The Exchanges

Q Yeah, can you describe in a bit more detail what makes a given location geologically favorable or unfavorable for geothermal, and then again, sort of like, What, what is our conventional mechanism to exploit the heat of the earth?

A Sure. So, um, the, the, the resources that have been developed in the countries I mentioned, you know, Kenya, California, and many others, Iceland, New Zealand, Japan, Indonesia, Philippines, they're all in volcanically active, uh, margins of the world, so-called ring of fire around the Pacific. Um, and, uh, East African rift zone. Places like that. So, there are places where there is recent, ah, volcanism that brings high temperature close to the surface where it's more accessible. Um, but also importantly, there are places because of the, the recent volcanism and the kind of rocks that are found there, ah, they are fractured and very permeable. And so, the three things that you need for your thermal resource are heat, water, and permeability. So, it's hot everywhere to, if you can drill deep enough, uh, and almost the entire planet is saturated with water, you know, at depth. But the places that don't have permeability are those where we can't easily access geothermal in the conventional sense.

AI assessment note: “the three things that you need for your thermal resource are heat, water, and permeability.”

Q And talk a little bit about the technical challenge of doing that. Like, why, why aren't we already doing it?

A Well, um, part of it is the reasons that we started with, which, you know, not everywhere is geologically advantageous to find those kind of temperatures, but it's also quite challenging from the point of view of the actual practice of drilling and completing the well. So, You know, oil and gas wells, conventional geothermal wells, ah, you know, a high temperature oil well would be 200 degrees. That'd be very high. High temperature geothermal well, 300 degrees. We're now talking about five, 600 degrees, and that requires a whole lot more, you know, technical capability in the drilling, in the materials, in the cementing and completion, and the handling of the fluids. So, Supercritical water actually is able to contain tremendous amounts of dissolved materials, so therefore you can have not just very, very hot water, but hot water which can be very acid, and therefore you're, you're not only producing a fluid that you can convert energy from, but it's very corrosive, it's very difficult to handle, it's a, it becomes a materials problem. So I'm, I'm reminded of the videos they showed of the supercritical well, uh, that they produced in Iceland called IDDP-II. Um, it basically produced black steam, and the reason it produced black steam is that it was producing the steel casing together with the steam. It was just corroding the casing and producing it at the surface.

AI assessment note: “it's also quite challenging from the point of view of the actual practice of drilling”

Q Can we talk about a region, a region sort of an, I've, I've come to learn from you mostly like what a region means in the context of a A single hyperscaler or a single customer, but like, why do you think in regions, and what is a region?

A Sure, a region is just what the cloud applications look like to the outside world. So if you go on to AWS, you go on to Azure, and you say, I want to stand up an application, you're going to have an option to, to select a region, and it'll be called US East or US West too. Um, what that really is a designation of a cluster of data centers that are all within a certain latency Uh, envelope of one another. So Northern Virginia is a great example. AWS has their largest region, which is their U.S. East region. That is made up of, at this point, probably dozens of data centers. But the outside world, it looks like one big machine. Um, so that's what a region is. And so those regions kind of, and the reason that you have places like Northern Virginia, Amsterdam, those were where the biggest network hubs were. So everyone clustered around there initially as Everyone was launching some of their early cloud regions, and then over time, you know, Microsoft, Amazon, Google all have dozens of regions around the world, but that dozens of regions consists of hundreds of individual data centers.

AI assessment note: “what that really is a designation of a cluster of data centers”

Q Alright, so then now in, in the new world, um, which by the way still has all those same cloud data centers and cloud requirements, it's still growing, but what we're adding on to it is, is this AI world wherein there, it's important, I think, in the context of whether you can introduce any flexibility here to distinguish model training and inference, right?

A Yes, and that's one that comes up a lot is this idea of training models being curtailable, because they actually fit in that category of, uh, sort of indexing that I was talking about previously, which is that's sort of a batch process. So training models in and of themselves are batch processes, and so in theory they could actually shut down during certain periods. Um, that would not be true for inferencing, but so inferencing is, is a lot More akin to the search function. So if you go into a chat GPT and you want to, you want to make your picture, you want it to tell you a story, um, you want that to happen very quickly. So those, those applications are still going to require a very high availability similar to what, what you would expect in normal cloud applications. Um, so I, I think, I think it's a little bit overblown to say, and I think this is also true of Something like the conversation around crypto, but that these are highly curtailable loads that you could just, you know, attach a training model to a wind farm and only run it, you know, on average, 35% of the time. Nobody's going to do that, because the cost of that, of that infrastructure, the server is extraordinarily high. So you still want to get very high utilization out of those assets. So they're not, they're not, maybe you can avoid Significant contributions to things like system peak for, you know, a few ho…

AI assessment note: “training models in and of themselves are batch processes... that would not be true for inferencing”

Q You mentioned blending mandates. I mean, I think one important point, we're not really at this point yet because, as you said, the volumes are so small, but, um, what is Delta's view on how much SAF you can blend with traditional JET? It differs by what Type of SAF it is obviously, but at what point do we start to run into blending concerns?

A So there's a couple things on the blending side that are interesting to watch. The first is the fact that there is a maximum blend limit of 50% today, and that's just because the chemistry of SAF is slightly different than conventional jet fuel, and if you've got it at a hundred percent, there are some things in the infrastructure themselves that just need to be tested and certified. So the industry is certainly looking at that, but I think we're probably at least a decade away from having that be a real issue in any single location. On the other hand, what is interesting is that when someone makes SAF, in order for it to go onto our plane, it needs to be blended in with our convention or jet fuel, and this is something the industry has noted is a concern to date, because we've got these individual producers who are trying to figure out blending, whether that's at their production site, or, you know, potentially in a tank that's just off an airport, and none of that feels, um, that scalable, and so we are really pushing to see blending hubs in some key markets, such as, uh, Minnesota. So that we've got just one place where all staff producers are able to blend in their staff, and then all airlines will be able to access. So we're not creating additional infrastructure that ultimately isn't needed as the product scales.

AI assessment note: “the fact that there is a maximum blend limit of 50% today”

Q We'll talk about the specific things that are not crazy and what's happening in those in just a moment, but how do you define what is and what is not crazy in this context?

A Right, so in this regard, I am very much a student of Dr. Jennifer Wilcox, who is the Principal Deputy of Assistant Secretary at the Department of Energy. Dr. Wilcox years ago said Hey, second law of thermodynamics, that's non-negotiable. Everything else is negotiable. So the first cut at this is, does it make sense according to the second law of thermodynamics? Are you just going to waste a bunch of energy and money turning it into stuff? And as a consequence, the very first hit in utilization space is, can we turn CO₂ into stuff That requires no additional energy. And the answer is yes. Mostly you can turn it into concrete. You can turn it into aggregate. You can turn it into sand. You can turn it into stuff that we use huge volumes of. Every year the world uses thirty billion tons of concrete. So turning CO two into concrete is a gigaton market, and it's not nuts. It actually releases energy. And in that context, you can scale that in a complex way, but it's straightforward. There's no magic involved, and now there's hundreds of companies that turn CO₂ into those kinds of products. The other thing that you can turn CO₂ into is fuel, or chemicals. In order to do that, you need to add a lot of energy. Unsurprisingly, a lot of people figured out immediately, it better be clean energy, or we're wasting everybody's time. So, it better be energy that has very low carbon emissions,…

AI assessment note: “the first cut at this is, does it make sense according to the second law”

Q at the beginning, the reason rare earth elements are so valuable in a magnet is they make the magnet stronger. And so is it true that the applications where these rare earth free permanent magnets make the most sense are the applications where the, the requirement for magnet strength is lower? And that's what's true about speakers, for example, but not as true about wind turbines and electric vehicle motors.

A Correct. So how strong the magnets are per unit of volume. So that's, that's one indication for quality of the magnet. And the second one is at high temperature, they still remain magnetic. So they don't lose their magnetic properties at elevated temperatures. And now when you have a speaker usually is at room temperature, maybe a little bit elevated, elevated temperature. But when you have a traction motor of an electric vehicle, because of the rotation, you usually have heat, heat in there. So that's a little bit different game in there. So Those qualities and, and the energy density in the magnet basically are the reasons that some of those magnets, uh, haven't found use in high-end applications in industry just yet.

AI assessment note: “Correct. So how strong the magnets are per unit of volume.”

Q said, like, like lithium, cobalt, nickel, and so on, where, you know, there's this secular growth trend in demand. Um, we'll come back to demand. I want to talk about supply. So let's start with where, where we get rare earths from. When, when there's virgin mining today, where, where are the rare earths in the world? Um, and then walk me through the supply chain as it exists today.

A Sure. Absolutely. So, uh, two things. If it doesn't grow, you mine it. So we start with mining. And the second thing, rare earth elements are recycled less than one percent globally. Those are among the least circular metals that we know of out there. So basically, the primary source of rare earth elements today is mining of rare earth elements. About 60% of that happens in China, and the other 40%, give or take, is happening outside In other countries, including the US. Now, that's 60%, uh, uh, in China, some of that is byproduct of iron oxide mining as well. But overall, majority of mining happening in, in, in China. Uh, it happens that in the downstream processing though, majority of those mined materials outside China are shipped to China. So China actually, like a vacuum here, brings in all the material to China and processes and produces magnets. The processing is over 90% done in China, and, uh, magnet manufacturing over 95% done in China. And from there, it's shipped around in, in, in, in, in final products in electric motors and, and other, uh, units, uh, for consumption all over, all over the world.

AI assessment note: “About 60% of that happens in China, and the other 40%, give or take”

Q on, which is recycling. You said before that we Only recycle one percent of rare earths today, which, you know, anybody who knows something about lots of other commodity metal industries like copper and steel and so on, we recycle a fair amount of all those things. Why is it that we don't recycle rare earths today? And then obviously that will dovetail into what are you doing about it?

A Absolutely. Yes, true. Uh, rare earth elements, which actually when Department of Energy looks into, uh, uh, critical metals, Categorizes them as the most critical metals in the, uh, uh, category of how critical those are. Uh, happens to be the least circular metals as well, so we don't recycle much of those at all today. Uh, uh, simply because when we recycle end-of-life products, uh, magnets being magnetic attach to steel and travel with steel into steel recycling plants, iron recycling plants. And because of the chemistry in the steel recycling plants, rare earth elements report to a phase or chemistry and steel production plant that is called slag. It's a glass, just looks like glass on our windows really, and rare earth elements are locked inside the glass for good forever, and thermodynamically really stable, and you can spend a lot of money recycling those and recover those, but that would not make you money. Um, would be very environmentally pollutive as well. So that's the main reason why we don't recycle rare earth elements today, because we lose them into steel, uh, uh, recycling plants.

AI assessment note: “magnets being magnetic attach to steel and travel with steel into steel recycling plants”

Q Fascinating. So weird. Um, okay, as we talked about fuel, I mean, the other more nascent, but possibly more existential challenge posed by the Jones Act in the context of energy has to do with the emergent Industry of offshore wind. So what is the, uh, what's the deal there?

A Yes, so, um, you're right. We have, the United States is, uh, trying to launch an offshore wind industry. It's, it's pretty small, but there, uh, plans to ramp up significantly. And the Jones Act is an obstacle here, uh, not surprisingly, given that this is all taking place offshore. Um, so, for example, uh, one key vessel needed to install, um, Offshore wind turbines is a wind turbine installation vessel. This is a, a vessel that has a giant crane on it for lifting up the different turbine components and assembling them. Um, so typically the way that this works overseas is that, uh, a wind turbine installation vessel goes into port, loads up with components, uh, and then goes offshore to do the installation. Um, but in the United States, we can't Do that because we don't have any vessels, uh, wind turbine installation vessels that comply with the Jones Act. So the workaround, uh, here is, there's two possibilities. One is that, uh, you position the installation vessel, the foreign installation vessel, because they're all foreign, uh, at the installation site, and then you load the components onto a barge, and the barge goes out to where the installation vessel is, um, Because, uh, that way the, the installation vessel doesn't engage in transportation, which is the thing prohibited by the Jones Act. So, uh, and then the other, other alternative is you can just operate out of a …

AI assessment note: “we don't have any vessels, uh, wind turbine installation vessels that comply”

Q in an oversight position is making sure as management setting these goals and targets, really having a clear understanding of how they're going to get there. What are the transition plans? Or what are the, you know, offsets? What are the racks? What is the, what is the strategy there? Because I think that's key in making sure that there's proper governance over the goals and targets that are set.

A So if I'm, if I'm company X, and I've got, let's just say my scope one and two emissions today is a million tons total, and I've stated a goal to get to net zero by 20 50, and I've, I've stated some version of a plan to reduce my emissions in the, in the meantime, that stuff all has to get reported, but there's no, and let's just say I'm also buying carbon credits to, or removals or whatever to, to make up for part of it. I have to report all of that now, thanks to the SEC Rule, but there's nothing in the rule that sort of, like, tries to ensure that my plan is robust, or that the credits that I'm purchasing are high quality. It'll be information the world can use, um, but the, the, the rule is Requires some measure of fidelity on the emissions accounting, but not the emissions reduction or removal.

AI assessment note: “there's nothing in the rule that sort of, like, tries to ensure that my plan is robust”

Q And so where are we today? Like, what are current lead times for distribution transformers?

A It's still really, really long. I mean, so I like to think about distribution transformers in, in three different flavors, a single phase pole top transformer, a single phase pad, And then a three-phase transformer. Generally, those are pad, uh, pad-mounted transformers, but occasionally you'll see them overhead as well. The single-phase pole-mount transformers, the, the gray ones that are up on a utility pole, I think the supply chain there is getting closer to being caught up, right? And so lead times are, are normalizing. They still might be upwards of a full year just because of the backlog that was built. Uh, but I think supply and demand are starting to stabilize in that space. But those pad bound transformers, both single phase and three phase, still pretty darn long. Uh, I've seen things as long as two years right now, uh, on either.

AI assessment note: “They still might be upwards of a full year... things as long as two years”

Q price. Um, one presumes that in a supply-constrained market with increasing lead times, You would also see increasing prices. Can you talk about what price trends have been like for distribution transformers? And maybe to the extent that you have visibility into this, like how big a deal does that end up being for those end customers, right? Or for, I guess, utilities who are having to pay for them.

A Yeah. So pricing has increased a lot over the last couple of years. I would say on average, 75 to a hundred percent increase in price. Um, I would say the last two years, so 20, 23 and going into 24, Much more stability, maybe a five percent increase in 23. Right now I'm projecting a, you know, a flat to a five percent increase in twenty-twenty-four. Uh, so we're getting a little bit more stability now. I'll tell you that the customer base, the utilities, it's, it's painful for them, right, because it's costing them a heck of a lot more to put these transformers onto the grid. They have to then go ahead and get, um, you know, they're gonna have to get reimbursed from that through the rate payer, right, the consumer, you and I. Uh, Shale, we're gonna, we're the, we're the ones that are gonna ultimately pay the bill. And, and of course, they're going to their regulators to get changes to rate cases that sometimes are being pushed back on. So it's causing a little bit of, of angst in the marketplace right now, but it's really tough, right? Because as, as I'm seeing increased costs on electrical steel, on oil, on copper, on aluminum, um, I have to pass that on, right? I, I can't, I can't bear the cost of that all as a manufacturer. And so most of the increase Has really been nothing more than a pasture of commodity prices and, of course, wage pressure for, for our workforce.

AI assessment note: “I would say on average, 75 to a hundred percent increase in price.”

Q credit buyers, sellers, intermediaries, um, as you said that these parties represent about three and a half billion in transactions last year. Um, was there any difference in what you expected to find versus what you actually found when you started to, to dig in, um, in terms of the vitality of the market, the types of participants, um, what did you expect to find versus what you actually found?

A Yeah, so first I'll talk about some things that, That surprised us. Uh, we did not expect to find 3.5 billion dollars of transactions, or did not expect the data to show quite so authoritatively that the early market was as strong, is as strong as it is. Didn't expect to find as much new technologies in the data set as we ended up finding. There's quite a lot of 45 X in the data, uh, for our survey respondents and deals that we were able To gather data on and the Crux platform, we found that 45 X was the second most broadly, uh, characterized or considered kind of transaction within the data set. And, and to be clear, 45 X's advanced manufacturing credits, uh, did not expect that sellers would articulate quite so much that they were feeling like they were flying blind, particularly with respect to pricing. Uh, and there's a big issue That we identified in the data on market transparency, and frankly, that was one of the reasons why we did this report. At the highest level, we found five big things. One, the rapid growth in the market was achieved really quickly, right? We're talking about August to December, where quite a lot of deals were priced and closed. We found that transferability is leveling the playing field, so the majority of deals in the data set Were less than fifty million, and many were associated with new technologies. We didn't expect, we found that pricing was…

AI assessment note: “we did not expect to find 3.5 billion dollars of transactions”

Q And what can we say about deals that are being executed? Are they, are sellers getting a good deal?

A Yeah, I think in the early market, sellers are getting a good deal. The report finds that, uh, pretty clearly. So the pricing was better than anticipated on most transfer deals. The, the high end of the market, uh, Is 94 to 96 cents, and, and we've seen some very large transactions like the first solar Fiserv deal that priced at 96 cents on 45 X credits, and, and as far as I know, that is the high watermark in the market or around 96 cents. But even for smaller deals, we found that pricing was pretty strong. So at the smallest end of the market, the sub 20, sub ten million dollar Kind of credit sizes. Pricing does fall off a cliff. Like it, it gets a lot worse, but it, it goes down to 89, 88, 87 cents on a gross basis. Uh, and so the sellers who previously were not able to access the tax equity market and would have found that kind of financing to be very expensive, even at larger credit sizes are able to access the transferability market and get reasonably good pricing.

AI assessment note: “Yeah, I think in the early market, sellers are getting a good deal.”

Q Any other policy uncertainty or guidance uncertainty that you're keeping your eyes on?

A Yeah, there's a lot of guidance that still needs to be finalized, including the transferability guidance. The department's working really rapidly on all of that. I, I can't not Point out that this program exists in the context of politics broadly, and there are implications from policy changes to the market. So, for example, this new tax bill that is winding its way through Congress and appears likely to pass has pretty extensive tax credits for R&D to the extent that that is passed and buyers can take benefit of those new retroactive R&D credits that limits demand that could be otherwise allocated to these clean energy tax credits. So, you know, everything that happens in and around the, the policy that defines this early market will have implications to supply and demand.

AI assessment note: “there's a lot of guidance that still needs to be finalized, including the transferability guidance.”

Q Okay, so we've talked about Ford GM Stellantis, we've talked about Tesla, um, What about Hyundai and Kia? I mean, they're, they're, they seem to be the sort of insurgent players in the, in the EV space, at least in the U.S.,

A Yeah, so they had an impressive twenty-twenty-three. They grew by about 60% year-on-year from 22 to twenty-twenty-three, going from about 73,000 as a group up to about a 120,000 units. And again, it's always a little tricky because we have preliminary data that comes in and it gets updated a little bit. So even since I last kind of published a piece on it, we went from about a 117,000 up to about a 122,000. Their strategy has been A little bit similar to BYD, in that they don't just have two EVs, they have the Ioniq V, which is a crossover. They have the Ioniq VI, which is a sedan. They have the Kia EV-VI, which is basically similar to the Ioniq V, but, you know, a different kind of style from Kia. Um, one that I'm particularly excited about, and I think the market is as well, is the Kia EV-IX, which is the first major EV outside of the Rivian R-I-S two-bit three-row SUV, kind of reaching out to that family demographic, but The Kia EV-Nine starts at a much lower price in the 50,000 dollar price range. And then finally, Kia and Hyundai have more affordable EVs in the form of the Kia Niro and the Hyundai Kona. So, you have some PHEVs thrown in there, and no matter how you slice it, you have a bunch of different options for consumers. Part of this is battery expertise being built up over time. Hyundai and Kia had EVs in the first generation from about 20 16 to 20 19 that weren't p…

AI assessment note: “They grew by about 60% year-on-year from 22 to twenty-twenty-three”

Q I'm very excited to talk about enteric methane emissions, starting with the mechanics, I guess. So, can you explain just what causes enteric methane emissions? Like, where does it come from, and why?

A Yeah, enteric methane emissions are really, um, can be thought of as a waste process, right? This is a waste process for ruminant animals to get rid of, uh, the end process of their metabolisms. Um, Ruminants, in general, cattle, sheep, goats, they eat really complex organic matter, like grass, which is a complex, uh, you know, substrate, and they ferment it. So, you know, cattle are just giant fermentation vessels on legs, um, and they break down this matter and generate CO₂ and hydrogen and methanogens inside the rumen, combine those to produce methane, which the cow Burps out. Um, and some of that methane is also absorbed into the bloodstream and breathed out their lungs. Um, and that is the, that is the largest source of methane, uh, anthropogenic source of methane, uh, globally.

AI assessment note: “methanogens inside the rumen, combine those to produce methane, which the cow Burps out”

Q enteric methane emissions, including feed additives, but setting aside the sort of new feed additives that we humans are introducing, like, how much variability is there in the amount of methane that is produced by, let's just say like apples to apples, the same cow Eating one type of grass or one type of feed versus another type of feed. Is it a substantial variability or is it pretty consistent?

A Yeah, the, the diet can, can generate wild variability in the, uh, how much methane an animal actually produces. So, for instance, the, the, the large discrepancy is dairy cows versus, like, beef, beef cattle, or beef cattle in a feedlot. So, dairy cattle are fed of forage ration, um, higher, higher in fiber content, um, overall dry matter intakes increase, and that's really the number one, uh, indicator how much a methane an animal is going to create, is how much dry matter They're actually intaking. Um, but when it comes to, like, a beef feedlot, These animals are generally fed a higher ration of grain. These simpler, simpler sugars, easier to digest, they pass through the rumen, uh, much faster, and they're not, they're not as methanogenic. So, uh, beef animals produce significantly less at the feedlot stage than, say, a dairy animal.

AI assessment note: “the diet can, can generate wild variability in the, uh, how much methane an animal actually produces”

Q have a pretty muted impact but are the easiest to implement, and then, you know, it gets more and more, I don't know, um, directly influential on the thing and harder to implement, uh, as you scale up. So let's think about it in that context, starting with just the operational changes. Like, what are the things that can be done by an individual farmer, um, To reduce methane emissions?

A So, um, uh, first, first I'd like to kind of put this in, in a smallholder context. So in kind of the, the, the lower intensity systems, what could they do to decrease emissions? And it's, it's a host of management changes in how we approach production. So a grazing animal, this is a real example at, at a Kenya. So a grazing animal Supplemented with some low quality byproducts. They're just foraging out on pasture. They're going to produce probably a 180 liters of milk a year. That's probably a two to three month milking cycle. It's like two liters a day. It's not a lot of milk. That animal is going to produce about 55 kilos of methane during that year. Now, if we're able to maximize that animal's productivity, if it was fed properly, it had the proper supplementation, um, you know, we really dialed in its, its diet, we could change that dramatically. It would be fed more, so it would actually produce more methane. So if you put it on a, you know, a full production ration, uh, it would probably boost up to about 90 kilos of methane per year, so almost double the methane per that animal. But that animal is going to milk longer. You could produce up to 4600 liters a year from that 180, right? We're talking a twenty-fold increase in milk production. And then, so if you compare that to how many animals were on that basal diet, you could displace 20, you know, 25 animals. Um, if, as…

AI assessment note: “if it was fed properly, it had the proper supplementation”

Q And, like, can you just go a little bit more into the mechanics of that? Why, or maybe from an evolutionary perspective, like, why, why did ruminants evolve methanogens? What, what is happening in the rumen that makes it worthwhile to, you know, ingest grass and produce methane?

A Right, well, I mean, um, you have a lot of open forage, so you have, grass is available, but the problem is it's bound in complex forms, and the energy isn't available for the animal. So you need a complex mixture of organisms that are able to break down that matter into smaller and smaller bites, and then they eventually generate volatile fatty acids and simple sugars that the animal can actually use. And this is a mixture of anaerobic fungi, bacteria, protozoa, viruses even, um, and they all work in concert to develop, to, to deliver this, but in that process, if you have too much hydrogen buildup, you, the, the process will, will stop, um, and you'll get backup of this, of this metabolic process, and so we need a good way to remove these waste processes, and both CO₂ and hydrogen, so by combining them, In forming that gas, and then liberating that via burps out of the system, you're able to effectively remove hydrogen from the system.

AI assessment note: “so by combining them... you're able to effectively remove hydrogen from the system”

Q talk about what I think has been, at least in the, the world of climate tech and, like, startups and innovations and financing activity, where most of the attention dollars have gone, which is to feed additives. Um, basically, feed the cattle something new, and that thing new prohibits some amount of methane emissions. Can you just talk about that category broadly and how you, sort of, break it down?

A Sure, yeah. There's, um, so generally, there, there's a couple of different classes of, of feed additives, and based on how they work. There are additives that, uh, we consider alternative hydrogen sinks. So these are compounds that keep hydrogen away from methanogens and, you know, uh, decrease the amount that's actually formed in a methane. And then there are, uh, methanogenesis inhibitors. So these are chemical or natural synthetic compounds. That directly inhibit enzymes in the methanogenesis pathway, and so those are the, kind of, the two large classes that have been developed, and, uh, Been several years of research behind them. The alternative, uh, uh, hydrogen acceptors, things like nitrate, um, is a, has been a common one, although its general efficacy is generally lower than 10%, and there's a limit to how much you can feed. There are compounds like lactate and fumarate, which are hydrogen acceptors and can lead into propionate production, which is a good volume of fatty acids, helps, uh, uh, uh, fat production in animals. And, uh, but when you switch to methanogenesis inhibitors, some of the, the large ones are, like, three nitroxypropanol, which is sold under the trade name Beauvair, that was developed by, uh, DSM. And that is, that was a direct effort. I mean, they went through the methanogenesis pathway and developed a compound to inhibit methanogenesis. Um, and t…

AI assessment note: “there's a couple of different classes of, of feed additives, and based on how they work”

Q overall dollar data. It seems like some of that is skewed by, you know, we talked about the big mega rounds. There was really one mega, mega round in twenty-twenty-three. There had been more in previous years, right? Like, Commonwealth Fusion raised 1.8 billion a couple years ago and stuff, but In twenty-twenty-three, there was one mega round that seems to have contributed a lot to that industry vertical, right?

A Yeah. I mean, the one that, the one that everyone's been talking about, it seems like, in these later stage growth circles in climate tech is H-II green steel. Um, and I think if you look at, we, we tracked the top 10 largest deals in climate tech this year. If we zoom in on industry, steel in particular had a pretty breakthrough year. So there was H-II green steel Which raised a billion to fund a green steel plant in, uh, Sweden. And then Boston Metal was, you know, uh, not insignificant as well. They raised two hundred million dollars also to build, uh, green steel, but more from a, uh, uh, electrolysis standpoint. And I think what's notable about these large mega deals that happened in twenty-twenty-three, there's probably two things, in my opinion, That'll enable these companies to raise such significant rounds. The first one is, these companies had, most of these companies already had projects in motion, right? So H-Green Steel, they're building a massive steel plant in Sweden and Europe where there's a lot of policy tailwinds, you know, think CBAM. That's enabling, enabling that project to, to kind of, uh, develop, and that's what that one billion dollar round was really financing. The second major thing we're noticing across these mega deals is if you look at the, the funding they've raised in the last two years, I think six out of 10 had raised significant hundreds of m…

AI assessment note: “the one that everyone's been talking about... is H-II green steel”

Q able to measure those outcomes, so let's talk about both sides of that, starting with, with exit activity. Um, what have we seen? I mean, Year there. There had been lots of exit activity, and then, 20, 23 is where it sort of turned overall. The IPO markets basically shut down, and so, did we see significant exit activity in 20, 23, and what did it look like if so?

A Yeah. Exits did, um, fall off a little bit in twenty-twenty-three. I mean, it's, it's not, it's not a little bit, actually. It, it cut in half, so we tracked 50% less exits in twenty-twenty-three, and, and this was really driven by SPACs finally fizzing out. I think we started to see that happen towards the beginning of twenty-twenty-two, um, but the count of SPACs were, climate tech SPACs were down 80% compared to the prior year. However, what's notable, you know, there's still acquisitions happening in this space, although, as you probably know, acquisitions aren't always a sign of healthy success in the exits market, and 80% of those acquisitions were undisclosed, which, you know, if you, if you have a successful, massive acquisition, you, you probably want to shout it from the rooftop, so we can assume a lot of those might have been smaller tech and acquisitions that, that might not be something to be as proud of. However, there were a few, you know, notable IPOs to kind of kick off this year, including NextTracker, which I'd call, I'd say is more from the kind of cleantech one-point-o error, but still a sign of, um, you know, climate tech hardware being able to successfully IPO. There's also Enlight Renewables Development, a renewables developer that IPO'd as well, and a few successful SPACs like Lanzatech that's been a climate tech darling for some time and was able to su…

AI assessment note: “we tracked 50% less exits in twenty-twenty-three”

Q like, You know, I think there was, there are real macro tailwinds for this category, but it also suffered from the lots of, uh, traditional tech investors getting interested in climate, looking for things that they recognize, finding B to B SaaS in the form of, you know, uh, enterprise carbon accounting or whatever, and then maybe overfunding that sector. Is that the sense that you've picked up as well?

A Yeah. I mean, I think it's similar to the case of alternative protein, right? Where there's, A lot of market oversaturation of a category that people felt like they knew really well, whether it came to consumer tastes like alternative protein or enterprise software. And at the end of the day, I don't think the, I don't think the numbers or the milestones necessarily match to a lot of the valuation expectations or the funding rounds. And so in that sector in particular, it feels like a bit of a wait and see, you know, it's not necessarily a Market that needs, carbon accounting isn't necessarily a market that needs 200 or 300 players. Um, and also I think a lot of them end up being a bit more consulting advisory based than, um, than traditional enterprise SaaS like generalist investors, um, understood. So in many ways that sector feels like it's been, it's been, you know, playing wait and see to figure out whether or not there's actually an opportunity there. However, we are noticing a lot of those companies Either moving or starting to invest in Europe because of regulations like SFDR that are driving more kind of compliance requirements for that type of reporting, whereas in the US we're still kind of waiting to hear back on the SEC climate risk disclosure.

AI assessment note: “carbon accounting isn't necessarily a market that needs 200 or 300 players”

Q So that sounds like you're implying it's sort of easier to extract the full value for managed charging in a, in a vertically integrated market like, like investor-owned utilities are mostly in the, in the US versus in Europe. Do you think that's true?

A So, yeah, I, I do actually. I think, I think it is an advantage because what you do is you create clear line of sight all the way through to the value that's created. So if you are running a managed charging program, say in New York, we work with Con Edison. In New York's service territory, we can create value for the distribution company. We can also create value for consumers in New York as well. And, and the value can, and then we can also, also provide services to the, to the system operator too. And the value is all aggregating all the way through, and there's clear line of sight to that value from, from one particular player. Um, that is the big, that is the big pro, I suppose, of a, of an integrated system. Perhaps the pro of an, uh, of an unbundled system, like, um, like the European markets, is you can get very consumer-focused propositions, uh, arising, because the retailers really, really care about having a relationship with, um, People like you or I with their energy. And that can create some really interesting, uh, propositions and really consumer focused energy companies. And I think it's no coincidence that companies like Ovo and Octopus and energy retailers like that have emerged in the UK market from a very, uh, competitive space that is really now focusing heavily on, uh, end consumers.

AI assessment note: “So, yeah, I, I do actually. I think, I think it is an advantage”

Q But before we get directly into cost, I think we're going to talk a lot about the global context here, because I know there's a big difference between what's going on here in the U.S. and what's going on in lots of other countries. So let's start with the global context. Where in the world is there a lot of nuclear development activity today, and where is there relatively little?

A Yeah, so I think, you know, from a U.S. context or U.S. audience, nuclear can feel pretty stagnant, because we haven't built We've barely built any nuclear in the last 30 years. Um, but globally, you know, there's huge growth in deployment of nuclear. So nuclear is mainly being built where there is rapid growth in demand for electricity, uh, because nuclear is a very large-scale technology. So East Asia, South Asia, Central Asia primarily, places like China, India, South Korea. But there are also, like, over 30 countries that are looking to develop their first nuclear power plants. We call them these, like, Uh, nuclear newcomers or nuclear aspirin countries. This is a lot of lower income, middle income countries that are still industrializing. Uh, so it's a lot of places in, you know, across Asia, but also Sub-Saharan Africa, Central America, South America. So there's a lot of places that are interested in nuclear. And some of the, the countries that have joined recently that have started or have nuclear under construction, United Arab Emirates has brought online. Um, they're about to Bring their fourth reactor online, but this is their first nuclear power plant. Each reactor is huge, so it's 5.6 gigawatts of power, and it'll be 20%.

AI assessment note: “East Asia, South Asia, Central Asia primarily, places like China, India, South Korea.”

Q certainly, like, in the money, but not like, not as cheap as what you're describing, not the cheapest thing besides hydro. So, that implies that historically, this is the other context, there's a global context, and there's a historical context. That implies that the historical cost of nuclear, or the cost of historically developed reactors, I guess I should say, is even cheaper than the future moonshot. Is that right?

A Yeah. Um, it is true that the reactors that the US built in the early days, in the sixties, were much cheaper than the ones today. And there's a lot of reasons for that. But also, you know, it's similar to what South Korea is building nuclear for today. So it's not like the standards are different. It's a lot about how the industry is structured. And so really what, you know, what makes nuclear cheap and where nuclear is cheapest, whether you're looking at history or where it's cheap currently, it's where, you Countries and utilities are building a lot of reactors in series of a standardized design. And the, not just you're learning with the technology, but the industry is learning, the workers are learning, the regulator is learning, and you have those sorts of economies of multiples. Um, and that's really what nuclear has lacked in the US, um, Europe, most places that aren't building a lot of it today.

AI assessment note: “it is true that the reactors that the US built in the early days”

Q I have a question about data centers. I get pitched on data centers a lot and different innovations that are happening there for cleaning, making them run on clean energy, and just, you know, how they're going to get energy generally. How much do you see data centers as being on this leading edge of driving innovation for some of these challenges versus being a problem in themselves?

A Um, I think there's some of both. They're a problem in the sense that they're They're just very power hungry. They re they require a lot of power and that has to get served somehow. And they're very, ah, they're very time sensitive, very price insensitive. And so they can soak up a lot of capacity. That's the extent to which they're a problem. They're on the vanguard of solutions in a number of ways. I mean, the obvious version is the, you know, corporate procurement of renewables really at any meaningful scale largely started with the tech companies. And then the next stage of corporate procurement of renewables, which is moving from annual procurement of renewable energy credits or power To hourly, 24 seven. That also is being led by the tech companies. And so they're using the fact that they are large consumers of power to push the entire industry in the direction that I think we, we probably would agree is the right direction. And I think you'll continue to see that happen. You'll see some of that happen with the way that they procure backup power and resiliency. And so, you know, though it is a large source of load that, uh, that needs to get met somehow, uh, I generally think on balance, it's good because those customer sets tend to be particularly progressive when it comes to climate issues, and they're willing to put their money where their mouth is and take some risks …

AI assessment note: “I think there's some of both. They're a problem in the sense that”

Q So let's talk about, we talked about HVAC, let's talk about water heating, obviously that's the other reasonably large category, and I think the one that gets less attention, honestly, people talk a lot about, uh, heat pumps for heating and cooling, I think less for water heating. Where are we on our pace of progress on, on water heating electrification?

A So for water heating, we have a little more time. So water heaters have, again, we use this 10 year life versus 15 for, um, for HVAC, and what that does is it lengthens the shallow part of the curve before we really have to accelerate progress. So our, according to our calculations nationally, again, to that twenty-twenty-five, uh, deadline, we need 810,000 heat pump water heaters, uh, in total installed across the country. We're on pace for 613,000, which leaves about 204,000 or so as a gap, um, in terms of what we need to accelerate. 200,000 over 50 states is not a huge challenge, right? We have, again, this is like the nice, uh, the convenient part of the ramp, uh, that we're in now, but we do have to start taking action. Um, there's been a lot of interesting innovation. I think just a couple days ago, I saw that A.O. Smith introduced its own hundred twenty-volt plug-in water heater, uh, heat pump water heater. Reem has had one on the market for a while. Now A.O. Smith has one as well. So that's a huge opportunity, right? This is a technology that is going to get us A lot of these sales that we need to see in the market because, uh, if, let's say again, you have a gas water heater, uh, but you happen to have a free, uh, 120 volt outlet nearby, you can plug in a heat pump water heater instead of having to have a dedicated 240 volt circuit run. Uh, that's gonna work great for …

AI assessment note: “We're on pace for 613,000, which leaves about 204,000 or so as a gap”