Odd Lots - Jigar Shah on the Three Big Things Driving the Nuclear Energy Revival

Episode Date: September 30, 2024

Earlier this month, we got the surprising headline that the shuttered nuclear reactor at Three Mile Island will be restarted. Of course, Three Mile Island was the site of a famous disaster in 1979 — one of the incidents that contributed to the US pulling back on the construction of new nuclear plants. This particular reactor was shuttered in 2019, when the economics of it no longer made sense. So why the restart? And why is there generally more interest and excitement about nuclear than there has been in years? On this episode of the podcast, we speak with Jigar Shah, the head of the Loan Programs Office at the Department of Energy. We talk about the big drivers both in terms of policy and economic conditions that have created this renaissance.Read More: Microsoft AI Needs So Much Power It's Tapping Site of US Nuclear MeltdownMicrosoft to Pay Hefty Price for Three Mile Island Clean PowerOnly Bloomberg.com subscribers can get the Odd Lots newsletter in their inbox each week, plus unlimited access to the site and app. Subscribe at bloomberg.com/subscriptions/oddlotsSee omnystudio.com/listener for privacy information.

Thanks for listening to Odd Lots. Follow the show on Amazon Music for more future episodes or just ask, Alexa, play the Odd Lots podcast on Amazon Music. Bloomberg Audio Studios. Podcasts Radio News. Hello and welcome to another episode of the Odd Lots podcast. I'm Joe Wisenthal. And I'm Tracy Allaway. Tracy, how about that reopening of a three-mile island nuclear facility? You know what? I saw that headline kind of float by, and it's seemed like a big deal. So I think Constellation signed a deal with Microsoft to reopen the Three Mile Island nuclear plant, which everyone remembers from the disaster that happened there in the 1970s. What I did see was Constellation's share price just exploded higher, like up 30% in a day.

Maybe I shouldn't say exploded in the context of Three Mile Island. It melted up. That's right. It melted up. You know, a couple things about this. So one, I'm kind of not surprised because we all know that the big hyper-scaler tech companies have all this demand for electricity. They have a desire to not use further fossil fuels. The nuclear is an obvious theoretical solution to how to get more clean energy. You know, I will say one thing about this deal. And it's very exciting.

And I don't want to diminish it in any way. But there's one aspect of it. I didn't realize that one of the reactors at Three Mile Island had only closed. down in 2019. So I only know there was like something bad happened in the 1970s and it probably contributed to the U.S. as general pulling back from nuclear. But I hadn't realized that actually, you know, there was still nuclear being produced at Three Mile Island up until 2019. Does it make it a little less exciting? But it's not like we're fully turning back the calendar to 1970s. Well, I think there's a nice narrative full circle aspect to this, right, which you just

touched on. After the three-mile incident, I mean, that really kicked off the death of nuclear in some respects in the U.S. Like, there was a lot of hesitancy and fear, really, about building new plants. And so in some ways, we're restarting, at least one of the reactors. Yeah. It's a nice story arc. Let's put it that way. So, okay, so this operation is going to get restarted. And you mentioned the death of nuclear and how we basically went forever without building new. There was that Georgia plant. I think it came online sometime last year, the votal plant. But it does raise the question of like, how much was the fact that we more or less stopped building nuclear a function of the fact that we got scared of nuclear regulations, it became too cautious, et cetera, versus the fact that

we just had, as multiple guests we now have pointed out, this sort of flatlining of load growth, this sort of flatlining of overall demand, which is something that's now changed in the last few years with the re-acceleration of demand for our data centers. And so how much is this a story of we got scared of nuclear and we overregulated it versus how much did the economics just not make sense when there was not growing demand for electricity? Yeah, I think that's a good point. I mean, there's another tailwind that's sort of behind the potential nuclear resurgence now, which is there's a lot of government funding floating around the IRA and programs like that.

And so that's another thing that maybe is making, Maybe this time is different. There have been a lot of predictions about a nuclear renaissance over the years, but maybe this is it. Let's learn why the stars have aligned, the constellation, if you will, why the stars have aligned for this seeming revival of nuclear in America with the restarting of the Three Mile Island reactor. We really do have the perfect guest. We've had them on the podcast multiple times. truly one of our favorites and a fan favorite. We're going to be speaking with Jigger Shaw. He is the director of the loan program's office at the Department of Energy, a key player in all of the Inflation Reduction Act's efforts to stimulate clean energy growth in the U.S. With the Inflation Reduction Act, his office went from a lending authority of about $40 billion

to over $200 billion, a big advocate of nuclear and other sources. Jigger, thank you so much for coming on Adlaz. And great to have you in the studio. It's the first time we've talked to you here in studio. It's so great to be in the studio. Thanks for having me. Thank you so much. So I'm going to start off with this question, which is, okay, we went for a long time, basically without building new nuclear power plants.

It's starting to pick up again. How much is it because something has changed policy-wise with, you know, subsidies and tax credits, et cetera, versus demand is back, therefore the economics of nuclear makes sense, or would you say it's not binary? Well, look, I think that when you think that when you think, think about what happened through historical context in the 1970s, we had high inflation, right? And nuclear power was subject to high inflation. And so, you know, part of this is people were already worried about building new nuclear plants before the incident occurred

because things were just getting more expensive, right? And when you think about the utility bankruptcies that occurred, right, way back when, it was because they had cost overruns on nuclear power, right? And so I think that in general, it goes to when America stopped believing in itself and its ability to do big things in infrastructure. And I think this moment with load growth and with the president saying, we are going to build big things here, like has gotten people thinking again, hey, what would it take to actually figure this out this time around? This is actually exactly what I wanted to ask you about because I was reading that the initial construction cost for unit one of three mile was about $400 million. And I guess like today,

the cost of building a nuclear plant would be like $5 billion, $10 billion. Obviously, the $400 million isn't, you know, adjusted for 1960s prices. But it does seem in general like it's more expensive to build nuclear plants, certainly since the 1960s. Where did that additional cost increase actually come from. So when you think about building things, like if you were to build multifamily housing and you would build one multifamily housing building versus building 12, right, throughout the city, you can imagine if you're using the same design, it would be cheaper. The workers would get better. You know, the first one would cost more. The second would cost less. The third one would be even less. You get faster. I mean, you see that when you go into like a new home construction place. The first home

takes, it seems a lot longer. And then suddenly like the homes start popping up. every week, right? This is the same with nuclear power. We trained 13,000 people to build a Vogel nuclear plant in Georgia, right? And then we were done. And where did all those workers go to other jobs? So now if we wanted to build units five and six, we wanted to rebuild, you know, VC summer in South Carolina, which is like 100 miles away, right? We'd have to go out and find other 13,000 workers, right? And so one of the things that we have to figure out how to do is to figure out how to build 10, right, and have those same workers that we trained all those same EPC contractors, all of those same suppliers, not have to stop and start. But we, you know, continue to like to do

these one-off things. This is why I recommend everyone should go read. Your office puts out a series of reports called Pathways to Commercial Lift-Off reports about what it takes to really commercialize various types of energy, not just nuclear. And you always talk about the importance of the order book going forward so that people know that there's a second and a third project and a fourth project out there. So I want to get into that and also talk some more about the workplace development. But just on this project a little bit more, tell us what happened. How did the stars align such that Constellation thought it's worth taking on the operational risk to get this going again. Microsoft neat thinking that, yes, this is the best solution for their clean energy.

needs and what is the role of supply and demand and then the role of various tax credits and such within the IRA that made this all happen? Yeah, I mean, it's a juicy tale, right? I mean, when you think about the nuclear energy industry, there aren't really any entrepreneurs, right? Constellation is a company that bought up a lot of other people's nuclear plants. They are the best operator of nuclear plants in the world, right? And then they got spun out of Exelon. right, into their own stock ticker. But, you know, I think we all have to acknowledge that if it wasn't for the Palisades nuclear plant in Michigan

that we announced a conditional commitment for and that we're, you know, closing the loan on here, there's no way that the rest of these projects happen, right? And Palisades is owned by Holtec, which is a genuine entrepreneur, Chris Singh, right? Private company, right? One of the most successful entrepreneurs in the nuclear industry, right? And in the whole world.

And it's one of those weird things where he woke up one more morning and said, well, I just got a contract to dismantle the Palisades nuclear plant. And, you know, we went to him and said, would you think about restarting it? And he said, do you think about doing the complete opposite, perhaps? Yeah. And he said, well, sell me. And I was like, well, here are the incentives out of the inflation reduction act. You can get, you know, the 48E and some of these other tax credits. Walk us through the specific. What are the, what do you get in there? So when you restart a nuclear plant, right, the nuclear plant is viewed as new, additional capacity, right, because it was shut down. And so as a result, this technology

agnostic credit that was created by, you know, Senator Wyden, right? Because remember, we always had the solar tax credit and the wind tax credit and all these other things. So over time, like, the IRA moves us to a technology neutral tax credit so that everything that is clean gets this technology-neutral tax credit. It's, you know, it's a pretty lucrative tax credit. It depends on the technology, but let's say three cents a kilowatt hour. And so now you're in this place where you actually have a bonus production credit. Now you separately can choose to get an investment tax credit, right? But it happens to be that the production tax credit is more lucrative for these restarts of nuclear plants. But if you decide to do the investment tax credit, then you get the 30% tax credit.

Then there's bonus tax credit. So if it's part of an energy community, you get an extra 10%, right? if you have a lot of domestic content, you get another 10%, right? So you could imagine that some of the folks who are building brand new nuclear plants might go that direction. But as a result of these incentives, nuclear power is now very cost effective. Then the question becomes, like, who actually wants to buy this power? Right? Because wholesale market prices have been low.

And so then the question becomes who wants to buy it. And it happened to be that two different utility groups in Michigan competed over wanting to buy all the output out of the Palisades restart. And so he, you know, picked one of the groups to buy that power. And then that led to, you know, the project becoming financiable, right? And so once that succeeded, then, you know, Constellation was like, hell, maybe we could do this. So when you say with the tax credits and those other changes, it suddenly becomes cost effective or it becomes financeable, walk us through the actual math.

Like, what is changing here? Is it the discount rate or the future projection of revenue? Like, what is it exactly that changes in the equation? So for a restart, you generally choose the production tax credit, not the investment tax credit. And that's because the cost of restarting a reactor is a lot lower than the cost of building a brand new reactor, right? So you make more money by getting that extra $0.3.3 per hour for the next, you know, 20 years. So the math there is you put up, it depends on where the final costs runs out, but let's call it, one to two billion dollars to do the restart. And then you get this three cents kilowatt hour

multiplied by the number of kilowatt hours that that plant creates. And remember, a nuclear power plant runs on average in the United States, 92% of the time. So that's a lot of kilowatt hours that comes out of that plant. Whereas with a solar farm, you might get 25% of the time production, right, with a tracking system. And so the math means that you could get almost all of your money back on the $1 to $2 billion from the tax credits, right? And then you've got the sale of the power, right, that you're signing a long-term contract for. And, you know, that's where you make your return, right? Which is why I think Constellations stock price jumped so much because they have so many existing sites where a lot of those nuclear sites have one reactor. And they were made for four

reactors or five reactors, but we never built the rest. And so while this one was the easiest way to get in, right, because it was a restart, there's all these other sites where you could build new reactors. And now that Microsoft has come in and said, we want to buy all that output, because we, you know, are taking seriously the commitments we made to 24 by 7 clean power by 2030, then you now have the makings of an equation. And I know if you heard, but like meta came out right after that and said, we are also all in on nuclear power and meeting this 24 by 7 requirement. So we have a lot of physical capacity or just space capacity right now to add more reactors.

And so that's sort of the exciting aspect. Walk us through a little bit more of the math with a three-month. Island deal specifically. So for Constellation, it's going to cost them $1.6 billion, I think, is what I've seen reported, to get this reactor back up and running. And then Microsoft makes some sort of commitment where they're going to be a buyer over, I don't know, X many years. Talk to us a little bit about more about this particular deal. Yeah. So I don't know what the final cost of the Constellation restart will be, just because I think they still need to do more engineering work to figure out exactly one needs to be fixed, but there's some estimates floating around. The way that Microsoft and others

sign these contracts is they don't actually buy the power. What they do is this thing called a contract for differences. Okay. And so power generally gets sold into the open market, right? Into the local grid. And Microsoft says, depending on what happens with this power, we will make you whole on the payment, right? So if we said that we're going to pay, you know, nine cents a kilowatt hour and you end up getting seven cents a kilowatt hour, we'll pay that two cent difference. And that includes not just the kilowatt hour price, but also includes the capacity payment, right? So you may have heard that the PJM had a very large increase in the price that the capacity payment cleared. And the capacity payment is essential because it convinces the

coal plants or the natural gas plants or others who are sort of at the end of life to make investments to last a little longer because they got paid a capacity payment to stay open. So the pieces that come here are both the capacity payment and the energy payment. And Microsoft is saying that we get all the attributes, so we get to call our usage green. But separately, like if for whatever reason, the wholesale market value for what the nuclear power plant is creating is less than the strike price that we agreed to, then we will make you hope. The news doesn't stop on the weekends. Context changes constantly. And now Bloomberg is the place to stay on top of it all. Hi, I'm David Gura. Join us every Saturday and Sunday for the new Bloomberg this weekend.

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So you mentioned the idea that there are some nuclear sites out there already. ready that have spare capacity that could either be restarted or with new reactors or units built. So I guess I have two questions based on that. But one, if you have space in your nuclear facility, is that space specifically designed for one type of reactor already? Like, are you wedded to a particular model that you have to follow? And then secondly, what's the actual process to build a new reactor. Like, I can't imagine you open up the nuclear reactor catalog and, you know, you go like, oh, I'll take this one. How does it work? Well, so just to start with your last question first, it used to be that you did have a nuclear power catalog. Oh. And that's the problem, right? That's why we have

90, you know, plus reactors, and only four of them are exactly the same. And so it used to be that you used to be able to customize your model. And that led to a lot of inefficiencies. And so I hope and pray that this time around when people build new nuclear. They build the exact same cookie cutter thing every single time and we get our cost down. But to answer your question, so the Department of Energy commissioned a study to look at all of the 54 sites that we have with nuclear plants, some of them have one reactor, some of them have two, a couple have three and then only one, the Vogel nuclear plant has four. And we can build any type of reactor on those empty sites because really it's just land that's behind a security perimeter, right? And that's what you care about is a security perimeter.

And so we have about 65,000 megawatts of capacity at the existing nuclear sites, which is massive. If we use small modular reactors, right, which are the ones that are sort of in that three to six billion dollar range. And if we use AP 1000s, which is what we built at the Vogel, then you could build almost 95,000 megawatts at those same sites. But those are more like $10 to $14 billion each, right? And so you have to decide whether you want to spend that much money. Are you limited at all, or does space maybe become a factor in the sense that the hypersalacalers want to be co-located close to the plants? So they're not going to be within the security perimeter. They'd be outside of the security perimeter. And most of these nuclear plants are

in fairly rural location. These are somewheres. I grew up near a nuclear plant. But, you know, but they're going to be, let's say, five to seven miles away. And so you don't need to use a transmission infrastructure and tax it, you can create your own line directly from the nuclear plant to the data center. And so that saves a lot of costs because now you don't have to pay for the transmission. And so that's why a lot of this co-location makes sense. It also disrupts the grid the least. And then the other thing that is so great about this co-location idea is that the people who live around a nuclear power plant love nuclear power plants. The public perception of nuclear is at 90 plus percent around a nuclear power plant. And so, you know, instead of going to a brand new

spot where you might have mixed reviews, it's easier publicly to use existing sites. It's good to know. Here's a random question. I've been one of those things that wanted to ask someone, I probably could have just tweeted it years ago. Sometimes I see these things. It's like, oh, there's like a three-year wait to like plug some new production of any sorts of energy into the grid. And I'm always like, is this just like someone like who just like go out and plug a line into the wall or something. What's that all about? And like, why does it have to be that long? It's, it really is an extraordinary thing, right? I think that, you know, most people view electricity like water, right? So you just put a bigger pump in, you put in more pipe, it gets to your

house, you got hot water. That's great. It's not like that at all. There is this complex physics equation that you have to solve for. Because the greatest to be in perfect balance all the time, right? Well, so there's the perfect balance between supply and demand. Yeah. But then there's also figuring out, you know, what the constraints are of each individual segment on the transmission line, right? So if you're using power in New York City and you're creating a lot of extra power in out of the nuclear plants in Illinois, right?

Then that power has to go via Indiana and Ohio and then through Pennsylvania to New York City. And like they may or may not be able to carry that much, right? And so they have to do these studies. So every time you try to add something to the grid, they have to do a study, and they have to figure out whether that capacity is there, how often it's there, whether it would continue to be balanced or whether it would be imbalanced. And so the big fight there is that, so in Texas, what they do is they just look at the safety part of it, but they don't look at the capacity part of it. They just say, you like connect at your own risk. And if we're clogged, we're just going to tell you to shut down.

and that's on you, right? So that's why they're approving people super fast. Whereas with the PJM and others, they're saying not only we're going to do a safety study, we're also going to do a capacity study, and we're not going to let you connect until this other generator shuts down and freeze up capacity for your generator.

And so that then makes the wait time much longer. Since you mentioned safety just then, I get the impression that the other thing that's been holding nuclear back is, I guess, licensing barriers and regulation and things like that. Has anything changed on that front recently? I saw there was a bill over the summer called, I think, the Advance Act or something like that that I think made some progress. But is that starting to evolve to? Yeah. So, I mean, there's definitely been a lot of people giving their unsolicited advice to the NRC saying,

we want to beat you up because we don't think you're moving fast enough. But when you think about it, it's only the Vogel units three and four that they've had to process, right? And ultimately, what the people who built Vogel did was said, we are going to tell you exactly how we're going to build it, and then you hold us accountable to building it that exact way, and then you license it at the end, right? And so that's what the NRC did. The alternative pathway is they can go in and say,

we're just going to build this thing. Like you're going to like pre-approve that the fact that the license for the reactor is pretty safe and it's fine, but you're just going to, like, approve the as-built drawings at the end, right? Now, like, when you do that, well, then it's a lot easier to get away with things being one-inch off here and there, which is fine. But, like, if you give them as-bilts and say, we're going to choose a licensing path where you hold us responsible to no changes, well, then when they come in and inspect it, it's one-inch off, they're like, you've got to redo that and do it to exactly the specs you told us. So now all of the different reactor companies are deciding to go with this new pathway because it would be a lot cheaper.

But, you know, like then you have to wait until the end for them to say that something you did wasn't like a safety concern. And so it could cause you a lot more cost, which is why people generally don't do that, right? And so my thing with the NRC is that they have a job to do, not unlike the Fed's dual mandate, right? Like the NRC now has a dual mandate, right? So with the Advance Act, it used to be that they just were safety-minded. Now they're safety-minded, and they have to support the building of new nuclear, right? And so the way this kind of stuff works is you've got to flood the zone, right? So if you actually build 10 reactors, it'll be amazing how efficient the NRC will become.

But if you have all these people working there and you only do one reactor, well, then a lot of people are like, well, we have a lot of time on our hands and we're going to like study your application. a lot more, right? And so the efficiency comes from people using the NRC more and actually like pushing a lot more reactors through. Joe, I can't wait for the Phillips curve of nuclear incidents versus capacity buildout. Whenever, the day that that is a debate, you can be sure that we are going to cover it. We talked a little bit in the beginning about the market's reaction to constellation. So the market likes the deal. And as you mentioned, the market likes the sort of possibility that this has opened up of maybe the constellation isn't just going to be in the business of running nuclear,

but actually building nuclear. You know, talk to us a little bit more about the prospect. And it gets also back to your point about how for this to actually work, it can't just be one-offs. There has to be a series. It's like that 13,000 people that built Vogel, then they go on to the next project, then they go on to the next project. Where are we on the sort of, I don't know, second derivative question of whether we have the sort of momentum in the industry. to actually learn from the previous project and redeploy talented work and all these things that we need to get the cost curve bent down. So I think the first piece is why, right? Yeah.

And I think the why part of this is, as you suggested, there are three aspects to load growth, right? One is data centers. And frankly, AI is not really a big part of it. It's mostly just clouds, an expansion of cloud, but then there's some AI sprinkled in. that's at least 25,000 megawatts of new load by the end of the decade. Okay. Right. Then you've got all this success we've had with, you know, the president's agenda around

onshoreing and reshoring. And so there's a bunch of 500 kilowatt and 2 megawatt and 4 megawatt manufacturing facilities that are popping up everywhere, 800 new manufacturing facilities that have been announced, right? And then the third piece is you have this electrify everything movement where a lot of people are buying electric vehicles and they're doing heat bumps and they're doing all these things. And so you've got all three of these. And then the question becomes, like, how do you want to meet the load growth? And for a lot of the electric utility companies, remember, they haven't had load growth in 30 years, right?

For sure, for 20 years, and then very slow load growth in the 90s. And so they're now saying, can we do this with the tools that we have in front of us? And it looks like it's going to be really hard for them to do it with the tools that they are used to using. And so they're saying, we're going to need to figure out this nuclear thing, but also we're going to have to figure out how to use geothermal, expanded hydro, et cetera. And so then the question becomes, you know, how does one wrap their brain around doing this, right? Because the electric utility companies are filled with people who run them, who generally were running a dividend yield stock, right? Like these are shareholders who are like, we want no volatility and we just want our dividends, right?

And now you see like J.P. Morgan's Infrastructure Fund and others that are taking some of these utilities private and saying we think you're a growth stock. And we don't think that we could actually do this in the public market. So we're going to take you private and give you all the tools you need to become a growth stock. Right. And so there's some of those dynamics going on. And you've got a lot of governors who are yelling at the utilities saying, I spent so much time attracting all these manufacturers to our territory. And now you're giving them. a three or four year timeline to interconnect? What the heck? Right? Like we want to create family sustaining jobs for all these people who want just to have a high school education and not go to college, right? And so the pressure on the electric utility companies is getting real, right? And so now you're in this situation where the question becomes, okay, if we're going to do

this, how do we do it? Right. And so we have been facilitating those conversations with the nuclear liftoff report, with lots of conversations around what new tools might you want for risk mitigation from the federal government. How do you want to do this stuff? And Constellation, for instance, has said, we're amazing at running utility scale nuclear plants, but we don't know how to build nuclear plants. So we don't want to build them. We want other people to use our sites, and we want them to build them, and then we'll operate it, right? Because we're really good at operations, right?

And so you're starting to see a bifurcation of the market where there's some people who are doing development work and developing these sites and figuring out how to negotiate with the hyperscale data center companies, et cetera. And then there are other people who are trying to figure out how do I construct these things and how do I build the workforce, et cetera, to do 10 or 12 of these things. And then you've got others like Constellation who are saying, we have an interesting financial model, right? Because they have to do subsequent license renewals of their plants that are reaching 60 years old to extend the life to 80 years. Right. And so a lot of of folks are saying, well, you know, that's also a risky bet. That's probably going to be $10 billion

of CAPEX to do that. Well, if I had offtake agreements from the hyperscale data center companies, that would be a safer way for me to make that bet, right? Because they're really risk-averse. I mean, even like I would say up to like two weeks before this announcement around the restarting of the crane clean energy center, a lot of folks were like, I don't know, like, how the stock market is going to react to this, right? It's pretty striking. Right. So they were really nervous, Right. And now, when they've got the validation, I think it gives them even more of an incentive to figure this out. To make more announcements. But also the electric utilities, right? It gives the electric utilities an incentive to say, like, why are we being so risk averse? Like, our shareholders will probably reward us for becoming a growth stock. I'm Francie Lacqua, an award-winning journalist. And I've got a new podcast, leaders with Francine Lacqua from Bloomberg Podcasts.

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It's important to understand where you spike, but also really acknowledge where you don't and find people who can fill those gaps. Listen to Leading by Example, executives making an impact on the IHeart Radio app, Apple Podcast, or wherever you get your podcasts. You explained it very well just then, but in light, of a lot of utilities starting to look like growth stocks, AI adjacent growth stocks, rather than like boring old dividend plays. Are there new sources of financing that are potentially interested in the sector? Like, have you seen the actual mix of funding, either the investors or the structure, start to change? Well, I mean, you know, the reason why we're in the middle of this is because the loan programs office has this expanded authority and we are in the

middle of all these conversations because everybody wants to figure out whether they can use the money out of the energy infrastructure reinvestment program that we were given out of the Inflation Reduction Act or our traditional innovative clean energy program where we've got, you know, probably $150 billion between the two of those programs of loan authority. And then you saw the big announcement from all the big banks this week saying that they are now pro-nuclear. I don't exactly know what that means. Yeah, I was going to ask you. So by the way, just for those curious recording this September 24th, but yeah, keep going with that. And so, you know, I think in general, those big banks like to do balance sheet related investments. And so in some ways, I think they're

signaling to the electric utility companies where, you know, a lot of these big banks own the debt for a lot of these companies that say, hey, you know, we're going to be pro you guys doing nuclear power. So I think that's good. I don't quite know exactly what they're going to do differently. But it used to be that they, you know, like a lot of the utility companies thought that their stock would be downgraded if they announced a new nuclear plant, right? So, I mean, at the very least, I think everyone's sending a signal that we're not going to downgrade you. We actually want you to do this stuff.

We want you to promote economic growth in the United States for America. And we're actually going to, like, you know, give you tailwinds. And so I think that message is being sent. Since we're talking about funding sources, if we step away from nuclear for a second, I think it was last week. I saw this report about there's this geothermal company called Fervo. there's always a lot of excitement about, and I think they've raised some VC money, et cetera. Anyway, the report is sorted that the problem for them, and I guess maybe you can explain it

better, but I think geothermal is you stick a pipe in the ground and there's heat in the earth and it comes up and then the heat comes out and that's energy. The VCs are maybe excited, but then project financing is a challenge, whether it's the lending to actually like, okay, here's the funding that it's going to be for this site specific. I don't know much about this. We've never done a geothermal episode. From where you sit, is that a real constraint? either on geothermal specifically or other forms of energy, which is that, yeah, maybe some

investors like the idea of equity in some of these companies, but like the project financing component of whatever we're talking about is still not a mature market. Yeah, so geothermal is a very interesting technology. You know, as you may know, traditional geothermal is you basically have to find a liquid that like sits under the earth like sort of near a hot pocket. And then you basically like tap into it and then you let the liquid go up and down and then you know and that's sort of how you do geothermal this new enhanced geothermal allows you to create your own pockets and so use modern hydraulic fracturing technologies you drill you know mile down or whatever it is wherever you think that heat pocket is and then you fracture the rock there and you put pipe in there and then you basically

allow the working fluid to go down there it gets super hot and it comes back up and now can turn a turbine right and so as a result you can do it anywhere you can do it in new york state you can do in North Carolina. You can do it in Nevada. You can really do it anywhere. Now, it's only really cost-effective today in six states in the West, but once we get really good at that, then it should propagate across the United States because it's super cost-effective. Again, though, the first units are going to cost more, right? And so Fervo got a clean transition tariff signed with Nevada Energy. So Nevada Energy is buying their power. And then Google is buying it from Nevada Energy so that Nevada Energy isn't taking this premium power and spreading it across all of their

repairs, but Google will buy it, right? And then they made another announcement recently that they had done more drilling tests and everything went far faster, far cheaper than they thought it would. And so they're getting closer to the oil and gas speed rates than, you know, the geothermal speed rates, right? And Halliburton and SLB have said, wow, this stuff is ridiculously easy. We like, are happy to do all this drilling because this is child's play compared to what we do regularly for the oil and gas sector. Now, to answer your question, the problem is what the solar and wind industry are used to doing is getting money directly from large pension funds and pushing all the risk off to the contractors who do the work. And the contractors say, don't worry, we'll take

cost over on risk, we'll do everything else because this stuff is crazy easy. And so now low-cost infrastructure funds can invest in it, right? When you go into geothermal, Halliburton SLB, say, we don't take any risk. You pay us as a drilling company, and sometimes we hit gold, and every once in a while we don't hit gold, but we're not guaranteeing you gold. You pay us for the drilling, you give us the subsurface data, we'll do exactly what you tell us to do, and it works, it doesn't work, right? So a lot of this low cost, so on wind money is saying, that seems strange. You're saying I could like have a cost overrun, because you don't fail per se in enhanced geothermal, it might just be you have to build another hot pocket. Like instead of five,

you build six or seven, right? And so then it costs a little bit more, I don't want to take that risk. I think someone else should take that risk. And after you've certified with, you know, inspector that you've done everything correctly, then we'll buy the project because we don't want to take that risk, right? And so they're going through this pathway where they need to find money from people who actually like taking that risk. And so that's why it was important to see that Fervo raised money from Devon Energy, which is clearly an expert at managing this kind of risk for fracking. And so they are not afraid of this risk at all, right? But their cost of capital is clearly higher than super low cost solar and wind money, but they're willing to go faster because

they are very comfortable with these risks. And so this whole thought process and how we're thinking this through is something that I had to do when I started Sun Edison back in 2003 and got all the big financial firms who thought solar was too risky to come in to the market. And so now we have to promote this exact kind of thinking across geothermal, long-duration energy storage, nuclear, hydro, like all these technologies that we've been researching for 20 or 30 years and like it's ready for prime time. People are like, wait a second, that looks a little different than what I did yesterday, right? Yeah, it feels like the proof of concept is there. For instance, I really like geothermal just on a sort of individual housing base.

and it would work for my property in Connecticut. But the constraint for putting in geothermal in an old house in Connecticut is that you would have to tear everything up and put in the duct work to actually make it work. So on that note, are there other restraining factors on a lot of this new technology? I mean, that's kind of what we've been discussing. But setting aside the financing, we have proof of concept for a lot of these. What's holding back the growth? Are there physical realities, perhaps, or shortages, for instance, of HVAC workers going back to the housing analogy that maybe are restraining growth? Well, we definitely have a huge problem with trained craftsmen, right?

And so, you know, I think that we're probably between 500,000 and a million people short, depending on your assumptions for how fast folks are going to retire from the craft. And so it's an extraordinary thing, right? I mean, you could start at 16 years old, become a union craftman. be making six figures by the time you're 30 and, you know, have a family-sustaining job. So, like, I think there's a lot of people who thought for a long time that their kids going into the trades was probably, like, not what they wanted to brag about at cocktail parties, but it's great to see that, like, in the last year, I've seen people start to brag about their kids going and becoming an electrician or a plumber.

And so some of that stigma is going away, which is great because a lot of people need to go into the trades. And frankly, a lot of people don't want to take on the college debt, et cetera. I think the other constraints, though, are really around the grid, which we talked about before, which is that no matter how much stuff we do to build new HVDC, you know, high voltage DC lines, or like grid enhancing technologies, reconductoring existing lines to put new materials in there that can carry twice as much power, like we're still going to be grid constrained, right? So then the question becomes, how efficiently are we using the grid?

Geothermal and nuclear operate at like between 75 and 92% of the top. and so it's pumping electrons into the grid at that rate. Solar, you know, if you add two hours, four hours of battery storage, might get from 25% to maybe 35%, right? But so you're inefficiently using the grid. So now you might have to put a lot more storage on the front end of the transmission line to use the grid more efficiently

and then put more storage in the back end of the line, which we call electric vehicles, to use that more efficiently, right? And so we can get so much more out of the grid that we've already paid for, But we have to be intentional about the mix. So we love solar and wind, and we should build as much of that as we can. But we also need a lot of this clean firm power generation to match it as we retire so many coal plants,

not because of environmental regulations, but largely because they're at the end of life. I mean, many of these coal plants are requiring billions of dollars of additional investment to stay open. And people don't want to put that money into them. And so I think there's a lot of constraints around us basically decided, what we're going to get good at, right? And like, where are we going to start the flywheel? I would suggest to you the flywheel has to get started across all these technologies. The IRA and the bill, you know, legislation have been the single largest investment

in starting this flywheel in the world. And so we're super excited about it. But the other piece of it, I remember is that everybody else in the world wants our solutions. So if we do it here, I mean, Poland, Eastern Europe, all these other places want to use American nuclear designs. They want to use American technology. They don't want to be tied to Russia or China. And so part of this also is recognizing that like the world is looking to us to show this leadership. The president has passed all these laws. And now we need the private sector to be a little less worried about whether their stock price is going to go up and down by showing leadership and recognize

the last five people that were nervous about it, their stock price went up. And so it's like it's time to believe. Jigger Shaw, thank you so much for coming back on odd lots. Kind of perfect timing. All of this news to announce, and per your point, so far, the stock market seems to be helping your efforts. So thank you so much. Oh, thanks for having me. Tracy, I always really like talking to Jigger. You know, this sort of reminded me, it's not even related to this conversation. I have one of my friends who is more, I would say, on the right side of the ideological spectrum. And he's always, he's like, I think he mentioned to me once, he's like, I don't really care about climate and all that stuff renewable energy. But when I hear Jigger talk, like, yeah, I'm

totally on board. It's always great talking about. It's very compelling. Yes. I mean, I do think one of the things that has perhaps changed a lot of the equation is also the experience of the pandemic, which did not necessarily cause shortages in energy per se, but certainly kicked off a general awareness of wider infrastructure and the idea that you can get choke points in certain vital things for the economy. So I think that is like kind of always hovering in the background. And from that perspective, even if you don't like clean energy for some reason, you probably like cheap energy. And so hearing about potential expansion incapacity should be a good thing. I really like how much this story is kind of a stock market story. And I think it's one of the

things that makes it particularly exciting for us at this podcast where it's like truly at the intersection of capital markets plus clean energy. Yeah, like engineering, real world things. So for example, I liked his explanation of like why it's not trivial to just add massive amounts of power because all of the balancing that has to go on throughout the entire expanse of the grid from Illinois to New York and everything. But then also this role like it really does make a difference. Like if the stock market rewards your deal, then you want to do more of them. And although your competitors will want to do more of them. And so sort of like this signal from the bank. The signaling effect. I was about to say exactly that. So you can scratch your head and be like,

why are the banks putting out a statement saying they like nuclear energy now? But like the value is the signaling effect, right? And it is kind of crazy. So again, we're recording this on September 24th, but just in the past few days, there have been like five or six positive, like nuclear-related things that have happened. Kind of crazy. Totally. And to Jigger's point about like it's sort of a tragedy if you build the Vogel plant in Georgia. And then you have all these people trained on how. to construct a nuclear reactor. And then that's the end of the line, and then everyone goes to get a job at some other field, we're not going to have cheaper, more abundant energy unless what we've learned from one project

quickly gets deployed to the next project, which is while those liftoff reports from the DOE, like Jiggers talked about this on past episodes, the order book is just absolutely key. I'm thinking about the nuclear reactor catalog now. Maybe it'll come back, but it'll only be like two pages long. and it'll be like the Model T where you can have the nuclear reactor in like gray or gray. Yeah. All right. Yes.

I'm looking forward to that catalog arriving in my inbox on Christmas time. Shall we leave it there? Let's leave it there. This has been another episode of the All Thoughts podcast. I'm Tracy Allaway. You can follow me at Tracy Allaway. And I'm Joe Wisenthal. You can follow me at the stalwart.

Follow Jigger Shaw. He's at Jigger Shaw, D.C. Follow our producers, Carmen Rodriguez, at Kerman Armin. Dashel Bennett at Dashbot and Kel Brooks at Kel Brooks. Thank you to our producer, Moses, on them. For more Oddlots content, go to Bloomberg.com slash Oddlots. We have transcripts, a blog, and a newsletter. And you can chat about all of these topics.

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