Chuck Yates: So, the thing you said the other day, ’cause we, I don’t think we had met, I mean the problem was No, no. You’ve
Neal Dikeman: been blowing me off. You’ve been ignoring me for like a year and a half. I thought you didn’t like me.
Chuck Yates: Well, the famous, I finally get to be on the famous Chuck show. God, you should aspire to so much more.
But anyway, the, uh, yeah, part, part of the problem with being a 56-year-old degenerate alcoholic, ’cause I can’t remember who I’ve met and who I haven’t met, but we met the other day and we were sitting there talking and you said something. And I wanna know if this is actually true. You said that basically within two to three years, theoretically solar could overtake solar and batteries could overtake the whole grid.
Neal Dikeman: Alright, well hey, let’s ask, so break that down. I got my little factoids for you. Let’s, I knew you ask this. Okay. So you like do gas stuff, right? Yeah. You’ve done gas before, right? Okay. I eat Mexican food. Yeah. And gas goes into a lot of things and one of the things that goes into is power plants, right? So we have our gas gen fleet in the us, right?
How big is it? I don’t know. You don’t know. No. But you fit your whole life in gas. How big? This is like your core customer. How big is it? Dude, they kicked me outta the club. I forgot all of
Chuck Yates: that stuff. Five. Oh, now I just, now I just bloviate 500 gigs. Okay. So we’ve got 500 gigs, maybe
Neal Dikeman: four 50, somewhere there about, it used to be a little bit lowers.
Chuck Yates: It’s, it’s, it’s plus or minus 40% of the power general. Right? Right. So we’re, we’re at like one, I knew a three
Neal Dikeman: gigs now in for the us. Okay. Now this is capacity. Yeah. That’s not energy. Right. So we’re gonna, we’ll work in both numbers. Okay. Let’s just make sure we work in common stuff. Sure. Right. So. How much capacity to manufacture solar cells actually f first’s go.
What do you think renewables are at in the US right now? Renew, if, if gas is 500 gigs, where’s renewables?
Chuck Yates: So, I mean, it’s, isn’t it, basically gas is 400 coal or 40% coals, call it 30, 35%. And then renewables are what, 20, 25? Depending on, so you, now you’re
Neal Dikeman: thinking energy. Right Now those numbers are closer for energy, but let’s start with capacity and we’ll work down to energy.
Okay. Right. Just so we’re just so we’ve got a common Yeah. Lexicon here. So, okay. So, um, they’re like, I just looked it up. They’re like three 50 gigs of renewables on the US grid. Okay. Now, when I started, that was like 3.5 gigs. Except it wasn’t a gig, it was hundreds of megawatts. It was, it was nothing.
Chuck Yates: It was waterfalls basically.
Neal Dikeman: Basically. Right. And for the longest time there was renewables hydro and then non hydro renewables. Right? Yep. Because the hydro number swamped everything. Now we just call it all renewables because, well, frankly, the solar and wind got bigger. Okay. So gas in the last decade and a half. Okay. Plus or minus.
Yeah. Um, wind and solar went from basically zilch. They had some, but it was close enough to zilch for us energy people to cont consider it zilch to three 50 gigs, right? Yeah. Just in the us. Yeah. Okay. Gas went from like 3 50, 400 gigs up to 500 gigs. It’s grown a little bit. Yeah. Now capacity factor. Solar capacity factor, like 24% or something.
23. There’s something low mid twenties. Yeah. Right. You, we can get it a little bit higher, but it’s, the sun
Chuck Yates: actually sets,
Neal Dikeman: right? So 24 hours, one quarter you get, you, you get four, six hours a day. Yeah. Some of it better than others. It Right. The wind capacity factor, if I recall, and I’m not speaking from memory, this may be, may be off somewhere in the mid thirties.
Chuck Yates: Yeah.
Neal Dikeman: So is the gas fleet, because a bunch of that gas peakers and stuff doesn’t run Right. Right. The newest, best, most efficient combined cycle. Right. No, those guys, you know, in the sixties, whatever, they really high, you know, um, nukes maybe in, in the, you know, when I was looking up that three mile island thing, it’s last year of operation was like 90 something percent capacity, you know, um, the um, uh.
On its average over its history is like 70. Okay. Yeah. So put this stuff in perspective. Yeah. Um, so what that means, what was the last
Chuck Yates: year that a three mile hour generat? Uh, few years ago? I
Neal Dikeman: can’t remember. It wasn’t 2019. Yeah. Yeah. Not that long ago.
Chuck Yates: Now unit two has been shut since the meltdown, but Right.
Half the, been shut down for a while. The plane was still running until 2019. Exactly. Okay. I love that.
Neal Dikeman: Sta
Chuck Yates: But anyway,
Neal Dikeman: we’ll go back to like, this is solar. We’re gonna take over the world. Okay. Renewables. But so yeah, the, we’re 500 gigs, three 50 renewables. Now here’s the fun factoid. Now how much, how much batteries, because the other thing that’s chewing gas is batteries to basically go after the peaker business, right?
Yeah. And this was about 10, 12, 15 years ago a ES energy storage, which created the energy storage market grid scale as we know it. They invented it. Yeah. Um, and if you have not had Chris Shelton on the show, you have to have Chris Shelton on. He’s literally the granddaddy inventor of that sector. And, um, Chris standing invite to come on.
Yes, Chris, you should come on and meet Chuck. There you go. Um, so. Um, back then, you know, they doing all these power projects, AKA, they got a power plant site, and this power plant site is, you know, burning thermal in order to keep some spinning reserve and the thermals just going down the drain. It said, you don’t need it, just need to spin in reserve on that particular grid, that particular location, whatever.
And so what they figured out is there are places where you’re burning that thermal and you only need eight hours a year worth of, or some very small amount worth of actual energy delivered. So yeah, but you gotta have that power there. And they could do that with batteries and they could pencil like a bandit.
And when everybody else was just screwing around, pretending that storage was coming in the future, when a new technology, they took off shelf batteries, off shelf boxes, wired ’em up, put some inverters on ’em, you know, and, and started making money and created the industry. So, and back then, their first projects were in the 20, the tens of megawatts.
Chuck Yates: Okay.
Neal Dikeman: And then they had a couple projects they bid and they said, we’re just gonna replace a whole hundreds of megawatts of gas speaker. The whole. And people are like, oh no, that that’ll never happen. Battery’s too expensive. They won’t last long enough. A, it’s like, no, no, it’s gonna happen. They, the, those projects didn’t go, the numbers weren’t there.
It was too young. But they are now, so now every gas, every battery guy in the US is basically got the gas peaker guys in their sites. ’cause those gas peakers, real low effect, real expensive to run marginally.
Chuck Yates: Right.
Neal Dikeman: And the battery’s 90 odd percent efficient. You can buy power it, you know, cheap to negative to whatever and flip it.
And you get paid on your few hours a, a year. So all the, all the money’s in a few hours on the power capacity. Right. But it’s coming. So how many batteries do you think are on the US grid right now? The grid scale ones not right. Not little ones in my cell phone. Um,
10 megawatts about 30 by the end of the year. Really? Yeah. The gigawatts gig. Gigawatt. Gigawatts, sorry. And adding at the clip of, you know, 20, 30 a year. Now, this is still young, so we’re talking a few percent of the, so we’re, we’re like, so solar or renewables broadly, it’s a bunch of wind, but we’ll just lump ’em together for this tiny little exercise.
Renewables at 70% of nameplate of the entire US gas fleet. Yeah. Storage at, you know, 7%. But if you compete, put storage compared to peakers, I don’t know, twice, two, three times that. Like, because that’s who it’s really competing with, right? Yeah. And then, um, uh, capacity factor for wind and gas on average, very similar, but that hides the fact that, you know.
Some wind plants don’t do well, some do really well. Some gas plants you want to run ’cause they’re efficient. Some gas plants you don’t. But this is all happening for economics. This wasn’t true x number of years ago. It’s the battery and the solar. Once the solar plant’s on, it’s gonna run. Yeah. So, and we’re, we’re gonna answer your question.
We just go in the really long round.
Chuck Yates: Yeah, no.
Neal Dikeman: So, but let’s get that. So the first part of your question was like, what’s, you know, is it really gonna displace Well, what happens when you put, you know, a 400 megawatt solar farm online in the loading order? It’s marginal. Cost is zero. Right. It is an always run resource.
If you, if it can run, it runs. You always take it first wind, same way. Marginal cost. Pretty close to zero. There’s O and S, so you don’t really count it that way, but it’s
Chuck Yates: the marginal cost. Pretty close
Neal Dikeman: periodically, but the not much. Right. So when it’s on, it always runs. So what these look like, if you’re an ENP guy, and I, I did this big massive study on this topic for Conoco Phillips in 2012.
Told ’em by 2017 their world was changing. They did not believe me. Yeah. But they got white in the face when I walked ’em through it. You know? You know how to do an RP ratio, right? Because like all these little EMP guys, they can do. Sure. Yeah. Right? I remember my, our little RP ratio things from back when I was in, you know, well on gas stuff, you know, 25 years, I ago.
So imagine that you have a production stream that is always on and always runs because this is gas. But who’s gonna get that build if it wasn’t the solar plant, it’s gonna be another gas. Come on cycle, right? And then that, well, who’s gonna feed that? Well, somebody’s gonna have to go drill some wells and stick ’em in the pipes, do the little gathering system, get the gas over there.
And so on the other end of that gas plant, there is a production that I need right now, and there is an RP against it, right? There is a resource and a, and a reserve against it. You can kind of model it the same way. What happens when a solar plant comes online, unlike a gas plant, which will only run if it can win and be bid into that market, if the pricing makes sense, and sometimes its pricing isn’t good enough.
Solar Farm always runs. So that solar farm takes away all future gas production. That the gas plant it was going, it replaced, was going to need. So it’s essentially a demand destruction. I’m buying
Chuck Yates: this so far, so I’m following you and I,
Neal Dikeman: and I, I, I forget the conversion factors in my head, but this is what I did for, for COP back then.
I’m like, look, if you just add this stuff up. Convert it to a, you know, a, B, C, F or MCF today type number, and then capitalize it at the RP of a major. Essentially we’re building a whole bunch of new majors that the oil field doesn’t even realize you’re getting built because, like you, you’re in this business and you don’t even think about how much gas on the gas fleet there is.
It just doesn’t matter. It’s like this, you, the production business. Um, you think about, okay, was there a new l and g thing Come online, it’s gonna suck down some volume and, and ship it to Europe. But really what we’ve been doing is building new shells in Conoco Phillips, like every year or so for the last decade.
All that reserve is now sitting in those solar cells. So this is important because it has created a massive amount of demand destruction. So why is gas cheap today? It’s because this in list inelastic curves, right? You know, you got big changes in volume versus change in price and all this, all this little microeconomic stuff.
So we’re in a world where we have created a new substitute in, in a supply demand curve that’s got a bunch of elasticities in it. So small changes in volume, big changes in price, and we are removing incrementally faster and faster changes in volume that gas was gonna get. And so that’s why Henry Hub, not high Henry Hub should be 20 bucks.
If we had to handle all the volume we’ve brought online over the last 15 years, 350 gigs, plus those batteries with just a gas fleet. ’cause nothing else was gonna get it. Coal wasn’t gonna get that. We couldn’t bring enough nukes online to, to handle all that in that timeframe. So that was gonna go to gas.
So all that marginal it, it’s gone. Right? Imagine what the price of gas would be today if those renewables didn’t exist. Yeah. So then, well, how much more can we have? Are we done? Well with wind, we may be done. There’s only wind is a, we’re in the, what I used to call the challenged resource layer of wind.
You know, it’s like back in the day when we called it challenged resources. I don’t remember when that term stopped. You probably know the, um, yeah. Alright. We got our, we got our, our, our cheap wells. And so these resources, they’re just natively more expensive. We’re drilling into more expensive layers every, every decade.
Yeah. And, um, uh, there’s no more $4 lifting costs, you know, fields out there. Yeah. So wind’s done the same thing. The first places you build a wind farm are the good ones. Really high wind speeds, that sort of thing. Right. The more you move down into slightly more marginal resources or things that are farther out, gotta build, the economics aren’t as good.
So wind has actually been coming down a very aggressive cost curve on the cost. So on the price it hasn’t because we’ve been coming down a cost curve and moving into challenged resources. Kind of like the Permian, right? You know, we’ve been getting cheaper and cheaper and cheaper and cheaper Doesn’t mean the overall cost structure is that much cheaper because the resource might be get harder.
You’ve done the easy ones. Well, wind has seen that in steroids and has hidden the fast that it has come gotten cheaper just on a linear curve. Solar is different. Solar and batteries been coming down on an exponential curve. When I got in this business, 40 50 cents a kilowatt hour wholesale at plant gate for solar was like, good.
Right, right. Today you and I want to do two. We could. Yeah. Is that what’s averaging now? No. ’cause. Labor cost gone up. The farmers might, yeah. Selling their land deer cost of capital’s a little higher. So the clearing price for solar these days may be in, in, in the fours, high threes, high fours, somewhere in there.
Cost structure, probably still in the twos to threes. A lot of fat and margin in that business now, but there wasn’t a couple years ago, so that’s why this stuff goes on, because gas struggles to compete at any price much higher than where it is today, whose price has been held down because all these renewables have been taken demand that gas was going to get out of there.
And once that solar farm goes on, it permanently destroys three decades of production for it. And since Energy’s regional, right? You throw all that on in Texas, this Texas gas that’s getting future displaced. Now we can offset that and we have by building LNG and chipping it to Europeans and, and Korea and Japan.
And that works. But of course, what’s the landed price for LNG In Spain? Or Yeah. Or Germany or wherever. What, what are, what are we at right now?
Chuck Yates: Uh, I would guess ’cause it trades off more in oil price Mm. Than it does, you know? ’cause the local market here right. Is, is Right. Whatever you can get in a pipeline.
Right. Once you put it on the water in liquid form, it trades off oil type prices. So I’m gonna guess it’s say 18 or 20. Huh? Am I wrong? I don’t know. It’s just,
Neal Dikeman: those are very high numbers.
Chuck Yates: Yeah.
Neal Dikeman: Right. And so all of our customers overseas, they paying really rich prices for power and Yeah. But let’s say it could get down to six, right?
It’s a three or four times, you know, sitting in a wellhead. I, I don’t know what the right long-term ratio is there. ’cause you said it’s all about the, the transportation differentials and all and all of that, but it’s expensive. So we have been hiding the fact that solar. Not necessarily. Wind has been holding its own.
Solar has been eating everybody’s lunch, but it had been hidden by the fact that we had a whole new export market that never existed before. That kind of has held up some demand, but of course that export market’s chunky. ’cause you know, you gotta have the terminal right. It, it comes on as a big one. You, you don’t just can’t add a few bucks of incremental capacity in LNG easily to ship overseas.
It’s, it’s an infrastructure thing.
Chuck Yates: So, so I’m, I’m buying off on all this, but, so one, keep, keep going.
Neal Dikeman: One factor and then I want you to comment, okay. How much capacity, so remember we had three 50 Yeah. Uh, total in the US today, entire US grid 1300 gigawatts. How much capacity new solar cells coming off the line in the world today exist this coming year?
No idea. 1,500 gigawatts. That’s worldwide. Worldwide. 80% in China. We don’t see it over here because what’s happened is all that gas that was supposed to go to China back when I was talking about this stuff at cell a dozen years ago, China not taken because they’ve been busy destroying demand over there in the core growth market for gas.
Yeah. So what do you think happens when they’re full? They ship it over here. Right now we’re putting on I think three, 400 gigs, um, a year of solar, like 15 headed real within like 12, 24 months, 1500 gigs or so of capacity. So what do you think happens when the plants are only at 30, 40% capacity? They cut price and they sell, sell, sell, sell, sell, sell.
So that’s what’s coming, which means the globe today can rebuild a US power grid by capacity. We’ll get to energy in a second. A US power grid every 10 months right now, and the manufacturing capacity keeps growing. Alright. $13.
Chuck Yates: Yeah. So that’s, that’s Asian l and
Neal Dikeman: g. We just like taking money away from European and Asian customers.
That doesn’t seem very nice of us.
Chuck Yates: Well, well, that’s why we put a ban in place. So, or a, a standstill in place so that we can’t do that anymore.
Neal Dikeman: That seems unfair enough. I mean, look, we have the best renewable resources in the world and not just we being America, we being Texas, right? This is like, this is the Saudi of renewables.
We have, we have a combination of, you know, of, of solar, wind, biomass, et cetera. Whatever way you wanna count that is just bigger and better than almost very unique.
Chuck Yates: It overlays the shale. Actually it does. If you, if you look at a map, Colin and I have made that point numerous times on here. So then if you look at the, you know, where is the best
Neal Dikeman: wind in the world?
It’s the great plains. It’s this Yeah, it’s kind of
Chuck Yates: the panhandle.
Neal Dikeman: Yeah.
Chuck Yates: Yeah. It’s
Neal Dikeman: all the way from Texas to to to Canada. Like Yeah. We’re just, we are unique. This is really cool. There’s no real reason that that, yeah, gas people and renewables, people should fight, except that they feel like getting in a fight.
They just, yeah. We, where the well’s been poisoned, so now we just shoot at each other for no good reason.
Chuck Yates: Okay. So I, so I, I, I buy off on your argument question. I have first, and then we’ll, we’ll, we’ll get to forward, but just historically did we get there though, because in effect, the US tax code just subsidized that.
That’s bullshit.
Neal Dikeman: No, because
Chuck Yates: I used to get us
Neal Dikeman: west, never been the big customer until recently, until the cost curve came down.
Chuck Yates: So, but, but I used to always, and, and I was always an oil and gas guy, so this would be third hand that I would get the deal. But the deal was always we build wind, we build solar, and through tax credits, we get our money back.
Mm-hmm.
Neal Dikeman: You’re talking about 15-year-old data. So here’s what happened, right? Okay. There was a point in time where everything, the, we probably ought to separate wind and solar. Wind is a almost, it’s not a uniquely American thing, but we’re a much bigger portion of that market than we were of, we have been of solar.
So you gotta kind of look at ’em a little separately and they have different tax basis things. So back originally in the day, like 25 years ago. The solar market was American. We invented it. It was SunPower and first solar, which started in the eighties. DOE money, you know, like want 20 years to get this stuff built And yeah.
Asher Power, there’re a bunch of really good
Chuck Yates: names. I was really pissed off that I wasn’t chosen as an underwriter. ForeverGreen Solar, I pitched well that ribbon
Neal Dikeman: stuff was quite cool. Didn’t ever get really big that the, yeah, that was one of those techniques that could improve. Had some side do
Chuck Yates: remember the CEO’s name I have blank on?
That’s a good
Neal Dikeman: que I
Chuck Yates: should know
Neal Dikeman: that some of my friends won that deal. I should. We
Chuck Yates: we, we pitched that and we, uh, and we didn’t get it. So
Neal Dikeman: yeah, that was one of the good, so us invented this industry.
Chuck Yates: Right.
Neal Dikeman: Yeah. And, um, that’s, that’s just fantastic. Great. And then we had our little, our little, um. Little tax stuff, but it wasn’t very big this way back in the day.
And so what was carrying the whole industry was raps, remote area power. Yeah. You know, and these were street signs, street signs at your ranch, you know, like out in the oil, oil field was a big player in a very small market at the time. There was no grid linked anything. It made no sense. And BP was a major player.
Yes. Some of the Japanese, yeah. BP and Shell were B was the biggest player. Yeah. BP was the biggest. They had the best distribution network in the world. Well then the Japanese came on and the Japanese put in some, uh, some, uh, subsidies in Japan. And that held up the industry for like early late nineties to early two thousands.
It was all Japan. It was the lions share of the world. Kyra’s Sharp, the big top tier player. These were the big names. Right. And so then I. What happened? I, I wanna say it was about 2003, four, the Japanese subsidy, maybe it was oh one actually, probably then, because that’s when I started working on this about oh one, the Japanese subsidies were in decline.
Like they basically were designed to tail off after the industry had been built. Alright, fine. Us just didn’t, there wasn’t much money. Our market was medium-ish, but we were 20%, they were 80 or some something on that order. Yeah. So the Japanese manufacturers were like, shit, we’re, we’re, we’re, we’re gonna die.
Our, our market is now basically saturated because this is back when it’s still like a buck, a kilowatt hour. I mean, it’s just, you know, $10, $20 a waddle. And it was expensive. Yeah. And so they’d soak down all the Japanese subsidies they need to keep their plants full. So they started looking for new markets.
There were two markets. They were looking at Europe, the us. So they started coming over here and offering prices that nobody had seen. And so that kind of helped kickstart the next generation. So then we have three things. We have, uh, the, the us you know, ITC. And, uh, um, I’m, I’m struggling to remember kind of the what years that changed, but that was always about a 30%.
It just didn’t matter. Yeah. And then we had the US renewable portfolio standards, which are not subsidies, they’re quotas. Right. So let’s differentiate the policy. And then we had the German feed in tariff. Now the ITC in the US wasn’t enough. It, it was, and it’s complicated and clunky and a pain in the neck.
And the RPS is what broke wind and solar open the, the ITC and the PTC helped pay for some of it, but the RRP S was the quota. Like, look, this state, and it was state level, not federal. A state would say, y’all must put on this much renewables. How are we gonna get it? So utility, all right. Utilities allowed to rate basic ’cause the utilities customers, the PUC, not you and I, right?
And so their PUC would say, all right, state’s spoken, we’re supposed to go put this stuff on. Go figure out how. Uh, and, um, uh, so then, uh, dawned on me, I, I wanna say it’s about oh 3 0 4, about your evergreen solar time, those timeframes. When I become
Chuck Yates: a big deal like Rogan, we’ll have a fact checker in here.
We need a fact checker. Yeah. That, that would be looking things up. And if I weren’t so fundamentally lazy, I’d be looking it up. Fair enough. As you talking, but yeah, I’m be be direct. Right. My
Neal Dikeman: factoids are close enough for government work. Yes, exactly. Yeah. The, um, so the RPSs got so pro propagate, if you will.
Yeah. That there was like 30 odd states or so. It wasn’t everywhere, but it was a enough RPSs states with RPSs that if you won all those states in the electoral college, you’re gonna be president. And that was the point when I’m like, oh, this, um. Or you can kind of overlay it with GDP or like, okay, this has hit a critical mass and it’s not like the ITC, which was always under threat to get canceled or the PTC.
These state things tend not to go away and if one goes away, screw it, will just sell the next state. So we, it had some of this cri, that’s what really got the US under, uh, under its belt is we had the RPSs and the Japanese guys bringing down cost because they had more capacity than that their local market could handle.
Then the German feed in tariff hits, and this is what made the world, the German feed in tariff was like 30, 40 cents a kilowatt hour. Germans, if you could put solar on the, you could sell it. Like you just got, you got paid bank, it was way too rich. And then all the Europeans started to copy the German feed and tariff, and now the big market emerges.
So the US is still not a great market at this time. The Chinese enter, and so we had the bps, we had the shells, we had a bunch of Kyra, you know, the sharp. Really good companies, great products and all that, but the man, they were not pure place. They were divisions of big organizations. They gotta go fight for capital.
And the big organizations are like, oh, this is all like subsidized government stuff. It’s, it’s not gonna last. I won’t invest. And we had run out of silicon, so the venture capital decided let’s make thin film, which turned out to be basically a cul-de-sac. Yeah. Because what we didn’t, we had plenty of silicon sand, right?
It’s just we can get the resource. What we didn’t have was refining capacity and wafer capacity because no refining person was stupid enough to go build this big plant with no take or pay. And so the big companies on BP Solar and all these guys, they’re like, Ugh. I, I’m not going to go give you a 10 year take or pay guarantee on your new plant thing because like, no.
Right. The market may not be there. And then a bunch of new Chinese upstarts backed by a bunch of Chinese government money and Chinese policies said, I will guarantee you 10 years of supply for that. Why not? I’ll just go out of business if I, if the market disappears. So they were pure plays and they were kind of judgment proof, right?
It’s a, you know, so they stole share in months and quarters. Massive share all to sell to the Germans. First Solar, one of the champion American companies making thin film this CAD and tele product, really neat product create, help create the whole market. They help create the utility scale market. They go public, basically selling all their supply into.
Europe at a very low cost and they promised our prices for our modules every year for the next five years in our contracts. And go pull that. S one will get cheaper every year roll 24 months forward if they do not hit their own cost down target their gross margin negative within like 18 months. But they did, and they knew we gotta scale.
Right. So this is what launched the sector. Yeah. The ITC in the US has helped pay, keep the US in the game, but it, it wasn’t, it was never been the big one globally. Well then what happened is we now have the um, uh, this renewable energy push. The RPSs are kind of, you know, proliferating, you know, the utilities are getting used, you know, excited about it.
So we’re seeing bigger and bigger projects. And now all these Chinese solar manufacturers, they need to dump product ’cause they’ve, everyone’s in these markets, they build capacity. In front of demand and then they, oh, we have too much capacity, we gotta sell. So those, this capacity demand yin yang is what tends to create the price opportunities for a short period there.
Even at one point, prices were going up, you see the cost curve, and then what was happening, the costs underneath were still falling, but we had some artifice, some supply chain kinks. It. It’s, you think about it, it’s like production through refining, there are, you can find some capacity limiting things where somebody’s making more margin here than this guy here.
And then that’ll shift as capacities unlock. We’ve seen the same thing in solar. Yeah. And then all of a sudden these prices drop back down and you’d see explosion in demand. We then had a messiness in the US market because on wind we have the PTC and the PTC was, I think it was like every two years they would re-up it, which meant you can make, and what’s the PTC production tax credit For the wind you’d get like, I think it was 2.30 cents kilowatt hour for every.
You produced for solar, you get 30% of anything you spent on the capital. Those were very different, you know, things. And so they, uh, uh, subsidies. So they, they made things behave differently. So the PTC arguably could have gone away a decade ago, and this industry still would’ve been fine, but it didn’t. So here’s what happens.
Yeah. Um, it is economic suicide to build a wind farm and not get the PTC if your competitor does. So as long as you know it’s there, you wait to green light the project until you know you’re gonna get it. And so you’d see this big burst in four Q in, and then, you know, four first cues would be awful. And then when it was at risk, you’d have a push to go get.
The construction started so you could go do this thing. So you’d have, then you’d have these big bursts of like, oh, pricing on turbines is high. You can’t get ’em for 24 months. Right. Because they were trying to get in to meet this government program thing. Now arguably the costs were coming down enough that the industry may not have grown quite as fast, but it was already competitive and our subsidies lasted too long.
Arguably today. Yeah. We don’t need any subsidies. We, we, we frankly don’t, and you don’t actually get all the subsidy. ’cause by the time you do all the tax structuring and all that stuff, there’s, it costs you money to deal with the government. Yeah. So there’s, there’s a, there’s a, there was a crossover point.
So we didn’t look at, when I was underwriting in our firm, we didn’t look at subsidized price market by market. That, that obviously told you where you wanted to go sell. We looked at cost, raw unsubsidized cost, ’cause we were interested in when cost curves crossed and where, and then about 2012. Bunch of the solar companies, Canadian Solar is the one that I used to use their stuff on.
They started publishing these cost curves of unsubsidized where the LCOE is cheaper thans for solar in which markets ’cause energy’s regional global market, but everything’s always hyper regional. Solar is the same way. There’d be places where, okay, I can make money on Solar Farm here, but not over here because how are wholesale power price higher there?
Cost structure lower. Yeah. A lot of good solar resource. And, and so you’d see in its best markets by about 2015, solar was cheaper than gas, but only in its best it’s average. It’s still, and then you’d see the cost structure of wind and solar. Would you per, per, per unit, per what They, they’d be like 50% delta from the bottom to the top.
Chuck Yates: So, so when you say cost structure in that moment 2015. That’s not dispatchable versus dispatchable. Correct?
Neal Dikeman: We’re not yet at dispatch. Yes. Let’s, okay, so, okay, I got you. We’re, we’re walking down a curve towards the ultimate. We’re just talking,
Chuck Yates: if I generate the, the, the electricity, it’s cheaper, right? Got it.
Correct. Okay. Yeah, I’m with you. So
Neal Dikeman: the um, uh, and we’ll, we’ll get what the world needs is cheap green dispatchable firm power. Right? Right. That’s what it And needs, right? Uh, or cheap, clean, I should say green’s the wrong term in term there. Um, what it has, ’cause this is energy. Everything’s a mess. What it has is a lot of awesome resources, capable of doing really good things, but they can’t do other people’s jobs.
You know, gas will give you dispatchability, but it comes with a marginal cost and it comes with volatility and feed stock price and, and other stuff. Right? Right. Yeah. So each of these resources is good at what They’re good. And some places the gas is cheap, and with poor Europeans, they gotta buy from us at 13.
Chuck Yates: Yeah,
Neal Dikeman: yeah, yeah. So the um, um, and so you got these loading order concepts that are very regional and even hyper regional because nodal pricing, you got, you know, you can make money on a gas plan on this side of one node, but not on this side just because there’s congestion on the grid, right. So there’s, so there’s a very rich, interesting environment.
So that’s why we started to try and unpack and look at, all right, where does, if I go put a solar plant on, now is this LCOE cheaper, the one what I can bid and not lose money cheaper than. The marginal gas and more accurately the next gas plant. ’cause a lot of these gas plants been paid for, right? Their depreciation’s there.
Um, some of ’em have cheap gas contracts, some of ’em don’t. So the next marginal plant that I have to go then buy gas, build new construct, and build and buy gas for. Oh, and by the way, why don’t you, let’s just run the forward curve on that because I’m gonna, my plant model is a forward model, not a backward looking model.
And then, by the way, how good is that forward curve? What if I wanna give you a firm price, right? Have you ever tried hedging gas out for 10 years?
Chuck Yates: It gets a little dicey after about 18 months, two years.
Neal Dikeman: The traders laugh
Chuck Yates: at
Neal Dikeman: you. They like, they make like I, I used to, when I was at Shell, I, I, we had a really awesome trading desk and you know, they trade anything.
I wash ’em. There’s literally trading power congestion. They. They were good. They were really good structures. And I have this conversation, I’m like, how long can I get a hedge for if I just want firm price? I don’t want any price volatility. Right. And how prices get, well, you wanna go out 10 years, you’re gonna triple your gas price.
Like go, go to go to Germany and say, I would like a guaranteed gas price until 2045.
Chuck Yates: Right.
Neal Dikeman: What’s the price? It, it’s not 13.
Chuck Yates: Yeah,
Neal Dikeman: right. Solar and wind come with a multi-decade hedge built in, in that price. Now the market doesn’t always value that, but sometimes it does. So they don’t come with dispatchability, but they do come with a hedge.
So it’s unfair just to kind of rip out and say, and penalize them for one and not give ’em credit for the other. Just like it’s not fair to penalize gas for its volatility and not give it credit for its firmness when you’re, when you’re in this power business. So you have these, and our, and our grid is, is, is a mix.
There are no pure play grids. That’s not very few pure play grids of any power sort. And there and there don’t need to be. These things work well together. So somewhere in this 2015 descent, what we said in 2012 De Conoco was by 2017, the curves will cross In a decent chunk of markets, solar and possibly wind will be fundamentally cheaper than gas and they will never look back.
And then over the next decade they’re going to destroy a massive amount, like world scale powered demand for gas. They’re taking gas as best customers. Yeah. Um, it turns out. L and g and other markets created a new best customer and AI is now creating a, and data center is now creating another new best customer for gas.
So the, the world keeps moving on, but this is hidden the fact that since 2017 we no longer call it alternative energy. We only did that ’cause it was more expensive than conventional. Yeah. Now we just call it renewables for solar and it’s cheaper. And when it is, when you can put solar on the grid, you do and it winds ’cause it’s cheaper.
Then you solve the shoulder problem of, okay, what do I do when the sun isn’t shining or the wind isn’t blowing. But if you go tell back in about 2008 or so in rl put out a study on, well what’s it cost to grid side firm up all these renewables. If I’ve gotta go do it with basically change t and D stuff so that I can move gas or hydro or something else and mix and match.
And they’re like, it, it, it, it’s, I think it was half to one and a half cents a kilowatt hour. Right. It’s expensive, but it’s not. Massive expensive. It’s inside, well inside. So the price to firm renewables was getting down to where it was well cheaper than the hedge on gas to go long. This is when the world started to get interesting.
But we, being in Texas, gas people don’t believe it. They honestly just don’t believe it’s happening. They, they don’t believe the cost curve. They think it’s fake. And renewable people think all the gas guys should go out of business because they’re evil spawn of the devil destroying the world. And so the two worlds don’t talk.
And so it’s like this, the, the communication’s not happening, but the industry marches on. So for a while there, each of these subsidies or quota programs, whatever, played a role in catalyzing demand. For a while there. Yeah, we’d have these and we’d have these insane prices and then we’d have these yin yangs as capacity, because this is a man, this is like more like semiconductor, it’s like, or refining where you have capacity versus, uh, demand changing, marginal cost, you know, or price structures all over the place.
So it’s easier to more understand solar if you think about it as a refining business. Yeah. Almost than an ENP business. But it has elements of both. Because to get those farms, you gotta go send out the landman, get control of something that’s under a transmission line and is good. The site matters, the rock matters, and the Permian, the site and the transmission are the dominant variable in solar and wind.
With wind, you have an extra dominant variable of, I need transmission and I need the wind blowing hard and fast in that location. Right? These are, these industries are not as different. As we pretend they are. So after all of that, it may not matter how we got here. We got to the point where solar is not only cheap, but it was, it was cheap, but it wasn’t yet at real scale.
And since we’re still just talking power, not energy. Yeah. It’s not cheap at primary energy scale yet. Because that lags Yeah. The um, uh, you can kind of think of, yeah, if you look at those capacity factor differences, take capacity, double it and you know that’ll, or have it whichever way you wanna go. And that gives you a feeling for, for the relative bit.
So when I say 1500, you know, gigawatts of capacity, really that’s the equivalent of say 750 gigawatts of energy capacity. Yeah. Compared to the gas fleet. ’cause that next gas fleet will be two, three times. Higher capacity factor if you added it all in all in gas. So that’s how you square the circle. So we could say, yeah, we can’t rebuild the US grid, we can rebuild the US grid by power in 10 months.
By energy. It’s gonna take us two years, but that’s still only two years.
Chuck Yates: Yeah. So one, I need to go research willing to take you at your word, but I need to go research the tax stuff. ’cause it’s just, I got, I got so many deals that were basically, we’re gonna get paid back through tax credits if we just build the thing.
Yep. And so, yeah, I get it. At that point, your marginal cost is zero. Right? ’cause the wind blows and the sun shines and, and it creates power and all that.
Neal Dikeman: Um, if you, if you turn off all subsidies for all energy right now.
Chuck Yates: Yep.
Neal Dikeman: Nothing really changes. We’re still going to add as much solar as we can put on ’cause it’s cheaper.
We are going to still gonna have a problem firming. You always, that’s why we had gas peakers. So now we’re gonna add as many batteries as you can. Then we will shoulder that and they’ll take the next chunk of the shoulder. Then we’ll take the rest of it with gas or hydro, whatever we need to firm it up.
We still are having AI demand, creating new pole, new demand in electrons in OECD. That has not happened in my lifetime. So it’s creating a full employment act. There’s probably almost no transmission and maybe no power or energy project in America that would not pencil right now. You just build it all, you know?
So that’s how big this demand growth is. So that’s covering a lot of stuff, but we are beyond the point where the subsidy or the tax matters, I would be happy if it just went away. ’cause I think it’s gumming up the market. You know, I, I think it’s, yeah. There was a point in time where solar did not make sense without some help.
Yeah. The German feedin tariff was the one that put it on the map because that was okay, I can make an electron for 20 cents and the government will make you buy ’em for 40. Right. The ITC, you are only getting a third back. It’s, it’s good, but until you can get cheap anyway, it’s not great. The real challenge is solar tends to be, and renewables tend to be a cost of capital business because marginal cost, like Right.
You got no, you got no buy, no fuel. All my cost is capitalized and then I uncapitalized I gotta pay rent on my money. So the interest rate is what it’s really sensitive to. Yeah. And um, uh, and that’s somewhat akin to ENP world, right? You cost of capital has mattered for that. Over time. We
Chuck Yates: talked, we talked on that, that in effect renewals really just to call on low interest rates, you know?
Yeah.
Neal Dikeman: So they’re, they’re hurting right now because interest rates are high. Yeah. And
Chuck Yates: you could secure 2% debt. It made a lot of things work.
Neal Dikeman: Correct. Yeah. Right. And so, so the industry is having to learn. Oh, the, you don’t get the free money. Oh, okay. Now some of these projects don’t make sense, right? Yeah. But it’s also, yeah, having to figure out how to build the incremental one.
And right now, like these data center people, they’re gonna pay any price to get power. They need it. They’re, they make so much money off that power. They almost don’t. What’s another penny or two per kilowatt hour on a data center in AI today? Yeah, there will come a time when they need to. Penny pinch again.
There was a time when they were real cheap. Next few years may not be that time.
Chuck Yates: Before we go there, ’cause I do want to go there. ’cause I think that’s the topic deur of the day. But one more quote. Okay, go ahead.
Neal Dikeman: So how many batteries do you think get manufactured a year? Say next year? What’s the capacity?
Same. No idea. Like 8,000 gigawatt hours a year. Enough to take every one of those solar modules, build the whole US grid, and store every single electron for like 4, 5, 6 hours each year. I can do that in one year, which means over the next decade and a half we can rebuild with just solar and storage the entire world grid and double it.
Chuck Yates: Okay.
Neal Dikeman: Doesn’t say we’re going to, but we can.
Chuck Yates: Okay. So we can, but, and I wanna fill in the but and hear your take on transmission. Ooh. Because I don’t get to, you know, put the solar on top of my roof. I kind of go out, gotta go out where the shale is out in West Texas and I gotta have big old, fancy power lines to get it to me because we can’t do that in downtown Houston.
I
Neal Dikeman: agree. Yeah. It’s all, where I spend most of my time and have for a huge chunk of my career, is this topic, transmission distribution, what we used to call the yellow iron in the middle. Because we could see coming, the solar panel is basically free. The battery module is basically free in the, in the overall amortized economics of today.
Yeah. People gonna sell you solar modules on Facebook for 19 to 24 cents right now with the tariffs in the US it’s half of that in China. So they can ship it to the Saudis at 12 cents. Right. It is. Does not show up in the cost equation. Yeah. What shows up in the cost equation are soft cost delivery, labor, cost of capital land.
Like this is what’s showing up now. So that’s where we’re all been attacking. Hail storms, hail storms. So yeah, transmission matters and that’s why the reason the solar is expensive right now to relative to say 24 months ago, part of it’s cost capital. Part of it’s because what the solar guys sent out their landmen.
They didn’t go looking for resource and rock and what can I mineralize, can I get my hands on? They, they, they went out looking for land under a transmission line and wind. You had to have places where good winds are and then you gotta go build a transmission to that. Solar and storage are different.
Solar and storage, it sunshines everywhere. The batteries can be put anywhere. The question is, where is the congestion and where is there a transmission line with capacity? Because I’m not waiting. I wanna build it now. So if you own land under a transmission line that has excess capacity near a congestion point where there’s value, your land just went up by 10 X in value, the solar people will pay to get it.
Now, solar people cannot make money on a small farm. Yeah. So cup one to 2, 3, 400 megawatts, that’s the minimum for which the solar costs make sense? Well, you need about five acres per, per megawatt. So that means you need like a thousand acres contiguous, flattish under that transmission, willing to not be used, willing to not be used or sell to you.
Right? And so give an example. My sister, my sister owns a ranch in Tennessee. She lives up there and we own a number of ranches. She has one that happens to have a transmission line across it, and she sent me some just snap snapshots, people trying to buy her stuff sometime entertains me and, and her and, and, uh, some guy was like, you know, 13, five for your land, or $1,300 a year forever in rent.
This is cattle land. And I’m like, I can sell. And she’s like, no. I’m like, Becca, just buy three more ranches. That’s like way more than your land is worth. She says, I know, but where am I gonna go get 700 contiguous acres in this county right down the road from my house that I feel like running cattle. And then I’m gonna have to move the cattle and I’ll say, this is a pain.
Well, the solar dude, they can’t aggregate a plant. So when they see a big parcel, this is not like the Permian land man where you, it’s all subsurface. I gotta get the surface rights to all of this. So that has proven to be an interesting conundrum. I think the land is four times what it should be right now.
Yeah. $1,300 an acre per year for 30 years. Guaranteed with an escalator. Do the, just do the np. That’s an insane price for this land. Yeah. Screw the cow. Screw the cow. But my sister won’t. ’cause she wants the cows and she doesn’t want it on her property and she doesn’t have to. So we’re seeing some weird kinks now.
We could fix that by just green lighting transmission everywhere. Yeah, but we don’t, because who does the transmission PUCs? That’s who signs off on it. Who pays for it’s rate-based utilities and those people are destroying our ability to have nice things. The o frankly, the only thing protecting gas are dumb PUCs and lines companies that won’t build transmission if, if they unlocked that and then building codes on, yeah, they make it expensive to put it on rooftops for no reason.
Except cities have annoying building codes and expensive permitting people. You remove that gases and pain, at least in the US and other markets where the resource isn’t, is good. We’ll just chip our gas to them. Yeah. But that’s what we are Absolutely right. That is the critical factor. Now we need more transmission.
I founded a company 15 years ago called Smart Wires whose sole job in life was to make virtual transmission capacity. We were making basically the fishery body for the transmission grid. Yeah. And it, it works, it does not sell in the US because the util US utilities, we could put on transmission capacity at one to 10% of the cost of a new transmission project.
But nobody buys, well, not nobody, US rate-based utilities struggle to buy. You can put on the equipment to add gigs of transmission capacity cheaper than they can hire the lawyers to do the rate case in Austin. They, it’s economic suicide for them to put on that transmission.
Chuck Yates: This is zapping through the air.
No wires.
Neal Dikeman: Uh, it’s better than that. It is a, um, I’m sorry. Virtual capacity. You have a network, right? That’s congested. The US transmission grid is some, runs somewhere around 60% capacity. Yep. Think about that. 60% congestion is what keeps us from getting to a hundred. There are no valves on the grid. Imagine running a refinery or a gas gathering system where you didn’t have any valves and you had very few gauges.
Okay, how much extra pipe are you gonna need?
Chuck Yates: So give, gimme an example of that. So we, I mean, ’cause we’ve gotta be, we have moving parts on the grid, so you, you’ve gotta be in synchronicity, right? Oh, this,
Neal Dikeman: that’s a fun concept. We don’t, we, that is a really cool, important point. Yeah, we were in inertial world where that was like the thing, right.
We’re now moving to a solid state world and we haven’t really aligned what that means. Yeah. Because it, this is interesting because
Chuck Yates: my, my steps were going, okay, talk about the cost of transmission. Now talk about the cost of, of the grid having to be in synchronous. Oh, you are,
Neal Dikeman: you are, you had, these are the exact right questions we should all be, be talking about.
Yeah. So, um,
Chuck Yates: and I only know enough to ask the question. I have no idea how the important thing is to ask the
Neal Dikeman: right questions. We don’t all ask the right questions. What drives me nuts about my town and I’m from Houston. I started off in oil and gas investment banking. I grew up here. My, my grandfather and father-in-law, or or uncle were refiners.
My father-in-law was a refining engineer. You know, I like, I I I love this town. People just don’t want to admit what’s changing in the world. And they’re making so much money in the oil field in our, in our EMP business, they, they don’t need to admit it, but it’s happening under our noses. We are missing the biggest, like this is even bigger than shale and, and shale is massive.
Right. That’s one of the world’s scale changes of all time. Right. But we’re talking in the last 15 years, the capacity to rebuild the entire US grid, not just 10% of global oil production like entire US grid, right? Is that’s how big these sectors are. And, and it’s not that we can’t make money in oil and gas right now, it’s that we are missing opportunity that we should be taken to sell even more things to the Europeans and the Asians, Asian markets.
Those are awesome. Right. So this is what drives me nuts. Like we don’t have to fight about it, but we do. ’cause we don’t even have these conversation to ask the right questions. Yes. For 25 years, the core challenge that’s been coming is if you bring a ton of renewables on the grid. Yeah. All of a sudden you are putting generation where it wants to be.
’cause one of the limitations of renewables, they need to be where they want to be. With wind, that’s where the wind blows. With solar, they can be anywhere, but the cost of solar has a heavy transmission component to it relative to other things. And same with batteries. So they need to be where there’s they, you, you can’t, you don’t wanna go build a new transmission line for that.
On the advantage side, I can have a solar farm. We can have it up in, in 120 days. They’re easy to build. Yeah. So, um, gas, you put the gas plant, you, we, we drill the wells where there’s gas, we pipe it to where we want. Then we build the plant where we need the power. You don’t do that with these, so it’s different.
So we’re stressing a grid that was built for coal on its original design and then had nuke added. And in the last 30 years, gas added at real scale. And now it’s being like, oh, you now need to adapt to AI demand on one side. And generation that is marginal cost zero, sometimes average cost negative, but is going and it has to run or just get shut off or get stored.
And it’s only in, and it’s in these specific locations. You can’t put it over here. You don’t have the lines or you don’t have, uh, the wind resource. So now what he, so it’s been stressing the t and d question. Not just transmission, but also now we’re moving into distribution. So we founded Smart Wires because we could see that coming.
We knew this was a problem we were working on grid stability, other devices, and we found this tech that was invented at Georgia Tech that said, and it was at one guy’s paper named Frank Regenbaum. And uh, he worked, he was on a postdoc for a guy by the name Deepak Devan. And Deepak had figured out I can make a valve that is essentially a impedance generator.
You clamp in around on the power line or run the power through it, whichever we want, and you turn it on. It will shove impedance down the conductor, which makes that element look like it’s got more resistance than the element to the left. So the power, ’cause it’s electrons. They go the path of least resistance.
They say, oh, don’t want to go there. I go this way. Oh, okay. That’s just one of them. What happens if you then say, Hey, I’m gonna go put another job guy over here, raise that impedance. The power says, oh, I’ll go this way. And what you find is that 60% capacity is limited by the elements. Like the pipes are of a certain size and you can go rebuild a pipe, but that’s kind of the main thing.
Just gimme a bigger pipe. Right? Or you can valve it. Then what Frank’s paper asked was, Hey, what happens if I could not just increase the impedance? What if I could lower it? Now? What if I could do it dynamically? And what if I valved the entire grid? Like every point we put a valve on it so we can go.
Just optimize Then. Is that what matters? Is that worth anything on this 60 and what he found? You could go from 60 to over 90, that is a 50% improvement in any transmission network. The one we’ve got and the next one, whatever else you’ll build just by valving gigawatt. The first big project was in the uk, like a gigawatt and a half of, so
Chuck Yates: do do this real quick, just ’cause I’m on the verge of understanding this point.
I think maybe that’s optimistic of me, but give me one real simple example of, okay, we’ve got a wire here, we have a, uh, a transmission line going here. We have a plant here that needs a lot of electricity and one that doesn’t need this much here. Are we running so slow just to keep the load up here?
Where we can we run faster to this plant? ’cause it has the bigger load.
Neal Dikeman: Maybe dummy, dummy
Chuck Yates: that down for me into a simple example m close. Well, we need to get you a good
Neal Dikeman: nodal pricing person on. ’cause I’m not a, I’m, I’ve been explained it to me. I’m not a really good nodal pricing person and I’m not really a good grid ops person.
And both of those, you, you gotta have that expertise at the table. Let me simplify. Right. I got two lines, right? Yep. And I got a node and this line is underutilized. Okay. This line is tapped because conductor’s only so big. It’s hot, it sags, it’s, they limit it. Right? And I have, so, and I’ve got load over here and I need to get some more load here.
Okay. Right. So I could build another line. I could build, I could, my congestion points here. I could go build a generator here on the other side of the congestion. Okay. I could go to these guys over here, the, the load the city and say on the plant and say, Hey, can you just dial down your need? At the peak point, maybe this is a chronic problem and maybe it’s a, a, a, a spiky load problem.
So I could do demand response over here. I could build a power line from there to there and route the power that way I could Yeah. Add generation next to the load. There’s a lot of things I could do. I could just rebuild this substation so it can handle more. Yeah. There’s, there’s enough tons of options.
That was an aha moment for me a long time ago, was if you ask a t and d engineer, can you solve this problem? They say, you gonna gimme budget? You gimme, can you tell me what problem you wanna solve? Okay. It’s lions and iron on steel. I, I’ll handle it. Now some of these big power transformers, some of this takes a lot of time to build.
There’s a lot of planning. So it tends to be slow, but it’s all solvable. Yeah. And uh, um, so now what happens if you just go put a valve there and now I can say, oh, I’m gonna choke back. Think about it as a choke valve. I’m gonna choke back the power here so that it runs that way. It’s not really a choke valve, but in fluid terms it’s close enough.
Close enough. Yeah. Right. So now I put one little valve and valve’s cheaper than redoing a whole line. And I just turn it back and now all of a sudden the capacity here goes up. The power just goes this way.
Chuck Yates: Yeah. And
Neal Dikeman: I have to do nothing but the valve. And this makes sense. When I, when we sold the original business case for the company.
Yeah. The concept was, well, what if you could valve the grid? We can’t run a refinery or a gas facility or a process plant without valves. Why are we doing that on the grid?
Chuck Yates: So back in the late nineties, you and I talked about this the other day. Uh, I was an oil and gas guy and oil went to $8 a barrel. Yep.
Or whatever it did. So I became a power technology guy. The, the internet was taking off. So I was like, internet plus hydrocarbon. I can do that, I can talk that. And um, anyway, we did wind up developing a thesis. We basically said the grid was designed for three nines power, you know, and lo and behold, with the microchips gotta be five or seven nines.
Okay. Whatever it is. So we need to upgrade the grid somehow to deal with these outages. ’cause it was something ridiculous. Like the grid’s out eight hours a year, but the average time was five seconds. Except in Houston
Neal Dikeman: was center point.
Chuck Yates: Yes, exactly. Probably. And, uh, and, and so. So one of the other part of the thesis is we liked companies that actually sold to end users as opposed to sold to utilities.
Because utilities kill companies. Yes. And utilities kill companies. And so that’s, that’s why your wire thing’s not working. So what, or it is potentially working, but the struggle is because in the, in the US because the monopolistic nature of the wires, oh, it’s
Neal Dikeman: little gigawatts of this stuff around the globe.
Just it’s tough sale here because of this rate-based model is not very good at enabling a utility to do things cheaper because they have to vote against their economic interest to do it right. Yeah. And it’s just, it’s like in insane. Yeah. And plus you
Chuck Yates: lose your job when the grid goes down.
Neal Dikeman: Right.
Chuck Yates: You don’t lose your job because you charge more expensive electricity.
Neal Dikeman: But, but you’re, you’re right. We’re in a digital world. We’re still running an analog grid. The latest comp, we have two companies on our portfolio now working in, in this area actually. Uh, one of them is we’re making a solid state transformer. Very similar unit to the smart wire device except for the distribution grid.
Eventually we’ll make some big power transformers. This is a transformer that does not have any copper windings in it and can go straight for just a regular transformer and go straight from the three phase AC lines. And we can go into DC or AC outputs at pick your favorite voltage or power. It’s a micro, it’s a substation or microgrid in a box.
Right. And you can gang those up together and you can clean up power on the way through island. It do bidirectional thingama jigs off your EVs and what you can build mesh networks of power grids just like we would in comms or internet or, or something else, which you couldn’t do with the old technology.
At least not cheap. Right. And then we’re working on another company. We just, you know, invested in. Yeah, it’s little. That company’s called Resilient Power. We’re making those in Austin. You know, we did that investment with Amazon and um, uh, we got another company we’re invested in that is building grid software.
Well, it turns out, so you know how we have those smart meter things?
Chuck Yates: Yep.
Neal Dikeman: And you’ve seen the little memes on, you know, on Facebook or next door. Take your favorite, Hey, CenterPoint, my, um, my power’s out. You got a meter on the house. You should know how come I call and you didn’t know my power was out.
Literally, you have a smart meter on my house. Well, all that data was built over the years and stuck in their billing system. There is no operating system. There is no SCADA for the low voltage grid. They don’t know that you have a transformer there. If you call and say it’s popped or they, some somebody calls, they’ll roll a truck like they were completely blind south of the substation.
It didn’t matter for a hundred years. These units were designed to last forever. The power quality wasn’t that big a deal. And your
Chuck Yates: refrigerator cycled back up after it glitches. So who cares,
Neal Dikeman: right? Yeah. So now we’re in a new world now we have EVs everywhere. We have solar on some of these roof. Your utility knows probably there’s a solar system on your roof, maybe that you have an EV there.
If they, because they had, there’s an interconnect or a little, you know, they had to, they had to go do a permit approval for the, for the charger. Maybe there’s storage, but they don’t know what’s doing what and they don’t know which are actually being used. Or if your EV’s home or somewhere else, they have no clue.
They know there’s a transformer there. Their asset system may tell ’em what size and type transformer it is. Maybe it doesn’t. They don’t tell ’em if it’s utilized. It never mattered. Today it does. So a new class of companies emerged and these companies are taking that a MI data, throwing it into AI ML models.
Building a complete power flow model of the low voltage distribution grid. So now I know that transformer is hurting right now. That one just popped. There’s a fault on that network. There’s a fire over here. There’s, you can see things that you couldn’t see before. Us. Utilities are just, I mean, this, this tech is two years old.
The companies that are doing it are brand new. Really cool. If you marry that with our, our, our, our solid state transformers, which we’re using for ev fast chargers, as well as for data center power packs. Our customers are as well as for grid and microgrids. If you marry those things together, then with solar on the roof.
A Tesla Powerwall or a battery pack and a vehicle. ’cause where’s all those 8,000 kilowatt hours of batteries a year headed? They’re not all being sold that we’re also at a kind of a multi x capacity to demand on that market. They’re getting cheaper and cheaper and they’re going into boxes on wheels, a k, a cars.
But once you park that car there, capable of running your neighborhood or your four houses around, just your car can run it for days. And then you have a lot of these cars now, if you rewrite the power electronics on the house, rewrite the transformer at the end of the neighborhood into a solid state, one that can manage all of this, we can have all of our nice things.
So smart wires was kind of the goal of that company. We, we found it to rewrite the dis, the, the transmission grid to allow you to stuff large generation on and manage congestion. Now we’re getting to where the low voltage network is also a problem and we’ve invested in these companies, so I’m not found ’em anymore.
I’m just writing checks to startups and cheerlead. We’ve invested in these companies to rewrite and unblind us on the distribution grid so that we can all have nice things in the power stops going out, or if it does go out, you can pop it back on and self-heal and do interesting, fun stuff. And so we’re about to build enough batteries to start storing every solar electron that can be made all night overnight, but they’re gonna be sitting in cars.
And if we don’t change what we do in the grid topologies and in the interconnects at your house and all that, it’s gonna get trapped in the cars. So we’re about to take the oil market, which was going into our cars and stuff, and replace some chunk of it with EVs and a power market, some which fed off gas, hydro, yeah, solar.
Then we’re gonna put solar on your roof and then we’re gonna park those cars at your house and then we can gang them together to run much more interesting grids. This is young, this isn’t gonna happen next year and but the, the technology to do it is power electronics whose chips are now cheap and didn’t use to be solar cells whose chips, who, whose, uh, cells are now cheap and didn’t use to be.
And lithium ion class batteries whose cells are now cheap and didn’t use to be. And then compute and comms, which is now cheap and didn’t used to be. So we are getting the tools to rebuild everything right into the teeth of this AI demand driving new massive demand and a decarbonization push by customers.
In a world that is going to need a lot more BTUs slash electrons to supply it while emerging markets are still trying to grow up and get their energy demand. What?
Chuck Yates: We’re a rich
Neal Dikeman: world.
Chuck Yates: So, so, so go ahead and put your crystal ball on and tell me how this plays out. ’cause I do think the AI stuff and the demand there is real, my running joke is when I’m out at the bar all night and I’m headed home and I stop at Taco Bell and I get home and my toilet’s warmed and the seat is down.
I will know the true benefits of ai. I’ll, you, you could
Neal Dikeman: have that today to just be annoying to set up, but you could be done.
Chuck Yates: But, but no, I think, yeah, I think, I think it’s like the internet. Once we experience it, we’re all gonna want it everywhere. We, you know, your, your girlfriend leaves you, runs off of your best friend or whatever.
You don’t want to have to go look for a song on Apple Music. You want Apple Music to know that I used to love her by Guns. N Roses needs to be playing, right? I mean, we’re gonna embed AI everywhere. Yep. I, I totally believe that. And I think we’ll pay whatever costs we have to do. Now I also believe that when AI starts running, it’s, uh, on itself building its data centers, they’re actually gonna be more, way more efficient than they are today.
I still think we’re in the third inning of, yeah, we’re power efficiency building those AI centers. But we’re
Neal Dikeman: so young in that, so, so many of these things are inning one.
Chuck Yates: Yeah. So questions. So we’re early Yeah, we’re early days on all that. So tell me how all this plays out and then give me a heavy duty dose of what sort of regulatory changes we, we have to have.
And I’m, I don’t wanna blindside you with it, but where I’m gonna go with this after you, we, we talked through that as, ’cause you’re gonna say, here are some regulatory things that have to happen. I’m gonna tell you the only people on the planet that can do that are big tech because oil and gas guys can’t do it.
No energy guys can’t do it.
Neal Dikeman: Well, I, I, I don’t, we’re now we’re getting the point where I, I don’t know. Right. It’s like I’m still trying to digest that. Like we set our fund up in 2021. Yeah. And AI was arguably not a thing. What’s it called? Energy transition ventures. Got it. We’re venture fund, we invest in startups.
Anything that benefits from or drives energy transition. And since there’s energy and everything Yeah. It’s anything we like.
Chuck Yates: Right? Yeah.
Neal Dikeman: So. AI wasn’t in our deck. It was, I mean, it was kind of there, but it was there. Oh, some AI ml, I think we had like AI ML tools or something like that. Right. It wasn’t, and now some of these AI modeling things, they are, yeah.
Much, much more sophisticated variants of things that I was working on with some of our teams that I, well, I was the firm I was at 25 years ago in the internet, boom. Had some early ai. Tool sets, but it, it’s, it’s not just like two orders of magnitude. It’s like 50 orders of magnitude difference in sophistication.
So, and even from three or four years ago that these, these tool sets that they weren’t really there. Yeah. And it’s come on so fast and then it’s created demand for energy so
Chuck Yates: fast. And what’s so crazy is they don’t actually know how it learns, you know? That’s the amazing thing. So, but it’s happening exponentially.
I
Neal Dikeman: mean, and, and again, I’m not a real AI expert. Like, I don’t even play one on TV or a podcast. I kind of
Chuck Yates: play one around here now as long as you do.
Neal Dikeman: So I, when I, we did this, you know, this grid site company, you know, we, in the diligence, uh, had ’em take me through their, their tech stack and their architecture, and we went pretty deep.
And, and I’m my, I mean, the, the guys will tell you my head was hurting. I mean, this was, I’m okay at software and this was. This is, there’s a lot of, a lot of code there, a lot of depth. These, the sophistication and, and I’m not saying other people can’t do it. There’s plenty of ’em that are, I’m saying the whole industry has a level of sophistication in tool sets and tools upon tools that is just amazing.
But that’s not what we focus on in our business because our business is energy. Right. That’s fun. There’s things, you’ll use those AI tools to do interesting stuff like warm up Chuck’s toilet seat for ’em, because that’ll make him happy. Yeah. But what’s interesting from the energy transitions perspective is for the first time in my entire life, we have power, demand, growth, real growth, unlinked from GDP.
In the OECD, not just emerging markets.
Chuck Yates: Yeah, I mean
Neal Dikeman: this is
Chuck Yates: huge. Yeah. I mean, we’re going back to kind of 1950 to 2000. Yes. Yeah. It’s like, it was, it was almost 15 x. We,
Neal Dikeman: we are positing a world where, so we think solar costs continue to fall. We think battery costs continue to fall. Emphasis on cost. Yeah. We think power prices, which I’ve been telling people are energy and power prices are always deflationary.
Yeah. They’re always, you know, the real terms. It’s flat down. It does not go up. There’s some spikes, but it’s, yeah. That doesn’t happen. That may have changed. We may see so much. Demand growth. We just outstripped capacity for supply. Even if you can drop all the solar and all the batteries everywhere you want, the manufacturing capacity for the module power modules may be there.
We could completely disrupt the entire energy sector within less than a decade. Now, that was not possible 15 years ago. The capacity to add new capacity wasn’t there. But the messiness, like if you’re gonna double the grid, you’re gonna be able to build every gas plant you want you to build. That’s why we’re talking nuke.
I mean, this is just, this is rewriting things. We may see price growth and cost falling, so we may see companies making money in interesting new ways. You may be able to just afford to rebuild the entire grid. You probably could. I was joking with, you know, one of our PUC members the other day. Yeah. And I won’t name him, but you know, just I said, you know, I think.
Correct me if I’m wrong, we could probably green light every transmission project in North America and they would all pencil. Yeah. Like all of ’em. Just build them. Yeah. And it’s like, yeah, probably now it doesn’t mean it’s happening. The utilities aren’t doing it, the PUCs aren’t doing it, you know, but every single one of ’em probably makes money.
That’s how big this demand growth is. That’s why we’re talking about turning on three Mile Island at a cost that’ll cost more to turn it back on than you could build two gas plants for, I mean, it’s like a couple billion dollars just to get 800 megawatts. Like just to refurb the thing. That’s not a new one that’s just refurb it, but it still makes sense to Microsoft.
Imagine what they’re having to pay to do that, you know, and their alternative, well the alternative, they gotta get gas from, you know, somewhere Appalachia here, up there to, you know, build another gig and, and that’s just one gig. So we’re, we’re already moved into world scale, world of everything I think.
You know, I’m a libertarian. Right. You know, these little government people are, they’re the problem. No, I’m
Chuck Yates: too, I’ve only voted for the libertarian my entire life for president. Yeah. Since I was 18 years old. Just because, yeah. ’cause I always took the point of view of that’s ’cause everybody says you’re throwing your vote away and I’m always like, you’re not throwing your vote away.
It’s your vote. Yeah, exactly. Well, and the other thing too is some real person, one one day will go, God, if those nut job libertarians dope smoking hippies that they put up every year can get 4% of the vote. I can get 50% if I run as that. So that’s why, that’s why, that’s why I, I, I want to show I still got
Neal Dikeman: destroyed.
But that’s like, and so we are in a world where our regulatory regimes were built for those 1950s. Like the, it was these natural monopolies and you know, like, okay, let’s, we didn’t build. With this regulatory regime, our power grid, our gas fleet, all this stuff was built before, and then the regulation gets added after.
It’s what happens. Internet’s the same way the regulation added after it all gets built out roads, same way, right? Yeah. But we’re in a world where, yeah, we can’t innovate as an industry. We can’t come together and work because we’re in a fight with the regulatory regime on the infrastructure side and the climate versus, you know, um, fossil kind of fight on the policy side.
And we’re busy pouring cash into this setup. So what’s, here’s what’s going to happen. The venture capitalist gonna make a lot of money. Some company’s gonna make a lot of money. Yeah. Gas people in Texas gonna make a lot of money. Yeah. The customer’s gonna pay and the consumer is gonna pay the price because the regulator, not only will they not get out of the way, they won’t fix the core problems.
They, they just, they can’t, they don’t know how and they can’t. They don’t realize what has to be done. And when they do, there’s absolutely no mechanism to make that happen. So we are going to solve climate change, fix our grid, handle all this stuff, the most expensive possible way that you can imagine.
Like just imagine the most expensive way to do energy for the next 20 or 30 years. We’re going to double that and do it. So you and I, were gonna get rich off this. Well, it’s not good. That’s just,
Chuck Yates: I won’t, I don’t have a job, but the,
Neal Dikeman: well then get a job. I thought you were looking,
Chuck Yates: somebody texted the other day.
This schick’s old. Can we change the name of the podcast after four and a half years? We get it. All right. Whatcha are you gonna change it to? I do not know that. Here’s actually what I think. Unfortunately, I used to always say America, when it comes down to it does day-to-day, really shitty. We’re not great stuff.
Oh, I like this, but. Throw a crisis at us, we kick ass, you know, bring the Nazis on. We got it. We took care of World War ii, you know, et cetera. That’s why I’ve never worried about these, these big Yeah. You know, calamities happening. ’cause we do a crisis. Like nobody, I’m not sure we have the stomach in us to do the crisis that we’re gonna need to do, to do all those things.
Oh, we’re, we’re already to even do it three times more expensive than we should. Like you just said,
Neal Dikeman: we’re, we’re already solving it. We’re just gonna do it the messy way like this. That’s, I think the why I’m now granted, so you’re the optimist. Absolutely. Like, because I’ve been working on this technology for so long and if I liked this in 2005, you’re kid in the candy store today.
Like we’re orders of magnitude bigger. The tech that we have to play with, like, as I said, I’m sitting there, our grid site guys are out of Australia. My solid state transformer guys are out of Austin. I, I, I, I’ve seen what’s inside our boxes and. I may be a little arrogant. I’m also very, very, very good at what I do.
I’ve been doing this for a long time. There’s very few people that have been doing energy and technology in startups and venture longer than I have. So I’ve seen a lot and I’ve seen bodies buried and I’ve seen really cool tech that didn’t get there. And, and I’m, I’m looking at some of the things just in our own portfolio and the people that we’ve had a chance to back.
And then I’m looking at some of the things other investors and other founders have done and this stuff, it is mindbogglingly farther along, like just than, I couldn’t even imagine this 20 years ago. We are at a point where my imagination in 2008 of what the world could be. We are, we’re, we’re way beyond.
Right? So it’s like, wow. I mean, I watch these guys, I sit there, walk me through their tech stack. I have seen inside the first ever solid state transformer for the grid. I, I was there. I’ve wa nobody else has a company, doesn’t show people I’m on the board. You know, they, they will show me, but just barely, you know, and I’m not the engineer, I don’t have the capability to put that together, but I can see what they’ve done and I can see the implications.
And so when we talk to regulators or energy people, or power people about their whining, little problems about what, yeah, what is going to be a challenge. And I’m like, I. That’s not even on our roadmap. We already
Chuck Yates: have it. Let me give you the cautionary tale real quick. Okay. So one of dad’s, uh, best friends from high school.
Jim Swell, I
Neal Dikeman: assume this your dad. My dad, yeah. And what’d he do for a living? What was
Chuck Yates: his? Uh, my dad was a doctor.
Neal Dikeman: He’s a doctor, okay.
Chuck Yates: Yeah. Radiologist. But anyway, one who’s gonna, talking
Neal Dikeman: about superconductors next.
Chuck Yates: There we go. The, so I
Neal Dikeman: founded one of those companies back in the day too. This, is that a, that is even fun.
What was it called?
Chuck Yates: American Super Synergy
Neal Dikeman: was American Superconductor was one of the original big ones. And it got
Chuck Yates: public right? Yep. Yeah, it did. Alright, but no,
Neal Dikeman: your dad’s story. Let’s, we’ll get to that. Okay. Table. So
Chuck Yates: one of dad’s best friend, Jim Waze. Jim Waze was president of Houston Natural Gas that merged with Inner North Yes.
Became Enron. Right. And so Jim was, Ken Lay’s number two for about six months, I think is how the story goes. And Jim likes to say, well, Ken didn’t like dirt under his fingernails. Operating type guys like me. He liked his fancy MBAs. Consultant type. So Jim got shone the door. But, um, so anyway, we
Neal Dikeman: found we as an industry are missing Enron.
We are missing what that brought to the table for all of its warts and challenges. Yeah. That’s what was needed. And if that did not die, we would be in a different world.
Chuck Yates: Yeah, no, I agree with that too. There were a lot of smart people there doing a lot of really cool stuff.
Neal Dikeman: They, they, they were pushing the world in the way it needed to eventually be, before it was ready and before it was needed.
Yeah,
Chuck Yates: yeah.
Neal Dikeman: And but, and the problem today is there is nobody in the power sector. In the energy sector leading, like them not leading on a tactical thing, but leading on the vision. Yeah. Even the big solar and wind development companies, it’s amazing companies. They’re, they’re, they’re building things.
They’re not reinventing the markets and the mechanisms and the regulations and the tech and all at once. You,
Chuck Yates: you almost that, that’s a good point. You almost need the, uh, Aubrey McClendon of power. We don’t have that person. You are, you are, right. I mean, ’cause who’s the urist after
Neal Dikeman: Enron? No power company in America had the guts anymore.
No, no. CEI and it’s they it there. That collapse took the wind out of the sails of true innovation in the electric sector, which has been rebuilt by these renewables people. But they come from a, I can make this widget and do this stuff. They don’t come from, let me do the, the grid, the trading. They’re like, just, yeah, they don’t think like that.
So this like, no, they
Chuck Yates: slotted into the existing grid.
Neal Dikeman: Yeah. Yeah. They didn’t change it. And we need, uh, we need to rewrite everything. There is no real point in running these modern pieces of tech on a hundred year old architectures. It’s stupid. But we’re doing it because we are locked into a regulatory infrastructure.
Payment mechanism, funding, yeah. Battle between gas people and, and like, we can’t have reliability in Texas because gas people and renewable people and battery people hate each other. So my power goes out in energy corridor. This is nuts. It’s 2024.
Chuck Yates: I know. That really bums me out that Houston, Texas, the energy capital of the world can’t run a grid.
I mean, it’s like, good god,
Neal Dikeman: they, they don’t wanna try,
Chuck Yates: they,
Neal Dikeman: they’re just not trying. It’s not brain surgery anymore, but they’re not working on the problem or the vision and the strategy.
Chuck Yates: Well, and, and I want, I I will actually flip, uh, flip sides though, and defend Ercot a little bit. Say what you want about Ercot.
I believe it’s more leading indicator of what’s to come everywhere. Well, no, don’t, it’s the ary in the coal line. I don’t, I don’t, yeah, yeah. I don’t, I don’t, I don’t necessarily think, think that they’re the worst member, but it is a leper colony on, on,
Neal Dikeman: on, on the co. You are absolutely right. Yeah. Um, as an operating capability, they dealt with what the rest of the world is going to get.
Right. This is, and we saw some canaries in the coal mines. The German prices 15 years ago. You know, the wind prices, we, we’ve seen this coming and. Texas just randomly had to deal with it early before other places, but it’s coming and it’s, and it’s not coming because of renewables, it’s coming because of gas.
There was a really, so I can’t remember, um, I really ought to go find the little article on it. Yeah. Arguing that, that basically, so gas is not what our electric transmission fleet was built for either gas. It was built for coal and sort of nukes. Yeah. Gas is not the same as coal. You don’t, it’s not, they’re not a mountain of storage sitting right there on the plant.
Yeah. It’s different. So gas is a destabilizing element on one hand while it’s stabilizing on the other then, and gas is only a 20 year phenomenon as a, as a real big fleet wasn’t a big thing in the early nineties and the eighties. It was like it was a nineties to 2000 tens type thing. And then we started to replace it even faster with renewables.
Then with batteries, and we haven’t moved from this inertial thing with lots of mountains of storage that’s slow moving and doesn’t have to take punches, but has really big Yeah. Um, uh, really big safety margins built in. And now we’re moving to a world where we have to run tighter to the margin we can.
The tech is there. We now have a mix of gas, which has to be a flow. If the flow isn’t coming through the pipe to that power plant, the power plant doesn’t turn on. Yeah, that’s not true. With coal, with electrons, we have a different, we have a much more rich, interesting phenomenon, and we need to learn how to run a modern grid with gas.
Now we also need to learn how to run a modern, modern grid with gas plus renewables and digital and solid state. Then we need to learn how to rewrite it so that they all work together, and then so we can get the least cost of power and the cleanest supply at the same time. This is very doable. We’re not starting with a blank sheet of paper.
We’re starting with a 150, a hundred year old grid, largely built in the forties through the seventies that has been had gas clued on it for 40% to take the place of coal, and now is having demand pockets pop up and is creaking and, and we’re completely blind on what’s happening on it. And so we’re like this, we need to rewrite everything.
Chuck Yates: So here’s our cautionary tell. So Jim Waze, dad’s good friend who’s, you know, president or number two at Enron for, you know, six months, months or whatever. Um, he and I used to go eat lunch, call it once or twice a year. Okay? Catch up chat about things. So in the late nineties, I am going to eat lunch with Jim and I’m regaling him with all this energy technology stuff going on.
And we’re talking about all the different types of fuel cells. I mean Oh yeah. That was a interesting period. You know, I don’t know. Fuel cell energy. I know. Energy Resource Corporation. Right, right. I tried to do a, I tried to do a private space. These are old names for those guys back in the nineties. Yeah.
So anyway, we’re sitting there and Jim is just carrying on. We’re talking all about these different fuel cells and I’m like, this is so amazing, Jim, that you keep up with all this sort of stuff. And he goes, oh, I’m not keeping up from the seventies and eighties. This’s been around forever. Yeah. He’s like, he’s like, this stuff’s all been there, you know, kind of forever.
So,
Neal Dikeman: yeah. Well, and that, that’s what I think is. It’s interesting, one of, one of our heretics, right? We’re doing Electrolyzers now. We’ve invested in a company called oum. Yeah. Which has been on one of the digital wildcatters podcasts. And, and um, CEO is, um, he was the guy behind the Bloom box. He was the VP of engineering at Bloom.
And before that, he and his CTO, who also was at Bloom were some of the early employees at Plug Power in the late nineties. And he learned electrolyzers and fuel cells from people that were doing it in the eighties and nineties. Right? Yeah. They, they, and back then there were only a handful of companies.
Like, and so when I listen to some people talk, it’s all who knew Shiny Object when I listened to Arnie talk, he’s like, like you and Jim, he’s going back, right? Because plug, plug power and GE way back and ge right. It all goes back to those GE programs. And so we are you standing on the shoulders of giants.
Yeah. And when I talk, like some of the things I’m talking about, these are companies I was working on 15, 20 years ago. Yeah. And it took that long for them to. Get a significant product in the market. We’re, we’re now at some inflection points on some of these technologies. Others are super young. Yeah. And some of them are sitting in cul-de-sacs.
I, I do think we’ll eventually get to a fuel cell world. If I had my druthers of where to spend r and d money and I was Yeah. The US government energy
Chuck Yates: czar.
Neal Dikeman: Yes. If I’m the energy czar and I get to like, what do we want to have, let’s go make it. And we knew just give enough money, we’ll figure it out.
Eventually I’d go do fusion and solid oxide fuel cells. Yeah. Because I think those would be game changers. Yeah. And yeah. Um, the, and some of those will eventually get there. Right. And so, but you think about it, how much money went into the Permian just total cash in?
Chuck Yates: Well, this, I do know this stat. Did you know the East Texas oil field?
So we basically won World War, uh, off of two off of East Texas oil field, uh, spindle top, all that. Never has actually hit payout. There were so many wells drilled in there. ’cause you didn’t have rules back then. Your neighbor had a Well, I’ve seen some pictures of the Yeah, I mean like, just, yeah, just Wells ever has not hit payout to this day and there’ve been literally billions and billions of barrels of oil taken outta.
So I,
Neal Dikeman: I, I guess what I’d say is, so some of these things, like, yeah, if you think about just the aggregate dollar volume that has had to go into shale in order to create the revolution and the phenomenon, right? Yeah. We are now talking numbers that are reaching that level of scale in solar and batteries, but that wasn’t true even eight years ago.
Right? So these are, yeah, the, there’s, uh, some of these things, there’s a quantum of money and just resource units. It’s gotta be spent to take your shot. And hydrogen, 25 years ago, they, it got billions, but billions was a drop in the bucket for what was needed for. Area. You know, some things are just big.
Yeah. And, uh, um, but technology disruption tends to come as a, it starts small and then you just watch the incremental growth rates, not the scale. ’cause by the time it gets to scale, you already lost the battle. Yeah. So we’re, we’ve
Chuck Yates: innovator’s dilemma.
Neal Dikeman: Yeah, exactly. And so what, that’s what we were seeing 10, 12 years ago, is you could see the big problem.
You could see what was going to come, if success happened in some of these things. And then you could see, okay, oh, some of them are actually like reaching the first orders of scale. Like the, the one in power sector was new capacity ads, all of a sudden renewables. And they weren’t big in overall primary energy terms.
They were nothing, they weren’t even big in capacity terms. They were nothing but the capacity ads portion of the US fleet. All of a sudden, solar and wind were, were significant. And then they got over half of it, and then they got to all of it. Then we wake up and it’s 2021 ish. And, oh, this is, nobody’s, even, nobody’s whining that solar war’s not at scale anymore.
They’re whining about, oh, it can’t, it can’t compete because it’s intermittent. Like, dude, I know you, six years ago you were telling me it couldn’t compete, was it? ’cause it was too small. Now you’ve changed your story because it just beat your ass at, at this game and that’s what’s happening. Yeah. Um, uh, but it’s not a dynamic world gas.
We’ve got ai, we’ve got grids, we’ve got LNGI, I did not see LNG coming. I, I just didn’t get it. I just, I wasn’t thinking about that until, but you step back and realize, yeah, the every molecule story, uh, was right. There were places in the world where there are no renewables. They don’t have the, the fossil reso.
They’re gonna have to import and they want to grow. And l and g became this massive, awesome thing. But there were people who saw that and place their right bets there. Yeah. So yeah, we’re not very rich. Integrated world. My big complaint is my friends in Texas, my friends who understand energy and molecules and they don’t understand power and PUCs and solar manufacturing, and they’ve never been in a battery manufacturing plant.
They’ve never looked at a solar or a sale, you know, sta tech stack. They’ve never seen the roadmaps inside. They’ve certainly never looked at a solid state transformer or AI software to rewrite. They, they, they just, they’re busy. They have their, their day job. The
Chuck Yates: podcast I dropped today with, uh, Paul Clark, we talked a lot about it.
’cause I, I think what natural gas has totally missed is they needed to think that they’re selling electrons. Not, uh, not natural gas. And whether that means Bitcoin mining, AI data centers, co-locating, manufacturing facilities, all that stuff, they need to be straight talking to end users. ’cause at the end of the day, big tech is gonna make the decision on what this power’s gonna be that’s gonna fuel ai.
Neal Dikeman: They’re gonna make the decision where in the world they put those data centers Exactly which state, and they’re gonna make that decision. Like, why would you go do this at Three Mile Island? Because you need every gig you can find, right? Yeah. It’s so like hydrogen, for example, green hydrogen, we’re big believers in this, uh, E fuels all these.
They’re not gonna get built where power prices are high because that’s economic suicide. They’re gonna get built where you can get a lot of sun, a lot of electrons, a lot of transmission. A a a lot of land. They’re gonna get built in Texas, middle East, north Africa, Australia, India. We are, the Texans are competing globally in a new battlefield.
And we are not making the widgets we’re getting made in China. Yeah. And so we need to stop pretending that energy stops at the borders of Harris County and realize you screw this up, you’re gonna lose the plants of the future to Saudi.
Chuck Yates: Yeah. ‘
Neal Dikeman: cause they got on a cheap CO2, they got a lot of cheap solar, they got a lot of land and they got a lot of
Chuck Yates: money.
And as much as I am a libertarian, they also have the ability to say, we’re gonna put the power line right there. They
Neal Dikeman: are the customer.
Chuck Yates: Yeah. They are the customer. They’re the customer in the cash.
Neal Dikeman: Exactly. So we could lose. The, as a state, the energy capital title for the next wave. Like what scares me is we have very limited solar battery manufacturing capacity in Texas at all, let alone Houston.
There’s like one or two plants and they’re not very big. Right. We are not a big player in EVs and so in, in in power electronics we’re, we’re, we’re minor players in the hypergrowth markets, AI data centers. Texas is what, fifth or eighth or whatever on the list, but it’s not a very big fifth or eighth.
Right? Right. We should be because all a data center person wants is power.
Chuck Yates: Yeah. And
Neal Dikeman: we are really good at making that when we wanna be, but we’re fighting over it. Yeah, no, that’s, and we could lose to the freaking Californians and the Saudis and the Australians and I don’t wanna lose to them.
Chuck Yates: No, I think, uh, you’re absolutely right.
I’ve joked that, uh, the mayor of Monaghan needs to go on a charm offensive through Silicon Valley and talk about how his, his bennigans is great. And, uh, and uh, get stuff built out there. ’cause it’s you c you are right? I mean, you overlay the shale revolution with the, uh, the renewable resource. So Bitcoin mining great.
It can run off renewables if need be. It can also run off the power. So yeah, you’re
Neal Dikeman: absolutely right. This is fun. Right? So we need to do a show on hydrogen. Hydrogen in the ground. Okay. And this goal hydrogen stuff, because I know nothing about that. Me either.
Chuck Yates: This is why we need to a show on it. I’ve looked at, I’ve looked at oil and gas and I’ve looked at, I’ve seen helium deals.
Yep. But I’ve never seen hydrogen in the ground.
Neal Dikeman: Do we need to do it? And maybe, and also on geothermal. Okay, we can get Mark Umbro to come in subsurface things that are interesting and could be big. I’m, I’m not a really good subsurface person. I’ve done enough of it to be dangerous, and I
Chuck Yates: always know that when the geologist shows up and they’re wearing a tie, they’re lying to you.
Neal Dikeman: Is
Chuck Yates: that, is that how it works? Do you want the rumbled ones? Yeah. When they show up wearing a piece of shit t-shirt, you’re like, okay, this guy knows what he’s talking about. When the map has been generated by the computer, you’re getting screwed. When it’s handwritten with crayons, you’re like, oh, okay. This is the real stuff.
Neal Dikeman: So here’s my simple, high level understanding of the problem with that stuff from my and, and, and energy storage underground as well. And I, it’s like I was, as one of my friends used to be at Shell, she explained to me that Wells are hard, Wells suck. Wells are bad wells don’t do what you want them to do.
They’re wells like her answer, yes, it’s wells don’t do that. Right. It’s me, meaning it’s. It’s underground. You can’t see it. It’s subsurface is hard and yeah. Now why do we do it? Because those freaking wells deliver like cash just shooting out, right? There’s, you either have an oil well, which we’re getting paid a crap ton per barrel for that stuff, or you got a gas, well, maybe this thing pays out.
Like, okay, it’s making all its money in 18 months. What do you, what’s a typical premium? Well, you put in seven mil, you get back 20 over 18 months. And that’s most the MPV something. Am I something on that order?
Chuck Yates: Sure. We’re
Neal Dikeman: close. Yeah, we’re close enough. Oh. So like, wow, that’s a lot of cash. It’s a lot of cash in, it’s also a lot of fast cash out.
Whereas the old school, wow, I spent, okay, I’ll go do an offshore a hundred million dollars and I’ll get 300 million out, but it comes over 15 years. I’m, I’m make again, making up numbers. But now let’s talk about power. Power. They don’t send you as much cash back, right? Yeah. So what’s always fun, like, okay, if I gotta go down hole to get the cash just to make an electron, those electrons, like it’s not like gas where I can get a lot of it and go put it in a big power plant.
I need a big well or I need a cheap Well, yeah. And wells suck. They chew people up. Yeah. Why do, why do you rob banks? ’cause that’s where the money is. Right? So I, I’ve been unclear if this, if geothermal, if gold, hydrogen, some of this stuff, it’s like, is there enough cash in a hole somewhere to justify the hell of top side and wells and infrastructure?
Yeah. Because you, I little ones, you know, I’m looking at it, I’m like, that just doesn’t look like a very rich project compared to what I know. A good drilling crew and completions crew and all are going and fra crew, they’re gonna need to make money. Yeah. You can throw cash and or gas Well because there’s enough there to get it back when you’re right.
I’m a little unclear on geothermal or this gold hydrogen if there’s enough there to get back. That’s the question I’m really curious to answer because I think a lot of the, a lot of power people underestimate how painful subsurface thingamajigs are and subsurface people overestimate how much value there is in any incremental power.
So just like offshore wind people. Oh, the oil and gas sector does it? Yeah. But not cheap. Yeah. Yeah. Offshore wind people, it gotta be cheap or you lose money. Right. The shells, the, you know, the nvs, the, you know, the drilling comp drillers, they’re like, you want it for what? Like, let me walk you through a day rate for my drill ship.
Right. It’s like, and they’re like, Hey, but this is only 15 megawatts. You know, that’s a big offshore wind turbine, but that’s all you get.
Chuck Yates: Yeah.
Neal Dikeman: Yeah. And it, and you get your money back over 30 years, not over two or five. There’s no upfront cash, big payment thing. So that’s pretty expensive for those megawatts.
Yeah. And so this is the question I think would be fun ’cause everybody in Houston wants to talk about subsurface adjacent things that are supporting power and energy transition. And I’m trying to figure out if they’re rich enough, those resources are valuable enough to afford. What it takes for real all people to do.
So we’re
Chuck Yates: geothermal folks. So Mike Umbro iss out there leading the charge in California Okay. Doing that. Um, so, and we, and we’ve done some podcasts with geothermal dudes. I have not looked at hydrogen. So if I have a hydrogen expert out in the audience, please call an
Neal Dikeman: underground hydrogen expert. Yes.
Underground hydrogen expert, whatever you wanna call it. A gold hydrogen. Yep. Somebody like somebody who’s done an actual resource study on Oh yeah, yeah. There’s, there’s gold to go get. Yeah. That would be fun.
Chuck Yates: And do, do we even know that the, that there is any hydrogen there or, that’s your question?
Neal Dikeman: That’s my question.
Okay. I, I, I, so, I, I know a lot of people in the oil and gas world and a lot of really smart ones and a lot of people that. Do geology exploration. Pick your favorite portion of it. Part of it, right? Yeah. I worked on the, um, uh, the all insitu all shell program for Shell. I spun that company out, we’re sticking heaters down on the ground, cooking the earth and build a refinery underground.
We were doing it in Jordan. It, it works and there’s enough all shell in Jordan in those seams, basically to build like 10 shells. Yeah. That was why it was worth the pain of power down hole type things. Yeah. So, but I have not met any of people in my set that are like, oh yeah, I’ve done a resource study on gold, hydrogen.
There is this, this is what we know this is right. We’ve seen business plans, but I’m like, and, and decks. But I’m like, this doesn’t, this looks like theoretical. So I’m, I’m just really interested to meet some people that, like, who are the old guard dudes that knew this from back in the day? Like, oh yeah.
There was always hydrogen on these seams. Uh, here’s the, what we’d try if I was going like, lemme get to some meat. That would be fun. And I think your audience would really, they have a lot of value to add to the conversation. You
Chuck Yates: could ask Jim Zel. That’s who we should go ask, ask. Is
Neal Dikeman: Jim still around?
Chuck Yates: Jim’s still around, yeah. Yeah. He might even be listening. He periodically emails about, oh, I, I listened to the podcast with such a tough show. Ah, did you know Daniel Hooft?
Neal Dikeman: No. Who was he with?
Chuck Yates: Anyway, anyway, he just came on the podcast. He runs a, um, a kelp company of all things kelp. Okay. In Namibia, um, offshore growing kelp.
Okay. But he, uh, he did the stuff in Jordan. You were talking about. Ah, and we
Neal Dikeman: talked about that on the podcast. That was a big team. I, I was, I was like the very, very tail taille end. I Right. Managed the spin out. And, uh, um, it was super fun. I got to work with some really, really smart, smart people. And, um, uh, I won’t quote how much money shell spent to figure it out, but like I used to tell people, yeah, we’re, we’re building refinery underground and it works.
I watched the final pilot outta Jordan. They’d sit there in that gsma war room down there and Yeah. And uh, the team was finishing up the pilot and they were producing basically kerosene up, up, up the pipe.
Chuck Yates: Yeah. Yeah. It was like straight outta rock. He, he, yeah, he talked, uh, he talked, uh, all about it. So I just went to perplexity and I asked him, can you drill for hydrogen, like oil and gas?
Yes, it is possible to drill for hydrogen in a manner similar oil and gas extraction, geological hydrogen, also known as gold, hydrogen, or white hydrogen. And then, so we need the, like the top experts in
Neal Dikeman: this topic. Yeah. Sitting around this table. So what is the problem? Why are
Chuck Yates: we not doing this? So, the US Department of Energy is allocated 20 million to it.
Companies like Colomba and Natural Hydrogen Energy are actively exploring potential hydrogen reserves. So maybe, uh, if you’re CEO of one of those two companies, come on.
Neal Dikeman: We need somebody to walk through. Hey. Hey. So when I was, um, in college, I was at a, went to a MI was a bit of a nerd. I don’t know if you can believe that, but No.
Shocking. So I went to this. In fact,
Chuck Yates: if you made people guess which one of us went to rice, which one of us went to a and m? It might be reverse if people asked, did you go to Rice? I went to Rice. Oh yeah. So product of when Rice nerds in breed, my parents went to Rice too. So I I,
Neal Dikeman: there’s so many jokes. I’m just gonna let them all go.
Oh, you okay. So. Fun little story. So my, I’m a sophomore year, there’s a post on some message bulletin board, you know, with for a, a thing at the Catholic Student Union across the street on, not on campus. So I troop across and were two people talking at this little talk. One was some dude from some nonprofit in Austin talking about the renewable resource of Texas.
How much biomass existed, how much wind, how much you know, title, how much solar, like it’s, it was a resource study, right? Right. That was the first time I’d ever heard any of this stuff. And it was eyeopening, right? It wasn’t, it was a very, um, thinking back, it was probably a very simplistic one. ’cause this is the late nineties is, but no, it was real.
Okay. How mu is there a target big enough to care? The other was John Bakris, the, uh, cold fusion professor at a and m who had been highly discredited. Though all that work is now back in vogue. Yeah. Giving his final retirement talk. So I got to listen. I had no idea who this dude was. I got to listen to him and then watch this study and decades later.
Right. I’m, I’m still thinking about those things and I think it’s, when I’m thinking about this geologic hydrogen, I’m thinking in terms of that resource study, I, I just like to walk through. Alright. Even if it’s not perfect, let’s talk about the resource. The way shell would think about when, ’cause when they went after that all shell thing, the question was, Hey, we may not have enough.
You know, uh, uh, we’re worried about peak oil. We may not have enough, you know, enough resource. Where are the big resources big enough to care? And, okay. The heavies in jail is one of them. Can we go work on that? Yeah. And in solar, the reason I, one of the reasons I like solar, the resource is just insane wind, big resource, not as big as solar.
So I think when we talk about hydrogen, we’re either taking solar and turning it into hydrogen, or if you’ve got another big honking resource to go after, great. I don’t care if it’s like the SHAS and it’s all broken up and hard to get to, fine, that’s a target worth. But I’d like to talk about the resource.
Yeah,
Chuck Yates: yeah, no, if that makes sense. Because, because back when I did vc, the way I always kind of looked at it and Right or wrongly, and I stole this from Burton McMurtry, so it’s not Chuck Yates original. Okay. But, but Burton used to always say, you know, if somebody comes up with something. You basically always assumed Yeah.
The engineers will be able to build it. They’ll spend more, yes. They’ll spend more than they say they’re gonna spend and all, but eventually they’ll get it built. The idea is the value, but this, well, well, and then it’s always, always the, well, who cares? Yeah. Does a market actually exactly. Develop for it?
And you’re just saying, is there a big, huge market, the big, huge resource there? Somewhere in engine, in our world, sometimes the engineers should be able to figure out how to get it out, if they’re a big one, if it’s there.
Neal Dikeman: Yeah. In, in our world, there are cul-de-sacs tech. That’s part of why et TV does really well, is we know how to stay out cul-de-sacs.
Oh, that’s a cool technology. But it’s in a cul-de-sac.
Chuck Yates: Yeah.
Neal Dikeman: Yeah. And the some markets it is. Yeah. You can’t, it’s hard tech, you know, the, the tech doesn’t. Just respond to throwing engineers at it. Some types of technologies do a lot of software. You can just throw bodies at it,
Chuck Yates: right? Yeah.
Neal Dikeman: And yeah, for SaaS, that was, that was the model e-commerce.
That was the model. So you gotta kind of figure out which one it is. I, and I could be wrong. I’m just, I’m interested, and I think y’all’s audience ought to have the expertise to discuss the question of, is there a geologic hydrogen resource big enough to care? Yeah. And, um, can we make money in geothermal?
Is it, is it, is the resource good enough? Like the idea of drilling miles down many miles down in order to make a little bit of power seems very painful to me.
Chuck Yates: Yeah. It
Neal Dikeman: just doesn’t seem like, how am I gonna get paid unless Google gonna go throw a bunch of cash because they can’t get power from anywhere.
Okay. Um, yeah. The other one we liked, um, that fascinates me. So superconductors, I founded a company that many years ago. There’s only one, only handful of companies left doing it. Huge game changer and fusion. These are, so some of these really big interesting topics, not that we’re going to invest in them necessarily.
We invest in teams and I want to go back some teams that’ll make me rich, but some of these tech topics, they’re worth the conversation and we’re seeing it all around the bleeding edge of our, of our sector. I find this more interesting than stuff like CCS. Let’s go pump some CO twos down hole. Okay. So yeah, we got all those CO twos.
What are we gonna do? Pull ’em out later and turn ’em into things. CCU, we like CCS. That’s interesting. But Houston has been working on these adjacency things and I don’t like the adjacency things for Houston. I think we’re working on ’em because we’d like them to be true while the rest of the world does.
Boring solar and batteries manufacture stuff and puts it in a box and wires it in. And we want to build kind of fancy subsurface things because we want it to be true. That’s my fear.
Chuck Yates: What were the ultimate grift industry, right? We we take it out of the ground and then we’ll get paid to put it back in.
Sure.
Neal Dikeman: So hopefully then we take it out, we get paid to put the CO2 back in and then we’ve got one company that turns CO2 into fuels and chemicals. So. Great. So then we do electrolysis. So great. Once you put it back in, eventually I wanna pull it back out, run it through our electrolyzers crack water you, and turn that into more fuels.
We’ll do it three times.
Intro: Yeah.
Neal Dikeman: Hey, we’re, we’re in an interesting, rich world. This is, these are, this is cool shit. Right. No, that’s exactly right. All right, dude, this was fun coming on. Absolutely. Thanks for finally getting on the famous podcast. I’ve been waiting for three years to be on your podcast.
Chuck Yates: Dude, all you had to do was ask.
Well, I didn’t know that. I mean, I’m, I’m not really complicated like, like you did this morning. Hey, I’m bored. We were record. Sure. Tell Craig I said hi. Will, do we still have our, uh, we still have our bet going. I forget. Does he remember your
Neal Dikeman: bet?
Chuck Yates: I don’t know. It’s on Twitter somewhere.
Neal Dikeman: He usually won’t bet with me.
We try and bet about the Aggie Texas game and he won’t bet. He, he just, I don’t think he has the guts to place his bet on Texas.
Chuck Yates: That’s funny. We, uh, we used to always do our bets when we would go sell a, uh, company Yep. Or an asset. We’d always say who’s gonna buy it and what price they’re gonna pay. And in all the years of us doing that, we were Right.
Exactly. Zero, zero times. Yeah. So. Sounds good. Cool. Good to see you.
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