The Exchanges

Q There is some biggie guidance coming out on EV tax credits and hydrogen tax credits. Jeff Maria, I know you've been following this. Any commentary on, um, How those landed and what's to come now that we know how those tax credits are going to be structured?

A Yeah, I think that the EV tax credit was largely anticipated, but it, it will put a lot of pressure on automakers selling vehicles in the U.S. to try to find a way to get not just the, uh, batteries that go into those EVs made in U.S. or U.S. free trade partner countries, but to ensure that all the Critical minerals and materials that are going into those batteries don't come from foreign entities of concern, and for us, that term means largely one country, which is China. Uh, we have guidance from DOE and Treasury on just what that means, that foreign entity of concern guidance, and, um, right now it's, it's looking like, frankly, um, with China dominating so much, between 70 to 90% of key precursor, you know, Uh, materials and, uh, kind of components of lithium ion batteries that very few, if any, EVs sold in the U.S. will be eligible for that 7500 per EV tax credit, which is seen as really important for, uh, making these vehicles more affordable and really upping their adoption to hit that Biden administration goal of having half of all new car sales in the U.S. be EVs by 2030. So, on the other hand, it's Driving an enormous amount of investment in domestic manufacturing of batteries, and what I think is probably accurately described as kind of a lithium gold rush here, seeking out sources of the raw material for these batteries in the U.S., and investment in technologies th…

AI assessment note: “EV tax credit was largely anticipated, but it, it will put a lot of pressure”

Q be a really valuable resource, uh, but properly managing that solar is, is critical, and we're now in a place where we have the battery and the control systems to make them super valuable on the grid. So, what a transition that's been, huh, Jeff? You know, you, I remember you were covering the Hawaii, uh, solar story when, when there were concerns about it. Uh, completely overloading the grid.

A Well, I, I remember there was a presentation, uh, that Dora Nakafuji at, at, uh, Hawaiian Electric put out, uh, you know how California is the duck curve where all that rooftop solar, you know, brings down the net demand on the grid real low, and then it spikes in the evening when solar goes away. In, in Hawaii, they had the Nessie curve, which is like the duck curve, except it goes underwater, per se. Uh, you know, that, that midday solar Is actually exporting more power, uh, than the grid as a whole might need, and that's a big problem for utilities who are trying to manage those distribution circuits. They weren't made to take power going the other direction. You got to kind of reconfigure a bunch of equipment there, but if you can just shift that production from that belly, uh, to that neck, you know, that time in the evening, When all the solar's going away, all the load remains, you've got this enormously valuable resource, and, you know, I guess necessity is the mother of invention. Hawaii has to deal with this on its own. It's a bunch of islands. They can't get power from anywhere else, and land is limited. That's a lot different from continental grids, but The same logic is driving, you know, changes on the mainland. California's, you know, change from a net metering system to a net billing system, which really radically reduce the value of solar that's fed back onto t…

AI assessment note: “I remember there was a presentation, uh, that Dora Nakafuji at, at, uh, Hawaiian Electric”

Q they mostly just like teams of engineers who've raised, you know, 50, a hundred million dollars from Bill Gates and are working on some fancy technology that they hope to drop in? Um, is there a lot of sales and development happening, or is it mostly just technological innovation? Does anyone want to characterize, uh, some of the, the commercial landscape a little bit more in terms of companies operating?

A I could, I could take a crack for cement real quick, cement and concrete. Uh, first of all, about half the world's global cement production takes place in China, and, uh, there are some very large companies there. Um, there are a couple of really large, kind of, global cement producers, uh, Wholesome, uh, Cemex, Heidelberg Materials, and, uh, there are a wide array of, kind of, uh, uh, smaller scale players in, in the cement production industry. And then, When you get to concrete, the whole kind of chain from cement to actually building stuff with it is really quite diverse and in some markets quite fragmented. I'm sure you all have driven by the ready mix concrete sites, you know, along the highway. You got to build those pretty close to where your construction markets are, and so there are a lot of them. Some of them may be owned by the same companies that make cement. Some of them may be essentially mom and pop operations. And so there's a pretty fragmented industry, and then of course you've got the thousands upon thousands of, of kind of contractors and, and buyers of this stuff, but there's some important distinctions to be made there. Roughly half the cement that's used in the United States, for example, is contracted by governments to build essentially roads in public works, and so there's a real interesting kind of point at which you can focus policy interventions to g…

AI assessment note: “a couple of really large, kind of, global cement producers, uh, Wholesome, uh, Cemex”

Q more than half a billion dollars in venture investment. And so this combination of private investment and government backing is suddenly making battery recycling very hot climate tech sector. And so I want to figure out where is this going to fit into the overall set of investments in domestic battery production. And Jeff, you covered both The Redwood and Ascend funding stories. So what are those companies uniquely doing?

A Yeah, well, Stephen, I think there are two key factors to consider here. There's, there's circularity and there's scale. In terms of circularity, both Redwood and Ascend are committed not just to cost-effectively breaking down spent batteries to their constituent minerals and materials, but also cost-effectively converting Those to the precursor and drop-in engineered components that make up batteries, things like anode foil or cathode active materials, and this requires kind of this increasingly tight integration with the battery manufacturers they're working with, but it's also kind of a a necessary chain or link in the chain of kind of making battery recycling A fully integrated part of the process by which batteries themselves can, can scale up in terms of their capacity, and then in terms of scale, you know, we can't have recycling without batteries, but I guess the question everyone's asking is, can we have batteries without recycling? I mean, we're, we're talking about billions and billions of dollars of capital investment in recycling capacity to match tens of billions of dollars of capital investment in battery production capacity, uh, You can only recycle as many batteries as are getting reused, but right now, Redwood and Ascent are recycling a lot of the scrap that comes out of factories, the stuff that doesn't get turned into batteries for one reason or another, and…

AI assessment note: “both Redwood and Ascend are committed not just to cost-effectively breaking down spent batteries”

Q EPA, some other entities, and there are a bunch of tax credits and subsidies here that all need to be continually worked. Some have yet to be rolled out in terms of guidelines. So, Um, this is very complicated. Like, where do the major programs stand in terms of being real and ready to roll out when you look at, like, the main, the main subsidies for deployment and manufacturing?

A Yeah, I'd say that when it comes to the kind of clean energy deployment and manufacturing side, the wind, the solar, the, the EVs and the batteries, there's a couple key guidances from the Treasury Department and IRS that have come out, uh, in the last couple of months that have been really important. One big one is the domestic content adder. Uh, let's remember that the, uh, ITC and PTC, these investment in production tax credits that have been around for a long time, not only got extended through at least the next decade by the Inflation Reduction Act, but, uh, also had a bunch of adders, uh, brought to them. You can get a 10% adder for domestic content being a, a big part of your project. You can get another 10% adder for Uh, investing or building in an energy community. That's a place where there's a lot of fossil fuel infrastructure, um, and, uh, where economic impacts of closing it down could be significant. There's a 10% adder for, uh, low-income communities, and all of these things need to be defined, and their definitions can be somewhat controversial. Um, the domestic content adder is a big one because there are a couple key things that Uh, the inflation reduction act is trying to do that need to balance building up this domestic manufacturing and economic capacity to build all the solar and wind and batteries and EVs that we want and, uh, deploy that stuff as fast as…

AI assessment note: “there's a couple key guidances from the Treasury Department and IRS that have come out”

Q deals are completely different from what we saw under the last big Flurry of loan guarantees that were largely for renewable energy projects. These are for large industrial decarbonization projects ranging from hydrogen to advanced nuclear to carbon management to long duration storage and different kinds of storage. So Jeff, what kind of activity are you seeing from the loan programs office? What's interesting to you and what feels different?

A Well, you're right that they're doing a lot of stuff they've never done before, but that's kind of like, it's meeting the moment, right? They've, uh, loaned money to, um, companies that are building, uh, synthetic graphite for batteries in this country for the first time. Companies that are mining and processing lithium in this country, uh, at scale for the first time. Companies that are building nifty wire harnesses for batteries that can cut the weight and complexity of putting battery cells together, uh, for the first time. But what I think is, The most, uh, kind of intriguing, uh, part of the LPO portfolio is this two hundred fifty billion dollars in lending authority for something called the energy infrastructure reinvestment program. Uh, it's also called section, section 17 oh six. And this money has a really wide remit. It can go to hoping to close down and replace coal plants with something cleaner. It can go to transforming oil refineries into low, no carbon Fuel refineries. It can go to building new transmission capacity to allow new clean energy to be built, and the key function that serves, at least as Jigar has described it, is to lend money to repurposing the dirty energy infrastructure that we have today to clean, because there's a lot of ways to build new clean stuff. It's a lot harder For, uh, the financial sector to envision financing the conversion of dirty s…

AI assessment note: “most, uh, kind of intriguing, uh, part of the LPO portfolio is this two hundred fifty billion”

Q impacts. And there are still a lot of debates over, uh, how to structure some of the rules. What are some of the other flashpoints in terms of incentive structures that are still in play right now? The hydrogen one is obviously a big one. We covered that on the show. You've reported on that extensively. So hydrogen and what else? How, what do you, what are the big flashpoints?

A Another big one is electric vehicles. Um, the, uh, tax credit available to people who buy electric vehicles is predicated on a number of kind of domestic or free trade partner country, uh, manufacturing or kind of like supply rules. Those are the rules that Senator Joe Manchin, uh, the Democrat from West Virginia, whose vote was critical to getting this passed through a evenly divided Senate, uh, kind of insisted on so that, um, His fear was that, uh, China, the primary supplier of a lot of these EV materials would, uh, win too much unless we, you know, supported domestic manufacturing, and those rules are complicated. They have, in fact, barred several, uh, uh, makes and models of EVs from receiving all of, or any of, the commercial, or the, the tax credit that you get from, uh, when you buy a vehicle, and there's a big Pending decision coming out of the U.S. Treasury Department that has to do with entities of foreign concern, which is a nebulous category, but which most people anticipate will include China. Starting at some point in the future, if you make a car that has any materials or batteries or components from an entity of foreign concern, you're not going to be eligible for that tax credit. That's going to be a big one. There's a lot of controversy over whether or not, um, it's overly kind of restrictive to, uh, getting as many people to buy as many EVs as possible on …

AI assessment note: “Another big one is electric vehicles. Um, the, uh, tax credit available”

Q That's right. The greenhouse gas reduction fund. Yeah. Yeah. That morphed into that. So, but, but that is all still very much in, in, in development. So, um, How, what, where, where does that stand?

A Uh, let's see. Actually, uh, the EPA, which is in charge of this greenhouse gas reduction fund, which a lot of folks shorthand as a national green bank, has just started, uh, putting out guidance for how folks can start to apply for that money. Um, we're talking about twenty seven billion dollars in total. It gets a little confusing because seven billion of that is for a specific kind of subset of Uh, solar, uh, and energy efficiency projects that came in under a separate, you know, uh, piece of legislation that got folded into the IRA. Um, and then you got twenty billion that is for the formation of this federal green bank of that eight billion is focused on low income communities. And the idea of a green bank is you've got a public or quasi public entity and it goes out and it Look for places that really have trouble borrowing money to do stuff that helps the climate or helps, uh, their, uh, energy spend, and you go and you make loans, and you prove out that the loans are good loans, that you can pay them back, and you draw in private sector lending kind of in increasing amounts as you kind of prove out That these are good loans for the private sector to make. So the big kind of multiplier value there, which has been proven out by some of the state and county level green banks out there, Connecticut, New York being some of the earliest and biggest, as well as a solar loan fun…

AI assessment note: “has just started, uh, putting out guidance for how folks can start to apply”

Q Jeff, this is, this is your jam, man. You've been following this for a long time. Any thoughts?

A Well, thank you, Catherine, for updating me on the status of, uh, 22, 22 compliance at the various ISOs. I, I kind of lost track, I'm afraid to say. It is enormously complicated to, uh, To set up these compliance mechanisms. I don't know that it needs to be as complicated as it is, but it does point to the kind of, kind of re-envisioning of how our grids work that brings up so many points that need to be solved for. I mean, I know that the state utility regulators and utilities were not too happy about order 22 to 22, and there are some good reasons, some Not so good reasons for that opposition. Um, you know, this is potentially a, uh, direct competitor to vertically integrated utilities. I think that's, uh, kind of at the root of a lot of the, uh, opt-outs. But I guess distribution utilities do have an argument to make that if you're gonna have megawatts and megawatts of DERs doing stuff for the wholesale markets, that they ought to know what that stuff is doing and when, so they can prepare their distribution grids for it. Um, and I know that You know, the, you know, big brands like, uh, Energy Systems Integration Group and, and, and folks like that are working on the ways that you're gonna put together the sensors and the communications that let that happen. I do think that it's important to allow To give some clarity, as you said, to the industry so that you can see a path …

AI assessment note: “I mean, I know that the state utility regulators and utilities were not too happy”

Q Yes, you all do look fantastic. Uh, what's your perspective on, on where these frontiers are emerging?

A Well, I mean, uh, thanks, Stephen. Julian and Lisa have covered what's on the table, and, and RE Plus, and how it's really expanded, and I, I think the, you know, overarching logic here is to make carbon-free electricity, uh, as cheaply and ubiquitously as possible, and then, uh, Electrify absolutely everything we can to reduce the carbon impact of everything from transport to building heating. Um, obviously, you know, electrifying transport cars, vans, buses, trucks, there's a really interesting test run going on of a bunch of freight hauls running on electric trucks happening in California and New York, and they're, they're getting up to, you know, Per delivery on a single charge. This is possible, and it's happening. Building heating, homes, apartments, office buildings, even lower temperature industrial process heat, maybe even higher temperature industrial process heat can be electrified. Julian's covered a couple companies that are working on that, like Antora and Rondo Energy. And of course, the grid to get there, we're going to have to build out enormous amounts of new high voltage transmission, but we're also going to have to beef up the Low voltage distribution grids that carry power to end consumers and get all the interconnection and interplay of all that distributed solar and batteries and electric vehicles. You can maybe do bi-directional charging, um, to get thos…

AI assessment note: “Electrify absolutely everything we can to reduce the carbon impact of everything”

Q Oh, interesting. Okay. Alright, so Jeff, over to you. What about your unpredictable story of the year?

A Um, well, I was going to, uh, kind of jump off of what Maria was, uh, talking about and, and posit a hypothesis for why, uh, uh, naturally occurring hydrogen hasn't been tapped, which is because, uh, Everyone who's making hydrogen and using it today has a perfectly fine way to do it. They use natural gas, and then they burn more natural gas to make steam, and then they use that steam to separate the, um, the carbon from the hydrogen in that natural gas, and then they go merrily on their way with the hydrogen that they use for fertilizer and refining, uh, petrochemicals and, and other stuff. I mean, the big thing is price, and I think in terms of unpredictability, the, The hydrogen hype cycle has been somewhat disorienting. Um, we know that hydrogen is incredibly important to decarbonize certain sectors of our economy well off into the future, and we know that governments, the United States, the European Union, South Korea, Japan, others, are incentivizing hydrogen production for these purposes And making, uh, goals that are kind of astounding in their scope for gigawatts, tens of gigawatts of hydrogen production, and yet we do not have a clear path for the conversion of those investments and the realization of those goals with a kind of infrastructure, both physical and economic, that will allow, uh, The sectors that need the hydrogen to actually begin to use it at a price that…

AI assessment note: “in terms of unpredictability, the, The hydrogen hype cycle has been somewhat disorienting.”

Q I know that Electra raised a bunch of money from Breakthrough Energy Ventures and Amazon and some other investors. Are they, what are they promising right now, and how close to commercialization are they?

A Well, they're working on a pilot plant. Um, they say the technology works, and there are some other folks, uh, actually Fortescue, uh, the big iron mining and hydrogen giant out of Australia, has mentioned that it has a process which sounds something similar to electro winning for making pure iron. I guess the question about commercialization is, how do you scale that up, and how does the kind of iron and steel industry see its value? You know, uh, it's interesting that you can kind of build these things on a modular basis, kind of like batteries. You line up a whole bunch of these things, and you produce iron out of them, and, uh, that can be done at much lower temperatures, and you can kind of, you know, go as big as you want to go, which is different than building a big old, you know, uh, direct reduction of iron kind of plant, um, and then if you can find a business case for using those lower quality iron ores, that could be a real selling point, but It's going to take a significant commitment of capital from somebody who's in the iron and steel business to answer that question.

AI assessment note: “Well, they're working on a pilot plant. Um, they say the technology works”