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Welcome to the Eye on the market podcast for March 2026. This one is our annual energy paper podcast, accompanied by the actual Eye on the Market itself, which has like 200 charts in it. This one's called Fighting Words, the energy transition in 2026. And let me show you the COVID art for a minute. So the COVID art is inspired by this movie called the Good, the Bad and the Ugly and which was Clint Eastwood and Lee Van Cleef and Eli Wallach. And at the end there's a three way shootout and they're all pointing at each other in this shootout. That's what I find when I talk to a lot of people in the energy world. It's a three way shootout. You've got one guy with a wind turbine and a solar panel who thinks renewables are the only way to go. And then you've got a guy in the back who's holding a natural gas canister and a diesel gasoline pump who's committed to fossil fuels. And then you have the guy on the right who's holding two light green colored nuclear rods. That's the way they, at least they appear on the Simpsons. And, and he's the nuclear guy. And so they're all shooting at each other because they think there's only one way to, to address both energy security and cost and sustainability. And so, and it reminds me of a speech I gave a couple of years ago where I was talking about the energy transition and the role of natural gas. And there was a client that was so upset about the comments I had made that this person chased me out to the beach. I was in Miami and I had my work shoes on so I couldn't run. So that at least very far. And then when I stopped, I tried to explain and put some context around my comments and it didn't do any good. By simply chronicling the pace of the transition and talking about the role of natural gas, people ascribe all sorts of assumptions and motivations to you, even when there's no basis for doing so. Anyway, so those are the kind of fighting words that I'm referring to. And so this year in the energy paper, we're going to go through all the debates and arguments and battles that are taking place. So for example, our data centers responsible for rising power prices, what's going on with the backlash Right now in terms of requiring data centers to pick up a greater share of the tab of new generation? Can more of them be added to the grid if they agree to be curtailed at moments of peak demand? As China continues to flood the world with cheap energy transition equipment, whether it's wind, solar batteries or EVs, how is that going to work over the long run if all their companies have deeply negative operating margins? What is the primary energy fallacy and why does it matter? One of the biggest debates in the energy world. It has some real term implications for energy policy. What's the real cost of solar plus storage when used for baseload power? There was a report that came out last year that claimed that it was in the same ballpark as natural gas and we do a full endoscopy on that report this year. Do renewables raise or lower power prices? Here's a big one. Almost every client has asked me at some point in the last year are some are small modular reactors? Are they feasible? How much will they really cost? How much will they they address data center needs before the year 2030? We're going to go to detail on that. What should we make about all the hype over geothermal, geologic, hydrogen bloom, solid oxide fuel cells, virtual power plants? We get into that this year. Why is it so hard to make money selling EVs? Very few companies can. Why are battery arbitrage revenues collapsing in ercot? What are the real emotions emissions footprints of natural gas and LNG supply chains? And how on earth did XAI get permits to to install natural gas turbines on tractor trailers and then become exempt from nitrous oxide emissions rules? And then another topic. Why are sustainable aviation, motor and shipping fuels still stuck in neutral after all the tax credits and and people trying to do it? And then lastly, why are green hydrogen and carbon capture the poster children for unrealistic visions in our energy paper every single year? And obviously nothing has changed about that. So these are the kind of debates, arguments and battles that we get into in detail. We have a separate chapter on each one of these topics. I'm just going to go through a little bit of the content on this podcast and hopefully you're watching this instead of just listening to it because this is a very chart based, very chart based experience. Okay, so where are we? We always lead with this chart, which is what's the pace of the energy transition? And to me that means looking at renewables as a share of all useful final energy. That latter phrase is very important. We discuss it in the paper and so far since 2010, this has been mostly a linear transition, right? Very different from the S shaped technological adoption curves that you see in, in the technology sector. These are linear transitions, these are industrial transitions and they take time and lots of capital. And so now the, the, the pace of linearity is a little different here across countries, but these are linear transitions and this has been really important to understand because if you read a few years ago all the things that were being written, you probably would have thought A there would be a much faster pace of these renewable share uptake and B, there would be absolutely no economic benefit to investing in anything related to natural gas production or turbines or equipment. And nothing can be further from the truth, as we all know. So now the United States is all of a sudden looking at a fairly substantial power supply demand gap by the end of the decade. How big it is, nobody knows. But it's pretty clear to me that there's going to be a power supply demand gap, a lot of which is going to be filled or attempted to be filled with combined cycle turbines that, that people use on the, on the grid and by behind the meter generation with different kinds of natural gas combustion equipment. Mitsubishi, Siemens and GE Vernova are other, other big dogs in the, in the combined cycle turbine space. They've all announced some modest expansion to their production. Whether it's going to be enough to meet this projected demand is not clear yet. And look at what's happened to the stocks of companies that make gas turbines and solid oxide fuel cells which can consume natural gas and create power. The returns on these stocks are astronomical and we compare them on the right to their respective home benchmarks. And again, the reason why it's so important to understand the dynamics of the transition is it allows you to understand everything else around it and in particular the role of natural gas equipment. And so let me go to the next one here. Having a challenging zoom day, that's for sure. And when we think about data centers, and the first section in the piece, and the longest one is on this whole question of data centers, what's their impact on power prices? And a bunch of other things, but the numbers are just kind of staggering. When you look at ERCOT as one example, and you look at large load interconnection requests, that's fancy language for the magnitude of data center requests, which are large loads to join the ERCOT grid. And a couple of years ago this was 20 gigawatts and by 2030 they're expecting us 200. Right. So this is growing by a factor of 10. Similar story in PJF which is the mid Atlantic grid where data center ali is again, from 202022 to 2025 you've had an explosion in large load forecasts, which are the large data center users that, that are trying to get access to the grid. And then you have this extra thing in PJM which a lot of you may have read about, where capacity prices are soaring. And think of capacity prices as is the way that particular grid pays insurance premiums to people that have generation capacity to commit to be available on the system on a given day. And these costs are being passed through to retail consumers for electricity. The White House had a meeting with the 13 governors of the PJM states. They're trying to encourage PJM to force data centers to engage in an auction where they fully pay and amortize down their new generation equipment. So you can kind of really sense that there's a little bit of a data center backlash going on. Everybody's trying to figure out how this is all going to get paid for. And one of the reasons this is complicated is some utilities have begun charging data centers special surcharges. They're still not enough. So there's a chart in here. It's very important to understand that when you take the base electricity cost and you add the special data center surcharge, in many cases it's still not enough to pay the cost of new generation. Whether you're talking about a new combined cycle turbine or, or a more expensive solution which is a solar storage combination that's being used as baseload power. So and because of that, now you have data centers thinking about building their own behind the meter generation. Now currently, to be clear, this is almost never happening, right? Less than 1% of data center power demand in 2025 was based on on site generation. But this is rapidly in the pipeline. So by 2030 we could have somewhere between 30 and 35% of all data center demand being sourced with behind the meter generation. Now, behind the meter, you're not building a large, you know, 500 megawatt combined cycle turbine. You're stringing together smaller industrial gas turbines and fuel cells, reciprocating engines, and even some aero derivative gas turbines which have been essentially modified plane engines. So now all these things take time, right? Whether it's 12 months, 24 months, 36 months, five to seven years in the case of the big combined cycle turbines. But this is the big question is, and this is the limiting factor on all of this data center stuff is access to power. Now, you know, sometimes people ask me why, why don't renewables get used by data centers for behind the meter generation? They can. And remember, if you look over the lifetime of a Data center, only 15% or so of the total cost of the whole thing, you know, capital plus operating and maintenance and fuel is, is, is power. So if there's a power solution that's a lot more expensive, some of the hyperscalers might just go and pay it because either because it allows them to get hooked up sooner or virtue signaling or whatever their reasons happen to be. But you know, based on the analysis that we've done and a lot and other people have done separately, there's a common finding here, which is compared to a natural gas turbine, a solar plus battery plus natural gas backup solution is a lot more expensive. And you can see in this chart, it's either two or two and a half times the cost. But again, if it's only 15% of the cost of a data center, maybe Google and some of the other companies pay it. And so that, you know, the data center question is really all about whether or not the US can keep pace with power demand. Now, from 1950 to 2000, the US steadily added power generation capacity every single year. But 90% of all of the power that was added was very large coal, gas and nuclear plants. The share of new capacity additions coming from those categories has dropped almost to zero because we're now in a world where most of what's being added is renewables and storage and there's plenty of capacity being added, the question is, what does it really mean for consumers and for the grid? And one of my favorite charts in this piece is this one, because yes, the US added 65 gigawatts of new nameplate capacity in terms of storage and generation last year. But if we adjust that capacity for its intermittency and its reliability the same way that NERC and ferc and the ISOs do, by using these things called effective load carrying capability factors, all of a sudden that 65 gigawatts becomes 25 gigawatts real fast. Which is a fancy jargony way of saying every megawatt of generation capacity that's added to the grid is not the same. And adding a megawatt of coal or a megawatt of gas or megawatt of nuclear means something very different than adding a megawatt of solar. So that's the big question on data centers on we have a large. The second big deep dive is on China not going to go through all the details here, the most important point about China is they are producing so much in terms of solar, wind, batteries and EVs and have so much spare capacity that you know, the prospects of them continuing to flood the world with this stuff is, is still out there despite the deeply negative profitability of a lot of the Chinese companies that are doing this. Now, if your perspective is one of you want the fastest energy transition possible because your focus is on decarbonization and climate issues, this is all great news, right? Because we have a page in here that shows that the emerging world and Europe are aggressively hoovering up all of the, of the solar panels, battery exports and EVs that they can from China. US not so much for the reasons that we all know. If you're a perspective, you're an investor or you run a company that makes this stuff in other countries. This is terrible news because the Chinese are continuing to compress margins and value across the board. Now there's a lot of discussion about nuclear and China and certainly China is now the world's leader in terms of nuclear fission, in terms of cost and speed. But even if they complete all 37 gigawatts they have under construction by 2030, their future generation in terms of terawatt hours of nuclear will still be way below even today's wind and solar and will be even further below the wind and solar generation that's taking place in China in 2030. So sometimes I think the focus on nuclear fission is a little bit too much in China. The paper also gets into Chinese research on cutting edge hydro, a lot of fusion research. They're doing sodium ion batteries and things like that. But again, here's the weird dynamic of all of the solar companies in the world. The Chinese ones generally have deeply negative profit margins. And in any other country this wouldn't survive. But in, in China, for policy reasons it can. And so we could be, we could be facing another couple of years of lots of deflation and learning curve price declines taking place in a lot of renewable transition stuff. Now, as everybody knows, China also for that reason dominates manufacturing capacity in solar cells and batteries and polysilicon and modules and magnets and wafers and everything else. And this gets to this question about why the US is doing what it's doing. The administration is very nervous about the supply chain dominance that China currently has. How hard it would be for Western Western nations to catch up. We wrote a couple of years ago about how almost half of all Chinese critical mineral activities are unregulated. They're unregulated companies. So, I mean, a regulated company in China probably doesn't even adhere to that many rules. Can you imagine what an unregulated company in China would be doing? So it's very hard for the west to compete. And the United States, the current administration, is very reluctant to put the pedal to the metal on a renewable transition that deepens US Reliance on China for all the reasons you can imagine. We have a chart in here on strategic minerals specifically. That's kind of amazing. So this chart looks at the 25 important strategic minerals, and it plots for each one. What country is the top producer? For every single one except one, the top producer is China. Now, sometimes the top producer has a 90% market share, and sometimes the top producer can have a 40% market share. But China is the top producer in every example except nickel, for which the answer is Indonesia. So, but again, this. It's important to understand that why there's so much focus in the US on energy independence as opposed to climate. That's what the current administration is focused on. And after 45 years of trying, a couple years ago, the US finally became a net exporter of fossil fuels. And that's a combined figure that looks at oil, gas and coal. At the same time, Europe and China are continuing to slug it out. Each of them is importing roughly the same net amount of those kind of fossil fuels. So this administration is definitely focused a lot more on energy independence and has downgraded the importance of some of the other things that we were used to in prior administrations. Okay, so let's talk about SMRs, small modular reactors. The administration likes those. They're putting a lot of support behind them and the investors like them. Right. The last year, there's two different SMR indices that did very well. The sweet spot for investing in a lot of these kinds of projects is before there's a proof statement, because the vibe and the things people say is what drives investor sentiment. When we get closer to finding out how much these things are actually going to cost and who's going to be willing to pay for them, I think it's going to be a much choppier market. So I'm not sure that smart investors are ever going to reap the gains they invested that they got last year when these things just took off. So let's just talk for a minute. What is an smart anyway? Well, it's a. It's a reactor, less than 300 megawatts. It's allegedly produced with some kind of modularity and serial Production and there's four main types being pursued. You can build a small version of a light water reactor using the same technology that's existed for decades and represents around 90% of the existing nuclear fleet. Or you can build some newfangled thing, a fast neutron reactor, a graphite moderated high temperature reactor, a molten salt reactor. The important thing to know about these is they're still in the process of having their, their first of a kind plants approved. The NRC Nuclear Nuclear Regulatory Commission in the US just approved the TerraPower one, which is sodium cooled fast reactor combined with molten storage, molten salt energy storage and, and then the high temperature gas cooled reactor. The NRC is in the process of reviewing the final license. So that's what SMRs are. They're small, they can be based on old technology or they can be based on some kind of new technology that still has to be licensed and approved. The issue that I have is energy investors and energy policy people are infatuated with learning curves. And it is amazing to see the learning curve of solar, wind and battery prices with the benefit of increased production. You really have had some incredibly steep learning curves and now those learning curves are even extending to offshore wind. If you really believe learning curves. I think you need to pay attention to the nuclear learning curve that took place in the 1950s when people started out building 50 to 100 megawatt plants and then found that the fixed costs were so enormous that they moved from 50 to 100 megawatts to thousand megawatts or gigawatt. And SMRs to me is trying to crawl back down the learning curve from what used to be learned. So I think you're swimming upstream here to try to modularize something that has such embedded high fixed costs. And so I'm a little bit of a skeptic, but let's define what skepticism means and let's define what success would be. So the levelized cost of a combined cycle gas plant under a whole bunch of different assumptions that we make is somewhere between 55 and $85amegawatt hour. Different utilization rates, different natural gas prices, you know, whatever. So 55 to 85. I would say that if a small modular reactor ever came in in Today's dollars at 125 to 130, that's a win because now you're talking about baseload power, lower carbon intensity, etc. The problem is I can't find anybody except for the companies building them that thinks they're going to be able to do that. The former chair of The NRC is estimating first of a kind, SMR costs of 200 to $400 megawatt hour. The Tennessee Valley Authority did their own analysis last year, came out to about 200 megawatt megawatt hour. Studies prepared for some of our corporate clients for them specifically for behind the meter stuff smarts two and a half to five times the cost of grid based electricity. And so, and even in China, which is modularized, almost everything conceded a couple of years ago that the smart costs are going to be roughly double the large plants that it's already building. So I'm dubious about this. I think the proof statement is still out there. And then I have another issue as well. When you think about how SMRs, what's the premise of an SMR? Right? Sometimes it's got new technology, sometimes it doesn't. But the premise of an SMR is that you can build it more cheaply. Think about your own life experiences of capital projects. How do you make a capital project cheap? Now if, if you can mass produce them like mobile homes or can you can bring your unit cost down? That's not we're talking about here, right? How, how do you actually reduce the unit cost of something when you're going to build 10 of them instead of three of them? I don't think that that learning curve is an automatic. I think you have to bring down the costs of the core functions of the plant itself to make it cheaper. And that's what makes me nervous. And because there have been some changes in terms of the oversight of which government agencies are overseeing SMRs, and the Trump administration has now moved more of that responsibility under the OMB and away from independent scientific agencies. And the broader question I have is if you think about issues related to public health and safety, energy and science more broadly, this administration has been gutting those functions. And when you look at specifically at the independent federal advisory committees at science agencies, they eliminated a little more than a quarter of them just in the first six months of last year. So my question is, is an administration that's gutting agencies that are responsible for public health, safety, science and energy the right administration to be overseeing and responsible for, in an oversight matter, the kind of choices that are made for SMR developments given the consequences if something goes wrong? So that's my question, and I don't know that there's an answer to it, but that's my question. Okay. Another, in addition to SMRs, the administration is also very optimistic about geothermal. Okay, geothermal is a weird thing. It's been around forever, right? It's been around for a long time. 80% of geothermal that exists is used for heat. Only 20% of it's used for power generation. You have to go deeper for the kind of temperature gradient differentials to create power instead of heat. And most energy databases that you look at don't even list out geothermal separately. It gets lumped in with kite energy, wave energy, you know, hamster wheels and the other kinds of things like that. And if you, if you, if you have a chart in front of you like the one I'm showing now that looks at geothermal power compared to wind and solar, you can't even see the geothermal. It's so small. Now there's a little bit of a renaissance in geothermal. The National Laboratory of the Rockies, you may not be familiar with it. It's kind of the. We used to call it nrel, the National Renewable Energy Laboratory. These kinds of things are. Were rebranded along with the Gulf of America or whatever the hell it is. According to this NREL levelized costs for geothermal, particularly enhanced geothermal, are coming down. Enhanced geothermal is referring to when you're using fracking techniques to do geothermal the same way that you would for natural gas extraction. We'll see. The good news is it looks like drilling costs are going down and drilling speeds are going up. Just from 2017 to 2023, the industry has shortened by a factor of three, the time it takes to drill a well of, let's say, 10,000ft and is approaching the standards used in the oil and gas business. So there are some benefits there. But geothermal is still a pretty complicated thing and ultimately power is a very competitive market and geothermal will get its chance to compete. There's been a handful of PPAs, which are price agreements, signed in 2024 and 25. They were 20 to $25amegawatt hour higher than wind and solar PPA. So they're more expensive, but they're going to get their chance to compete. I'm not sure how scalable it is, but we'll see. And we have the piece that we. The section that we have on geothermal walks through all the details of everything you'd want to know about temperature gradients and standard binary flash geothermal and enhanced geothermal and all those kinds of things. Okay, I'm going to wrap up soon. Oh, I thought this was kind of amazing. Why is it so hard to make money in the EV business? There's a bunch of different companies that make EVs some of them are pure play companies and some of them are diversified companies like Toyota and GM and have EV segments. So we track down the operating margin of the pure play companies and the individual EV segments inside diversified companies and just four EV companies, Chinese and Tesla, are profitable and the rest of them all don't make money. Same goes for investors. If you look at the chart on the right, investors investing in an EV index have done much worse than just investing in the regular auto industry. Will this change? I don't know. As the days go by, all I read about is more write offs from Stellantis and GM and Ford and some of those companies are kind of restating their core principles, which is we're moving back to customer preference, which is a euphemism for we're going to build what people want to buy rather than what the government mandates imply that we should build. Anyway, that's what's going on in the EV space. There's an essential chart section in the back, about 25 pages and it's just charts and charts and charts and charts on all these different topics about EVs and renewables and the grid and energy storage and fossil fuels and LNG and energy dependence, nuclear, carbon capture storage, hydrogen, sustainable fuels, everything. So I just want to show you a couple of things in there. One of the things we do is we track the grid and the administration is also in the us talked a lot about wanting to break the logjam on infrastructure and specifically that would be the electricity grid, liquids, pipelines and gas pipelines. And if they can get anything done on either one of those three, I'd be impressed because it's a very complex maze of local, state, regional and federal rules that make it very difficult to build in the US as things stood at the end of, at the middle, at the end of last year, the, the there hasn't been that much progress on transmission line growth, particularly the high voltage stuff over 345 kilovolts. So we'll see if that picks up what's notable here that we show on the bottom of the page. Milk, which oversees the grid, computes these things called anticipated reserve margins. And it's their way of saying how much safety buffer is built into the grids in different parts of the country based on the kind of capacity they're building and the kind of capacity that they're retiring. And you can see that there's a little bit of a five alarm fire in both pjm which is Mid Atlantic and miso, which is the Midwest grids because of the balance between what's, in terms of the reliability of what's being added versus what's being retired. And so a lot of the, a lot of the regional ISOs are kind of struggling, delaying certain decommissions and things like that. But you haven't heard the last on this one. And the bright spot in terms of pipelines, if you view more infrastructure as a better thing, is it looks like there's some progress coming on new natural gas pipeline capacity. A lot of it is linked to the LNG exports to get gas out of some of the basins and towards the, the export area in the southeast. But that's, but that's about it. What did I want to wrap up with? Let me just wrap up with a couple of things here. 1, There's something called the potential Gas Committee and they every few years publish what are approved reserves that are considered commercially viable and under existing technology. But what are potential resources? And as you can see here, these things tend to rise over time. The U.S. natural Gas Supply is booming and may continue to boom. It's doing the same in other countries. And so therefore for investors have to watch out for this because for the first time really since the LNG market became an important thing, we're facing a period of declining utilization rates, which is a way of saying LNG imports around the world are going to go up, but the capacity for people to export to them is going to go up even faster. So by the end of the decade there's a glut predicted that'll drive some of the utilization rates down to levels that we haven't seen before. And then last topic and then I'll let you go is for the last 10 years or so, every year, know green tech media, you know, Rocky Mountain Institute, certain investor conferences, very kind of optimistic sell side reports particularly from, from, from Goldman's carbonomic series are, are often very optimistic on carbon capture, green hydrogen, sustainable shipping fuels, sustainable aviation fuels, sustainable motor fuels. All I can tell you is that in the history of this effort, this Eye on the Market energy paper, we focus on the thermodynamics and the chemistry and the geology first and the market second. And that's helped us in so many ways avoid allocating capital to things that don't make sense. And let me just show you this chart on shipping fuels. So there's some alternative to shipping fuels, right? One is just continuing to produce them the way that you do and then bolting carbon capture on it. But the other solutions are things called E, ammonia And E methanol that, you know, involve getting a hold of some CO2 and combining it with gene hydrogen, green hydrogen through electrolysis and et cetera, et cetera. The costs are astronomically multiples of magnitude higher than traditional field costs. And it's so much higher that it's hard to kind of envision the kind of carbon tax that would be necessary to equilibrate and make a purchase or indifferent between those two. And look at the chart in the piece that shows the original projections for sustainable aviation fuel and what they've actually turned out to be. One of the biggest gaps you'd ever see. And then we always talk about another one of my favorite charts is the highest ratio in the history of science and is the ratio of academic papers published on carbon capture divided by the actual amount of megatons of carbon capture taking place. And, you know, here's, here's another one last example of, of how you kind of have to pay attention to the details. There was a, there was a splash recently over the last couple of months about China introducing a, a battery electric container ship. Yep. Okay, they did it. It carries 740 TEUs, which are 20. Those, those TEU is equivalent units. And that's a very, very, very small container ship. As a matter of fact, below 3,000 TEUs is the smallest category of container ship that even gets tracked. The most of them that are used are much, much bigger than that. And the issue is volumetric density. How much weight and how much volume do batteries take? And the last chart I want to show you looks at the volumetric energy density. Like how much, how much density can you fit in terms of megajoules of energy per liter of volumetric space? And for a diesel engine propulsion system, you're talking about something that's 13 to 14 times higher than the battery electric propulsion system, even when accounting for the fact that electric batteries are much more efficient. You know, let's call it 80% compared to the 20% efficiency of an internal combustion engine. Even with that, you're looking at energy density that's 13 to 14 times different. So again, another example of where, you know, focusing on the details is important to understand the feasibility of things and where might there be investment opportunities and where they might not be. All right, thank you all very much for listening. If you're still here and. The energy paper is out, we have hard copies for some of you. Just reach out to your coverage teams and, and you can get one. And thanks for listening and I will be back to talk to you soon maybe to have some fun and walk through all of the different rebuttals to the S to the Citrini AI is going to be a black hole that destroys the world. Email that went viral last week on Substack. Thanks for listening. Bye.