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
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Want to know more about how the spike in data center energy use is impacting the grid? Sign up for Latitude Media’s next Transition-AI event, upcoming on May 8. Latitude Media Executive Editor Stephen Lacey will be joined by three experts who offer a range of views on how to address the energy needs of hyperscale computing, driven by artificial intelligence: Brian Janous (co-founder of Cloverleaf Infrastructure and former VP of energy at Microsoft), John Belizaire (CEO of data center developer Soluna), and Michelle Solomon (senior policy analyst at Energy Innovation).
Transcript
Shayle Kann: I’m Shayle Kann and this is Catalyst.
Andy Lubershane: 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 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.
Shayle Kann: 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 in energy world what percentage of their conversations mention the data center challenge. Whichever one is lower, hasn’t figured it out yet.
I am Shayle Kann. 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 Lubershane, 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 du jour 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.
Andy Lubershane: Thank you. Always a pleasure though. I wish I was back under better auspices than returning to the electricity gauntlet.
Shayle Kann: You wish that you had been wrong about it.
Andy Lubershane: I did. I think I said that in the first podcast. I wish I was wrong, but we were not wrong. Not even close.
Shayle Kann: 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.
Andy Lubershane: So, 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 hazing ritual where soldiers would have to run in between two columns 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 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.
Shayle Kann: I’ll add one additional element to it, which is I think the spearmen on 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.
Andy Lubershane: Yes.
Shayle Kann: 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 gauntlet.
Andy Lubershane: 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.
Shayle Kann: Right. Okay. So, that’s the gauntlet. And, I think when we first talked about it was a cool novel way to think about a thing that 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?
Andy Lubershane: So, I started talking about this concept of the gauntlet with 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 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-
Shayle Kann: Or the press at least.
Andy Lubershane: … 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, 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 well covered, at least in the public, general purpose media, but in industry media, we’re seeing a lot more reports of the real consequences of starting to enter this gauntlet.
So, utilities that are filing for adjustments to their integrated resource plan suddenly saying, “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 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 showed that many areas of the country, which previously had been at a normal very low level of risk for any electric power reliability event, at least due to lack of capacity, all of a sudden, what NERC is considering elevated risk or even high risk. And that happened also very quickly.
Shayle Kann: Yeah, it feels to me like this was a trend that was bubbling under the surface for quite a while, right? 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 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 supercharged all of it. 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 things were starting to happen.
So, the gauntlet was emerging, but then, the reason that it has become so much at the forefront of 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 said, versions of the gauntlet to arise on a location by location basis with 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 a 5 or 10 year trend, akin to, I think about you and I were both paying attention to the emergence of distributed energy resources a decade ago, 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 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 who’s long capacity has a lot of especially clean firm capacity. So the owners of nuclear, but others as well, their share prices are just through the roof. Vistra, a bunch of others this year. So, 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 AI supercharging an existing trend.
Andy Lubershane:
Yeah. I think there’s a few things about AI that have made it such a… It’s really the first tip of those first spears in the gauntlet, and it’s such a good 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 requirements of modern data centers. 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, we’re talking about nuclear power plant level electricity demand. The second thing is that it’s super high value as a use for electricity, right? So, 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.
Shayle Kann: “If you can get us power soon.”
Andy Lubershane: “If you can get us power soon.”
Shayle Kann: They’re price insensitive, time sensitive.
Andy Lubershane: And that magnifies or at least emphasizes how acute this challenge is, right? Because they’re saying, “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, in many cases, get power on those timelines.
Shayle Kann: Right. Okay. So, high level, 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 what is starting to happen as a result of it. I mean, you mentioned one thing already, which is that utilities in these pockets, in these locations where it’s most prominent, which tend to be the data center regions, the existing regions, are reckoning with totally unprecedented and unpredictable load growth and having to figure out how to deal with that from a planning perspective. So, tip of the spear on this is Northern Virginia and Dominion Energy, which has been the biggest data center region, historically, 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 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’s arrival that I think we’re going to have to be talking about a lot over the next few years. What does this mean for new generation types?
Andy Lubershane: It’s a real challenge for de-carbonization 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 site, 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 Evergy 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-fired generation capacity.
Shayle Kann: Can we clarify why that is true? Because I think it’s not obvious. Because it is 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 clearest, fastest, easiest path to capacity as opposed to generation is to build new natural gas.
Andy Lubershane: That’s right. I mean, 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 demand growth, you really do need both actually. And so, you can build a bunch more renewables if you can get them sited, and permitted, and interconnected, which has gotten harder in recent years, although I am still very bullish on the long-term prospects for renewables growth in many areas. But, 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 more kilowatt-hours and definitely more peak firm kilowatts from something. And, 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 doesn’t require a lot of land, doesn’t have enormous siting and permitting challenges, natural gas is really the thing. And 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.
Shayle Kann: 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. Exclusively from a de-carbonization 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 should 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, we can go back and forth and 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?
Andy Lubershane: Got it. Should I start?
Shayle Kann: You start.
Andy Lubershane: Okay. I’ll start with the big longer term ones. 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 sited 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 crossing their fingers and hoping and asking this question like, “When will nuclear have its time? Is there the potential for a real nuclear renaissance?”
Shayle Kann: Nuclear, by the way, has had its time. It was just in the ’50s through the ’60s.
Andy Lubershane: Right.
Shayle Kann: You mean when will nuclear have its time again?
Andy Lubershane: Yes, it’s renaissance, it’s second time. And there’s, I think, actually a shocking level of consensus within the community of power system planners, and utilities, and grid operators, at least 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 new loads, that nuclear needs to be a part of the solution. And, I think this gauntlet that we’re facing now might finally be the 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 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.
Shayle Kann: Right. That’s the key thing about it, right? So, 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 bought this data center and construction that they’re going to put behind the meter at an operating nuclear plant, talons 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 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 churn 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.
Andy Lubershane: 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 replicable way of building out the next generation of plants, so that we can come down the cost curve once more.
Shayle Kann: 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, 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 workhorse of the grid type of thing.
But then increasingly, if you really want drew 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 Form 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 was already ascendant, I think, but this certainly is going to catalyze more of that.
Andy Lubershane: I agree. I think this amps up the market for storage in all of its forms. I think, in general, 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 for a company that is moving very quickly down the 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 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.
Shayle Kann: Right. Okay. So, thing one was nuclear, thing two is storage of various stripes, your turn to pick a thing that can help.
Andy Lubershane: Okay. All right. So, we can’t leave out geothermal if we’re going to talk about clean, firm generation technologies. Geothermal, again, 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. We have a few gigawatts of geothermal power generation in the U.S. today. And, almost all of it is in these very rare places where heat rises very naturally close to the surface of the earth and 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 almost accidental resource that have today? And, geothermal, if you could do it at its maximum extent, if you could drill down, I think it’s around 10 kilometers deep pretty much anywhere on earth, then hypothetically you have 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 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, companies like Fervo for example, that are using technology and techniques that have really been developed and started to be proven or have been fully proven in some cases in 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 2030. But unfortunately, yet again, this doesn’t solve our three to five-year problem for the most part.
Shayle Kann: Right. I should add in the category of clean, firm, right, you’ve got the other things people will mention, hydrogen for power, either blended or exclusively used in 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 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 ubiquitous solutions geographically. But, depending on the economics and the policy environment may each have a role to play here.
Andy Lubershane: Yeah. And I think, they are worth talking about a little bit further, 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, 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, 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, it 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 future-proofing it?
And I 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 site, your plant somewhere that’s 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. 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 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 of different ways of doing that. One you mentioned is hydrogen. So, 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 it 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 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.
Shayle Kann: Right. And EAP 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 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. 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. You want to talk just quickly through what are the different categories within GETS?
Andy Lubershane: Yeah, there’s a bunch of different technology categories, but I think, probably the one that gets the most attention deservedly so is 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 pick the most adverse conditions that that transmission line could operate under, very hot and windy, conditions that would be most prone to cause a wildfire or damage to 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. 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, this is a really, really compelling, elegant idea, I think. 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 running the transmission system, 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 the early pilots of these types of technologies and also studies that have been done is that there is some nuance, there are additional constraints that make it more difficult to realize the benefits of this thing in practice, than it may be 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 and more sense to ring as much value as is really physically possible out of transmission system.
Shayle Kann: All right. So, we have a suite of technologies that can help solve this problem, all have their own challenges and their own opportunities. But, if you’re sitting in a company that is doing any one of these things, this is 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?
Andy Lubershane: 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, basic economics, right? We’re seeing demand rise really quickly. We’re seeing constraints on supply, all oil sequel. 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 de-carbonization, and the fact that 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 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 we should anticipate electricity prices going up.
Shayle Kann: 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 it getting spread to other rate payers. 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.
Andy Lubershane: 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 again, I think what we’re going to see it from companies like data center operators, particularly big hyperscalers who simultaneously have really aggressive carbon goals and aggressive and acute need for power who are willing to probably pay that premium and take on some of the risk premium for deploying 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 a head of nuclear. And I think we’re going to see more like that coming from some of these really ambitious big power consumers.
Shayle Kann: All right, so final question to address. What do you think the odds are that this is all a bit overblown? 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’s a side effect of the AI hype cycle, the counter argument that people will make is either, one, AI is overblown and 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 is 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, EV 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. How would you handicap the likelihood that now the pendulum has swung in the other direction and we are over hyping the gauntlet?
Andy Lubershane: 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 reason to believe that it’s overblown in the short-term 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 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 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.
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. 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, I’ll say on top of that, one thing we didn’t talk about is that renewables as well have been having a difficult time for the past year or so, right? 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, if anything, I think, that article has yet to be written in major publications, right?
Shayle Kann: 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.
Andy Lubershane: That’s right. Exactly. And, I guess, again, I’m hopeful that as business wakes up to this, and industry, and the general public that it does become a drumbeat for some policy and regulatory change that I think is really necessary to really accelerate the 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 infrastructure quickly, particularly let’s say transmission infrastructure, because that is one of the big bottlenecks in this equation. That’s the 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.
Shayle Kann: 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 the supply side of the gauntlet. But in the meantime, Andy, thanks again for the time.
Andy Lubershane: Thanks Shayle.
Shayle Kann: Andy Lubershane is a partner and 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 accelerating climate innovation that will reshape the global economy for the betterment of people and planet. Learn more at preludeventures.com. This episode was produced by Daniel Waldorf, mixing by Roy Campanella and Sean Marquand, theme song by Sean Marquand. I’m Shayle Kann and this is Catalyst.
