Catalyst with Shayle Kann - The electricity gauntlet has arrived

Episode Date: March 28, 2024

The electricity gauntlet we covered last year has been having a moment in the national spotlight, with coverage of rising load growth in the New York Times, the Wall Street Journal, and the Washington Post.  On one side of the gauntlet, demand for electricity is rising, driven by new loads like EVs, data centers, and electrification. On the other side, electricity supply is slow to grow, bogged down by years-long interconnection queues, the immense challenges of building transmission, and other bottlenecks. And utilities are stuck in the middle, struggling to deliver enough power to meet that rising demand. These challenges have been brewing for years, but the AI race is supercharging demand as big tech companies seek out power for their growing data center fleet.  So what does all this mean for emissions and prices? And what tools do we have to make it through this electricity gauntlet? In this episode, Shayle talks to his colleague Andy Lubershane, partner and head of research at Energy Impact Partners. Shayle and Andy cover topics like: Why utilities are building new natural gas plants and keeping coal plants open to meet load growth How technologies like nuclear, grid-enhancing technologies, geothermal, and multi-day storage could meet load growth with fewer emissions What utilities can do to prepare new gas plants for carbon-capture and storage What the gauntlet might do to electricity prices and which customers might be willing to pay higher premiums (data centers, cough cough) Whether the hype around rising power demand is overblown Plus, what medieval Swedish spearmen have to do with electricity  Recommended Resources: Andy Lubershane: The electricity gauntlet S&P Global: NERC raises North American power system reliability flags as demand could outstrip supply Catalyst is supported by Antenna Group. For 25 years, Antenna has partnered with leading clean-economy innovators to build their brands and accelerate business growth. If you’re a startup, investor, enterprise or innovation ecosystem that’s creating positive change, Antenna is ready to power your impact. Visit antennagroup.com to learn more. Catalyst is brought to you by Atmos Financial. Atmos is revolutionizing finance by leveraging your deposits to exclusively fund decarbonization solutions, like solar and electrification. Join in under 2 minutes at joinatmos.com/catalyst.

Latitude Media, podcast at the frontier of climate technology. I'm Shale Khan, and this is Catalyst. AI and data centers are the first spearmen in the column in the gauntlet, but there's hundreds of spearmine behind them that represent all the things that we are going to start to electrify. Electric vehicles, of course, being kind of first and foremost among them, but electric heating via rising adoption of heat pumps, probably being second, and then all kinds of other things standing behind.

Here's a fun game. Ask anyone you know in AI world what percentage of their conversations today mention the energy challenge. Then ask anyone you know in energy world, what percentage of their conversations mention the data center challenge. Whichever one is lower hasn't figured it out yet. When utilities need flexible capacity they can count on, they turn to Energy Hub. Energy Hub works with more than 170 utilities, coordinating over 2.5 million devices

to manage 3.4 gigawatts of flexibility built for the moments when utilities can't afford uncertainty. Energy Hub builds and operates virtual power plants that utilities actually stake their grid planning on, coordinating EVs, batteries, thermostats, and more through a single platform built for utility scale. Predictive, verifiable, and designed to perform when it counts. Learn more at energy hub.com. Trillions of dollars are flowing into clean and critical infrastructure, but those investments aren't driven by technology alone. They're shaped by markets, by policy, by capital, and by the institutions that connect them. I'm Alfred Johnson, CEO of Crux, and host of a brand new podcast, Critical Capital.

Each episode, I talk with people deploying capital, shaping policy and building the clean economy. Tune in as we unpack how progress is actually made. Listen to Critical Capital on Spotify, Apple, or wherever you get your podcasts. I'm Shell Khan. I invest in revolutionary climate technologies at Energy, impact partners. Welcome. Well, way back in August of 2023, we released an episode of this podcast where I talked to my partner at EIP, Andy Lubreschain, our head of research, about what we have been calling the electricity gauntlet. Basically, we laid out the challenge that we see barreling ahead

in the electricity sector, driven by the combination of rapid load growth arising fairly suddenly after a couple decades of stagnation, combined with our collective inability to get new electricity sources connected and delivered fast enough to meet that demand, particularly clean energy sources. When we had that conversation, Andy and I thought that the industry, in this case, I mean both the energy industry and the industries that rely on it, cough-cough AI, had not yet really woken up to the challenge that was in front of them. Well, times have changed, and they've changed pretty fast, and now the electricity gauntlet is basically the topic de jure in the mainstream press, in tech and AI circles, in manufacturing, pretty much everywhere, as far as we could tell.

The gauntlet has gone viral. So let's revisit it and talk about what might and what should come next. Here's another conversation with Andy. Andy, welcome back as always. Thank you. Always a pleasure, though. I wish I was back under better auspices than returning to the electricity gauntlet. You wish that you had been wrong about it. I did. I think I said that in the first podcast. I wish I was wrong, but we were not wrong, not even close. Oh, so right, it turns out. All right, let's start with a quick recap of what the gauntlet is as we think about it, and then we'll talk about what's happened since the last time we talked about it.

So recap the gauntlet. So, you know, a gauntlet is a narrow passageway that you have to thread between two daunting challenges. I actually have learned since that I think the phrase comes from some medieval Swedish sort of hazing ritual, where soldiers would have to run in between two columns of spearmen of their fellow spearmen, I think as a way of proving their valor. But in this case, the two columns of spearmen represent these two generational challenges for the energy system, and in particular for the electricity sector. And you can kind of very roughly speaking, you can think of the spearmen on one side of the gauntlet

being this rapid growth in electricity demand that we're finally starting to see after about 20 years of more or less flat demand in aggregate across North America and most of Europe. And then on the other side of the gauntlet is the challenge of building enough new power generation supply, especially enough new clean power generation supply, but frankly any form of generation supply

that is sufficient to serve all this new demand. And so the utility sector is the two novice spearmen who have to traverse this gauntlet in between. And as we have seen over the past, I guess, year or so, it's maybe less than a year since we recorded the last podcast. I mean, this gauntlet has only become more clear. It's very obvious that we're in it, and it's looking like it's going to take longer and longer to make it through. I'll add one additional element to it, which is I think the spearman on the, whatever the second side was, it is the ability to build enough new, clean generation to serve all this new load

and the ability to deliver it. Yes. Right? Which are two components, maybe some of the spearmen are generation, some of the spearmen are transmission and delivery or distribution. But either way, that is a key component of the challenge coming from one side of this conglut. Totally.

There's enough spearmen to serve for all of the facets of the electricity system. And there's constraints at every one of them. Right. Okay. So that's the gauntlet. And I think when we first talked about it, it was like a cool novel way to think about a thing that, you know, people had started to think about a little bit. Some people had been thinking about a lot, but certainly was not a mainstream concept. Let's bring ourselves up to speed then in the, I don't know, number of months since we had this conversation initially, what has happened? So, you know, I started talking about this concept of the gauntlet with, you know, lots of folks with, you know, lots of folks. within the utility sector who we work with regularly in our roles at energy impact partners. And I feel like a year ago, I was getting some nods and some agreement that this is a concern that is certainly on the horizon. I think in the past three to six months, the nods have gotten more and more vigorous to the point where, you know, now pretty much everyone in the industry recognizes that we're in the gauntlet and that this is becoming a major challenge. And there are some parts of the country, some parts of the world, where it's more acute than others, right?

As we'll talk about, I'm sure, the places where we're seeing the biggest demand growth, especially at this point from data centers and from new manufacturing facilities, those are the places that I think are feeling it the most acutely. The other thing that's happened is that the world has woken up to this. So it's made it... Or the press at least. Right. Right. The people who read the New York Times, the Wall Street Journal, the Washington Post. I think each one of those outlets has done an article on the gauntlet since, really just in the past three months.

So, you know, the world is catching on to the fact that these constraints on the ability to build new power supply capacity and delivery capacity are starting to bite. And the last thing that we're seeing is in less covered, less well covered, at least in the public, you know, sort of general purposes. media, but in industry media, we're seeing a lot more reports of, you know, the real consequences of starting to enter this gauntlet. So, you know, utilities that are filing for adjustments to their integrated resource plan, suddenly saying, you know, we're seeing gigawatts of new load that we didn't anticipate even a year ago that we're going to have to be able to somehow build enough supply to meet. Otherwise, we're just going to have to sacrifice the economic development that comes with that supply. And another big sort of signpost is we're seeing NERC, the North American

Electric Reliability Council. Back in December of last year, they released their annual risk assessment, which they do every year. And all of a sudden, it sort of showed that many areas of the country, which previously had been at sort of a normal, very low level of risk for any kind of electric power a reliability event, at least due to lack of capacity, all of a sudden, were what NERC is considering elevated risk or even high risk, and that happened also very quickly. Yeah, it feels to me like this was a trend that was bubbling under the surface for quite a while, right? Like, the NERC assessment, for example, it's not like all of a sudden the capacity was short. I mean, to some extent that's true, but like this had been brewing.

for a while. A lot of the things that we were talking about were brewing for a while, and then AI showed up, and the impacts of AI showed up, and kind of supercharged all of it. Like, even if you remove AI from the equation, I think the gauntlet would exist, because as we've talked about before, we were already starting to have trouble connecting new generation to the grid. The interconnection cues were already long, et cetera. We weren't building enough new transmission. That side of the gauntlet was happening already. The other side of the gauntlet on the load side was maybe a little slower to emerge, but electrification of transportation, electrification of some industry, manufacturing, all those kinds of things were starting to happen.

So the gauntlet was sort of emerging, but then the reason that it has become so much at the forefront of like the public attention over the past three to six months is predominantly due to AI, which is hot and sexy in general, and also what is causing the most acute, as you set versions of the gauntlet to arise on a location by location basis with like a really what feels like a really intractable challenge in a very short span of time. And so all of a sudden what was otherwise going to be like a five or 10 year trend akin to I think about you and I were both paying attention to like the emergence of distributed energy resources a decade ago is like it's a long term trend. It's a trend, but it's a long term trend. It turned from that

into a very immediate, very short-term trend that the New York Times and Wall Street Journal and Washington Post are writing about. And everybody's talking about it now. And so it's affecting like share prices of public companies. I don't know if you've looked at this, but the share prices of companies like Constellation Energy and anybody whose long capacity has a lot of, especially clean firm capacity, so the owners of nuclear, but others as well, like their share prices are just through the roof, Vistra, a bunch of others this year. So like, all of a sudden, it's in the public eye, and it's in public market investors' eyes,

and everybody's talking about it. I think that's just like AI supercharging an existing trend. Yeah, I think there's a few things about AI that have made it. It's really the first tip of those first spears in the gauntlet, and it's such a good sort of herald of what's to come, because first of all, these data centers are enormous. I mean, they've gotten the scale in terms of power capacity, power demand requirement,

of modern data centers. You know, they've gone from tens of megawatts to hundreds of megawatts, and we've definitely even heard tell of gigawatt-scale data centers at this point. So when a major hyperscale data center developer wants to build a new facility, like we're talking about nuclear power plant level electricity demand. The second thing is that it's super high value in terms of as a use for electricity, right? So, like, the willingness to pay for many data center developers for power is so high. It's basically, like, if you can get us power, we'll pay for it in the right sites.

If you can get us power soon. If you can get us power soon. They're price insensitive, time sensitive. And that sort of magnifies or at least emphasizes how acute this challenge is, right? Because they're saying, like, we're desperate. We're willing to pay if you can deliver it to me next year or in, two years, and they're not even able to get it, in many cases, get power on those kind of timelines. Right. Okay, so high level, you know, the world has woken up to the gauntlet in the past six months.

Some folks were already awake to it, but certainly now it's much more prominent. Let's talk about, like, what is starting to happen as a result of it. I mean, you mentioned one thing already, which is that utilities in these pockets and these locations where it's most prominent, which tend to be the data center regions, the existing regions, are reckoning with like totally unprecedented and kind of unpredictable load growth and having to figure out how to deal with that from a planning perspective. So like tip of the spear on this is is Northern Virginia and Dominion Energy, which has been the biggest data center region. Historically, like they're already completely overrun, and it's actually hard to predict how much more capacity is possible in that region.

But then there's these secondary regions behind that. Georgia Power issued an amended IRP a year after the first one. You see this in places like Phoenix with APS and some others. So utilities are sort of getting hit with this one by one, some more than others. That's one impact. Let's talk about the impact that we're starting to see as utilities are being forced to reckon with this new load growth. what is it that they're planning to build? Because this is one of the side effects of the pace of the gauntlet survival that I think we're going to have to be talking about a lot over the next few years.

Like what does this mean for new generation types? It's a real challenge for decarbonization timelines, which is what I've been worried about for a long time now. The first thing that utilities are planning to build to manage their entry into the gauntlet is they're planning to not retire their coal power plants on previously agreed upon or decided upon timelines. So there's been already a handful of reports of utilities that had planned on shutting down a coal power plant by 2030 or even sooner and basically having to say we're going to keep that plant online longer than anticipated in some cases with no deadline for retirement in sight because they just need that power. They can't retire that

plant safely and reliably given the demand that they're seeing. So Evergy is one example in Kansas, where they have a new Panasonic battery factory coming online. And it's been reported that because of that, Evergie has to keep this coal plant running longer than expected. First energy is another good example. So that's the first thing is we're going to see coal. staying online longer than we expected. The second thing is natural gas, right? So for any electric utility, for any load-serving entity grid operator

who has to meet rising demand in the next, let's call it two to three years, even up to five years, the easiest most straightforward thing to do at this point is to build new gas fire generation capacity. Can we clarify why that is true? because I think it's not obvious. Because it is, it's easy if you have the land to build new renewables as well.

The challenge is what you need is capacity, not just generation. Because the loads that are showing up, which are largely either data centers or manufacturing facilities, they're going to be operating nearly 24-7. They'd like to be operating nearly 24-7. You need to meet peak capacity. And so if what's happening as all this new load shows up is it's just adding to the peak, you can add a bunch more renewables. And let's be clear, that's happening too. But I think the point that you're making is that the sort of clearest, fastest, easiest path to capacity as opposed to generation is to build new natural gas.

That's right. I mean, and natural gas generation gives you both capacity and energy. And I think in many of the regions where we're seeing this unprecedented level of, of, demand growth, you really do need both, actually. And so, you know, you can build a bunch more renewables if you can get them cited and permitted and interconnected, which has gotten harder in recent years, although I am still very bullish on sort of the long-term prospects for renewables growth in many areas. But, you know, regardless, those renewables are going to be displacing natural gas generation capacity when they're available. But even then, you're still going to need both

more kilowatt hours and definitely more peak firm kilowatts from something. And, you know, again, natural gas, if you want to build today or in the very near term, and you want something that is gigawatt scale and proven and relatively low cost, and that, you know, doesn't require a lot of land, doesn't have enormous siting and permitting challenges. Natural gas is really the thing. And so, So I don't see a way that we make it through this first phase of the gauntlet without adding a significant amount of more natural gas fire generation in North America. Yeah, I think at this point it is inevitable that the curve on natural gas build is going to bend upward for a bit of time.

From a decarbonization perspective, exclusively from a decarbonization perspective, obviously those two results, delayed retirement of coal and a resumption of new build of natural gas, those are challenges, obviously. And that's what you've been saying. This is going to make it harder to decarbonize. So we spend a little bit of time talking about what the alternatives might be, which, to be clear, I think both of us would agree probably don't mean we stop building any new natural gas in the U.S. as long as this trend continues, but certainly can minimize the amount.

of new natural gas that we could build or can re-accelerate the retirement of some coal. So let's talk about, you know, we can go back and forth in each pick one, but talk about some of the things that we may have at our disposal that we're starting to see utilities consider. We're starting to see some of the data center operators consider manufacturers. What are the things that we could do? Got it. Should I start?

You start. Okay. I'll start with the big longer term one. So now that we all recognize that we're entering this gauntlet and we know that we're going to be in it for a decade, decades to come, I think lots of parties are taking much more seriously the prospect that we need some form of clean, firm, dispatchable generation that is fairly geographically flexible, can basically be cited anywhere and attached and connected to the transmission system anywhere. And the thing that we have, right, that we've had for decades and decades that can do that is nuclear power. there's been a lot of people for the past decade at least

that have been sort of crossing their fingers and hoping and asking this question like when will nuclear have its time like is there the potential for a real nuclear renaissance? Nuclear, by the way, has had its time. It was just in the 50s through the 60s. Right. You mean when will nuclear have its time again?

Yes, it's Renaissance. It's second time. And there's, you know, I think actually kind of a shocking level of consensus within the community of power system planners and utilities and grid operators, at least that circles that I'm familiar with, that believe that at some point a nuclear renaissance will be necessary, that if we're going to electrify at the rate we want to electrify things, if we're going to, in addition add all these other kinds of new loads, that nuclear needs to be a part of the solution. And I think this, this gauntlet that we're facing now might finally be the sort of straw that breaks that camel's back. It's a really weird metaphor in this case. But for changing public attitudes about nuclear, for moving the needle on regulatory measures that need to be taken to make nuclear more possible. So while I've been a proponent of and sort of a believer in this brewing nuclear renaissance, probably, in the 2030s for some time, and there's been a lot of people that have hoped that it's coming,

I think that the gauntlet makes it all but certain that that's one pathway we will turn towards. Now, that doesn't solve your imminent capacity problem, though. Right. That's the key thing about it, right? So you've got, I think that's right. I mean, certainly there's a resurgence in interest in nuclear. You can see it in lots of different ways. I mean, there was this announcement recently AWS, Boston, this or data center in construction that they're going to put behind the meter at an operating nuclear plant, Talens plant, and then lots of speculation of where else that could happen and what that's going to look like, but that's an operating nuclear plant, right? And so the challenge

here is that does seem, we'll see, but I agree with you that it feels like this is, this is going to move the needle, if not be the straw that broke the camel's back, at least on getting nuclear back on track in the United States, timing is the challenge of it, of course, because it's unlikely we're going to see a lot of new nuclear capacity built in the United States this decade. And even the first few projects that are going to get built, those are going to be quite expensive. The whole point is you need to start churning these things out so that you can drive down the cost curve. And notably, you need to turn out the same thing over and over and over again, right?

And right now, we've got dozens of different reactor designs that are battling for, NRC approval and looking to get deployed. So that all has to shake out. We have to have these construction timelines and so on. So it's not to say anything negative about nuclear. I do think it's a big part of the future. But what's interesting is this mismatched timeline between the gauntlet, which has really shown up

in a very immediate sense, and may persist into next decade, thus nuclear playing a big role. But nonetheless, something needs to solve, the problem of the 2020s, in addition to working on what's going to help solve the problem of the 2030s. And that's where nuclear just isn't going to be able to move fast enough. Nuclear is not going to solve our problem for the next five years. I hope that this moves the needle in terms of the strategy for both the government and private industry to align on a path

towards that sort of replicable way of building out the next generation of plants so that we can come down the cost curve once more. Virtual power plants are becoming a reliable way for utilities to manage capacity, but enrolling devices is just the start. What really matters is confidence, knowing those resources will perform when dispatched and being able to prove it from the control room to the living room. Energy Hub's platform handles the full picture, from near real-time forecasting, locational dispatch, and the kind of rigorous verification that holds up when regulators,

grid operators, or leadership ask, did it deliver? easy enrollment creates momentum, proven performance builds trust. That's why more than 170 utilities rely on Energy Hub to manage over 2.5 million devices delivering 3.4 gigawatts of flexible capacity. See what that looks like at energyhub.com. We're living through a profound economic shift, and energy sits at the center of all of it. Trillions of dollars are flowing into power plants, transmission lines, battery factories, data centers, but the future of energy isn't shaped by technology alone. It's shaped by markets, by policy, by capital, and by the institutions that connect them. I'm Alfred Johnson, CEO of Crux,

the capital platform for the clean economy. Join me for my brand new show, Critical Capital, as I talk with people deploying capital, shaping policy and building projects. Together, we unpack how risk is priced, how incentives are structured, and how progress is actually made. Listen to Critical Capital Capital on Spotify, Apple, or wherever you get your podcasts. So let's talk about some of the things that might be able to move quicker and solve some of the near-term problems. I mean, so my turn, I'll take the broad category of energy storage, of batteries, rather. So, as I said, you know, what you need is, particularly what you need is capacity. And the problem with renewables is that they're generally not high capacity value, even if they are,

cheap generation. So obviously the thing to do is to add storage to that. But to make renewables truly capacity, you generally need multiple types of storage. You need some storage that's going to do your daily peak shaving type of thing, your four-hour lithium ion, you know, workhorse of the grid type of thing. But then increasingly, if you really want true capacity, you want to be able to rely on this stuff, then you also need what people call long-duration energy storage out to stuff like what our portfolio company forum does, which is multi-day storage. And so, of course, there are many use cases for batteries like that, but one of them is turning intermittent generation into something that looks a lot more like a capacity product and then leveraging that to be able

to get more capacity out of the existing network rather than needing to build a bunch of new gas or something like that. So storage, you know, was already ascendant, I think, but this certainly is going to catalyze more of that. I agree. I think this amps up the market for storage in sort of all of its forms. I think in general, you know, putting pressure on power prices supports storage projects. It generally is going to make peak prices higher, even higher than they are currently relative to off-peak prices. The challenge is, I think,

especially when you look at some of the types of loads that are coming online, they really are 24-7 loads, data centers being just the perfect example. And so I think this really does support the need for very long-duration storage, particularly that multi-day storage category, that form is really the marquee standard bearer of at this point.

And I think it's the reason we've seen form doing pretty well in terms of like for a company that is moving very quickly down the sort of technology proof point curve and their own cost curve, starting to get some real commercial traction. Again, because I think utilities are starting to see that, yes, it's very difficult to get, you know, a gigawatt of multi-day storage today. But in a few years, and certainly by the early 2030s, they're going to want gigawatts of multi-day storage as a complement to their renewables built out.

Right. Okay. So thing one was nuclear. Thing two is storage of various stripes. Your turn to pick a thing that can help. Okay. All right. So we can't leave out geothermal if we're going to talk about clean, firm generation technologies. Geothermal. You know, know, again, kind of like nuclear, is this resource we've known about for decades and decades. In the case of geothermal, we've barely tapped into it because it's been very difficult to do so. Like, we have a few gigawatts of geothermal power generation in the U.S. today. And, you know, almost all of it is in these very rare places where heat rises very naturally close to the surface of the earth. And water happens to be coincident with water. And so you basically get steam popping out of the ground. So the

question is, how much can we expand geothermal capacity beyond that sort of almost accidental resource that we have today? And geothermal, if you could do it at its sort of maximum extent, if you could drill down, I think it's around 10 kilometers deep, pretty much anywhere on Earth, then hypothetically you have sort of a nuclear fusion-esque resource that you can deploy anywhere on Earth and get power from. Apparently, that sounds a lot easier than it is to do. I think the deepest hole ever drilled was about 12 kilometers, and it gets extremely expensive to drill down that deep, and it's very, very difficult to figure out how to do that in a way

that is conducive to making a cost-effective power plant. And so there's a lot of intermediate solutions. You don't have to have sort of geothermal anywhere to make geothermal a resource that we could expand pretty significantly. I think there's a lot of interesting approaches out there, that are doing medium-depth geothermal. That could probably make geothermal a resource that's viable across, let's say, most of the western half of the U.S.

And, you know, companies like Fervo, for example, that are using technology and techniques that have really been developed and started to be proven, or I've been fully proven in some cases in sort of oil and gas applications when it comes to drilling, and are basically trying to take those and implement them in the geothermal business. that I think have a lot of promise. So again, that's something that I'm glad to see investment in. I'm glad to see companies that are trying to push that forward faster because I do think it's another one of those resources we could come to rely on in the 2030s.

But unfortunately, yet again, it doesn't solve our like three to five year problem for the most part. Right. I should add in the category of clean firm, right, you've got the other things people will mention, hydrogen power, hydrogen for power, either blended or exclusively using either a fuel cell or a turbine. And then obviously carbon capture on fossil plants, whether it be coal or natural gas,

those are all also clean-firm alternatives. I don't think we need to talk through them in great detail. Every one of them has its positives and its challenges and geographic constraints abound in kind of everything that we're talking about with the exception of nuclear, which has totally different constraints. Geothermal, hydrogen for power, if you need storage, and carbon capture, if you need to sequester it, those all have their own geographic constraints, right? And so none of them are sort of ubiquitous solutions geographically, but depending on the economics and the policy environment, you know, may each have a role to play here.

Yeah, and I think they are worth talking about a little bit further, you know, CCS and hydrogen in particular, because as we mentioned earlier, one of the solutions, the easiest solution to this imminent pinch point we face in the gauntlet is building more natural gas generation. And, you know, carbon capture is one of those solutions that could help to future-proof whatever natural gas generation we do build for a future in which we do need to continue to push down. on carbon pretty dramatically in the coming decades. And so, you know, the potential to add CCS to a new natural gas power plant that you build today is a way to make that gas power plant something that could operate at relatively high capacity factor and with low carbon emissions in a very carbon-constrained future two to three decades from now. And so, you know, it kind of brings up this question of for all of the gas that we are going to be building in the next five years, what is the best path for future-proofing it? And I kind of see two categories of pathway there.

One is prepare for CCS, and there's probably a bunch of different things that prepare for CCS today means from the bare minimum of like cite your plant somewhere that's kind of near where you might be able to put carbon in the ground, to starting to do some studies, to actually designing the plant in such a way that would facilitate CCS retrofit later on down the road. So that's one option. The other option is plan for these gas generation facilities to run at lower and lower capacity factors over time, right? So today they might be providing both capacity and energy. They might be operating at a very high capacity factor to supply the needs of a large new data center.

But 20 years from now, as we build out much more renewables, other clean, generation sources, you know, you have to prepare for a future where these natural gas power plants are running at much lower capacity factor and perhaps can even still be decarbonized further. And I see a couple different ways of doing that. One you mentioned is hydrogen. So, you know, green hydrogen is not really an energy resource. It's a storage resource in a way. It's a way of taking renewable energy and later on at some point running it through a natural gas power plant, which you're not going to want to do very often. It's a low capacity factor resource. But allows that gas power plant to still run with zero direct carbon emissions and provide

peaking capacity to the grid when it's needed. So that sort of provides for a long tail of value from that power plant. The other, which I think is really interesting, is distributed gas generation. Because if you're going to be running gas at lower and lower capacity factor, one way to make sure that it still retains some value is to build it at small scale out at the edge of the grid, where it can still be used to provide resilience. Basically, it's also a backup power resource. Right. The AP has a portfolio company Enchanted Rock

that does exactly that. They put small gas generators, generally behind the meter, acting as resilience assets that can also act as grid assets. And so, you know, you build enough of those and it aggregates up to a significant amount of capacity on the grid.

Okay, so maybe one more category of things. You know, at the beginning, when you were describing, the gauntlet, I made sure to include the delivery component of it, right? There's a challenge in getting enough new generation or new capacity built, but there's also a challenge in delivering it. We've talked before on this podcast about how hard it is to get new transmission lines built in the United States, and that's acting as a significant bottleneck. It's part of why the interconnection cues are so long, and the studies are taking so long, and the costs are so high.

So one other thing that we can do at least to solve that part of the problem is the category of things that people call grid-enhancing technologies, which are basically a number of different ways to get more power out of the existing lines. Do you want to talk just quickly through what are the different categories within Gets? Yeah, there's a bunch of different technology categories, but I think probably the one that gets the most attention deservedly so is, you know, in the category of what we call dynamic line rating solutions. So the basic idea here is that transmission lines historically have been rated very conservatively. So when you build a line, you sort of pick the most adverse conditions that that transmission line could operate under, you know, very hot and windy,

the conditions that would be most prone to cause like a wildfire or damage to, you know, nearby something, right? Or damage to the lines themselves if you were to run the most power possible through that line. And so you rate the line for that most conservative of scenarios. But those conservative scenarios don't show up very often, right? They may only be holding true and really constraining the amount of power that you can safely move through the line, say 10% of the time. Most of the time, you could move more power through the line. And so if you have more data on the real-time status of the line, whether that's temperature, wind conditions, the amount that the line is sagging, the way that it's moving, given the wind, that sort of thing, then you can make real-time decisions. about moving more power through the line.

And, you know, this is a really, really compelling, elegant idea, I think. Like, when most people first hear about the concept of dynamic line ratings, it makes intuitive sense. You're like, oh, if that's how we've been sort of running the transmission system, you know, this is almost like, it's an easy fix. You add some relatively low-cost additional sensors and analytics technology to rate lines on a continuous basis. You could flow a lot more power through the system. And I think what we found and, you know, the kind of early pilots of these types of technologies and also studies that have been done is that, you know, there is some nuance.

There are additional constraints that make it more difficult to realize the benefits of this sort of thing in practice than it maybe sounds on paper. But I am hopeful, and I do think that there are going to be increasing numbers of transmission lines and regions where adding dynamic line ratings makes more. more sense to ring as much value as is really physically possible out of the transmission system. All right. So we have a suite of technologies that can help solve this problem. All are, all have their own challenges and their own opportunities. But, you know, if you're sitting in a company that is doing any one of these things, this is like the best thing that possibly could have happened to you clearly. I want to address two other components of the gauntlet thing before we go. The first is, electricity prices. Do you have a view at this point on what impact we might see on the cost of

electricity because of the gauntlet over the next few years? I should preface by saying I'm not in the electricity price forecasting business. So don't go and place bets based on my commentary here. But you know, basic economics, right? We're seeing demand rise really quickly. We're seeing constraints on supply. All-ElSQL, I think that means we're going to see increases in wholesale electricity prices in general. I think if you had to make a bet one way or the other, that's the safe bet to make. That, in addition to continued investment and decarbonization, and the fact that, you know, in general, at least in the early days, some of the lower carbon options we're talking about are going to be more expensive than continuing to dump carbon into the atmosphere. So the

combination of, you know, continuing pressure on carbon, which should exist, and just the pressure from these market dynamics of the gauntlet that we've been talking about. Overall, to me, mean, you know, we should anticipate electricity prices going up. Yeah, I mean, I think that's right logically, and I think it may be the way that it goes, and that's important for people to think about because so many other things are reliant upon some assumption about the price of electricity, and we should be clear about directionally where it seems to be headed. The only thing that I could see perhaps ameliorating that to some degree is, as you said before, some of these large customers, data centers being the obvious example, they're not the most

price-sensitive customer. I mean, they certainly are more time-sensitive than price-sensitive. And so you can imagine situations where if the new load is going to trigger the requirement to build some new capacity or do an upgrade to the existing system or something like that, that large customer should bear that full brunt of that cost, as opposed to getting spread to other ratepayers. And so as those situations start to emerge, you can imagine more of that cost burden being borne by the customer

if they're desperate enough and price insensitive enough. I think we're going to see that, particularly when it comes to customers who are willing to pay a premium for perhaps newer technology, that is not yet come very far down the cost curve. And, you know, again, I think what we're going to see it from companies like data center operators, particularly big hyperscalers, who, you know, simultaneously have really aggressive carbon goals and aggressive and acute need for power,

who are willing to, you know, probably pay that premium and take on some of the risk premium for deploying, you know, maybe anything from multi-day storage, like form. to the next generation of nuclear that starts the renaissance. No surprise, it's been publicly reported that Microsoft has hired ahead of nuclear. And I think we're going to see more like that coming from some of these really ambitious big power consumers. All right, so final question to address,

what do you think the odds are that this is all bit overblown? I would not have said this. I wouldn't have even asked this question six months ago because it wasn't blown at that point. But given the volume of attention being paid to it, and given that it is, in part, a function of, it's like a side effect of the AI hype cycle, the counter argument that people will make is either,

one, AI is overblown, and, you know, it's not going to be as world-changing as you think it is. I don't think I agree with that for what it's worth, but that's one argument. The second argument is that we have a fairly long history of finding ways to get better energy efficiency out of data centers. And we haven't solved it yet to the point where we're not going to see just an enormous amount of new load coming from data centers in the next few years today. But maybe we will. And if we do, then that energy efficiency keeps getting better.

And actually a lot of this load growth from at least the data center side of it starts to slow down. Now you could broaden that out and you could say, okay, EVC, sales are a bit tepid right now. Maybe that's not going to hit as fast as you think, and the manufacturing renaissance is going to slow down because, I don't know, Republicans take the White House in Congress and repeal portions of the IRA. You could pick holes in a lot of it. What is your, how would you handicap the likelihood that we are, we've now, the pendulum is swung in the other direction and we are overhyping the gumplet? I, I still think it is underblown. It's more likely underblown than overblown at this point.

And I'll tell you why. First of all, I will say, if there is a, if there is a short term, a reason to believe that it's overblown in the short term, it is, it would be that AI is overhyped. And I'm actually someone who's in the camp of taking the under on how impactful AI will be, at least in the next, let's say, five years. So there's a possibility we're in a bit of a bubble of AI enthusiasm and consequent data center development, right? But in the long term, I remain bullish on electrification. And I think, you know, AI and data centers are the first spearmen in the column in the gauntlet, but there's hundreds of spearmen behind them that represent all the things that we are going to start to electrify. electric vehicles, of course, being kind of first and foremost among them, but electric heating via, you know, rising adoption of heat pumps, probably being second, and then all kinds of other things standing behind. So while I'm definitely not in the electrify everything camp, I think we're going to electrify a lot of things. We're on track to continue electrifying a lot of things. I also believe that the manufacturing renaissance in the U.S. is going to be,

relatively robust. I think that not to speculate too much on politics, but I think it would be very difficult, both from a pure political standpoint and from a political economy standpoint, to rescind some of the major features of the IRA at this point that are supporting development of new manufacturing facilities in many cases in red states, for example. So I generally think that we're still underappreciating how challenging this gauntlet is going to be for the power sector to navigate in the next decade and beyond. And, you know, I'll say on top of that, one thing we didn't talk about is that, you know, renewables as well have been having a difficult time for the past year or so, right? Like there's been cost increases in renewable PPA prices. It's getting really difficult

to find places where you can cost effectively interconnect renewables to the grid. and so, you know, if anything, I think, you know, that article has yet to be written in major publications, right? That's a good point. Right. The world has woken up to the, I can't remember again, which is the right and the left half of the gauntlet, but certainly the world has woken up to the demand side of the gauntlet, less so the supply side. That's right, exactly. And, you know, I guess I am again, I'm hopeful that as business wakes up to this in industry and the general public that it does become, a drumbeat for some policy and regulatory change that I think is really necessary to, you know, to really accelerate development of infrastructure. At the end of the day, that's what we're talking about. This is critical infrastructure that is needed for economic growth in this country. And if we don't create a policy environment that makes it easier to build this kind of infrastructure

quickly, particularly, let's say transmission infrastructure, because that is sort of one of the big bottlenecks in this equation. That's the kind of thing that's going to make the gauntlet nearly impossible to get through. But there are scenarios where we fix this problem. And I think we come out of the gauntlet with a two to three times as big electricity grid a few decades from now. All right. So you still think it's underhyped. For what it's worth, I agree with you. I just had to play devil's advocate. All right. Well, we'll bring you back on in another six months when there's another raft of articles talking about this. supply side of the gauntlet. But in the meantime, Andy, thanks again for the time. Thanks, Shale.

Andy Lubershane is a partner in the head of research at Energy Impact Partners with me. This show is a production of Latitude Media. You can head over to Latitudemedia.com for links to today's topics. Latitude is supported by Prelude Ventures. Prelude Backs Visionaries, is accelerating climate innovation that will reshape the global economy for the betterment of people and planet. Learn more at Praludventures.com. This episode was produced by Daniel Waldorf. mixing by Roy Campanella and Sean Markwan, Deemsong by Sean Markwan. I'm Shail Khan, and this is Catalyst.