if it ever happened. And keep in mind, like, the, the outages we're talking about that the generators there to protect are pretty rare. Because we're talking about these sites being connected at very high voltages On the transmission system. So, you know, we're talking about like, you know, winter storm Yuri sort of events that you're really concerned about. Um, so in that case, both for that reason, and I think out of necessity, because especially if you're talking about these gigawatt scale sites we're seeing, you're not getting diesel generators permitted at that sort of scale anyway.

AI assessment note: “Correct. Yeah. Particularly for your traditional cloud data centers, you'll see that.”

Q Yeah, can you run through the numbers? Where had the pricing been, and then where has it been now the past two years?

A Um, so the pricing in the early twenty-tens was maybe around a hundred dollars a megawatt day, additional sort of reforms and changes that PJM made. Depress the price even more at those high reserve margins. I think we got down as low as 30 dollars a megawatt day, barely enough to, um, to really deliver returns to, um, merchant generation in PJM. Last year's clearing price was closer to 270 dollars a megawatt day, so, you know, eight times more than it had been the last few auctions, and, and, You know, much higher than it even had been historically. Um, and, and of course, uh, this auction, which we'll get to in a minute, we've cleared even higher.

AI assessment note: “Last year's clearing price was closer to 270 dollars a megawatt day”

Q do something with waste heat. And you, along with, with Greg Thiel on our team, have been on a, I think, a long-term tirade to say it is a mirage, basically. It's not that it doesn't exist. It's that accessing and utilizing waste heat industrial facilities is way harder than you think it's going to be. So can you, Describe in a little bit more detail why that's your view?

A It's in the words, right? I mean, waste heat is waste, and at the end of the day, we've got to get it out of the facility, and that's just a obeying the second law of thermodynamics. Now, I'm not going to go down a deep thermodynamic tangent here, but there are a couple of scaling things to think about. So there's two things that people try to do often, well, three things probably with waste heat. Number one, capture it and upgrade it. In a heat pump to be able to deliver heat. Number two is capture it and try and convert it into electricity. Or number three, capture it and utilize it to drive processes, uh, for chemical processes or separations or something else. For all of those things, you essentially need to find a way to capture that waste heat, and that's where the first most expensive step comes in. The lower the temperature it is, you need to have Larger heat exchangers to be able to capture that and put it into the other working fluid. That increases capex. The other thing is, this waste heat is not always located in the exact same place at the exact same temperature in every given facility. So you're building bespoke, one-off heat exchangers with very expensive engineering hours to go and build and capture that in that facility. And so if you're a Say you're a global cosmetics manufacturer, and you have 20 manufacturing facilities around the world, your facility in Eu…

AI assessment note: “you're building bespoke, one-off heat exchangers with very expensive engineering hours”

Q Let's talk a little bit about the economics of steam delivery. You mentioned that what we're doing is burning fossil fuels. I mean, the first question is, which fossil fuels are we burning where for industrial steam?

A Yeah, I, steam, that was a bit of an oversimplification on my part. Uh, steam is generated not just with fossil fuels, um, but some places you're using electricity, some places you're using biofuels, um, but, yeah, today in North America, predominantly, we're burning natural gas. In Europe, that's driven by LNG, but in China, in other developing markets, you still see utilization of coal, uh, And even some places where you don't have access to import of natural gas, you're often using even oil or, uh, bunker fuel. Um, some places where you see some effort towards decarbonization has been done. People will be using biomass boilers, or if you just have enough forestry resources, this is very common in pulp and paper, just to use that directly. Um, or you see the utilization of RNG oil. Uh, in Eastern Europe, in North America, where that kind of a market has been matured.

AI assessment note: “today in North America, predominantly, we're burning natural gas. In Europe... China... coal”

Q nuclear. Like we built a lot of it decades ago, and then we stopped building new stuff in the US. I think A lot of people don't appreciate that the same thing is true of geothermal, and actually, interestingly, on, like, a roughly similar timeline, which I find kind of intriguing, not exactly the same, but, but similar kind of story. So what happened? Like, why did it stall out?

A Well, I think there were a couple of things that happened in the early days. The early technologies could really only work with very high temperature steam, and so they were looking for exceptional locations in the Earth's crust, where this was 200 Celsius and often higher, and it turns out those were relatively rare. And the further down in temperature you go, the more abundant they become. But the other part of it was that we had so many failures in trying to drill into these resources where there was a hot spring or geyser at the surface. They thought this was a no brainer. And when they come in and start drilling those deeper wells, they would not find the resource they were expecting. And so this is what we call exploration risk, uh, or dry hole risk in geothermal. And it led the industry to start having enough failures to scare capital investors. To say, whoa, should we really be throwing more money after this? And this kicks off really a race, a lot of it funded by the Department of Energy, to solve the problem in one of two ways. We were either going to get better at finding these systems, so better exploration methods and data types, or we were going to avoid the exploration problem altogether by just engineering in place the things that we needed to make that system work. And so you see the beginnings of both the unconventional enhanced geothermal industry starting at…

AI assessment note: “And it led the industry to start having enough failures to scare capital investors.”

Q Can you just give a little bit more detail on the difference between a conventional or hydrothermal field and an EGS field? What are you, what are you looking for in each?

A Yeah, in a conventional geothermal field, you need to find the temperature. So it needs to be hot enough to boil water or working fluid. You need to have porosity or permeability in the rock so that that fluid can circulate through, extract heat. You'll bring it out at the surface, then you'll re-inject it so it can circulate again. And you need water, so that working fluid that's going to sweep that heat through the system. And in the conventional field, all of those exist naturally. That's what we call a hydrothermal system. EGS was based on that early recognition that we drilled a lot of holes or wells that were hot, but didn't necessarily have the water or the porosity and permeability to be able to circulate the water. And EGS was this hope that we could stimulate or engineer the rocks to have that permeability and maybe even add the water in some cases. And so, this in many ways I think is analogous to what you see in oil and gas, the division between conventional oil and gas and unconventional. Is the ability to just drill a well and have what you need versus needing to modify the subsurface in some way.

AI assessment note: “in the conventional field, all of those exist naturally. That's what we call a hydrothermal system.”

Q Can you describe what, I, I know I brought up decline rate, but I realize we didn't describe what causes it. What causes the decline? Like, you could imagine a scenario where, look, it's hot underground, you just keep recirculating water, and it should work infinitely. Why doesn't it?

A Yeah, so you are pulling heat out of the system, right? You're taking that to the surface, you're extracting it either through your turbines or through heat exchangers, And when you re-inject it, the water's gonna be a little bit colder, or quite a bit colder. And because of that, it needs to extract more heat from the rock before it returns to the production well. And you can think of these two wells. If your injection well is too far away, it actually might not ever return, and you can start to draw down the pressure in the, in the reservoir. If it's too close, where it maintains good pressure in that reservoir, it might return too quickly, and you could think of that as them not having enough time to recharge in temperature, and part of the challenge was finding that optimal distance where it has enough time to fully recharge while also maintaining pressure in your system.

AI assessment note: “you are pulling heat out of the system, right? You're taking that to the surface”

Q Okay, so let's say you drill your temperature gradient hole, you confirm, you see what you're looking to see, and at least your interpretation is positive there. What's the next step?

A At that point, you're going to need to put together, if you haven't already, a pretty detailed conceptual model or understanding of what might be driving this system. Is it a volcanic system? Is it a sedimentary system? Is it a fault-hosted system? And that's going to give you a better predictive ability to go deeper into the resource, at least with classical methods here, and, and you're ultimately going to then want to say, okay, if I've proven temperature, now I need to prove permeability, or the ability to flow water through the wells that I would drill here. And so you're going to step up in size and complexity of your drilling program and drill slim wells, or small, think of them as mini production wells that are going to be able to allow you to pull water out of the system.

AI assessment note: “you're going to step up in size and complexity of your drilling program and drill slim wells”

Q We've been focused mostly on the U.S., We're both based here. A lot of the data center build out is here, and we have 45 Q. How much is happening internationally on this?

A So, great question. Glad you asked. Uh, first stop is our friends to the north in Canada. They have a substantial investment tax credit. 60% ITC for carbon capture technology. That goes a long way. And in fact, it is not impossible that the first, uh, integrated natural gas with CCS data center project will be in some place like Uh, Saskatchewan or Manitoba or Alberta. Second, uh, look, uh, overseas. The UK is very interested in this, and they are building these industrial hubs. So in addition to the Teesside project, which I mentioned, that's being supported with a contract for differences policy. That kind of support becomes a magnet. You're going to see more of these plants there. In part, that's a way to both have the UK meet its targets, Displace coal and also serve the domestic natural gas industry. Not to be outdone, our friends in the Gulf states, the MENA region, this is a hot topic. They are very interested in attracting hyperscalers and data centers. They have poor volume. They have natural gas. So look to Saudi Arabia, the Emirates, Qatar. They're all working this up in real time. Uh, not to be outdone, Even though they don't have natural gas resources, look to Japan and Korea. They sell the technology. So they want to sell the turbines, they want to sell the capture tech, they want to sell the EPC contract, and they will do that in a place like Northwestern Austral…

AI assessment note: “first stop is our friends to the north in Canada. They have a substantial investment”

Q like, a significant share of global energy storage, certainly stationary, possibly mobile applications as well. So let's run through the theoretical benefits, and then I think we can spend some time talking about the market and, and, like, how real some of these benefits are. But, but one big one is, like, it's a very different Supply chain, and perhaps one that is a little bit more palatable geopolitically, right?

A Potentially. Um, I say it is in some cases, and it isn't in some cases. So, so if we kind of come back to, uh, like how you put it, the theoretical benefits, um, I would categorize them into three buckets, right? There's, there's a supply chain argument, there's the drop-in manufacturability argument, and then there's a safety argument. Now, for all three, Um, there are asterisks, because it's never that simple. And so, we'll come back to those asterisks, I, I, I'm sure. But, um, if we just look at lithium, right, lithium in the supply chain bucket, the first bucket. Lithium, of course, famously went on this wild ride in twenty-twenty-two. Um, this is kind of post-COVID supply crunch. Um, nickel, as well, uh, went through, um, a, a supply chain crunch in twenty-twenty-two, really because of the Russian invasion of Ukraine.

AI assessment note: “I say it is in some cases, and it isn't in some cases.”

Q and nationalization. There's, and then there's obviously a China thing. There are other countries that are relevant as well, but those two feel like the big The big geopolitical movers here. So let's start with Chile, because that one's kind of interesting. As we've talked about, Chile's the largest brine producer in the world, the second largest producer overall behind Australia. Um, what happened in Chile a couple years ago?

A Yeah, I was actually in Santiago the night that, uh, President Gabriel Boric announced on national television that he was essentially going to take steps that would nationalize the country's lithium industry. Now, the word nationalization obviously has a loaded connotation, especially in parts of Central and South America, but what he was saying is, is that the lithium in Chile belongs to the Chilean people, uh, and that should be controlled by Chilean state-backed companies, and so we just actually saw Let me take a step back. There are two main companies right now that produce in Chile, Albemarle and SQM. They produce in the Salar de Atacama, which is this sort of massive Salar. Salar is a salt flat, and they've been there for decades. Albemarle's contract goes until at least 2040 or 20 42, right around there. Uh, SQM's phases out in 2030, so they had, uh, a bigger interest in this announcement, and so, um, actually SQM has just made a deal with Codelco, the state mining company, uh, to essentially partner on developing, um, other salars in the country, as well as fold in its operations in the Atacama. And so, uh, that's been closely watched by investors in Albemarle, of course, and others. Uh, so the government essentially is saying we want to develop more salars. We want to have a Chilean state backed company partner with private entities in a minority role, uh, to produce …

AI assessment note: “President Gabriel Boric announced on national television that he was essentially going to take steps”

Q but actually, um, we do have A longstanding precedent in this country for a book and claim system in the case of electrons more than in molecules, which is renewable energy credits. So, I mean, talk a little bit about how the rec market influences your thinking about all these next-gen book and claim systems. Is it a model to mimic, or is it some, is it a cautionary tale?

A There are pluses and minuses from the rec model. So on the plus side, it's a system that works. There are registries, uh, like Emirates, That have demonstrated effective transfer so that buyers can be confident that they own the attributes. No one else does, and that's really important to eliminate or reduce the potential for double counting. Also, RECs have generated additional revenue, so developers who have funded projects like solar and wind projects know that additional money is coming to them in the form of RECs, and this makes it more appetizing for new investment and new development Which one could say is indirectly, uh, additional. Uh, so on that additionality point, though, that is a potential weakness for RECS because the projects are already built. So some of the skeptics may say, hey, look, did you really need the revenue from RECS to make that solar array? And this is different than in some of the heart, most of the heart debate sectors where that revenue makes the crucial difference between purchasing a sustainable product And not actually covering the differential and not creating that demand signal. So that is one of the lessons that has been learned from, from the rec market. The other piece that has been learned is around emissions reductions. Uh, it is difficult to understand the carbon intensity right on a real time basis from those electrons. And we have a…

AI assessment note: “There are pluses and minuses from the rec model.”

Q in historic book and claim systems, because you'll have the producer of the thing claiming they made a green thing. They'll sell off the environmental attribute. They'll keep claiming that it was green, the thing that they made, but actually what they're selling away generally is the rights to call it green, right? So how do you, how do you avoid that kind of double counting or double credit claiming?

A Yeah, so I think with, with fuels, uh, there are two ways, and then I'll add another important consideration for materials. So for fuels, ideally, there's the interoperability between registries. So if a batch number shows up in one, It makes it very difficult to then register that same batch on another competitor's registry. So this is important because we want to avoid double issuance, and that is something that can be avoided when the registries talk to each other, or when there's even an umbrella system on top of the registries, such as something called an issuing body, where all of the credits first go to the issuing body, and that serves as a clearinghouse Uh, and then they can be released to individual registries. So, so that's one important way. Um, the other way, as you mentioned, right, if you're a recipient of the physical molecules that have actually been stripped, you might assume, uh, or worse, that you decide to claim those attributes that you, you cannot own. So here, here it's important that, uh, customers receive at notice that they're only getting What is potentially a commodity without any environmental benefits and that the only way you could claim benefits is by using a registry. So perhaps a solution in the future would be that all sustainable products go onto registries. That would be the preference because then you have a system where all the credits ex…

AI assessment note: “for fuels, ideally, there's the interoperability between registries.”

Q Okay, so aviation clearly kind of the furthest along, as you said, setting a precedent for other industries. Let's for a minute just talk about other Heavy transportation. That's the logical next step. We've got a vibrant market for SAF. What about Maritime? What about long-distance trucking, things like that?

A Yeah, so in Maritime, we've seen a number of pilots from large companies like Maersk, uh, and the Zemba group, which I mentioned, the Buyer's Alliance, uh, they have done one procurement so far, and Hapic Lloyd, uh, won that procurement. They had requirements on emissions reductions, had to get 90% or better on a life cycle basis, so it ended up being RNG. Um, and so Zumba is repeating that, and now they're going through procurement that, uh, I think the first procurement reduces greenhouse gas emissions by about 80,000 metric tons. This next procurement is almost half a million metric tons. And, uh, again, it has a 90% or better, uh, carbon intensity reduction. So, There is movement. I think, ah, that shipping may be a year or so behind aviation, but we are seeing, ah, interest in, in the sector. Ah, one of the differences between aviation and shipping is that with aviation fuels, you've got a drop in solution, right? So any staff that meets the spec can go into any aircraft, and that's not the case with shipping. They've got something called, they like to call the rainbow donut, which is, ah, 10 or more different fuel options. They have different specs, but those will require different engines. And we'll have different applications, so it's going to be potentially a little trickier to scale the solution and shipping, and there's also a question of, is there the same willingne…

AI assessment note: “Yeah, so in Maritime, we've seen a number of pilots from large companies”

Q the world where you just wanted to replace the hydrogen source, and say you were going to be operating an electrolyzer at something less than a hundred percent capacity, and so you did need to buffer that hydrogen, from a techno-economic standpoint, how big a deal is that? Like, how expensive would that be? Is it enough of a problem that it necessitates introducing entirely new technologies to replace Haber-Bosch?

A Yeah, that's a good question, Jill. High level, I think it would be pretty impactful to the levelized cost of ammonia if we need to account for hydrogen storage on site in order to feed the ammonia synthesis loop continuously. So if we take data from a couple sources, the levelized cost of hydrogen storage ranges from somewhere between 30 cents a kilo hydrogen to about a buck 20 a kilo hydrogen for compressed gas. So we put this in an ammonia basis, this is about five to 20 cents a kilo ammonia In hydrogen storage cost alone that accrues to the LCOA. And this is a pretty big chunk of your cost stack. And if we keep that same, ah, high-level target, the long-term average selling price of ammonia in the US between five to 600 dollars a ton, you can see that this, ah, quickly can make a big impact. And I'm sure we're gonna talk about this later, but one of the key drivers of decentralized Ammonia production is to eliminate or reduce the transportation cost of between where you produce ammonia and where you use ammonia, but if we need to buffer hydrogen, the value in reducing this transportation cost is perhaps eclipsed somewhat by hydrogen storage cost and really points to either trying to develop ammonia synthesis reactors that can ramp with renewables Uh, or looking at other technologies like batteries, but, uh, those will also have their own, uh, cost drivers.

AI assessment note: “this is about five to 20 cents a kilo ammonia In hydrogen storage cost alone”

Q get your CO₂ input for, I don't know, 50 dollars a ton or something like that. Or on the other end of the spectrum, you can imagine you're doing direct air capture at today's direct air capture costs and you're paying a thousand dollars a ton or at least high hundreds of dollars a ton. Like, do those move the needle as much as the hydrogen or not as much?

A Not as much, but like you say, there's a wide array of sources that you could get this CO₂ from, and of course, from a carbon accounting, uh, perspective, where you get your CO₂ matters, right? Um, but, but, you know, back to the kind of economic picture here, the, the, again, sort of best case from the chemistry is something like 2.75 kilograms of CO₂ per kilogram of methane. So thinking back on a, on an MMBTU basis, you know, if you want to Get the, the, the good sort of CO₂ from the air, and, and we hit all our, all our hopes and, and, and targets of getting to that magic 100 dollar per ton of CO₂ number. Uh, best case scenario, perfect yields, a hundred dollar a ton CO₂. That's six bucks in MMBTU, right? So again, even the CO₂ by itself is, is blowing your budget. So it's tough.

AI assessment note: “Not as much, but like you say, there's a wide array of sources”

Q bunch of time, you learn about this market. I guess I want to talk about how it is structured today, and that'll segue into how it could be better, but maybe let's step back at the high level. Like, can you walk me through the value chain of the heat pump market? As it exists today, like who are the big players, and how do they interact in the ecosystem?

A Yeah, so I'll also focus on residential heat pumps because for, for heating and cooling, because I think most people in the pod know that heat pumps are technically just everywhere, right? They're in cars, they're in fridges, they're, um, in tons of commercial applications. So for residential heat pumps, um, they, There, there's sort of the central AC and there's kind of the large American brands people will know there that, that they've been producing them for a while, you know, carrier and train and companies like that. Um, with the mini split market, it tends to be pretty dominated by Asian brands. So a lot of Japanese companies, Mitsubishi, Daikin, Fujitsu are all quite popular. LG, Samsung all make them as well. So there's also some Chinese companies, GRI and Medea. Those are, those are sort of the, the, the big players. And yeah, the way it works is they have factories in Asia that produce these products at very, very high volume for a global market. And then they're sold to, uh, distributors in, in each country, uh, very large ones in the US. And so there's, there's kind of a markup there that happens. And then the distributor will go on and sell it to end contractors who will hold the inventory. And then the contractors will go and, uh, sell that on to the end homeowner. And at each stage of that chain, of course, there's, there's a markup on the pricing. And the final,…

AI assessment note: “sold to distributors in each country... sell it to end contractors... on to the end homeowner”

Q So where are we in the adoption of these new, uh, loaded GWP refrigerants at this point?

A So we're going through a transition right now, kind of, as we speak, the first of the year, uh, R-Forten-A, which is kind of the most common refrigerant used in the commercial refrigeration residential, uh, the residential markets, um, won't be available to ship in new equipment, and so as we, you know, we're, we're going to go through a couple years here as we transition out of one of these, you know, 2000 GWP refrigerants down to the six or 700 Uh, GWP refrigerants. Um, we're gonna see this market dynamic now of the only, uh, there, and there will be a phase down in what is available, uh, to be produced, so the manufacturers have been set limits, um, as part of the AIM Act. Uh, so there, there will be, there will be a decreasing supply of refrigerant available for people who have R-Forten in their, uh, in their residential units, for example. And so that will, uh, You know, by 2030, the, the source of refrigerant for service will have to come from reclaim and recovered refrigerant. That will have to be the primary source as these manufacturing quotas go down year over year.

AI assessment note: “So we're going through a transition right now, kind of, as we speak”

Q Okay, so Both CapEx and OpEx drive a delta, but it's not huge, and it wouldn't explain the difference in, like, prices that we see coming out of China versus the West. So if it's not CapEx, it's not OpEx, what is it?

A And this is, yeah, and so this is the interesting thing, you know, I think the point that you made, it's not necessarily the obvious things that you're thinking about. It's more, a lot of it's down to operations. So yield is a big A big factor here. If you can't get a high yield, um, then you're wasting a lot of material, you're using all that energy, you're using all that labor, and you're not getting a product at the end of it that you can sell. And this is where kind of China has a huge advantage over the rest of the world. China has been manufacturing batteries since the early 2000. They've grown at the fastest rate of any other kind of, um, region in the world. And they have a workforce who has been working in those facilities for, you know, going on for kind of more than 15, 20 years at this point. So they have a lot of skilled workforce, skilled laborers, understand, who understand battery manufacturing, and understand, you know, how to, to use the equipment and how to get those kind of yields up quickly. Whereas if you look at the, you know, a couple of examples from, from the West, the most obvious one at the moment is, is going to be Northvolt. You know, Northvolt started manufacturing cells, um, on its plant, uh, around the end of twenty-twenty-two, I believe. So, kind of, we're coming up to two years now. And if the, you know, media reports are to be believed, they'…

AI assessment note: “a lot of it's down to operations. So yield is a big factor here.”

Q start by talking a little bit about the history of Climeworks, I think particularly through the lens of over the years, when you were reaching certain levels of scale, and then along that way, how you were doing capital formation. So maybe just walk me through the quick history of Climeworks, but, but focused on what were you building at any given time, and then how were you capitalizing it?

A So Climworks was founded in 2009 by Jan and Kristof. Basically it was a spin off, uh, out of the university. Um, they both founded the company when they were doing their PhD. Um, and in the beginning, um, actually the PhD was part of the funding, right? That enabled a little bit of a scholarship and, and, uh, access to the labs. And then it was the typical friends, families, and fools, um, who, who started investing in the company at a very small level. And then, uh, For quite some time, the company was funded, um, through, uh, first angel investors and then family offices, because at the time there weren't really any climate VCs, um, over the timeframe. And the, the company built, um, its first sort of deck machine, the first collector, as we like to call it, in 20 14 deployed that. Then in 2017 was the first time that there was a Uh, a commercial pilot plant built a commercial in the sense of actually delivering product to the customer. And at that time it was delivering CO two to, uh, to Coca-Cola into a greenhouse, um, for reuse, essentially recycled CO two. Um, that enabled the company to then fund more and also the existing investors and their network get more funding in place, have access to quite large family offices, which really had that long term orientation, um, to put more money into the company. And then the next big milestone was really starting up orca, the firs…

AI assessment note: “Climworks was founded in 2009... in the beginning, um, actually the PhD was part of the funding”

Q on how I'm using it. But I'm also probably putting it there to deal with proactive outages the PG&E is going to implement as a result of wildfires. Presumably that function is an adaptation function if you believe that increasing wildfires is a, uh, an outcome of climate change, right? So can you have the same thing be a mitigation thing and an adaptation thing depending on how it's used?

A Hundred percent. I think that this question hits on one of the most exciting things for me, having entered the resilience and adaptation space for mitigation, is that there are, like, a bunch of different examples of technologies from the mitigation space, like the example you provided of energy storage, that are producing co-benefits. They're lowering greenhouse gas emissions while enabling society to be more resilient to climate change. Um, so you've got energy storage and microgrids. You could argue that, like, the four million or some odd folks that signed on for residential solar in twenty-twenty-three are absolutely achieving resilience for their homes, you know, like off-grade energy or energy independence. Um, and then you also have stuff like wildfire tech, wherein if you're able to prevent a wild land from lighting a fire, you're reducing emissions, right? So you're doing both. Um, the same could be said for some natural carbon solutions that are Enabling soil carbon to just be trapped in the soil instead of released. So we have, like, myriad examples of these solutions producing co-benefits, and I actually think that if you accounted for all of the incidences of these co-benefit-creating technologies, the numbers in terms of technologies we see today as being adaptation and resilience would be far, far higher than we currently know.

AI assessment note: “Hundred percent. I think that this question hits on one of the most exciting things”

Q then wasting by flaring it? We'd also be wasting it by venting it for what it's worth, but either way, how much are we wasting? And then the second perspective is an emissions perspective. Despite the fact that we are oxidizing it and turning it into CO two, we are still releasing CO two into the atmosphere. So from an emissions perspective, um, How much emissions is coming from flaring?

A So we have about a hundred and fifty billion cubic meters of natural gas being flared last year. These are the latest data from the World Bank. And if you want a comparison point, Norway's natural gas production was about a 120 billion cubic meters. So we flared more natural gas than Norway produced, and Norway is the top eight largest producer of natural gas, so it's very, very material. Um, you can also think about this on a kind of time series, and the fact is that since 2010, we haven't really made a dent on flared volumes. They've gone a bit up and a bit down. But really stayed at very, very high levels. There's been some progress on flaring intensity, so the amount of gas that is being flared by the amount of oil that is being produced, but it's, it's fairly marginal, especially when we consider all the different climate targets there. Now, right, the zero routine flaring initiative from the World Bank, the global methane pledge, the oil and gas decarbonization charter, there's been a lot of pledges by both. Um, governments and companies that they want to reach zero routine flaring by 2030, and we're just not seeing the levels of progress that we need to get there. Now, what does this mean in terms of emissions? This one hundred and forty eight billion cubic meters led to about five hundred million tons of CO₂ equivalent. So that includes both the methane component and th…

AI assessment note: “This one hundred and forty eight billion cubic meters led to about five hundred million tons”

Q just put in the infrastructure. Build the pipelines. Now, you made, I think, a good point as to why you wouldn't always do that. The volumes could be small, the decline curves could be too rapid, and so you're gonna have a bunch of stranded infrastructure if you do that. Are there some cases in which actually it does make sense to build pipelines, we're just not doing it yet?

A Absolutely. We did, um, an assessment last year, a report looking at emissions from oil and gas, and we had a focus on flaring. And when we look at, you know, the 8000 or more flaring sites across the world. And we take into account existing pipelines, demand centers, and other characteristics. The majority of these sites could probably use a connection to a pipeline. Many of these are actually quite close to an existing pipeline. It's about, you know, adding, uh, perhaps 10 or 20 kilometers, uh, to go and get to that trunk or getting an agreement in place With the one that is holding the right to use the pipeline or owns the pipeline. So certainly pipelines are a big part of the solution. They're not all of it, but they're perhaps the leading solution in many cases.

AI assessment note: “The majority of these sites could probably use a connection to a pipeline.”

Q have seen us already starting to approach a ceiling in terms of performance of the existing chemistry. So, like, What was the chemistry at that time? And then I guess bringing us forward to today, like how much have we seen performance improvement relative to that time? Have we broken through the ceiling by shifting chemistries or whatever? Or in your view, has the improvement to date been like marginal?

A Yeah, it's, it's really been marginal when you look at the chemistry level. So back then the chemistry was lithium cobalt oxide, uh, and, and graphite. And that really was the, I mean, that was the chemistry from 1991, all, you know, all through the first, through the first Tesla Roadsters were built on, on lithium cobalt oxide chemistries. And, um, and, and cobalt's actually the highest performing of the oxide cathode. So you have your cathode, right? We talk about high nickel cathodes. We talk about LFP cathodes today, but cobalt cathodes are actually the highest performing. And the reason we're on nickel is because it's meaningfully cheaper. And the reason we're on iron is it's yet cheaper still. Uh, but both of those are, are actually lower performing, uh, than, than, than the cobalt-based cathodes.

AI assessment note: “it's really been marginal when you look at the chemistry level.”

Q Excited to have you and talk about shipping. Let's start with the high-level context. Can you place shipping in the broader context of decarbonization, or I guess in, before we get to decarbonization, in the broader context of emissions, like how much of global emissions is ascribed to shipping and to maritime, and sort of how big a problem do you view it in the broader context?

A Yeah, sure. I mean, uh, so shipping as a sector contributes about three percent to global emissions. And so in the large scheme of things, that's not a lot, right? It's one gigaton compared to about 40 gigatons. Um, but shipping plays an integral role in the global supply chain. So if we don't decarbonize shipping, you wouldn't be able to get green products. You wouldn't be able to get green solutions. Uh, shipping is responsible for transporting 90% Of goods around the world. So this means that what you own probably came on a ship, and if it didn't, the raw materials of what you own probably came on a ship, right? So this is how important shipping is. And yet it's, um, I would say mostly an invisible industry. At least that's how I'd seen it before I came into shipping. Um, and shipping only comes into the limelight when something bad happens or when we don't receive our Amazon boxes, right?

AI assessment note: “shipping as a sector contributes about three percent to global emissions.”

Q Tell me about what's happening there. What are the What are the challenges with it and how, how big a solution is that?

A Yeah, we, I mean, we have a, we have a pilot there too. Um, again, I would say first of all that, you know, um, carbon capture in itself, even on the land side is expensive. So doing carbon capture on board vessels has no economies of scale. You're essentially building little factories, chemical factories on board vessels, right? So certainly you're not doing this for cost. Um, but we see this As an important interim solution to explore, and I use the word explore because it's not very mature, um, because if you just look at the numbers and you look at how many vessels are on the water today, um, which is 65,000, and how 80% of them are going to be still on fossil fuel by twenty-thirty, and probably about 30% in twenty-fifty, they need to decarbonize as well. So, so carbon removal needs to be part of the portfolio solution. Um, So, uh, for us to think about onboard carbon capture, um, we think as long as, um, technologies that are demonstrated on land can be miniaturized, they can put, put on vessels. They're going to be expensive from a CapEx perspective. They're actually going to be expensive on an OpEx perspective too, because you have to burn more fuel, uh, to capture CO two because the scrubbers and the strippers all take energy to operate. More importantly is really that carbon value chain. What happens downstream to the captured CO two, right? You have to store it on boa…

AI assessment note: “we see this As an important interim solution to explore, and I use the word explore”

Q Okay. Heat, water, and permeability. So, in the locations that do have that, so take, take Nevada, for example, where we, we get the most geothermal, at least within the U.S., um, What do you do? I mean, you drill a well, like what is the infrastructure required in a conventional geothermal project?

A Well, um, there's actually sort of two kinds, but speaking broadly, first of all, you drill a well to extract the water and or steam from the subsurface. You run it through, um, a power plant could either be a steam turbine or a binary turbine. I'll come back to that in a minute. Um, If you're just taking a steamer water out of the ground, you run it through the turbine, just like a conventional power plant, and then after it's come out of the turbine, you put it back in the ground again. So the water circulates through the power plant back into the ground. In the case of Nevada, where they use binary plants a lot, the, ah, the water temperature is not especially high, and therefore the thermodynamics are not very good for the turbine efficiency. And therefore, instead of running a steam turbine, they run a binary turbine in which they put the water through heat exchangers and use a binary working fluid for the turbine itself. That actually has, um, the advantage of being able to use a lower temperature resource, and it also means that because the water never leaves, the geothermal water never leaves the heat exchanger, there's basically no emissions at all from the subsurface out into the atmosphere of the environment. The water stays in the pipe, goes back in the ground. It never sees the light of day.

AI assessment note: “first of all, you drill a well to extract the water and or steam”

Q So obviously in any of these contexts, no matter how we're doing geothermal, we're drilling, Um, and I, I think in addition to these different paradigms for geothermal, there, there also seems to be a fair amount of innovation in, on the drilling side itself. Can you talk a little bit about what we're seeing in terms of drilling technology innovation being applied to geothermal?

A Yes, you're, you're quite right. So drilling is actually one of the biggest advances we've seen over the last couple of years, um, and some of that has been borrowed or carried over from the advances from oil and gas, that the so-called, uh, factory drilling or, or batch drilling that they do for, um, shale gas is now being applied to geothermal. And that has brought down the cost considerably, and that of course helps all of these technologies. Um, so further again in their EGS project in Utah is doing batch drilling where they're actually drilling, you know, eight wells at a time. Uh, well, not quite eight at a time. They, they're drilling the, the first segments eight at a time, and then the second segment's eight after. And that has brought their drilling times down by a factor of two or three. And that, of course, reduces the cost tremendously. There's also been the borrowing of technologies in terms of PTC, poly, crystalline, diamond, um, bits, which have been used not for the first time in geothermal, but they haven't conventionally been used very much in geothermal before, and that's allowed them to also gain long bit runs, which means they don't have to trip out so often. That saves money. And also to get the wells drilled faster, which also of course saves them a lot of money. So Unconventional drilling practice for the normal geothermal industry has actually basicall…

AI assessment note: “so-called, uh, factory drilling or, or batch drilling that they do for, um, shale gas”