America turned 250 years old last week. While local leaders were busy organizing parades, re-enactments, and flyovers, grid operators and emergency officials were dealing with something else entirely: a heat dome settled over the eastern U.S.
Nearly 200 million people were under extreme heat warnings, the national parade in Washington was canceled, and PJM, the largest U.S. grid operator, hit a new all-time demand record.
The Energy Department issued emergency orders to keep the lights on. And people living next to data centers wondered: how much diesel pollution would they breathe if all the backup generators kicked on at once.
This week, we’ll look at two energy stories playing out in response: the top-down effort to manage grids stressed by data centers and extreme weather — including the biggest-ever virtual power plant getting built to take the pressure off.
We’ll also look at the bottom-up movement of Americans bolting solar panels to their balconies and backyards. The market for plug-in solar has surged in Pakistan and Germany. Will it add up to something meaningful in the U.S.? And could it play a role in virtual power plants?
Get your ticket to Latitude Media’s Flex Summit in Austin, Texas on October 14-15.
Credits: Co-hosted by Stephen Lacey, Jigar Shah, and Caroline Golin. Produced and edited by Stephen Lacey, Sean Marquand, and Anne Bailey. This episode was mixed by Matthew Filler.
Open Circuit is brought to you by FischTank PR, an award-winning climate and energy tech, renewables, and sustainability-focused PR firm dedicated to elevating the work of both early-stage and established companies. Learn more about their PR approach and how they can support your company’s messaging by visiting fischtankpr.com.
Transcript
Stephen Lacey: From Latitude Media, this is Open Circuit. America turned 250 years old last week. While local leaders were busy organizing parades, reenactments and flyovers, grid operators and emergency officials were dealing with something else entirely: a heat dome settled over the Eastern US.
Nearly 200 million people were under extreme heat warnings. The national parade in Washington was canceled, and PJM, the largest US grid operator, hit a new all time demand record. The Energy Department issued emergency orders to keep the lights on for the second time this summer and people living next to data centers wondered how much diesel pollution would they breathe if all the backup generators kick on at once?
So this week we’re going to look at two stories playing out in response. The top-down effort to manage grids stressed by data centers and extreme weather and the biggest ever virtual power plant getting built to take the pressure off.
We’re also going to look at the bottom up movement of Americans bolting solar panels to their balconies and getting their first taste of energy independence. The market for plug-in solar has surged in Pakistan and Germany. More states are approving it here. Will it add up to something meaningful in the US? That’s all coming right up.
Hey everybody. Welcome to the show. I’m Stephen Lacey. I’m the executive editor at Latitude Media. Jigar Shah and Caroline Golin are my co-hosts. Jigar is of course a long time clean energy investor, entrepreneur, podcaster. How are you, sir? You look like you might be at your lake house today.
Jigar Shah: I love it. I have not had any of the heat because we’re in the Appalachian Mountains and I got to watch the local 4th of July fireworks and so I am not riddled with pollution and air quality alerts.
Stephen Lacey: Are you a big 4th of July person? Like do you drape yourself in the flag, so to speak?
Jigar Shah: I do. I have a shirt that looks like a flag, but one of my big problems is that I feel sad. I feel like I live in the DC area. I probably should have wanted to go to the mall, but I actually just don’t want anything to do with it. If you were to do this right, President Obama and George Bush would have been there and all the other people celebrate 250 years of our country, but there was no chance that they were going to be there.
Stephen Lacey: Caroline Golin is the chief growth and policy officer at NRG. How was your fourth?
Caroline Golin: It was great. I was in Ithaca, New York, which was very hot, surprisingly. I was glamping, went to the lake, tried to watch some fireworks. Very nice. Then got stuck in the hell of getting back. JFK. It was terrible, but yes.
Stephen Lacey: Well, in the spirit of independence, let’s start with a topic that we’ve been meaning to discuss for a while and that is plug in solar. You may have seen it named balcony solar, garden solar, guerilla solar. The basic concept is you take a small solar panel or a series of panels often up to 1200 watts that you affix to a wall, a railing or prop up in the backyard. You got a microinverter that converts the power and you plug it directly into an outlet and it offsets whatever electricity you otherwise draw from the grid. No electrician, no lengthy installation. You kind of buy it like an appliance. This is already enormous in Germany. They’ve got roughly four million systems there. Kits are available at IKEA for around 250 euros. And the war in Iran and the Ukraine war turbocharged interest across Europe and Pakistan. And now it’s coming to the US.
We’ve got a growing number of states that have passed legislation to legalize these systems. People are starting to take it seriously. So what is its role? Where is it headed? Jigar, I want to start with some background. Let’s just have you describe how plug in solar got its initial boost. It was in 2022 after Russia’s attack on Ukraine sent energy markets spiraling. What happened in the wake?
Jigar Shah: Well, I mean, I think as you know, we’ve had a movement like this for 10 plus years. So people have been saying, I want to have a solar panel. I want to have a microinverter in the back of it, maybe a battery that’s attached as well to the solar panel. And I want to be able to plug it into a circuit. And in Europe, the safety mechanisms are largely built into the home plug. It’s not actually just in the breaker panel like it is in the United States. And so if you look at a UK plug, it’s like this beefy thing because there’s actually a fuse in the plug. And so from that perspective, it’s really a lot easier to do it in Europe because the safety is right there in the plug outlet. But I think in general, people realize that if you didn’t have all of the professional installer, salesperson, et cetera, and you could just buy it retail and then you could just plug it in, in a do it yourself type framework, that you could have all of the costs go away.
And that took off like a rocket ship. I think the part that I found a little bit weird was they sort of magically created this 800 watt, 1200 watt sort of standard, which I don’t quite understand exactly because to me it’s all about whether you’re back feeding into the grid or whether you’re not back feeding into the grid or you’re back feeding into your circuit or not back feeding into your circuit. But in general, it really took off. And I think the Germans, broadly speaking, have not quite come to grips with how they want their grid to run in the same way that the Australians have figured out how they want their grid to run with so much residential solar. I just feel like the Germans are like, “Well, we have a beefy enough distribution grid and transmission grid that we can handle everything.” I don’t think the orchestration part of the German model is as prominent as it is in Australia.
Stephen Lacey: And what about Pakistan? Just tell us, remind us that story. That was pretty extraordinary growth.
Jigar Shah: So the Pakistan story is not balcony solar, although I think there are many people who may have wanted it to be. It was more that during the 2022 European crisis, they had a LNG train that was going to Pakistan that was going to power the Belt and Road projects that China had funded, these natural gas plants. And the Europeans outbid them for that LNG train. So the LNG train just sort of turned around and went to Europe. And so Pakistan was immediately plunged into rolling blackouts because they didn’t have enough fuel to power these power plants. And so six or seven wealthy families in Pakistan recognized that the solar panels they had in inventory were gone. People just bought them all within weeks and so they thought they had inventory. So they went back to their suppliers in China and said, “Hey, can you integrate some of this stuff into the solar panel and then ship us stuff with stuff integrated?” So they actually created sort of a microgrid solar panel out of this crisis.
And then they went to 1200 bodegas throughout Pakistan and sold the stuff directly to consumers through 1200 bodegas. And they were selling just gargantuan amounts of solar. And then the local folks were using WhatsApp and not YouTube, I think it was TikTok videos. And they were teaching each other how to do it. And they would just blow charge controllers and all sorts of stuff because they’d do it wrong and they’d have to go back and buy another one. But the whole thing was just done by WhatsApp and TikTok and stuff and people just did it. And then the farmers got into it because they were still using diesel for some of their uses. And so they were like, “Oh, we’ll just buy this stuff too.” And so all of this was done out of the official electric utility system, which is why the utility system in Pakistan is basically going bankrupt right now because there’s just no revenues going into the utility.
So I would not as a developing country copy Pakistan’s trajectory just because I think having a healthy profitable investment grade utility is a good thing for development. But yeah, I mean, it was less formal, just like parts. You get parts and you put them together with YouTube or with TikTok.
Stephen Lacey: Well, Caroline, to the plugin solar that we know here in America and in Germany, what do you see as the forces driving this market right now?
Caroline Golin: The top line is just price. And I think that there is, as with the entire country, there is a consistent wave of skepticism of institutional norms and just institutions that have been established as the provision of choice. And I think that everyone sees what’s happening on the affordability front. Everyone sees that there isn’t a solution here. There’s a lot of political rhetoric. There’s a lot of sort of hand waving at some of the RTOs and there’s a lot of governors coming out with statements, but there doesn’t seem to be a real program that is going to be modeled to insulate from rising electricity costs. And I think if this administration has done nothing, it has reinforced, I think in the American people, this concept of like, if you don’t like it, buck it. And I think that people have taken that on. And I think that that can be a good thing.
I think that it can also potentially create a lot of… And to Jigar’s point on Pakistan, it can create a lot of unintentional consequences because our grid wasn’t designed to be a two-way power flow. It can get there, but it’s just not designed to be that and it’s not designed to be that aware. And maybe this is the straw that breaks the camel’s back that finally makes grid operators invest in the type of technologies that need to be there. But I think in general, people are doing it because inflation, rising food costs, rising housing costs, everything’s rising and they don’t have control over anything. They can control this, they’re going to try to control it. And I think that’s probably the rational response.
Stephen Lacey: Yeah. If you listen to what consumers are saying here in the US, it is very much an affordability play more than a decarbonization play.
Caroline Golin: I think the early adopters of solar, it was a decarbonization play. And then there were certain states where there were net metering standards that made it an isolated economic play. But now it’s really defensive, I think more than anything.
Stephen Lacey: Yeah. And so Jigar, we had an episode a few weeks ago about how angry people are at utilities. And so the affordability piece and the anger at utilities, those are inextricably intertwined, but how much do you think this is consumers trying to stick it to the utility or consumers acting out of desperation like I have to control costs in any way I can?
Jigar Shah: I wouldn’t say we’ve hit desperation yet. My sense is this is more people wanting to stick it to the utility. Because once you hit desperation, then you go to ACE True Value down the street and you’re actually just picking it up, sticking in the truck and then installing it that in the afternoon. I don’t think that’s happening right now. People are still planning it out, buying it online, having it shipped to their house, and then thoughtfully installing these things. But I do think that this goes to the broader narrative, right? Which is that in 2008 and 2009 when the Obama Administration was pushing smart meters on everybody by paying for 50% of the cost. We were supposed to get these apps. Every utility said, “We will install them, but we will give you an app and you will have real time information on how you’re using power, et cetera.”
Stephen Lacey: Was that green button?
Jigar Shah: Green button, orange button. I don’t know what color it was, but whatever it was, we were supposed to get them and we never got them. And the utility basically said, “We don’t think that you are mature enough to handle this data. We don’t actually want to do this for you. And we’re the big, bad utility. We don’t have to do this for you.” Then we decided to go to big solar. And then in that case, you had installers screwing you over and charging you $4 a watt when they could have charged you $2 a watt. Or financing companies who said, “We’re going to charge you fees and do this thing and that thing and whatever. And then when you have a maintenance issue, we’re going to make sure that we don’t send a technician to fix your system.” And then folks went bankrupt, right?
Sunova or SunPower and others. And now people are just saying, as Caroline suggested, “I don’t trust any of you. I just want this myself. Just give it to me, ship it to my house, let me install it.” And then the latest twist, of course, is UL has come out with UL standard 3700. So where the only way to plug in, plug in solar under UL 3700 was this electrician installed specialty plug that had all of the safety features in the plug that you have in the UK. And some states have actually written UL 3700 into their standard. And then there was this huge uproar against this UL standard to try to say, “Well, what are you doing? The whole point of this was to get rid of all of you. Why are you inserting yourself back into the process?”
And so I do think that there’s this anger that’s building where people are just saying, “We have all this technology. You’re the one who’s told us it’s 97% cheaper than it was 20 years ago. You have all this stuff. Why are my bills going up faster today than when we have all this stuff that’s super cheap? Resolve it for me. And until you do that, I’m just going to screw it all. We’re just going to do balcony solar.”
Stephen Lacey: This is very much a bipartisan story. We’ve got 10 states that allow it. Just last week, New Jersey became the 10th. This is definitely not a blue state thing as evidenced by Utah’s allowance for plug in solar last year. There have been a number of Republican legislators who have heard from their constituents and have stood up in support of this technology. And so it does feel to me like the through line is the politics of affordability right now. Is the moment right for a lot more states to sign on you think and make this accessible?
Jigar Shah: So I would suggest that the states will sign on, but I think what’s more interesting is the moment is right for us to bypass the entire solar workforce industry. This is going to all move to Home Depot, right? And then you can get a handyman to help you get this done for $80 an hour. I mean, I think this is not…
Caroline Golin: I don’t know if that’ll happen, Jigar, because if you look at smart thermostats, the number of people that order smart thermostats and then they just sit in their garage because they can’t figure out.
Jigar Shah: It’s the handyman part, Caroline. You got to bring the handyman in.
Caroline Golin: So the workforce is going to switch.
Stephen Lacey: White glove service, you need the white glove service. Spend the extra money.
Caroline Golin: We hire people to put their IKEA furniture together.
Stephen Lacey: For sure.
Caroline Golin: I think it’s a real… And we’re obviously thinking about this at NRG and particularly for our residential customers and the smart home platform we have. I think it’s a real opportunity for competitive retailers to think about this because I believe that we’ve on the supply side, I feel like we could make the argument for such a long time that it just wasn’t cost effective. And that argument just isn’t holding anymore. If you look at futures have finally updated after years of not being updated despite this onslaught of capacity and inflation and capital costs. And if you just look at future curves, now I don’t think the average Bob and Sandy on the road are looking at natural gas future prices or looking at PJM capacity auction prices. I think that they’re just feeling it everywhere. So what I would say is that if the pressure on the US pocketbook decreases in other areas, I don’t know that you get the same fervor on this one.
I think people will plant a garden in the backyard in COVID because they couldn’t get food at the grocery stores and the cost of food went skyrocketed. The people are responding to things that I think that they can control. And if inflation comes down and other things come down, you might see this peter out. So there’s this window of opportunity when everyone is scrounging for capital, personal capital that I think you can lean into. And I just don’t think we can underscore that. I don’t think this is happening in isolation. I think this is happening because there’s a widget that you can fix this one thing where you may not be able to fix these other things. Medical costs, general capital costs. The average consumer can’t fix those. So this is an empowerment story more than it is anything else. And I don’t think you can divorce it from what’s going on in the rest of the economy.
Stephen Lacey: Yeah. That’s interesting. Jigar, do you see that being the potential for… Is this a high water mark?
Jigar Shah: No, I would say that this has been building for 10 years, which is basically why can Americans not have nice things. And so it’s like why is solar? No, but I mean, why is solar double the cost of what it costs in Germany? Why is it triple the cost of what it costs in Australia? And so we have basically said we’re going to go to the solar app. We’re going to go to figuring out how to streamline interconnection and permitting. We’re going to figure out how to do this. And now balcony solar is our next iteration around how do you beat the man? And I think that this is going to happen. I think that in general, where the electric utilities are going is that they have lost control of the narrative.
They are no longer trusted as the way in which we actually reduce the electricity costs. Remember, when a utility is run well, which it really hasn’t been run well for 20 plus years, but when it’s run well, it is integrating new technologies and reducing the bills for people and unlocking these economic development rates we’ve been arguing about so that we can do more with electricity. We can do more with AI data centers or aluminum smelters or manufacturing or whatever it is. Today, we’re going the opposite direction. We’re taxing electricity in Virginia. We’re figuring out how to charge 12, 14, 18 cents a kilowatt hour for power for people who want to build big things in this country. And so now we need an entirely new ecosystem. And balcony solar is on the side. As you guys suggest, it’s something cool, whatever else. But it then leads into microgrids, which Walmart is putting in microgrids for every one of their stores.
And homeowners can do that now. Then the question becomes, what is the job of an NRG or Base Power or some of those people? Because it used to be selling electrons, but now it’s actually getting more out of the wires we’ve already paid for. It’s the battery that makes Base Power all of its money. It’s not the sale of electrons and making five mils per kilowatt hour as a spread. They’re making money off of capacity and owning that capacity, bidding that capacity, doing all these things. And so I don’t think people that are deploying balcony solar are thinking about that right now, but I think that there’s a lot of people who see them installing balcony solar saying, I might be able to make money off of your batteries.
Caroline Golin: It’s true. The competitive supplier, you don’t make money on owning the asset. That’s a sunk cost. And so you’ve got to think about optimizing, hey, if the customer wants to own the asset, what can we do for the customer? And it’s a very different business model, but I think it will emerge in spades in some of these more stressed markets. I forget his name. And I believe his name was Christoph, but there was a long time ago he was at CAISO. Do you remember Jigar? And he wrote this whole future. This is what the future of the grid’s going to look like, which is basically the distribution system’s going to be almost completely divorced from the transmission system. And there’ll just be a single signal. And you will operate very different grids with the distribution system being completely distributed and the transmission system being the bulk centralized power system.
And it made its way around. And then I don’t know, I think it probably created umpteen different regulatory dockets in CAISO that we’re still litigating. But what you see happening, it’s kind of mirroring what I think he proposed 10, almost 15 years ago. And you can see the logic in it because you have so much demand for capacity on the transmission system.
And I think the question is all of these grid modernization dockets that took place over the last eight years, some of which put in smart meters that only read at every 15 minute interval. So what is the point of that? All these dockets, they didn’t really set us up for this. So the end supply technology moved faster than the tapestry of our grid. And so I think the next big wave at the legislature is going to be what do you do? Do you straddle customers with these grid costs that didn’t actually empower them or reduce their bills or create a more interoperable future? I could see that coming pretty soon.
Stephen Lacey: So I don’t want to sound insensitive, but these systems might save someone a couple hundred bucks a year. A lot of people, a couple hundred bucks a year could be a big deal, but it’s not like they’re getting rid of their electricity bill for big parts of the year. So it could be meaningful, but the question that is most interesting to me is what does this add up to? And James McGinniss from David Energy was on Catalyst earlier this year and they talked about permissionless DERs. And he said that he thinks that plug in solar, plug in batteries, batteries integrated into appliances, HVAC systems could be aggregated to meet 10% of US peak demand. Does that feel realistic?
Jigar Shah: I think there was a liftoff report that said 20% of peak demand by 2030. So yes.
Stephen Lacey: Did you talk about these permissionless DERs in that report or did you have those in mind?
Jigar Shah: Yeah. I mean, we had them in mind, but permissionless, the word came out afterwards. But I think the bigger thing that I think people are missing about this entire story is that what the law says around balcony solar or permissionless DERs or whatever it is, is that you can back feed a small amount, let’s call it 800 watts, into the grid without repercussions. And that is completely unacceptable within utility regulation. The way that that was structured before was no export. If you want to do something within your four walls, but there’s no export to the grid, then we can put this piece of hardware in. I can prevent you from exporting and then we’re good. The fact that you now have the ability to export 800 watts without actually getting permission from the grid. I think people are missing forest and trees. That’s what’s actually happening here.
The fact that this is attached to balcony solar is like, that’s just the transmission of this sea change in regulation. And then when you decide to do that, remember net metering used to be the full amount, right? The full whatever it is, 10 kilowatts. Now if you move net metering to like, hey, you can export 800 watts. Even if you have a 10 kilowatt system, a five kilowatt system, you can export 800 watts. That’s a huge difference in the way that we operate NEM 3.0 systems. And so I just think that in general, people are not understanding that when we move to this 10% of peak demand that James is talking about or 20% of peak demand like we talked about in the liftoff report or the balcony solar stuff, et cetera, we are telling the electric utility system that you are no longer allowed to be lazy.
You actually have to use all these goddamn sensors that we have rate based for so many years and you have to actually have intelligence on the grid edge. And you have to tell us what it is that is safe, is not safe, how you want to manage this stuff, put in a DERMS platform, do all the things that we could have done 20 years ago and that Greentech Media at the time had conferences around that no longer have not yet been fully implemented and you will now implement them fully. And that to me is the regulatory energy behind balcony solar.
Caroline Golin: So Jigar, what you’re saying, I think what you’re saying is that the utilities are not, and then we’ll use the word equipped to handle the residential injection into the grid.
Jigar Shah: I think that they believe that it is patently unsafe. And that they have not outfitted themselves with the information necessary to be able to determine whether it’s unsafe. Even though we have all the data, we could give them all of our live streams. The fact that I can tell exactly what my solar system is doing from an app on my phone, I can share all that data with the distribution engineers at the utility as well. The quality of the data coming out of my inverter is way higher than what the utility has on their distribution system. Most of them have no information south of the substation. And so they have the ability to have this information and to have AI process it and tell you whether things are safe or not safe, but they have not chosen to bother.
Stephen Lacey: And Caroline, from your perspective, what is the potential to aggregate all these mini systems? Does it add up to something meaningful for an NRG and thinking about your VPP programs?
Caroline Golin: Yeah. I think it does. Yeah, it absolutely does. I think the more interesting space going to be an aggregation of residential, which I still believe wants to be largely passive. They’re fine to potentially host some technology, but the average residential customer wants to be pretty passive about their electricity use. And I think that they want generally to be undisturbed from a behavioral perspective. And I think that there’s a lot of behavioral economics in this that we can’t just gloss over. But I think the more interesting opportunity is marrying residential VPP or let’s just call it load management in general with C&I and learning to treat those as complementary load shapes. That’s ultimately what a utility should be doing. But instead it’s been sort of additive instead of complementary. And that has been why we built an entire system to the peak because we don’t think about creating complementary uses of power.
We think about just stacking it up. And so I think that’s where the bigger opportunity is. No one’s done that in the marketplace. No one’s been able to optimize for C&I load growth or load management against residential load management. And I think that that’s a big opportunity. It’s a big opportunity for NRG and for all of our partners in the space.
Stephen Lacey: I think that the takeaway from this conversation is that while the impact might be small to the household bill or modest to the household bill, this set of technologies, plug in solar, plug in batteries will start to have an outsized impact on the pressures…
Caroline Golin: I would tell you this. How many times after Trump was elected did we say people say he got elected because of the price of eggs?
Stephen Lacey: Yeah, definitely.
Caroline Golin: Do not underestimate what $300…
Stephen Lacey: For sure, yes.
Caroline Golin: …in their pocket will do to make them think differently politically.
Stephen Lacey: Absolutely. Let’s move from the household to the bigger system. And I think we have to tackle that through the recent extreme heat event. So thanks to record keeping from Thomas Jefferson, we know that the temperature on July 4th, 1776 in Philadelphia was 72 degrees with a light breeze. In 2026, Philadelphia was squarely in the middle of a heat dome with temperatures in the triple digits and a heat index at 110 degrees. And PJM hit an all time demand record on July 2nd. It had predicted summer peak demand at 156 gigawatts and the actual number came in at 166 gigawatts. 1.3 million people lost power because of the extreme heat and strong thunderstorms from the Midwest to the Northeast. And the Energy Department was preparing for a possibly even worse outcome and issued emergency orders to leverage backup generators at data centers and other industrial sites in case of power outages.
So that’s the top down story and I want to talk about sort of the market reforms needed. But it also ties to the bottom up story, which is that three of the biggest names in residential clean energy, Sunrun, Tesla, Renew Home, said they’re teaming up to deliver 16 gigawatts of flexible capacity to data centers and utilities across the country. This is an extension. This builds on the bring your own distributed capacity trend that we’ve been talking a lot about here and that has gained momentum in the last year. So what is this mix of extreme heat and data centers tell us about the state of the grid and is the distributed capacity model entering a new era? Let’s just start with the simplest question. How did the grid hold up in this four day period in this heat wave? Where were the cracks? Where did the duct tape and blue tarp hold things together? Jigar?
Jigar Shah: Look, I think that as Caroline suggested earlier, we have plenty of resources by which to get through this moment. For many of these diesel generators, they’re permitted for a hundred hours of operation. Some of them are permitted for 720 hours of operation, particularly in Loudoun County and in the Virginia data center corridor. You’ve got a lot of behind the meter natural gas power plants that our friends in Enchanted Rock went public on the stock exchange and that’s what they do is they dispatch those when the grid is stressed. I think that the thing that bothers me the most about this moment is that Chris Wright, during the challenges earlier this year, said that all of these backup generators should be available to the grid operator in cases of emergency. And people were so confused by what he meant that we created a special email at PJM saying, if you want your backup generator to be included in a 202C, get this email in by 5:00 PM.
They sent all the emails to Chris Wright. He filed a special 202C to be able to legally allow them to run under emergency sort of procedures and so people weren’t confused. Well, now we sit in the summer and what has the Trump administration done? EPA has not put out guidance around the fact that it provided this micro decision for Duke Energy around the use of backup generators, but it has not started the process of a one year effort to say, we want all of these generators to be part of the grid and part of the grid system and something that can be dispatched by folks like NRG or Voltus or CPower or others. And we would like for you to integrate that into the way that you operate your resources. So instead when something like this happens, all these people get a bunch of phone calls from people saying, can we dispatch?
Can we not dispatch? What does our air permit say? How does this work? Is this legal? And then the PJM officials themselves, I had firsthand conversations about this on Sunday, had to call individual large loads to reassure them that dispatching their backup generators was legal. And I just think that it’s no way to run a circus and it’s certainly no way to run an RTO.
Stephen Lacey: Caroline, how much backup generation did we actually need? Do you know how much was dispatched? And what’s your perception of like how things held up?
Caroline Golin: I don’t know how much was actually needed or how much was actually deployed. Remember I was at a lovely baby shower in Ithaca and in the JFK airport. But I will tell you historically an interesting anecdote, which is that grid operators seem to be more comfortable in coordinating with large loads when there is an extreme weather event like hurricane or when there is extreme cold event. But heat for some reason doesn’t operate in the same way. And I don’t really know why that is. I mean, when I was at Google, we seemed to have really good communication and we were very proactive at it with it. Very good communication with our local utilities. And to some degree, we assumed those utilities had better communication with the RTOs when there was a fourth, okay, a hurricane is going to hit, right? Or we could see the temperatures were going to drop.
For some reason, whenever there was a heat wave issue, everyone lost their mind. And I don’t understand why it’s like one top of the thermostat versus the other side of the thermostat seems to change the behavioral pattern. But I don’t think we’re as good at forecasting heat and the impacts of heat as we are at forecasting the impacts of cold and sort of climate events. So I will tell you on the proactive side, we aren’t doing anything to improve the ability for C&I to respond in this space. We’re actually disincentivizing C&I customers from participating beyond what they’ve already naturally bid in for. And so it doesn’t surprise me that it is the circus that Jigar is talking about. I mean, we could do so much more with the C&I block and we could do so much more with the way we do call events, getting us out of this sort of extreme event case and incentivizing a real flexible load management within that customer class.
And we’re not doing it from a regulatory perspective. And then there’s no benefit of doing it. Or in some cases, there’s a technical obstacle in doing it on the C&I side.
Stephen Lacey: So PJM projected 156 gigawatts of peak demand this summer. The actual number was around 166. Is that 10 gigawatt gap out of the ordinary? Do PJM have a load forecasting problem?
Caroline Golin: I mean, I think that’s the statement of the century. Clearly they have a load. I mean, but they have a load forecasting problem because the way PJM does load forecasting is just an aggregation of the individual utility forecast. It’s not top down. It’s a bottom up. And that’s the problem.
Jigar Shah: But in general, PJM I think rode through. The outages that were there were mainly through weather related events, not because someone got browned out from a lack of capacity. If there was to be a brownout, the group that has the weakest capacity right now is Baltimore Gas and Electric. And so that’s the part that I think is the most at risk. And there’s a lot of folks working on doing that. But I think in general, PJM got through it. I think the part that bothers me though is that people were super confused the entire time. And I just don’t think that you want to run a grid with everyone being super confused as to whether they should turn on their diesels.
Caroline Golin: It happens every year. It’s been happening every year for the past five years. And every El Nino season. This is not an anomaly. This is not like a once in a hundred years thing. This is now consistent. And the fact that we still treat it this way is asinine probably.
Stephen Lacey: What do you make, Caroline, going to the 16 gigawatts from Sunrun Tesla and Renew Home? So they claim to have 16 gigawatts in multiple states or they’re planning to develop 16 gigawatts. They have 300 megawatts of distributed capacity ready to deploy in Northern Virginia right now. How much of this 16 gigawatts is real and how much is planned? Do you know?
Caroline Golin: Well, I think the 16 gigawatts is opportunistic on paper. I think what this is a story of, which I’m completely supportive of, and Sunrun and Renew are partners of ours at NRG and their leaders are friends and I’m incredibly proud of how they’re leaning in. But I think what this is a story of is we’re not going to compete on just being a peak load modifier anymore. Every success story in the distributed capacity space has been, we can reduce peak. We can reduce peak. Whether they’re doing a utility program where they bid in and show that they’re a peak load modifier and therefore get some sort of credit for it. Or they are just trying to take payments on an open system based on their ability to reduce peak loading on the system. What this is a story of to me is three technology companies that recognize that competing against the same very small sliver of the overall capital pie was not servicing them anymore.
That if they actually worked together, the capital opportunities opened up. The revenue opportunities opened up because then they weren’t just competing around reducing peak. They were competing about capacity and capacity payments and load growth. And that’s a very different story than how Sunrun came to market or Tesla came to market. I mean, I worked with all of them, gosh, what is this? 12 years ago? 10, 12 years ago in the initial sort of program design. New York REV Jigar, you did it too. And it was all just about how can they reduce peak? And they were all just fighting over that. But this is a very different story. This is a story of saying, this is how we’re going to build capacity in the country. And I’m super supportive and 100% for it, but I think that’s the nuance that everyone should recognize is that we’re getting out of this very small sliver and we’re going to go build new power. And that’s great.
Jigar Shah: Let’s just do some math for a second just because I feel like math is always useful. If you wanted to pay $250,000 per megawatt year for capacity in PJM, that megawatt year of capacity is after effective load carrying capacity discounts that the PJM puts onto your system. So if you have a four hour battery, you have a 58% ELCC. If you’re front of the meter, if you have a behind the meter solution, it was 92%. Of course, PJM is now trying to change that. So there’s all these things that are happening from a math perspective. Right now, if you decide you’re a hyperscaler and you want a thousand megawatts, that’s $250 million that you’re paying per year. And now if it’s 10,000 megawatts, that’s $2.5 billion. Multiply that by 10 years, that’s $25 billion. Now the question becomes how much of that $25 billion right now is going to go to Sunrun, Renew Home and Tesla?
Almost zero. Because Mission Data has suggested that none of these technologies can participate in the PJM because you have to settle the FERC order 2222 or other types of revenue streams at the smart meter and they won’t release the smart meter data. And the governors, to my knowledge, are not forcing them to release the smart meter data. So residential is something that CPower and Voltus and others don’t chase because the rules are not set up for them to participate in that $25 billion pool of cash. So then what can they do? In Illinois, we’ve changed the rules and so they probably can participate there. There’s some shaping that they can do as Caroline was suggesting. I think when you think about the stock price of Sunrun, the question becomes in this hungry, hungry hippos time. And you’re basically saying if you are the solution to this speed to power for data centers, well then the stock price will go double or triple. But it hasn’t.
Caroline Golin: Well, they went up by 25% that day and then it came back down.
Jigar Shah: After going down by 50% like the previous year. So my point is simply that I so desperately want residential to be a part of this solution set, but I think that the barriers in front of them are very large. And I think to Caroline’s point, this space is very competitive. And I don’t think those three companies in particular, but the industry broadly is spending enough money to solve these problems. So whether it’s with Nick Josefowitz at Permit Power and all of the laws he’s passing across the country to make it cheaper and easier and faster to put this stuff in, or whether it’s the folks at Mission Data or whether it’s the folks at other places, they are not on track to meeting this moment. As we talked about before, the natural gas industry has a huge problem. They cannot deliver gigawatts until 2031, 2032 into PJM.
So that means that there is this moment where people are willing to be flexible for these three companies through 2030. And I don’t know that the laws are set up for them to be hugely…
Caroline Golin: Well, laws absolutely are. We talked about that previously. I remember at Google, I did an RFP on this or RFI and essentially everyone came back and said, “If you can help us change the laws around accreditation and accreditation across any market, whether an IOU accredits this type of distributed capacity as an actual capacity block that they’ll put in their IRP or accreditation at the RTO settling, then we can deliver this to you. But until that is resolved, we can’t.” And I mean, that is ultimately the watershed that will unlock all of this is if we can get PJM and then FERC and the rest of the markets to recognize accreditation capacity. That’s in a bucket. Yeah.
Stephen Lacey: And so to that point, one of the stories kind of linking these two stories is FERC recently directed RTOs and ISOs to review and change their large load interconnections, make it easier to accommodate behind the meter generation. This came out of the Department of Energy’s insistence that FERC make this order. What do you make of FERC’s latest move and will it be good for this kind of distributed capacity model?
Jigar Shah: I mean, I love the move.
Caroline Golin: It is, but it’s not directed towards this solution.
Stephen Lacey: Does it have to be?
Caroline Golin: Well, I do think politically it does. I do. I do think it does because I think that governors all over the country, rightly so, who very few, if any, are deeply versed in the technical regulatory laws prevailing over their region are searching for an answer. And I think they are politically electron agnostic to an answer. And because we’ve said it before, this fear on affordability and load growth is uniting the right and the left everywhere. But until the administration does that, I don’t think that they politically have the cover to say utilities thou shall do this. I don’t think they do.
Jigar Shah: I feel a rant coming out.
Caroline Golin: Here we go. I’ve set it up for you. Could you pop your collar real quick?
Jigar Shah: There you go. Let’s do this. Yeah, let’s do it. So, FERC has put this forward. The hyperscalers want capacity. And all of this is I think going to happen in a big way. I think you’re going to have $25 billion worth of revenue over the next 10 years. I think you’re going to start seeing a bunch of stuff get deployed front of the meter, behind the meter, all this other stuff. Separately, if you look at the polling data out of California, the polling data out of Virginia, the Center for Net Zero, which is Octopus Energy’s sort of nonprofit, their polling data suggests very clearly that if you put a data center in someone’s community and promise them future property tax reductions, they don’t believe you and it doesn’t make them more likely to be pro data center. But if you give them free stuff, if you put a battery in their house or a solar system on their roof, then it goes up to a 64% approval rating for that data center.
I don’t think that that transitions well to Walmart getting a battery and the industrial facility getting a battery and maybe the church getting a battery, but they’re probably more difficult and more expensive to serve. And so you end up in this situation where the polling data suggests very clearly that this stuff has to go into people’s houses, not into just the businesses in that region, which is where we’re likely to see it go given the laws and the way in which everything is structured. Then you go to the next layer down. The next layer down is if you talk to Tesla, they know that they can absolutely collect all of these components and sell a battery for your home at $350 a KWh. But it’s $900 a KWh. And so you only get a fixed amount of money. The hyperscalers are paying $25 billion over 10 years, which is equivalent to let’s say $250,000 per megawatt year.
And so you get the same amount of money if you’re putting a bigger battery at a church or at a Walmart as you put it into a residential system. If that battery costs three times more at the residential system level than it does at the Walmart level, well then by definition, the IRRs and the returns for investors are going to be higher at Walmart than it will be at the residential home. And so that’s why Base Power is like, we’re going to manufacture our own batteries because we think it’s going to be cheaper. And then you’ve got like EG4 doing the same thing out of their folks. And so part of my problem is I feel like this story writes itself as Caroline suggests. The governors have read the polling. The data center companies have read the polling. Everybody knows that the way you get data centers, speed to power and approvals and community approvals is to give them free stuff.
Give them a battery. But when you ask Sunrun and Renew Home and Tesla, do you have a playbook that you’re going to spend $5 million around to actually own the narrative, navigate the governors, figure out the public service commission, figure out this, figure out that, get this thing done in a cost effective fashion? They’re like, wait, what? What are you talking about? You lost me at $5 million. I was like, I don’t know what you think is happening here. You a big part of this $25 billion pie and you’re not willing to spend $5 million? I mean, come on. Where’s the seriousness?
Caroline Golin: Yes. However, I think if they spend it in isolation, it becomes another he said, she said war on what the solution is. I mean, at the end of the day, I don’t think that the majority of the hyperscalers and most certainly the third party development community really understand what’s going on. I think there are a few. There are a few that are really tuned in to the political pushback, but I think there are many of them that are just sort of deer in headlights. And I think that most people do not recognize, and I think I’ve said this before, but when you take tax incentives away, you massively disturb the capital stack for developing any type of compute or cloud or inference.
Jigar Shah: But what if I sell you an electricity tax?
Caroline Golin: So there’s a lot of ways to get around this, which is to say, you get tax breaks if you look like this. Or you get tax breaks and then we’re going to claw back those tax breaks with a tax. I think the simple answer here is that there is a solution. Politically, the DCC and all these other groups are not coordinating in the way that they should. And if that doesn’t happen soon, you’re going to have 45 different proposals at the legislature this fall moving into session that could all just end up in sputter.
Stephen Lacey: Isn’t this what the Utilize Coalition’s for?
Caroline Golin: Yeah, but the Utilize is based on I think one sort of objective, which is that set metrics to utilize your grid. And that’s great. And I think the fact that they’re surgical like that is what’s great. But this is wading into the territory of when a data center comes to town, what should be expected. And you have to define that. And then once you define it, it becomes a race to the bottom of who doesn’t have those expectations on the books or potentially race to the top depending on how you do it.
Stephen Lacey: All right. So we’re at the end of our recording block, but I just have one last question for you guys, which is like, what is the big market story you’re following into the summer?
Jigar Shah: Well, I mean, there’s so many, but I would suggest that they all are related. I love the Batch Zero stuff and so I’m like —
Stephen Lacey: That’s in Texas. Yeah.
Jigar Shah: So much on what’s going on with Batch Zero, but also the PJM. Look, I live in the PJM. I care about the PJM. I want them to be successful. And I think we’re going to get them there just because like I said before, they have no other choice. But Lord Almighty, are they trying desperately to just pick bad idea after bad idea before they get to the right place? And the level of coordination between the governor’s offices and the utilities and the public service commission and all these other people is just so large. And I look at our industry and I love it so much, but they are not serious right now. They are just not serious right now. We need to deliver 10,000 megawatts of capacity into the PJM by the end of 2029. That is a massive amount of capacity. We certainly have the hardware to do it.
We have seen Texas and California deploy that much capacity in a single year or in a three year period. So we know it can be done, but I don’t know whether our industry is going to come together and be serious right now.
Caroline Golin: I am also watching daily, and it doesn’t happen daily, but the way we are updating future curves in this country for electricity prices, it doesn’t seem to reflect the insanity that we talk about on this podcast yet. And I think it has actually become a disincentive for hyperscalers and the data center community in general to investing in more capital intensive solutions that we need on this grid. And so that’s something that bothers me, confuses me. And Jigar, if you could fix that, that’d be great.
Jigar Shah: Right after I fix oil futures.
Caroline Golin: I’m not sure. That one I care less about right now, but yeah.
Stephen Lacey: Caroline Golin, Jigar Shah, my co-hosts. Thanks so much guys. Here we are heading into the dog days of summer and we will be following all these storylines. Also, as we get into fall, Latitude Media is holding our Flex Summit on October 14th and 15th. This is a conference designed for senior leaders and practitioners working to scale flexibility across the grid in planning markets, tech and finance. So go to latitudemedia.com for more details on that. And of course you can find all of our episodes on YouTube, subscribe to Latitude Media’s YouTube channel. You can get our audio podcast on our website, the audio podcast app of your choice and all of our transcripts are at latitudemedia.com. Thanks everybody for being with us. We’ll catch you next week.
