Nat Bullard (2:53)

Shale, great to be back. As always, happy 2026.

Shea Khan (2:56)

This is year four that we've been doing this. Something like that.

Nat Bullard (3:02)

It is indeed year four. We've been doing this recording as long as I've been doing a big presentation. So, yeah, fourth year it is.

Shea Khan (3:10)

I do love a big deck. 200 slides this year. 200 slides exactly. So wait, I have an important question for you. There's no way it just happened to be 200 slides. You made it an even number. What was the one that got cut out?

Nat Bullard (3:21)

Oh, the one that got cut out is nothing, I can tell you. I had about 365 slides as of the start of November. So the better way of thinking about it is that I essentially cut one slide for every slide that's in there. And in fact, I usually cut more than that. So I start off with like 300 plus and cut it down to about 150 or 160 and then build back up. So it's first an exercise in addition, then it's an exercise in subtraction to get to kind of the magic number. As you remember, way back when, I had 141, which is like a sort of arbitrary prime number count, or maybe it's not even a prime number of slides. And then I always felt like there was stuff that I had left, so I made it bigger and then kept it there. I think it's quite possible that if you do more than that, you're. You're going to lose the edit capability that gives it some of the strength over the course of 12 months.

Shea Khan (4:16)

Yeah, no, I think you need to start making the number like a meaning, some kind of a meaningful number. Our. Our mutual friend, Andrew BB I always appreciated at his For Obvious Ventures, their first couple of funds, the fund sizes were always very fun. The first one was $123,456,789. And then I think the second one was like 313, $131,313 or something like that. It was palindromic anyway. You got to come up with something better than 200.

Nat Bullard (4:45)

I was thinking about that natural log PI. It's a rich tapestry of options of numbers multiplied by something that I should be able to get in there. But I do like 200 for now. It's easier for people to wrap their heads around and to benchmark a little bit when they're paging through it, too.

Shea Khan (5:03)

All right, enough navel gazing about numbers of slides. Let's get into some slides. Okay. As usual, I've picked a subset of my favorite slides that I found interesting. And we're just going to run through them. So we're going to start on slide 15, which is something that given that this trend has been ongoing for quite some time and in fact the lines crossed like a decade ago, I'm surprised I didn't already know, which is that China is significantly more electrified, at least as measured by the share of final energy that comes from electricity, than the United States, like substantially more so. And I had somehow missed that trend.

Nat Bullard (5:45)

This is a great one. It's some work from Ember that it's been now doing for quite some time. And what it tracks is, as you say, that the share of final energy that comes from electricity. But another way to think about it is like how electrified is an economy. And there, there are lots of different ways that you can get to a high number. Right. One of them would be that you have very little primary industry. Another would be that you have plenty of primary industry, but you apply a great deal of electrification to processes that otherwise would be driven with some kind of thermal input.

Shea Khan (6:19)

Or you have a tiny bit of primary industry and it's all aluminum smelting or something.

Nat Bullard (6:24)

Exactly. Like an example of a country like that, for instance, would be Norway.

Shea Khan (6:27)

Right?

Nat Bullard (6:28)

Right. Which is both. An advanced economy has some industry, is highly primary energy from or highly electricity rather than primary energy. But China is none of those things. It's a huge industrial economy, it's a huge user of primary energy, but it's also a consistent user of electricity for its final energy source. And it's also moving at a much more rapid pace than either North America or Europe, which is sort of slowly ticked up the course of five decades from 10% to a little bit north of 20%. China meanwhile, has gone since 1970 from like 3% to 30%.

Shea Khan (7:09)

Well, I want to benchmark to 1990 actually, because that's where I find the chart start. Look, looks really interesting. In 1990, North America's already at like roughly 20% electricity, which is, by the way, it's still the truth. It's true today, 22, 23%. And that's the number that I always use. Like, I knew that number. I always tell people if they over index on like electricity or over, they're like, solar is going to be the. Whatever. You know, it's worth remembering in the US that electricity is 20% of final energy consumption. Or I guess it's actually 22, but that's been true since 1990. Whereas China in 1990 is down at what, 7% electricity and then jumped to 30% today. So like it's a Very different trajectory.

Nat Bullard (7:55)

It's a totally different trajectory at a totally different scale too. Everything in China is bigger when it comes to energy and in particular when it comes to the sort of primary inputs. So I just think it's a really important measure, as you talk about an electrified future or electrotech or the electric tech stack or whatever it might be, that China is sort of grasping this as opportunity. That's also being done at scale. It's one thing to say Norway can do this, it's another thing to say that China's doing this.

Shea Khan (8:28)

Not that you necessarily can speak for the Chinese central government, but you're certainly closer to it than I am. I've heard that one of the reasons, one of the rationales of China focusing so much on electrification is that they wish to control their own destiny. They don't have massive domestic reserves of hydrocarbons, but they can produce their own electricity. That is why they're investing in solar and the battery supply chain and blah, blah, blah, and nuclear for that matter. So do you think that that explains this? Like China is just saying we, we can't rely on energy imports long term, so we're going to electrify.

Nat Bullard (9:08)

So there's, well, there's a bit of a nuance to that, which is that the primary imports that you'd have of primary energy in China are going to be oil, which is still a major importer, and natural gas for which is still a major importer. It does import coal for kind of energy balance reasons, but it an absolutely enormous indigenous coal supply that will last for centuries. Right. So one thing to remember about this primary energy from electricity is that that doesn't mean that it's entirely coming from say hydropower or solar, wind. It can be coming from thermally generated. Thermally generated sources, but it is definitely within the realm of one's own destiny. Right. Wherein the electricity is generated within boundaries. Right. Within a nation state, it is effectively sovereign. Right. And so in that sense, yes, it does provide a lot more control over destiny, less exposure to market forces, to geopolitics, to everything else. If you're firmly in control of, of that element of energy and wherein electricity is almost entirely within the national purview, then you would want to spend more and more energy, so to speak, getting that electricity share of energy up as high as you can.

Shea Khan (10:20)

Okay, so let's move on to slide 17, which I think is an interesting coda to slide 15. Slide 15 is about how electrified an economy is. Slide 17 is super interesting and I had never seen this data Put together, it's about what share of GDP is spent on electricity versus spent on oil specifically. And the shapes of those two curves are very different from each other in a way that I guess if you had asked me, I might have predicted, but is stark when you look at it. So describe the difference between the two.

Nat Bullard (10:53)

Absolutely. So we're like five and a half decades into an era of thinking about energy shocks and when we talk about those we make it seem sort of system wide, but it's really about a shock in liquid hydrocarbon prices and specifically oil. And if you look back at the data, you can see just how indexed the global economy was to oil in terms of how many units it took of oil input to get a unit of gdp and then the spend within different economies on not just energy writ and large, but oil specifically. In 1980, so a year after the second oil shock coming from the Iranian Revolution, just under 9% of per capita GDP expenditures globally were going to oil. That's pretty amazing. Imagine $1 out of every 11 being spent on oil of per capita GDP expenditure. That's pretty extraordinary. At the same time, the share for electricity was a little over 3%. And if you carry this trend across the entirety of the last 45 years, what you see is that the oil share a goes down significantly by the late 1990s, it's less than 5%, but it also bounces around quite a bit. So right now the share is in the range of still about 5%, but it's been as high as 6.5 or 7 and in 2020 it was below 4%. Electricity meanwhile is essentially completely range bound. The highest it's ever gotten is like close to 4% and the lowest it's ever gotten is 3%. So for all the talk that we have, at least in looking ahead the next couple of years at like spiking prices for electricity and things like that, and the share of GDP that might come from electricity expenditures, it's really fascina how range bound it is. We basically spend between 3 and 4% of GDP on electricity. And that is that essentially.

Shea Khan (12:57)

Yeah, that's the question, right. The reason this is interesting is because of the future, not necessarily because of the past. So just to reiterate the past, electricity looks like a flat line for 50 years. Basically rising prices of electricity, or at least rising spend on electricity overall, let's say matches GDP growth essentially. It has to because it's a, it's a flat line. Whereas oil is super spiky. It's gone down since the 80s, sure, the early 80s. But you know, it, it, it moves around a lot because oil prices move around a lot. Okay, so that's how it's gone historically. What happens now is a super interesting question, right, because we're in this moment where like, oil prices are pretty low. President Trump is trying to do everything he can do to get oil prices even lower. He's got this stated goal of $50 a barrel if we start exporting a ton of Venez oil, et cetera, et cetera. So he's trying to get oil prices low. Meanwhile, electricity prices are under upward pressure. I don't think anybody would debate that. And so do we see electricity escape its collar and spike? Could we see the lines cross? Which, by the way, tier in this chart, they never have. We've never spent more of GDP on electricity than oil historically. It's just interesting to see whether this dynamic of one super volatile thing, which is oil, and one super stable thing which is electricity, whether that's going to hold.

Nat Bullard (14:20)

So let's do this as a thought experiment. What would it take to make those nines cross? First of all, it would take much lower cost for oil, much lower oil price for one, two, a much lower reliance upon oil as an input to gdp, or it's an input to economic growth. We already get more units of, we get more units of economic activity out of a barrel of oil effectively every year. But you'd need to rapidly increase or enhance that. Secondly, you'd need to both spend a lot more on electricity and get less from it. You would need to have it be less of a contribution to GDP growth. So if you had both of those things happen, you'd be spending a lot more, you'd be spending a lot more, but you'd be getting less GDP out of it. And therefore GDP is not going up as much. The expenditure is going up. That's how you would do it. So you'd have to have like $10 barrel and people using three times as much electricity or something roughly like that.

Shea Khan (15:18)

Well, this is what's going to be interesting, right? So let's just take electricity on its own. Forget the comparison for a second. I think most people would bet that we're going to spend more on electricity overall over the next few years, five years, 10 years, whatever it is. The question is, will GDP keep up? And they're tied to each other because, you know, the primary reason we're going to spend so much more on electricity is AI. And there's a bunch of people betting AI is going to Help GDP go to the moon. Other people saying it's going to hurt gdp like it's, you know, that question sort of underlies whether, whether we break this 50 year trend of basically spending the same portion of our GDP on electricity.

Nat Bullard (15:58)

Right. And, and, and remember that it is, it is also global. So there are, there are global, not just the us, not just you know, Western European questions within there. What happens when places that have a limited but non zero reliance on oil rapidly electrify and electricity becomes more of gdp, but you're in turn electrifying more of everything and more people have access to electricity? We've somewhat plateaued on global access to electricity. There's a million different ways that we can think about cutting this up to make it look possible. But it's the right, the right kind of question to ask without a clear answer. Let's put it that way. My not very satisfying response.

Shea Khan (16:41)

Okay, good, not a clear answer. So let's move on. Slide 28. I want to talk about gas turbines. This one. We've talked about this a bunch on this pod and many of our listeners are going to be well familiar with this. I hadn't actually seen the data laid out though, so I think it's interesting measuring the order book for gas turbines that we have already seen relative to current production capacity. So basically how under supplied are we on gas turbines? So what do you see there?

Nat Bullard (17:08)

So I think it's actually important to start this at the front of the series, which is 2001. There were more than 80, in fact closer to 90 gigawatts of gas plant orders in 2001, which is an awful lot if you think about it. I mean we have to remember that the dash for gas that we, you and I started hearing about from industry veterans when we began is now quite some time ago, like two and a half decades ago. But there was a time when the world was ordering quite a lot of gas turbines. And manufacturing obviously was of the mood to meet that demand with new supply, only to find order books that collapsed from 80 something to well under 40 the next year and then staying steadily below production capability for pretty much the entire time, with the exception of a few years, all the way up until right now. The current production limit, and as you know, there's not that many companies that make gas turbines is somewhere in the range of about 60 gigawatts a year and we're likely last year to be past that by about 20 gigawatts and to be passed that by about 30 gigawatts this year and who knows, based on current orders, 40 gigawatts above a 60 gigawatt production limit. And there's a lot of reasons for this, but the first and foremost is if you are in the process and have the priority to manufacture gas turbines, what you really don't want to do is be oversupplied. It's not really a great tenable market position. And being undersupplied has, at least in the first instance, probably a net positive on your ability to book contracts and to secure durable orders from customers you want. And it has pricing benefits. People are going to howl at you to do as many as you can build as much as you can. But if you're in charge of building S turbines now, you probably have the institutional memory of the early 2000s.

Shea Khan (19:08)

Yeah, and we've talked about this before with regard to electric transformers also. It's a similar situation where folks who've been in the industry a long time do remember a historic period wherein there was this huge order book boom and then the market fell out from under them and they ended up oversupplied. And so there's been reticence to expand capacity too much. For that reason they are expanding capacity, but maybe not fast enough. Anyway, what's interesting about it is that. But also even with that history, we are the most undersupplied we have ever been. Or at least since the data starts at the beginning of the century, where right now, even today for 2028. The order book for 2028 today is over 100 gigawatts relative to about 60 gigawatts of production capacity. Which, which helps to explain why my new, you know the expression everything is computer. I like everything is turbine. Because. Because now we're seeing, right, like if you're a jet engine company, you are pivoting to provide turbines for the grid, right? This boom supersonic and all the aero derivatives. And like everybody who's got a turbine is trying to turn it into a AI data center power supply.

Nat Bullard (20:18)

And not just that, there's companies are turning, are turning things that are a usable, if frankly somewhat imperfect solution for large scale, always on grid connected power into power, right? Error derivatives are traditionally used for very specific applications and they're not being used necessarily to power things all the time. Constantly for a decade straight they can, but that's just not typically within the design spec. The design spec would be for combined cycle turbines that are grid integrated and that are part of a big liquid well supplied power market in which they play the role that they've historically played. Yeah. So it's interesting times for all of these things. Right. In terms of what this shortage for now with this order book mismatch brings to the market, who it brings to the market, the kind of approaches that people then take in terms of how they buy and sell power and everything. Yeah, it's. It's different times. It's nothing like we've experienced in our career. But for those who've got a little bit more tenure than us, it is achingly familiar.

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Shea Khan (22:42)

Okay, so relatedly then of course we are under supplied, so what do you expect? Prices are going to go up, so you've got some good data on that from you folks at Halcyon, which you and I actually talked about the last time you were on the pod a little bit, but I'm going to run through it again because it is interesting. You've got good data on the average capital cost of various types of natural gas turbine power plants as they are planned. I'd say these are ones that are not operating yet, but the expected capital cost and how that trends into the future, which I find interesting. So kind of walk me through that and particularly the breakdown of the different types.

Nat Bullard (23:19)

One of the exercises that we do that manifests itself as a data series that people can buy from us in a subscription is just going through the regulatory corpora in the US and pulling all of the data from the CPC and a certificate of public convenience and necessity, or an equivalent. That is basically the utility going to the state and saying, we need to build this X. And in this case, we're looking at gas plants. And all of the data that gives you an idea of what these things are supposed to cost is within there. It's not broken out in a neat and tidy fashion where there's this, like, here's this tabular spreadsheet with all the numbers in it. It tends to be hidden away in proceedings and responses and rebuttals and everything else. But the upshot of this is that we can map out on the order of more than 160 active plants, close to about 80 gigawatts worth of actual capacity in which the cost of a combined cycle has doubled. 2026 deliveries. Things that are going to come online this year are in the range of, let's say, $1,200 per kilowatt. The projects that are looking to come online in 2030, 2031, are a little bit shy of 2,500, so close to doubling in that time period. And the reason I find this data useful is this isn't based on the announced capital cost for right now. It's based on the price as it moves into the future. So it's an updated live number that reflects the actual market conditions underneath these things once they've been announced. Not just whatever deposit you put down with your turbine supplier, but the actual ongoing cost to make this thing into a real asset.

Shea Khan (24:58)

By the way, I also wonder, I don't know, you could probably tell me because you've looked at this data, but does this include, like, EPC costs, for example?

Nat Bullard (25:06)

Yeah, this is the whole. This is the delivered cost, like the allowance for, you know, work during construction, all the sorts of things that flow into it, minus the things that we know are discrete and separate. Like if you needed to build 80 miles of feeder for it, we strip that out because that's not like, part of the actual stuff, the kit.

Shea Khan (25:27)

So we should come back and look at this data set again in, like, 2030, because I do wonder whether they're actually underestimating the total costs. Right? These are because. Because EPC and stuff like that in particular, that's also super inflationary. And it's, like, really hard to find EPCs right now because they're all booked out. And so I wonder actually whether it's going to end up being even more expensive than they think it is.

Nat Bullard (25:45)

Well, that's why we. That's why we revisit this every month, because it moves it's interesting to add new assets. It's almost maybe even more interesting to watch movement within existing assets based exactly on that. Right. Like the EPC target went up because it did. Right. Like any number of reasons. Tariffs, cost of labor. Right.

Shea Khan (26:07)

Well, it's the same. Any number of reasons, but part of it is the same reason why gas turbines themselves. It's like an undersupply problem.

Nat Bullard (26:13)

Exactly. So like you can see that coming through and continuing to go. And yes, we should be revisiting this essentially constantly. And we're already seeing, we see people getting verbal quotes that are higher. I've had actual developers come up to me saying your numbers are low. And I was like, well show me yours and I'll show you mine. And then they don't. So we haven't actually gotten anything more concrete than this. But this is what's written, this is what is essentially disclosed by law. And it's a pretty fertile ground to get an idea briefly on the other types of turbines. So simple cycle, not quite up so much, but up by about 50% from like $1,000 to about $1,500 a kilowatt. And then we start to see reciprocating internal combustion engines as well, or rice turbines. And those are really expensive. Those are like 2,500 to $3,000 a kilowatt already. But interestingly, we don't see a long delivery pipeline for those. The delivery pipeline for those only runs out a couple of years. Like we don't see anybody planning rice turbines or rice installations in the 2000 and 30s yet.

Shea Khan (27:21)

Because I think they're mostly used for either bridge power or backup. Right.

Nat Bullard (27:26)

Replacement for the diesel shens in theory, but they're increasingly being deployed at a scale that suggests that they're being used for something closer to bulk power.

Shea Khan (27:39)

Right. Yeah, maybe that is. Like I said, everything is turbine.

Nat Bullard (27:43)

Everything is turbine.

Shea Khan (27:44)

Okay, well let's stay on the theme of like all this power build out stuff. I really like this next one. Slide 32. So so much CapEx. That's my version of the slide title. You're comparing the. The total amount of capex spending on this is going to be predominantly data centers. So it just says tech CapEx in 2025 to other historic booms in capex spending in the economy, which is a good way to compare. What do you find?

Nat Bullard (28:15)

So I'm going to give credit first of all to Michael Sembelist and his team at JP Morgan Asset and Wealth Management. They built this slide first, not me. I did in the past. I'D done some examples of interstate highway and broadband capex as a comp, but I'd not done this full suite that they've got here which goes from all the public works in the 1930s like the Hoover Dam through the Manhattan Project. We could call our wave of electrification in the US in the late 40s Apollo project, the highways broadband build out and then the tech capex and things like the Manhattan Project electricity, the Apollo Project. These are less than or barely above 1/2 a percent of US GDP at their peak. Even the Apollo Project, even the interstate highway project is like 6, 10 of a percent building out broadband capex in the year 2000 at its peak was like 1.2% of US GDP. And tech capex right now is just under 2%. So basically higher than anything else. And to your point, this is the capital expenditure to build compute. Essentially this is capex for building just the actual computational elements as well as the buildings that contain them in the power stuff that's within the fence of the company's capital expenditures. It is not power and transmission and water capex to go with it. So it's a pretty fast, it's a pretty fascinatingly big number relative to everything else.

Shea Khan (29:47)

And I will add all these other data points, as you've said, where you can go into history and you can figure out what year was the peak, right? And so the peak of broadband capex was the year 2000 when it was just over 1% of GDP. That's comparison against 2025 actual capex of tech, which may or may not probably isn't the peak.

Nat Bullard (30:09)

Right. And in fact the 2000 example for broadband is instructive because the NASDAQ bubble burst in March of 2000 and CapEx kept going. So this is a new observation. Michael Burry made this observation recently on Michael Lewis's podcast, that the capital expenditure actually lags what might be happening in the purely financial market. So yeah, this could keep going for a while. The capex is committed. Sometimes it's already underway and a lot of it will keep going. This is probably not the peak. Most of the estimates based on what companies themselves are saying for their estimated capex have a higher number for next year. And then again, you attach the relevant quantum of investment in the electricity sector to it and it's a lot more money too. It's hard to say in many cases specifically is this new capex specific for energizing this data center, but certainly the prime mover of demand growth and of building new infrastructure. Infrastructure in the US is for energizing data centers. And so the utility capex that goes with this is also in the tens, if not hundreds of billions of dollars.

Shea Khan (31:33)

Okay, good segue. Let's get back into energy then. The energy results of this. Right, so let's go to Texas. We're going to ERCOT. Slide 91 is on the Q, the Texas interconnection queue. This is the large load interconnection Q, not the generation cube. Although the generation queue looks, I think, kind of similar, to be honest. Everybody knows this, right? Like Texas. Lots of people are trying to build data centers in Texas. No big surprise there. The queue has gone up a lot. No big surprise there. It is pretty astounding how quickly it has gone up, how recently. So the data suggests that the pipeline of large load interconnection requests in ERCOT in Texas was what, 40, 40 ish 42 gigawatts as of January of 2024. So two years ago it went from 40 ish 42 gigawatts to 226 gigawatts as of November of 25. So I presume now it's even a little bit higher. Those are stupid high numbers. Just as a reminder, I just want to frame this up a little bit. As of what, maybe two years ago, there were about 30 gigawatts of data centers in the US in total. So this is going from 41 to 226 in Texas alone in two years in the queue. Now that's not all going to happen, obviously, but nonetheless.

Nat Bullard (32:56)

Yeah, so this is a great one. ERCOT kindly publishes this every month in a somewhat unstructured format, but high enough frequency that it's worth extracting and putting into this fashion that I got here. This is an awful lot, right? So 226 gigawatts. This current state peak load is in the range of about 85 gigawatts. So that's like two and a half Xing the existing state peak load. If all of this were to happen at once, it's gone, as you say, really, really rapidly. It's increasingly co located like a couple of tens of gigawatts of that are actually co located in large interconnection mode, which is interesting and that keeps ticking up. But sounding like financial disclosures here, not all of these assets will eventuate. I don't think that Texas is actually going to be building 226 gigawatts of just large load in the coming, let's say seven to eight years.

Shea Khan (33:59)

It's the nature of interconnection queues. A lot of it is speculative and it's especially the nature of bubbly interconnection queues. Clearly most of this won't get bubble out. I think it is indicative though of one thing that is definitely happening, which is just like people have the perception Texas, you can build stuff, especially big stuff. A lot of data centers want to be big. And so there is a mad rush of developers, hyperscalers, REITs, Rick Perry, basically everybody trying to lock up sites in Texas where they think they can go interconnect gigawatts and that adds up to hundreds of gigawatts in total.

Nat Bullard (34:38)

There's something else here that I think you and I and many of your listeners will be very familiar with, which is a highly speculative supply side queue. We're very comfortable with the fact that of course wind and solar developers plan for 10 and they're going to build two, right? Or that ratio might even be too high. You've got 10 assets that you're planning and you're going to build one of them, then you're highly speculative in terms of where you're going to go, what you're planning to do. The size of any asset itself is also fairly prospective and it depends on what you're going to be able to get right. And you'd be silly not to max out the possible interconnect on the site and you'd be silly to not try to do as much as you can for optionality's sake. What I think we're not used to is a demand side interconnection queue that has some of those same speculative elements. Like back in the day, if you're building a hospital in suburban Atlanta, you're not going out and picking seven or 10 possible sites for that hospital. And you're definitely not picking seven to ten sites scattered across four or five different states. Like if you are building a hospital, it's because you have a human need for medical services in a particular place. You're not viewing it as completely fungible between maybe we'll go to Tennessee and build this same hospital, or maybe we'll go to Texas, or maybe we'll go stay in Georgia.

Shea Khan (36:04)

I think it's a different thing though actually. Like, I don't think what's happening is that developers are saying I need a data center and I'm going to pick seven to 10 sites in whichever one wins, wins and I'll build it. It's actually, I think what's happening that a lot of developers, speculators, Et cetera, are saying if I can develop this site, I can monetize it, I could sell this thing or maybe I can lease it if I'm a colo. So yeah, and I'll do as many of those as I can do that I think are, are good because right now there's a really valuable market on the other side. And so everybody's doing that in Texas.

Nat Bullard (36:39)

With the my one other wrinkle being that if you're the pure, if you're the pure speculative element of this, and let's say this in the good way, right. You're in the land business side of this. Right. You're in the site control part of this business. That's true. If you are then building the data center on one of those sites, though, if you're building the compute, you could be more fungible between that, between where you're exactly you're going to go depending on other factors to some extent there's more spread across different places based on what you're planning to do. I need to build this compute and I've got in this period of time and I'll talk to whoever has site control that will help me do that.

Shea Khan (37:18)

All right, so then the direct result of this is the next slide, slide 92, which is the no one knows anything slide. So we're staying in Texas. We just talked about this crazy big load interconnection. Q so of course the question is then how much new electricity demand is there going to be in Texas as a result of that? That is the operative question. Whether you are a grid operator or the market itself or whatever, and you have these great contrasting data sets of the load forecast from two parties who you would think would be pretty aligned because they're both trying to answer exactly the same question and they work hand in glove with each other. And yet. So walk me through this data.

Nat Bullard (37:59)

Sure. So this is one of the no one knows anything slides. I've got a couple. My perennial favorite before this was markets respond to incentives. This is the new one for our current age is no one knows anything. So yes, the transmission service providers who are responsible for building the grid and integrating the energy required to energize and electrify what happens in Texas are fundamentally serving the same market that ERCOT the grid operator is operating. However, ERCOT says, you know what, we could go from like little under 500 terawatt hours in 2024 to like 1,000 by 2030. Right. So let's call it, you know, up 110% in that time period. The transmission service providers, on the other hand, are like, sorry, we expect to go all the way up to about 1600 terawatt hours. We're going to go 240% up from where electricity demand was in the state in 2024. And part of the reason is that they're looking at different information. The TSPs are looking at everything that people are asking them to build and ERCOT is looking at everything that it thinks can get, that it thinks will actually happen. But also the incentives are there. ERCOT's incentive is to keep things operational to the highest degree possible and at the lowest cost, distributed across all of the people who receive service in Texas. The transmission service providers are paid for building assets and will happily, if possible, build whatever asset base they're being asked to build. So the true number is either somewhere in between or much closer to ERCOT's figure. ERCOT has the reason for demand, supply balancing and upkeep and everything else to get it really, really accurate in energy terms. But the transmission service providers have every incentive to go as big as possible, because that's how they get paid. They get paid to build assets.

Shea Khan (40:07)

Your view here is that it's less like a. They just have different views of the future and their views vary so substantially from each other. And more just like the transmission service providers have an incentive to maximize the number. And it's not a real forecast.

Nat Bullard (40:20)

Well, no, but it is driven. It is a forecast. It's driven by what people are asking them to do. The question is, how much discounting are they doing? And that, I think, is where there's a significant difference between ercot and the TSPS.

Shea Khan (40:34)

This is the forecast out to 2030. It's four years away. It's not far in electricity supply terms. It's like the blink of an eye. It's like no time at all. And there's a difference between these two forecasts of about 500 terawatt hours. Contextually, the US total electricity demand is in the range of 4,000 terawatt hours annually. Right.

Nat Bullard (40:59)

Coming up like 40. Closer to 4,500.

Shea Khan (41:01)

4,500 now. So call that. So call that more than 10% of all US electricity demand as just the delta between these two forecasts in Texas alone.

Nat Bullard (41:13)

Yeah, yeah. Or put it this way, do we think that in 2030, Texas is going to consume as much electricity as a third of the United States consumes right now? Like, it's a potentially as compared to.

Shea Khan (41:32)

Roughly 10% or like 11 or 12% last year?

Nat Bullard (41:36)

That's Right. So sometimes these things are more helpful when we ask them in this fashion, in this comparative fashion, what would need to be true for all of that to happen. And it's a huge number, but again, it doesn't exist in a vacuum. And this is back to my sort of earlier point about how developers work is there are other grids that are similarly aggressive in their expectation of what demand might look like based on requests that they're getting, without any ability to kind of zero that out against similar or identical potential demand that might be built somewhere else and not happen in wherever it is. So if you're. There's kind of no way to cross reference all of this stuff yet because of the nature of the way they're regulated state by state.

Shea Khan (42:29)

Okay, so the next one, I want to jump back actually to slide 35 because. Because this one, I think it's a reflection of like, I guess it's a reflection of a US centric mindset that I have that I'm very surprised by this, that or I don't believe this data. But the data is from the IEA and it's a projection of how much of the electricity demand growth through 2030 is going to come from various different sectors. And we just talked about in the case of Texas, but it's also true in the case of the US like this like insane boom in electricity demand coming from data centers. So what's surprising about this other data set is that data centers are ranked fifth in terms of the source of new electricity demand. I presume that's because this is a global perspective, not a US perspective.

Nat Bullard (43:18)

That's right. So this is a global perspective. Globally, electrification of industry is going to be like 30% of the demand growth for electricity between 2024 and 2030. Even electrified transport, which we in the US are sort of being trained away from thinking about as a big driver of demand is a bigger driver of demand around the world than data centers is or would be. But even appliances, there's a lot of the world that needs to add its first dishwasher, even its first refrigeration, space cooling. So just aircon and buildings is going to be like 10% of the total growth. And data centers are right around 8%. What I would say is consider this very much a moving target. I will be very interested to see what this print looks like a year from now, two years from now, three years from now. And the other thing will be to be considered is, is there a trade off? If there's a sort of finite quantum of new electrons that are going to be consumed between now and 2030. Is it going to come to the point where. Well, yeah, more is being consumed by data centers and less in absolute terms by space cooling. That would be complex. That would be something for the rest of the world that would be akin to a trade off that we really haven't had to do in the US in quite some time, at least not at a national level.

Shea Khan (44:53)

Yeah, it's a moving target. Data centers are going to, I mean, even on a global basis, I think they're going to move up this ranking before too long.

Nat Bullard (45:02)

I would agree with that. Certainly they're going to move up, but where they land is a really big question. And how they interact with the rest of these different places that electricity will be consumed is going to be really interesting to watch.

Shea Khan (45:16)

Yeah. And the fact that in some markets it's to some extent like it's a near zero sum game in the sense that there's only so much supply and we're building out as much supply as we possibly can. So like every new data center is a new electrified industry facility. That isn't going to happen probably. Nat Bullard is a longtime climate tech analyst and writer. He's a co founder of Halcyon, which is an AI assisted research and information platform. This show is a production of Latitude Media. You can head over to latitudemedia.com for links to today's topics. Latitude is supported by Prelude Ventures. This episode was produced by Max Savage Levinson Mixing and theme song by Sean Marquand. Stephen Lacey is our executive editor. I'm Shayl Khan and this is Catalyst.