President Trump’s war with Iran has rattled global energy markets. Oil prices have surged, LNG markets are tightening, and shipping through the Strait of Hormuz — a chokepoint that carries roughly 20% of the world’s oil supply — has been severely disrupted.
Tankers are stalled, shipping costs are soaring, and energy markets are bracing for one of the largest oil supply disruptions in history.
The result: higher fuel prices, rising electricity costs, and a reminder of how vulnerable modern economies still are to fossil-fuel geopolitics.
This week, we look at the wide-ranging impacts of the shock, from global oil and LNG markets to electricity prices and grid security. We’ll also ask the question: will this accelerate the shift toward clean, distributed energy or just push countries toward more coal? Or both?
That leads us to a big idea that is getting a lot of attention: the “bring your own distributed capacity” model where large electricity customers help unlock grid headroom through demand response, efficiency, batteries, and other distributed resources.
Guest co-host Julia Hamm joins us to talk about how the concept works, why it’s gaining traction among utilities and hyperscalers, and the pathway for distributed capacity to become a real solution to the grid’s growing constraints.
Credits: Co-hosted by Stephen Lacey, Jigar Shah, and Caroline Golin. Produced and edited by Stephen Lacey. Original music and engineering by Sean Marquand.
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Transcript
Stephen Lacey: Jigar, nice shirt.
Jigar Shah: You know, I’m trying to bring it for the audience. It’s this YouTube video now, right? So I’ve got to try to look the part.
Julia Hamm: Jigar has the paisley. I’ve got the polka dots. What are you wearing, Stephen? What are you bringing to this table?
Stephen Lacey: I’ve got blue with tiny little spots that you might not be able to see, but if you want to see our fashion, you have to watch this whole episode on YouTube. In particular, Jigar’s got patterns for the first time.
Jigar Shah: Yes. I’ve been told that it doesn’t suit me, so you may not see this ever again. But then again, if we get good comments on the video, then maybe I’ll keep doing it.
Stephen Lacey: I thought maybe you just got confused with the time change and picked the wrong shirt.
Julia Hamm: He’s in his pajamas still. This is his pajama time.
Stephen Lacey: From Latitude Media, this is open circuit. Right now, utilities are throwing a $1 trillion infrastructure party. Equipment upgrades, gas plants, nuclear restarts, the kind of spending spree the power sector hasn’t seen in a generation. But if you spend everything on the expensive stuff, eventually the cooler runs dry. And everyone knows the rule for keeping a party alive, BYOB. On today’s grid, the new rule might be BYOC, bring your own capacity. Meaning if you want to plug in a giant new load, a data center, a factory, whatever, you might need to show up with some power of your own. This week, we’ll talk about a specific flavor of that idea, bring your own distributed capacity. How do we make customer sighted resources the VIPs of the grid modernization party? And the backdrop for this conversation couldn’t be more urgent. Trump’s war with Iran has jolted oil and gas markets, threatening to push up prices across the economy and raising new questions about the security of energy infrastructure once again, highlighting the value of a more distributed system.
Could the chaos be another catalyst for solar and batteries? That is all coming right up after this. Welcome to the show. I’m Stephen Lacey. I am the executive editor at Latitude Media. I am joined by Jigar Shah, the co-managing partner of Multiplier and the host of the Energy Empire Podcast. Hey, Jigar.
Jigar Shah: Hello.
Stephen Lacey: How you doing? You’re feeling fancy today.
Jigar Shah: I am fancy.
Stephen Lacey: And back in the mix with us is Julia Hamm, a partner with the Ad Hoc group. Welcome back, Julia. Good to see you.
Julia Hamm: Yeah. Excited to be back. Thanks for having me again, Stephen.
Stephen Lacey: You’re in Aspen, I take it?
Julia Hamm: I am. It is spring break week for my kids. So my kids and their dad are out skiing while I’m here doing this.
Stephen Lacey: One of the worst snow droughts in decades in the west there. Are they finding places to ski?
Julia Hamm: Well, fortunately it snowed a little bit this weekend, so there is just enough for it to be decent, but other than the slopes, everything is totally barren here.
Stephen Lacey: Well, Julia is here to help us dig into a concept that we have talked about a bit, but I think we’re going to jump into head first, which is bring your own distributed capacity. And we’re going to spend a good chunk of time unpacking how those programs are shaping up and what it could look like for utilities and large customers. Before we get there though, I want to start with a little news. A bit of political hardball. For years, the clean energy industry has tried to play the long game in Washington, building bipartisan coalitions, emphasizing economic development, kind of mostly avoiding hard, direct political fights, but we’re seeing a new strategy emerge. And earlier this year, a political action committee backed by the solar industry spent hundreds of thousands of dollars targeting Texas Congressman Chip Roy, one of the most vocal opponents of clean energy tax credits in his primary.
And it didn’t knock Roy out of the race, but it did force him into a runoff and sent a pretty clear signal that parts of the industry may be willing to play offense, not just defense. And Jigar, you were actually involved in supporting that effort. What was it?
Jigar Shah: Well, I think as you know, right, it’s one thing to say that you’re against tax credits for a certain technology. It’s another thing to actually say that you are going to take the President of United States to the mat and actually reject his entire agenda unless solar gets the maximum punishment, right? And that is really what Chip Roy and several of his colleagues said. And I think that there should be consequences for such stupidity. And so when you do that and you hurt the lives of 500,000 plus people, then you should have consequences and you shouldn’t have a political future. And so we’re going to make sure that Chip Roy never has a life in politics again.
Stephen Lacey: Is this representative of an oncoming strategy from the solar industry or from adjacent industries?
Jigar Shah: Well, I think it’s been a strategy for some time, right? As you and I have talked about back in 2013 in the Energy Gang podcast where we’re like, with the state of Arizona and Arizona Public Service, I think the two regulators in Georgia, and now Tricia decided not to run for reelection at the Georgia Public Service Commission because she knows she can’t get reelected. I think at some point, when you’re 83% of everything that got added to the grid last year, which is solar and battery storage, and you’re single-handedly saving the ERCOT grid, which solar and batteries have done, right? And Chip Roy is basically a liberal from Bethesda, Maryland, that has somehow decided to move over and put a cowboy hat on and has decided that he’s going to cosplay like landman. And at some point, there should be consequences for that.
Julia Hamm: Jigar, I was going to ask you, in terms of the historical approach that the clean energy industry has taken, has it historically been more about supporting specific candidates and less about putting dollars towards opposing candidates and this is the shift that’s happening? Or am I missing a piece of that equation?
Jigar Shah: No. Well, I mean, I think you know firsthand from trying to look at these things, the historical view of the clean energy industry is that we don’t want anyone to notice us at all and we’re going to do everything behind the scenes in a way that is completely off the radar of anybody that’s out there, right? These are like secret backroom deals that get things done, right? And when you’re a hundred billion dollars a year, you can’t do that anymore, right? I mean, we deploy more capital every year in the United States than the oil and gas industry does. And so at some point, the whole notion that you’re not going to get targeted and that you can just sort of sit under the radar screen doesn’t work. And it’s causing huge conflicts, right?
When you think about the fact that people have had that strategy for so many years, we now have 24% of US counties that are now considering bans on solar and wind, right? And so like we now need to proactively explain what we’re doing, how much benefit we provide to communities, but also when people target us, like we need to make sure that there are real consequences and so that the next group of people who want to target us know that there’s real consequences to standing up.
Stephen Lacey: Julia, you’ve spent your career on the coalition building side of this transition, specifically for many years trying to get utilities in the clean energy industry aligned. I mean, to some degree that is what you’re doing now. What do you make of the push to get more confrontational politically?
Julia Hamm: Well, I think we need all of it, right? I mean, we talk about an all of the above approach to our energy portfolio, but I do think we need all of the above strategy to how we influence energy policy as well. So as you said, my background, I spent almost 20 years as the CEO of SEPA, which was not a lobbying organization. We were a 501, not a C6. We were focused on bringing parties together and looking for win-win solutions. I think there’s a very important role for that, but at the same time, I do think there is also an important role for these types of political campaigns. So different organizations and businesses are better suited for one approach over the other, but I think as an industry, we really need to be doing both.
Stephen Lacey: Yeah. I totally agree. I mean, you just have to look to the crypto industry, which over a decade and a half went from basically nothing, and then in a period of years became one of the most powerful lobbies in Washington. And so there is certainly a page of the playbook that the clean energy industry can take specifically from the crypto industry. Very interesting. And one last question for you, Jigar, are you planning to put more money into these campaigns? What was your financial role?
Jigar Shah: Yeah. I mean, I think that folks got to be donors, right? That’s how these things happen. But more importantly, I think there are experts who know how to craft the messaging and do that work. And I think there’s two or three more people on this list who I think need to see the consequences of their actions. And so we’re going to make sure that we finish what we started.
Stephen Lacey: Okay. Let’s broaden the scope here and talk about President Trump’s war on Iran, a war that almost no one asked for, but everyone will be paying for. And the details of how this came together in the fallout are quite remarkable. Just a reminder that we are recording this conversation on Wednesday, March 11th, so God knows what will happen between now and Friday morning when this episode comes out. But here’s what we know as of Wednesday mid-morning. In the last couple of weeks, the bombing has already sent reverberations through oil, gas, and power systems around the world. It shut down the Strait of Hormuz, this shipping corridor that moves one fifth of the world’s oil and gas supply. This is one of Iran’s key leverage points, and the war is starting to spill into natural gas and electricity markets, particularly because of LNG. So Iranian strikes on regional infrastructure have forced Kotter, which supplies roughly 20% of the world’s LNG to declare force majeure on some exports. And that’s triggered this scramble in Europe and Asia in particular.
And in some markets, we’ve seen gas prices have nearly doubled from pre-war levels and utilities in Japan are already seeing power futures jump by more than 30% on expectations of higher LNG costs. So this is really impacting Europe and Asia in particular. And even though the US produces a lot of natural gas, our domestic market is no longer insulated from global shocks because we’re building out these export terminals. And when global LNG prices spike, these signals can eventually make their way back into US gas prices and electricity costs as well. And the impact is really about how long this war goes on for, and we don’t really know the answer to that question. So I want to talk about what some of these consequences are and ultimately how this may, depending on how long the war lasts, accelerate the shift toward distributed energy, localized generation, more specifically solar and batteries. Julia, over to you. Everyone uses gasoline prices as a benchmark. What are the other impacts or exposures that you’re watching for?
Julia Hamm: Yeah. I mean, I guess one of the things I’m thinking about is, I don’t think the impact is going to be consistent nationwide, right? So I think there are actually regional components to this. So when we think about areas of the US, some will feel the pain more than others, and in particular as a result of increased wholesale electricity prices. So if we think about New England, right? New England competes for LNG with the rest of the world. So they’re going to feel the impacts faster and in a more meaningful way than other places. And then other places like Hawaii, which relies significantly on imported oil. So again, I think we need to be careful not to sort of take a broad brush stroke across the whole country and think about this in a more nuanced way. And I think we will see increases, but again, not consistently. So we’ll see, right? I mean, I think you’re right. Everybody looks at gasoline prices, the prices at the pump, and those impacts are going to be felt faster and just be more visible to customers than what’s happening on the electricity side of things.
Stephen Lacey: It certainly impacted the price of jet fuel. I just went to buy my ticket for Transition-AI, and I should have bought it a few weeks ago. I don’t know, Jigar, did you book your travel yet?
Jigar Shah: I booked it several weeks ago, so I was ahead of the curve.
Julia Hamm: Yeah. I think anybody who has big trips planned for the summer should start buying their flights this week, I think, before we see.
Jigar Shah: Exactly. Look for a local cabin.
Stephen Lacey: Yeah. I think jet fuel is something around like 30% of an airline’s operating cost, so it feeds directly into the price of a ticket. What about you-
Julia Hamm: And Stephen, I think that gets us into a whole other conversation around the impact of transporting goods, right? Whether it’s via flight or cargo ships or… I mean, we’re going to see this impact to diesel prices, which is going to have a trickle down impact to consumers on anything that gets moved from one place to another.
Stephen Lacey: Absolutely. And then you see dual pressures on the food system, so the cost of transporting fuel, the cost of refrigeration, and then the cost of fertilizers as well. And obviously those costs will really depend on how long this war lasts, but it is a multi-pronged impact. Jigar, what are the impacts that you’re looking at either in the energy sector or beyond?
Jigar Shah: Well, I think as you know, I’m good friends with James Gutman, who is one of the authors of the New Joule Order that came out of Carlyle early last year. I think I had him on the Energy Empire Podcast. And I think that this really just reinforces that thesis, right? The US will have really difficult impacts for people on affordability, right? I mean, gasoline prices probably will touch $4 a gallon, and that is a psychological threshold for folks, but we are going to have far more muted impacts than the folks who live in Asia where between 75 and 90% of everything that they import on the LNG and oil side comes from the Strait of Hormuz. I think you’ve got a little less impact in Europe, although you’ve already started to see price impacts, but far more muted than during the Ukraine conflict, right? I mean, TTF, I think, had gone all the way up to $300 a megawatt hour on the gas side in Europe.
And I think here they’ve gone from $31 a megawatt hour to $44 a megawatt hour, which is large from a percentage increase, but the absolute numbers are not close to the Ukraine conflict numbers yet. So I think that you’re going to see a lot more pain around the world. And I think the real question, I think, is what is the signal that the US is sending to all of the people around the world, right? Because we no longer need to protect the Strait of Hormuz, right? Because we are an oil exporting country and a gas exporting country. And so are we sending the signal that we are now fortress America and we don’t care about everyone else, right? Whether it’s Korea or Japan or other places, because remember, the Koreans and the Japanese are the ones who are supposed to be funding all of these 10 new nuclear plants in the United States.
I don’t know this week whether they’re feeling confident about wanting to fund VC Summer, right? Which is where Department of Commerce, Secretary Lutnick said the money was going to come from for that plant, right? And so the interconnectedness I think is real. The other thing that people don’t understand is that a lot of the reason why we have really cheap interest rates and a strong currency in the United States is that during the Arab oil embargo, we made a deal with all the Middle Eastern countries that they would take all their surplus money and invest it in New York banks. And so all of the US treasuries, all of the bonds that we sell on Wall Street are owned by Middle Eastern oil sovereign wealth funds, right? And so I don’t know if they want to diversify that more, right? Et cetera.
The thing that I think this administration gets wrong on a regular basis is that our standard of living doesn’t just come from the fact that we’re an oil super major and that we produce all of this oil and gas. It also comes from the fact that a lot of people trust us enough that they put a lot of their excess currency into US banks and the financial system. And I don’t know whether they’re going to continue to want to do that.
Stephen Lacey: Yeah. To your point about whether this is sending the signal about the US’s desire or willingness to protect some of these shipping routes, I don’t know that the administration really thought much about that. I mean, if you look at reporting, I don’t think they even had it in their scenario that Iran would shut down the Strait of Hormuz. And this is a place where roughly one fifth of the oil and gas supply flows through. And again, it’s a point of leverage for Iran. I’m not going to sit here and pretend to be an expert on the Strait of Hormuz, but I don’t think the administration was trying to be an expert either.
Jigar Shah: I think you’re being-
Julia Hamm: It wasn’t strategic.
Jigar Shah: No, I think you’re being a little bit too glib about this. I mean, I think you’re saying that it was incompetence, but I think-
Stephen Lacey: I am.
Jigar Shah: But what I would suggest to you is that all of these countries were sitting with Trump a week before this occurred at the Board of Peace meeting. This conversation was had explicitly, I know that for a fact. And so they may have taken everyone’s concerns and said, they’re not important, right? But it’s not that no one… Remember, we were building up all of these ships, et cetera, for a month beforehand, right? Oil prices went up from the low 60s to the low 70s since January 1st, right? Traders already knew that conflict was going to occur. People had been writing pieces in foreign affairs and other things that this was a problem, right? You could say that maybe they don’t know how to read or they didn’t read or whatever it is, but I’m just saying it’s not like no one said that this was a potential tail risk before the conflict started.
Stephen Lacey: That’s fair enough. And I know that the Biden administration mapped out this scenario in particular, but the New York Times came out with a great piece this morning reporting that several Trump officials, including Energy Secretary Chris Wright, dismissed warnings that Iran might respond to military strikes by using the Strait as an economic-
Jigar Shah: But that’s not incompetence. I just want to make sure that we’re being crystal clear, right? It’s one thing to say that no planning was done and they used ChatGPT to plan the thing. Fine. But what I’m saying is that when you have molecules people who are running this administration, like Chris Wright, and CERA Week is coming up right around the corner, right? People have been having conversations every single day for a month, right? Because they were planning their keynote addresses at CERA Week. It’s not like they haven’t been having these conversations. So I think it’s important to note that these concerns were dismissed. I think in some ways they’re saying that they don’t care. It’s not that they didn’t consider it, that they don’t care, and that I think is worse.
Julia Hamm: I think we can’t have this conversation without talking about China also.
Stephen Lacey: That’s right.
Julia Hamm: I mean, there’s a lot of… I’ve been reading a lot of sort of conflicting opinions on that. Some saying part of this, either by design or not by the administration, could be targeted at harming or weakening China, but also then I’m hearing China has diversified sufficiently that actually this really isn’t going to be that painful for them. So I’m not sure. I’m curious to hear where you guys come out on that.
Stephen Lacey: I mean, I agree that this will only embolden China as an electro state. I totally agree you can’t have this conversation without talking about China. They’ve invested a lot in oil stockpiles. They’ve invested heavily in domestic coal, in nuclear and in renewables. They’ve invested heavily in electric vehicles, which is offsetting a million barrels a day. I mean, it’s kind of a small amount in the bigger picture, but increasingly they’re offsetting oil use through electric vehicles. Renewables account for like 80% of new electricity demand. So they represent a growing share of final energy consumption as the country electrifies. Oil and gas relative to other Asian nations that makes up just a few percent of electricity generation, where in some other countries in Asia can make up 40% or so. So I think that this is only going to strengthen China’s position because they have seen the writing on the wall. This goes back to the neutral order conversation that we had last year too, Jigar, that this investment in localization is something that China has been thinking about very heavily.
Jigar Shah: Yeah. China is very well-prepared. I mean, so they knew something like this could happen. They have been overbuying oil for the past year, right? It’s been well documented and reported, particularly by Arjun Murti over at Veritin and they filled up a huge stockpile of oil. They’re sitting on a ton of oil in their SPR. LNG imports are only 6% of their energy, and so it’s actually very small. They built an overland pipeline with Russia, so they’ve got Russian gas coming in and Russia has no other place to sell it because the EU won’t buy it. And so they’re in a fantastic position. The thing that I find shocking, I mean, this is where I just think… We keep saying that the administration’s incompetent, but I actually think this is more sort of willful neglect. You’re in a situation where they’re actively hurting the US LNG industry.
I don’t think they really understand that the amount of money that you have to spend to switch from coal to natural gas is really backbreaking amounts of money. It is not something that anyone should do lightly. It’s a 50-year investment. It is now telling everybody to skip that step, right? And so all of these countries from China to the 50 oil importing countries are saying, wait, we don’t actually want to use natural gas. We’ll use it at the port, right? So we have an LNG import terminal, we’ll import LNG there, we’ll have a power plant there and we’ll maybe even put our industry there, right? But we’re no longer going to build out thousands of miles of natural gas pipelines to be able to switch people to natural gas in country, right? Because it’s so expensive.
And if you’re going to have this kind of supply disruption and the US just doesn’t care about protecting any of these shipping lanes, then why would we do that when it’s actually expensive, right? The landed cost of LNG is not cheap and we could just skip all the way to solar and battery storage, and the Chinese are obviously exporting that stuff to those 50 countries. And so I do think that this is going to hurt the entire story around the coal to LNG switch.
Julia Hamm: Yeah. Actually, Jigar, I was speaking earlier this week to a very senior level person in the electricity sector and asking his opinion on this. And he was pointing out, we’ve been watching over the past handful of years, all of this coal to natural gas switching, and he said he actually is concerned that if we see real significant international demand for LNG cargoes out of the US drastically increase, we could actually begin to see this drive from gas back to coal switching, right? The opposite direction.
Jigar Shah: Which I’m okay with, by the way. I have no problem with people burning more coal because it’s clearly not cost-effective. And so like the fact that you actually have coal, you’re always going to have coal in the same way that we have natural gas for capacity, right? You’re never going to get rid of capacity because the electricity markets need it. But what you found is in India and in China, they burned 3% less coal last year than they did previous years, even after building another 60 gigawatts of coal power plants. So you’re going to see people build coal power plants and not burn coal in them because it’s so much cheaper to build out solar and battery storage and wind. And so like, I actually don’t have any problem with the fact that there might be a temporary increase in coal demand because I think what you’re going to see long term is people just bypass LNG and moves directly to solar wind and battery storage.
Julia Hamm: Stephen, I feel like there’s a good sound clip you could take for Jigar there. Take it really out of context and blow him up.
Jigar Shah: I have said it many times before, so totally happy.
Stephen Lacey: I have never heard those words come out of your mouth, Jigar.
Jigar Shah: No, I mean, it’s the same by the way as my point of view on data centers, right? I think that the fact that they’re building tons of natural gas, go do it, right? But they’re not going to run any of it. The heat rates are too low. The grid is way cheaper to supply the power. They’re just giving us all free capacity and that’s fine. I like free capacity. We need the capacity auctions to be lower. So I just think that that is going to be the methodology by which people protect their electricity markets anyway. So we shouldn’t be fearful of coal plant construction. We should be fearful of coal plant burning.
Stephen Lacey: Well-
Julia Hamm: Well, still not good for affordability. We don’t need to be building stuff we don’t need and isn’t going to be utilized.
Jigar Shah: Well, if the US is going to have this security posture, then you do need it, right? This is the thing is if you’re going to localize all of these economies as per the neutral order, then you have to have your own capacity. You can’t rely on these flows, right? I mean, Korea had nine days of total storage of natural gas. I mean, we’re out of control now. When you think about Asian refineries, they’re now running at 25 to 50%, whatever the minimum is that they can run on. In the next few days, they’re going to run out of feedstock. As soon as they run out of feedstock and shut down those refineries, which they have to, it’s going to take three months to build them back up, right? I don’t think people are going to take energy security for granted for the next 50 years.
Stephen Lacey: Let’s talk about the long-term impacts here. It kind of gets to the question, the heart of the question that we often ask here. Historically, when oil markets were disrupted, countries didn’t have a lot of options. They paid more, they scrambled for new supply, but today there is a third option, electric transport, solar and batteries in particular. They’re cheap enough to provide a powerful hedge against fuel volatility, particularly in natural gas. So do you think a shock like this will push investment into solar batteries, other demand side resources? We just heard part of Jigar’s argument, and I want you to flesh that out a little bit more, but Julia, to you first.
Julia Hamm: Stephen, I think it goes back to where you started this conversation on it really depends how long the war lasts, right? If this is over in the matter of days or weeks, people have very short memories and I think we just sort of go back and keep doing what we’ve been doing. If it lasts a lot longer, then potentially it could have longer term implications, positive ones, hopefully, for the build out of more clean energy in the country.
Stephen Lacey: To this point, Jigar, about the unwillingness of America to protect traditional supply routes, do you think, whatever the length of this conflict is, do you think that memory will stick around longer in the markets, like that would create a longer term transition imperative?
Jigar Shah: Yeah. Look, I mean, every month this administration is in office, they are telling people to believe what they say, right? Which is that they don’t care about anybody but the United States of America. And I think that that means that they actually don’t care about the United States of America either because we are an interconnected country and our financial markets are buoyed by the fact that people are doing commerce in US dollars. But I think that on the perspective of solar and wind, I mean, I’ve already seen it, right? I mean, I talked to a friend this morning who said that there’s a hundred billion dollars worth of contracts that have been pending for over 12 months that just got signed over the last weekend, right? I mean, there’s a lot of projects that folks in Algeria have been sitting on for solar. A lot of projects that people were sitting on in India, people were sitting on in South Africa and they magically all got signed this last weekend. Why? Because-
Julia Hamm: But Jigar, but what about here in the US though? I think I’m curious to hear your perspective on is it going to drive change here?
Jigar Shah: Well, remember that when you think about where we are in the United States, we’re at 43% of all of our electricity comes from natural gas, right? The reason why all of the utility CEOs lost their jobs from 2005 to 2007 was because of volatility in natural gas prices, right? And so they all still have long memories, and so they don’t want us to become more dependent on natural gas. So they’re fine with the data center companies putting in all sorts of natural gas capacity. They don’t want them to burn more natural gas in that capacity except for a hundred hours a year. And so I think you’re still seeing a tremendous amount of movement on solar and wind. And so EIA has projected that most of everything that gets added to the grid this year will be solar wind and battery storage. And they projected that that’s also true for next year.
And so I think that the big challenge that we have in the United States is not this Strait of Hormuz issue because we are fairly energy independent. I think our big problem is we are a petro state. And so when you’re a petro state, you basically want the buggy whip industry to last longer. That’s how the world works. And so we are going to transition more slowly than states that are desperate for solutions because they are oil importing and natural gas importing nations. And so that is just the truth of where we are. I don’t know what else to do about it except to explain that to people. I think the electric utility CEOs are actually in the front lines and they could do a lot about this. But as you know, you and I have fought about this for years. Old habits die hard.
Stephen Lacey: Yeah. I think that’s a fair characterization of the difference between the US and the rest of the world. And certainly there are countries where you’re seeing crazy amounts of rationing right now with the cutoff of a huge amount of LNG supply. And those are the countries that are going to see a more direct policy response that could benefit in the distributed resources. Let’s just talk about a security issue that utilities are paying attention to. Julia, utilities are under so many threats. A lot of physical threats, increasingly physical threats with the rise of drones. The government and NERC is warning utilities to be aware of possible drone attacks in the wake of this war. What are the kinds of threats that utilities need to be paying attention to right now? What are the warnings?
Julia Hamm: Yeah, no, I think everything you just laid out is true, but I also want to acknowledge the utility industry for a long time has been thinking about threats from drones. Going all the way back to the med calf attack in 2013, that was not drones, but part of the sort of response to that physical attack on the system was a push from the federal government for utilities to build big walls around their substations and other critical equipment. But the utility industry response to that back all the way in 2013 was, but that’s not going to protect us from drones. Big walls do not keep the drones out. So they’ve been thinking about this for a long time. And one of the things that the electric utility industry is so good at is very close coordination, not only with each other, but also with federal, state, and other agencies that are very focused on security risks of all types, be it physical or cyber.
So I think the industry is very well aware of the risks and being thoughtful in terms of how do we stop it? That’s a good question. But it’s not just thinking about the use of drones to attack utility infrastructure. I mean, utilities themselves are using drones a lot and spending a lot of time thinking about what security risk does that introduce into the system, especially given… This goes back to the supply chain conversation, right? Most of the drones and related equipment and cameras that are used within the electric system at this point still come from China, and that’s a real problem for the utility industry. So we need to see more equipment used for the electric grid in the US, both manufactured either domestically or in friendly countries.
Stephen Lacey: Jigar, how worried are you about the increase of possible physical or cyber threats from a conflict like this?
Jigar Shah: Well, I mean, I think it’s been, as Julia suggested, it’s been on the mind of a lot of folks for a long time. I just talked to Tom Fanning the former CEO of Southern Company, and he’s now doing this full time, right? He’s working on figuring out a lot of these security risks and has moved to Washington DC and is now working with the administration to try to not just figure out these risks for utilities, but also how it’s interconnected with the communication sector, the water sector, because if you take out something in the water sector, it could affect the utility sector, electric utility sector. And so, I mean, I’m glad that super smart people like Tom are thinking about these things, putting plans together, figuring out how we respond to it.
But I think to Julia’s point, I think the notion that we’re going to prevent any and all vulnerabilities is probably not something that is a standard that we can reach. And so the real question is like, how do you best make sure that these soft targets are not so soft? And how do you make sure that we’re resilient and so that if something does happen, we can bounce back and have plans in place that people have practiced?
Julia Hamm: Yeah. Jigar, your point about the interdependencies is so important. And actually, I think it does not get talked about anywhere near enough across our society.
Stephen Lacey: Well, these heady topics always bring us back to one subject, and that is distributed resources. If we want to think about physical security, if we want to think about price hedges, we’ve got to get back to distributed resources. And so let’s talk about the big idea that we want to unpack today. That is the concept of bring your own distributed capacity. Obviously, we know that utilities across the country are facing a very stark problem. Load growth is coming in faster than they can build infrastructure. And to fill the gap, there’s this growing push to encourage large customers to help create the capacity themselves, mostly data centers where tech companies with lots of capital and this crazy urgency to power data centers are searching for solutions. The hyperscaler, for example, could fund distributed resources, and these resources could reduce peak demand on the system, freeing up capacity.
And Julia, I know that you have been really focused on these kinds of programs, asking how you verify the capacity, who pays for it, what’s the best way to put it to work? Ad Hoc and the Alliance to Save Energy recently put out this analysis looking at how to use this model to unlock gigawatts of capacity. The solutions are long established, but the backdrop is much different. What did you find?
Julia Hamm: Yeah, thanks, Stephen. So like you said, there’s not actually a lot of new here. It’s just sort of the context is changing, right? And so it is an interesting time where we can have commercial frameworks where we have large load customers like a hyperscaler that is funding these incremental investments in demand side management, things like heat pumps, rooftop solar storage. And there’s multiple ways that can come about, right? There are some situations where it can be done in very close partnership with the utility, and these are essentially utility programs and the resources are managed by the utility in partnership with its residential or C&I customers. And in other instances where there may be bilateral lateral agreements between the hyperscalers or other large load customers and aggregators that they don’t need to work directly with the utility. So I think there’s pros and cons to both approaches, different approaches work in different market structures.
But yeah, I mean, this idea of hyperscalers essentially creating the capacity headroom that they need, right? I don’t think bring your own distributed capacity is intended to say that it can provide all of the capacity that a hyperscaler’s going to need, but it can create sort of that headroom in order to help get them speed to power, help create a bridge to when the utility actually can get the necessary infrastructure upgrades and capacity that’s needed. So there’s a lot of different components to this that we’re seeing play out.
Stephen Lacey: And when you looked across the industry, what are the figures for like peak demand reductions that we could see in a typical system?
Julia Hamm: Yeah. Well, so the paper that we did with the Alliance to Save Energy didn’t do that analysis itself, but we spent a lot of time talking to different utilities, understanding their perspectives on these issues, and also looking at what other work had been done. So there’s a Brattle study in particular, I think that’s a good one to look at, which modeled the peak reduction potential of a demand response and energy efficiency portfolio for a single Midwestern utility. So sort of take that as like a typical utility. And what they found was that together, demand response and energy efficiency could meet up to 18% of that utility’s 2030 seasonal peak load. Again, this is one tool in the toolkit, right? It’s not 100%. In this particular case with this Midwestern utility, we’re talking about 18% of seasonal peak load.
Jigar Shah: Julia, I think that a lot of us saw the rewiring analysis that came out earlier. Is that like in some ways related to this effort?
Julia Hamm: It is, yeah. So Rewiring America has this homegrown energy report that they issued, which essentially found that household upgrades in heat pumps, again, rooftop solar storage, essentially could collectively provide enough capacity to meet 100% of projected electricity demand growth from data centers. So there is that analysis, right? So we have these two pieces. We’ve got the Rewiring America work that says sort of theoretically we could get 100%. And then this more one single case study look at a typical Midwestern utility saying 18%. So it’s going to be situation dependent in different places that the number probably is somewhere in between those two numbers would be my guess. But I think a really important part of all of this is really not… I want to make sure we don’t overlook the benefits to the actual residential customers when we’re talking about a bring your own distributed capacity, because that’s like a foundational element of this concept is that yes, we are creating headroom for the data center, the capacity headroom for the data centers in a way in which it’s directly benefiting individual customers, right?
So if you have a data center that is providing the funding to add these distributed energy resources and energy efficiency improvements to residential customers, you could be seeing these types of upgrades for households basically reducing their electricity bills anywhere from 700 to $1,000 a year. Especially for low income customers, that’s really meaningful. So if we can design these programs in a way in which they are focused on customers that have a really high energy burden, and again, it’s very location specific, right? Because these aren’t intended, these bring your own distributed capacity programs really aren’t intended to be system-wide. They really need to be focused on very specific parts of the system where the data center is going to be located and where there are capacity constraints, and then targeting them at customers within that same footprint. And ultimately, those residential customers will benefit. So this is very closely tied to the affordability conversation. There’s the sort of macro level affordability conversation, and then there’s the micro level conversation about affordability for customers with high energy burden, and this really, if done well, can help address both levels of the affordability conversation.
Stephen Lacey: Jigar, you’ve long been shaking your fist about how utilities are sort of taking the wrong approach to integrated resource planning and how they’re meeting the current load growth picture. I do hear from a lot of these companies that are operating in this space, so they obviously have an incentive to say that things are going really well, but I’m hearing that they have increased confidence that utilities are waking up to this reality and they’re no longer thinking about the efficiency, demand side management as compliance, but about an actual resource. Do you think that that is true?
Jigar Shah: Well, I mean, what did Winston Churchill say, right? America always does the right thing after exhausting all other avenues. And so I guess that applies to the utilities too. Look, I think we’re in a unique situation. I mean, Chamath from the All In podcast also basically put an idea like this out into the world on Twitter like two or three weeks ago where he said, “We think we can actually bring all this capacity from battery storage and solar across the country.” And he obviously is on the All In podcast with David Sachs, who’s the AI head for Trump. And so I think that there are lots of different places that this conversation is happening from different quarters. I think the thing that frustrates me the most about this moment is that the only people who have the resources to really drive this conversation is the US Department of Energy, right?
And we’re being asked to do this in private quarters with Ad Hoc and the Alliance to Save Energy and Rewiring America and Chamath from the All In podcast and then our stuff. And like now you have that new coalition that was announced this week called Utilize, right? Which Google and Tesla and Carrier are a part of. And when you think about Carrier, I mean, Lord Almighty, one third of all home air conditioning systems are Carrier air conditioning systems. They want every single new air conditioning system sold in the United States of America by them to have their four kilowatt battery integrated into that thing. When you think about how quickly those four kilowatt batteries become real grid resources, that’s a lot of kilowatts very fast, right? And so this could be a huge solution really fast. I mean, the other big trend that I’m seeing is that you’ve got huge anti-data center movements going on, right?
And so a lot of the reason why utilities should want to do this is because it actually provides real tangible benefits to communities that then say, oh, this data center thing isn’t just a burden. Because if you just listen to the president and the State of the Union address and you say, I promise you it’s not going to raise your rates. Well, your rates went up 15%, but that wasn’t because of the data center, that was because of something else, right? And instead you contrast that with, we’re going to help subsidize all of these Carrier facilities to go into your homes. We’ll pay the $3,500 extra for the battery or whatever it is and we’re going to make sure that you have these benefits. Well, now it’s tangible. You have something in your garage that actually happened because the data center company came in, right?
And so even though I think the numbers do pencil, and I think this report does a fabulous job of suggesting that, it also is what is needed in this moment to figure out how to negotiate the piece between these data center companies who want to get online quickly and communities who are just swimming in misinformation right now and are being told that these data center companies are going to do all these bad things to you.
Julia Hamm: Yeah. Right. I mean, it’s in utilities’ best interest to have this load growth through the data centers, right? And this is an opportunity for the utilities to bring a new solution to the table that again, it’s a bridge strategy, it’s increasing speed to power. It could potentially, if the investments are well targeted, it could also potentially help either delay or not need capital intensive build outs at all in some places, which yes, theoretically the utility business model says that they should want to do, but in this age of affordability, utilities have to be very careful about their investment strategy and there is only so much price increase that the regulators are going to allow customers to absorb. And so that is now requiring utilities to think very differently about these resources than they have in the past because they have access to a lot of capital, but the capital allocation has to be done in a different way today.
Stephen Lacey: What I’m trying to figure out is we often hear the industry introducing these concepts or talking about how important they are and then the utilities obviously move at their own pace. Do you think that the narrative inside utilities, Julia, is consistent with what you both just outlined, that they actually recognize those points?
Julia Hamm: I think the answer is it depends. Yes, some of them do, but certainly they’re not all there yet. I know you guys talked last week on the show quite a bit about the new Google agreement with Xcel Energy in Minnesota, right? But that’s a great example and that it has both the bring your own capacity portion with the build out of large amounts of wind, solar storage at grid scale, but then it also has the bring your own distributed capacity portion with $50 million being put in by Google, specifically to Xcel’s Capacity Connect program, which is focused on this distributed network of smaller batteries across their system in order to increase capacity and improve grid resilience. So it’s good to begin the very early stages of utilities actually starting to begin to execute on these types of programs, but I also want to make sure we don’t forget about the regulators and the importance of educating regulators.
We saw another example where NV Energy had proposed something similar to what Excel is doing, but the commission in Nevada said, interesting concept, we’re not ready to approve this yet. You need to go back to the drawing board and sort of give us more to prove that this is the right approach. So I think as an industry, we need to be very thoughtful about… And again, this goes back to my nature of sort of all those years at SEPA and sort of being the convener and the collaborator and bringing people together. It’s got to be the utilities, the regulators, the hyperscalers, the technology companies, the consumer advocates. We’ve all got to be getting educated together in order to make sure that these programs are designed in a way where we truly are maximizing the benefits for the entire ecosystem as opposed to creating winners and losers.
Stephen Lacey: If I had a dollar for every time that we’ve talked about the need to educate regulators, well, I wouldn’t-
Julia Hamm: You’d be rich.
Stephen Lacey: I wouldn’t need to be finding sponsors for this podcast. But why don’t we just get them all in a room and sit them down and make them listen to the entire back catalog of open circuit? You think that’ll change?
Jigar Shah: Well, that was called the winter meeting of NARUC. I mean, honestly, what happened at the winter meeting of NARUC was the entire meeting was hijacked by grid utilization. Everyone from the Republican side of the aisle to the Democratic side of the aisle was talking about we need to get more out of the grid that we’ve already paid for. I think the big challenge that we have right now is we don’t have a new macro narrative within which this fits, right? And I think that’s what we need to get to. So the macro narrative of the past was renewable portfolio standards, basically, right? We need to pass 100% renewable energy mandates, whatever it was, right? And I don’t think the big green organizations have come up with a new macro narrative on their side. And so I think a lot of what this response looks like is the industry itself coming up with a macro narrative around grid utilization, and that’s dynamic line ratings and advanced conductors, and then a lot of this bring your own distributed capacity work.
And then there’s multiple layers to it, right? And so that’s why the big green dollars are needed, right? Because that’s like a $500 million NGO budget, right? So when you think about what this means, you could be stuck with a demand response framework or an emergency demand response framework, which is not what we want. So when you look at people like WeaveGrid or Sparkfund in the Capacity Connect program for Xcel Minnesota, they’re suggesting real deferral that’s capable of being accomplished on distribution system upgrades because of a continuous approach to managing load and making sure that those peaks don’t come up, right? Then you’ve got the recent BRA guidelines that came out of the PJM and what’s going to be allowed in the June auction, right? And so that means that all of these batteries and other things can now be used for transmission system capacity payments, right?
And Voltus and some of those folks are using these for quarter 22 22 resources to do that. And so I think that when you think about just layering the benefits on top of each other, I think we have not done a great job of putting all of that context in place because we certainly are deploying all of the assets, right? I mean, when you talk to Ream and some of these like water heater companies, every one of them is like, we’re a VPP now, right? A Carrier is obviously coming out with a VPP product, right? Tesla is announcing how they’ve already shipped a million power walls and they’ve got VPPs across the country, right? And so when you think about just how much is happening, Base Power I think just announced a hundred megawatt contract with a rural electric co-op. And so you’re starting to see so much activity occurring, but the framework under which it sits is not yet really clearly articulated so that utilities understand what the 20-year picture looks like.
Julia Hamm: Yeah. Jigar, on your point about grid utilization, I do think it’s interesting to see what’s happening in Virginia with this new legislation that’s going to require the investor and utilities to actually assess and be much more transparent with grid utilization. And so I’m really curious to see whether this becomes a trend, right? Are we going to see other states begin to do something similar? I think it’s tricky though, right? Because grid utilization, I think there’s real benefit in doing this, but the grid is so complex, I am a little worried that policymakers are going to get information from the utilities on grid utilization and put in place laws and regulation that actually have unintended consequences because they don’t understand how the system really works. So I can argue that this is a really good thing to do, but I’m also cautious in that we need to make sure it doesn’t have unintended negative consequences.
Jigar Shah: Well, I think that’s why the $500 million that goes into the big green groups needs to be focused on this, right? It needs to be studied. There needs to be a lot of money going to SEPA and all the rest of the organizations to actually facilitate this conversation. I mean, right now, I was at the UNC Clean Tech Conference this week and Tom Fanning was there and Southern was there and Southern was like, yeah, we just said yes to all this stuff. We’re doing dynamic line ratings across Georgia, we’re doing six gigawatts of battery storage, right? We got a $26 billion loan from the loan programs office. We’re saving $7 billion of rate payer benefits and Duke just shrugged their shoulders and was like, we make a lot of money on fifty fifty equity debt ratios. Why would we do this? What’s going on? We don’t want to lead in any way, shape or form.
I mean, the governor came to the conference and was like, what the hell? They just upped their CapEx by 18% to $103 billion and are promising rate increases of 15%. And so every single utility is coming at this from their own perspective. Duke was actively badmouthing dynamic line ratings at the conference, right? And so I don’t know where this goes, but I do know that it’s not going to go well for Duke. And so my sense is that we’re going to need a lot of this money and a lot of this expertise at the Rocky Mountain Institute, at NRDC, at EDF, at all these other places to get up to speed on this stuff. They still haven’t weighed in. I think they’re really talking mostly about reducing utility ROEs and I mean, I was like, you’re out to lunch. What is wrong with you?
This is not where the argument should be. And the people who work there, by the way, are fantastic. So I’m not badmouthing these places, but I think that their donors haven’t given them a new scope of work to work on. And so we need to all coordinate this stuff well. And I think this paper, frankly, is super important to getting us there.
Stephen Lacey: On the macro scale, do you really think that the enviros and industry will be aligned on this? The environmental groups are hearing from their base that people are cynical about the AI build out. They don’t want to be seen as championing this kind of load growth. And I think they see it as a step backward. And so yes, we might be utilizing these resources, but to what end? And I think there’s a lot of cynicism probably from the base of these environmental groups, whereas the industry’s perfectly happy to slot into this all of the above framework, champion energy dominance, say yes, let’s win the AI race and here’s how we’re going to do it. This is a new tool in the toolkit. And so I don’t know that those messages are ever going to be really aligned.
Jigar Shah: It’s a very difficult thing, right? I mean, I’m on the board of the Yale Environmental Justice Center and the environmental justice people are 100% behind this, right? Because for them, it’s not scarcity, right? I think the people you’re talking about are the folks within the movement who just basically believe in degrowth. But in the environmental justice community, they want opportunity. This is not really about degrowth for them. They’re just saying all this stuff has occurred and our children in our neighborhoods weren’t able to get jobs out of it. We want to get jobs this time around. We want to make sure we-
Stephen Lacey: And we don’t want gas engines parked on trucks in our neighborhood.
Jigar Shah: Totally, right? And we want to make sure that we get access to batteries and solar. We want to get access to this technology. And so the coalition has lots of different people with lots of different opinions, and you’re right, the coalition’s going to shift. But I think in general, this is a more hopeful and a better future. And I think the vast majority of folks see that.
Stephen Lacey: Julia, do you see BYOCD as a bridge strategy or a permanent feature in how we kind of build the next phase of the grid?
Julia Hamm: I think it’ll be both, right? I think again, it’s going to be different in different situations. So I think there are some places where it’s a very logical bridge strategy and other places where the situation is different and it could be a long-term solution.
Stephen Lacey: I mean, man, if we can’t make this model work now, when are we going to make it work?
Julia Hamm: Yeah, really. I mean, one of the other things, Stephen, I just want to mention, when we talked, and this is sort of more macro beyond just the bring your own distributed capacity conversation, but in this conversation around data centers, hyperscalers, AI, we spend so much of our time as an industry talking about what’s happening in PJM. And I just want to remind everybody there’s a lot more to the country than PJM. And so sometimes I worry, and when I think about it from a mass consumer perspective, the messaging around data centers are driving up costs, electricity prices for everyone is the narrative I think that people are hearing across the country when in the reality, yes, that’s what’s happening in PJM, but that’s not what’s currently happening in most other parts of the country. So I just want all of us as an industry to be very intentional about like when we’re talking about what’s happening in PJM, being explicit about here’s how PJM is different from what’s happening in the rest of the country.
Stephen Lacey: Julia Hamm is a partner with the Ad Hoc group. This was so much fun. Good to see you.
Julia Hamm: Yeah. Great to be here again.
Stephen Lacey: I’ve got a pair of grass skis in case you can’t find any snow there, so just let me know if you want to borrow them.
Julia Hamm: Thanks. I’ll have to give that a shot.
Stephen Lacey: Great to see you. Jigar Shah is the co-managing partner of Multiplier. Thanks, Jigar.
Jigar Shah: Thank you. That was some dark humor, Lord Almighty, right? We are running out of water.
Stephen Lacey: Don’t change that shirt.
Jigar Shah: I won’t today.
Stephen Lacey: All right. Open Circuit is produced by Latitude Media. The show is edited by me, Sean Markwand and Anne Bailey. You can find episodes of Open Circuit on Latitude Media’s YouTube page. Click the link in the show notes and subscribe there. You can also, of course, find the audio version anywhere you get your podcasts and transcripts of every episode are available at latitudemedia.com. We’ve got newsletters there, so we’re constantly reporting on many of the topics that we cover on this show, and you can sign up to our daily briefing, our AI Energy Nexus newsletter, and hear more about our upcoming events, one of which we had a very successful event with the Ad Hoc group, and we are continuing to partner with Julia’s organization to build really solid industry conferences. So just head on over to Latitude Media and hit subscribe, and you’ll stay up to date with what we’re working on at Latitude. Thanks so much for being here. We will catch you next week.
