0
This transcript has been automatically generated.
Subscribe to “Shift Key” and find this episode on Apple Podcasts, Spotify, Amazon, or wherever you get your podcasts.
You can also add the show’s RSS feed to your podcast app to follow us directly.
Robinson Meyer:
[1:26] Hi, I’m Robinson Meyer. It is Wednesday, March 18. Last week saw what could be the biggest American electric vehicle release of the year as Rivian announced final pricing and range information for its new five-seat SUV, the R2. The R2 might be the best-timed product launch in history, as oil prices continue to surge because of Iran’s closure of the Strait of Hormuz. As I record this, the average U.S. gasoline price is now at $3.79 per gallon, according to AAA. So we are careening into a global energy crisis at the same time that we here in the United States are watching the power grid strain to meet current demand. It’s not good. So thank goodness we have someone great to talk about it with today. Long ago in time immemorial, by which I mean about six weeks ago, I had a podcast co-host named Jesse Jenkins. Today, the prodigal co-host has come back. I’m excited to welcome back to the show my new part-time guest co-host, Jesse Jenkins. He’s a professor of energy systems engineering at Princeton University. I was on vacation over the past week so we’re going to catch up on what I missed including that big Rivian R2 launch with the continued closure of the strait of hormuz could mean and finally about the increasingly shambolic data center energy story the u.s it’s clear is really messing up the challenge of hooking up data centers to the grid what does that mean what can we do about it all that and more it’s all coming up on shift key after this, Jesse, welcome back to the show.
Jesse Jenkins:
[2:52] Hey, it’s good to be back. How have you been?
Robinson Meyer:
[2:54] I’ve been good. I was just on vacation for the past week, as devoted Shift Key listeners may know, and was very relieved. You know, when I was on vacation two times ago, Joe Biden dropped out of the presidential race. When I was on vacation last time, the One Big Beautiful Bill Act passed. And this time, I have to say, Monday or Tuesday, I was like, I think something’s going to happen. What’s going to happen? Like, is the bottom going to drop out of the global energy market? Global oil market? And the answer is like, maybe a little bit.
Jesse Jenkins:
[3:22] But well, the good news now, Rob, is just every day is every day, every week is chaos. It’s just, you know, another global war or energy price crisis or the total transformation of the labor market and the economy, which is just, you know,
Robinson Meyer:
[3:35] Normal weekly stuff, normal weekly things. Yes, exactly. Well, I do feel like in the week I was gone, the aperture on outcomes like economic outcomes for the year, which I realize is a relatively narrow focus given the widespread violence and war that’s being waged illegally on the United States behalf. But outside of that, the kind of like aperture on economic outcomes here has like really widened over the course of the past week, where I think, what seemed like a year that was going to start off with some rosy outcomes in the stock market, where there was a lot of people looking forward to these big AI IPOs. If we’re looking at a world of like $100, $110, $150 oil, then suddenly the potential for the global growth story is like really different, but that’s maybe slightly out of our ken here at Shift Key. It’s been a while since we had you on the show, Jesse, so I wanted to just kick things off by catching up on a number of topics, one of which.
Robinson Meyer:
[4:31] Was actually something I missed last week, which was that last week Rivian announced the pricing and range information for its long-awaited R2. Rivian right now makes two vehicles, both of which it calls the R1. There’s the R1T, which is a big pickup, and there’s the R1S, which is an SUV. Now it’s finally announced the specific pricing and range information for its R2. This is a car that it teased about two years ago at this point, and now it says it’s going to start delivering. So before we get into the discussion, I just want to walk through exactly what’s going to happen with the R2, because this is really the bet-the-company moment for Rivian as an American automaker. Of course, Tesla is now the world’s number two largest EV maker, but there have been this set of other kind of so far also-ran American electric vehicle makers, of which Rivian I think is the most prominent. So let’s talk about it. Well, first of all, Well, I think the big news here is that Rivian had promised that the R2 was going to debut at $45,000. It was meant to compete with the Tesla Model Y and Tesla Model 3.
Robinson Meyer:
[5:33] And the headline is that a few weeks ago, Rivian removed any reference to the $45,000 benchmark from its website and stopped promising that the R2 was going to cost $45,000. And indeed, none of the R2 trims that it announced last week fell within the $45,000 frame. So what it did announce was that starting in the spring of this year, it will begin delivering what it calls the performance version of the R2. The R2 in all its manifestations is a five-seater suv meant to compete with crossovers and family suvs and I think our Rivian has marketed it as kind of an upscale family vehicle so starting as soon as spring 2026 Rivian will begin delivering what it calls the performance R2 that says 330 miles of range and it starts at 58 000 then at the back half of this year it will begin delivering what it calls the premium R2, which will have 330 miles of range as well. That will have all wheel drive and it will start at $54,000. And then at some point next year in 2027, it will finally deliver the 345 mile range standard R2, which will be rear wheel drive only and start at $48,500.
Robinson Meyer:
[6:52] Now we can compare this to other EVs on the market. And I think we’re going to do that in a second, but I just wanted to bring you in right here. What do you make of the Rivian R2 release?
Jesse Jenkins:
[7:04] Yeah, I mean, on the one hand, it’s not surprising, right, that they’re going to lead with their performance trim, their launch edition with the highest potential margins during a period of time when they’re still ramping up production and can only produce a certain number of vehicles that you’ve got. I mean, Rob, do you know the guidance for this year, how many they expected they were going to produce?
Robinson Meyer:
[7:22] I do. I do have it in front of me, Jesse. Rivian aims to shift 20,000 to 25,000 R2s during the first six months of production. And its overall goes for the year 62,000 to 67,000 deliveries.
Jesse Jenkins:
[7:35] I mean, that’s a higher volume than maybe the R1T, but that’s not a high volume production run yet. They’re still ramping into it. We should remember the Tesla Model Y was like the best selling car in the world last year with shipping, you know, hundreds of thousands of units globally. It’s always an interesting tradeoff, right? Do you try to hit the market with the highest margin product you can when you’re in limited production range? Or do you try to really make a big splash and expand market share quickly? I think they’re clearly trying that first strategy, right? Let’s launch the launch edition. That’s what they did with their R1 models. But it does give me a little pause. It’s a little concerning. I mean, the pricing is a little on the higher end. I should say it is a bigger vehicle than the Tesla Model Y or the Ford Mach-E or other kinds of kind of those five-seater crossover SUVs. It’s a more traditional boxy SUV shape, maybe more akin to like a Toyota RAV4 than the kind of more sleek, curve-backed format of many of the competing EVs. And I guess I’m curious to see how customers react to that and whether it’s worth the sort of $3,000 to $5,000 premium that it seems to have over the comparable trims of the Tesla Model Y or the Mach-E or the Ioniq, kind of similar offerings in the market right now. But man, that performance trim, that cranks out some serious horsepower, 656 horsepower. It tops out at 656 horsepower. The Rivian R2 performance exceeds the Porsche Macan electric vehicle’s output for the top trim Porsche.
Jesse Jenkins:
[8:57] So this is a beast of a machine. And they certainly have come out with something that would be exciting to drive. It’s got more, far more off-road capability than any of the competing models, higher ride height. And so, you know, again, it’s not like most people need any of that capability. But if you are going to try to differentiate yourself in the market, this is, I would say, the EV that sits most squarely in the kind of core American SUV market segment than some of the less traditional looking, lower riding, more aerodynamically focused EVs on the market right now. And so I guess one question is how does it compete with the Model Y? But the other question is how does it compete with the RAV4 or the CRV or some of these other high volume five-seater mainstream internal combustion SUVs? Ultimately, if it can compete in that market in a year or two, that’s the big growth opportunity in the long term.
Robinson Meyer:
[9:42] I think it’s also worth noting here how much the Rivian’s margins are like compressed across the board right now. When they announced the R2, they were planning on receiving a $7,500 EV tax credit right for every vehicle, or they were planning on at least allowing consumers being able to access that. And by the way, if the $7,500 EV tax credit was still around, then you’d see some of these prices come back down into the $45,000 EV range. Now, they promised they’d hit a $45,000 EV before incentives, not after it.
Jesse Jenkins:
[10:10] Still might eventually with a more limited range rear wheel drive model that they’ll launch sometime in maybe late 2027, but they’re certainly not making any hard commitments to do that in the near term.
Jesse Jenkins:
[10:20] Yeah, we’ll see what the consumer adoption is. I imagine there is, just like when we saw the Honda Prologue launch, you had a kind of a built-up appetite of people who wanted a Honda branded EV. All of a sudden, now they have an option and they went and bought quite a few of them at the beginning. I imagine there’s going to be a surge of people who have been eyeing Rivian as a brand. They want an R1. They know they can’t afford it. Now they have a more affordable, if not super economical, entry point into the brand. I imagine there are tens of thousands of people who are out there waiting to jump in. My big question is what happens after that, right? When we’ve seen this with other models where, again, the Honda Prologue recorded great sales at the beginning, and then they collapsed. And now they’re offering $10,000 pricing incentives and 0% APRs and all kinds of other things in order to move volume. I imagine that this launch edition will do fine. The big question is what happens next year. And as they launch the more kind of affordable trims in the $40,000s, will they be able to ship 100,000 units, right? I mean, That’s the scale that they’re going to need to hit to probably turn profitability. And I guess the second thing I’m keeping an eye on is, are they just going to steal market share from Tesla? Because you’ve got a lot of people who want an EV in that price range with a reasonable performance, but don’t want to buy a Muskmobile, or are they going to be able to expand overall EV market share and target customers who have been looking for a more athletic or off-road oriented or boxy or EV, but haven’t found what they wanted in the EV market and now turn to Rivian for that instead of other providers.
Robinson Meyer:
[11:43] We’re also, I mean, it’s going to be such an interesting year for the EV market, generally because there’s a deluge of vehicles coming off leases, so there were a lot of EV drivers who took out who in the wake of the inflation reduction act leased out vehicles those leases are going to start expiring this year and there’s going to be a huge wave of new of three-year-old used EVs in the market and I think the pricing interaction between like Rivians are the R1 and R1T which will be coming off their leases and are going to start flooding into the used market the whole bulk of used EVs from the ionic to the to lots of teslas that are going to be coming to the used market and you can already see on used car sites in the you know these are twenty thousand dollar cars these are eighteen thousand dollar cars these are twenty five thousand dollars cars as competing with now the R2 which is going to be in the high fives it’s going to there’s going to be a lot of like pricing interaction here and a lot of choices for consumers who might want to go electric but like don’t need a new car to go electric they’re happy with a three-year-old car they trust that batteries are going to last now?
Jesse Jenkins:
[12:51] I mean, look, I bought a brand new Mustang Mach-E after the IRA passed, and it has depreciated enormously since then, partly because at that point, the demand was outstripping supply. So dealers were charging markups. But in addition to that, cheaper models, they’ve refreshed them over time, there’s more competition, right? And so the depreciation you eat buying a new one is pretty substantial. And it is definitely an attractive proposition to look in the market for a three-year-old car with 20,000 to 40,000 miles that you can get for much cheaper that’s already
Jesse Jenkins:
[13:18] eaten up a big chunk of that depreciation curve.
Robinson Meyer:
[13:21] I think, so moving to the next topic, one of the big questions about the EV market this year is what what demand is going to be, period. And historically, one of the big drivers of fuel efficient vehicles that we’ve seen is gasoline prices. So let’s talk about the biggest pressure on gasoline prices right now, which is Iran’s announced closure of the Strait of Hormuz. It’s actually unclear, I think, how much militarily they are blocking the strait right now. The key thing is that no ship actually wants to go through the strait.
Jesse Jenkins:
[13:53] Well, they have fired at multiple commercial ships. That’s a pretty effective deterrent, right? If you’re thinking about going through the strait. So yeah, they don’t need to take them all out. They just need to scare enough of them away that nobody wants to go through the strait.
Robinson Meyer:
[14:06] Totally. Exactly. I mean, I think one thing, just having left the country and come back, it’s noticeable immediately is that when the conflict began, when the straight was initially announced closed, prices were below $3. And so they actually had some room to rise. A month ago, they were $2.92, according to AAA, regular grade on average across the country. So they had some room to rise without consumers necessarily noticing. We are like fully in the danger zone at a national average now. It’s $3.71 according to AAA. Even in Texas, gas prices are $3.40. So normally the benchmark is kind of above $3.50 is when consumers really start to pay attention. I’m curious whether there’s going to be discontinuities in the price action, basically, where I think there’s a lot of investor expectation that the president’s going to find a way to end the war before this gets too painful. But we’re already three weeks into this and he hasn’t yet. And so what that means is that as expectations kind of rejigger, we could see big shifts, especially I think in the refined products. And so already prices have basically moved. It’s been a straight shot over the past three weeks and prices are up something like $0.80 since the war began. But as it becomes clear that the strait is going to be closed for how long? A month? Two months? As people realize potentially that the president has no basic way to fix the problem that he’s created, we could see major shifts in the gasoline price.
Jesse Jenkins:
[15:36] Yeah, as investor sentiment and public sentiment shifts,
Robinson Meyer:
[15:39] Right. Because meanwhile, you see wavering in the gas price, but meanwhile the floor comes up every day. And if you were to see a sudden loss of trust that the Trump administration knows what it’s doing on this challenge.
Jesse Jenkins:
[15:51] There’s people who still trust that. I’m surprised, but yep, there are people who still trust that, I guess.
Robinson Meyer:
[15:56] Simply observing that this is a phenomenon that could happen, and I’m not going to opine on it, then you could see huge dislocations in the price.
Jesse Jenkins:
[16:03] Yeah, I think that’s right. Right.
Robinson Meyer:
[16:04] Now, the other thing that this has affected is the LNG market. So LNG prices are shooting up globally. And there’s other commodities that we’ve talked about in the show too, fertilizer that are worth discussing in other episodes. Yeah.
Jesse Jenkins:
[16:16] I think in addition to gasoline, just a brief mention and note that there’s a whole other range of chemical products produced with those crude oils that are 20% of the world’s supply that’s bottlenecked now in the Persian Gulf. Most of that heads to Asian markets like India and China. So I think the sort of long-term impact on chemicals, in addition to fertilizer, other bulk chemicals in the Asian markets can be one to keep an eye on as well, because there’s a price effect that we’re all feeling at the prompt too, but there’s also just, that’s a huge reduction in available supply. And so, you know, that’s going to have a substantial impact on some of these secondary markets that make use of crude oil as well.
Jesse Jenkins:
[18:27] Yeah, let’s talk about gas, which is the other big story here.
Robinson Meyer:
[18:30] So I think one big story globally has been that LNG prices are also up. Qatar is the number two global exporter of LNG. It’s hitting at like an odd time in the year because the northern hemisphere is coming off winter.
Jesse Jenkins:
[18:43] So at the one hand, stockpiles are pretty low. On the other hand, like heating demand is not very high and would be expected to fall.
Robinson Meyer:
[18:48] On the other hand, this is normally the part of the year where LNG prices fall.
Jesse Jenkins:
[18:53] And you fill up the tanks. And you fill up the tanks in the winter.
Robinson Meyer:
[18:55] Yeah, exactly. So it might have like a delayed impact in the market. But I’ve seen some, let’s say, Democratic politicians reflect on this kind of global rise in LNG prices to say, oh, look, another thing that’s going to make electricity more expensive in the U.S. Should we expect to see any kind of U.S. electricity price rise because of this global LNG shock?
Jesse Jenkins:
[19:18] So I think in the short term, because U.S. LNG export volumes are pretty much at capacity and have been there pretty much continuously, except for a short blip during the real big cold snap that we had in January when some of those exports were held back to meet domestic supplies, we’ve basically been exporting at maximum throughput because the market spread for exporters is already adequate enough to make exporting at full volume make sense. And so that means that there’s not a lot of ability for, I mean, there’s basically no ability for us to surge export volumes, which is what would impact domestic markets, right? You think about the LNG market and its impact on domestic demand as basically just like another big user of domestic gas. It’s really big now, something like 30% of all liquid cell gas production can be exported as LNG now. But if it’s already cranking out at that full capacity, then there’s no ability for higher prices internationally to command greater volumes of export and therefore impact the domestic demand curve, which would push up prices here in the U.S. And so we’re kind of already at that max point. And what it’s going to do is lead to much bigger windfall profits for exporters.
Jesse Jenkins:
[20:23] Whether that leads then to the green lighting of additional export terminals or other sorts of long-term structural effects is possible. And that could lead to upward pressures in the sort of medium term. But I think in the short term, we’re relatively insulated, but only because we’ve already absorbed that full demand shock, right? We’re already exporting at full, and that price is already priced into U.S. gas. So this is a case where there’s quite a bit of a difference, I think, between the impacts on gasoline prices and on domestic natural gas, because natural gas is still not really a truly globally fungible market, and North America still are predominantly served by our pipeline gas networks. So we’re insulated from those LNG prices to a large degree.
Robinson Meyer:
[21:00] I think it’s worth noting here that this is actually a key part of the decarbonization story that I think is often overlooked, which is that this supply shock to oil and oil and gas globally is going to result in much higher profits for fossil fuel companies. And if we have say a global recession or a global, decline in growth because of an energy crisis basically what we’re going to see is that like every other sector of the economy is flat or shrinking and fossil fuels are enormously profitable and already this year fossil fuel companies are up a lot and renewable companies even though we would expect say higher energy prices to ultimately be good for demand destruction and ultimately be good for say global renewable installation like renewable firms are flat globally, and fossil fuels are way up. And that’s because it’s actually the profitability profile of fossil fuels that makes them so attractive in a portfolio, not whether they are profitable in any one year.
Jesse Jenkins:
[21:59] Yeah, actually, I just saw a recent chart from S&P that showed the sort of cleantech booms and busts in terms of market indexes for S&P’s Global Clean Energy Transition Index versus is the Dow Jones U.S. Oil and Gas Index. And actually, it’s up more this year than the Oil and Gas Index. But that’s because it collapsed after Trump was elected. And the low is hit right around the launch of the Liberation Day tariffs. But it has recovered faster and is now back up above oil, which has been relatively flat. I think that’s the lag effect of all the projects that were started under the Biden administration push and are still coming to market, especially in the power sector as demand grows. But these sort of cycles of boom and bust are really interesting. One of the things that I think is worth pointing out on the oil side is, so you might say, okay, oil prices delayed to, you know, spikes lead to big windfall profits that then encourages greater production of oil and gas and more investment in new exploration. And that may be possible. I do expect that’ll probably have an impact on LNG export terminal financing, because those are still, there were many permitted proposals that were still sort of on the bubble And if they look at this and say, hey, well, this is the kind of payday we might expect if there’s some other crisis in the future, let’s move forward.
Jesse Jenkins:
[23:08] But if you look at what happened when Russia invaded Ukraine and kicked off another one of these cycles of global fossil prices, the oil and gas companies largely did not use that windfall to reinvest in new exploration and capital budgets. They dividended and stock buyback their way through all of that money, basically. I think that’s an interesting dynamic to keep track of here. It’s like, maybe this is a big windfall for investors, but will it actually lead to greater fossil fuel lock-in? That’ll only happen if it actually leads to capital investment in more long-lived assets in oil fields and pipelines and export terminals and things like that. And that’s not a guarantee because there isn’t, at least last time this happened, the companies were not feeling all that positive about their long-term growth prospects. And they were kind of happy, or at least their investors were happy to receive short-term cash instead of reinvestment in long-term growth. And so that’s something I’ll be watching is to see whether that same dynamic plays out this time around. If this is just leads to a surge in cash payouts, dividends, or stock buybacks, or whether it actually leads to greater investment in fossil
Jesse Jenkins:
[24:06] infrastructure the latter being much more concerning from a climate perspective.
Robinson Meyer:
[24:10] So let’s talk about the power sector. So since we last talked to you on Shift Key, I had a conversation with Peter Fried, the former head of energy strategy at Meta, someone who we talked to last year. One of the points he made, which I thought was really notable, was that we’re seeing this huge surge in behind-the-meter gas built to facilitate data centers. And that basically, instead of saying data centers going in and building a lot of renewables, a lot of batteries, what they’re actually doing is building a lot of behind the meter gas with particularly inefficient turbines, kind of whatever they can get their hand on. And then they’re building a lot of batteries to augment that. And the batteries are just for reliability. And so you get this, I think, maybe surprising combination of batteries, which we kind of often think of being the natural pair to renewables and therefore being good, but purely as an auxiliary or kind of as a backup to these big gas systems that are providing the bulk of a data center’s energy. Your new company kind of works with data centers and their energy demand. So this is kind of an area that you have some expertise in, but like, did that surprise you? Does that match what you’re seeing elsewhere? And like, that did strike me as a shift from last year, where last year we were talking about hyperscalers building a lot of renewables because it was the fastest thing they could power up to now they’re building a lot of gas because it’s the cheapest, I guess.
Jesse Jenkins:
[25:31] Yeah, I don’t know if there was ever quite a strong commitment to building renewables. That is the thing that Firma Power, my company, is trying to make possible on the market. But, you know, I think we’ve seen a couple shifts in the zeitgeist, right? Everybody’s looking for an easy button solution to try to meet this massive demand growth. And so the first rush was on-grid gas plants, right? Everybody’s like, oh, I’m just going to build a gas turbine. And I’m going to go to the utility and they’re going to build me a combined cycle and I’ll build two of them or whatever. And I’ll go connect my gigawatt data center to their grid. And I think that quickly got bogged down in the fact that it’s not trivial to buy that many gas turbines, right? The total production volume globally is far below the current demand. It’s not fast to build a new combined cycle on the grid. If you’re not in the interconnection queue already and you don’t have your environmental permits and you haven’t tried to order your long lead time parts, it’s a three to five, six year long development cycle. So you start today and it’s not coming online until 2032 or 2031.
Jesse Jenkins:
[26:20] I think there’s two trends that led to then this rise in behind the meter. The current zeitgeist is, well, we’ll just skip the grid entirely and we’ll build behind the meter and we’ll build our own assets. So Michael Thomas at CleanView in February reported that they are tracking 48 gigawatts of behind the meter projects in 2025. The vast majority of those were gas powered, a little sprinkle of batteries in there. And that’s up from basically zero in October of 2024. So it really has been over the last year that this has kind of become a, you know, large scale quote-unquote solution that the industry is pursuing. And I think that’s a combination of the sort of running into the realities of the grid and all of the timelines it takes to actually connect something to the grid and really the institutional failures that we’re seeing to be able to accommodate large scale load growth quickly.
Jesse Jenkins:
[27:04] I’m concerned about the failures of our institutions on the grid to connect load growth as well. But the part I’m more recently concerned about is that there has been this push for data centers to basically internalize their costs by bringing their own capacity to the grid. So you want to connect. We don’t want rate payers to pay for your bill. You should pay bilaterally or directly for your own capacity. And I think that’s translating in a lot of people’s minds to, okay, so we’ll just build our own behind the meter capacity as our way to do that. And that, I think, is also contributing to this data center push, right? You can say, you can go to the community and say, look, I’m not driving a utility bill because I’m not even connected to the grid. I’m buying all my own power for my own generation.
Jesse Jenkins:
[27:43] My concern, I guess, at a high level, when I see this trend, I just see a big warning sign that we are failing to be able to accommodate large-scale demand growth because there’s a reason we have a grid. It is highly suboptimal for everyone to have their own standby generation microgrid that they have to manage on themselves and keep all their own redundancy, right? If you have a gigawatt scale data center and you’re trying to do all behind the meter, you can’t just have a gigawatt of generators. You probably need 1.8 or 1.6 gigawatts in order to have the redundancy you need to get to the reliability that you would normally get from the grid. And the reason we have a grid is that we can share those assets over wide areas because the failure of one asset in one place doesn’t tend to occur at the same time as a failure in another place. And so we can build a much more efficient system when they’re grid interconnected than when everybody’s their own little island. When we started in the days of Edison, right, with little microgrids and everybody running their own generators and pretty quickly realized that that was a suboptimal way to do things. And so I’m worried that we’re sort of headed back there, not because it’s the right thing to do, but just because people are frustrated with the inability to connect new loads to their grid quickly and with this sort of increasing backlash to the impact on ratepayers.
Jesse Jenkins:
[28:52] And the real solution, I think, is to fix those institutional barriers and to make it possible for, yes, for people to bring their own capacity, meaning pay bilaterally for the capacity they need, but to do that with grid-connected resources that don’t need to be on site. Because if you can do that, you have access to both a much broader range of competitive solutions, but also a lot of cleaner solutions as well that the majority of what’s in development in the world or in the U.S. right now is wind, solar, and batteries. But those are all grid connected resources that were begun, not because they were in the right place for a data center to build, but because they made economic sense or thought they made economic sense two, three years ago. If we can find a way to tap into those, which is what my company is trying to do, but others as well, we just have a much broader set of scalable solutions available than if everybody tries to make their own little island and builds behind the meter. And most of that behind the meter stuff is going to be polluting gas and coal power plants. And that’s, you know, very concerning for local communities and the air pollution impacts, but also, of course, very concerning in terms of the emissions impact on climate change.
Robinson Meyer:
[29:50] Well, and this idea of bringing your own capacity is like the first promise that the president’s ratepayer protection pledge that he made all the big tech companies sign. He says companies will build, bring, or buy the new generation resources and electricity needed to satisfy their new energy demands, paying the full cost of those resources, whether by building or buying from new or otherwise additive power plants, where if possible, these companies will also add more capacity that serves the broader public by increasing supply. And basically you’re saying a lot of the companies are reading that and then they’re being like, okay, well, I can just build basically behind the meter gas and meet that whole demand. How does this differ? There’s this other catchphrase we’re hearing now, which is bring your own distributed capacity. Is that kind of what you’re talking about here or ...
Jesse Jenkins:
[30:35] No, I think that’s a play for virtual power plants and distributed generation being an option to help sort of meet this demand. I mean, I don’t know. It depends on what you might have distributed. We’re talking mostly about large utility scale wind and solar and battery farms, but they might be distributed across a broad geographic area. I think that’s a little bit different than base power or, you know, Voltus delivering distributed energy resources aggregated into a tens or hundreds
Jesse Jenkins:
[30:56] of megawatt scale solution. That’s a big piece of the puzzle, too. But like if you think about the scale of these things.
Robinson Meyer:
[31:01] You can’t use that to deliver 48 gigawatts. That would otherwise
Jesse Jenkins:
[31:04] Yeah, it’s just not going to scale that fast. If we do do that, it should be an augment for the tens or hundreds of gigawatts of wind, solar and battery projects in development now that could also meet that need. I guess if we sort of break this down, the reason I’m concerned about this is there’s a big difference between having an inefficient combustion turbine or reciprocating engine that you use as a kind of way to back a flexible interconnection agreement, or say I want to connect a gigawatt scale data center, and the utility says, okay, I can accommodate 450 megawatts with my current grid capacity. If you want to go above that, we’re going to have to build some new transmission lines and that’s going to take you three to five years, right? One solution to that that we looked at in the white paper I put out with Camus and Encord at the end of last year was to allow for a kind of conditional interconnection for that latter portion to say, look, most of the time those transmission lines are not congested and I can consume grid power. But instead of building that upgrade to solve the 1% of the hours or less when the grid is congested, let me build my own behind the meter generation or storage or even do compute flexibility to drop my grid consumption and solve that problem.
Jesse Jenkins:
[32:09] If that’s the solution, if that’s the role that on-site power is playing, then it’s A, only like 1% of hours of the year. And B, it’s actually a really well-suited role for batteries because they can dispatch over short periods of time and cover those kinds of congestions. If you’ve got a gas turbine that’s not very efficient and it’s running 1% of the hours of the year, I don’t really care. That’s like a very low amount of emissions and very low air pollution impact. And if you’re paying for that internally as a data center, like fine. What is concerning is when that becomes a round-the-clock solution. When you just say, look, I’m going to sidestep the grid entirely. And rather than dealing with utility, I’m going to build, you know, as in case of X.ai and at the Colossus facility, I’m going to build 45 small inefficient gas turbines or reciprocating engines, and I’m going to run them eight, seven, 60 hours of the year. That’s not what they’re meant for. They’re not that efficient. They’re not that reliable for that kind of round the clock service. And they don’t have the emissions controls, the pollution controls that you would find on a more efficient baseload type combined cycle plant. And it’s just screams of desperation, right? It’s an obviously poor suboptimal approach to this problem. So yeah, I think we have to sort of draw the distinction between like occasionally utilized to solve a network constraint and like round the clock running because I just didn’t want to deal with the morass of interconnection rules and timelines here to get my data center onto the grid.
Robinson Meyer:
[33:27] Where do you come out on balcony solar?
Jesse Jenkins:
[33:30] Balcony solar? I like it. We can do less of it in the U.S. because our homes are wired for 120-volt instead of 240, which is a shame. But I think someone’s going to find a good way to productize a little solar battery system that you can make sure never discharges out of the household and into the grid. That’ll be a pretty handy solution for people who have the space to put one up. I’d like one that I don’t have to go to an electrician to install. That’s the key.
Robinson Meyer:
[33:53] I feel like they’re emerging as one of the affordability plays in various states now.
Jesse Jenkins:
[33:59] Yeah, that part I don’t really get.
Robinson Meyer:
[34:01] But I kind of like that they’re cute.
Jesse Jenkins:
[34:05] Look, I mean, it’s a way to slightly reduce your grid consumption. And if that it can be done cheaper than supplying power from the grid, then that sounds good. Although we still have all the rate design problems we’ve talked about in previous episodes, which is that you may not actually be saving the cost that you’re saving in your bill if we don’t fix rate design.
Robinson Meyer:
[34:22] Let’s leave it there. Jesse Jenkins, thank you so much for joining us.
Jesse Jenkins:
[34:26] Thanks, Rob.
Robinson Meyer:
[34:26] It’s so good to have you back. This is so fun. Thanks so much for listening, as always. We’ll be back in your podcast at least one more time this week. Until then, Shift Key is a production of Heatmap News. Our editors are Jillian Goodman and Nico Lauricella. Multimedia editing and audio engineering is by Jacob Lambert and by Nick Woodbury. Our music is by Adam Kromelow. Thanks so much for listening, and see you in a few days.
