Energy Capital Podcast

Today's episode is a special recording of my live interview on September 6th in Austin with Jigar Shah, Director of the Department of Energy’s Loan Programs Office (LPO). Previous to LPO, Jigar founded SunEdison and served as president of Generate Capital. He also wrote a book called “Climate Wealth: Unlocking the Impact Economy,” and many of the book’s themes come up in this interview. Jigar also previously hosted the Energy Gang Podcast, which I learned a lot from, and recommend to folks to this day.

I loved this conversation with one of the leading thinkers and doers for the past several decades. We talked about the work of the LPO, the surge in manufacturing in the United States, the Inflation Reduction Act, load growth, virtual power plants, batteries, EVs, geothermal, nuclear, hydrogen, and even more. It was a packed hour.

This podcast was recorded live at the 2024 Texas Tribune Festival - Texas’ breakout politics and policy event held in downtown Austin. For recaps from this year's recently concluded event and to stay updated on next year's program, visit TribFest.org.

I hope you enjoy the episode. Timestamps, show notes, and the transcript are below. Please don’t forget to like, share, subscribe, and leave a five-star review wherever you get your podcasts.

Timestamps

1:49 About Jigar and Loan Programs Office (LPO)

5:27 - The Inflation Reduction Act as industrial policy; national security benefits of onshoring the energy industry

9:01 - Load growth

17:33 - Virtual Power Plants, batteries, and EVs

28:57 - State of nuclear energy

35:28 - State of geothermal energy

37:47 - Potential for LPO programs in Texas

45:16 - Exporting American energy technologies and  the potential for further economic growth

46:43 - State of vehicle-to-grid and vehicle-to-home technologies

49:34 - State of hydrogen

51:40 - ERCOT interconnection queue

55:33 - What will happen to DOE and EPA programs under a new presidential administration?

58:45 - Deploy24

Show Notes

Department of Energy Loan Programs Office

Pathways to Commercial Liftoff Reports

Deploy24

Nuclear? Perhaps! - A conversation with Jigar Shah, head of DOE's Loan Programs Office - Volts Podcast

Creating Climate Wealth: Unlocking the Impact Economy by Jigar Shah

The Energy Gang Podcast

Transcript

Doug Lewin

Good to see you all. My name is Doug Lewin. I'm the host of the Energy Capital podcast. We are recording this for the Energy Capital podcast. The first time on the Energy Capital pod, we've done a live recording. So very excited for this and particularly thrilled that for the first time for a live recording, my guest is Jigar Shah.

I think probably everybody who's here knows who he is, but let me just give just a quick introduction as to who Jigar is. In case you don't know, he's the Director of the Loan Programs Office at the Department of Energy. He was the founder of SunEdison, president of Generate Capital. He also wrote a book called “Climate Wealth: Unlocking the Impact Economy”, and we'll talk a little bit about that theme. For years and years, Jigar hosted the Energy Gang, and I think those episodes actually hold up super well. I learned a lot, just listening to that podcast was kind of like an education for me, and I think many, many thousands of other people. So Jigar really is just a huge part of the clean energy economy, and in this role now, at the Loan Program Office (LPO), Jigar has a tremendous opportunity and has been using that opportunity over the last couple years to really accelerate the clean energy economy.

So Jigar, if you want to add anything to that by way of introduction, and then maybe let the folks both in the room and for the podcast know just briefly a little history of LPO, and I think most importantly why it matters.

Jigar Shah

Well, first of all, thank you for having me on, and thanks to the Texas Tribune for putting on this fantastic event. I always meet just fascinating people here, so thank you for that.

Look, I think that we in the United States have always been amazing at innovation, right? I mean, DOE is roughly 45 years old. We've got 10,000 engineers, scientists, and experts at work at the national laboratories around the country. And so whether it's solar panels or modern wind turbines or advanced nuclear designs, enhanced geothermal, hydraulic fracturing, all of that stuff really came out of the research mission of the US Department of Energy. And then it sort of happened that the capital markets of the United States just wasn't interested in commercializing much of that. And so a lot of those technologies went overseas to get commercialized, and now we're importing a lot of those technologies back into the country, having someone else make it.

So the Loan Programs Office was conceived of in 2005 in the 2005 Energy Act. And the goal of it initially was to help build nuclear plants in the United States. In 2007, we had an additional mandate around helping with fossil technologies and renewable energy technologies. And from 2009 to 2011, it was super busy and did about $35 billion worth of loans at that moment. I'd say it went dormant after that. And I think when the Secretary came into the Department of Energy, she and President Biden really wanted to bring back the Loan Programs Office. They asked me to join, and it was the right place at the right time. And today we've got almost $300 billion worth of loan applications into the Loan Programs Office. And it's roughly at 50% debt equity, so it's probably $600 billion worth of projects. And so people in America have never been so energized to do big things again in our country, and it's great to see. 

Doug Lewin

It really is great to see, particularly because – and this is something I think, is not – sometimes is lost on the Inflation Reduction Act and the increase for a Loan Program Office, but also for a lot of other programs. You were on Dave Roberts' great podcast, Volts, talking about nuclear. Anybody interested in nuclear – I know a lot of people are interested in nuclear these days – should be listening to – you should listen to that podcast. What Dave Roberts said, I don't think he said it on that podcast, but he said it somewhere else and I really like it, is that the Inflation Reduction Act is really sort of industrial policy masquerading as climate policy. That the point of the Inflation Reduction Act. Yes, there's a lot in there about clean energy and about decarbonization, but it's also about reshoring manufacturing and actually bringing that back. And that has been one of the huge wins we've seen over the last couple years, right, is the increase in manufacturing. Can you talk about that piece, the competitiveness, actually building a stronger supply chain here, right? We saw after COVID, the weakness of the supply chain and all the problems that caused, and having a lot of sort of critical materials, manufacturing everything from chips, and obviously the CHIPS Act is really important too, to solar panels being manufactured somewhere else makes us vulnerable. The inverse is true. Having it manufactured here makes us stronger. Can you talk about that piece a little bit?

Jigar Shah

Yeah, I mean, I think you've covered a lot of the elements of it. I think, you know, in 2009, there was an attempt to pass climate legislation called Waxman and Markey. That climate legislation was really putting a price on carbon. I think that, you know, because of everyone's experience during COVID. But also I think there was a broader narrative that was started around America wanting to build things in our country. My sense is that it's actually industrial strategy that everyone knew they were voting for industrial strategy. And the climate thing is sort of like a branding exercise. 

I mean, I think when you think about all the Senators that voted for that piece of legislation, there's a lot of them in there that are not necessarily climate focused, but are industrial strategy focused. I think, as you suggested on COVID and supply chains, I mean, when you think about what we're trying to do in the United States, where over 75% of everything we've added to the grid every year since roughly 2016 has been clean, right? Has been solar, wind, hydro, geothermal, nuclear. If all of those component parts were imported from China, you could imagine there being less interest from the American public to continue to invest in the energy transition, right?

I mean, you know, I think that, to me, I don't know that you have to, guess too far, to see what the intention of many of the legislature, of the House and Senate members were when they passed this. I think that when you're thinking about something as essential as energy and the energy transition, we want a lot of our batteries to be made here, our critical minerals to come from a diverse set of sources. And I don't think it means that we're not going to do business with China. I think China is still a very large trading partner of the United States. But I think that we're saying in the same way that we managed OPEC. And we didn't want a certain set of countries to have a stranglehold on oil production and oil prices. I think the same thing is true for solar panels and critical minerals and all the other pieces is we want to make sure that whether it's friendshoring or whether it's onshoring here in our country, we want to make sure we have a diversified supply chain, especially if we're going to continue to increase investment from roughly $100 billion a year to closer to $500, $600, $700 billion a year.

Doug Lewin

Yeah, exactly. And I like the way you put that. We'll continue to do business with China, but then it's from a position of strength. It's not from a position of dependence. It's like, no, we can do these things here.

I want to talk about another really hot topic. I mean, you can't have a conversation for more than nine minutes about energy without bringing up load growth. Obviously, a lot of headlines in the energy world about just really rapid load growth. And even just today at ERCOT, there's a meeting going on where they publish updates every month of load growth. I Tweeted this out earlier today. Just in the last month, there are another four and a half gigawatts worth of interconnection requests for large loads just in ERCOT. So just here.  And to put that in perspective, we're recording this obviously in Austin, Austin Energy, the entire Austin Energy service territory is about 3,000 megawatts. So in Austin and a half, just in the last month, entering the queue, now not everything's gonna be built, that puts it at like 57,000 in the queue on a peak demand system of about 85, 86,000. 

So massive load growth coming. We're seeing data centers. What we were just talking about with manufacturing, obviously that means a lot of load growth to support that manufacturing. You have this really fascinating and unique position where you see what's going on all around the country. You get to work with utilities, with manufacturers. What are you seeing related to load growth? Do you think that some of this is maybe a little overhyped and not all of it's actually coming? And can you just talk about sort of how that's playing out within your queue at the Loan Program Office?

Jigar Shah

Yeah, I mean, I started in this industry in the late 90s. And, I think from that period of time all the way to today, we've generally had no load growth, right? And that energy efficiency every single year basically offset load growth that came out of the grid. So you could imagine that all of the CEOs and CFOs in the electric utility industry their entire careers really were in a zero-load growth environment. And so as a result, there was a lot of hostility, right?

You know, when people wanted to put solar panels on their roof and wanted to do net metering, people were like, you're stealing money from my pocket that we could be using for other things. And you talked about cost shifting, talked about lots of things. Even energy efficiency in some ways was frowned upon. Because people were like, well, we don't want, you know, negative stuff. You had public service commissions who said, had entire dockets around, how do we get more load growth? We need the denominator to be larger so that we can keep electricity costs in check, right? 

And so you can imagine that, now that we're in a place, where we're still doing a ton of energy efficiency, right? The Biden administration has really accelerated all of the updates of energy efficiency standards, etc. So I think you're going to see continued energy efficiency. But I think when you see data center load growth, but also electric vehicles, heat pumps, and as you suggested, the onshore and reshoring piece, it does look like we're going to have load growth that exceeds what energy efficiency can support. 

I don't think we're going to be at 70% load growth. I think it's probably more like 2.5% to 3% across the country, just because I feel like there's a lot of noise in the data. I'll give you one example of what that means. So if you build a new house, and that house has 400 amp service with 240 volts, the utility interconnection application for that is 96 kilowatts, right? But in general, your house is going to use two kilowatts. So the numbers sometimes get skewed and people get confused. So I don't know that I love the interconnection queue and looking at that as the way in which you solve it. But I do think the dynamics of the marketplace has changed such that the electric utilities that I talked to today are no longer trying to figure out how to meet shareholder concerns and figure out how to rate base things that are the most expensive way to do things, et cetera.

I think they're realizing that raising rates by 10% a year every single year is not sustainable, right? That like governors are mad at them, the public service commission's mad at them, obviously residents who have to pay higher electricity bills are mad at them. And so they're starting to say, how do we use next generation technology, a lot of which we've been piloting for 20 plus years at DOE, to be able to manage this moment. And so you're starting to see a lot of folks look at grid enhancing technologies, right, reconductoring, where you replace old wire with wire that can handle two times the amount of electricity. You do dynamic line ratings, and so you change the capacity of what can be sent on that transmission line based on the weather outside, et cetera. And then I think you're seeing a huge amount of interest now in virtual power plants where there's a lot of folks who say, well, if 10 people on the block buy electric vehicles, we have to be able to make sure that we supply power if all 10 people want to plug in at the same time and their heat pumps are going and everything else is on. Well, that causes you to overspend on the distribution grid. And so people are realizing, well, maybe we should figure out a way for people to stagger their charging because most people charge their electric vehicles. They plug in at 5:30 or 6 when they get back. They unplug at 7 in the morning. And so it only charges for three and a half hours during that period of time. So most homeowners don't care which three and a half hours it's charging. Maybe we should stagger them, right? 

And so I think you're starting to see all these new concepts being embraced. And part of this is there's some complexity in it, but it's not too bad. When you're building a data center that's 1,000 megawatts, which is what these new data centers might be, it's going to be disruptive to the grid. Let's just be clear. We're into a lot of planning to figure out how to accommodate these 1,000 megawatt data centers. If you're building a manufacturing facility that has 5 megawatts of load, we can figure out how to put it somewhere. If you're figuring out how to deal with electric vehicles and heat pumps, you can very straightforwardly accommodate that within the grid that we've already built.

So each of these things has a different level of complexity. And I think for a lot of people, what they were saying was, let's just use this old toolbox for all of these issues. And that old toolbox is coming in at 10% rate increases. And then when you look at the new toolbox, which the secretary has been quite visionary about, and so we did these liftoff reports. So we've published a lot of DOE's data and a lot of these solutions back in 2022, 2023, because we saw a lot of this coming. So we're ready for the moment and it turns out the rate increases can be right in line with inflation and still meet this moment, right?

And so I think the tools are there, the load growth is real. I don't think it's 7%. It's probably more like 2.5% to 3.5%. 

Doug Lewin

But that's a lot more than it was in the 90s. 

Jigar Shah

That's a lot more. We've averaged load growth of 0.4% a year. And so it's like almost 8x, right, what we're used to. So it's a lot. But if we do it right, it leads to lower bills for everybody over time, right, because we're using the system we've already paid for more efficiently. And if we do it the wrong way, well, then it'll increase rates by a lot.

Doug Lewin

Yeah, so Jigar just mentioned the liftoff reports. I do want to put a plug in, put a finer point on that. Those liftoff reports are fantastic. I'm a person that reads a lot of reports. They're really well done.

And so, I want to get into, and I should say also, we are going to leave time at the end for questions. So we're going to cover a lot of ground here, but if there's things that we don't cover and you want to ask about at the end, so be thinking of what your questions are.

Your mantra has kind of been deploy, right? People wear T-shirts around with your face on it with the word deploy. I know. 

Jigar Shah

It's weird. We're in Austin, but still it's weird. 

Doug Lewin

Weird in the best sort of way. I love it. So I don't have one yet. I probably should get one.

But speaking of deploy, this has really kind of been the emphasis of the Loan Programs Office. And so these reports you're putting out, they're foundational, they're important to increase people's understanding, but it really kind of comes down to the projects and what's getting done.

So let's, can we kind of, I want to kind of run through some of that, like what you guys are prioritizing. And then if you could maybe give an example or two of where these things are happening so people can kind of get a sense of where they're happening. 

So let's start there with the Virtual Power Plants. So when we think about that load growth coming, we have to remember that, just as you put it, it's not going to be done the old way where you just take that maximum possible peak load, add 15% a generation, and if it happens that way we're going to really hurt consumers. The system's going to kind of break, but there's no reason it has to happen that way. So with Virtual Power Plants, we're talking about adding up lots of little tiny sources into a much bigger whole.

We are actually seeing this in Texas through a really exciting project, the Aggregated Distributed Energy Resource Pilot, A-D-E-R Pilot. Just recorded a podcast with Arushi Sharma Frank about what has gone on with that. Can you talk a little bit more about VPPs? And I think, Jigar, the most important thing is like, how does this impact somebody's life? Are they going to be able to get a bill credit for this? Do they get a payment for this? Does it allow them to increase the control they have over their homes? So one, to kind of make it more real for people, what does this actually mean? And then are there projects you guys are actually funding at DOE right now on VPPs?

Jigar Shah

Yeah, a lot there. Look, I'd start with saying that the underlying technology that we need to unlock these virtual power plants have been added to everything that you buy starting in 2016. So today, if you go out and buy something, whether it's a refrigerator or a water heater or an EV charger or whatever it is a thermostat. There's an app for all of it. I mean, I just bought two humidifiers. There was an app for the humidifiers. I'm not sure what I would do with it, but whatever it is, there's an app for it, right?

And so by definition, when you have an app, that means there's a way to communicate with the device without physically going and touching the device, right? And so that means that this layer by which you can control these devices exists already, right? So now the question becomes, who is that useful for, right? And so it depends on the business model that you're operating in. So in Texas, you have a deregulated market, a lot of people have retail electricity providers, and those providers have to go out into the wholesale market and buy power for you to supply you power. They have to hedge, they have to do all sorts of interesting things. That results in a certain cost, and then that cost is shared with you. There are some retail providers like Octopus Energy or others who've said, hey, if you let us control four of those apps for you, we'll give you a big discount on your bill.

And some folks are saying, great, I would like that discount. And other people are saying, keep your hands off my appliances. Totally fine too, right? But then you don't get the discount, right? And so I think as people start to become aware that these things are available, then they're starting to take advantage of it. Some of them are done via price signals. So when you look at like Duke Energy or Florida Power and Light's territory, they're saying, hey, you know, we want to put in an EV charger, but there are certain hours of the day where those EV chargers are going to generate a lot more complexity for us than other hours. And so if you agree not to charge during those hours, we'll give you a heavily discounted rate for your EV charging. And if you need to charge because it's an emergency, push this little red button and you're going to pay 45 cents a kilowatt hour for those periods of time, right? Which is what it sort of costs you at an EV go station or whatever. And so, again, you know, they're empowering consumers to get much lower costs to power their electric vehicles by showing some flexibility. And if you don't want to show flexibility, you just pay that top rate and you get to do whatever you want, right?

And so I think that all of these things are enabled by pilots that DOE funded for the last 20 years here at Pecan Street in Austin etc., which we started funding, I think, back in 2009. And a lot of that data has been coming forward, right? And so we have this now. Now you go to the next stage, right? The next stage is utilities have to physically make changes to their distribution circuit, right? So people are saying, hey, you know, the peak load that's theoretical might go up because everyone's putting in heat pumps or everyone's putting in a heat pump water heater or people are deciding to get off of natural gas or whatever it is that they're doing, and that load is going up.

And so what the utility is now saying is, like, look, if we have to make this investment, that's $150 million, and we're going to have to charge you that $150 million. Instead, if there's a reliable way for us to give you compensation for you to have enough load flexibility that we feel confident that enough people have opted in that we can actually manage the existing grid the way it is and just use it more productively, then we can avoid the $150 million. And we can put some of that money that we would have spent on the $150 million into your pocket. And that's really what this virtual power plant thing is. And it comes in all shapes and sizes. So clearly what most people think of when they think about it is Tesla Powerwalls and Tesla Electric is a retail provider and there's all these people who get on Twitter and show people their negative $500 bill because they sold power back into the grid when grid prices were $5 a kilowatt hour and whatever else, right? Fine. Kind of cool looking. I don't think that people should rely on that long term. But, you know… 

So you've got batteries, right? Some people put solar with those batteries. Now you've got electric vehicles, right? Like F-150 Lightning has been advertising heavy in Texas and saying, hey, if you hire this provider, we can connect it to your house and we can take your entire house off grid, you know, running off of your F-150 Lightning. A lot of folks are like, this is amazing. I'd love to do that, right? So that's another thing that's happening. You've separately got folks who have thermostats, and they're saying, hey, let's aggregate all these thermostats. Now, the thermostats problem is that it works most of the time, but doesn't work some of the time. Because some of the time it's 110 degrees for an entire week and no one wants their thermostat turned off. And so you're going to override that every single time. So yes, it's less useful and therefore less valuable in certain programs. 

And so each one of the technologies has its own benefits, rewards. And so each one of them has a different compensation profile. But when you think about what happened in Houston with CenterPoint, there's a huge backlog of middle class families now that are signing up for backup generators from Generac. Right? That's real money. Someone's got to spend $8,000 to put that thing in their backyard, and then they got to pay somebody every year to come out and test it to make sure it's still working, because otherwise, two years from now, when you need it, it doesn't work, right?

So that is never going to give you a return on investment, right? Like, that is something that you just spend out of your budget. It makes you feel safer for your family. Now, if you put in a battery… Right? Well, now it could cost you the same $8,000, but now you could actually bid into this virtual power plant market and make a return on it. You might not get a positive return. You might get, you know, like most of your money back over 10 years, but that's better than the Generac system where you would have no chance of getting any of your money back over 10 years, right?

But the question becomes, like, when this event happens in Houston, What are people going to do? Right now, the default position is to call Generac and get a diesel generator. The goal, I think, out of all of our education work and all the work we're doing with the utilities and the public service commissions is to say, hey, how come the default position is not a battery? And from the perspective of the utility company, starting from the beginning of what I was saying, they're not hostile to it anymore. And in fact, they want it because they realize that a battery is part of their system and can be viewed as a grid resource, whereas a diesel generator generally has a shutoff switch. You take your home off grid, you're running it off the diesel, so it's not really a functional part of the system that they're operating every day. And so they actually do want you to install a battery, but I was like, well, where does that say something on your website? Do you ever tell people that you'd rather them do a battery? Oh, no, we forgot to do that. Well, you know, people are not going to read your mind. Why don't you say it out loud? 

And so I think that's where we are right now is folks are getting comfortable with each other. They're a little less hostile towards each other. And they're realizing that all these investments that people are making in appliances, vehicles, backup power can be part of the grid and can help your neighbor and everyone else get better resiliency. 

Doug Lewin

No, it's really, really well put. And actually, it's not, I don't think, a coincidence or mistake that CenterPoint's VP, Jason Ryan, is the chair of that ADER task force I was talking about earlier. I recorded a podcast with him, and he talked about how in Houston, 60%, sometimes 70% of the power that they need, they've got to import. They don't have enough power anymore in their service territory. So to your point, getting that solar in storage on rooftops, the storage in people's garage, that can really make a difference. And on the electric vehicles, and you've been great at talking about this, just the aggregated amount of capacity going around in cars right now is phenomenal.

That F-150 you mentioned has standard 98 kWh battery. That'll power a home for, even a big home in Texas with a large air conditioning load, that's three or four days. I mean, it's a massive amount of power. 

Jigar Shah

Yeah, I mean, I think that people have a really hard time processing what's happening. Like, when you think about a million electric vehicles with an average of, let's say, a 100 kilowatt hour battery, then you're talking about 100 million kilowatt hours, right? So that's 100 gigawatt hours worth of batteries that people are buying every year, and that number is going up from a million to 2 million to 3 million cars a year, right?

And so the president's goal of 50% electric vehicles or plug-in hybrids by 2030, right? And so when you think about where we're headed with all of this, the entire United States uses roughly 14,000 gigawatt hours a day we're going to have 14,000 gigawatt hours worth of batteries in people's garages or their homes or backup batteries, et cetera, probably by 2035. It's right around the corner that you're going to have that much capacity sitting around. Not all of it's plugged in, not all of it's accessible that day, but when you think about the sheer scale of how many batteries we're deploying, it's far larger than people are contemplating.

Doug Lewin

All right, I could talk about that topic all day, but I do want to cover a lot of other things. So some of the other fantastic liftoff reports you guys have done at Loan Program Office. Let's talk about nuclear a little bit. The podcast you were on with Dave Roberts, you went deep into it. We won't go that deep today. Talk a little about the prospects for nuclear. I know you were actually very excited about Vogtle, the plants that were completed in Georgia. Texas actually has two sites with nuclear, South Texas Project and Comanche Peak. They both have two units. They were both designed for four. Maybe there's an opportunity there. And then maybe just a little bit also on small modular reactors, which I think you have said are neither small nor modular, which… Isn't that kind of the issue we need to get to where we're modular on nuclear, that we can really just recreate these things much quicker than we're doing now, which isn't very quick at all?

Jigar Shah

Yeah, I think we start with what's the point, right? I mean, I think that there's a lot of folks who say, well, solar is so cheap. Look how much solar we're adding to the Texas grid every single day. And I obviously love solar, and so I think it's great. I think the batteries that are getting added to the Texas grid are also super important and amazing. But we also have a lot of coal, natural gas, other technologies on the grid today. A lot of those assets are getting old, right? So a lot of the coal plants are retiring, not because of regulation, but just because they're hitting the end of their life and you'd have to spend a billion dollars to just repair it and do all the work to get it back up to speed. And so a lot of folks are choosing to not build new ones. So when you run a grid that's on solar, wind, and battery storage, you can do it. Our friends in Australia have shown it. You can do it. There's other people who have shown you can do it. But it's expensive. Because you've got to build a lot more transmission capacity to move the electrons around than you would if you had a lot of clean, firm power generation sources.

So when you think about geothermal, nuclear, hydro, if we don't figure out a way to make those technologies cost effective and have those technologies provide 40% or so of the grid, then we're choosing a higher cost approach once we go beyond that. And just to put this in perspective, because I think everyone gets fairly hysterical about these things, the solar and wind industry are sort of in that 20% of the grid range and heading that way now, right? So if nuclear and geothermal and hydro and those things are 40% of the grid, then solar and wind can still go from where they are now to 60% of the grid. They have a lot of growth. Do as much solar, wind, and battery storage as you possibly can. No one's telling you to stop, right? But if we're going to be retiring a lot of these coal plants and then some of these natural gas plants over time, then we need clean, firm power generation resources. So that's why we're bothering, right? 

Now the question is, if you're going to build new nuclear, where would you start? Nuclear power plants require a lot of security, safety, other things. And we have 54 campuses around the country, a few more where their plants have been retired. In those places, you have 90% plus approval ratings of the nuclear power plants. The people who live around nuclear power plants love nuclear power plants. People have worked there for 50 years. Their high schools always seem to have a brand new gymnasium. People love nuclear around there. As you suggested, for the Texas nuclear power plants and others, almost all of them were designed to build four reactors at the site. And many of our nuclear campuses only have one reactor. Some have two reactors. One or two have three reactors. And Vogtle's the only place we have four reactors, right? 

And so just going back into our existing nuclear campuses and building lots of new nuclear plants, you could build somewhere in the neighborhood of 35 gigawatts of new nuclear power plants, right? So you can build a lot of nuclear power plants just at those sites where they're already designed to, and it's 30% cheaper to operate a nuclear power plant that has one nuclear power plant there if you added a second one, because you don't have to double the number of employees, you don't have to double the amount of equipment, you can service two of them with the same staff and the same equipment. So it becomes more efficient from that perspective.

The next piece is then, OK, so now what technology do you settle on? We clearly built AP1000s in Georgia with Vogtle Unit 3 and 4. So to the extent that you wanted to do something that we've already figured out how to do, do more AP1000s, right? Fine. But the problem with AP1000s is that they're 1,100 megawatts each. And so there's something on the order of around $11 billion per reactor. And a lot of people are like, that's a lot of money, right? And so when you go to states where there's only 500,000 meters, when you go to utility territories where there's only 1 million meters that they're servicing, It's a lot of nuclear, right? And so you can imagine that there's a lot of folks who are looking for 300 megawatts. And at 300 megawatts, the price tag is $6 billion now. It's probably going to $3 billion once you're building 10 of them. And so $3 billion feels like something where a lot of these utilities can afford $3 billion. Right? And so that's why you do these smaller reactor designs. It's going to be more expensive to operate a 300 megawatt power plant than a 1,000 megawatt power plant. All things considered, same safety, same everything else. You have 300 megawatts instead of 1,000. It's a little more costly, but from a capital markets perspective, like public service commissions feel better, everyone else feels better doing a 300 megawatt. So I think that we're starting to recognize that. 

The last thing I would say is, when you think about these 1,000 megawatt data centers, where do you put them? It is very hard to go to a Greenfield site, put 1,000 megawatts in there, and then have a grid get modified to accommodate that. A lot of folks are looking at existing nuclear sites and building these 1,000 megawatt data centers nearby, not within the nuclear fence line, but let's call it five miles outside. You don't have to use a transmission grid. You can power it directly from the nuclear plant. But then you can tell the data center company you gotta build a new nuclear plant at that same site to get the additionality, right? And so you're starting to see a lot of the data center companies getting very interested in nuclear power, and that's how you're paying for a lot of that stuff. 

Doug Lewin

Another one y'all have put some focus on is geothermal. This is one that I think has huge potential here in Texas. Pretty good geothermal resource, not as good, obviously, as the Western United States, but good. And it leverages the expertise of oil and gas companies. We've got a couple of great companies in Houston, Fervo and Sage, just to name a few. Are you guys doing some loans in geothermal?  Do you think that that's an area of growth, potentially, for the LPO? 

Jigar Shah

Yeah because of the leadership of Texas and many other states, we now have an entire supply chain around hydraulic fracturing and other modern technologies on subsurface. And so as a result, we think we can actually get to really cost-effective geothermal with about $25 billion of investment into the first three to five gigawatts worth of geothermal. Once you get past the first three to five gigawatts, we think the cost curves are going to come down and geothermal might be some of the lowest cost way of producing power in the West. And so we're excited. 

And you start to see the contract that Google signed with Fervo and NV Energy in Nevada. You saw the announcement between Meta and Sage. And so we're excited to see a lot of the leadership that's coming from the private sector to help commercialize those technologies and then Devon Energy invested into Fervo, and so they're bringing some of their subsurface data and some of their risk management practices to the industry. Halliburton's been quite vocal about the fact that they think that drilling geothermal wells is way easier than drilling the other things that they do. And so I think you're starting to see a level of enthusiasm that frankly was probably more on paper before, but now is being made real and you're starting to see real dollars flow and people within these companies saying, hey, I'd like to work in the geothermal division. And so it's very exciting. 

Doug Lewin

I mean, so much of this really is about learning curves, right? And we come down those cost curves. We've seen solar and storage really go down the learning curve. And in Texas, obviously massive deployment of those. And now we kind of get to that question of like, can nuclear get there? Can geothermal get there? What are those clean firm technologies that are going to get there? 

I want you to talk a little bit about the energy infrastructure reinvestment. Did I get that right? EIR, which is, I believe, the biggest pot or category within the Loan Program Office. So can you talk a little bit about, just tell us what EIR is? And I'm trying to think, Jigar, like where does, it's the Energy Capital podcast, you're at the Texas Tribune Tribfest, like where's the overlap between LPO and Texas? Is EIR an area where there's big potential? And what other areas are there potential for Texas to leverage what's happening at LPO to create jobs, lower costs for consumers, all those good things? 

Jigar Shah

Yeah, I think, you know, one of the things that I think Congress realized is that, you know, when you went from, you know, horses to cars, right? There are a lot of people who were put out of work in the horses business, right? And even though it's far better and, you know, you don't have all the downsides of horses, right? You still have a lot of folks who are dislocated, right? And so now that we're in that situation with the energy transition, whether it's around coal and natural gas and oil or whether it's around hydro facilities and, you know, other places around the country. For many of these communities, they got 50% of all of their property taxes paid for by these plants for the better part of 50 years. And so you can imagine them being fairly resistant to the change that's coming because of the huge hole that it puts in their budget. 

But also, for many of these communities, these are the highest paying jobs in that community right and so when you think about who's sponsoring the baseball team and who's figuring out pizza night and all these other things. It's all the folks who are working at these facilities and so I think what Congress said was like look you know like there are benefits from environmental justice standpoint and labor standpoint of reusing these old sites, right? And not just putting all these new facilities in greenfield sites, but actually saying, hey, for this old coal mine, what can we do with it? With this old coal plant site, what can we do with it? And it turns out that there's a lot we can do because the interconnection point's there, right? So if you want to build a big solar farm and a big battery storage farm, actually the best place to put it is right there at the site of the coal plant.

So what Congress said was like, look, the Loan Programs Office, you normally do innovation in greenhouse gas emissions. You still have the greenhouse gas emissions mandate, but we're dropping the innovation mandate if people are willing to do creative cool things at existing sites, right? And so we have folks who have retiring coal plants that are putting solar plus battery storage there. We have folks who have old transmission lines that are 50 years old that they're now restringing with next generation conductors that hold twice as much power. We have folks who are trying to figure out how to take old hydro dams and actually put fish-friendly turbines in there that actually let fish flow through them without any injury and generates about 25% more power at those sites. We have folks who are looking at old tank farms and terminals that are out of use today. We have old refineries that people are converting into sustainable aviation fuel facilities. We have folks who are taking old nuclear plants and completely refurbishing and turning them back on. And so I think when you think about just how much old infrastructure we have in our country, and a lot of folks viewed them as blights. Places where they've been shut down, they no longer generate any property taxes, and now they're a source of economic growth for those communities. People actually are targeting those communities and saying, hey, how do we partner with you to figure out what you want to do with this old site because we get access to this low-cost loan.

Today, we have about $120 billion of loan requests in for this energy infrastructure reinvestment program, which has been super exciting. And we bought 250 billion dollars worth of loan authority in that program and so there's a lot more we can do and so it's super exciting 

Doug Lewin

And Texas has I believe it's 11,000 megawatts of 30 plus year old gas plants that have that access to transmissions, SCADA systems all that stuff there so it's a great place to look for opportunities for clean, firm, solar, storage, all that kind of stuff. G great. One other area, transmission. You guys are funding transmission. You mentioned reconducting. New lines doesn't come into that? Like brand new transmission lines? 

Jigar Shah

We definitely have brand new transmission lines too. So no bias here for a reconducting per se. It's more, we need, you know, right now our transmission system is whatever size it's at. I'd say, as the business as usual case, we'll probably, you know, over the next 20 years, get to like 1.6x our current transmission grid. Just folks building new stuff and doing whatever they do. I think with the Grid Deployment Office and some of the other folks who've done really remarkable work, I think we're probably going to get to like 1.8x our grid instead, which is great.

But I think we need to go farther. And so a lot of the reason why we're looking at reconductoring is, look, it's really hard, right? I mean… you know, when you want to build long lines, a lot of states don't want those lines going through their states. A lot of neighborhoods don't want those new lines going through their states. And so when you think about where Texas is at right now and the load growth that it's facing, taking the existing lines that you have and figuring out how to flow two times more power along those same right-of-ways can often be a lot easier and politically more practical than, you know, stringing new lines. 

Now, you're gonna be stringing a lot of new lines, too, and Texas has led the world in, you know, speed at which you're building more capacity, which has been fantastic. But I think a lot of what DOE is saying is that these tools are pretty amazing, right? And so if we just unleash and deploy all of these tools that we've been researching for so long, you can get way more out of the grid that we've already paid for, right? And so why wouldn't you do that? Why wouldn't you do the thing that is the lowest cost way of meeting this moment? Why would you choose to do the highest cost thing every single time?

Doug Lewin

Yeah, and we're recording on September 6th, that is one year to the day, which to the energy emergency alert that ERCOT made, the only one post-Uri, and it was because there's a double circuit line, they have a single contingency. Long story short, there's constraints on a transmission line that could probably be reconducted to take a lot more power out of South Texas and bring it into the load centers. This is a huge opportunity. And by the way, ERCOT will be having workshops this month on extra high voltage transmission, there's a cost differential there, but there's probably a state federal partnership opportunity there for Texas to find. We don't have any extra high voltage. There's no 765 in the state of Texas.  I'm going to open it up to questions in just a second. If you want to come to the mic, please do that. Jigar, before somebody asks their question, though, there's so many reports you guys have put out, so many projects. Anything else you want to highlight that I didn't ask about?

Jigar Shah

You know, I think that we are so used to thinking about these issues just from the perspective of the cost of our energy bills. So when we think about building a nuclear plant or a solar facility or a battery storage facility or whatever it is, I think what we sometimes have a hard time thinking about is just how awesome American technology is. It really is extraordinary. And we've never bothered to figure out how to make it here and then export it around the world. And people desperately want it. So when you think about the leadership that people show here around building a nuclear plant or building geothermal facilities or building battery storage, et cetera, the battery technologies that we're deploying right now are largely 10-year-old technology.

The new technologies that we have coming down the pipeline over the next 24 months are game changers compared to what we have now. If we deploy them at scale here, the next step is then to export them to allies around the world, right? And so I think when you think about the wealth creation of our country, us actually going first and us actually deploying stuff here then leads to, you know, America projecting its technology power around the world.

Doug Lewin

Yeah, and growing our economy far into the future. We're seeing, and every IEA report that comes out showing the investment globally in clean energy technologies just boggles my mind. It's a pretty steep curve. Yeah. All right. Why don't we start at the front, Luke, and then we'll go to the back.

Audience Member

Hi, Jigar. You talked about all the millions of batteries in people's garages. Most of those are not Ford F-150 Lightnings right now. What are you seeing in terms of automakers producing vehicle-to-grid-enabled EVs? And then what's happening to aggregate all of those a bit into the market, like we're seeing with ADER Pilot and home batteries, etc.?

Jigar Shah

Yeah, no, it's a good question. And it goes to the question that Doug asked before around deploying, right? I mean, one of my big challenges is that the automakers all started energy divisions within their companies back in like 2016, right? So this is not a new thing. All of the apps for your electric vehicles already let you program like when you would charge your car, right? So that's not a new thing either. You've got venture-backed companies like WeaveGrid and others that have actually done the aggregation work and can provide all that data to the utility companies. What's new is that they're open-minded enough now to actually pay WeaveCrit for that service to do this work, right? 

One of the big challenges that we've had for years is that people want to back these companies. And they've received A round and B round investments. And then there were no customers. Nobody gave them a revenue model on either side. And so five years later, they ran out of cash and went out of business. So I think that when I talk to all the automakers, they're all in on this. The last thing they want is to be accused of raising people's electricity prices, et cetera. So all the functionality that they need to add to their cars are there. They'll keep improving them, I'm sure. And all of the players like Sunrun and others have already trained technicians to be able to do it. 

My sense is there's some like architecture issues. So for instance, if you do vehicle-to-home, right, so that means you're really just taking your home off grid with your truck, that is a very safe thing for the utilities to do. If you're saying, no, we want to do vehicle to grid and we want to be able to put the power back into the distribution circuit, well then, the utilities want a lot more data, they want to understand whether this is going to go up the transformer blow their transformer and all those things. And then they're going to want to do an interconnection study probably at each individual home, right?

So that seems unwieldy. So right now, my sense is vehicle-to-home is probably the right way to go. And then we can think about vehicle-to-grid later when maybe we have a little more confidence. But, you know, I think vehicle-to-home is something we could do right now. 

Doug Lewin

And that would make a huge difference, too, because a home on a hot summer day in Texas using five or six KW even just as the sun's going down, if you can take that four, five, six kilowatts offline and add that up times, I think there's 300,000 electric vehicles now. We'll be at a million in a few years. It's a big deal.

Audience Member

Hello. Thank you both. My name is Grayson Cliff. I'm a Ph.D. student in the Weber Energy Group here at UT Austin. I was hoping you could talk a little bit about the role of hydrogen in our clean energy economy and what are some of the barriers, major barriers, that hydrogen faces in becoming more, its widespread adoption, I guess. What are some of the barriers?

Doug Lewin

Thanks for asking that question. It was on my list and I ran out of time, so I appreciate you.

Jigar Shah

Planted. Look, I think, you know, I've never been a part of the hydrogen hype cycle. And so I think, you know, my own point of view on this is that we use a lot of hydrogen in this country. 

Doug Lewin

In Texas. 

Jigar Shah

In Texas and Louisiana for sure. So you have like three pipelines, hydrogen pipelines traversing Louisiana and Texas. And so you're at 10 million tons of hydrogen a year in the United States. All of that should be decarbonized, right? And DOE is generally very colorblind around it. So whether it's blue hydrogen or green hydrogen or pink hydrogen or whatever color it is, what we care about is that it gets decarbonized, right? And so I think we're very excited about the prospects and we agree that we have the best technology in the world and so we'd like to see it deployed at scale. 

I think that there was a lot of feeling that hydrogen was going to grow in our country and basically be used for hydrogen buses and hydrogen transportation and hydrogen decarbonization of the industrial sector. A lot of that is in the demonstration phase at the Department of Energy. So we did the industrial decarb program out of the Office of Clean Energy Demonstrations. They provided a lot of grants to people to build clean steel or clean other processes. 

But my sense is that that technology is still at a pretty significant premium to what it's competing against. And so we'll have to see how the costs come down and how that works before we can count on that to grow hydrogen. But right now, just decarbonizing the 10 million tons of hydrogen that we use every year in this country is a massive business opportunity that I do think you're going to see a huge amount of progress on by 2030. 

Audience Member

Thank you both for being here. I was curious about all the load trying to interconnect in ERCOT. So really since April, we've been seeing all the really scary numbers that ERCOT’s been putting out, like could double peak load by 2030. Why isn't ERCOT more discerning on what the composition of that load is? Like they've looked into the Permian Basin, it's like a lot of oil and gas load, a lot of Bitcoin, electrolyzers, like if all the scary like ERCOT-wide numbers, like a lot of that's Bitcoin and electrolyzers, I'd be less inclined to think that it will actually come to fruition. 

Doug Lewin

Do you mind if I take that one and then let you add in after? So on the ERCOT interconnection queue, and it's a great segue from the last question, because you're absolutely right, 20 gigawatts of what they're tracking in those big numbers I was citing earlier, 20 gigawatts there is hydrogen electrolyzers. And ERCOT is right now assuming that those are going to be 24-7, 365 loads. If you build a hydrogen electrolyzer and you are obviously going to, you know, with an electrolyzer, it's going to be wind and solar powering it. You're going to make hydrogen when power is really cheap and you're not going to be making hydrogen when power is really expensive. So there's like 20 gigawatts right there. You could look out and see that 150 number and like take 20 off it because they're not going to be producing power at peak when it's $5,000 a megawatt hour. It's kind of crazy.

But if you want to go further, you could actually say, well, what are they going to be doing with that hydrogen when it's $5,000 a megawatt hour? Some of them are going to be putting it into a power plant and sending that power back into the grid and actually helping to solve some of that problem. So, you know, and I think data centers we're going to see more and more co-locating with batteries and and you know one thing we didn't talk about also was just long duration energy storage. Hydrogen ends up being a form of long duration energy storage but there's a lot of others as well. Yeah I think the numbers that they're putting out are a little problematic because they're not considering the flexibility of those resources and how they'll actually act in the market.

Jigar Shah

Yeah, I think that's right. Look, I think that the way that the U.S. economy operates,

I don't know that we love saying that your load is more valuable to the economy than this load, right? So part of the way we do that is through permits, let's say, right? So you can imagine a town saying, I don't want a Bitcoin miner here that generates tons of noise pollution locally to 

my house. And so they may not get a permit to be able to operate, right? I think… So I don't know that we discern what's good load and bad load. 

I think as Doug was saying, I think on the electrolyzer side, look, for better or for worse, right now, you know, hydrogen that's made from natural gas with carbon sequestration and storage is looking a lot cheaper than hydrogen that comes from electrolyzers, right? So my sense is that, like, we'll see where this whole market ends up, and it might change again in a year, but, like, a lot of that may or may not show up. He's absolutely right though that there's no reason to run an electrolyzer if power is expensive on the grid. And we've already funded the Delta Asus project out in Utah, which has got the largest electrolyzer bank in the United States. And that is under construction and hopefully should be online next year. And so, you know, we'll see how that performs, but there's a ton of, you know, negatively priced power on the Western grid. And so I think, you know, I think it'll be quite a profitable project and Chevron's a part of that project and others. And so you're starting to see some of our nation's, you know, best and smartest, you know, developers get involved in these things. 

Audience Member

Thank you again for y'all's thoughtful answers on that. It's also my understanding that how effective the EPA is is really down to who's the president. And so if Trump wins in November, how effective, like what does the Loan Programs Office look like for the next four years?

Doug Lewin

So when you said EPA, in this context, you mean DOE or do you mean just all federal agencies?

Audience Member

Oh, yeah, sorry. I guess I meant EPA specifically, but then I guess, yeah, what does the DOE and then specifically the Loan Program Office look like for the next four years of Trump’s elected?

Jigar Shah

Yeah. No, that's a good question. Look, I think there's a tremendous amount of programs that were passed in the Bipartisan Infrastructure Law and Inflation Reduction Act. I think the administration has been racing to get a lot of that stuff implemented, whether it's standards or tax credits or loan programs or other things. You know, we've got almost $300 billion worth of loan requests into the Loan Program Office. I'd say that I don't know, because I haven't, you know, like, asked. But I think a lot of them are probably Republicans and some of them are Democrats. And so, like, my sense is that the program doesn't shut down if, you know, we have a change in party. I think there could be a slight difference in focus in terms of which sectors are being worked on versus other sectors.

But look, I think that when you think about just how important this moment is to governors around the country, Georgia is one of the largest recipients of new battery manufacturing facilities, new solar manufacturing facilities. I think you just saw a letter come out of the House of Representatives where a lot of Republican members of Congress were like, please don't negatively impact the projects that are already under construction in my hometown. This town has not seen this kind of job growth in many, many years. Please keep that coming. So my sense is that while the rhetoric is quite fiery, that what average Americans want is for us to take these technologies that we invented at the Department of Energy and figure out how to commercialize it here. I think people are tired, in both political parties, of us taking all of our technologies, exporting it to other continents, having them commercialize it, and us importing it back into our country, right? And so I think those trend lines are generally bipartisan, and so I'm hopeful that all the tools that we've put into place are gonna continue to be aggressively used to meet what the American people want.

Doug Lewin

Yeah, just a couple other quick points on that. There's a lot of states that have benefited mightily, including Texas, including South Carolina. And these are like really real. I mean, these, to the point of the- 

Jigar Saha

Well, Cell Link in Georgetown, Texas is building their big facility.

Doug Lewin

Yep, exactly. So there's examples all over the place. These investments are quite real. And I think you do get to a point where there's, from some of these programs, some kind of lock-in that starts to happen where the communities need it and want that investment. We're seeing growth of manufacturing like we haven't seen before.

So we're out of time. Before we run out of time, you have 30 seconds. Can you just plug Deploy 24, which will be in December? Regardless of what happens in the November election, it'll be a fascinating meeting. You just want to plug it real quick?

Jigar Shah

Yeah, I think probably actually as an extension of your last question. So what we're finding is that there's all these new tools, right? And the way in which the state government, the local government, the electric utilities, and the entrepreneurs, and the finance community all works together, of course, labor, environmental justice, organizations, et cetera, to really bring about this transformation that we all want is still kind of confusing. And so we have basically created this infrastructure event called Deploy. And it was Deploy 23 last year, it's Deploy 24 this year. The website’s DeployTogether. 

And in general, what we're seeing is that there's a lot of parts of the U.S. government that has to work together. There's a lot of parts of state and local governments, utilities, et cetera, that have worked together. Everyone's excited, but they could still not be well coordinated. And so you're starting to see just huge amounts of CEOs, CFOs, changemakers, others wanting to get together to figure out how we actually work better together to really accelerate the pace of deploying all these tools from the Inflation Reduction Act, and really seizing this leadership opportunity that I think we all see that we're ready to do, and we frankly have already done it.

I think when you think about the example of Texas and the hydraulic fracturing revolution, where we're now the largest producer of oil and gas in the world, and exporter of LNG, I think you see that same potential within nuclear, geothermal, hydro, sustainable aviation fuels. I mean, all these great sectors where we've had technology for years, but now we're boldly deploying it at scale. 

Doug Lewin

All comes down to energy leadership, and I think Texas will be at the center of it one way or another. Please join me in thanking Jigar Shah for being here. Thanks to the Texas Tribune and TribFest for having this important discussion, and thanks to you all for being here. Have a good day. 

Jigar Shah

Thank you.

There aren't many grid strategies that increase reliability, resiliency, affordability, and sustainability. While many strategies may address one or two of these factors – perhaps even three – distributed energy resources uniquely check all four boxes. After Hurricane Beryl, Texans, including policymakers, were left questioning how such a disaster could happen again, especially so soon after Winter Storm Uri. The pain, suffering, and even loss of life were profound and, tragically, avoidable.

My guest this week is Arushi Sharma Frank. Arushi is one of the smartest people on energy and energy policy, with a particularly deep expertise in distributed energy resources and virtual power plants. She brings a holistic view of energy systems, energy law, and how distributed solutions fit in with the whole.

Arushi is the founder of Luminary Strategies, a DC-based firm advising US and international electric service companies and energy system technology providers. Beyond her national work, Arushi has deep ties to Texas over several energy career positions. She led Tesla's strategic market entry in Texas, when the company launched its first  US wholesale and retail energy businesses here from 2020 to 2024. She pioneered various ERCOT frameworks for grid integrated virtual power plants and Tesla Megapack. And she was a key architect in the creation of the PUC’s Texas ADER or Aggregated Distributed Energy Resource pilot in her former role as Task Force Vice Chair. 

In this episode, Arushi and I explored the rapidly changing landscape of energy storage and its impact on the ERCOT grid. We dove into the nuances of regulatory work and discussed how to meet the resiliency challenges caused by severe storms. Arushi shared her thoughts on how different regulatory structures shape the deployment of distributed solar and energy solutions. And we also got into the expanding role of community solar and storage. 

I hope you enjoy the episode. Timestamps, show notes, details on events where you can find Arushi this fall, and the transcript are below.

Please don’t forget to like, share, subscribe, and leave a five-star review wherever you get your podcasts.

The Texas Energy and Power Newsletter is a reader-supported publication. To receive new posts and support my work, consider becoming a free or paid subscriber.

Timestamps

3:00 - Arushi’s background and her connection to Texas

6:00 - Arushi’s mindset for working in regulatory spaces

10:00 - How is storage changing the dynamic in the ERCOT grid

14:00 - CenterPoint’s response to Beryl; Storm Protection Plans and cross state comparisons

21:00 - Vertically integrated utilities vs competitive energy-only market and their relationship to distributed storage and energy being deployed

25:30 - Purpose of different plans and their different goals; importance of integrated, grid modernization and distribution infrastructure investment plans

34:00 - Continuity of service and passive survivability; top priorities in disaster planning

37:30 - How mobile solar and batteries are being implemented as resilience solutions in other places in the US

40:20 - Community solar and storage; retail wheeling; PUNs

44:00 - Effectiveness of solar plus storage vs diesel or gas generator backups

48:30 - Texas Power Promise and the efficacy of requiring a mix of solar, storage, and natural gas for microgrids

52:00 - Economic value of resilience and the work of Texas’ ADER Task Force

58:00 - Texas is way behind on DERs but there is hope; how underinvestment in distribution grids can be overcome

Show Notes

ADER filing from Arushi Sharma Frank

Craig Moreau, Chief of Emergency Management and Homeland Security, Fayette County, speaking at Clean Energy States Alliance, speaking on his experience with mobile resilient power systems.

Teaching Substack:

Luminary Strategies Substack:

Luminary Strategies: Powering Everywhere with DERs Newsletter; Powering Texas with DERs Newsletter 

@ArushiSF on Twitter / X 

Places Arushi will be speaking this fall: 

Houston Energy & Climate Week 2024 - Sponsored by Greentown Labs: Climatetech Innovation Festival (September 11, 2024 9:30a - Register Here).  

Houston Energy & Climate Week 2024 - Sponsored by Abundance Institute, Edge Zero:  Cleantech Office Hours: VPPs & Distribution Grids (September 11, 2 pm, Register Here). 

University of Texas: Kay Bailey Hutchinson Energy Center: Power Up Series, Seminar 1, Behind the Scenes at ERCOT, Sept. 17, 2024, Register Here (UT Students).  

New York Climate Week 2024 -  Sponsored by EcoSuite and Mission:Data: Overcoming Clean Energy Friction September 26, 2024 5 pm - Request to Join Here.) 

DERVOS 2024:

Thanks for reading The Texas Energy and Power Newsletter! This post is public so feel free to share it.

Transcript:

Doug Lewin

Arushi Sharma Frank, welcome to the Energy Capital Podcast. So great to have you. 

Arushi Sharma Frank

Thank you, thrilled to be here.

Doug Lewin

We've been talking about this for a while. Glad we made it happen. You have such a great perspective on the things going on in Texas. You've been deeply involved in a lot of the good things happening in Texas. Why don't we just start, just share with our audience just briefly, if you would, kind of who you are, background, your career, your work in advocacy, and specifically the connection to Texas.

Arushi Sharma Frank

Yeah, absolutely. So I started my energy career right out of law school, actually during law school at the American Gas Association (AGA) in Washington, DC. And one of the most important and fabulous elements of starting your energy career in a trade association is that instead of inheriting the knowledge base for one company, you inherit the capacity from that experience of learning a whole system. You learn the production, the distribution, the transmission, the rate design, the cost recovery, the safety, the regulation, all of those aspects. And doing so for instead of one or two companies, but for a couple hundred companies. It really opens your mind and it opened my mind to be very intentional about having a diverse career so that I could be the best at anything I could possibly do to create sustainable and positive change and innovation for our industry. 

So I've been coming to Texas since that job. I was in charge at AGA among other things for creating the Knowledge Center and DC, Washington DC advocacy platform for responsible horizontal drilling and hydraulic fracturing, which are the two technologies that enabled the shale gas boom. And I started coming to Texas at that point. Spent a lot of time in Fort Worth, Dallas, and moving on in my career, moving from representing gas utilities to the IPPs, the independent power producers, the generators. And then going in-house to Exelon. This is before the spin-off in 2016 to 2019. And working very directly with generation operations providers. So the folks who actually operate the nuclear and the conventional thermal power fleet, the folks who actually are out there on the wind operation sites, the folks trying to figure out net power in Texas. I'm actually the person that filed Net Power's, power generation company, filing at the PUC. It's my name on the bottom. So I've got a weird connection to a lot of things in Texas. 

All of that really set me up for the job that I most recently did before starting my own firm. And that was to create an energy advocacy presence for Tesla when they moved their headquarters to Texas in 2020. So that's the cycle. And it's taken me through what I like to call the chakra of energy systems. And all the advocacy work that goes on top of that is very, very much fundamentally grounded in figuring out, these are the first principles of how the technologies work in our life. How do you build the solutions on top of them that enable us to get the best value out of them?

Doug Lewin

So your work at Tesla, when we'll talk about this in the course of the conversation, led to some really groundbreaking work at the PUC with the Aggregated Distributed Energy Resource Task Force. So we'll get into that. You and Tesla really played a very leading role there along with a lot of other folks in the market.

But before we get into those kinds of details, I just want to kind of start though with a little bit of what sort of forms your mindset as an advocate when you come into these kinds of regulatory spaces. You have all these different competing interests. You have sort of an asymmetry of information and there's so much going on. What sort of shapes your approach? I think you've had a lot of success and I know a lot of people that are listening to this are folks that, in many cases, young professionals are wanting to learn more about these arenas, which are so challenging and tricky. So yeah, talk a little bit about your mindset entering those spaces.

Arushi Sharma Frank

So I guess the first thing I tell both the students I work with now and the mentees I've had over the years is success in an energy career comes from being able to take integrated problem solving or integrated thinking from whatever it is that you do in your life and applying it in the context of energy. And for me, that's been music and dance. Both of them are things that I've grown up with or are part of my family. And when I think of energy advocacy, I've always thought of it as orchestrating. Orchestrating various instruments, which if you put them together and they don't quite sound right, there are ways to fine tune and refine each one. Each one has its own timbre, each one has its own tenor, it has its own purpose, and they all fit together. You don't take the oboe out just because the oboe is a little too loud. You modulate the oboe and you might introduce a different second string. 

And the same goes with how we speak in energy. One of the things that's helped me be successful in how I communicate advocacy needs and transition needs and transformation needs is to think about speaking not at your audience, but with your audience. That's a skill that I learned growing up and even today as a classically trained dancer. When you do a performance in dance, your job is not to go and dance at your audience and just do something abstract and then they just kind of stare at you and wonder what you said or what you did. It's to be able to communicate. It's expressive and it invites the return and the engagement from the perspective and also the feeling that the audience gets from what you're saying. 

That's really important to me because I get asked all the time, like, well, how could you have had a role at a company like Tesla and also have represented the gas industry? And I just stare at people for a moment and I say, well, do you remember what our country was primarily powered on in 2011 and what the natural gas evolution did for us? And what it did for us was the transition from coal.

And now we're in a system where we have hurtled through coal retirements, primarily on the backs of the abundant natural gas resource in the United States. And the same sorts of logical, economic, integrated, problem-solving tools have to be used in how we communicate the next goal, the next objective, without losing sight of the journey we've already been on. So in that way, whether it's music or dance or it's just, you know, reading or it's math or it's you doing your garden outside. Like if you plant hostas, you're going to plant something else next to them. They're going to have to live together. You have to design your strategy for how you speak, think, write, advocate for change and for reform, really. To make everything more efficient, everything a little bit better. And in none of those conversations is should your goal ever be to try and shut everyone else down. If that's your goal, you're not going to succeed.

Doug Lewin

Right. I really like this metaphor of the orchestra. I know, for instance, the Texas Advanced Energy Business Alliance, a good trade group focused on Texas grid matters, uses that a lot to talk about these different resources and how they all work together. And we obviously do have a lot of gas on the ERCOT system.  And part of what's happening right now is trying to figure out with these newer resources like storage. Where do they really excel? Where do they play a role? And in some cases, it'll displace technologies and in some cases, it'll complement technologies. Do you want to talk a little bit about that? You obviously spent a lot of time working on storage. Where do you see storage really sort of changing the dynamic in ERCOT? And if you would talk both about the utility scale, the really big stuff, but also the smaller stuff.

Arushi Sharma Frank

You know, one thing that we will get absolutely in the next few years because of the falling cost of storage generally, the availability of the IRA ITC incentives, you know, residential batteries in particular, and even small C&I batteries. I think they're going to be sort of the foundation for the growth that we thought was coming a few years ago and didn't quite get as fast enough, but it was really faster.

And I say that because for all front-of-the-meter technologies, whether it's storage or whether it's new gas fired plants, renewables, et cetera. Transmission and large interconnection infrastructure. So load site connection of the system. Just what do you need to sustain large loads and large generation? All of that is very costly right now and it's taking a long time to get things out of the queue. So what's going to happen in the meantime is that storage as the cost goes down, my view it truly is that just how when we have something new in our lives like a value proposition and we want to capture it as quickly as possible, we'll capture it as quickly as possible by investing on it on the distribution system. Whether that's going to be community microgrids powered with batteries, whether it is the next evolution of standby generation for hurricane resistant resilience, which is already happening, right? We're going to talk about it. Or whether it's residential backup. Batteries are clearly very useful. It's about where they're going to show up first and next. 

On the front of the meter side, one of the things that's going to impact battery investment in Texas in general, of course, is real-time co-optimization, right? The streamlining of the day-ahead market with the real-time energy market, which creates a ton of liquidity. And we all know that when there's more liquidity, we get closer and closer to perfect competition, which means that there are less opportunities for consumer and producer surplus, and there's less deadweight loss. And that means that there's less profit for any one entity. So liquidity will change how people think about batteries, how they build batteries, the duration, the location, etc. But all of that is going to be preceded absolutely by more lower-cost storage resources showing up on the system where it's easier for them to show up faster. 

And that's clear everywhere, that it is easier for me to go out right now and take some of my kids college fund and put it on a couple of battery purchases, right, than it is for me to wait to see if my utility service might improve in six years. The thing is that most people can't do that yet. But that's the thing that needs to change and I think it will change. I think there's going to be massive investment in community resiliency with storage, whether it comes from incenting individuals to procure those resources or whether it's creating community microgrids with smaller size batteries that are distribution connected.

Doug Lewin

Yeah, we're going to dive even deeper into this as we go through because while you're obviously right, there will be these batteries showing up as like you said, the capital for people to invest isn't always there, isn't always prioritized. And so we are seeing right now a lot more of the large batteries, the utility scale batteries than we are distributed. I think we're up to seven or eight gigawatts of the front of the meter, the large scale sort of utility scale storage versus I think we're at somewhere like 500 megawatts or something like that. Correct me if I'm wrong, but something like that, behind-the-meter. 

But I do think and what I want to talk about next is that the, you know, Hurricane Beryl response and just what a horrible and devastating and tragic and unfortunately in a lot of cases deadly, sort of lack of, you know, restoration, the long time it took to get power restored was yet another traumatic experience for the Houston area. And I think it is going to drive a lot more investment in storage and backup generators of all different kinds, which you get, of course, when you have storage, particularly if it's coupled with solar, is the ability to use it throughout the year and in recovery.

So let me turn this into a question. Let's actually just start with, we'll get into storage and all that, but let's just start with CenterPoint's response. You've been in the industry for a long time. What are sort of your major takeaways from the response and from the plan and what you've heard from them about where they're looking to improve?

Arushi Sharma Frank

So I guess the first thing I'll say is that these sorts of improvements really take a long time. And that's not an opinion. That is straight fact from how we have seen utilities who have experienced, that have experienced similar hurricane specific crises. Their journey of improvement is not a couple months. What will be a couple months is the initial phase of what is called in a science experiment, your first hypothesis that these initial things that we'll do, we think will give us these particular short-term returns to solve the most immediate crisis. And along the way, we'll learn a bunch of other things and we'll talk to our communities and our first responders. And then we'll realize that maybe some of the things that they thought were going to help them aren't really there. And so we need to substitute and we need to go back and need to pivot. 

I'll give you an example of this. So Florida and Puerto Rico are great examples of where between hurricanes, a lot happened over a fairly long period of time to create better outcomes on total numbers of outage failures, total numbers of downed wires, poles, et cetera. But it took years in between those things to kind of create the metrics, implement the metrics, actually start doing the preventative maintenance and then be ready and then be able to kind of benchmark what we did with the second hurricane versus the first one. 

I'll give you an example of this. So with Florida, it was Hurricane Wilma in 2005. And then they had benchmarked the performance to respond to Irma against Wilma. And Irma was in 2017. In 2016/2017, that time period, the Florida regulators started requiring FPL, at that point, to start filing storm protection plans. And they are to be filed as SPPs on a minimum of a three year cycle. And in those SPPs, the utilities are required to continually benchmark its performance in subsequent weather events prior events among other things. And in similar support…

Doug Lewin

Arushi, SPP is like a performance plan or what's that? 

Arushi Sharma Frank

It's a Storm Prevention Plan. 

Doug Lewin

Thank you, okay.

Arushi Sharma Frank

And so SPPs or Storm Protection Plans. Sorry, rewind, rewind. It would be nice as prevention, but it's really protection, right? It's mitigation and resilience.

Doug Lewin

We can't really prevent the storm. We could protect against the impacts of it.

Arushi Sharma Frank

That's mine and everyone else in the world's wish that we could just stop these dark rings. But all we can do is do our best to recover from them. 

And so actually, the most recent FPL storm protection plan was actually filed in November 14, 2022, which covers the next decade. So the point of these plans is that you file them on a cycle and then they cover a period on that cycle. There's another, a couple examples like this that I had for you… 

Doug Lewin

And yeah as you're looking that up, what you were saying there is really interesting. They're benchmarking them against a previous storm. In your experience, that isn't happening in Texas. That is happening in Florida, but not in Texas.

Arushi Sharma Frank

Correct. Yes. I haven't seen a storm to storm benchmark from a public utility program, a commission program of any kind. Certainly internally you have to have some way of understanding where your money's going.

Doug Lewin

Well, and I did see, yeah, I saw a comparison they did to Ike, which was 2008. But I think the key here is, and tell me if I'm getting this wrong, in Florida, they're not just benchmarking and doing these performance metrics. They're actually signaling to the utility that your ability to earn, right, is going to be based on. There's at least an upside. I don't know if they do a downside in Florida, right? But if they're actually more successful, they actually see their profits go up. Is that correct?

Arushi Sharma Frank

Yeah, I mean, because at the end of the day, if you're going to be filing in your revenue requirement for CapEx upgrades to your T&D system, and on the other side, you have a very detailed filing that goes, and I'm looking at the FPL requirements. They have to cover, and this is going to go to the integrated concepts that we keep talking about. They have to cover distribution and transmission inspections, feeder and lateral hardening for the distribution system, vegetation management for T&D, and substation storm surge and flood mitigation. 

So in one area, in one filing, one reporting structure, you have to be able to show the least cost, highest value investment of your CapEx. So it's an accountability metric. And I know there's been a lot in the news about PBR, performance-based rate making is a tool to do that. But I think one of the points of doing this sort of benchmarking work is to understand that like, you can drive really smart investment strategies tomorrow. You don't need to create a brand new rate design to see immediate results in terms of how utilities as planners are looking at where they spend their money today, where the marginal dollar should go tomorrow, and what work have they done in the middle to understand the opportunity cost of where they spent that dollar. 

And we'll talk about it a little bit more, but the concept I'm getting to there, the thing that Florida now does, FPL does, as an outgrowth of having this storm prevention plan requirement is integrated system planning. TND being studied together, impact of TND on G being studied together. And it's to the very point that modernization and resiliency, all of the things you hear about in the news that are happening at various utilities, that they happen in a system now that is being increasingly recognized as the only true way to understand accountability around where the next rate payer dollar is set.

Doug Lewin

Yeah. So, and just to, we do like to make sure that this podcast is accessible to folks that aren't as familiar with some of the terms. When Arushi is saying T it's transmission, D is distribution, G is generation. So obviously this is an important distinction actually right between Florida and Texas. So the T&D in both places, fully regulated monopoly. The G generation in Texas, is a competitive function. And this is where some of these problems have come in. And the hearings that have happened post-Beryl and a lot of the press coverage has been around the, and it's a podcast, you can't see my fingers, but I'm doing air quotes, mobile generators that CenterPoint leased for $800 million. And I think what we're looking at when we're talking earlier about distributed energy resources and storage that people are going to purchase at their places. It seems like it should be more straightforward in Texas. This is where Florida has done some really good things on the system hardening side, making the polls more resilient and things like that. Where I still think Florida probably lags and Texas has a chance to go past them is really empowering consumers to have that generation at their premises. 

A lot of the legislators at the hearings post-Beryl were talking about emails and texts and phone calls they got from, for instance, restaurant owners in their district that are like, hey, I can't be out for a week. You know, this is killing my business. So CenterPoint's role should be not to, in my, this is my view and you feel free to push back or react or go a different direction or whatever you want. But my view is rather than spending $800 million on a lease for these great big generators, they should be doing what they can to empower and help their consumers, their customers, interconnect to the grid. And this is another place where a performance metric could be put into place, right? What is the speed to interconnection, right? What are you doing to help those restaurant owners that can't have a week's long outage get the generation they need on site? 

That's something that isn't really going to, that could happen in Florida, but because it's an integrated utility and they do generation, it's going to be harder there, I think, than in Texas where you have that split up and the utility really should be focused on transmission and distribution, not on quote unquote mobile generation. You want to just react to that?

Arushi Sharma Frank

Yeah, well, so just, okay, so trying to not get too wonky too fast. Most of the places in the US, barring Texas more recently where distributed storage in particular has been assigned the highest value stack that it's actually capable of providing to the system as generation, as a non-wire solution, as a greenhouse gas solution, as a home resiliency solution, is actually vertically integrated utilities. It is not a market like Texas, period.

The first place in the country that had a resiliency program predicated on the utility giving out an incentive that covered the entire upfront process of the battery, a bring-your-own device program and or leasing that battery from the utility system was Green Mountain Power in Vermont. It's a vertically regulated company.

Doug Lewin

Right.

Arushi Sharma Frank

So no, actually, I'm going to completely turn your statement on its head there, because what we're getting to is what we know is the most critical piece of distributed device aggregation and where those aggregations should sit. And we know storage in particular and in generation in particular. It has more value the closer it is to load. So a lot of the natural integrated value tools that are available to an FPL or to a GMP or a PG&E or SDG&E, those tools are naturally there because there's one entity in charge of the value proposition and the avoided cost proposition of that resource in multiple uses. I’ve actually written about this, I've got a great LinkedIn article we can stick in there about an old RMI pie that shows the storage pie. 

Now take that to Texas for a minute and think about what that means here. All that means is that in Texas, the VOLL, the value of lost load, value of what a home battery means and what it's worth to a Texan right now. If it's a commercial entity, how much money that business loses because they can't serve customers for the week. All it means is that we need to acknowledge that financially the owners of the responsibility of giving that residential backup and resiliency daily day-to-day resiliency tool. It's full value stack. They're split entities. They have to work together. And an example of that where they can and they will work together is indeed actually a CenterPoint filing.

So in the case of CenterPoint, for example, distribution rates, that's a separate entire section, in a separate entire proceeding, It's the distribution cost recovery factor filing. The battery pilot program is an energy efficiency cost recovery filing. Then you have the mobile generation, which is enabled as a cost recovery mechanism under 39.918, which is the TEEF generation program enabled by that statute that's existed since the last legislative session. And then you have, hold it, hold for it, then you have the resiliency plan from CenterPoint. That's in a separate place.

What you don't have yet is a grid modernization plan or distribution investment plan. Both of those are also two other types of filings that are either being required and mandated in other states or they're being voluntarily proposed and filed by utilities as a place to kind of marry all of these value sets and bring them together. 

Doug Lewin

So you said there are two different kinds of plans that don't happen in Texas, but happen in other places, right? One was like, is it a distribution resource plan? Is that what you said? 

Arushi Sharma Frank

No, it's called a, let me give you the exact word, a distribution infrastructure investment plan.

Doug Lewin

Okay. So yeah, I mean, that could be a distribution resource. Basically, you're looking at the distribution system and you're trying to figure out where the biggest bang for the buck for a particular objective is going to be. And I think that it is really important, and I'm interested in your experience on this in other jurisdictions, to have that be at least a somewhat, if not a very open process. Because the utility is a monopoly. You need to have other entities. You know, it's been said several times again in these hearings post-Beryl, Chair Gleeson from the PUC will say, Hey, you know, it's a monopoly. The role of the regulator is to kind of simulate competition. Well, sometimes you can not only simulate it, you can actually say, ‘Hey, monopoly utility. There's actually a business entity that can provide better.’ Again, I think not to fixate too much on mobile generation, though it's kind of top of mind because it was $800 million. That’s a lot of money that could have done a lot of good. There's probably competitive providers that could have done that better. So distribution resource plan. I think that one is really key. What was the other one? You said there was another one done..

Arushi Sharma Frank

Yeah, that one is actually the grid modernization plans, right? And so the reason that these plans are all different with different types of names is because they're doing different things. And the reason for a specific type of plan to be required to be filed is typically a goal. Now, in one state, that goal might be we don't want to deprive our low income community residents of the chance to have electric vehicles. So what do we need to do? 

We need to ask the utility in this case to file the distribution infrastructure investment plan with a view to reallocate some of those transformer upgrade related rebates specifically to feeders on which we're going to have low income population members who would absolutely benefit from a couple of fast charging stations and benefit from having electric vehicles, either fleet vehicles or vehicles in their home that they can buy and be able to charge in their home circuits. So that's a natural goal. So that's a gold tide plan. 

The other kind, the Storm Protection Plan, that's of course a benchmarking plan. That one is, you're asked to file because the utility regulator wants to see what you're doing everywhere and wants to see that you are making consistent continual performance for every dollar you spend on CapEx on T&D and wants to know where it's going and what it's going to do.

In terms of visibility in other states, there was an omnibus distribution system investment related proceeding in Colorado last year, which may still be ongoing for Xcel. And in that proceeding, basically the reason that they had it is also the reason that Xcel and public documents mentioned we're not sure we really need it. And that was that there were already nine other places where Xcel's distribution system investments were being considered in front of their state regulator and at  least one of the points of an omnibus proceeding around that is to do exactly what the SPP item does in Florida, which is, wait a minute, we'd like to see everywhere that you're spending your cash. And we like to see what that strategy means when you put two and two together and does it actually equal four.

So in that regard, Doug, I guess the other thing to mention is that the distribution system as a place to invest is well recognized and well known as being the place where we historically as utilities in the United States, our system operators have spent the least amount of money. And solving for that has been a priority for state regulatory bodies as a group of peer entities that get together for quite some time. And it mirrors the problem we're seeing at the national stage where we have the same issue with transmission planning.

It almost seems like at this point that it can be NARUC, it can be the White House, it can be the interstate committee of RTOs, and it can be the governors of four states. At the end of the day, if everyone isn't coordinated and moving on the same track, you're not going to get the transmission built as fast as you need it either. Distribution and transmission both, because they suffer from a legacy problem of too much happening in little silos. Getting that integrated problem set and putting it in front of a public audience is pretty darn important. So yeah, I want to see a world where we can see, like, all right, you have this program here that's supposed to incent 3,000 customers having batteries. What's that going to do to the avoided cost of upgrading your distribution system in that area? And then can you take that money that you have avoided spending here and throw it on hardening the fears that go to the homes that suffered the most in Beryl?

Doug Lewin

Absolutely. Absolutely. And that kind of integrated look is so hard to get at because just what you described earlier, you have the DCRF and TCRF and EECRF and a rate case and a resilience plan. I'm forgetting a couple. There's just all these different things going on and it's very hard to have that throughline. 

And this is really where I think that, and maybe we shouldn't call it performance based regulation because people see that as like, you know, 24 point type and capital P capital B capital R. But it's just as simple as saying what end are we trying to achieve and how do we tie profits and compensation to that goal? 

And if you have that then that's a real signal to the utility. And I want to be real clear, I'm often critical of utilities, I'm often critical of ERCOT, I’m often critical of commissioners. I also praise them when they do good things. You mentioned Jason Ryan. I had a podcast interview with him. He's done amazing things as the chair of ADER. It's not that, and this is the post-Bery reaction where you see people in Houston,in some very extreme cases, not many, but in some cases actually threatening line workers and all that. We have to be clear that this isn't personal. These are institutional and structural problems. And this is a for-profit entity that is serving its shareholders. And the key is to align that incentive that will help their shareholders and help the system and their customers. And I think that there's a bit of a mismatch there right now that, again, doesn't have to be the whole massive PBR thing, but just starting with what is the goal. And I think it would be very clear for everybody in Houston right now that reducing the number of outages and the duration of outages is probably going to be as close to a universal goal. Republican, Democrat, independent, you know, race, gender, part of Houston you're in, I think that's going to unite just about everybody at this point. So, is that the way to do that then is to have these kinds of what it's maybe it's a grid modernization docket or something? What in your experience is the best way to actually do that is to have an overarching docket or what’s the mechanics?

Arushi Sharma Frank

I mean, honestly, so the omnibus approach, take it for example, in Colorado would be a great thing to do here. And remember, I mentioned goals and you started just articulating everything in terms of goals as well. 

The obvious goals in the case of just CenterPoint for a moment, continuity of service is goal one. And the other second, the second goal has to be because there has been loss of life, passive survivability. This is a word that's a really important phrase and people don't talk about it enough. 

I'm going to go on a very non-tangent tangent for a second. I was born in New Delhi, moved here when I was very young, but I went to India every year. And I've lived a life of power outages in hot temperatures. Passive survivability means the ability to maintain habitable conditions in the event of heating and cooling losses. What you didn't have in New Delhi was extreme cold events, which you have in Texas, but you have extreme heat. There are natural mechanisms in the home, in the design of the home. And I'm thinking specifically about my great grandmother's house that made it easier for us to survive heat. And it made it easy for her. She passed at nearly 100. She never once complained during an outage when she had no electricity. 

It's because her floors were a composite material, she didn’t have carpets, that generated cool cool temperatures for your body like while you're sitting close to the floor. The furniture was a specific type. The walls had specific you know aerated components that let breezes in and created almost like a natural like circulating like cool air movement through the home. And every single room, even the bathroom, has a ceiling fan that could be operated on a tiny little inverter so you didn't have to have a lot of money to have backup power. You could all go sit in one or two rooms in this house, have a couple of fans on, high powered ones, not like the ones you'll see in the US that are a little more decorative and they tend to not just move as fast, honestly. And small water-based coolers. So these are basically low energy, distributed energy resources almost, but they're part of the mechanism of what you've given people to boost their passive survivability.

So I mean, there's this big market in the US, for example, for portable generators. I was just looking them up before this podcast, and we use them for all sorts of things. Apparently they're on Amazon. And I wonder, like, what is the interim solution right now? Or if you can't get everything done in the next two months, how do you make sure people aren't too hot? How do they survive the next 20 days assuming absolutely nothing can get done in the next month?

That to me seems like number one, number one goal. And then number two, of course, is continuity of service. What was described at the hearings is people just being out for a week and they're losing money, right? They're losing basic, you know, basic needs in their homes and their businesses. 

If passive survivability is goal number one, continuity of service is goal number two, the omnibus proceeding that we're talking about should enable the two month, three month plan for how do you achieve all of those things as fast as possible. And what it means is that there'll be incrementality in the resiliency objectives that you have that are like, okay, these are the things I have to do this month. I can't do all things for DERs this month, but this month I can look around me and realize that first responders in Uri in my own state, responders in Puerto Rico, other towns and cities that have experienced the loss of conventional reciprocating engine generators as backup solutions, they all use cabinets with solar and storage, all of them.

And we'll put a link in your podcast to the experience of the emergency management head in Fayette right outside Houston, who got his first one of these mobile cell storage and solar cabinets from Footprint, I think is the name of the company. And the reason he got it is because his other resources were failing.

Doug Lewin

Meaning diesel generators were not working for him? 

Arushi Sharma Frank

Mhhmmm. And he also describes in the podcast some of the danger issues because he was also trying to use these in the middle of very hot days. And he's had the unfortunate experience of witnessing accidents related to those generators being mishandled or just becoming too hot and a small leak results in something catastrophic. 

So that is an example. It's like in the next month, we want as many standalone mobile instant start, ready for first responders, ready for low voltage interconnection and reenergizing systems, like hovering around like droids in Star Wars as possible. And to be clear, that as a solution set doesn't come from me thinking about it as someone who is like ex-Tesla, nothing to do with it.

The reason that mobile solar and storage has become so popular so quickly in hurricane scenarios is because of Hurricane Maria and because nothing else worked to get people their power. So you had companies coming in and droves just putting these systems all over the island and first responders just having no power in their home, no power at their jobs, no power to power their power tools that they need to go do their jobs.

It literally is the only thing. And it's interesting. And I say this a lot, but a lot of times it takes us as human beings, for whatever reason, a true forcing function crisis for us to think about the next best solution and implement it, even though our attitude around it is like, we have to do this because it's the last resort. No, mobile storage and solar, just because you think it's a last resort is actually the first thing you should have done, because it's the most resilient, most easy, most reliable tool you had in your toolkit to start and did not rely on a third party to do maintenance testing thrice a month so that it would work when you're ready.

Doug Lewin

And basically you're talking about almost like a little bit of a nested strategy, like layers, right? Where you have smaller ones that are mobile and can be moved. And then you've got bigger, that are permanent, but maybe at smaller locations. And then you've got this really big 200 megawatt solar and 285 storage. With the large one, are they able to, because again, you're going to have problems on distribution. You'd have the smaller ones that help with that.

But are you seeing solutions that are basically like community solar and storage where they're maybe not as big as that 200, maybe they're two megawatts or 10 megawatts or something, but closer to where they're needed so that then the restoration can be quicker, right? But here's my question. So I want you to answer that generally, but I'm also specifically interested, can you island those such that if everything else has gone to hell around it and the grid is just not working, whether because of a Uri scenario or Beryl or whatever, that community solar can then power an entire neighborhood?

Arushi Sharma Frank

Yeah, so that's the plan for Australia. We'll have to look up how far it's come, but the community solar storage program in Australia is taking the idea of the whole virtual power plant, you know, mini microgrid, is you, your house, your battery, your solar. And taking that to the community level and investing in that, you know, what I call the CNI or the commercial and industrial scale battery, the two to five megawatt battery and plopping it down on a distribution circuit and building the infrastructure around it to create the community sharing revenue model.

Now, another example of that, which is not necessarily every utility's favorite, but still an important example, is wheeling power inside a private network of wires and exempting the city or the town or the township from the conventional utility regulation model that requires ownership of those wires by the incumbent utility. Retail wheeling, as it's called, is this notion that you are producing power inside your contained microgrid. And yes, you're asking about the ability for that microgrid to operate in parallel with or islanded from the local system. Batteries already enable both of those things. And so going back to the regulatory cook structure, sure, if you want to dig into retail wheeling and cities operating on private wires networks, there are a lot of those projects. Not all of them have a great political rep because obviously they're exempting themselves from utility charges. But we have to find a way to make some version of this work. It doesn't matter if it does.

Doug Lewin

Are those what in Texas we call Private Use Networks or is that different? Is that a PUN? 

Arushi Sharma Frank

Yeah, PUNs are different in the sense that the private use in the private use network, the entity that has the generation and is using it for their own co-located load without a retail meter in the middle. Those entities are usually legally related to each other. They are indeed part of the same LLC network usually. I really don't think there's so many of them where the entity that's getting the load is contracting with a third party that they don't have a business relationship with. But that's a little different from what we're talking about. We're talking about multiple distribution points, right? And then a single generator and somehow all the distribution points are paying for that generation service and the cost of delivering the power through that system.

Doug Lewin

Through a private or it wouldn't necessarily have to be private, but it would be separate from, for instance, like CenterPoint or whatever the utility is, their lines. That's very interesting. And that was, you're saying that was a plan in Australia. So we'll try to track something down and put something in the show notes about that. I definitely want to get smarter on that particular thing. 

Arushi, what I hear all the time from people, you know, well, yeah, this is something I hear a lot about solar and storage. They'll say, well, it can't be as effective as, for instance, a gas generator. I think it's really important people understand that diesel generators have really been problematic in these various storms. This happened again in Beryl. It'll come out more in the coming months as the investigations happen. But again, I hear anecdotally, as with every storm, Uri, that the diesel generators are a problem. They're really hard to maintain. It's hard to get diesel to them. But even the gas generators, which have a better track record, a lot of what I hear is, the solar and storage, you just can't because obviously you're going to get solar 8, 10, 12, whatever hours a day and not 24. You have to make the battery so big that it's not economic. You've obviously worked in this space a long time and have some detailed knowledge about this. I'm curious what you’re reaction to folks who say solar-storage just can’t work because you have to have so much storage to make it work around the clock. 

Arushi Sharma Frank 

Yeah, no, that's not true. But rather than hear it from me, we're going to put a recording of the gentleman who is the head of emergency management in Fayette, who happily talks about his system charging in the eight hour day in Texas in the middle of Uri. So that's middle winter. And we're in summer right now in Texas and his battery system on his mobile solar storage cabinet lasting the whole night. What I think people miss is that how long the battery lasts you is not just contingent on how much charge it is getting from the sun, but what loads are interconnected to it on the other side. So in that sense, the reason you need multiple sizes of diesel or gas generators on a system is because for them, there is this physical limitation where the generator has to be exactly sized pretty much for the load on the other side.

In a battery system, by contrast, what you have is essentially a large drinking tank, if you will. And how fast you drink from the tank is what determines how long it will last. And that's why bought batteries are so modular and can be used for so many applications. So if you're going to size a system for this cabinet that's going to go and power your local community center, you just pop three of those batteries on the floor of the cabinet. You pop eight solar panels on top of the cabinet. There's a big hole in the middle where you put an electrical outlet and hang out and watch, you know, watch your YouTube videos on break in the middle of your emergency service like ships. That's what people need to do. People need places to rest. That's actually what this gentleman from Texas says is like now he uses on non-emergency days. It's actually the mobile cabinet is used as a relief center for the folks who are actually working in his team to go charge their devices, just go sit down and have a place to have some R&R for a few seconds because also able to provide, you know, a fan, like an outlet to just have a fan and get air while you're doing your job. 

And this notion that the battery is going to run out. The reason people have this notion is not just because it just randomly showed up in a gossip trade publication. It’s because most of the media conversation around batteries is thinking about two hour and four hour batteries in ERCOT. And in that context, we're talking about the full availability and the modeled capacity, the nameplate capacity of how long a battery can run in relation to a market design. In the world that we are living in as human beings, as people in our homes and in our businesses and on the road, how long a battery lasts and how you'll size it is not dependent on how quickly you'll run it out. It’s dependent on which loads are absolutely critical to power and how long you want to power those. So always, batteries have always been larger, for example, the Tesla Powerwall, has always been larger in kilowatt than the actual consumption rate that you expect from the home itself. The point of the battery size initially is not to be able to hit 24 hours, it's to be able to have the oomph it needs to restart the AC, the air conditioner. And so we're talking about current at that point.

And now when we put solar with a battery that say has the, what on paper is a two hour duration, that's two hours times whatever the size of the system is. And that's your total kilowatt hours. So if you're home, if you have an average home in Texas and you're still operating on electric resistance heat pump and your whole home day is 32 kilowatt hours. Absolutely, go by the solar panels and the two Tesla Powerwall 2s or the one new Tesla Powerwall 3 or whatever you want, whatever battery system you want, to continuously get yourself those 24 kilowatt hours. But if I'm you, and I probably am in this scenario because we both want to be able to survive an outage, then I am not actually doing the math for one day for everything in my house. I've turned off my pool pump. It's going to be a 15 day outage. I'm sitting in one room with my kids with one fan or one air conditioner on and that battery is going to last me four times as long. And that is exactly what happened during Uri with folks who had batteries. It's exactly what happened during Beryl.

Doug Lewin

Thank you. It's super helpful. And I do think that's exactly what's going on as people are hearing in the news that these batteries are for one or two hours on the grid and forgetting that they can be configured in many different ways. Yeah, I also, I wanted to get your thoughts just very briefly on the Texas Power Promise, which the law stipulates it has to be a mix of solar, storage, and gas. I think it's generally smart because you get some redundancy there and particularly that the bill is focused on critical facilities like nursing homes and fire departments. And you talked earlier about redundancy. So it kind of makes sense to me, but I'm curious if it does to you as well?

Arushi Sharma Frank

Yeah, and redundancy is always a great idea, right? The whole notion of nesting, it's equally applicable for a single resource type as it is for stacking first and backup use cases for any current facility. You just need to know the value, right? So

The value of losing load at a critical facility is $1 million because that facility serves a specific set of functions that are life-saving. And if that entity lost power, we're stuck then you're going to want to put a lot more redundancy at that site. However, if that one site loses power and its job is to do a secondary function that is not a direct life saving fund function, but it's an ancillary service, then maybe instead of having both gas and solar and storage at that site, you only want mobile solar and storage. So if it turns out that your neighbor next door, which actually has people who are suffering from immediate health conditions and have moved out of nursing homes, you want to be able to wheel something from site A to site B.

And to develop that kind of plan while it's great to have, and actually it's critical, of course, to have the legislation that enables a solution. But to make the solution real on the ground in the middle of a health and welfare crisis, you have to have first responders involved to be telling you the best and most important use cases and where they're going to use these things. And that's what gets you to an economic, integrated way of thinking, where it's like, OK, I don't need a gas generator at every one of these sites, but I need them at these four sites. And then I want solar storage at 90% of these sites. And I want 50% of that, all of that, the gas and the mobile, to bring up all stuff, all to be movable and to be able to serve the next critical facility.

Doug Lewin 

Interesting. Yeah, it really does take having that more comprehensive view. We will almost certainly record a part two of this because I have a long list of questions left to ask. For this particular one, let me just ask before we end about the aggregated distributed energy resource task force for which you've been the Vice Chair working along with Jason Ryan at CenterPoint and 18 other folks on, that task force that I think has made a lot of progress. 

I really want to ask about the connection of the ADER task force to these resiliency conversations we've been having today. So mostly what I perceive is going on and tell me if I'm getting this wrong, but it's really been about trying to make sure that DERs can be compensated in the ERCOT market for ancillary services. When you were talking about value stacking earlier, there certainly is value there. And the ADER task force and the pilot project have gone a long way to realizing that layer of the cake, right, the Regulatory Assistance Project, wrote that great paper a long time ago about value stacking of DERs and energy efficiency and the sort of layers of the cake and all the benefits. 

But this is a place where we've got to figure out somehow with ERCOT, with utilities, with the PUC, with the companies providing the solutions, I interviewed Base Power for this podcast, Tesla, the different, there's so many, there's too many to name, all the different providers of the DERs to figure out how do we actually value that resiliency piece, like literally value, like put the financial layer in there to value that resiliency benefit. Is there the potential with the ADER task force and the pilot to do that kind of work or is that round peg square hole? It needs to be done somewhere else and not through that venue.

Arushi Sharma Frank

So, no, it totally has the potential to be that. It will be. And by that, I mean, so first of all, like you mentioned the value of resiliency. The thing is people have started buying residential batteries after Winter Storm Uri in Texas, and they're very expensive. And at that time, it the impetus for even doing this project was like, wait a minute, if everyone's got 10 kilowatts of power on their home because they're worried about the insurance policy day, but it turns out eight of those 10 kilowatts actually monetizable as you know 8 times 2.5 kilowatt hours to be able to actually send power the other direction is crazy that we're not paying customers for that. It's an equity thing because you spend all the money to have power because the system that you're paying to give you power is not giving you power. Right? That's why you spent the money on the batteries. Now that you spend the money, why is it that you can't turn around and get a price signal from the market for what that power is actually worth. It's dispatchable power, right? It's energy. And it's electricity, actually, I should say. 

And the impetus for it comes from this place as like the whole reason for ADER, like truly, is that resiliency acts on the distribution system at a customer home. It has so much value for everybody else. And unless it is seen and it is compensated for and it is measured, there is no way we could be in the world we are today where we have utilities like CenterPoint putting in proposed incentive designs to say, there's a lot of value in these resources. Let's do it. 

And to me, one of the other pieces, like the success of ADER is it's created the first nexus in the competitive areas of Texas in particular for to see batteries they do not own as system planning assets and risks so that they could invest in the distribution system that sits between them, the customer, and ERCOT. The details of the aggregation form, which is like the critical piece of what enables information sharing about how much capacity we're moving back and forth on a distribution theater based on how many of these devices are in that aggregation in that utility area. The whole point of that form, or at least one of the major points of that is to give this ex post facto visibility to a utility. And it can be used as a predictive tool as the size of those assets grow..

So, you mentioned the market compensation piece. To me, that's sort of the obvious piece, but the non-obvious things that are critical with ADER is that in a model where utilities do not own the G, but they're building the D system to accommodate all of this distributed G that's coming. They have not only just the role, but they have a meaningful nexus to get the data, to have the ideas, to have a shared value proposition with the retailers that might be able to cite more batteries, like all of the stuff that comes down to, oh gee, what is the rationale for investing in the utility distribution system? It's absolutely informed by projects like ADER and ADER specifically. And I've talked to retailers who aren't participating in it today who say, you know, even if we're not in service today because the service today is challenging. We'll cover that in a separate podcast as to why and what we need to do about it.  Now there's like an Apple vision where like, a minute, we've never been able to monetize these the way you can monetize a four-meter battery. So, you know, in the future we'll have more incentive to tell our customers like, yeah, we'll loan you a battery. We'll go buy all of these batteries, release them from whatever company and then we'll put it on your premise. And that's actually quite frankly, like that's the model of at least one of the companies you've interviewed on your podcast. And it comes from like early market design in this space in particular it has to and it will solve for multiple problems, including the stuff that's not even utility adjacent, which is just like municipal city permitting and implementing the National Electric Code.

The one thing that really drives my passion for this particular project is that it is so hard for customers to see and understand the 15 barriers between them and them having a cheaper resilient solution in their home. It's not just a market barrier. It's not just interconnection cost. It's a whole life cycle of all of the things that that installer needs to do to get the product in your home. And a lot of it sits in these little fiefdoms of jurisdiction, which are CD and AHA permitting processes. The filing that I made last week in that ADER Task Force docket actually lays out the map.

Doug Lewin

Which we'll link to as well.

Arushi Sharma Frank

Yeah, but like that map to me is the reason the projects like ADER are so important because there's no other place where we actually genuinely advocate and want to open the doors, open the box all the way to understand like this is the holistic set of challenges between more Texans having resiliency and not. It's not one thing, it's 12 things. We have to solve for them as a team.

Doug Lewin

Yep. Yep. Yeah, we've got to be able to break those challenges down into their component parts. And I was on a podcast with some Australians the other day and we were talking about, you know, all the great success in Texas with wind, with solar, with large storage. But when you look at distributed solar and storage, we're actually way behind. Like Australia has a smaller system than ours and like 10 times as much. And much of that comes down to what you're describing as all these… We're not getting all the value to the person who was putting that solar and storage there. We're not layering those, but we certainly are layering costs, right? So it's tilting the scales against it, and that is making our resiliency outcomes worse. So I'll let you respond to that. And anything else, anything I should have asked you that I didn't, this is a great time to add that in. I know there's like, I don't know, 50 more questions we could cover, we'll do it in a part two. But anything for today you want to add before we end?

Arushi Sharma Frank

Yeah, I think The piece, you know, one of the pieces of ADER which I got a excellent appreciation for while was at Tesla working with the TDSPs in that role, is because distribution systems, just because historically we've under invested in them, that doesn't mean that it's a lost cause. And by that I mean, you know, with transmission projects and the different breakouts of RTOs, the fact that ERCOT is an islanded grid and all of that, like, we're very different, like that's cool.

The distribution grids, they're all completely different, but they're all completely the same for the same reasons too. We have two types of feeders in this country. There's networked and there's radial. That's the two configurations. There's two basic transformer types, one phase and three phase. There's two types of service lines, primary and secondary. There are over 3,300 utility operators in the US and each of them has their own original jurisdiction over their distribution system.

So if there's such a high quantity of systems, like the solutions that we're coming up with around the country to harden distribution grids everywhere and to make them ready for the next step, the evolution that I wish for, and I get to say it on this podcast, is that we have to stop looking at distributed energy penetration as eroding utility rate base. That is a big fat no, no.

It should never have been how we got here. I have my own views on solar, as solar by itself on the system. But I have very powerful views on solar and batteries together. And what we're doing is creating not only dispatch ability and resilience, you're creating for the first time, like a consumer resiliency driven reason to actually invest in the piece of the system, the last mile that has been ignored for so long everywhere.

And if we're doing that, we're enabling all of the other things. And so that's also a moment that I realize, and I say it more, is deeply collaborative and driving, hopefully, distribution grid investment towards this place where us putting the $1 in fixing this particular line or upgrading this transformer solves four issues. And one of them is it makes it easier for customers in my jurisdiction to have that battery.

Doug Lewin

That's a great place to leave it. I'm already looking forward to the part two conversation. Arushi, thank you so much for being on the Energy Capital Podcast.

Arushi Sharma Frank

Thank you. I appreciate the opportunity to be my nerdiest self.

Doug Lewin

It's great. A glorious nerd. Yes. Yes. I love nerding out on this stuff. It's great. I appreciate your time and we'll do it again soon. And I'll encourage listeners to drop questions into the comments because we will record another one and we can bring some of those questions into it. Thanks again, Arushi.

Arushi Sharma Frank

Thank you. Take care, Doug.

What steps do we need to take in Texas to foster growth in this important emerging market? To explore this question, there's no one better than John Berger, founder and CEO of Sunnova Energy. Headquartered in Houston, Sunnova is a leader in residential solar, battery storage and energy management technologies across the US John has been in the industry for about 30 years now, and he understands the value proposition and the barriers to renewable energy and distributed generation as well as anybody. 

I really enjoyed this episode and I hope you do too. This episode is for paid subscribers only and only the free preview will be listed publicly on podcast apps. To become a premium subscriber, please visit www.douglewin.com/subscribe

Timestamps

4:03 - Current trends in the power market and how that’s impacting the value of distributed generation and resilience

7:49 - Bull vs bear market; changes in the power market in the past 30 years and demand growth

12:25 - What policy/regulatory changes needed to grow distributed solar

17:11 - Potential for greater competition in distribution and publicly available distribution resource plans, challenges of central planning

23:30 - Why is Texas lagging in distributed generation?

28:17 - A performance mechanism for microgrids

31:06 - Sunnova’s Adaptive Retail Plan with David Energy

33:51 - Virtual Power Plants

36:05 - Benefits of distributed generation and VPPs to consumers; what’s holding back the growth of VPPs

38:52 - How to make solar available and affordable to all 

42:03 - Sunnova’s Project Hestia with the Department of Energy

44:41 - Impact of Inflation Reduction Act investments on the market 

46:57 - Are solar supply chains shifting to the US / North America

50:07 - EVs and EV charging

Show Notes

Sunnova

Sunnova’s Adaptive Retail Plan with David Energy

Critics Say CenterPoint CEO’s “Relationship” Influenced $818M Deal For Generators - Texas Monthly

CenterPoint spent $800M on mobile generators. Where are they post-Hurricane Beryl? - Houston Chronicle

I spoke with Jeff Goodell, the bestselling author of The Heat Will Kill You First: Life and Death on a Scorched Planet, on the dangers of heat waves, especially when in combination with other natural disasters.

Timestamps

4:12 - Physiological impacts of heat and how to stay safe

9:13  - Scale of heat-related deaths and illness

12:28 - What is a Hurricane Katrina of heat and how is heat a threat multiplier

17:58 - Resilience solutions for heat and extreme weather 

23:52 - Maintaining hope in the face of the realities of climate change

32:43 - What will happen to frontline climate communities like Houston as climate change continues to exacerbate extreme heat and other weather conditions

36:51 - Economic costs of natural disasters

41:49 - Need for corporate and political leadership; reimaging how we structure cities and communities; strategies and technologies for mitigation and adaptation

50:08 - Climate denialism and climate nihilism 

56:51 - Recommended reading and Jeff’s future research

Show Notes

The Heat Will Kill You First: Life and Death on a Scorched Planet by Jeff Goodell

Big Coal: The Dirty Secret Behind America's Energy Future by Jeff Goodell

The Water Will Come: Rising Seas, Sinking Cities, and the Remaking of the Civilized World by Jeff Goodell

The Heat Wave Scenario That Keeps Climate Scientists Up at Night - New York Times Op-Ed by Jeff Goodell

Obama Takes on Climate Change: The Rolling Stone Interview with Jeff Goodell

Beryl was the weakest a hurricane could be. Why does it feel like Houston isn't the same? Article from Sarah Smith, Houston Chronicle

Heat-related mortality in Europe during the summer of 2022 - Nature Magazine

In the wake of Hurricane Beryl, after millions of Houstonians lost power and at least 36 people died, many of them because they didn’t have AC in the heat following the storm, Texans were once again left with many of the same questions we’ve been asking for the past decade. How do we make sure that the power stays on when a storm hits or disaster strikes? How can our state, rich in all its energy resources, have its electric grid so badly pummeled by a Category 1 storm? When we are faced with the next storm, hurricane, or cold snap, how will we make sure things are different? How can we keep critical facilities powered, vulnerable residents safe, and generally ensure a reliable and resilient grid? 

For CenterPoint, the utility serving most of the Houston area, the response so far has been a plan to purchase additional generators. This approach has been met with considerable skepticism, given that CenterPoint had already spent $800 million on generators that proved unusable during Beryl — a cost that continues to be borne by their customers.

However, there are alternative solutions that can enhance community resilience without breaking the bank. One of the most promising is microgrids. Microgrids consist of interconnected resources like solar panels, gas generators, and batteries that connect directly to homes, facilities, and other sites, allowing them to operate independently from the main grid. Microgrids have been deployed across the state, including in Houston, and customers with microgrids during Beryl had drastically different experiences than others in the city and the region.

To learn more about microgrids, and understand how they can help save lives and maintain stability in future storms, I spoke to Allan Schurr, the COO of Enchanted Rock, which has been deploying microgrids for almost 20 years. 100% of Enchanted Rock’s microgrids that were tasked with providing power during the Beryl aftermath were able to do so, including their microgrids at H-E-B stores and distribution centers, which helped ensure many Texans had access to air conditioning, food, and supplies. 

Allan and I dug in how Enchanted Rock’s microgrids work and what types of customers are currently served by them. We talked about how microgrids can and should be deployed at nursing homes, hospitals and other critical facilities; why the company chose to switch to natural gas generators instead of diesel fuel; the impact of state legislation on microgrid deployment; and how utilities can make it easier for all types of customers to get microgrids. 

This one is part of a larger series I am doing on the aftermath of Hurricane Beryl focused on microgrids. In the next few weeks, we’ll be releasing short episodes (like this one) interviewing folks working on solar microgrids and storage, understanding the impact of natural disasters on marginalized communities, the importance of DERs, and more.

Thank you for being a listener and don’t forget to like, share, and leave a five star review wherever you listen to podcasts.

Timestamps

3:48 - How Enchanted Rock got started

6:14 - What is a microgrid? How does it work?

9:12 - Enchanted Rock’s partnership with H-E-B and benefits to the community

12:14 - Nursing homes

13:07 - Other types of clients that benefit from microgrids

14:44 -Generators vs microgrid and Texas Energy Fund legislation for microgrids

22:04 - Benefits of microgrids to the overall grid; microgrids as part of Virtual Power Plants

26:03 - Winter Storm Uri and Enchanted Rock

28:45 - Accessing gas for microgrids during severe winter weather or storms

31:15 - Can you have resilience without microgrids?

33:53 - How can utilities make it easier for customers to get microgrids

35:42 - Enchanted Rock’s Bridge-to-Grid program and microgrids at data centers

Show Notes

Enchanted Rock

Enchanted Rock’s Bridge-to-Grid program

What’s in a name? Preparing for long-duration outages from “anonymous” storms by Allan Schurr

Houston’s post-Beryl outages highlight benefits of distributed energy from Canary Media

After Hurricane Beryl, Microgrid-Equipped Grocery Stores and Homes Weathered Outages for More Than a Week in Houston from Microgrid Knowledge

CenterPoint spent $800M on mobile generators. Where are they post-Hurricane Beryl? - from the Houston Chronicle

During Winter Storm Heather this past year, battery storage reduced power costs in Texas by $750 million. This finding was only one of many in a report released by Aurora Energy Research this May, “The Role of Battery Energy Storage Systems in the ERCOT Market.”  The report is one of the most in-depth analyses to date on the impact of battery storage, which has grown exponentially in Texas over the past decade, even surpassing growth in markets with major battery subsidies. 

In today’s episode, I’m joined by Olivier Beaufils, one of the report’s primary authors and the lead of the ERCOT Market team at Aurora Energy Research, a company focused on providing power market forecasting and analytics for energy markets around the world.

Olivier was gracious enough to go through the key takeaways of the report and break down its findings with me. We discussed how the study calculated system’s savings during Heather, whether these types of savings can be expected in the future, how batteries are pairing with natural gas and renewables in the ERCOT market, the potential of long-duration energy storage, and more. Olivier also detailed what happened in Texas on September 6th – wherein ERCOT called an Energy Emergency Alert level 2, the first time it did that since Winter Storm Uri – and how batteries kept the system running and Texans’ lights on.

We recorded this episode prior to Hurricane Beryl's impact on Texas. While we don’t discuss its specific impacts and aftermath here, we are preparing a series of episodes in the coming weeks that will focus on Hurricane Beryl, its effect on Houston, and strategies for improving Texas’s resilience against future hurricanes and extreme weather events. Despite not directly addressing Beryl, this episode remains pertinent to these conversations, particularly as home battery storage systems are crucial tools for community safety and resilience.

I learned a lot from this report and from the conversation. After listening, I encourage you to take a look at the report as well; it is free and publicly available. Thank you for being a listener and don’t forget to like, share, and leave a five star review wherever you listen to podcasts.

Timestamps

3:17 - About Aurora Energy Research

4:25 - Summary and key takeaways from Aurora’s Battery Energy Storage Systems in the ERCOT Market report

9:02 - Pace in battery storage growth: what spurred it

12:18 - How Aurora calculated battery savings during Winter Storm Heather and if this level of savings is typical

17:57 - Batteries as ancillary services 

21:55 - Shift in scarcity hours in TX, the duck curve, and how batteries are helping solve peak demand challenges

28:09 - Findings on peaker plants, natural gas, and the need for flexible resources

33:05 - Demand growth

37:42 - What happened on September 6th and how batteries kept the system running

41:23 - Long duration energy storage

Show Notes:

Aurora Energy Research

Role of Battery Energy Storage Systems (BESS) in the ERCOT Market - report from Aurora Energy Research

Energy Unplugged Podcast from Aurora Energy Research

I speak to energy experts from all facets of the energy industry and the one thing that keeps coming through in these conversations these days is the need for better planning to deal with rising load growth, extreme weather, higher costs and emissions. As I think about these problems, I try to think of people who I can learn from and that will help my audience understand these issues as well.

My guest on the podcast this week, Hala Ballouz, has as much experience with these challenges as anyone I know. She's the president and CEO of Electric Power Engineers (EPE), and she's built a rapidly growing team of over 200 power system engineers and energy professionals with a singular focus, holistically forming the electric grid to enable a resilient, affordable, and carbon-free energy future. 

Hala envisions a future grid that is decentralized, incorporating microgrids, distributed generation, demand response, grid edge technologies, all enabling consumers to participate in energy markets and contribute to system reliability and resiliency. It's a very compelling and exciting vision and few describe it better than Hala. 

In our conversation, we talked about the need for better planning to integrate large loads and new supply and demand resources on the grid including AI data centers, but also distributed energy resources and electric vehicles, and other grid edge technologies on the demand side. We explore the challenges and opportunities in building a clean and resilient energy grid, highlighting necessary technology and regulatory innovation needed to address congestion and curtailment issues. Hala also underscores something that isn't often talked about in these kinds of conversations. It's not all technology and technocratic fixes. There's also an increasing importance and significance for stakeholder engagement and the need to redefine reliability and resiliency requirements in ways that are meaningful and understandable to the general public. 

I really enjoyed this conversation and I can’t wait to hear your thoughts about it. Don’t forget to check the show notes where we have links to Hala’s writing!

Timestamps

3:48 - Hala’s background, about Electric Power Engineers (EPE), and women in engineering

6:20 - Changes to the ERCOT grid in the past 20 years

9:40 - Expected loads and opportunities for load shifting 

16:11 - What is the grid edge and decentralization of the grid

20:04 - Reimagining the grid, bi-directional power flow, and distributed energy sources (DERs)

23:35 - What are the barriers for tapping into DERs and increasing reliability and the importance of better grid planning

29:27 - Importance of and trends in distribution resource planning, including “8760” analyses

34:46 - Optimizing current transmission and planning for the future

40:25 - Utilities turning down new loads outside the ERCOT market, how to avoid this in Texas, and challenges to central planning

46:47 - Grid enhancing technologies (GETs)

48:23 - Storage as a transmission and distribution asset 

54:09 - Solving transmission congestion

59:01 - Hydrogen

1:00:13 - Existing government policies and regulatory structures that need to change for a reliable, clean grid and the importance of stakeholder engagement

1:03:26 - Hala’s vision for the grid in 5 to 10 years

1:08:13 - The need for strategy to reduce costs and engage ratepayers 

Show Notes

Hala’s Engineering Transition Newsletter

A Thousand Points of Light by Hala Ballouz

Electric Power Engineers (EPE)

Hi All: We initially distributed this episode on Wednesday. Unfortunately, due to technical issues with Substack, some of our subscribers did not receive it. If you've already downloaded the episode, there's no need to do so again. For those who have yet to receive it, we apologize for the delay and hope you enjoy the episode.To understand what's happening, you have to know how you got there. You need a sense of the history. That's one of the reasons I've enjoyed interviewing past Commissioners and Chairs of the Texas Public Utility Commission (PUC). At the Texas Power Podcast, I interviewed Pat Wood and Barry Smitherman, both former PUC Chairs. Here at Energy Capital, the very first episode I hosted Commissioner Will McAdams, who had just stepped down from the PUC a few weeks prior. These episodes remain incredibly valuable for anyone interested in Texas energy.

Today, I have the pleasure of speaking with Becky Klein, who served as a Commissioner on the Public Utility Commission from 2001 to 2002 and as Chair from 2002 to 2004. Her tenure was pivotal as the restructuring of the Texas electricity market, initiated by the legislature in 1999, was being implemented. Becky played a critical role in this transformative period.

After leaving the PUC, she served as both Vice Chair and Chair of the Lower Colorado River Authority, which owns several gigawatts of power plants. She is also an active board member for various water utility and energy companies And if all that isn't enough, Becky founded and serves on the board of the Texas Energy Poverty Research Institute (TEPRI), an organization dedicated to reducing Texans’ energy burden and ensuring energy is accessible and affordable for all Texans.

There are few people better situated to help understand what's happening today, especially as we grapple with rising demand, a rapidly changing resource mix, evolving market design, technology breakthroughs, an affordability crisis, and much more. 

During the episode, Becky shared her past work on Texas energy and regulatory matters and her vision for the future of the Texas grid. We discussed her work with TEPRI and considered the challenges and opportunities in the energy transition to alleviate energy poverty. We also explored strategies for ensuring reliable electricity access, enhancing affordability, and the evolving role of oil and gas within the broader energy landscape.

This podcast is for paid subscribers only and only the free preview will be listed publicly on podcast apps. For details on how to listen to the full episode on your favorite podcast app, please refer to this information from Substack. 

If you like the episode, please don’t forget to recommend, like, and share on Substack, Apple Podcasts, Spotify, or wherever you listen. 

I look forward to hearing your thoughts; don’t hesitate to share them with me and fellow listeners in the comments. Thank you for listening and for being a subscriber! Transcript, show notes, and timestamps are below.

Timestamps

3:02 - Becky’s background

7:26 - How Texas’ market restructuring came to be 

8:49 - The central problems facing the Texas grid and the importance of first principles 

11:58 - What Becky believes are the principles guiding the ERCOT market today 

14:39 - Becky’s views on what caused Winter Storm Uri and how that shapes our energy market and grid goals

17:33 - What would are the most important things we can do to improve reliability and affordability

23:49 - The need for more clean dispatchable or clean firm resources, energy efficiency, and operational flexibility

26:48 - How can the energy transition benefit everyone not just some and the work of the Texas Energy and Poverty Institute (TEPRI)

37:17 - What are the metrics we should use to assess the impact of energy efficiency programs for low-income households; Energy Poverty Index

41:10 - Should Texas reinstate the System Benefit Fund?

45:48 - TEPRI’s new program with the Bransfield Community Development Corporation

48:00 - Current and expected trends in oil and gas during the energy transition

Show Notes

The Texas Energy and Poverty Research Institute (TEPRI)

2024 Community Voices in Energy Survey – Statewide Report from TEPRI

February 2023 Senate Business and Commerce Hearing featuring testimony from former PUC Chair Becky Klein. Her testimony begins at 7:51.

Burden of the global energy price crisis on households. Study published in Nature Energy.

EIA Energy Insecurity Data

To understand what's happening, you have to know how you got there. You need a sense of the history. That's one of the reasons I've enjoyed interviewing past Commissioners and Chairs of the Texas Public Utility Commission (PUC). At the Texas Power Podcast, I interviewed Pat Wood and Barry Smitherman, both former PUC Chairs. Here at Energy Capital, the very first episode I hosted Commissioner Will McAdams, who had just stepped down from the PUC a few weeks prior. These episodes remain incredibly valuable for anyone interested in Texas energy.

Today, I have the pleasure of speaking with Becky Klein, who served as a Commissioner on the Public Utility Commission from 2001 to 2002 and as Chair from 2002 to 2004. Her tenure was pivotal as the restructuring of the Texas electricity market, initiated by the legislature in 1999, was being implemented. Becky played a critical role in this transformative period.

After leaving the PUC, she served as both Vice Chair and Chair of the Lower Colorado River Authority, which owns several gigawatts of power plants. She is also an active board member for various water utility and energy companies And if all that isn't enough, Becky founded and serves on the board of the Texas Energy Poverty Research Institute (TEPRI), an organization dedicated to reducing Texans’ energy burden and ensuring energy is accessible and affordable for all Texans.

There are few people better situated to help understand what's happening today, especially as we grapple with rising demand, a rapidly changing resource mix, evolving market design, technology breakthroughs, an affordability crisis, and much more. 

During the episode, Becky shared her past work on Texas energy and regulatory matters and her vision for the future of the Texas grid. We discussed her work with TEPRI and considered the challenges and opportunities in the energy transition to alleviate energy poverty. We also explored strategies for ensuring reliable electricity access, enhancing affordability, and the evolving role of oil and gas within the broader energy landscape.

This podcast is for paid subscribers only and only the free preview will be listed publicly on podcast apps. For details on how to listen to the full episode on your favorite podcast app, please refer to this information from Substack. 

If you like the episode, please don’t forget to recommend, like, and share on Substack, Apple Podcasts, Spotify, or wherever you listen. 

I look forward to hearing your thoughts; don’t hesitate to share them with me and fellow listeners in the comments. Thank you for listening and for being a subscriber! Transcript, show notes, and timestamps are below.

Timestamps

3:02 - Becky’s background

7:26 - How Texas’ market restructuring came to be 

8:49 - The central problems facing the Texas grid and the importance of first principles 

11:58 - What Becky believes are the principles guiding the ERCOT market today 

14:39 - Becky’s views on what caused Winter Storm Uri and how that shapes our energy market and grid goals

17:33 - What would are the most important things we can do to improve reliability and affordability

23:49 - The need for more clean dispatchable or clean firm resources, energy efficiency, and operational flexibility

26:48 - How can the energy transition benefit everyone not just some and the work of the Texas Energy and Poverty Institute (TEPRI)

37:17 - What are the metrics we should use to assess the impact of energy efficiency programs for low-income households; Energy Poverty Index

41:10 - Should Texas reinstate the System Benefit Fund?

45:48 - TEPRI’s new program with the Bransfield Community Development Corporation

48:00 - Current and expected trends in oil and gas during the energy transition

Show Notes

The Texas Energy and Poverty Research Institute (TEPRI)

2024 Community Voices in Energy Survey – Statewide Report from TEPRI

February 2023 Senate Business and Commerce Hearing featuring testimony from former PUC Chair Becky Klein. Her testimony begins at 7:51.

Burden of the global energy price crisis on households. Study published in Nature Energy.

EIA Energy Insecurity Data

In April, ERCOT's Regional Planning Group published projections that ERCOT's electricity demand may double by 2030 compared to 2021. Initially anticipating a peak demand of about 90 gigawatts by the end of the decade, ERCOT now expects a staggering 152 gigawatts, up from approximately 75 gigawatts at the beginning of the decade. This would mark the largest growth rate in the decade since the post-World War II era. There are many factors driving the surge, but one of the most significant is the rise of Bitcoin mining and AI data centers. The size and speed and scale of AI data center growth that has emerged over the last year has been surprising to say the least, even to close industry observers.

However, one company foresaw this trend and built its business model around addressing data center energy needs. That company is Crusoe and on today’s episode I had the pleasure of speaking with Cully Cavness, Crusoe’s co-founder, President, and Chief Operating Officer. He has a robust background in energy and, along with Chase Lochmiller, founded Crusoe in 2018.

What sets Crusoe apart is their innovative approach to siting and powering data centers. They locate them near oil and gas drilling operations that have a lot of venting and flaring of methane gas. They also site data centers near constrained renewable developments. This means that they are using energy or power that would otherwise be merely wasted and instead converting it into useful electricity to power data centers. With the example of flaring and venting, this can reduce emissions by as much as 70%.

I talked about all of this with Cully and more, including how data centers could be flexible loads, the efficiency of AI chips, reducing emissions through methane flaring. It was a fascinating conversation and I hope you enjoy it.

I look forward to hearing your thoughts on this episode and on geothermal energy. Thank you for listening and for being a subscriber!

Timestamps

2:47 - About Cully and Crusoe

8:47 - Crusoe digital flare mitigation (DFM) strategy and how they are reducing emissions

14:54 - Crusoe’s digital renewables optimization (DRO), negative pricing, and how Crusoe is managing stranded wind power

20:46  - Expected and current loads and load growth from data centers

27:45 - Flexibility of data center demand and AI; training vs. inference functions in AI

37:36 - Opportunities for greater efficiencies in AI chips

40:34 - Trends in carbon accounting; location matching

42:52 - Tally’s Law and the Energy Transition

49:22 - Cully’s thoughts on needed policy/regulation changes for the energy transition

Show Notes

Crusoe Energy 

Crusoe Careers Page

Tally’s Law and the Energy Transition by Cully Cavness 

The Extraction State by Charles Blanchard

AI, Data Centers and Energy, Interview with Michael Terrell - Redefining Energy Podcast

AI is poised to drive 160% increase in data center power demand - Report from Goldman Sachs

Nuclear? Perhaps! - Interview with Jigar Shah on the Volts Podcast

Texas Advanced Nuclear Reactor Working Group at the Texas Public Utility Commission

The Energy Capital Podcast with Former PUC Commissioner Will McAdams

"The Name of the Game is Flexibility," a Conversation with ERCOT's Pablo Vegas

Transcript

Doug Lewin 

Cully Cavness, welcome to the Energy Capital Podcast.

Cully Cavness

Thank you so much for having me.

Doug Lewin

Really looking forward to this conversation. Crusoe is really a fascinating company. You guys are doing some really innovative, interesting, and different things. So why don't we start with you, Cully? Tell us a little bit about your background and about Crusoe. Explain to the audience a little bit who you guys are as a company, if you would.

Cully Cavness

Great. I'm excited to be here and share a little bit about what we're doing at Crusoe, where we came from, where we're going. In terms of my personal background, I grew up in Denver, Colorado. I went to Middlebury College in Vermont to study and I studied geology and economics thinking I was gonna go into oil and gas. But at Middlebury, anybody who's familiar with the school will know that the climate conversation was a huge theme and a huge focus in that student body. And it made a big impact on me.

And so I actually, right after I graduated from college, I was awarded a Thomas Watson Fellowship, which is a program where you're sort of banished from your home country for a year and you get to go study whatever subject you really want to study for that year. And I wanted to think about this sort of morality of energy and the balance between energy and the economy and the environment. And so I was really fortunate to be able to go to Iceland where I worked with a lot of geothermal power and hydro producers. I went to China where I was much closer to coal. And then I went to Spain. I worked with wind and solar developers for the CFO of a large renewables group there. And then I went to Argentina and I worked with a hydroelectric engineer. 

And I got to really see a pretty broad survey of the global energy system, everything from finance to project development and management to engineering and operations. I saw power plants that had broken and were in stages of repair and learned a lot from that experience. 

And from that, I ended up going into the geothermal energy industry. I had a mentor who was the CEO of a company called Global Geothermal, and he took me under his wing. And for the first few years of my career, I was developing geothermal power plants, mostly internationally. And then sort of long story short, I ended up doing an MBA over at Oxford in England and came back to an oil and gas focused investment bank here in Denver. It was sort of the one energy focused investment banking role in Denver, primarily oil and gas clients. And that brought me back into the oil industry. I ended up being a Vice President of Finance for a private equity backed oil and gas company after that. And we were drilling some exploratory oil and gas wells in Eastern Colorado. That was sort of a step out from the core shale play, the Niobrara. We were miles away from the core of the activity. We drilled some wells that ended up being good oil wells, but there was no natural gas pipeline infrastructure in that area. And so the default then is, at least at the time was, all right, if you can't get the gas into a pipe, you put the oil into a truck and you send the truck to the refinery. That's how you sell the oil. And you can't do that with the gas, so you just light it on fire and you burn it. It's called a flare. And I thought that was pretty insane. And I was frankly, I was embarrassed about it. You know, just considering the path that I'd gone through and that I had really wrestled with that intersection of climate and environment on one side, but then the economic and human benefits of energy access on the other.

Wasting the energy the uncombusted methane emissions. I had a big problem with that and I've been you know, I've been playing around with mining Bitcoin as a hobby in my basement and my wife was observing that you know, the there's like hot wind coming out of the basement and our power bill had dribbled and that's also a commercial problem related to energy and an environmental problem related to energy. And the insight was basically maybe one of these problems can solve the other. What if we could package a modular data center that could go to the oil field, actually sit on pad next to a flaring well site, capture that gas that was being flared, turn it into electricity, use the electricity to power the modular data center and basically new way to, we called it the digital pipeline. So a new way to take that gas molecule and convert it into value. The view was that it would be simpler and more cost effective to transport a bit than a molecule or an electron in these stranded gas locations. And that thesis really bore out.

Doug Lewin

This is really interesting. So, you know, you, what you're, what you're describing in Eastern Colorado was obviously a problem all over the place in the oil and gas industry. And obviously this podcast is very focused on Texas. It's a huge problem in the Permian and, a little bit less in the Eagleford though. It's still a problem down there too. There's just a lot more of a gas focus down there, but particularly in the Permian where it's mostly oil and what you're describing, as I understand it, is what is often called associated gas, right? You're really drilling for the oil. That's the valuable product.  Gas, depending on what's going on in the market, when today it's very low, right? 2022 is obviously, it was very high, but over the last six, seven, eight years, it's generally been very low. 

One of my favorite energy books is called Extraction State by Charles Blanchard, a History of Natural Gas in the United States. And he describes for those listeners that are Seinfeld fans, the famous episode of the muffin tops where they start this business. Like everybody only wants the top of the muffin. Nobody wants the bottom of the muffin. So they create this business and just sell muffin tops. And they end up in this huge problem because they can't dispose of all of the bottoms of the muffin that nobody wants. They can't get anybody to haul it away. And Blanchard in his book, Extraction State, likens the associated gas to the bottom of the muffins, the oil to the muffin top. So what you're describing is a very interesting solution to instead of, and you mentioned flaring as a matter of fact, like in Texas, an even bigger problem is the venting. Like people think when they see those flares, that's a problem. And it is, it's actually a bigger problem when you can't see it and it's being vented directly into the atmosphere. 

So what you're doing is trying to use that. Can you talk just a little bit and help me and the audience understand? Because I think for a lot of folks who approach this from a climate perspective, they're going to say, well, wait a minute, but you're still burning gas to power the data centers or the Bitcoin mines or whatever. That's still contributing to emissions. But what is the difference? And you don't have to get into great gory detail, but rough order of magnitude, the difference in the emissions, how much are you reducing emissions by actually using that gas for power rather than flaring or venting it?

Cully Cavness

Yeah, some great questions. On the emissions reduction piece, so if we just compare the status quo, there's a big ball of fire, it's a flare situation, and we come in and we deploy what we call digital flare mitigation. That's what we call our technology. And we reduce that flaring volume. The important thing to know is that flares don't fully burn methane, and there have been a lot of studies on this over the years that have shown that probably 8 or 9% of the methane is escaping to the atmosphere, uncombusted from that flare. And it can vary. I mean, it can be as much as half in a really bad, poorly run flare, and it can be much more efficient, but that's sort of like a reasonable average to think about. And methane is 82 times as potent as CO2 over a 20 year timeframe. So when we talk about mid-century 2050 kind of climate goals, there's an 82 multiplier to take into account there. And our generators get 99.9% combustion of the methane. So dropping that basically to zero, it's absolutely true. We're still emitting CO2 from converting the gas through the combustion process. But by eliminating the methane, it's reducing about two thirds to 70% of the CO2 equivalent emissions compared to status quo flaring. 

The other way to think about that is that, you know, like of all the gas that does get burned into CO2 by the flare, the remaining residual methane is three quarters of the total CO2 equivalent impact of the flare. And so by dealing with that, you're dealing with like the majority of the CO2 equivalent problem, especially for those newer term climate goals, which I really do think about a lot because I think the crux of these climate goals isn't really actually about where do we get to from a parts per million perspective ultimately, like what's the right level in the atmosphere. Often there's a focus on it. We can't go beyond 450 ppm. There was an organization called 350.org that said we shouldn't go beyond 350. 

The bigger issue, I believe from a biodiversity standpoint, is actually the speed at which you get there. Because species just can't adapt fast enough to accommodate some of these faster pathways. And methane is kind of the key culprit in that acceleration and that speed side. So getting it from methane to CO2, it sort of buys time, I call it extending the climate runway. And it gives it literally a couple more decades for species to adapt. And you're moving from a semi-arid environment habitat to an arid habitat. Well, if that happens over the span of 10 years, you might go extinct. If it happens over the span of 100 years, there's a potential for a little bit more adaptation or migration for the species to be stressed but not extinct. 

And, you know, so speed really does matter in that context, which is why methane is kind of like the low-hanging fruit that makes a lot of sense to go for first. It's also something that we can do that's economic. So it turns out there's a virtuous cycle of this does make sense economically. We can provide basically a free solution for flaring that mitigates the methane. It provides us with access to a low-cost energy source that was previously being wasted and valued almost at zero. And there's an economic incentive to do more of that. So today we've deployed more than 200 megawatts of that across seven states, including your state in Texas. I was just in Midland and Hobbs, New Mexico earlier this week. And we've got kind of our fastest growing area of operations is down there in the Permian where there is a big flaring challenge, but hopefully we've got a solution that's going to make a dent in that really quickly. 

You know, I'd also just point out that we're also moving into a lot of renewables based projects as well. So we can talk about that later. And there are other forms of stranded energy that are on the other end of the energy transition where there's an inefficiency that needs to be dealt with and computing in a very interesting way can be the solution there as well.

Doug Lewin

So let's talk about that. But before we do, just really quickly on the, I think this is really important on methane, because I agree with you, the speed at which the climate impacts hit us, our species and other species, and affect biodiversity and all that matters. I think the other piece of that, Cully, too, is that, you know, if you're, if you can reduce the most potent greenhouse gasses, which, which methane is, is certainly in that group, CFCs and things like that go in there too. You're, you're also then, buying time for technological improvements to come along. Right. I mean, and I’m not am you know, I'm anticipating the criticism I'll get and it's, and it's legitimate criticism. I'm not representing some kind of techno optimist like view of this that like oh technology is going to save us. We've got a lot of things we got to do right. But one wedge of the pie is technology. And we have seen tremendous technological advancements in the energy and climate space. Just where we are right now with solar and storage, it would have been very hard to even 10 years ago, imagine the kinds of price declines that we've seen. Some people imagined it, but not many. So I think that that's part of it too, is you've really got to address that most potent piece. And so anything we can do on methane just kind of has an outsized impact. 

So let's do talk about renewables because there's sort of an interesting kind of corollary here, almost like the associated gas part of renewables or the bottom of the muffin, if you will, in that you have times and they're becoming quite common now, particularly in Texas, I'm not as familiar as with other markets, how much we're seeing this, but in Texas, the amount of curtailment and congestion that we see on the system is very, very large and rising very fast as we're not able to keep up with the transmission needs as generation is coming into the market. And so you end up with a lot of times where the renewable energy that is produced is not able to reach any place where it's actually used. So they're literally just curtailing, just shutting down wind or solar power. And it's not just wind or solar, there's actually other kinds of power that can get congested, caught behind a congested node and just not able to be used. 

So if I understand what you guys are doing, similarly what you're doing with the flares, where you're putting a data center next to it and capturing that flare and making a power plant, you can kind of do the same thing near congested nodes where you have a lot of renewable production and actually reduce energy waste and actually use that at the data center. Is that correct? And either correct me if I got something wrong and then maybe give us some more context and details around how that works.

Cully Cavness

Yeah, that's right. So I mentioned we called that first business model DFM, digital flare mitigation. And the second model we call DRO, digital renewables optimization. Meaning you can bring a data center into one of these congested nodes, especially if it's really saturated with wind power where you have this intermittency effect. You can have 20% to 30% of the hours of a year in some nodes, and Texas is a good example, that are negatively priced. So that has a number of interesting knock-on results. One is that older wind farms that don't have the production tax credit… 

Let's back up and say how is something negatively priced? How is there actually a negative price on the grid? What's happening there is there’s so much wind power that the grid can't accept it all. Either there's a transmission constraint or there just simply isn't demand at the end of the lines and so people are effectively having to pay transmission and distribution fees and receive zero revenue because there's no bid for that power. And so you're getting like an all in price that's actually a negative price. And you can do that if you get a rebate from the federal government in the form of the production tax credit. So you could sell for negative one penny if you get two and a half pennies from the federal government, your net price is actually positive one and a half. Those production tax credits expire after about 10 years. If you're an older wind farm, you don't get that anymore. So when the price on the node goes negative, you actually just have to stop producing wind power, which is like the worst outcome from an energy transition perspective. You literally could be producing more renewable power, but for an economic constraint reason, it's just actually being shut off. Even for newer wind farms that are still receiving the production tax credit, this is obviously like a very frustrating problem. And it's like a breakdown in the supply and demand connection in the market. 

So our view again is that bringing energy to the data center isn't always the right answer. Sometimes you should bring the data center to the energy. And that's really our origin story is we've been bringing data centers out to stranded energy locations. This is just another form, frankly, of stranded energy. They're also hard places to operate. They're not your traditional data center markets like in Virginia and around Dallas, and the Pacific Northwest. This is, you know, to again use the Texas example, this is rough West Texas kind of desert territory without a lot of the existing infrastructure. However, if you do it the hard way, there's access to a lot of low-priced clean energy. I believe more in the location-based approach to emissions accounting rather than the market-based approach. The market-based approach would say, I built my data center anywhere, I bought renewable energy credits for all the megawatt hours, and therefore I have zero emissions. The location-based is more like, depending on where you located that load, what actually happened in the physical real world. And if you located in some areas, the answer is you spun up a coal power plant. And if you located in other areas, it's like you absorbed a lot of otherwise curtailed or negatively priced wind power and maybe drew some power from the grid as well but the average emissions of that location-based view leads you to some very different outcomes compared to the market-based approach to carbon accounting.

And so we've really embraced that location-based energy first approach to how and where we locate our data centers. We've got projects going in Iceland, for example, the ultimate stranded renewable energy resource, a place that I spent several months of my life. And they've got gigawatts of potential of geothermal and hydropower and 300,000 people. And what are they going to do with it? When I used to live there, they were talking about running a power line to Scotland. So we're bringing AI training workloads to Iceland, and we're deploying what will be the largest computing cluster in the country of Iceland. And it will be serving AI customers with 100% geothermal and hydropower as another example of how this can work from a location-based standpoint.

Doug Lewin

I do have questions about the location based and sort of some of this move towards 24/7, but before we go there, I just, I want to cover a couple of things that I think are really important to AI. Can you help again, me and the audience kind of understand the magnitude of the AI loads? This is like, obviously it's almost becoming cliche cause every conference you're at, it's all AI all the time. But I think to a certain extent, and this is one of the reasons I was so excited to have you on is, you know, you hear all these things floating around, but there's so many different sources of information. You guys are working on this very directly. Can you talk a little bit about just sort of like what size of data centers you're seeing? And we'll put a link in the show notes. There's a pretty good report a couple of weeks ago by Goldman Sachs, and they talked about 160% increase in data center power demand. I think it's very important when you're thinking about that too, to your point about location, that's not going to be 160% increase everywhere, right? It's going to be concentrated in areas where, you know, like Virginia, that's this well-known kind of data center hub, Iceland, you were just talking about, but Texas, I think will be one of those places too, because of the energy abundance and the general ability to get low cost power, which isn't super easy, but it looks like you guys have a big part of the solution to sort of make that happen. But anyway, talk a little bit about the size of these data center loads and what that means for an energy system. You could talk about it in different places, but in Texas, our peak so far is somewhere around 85,000 megawatts, a little higher. Anyway, yeah, talk a little bit about the size of the load, if you would.

Cully Cavness

Yeah, maybe again zooming back like where's the load coming from? It's interesting to just think about physically what's happening in these AI data centers compared to a traditional data center. So traditionally a data center, you go inside there are racks, racks and racks of servers. And those racks traditionally were like seven kilowatt racks. That was a very standard, maybe 14 kilowatt racks. Those were kind of standard power densities. And the current kind of leading edge GPUs coming out of Nvidia, for example, are really optimal around a 50 to even 100 kilowatt rack. And there are prototypes that are not far off that they're being demonstrated at conferences that are hundreds approaching a megawatt in like a rack. And it's this incredible density of electrical and thermal cooling capabilities. So literally liquid cooling to every single chip on the server. There's an in and an out of cold water and hot water going to every single chip on the server. It's allowing them to just compress more and more computing power into smaller footprint. There's that going on. And then there's this insight, which is that the more GPUs can be networked together on the same cluster, the more performant that cluster will be at training, for example, a large language model. And there's a physical constraint element to that. So you actually have fiber distances that have to be considered, how far away can the farthest GPU on the cluster be away from the center of the cluster? And that leads you to wanting to have these really dense configurations of lots of computers close together so they can all be networked together on the high-performance networking. 

And when you play that out, what that's meaning is that what used to be a big data center was like a five megawatt data center, and then a 10 and a 20 megawatt data center. These were kind of beyond belief huge, even just a decade or two ago. Now it's sort of looking like we're going towards 100 megawatt data centers that have 100,000 GPUs all networked together in a single cluster. And perhaps that's even going to be small in the not too distant future. We might go to hundreds of megawatts and campuses that are going to be gigawatts. And there's this arms race of who can train the best models and who can operate the best inference off of that model. And it seems right now that size is going to matter and it's leading to a real land grab around access to megawatts, access to digital infrastructure. And our view is that it's really important how and where we kind of locate those megawatts on the grid and potentially even off grid. And so that's really where we take that energy first approach to development and construction and operation of data centers. We've got a piece of our business which is building the data centers, the 100 megawatt scale. We have our own design, which we think is really an optimized design around heating, cooling, those physical constraints and distances within the data center. And those can be essentially offered and leased to larger technology companies for them to host their own GPUs in there and do their own workloads. We also have our own GPU cloud product called Crusoe Cloud where we put our own computers in there. We rent them out by the hour, by the three-year contract. We have different models, but we actually are the cloud provider within the infrastructure as well in some cases. And we have two different ways to then basically take those megawatts to market. But it all starts with energy first locations that we can develop into that data center infrastructure.

Doug Lewin 

Thank you for that. And so just to put that in perspective for some folks that may not be as in the weeds on power as others, when you talk about the old racks used to be 7 or 14 KW. A home on an average day might be using two or three KW, an average sized home, couple thousand square feet or something like that. On a really hot day, it might be five, six, seven. So, one rack would have been equal to like one home on a very hot day. I'm speaking in generalities, obviously it matters how much insulation and what kind of HVAC and what you're doing inside your house. If you're running multiple hairdryers or something at once, it might be different. But these Nvidia racks you're talking about, now you're getting up to 500 to, excuse me, 50 to a 100 KW. So right now you're talking about something like 10 to 20 homes. And when you talk about a data center that's a hundred megawatts and even clustered, and actually one of the previous podcasts was with ERCOT CEO Pablo Vegas. And he talked about how we're seeing 500 megawatt, I believe the numbers he said were 500 megawatts, 700 megawatts popping up on the grid, like all at once. So that's probably what you're describing as one of these campuses or clusters. Now you're talking about like small cities. It's like a small city popping up on the grid potentially in the space of 6 to 12 months, give or take. About right?

Cully Cavness

I think your order of magnitude is right. I used to think about a house as one KW. 

Doug Lewin 

Yeah, not in Texas. Everything's bigger down here. 

Cully Cavness

But yes, I mean, roughly that's right. I mean, these are huge sources of power demand when they come online at this kind of scale.

Doug Lewin

And so can you talk a little bit about the flexibility of that demand? So this is becoming a bigger and bigger issue. In Texas, ERCOT has established a large flexible load task force, which spends a lot of time, has spent a lot of time thinking about Bitcoin, but is going to more and more need to be thinking about these AI data centers. And I've heard a lot of different things. There's no flexibility at all. There's a lot of flexibility. I've heard everything in between. Can you just kind of share your perspective on how much these can be flexible and if flexibility can be built into the design. You mentioned you guys are designing some for heating and cooling. Are you thinking about building flexibility in? And let me just, before I turn it over to you to answer that, I would imagine with what you guys are doing, that flexibility would be important because when you're siding next to a congested node, like you wanna be running as much as you can during those periods. But then when it's not congested and power prices are getting really high on the grid and there's actually not enough power, maybe you could move that wind or solar rather than using it, the data center, you could move it onto the lines and let it flow to Dallas or Houston or whatever. And the prices are higher than you would want to use less there. So maybe you do that through changing around how much cooling is going on or you site batteries there or if it's a large language model, maybe you're batching functions and not running them 8,760 hours, which is the number of hours there are at a year, but maybe 8,500 and even not needing power for even a couple hundred hours would make a huge difference. So can you talk a little bit about what flexibility there is or is not with AI data centers?

Cully Cavness 

Yeah, I think it comes back to the customers that are using the servers. And right now, I think a lot of the market is still stuck in an old mental model of data centers need to be tier four, meaning 99.999% uptime reliability. And it seems to me that many of the incumbents still have that perspective as it relates to this new wave of AI data centers, it's not clear to me that all the use cases of AI computing require that kind of uptime. And I think that you actually had an insight, which I've been thinking about a lot, which is this batching idea. So you can checkpoint these models, meaning if the power goes out in a worst case scenario, you don't have to restart training the whole model. It kind of falls back to your last point that you saved the model. It's like if you're playing Mario and Bowser kills you, you get to start back at the beginning of the level. You don't have to go all the way back to the beginning of the game. 

And that's important, right? Because that means that, okay, maybe you would tolerate a certain amount of outage and it becomes an economic decision. If I can offer you a much lower price point per hour of training on average throughout the course of the year, provided that I can interrupt your workload 1% of the time or 10% of the time or something. Is that a trade that you're willing to make? 

I believe that for some percentage of the customers that will be a trade that they're ultimately able to make, the market hasn't really moved there yet. But I think some of the kind of frontier folks are starting to realize that. And we would really advocate for that because that would allow for more of the demand response feature that, for example, in Texas is such a big deal in you're deregulated market, you've got this really kind of beautiful, again, market-based incentive driven system to provide flexibility back to the grid. And when it gets really hot and everybody's AC is on, you can get paid to turn off if you're able to. And we need that economic signal to flow through to the customers that are doing the training workloads. I would say there's going to be a difference between training and inference. 

So broadly in this AI computing world, there's these two categories. Training is the very kind of it's a longer term, it can be days, weeks, months of running a model over large amounts of data to find the insights and create the weights and balances, weights and biases in the model that sort of builds the model, let's say. And then inference is once that's been built, it's using the model to do tasks. So it might be for a self-driving car to detect, is that a stop sign or a yield sign? That's like using the model to make one inference or for ChatGPT, it would be answering the question that you just posed in the chat box. That's an inference. And, you know, clearly that is a more, you need to be up and available to provide that service. Can these be federated across multiple data centers? So one can be offline at any given time if as long as another one is online. I think these are really interesting questions and it's just a totally new approach to the digital infrastructure and the kind of interaction of digital infrastructure and the energy infrastructure. It just, we need to get a lot more sophisticated on that. 

That's what I'm really excited about at Crusoe is we have a team that's a hybrid of energy professionals from grids and utilities, from upstream oil and gas producers, from renewables developers. And we have a team of really seasoned executives who have built and operated data centers and cloud products. And you know, we are sort of merging those two disciplines in a pretty special way that we're going to try to find and use these kind of insights of how digital infrastructure can and should interact with energy infrastructure.

Doug Lewin

Yeah, I think that's really, really interesting and a really sort of potent mix, one that is really needed at this point. We'll put in the show notes a link to, there was a podcast, I believe it was Redefining Energy did one with Michael Terrell from Google. And he was describing how they're not there yet, I think, if I remember right, he was talking about sort of where this might be headed in that with what you're talking about with inference, where the task needs to be done, you need to know, is that a stop sign or a yield sign? You can't wait till later, but they could move those functions. And you sort of suggested this just a minute ago, but just to dive a little deeper into it, you could move those functions to different data centers based on how much energy is available. 

And I was sort of getting this image in my head of like, there's the saying, the wind's always blowing somewhere, the sun's always shining somewhere. And so if you picture some of these data functions actually moving around the world with the sun, so that solar power is providing a lot of these tasks, but at different data centers. And you don't really care as a customer, as an end user, I don't care what's happening in Iceland or in Texas, right? It doesn't matter as long as when I need the information, it's there, right? And so you could kind of see some really interesting, and it's going to take this close integration of, as you're describing, this sort of energy expertise and the data center expertise for where is that possible, where is it not.

Cully Cavness

Yeah, I think it's, you're probably more right than wrong. And if you think about what that means from an infrastructure build perspective, it's like a huge undertaking. It's like a global rebuilding of the digital infrastructure, the fiber infrastructure, and all the energy that has to go into it. I mean, we're talking about many trillions of dollars of capital investment. I think on that specific idea, there's this latency constraint, which is some things need to be really fast. Like that if it's a stop sign, you really need to know it's a stop sign and you need to know it immediately. There's other forms of inference that you probably could wait a couple hundred milliseconds to get the ping back from Asia. If there was, if it was sunny in Asia, it's nighttime here, you know, you could you could actually imagine that. Right now, most of the latency, if you type in a prompt into ChatGPT, is still the model itself doing the computing. But as they're getting more efficient, that portion is getting smaller and it's going to be the percentage that's borne by the networking latency is going to be a larger percentage as that happens. And so there will eventually be this interesting question of how close does the workload need to be to the problem? And for some, it'll have to be very close. And for others, it could maybe be anywhere on Earth. 

Doug Lewin

You were also talking earlier about how much of these loads are actually cooling loads, right? And so there's probably also some demand flexibility there, I would think. I don't know. And so let me phrase it in the form of a question. Could you do, like for instance, as on the residential side, if you have a home that is well insulated, you can pre-cool your home. So Texas is a great example. It's going to be a hundred degrees basically every day this summer. We've already hit a hundred a couple times and we're not even as we're recording out of May yet. But you know, you have all these days that are a hundred degrees, tons of solar power, pretty low prices at two o'clock and three o'clock in the afternoon. It's really not an issue. The issue on the grid, the tightness is going to be seven, eight, nine o'clock as the sun is going down. So you pre-cool the home you use less in those evening hours. Is there the ability to do some of that at data centers too, where you're actually making it a little colder, or does it have to be like, it's got to be at this temperature and it can't vary?

Cully Cavness

It's more of a run rate kind of problem. I mean, you've got just 100 megawatts of heat being produced 24-7, and that has to be evacuated on a very continuous basis. There's a little bit of thermal inertia if you were to pre-cool, but…

Doug Lewin

Not as much as with a home.

Cully Cavness 

Never say never. I mean, maybe you get a big reservoir of cool water and you kind of like pre-chill some big thermal mass or something. But in your normal data center, it's less of an opportunity. There's definitely a lot of efficiency opportunities. Having the most efficient chillers and being thoughtful on the designs, the engineering, there's a lot to do there. 

Doug Lewin

And there's efficiency in the chips as well, right? Can you talk about that? You were talking about the Nvidia chips and they're obviously, they use a lot of power right now, but I think Nvidia, at one of their last events did talk about how their chips are more efficient. Are you seeing that on the data center side?

Cully Cavness

The chips are more efficient, but there's more chips and bigger chips. And so the power consumption of the server isn't necessarily declining. In fact, it might even be rising. I mean, again, if you back up to just kind of first principles of what's going on here, you've got the sophistication of making these chips has gotten to such an insane point that there has to be some kind of like tailing off of the efficiency gains. 

So just as an example of how these things are made. They're mostly made in Taiwan and there's a factory there owned by TSMC. A lot of people might have heard of this company. It's the largest semiconductor fab in the world. And they have this machine which is made by a company called ASML. And this machine costs something like $800 million per machine. And it's transported in like four jumbo aircraft to Taiwan.

And they have 80 plus of these machines in TSMC, as far as I understand. Each one of these things is like a major installation engineering project to put this thing together. And then once it's there, the way it works is they're liquefying a droplet of metal that's falling into like a convergence of a bunch of lasers. These lasers are blowing up this droplet of metal into a very specific wavelength of ultraviolet light that bounces off a bunch of mirrors. And then it goes on to a piece of silicon that's like 10 atoms thick or less. 

Doug Lewin

Wow.

Cully Cavness

And it's etching a pattern of circuitry into this and then another deposition of a substrate and another blast of this extreme ultraviolet light. And it's doing this like tens of thousands of times per second across this whole factory. 

When you're measuring things and just like atoms thick, you're running up against real boundaries of physics can do and I don't know how much you can just depend on the chips getting more efficient.

Are there different versions of chips and different designs of chips coming that are definitely different approaches? Yes, absolutely. There's some new startups that have released some new chips that look like they could be way more efficient on the inference side, for example. The training piece, it's a little bit less clear that you've got huge gains that can still be made there. But again, never say never when it comes to technology. I'm just pointing out that they've been at this for like decades now and it's gotten really optimized. And there are certain pieces of it that might be kind of asymptoting.

Doug Lewin

Yeah. And it's a little bit of a law of diminishing returns, right? At a certain point, like you just, you reach that kind of limit where, I mean, we're seeing this like on, we're not there yet, there's still more cost declines in solar and storage, but when you see those curves and you can only get so close to zero before there, there wouldn't be any money left to be made in it. So at some point you hit that terminal point.

Cully Cavness

Maybe. I mean, I just worry when people say it's going to be solved by more efficient chips. There might be limits there.

Doug Lewin 

No, that makes a lot of sense. That makes a lot of sense. All right, so let's come back to something you mentioned earlier. You were talking about carbon accounting and the location-based. There's, again, a lot of emphasis among some of the major tech companies, but I'm seeing this get talked about a lot more, what is often called kind of the 24-7. So you were describing this earlier. A lot of companies want to have 100% clean power, 100% renewable power. Sometimes they describe it different ways. But what they're trying to do is do like hourly matching. You were talking about location matching. Are you seeing more and more companies actually asking about that sort of thing, actually getting much more granular about carbon accounting? Obviously the majors, the Googles and the Microsofts and that are doing that sort of thing. Is it getting beyond those companies or is it still pretty concentrated in a few companies that are doing that kind of work?

Cully Cavness

I think it's still kind of early days on a bunch of this and they keep modifying the rules and editing them over time as I think people just realize there are better approaches to carbon accounting and the standards that go into it. 

You know, location matching is important, but it's also like really important like what's happening at that location. I guess that was the point I was trying to make is that when you add a load to a specific node, it causes a specific set of energy generation resources to get called up. And in some of those situations produce a lot more emissions than others would. So just kind of first being thoughtful about the location and the realities on the grid of what happens when you add load there. Then to me, the second thing is, okay, you're buying RECs and you're providing that economic incentive for the renewables to get developed, which is valuable. It's a great thing that we have that mechanism in the market. But to me, the bigger question is kind of that physical reality of where was the load located?

Doug Lewin

For sure. And you're starting to see, I think they're called TEAKS. There's like time energy attribute or something like that. There's a time-based attribute kind of accounting that is already going on. It'd be interesting to see if that could be extended to location as well. I think it's a really interesting idea. I actually hadn't, I'm embarrassed to say I hadn't really thought about it before, but it's a little bit embedded in the time thing because where you are would matter, but it's not explicit and it probably could be teased out more. It's really interesting.

So I want to ask you just a couple more things before we wind down here. A couple of years ago you wrote an article on Medium. We'll put a link to it in the show notes. Tally's Law and the Energy Transition. Can you talk a little bit about, give people a little preview if they go and read that. What are they going to see? What's sort of your thesis in that piece?

Cully Cavness

Yeah, I mean, this goes back to some of that early, my early experiences in the energy industry and wrestling with just the identity of wanting to work in the energy industry. I mean, I think it's the most fascinating industry. It impacts people. It impacts human lives in a lot of really positive ways. Just having access to any form of energy is huge and transformational for so many people. And back in the early 2000s when I went from Iceland to China, China's pretty wealthy, but in the mid 2000s, it was still pretty rough for the majority of the people there. And most of them could not care less if the power was coal or solar or wind or the climate impacts of any of it. And they just wanted to have the economic means to have another meal that day, you know, like to add protein to their diet, to upgrade from a bicycle to a motor scooter or from a motor scooter to a small car or something like that.

And, you know, starting in Iceland, it's the exact opposite. It's like this abundance of riches of unlimited renewable power. And it's very easy to say, yes, we'll just have 100% renewable power. We only have 300,000 people and we have more hydro and geothermal than we know what to do with. So just two very different realities for those two countries at that time. 

And it led me to that framework of the triangle of ease, energy, the economy, the environment. And I sort of formed a formula of how I thought about the world along these lines, which was RT equals PQV. And people can look it up if they want to, but basically natural resources times technology on one side of the equation and population, quality of life, and environmental health on the other side of the equation. It's a mental model for like, if you change one of these five variables, what happens? So if you increase population or increase the quality of life of a population and you don't have any change on the energy technology side or the natural resource side, then the variable that has to fall is V, environmental health. And conversely, like if you can innovate with technology and increase the left side of the equation, you could increase population, you could increase quality of life without impacting environmental health. 

And, you know, there's more to it than that, but I think that's like kind of a simple way to summarize the viewpoint. And I guess I do take a little bit of the techno-optimist’s viewpoint. And well, in the sense that I do think technology will largely be the solution or it won't be, but we're definitely not shutting off the energy. And buying time, more time for technology to end up being the solution is really the most important thing we can do right now. So the low-hanging fruit being things like waste, things like methane emissions. Let's solve those now so we have more time for the technology to grow and increase the T variable so that we can continue to have better quality of life and more people without having a big climate impact. And I'm hopeful on that.  I mean, I think there are a lot of things that are on the horizon that look great. It appears carbon capture and sequestration is getting there. A lot of interesting things happening on batteries. Radia just came out with this new wind turbine that looks incredible. I don't know if you've looked into this company at all. You should have Mark on your podcast if you want to talk to a really interesting entrepreneur in the wind space right now.

You can go on and on, all the nuclear stuff that's happening. There's a bunch to be excited about, but it's clearly going to take a while for this to mature and to really scale up. So again, back to extending the climate runway, we got to stop emitting all this methane just needlessly. We got to stop wasting energy. Let's stop curtailing renewables. Let's tap into the latent stranded renewables where we can, if we can locate a load in Iceland versus in the Eastern Seaboard where it's going to be much more fossil oriented. Maybe that's a good idea. So again, we're going to energy first, trying to be thoughtful about these things and extend the climate runway while still accommodating this wave of AI demand, which is clearly happening. So it's just sort of like, how can you influence it to be least impactful?

Doug Lewin 

Yeah, I mean, it's happening and I think we're also gonna see increasing demand for all sorts of different things, including quality of life, right? There's still, like you're talking about China 15, 20 years ago, there's still a billion people in the world that don't have access to electricity and they need to get it. That's just wrong. We've got to figure out ways. So that formula you just described I think is really, really interesting. 

I'll tell you, I mean, I think we're all creatures of our experiences. And, you know, we have, obviously as any two people have had different experiences. I do think technology will play a big role in it, but I think there's this kind of interplay happening all the time between technology and markets and policy, right? And so if you're in a place where like you could have the greatest technology, but if the policy makers set up a system where they're favoring other technologies or just not allowing market entry, right? And there's this interplay between those things because you can only hold back, you know, the water, if you will, hold back the deluge so long and a technology will kind of like water flowing, right, will find its way to get in even where policy is trying to keep things out. But policy can really slow down or to put it more positively, policy can really enable markets to bring technologies in really quickly. 

Anyway, I just, while technology will have a big role, I do think there's always going to be this interplay and depending, I don't know if you have any thoughts on that, any place in particular that you're operating where you see like policy stands in the way or makes things easier. I kind of like this Texas market because what you were describing earlier with like, it's going to depend on the customer when I asked you about flexibility, right? We have a market that kind of accommodates that. Like if you're willing to pay thousands of dollars a megawatt hour, you can have the power whenever you want it, but everybody's going to have their price as to when they're willing to curtail. So there's an example of a market sort of enabling technologies and flexibility. That's mostly on the large customer side. We need more of it on the small customer side, but that's a topic for a different podcast.

Cully Cavness

This isn't as close to our business, but I would really love to see a streamlining of nuclear permitting. I just think there's so much potential there and the fear of it has led to a permitting regime that makes it almost impossible to get anything done. And it's sort of disproportionate to the risks at this point. I think if you really talk to experts, they would say that, which I'm not a nuclear expert, but I've been to how many hundreds of energy conferences, I've heard enough to know that it's really, really safe. When it goes wrong, it goes really wrong, but other things go a little bit wrong all the time. And the actual impact on human health and the environment is probably worse from a lot of other energy sources than nuclear running very safely for 99.999% of the time and having a big accident even once in a while, which it does appear they're even getting better at really minimizing that outside risk with the new generations of nuclear reactors. 

And updating our framework to allow more nuclear to get permitted and built would be huge. Obviously, the grid transmission permitting is a big deal. At some point we might have to get a little bit more aggressive with like eminent domain or something. I don't know, you just can't let every potential objection, get in the way of building out the really critical infrastructure that we need for the whole country. And there's a balance. Personal property rights are essential. They're like the cornerstone of the country. But there has to be a practical solution to get things done. And these things really need to get done. And so that's a hard problem. But we've got to figure that one out.

And I think, yeah, the Texas grid is a good example. I mean, you guys get a bad rap with some of the outages from some of the winter storms recently, sometimes. But I would say by and large, it is viewed as the epicenter of entrepreneurship and dynamic business models in the power industry because of the way it's been deregulated. And I think ERCOT’s being pretty thoughtful. It's like they're still regulating and controlling the really bad edge cases, right? There are like caps to power pricing. There are kind of like curtailment mechanisms to avoid the blackouts that things are changing so fast. They're clearly not perfect yet, but they seem like they understand the problem and they're moving in the right direction really fast. But in the middle range, like the normal course of business stuff, just let the free market operate and it'll tell you what kind of power resources and what kind of, you know, do you need battery storage? Do you need peaker plants? do you want more renewables? Let the market figure all that out and not picking too many winners there. That seems great and also kind of reducing the gatekeepers of the traditional grid players, the traditional utility players, letting all that kind of be a little bit more flexible so more participants can come in and find their niche, it just seems to be like it's on a really healthy track in Texas in general, despite some of the headlines, which, you know, look, I wasn't there when the power went out, and I know a lot of people were, got hammered by that in really bad ways. And maybe, though, in the ultimate grand view, it's like a price that was paid for making the grid a lot better in the long run and making it this kind of free market approach where a lot of really cool innovations can come in and make the grid much better 20 and 50 and 100 years from now.

Doug Lewin

And I think for anybody listening that wants to dive more into Winter Storm Uri, we'll put a link in the show notes to the very first podcast of the Energy Capital Podcast we recorded, which was with former Commissioner Will McAdams. He was just a week or two out of the Public Utility Commission. We recorded it. And we talked there about what happened during Uri and how it really wasn't a quote unquote market failure. It wasn't like the... That was really if we weren't yet regulating, and I would argue we're still not yet regulating natural gas supply to be winterized. Power plants weren't well enough winterized. And we hadn't weatherized homes and buildings, so demand was kind of off the charts. And that's something TUC continues to look at and may do more on. 

On the nuclear piece, and we're going to have, there's going to be lengthy show notes for this one. This is good. We've covered a lot of ground. We will put a link. There is an advanced nuclear working group at the Public Utility Commission. Governor Abbott put Commissioner Glotfelty in charge of that. I'm really intrigued by nuclear. I think, you know, just today, the day we're recording, Secretary Granholm, obviously in the Biden Administration, was at a ribbon cutting in Georgia for the new nuclear plants. And she said, we need 200 more. We got two here. We need 198 more. It's one of the few areas where I think Republicans and Democrats seem to really want to kind of both pursue a similar solution. And to your point about the dangers of nuclear versus other energy sources, we'll put a link to a great podcast, Dave Roberts, the Volts Podcast did with Jigar Shah and comparing, for instance, the radiation of coal ash sitting around on coal sites compared to what's at a nuclear plant, far worse. What is just sitting around like basically uncovered in these coal retention ponds. 

Cully Cavness

That's what I was sort of referencing. I mean, there's this, people are afraid of crashing in an airplane much more than crashing in a car, right? Because the airplane crash, the mental model is so gruesome and horrible and the car crash seems like something you do every day. So it's not something to be as afraid of. But the reality is the car is gonna kill you a hundred times more often than the airplane is gonna kill you.

Doug Lewin 

Yeah, it's like 40,000 deaths a year in automobiles or something like that and a very low number…

Cully Cavness

I think it's a little bit like that with nuclear. I mean, it's scary because you think of Chernobyl, but if you actually do the kind of risk math, it's not the scary one to be worried about.

Doug Lewin 

Yeah. Cully, I really appreciate you doing this. The model Crusoe has with this, you know, really citing, big energy loads next to areas where there is abundant and so abundant that it's often wasted energy is really fascinating, really thrilled to hear you're in Texas and doing things here. We'll definitely want to follow your company very closely and encourage our audience to do the same. Is there anything else you'd like to say? Anything I should have asked you that I didn't that you'd like to talk about before we end?

Cully Cavness

You know we're hiring and if anybody wants to join the team we'd love to have you. We've got a really special team of talented, entrepreneurial, hard-working, creative folks here and we need more of them. So check out our website, Crusoe.Ai  and look at the careers page. I'm recruiting for a Chief of Staff which I'm really excited about. So if anybody wants to check that roll out in particular I'm just starting to look through resumes right now. Yeah, I think other than that, we're just happy to introduce ourselves to your audience and we'd love to stay in touch and do it again sometime.

Doug Lewin

Thanks so much, Cully. And we'll put a link to the, if you send us one, we'll put a link to where that job posting is. And yeah, I can't think of, you know, I mean, it's gotta be on the short list of most interesting places if somebody really wants kind of a front row seat into the energy transition and AI data centers, rising load growth, all these things that are going on. What an interesting position you have open. So we'll be sure to, to put a link to that as well. I learned a lot from this discussion. I really appreciate you taking the time. Thanks so much, Cully

Cully Cavness

Me too. Thanks for having me.