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- [00:03]
Caroline Golan
Latitude Media covering the new frontiers of the energy transition.
- [00:08]
Catherine Hamilton
It seems like everyone now has a strong opinion about the environmental impact of AI and the responsibility of tech companies. But what's it like inside those companies as they make hugely consequential infrastructure decisions?
- [00:20]
Caroline Golan
We need to look beyond just recs. We need to be doing integrated resource planning from a customer's perspective.
- [00:28]
Catherine Hamilton
That is Caroline Golan. She just left Google after running the company's global energy and market strategy for many years and she joined us at Transition AI in Boston last week where.
- [00:36]
Jigar Shah
We recorded an episode of Open Circuit.
- [00:38]
Catherine Hamilton
Caroline joined me, Catherine and Jigger on stage to reflect on the ways the AI has changed the energy strategies of tech companies that are scrambling to meet new demand. And she's been thinking a lot about the new models needed to build and power data centers.
- [00:51]
Caroline Golan
When the AI boom started to take place about two years ago, what we got scared about was whether or not we had a fit for purpose model.
- [01:00]
Catherine Hamilton
This week we're bringing you our live conversation with Caroline Golan on what comes next for powering AI infrastructure. We'll be back on a normal publishing schedule on Friday and thank you so much to everyone who came to Transition AI. Now onto the show.
- [01:20]
Jigar Shah
From Latitude Media. This is Open Circuit. This week we're live from Transition AI in Boston. What actually happens when one of the biggest technology disruptions in history meets the reality of actually powering it? The exponential path for AI is colliding with the linear reality of building infrastructure and it's creating an opportunity to rethink the corporate clean energy playbook. We're joined by Caroline Golan this week, who spent nearly eight years at Google developing and executing energy strategy. She'll share some insights on what worked and what needs to change across the tech industry and what comes next for powering AI infrastructure.
- [02:04]
Catherine Hamilton
OpenCircuit is supported by Sungrow. Sungrow is a global supplier of PV inverters and battery storage systems. Sungrow is ranked most bankable in both categories by Bloomberg NEF. There are many reasons for that, but one big one a strong fire safety record. Last year, Sungrow set four of its five megawatt hour PowerTitan 2 battery systems on fire and it livestreamed it to show the flames didn't spread. Plus, the Power Titan II earned its fire safety certification from the New York City Fire Department. That is an incredibly difficult feat. Learn more@sungrowpower.com or click the link in the show notes Open Circuit is brought to you by Natural Power. For nearly two decades, Natural Power has provided engineering and consulting services for renewables projects across the US Natural Power supports clients in wind, solar and battery storage with a focus on independent engineering, technical due diligence, energy estimation and developer support. With more than 245 gigawatts of project experience in North America and acceptance from major financiers, Natural Power is responsive, able to meet tight timelines, and pragmatic. Natural Power works with you to understand, quantify and mitigate risks. Learn more@naturalpower.com or click the link in the show notes.
- [03:19]
Jigar Shah
I'm joined by my co host. Jigar Shah is a clean energy investor and former director of the Loan Programs Office. How are you sir?
- [03:26]
Kathryn Hamilton
I'm great. I'm just noticing that like two of us on this panel of four are.
- [03:30]
Jigar Shah
Former makes for more candid conversation. We always go after the former people. I checked your LinkedIn just to see if you had updated everything and your LinkedIn profile still says podcaster and your last job was layoff position eliminated.
- [03:48]
Kathryn Hamilton
That probably was generative AI.
- [03:51]
Jigar Shah
Kathryn Hamilton is the co founder and chair of 38 North Solutions, a clean energy public policy firm. Katherine, you've come down out of the mountains to sea level to Boston.
- [04:00]
Sam
I did thank you. Unfortunately I can't sit on the floor with my papers, but y' all have kindly given me a table. So I'm grateful Steven.
- [04:08]
Jigar Shah
And our guest made a career change as well. Until this spring, Caroline Golan was the global head of Market development and innovation at Google, where she built the company's clean energy strategy. Caroline, we're so delighted to have you here.
- [04:19]
Caroline Golan
I am ecstatic to be here amongst my friends. Really.
- [04:22]
Jigar Shah
I mean, yeah, after today, maybe you can add podcaster to your LinkedIn page as well.
- [04:27]
Caroline Golan
I thought this was a job interview actually.
- [04:30]
Jigar Shah
So I want to start with a look at how much AI has changed the game for energy teams at tech companies across the industry. And there's no better person to do that with. And to start, I want to play a clip from Sundar Pichai's speech at Google I O recently. That's the company's developer conference. It happened in May where Google unveil a lot of new AI products and AI adoption progress and the world is.
- [04:54]
Caroline Golan
Responding and adopting AI faster than ever before. This time last year we were processing 9.7 trillion tokens a month across our products and APIs. Now we are processing 480 trillion monthly tokens. That's about a 50x increase in just a year.
- [05:17]
Jigar Shah
So Caroline, this kind of expansion is really exciting for a lot of people in the tech industry. But when someone like you hears this, do you just like curl up in a ball in the corner thinking about the energy implications?
- [05:28]
Caroline Golan
No, no, actually I, when I came to Google, I came with a real enthusiasm for what a large platform like Google can do and has done. And I think anyone who goes to a large tech company within the last 10 years to work on energy went there because they wanted a big stick to make big changes in the industry. I think when the AI boom started to take place about two years ago, what we got scared about was whether or not we had a fit for purpose model to go to market. And I think we're all still a little scared about that. There's a huge cultural change that has to go on within every tech company right now in terms of how you build teams to execute on what is a sustainability goal versus building teams to execute on what is an infrastructure goal. Powering the AI needs is an infrastructure goal. I didn't curl up in a ball. I don't think anyone's curling up in a ball. I think it meant for me and it means for everyone that the menu of options that we needed to learn how to deploy got a lot bigger and that gets a lot more interesting. Right. It also meant that we needed to change our business model. I think the vast majority of procurement in this country looks like, you know, single source, renewable PPAs and that's what it's been for for years. Right. That wasn't going to get us to where we needed to go. We needed to figure out how do you scale storage, how do you scale demand response, how do you do, you know, real time arbitrage? Like we were just learning about here and then how do you scale things like nuclear? That wasn't in anyone's playbook really. It was more so in Google's than others, I believe. But I don't think anyone two years ago was really thinking about firm capacity solutions. We were thinking about, you know, deployments of megawatt hours. And that's a very different business model. But for me that was exciting because it meant that we would actually be able to change the utility industry. We'd be able to change market structures, we'd be able to change the way we think about tariffs and valuation and deployment of capital. And I can't say I slept a lot, so maybe I curled up into a ball in my bed at night for like three hours. But no, it was exciting. It continues to be exciting. And the teams that I've build and that others have built are the best in the world.
- [07:49]
Jigar Shah
Well, that sets us up nicely for the conversation. Let's talk first about the state of play for tech companies. The period from 2015 to 2022 featured a series of increasingly ambitious aspirational targets from the top tech companies. The most ambitious being Google's 24. 7 initiative and Microsoft's carbon negative moonshot. And those goals are still in place, but they're seriously challenged in the AI era. And all the major tech firms have seen large increases in energy demand and subsequent emissions increase. So how do we rethink the framework for decarbonizing the tech industry? And what has the industry collectively learned? That's what we want to tap into with you, Caroline. Katherine. First, how much pressure is the industry under right now?
- [08:31]
Sam
Yeah, so I was born and raised and still live in Virginia. Virginia has 400 data centers, and I believe it's 70% of the global Internet traffic goes through the Commonwealth. I just happened to be talking to my. The guy who helps us on our property out in the mountains, and he brought his son with him. And I was like, oh, this guy's just gonna help out in the shed and all this. And I said, so what do you do? What do you do during the day? And he said, well, I am the guy who decides where the energy comes from for the Amazon data centers. And I was like, well, we need to chat. And Amazon has 93 data centers in Virginia. They're building 11. They're putting in 12 buildings, 11 of which will be data centers in Fredericksburg. And I said to him, so what are you all doing? Are you putting in storage and solar? He said, no, we're building two substations and we're getting everything we can from Dominion because they have enough on the nuclear side. It gave me some insight into. This is just about getting it done really, really quickly. And we've heard this over and over today. How do we get speed to power? And what does a data center developer have to think about in that context? So when you go back and look at the goals, the goals of the tech companies, a lot of them are for 2040. That's totally workable. I mean, you all exceeded, met and exceeded your goal at Google. And we won't talk about Apple right now, but most of them are actually doing okay. If you saw yesterday, Talon and Amazon just announced the nuclear deal, which was actually, was actually turned down by FERC because it was considered behind the meter. They've changed it to front of the meter. So now they have a really good deal for nuclear power. They've done this and Meta has done this as well in Illinois. So I don't think right now we have an issue of them not meeting their goal. Now that's not to say emissions haven't gone up over between 2020 and 2023. Emissions have gone up like 150%. But that's mostly indirect emissions. So that's like where you're getting your power, that's where you're getting your steam, your cooling. And so those are things we have to pay attention to. But I don't think it's not doable.
- [10:52]
Jigar Shah
Jigger. We're heading into new territory, clearly.
- [10:54]
Catherine Hamilton
But where?
- [10:55]
Kathryn Hamilton
Well, I think that we're actually heading in the exact territory that we always were heading into. I mean the weird thing about this is we've always had a plan to get to 2050, right? And last week I think was the halfway point to 2050. So we're now in a period of valuation. I think as Carolyn suggested, like Google and many of the other companies were instrumental in figuring out contracts for differences contracts, getting solar and wind set up, all these other things going. And then there was a clear realization starting probably 10 years ago from Google saying that solar and wind was not going to be able to single handedly decarbonize the world and we needed 24 by 7 matching. And there was a conversation about geothermal and nuclear which people just laughed at and didn't do anything about. And then sometime over the last four years we decided that all these other tools that people had not been focused on were now important, right? Grid enhancing technologies, virtual power plants, demand flexibility, Geothermal, nuclear, all these other technologies. I mean just to do a thought experiment for you, right? Theoretically if you just took all the major real estate companies in the country and just took 2 of their parking spots and put you know, like Tesla megapacks on those parking spots and then just, you know, operated the grid differently. You could just run the grid. Like it wouldn't be that hard. Like most of our natural gas power plants are running at like 32% capacity utilization. You would just run it 3 percentage points more and then you would just load level the grid through the batteries, right? So it's not that we can't do this. Like that is pretty expensive, right? Putting those batteries everywhere, right? So now what's the cheaper way of doing it, etc. And it turns out that building new natural gas and building new coal is the very most expensive way of actually accomplishing this goal, right? So the fact that all of these companies have like figured out how to do all of these cool things and you've got this manufactured crisis because of AI is now like forcing everyone from governors to regulators to utilities to say, we don't want to culturally change anything we've done for last 50 years, but if we don't, then we're going to keep having 10% rate increases for as far as the eye can see. And so I guess we're going to have to do things differently than we've been doing it for the last 50 years. And then the data center companies, to their credit, when they go to these private meetings in Oklahoma, like at Harold Ham's private meetings, they're saying, we're not abandoning our goals.
- [13:32]
Jigar Shah
Right.
- [13:32]
Kathryn Hamilton
Like, even when Chris Wright and Doug Burgum stare them down and say, please abandon your goals, they're like, no, we're not abandoning our goals, and we're going to make you do things in a way that's most rational for all consumers. Right. We're not quite there yet. There's a lot of regulators who are sticks in the mud, like folks in Maryland. But, like, we're getting there and we're trying to get everyone on board. But these kinds of conferences, these kinds of things are critical to educating everybody around exactly how this gets to our 2050 goals, which remain unchanged. We've got to decarbonize the energy system by 2050.
- [14:05]
Jigar Shah
Caroline. Around the 2020 timeframe, when we saw the most ambitious targets come out, it was a buyer's market. There was a lot of overcapacity. When did that flip, and how challenged are those targets now?
- [14:19]
Caroline Golan
Yeah, everyone went through this fervor of setting a 2030 goal in the early 2000s. And that really was in a space where, as Jigar alluded to, we were all wrestling with what is the best way to deploy our capital to change the system, because we wanted to make a dent in climate change. And so whether you're Amazon or Meta or Microsoft or Apple or Google or whatnot, you went back with your team and you said, what's the best way for us to use our dollars? And I think from a philosophical perspective, everyone sort of stands in their own parking lot and agrees that this is the best way we're going to use our capital, and Amazon is going to deploy renewables at scale, and that's the best way they're going to use their capital. Google said very early on we wanted to figure out how to scale the technologies that would fully decarbonize the grid. There was no valuation for how to do that. If you were working with the utility, you could go through a green tariff program. And if you could get solar in and it avoided cost, great, you could get the REX for it. If you went on the open market, you could put out an RFP. If you could sign PPAs. If they could come in and you could hedge against natural gas prices, great, you were going to get that through. Those are really only the two data points by which we were going to deploy capital or anyone could deploy capital. And of course we all had budget and we were going to pay premiums and we were going to drive down the costs. But generally that's what you were working between. Like, are you going to get REX and get something under avoided costs so it pencils with a utility, or are you going to get something that you think you can hedge against natural gas prices with for an overall portfolio in the open market? Then about three years ago, two years ago, and I was that person at Google who like read all the IRP summaries, like, I'd have my team give me a whole presentation of, you know, where is utility planning going? I think we very quickly realized that the capacity that we'd all enjoyed and really not thought flippantly about, but not really integrated into an energy strategy was going away. Right? And it was going away quicker than we could develop the technology solutions to meet it. And that was when I got really excited about what we could actually do in terms of innovation. Because I don't think that if we hadn't had a capacity issue that a lot of these tech companies would be running after nuclear in the same way that they are running after now because it wasn't in their original goals. I'm not sure that any of us would have gotten to the point where we recognized we need to scale gigawatts and gigawatts and gigawatts of demand response to do this. Or we need to focus on how you put, you know, distributed resources on the distribution system so you alleviate stress on the transmission system. I'm not sure we would have gotten there in the way that we're getting there now. I think you would have seen it on the margins. I think you would have seen fervor to do the new cool thing. But do I think we would have changed policies? Do I think we would have changed regulations? Do I think we would have created the clean Transition Tariff? Do I think we would have created new structures that allowed us to invest directly in capacity and figure out a capacity value for things? I'm not sure we would have gotten there I'm hopeful we would have because it's the right thing to do and it's the actual way to think about grid planning. But it's actually the run on AI which is forced all of us to say we need to look beyond just wrecks, which is what we were focused on for such a long time. That's a great thing. I think that's the Pandora's box that we get to open now. But it's going to mean a very different way to structuring and it's a cultural change within the procurement model in general. And it's going to require much more integration and resource planning, to use a very utility term, we need to be doing integrated resource planning from a customer's perspective.
- [18:09]
Sam
Yeah, yeah, I think that is a super important point. I've also been involved in a lot of IRPs and a party to a bunch of them, and I'm always screaming about we have to use our distributed resources better. You have to even include them in your modeling. Because most of the time utilities do not include them. They're just, this is the load side and this is all the other stuff that provides electrons. And by pushing on that planning, it is crucial from both the supply side. Whereas as Rob Gramlich was talking about earlier, about having to do transmission planning, like making sure your transmission planning or grid planning is really strong, but also like, what are all those resources out there that we can build quickly that are on the customer side that we can then bring to bear? Because rates are going up everywhere. And this is. It's only going to be exacerbated if we don't pull every electron from every resource we can find.
- [18:57]
Caroline Golan
Well, on the rate piece, I will say that if rates are going up because of data center deployment, then we're not working hard enough with our regulators, because the regulated model should insulate from that, if done correctly. And there are tariffs and there are ways to ensure that that cost shift doesn't happen and that cross subsidization doesn't happen. And so I think that this is the conversation, right? And you hear it in the news, oh, AI is driving everyone, you know, residential rates up. But the reality is the regulated model and the utility model has space for that not to be the case. Right. And so it's actually on the onus of us working together to figure out what are the right tariff structures, what are the right cost structures. Because I don't see. And in my tenure at Google, I know we never went to market saying, oh, we want others to pay for our Infrastructure? Absolutely not. And I don't think that any of my peers in the industry wanted that either. The problem is we haven't evolved the business models and the regulatory structures to make sure that that doesn't happen. But that can happen and it's incredibly important that we work on that.
- [20:09]
Jigar Shah
So what I'm hearing you say is that a lot of this work initially during that phase was like symptomatic work. Jigger, any comment on that? What do you think is the most interesting, innovative stuff that came out of this era?
- [20:23]
Kathryn Hamilton
Well, I think we're still going through it. I mean, to Caroline's point, I believe her when she says that that was not their intention. But for all of you who are in the data center business, you know that that's bull, right? Like they are comparing five different data center proposals against each other and the one that's offering $64amegawatt hour is getting selected over the one that's $79amegawatt hour. And the one that says $79amegawatt hour actually worked super hard with the utility to make sure there wasn't a cost shift. And the one that was at $64amegawatt hour got one over on the local guy and got him like to get you a cheaper deal. And the CFO of Microsoft or Google or whatever is like, oh Yeah, I want $64. Right. Intention to screw over poor people in Baltimore. No, but is that what happened? Hell yeah. Right. And so I just think it's important for all of us to recognize that we're in this unique situation where. And the reason why I pick on Maryland is because I live there and all of them are friends of mine and I'm so pissed off. But like, because like for instance, when PJM came out with all their transmission upgrades, it was all for data centers. Right. And there's one transmission line going from West Virginia to Frederick. Frederick to Virginia, Right. Clearly for Microsoft data centers in Frederick. Microsoft came to the Public Service Commission and said we don't want a cost shift, we want you to charge us for that transmission line. What did Fred Hoover and Kumar Barve do? Say, well, for 25 years we've just like rate based all these transmission lines that come from PJM and it would take us six months to actually do this rate case and do this thing that Microsoft can do. And so we're just going to rate base it and then that's just easier. It's like a three day process instead of a six month process. And so Microsoft's going to get much cheaper price power. And so we're just in this weird spot where we have all these technologies, we have all these liftoff reports, we have all these innovations around the clean transition tariff, we have all these things. And then you have lazy ass regulators and super lazy governors. Like, I don't think Wes Moore has any idea how electricity works, but I think Josh Shapiro actually has taken the time to understand how electricity works. Right? And so we're in this weird spot where you can absolutely figure out how to help people in a rising tide lifts all boats situation. But it requires a level of dedication and intentionality to engage in the process, which we have not universally seen somehow.
- [22:52]
Jigar Shah
I guess that in your regulatory work you did not use the language, lazy ass regulators.
- [22:57]
Caroline Golan
No, no. Or with anyone really. I'm much more polite than you. But what I will say is, is so there was just some legislation that was passed in Minnesota and I think that this becomes an interesting model moving forward because, you know, Minnesota was wrestling with how they open up their data center market, right? And, and there's a, there's a lot that's been going on back and forth within that legislature. But one of the places that we landed was a recognition that the utilities had to offer tariffs that allow data centers to invest in their own capacity and create an avenue for speed, but also ensures that this cost shift doesn't happen. Right. And that type of legislation, if you could see that across the country, then you open up a different type of bilateral market, right? You open up a market where developers, different stack technologies and data center customers can come together with a prepackaged solution. And it doesn't even have to touch the regulated process that we're used to, because that process should be kept in place and it should be kept in place for commercial and other industrial and residential customers. But if you're trying to fast track infrastructure and trying to do it in a way where everyone is more beneficial at the end of it, you're going to need to create a separate process. And it's through these types of tariffs that's going to require legislation across most of the country. Many of these utilities are like, that's great, Caroline, I'd love to do that investment in X, Y and Z with you. Can you go get the legislature or the governor to tell us to do it? Because without that we don't, it's gray space. We don't really know. And so I think we talk a lot about there's not enough capital, there's none of this I think there's absolutely enough capital to meet this challenge. I think what we don't have is the lanes and the business models, you know, working directly with utilities who want to see this happen. I mean that's how we got, you know, fervo and geothermal with NV Energy is because we worked for two years, governor, Legislature, utility to get that model put in place. If you can put those in place across the country, the technology opportunities, you know, sky's the limit I think at that point.
- [25:09]
Sam
So then we need to go to your great state of Georgia and talk to the utility there because Southern company has in Georgia, Mississippi and there's some of this stuff going on in Alabama as well. They're keeping coal plants going. These are very expensive plants. They're the least efficient. I understand that over time those are going to have to close as we get new resources in the mix. But those are all deals that are being cut with the commissions and all that's going to do is increase customer prices. So I do think we need to push hard on them. And I know the Georgia PSC is up for reelection or election at this point.
- [25:50]
Caroline Golan
I'm not running if that's.
- [25:51]
Sam
You're not running. I was really hoping that would not be the answer. But no, I think there's some utilities we just have to hold their feet to the fire and so that regulators don't just have a sign off or have or allow for data center developers to cut deals with the utilities that then end up on the backs of the consumer.
- [26:10]
Caroline Golan
I think that that's true. We need to do that. I don't see that happening as much as maybe people want to assume that that's happening. I think that there are, I think the majority of these large holding companies, whether it's Berkshire, aep, Duke, Dominion, Southern, they desperately want to figure this out and they are talking, I mean when you have Constellation and Southern companies saying we're not going to meet our goals without demand response, when have they ever said that before? So I think that there is an openness, but there is a real business model and capital stack model that we have to crack.
- [26:49]
Catherine Hamilton
OpenCircuit is supported by Sungrow. Sungrow is the leading maker of PV inverters and battery storage systems. You know the story by now. America is in the middle of historic load growth and we need to electrify the economy to meet economic growth and decarbonization goals. We need 2 to 3% more power every year in America. And of course we need solar plus batteries to get there.
- [27:10]
Jigar Shah
In time.
- [27:10]
Catherine Hamilton
Sungrow manufactures high quality, affordable solar and battery systems that are essential to meeting our growing demand for electricity. Sungrow is the number one choice for power inverters and their Powertitan II leads the market in utility scale batteries. Sungrow makes energy storage you can count on for commercial and industrial uses too. You can click the link in the show notes. To learn more about their family of products, go to sungrowpower.com open circuit is brought to you by Natural Power. For nearly two decades, Natural Power has delivered expert independent engineering and consulting services for renewables projects across the US and beyond. Success in project transactions requires an independent engineer who's laser focused on timelines, understands the nuances of risk, and collaborates seamlessly to develop solutions tailored to your needs. Natural Power excels at working within tight time constraints while ensuring diligence never takes a backseat. With a deep expertise in wind, solar and battery storage, Natural Power delivers top tier support and independent engineering, technical due diligence, energy estimation and developer support accepted by major financiers. Their flexible approach ensures projects are built on a strong foundation powered by expertise driven by sustainability, that is natural power. Find out more@naturalpower.com or click the link in the show notes.
- [28:30]
Jigar Shah
Yeah, so let's turn to that more explicitly. This is an issue that you've continued to focus on. How do we actually finance the infrastructure at the AI energy nexus? And we need to see trillions of of dollars of capital spending on data center infrastructure by 2030 to keep pace with computing demands. And there's this economic puzzle that emerges. We have a lot of different types of capital all trying to solve the same infrastructure challenge, but they all want completely different things. And then meanwhile, AI is just changing the game for power investments and who pays for them. So as this handful of tech companies drive large power demand, there's considerable debate over what they should pay for. So let's talk a little bit about the financing regulatory models that are fair and align these different types of capital. Jager, did you agree with Caroline that we have the capital to support this expansion?
- [29:24]
Kathryn Hamilton
Oh, yeah, No, I mean, the capital is easily found. I think the problem that we have is that the capital has come from the wrong places, right? So when you think about what our asset class looks like, it looks a lot more like real estate actually than it looks like, like tech, right. So when you think about tech, right, Tech is, you know, 100x returns, right. Tech is these very high, you know, gross margins, all these other things, we don't have any of that, right? So it's one thing to say, like we're going to start with 5,000 business presentations and there's going to be venture capitalists who provide like seed stage capital or a round capital, that's fine, whatever. But at the time at which you go from product market fit and you know, to successful commercial contracts, right, where people really like your product, you're now heading towards real estate, right? And the reason I say real estate and not infrastructure is, remember the way infrastructure works is like it's really about long term cash flows, right? So whether it's parking meters or whether it's toll roads or whether it's other things, like that's what it looks like when you look at real estate. I mean, you guys all know what real estate looks like, right? Now you've got 50% empty commercial buildings, right? You have like all this stuff, like that's where this goes, right? So when you have dynamic line ratings, right, and you have the ability to probably cover all of Texas with Dynam line ratings for like $50 million, right, you unlock huge amounts of capacity. The problem in Texas is like who's exactly supposed to rate base that, right? Is it Encore? Is it the like generation? Is it the retailers? Who's supposed to do that, right? But I'm pretty sure if someone just came in merchant and said I'm going to do it now we have all this excess capacity, who wants to buy it? I'm pretty sure they could make 3x the money off of that capacity that they opened up. But that is not how anybody in the dynamic line rating investment industry works, right? The same thing's true, you know, DERs and virtual power plants. The same thing's true for electric vehicle charging, right? And so the way in which everyone is trained to think is on this side. They're trained to think 10x20x30x returns when they can barely hit 3x returns. And then on this side they're taught that we need rock solid 20 year PPAs, you know, fixed price contracts, when they absolutely don't and in fact that they're not there to be found. And so like we actually need people to look at merchant on individual deal basis. But when you look at an entire portfolio of projects in a diversified geographical area, they largely cancel each other out. And you can get actually pretty consistent cash flows across that entire portfolio. But again, where does that capital get allocated from? So when you talk to the pension funds, they're like, well, you belong in this allocation, not this allocation. You're in the wrong box. I'm like, no, I'm in the right box, you're in the wrong mood. Let's figure out how to solve this. We don't have a capital problem and everyone is just like long capital. When you go right now into the marketplace and say, I've got 200 megawatts with the batteries and I need financing. All of those deals are getting done this week. Like, there's so much money that they're like, send me more deals. Like, I have so much money, I've already raised it and now I have to put it out the door. So we don't have a lack of capital, but we do have a lack of like expectations management on both sides from the allocators and then the folks who are developing the project.
- [32:49]
Jigar Shah
So Kathryn, can you break down, we talk about trillions of dollars in capital needed to support data center infrastructure. Where does energy fit into that?
- [32:56]
Sam
Yeah. So you have to think of this as infrastructure includes the data center build out itself. It includes electricity, includes all the supply chains that provide electricity. It requires permitting the land use. It's not just the real estate. That's a piece of it. And then on top of that, of course, of course sets all of your platform, whatever you're doing with that center, and then the applications on top of that. So infrastructure is the most important thing. First step. It was very interesting because Senate Commerce Committee had a hearing and Brad Smith, who is the president of Microsoft, testified and he said the one piece of infrastructure that is the biggest logjam for me is human capital. There are not enough people to build the infrastructure. He said, we need half a million electricians that we do not have. Now his base, biggest issue was, let's make sure that. And he calls it diffusive where we have to get it in every single part of society. We have to start changing the way we think about infrastructure and the way we educate around infrastructure so that we get people on the ground to even build these things. We don't have a demand problem unless we can build them.
- [34:02]
Caroline Golan
Yeah, and I'll just piggyback on that. I mean, I actually am hopeful that the energy challenge can be solved. And I think it can be solved and unlock an array of new technologies that, that we could only have dreamed about would be commonplace five to 10 years ago. My bigger concern is that we have the capital and we get shovel ready and there's no one to dig because we treat all of these industries as silos. Right. So we have workforce for data centers, we have workforce for the grid, we have workforce for generation and I see a lack of cross cutting partnership around workforce that I think if we don't start tackling that we're going to end up losing this global competitive race. Mainly because we just didn't teach people and we didn't figure out how to do procurement of workforce at scale across multiple different sectors to build. So that worries me a lot. I will say like to what Jigger was talking about earlier. I always say there's like these four quadrants, right? There's like traditional private equity and you know, they're all at sort of like the middle school dance and they don't really know like how to dance with each other but like they're there and they're looking at each other. And then you've got got traditional customer procurement, right, which for a long time as I said was an energy only game. Like sign me Energy plus Rex. That's the only value stream, right? That has to change. Then you've got utility, that's a 50, 50 debt split, right? They I don't think people appreciate enough. Like even if a utility said yes, I want to go build that SMR for you, how are they supposed to raise the capital to do that? They can't, right? So that has to change. And then you have a traditional developer model which says I want you to sign me a 30 year energy only PPA. That's what I built all of my wealth on. That doesn't work either. So you have these four different models that actually aren't targeting the same problem at the same time. And there are also four different models that could share workforce together and maybe figure out how to move in unison. But I think in the intersection between those four, if we can start changing our language and start working differently in the way we attach value and also in the way that we think about contract terms and the way we think about stacking technologies. And in an entirely different approach to when you think about procurement at scale, I think we can get there. You know, this industry, the data center industry has been a just in time industry for 10 years. We now have to be a global scale procurement industry. It's a huge cultural shift.
- [36:33]
Jigar Shah
Can you unpack that a little bit more? When we were talking before you, you outlined this single product concept. So what does it mean to treat data centers and energy infrastructure as integrated development rather than separate procurement?
- [36:47]
Caroline Golan
Yeah, I've said this before, but one of the things that I worry about in the energy space and in the data center space is that we tend to treat it the same way we treat Healthcare, which is we treat symptoms, we don't see the overall health of the system and try to see how we holistically we do this. I think it's in the utility's best interest to plan and know where these data centers go that's going to optimize their grid build out and reduce the headaches for residential customers for siting, for permitting and for cost. I think it's absolutely in you know, technology, energy technology companies best interest to work at it from an integrated approach where you are integrated into the land as opposed to a last thought or an end note. You know, for so long we would go to market, we would buy land, we would sign an energy service agreement, then we'd come around and we'd sign a PPA to either offset that energy service agreement or to, you know, capitalize on a new technology that we wanted to bring forth. Instead of being at the very beginning, you know, where we say we want this land powered this way and these are the five technologies that we're going to go to market with across an entire holding company, across an entire swath of land. That's a scale procurement question, right? Everything in this industry has been just in time and to the quarter and now you've got to say 10 years at scale across 15 states, across these five different technologies, across this sort of power structure and this type of reliability structure. How do you do that? You're not going to be able to do that unless it's all integrated in one package. And I think there's a huge opportunity for the utilities to start directing this. I think that a lot of us would be happy with that. And I think that there's a huge opportunity for the technologists to create that full stack capacity solution. Batteries alone aren't going to do it. Solar alone is not going to do it. Wind alone is not going to do it. Demand response alone is not going to do it. But if you work together and you figure out those solutions, an on site natural gas should be working with demand response, storage should be working with SMRs. Take that arbitrage and re put that value back into how you finance a long term Gen 3. Those types of solutions are not going to happen within an IRP planning process. They're going to have to happen outside and in connection with some equity and a data center developer. And if you can do that. Off to the races, Jager, what do.
- [39:27]
Jigar Shah
You think the current constraints pressures will mean for positive change? So if we think about this integrated procurement model, do you see new models emerging for building Infrastructure in this area.
- [39:41]
Kathryn Hamilton
Yeah, I mean you're in a situation where we're heading into an extraordinary political catastrophe. Right? So when you think about one in six households in the United States today can't pay their energy bills on a monthly basis, right? And so you're at a place where, where you know, when you go into a state and you talk to the Uber driver, the Uber driver just complains about their utility bill and you're like, you literally have nothing else that you hate more than your utility right now. Like this is what you're talking to me about. So, so the politicians are now being like told like, hey, we need to do this stuff. So now we're, we're all the education work we did, which they were completely ignoring are now like, you know, we're representing. And they're like, oh yeah, oh what's this AI thing doing? Like we can actually integrate local within 4 minutes instead of 45 days by using AI and using the unstructured data utilities and making decisions more quickly. Oh, we have all this excess interconnection capacity with all these solar farms that are clipping DC power and now you have new inverters that are being created by Selectri and others so you can actually absorb all of that DC clipped power and actually use it to provide storage. It's amazing how much optimization is right there and it's one tenth the cost of what they were going to do and they were just not open minded around listening to it because it was like so boring. I mean I hear myself talk, it's so boring. Like I get it, you're so boring, but people are just so mad right now, right? Because I mean think about 30, 40% rate increases over the last four or five years. Like it is so mind blowing how expensive energy has gotten. And so it is now like all this boring, boring talk. People are like wait, what, what were you saying to me about you know, virtual power plants and grid enhancing technologies and wait, what were you saying? How much heat is there under the earth and how do we actually get on the ground? Oh, the fracking industry could do that. Oh yeah, I told you that six years ago. I told you that last year. I told, oh but like tell them it to me again. Like, like I want to understand it this time. This time I'm actually listening to you. Right? And so, so like all of this stuff is actually happening in a way that is just unlocking enormous potential for all of these companies that have frankly been wandering in the darkness since they got their first seed round. In 2017 and 2018. And it can't come at a better time. Like, we are ready to go. All these companies have spent seven years with pilot projects and they've been piloted to death, and they've got investors and they've got this stuff and everything's ready to go. And so, like, we are so ready for this revolution. And it's not just about this revolution, which I think is amazing, and it's definitely going to happen, but it's about all of these other countries around the world who are saying, wait a second, what? We can leapfrog here too. Right. And so India now is like, going hard on nuclear power, Right? And they're deciding on which nuclear reactor to go on. China has 30 nuclear plants under construction right now and probably has hit peak coal as of this year. Right. And. And you're just like, wow, right? Like the. The moment that we're living in is so extraordinary. And all of the people that have just never gotten the time of day from decision makers, never been on the main stage at Davos, have never been in this place, are now on the main stage. They're the most important conversation in the room. Like, everybody now wants to hear what they have to say. It's so exciting.
- [43:12]
Jigar Shah
Okay, I want to close now with a look at AI in service of climate solutions and clean energy. So I want to play a quote from Dario Amadeh, the CEO of Anthropic, in a conversation with Ezra Klein, when he is answering a question that Ezra asked about the energy demands of AI.
- [43:30]
F
Maybe AI makes solar energy more efficient, or maybe it solves controlled nuclear fusion, or maybe it makes geoengineering more stable or possible. But I don't think we need to rely on the long run. There are some applications where the model is doing something that used to be automated, that used to be done by computer systems, and the model is able to do it faster with less computing time. Right. Those are pure wins. And there are some of those, there are others where it's using the same amount of computing resources, or maybe more computing resources, but to do something more valuable that saves labor elsewhere. Then there are cases where something used to be done by humans or in the physical world, and now it's being done by the models. Maybe it does something that previously I needed to go into the office to do that thing, and now I no longer need to go into the office to do that thing. So I don't have to get in my car, I don't have to use the gas that was used for that.
- [44:27]
Jigar Shah
Caroline what's your read on that?
- [44:29]
Caroline Golan
Which part exactly?
- [44:30]
Jigar Shah
Well, let's talk first about AI sort of changing how we do jobs in the physical world and the emissions benefits from changing the nature of work and what we're able to automate.
- [44:43]
Caroline Golan
Me right now at least, and I can speak from, you know, my experience right now, the goal with training and to deliver an AI product is to integrate it into our cloud. Right. So that our cloud customers are able to work at a super speed business level and, you know, accomplish things that, you know, they weren't able to accomplish. I think that what we're going to see in the near term is a lot of fervor around cool AI tools. I mean, I don't let my kids play with these things, but I'm sure once they can create their own movie with like unicorns and rainbows and lucky charms and all that stuff, they'll be excited about it. I think you're going to see a lot of fervor around that. But I think ultimately the application is going to be in traditional processing that is incredibly inefficient and costing money and bringing down that cost is going to allow for reinvestment in other areas, particularly on the energy space. I mean, I don't know who said this before, but you know, at the conference, but there's the same number of engineers at Miso as there were 20 years ago. That's, that's true. Also a workforce issue, a major workforce issue. But integration of AI tools means that things like interconnection can go, can go faster. It means that reading sort of land permits is, are going to go faster. And so then you're asking, well, what's the time value of money within enterprise energy? I mean, that's ultimately what we're asking with AI tools. Like if we integrate AI, what is the time value of holding. What's the time value of waiting in the queue for five hours? I mean, five, five hours. You wish, right? For five years as opposed to three months. Right. I don't have an answer for that, but it seems beneficial from my perspective. I think that, you know, when I, when I was at Google, you know, what I saw increasingly over and over and over again was excitement around AI, not as a tool within the medical space. What we were able to break through the cancer research that we were able to produce at a speed that was unfathomable like 15, 20 years ago. I know this is off the energy tangent, but the number of my friends that are in the medical industry space that think that perhaps that trial that was going to take 40 years, years could now maybe take four to seven years. And what that's going to mean, what that is going to mean in work life, productivity, what that's going to mean in workforce? These are all the questions we actually have to answer, and I don't have the answer to them, but I think that we stopped short of thinking about that in a really, you know, in a thoughtful way. But yeah, in short, I think it's going to have a revolutionary impact on the energy space. But I think where you're going to see the biggest breakthrough is in traditional processing medical spaces where there's so much waste and the time value of money is so incredibly important to people's everyday lives.
- [47:41]
Jigar Shah
Kathryn, what's your read on what Dario Amade is saying here on AI for energy innovation?
- [47:48]
Sam
Yeah, so I would point to a report which I love to do. It's ICE out of Columbia University. They just released their second AI for Climate Change Mitigation road map. And they point to just so many of these ways in which AI will be helpful. And it's improving power system development, generally improving siting, speeding up, permitting, increasing output because of better forecasting. I mean, DLR is distributed energy demand response, being able to manage that so much better, and accelerating innovation in batteries and chemistry in V2G. There's so many ways in which AI can be helpful in that. And that's not how even going into food systems, manufacturing, road transportation, aviation, buildings, carbon capture, nuclear energy, just anything that has to do with energy AI is going to help make that better. And so I do think that we're going to almost be able to, if we can get some of this going, we're going to be able to solve some of those problems before they occur. The problems that we're talking about today.
- [48:50]
Jigar Shah
Tigger, what do you think the net environmental benefit of AI will be? Will it be a net benefit?
- [48:55]
Kathryn Hamilton
It'll be horrible. I mean, the notion, like we had this conversation, I think, exactly, in 2018, when you asked me about the Internet of things and what it was going to do and I was like, it's going to be horrible. I mean, the notion that, like, all these positive impacts are going to be outweighed, are going to outweigh the negative ones. What people are going to do is like, create these photographs and then like make it claymation and then figure out how to make it a statue and figure out all this other stuff and then. And I'm like, such a fricking waste of like kilowatt hours but that is what they're selling. That is what we're going to do. We're going to like, create these things and like people are going to write OP EDS that are just dumb because, like, a human didn't write it, but, like AI wrote it. And you're like, this is the worst OP ed I've ever written. Right? And so, like, I just think that, like, I'm a big fan of AI because I think Net net, you're going to see enormous productivity enhancements. And that's why, like, our GDP is almost double of Europe right now, because even though we were the same in 2008, they've had no productivity growth and we've had consistent productivity and we're going to double them again because of productivity growth. But let's not kid ourselves. From the environment's perspective, this is going to be horrible.
- [50:00]
Jigar Shah
I don't know, I think that's a bunch of horse crap. I mean, sort of materials discovery, drug discovery, there's all sorts of enormous scientific potential to AI tools. And I think it opens up a world of opportunity to speed technology development, speed time to market of technologies. And so I completely agree with you that there's going to be a lot of stupid stuff that comes out of the it, but you're completely missing a whole category of innovation and AI.
- [50:25]
Kathryn Hamilton
You should go back to your Internet of things predictions in 2018 and tell me how that went for you. I'm pretty sure that seven years from now, like, I will still win this bet. That's not to say I have a.
- [50:37]
Jigar Shah
Lot of predictions I could go back and bring up.
- [50:39]
Kathryn Hamilton
I'm just saying that, like, I think we all just need to be acknowledging that we are in the chosen billion people in the world and there's 7 billion that are not chosen and that those people have to still dig up a crapload of stuff out of the ground to like, make sure that the stuff that we do works right. They have to do all of this stuff and that is going to accelerate 10x. Right? We're not in a place where we have replicators and things that like Star Trek tried to explain to me was going to happen where we got rid of money because everything was free. Right? Like we're not there. And so, so I just, like, I want everyone to be excited about this moment because I think AI is going to bring this next layer of human flourishing, but we should all acknowledge just how much pain and suffering other people are going to experience so that the top billion have human flourishing.
- [51:29]
Caroline Golan
Well, what I'll say on that is that that's a personal responsibility. And we are not having that conversation. It's all of ours decision how we engage with this new technology. And if we use it for lucky charm cat videos or if we use it to make sure it's deployed for cancer research, that's a personal responsibility as much as it is a policy and regulatory responsibility. And I think you could apply that same mindset with any materials in this country and any consumption in this country. And at the end of the day, AI is going to be a product we consume and how we consume it. If we consume it thoughtfully and articulately and efficiently, I think the Net net is going to potentially take the people that Jigar is talking about and leapfrog them into a space where they don't go through the Industrial revolution decrepitude that we went through in the Western world. If we don't do it thoughtfully, I think we are going to be struggling with a human rights question for a very, very long time.
- [52:35]
Jigar Shah
And stay tuned for Latitude Media's Internet of Things conference coming to you.
- [52:40]
Caroline Golan
Yeah. Yeah.
- [52:41]
Jigar Shah
That was a great place to end it. Caroline Golan, thank you so much. Jigar Shah, Kathryn Hamilton. This was a lot of fun.
- [53:01]
Caroline Golan
Sam.