The Exchanges

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 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 question I have for you today. It is from Patrick, and he had a question on the role of fertilizers and what, what role they'll play in the climate transition. He asks, Is this an area that will never be fully decarbonized because of the scale and need, or are we just going to use methods to reduce its carbon footprint until we produce agriculture with minimum fossil fuel inputs?

A So we did an episode recently on ammonia, um, which is relevant to this. I mean, I think Is, is fertilizer an area that will never be fully decarbonized because of its scale? No, I think it will be fully decarbonized eventually. I think it will be a combination of multiple things that will do it, um, and this is fertilizer production. I want to separate two things importantly, but let's start with fertilizer production. I think we will get a lot of green, quote-unquote green ammonia, um, Which is ammonia produced with zero carbon hydrogen, which is where the majority of the emissions come from in the ammonia production process. We're seeing a lot of movement there already, and it's going to take time, but I think we'll do a lot of that. There's also alternative methods to produce fertilizer, which are not ammonia, um, but also are decarbonized in and of themselves. Uh, and then third, there are things that can reduce the need for fertilizer, for synthetic fertilizer. So there's microbial approaches, for example. Soil amendments, seed coatings, things like that, that mean you just need less fertilizer per unit crop that you produce. So we need less of it. We make it greener in the production. I think we'll do a lot of that. The thing that I think people don't spend enough time talking about is not the emissions from the production of fertilizer, but the emissions from the applic…

AI assessment note: “No, I think it will be fully decarbonized eventually.”

Q So that brings us to the next, uh, Topic, which is transformers. Um, transformers are this object that sit between generation, between a power plant and your home, because they have to make sure that the voltage at which power is delivered is just right for the devices that you're going to attach to it. And, uh, where do you land on whether transformers are overhyped, underhyped, just right, hyped?

A So again, if the question is, Uh, overhyped, underhyped, as a bottleneck to load growth, to meeting load growth. Then I think that they're overhyped. I wanna clarify, transformers are incredibly important, um, and there is a bottleneck, and the lead times are very long, and I've, I've witnessed it firsthand both from the utility side and the load side. It is a problem. I don't think it is the rate limiting factor even today with long lead times. It's an annoyance to get anything built. Things will still get built, and, and certainly those lead times for transformers are still shorter than they are for gas turbines. Um, But I, I do think we also will see a lot of new transformer manufacturing capacity come online in the next few years. It's, the, the lead times are gonna come down, and I think we'll see a wave of, of new technology. I'm an investor in a company called Heron Power, which is building solid state power electronics. You know, I, I think stuff like that is going to revolutionize that sector, but even in the absence of things like that, I don't think it is going to be the thing that stops The load growth from getting met. So I'm going to say overhyped on that one.

AI assessment note: “Then I think that they're overhyped.”

Q Okay, next question. Time to be vulnerable. Vipal Devlek is asking, what is the biggest thing or area that you've been wrong about over the past five years? In either direction, either you were too optimistic or too pessimistic.

A Um, let's see. Let me give you one of each, I will say. So, too optimistic. I think I, Under counted the likelihood that the inflation reduction act was going to get, um, shredded in a way that it ultimately partially was anyway. The thinking at the time was after the bill passed, it was like, okay, what would have to happen in order for the IRA to like really take a big hit? First of all, Republicans would need to take control of the presidency, the Senate, and the House, and then they would need to decide to go after the IRA. And historically speaking, you know, there's a, there had been a long precedent of the U.S. never really removing existing tax credits. We would let things expire, but we never really pulled them back. I mean, just look at the ethanol tax credits as an example, right? And so the thinking was like, okay, that would, there'd be a political shift, huge political shift, and then This would have to be the hill that they would decide to die on. Obviously, that is exactly what happened, but, and, and I didn't, I think I underappreciated the likelihood of that possibility, um, and the degree to which, when it got tied up into this bigger budget bill, um, You know, a small number of fairly hardliner Republicans could really dictate a lot of the terms. Now, it ended up being fairly nuanced, and like, some sectors are fine, some sectors are hit harder, et cetera, b…

AI assessment note: “too optimistic. I think I, Under counted the likelihood that the inflation reduction act”

Q another one that's a hundred miles away that is poorly connected, you know, the economic incentive is going to be so obvious, and then now you just have to take that economic incentive and figure out how to get all the stakeholders happy Through some set of, you know, payments, subsidies, or who knows what, and, and, and then you're gonna, you're gonna close that nodal price gap, you know?

A I do appreciate your eternal optimism about humanity. And, and, I mean, look, it is, is one of these situations in which, like, from a first principle standpoint, it is the right thing to do. Yeah. We should do it. It should make sense economically. You know, I just, maybe I'm, I'm too burned by it. But I will say one thing that gives me a little bit of hope, uh, you know, in a, like, really micro sense is, uh, Um, Michael Skelly, who, you know, tried to build Cleanline, or built Cleanline, the company that was the one sort of, like, investor-backed, independent transmission line developer years ago, famously, failed as a company, generally speaking. However, those lines are largely still getting built, and he's back at it with a new company called Grid United, which is, is building transmission lines, uh, once again.

AI assessment note: “I do appreciate your eternal optimism about humanity.”

Q have a kickoff question for you. So there was a study a few years ago that said that people tend to choose professions unconsciously that resemble their own names. And they found that there was a higher likelihood of, like, dentists becoming dentists. And my question for you, Shail Khan, is Is do you think having the name Shale has anything to do with you seeking a career in energy?

A I was born, when I was born, it predated, like, the shale gas revolution really taking off, but it was definitely true as I was, uh, as I was growing up. Actually, the closest version of a true story that ties to that is that I was obsessed with rocks as a kid. Not so much energy, but, like, as a little kid, I had a rock collection, and I remember one time I, I had a, at some point my parents had gotten me a bank account And I had, like, a 50 dollars in a bank account. I had access to it, which was their mistake, and then I went down to our local rock shop at, it was called Bernie's Rock Shop in, that I could walk to in Madison, Wisconsin, where I grew up, and I spent my entire savings, all 50 dollars, on a single geode, which was an awesome rock that I think still exists at my parents' house, so I'm not sure about that. Anyway, I was super into rocks, which maybe, like, ties to now, now I spend time in a bunch of subsurface things, like, Mining and, I don't know, geothermal and geologic hydrogen and other stuff like that. So, uh, so yes is the answer, I guess.

AI assessment note: “So, uh, so yes is the answer, I guess.”

Q at the edge of her grid's service area, and her town recently passed a net zero resolution, which will require more electrification, and therefore more electricity. So the challenge is, she says the town's existing transmission infrastructure is already close to capacity, and she is wondering, where is our advocacy better aimed? Upgrading and expanding grid capacity, or increasing battery access and deployment in order to establish a local microgrid?

A I mean, I think it's probably gonna be a somewhat unsatisfying answer to say some of both, probably. I'm generally still a fan of the macro grid. Like, I've never been a person who believes that the future will be or should be this balkanized system of lots of small micro grids that don't interact with each other whatsoever. And if you're at the edge of the grid and you've got a connection already, You know, you're, you're probably best off from a cost and reliability standpoint, upgrading the capacity such that the, the macro grid can continue to deliver power, um, at whatever scale that you need. With that said, those also tend to be the locations where resiliency is most challenging and most important. If you really do care about resiliency, then some version of a micro grid, which is basically to say You know, backup backup generation plus the ability to island it potentially with other resources attached can be good. So if I could choose, I would say, look, upgrade the upgrade the big grid and try to install Basically a resiliency driven system at the local level. But don't try to say we're going to take our whole community or whatever it is off grid. You just don't see that working out economically for any customer who has access to the macro grid.

AI assessment note: “unsatisfying answer to say some of both, probably. I'm generally still a fan”

Q So the IRA has been in place for over a year now, and I'm curious what you're seeing right now. Like, what did you not see coming that, that from this law that is now coming to be?

A I mean, a lot of things are still, still to come. Um, you know, there's still a bunch of guidance that, that we're waiting on from treasury, which, I mean, one thing I did not see coming is how long it was going to take treasury to issue the guidance on stuff like the hydrogen production tax credit and, and a number of other areas. Like that's a, it's a long time. And, and, you know, these, the tax credits were extended for, for 10 years or introduced for 10 years. So one year out of 10 is not the end of the world, but it's a meaningful amount of time in like, Investment decision-making, um, scale. So I certainly didn't see that coming, and hopefully that, you know, we're, we're done with that question in the next couple of months, but we'll see. There's no firm date on anything at this point. Um, I think, you know, if you were reading the legislation closely when it passed, the impacts that we've seen on, uh, on the market for renewables and energy storage, pretty predictable. You know, generally very positive. Um, I think one thing that has been interesting is the, um, 45 Q, which is the carbon capture credit, you know, it made point source carbon capture way more lucrative. You know, the credit went from, I think, 45 dollars a ton to 80 dollars a ton. And that, um, predictably has had a big impact on that market. Lots more excitement about that. But the thing that has been i…

AI assessment note: “one thing I did not see coming is how long it was going to take”

Q not the place you, you would put information if you're trying to hide it. So I kind of think of it as more of like a, an opportunity to be just expanding into new markets. And so partly I'm curious, like, am I missing something? Is there also something that, is there a larger story there that should be covered or a larger trend that you think is worth highlighting?

A I don't know if this is a larger story that needs to be covered or not, but I can tell you the, why I think you do see a lot more M&A from European energy companies buying US-based companies, mostly project developer types. Um, you know, first of all, the U.S. is a big market, and it is generally strategic for companies to enter the U.S. if they are international, and we have a lot going on here, and especially today, right, now thanks to the IRA, in part, like, the U.S. is the epicenter of some of these markets. Related to that, um, specifically on the energy company side, I mean, one thing that I'm not sure everybody Appreciates is that the European, um, utility conglomerates or electricity conglomerates tend to be more international by nature and more global by nature than the U S based ones. So if you think about U S based, um, not oil and gas, but just like electricity companies, very few of them have significant operations outside the United States. AES would be an exception to that, but very few others. Whereas if you look at the European majors, and you named a bunch of them, uh, EDF and NL and, and so on and so forth, most of them do. And so that's one of the reasons why you see it go in that direction and not in the other direction. And then the third I'd say is that, um, and this is true more of sort of molecule world, the, um, early movers, the early significant mov…

AI assessment note: “why I think you do see a lot more M&A from European energy companies”

Q hurting, and so it's good for that reason. Manufacturing is good, but do you think we're going to be able to build up enough of the manufacturing on our shores? That we can throw weight around in the actual market? Or do you think it's more of like an insurance policy we're doing? What's, I, I, I, I struggled to, to, to conceive the scale here that we're shooting for.

A Yeah. And I don't think it's going to be consistent across various parts of the supply chain, right? Like we, we may end up assembling a lot of our EV battery packs in North America, but that doesn't mean that we're going to be producing all of our lithium chemicals here, for example. Right. There's places where China's stranglehold on supply chain is, is stronger than other places. Rare earth elements is another one, right? Like China's super dominant and it's going to take a lot for us to, to play a big role there. But in other places, like I said, battery, uh, assembly and, you know, maybe solar, interestingly enough, like we've got a ways to go there. Now, to be clear, I don't think there's a future wherein the U S produces as much, uh, Of any of these things as China does, but we don't need to if our point is to, you know, get high on our own supply, basically.

AI assessment note: “I don't think there's a future wherein the U S produces as much”

Q the carbon you put in the ground, you monetize, um, maybe that now goes to 40%. But under your methodology, you can still use the, the five-year rolling average. Um, uh, so what's correct now, sort of thing, uh, uh, so like this, there's always loopholes, right? And it just being a machine or a forest doesn't stop there being loopholes. Like you can't perfectly anticipate all these situations, right?

A Yeah, I think that's a really good point on direct air capture. It's one of the things I think people often don't appreciate is that what you're selling for, so I guess we're switching over here, but I wanted to do this anyway, from the kind of old school forestry based carbon credit to the fancy new engineered carbon removal type credit. And there, what you're actually selling is a, you know, a credit based on net tons removed, importantly. Because, you know, otherwise you would think is, As you were alluding to, you could capture a ton of CO two from the atmosphere, inject it underground, and you sell a ton of a credit, but that's not what you could sell. You could sell a ton net of the emissions associated with the process. Now, emissions associated with the process are a function of Mostly in that case, the energy required to, to capture the CO two. And that is a complicated question as we are currently facing in a, in a different context, but with exactly the same question, which is hydrogen production, where there are battles going on in both Europe and the U S over how do you measure, measure the carbon intensity of green hydrogen production? It's a function of not just, uh, how the grid overall emissions on the grid, but how are you matching your load to what, You know, kilowatt hours you're taking from the timing of that. Is it from additional resources? So the France …

AI assessment note: “in this new world of engineered carbon removal, there's Just as much risk of leakage”

Q Do you think the, uh, the inflation reduction act is going to change anything in this landscape of people trying to figure out new financial mechanisms?

A Um, it, it improves the economics for some things. So in the categories where the IRA created new tax credits or increased the tax credits, It certainly makes the economics richer. That's in hydrogen, and carbon capture, and renewables, and standalone battery storage, and all those areas. So it, it helps in the economics, and then it does provide this gigantic slug of capital to the DOE Loan Programs Office to do a bunch of things, some of which can be first of a kind projects. With that said, uh, you know, the LPO is really well set up for big stuff, And even there, first of all, you know, they're not intending to take a ton of technology risk either, so you have to be fairly mature and at a fairly large scale for the, for the LPO funding to make sense for you. So for some companies, that will help solve the problem, but for many others, uh, I think they still have, they have to graduate to the point where they're ready for an application to the LPO, let alone actually winning the funding. So yes, I think in some cases it'll help.

AI assessment note: “So yes, I think in some cases it'll help.”

Q have basically been thrown out of China and Russia who are now going across the United States trying to sop up all the excess, you know, electricity capacity and claiming that it's great for the country, right? And, you know, you could imagine there's a lot of other value-added things we could do with all that excess electricity capacity, including making fertilizer here in this country, right? Right? Um, so.

A We've talked about this before, and I've, I've keep noodling on it. One of the fundamental dynamics that makes that challenging, I think, so let's just assume you do have all this excess Generation that's going to come more and more out of wind and solar at the times when it's not needed and assume we don't build enough long duration storage to like totally soak all of it up and reuse it on the grid. Um, then yes, there are going to be these times when you have super cheap or zero cost or negative cost electricity and how great would it be to run your big industrial process just at those times. But it's hard to find, I think, big industrial processes where the ratio of capex to electricity OpEx is, uh, so low that it makes sense to operate intermittently, right? Like this is the thing you, what you need for it to make sense for you to do that is you need a process for which the electricity cost dwarfs the amortization of the CapEx because Then it makes sense for you to turn off when you don't have that really cheap electricity. Otherwise, your incentive, and this is my issue with the Bitcoin miners too, their incentive is basically to operate 24 seven, because it's super lucrative to do so, even at higher electricity prices. So they, they don't really have any reason to, to shut off, in which case they're not really taking advantage of the excess renewables, they're just operat…

AI assessment note: “it's hard to find, I think, big industrial processes where the ratio of capex”

Q demand balance for every element of that system is causing prices to go up all over the, all over the place, right? So any, any amount of growth is more expensive than it used to be. Um, and, uh, in addition to that, we're encountering all of this growth at a time when the system, the core system needs upgrading and, and hardening and all that, um, to boot, right?

A Yeah. And I think Like, yes, the price is one problem, and the siting is a second problem, and they're both challenging, but I think the siting one might actually even be worse for large loads, just because, like, if you are trying to, if you're a hundred megawatts, like, that's the load that you need, and you're trying to find a site that can host a hundred megawatts, There is very little chance that one of the 100 data center real estate developers has not already tried to find that site and buy it, and there's competition for it. It's just really difficult to do. And then your willingness to pay is going to be lower, probably, because probably whatever you're doing is some industrial process that's lower profitability, at least, uh, conceptually profitable relative to data centers where the money is flowing freely, right? Like, so...

AI assessment note: “yes, the price is one problem, and the siting is a second problem”

Q Smith, who comes to us from Massachusetts, so one of our fellow high payers of electricity, um, he's asking about when the price of electricity is rising in many parts of the country, uh, what can we do about that? How do we expect customers to choose things? How do we keep this electrification movement going, to your earlier point about that being the biggest barriers to EVs right now?

A I mean, I'm not sure you can, actually. I mean, there's certainly a lot you could do, theoretically, from a policy perspective, right? You can, you can incentivize and provide rebates and all sorts of things like that, but, like, we should be really honest that, that at the end of the day, there is an economic calculus customers are doing if, if they're going to electrify, particularly once we get past the early adopter stage, and we're trying to get into the mainstream adoption, and that calculus, historically, you know, generally speaking, electrification is a game where you Pay more capex upfront and then save money over time because what you're using is more efficient. And that value proposition erodes when electricity prices relative to natural gas prices, right? So this is a spark spread conversation when those electricity prices relative to natural gas prices are especially high. So I think, you know, again, there's policy stuff you can do and you can try to innovate around the products themselves and make them more flexible so that you can pay less for electricity because you Use them at off peak and all that kind of stuff is real, but, um, but the fundamental underlying factor of like higher electricity prices makes electrification less attractive to me is, is unshakable.

AI assessment note: “I mean, I'm not sure you can, actually.”

Q to pass, but I think I was overly optimistic in that moment, particularly specifically about SMRs, but I agree with you that this is a moment for nuclear. I think by far the biggest question is, can they take advantage? Of what's happening with the AI data center electricity rise boom that's occurring right now, and, uh, and the timing of all of this and when they can actually deploy.

A To me, it's like, clearly, yes, they can take advantage of that in the sense that You can get a PPA at a price that is going to be hopefully sufficient to make the project economics work. Those things are big deals, right? Like that, I don't think that was true five years ago. So you definitely can get that now. That's necessary, but not sufficient, obviously. And there's a bunch of other things that have to happen. The big ones being obviously sort of either in the, in the regulatory realm, like NRC approval and NRC process and cost. That's one region. And then the other region is financing projects, which I think is the thing people are kind of kicking the can down the road on, but like somebody is going to have to wear the risk of capital overruns. You got to figure out who that's going to be. It could be the government through the loan programs office, but it could be private sector as well, but somebody has to wear that risk. And particularly for the first few larger scale projects, they could even be big SMRs, right? So if it's a 500 megawatt project, this is true too. It's a lot of money. So There are still problems to figure out, but like I said, I think I was, I didn't appreciate how correlated all these things were, and so if it all happens, it all happens kind of at once.

AI assessment note: “clearly, yes, they can take advantage of that in the sense that”

Q You know, basically manufacturing and construction, labor productivity is, has been flat, um, really for the past 10 to 15 years, and in, in construction, it's actually worryingly declining, really, for the past decade. Um, and so we need more, we need people to be more productive in the physical world, and robots are one way to make them more productive, so that's the demand side. What do you think?

A Yeah, I mean, one thing that I found interesting, clearly, we, we've heard, you and I have heard over and over again that labor is becoming, or has become, or has been a constraint in a bunch of these sectors, construction in particular, but manufacturing and stuff as well. You hear it a lot, anecdotally. Um, one thing I haven't heard, though, I don't know if I would realistically expect this, but one thing I haven't heard is somebody saying, I can't build X. Because I was not able to find enough people to do it. Or like, I couldn't cite this manufacturing facility. I did, I failed. The binary question of was I able to build it or not was no. So I hear a lot of the labor is a constraint. It's getting harder and harder. I don't know about you, but I haven't yet heard the, uh, labor was the cause of a failed attempt to build something.

AI assessment note: “I haven't yet heard the, uh, labor was the cause of a failed attempt”

Q To deploy and to, to, you know, follow that learning curve downwards for. But, um, at the moment, it's, it's a little intimidating. And, and I, even for now, I think that, um, probably the market would be better served by picking a very small handful of solutions that we're pretty sure can scale and, and scaling them up rather than, um, continuing to do one-offs. What do you think?

A All right, so on this one, I'll give you two ways in which I agree with you, I think, and one in which I disagree. The things I agree with are, I do think that there is a proliferation, this is broadly true across carbon removal, but it includes DAC, of startups, technology startups, uh, that goes well beyond the existing buyer universe. My favorite stat at the moment that I, I've used a bunch of times now is that I'm pretty sure Depending on how you want to define it, I'm pretty sure there are more carbon removal startups than there are carbon removal buyers, at least at any scale, like meaningful scale of buyers. Um, that's not a situation you want to be in long-term in the market, and so, you know, some of those startups have to disappear, and some of those many, many more buyers have to emerge. So I agree with you there that, like, there is a fundamental problem in, in not enough mice, I guess, in this analogy. Um, that part I agree with. I, Another thing that I think is, is sort of mousetrap fallacy related in that space is that because you have so many DAX startups, they're all startups. Virtually none of them have ever built a thing, you know, like the number that have built the thing that is in the, can be measured in the tons per year, you know, I could probably fit on my two hands. So instead what you have is a lot of promises. Um, and that can be confusing. If you ar…

AI assessment note: “I'll give you two ways in which I agree with you, I think, and one”

Q Like, of course they'd be the same, right? Like, how else can you know which tons have been delivered? Well, the ones you've verified, you know, have been delivered, right? So your registry of delivered tons is a registry of delivered tons, right? It's not like projected tons. It's not conceptual tons. It's tons that have actually delivered, like a log of things that have happened to the carbon cycle.

A But you still need a methodology, right? Because you, because a priori, I agree that you're going to get paid ex post, like, when the things are delivered. But the front end of it, if I'm a project developer who's going to do something to remove carbon, um, you know, I need to Contract with a buyer, and we need to have an estimate at a minimum of how many tons I'm going to deliver and a price for that, because otherwise, how am I going to finance the thing that I'm building? So, like, somebody has to create the methodology to do that. So who, in this, in this world, who's creating that methodology and who's paying for it?

AI assessment note: “But you still need a methodology, right? Because you, because a priori, I agree”

Q moment ago the higher interest rates, so I want to jump to a question from Michael Downey with Energy Features Initiative, and Michael asks, to what degree do you think higher interest rates could impact our ability, both in the U.S. and globally, to reach our decarbonization goals? And as one example, Michael points to the recent Orsted offshore wind project that was canceled in part to higher interest rates.

A Yeah, I mean, there was more going on with the, with offshore wind Than just interest rates, but that was, that, that appears to be the straw that broke the camel's back, and like, the offshore wind industry is reeling, basically, as a result of that. I will say on this question of, like, how big an impact will interest rates have, I have, I have an active, ongoing debate with Jigar Shah, who our listeners will know about this. He thinks it's, it's less of a big deal. He thinks I've been overhyping the, the impact of interest rates, but I will continue to overhype it, um, because I do think it is going to be It's going to be challenging just because it takes time for the market to settle out, right? Like every asset needs to get repriced. Lots of PPAs needs to get repriced. Some developers are going to lose a bunch of money because they price things, you know, rates that are untenable today. Like it's just going to be a pain, a painful shakeout at the, at the asset level for some period of time. I don't know exactly how long, partially because I don't know how long interest rates stay high, but let's say a couple of years. So in the grand scheme of things, in the, in the great arc of history, You know, are we going to look back on interest rates in 20, 23 is the thing that sent us off track on our climate trajectory? Probably not, but, um, but it will have a meaningful impact o…

AI assessment note: “are we going to look back on interest rates... thing that sent us off track... Probably not”

Q for large projects, you have to be in, um, front-end engineering and design for it to be an official announcement for us, right? Um, you don't have to have taken FID, but you have to be in feed before we're going to count it as an announcement. Um, but even with that high bar, I still thought that the actual amount of investment activity would be relatively modest in manufacturing.

A Right, particularly given, um, Again, if you believe that the IRA was the primary catalyst of this domestic manufacturing renaissance, maybe some of it from the infrastructure bill, and you tell me what comes out of chips there, if anything, but if you assume the IRA is the, the main driver here, then the time period that we're talking about, the data set that we're, we're referring to is, is just a year, not even quite a year post IRA. So you'd assume that what, even if we are going to have this big renaissance, that over that time period, most of what would be happening is Is just the early stage announcement, seeking a site, you know, trying to get economic incentives from states, et cetera, et cetera.

AI assessment note: “the data set that we're referring to is just a year”

Q electricity demand. And if you add all that up, that comes out to about a little bit over one percent of current annual U.S. power consumption. That's, that's a ton of electricity, right? Like anything that you can measure in, in percentiles of current U.S. electricity consumption is really, really meaningful. And that's just one category of new manufacturing that these industrial policy bills are, are bringing to the US.

A The other thing I want to point out about this, this is also true of data centers. This is also true of actually basically every category we're going to discuss in the sort of large industrial load, um, group, which is where most of these things are, is that they're, they're concentrated. It's not like spread all over the country. There's areas of the country where most of the data center Development is going on, as you said, Northern Virginia being a good example. Same thing with all this battery manufacturing. I mean, it's somewhat spread out, but, like, there's certainly a high concentration in the southeast, for example. We're seeing tons of new battery manufacturing facilities in, like, Georgia and South Carolina and, and West Virginia and places like that. So, uh, so, you know, if it's one percent of overall U.S. power consumption in total in the locations where it is concentrated, it's going to be more than that. And again, as you said, this is just batteries and just currently a already announced Battery manufacturing capacity, you know, like expand that to all the other types of manufacturing and the future announcements, and you can imagine where that heads.

AI assessment note: “in the locations where it is concentrated, it's going to be more than that”

Q they've struggled to compete with the compensation and the perks of big tech. So now there's all of this talent that's been freed up And so, that may be a better situation to reach climate breakthroughs, just because startups are more nimble and are able to innovate better, and so, that's a better use of that workforce. Do you agree with that, or does that mirror what you've been seeing?

A I mean, it's tough to be, it's tough to say that, like, layoffs are a good thing ever in any situation, so I guess I wouldn't, I wouldn't say that exactly. I would say the, the two silver linings for climate tech of The downturn in the, in the tech industry have been one, what you said, which is there is, there already was a big wave of talent coming from traditional tech into climate tech that was happening. It's been happening for years. There've been all these great organizations spun up specifically to help people who are, you know, really high caliber individuals and want to find their way into climate tech to sort of figure out what their home should be. And that is accelerating, if anything. Um, so I, I think that's good for climate tech. Just more great talent is, is good. The other thing is, I actually don't think it was a bad thing that the moment when it happened that we started to have a little bit of a, um, Deflating of the bubble in climate tech. I think we were, we were at risk of, you know, getting, it was, it was very hyped. It was in every sort of VC conversation right alongside crypto and a bunch of this other stuff. And it's not that it's not now, but I think, you know, kind of everybody has got their eyes open real wide on what they're investing in as they're making investments at the moment. I think that's probably a good thing because I don't want, I don'…

AI assessment note: “I wouldn't say that exactly. I would say the, the two silver linings”

Q stop dumping your products on Europe, and eventually it just gets a little overheated, a little too complicated. It's, the government is ultimately bankrolling this whole thing, and it could be the case that the government goes, mm, This was not such a good idea on the timeframe we planned. Let's cut this a bit short, shall we? And this is what typically happens with policy that is over generous.

A So this is probably a topic for another day, but I've had this conversation many times with people since the Inflation Reduction Act was passed. Sometimes it's in reference to the renewable tax credits. Often it is in reference to the hydrogen production tax credits, which is that people think, look, this is too rich, and at some point we're going to have to pull it back. I'll make the counterpoint. Here's why I do not think that that is going to happen. It's a few reasons. One is, in the U.S., we have a great track record of never, basically never pulling back on existing tax credits once they exist. We sometimes don't extend them, but it'd be very difficult to, uh, point to a situation in which there has been a tax credit in place scheduled to expire at some point in the future that we have caused legislatively to expire early. It requires Congress to Uh, to decide proactively to remove an existing tax credit. Occasionally it happens, but it's very rare, because once we've given something away, it's tough to pull back. And usually there is a strong constituency that emerges in favor of keeping the thing. Uh, which brings me to my second point, which is, you know, the scale of the, uh, avoided taxes, as you said, as opposed to the outlay, uh, even in a Fairly positive scenario. I mean, it could be some really big numbers, particularly for solar and wind. I think much bigger th…

AI assessment note: “I'll make the counterpoint. Here's why I do not think that that is going to happen.”

Q changes in fuel types and sources, right? Because you're going to need them everywhere, and that's one of the trickiest things, because vessels don't always know where they're going before they get there, right? So they could be, uh, you know, awaiting, uh, Knowing that they're going to go to one port versus another, and that fuel that they need needs to be present at the place that they're going.

A Right, which makes the argument for drop-in fuels as being, uh, like, it's, it's, it's easier to imagine drop-in biofuels or methanol, which could potentially be drop-in, some other drop-in fuels, sort of getting to scale quickly, whereas stuff like, whether it be electrification or ammonia or some other Hydrogen carrier potentially, like you need a bunch of new infrastructure on, at every relevant port that a ship is gonna travel to in order to believe that it's gonna, it's gonna scale. So, you know, it doesn't mean it's impossible, right? Some ships do, do back and forth routes, as I understand it, but certainly if you're trying to imagine what's gonna change the face of the shipping industry, you know, something dropping looks a lot easier if you can get there.

AI assessment note: “which makes the argument for drop-in fuels as being, uh, like, it's, it's, it's easier”

Q the DOE that's trying to figure out what rules to follow, and it's one of those things that I think sort of flies below the radar in most policy circles, yet seems really potentially influential of creating, jump-starting some Green steel markets, or green aluminum markets, or other, other sectors that we really need to decarbonize. Have you been following that at all, and what do you think about procurements?

A Yeah, I think the government is a great, government is a huge buyer of certain things, right? Like there, there's, um, new mandates around government procurement of, uh, building materials, cement, that are going to be a really big deal because the government buys a ton of that stuff, um, more than anybody else, in fact. So I think, I think that is a big role the government can play as a As a first buyer, as a relatively price insensitive buyer, obviously the ability to use that procurement mechanism as a way to jumpstart a market is sort of dependent on how the rules get structured around procurement and whether it, and indeed, because it is sort of Generally speaking, notoriously difficult to sell to government, federal government in particular. And, uh, you can end up accidentally kind of entrenching incumbents even further because they're the ones who know how to navigate your complex procurement processes. So I think it's not a guarantee that just because the government says I'm going to buy more Low carbon cement that you're going to support all these novel technologies to produce low carbon cement or, or whatever the alternative might be, but I think it's like a valiant strategy for the government to take on, and it's a, it's a good role that the federal government can play just given that they, they buy so much.

AI assessment note: “I think that is a big role the government can play as a As a first buyer”

Q Okay. So, next question is from at Mike Munsell, which is, this is going to sound like a softball, but I think there could be some helpful nuggets of wisdom in the answer. How do you prepare for an episode of Catalyst, particularly if it's a topic that's fairly new to you?

A There's gonna be a sort of disappointing answer. I think, uh, I don't do a whole lot of preparation, to be honest. Usually, um, we are picking topics for Catalyst that are things that have been on my mind. Anyway, not necessarily that I'm an expert in, uh, as evidenced by all these conversations, but things that, like, um, I've been reading about or talking to people about that are kind of in the ether that I really need to just, like, get a clearer picture on the full story around, uh, and so I usually have enough baseline knowledge that I kind of know what I need to get out of it, and I'm, I treat myself as a proxy for the audience as a result, so I typically will do a little bit of reading ahead of time, um, and just sort of structure my thoughts on, like, I think in narratives a lot, and so what is the kind of narrative that I need to get a clear handle on or get across in the podcast, and I'll put together a quick sort of bullet point outline for myself, but honestly, I'm, I'm doing most of it on the fly, uh, so I don't know, maybe that comes across, but preparation is, it's, uh, I also just don't have a lot of time these days, so I do what I can.

AI assessment note: “I don't do a whole lot of preparation, to be honest.”

Q Okay. Well, sticking with this direct air capture, we have a question from at ZD, which is a bright moon. What kind of variance in direct air capture outcomes do you expect to see, either economic or impact, if the transition to at least 80% renewable grid is slowed by five years or 10 years?

A Oh, I love that question. So, okay, so just to repeat the question, basically, the question is, if we take longer than we expect to decarbonize the grid, how big an impact will that have on the market for direct air capture? This is one of those interdependencies that I think is maybe not talked about quite enough. Um, in the case of direct air capture, I think the bigger risk is the cost of electricity than it is the Carbon profile of electricity. I do think you'll get some, you know, you're always going to get some like life cycle complaints about what we're doing. We're using predominantly fossil based electricity to remove CO two from the atmosphere. Isn't that dumb from what I've seen on, on LCA calculations, like assuming energy efficiency of these, um, direct air capture systems continue to improve. It still will be worth it just from a pure CO two balance perspective. So I'm a little bit less concerned with, ah, I'm very concerned about how quickly we decarbonize the grid, but I'm, I'm, I don't think that is necessarily going to be the Driving determinant of direct air captures success. However, direct air captures, one of those things, as I described before is, I mean, the, the main cost, right? You, you have a capex and you have the cost of electricity. That's basically it. The cost of electricity is dominant in these models. And, uh, every direct air capture company …

AI assessment note: “the bigger risk is the cost of electricity than it is the Carbon profile”

Q Yeah, fair. Okay, next question from at oboilmm. What are the unifying characteristics that put clean technologies on learning curves? What do wind, solar, electrolyzer, batteries have in common that other techs like nuclear and fossil plants don't? And which learning curves are heat pumps, SMRs being small modular reactors, and DAC, direct air capture, beyond?

A Ooh, that's a good question. Um, I'm probably not the world's greatest expert on this question, but I think the fundamental, the fundamental thing that drives these learning curves is sort of manufacturability. Like, can you, can you scale up manufacturing of the thing at, by number, not just by scale? So, uh, in the context of solar and lithium ion batteries, right, we just start producing, and these are, they're modular, so your single solar unit is a module. They're literally modular in the case of solar, but the single solar unit is a module and you, that is a manufacturing, it's a manufactured technology that you can, um, optimize your manufacturing around, that you can automate, that you can scale up and produce more and more and more of, and that's where you start to see the, the learning rates driving down cost, at least on the manufacturing side. And you can see that in a bunch of those other markets. It's same thing for lithium ion batteries, obviously benefiting from Um, producing a ton of EV batteries now. Uh, I, I think that's where things like nuclear fission have struggled in the past. It's not really a manufactured technology. It's an engineered project. Uh, and it's tougher to get the kind of learning rates with stuff like that. So I think this is where, you know, things like direct air capture are promising because depending on the technology, uh, you can easi…

AI assessment note: “the fundamental thing that drives these learning curves is sort of manufacturability”