It took 12 years to triple global renewables — and now the world needs to do it again in just eight years.
As the latest U.N. climate summit begins, there’s a proposal on the table to triple renewable energy capacity by 2030. Countries may agree to it in theory, but can the market meet it in practice?
This week, we’ll look at why this tripling is necessary, how it could be done and which technologies will dominate.
Then, we’ll address a confusing narrative that has emerged around electric cars. We’re seeing a historic ramp-up in domestic EV production and record sales. But many are fretting that the market is weakening — and automakers are pulling back. What gives?
We’ll end with the forecast: our picks for stories that tell us something about the near or far future.
Joining us this week are Katherine Hamilton of 38 North Solutions and Shalini Ramanathan of Quinbrook Infrastructure Partners.
Sign up for Latitude Media’s Frontier Forum on January 31, featuring Crux CEO Alfred Johnson, who will break down the budding market for clean energy tax credits. We’ll dissect current transactions and pricing, compare buyer and seller expectations, and look at where the market is headed in 2024.
Stephen Lacey: We're talking about tripling today. I'm trying to think about what I've tripled in my life.
Katherine Hamilton: The one thing I know I tripled is the number of kids I had, and I ended up with four.
Shalini Ramanathan: I have tripled the number of plants that I take care of.
Stephen Lacey: And I've definitely tripled my calorie count since Thanksgiving.
This is The Carbon Copy. As the latest UN Climate Summit begins, there's a proposal on the table to triple renewable energy capacity by 2030. Countries may agree to it in theory, but can the market meet it in practice? It took 12 years to triple global renewables, and now we need to do it in eight years. This week, we'll look at why this tripling is necessary, how it could be done, and what technologies will dominate. Then we'll address a confusing narrative that's emerged around electric cars. We're seeing a historic ramp up in domestic EV production and record sales, but many are fretting that the market is weakening, and automakers are pulling back a bit. What gives? And we'll end with the forecast, our picks for stories that tell us something about the near or far future.
I am Latitude Media executive editor Stephen Lacey. I am here with Katherine Hamilton and Shalini Ramanathan. Katherine Hamilton is chair of 38 North Solutions. Hello, Katherine.
Katherine Hamilton: Hey, so great to be here again with you.
Stephen Lacey: And Shalini is the second time guest on the show, and she's director of origination at Quinn Brook Infrastructure Partners. Hi, Shalini.
Shalini Ramanathan: Hello. Thanks for having me.
Stephen Lacey: You have been developing renewable energy project pipelines for almost 20 years, so there's no better person to join this week's conversation about expanding renewables in an unprecedented way. So here we are in late November. We're gearing up for the big UN climate talks in Dubai. And while these COP conferences are incredibly important and they feature plenty of drama, we don't usually focus on the political wrangling on this show. Instead, we tend to focus on the outcomes for the business community. And there's one possible target that could have wide-reaching impacts, this proposed commitment to triple renewables development through the end of the decade. It's on the table as part of negotiations between countries, and the International Energy Agency says it's essential to keep us on a net zero emissions pathway and to limit warming to 1.5 to two degrees Celsius. And it would mean 11 terawatts of new renewables capacity, which is coming from mostly solar and wind by 2030, and a trillion dollars in capital per year.
So those are big numbers. What does it mean on the ground? And is it achievable? So Katherine, to you first, what does this tripling actually look like? Walk us through the target.
Katherine Hamilton: If you think about from 2010 to 2022, that was 12 years, as you said, and we were able to triple renewables then, and we have eight years left to triple again. And I think what you need to understand is that there are lots and lots of incentives now baked into that, and there's a lot of progress that has already been made. So if you look at what FERC has said, they say, and this doesn't even include rooftop solar, which is over 30% of solar, that solar provided 42.4% of the total new domestic generating capacity in 2023 alone. Now, granted that's just solar, although solar is positioned to be the bulk of it, and it's only for the US. But I think we're, certainly in the US, poised to be able to do that. I think globally, Europe, Brazil has already committed to doing this. China is already doing this. I think Southeast Asia and Africa are going to have a little more challenge, and so we need to set up whatever we need to make sure that they're able to triple renewables.
But you think of this mostly as solar and wind, although there are lots of other renewables that need to come into the mix, like geothermal and hydropower and biomass.
Stephen Lacey: Yeah, we'll get into that resource mix. Shalini, how big is this? How monumental does that feel?
Shalini Ramanathan: It feels very challenging. We're hitting the point where there's some growing pains with the renewables industry, just in terms of things you've covered beautifully on your show about the permitting challenges, transmission interconnection challenges. When I was reading about the IEA calling for tripling renewables, I was like, "Where are all these transformers going to come from because there's a huge shortage of transformers?" It hasn't been a short-term thing. It hasn't been just the COVID years. It continues to be something that can really affect the timing of projects. So given how hard it is right now just to continue building at the scale that we've been building, this sort of massive change, as you said, a monumental challenge, I think it requires a very different way of doing things.
Stephen Lacey: Yeah. Katherine, what feels most difficult to you? The equipment availability piece is certainly a big one. The local policies around citing these projects, both the US and Europe have had problems with citing these large scale projects. The national policy piece seems to be the thing that's actually falling in line. It's some of these more local pieces and supply chain issues that are the most consequential. What do you think about that?
Katherine Hamilton: Well, I work on policy for a living, so I think there is a lot of policy that has to be taken care of. One thing is making sure that people have access to all of these technologies, getting rid of fossil fuel subsidies, easing up on generation licensing de-risking projects with diverse types of technology and getting trustworthy off-takers. The good news is a lot of corporates are pushing on that for corporate PPAs, but it's really important to have good off-takers. As Shalini said, grid and infrastructure interconnection, those are all super important, can really bog everything down, as can permitting, and that's often just a staffing issue to try to get the right people in place to do permitting. But I honestly think market design is crucial, so making sure that we have all of the compensation pieces, the values in place to be able to pay these resources for what they're doing.
And there are things you can do to try to make up for those marketing design issues, say from FERC, on the state level, like through integrated resource plans and making sure that you have preferential treatment for clean energy technologies, which is what California has done. So you can do this with public policy and really incentivize clean energy growth, but there are little hiccups along the way that we really need to pay attention to and deal with. And I see those as, in large part, in policy.
Shalini Ramanathan: I agree with everything Katherine said. Market design redesign is one of the most important challenges. So in addition to market design, we also need to rethink the way that projects are financed. And I think this is something that is well understood in my world, but maybe less understood more broadly. And that is that right now, we have, for the most part, you obviously have balance sheet players who just do large projects, but project finances is the tool that we use to unlock a lot of capital. And that means that in order to get financing for a given project on a non-recourse basis where the parent developer isn't on the hook for all the risk, or trying to minimize that risk at least, you need the project to be really well developed with very few risks that a lender would have a problem with. And that leads to what I think of as an irreducible level of complexity.
Everyone says when we're working on a deal, this one's going to go very very quickly, very fast. I've worked on power purchase agreements where we agree with the counterparty. We are really going to focus and move as quickly as we can, and only really focus on the issues that we have to resolve and let some of the smaller issues go. And it never really works that well. It always ends up that one or both parties say, "Look, I really need that risk taken off the table," and that takes a long time to resolve. And then you go to get your project financed, and the bankers and tax equity providers are doing a ton of due diligence on all aspects of the project. And it strikes me that we're not going to triple the installed renewables using this model. I think we need something radically different, and it's exciting to think about what that might look like.
Stephen Lacey: Yeah, what does that look like? And we're talking about a trillion dollars in capital that needs to be allocated every year. Do any possible financing models come to mind?
Shalini Ramanathan: One that I've thought about, and I would love to hear Katherine's thoughts on this to some degree policy aspects to this as well, the way I'll describe it, is that we don't want projects that are not competitive. You don't just want to have public dollars subsidies, policy incentives going to bad projects. So you want the discipline of, is this a good project? At the same time, as I described, we need to go quickly. And so it strikes me that having some kind of, this is just me thinking out loud and others have written about it, that if you can have say a standing purchase order and any project that can deliver X amount Y location will immediately get this contract that's standard, and that has been financed against repeatedly.
And very importantly, we can't overlook this, inflation adjustment mechanisms, because I think we can't ignore the power of inflation to erode value. I think much more instead of a relationship between buyer and seller where it's about pushing risk onto the seller, in my experience, and that's what we do, we take on that risk and handle it, I think more equitable sharing where risks are more broadly understood and addressed in a formulaic way instead of just in one-off contracts.
Katherine Hamilton: Yeah. And I think we're going to really need to do that with energy storage because we don't have those standard models right now. That is still a learning that is ongoing. And so as we continue to deploy solar and wind, we need that even more. And so when you look at it from a systems perspective, you need all of these to be coming along at the same time to scale while you're also thinking about what is the value and the benefit to having kind of clean firm base load. If you have solar and storage and wind in a really seamless manner, that's great. When you don't have that, so what California is facing right now, and they're saying, "All right, we're going to get 2000 megawatts of clean firm base load," really, the only two resources that will fit that are geothermal and biomass, because hydropower in California is considered an intermittent resource because of drought conditions.
So if you think about that and what is the value of what all of these resources will bring, then we have to come up with ways that are going to make it really easy to execute on the financing, to execute on the PPAs, or whatever other agreements that you want to come up with to make sure that everything is working together.
Shalini Ramanathan: Absolutely. And I think energy storage is a great example of where the market isn't keeping up with the technology advances, and it's hard to kind of see how that scales without change. One thing that I think about a lot is there are so many projects that get, in my world, renewable projects and energy storage projects, that get financing because there's some element of a power arbitrage that you think, oh, I'm going to charge my battery when power prices are low, and I'm going to sell that discharge back when it's high. And even within solar, it's are you going to be selling your electrons at a time when the price is higher than at other times? And I am fascinated by how power markets... So there's the market design which we've been talking about, but there's also just how markets behave, what do power markets look like when we're mostly renewable, especially given that they haven't been designed for this, right? They've been designed with a world of fossil fuels where you're really focused on the dispatch stack, and I think the dispatch stack could be quite different.
Stephen Lacey: Yeah, that does bring us to a question about the resource mix and resource availability, and the benefits and drawbacks of how this mix will be weighted. So solar is probably going to make up about two-thirds of the target here. And solar is just the least cost resource in many areas of the world, so it will continue to dominate. Solar and wind together will make up about 92% of this tripling target, but solar will really dominate. But there is this question about an over-reliance on solar. Obviously in key regions like in northern Europe, you need to rely more on wind and hydropower. There's sort of a question about how to appropriately balance resources and make sure you have a strong mix of wind and solar working together, and hydropower and biomass also complimenting. And so I guess the question is, what does this resource mix look like according to some of the analyses that are out there?
So Bloomberg and New Energy Finance, IEA and Ember have all put together analyses on what this would look like. What is the optimal resource? What will the market bring us, and what do we think the optimal resource mix will be?
Shalini Ramanathan: One technology, it's evolving in a way that I think is interesting, and I'm just be fascinated to see how quickly can scale, is geothermal. And over the summer, I was traveling in Iceland and I was researching hotels. And there's this one hotel, and everyone said, "Look, it's beautiful, absolutely beautiful, but it looks out over this ugly power plant." And I looked at the photos, and I'm like, there is nothing ugly about baseload green power. That is very beautiful. That is what we should all be excited about. And the good news is that there are these new companies using technologies that are common in oil and gas for drilling to now using those tools and geothermal. And the hope is that we can expand where we can do geothermal, it isn't just restricted to a handful of places. I think that's a really interesting possibility.
Stephen Lacey: It is very cool, swimming in the effluent of a geothermal power plant. You can't do that with a coal plant.
Shalini Ramanathan: Right? I'm going to start putting that tag whenever someone's at Blue Lagoon.
Stephen Lacey: Yeah, exactly. Yeah. And speaking of which Fervo and Google just announced this week that two of the wells that they financed in Nevada are operational, and they're using horizontal drilling techniques borrowed from the oil and gas industry to drill cheaper geothermal wells. And so far, they've said that the performance is good and they're feeding data centers with this more distributed geothermal power plant. So a really strong indication that we could see more development in geothermal. Of course, lots of risks in exploration, but the more we can apply the know-how from the oil and gas industry, particularly in hydraulic fracturing, I think you'll start to see a lot more development happening.
Katherine Hamilton: And there are closed loop technologies too where you don't need to find the source. You just need to find the heat. And so there are a number of technologies that can work differently for geothermal, and you could really put them anywhere. But the key there, I think, is in all of these, using the oil and gas know-how and workforce to do it. Because once they're brought in and they have been by these companies, then you'll have their buy-in to this transition into driving down the cost and the ability to deploy these technologies.
Shalini Ramanathan: You said workforce, and that is something that is such an important challenge, especially if we're... By definition, if we're tripling renewables, we're building projects in places where maybe there isn't much development of anything right now. That's why you can put a big wind project there. And I think the question of who is going to build these projects, I think maintenance is a little bit less challenging because fewer people, but getting thousands of people to very rural areas and how are they going to live out there building the camps you need for them, it's an incredible opportunity, right? These are jobs we're talking about construction jobs that are very sophisticated in a lot of ways. But I think just getting the people trained and to the location where you need them is hard.
Stephen Lacey: Any thoughts on the benefits and drawbacks of this being so solar dominant, this tripling?
Shalini Ramanathan: Yes. I think one amazing benefit is that you can put solar anywhere, right? If you can do solar projects in Alaska, you can do them anywhere. And I think that's a beautiful ubiquity. It's just a very standard thing that we're all going to, I hope, get used to seeing everywhere. I do worry that it makes us incredibly... As we're trying to install this massive solar capacity, it makes us very vulnerable to price challenges, and especially given this is something that we've already seen, is China is a leading supplier of solar. And obviously with the inflation reduction act, the US policy is encouraging onshoring of solar manufacturing. But what happens if the US companies are pushing for trade barriers for Chinese companies and they're trying to protect their markets, and we want the manufacturing here. All of that could just create uncertainty where if you're a project developer, what equipment do you buy in the face of that kind of policy uncertainty, it's not clear to me that there are going to be easy resolutions to any of that.
Stephen Lacey: So how are we going to use all of this renewable electricity? If we look at end uses, it's roughly split in half. Half of it will displace fossil energy demand, and another half will be used to meet rising electricity demand. Where's that new demand going to be coming from? And why is serving it with renewables so critical?
Katherine Hamilton: Have you heard of the word electrification? Everything is getting electrified, right? Everything from buildings to transportation to industry, and from the power production side all the way to the internal processes and use side in industry specifically, demand is rising, and that is because of electrification. It's also because we are a reshoring. So manufacturing is growing in the US, and we have to be able to supply data centers, semiconductor plants, battery EV manufacturing. All these plants that are coming here, and globally too, we need to be able to supply those with clean energy. And so there's plenty of demand. And part of the issue is how do we manage that? How do we meet the demand that is growing? And the way to do that is, of course, through energy efficiency.
Stephen Lacey: Yeah, this is exactly what we talked about Shalini when you were on the show last.
Katherine Hamilton: Yeah. Absolutely. I think we all know it's intuitive that if you're going to transition, as I hope everyone does... I love my electric vehicle. I think they're just really great cars, fewer moving parts, less to maintain, and you have so many options now in terms of models. I think we all know as we shift to electric vehicles, that's going to take electricity. And if it isn't green power, then the car isn't green. But there are also hidden... There are hidden sources of increased demand. AI is a huge source of demand. And I don't think that's something that we necessarily think of top of our heads, but tech companies are having to build data centers faster than ever because of the growth of AI. And this blows my mind, that average use of AI, so not like building deepfakes, but just drafting emails, that kind of thing that I think everyone will be doing soon enough, that kind of average use has, because of the computing demand involved, has the environmental impact of five cars on the road.
And that is really a challenge because we don't think about that. So I think this is maybe something that is hidden in the IEA report, it's not as clear, is we're not reducing power use, right? We're not really displacing a lot of... As Katherine said, we're really not doing a ton on energy efficiency, and so we're not reducing use. And at the same time, we are growing the base of green power, so we're meeting that need more and more with green power. But that need is getting bigger and bigger. And we haven't mentioned green hydrogen. We'll see if the demand for it really increases in the us. It's pretty flat right now. But if you really see a lot of green hydrogen made, either for the domestic market, or for export to Europe or Asia, it's not green if you don't have green electrons to break up that water molecule.
Stephen Lacey: Yeah, so most of the new demand will come from electrification, and as you said Shalini, there will be some significant increase in electricity demand from electrolyzers. And I know you've been assessing this market. Just as a sidebar, do you think that we're going to by the end of the decade, see a significant amount of electrolyzer plants powered by renewables?
Shalini Ramanathan: There are a number of projects that are being led by credible groups of people, and we'll wait and see. One of the challenges is that the inflation reduction act is supply side policy. It reduces the price. It doesn't create demand. It doesn't say you're going to have to pay a penalty if you continue using gray hydrogen. So I think one way the market could develop is that the US is exporting green hydrogen, not as green hydrogen likely in the form of green ammonia or e-methanol. We could see projects for export. I think it's going to be really hard to beat the combination of the price for solar wind in the US and the IRA incentives. So I don't know about a domestic market. I think that is a big question mark, but I think some of the export projects are very interesting.
Stephen Lacey: So going back to the initial question, this tripling is doable. If you were going to place a bet on whether or not we can do this, what do you think the odds would be in favor of it?
Shalini Ramanathan: I am betting on our ability to do it.
Stephen Lacey: Yeah, that's right. I guess you are.
Shalini Ramanathan: This is what I do for a living. And on a personal level, I just wake up every morning and assume that these climate interventions that we need to stabilize this can happen, and I do my best to get there. And I don't think you want someone like me being like, "No, this is hopeless."
Stephen Lacey: Absolutely.
Shalini Ramanathan: It was the only job I could get.
Stephen Lacey: Well, we'll attach in the show notes some links to a few of the different analyses. There's an IEA analysis I mentioned, there's something from carbon brief written by Dave Jones over at Ember, who also wrote an analysis, and then there's a Bloomberg new energy finance analysis. So if you want to dig deeper into this, we'll provide some links there, and then we're also covering it at Latitude Media. And we're going to take a quick break. And when we come back, we'll talk about electric vehicles.
The energy transition brings a lot of contradictory, and sometimes confusing narratives. Recent episodes of this show are great examples. A couple of weeks ago, we talked about fossil fuels peaking, but yet we're breaking oil and gas production records and we're still not close to stabilizing emissions. This week, we're talking about renewables tripling, but there are very real questions about whether we can limit two degree temperature rise. And I think that the electric vehicle narrative is also one that feels contradictory and confusing. If you look at macroeconomic analysis, many of them show that electric cars are going to start dominating sales and cause continued demand erosion for oil. And indeed we're seeing record sales of EVs in the US, China, and in the EU, and record build out of factories for batteries and EV models. And yet if you look at the headlines, you see stories about a slowdown in sales, pauses in production as automakers assess demand for EVs, questions about whether mass market consumers are really that interested in electric models at all. Electric models are slower to move off of lots at dealerships.
And it turns out that all of these narratives are true, but we're going to sort through them and figure out how positive the outlook for electric vehicles is. So Katherine, we're approaching a million EVs on the road in the US. Quarterly sales are slowing, but they're still very strong, and we've seen tens of billions of dollars in factories built to serve EV production, and yet we're seeing these headlines about electric cars slowing and automakers worried. What is happening here?
Katherine Hamilton: Yeah, I do think there's a mismatch of what the press headlines are and what's really happening because September set a new high for EV sales. It's the strongest on record. It's 67% higher than last September. So 136,000 EVs were sold. The numbers just show that it's growing and growing, and not stopping. And granted it takes time from building factories to getting things out the door, but the EV manufacturers have done a pretty good job getting models out. Every year, we get more models that are available. As time goes on, more tax credits come into effect so that people can take advantage of lower prices. And what that does is this create this need also for more competition. So you're seeing that. And so when you see ebbs and flows, the press loves to pick up on things like that. And the New York Times had this headline that was like new law, supercharged electric car manufacturing, but not sales. I just think that's a little bit of a red herring, and we're getting there. And just seeing that last month was the highest month on record proves that out.
Stephen Lacey: Shalini, what do you make of the mismatch?
Shalini Ramanathan: There are a few factors here. I think the most important one, Katherine mentioned, and that is that the incentives haven't really kicked in yet. And so EVs are more expensive upfront. That's just true. And so I think once these tax credits kick in and you can close that gap for consumers, that's huge. And I think that is a little bit... That timing mismatch is a bit misunderstood or overlooked. Another factor, and this is true with a lot of technologies, is I think EVs have had a mini boom, something like that because of the way the first adopters, people like my family, were happy to sit there and figure out how to have a level two charger in our house. And we're energy nerds, so you would expect us to do something like this. And then there're just car enthusiasts who are interested in EVs, and maybe they've converted.
And so that initial wave of early adopters, you probably worked through those people. And so now you need other waves of people who maybe have less of a stake in this for whatever reason, and they're just looking for a new car. And so to me, it's just a momentary thing. I think that next wave will come. And then the final thing is that I hope all of us who have EVs talk about how great they are, not just for the planet, which of course they are. They are. I think that's something we have to say, is there's been so many articles about the need for metals that are hard to get and the grid challenges with getting green power. All of that is true, but net net EVs are better than a gasoline fueled car, but they also have other benefits. The maintenance, far fewer moving parts, so the maintenance is much, much easier. Who wouldn't want that? They accelerate really quickly.
Stephen Lacey: Dealerships.
Shalini Ramanathan: That's a really good point. Mechanics. But consumers, I think. So I think we need to think about how to sell this as a little bit less carrot and a little bit more chocolate. Yeah, something like that.
Stephen Lacey: Yeah, that makes sense. Yeah. Okay. Well, there are a bunch of factors there I want to break down further. One is the incentives, and part of the mismatch has to do with how the incentives are applied. So there's a $7,500 tax credit, but it only qualifies for electric vehicles that use domestic components, and automakers are building out those domestic models right now, and there are not that many EVs that qualify for the tax credit. So there's been a move to leasing because those same domestic requirements don't apply to leased electric vehicles, but there is just not as much demand for purchasing electric vehicles simply because that domestic supply chain has not been built out. Katherine, can you comment on how those incentives are structured and how much that is factoring into this mismatch and supply and demand?
Katherine Hamilton: Yeah, and there's still some uncertainty because there's still some more clarification that needs to come out of the guidelines. The good news was that the 200,000 vehicle cap was completely lifted, so that's awesome. But then there are also some income guidelines. So if you're above a certain household income, you can't get some of those credits. On the components, like 50% of the battery's components have to be produced or assembled in North America. And in addition, about 40%, at least 40% of the critical materials used in the battery must be extracted or processed in the US, or in a country that's a US free trade agreement partner, or they have to have materials recycled in America. And there are a bunch of just very detailed guidelines around that that has created a little bit of uncertainty. And so that is also creating a little bit... When you have uncertainty, it is hard to state for certain that you can get a credit.
The other piece is that you have to have it assembled. There's a certain limit to the cost of the vehicle that you can't go over. And I think part of this is just the market, getting an understanding of what the rules are. And then that'll kind of settle out, and people will figure out, a car dealership, for example, we'll figure out how to make money. And so what we have done is we have leased because leasing is one way where you don't have to... There's a lot of stuff you don't have to deal with that the dealership will deal with a lease, and you'll be able to try out different things. We're trying the Volvo XC 40. We'll see how it compares to other ones. We're test driving other ones now our lease is almost up, but it gives you a chance to kind of see what else is out there before really committing.
Stephen Lacey: Oh, you'll have to tell me about the XC 40. We're eyeing that one as well.
Katherine Hamilton: We thought it was glitchy, because we got it almost three years ago. And there are a couple of little glitchy things. I think the new version is probably better gets some of those glitches taken care of. But in comparing other vehicles, man, it is a good car. It has great performance. And I think one of the things, Shalini, that the next kind really group of people who are going to want the cars are people who really care about good performance. And I don't mean driving every race car, but really it's just a much better driving and riding experience, as you know. And I spent about half my time in rural America. We're in the process of transitioning to moving out into the mountains, and there are a ton of people in rural America who want EVs. And they're not talking about Teslas. They're talking about getting pickup trucks. They're talking about... Some of them want mustangs, but they really are looking at what is a better driving experience, not what's going to make the planet better, but really what's a better car.
Shalini Ramanathan: One of the things that I am fascinated by, and I really hope it happens, I don't think technically, it's a huge challenge, I think it's more policy regulation and regulator support, is vehicle to grid. So you guys know about the Texas grid and the various challenges over the years. And so when we were freezing in the dark in my house, I was thinking we have this electric car outside. And we knew the storm was coming, so it was charged. And the technology... And we need bigger batteries. We don't want to do this with the tiniest of cars like what I have, the Chevy Bolt. But I think as we get bigger batteries, the idea that your car could provide power to your house if you needed it in case of grid emergency, that's a great benefit. And I think that could unlock another pool of potential customers.
Stephen Lacey: Here are the things that don't worry me. The automaker pause or slow down in production doesn't really worry me. If you look at what automaker executives are saying, there's a bunch of headlines written about how automakers are scrambling. They didn't anticipate the slowdown in demand. It's pretty normal for them to slow production facilities to meet demand. And if you look at what the CEO of GM and Ford are saying, they're saying, "We're totally committed to electric vehicles. We've got new models. We're just seeing these bumps in the market and we're trying to figure it out." So that doesn't seem that concerning to me. I think the tax credit piece will also get figured out. I do think the move to the mass market adopter is a little worrisome. Shalini, you had a kind of optimistic take. I think things move very slowly until they don't. And I talked to so many people who just have consistent concerns about range anxiety and the availability of charging infrastructure. And quite frankly, the lack of availability of charging infrastructure in many areas of the country is very concerning as well.
So the consumer adoption piece does worry me a little bit. Even though we are seeing record sales of EVs, those sales are building from a very small number. I don't know. I remain more concerned about how quickly the mass market consumer is going to embrace the electric vehicle than some.
Shalini Ramanathan: And range anxiety is a very real challenge. I think the number of people who want a car that can drive 200 miles at a go, or 500 miles at a go, even if they don't need it. And by the way, 250, 300 is very doable with today's cars, today's options. I think 1,000 miles, okay, that's a bit harder. You have to think about where you're going to charge. People want that. The anxiety, I think is the right word for that. Even if they're not driving that much that day, they want to know that they could if they needed to. And I think one of the challenges with, and this is a sector that we will talk about like needing business solutions, is we don't yet know the behavior of people in recharging their cars. If most people are charging their cars at home at night, then what is the utilization going to be of an EV charging business that's at a shopping center? Will that be used enough to make sense as a business?
And I think that the multi-tenant housing. You can't have dedicated ports, so how do you provide for that? So there are some... I think this is a case where the technology advances, and the cars themselves, the vehicles themselves are outstripping the advances in the infrastructure rollout to support it all.
Katherine Hamilton: Yeah, I definitely agree with that, with the charging infrastructure needing to come along. And it needs to be super obvious. It needs to be everywhere. It needs to be in every gas station. It needs just to be super accessible. One thing that's very interesting, I was in Scotland in August, and Scotland is a huge net zero goal. They have tons of EVs. What the folks there told me, and they don't have fancy EVs, they just have smallish ones to get around town, they said it is so expensive to charge them at home because of the price of electricity in the UK and the EU, it's the same, that they all have apps to try to figure out which free charging stations are available like at City Hall and elsewhere so that they can fuel at those free charging areas instead of having to pay for it at home.
So their behavior, of course, Shalini, is going to be very different than someone who's going to just charge at night and plug in at home. But I agree that the charging infrastructure is, to me, the biggest deal. I was in a Tesla Uber the other day and the guy said there was a storm and all the planes at Dulles airport were grounded. And there was a family that needed an Uber and they needed to get to New York City that night for an event. And the guy had never driven that far before in his Tesla. And he said, "Well, if you're willing to take a risk and figure out where the charging is, let's do it." They did it, and they got there in time. And he said it was a family. They had kids. They had to stop anyway. So while he was recharging, they were able to get food and take a pit stop. And so Tesla has done it right. They did all the infrastructure.
And the key here is that all those Tesla stations are going to be able to convert to become non-Tesla as well. And I think that's really important because Tesla did it right with the infrastructure.
Shalini Ramanathan: And that is such an important transition, because it's not like if you have a Jeep Wrangler, you have to go to the Jeep gasoline station. So I'm glad it's going to be open network. And I know that other companies have talked about having their own dedicated networks, and then change their minds, and that's the right answer. It's benefits everyone to have that open access.
Stephen Lacey: So I'm pretty confident that many of these market issues will work themselves out. Getting beyond consumer demand, the other thing that does worry me is the amount of money that we're getting to spend on distribution system upgrades to accommodate these electric vehicles. And we're looking at potentially tens of billions of dollars of upgrades in states in order to accommodate the projected demand in electric vehicles. And Princeton University has estimated that light duty vehicles are going to use 3000% more electricity by 2035 than they do today. And then that's extraordinary. And so there's a grid reliability challenge that is all about timing. When do you make these investments? They're going to have to be made. Do you make them ahead of demand? And if you don't do them in time, do you face serious reliability challenges? And so getting those approvals and spending the right amount of money at the right time is a real challenge.
Shalini Ramanathan: Absolutely agree. It's also an opportunity if you're going to have upgraded distribution systems that benefits communities in many ways. And there are other upgrades you can maybe you set up, grid islands for reliability in storms and things like that. But you're right, the timing, getting it all done in a timeframe that matters to your average person is hard.
Stephen Lacey: Katherine, you looked very pensive when I was saying that. Do you disagree with that?
Shalini Ramanathan: I was like, what does she want to say?
Katherine Hamilton: No, I agree. So when I started at the electric company as a grid designer, our demand was growing exponentially. Basically, old town Alexandria was moving from being a historic center to being a business center, so there were highrises being built every day. And I was in charge of designing a bunch of those systems to those highrises, and we could not get enough power from the substations and from the feeder lines to those buildings without doing some really interesting, innovative things. We did energy storage, we had thermal energy storage rates, we had standby generation rates, we had time of use rates. This was like in the late-80s. These were very innovative at the time, while we were able to build out our system. And I just think utilities have done this before. They did it in the invention of AC when all the demand went up. They've done it when urban centers have grown.
And I think this is something utilities are particularly good at, is building infrastructure. And so I think that the thought of, oh, we have to replace a bunch of transformers, maybe we're going to need to build out more substations, and certainly for tripling renewables, we're going to have the resource on the other end, I just think that with that, with the utilities, that being kind of their superpower, and then also really moving toward a much more flexible demand scenario. So Shalini, you talked about having EVs be able to provide electricity to homes when the power goes out. Well, there are a lot of other things we're going to have to more distributed generation. Electrification gives us those options for flexible demand, so that customers can serve not just as the load but the resource, right? So I think that all of those put together will allow us to be able to transition without huge hiccups to a fully electrified vehicle future.
Shalini Ramanathan: I'm grateful for your optimism. I feel like the limitations of the grid are like this wall that I hit with different kinds of projects. Like, oh, this is a good looking green hydrogen project, but actually, you can't get the green power you need at this location, so it's not going to work. EV charging, you can't put an EV charging station there because the grid won't support it. You want to build a data center somewhere, but you can't get the green grid power that you need. And you're right, it is an opportunity to put a lot of infrastructure and utility rate base, which of course, utilities love, but I do think that getting it done quickly certainly make me feel better.
Stephen Lacey: Let's go to our third segment, the forecast. This is where we bring a story that tells us something about the near distant future and we riff on it. And Shalini, you get to go first.
Shalini Ramanathan: So we are seeing a massive change in the way that tax equity is going to work. The Inflation Reduction Act created new categories of tax credits of incentives. And the question has been, where will this come from? Because it's not like the pool of current tax equity providers, you can just magically double that. And so everyone, we've been watching for the formation of a transfer market. And the good news that I'm seeing is that there's plenty of demand. There's a lot of people in corporate America who would like to participate in these projects by buying tax credits. I think the big question mark is what the terms will be, how much of a discount. You have to assume, is it going to get 90% of the tax credits, or 100%. Probably not, but you have to give up something. And what that is is unclear, but I'm encouraged that there's so much interest.
Katherine Hamilton: I wonder how Basel III will factor into that as well.
Shalini Ramanathan: It's such a huge issue.
Stephen Lacey: Can you explain what that is? What was that? What are you referencing there?
Katherine Hamilton: Yeah, so the draft regulations for the banking sector put a very high risk factor on tax equity. They treat it like private equity, which it is not, rather than tax equity, which is more like a loan. And so they have it at 400%, and it just means that it would mean that the big banks would have much less incentive to put tax equity into renewable energy projects, but hopefully that will all be solved.
Shalini Ramanathan: This is a solvable problem, right? It's a human construct and can be fixed by humans. And it hasn't been fixed yet, so I don't want to hand wave it away, but I hope that it's understood that it's not private equity.
Stephen Lacey: I presume that there are a number of listeners who know the tax equity market well. But for those who don't, can we take a step back and talk about why the tax equity market is so limited? There's just a very small set of players historically that have been able to take advantage of the renewable energy tax credits, and this transferability piece is key in that those credits can be transferred to other corporate entities. Why was the market so limited? And what does this transferability do to open up new players?
Shalini Ramanathan: There are just a handful of banks that provide tax equity, and they are set up to do it. And frankly, even with the transfer market, again, we come back to workforce. Having the know-how of how to do these deals is a limitation. And they're complicated transactions, and so not everyone can do it, and not everyone has directly the tax appetite where they're paying taxes that could be reduced with the credit, or the ability the way that some banks do to bring in these new players. So it has been a limiting factor on the growth of the sector. And so I think the transfer market is encouraging, potentially, as long as enough of the benefits flow to projects that it actually does bring down the cost.
Stephen Lacey: And how when will we know?
Shalini Ramanathan: There's no clear answer on that. My understanding is that we'll probably know more this time next year. It'll take a few more months. And it's really just about the people who are interested figuring out how they want to tackle this staffing, right? Again, what we talked about, who's going to be doing... How do you... Even if you're interested, does your treasury department have the know-how to do this? All of that.
Stephen Lacey: Katherine, what's your forecast?
Katherine Hamilton: Well, so my forecast has to do with West Virginia. I wanted to talk a little bit about Joe Manchin who is not going to run for reelection. He's one of the two senators from West Virginia. He is a democrat. When he was elected, one of his ads in 2010 was to literally shoot the cap and trade bill that was then going through Congress just to show how much he did not want to stop the coal industry. And he's always been a very strong representative of West Virginia in that he has been a booster for those industries in his state, but he's also done a lot of other things as a democrat. 88% of the time, he voted with Biden and the other Democrats on a range of issues not having to do with energy. In November of 2021, he had finished working on the bipartisan infrastructure bill, which is funding a zillion projects out there right now to try to help scale and provide some of the foundation for what the Inflation Reduction Act will do.
On August 9th, 2022, he signed onto the CHIPS Act that was then passed. And one week later on August 16th, 2022, the Inflation Reduction Act passed. And when he was really involved in that bill and in crafting it in a way that he could live with, the people of West Virginia could live with, and that he knew would provide a transition for fossil fuel workers and those industries. He's always had really good staff, very smart people working for him. And some of those have been on loan from FERC. Some of them have come in from the science communities. A lot of those come from very progressive organizations like the Center for America Progress. And he's a centrist, but he surrounds himself with people who might provide other ideas.
In 2019, he rescued the mine Workers Pension and Healthcare benefits. He permanently extended the Land and Water Conservation Fund. He's just done a ton of stuff, not just for his state of West Virginia, but also for the country. And I know a lot of people have loved to criticize him because of what he really supported on the fossil fuel side, but he also did a ton for the climate, and I will miss him. I think what it means is from a forecasting point of view, that probably Jim Justice, who is the current West Virginia governor running for that seat, who used to be a Democrat and switched to Republican, will probably win that seat. So West Virginia will not have one of each representing it in the Senate, but probably two Republicans. So I'm not sure what that means for the full cadre in the Senate, but I think Joe Manchin will be missed. And I really enjoyed working with him, getting to meet him a few times, and also meeting, working with the staff.
Stephen Lacey: Are you willing to go out on a limb and talk about what this means politically for Democrats and any other priorities they may have?
Katherine Hamilton: Oh, I hate politics. I hate trying to guess who's going to win what. I would say-
Stephen Lacey: Does the balance of power shift away from Democrats in the Senate? Are they are going to lose hold of the Senate?
Katherine Hamilton: I don't know. There's a higher risk, certainly, that they will lose the Senate, just there is a higher risk they'll win back the house. That said, I look at the committee that Manchin is chair of, which is the Senate Energy Natural Resources Committee, which is really a critical committee on all sorts of land and energy and water issues and looking at who's in line, and Senator Martin Heinrich from New Mexico is the next in line. He is an engineer, such a smart guy. His dad was a lineman. He understands the energy system. He'd be a great person to lead that committee. Other leaders on that committee are Mazie Hirono from Hawaii, and Angus King, an independent from Maine, as the Democrats that would either be in line to be the chair or the ranking member depending on how the Senate goes. But that committee on energy and natural resources has a lot of strong Democrats to fill back in from Joe Manchin.
Stephen Lacey: My forecast comes from incredibly compelling page turning reading that I'm sure you have both read cover to cover, and that is the EIA's Winter Fuels outlook. This is a very boring piece of reading, but it's a forecast for what the cost of winter fuels are going to look like for Americans, and it is getting conservatives all riled up this year. Of course, going back to politics, we're just riding this carousel of outrage all the time. And every time we go around, there's some new thing to get mad about and point at, and this plays out continually with clean energy in conservative media.
Tesla's original government loan, the Texas grid freeze, batteries from China, on and on, and on, and on. The latest conservative media dust up was all about the forecasts from EIA, this winter fuels outlook showing that because of the decline in gas prices, homeowners who heat with fossil gas will on average see 40% lower bills than those that heat with electricity. And the reaction was predictable. You had pundits out there echoing the American Gas Association writing about how the Biden administration and environmentalists are making Americans pay more with its electrification strategy. And I bring this up because I heat my home both with fossil gas and with heat pumps, and so I want to talk a little bit about my personal experience, but also the trend highlights some nuances. So one is obviously, it tells us a lot about the volatility of gas markets, which is one of the reasons why we need to reduce our dependence on fossil gas in the first place because gas prices have fallen actually 50% since last year, and that's thanks to warmer weather, lower demand from Europe.
And we saw prices skyrocket after Russia's invasion of Ukraine. And of course, the pundits who were talking about the Biden administration's nefarious plan to get you to pay more in winter seemingly forgot about these skyrocketing prices in fossil gas. They jump by double digits in 21 and 2022. The other point I want to make is that it fails to mention the nuances of electric heating, which I think is really important. When we look at these average figures or how much people who heat with electricity are paying, it doesn't separate resistance heating from extremely efficient heat pumps. And heat pumps use half of the energy that resistance heaters do. So that's really important. And the Guardian had a piece on this. They summarized a lot of the reactions out in the press. And there was a person from Rewiring America who said both run on electricity, but they're fundamentally different machines.
It's like averaging the top speed of a power wheels toy car and a Tesla. And I can speak to my own experience with that. The heat pumps that I have are ridiculously efficient, and they heat in ultra cold weather. We've been able to pump out 70 degree heat in negative 15 degree weather. They've been extraordinary. And so when we moved into this house, the house is large, it's kind of cut up, it's an old bed and breakfast, and we have a gas boiler, and our gas costs were very, very high. And then when we moved in, Russia invaded Ukraine, gas prices went way up, and we were paying just extraordinary amounts of money. And so we insulated our house, we changed out our windows, we installed heat pumps, and we slashed our gas use between 60 and 80% depending on the month.
And so I saw about an $80 increase in my electricity bill. We have pretty high electricity prices here in the northeast. And our gas bill in the winter has declined by hundreds of dollars. So I can tell you from experience, there's definitely a strong net benefit. But are there also nuances here? I bring this up because our job is to think rationally about these outrage cycles. And if you are installing heat pumps or you're thinking about electric heating, you have to think about the region as well. So there is absolutely a climate benefit. All of the billions of machines across our economy, we have to reinstall an electrify. When they reach the end of their lifetime, the machines inside your house need to be electric. But there are a lot of regions with high electricity rates. And in the northeast here, we have some of the highest rates in the country. We saw average electricity prices, retail electricity prices rise by 5% last year. And of course, that's an impact, so you have to do the math.
But I thought that this was an interesting story because I wanted to get beyond the outrage and talk about the nuances of energy markets and this home heating outlook with some of my experience mixed in.
Shalini Ramanathan: So you mentioned natural gas and the concerns that not using it could increase what people are paying for heating, but no one's, certainly the conservative media isn't talking about what natural gas pipeline companies have done. It's now documented that pipeline companies behaved in ways that natural gas pipeline companies created a crisis that didn't need to happen, and it wasn't renewables.
Stephen Lacey: Absolutely. Yeah, our next move is a heat pump water heater, but we have to go through a service upgrade to be able to do that. So there's a cost and benefit to everything. Energy is all about trade-offs, but there is absolutely a massive net carbon benefit, and very often, a benefit for your wallet. So we have saved hundreds and hundreds of dollars every month, and our house is extremely comfortable and high performing. It's wonderful. Shalini Ramanathan, director of Origination at Quinn Brook Infrastructure Partners. Thank you so much. This was so much fun.
Shalini Ramanathan: Thank you.
Stephen Lacey: Katherine Hamilton of 38 North Solutions, so great to see you. Thanks a lot.
Katherine Hamilton: So great to see you, and so great to be able to meet and speak with you, Shalini.
Stephen Lacey: Good stuff. Well, The Carbon Copy is a co-production of Latitude Media and Canary Media. You will find links to all the stories that we discussed right there in the show notes, so make sure to scope those out. A big thanks to Dalvin Aboagye, our producer of this show. It is produced by me and Dalvin. And Sean Markwan is our engineer and technical director, and he also wrote our theme song. Latitude Media is supported by Prelude Ventures, a venture capital firm that partners with entrepreneurs to address climate change across the wide range of sectors. That's advanced energy, food and ag, transportation, logistics, advanced materials manufacturing, and advanced computing. Go ahead and give us a shout out on social media. We talked about a lot of stuff here. We got some hot takes, and we want to hear from you. So you can find us all there on X, or post something on LinkedIn and give us a rating on Apple and Spotify while you're out there writing something. Thanks so much for listening. I am Stephen Lacey. This is the Carbon Copy. We'll catch you next week.