The Exchanges

Q as clean as possible, but as we'll hear, it is potentially stalling the market, and, um, there's a real debate over, uh, how stringent these rules need to be, and how much hydrogen, and, and whether they'll hold back hydrogen production, and, um, we're going to talk about that now. First, let's talk about these treasury rules. Shalini What did Treasury propose about how these hydrogen tax credits should work?

A So this guidance has been hotly anticipated. As you said, it came out, uh, near the end of last year, right before Christmas, I think. That's my memory of it. And, uh, it's described as having three pillars. So, um, and, and this all goes to what a project has to do to qualify for the, um, the highest amount, um, of the hydrogen production tax credit. The most you can get is three dollars a kilogram. And for, to do that, you have to be emitting less than point Four or five kilograms of CO₂ equivalent. Um, so it, you know, that's, it's a high bar, and if you hit, if you aren't quite that clean, then you get, um, you can still qualify for the PTC, but you may not get the full three dollars a kg. So the three pillars to get you to, um, you know, that, that higher, um, PTC amount that you definitely want to get, um, are additionality, so clean energy resources, um, Have to begin operation within three years of the hydrogen plant, um, being operational, so that you're actually incenting new generation and not just, um, using the renewables that are already built and maybe taking it away from a data center. Um, uh, the second pillar is deliverability, so the clean energy resource has to be in the same region, um, as the, as the green hydrogen project, and that's to prevent, Um, actors from just buying, overbuying in one market, and then kind of spilling that power on the grid where i…

AI assessment note: “it's described as having three pillars... are additionality... deliverability... hourly matching”

Q Shalini, what do you make of the conversation shift around these methods of changing the atmosphere?

A I think it's, there's widespread recognition that we're not on track, let's just call it, we're not on track to keep, um, average temperature, um, 1.5 degrees Celsius below pre-industrial levels. That's the threshold that we've been talking about for a long time, and we're very likely to exceed it, um, perhaps, you know, perhaps by a lot. And it, I think that there's now a sense that, um, even among those of us, like, like me, I'll put my hand up, who absolutely believe in deploring Deployment of the technologies we have, you know, we have no choice. We have to do that. Um, but we also may need something else, and I think that this, uh, the geoengineering is, uh, perhaps along with things like, uh, carbon, carbon sequestration, that's something else that, you know, just switching to green alternatives isn't happening quickly enough.

AI assessment note: “there's widespread recognition that we're not on track to keep average temperature 1.5 degrees”

Q Shalini, any thoughts, given that your husband is in the news business?

A I think, I think you described it perfectly. I think we, what's ironic to me is that all of us, I think, consume more news than ever before. It's not like the consumption or interest in the news has dropped off. I mean, sometimes, you know, it can be, um, um, it can take a little discipline, right, to, to read about, The war in Ukraine when it isn't going well, which is right now. Um, but at the same time, on the whole, I feel like, you know, people care about the news and are engaged, but we don't think about the fact that it takes people with mortgages and kids and all that to go gather the news, and, um, I'm amazed at how, um, it, how, at the role of local newspapers, uh, where my husband works at the Houston Chronicle, the role of newspapers in gathering the info, um, That then, you know, you hear about on talk shows and on social media and, you know, you know, all of that, but the, the, the original reporting is done by entities that we're not supporting.

AI assessment note: “where my husband works at the Houston Chronicle, the role of newspapers in gathering”

Q Yeah, we'll get into that, that resource mix. Shalini, how big is this, how monumental does that feel?

A It feels very challenging. We're hitting the point where there's some growing pains with the renewables industry, just in terms of things you've covered, you know, beautifully on your show about, you know, the permitting challenges, transmission interconnection challenges. Um, you know, when I, when I was reading about the IEA calling for tripling renewables, I was like, where are all these transformers going to come from? Because there's a huge shortage of transformers, and it hasn't been a short-term thing. It hasn't been just the COVID years. You know, it continues to be Something that, um, you know, can, can really affect the timing of projects. So given how hard it is right now just to continue building at the scale that we, we've been building, um, you know, this sort of massive change, as you said, a monumental challenge, I think it requires a very different way of doing things.

AI assessment note: “It feels very challenging. We're hitting the point where there's some growing pains”

Q Any thoughts on the benefits and drawbacks of this being so solar dominant, this tripling?

A Yes. I think one amazing benefit is that you can put solar anywhere, right? If, if you can do solar projects in Alaska, you can do them anywhere, and I think that, that's a beautiful ubiquity. You know, it's just a very standard thing that we're all gonna, I hope, get used to seeing everywhere. I do worry that, um, it makes us incredibly As we're trying to, to, to install this massive, um, solar capacity, it makes us very vulnerable to price challenges, you know, and, and especially given, this is something that we've already seen, is China is a leading supplier of solar, and, um, obviously, with the Inflation Reduction Act, the U.S. policy is encouraging onshoring of solar manufacturing, um, but what happens if there are, if the U.S. companies Are pushing for trade barriers, um, for Chinese companies, and they're trying to protect their markets, and, you know, we want the manufacturing here. You know, all of that could just create uncertainty, where if you're, you know, a project developer, what equipment do you buy in the face of that kind of policy uncertainty? It's, it's not clear to me that there are going to be, um, easy resolutions to any of that.

AI assessment note: “one amazing benefit is that you can put solar anywhere... I do worry”

Q renewable supply load matching in the data center industry and, uh, in the Bitcoin industry at, you know, at the height of, uh, the crypto madness. We did see a lot of projects that were designed to match the needs of Bitcoin miners. So what kind of activity are you seeing in those spaces and what might we learn from that kind of activity that we could apply to manufacturing?

A So, there are two things that, uh, are worth talking about. The first is that data centers and a lot of the companies that operate data centers have been major buyers of green power, and because they have, you know, gigawatts of power purchase agreements, uh, many of them, you know, Google comes to mind, are really pushing for twenty-four-seven green power, which is to say that a given data center Every hour of power that it consumes off the grid, brown power, should be matched by green power. Um, you know, every, every hour of it, right? And that's really different from saying that in the aggregate, all the power that's, that's consumed is matched by what's produced. They're really focusing on that matching. And, uh, we think about this a lot at Quinbrook, and one of my colleagues calls it the missing hours problem. Because you inevitably will have a few hours where wind or solar or battery storage are too expensive, and, uh, and, and so that make, matching that, that twenty-four-seven profile becomes a challenge. And this is an ongoing area, um, you know, of, of, of innovation, so we'll see what we figure out. Um, in terms of Bitcoin, I think one of the reasons that cryptocurrency is interesting is because it's interruptible load. And so, you know, the crypto mining facilities are happy to use your low-cost green power and then go offline when it makes more sense to sell that…

AI assessment note: “There are perhaps other facilities, uh, that can follow renewable generation”

Q I want to touch on something that you just mentioned, Shalini, which is the co-location of these projects, and, ah, I know that there are some developers that are thinking about different off-take strategies and, and, you know, partnering with, again, um, data centers or manufacturing facilities. Like, are you seeing more of a co-location Strategy for renewable energy projects and storage projects?

A It's certainly a very appealing concept. Um, there are some practical challenges. Like, what if you don't have the fiber infrastructure for a data center near where you have the renewables development? There's certainly no guarantee. Uh, they're all gonna be in the same location. Workforce issues are also a concern. If you're, if you have a manufacturing plant, you need people to work various jobs. And, you know, those people come with families and kids who need You know, who need to go to school, and, um, spouses who have to find jobs, and if that, and those may not exist in rural areas. I mean, you know, in many ways, it's a great opportunity, right, to, to, to revitalize rural areas, um, but if you're just one company trying to make that decision, you may find that, um, all the factors are not, in fact, aligning.

AI assessment note: “It's certainly a very appealing concept. Um, there are some practical challenges.”

Q Shalini, what do you make of the mismatch?

A There are a few factors here. I think the most important one Catherine mentioned, and that is, um, that the incentives, um, haven't really kicked in yet. And so, the EVs are more expensive up front. Like, that's just true. And so, I think once these tax credits kick in, and you can close that gap for consumers, that's huge. And I think that is, um, a little bit, that timing mismatch, um, is a bit misunderstood or overlooked. Um, another factor, and this is true with a lot of technologies, is I think EVs have boot, have had a mini boom, something like that, because of the way the first adopters, you know, people like, like my family, you know, we're happy to sit there and figure out, um, you know, how to have a level two charger in our house, and, you know, we're energy nerds, so you would expect us to do something like this. Um, and then they're just like, you know, car enthusiasts who, you know, are interested in EVs, and maybe they've converted, and so that That initial wave of early adopters, you probably worked through those people, and, um, and so now you need other waves of people who are maybe less, um, you know, less, uh, have less of a stake in, in this for whatever reason, and they're just looking for, like, a new car, and so I think that's, that's just a, to me, it's just a, a, a momentary thing. I think, I think that next wave will come, and then, you know, the fina…

AI assessment note: “There are a few factors here. I think the most important one”

Q So what are the kinds of projects that you might see? Do you think they'll be weighted in, in the wind space? Will they be weighted in the solar space? Will be a combination of, of, of hybrid projects? Like where, how do you see, you know, conventional renewables and batteries serving those loads? And then are there other technologies you see coming in to fill the gap as well?

A First of all, I love the phrase conventional renewables, because, you know, when I started working, we were called alternative energy, right? So the fact that it's now conventional renewables is, you know, huge progress. Very excited. Um, so I think we'll see, it'll depend on where the new load goes and where the needs are. So if you're going to be, uh, you know, developing a project in the southeast, uh, you know, of the U.S., that is Probably going to be solar. There are only, uh, you know, really a handful of, of pockets of wind resource there. Um, I also think that, uh, so the resource is going to matter a lot. Um, I also think that the, the profile of each individual user, of each individual manufacturing plant is going to matter a lot. You know, are, are you able to run at night? That might argue for wind. Um, are, you know, do you need to be online during peak power? Is it a Batch processing plant or continuous. So I think it'll be a combination of everything, but fundamentally it will have to be, uh, based on, you know, what is available and what is low cost. Because one thing that, you know, it's worth focusing on is, you know, manufacturing as a sector is hugely price sensitive. You know, people notice when, um, you know, when the cost of a component goes up. So I think the power has to be You know, green, but also low cost, and that's going to determine what's, what'…

AI assessment note: “So I think it'll be a combination of everything, but fundamentally it will have to be”

Q Absolutely. Most of the content that is out there is borrowed from a small number of rigorous journalistic outfits that are often not getting the funding they need, so it's a real problem. Um, Ok, well, I could go on and on about this, but let's, let's turn to your story, Shalini. Uh, what is your forecast?

A So my forecast is that I think we're having good and useful discussions about EVs, electric vehicles. Um, there was a, a cold snap, you know, earlier, earlier this month, and, uh, there were a lot of news stories about, you know, Tesla chargers not working and people waiting in line to charge their cars or having to charge much more often than they had planned on. And, you know, that felt like it was, um, not a great moment for the, the EV industry, um, But now I'm seeing more discussion around, you know, how do you prepare for this? Like, the same way that if you know a cold front is coming, if you know a storm is coming, you know, you get water, you have some food in case the power goes out. You know, there's some practical preparation. Cover your faucets, of course, and make sure your pets and plants are safe. There's also some things you can do, you know, with your EV. You can, ah, before you start driving, you can turn on the, the heat and, like, having a warm car. Um, you know, helps the battery perform better. You obviously will need to charge more often, um, so maybe planning for that, you know, is good, and we're building out more charging networks, so I think that's encouraging as well. Um, and you know, making sure that when you're done driving that you're not leaving it with a low battery because it drains down very quickly. Um, so there's some, there's some things …

AI assessment note: “So my forecast is that I think we're having good and useful discussions about EVs”

Q Yeah, what does that look like? And we're talking about a trillion dollars in capital that needs to be allocated every year. Do any possible financing models come to mind?

A One that I've thought about, and I would love to hear, um, Catherine's thoughts on this, because it's to some degree, there are policy aspects to this as well, um, the way I'll describe it, is that, you know, we don't want projects that are not, um, competitive. You know, you don't just want to have public dollars, subsidies, you know, policy incentives going to bad projects. So you want the discipline of, you know, is this a good project? At the same time, as I described, we need to go quickly. And so, it strikes me that having some kind of, and this is just me thinking, you know, out loud, and others have written about it, um, that if you can have, say, um, a, a, a standing purchase order, and any project that, you know, can deliver X amount, Y location, will immediately get this contract that's standard, and that has been financed against repeatedly, and, and, and very importantly, we can't overlook this, Inflation adjustment mechanisms, um, because I think it's, um, we can't ignore, uh, the power of inflation to erode value, and so I think, um, I think much more, instead of our, instead of a relationship between buyer and seller, where it's about pushing risk, um, onto the seller, in my experience, and that's what we do, you know, we take on that risk and handle it, um, I think more equitable sharing, where, you know, this, uh, that risks are more broadly, um, Understood an…

AI assessment note: “if you can have, say, um, a, a, a standing purchase order”

Q a step back and talk about why the tax equity market is so limited? There's just a very small set of players historically that have been able to take advantage of the renewable energy tax credits, and this transferability piece is key in that those credits can be transferred to other corporate entities. Why was the market so limited, and what does this transferability do to open up new players?

A You know, they're just a handful of banks that provide tax equity, and, you know, they are set up to do it, and frankly, even with the transfer market, um, again, we come back to workforce, like, you know, having the know-how of how to do these deals is a limitation, you know, not everyone, um, and they're, they're complicated transactions, um, and so not everyone can do it, and not everyone has, um, directly their, their, the tax appetite, you know, where they're paying taxes that could, you know, that could be reduced with the credit, um, Or the ability, the way that some banks do to kind of, um, you know, bring in these new players. So it has been, it has been a limiting factor on, on the growth of, of the sector, and so I think the transfer market is encouraging, um, potentially, you know, as long as, uh, enough of the benefits flow to projects, that it actually does, uh, bring down the cost.

AI assessment note: “having the know-how of how to do these deals is a limitation”

Q so, I guess the question is, what does this resource mix look like according to some of the analyses that are Out there. So Bloomberg and New Energy Finance, IEA, and Ember have all put together analysis, analyses on what this would look like. What is the optimal resource, or what, what, what, what will the market bring us, and what do we think the optimal resource mix will be?

A You know, one technology, it's evolving in a way that I think is interesting, and I'm just be fascinated to see how, um, you know, how quickly it can scale, is geothermal. Um, I, and over the summer, I was, I was traveling in Iceland, and I was researching hotels, and there's this one hotel, and everyone said, look, it's beautiful, absolutely beautiful, but it looks out over this ugly power plant, and I, and I looked at the photos, and I'm like, there is nothing ugly about baseload green power. You know, that is very beautiful. That is what we should all be excited about. And the good news is that there are these new companies using technologies that are common in, um, oil and gas for drilling to, to now, to using those tools in geothermal, and the hope is that we can expand where we can do geothermal. It isn't just restricted to a handful of places. I, I think that's a really interesting possibility.

AI assessment note: “You know, one technology, it's evolving in a way that I think is interesting”