← Open Circuit
Open Circuit
Tariffs, localization, and a new global energy order
01:01:15
As the era of liberal free trade ends, have we passed ‘peak trade’ for oil?
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- [00:00]
Stephen Lacy
A quick word before we start the show. Katherine Jaeger and I are recording a live virtual show on April 16th at 1pm Eastern. What is a live virtual show, you ask? We are going to be doing our regular show over Zoom and you can watch from the comfort of your own chair and you can come ask questions. So go to latitudemedia.comevents to sign up. Again, that's April 16th at 1:00pm Eastern. And also we're going to be live in person at Latitudes Transition AI Conference on June 12th in Boston. And we are going to have special guest Caroline Golan of Google and you can buy tickets to that show on our events page. We've got a really awesome lineup of experts who are at the center of the AI energy nexus, and we're going to be there to dish out on all the latest trends. So we hope to see you at one of those events.
- [00:50]
Jigar Shah
Latitude Media Podcasts at the frontier of climate Technology.
- [00:55]
Stephen Lacy
Guys, it's Liberation Day. What are you doing to celebrate?
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Jigar Shah
I was thinking of hanging out with Cory Booker. I think he's free now.
- [01:01]
Katherine Hamilton
Oh, my God. Yeah. What I'm doing is like waiting for all the economists to live around me to like, you know, start storming the beaches of Normandy with their reports around how tariffs don't work and, you know, their talking points.
- [01:16]
Stephen Lacy
I think I'm gonna decide to take out a few letters and make it libation day and just drink my way through it.
- [01:22]
Jigar Shah
Ooh, yeah.
- [01:25]
Katherine Hamilton
Oh, that is exactly what we should do. We should just start misspelling liberation.
- [01:30]
Stephen Lacy
Rouse me on the couch when it's over, please. From Latitude Media. This is open circuit. It's fair to say the last decade was the climate era of the energy transition. From the Paris agreement to corporate net zero pledges. Reducing carbon emissions has been a dominant force in the global framework for deploying clean energy. But something profound is shifting. As supply chains fractured during the pandemic, as Russia weaponized natural gas supplies to Europe, and as America's role in the global order shifts radically, countries everywhere are asking a different question. Not just how clean is our energy, but how secure is it? This week we're exploring the idea that we've entered a new jewel order where energy security, not climate concerns, is becoming the primary driver of clean energy investment. Could this security first approach actually accelerate clean solutions faster than climate policies ever could? Plus, we'll take a quick spin around the chaos wheel in dc, where multiple hit lists have emerged targeting storage, hydrogen and transmission, most of them in blue states. That's coming right up. OpenCircuit is brought to you by Kraken, the only proven AI powered operating system for utilities. Anya Langer Jochen is the General manager of Customer Experience at Kraken and she's worked in the tech sector for 25 years.
- [02:48]
Anya Langer Jochen
I've always had roles that have been around. How do you help enterprises make the most value out of the technology that they're implementing?
- [02:56]
Stephen Lacy
Anya works with utilities around the world that are grappling with the energy transition. And they're all grappling with that transition in different ways. But they do all have something in common. Outdated and fragmented tech.
- [03:07]
Anya Langer Jochen
One client that we're working with right now, they are running 71 different systems that indeed are stitched together.
- [03:14]
Stephen Lacy
And even the best data teams in the world have a hard time in that environment.
- [03:18]
Anya Langer Jochen
The time it takes to even prepare the data for consumption by the business. So the business can use that to make decisions it can take weeks.
- [03:26]
Stephen Lacy
Later in the show, we'll hear more from Anya about how Kraken's unified modern operating system can help utilities unlock creativity, new revenue streams, operational savings and more. Go to Kraken Tech to learn more about how Kraken is helping leading utilities improve experiences for over 60 million customers worldwide. Open Circuit is brought to you by ONEnergy. Some industries simply can't afford power failures. Data centers, airports, manufacturers. When the power goes out, operations grind to a halt. That's where onenergy comes in. They design, build, own and operate megawatt scale battery storage to keep businesses running and grids stable. With proprietary energy management software and in house expertise, they make energy more reliable, efficient and resilient. Need backup, peak shaving, faster interconnections. One Energy has the solutions because when reliability matters, their track record speaks for itself. Learn more at On Energy. I'm Stephen Lacy, executive editor at Latitude Media. I'm joined by Jigar Shah and Kathryn Hamilton, my regular co hosts. Jigar is an investor and former director of DOE's Loan Programs Office. Hello Jigar.
- [04:38]
Katherine Hamilton
Hello.
- [04:39]
Stephen Lacy
Katherine is the co founder and chair of 38 North Solutions. Hey Katherine.
- [04:43]
Jigar Shah
How do you do?
- [04:44]
Stephen Lacy
Hey, who let this random number into our signal chat?
- [04:50]
Jigar Shah
You know my family has a text chain. I have a lot of siblings and we all know when my mom's on there, like everybody just knows that. So I'm just saying. And we're not national security experts.
- [05:01]
Katherine Hamilton
My God. I don't like, I don't actually know how to use these apps. Like I check WhatsApp, I think maybe once a month and people are like jiggery. WhatsApp do. I was like, like, like you're going to get a one month response time.
- [05:14]
Stephen Lacy
So we're recording on Wednesday, April 2, a day that Trump has declared Liberation Day. As we talk, he is preparing to announce a sweeping round of tariffs. We haven't seen any details yet, but it certainly is going to mark the most aggressive move yet in America's retreat from liberal free trade. And so it's the perfect day to be covering the topic we planned for this week. These tariffs, of course, aren't isolated actions. They're part of a fundamental realignment in global commerce that began during the pandemic and is now accelerating. And it will potentially have profound implications for energy markets worldwide. And what makes this moment particularly interesting is America's position in the global energy landscape. So the US Is now the world's largest oil producer, a reality that has emboldened this more nationalistic approach to trade generally. And it's also caused America to pull back on protecting global energy supply lines. So we've got two things happening right now. This fracturing of a post World War II framework where America was this dominant security force that opened up global oil trading. And then the post pandemic world, which was marked by supply chain shocks, Russia's invasion of Ukraine, growing trade tensions, and a shift among corporates and investors toward resilience has elevated energy security at the top of the agenda. This is causing countries to localize supply chains for critical industries like semiconductors and clean energy. And so this is where the new jewel order thesis comes, comes in. Jeffrey Curry, who is the chief strategy officer of energy Pathways at Carlyle, wrote this report recently that argues we've entered a fundamentally different era of the energy transition and the primary driver isn't climate concern anymore, it's security. And the twist, he argues, is that this security driven paradigm might actually accelerate clean energy adoption faster than the net zero framework ever could. So let's explore the new jewel order. Catherine, go into a little bit more detail on what Jeff is arguing in this report. And what did you find most compelling?
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Jigar Shah
Yeah, it's super interesting and it really does track what's happened over the last few decades. And you mentioned sort of this World War II order, which was the US brokered at Bretton woods and really established the international monetary system. It established that the dollar, US Dollar was the world reserve currency. And it really had the US Taking on the protection of all the oil flows among our allies with our navy. And that system is starting to change significantly. You can see right now and today, especially with all these trade wars that we're actually involved in that that is shifting. And what happens is that if trade is under threat, so are fossil fuels, because they are so dependent on that trade. And he argues that we've reached rather than peak oil, we've reached peak trade. And so that rather than green being a premium, we're really having security as our premium. And while investors have been really fixated with how energy produced, they've been much less fixated on how it's consumed. So looking at the levelized cost of energy rather than the return on equity, and what he's saying is we need to shift that. And everything is, since everything is becoming more localized, that actually could help spur clean energy investment while keeping natural gas in the mix to help backstop that. And I would say that's something that, that might even shift over time too, that his whole issue is that because of, and the need to shift to energy security, that could actually spur us toward more climate action, not in the name of climate, but in the name of security.
- [08:49]
Stephen Lacy
Yeah, the historical context is really interesting here. So, as you described, Since World War II, the US has played this really unique role in global trade. So even if oil was getting shipped from one country to another with no American involvement in the transaction, you had US Naval power that was ensuring that those shipping lanes remained safe and open. And that was like the security umbrella that allowed countries around the world to depend on oil and gas imports without worrying as much about supply disruption. And so now that America's transformed into the world's largest oil producer, thanks to the shale revolution, this is starting to change America's incentives. And so it has less of an interest in protecting global shipping lanes. You know, it's, it's the, it's sort of its self interest has shifted. And there's real question now, particularly under the Trump administration, about its willing to the America's willingness to bear the security, the costs of ensuring energy shipments for other countries. And so there's a lot of potential new physical disruption risk. You know, the US Is more likely to put sanctions on other countries. And so like the security response, as you said, Catherine, is forcing countries to diversify energy resources, build more domestic energy production capacity. And then at the same time there's this extraordinary development of renewables, which are inherently mostly localized resources.
- [10:22]
Jigar Shah
Yeah, and I would jump in also on another event that happened at the end of 2015. The US had an oil export ban and President Obama lifted it, and it was a deal that was cut. I was quite involved in this deal to try to get the production tax credit, investment tax credit for renewables re upped because they were about to explore. In an exchange that the environmental community was really upset about, Obama was gonna lift the oil ban. And this was after the shale revolution. Right. But what that ended up doing was, and you can see very visually on oil flow charts, I was involved in a panel at Davos the next couple of years with S and P Global that showed how the oil flows around the world changed significantly after that, and the US Became such a bigger player. And what that did was that put us in a very different position as far as oil and security. And we became such a dominant force that ended up us not relying so much on the world.
- [11:20]
Stephen Lacy
Jigar, what's your read on this report? You actually previewed this in our previous episode a couple weeks ago, talking about the energy impacts of the pandemic. And you said that I was misreading China's increase in consumption of coal in the wake of shutdowns, saying that it was more about localization of energy. Is that kind of the framework that you're talking about here?
- [11:44]
Katherine Hamilton
Yeah. So the, the countries in the global south have been thinking this way for a long time. I mean, when I've traveled extensively to China and India and other places. And you know, for those countries, they have local currencies, Right. And they have to buy all of their imported fossil fuels using US Dollars. Right. And so they don't have a surplus of US dollars in India, I think they imported $167 billion worth of fuels last year. Right. So they view that as an opportunity for people to screw with them. Right. So that's the energy security part of it. And they view it as an opportunity where they can spend those dollars locally. Right. If they can figure out a way to avoid some of those fossil fuel imports. Right. And so, so for them, being local has been something that they've been working on since before the Paris Agreement and then through the Paris Agreement, right to today. I think what's interesting is that because of the Ukraine conflict, the Europeans, who I think largely were saying we're happy to take cheap stuff from China and deploy it at scale, are now rethinking the whole thing. The other thing that's occurred is people have realized that US LNG is not affordable. Right. And so they're saying, like, you know, the reason why Germany is de industrializing is not because of electricity policy. It's because US LNG is way more expensive than Russian gas and they can't make the numbers work. Right. And so, so what's interesting about this Carlyle paper is that it is saying now that the U.S. you know, through the Biden administration's inflation Reduction act work and the Europeans now are also on board with this thesis that the Chinese and the Indians have been on board with for, you know, probably two decades. Right. And so that I think that's, that's the main thing that I think is super important here is that yeah, people are using more coal if they're local, but really it's more around saying this energy security framework is something that not just global south countries have to think about, but now Western countries have to think about.
- [13:59]
Jigar Shah
Yeah, Jigar's totally right about China. They did not build this enormous electrification economy based on the Paris Agreement. They actually started their transition in 2000 and their fossil fuel imports peaked in 2019. So they had been well on their way.
- [14:14]
Stephen Lacy
Katherine, you gave us a really nice summary of the post World War II history. Let's talk about the last decade. Explain the climate or net zero framework that has guided a lot of energy transition policy over the last decade or two.
- [14:30]
Jigar Shah
Yeah, so let's just go to the Paris Agreement because that was kind of the big organizing piece and that was adopted in 2015, but really entered into effect in 2016. It was 195 parties and there was a temperature goal. So the goal was to limit global warming to 1.5 degrees centigrade above pre industrial levels and then pursue efforts to limit even further. But that was going to be the main goal. And so each country had nationally determined contributions, NDCs that they would each work on to figure out like how are we as a country, as a nation going to achieve these goals? And then there was, was really based a lot on international cooperation as well. Let's have countries work together to reduce emissions and adapt to climate change, understanding there would be climate migration. And the final piece of it was really about financial support. So developing countries being able to get financing from developed countries to enable them to reach the goals too. Even though the developing countries contribute far less. They contribute about 3% of emissions as opposed to the top. You know, China, US, India, EU, Russia and Brazil contributing 63% of the global emissions. So that was the framework. And as we know now, it's, it isn't really working very well. People aren't doing, countries are not doing what they should be doing. Some of them have strengthened their climate commitments, but many other ones aren't. Right now we're on a track to 2.6 to 2.8 C rather than 1.5. So there has been a lot of, I don't know if it's backsliding, but just not living up to commitment since then. But that was the structure on which all of this was based.
- [16:07]
Stephen Lacy
Yeah. Jigger, how would you define or describe the investment strategies over the last decade or decade and a half in that climate era?
- [16:16]
Katherine Hamilton
Well, I think you have to recognize that in 2015, solar was getting cheaper, a lot cheaper. Wind had already gotten cheaper, Batteries were really nowhere to be found, and electric vehicles were just starting off. Right. You had the Model S, you maybe had the Model X, you were maybe going through some sort of production hell, right, to figure out the Model 3. But these were not really widely available technologies. Right. And so, so the framework was really designed as an update to all the feed in tariffs and all the other things that we had before to figure out how we pay for this technology premium. Right. And so saying we know that the costs are going to come down, but like, but, you know, they're not quite there yet. And so you had these contract for differences contracts that a lot of large corporations paid for, you know, all of which by way are in the money today. They're making huge amounts of savings at Microsoft and other places for signing them. But you also had, you know, luxury buyers who bought Model S's and you had other people who bought things like that, et cetera. I think that, you know, I think there's a fundamental misreading of where we are today. The net zero stuff, like, was always a little weird to me. I don't think I ever used the framework. I always thought it was dumb.
- [17:32]
Stephen Lacy
But, like, why?
- [17:34]
Katherine Hamilton
Because, like, what are you netting? Like, so basically you have mitigation, right? I get that. Right. So you're reducing your emissions, but then were you going to net it out with carbon dioxide removal credits? Is that exactly how we were going to get there? Like, it was always ridiculously nutty. Right. And so I don't, I don't really get the whole net zero framework to begin with, and I don't think I ever used it. But in general, I think that mitigation has never been more relevant today. Like, when you think about where we are 90% of all grid connections globally, not just in the US but like globally in Namibia and like Lesotho, which the President Trump couldn't pronounce, or like China are all renewables. Right. And so, you know, I think the IEA said that 80% of all electricity generation increases last year came from clean energy sources. Right. China now has 30 nuclear plants under construction as we speak, and they'll be done by the end of the decade. And so I think it just took the Paris Agreement to get people to actually get all these industries to scale. But today the industries are at scale and we have this ability to meet 100% of all of our economic growth requirements from these new technologies. And we have a new set of technologies that we're scaling up, whether it's nuclear power or geothermal power or long duration energy storage technology or other things. And so I think on the electricity side of things, I have never been more confident that all of these countries, all 190plus countries around the world, have this ability to follow the new dual order. Right. What I find shocking is that China actually is as weak as I've ever seen them. Right. So when you think about all this over capacity today and China's old Belt and Road initiative, they're afraid to help the other 190 countries. So if you actually want to buy solar panels from China, they'll sell them to you. But if you want financing from China, if you want the help that the US government gave to all these countries in the 1960s and 1970s, China's not there. So as the US creates this void, China's not filling it. And so what I find fascinating in the new jewel order is as all of these countries decide that this is their strategy, who's going to make money off of figuring out how to actually fill this void? And that, I think is why everyone in the investor community is reading this paper, because they're going, whoa, this is a huge opportunity and China's blowing it.
- [20:11]
Stephen Lacy
Well, I do disagree that the net zero framework wasn't helpful. I mean, I think that the targets under net zero goals were in line with, in theory, with what the science tells us we need. And it's an easy to understand rallying force. I think it is a bit squishy when you consider the use of carbon credits and renewable energy certificates and in sort of achieving that net zero target. But I think it was a helpful concept and rallying force. But I guess, Catherine, do you agree that we're moving beyond that era? Like, are we, are we headed out of the climate dominated framework into something new? Do you agree with that premise?
- [20:52]
Jigar Shah
I actually think it doesn't have to be either or, I think it's gonna be both. But one thing I found interesting was back in early 2023, Jason Bordoff of Columbia wrote a piece for the World Economic Forum about why we need to rethink energy Security in a transition to net zero. And he talked about how this energy transition creates new energy security risks because security is not just around oil and G. That it shifts the focus and that this uncoordinated energy supply and demand, so we're not like paying attention to the supply and how it relates to the demand side really undermines the net zero goals and that we really need to create pathways, rebalancing what we're doing and having more flexibility. And so Even back in 2023, he was talking about this in terms of security and how that has to be part of the way we think about the transition. So I think it's all wrapped up into one piece. I don't think it's an either or situation at all. I think you can have different results with different, you can have the same results with different goals. So your goal could be energy security and your result could be closer to net zero.
- [22:04]
Stephen Lacy
Jason has written some great pieces on this and I think that this is a great counter argument to the new dual order thesis. I mean, he argues that deglobalization is going to halt progress because it will stymie the development of sophisticated supply chains across minerals and manufacturing. And what we need to see are more strategic partnerships, not a retreat from globalization. Jigger, where's the tension here in, you know, that clearly the push for more a nationalistic approach is going to create new opportunities for clean energy, but it may complicate the ability to develop sophisticated supply chains that we need to scale technologies as well. What do you make of that?
- [22:51]
Katherine Hamilton
This was always inevitable and I love Jason, but ultimately the US is the one who started destroying the globalization framework. When George W. Bush decided to attack Iraq without provocation, then that gave countries ability to attack other countries without provocation. When the US government decided to, you know, deny certain countries access to the global monetary network, right? Then that, then people were like, well, what tools do I have to actually disrupt globalization? Right? And so then the Chinese said, hey, we have these critical minerals and so we're going to deny access to critical minerals for certain things. So all of the sides, including the George W. Bush presidency, the Obama presidency, the Biden presidency, have all decided to break global norms to figure out how to get, you know, certain things that they wanted done and that those norms breaking is what investors are now noticing, right? And so they're saying, huh, if the US Is willing to do that and the Chinese are willing to do that, then we need to think through an entirely different framework of exactly how this is going to work. They're saying maybe we do need a treaty that like, you know, deals with raw feedstock coming from Mozambique and processing happening in Vidalia, Louisiana, and figuring out how you work with the Australians and how you work with this group and that group. And there's might be a coalition of 15 countries that work together to counteract Chinese dominance of critical mineral supply chains. I think you're going to start seeing these types of coalitions come together for nuclear power, for geothermal, for lots of these things. And it won't be a fully globalized supply chain, but it'll be, you know, 15 countries that'll work together.
- [24:38]
Jigar Shah
Yeah, I would say jigger. Building on that, there are kind of like three ways that there are these wars going on. One is like actual hot wars. So Russia invading Ukraine, that's a hot war. Digital wars, like all this cybersecurity. And there was an issue with China just wrecking a Baltic subsea data cable, like espionage, all kinds of cybersecurity issues. And then trade wars also. And you talk about critical materials in that. So there was a really interesting discussion on Redefining. The podcast with Laurent Segalin and Jared read was on March 16, and they interviewed Christian Ruby, who is the Secretary General of Euroelectric, which is like the association of Electric Entities in the eu. And he was really talking about. And this is exactly what the new jewel order says, electrification being really key. So as we move toward electrification and those technologies are going to really help firm up exactly what you're talking about. Jigger.
- [25:42]
Stephen Lacy
OpenCircuit is supported by Kraken, the only proven AI powered operating system designed for energy utilities. At the top of the show, you heard from Anya Langer Jochen, the general manager of customer experience at Kraken. And she was talking about how using dozens of clunky systems holds back utilities and stifles innovation.
- [25:59]
Anya Langer Jochen
Because it's so painful. What happens is the business becomes less curious and then it dampens. If you wish the overall ambition of the business to explore, to innovate, to try something new.
- [26:12]
Stephen Lacy
But what if there was one unified system designed to help you serve customers, giving you all the data you need to make effective decisions and accelerate innovation?
- [26:20]
Anya Langer Jochen
If you can ask a question, be curious, get an answer almost immediately. Suddenly, you're almost in this kind of ideation mindset because the data is available to you in the moment.
- [26:30]
Stephen Lacy
That's. That's exactly what Kraken's operating system does. Kraken's technology helps utilities accelerate product innovation, improve customer experiences, generate new revenue streams, and make significant operational savings all in one platform.
- [26:43]
Anya Langer Jochen
It is really literally the operating system of the utility in the sense that it is where they perform key tasks associated with managing all the relationships with their end customers, be it understanding what the consumption patterns are of those customers, translating that into usage, billing, sending out, invoicing all the interactions with end customers. It's a system that is so crucial to the functioning of their operations. Ultimately, how can Kraken enable utilities to become performant for the next decade?
- [27:19]
Stephen Lacy
Kraken is the only proven end to end operating system specifically for utilities. No more expensive custom integrations holding your tech stack together. Join leading utilities around the world in switching to Kraken. Learn more at Kraken Tech or click the link in the show notes OpenCircuit is brought to you by One is one of the fastest growing battery storage IPPS delivering storage solutions for utilities, enterprises and critical infrastructure. With 300 megawatt hours deployed across 65 projects, their proprietary battery solutions are helping bridge the gap to future where energy is abundant, clean and resilient. With a vertically integrated approach covering design, financing, software and operations, One Energy seeks to make storage simple. Building on this expertise on energy is now expanding its focus on the data center market as energy demands grow in an AI driven world. One Energy is redefining energy infrastructure because downtime just isn't an option. Click the link in the show notes to learn more or visit on energy Energy security has been an important part of how we talk about renewable energy for a long time. And of course we saw the first major initiatives in energy efficiency and deployment of solar and wind after the 1970s oil shocks. And so this has been really fundamental to how we've been thinking about the deployment of clean energy for many, many decades. But this does feel like a new moment given how rapidly global dynamics are shifting in trade. And so this report is designed for investors and jigger. I want to get your take on how this might change the way we're thinking about investment under this enhanced security framework. So Jeff argues that like in the past, or in this, the last decade or two, we've really thought about investment in green versus brown categories. And Curry argues that like this financial distinction, how assets make money and what risks they carry is really important for understanding investment patterns. So he kind of breaks it down into tolling assets and trading assets. So in tolling assets your costs are largely fixed, you pay a lot up front to build it. After that it doesn't cost a lot to maintain. And so you like renewable or nuclear plants. They sell their electricity at Fixed prices through long term contracts, stable, predictable revenue. They're not as exposed to commodity price swings. Then you have trading assets like gas or oil or batteries or batteries. Right. And you know, their value comes from price differences. They make money based on volatility and price spreads. Their profits can swing wildly based on market conditions. And so Curry argues that we need to think about, rather than green versus brown, a spread between trading and tolling. Can you interpret that for me and does it make sense to you in this new world?
- [30:38]
Katherine Hamilton
Yeah, it's a great framework because I think that when you think about what solar and wind represent to a lot of people, it represents infrastructure investment. Right. And represents Brookfield or some of these other big companies that have very low cost financing. And they're saying, well, in order to get access to my low cost financing, you need to give me a low risk product. Right. And that's the tolling piece of it. Then there's lots of other stuff that, that is just not possible to make low risk, right. So when you look at batteries, for instance, you can go to utilities and say can I just get a fixed dollar per kilowatt month. Right. Of payments every single month. And then the utilities take the risk of like whether they're going to get the value out of that battery or not. And in many of the more vibrant markets like Texas, you don't get those contracts. You basically have to like, you know, put them the batteries in and then you live and die by how well ERCOT is functioning, et cetera. In that situation, you're not going to get low cost capital. By definition, the debt providers provide you less of the capital stack because the guaranteed payments are less. And so you then have to get more equity that comes in which is at a higher cost of capital. And this has always been the case for natural gas power plants. LS Power famously built their whole business on, you know, these merchant assets, right. And figuring out what the merchant curves would look like and you know, how to predict things, et cetera. Right. And so I think that there are certain assets even in the clean space that are more, you know, like subject to merchant risk. And this is something that we did very well at the loan programs office while I was there was we realized that the number of 20 year PPAs that we were financing with utility off takers was, was basically zero. And a lot of the projects that we did were things like sustainable aviation fuels, where the airlines were like, well, we'll buy the fuel for 20 years but we're not going to tell you what Price. The price is going to be benchmarked to whatever the price of Avgas is, Right. Or critical minerals, where people are like, well, we'll buy your critical minerals, but the critical minerals price that we pay is going to be benchmarked to the index, right? And so there are lots of assets in the clean space that need a merchant model. And the loan programs office did a lot of the heavy lifting to teach investors how to underwrite those deals.
- [33:06]
Stephen Lacy
So to distill this down even further, Curry argues that the tolling assets provide sort of stable power trading assets provide flexibility. And for investors, these assets respond to very different economic conditions, like when interest rates rise, fixed return tolling assets struggle, while variable trading assets often do better, I guess. Does this framework make sense to you in terms of accelerating clean energy? Do you think that if investors follow this approach that Curry is outlining, will it inherently benefit clean energy and accelerate investment?
- [33:42]
Katherine Hamilton
Well, let's start from a slightly different place, right? Given that we're not even 100 days into the Trump administration, there's a lot of investors who are just like, what the heck is the framework? Right. Right now I'm sitting on my hands because I don't understand what I'm doing, right? And so this paper provides a framework. Right now, there's a whole bunch of people having conversations and a whole bunch of people testing assumptions and a whole bunch of people having libation day instead of Liberation Day today. And so there's all this stuff happening, right? But I think that once you create a thesis, then there's a conversation that can occur around that thesis, and people can say, yeah, I get this now. I think that I understand how the government of India is thinking. And if I invest in a coal plant in India that uses coal from a local source, that they're likely to allow this plant to run for the entire time of my debt, and therefore, I'm likely to get paid back. And so whatever it is that framework is, that is something that they are are desperately trying to figure out in this new, you know, this new second term of Trump, because a lot of people are like, everything's just been, like, thrown up into the air and all the pieces are all over the floor, right? And so people are desperate for a framework. Separately, we've had the conversation that the new order, right? So in the last 10 years, there was some feeling that people would reliably pay a technology premium that people would pay for a little bit more for clean energy or whatever it is, clean cement, whatever, that clearly has completely gone away. And you now have a framework that is basically pollution, affordability and resiliency or energy security. That is now the new framework. And so if the technologies that people are being asked to invest in fit that framework, then it's likely to be durable and you're likely to get paid back over 20 years. And if it doesn't fit that framework, then it doesn't. And so now entrepreneurs are being asked, hey, redo your PowerPoint deck to tell us about pollution affordability and resiliency, energy security. Right. And where your technology and your project fits within that framework. And then, you know, countries are being asked, hey, does this framework work for you? Is this what you're solving for? Are you likely to honor this contract for the long term because it meets the framework, Right. And countries are saying, yeah, I think so. And so then people are saying, great, if both of you agree, then we're going to invest, and both of you don't agree, then we won't invest. So I think that the clean energy sector, as we've talked about before, is more capable of actually meeting this new dual order. Right. I think that they actually are ready for it. Whereas a lot of the, you know, the more traditional fuel are like, wait, what? You're making me do something different than what I was doing before. Like, what are you talking about?
- [36:39]
Jigar Shah
There's another piece of IT jigger that fits into that, and that's supply chain, because you can have all the flexibility and resilience, and maybe supply chain falls into that category too, and affordability and pollution reduction. But if you can't get what you need, then you're sunk. And so, you know, we've talked about this a lot with gas turbines and transformers and all kinds of things that are backed up, up, and maybe that does help us grow our renewable industry more. Unfortunately, what's happening now in this administration, and we'll talk about this a little bit later, is that they're trying to cut back on all the tools that we have to invest in in this country to give us everything that the new jewel order says we need.
- [37:21]
Stephen Lacy
And then of course, there's just like the climate impacts themselves when we think about supply chain resiliency and localization. The droughts, storms, floods that are increasingly becoming security threats. Do you buy that as a driver of the push to localization as well?
- [37:39]
Jigar Shah
Yeah, it's interesting because I've been following Department of Defense for a long time, ever since I worked at the Federal Energy Management Program and we were designing energy audits for federal facilities and I kept raising the Issue of, like, we need to be able to build in the metrics not just of reduced cost, but we need to build in their metrics for resilience and for security from an energy standpoint. And DOD did this better than anybody, of course, because for them everything is about national security. So back in 2023, DoD had a climate assessment tool and energy security was defined as affordable, available, reliable and sustainable. Those were the four categories. Well, if you look on DoD's website today, it says Defense Department sharpens standards, flushes climate change policies and restarts support of Ukraine with a flushing climate policy. This tells you they're not even thinking about this in terms of security. But Congress has done otherwise. So every year there's a Defense authorization bill, and even in last year's authorization bill, there was a whole piece on flexibility and resilience and making sure that we had energy resilience built in. And the only way you can get energy resilience generally is with non volatile fuel sources and localized fuel sources. So I think that you can change your language, but the mission of security remains the same. And that means it'll continue to spur local clean energy resources.
- [39:09]
Katherine Hamilton
Yeah, I mean, you know, I feel like at this point we're past having to talk about climate, like the solutions are just better. Like, so when you think about, like what Defense is looking at is they funded a 1 megawatt mobile nuclear reactor in the last administration, right? And so I think you're starting to see a lot more of these small modular reactors and other types of things happening at the Department of Defense. You know, geothermal power, I think, micro grids, all of that stuff. And I think you're already seeing like, Zillow's data shows that 50% of homeowners are now checking floodplains and other things before they buy a house because they're realizing that that is going to be important for getting insurance in the future. And so the insurance markets are coming in. So I just feel like getting rid of climate as a word and like scrubbing it in some weird control F type function like, doesn't actually move you away from the real risks that are there. And that's why I'm saying that I think that the entire way in which our sector views itself needs to change. Right? And so that to me is the big thing, is that now that we are dominant energy, right? Which we are, then we now have dominant energy responsibilities. Like when the National Electricity Reliability Council says, hey, you're likely to have rolling blackouts in my son spp, it is now Our job to prevent rolling blackouts in my son spp. Like when people say, hey, you know, we have these issues, we now have the responsibility of making sure we don't randomly put batteries everywhere on the grid, but instead actually do the proper modeling to figure out where the batteries would have the most value. Right. All of the things that a dominant energy industry has to do, we now have to do. It used to be like, well, my spreadsheet works. I'm good. I'm like, okay, but are you paying your workers well? Does the community actually like your project? Are you doing the things that you need to do to like actually have a social license to operate rate? All of these things are things that we now have full responsibility for and I'm here for it.
- [41:11]
Stephen Lacy
There's just one more concept that I want to tackle here. Catherine mentioned it and we sort of danced around it, and that is the concept of peak fossil fuel trading. Jigar, why is peak fossil fuel trading significant?
- [41:25]
Katherine Hamilton
It's just another metric that investors can track to see what it is that, that they should be investing in. Right. Like in general, when you look at investors, they like to be backward looking, they don't love to be forward looking. Right? So they want to say, oh, peak, you know, fossil fuel trading happened five years ago. I wasn't noticing that. That's fascinating. Oh, it's not likely to go above those levels. Okay, what does that mean? Right? That means that, like, these countries are actively passing policies to reduce trading, right? They are actively trying to make sure that they're not using their fixed hard currency. Because remember, I think this is something that Americans have a really hard time processing. But for countries that don't use the US dollar as their currency, they have to trade their local currency into US Dollars to buy fossil fuels. Right. And what they could have done with that money that US dollars is, they could have bought AI equipment, they could have bought robots, they could have bought lots of things to make their economy more productive, but instead they were stuck buying fossil fuels. Right. And so for a lot of these countries, they're like, how do I reduce that number so that I can actually use those dollars for other productivity enhancing things that my country can benefit from from. Right. And I just think that that is something that people have always known, like, it's not a new concept. But now that investors can see that the peak fossil fuel trading occurred in the rearview mirror, they're like, oh, this is something that the countries were actually optimizing for.
- [43:09]
Jigar Shah
Yeah. And this is exactly what Bordeaux was talking about. It's like the supply side versus the demand side. If the demand side is not for the fossil fuels that you're importing, then what are they going to do? Where are they going to go? They don't have a place to go. So instead you're looking at electrification and flexibility and much less. And it's catching up now on the supply side.
- [43:28]
Stephen Lacy
Phew. I feel liberated.
- [43:30]
Katherine Hamilton
I need a libation.
- [43:33]
Stephen Lacy
Let's shift to what is happening in Washington, D.C. there's a story that's been developing over the past couple of weeks as the Trump administration sharpens its axis for clean energy funding. Multiple hit lists of clean energy projects are circulating around Washington and epa, the Department of Agriculture and the Department of Energy. This week we saw reports that the Department of Energy is targeting billions in grants and loans that were awarded under the Inflation Reduction act and the bipartisan infrastructure law. The Energy Department under Secretary Chris Wright has been instructed to review and possibly cancel programs that have spent less than 45% of their funding. It is looking less like a budget cutting exercise and more like a targeted elimination, elimination of clean energy. So what is going on here, Catherine? What do we know about these hit lists? What's in them?
- [44:25]
Jigar Shah
Yeah, and it's, it's all very confusing too, because we're hearing there may be other rounds. We may hear that the lists are not complete. So we don't know everything about this. We do know the Secretary is reviewing all of them personally. We know that they're not being picked by the program people, but instead by the political folks there. So the program folks who ran the programs are not the ones that are deciding what stays and goes. And just, you know, on a gross level, they're mostly building decarbonization ev, renewables grants, planning and technical assistance rather than capital construction. Big cost items are hydrogen related and mostly in blue states. So there were some big losers there. Right now it looks like 900 million and all but a few are $10 million or below. These are, these are signed agreements too, these legal contracts that had been signed. And so there are legal entities and counterparties on the other side of these grants. And the states with the most projects canceled are California, which had supposedly canceled. California 53, New York, 29, Massachusetts, 21, Colorado, 17. If you notice, these are all blue states. There are very few in red states. And again, the dollars also add up to most blue states, like 197 million for California, 107 for Massachusetts. So it looks very politically driven as well. But we are also hearing that when members of Congress call and Say, hey, what's going on with this project in X, Y or Z district? That often that shakes things loose. There's also just the reality of a lot of the programs. For example, under their GRIP grants, which is a bipartisan infrastructure bill, a lot of those were done. The utilities are the counterparties with the government and they have a bunch of innovators that are kind of subcontractors. And the utilities have so far still been able to draw down. There's a grant awarded, a contract developed and signed. Then the utility does work with their subcontractors and goes back and bills back the government to draw down the grant. And a lot of that's already been happening. So there are a lot of these that are well on their way. It's just still really hard to understand which ones are going to happen and how they're going to actually make it happen.
- [46:39]
Stephen Lacy
Yeah, I was at DistribuTech last week, and I can tell you that there's a lot of hand wringing over what could happen to the GRIP program. There's so much uncertainty, and I couldn't really get a sense if anything had been canceled. But just the amount of uncertainty is absolutely wild. And it's important to note that in many cases in these grants, people have already invested in the projects. They've already invested in a portion of the project. The companies who've executed on their part of the contract are now left without the funding that's already been. Been committed and that they planned for Jigar. We've talked about this in our multiple conversations on the freezes. Early on, you talked about just how damaging this is for investment generally, whatever the technology, where the government is a counterparty. What are the bigger threats here to business and general investment, even outside clean energy?
- [47:34]
Katherine Hamilton
Yeah, so I mean, I don't think any of the loans were on the list. And so I think the loans are fine. And I think, think Chris Wright suggested that, you know, they would honor all those contracts. And I know that several of them got disbursements last week. And so I think that's moving. You know, it's a. It's a very difficult thing to do. Like, part of the challenge that we faced when the Biden administration came in is that you always had a history of people using research grants and SBIR grants and lots of these sort of like even like scale up, which was created under the first Trump administration for ARPA E where there was sort of like a $10 million grant, et cetera. But you really didn't have this history in the United States of tier one companies working with the government in real public private partnerships to do these multi billion dollar projects. Right. And so if these multi billion dollar projects are at risk, I'll give you one example. So when you look at the Constellation hydrogen hub with, in the state of Illinois right around using fuel cells or sorry, the electrolyzers at their nuclear plants, if that actually gets cut, I don't think Constellation ever doing like pink hydrogen ever again. Right. And I don't see them ever partnering with US government ever again on these kinds of big deals. Right. And that same thing is true with Nucor, who just had a second patent, provided high electrics, I think it was. But like they've got royal blue, like these are all technologies that they refuse to scale up here in the United States because they don't have a good public private partnership with the U.S. government. Right. And so if we want to figure out how to keep our industries on the cutting edge of clean steel or clean cement or all these other things, then we have to make sure these corporations don't just like patent their technology, but they actually commercialize it here, here in the United States. And that requires a partnership with the US government. If we destroy everyone's trust in a partnership with the US Government, then they're by definition going to license their technology to China or license it to someone else. They're not going to let it sit there just in their vault like gathering dust. So like it's, I just, I don't understand, except for retribution, what the actual like, like sort of academic thesis is behind this?
- [50:04]
Jigar Shah
Yeah, for GRIP grants these are not pegged to climate. I mean yes, they're climate benefits, but it's all about technology and innovation. And my thinking is a little less grim in that I do think that what these grants did was it kind of forced, it was a good forcing function for utilities to come to the table with innovators to say our right in order for us to deploy. Because utilities do not like deploying innovation. We know this shocking brought them to the table to say all right, well maybe I'll consider this because it only will cost me 50% of what it would normally and this will give me like a safe space to do this. And I think what it did was it, it actually did enable a lot of these innovators to start working with utilities and it, and it helped scale them regardless of where the grants were. Now. Now of course the grants have a lot to do with capex and a lot to do with affordability and allowing the, in the End the ratepayers not to have to bear the burden of it, but in the end, they'll probably get a better system anyway. But I feel like at least the grants did spur those conversations and got some of these new companies over the hump of working with them.
- [51:13]
Katherine Hamilton
No, I totally agree with you, Katherine, that the inertia that we were faced with within, in our existing utilities or industries, et cetera, a lot of that has been overcome. And people are seeing, like, big contracts signed by, you know, Line Vision with Georgia Power or some of the other folks where people are like, all right, fine, you're right, we're 10 years late, but we're signing these contracts finally. And so a lot of that stuff is happening. And no matter what they do with the grants, like, I mean, we are forever changed as a society and these technologies are going to be used in the economy. But I do think that it provides a freeze on, you know, investors and companies for that next generation of innovation who need that same service. The next time the, the government says, hey, we're here to help and here's a billion dollar grant program, they're going to say, is it worth the effort? Should I actually put a lot of effort into this thing? I don't think so. Last time, like, look at what these guys did, right? And so I just think that it's not a good look. And even if you wanted to, like, you know, scale up carbon capture, which are all on this list, right? Or you want to scale up nuclear or scale up, you know, whatever your favorite technology is, if you screw with hydrogen stuff or you screw with like, you know, like virtual power plant stuff, etc. It means the nuclear folks also are skittish and don't want to work with you.
- [52:34]
Stephen Lacy
One office in particular seems vulnerable, the Office of Clean Energy Demonstrations, which manages over $20 billion in investments in and clean hydrogen, advanced nuclear, carbon capture, energy storage jigger, the Trump administration is talking about getting rid of this office entirely. How does that office work and what are the consequences of eliminating it?
- [52:58]
Katherine Hamilton
So the weirdest thing about this office is that it was started in the bipartisan infrastructure law, right? It is something that it's in statute, which some of the other offices weren't. Aren't or aren't. Like, this is something that Manchin and Murkowski and all those folks worked on for years, right, to put in place. And then, you know, and then they run the advanced reactor deployment program. They run the, you know, like sort of the direct air capture hubs. They, you know, run the Hydrogen hubs, like all of these programs go through that office. And like, it's. So what's weird to me is that that's the one that they targeted, right? Because that's the one that actually had the most bipartisan support. The woman who ran it for almost the entire time basically comes out of NNSA and is like, as you know, it's just federal government. Awesome person that's run it, like goes up to the Hill all the time to have to testify and to like, you know, brief offices, right? Everyone is like, wow, she really is like nonpartisan. Like she is just trying to do the job that she was paid to do to like make sure that everyone's treated fairly. Right. It's just. And it's, it's the thing that's so important about the Office of Clean Energy Demonstrations is that to the point I was making before, to the extent that you want these large corporations to finally start winning, right? Because we don't have a dominant steel company in the United States. I think we're not. I think we have one company that might be in the top 20 globally, right? Or cement or chemicals or all these other things. All of that innovation funding would go through the Office of Clean Energy Demonstrations. So if you destroy that office, then you destroy the capacity of the Department of Energy to run those RFPs to do that work, right? Because part of this was these are like seven year partnerships. Like a hydrogen hub doesn't get built in one week, right? And so, so you give somebody a hydrogen hump, then that group doesn't actually even know how to do it, right? They have some sort of like proposal that they submitted which then got awarded. But over the seven years, their plans are going to change. Like, oh, this company decided not to move forward, but this company is moving forward. This thing is not happening. Oh, this change is occurring, right? This is a common practice in Canada, Australia, other countries where you have this public private partnership. And as things change and variables change, the government's flexible, the private sector's flexible. That is not common practice in the United States. This whole notion of a public private partnership doesn't exist. What we have is a 773 page contract and then nothing changes for 20 years in that contract. And if you want to make a change, it's super hard. So this was a new muscle that we were practicing on how to use because we knew that we needed that muscle for nuclear, for geothermal, for direct air capture, for all of these things, rural and remote communities. And now they're destroying the Muscle, Catherine.
- [56:07]
Stephen Lacy
What happens if that muscle atrophies or gets lopped off?
- [56:09]
Jigar Shah
Yeah, I think you just don't have that ability. You don't have the trust, you don't have the ability in the federal government to be a good partner. And I think it's very harmful. And I would raise one other program up because this is. It's not even doe, which is liheap, that's run from hhs, the Low Income.
- [56:30]
Stephen Lacy
Home Energy Assistance Program.
- [56:31]
Jigar Shah
Yeah. And this program helps 6.7 million households to cover their heating and cooling costs. And basically they. Everybody who manages that program has basically been fired by the Department of Government evisceration. So that's what's happening there. And that just, you know, talk about affordability, like, that's just cutting right to the quick. And a lot of these folks, they voted for the president who's in office now, and they did not vote for these programs to be cut. But that is actually what's happening.
- [57:04]
Katherine Hamilton
I mean, you know, we're in a situation where this president has a executive order saying that he's focused on affordability. I don't know what to say. Right. Like, I mean, this program is about affordability. So, like, at some point, I don't understand where, you know, owning the libs, like, you know, sort of starts and, you know, delivering for the American people ends.
- [57:28]
Stephen Lacy
I mean, this is absolute madness. I think it's fair to say that this is just so much worse than anyone expected. What's your temperature check on how this is reverberating through the industry at this point? Catherine, what are you hearing from companies you're working with? How much of this is freezing activity or strategic. Strategic company moves generally?
- [57:51]
Jigar Shah
Well, strategically they're trying to think, what else can we do? What are some other ways that we can continue to move forward? Because they don't want to give up on their technology. I mean, everybody wants to move their innovation. So certainly some sectors are looking at the eu, they're looking everywhere else. Others are trying to make sure that they can get done what they were promised to get done through the grants that they're executing on. Others are looking to states. I think everybody is kind of strategically saying, all right, what's next? We don't want to give up on what we're doing, and we actually think it's going to be successful as long as we can find a path for it.
- [58:27]
Stephen Lacy
I mean, I think that the most important thing for people to remember here is that this is not just about trying to preserve one program over another. It is like the government as a reliable partner in contracting that has all these huge consequences for how infrastructure gets built long term. And I'm wondering, Jigger, like, because this is such a big deal, are. Do you have any change in how you are thinking this is going to influence the industry? I know you have been, like, sort of moderately sanguine about it, but is the temperature check any different for you now?
- [59:06]
Katherine Hamilton
No. I mean, look, I mean, it sucks that we brought on these extraordinary people who wanted to work in the government and now they're being laid off or all this other stuff is occurring. But clean tech has never been stronger. I mean, like, the investment in the clean tech sector is up, I think, 80% from a year ago. You know, the Australians, the EU and the UK is combing through all of our data. I just saw a Guardian article that just came out. They're combing through the data, they're all targeting our companies and they're saying, hey, if Trump isn't being nice to you, we'd be nice to you. And so you should move. Right? And so, like, I don't think the clean tech sector is worse off for what's happening. America is worse off for what's happening. And so I think clean tech will be fine. Like, we have this national job fair that's being stood up that I think is getting launched at DC Climate Week at the end of April. And so we've got thousands of companies who are hiring. And so, like, I think things are, like, the clean tech sector is now dominant, so it's doing well. Like, and we are in the middle of an electricity super cycle, so that means a lot of people's solutions are being, you know, contracted for because, you know, we're short power and they provide solutions to that. Right? So. So I don't think that is going badly. I just think that America's ability to dominate these sectors, which is what the IRA was all about, is being weakened and a lot of other countries are being given an opening.
- [60:32]
Stephen Lacy
All right, that's going to wrap up this episode. We're going to dig further into, in coming episodes, what's going on with the Greenhouse Gas Reduction Fund. We will talk tariffs. We're going to bring an expert on to just talk about the tariff situation. Generally, when we have more clarity coming out of Liberation Day, we are going to talk Tesla coming up. There's so many stories, so stay tuned. We've got a bunch of good shows planned for you. And of course, on April 16th, 16th at 1:00, we will be doing our live virtual show. So come say hi to us over Zoom. Submit your questions, we'll be answering a bunch of them and then talking about what is happening at the moment. Jigger, have a good one. Good to see you. Go get a libation.
- [61:21]
Katherine Hamilton
Always a pleasure Catherine.
- [61:25]
Stephen Lacy
See you later.
- [61:25]
Jigar Shah
I want to go get my ration.
- [61:31]
Stephen Lacy
Kathryn Hamilton and Jigar Shah are my co hosts. Open Circuit is produced by Latitude Media. The show is edited by me. Sean Marquand is our Technical Director. He also wrote the theme song. Anne Bailey is our Senior Podcast Editor. Latitude Media is supported by Prelude Ventures. Prelude backs visionaries accelerating climate innovation that will reshape the global economy for the betterment of people, people and planet. And you can learn more@preludeventures.com of course go to Latitude Media for a ton of reporting on all the topics we cover on this show. We include some in the links in the show notes, but we've got the Daily, the Weekly and the AI Energy Nexus newsletter. And like all of the stuff that we talk about on this show we are covering in some way. So you can just hit the subscribe button at Latitude Media at the top of the page and get our newsletters. And of course find the show anywhere you get your podcast. Spread the word, send an email, a link to someone, give us a rating and review. It's also helpful and read the transcripts at Latitude Media as well. We'll see you next week. Thanks a lot for being here.